C h a p te r 7

C h a p te r 7
C H IN A
Section I .
T A IW A N
C h a r t 11.
Heavy defence costs and a rapidly growing
population1 complicate the economic problems of
Taiwan. The year 1956 saw completion of the first
Four-Year Plan for Economic Development, whose
primary objective was to achieve self-support and
internal economic stability. With a continuous reduction in the government deficit during the period of
this Plan and a rise in per capita real national
income, internal stability was on the whole maintained.
Externally, the improvement was less clear. Although
the dollar value of exports rose (except in 1954 and
1956), the dollar value of imports, including aid
imports, also rose (except in 1955), and the average
annual trade deficit was estimated at over $70 million,
or over one-third of total annual imports, during that
p eriod. The current deficit on external account,
caused mainly by the trade deficit, was met by
means of Union States aid (see chart 11).
(a)
China: Key Economic Indicators
in Taiwan
National income production an d population
(1952= 100)
(b)
Imports and Exports
(Monthly averages)
A rise in real per capita income, scheduled under
the second Four-Year Plan to begin in 1957, was
tentatively estimated by the Government at 2 per cent
per annum, assuming a rise in population at an
average annual rate of 3 per cent.
P R O D U C T IO N
AGRICULTURAL OUTPUT
In calendar 1956, the first and second paddy
crops2 amounted to an estimated total of 1.8 million
tons of brown rice,3 surpassing the corresponding
crops for 1955 by 6 per cent.4 Output of wheat, a
spring crop, rose by 40 per cent, to 27,090 tons in
1956. In normal conditions, two crops of sweet
potatoes, ground-nuts and soya beans are grown
annually— the spring crop and the fall crop. In the
first half of 1956, production reached 2,174,100 tons
for sweet potatoes, 51,800 tons for ground-nuts and
18,900 tons for soya beans, 84, 58 and 67 per cent
of the respective goals for the year as a whole.
(c)
Money supply and prices
(1952= 100)
1 According to the population census taken on 16 September
1956, T aiw a n ’s de jure population, excluding the arm ed forces
reached 9,310,158 (4,746,811 males and 4,563,347 females) for a
total of 1,662,211 households. ( Central D aily (in Chinese), Taipei,
1 N ovem ber 1956).
2 Production is customarily estimated on a calendar year basis
for all crops except sugar-cane. T here are two paddy crops during
the year.
3 T h e converison ratio of paddy to brow n rice is about 0.70.
4 This increase is attributed to a rise in both yield per hectare
and area sown.
a A nnual rate based on Jan-Nov returns.
Sugar-cane production, measured by output of
white sugar, rose by 4.6 per cent, to 767,300
tons in 1955/56; the yield per hectare, however,
declined from 10.49 tons in 1954/55 to 9.54 tons.
78
Chapter 7.
79
China: Taiwan
Of the other main export crops, it was expected that
tea production would remain unchanged, pineapple
and citrus output would rise, and banana production
would fall. As to industrial raw materials, jute
production fell owing to spring drought, while tobacco
production rose rapidly as a result of an increase in
the area planted.
The cattle population rose by less than one per
cent in the course of the first half of 1956, because
of clandestine slaughtering and the difficulty of
expanding grazing grounds and increasing the production of cattle feed. The hog population increased 1.4
per cent, the chief problem being the high cost of
imported soya bean cakes.1 Fishery production rose
by about 5 per cent, increased yields from deep-sea
and inshore fisheries, made possible by expansion in
the fishing fleet and improvement in fishing techniques,
more than offsetting a decline in culture fishery
output.
In the first half of 1956 timber production
declined, though fuel output rose slightly.
IN D U STR IA L O U TPU T
Industrial production continued to rise, though at
a slower rate, in 1956. Sugar production was cut
when the International Sugar Agreement came into
operation in 1954, and this was mainly responsible
for the lag in industrial growth, except in 1955 when
sugar production again rose but cotton textiles output
declined.2
Power production rose by 16 per cent in the
first nine months of 1956, as compared with output
in the first nine months of 1955. Installed power
capacity rose to 520,000 kW in mid– 1956, of which
134,000 kW had been installed during the year
beginning July 1955. An upward revision of industrial power rates, reputed to have been among the
lowest in ECAFE countries, took place on 1 July 1956
to help the Taiwan Power Company, a government
enterprise, finance its capital expansion projects.
In the first nine months of 1956, chemical
fertilizer output rose to 144,720 tons, compared with
116,740 tons during the corresponding period a year
before. The first expansion project of the Kaohsiung
Ammonium Sulphate Corporation was completed, with
full production of 100 tons of ammonium sulphate
per day, or its equivalent, expected in October.
Despite the rise in chemical fertilizer output, twothirds of total consumption requirements were
1 T he use of yeast (a by-product of the sugar industry) as
hog feed in place of im ported bean cake has proved to be quite
successful, and yeast feed will be mass-produced.
2 D u ring the plan period, the percentages of increase in the
industrial production index, over the corresponding period a year
earlier, were as follows: E xcluding sugar: 1953, 23.9; 1954, 21.0;
1955, 5.3; 1956 (first h a lf), 6.3. Including sugar: 1953, 30.6;
1954, 4.7; 1955, 9.5; 1956 (first h a lf), 2.3.
imported, largely from Japan in exchange for sugar
and rice.
Output of cotton fabrics amounting to 104 million
metres in the first nine months of 1956 represented a
decline of 14 per cent from the corresponding period
of 1955.3 The Government has restricted a further
increase in the number of spindles, since raw cotton
has to be imported almost entirely with United States
aid, but has granted permission for the purchase of
2.000 automatic looms before June 1958. In contrast
to cotton textiles, synthetic fibre plants prospered as
a result of a boom in their export
market, and output
was expected
to be expanded. The industry had
17,264 spindles in June 1956 and was able to export
its products for foreign exchange with which to
purchase required raw materials from Japan.
Oil refining, carried on by the Ghinese Petroleum
Corporation, a government monopoly, largely with
imported crude oil, is another industry which has
prospered. Imports of crude petroleum have increased
in quantity, rising to an estimated peak rate of 720,000
t o n s i n 19 5 6 . T h e y a r e e x p e c t e d t o f a l l i n t h e f i r s t
half of 1957,
owing to shortage of tankers in the
prevailing international situation.
Of the food processing industries, the most
important are sugar refining and pineapple canning
for export, and flour milling and brewing for local
consumption. As a result of annual quotas of 600,000
tons established under the International Sugar Agreement in 1954, and subsequent percentage reductions,
the Taiwan Sugar Corporation, the largest single
enterprise in Taiwan, discontinued sugar refining in
a few plants whose cost of production was high
because the supply of raw material was insufficient.4
A reduction in the area under sugar-cane has also
taken place. In the first nine months of 1956, sugar
production fell 6 per cent below the level reached in
the corresponding period of 1955. The rising demand
in the world market, however, enabled Taiwan, at the
second session of the United Nations Sugar Conference held in Geneva in late 1956, to get an
increase in the basic export quota in 1957 and 1958
to 655,000 tons, in addition to a special quota of
95.000 tons.
TRANSPORT
As of 30 June 1956 Taiwan had a main track
length of 4,044 km, although the revenue length was
only 1,768 km, as a substantial part of the main
3 In the rapid post-war expansion, the num ber of cotton
spindles rose from 14,625 in 1945 to 210,000 by the end of June
1956, w hen there was also a total of 11,200 looms, compared with
1,693 looms in 1945. O utput of cotton fabrics reached a peak of
165 m illion metres in 1954, but fell to 161 million metres in 1955
because of saturation of domestic dem and.
4 Some factories are in p a rt being converted to such purposes
as the production of anim al feed m ade w ith yeast, bagasse boards
as building m aterial and cassava starch for export.
P a rt II.
80
track length of the Taiwan Railway Administration
(263 km out of 1,212 km ), Taiwan Sugar Corporation
(1,795 km out of 2,432 km ), Taiwan Forestry
Administration (136 km out of 306 km) and other
railways (82 km out of 94 km) was used for nonrevenue (self-use) purposes.1 There were 25,798
freight cars, 943 passenger cars and 714 locomotives
on the same date.2 During the first half of 1956,
as compared with the corresponding period a year
before, passenger traffic rose by 9 per cent to 1,408
million passenger-kilometres, and cargo traffic declined
by 1 per cent to 853 million ton-kilometres, for
railways operated by the Taiwan Railway Administration and Taiwan Sugar Corporation.
With no change in the length of highways at
15,680 km,3 the most important development in 1956
was the starting in July of construction work, for
completion in three years, of the Cross Island Highway,
to run across the central mountainous region and
connect the western plain to the northeast plain of
I-lan and the east coast city of Hualien. Regular
bus services were maintained on 1,935 km of trunk
lines by the Taiwan Highway Bureau and on 5,280
km of other lines by 19 private bus companies.
During the first half of 1956, as compared with the
corresponding period a year before, passenger traffic
rose by 10 per cent. Public truck services were
maintained by 460 private operators scattered all
over the island. The number of buses and trucks
rose from 7,130 at end– 1955 to 7,190 at end–
September 1956,4 and the number of passenger cars
rose from 4,770 to 5,410 during the same period.
At end–June 1956 the Chinese merchant marine
had an operational fleet of 79 vessels5 (25 of which
were ocean-going) with a total gross tonnage of
245,000, as compared with 82 vessels with a total
gross tonnage of 250,000 a year before. Since July
1956 the China Merchants Steam Navigation Company
has put into operation a newly built 28,000 DWT
oil tanker, with another cargo ship of 11,000 DWT
scheduled for completion in 1957. The cargo carried
by Chinese ships was estimated to rise from 2.17
million tons in 19556 to 2.4 million tons in 1956.
1 All these lines, except
the W est System of the T aiw an Railway Adm inistration w hich has a gauge of 1 .067 metres, have a
gauge of 0.762 metre.
2 These included 136 passenger cars
equipped w ith internal combustion engines.
and 127
3 Including 1,460 k m provincial,
county, and 10,520 k m rural roads.
km
4 A t end-June 1956 there were
equipped w ith diesel engines.
880
locomotives
city, 2,820
163 buses and
km
Country Surveys
In both Keelung and Kaoshiung, the two main
trade ports capable of accommodating vessels of the
20,000-ton class, improvements were made in cargo
handling facilities.
The newly developed outer
harbour at Keelung was open to public service in
July 1956.
Civil aviation expanded rapidly, the total number
of passengers carried having risen from 16,530 in
1951 to 67,927 in 1955.
TRADE AND PAYMENTS
In the first eleven months of 1956, as compared
with the corresponding period a year before, a 6 per
cent rise in the value of imports,7 accompanied by a
6 per cent fall in the value of exports, reduced a
commercial trade surplus of $19 million to $6 million.
In the first eleven months of 1956, imports under
grant aid from the United States Government reached
$90 million, as compared with $76 million in the
corresponding period of 1955.
TRADE AND EXCHANGE CONTROL MEASURES
Several modifications in the foreign exchange
certificates, designed to stimulate exports, have helped
to enhance their value to holders. In the first place,
any certificate holder, not only the exporter himself,
has been permitted since November 1955 to present
the certificate and apply for exchange for general
imports.8 Second, the validity period of the certificates, originally 60 days, was extended to 90 days
in November 1955 and to 120 days in August 1956,
thus making it possible for holders to apply for
import exchange under the bi-monthly allocation
system more than once, or to use the certificates as
collateral for bank loans.
Third, the
exchange
certificate rate, which varied with the kind of export
and the degree to which imported raw materials were
used, and which did not apply to the principal exports
from government-operated enterprises, such as sugar,
rice, salt and refined products from crude petroleum,
wa s e x t e n d e d to a ll k i n d s of e x p o r t s .
Exchange
certificates (or their official value, in the case of
exports of public enterprises) were given for 80 per
cent of the exchange earnings from all exports, except
bananas exported to Japan, for which the limit was
50 per cent. The exchange certificate rate, officially
fixed at 6 new Taiwan dollars to the United States
185 trucks
5 Of the 79 vessels, 38 w ith a total gross tonnage of 140,000
constructed d u rin g the w ar and post-war period were considered
capable of economic operation.
6 T he total tonnage of international sea-borne cargo loaded and
unloaded in 1955 reached 1,436,000 and 1,860,000 tons respectively.
7 E xcluding im ports under U nited States aid.
8 E xcluding im ports reserved for governm ent agencies and certain public enterprises, and im ports of supplies for specifie industrial developm ent projects and daily necessities under the United
States aid program m e. T h e certificates were first issued in March
1955. (See Econom ic Survey o f A sia and the Far East, 1955,
pp.78, 79).
Chapter 7.
81
China: Taiwan
dollar, has a market value which since November
1955 has been stabilized around NT$13.50 to the
United States dollar. With these dual certificate rates,
the official rate for private exporters’ exchange
settlement, originally fixed at NT$15.55 to the dollar
plus a varying amount to represent the certificate
value of different exports, was raised uniformly to
NT$26.35 to the dollar for all exports (80 per cent
of the certificate rate of NT$13.50 plus the official
export rate of NT$15.55 to the dollar), while for
government exports of sugar, rice, etc. the exchange
earnings were settled at the rate of NT$20.35 to the
dollar (80 per cent of the certificate value of NT$6.00
plus the official export rate of NT$15.55). The
official rate for approved import exchange settlements
and outward remittances remained unchanged at
NTS24.78 to the dollar. The preferential exchange
rate of NT$35.00 to the dollar, accorded first to
inward remittances of oversea Chinese students studying in Taiwan and to foreign diplomatic personnel,
has recently been applied also to inward remittances
by foreign and oversea Chinese investors.
Aside from changes in the foreign exchange
certificate system, other measures recently adopted to
promote exports include the granting of government
loans for the export of tea and canned pineapple;
encouragement of exports which utilize services or
labour, that is, those which represent processing of
locally produced or imported raw materials.
Certain imports are classified by the Foreign
Exchange and Trade Control Commission as “controlled imports,” for which, since locally made
products are considered adequate to meet domestic
demand, exchange allocation will be either decreased
or suspended and granted only after special screening
and approval.
TRADE AGREEMENTS AND TRADING PARTNERS
Since 1951, Japan has been Taiwan’s major
trading partner, accounting generally for over 50 per
cent of Taiwan’s exports and imports, exclusive of
imports under United States aid. An open account
system has been maintained for this trade. Recently,
following improvement in its foreign exchange position,
Japan requested replacement of the open account
system by cash transactions, but after mutual consultation the current arrangement was extended for
another year, beginning 1 April 1956. Under the
new agreement the total value of trade contemplated
between the two countries was lowered by $35 million
to $152 million, because of the reduction in Taiwan’s
sugar exports to Japan from 300,000 tons to 250,000
tons.
In order to reduce its dependence on trade with
Japan, the Government signed trade agreements also
with southern Korea, the Philippines and Ryukyu
Islands in the region, France, Lebanon and the United
States, and investigated possibilities of expansion in
other areas. These efforts produced significant results
in some cases. In the first half of 1956, exports to
Iran, Malaya and British Borneo, Hong Kong,
southern Korea, Pakistan, Egypt, Arabia, Ceylon,
Burma and British East Africa were NT$697 million
larger than in the first half of 1955, while exports
to Japan, the United States and all other countries
rose by NT$140 million, NT$53 million and NT$68
million, respectively. Exports to Thailand declined
by NT$23 million. On the whole, Taiwan had an
export surplus with Iran, Malaya and British Borneo,
southern Korea, Hong Kong, Pakistan and Egypt,
and a commercial import surplus with the United
States and Japan.
FINANCE AND PRICES
PUBLIC FINANCE
The Central Government’s accounts for 1955/561
showed total expenditure of NT$3,961 million and
total revenue of NT$3,543 million, resulting in a
deficit of NT$418 million, or 10.5 per cent of the
total estimated expenditure, financed largely by the
United States aid counterpart fund. Total expenditure was distributed as follows: defence 80.1 per cent,
government administration 10.8 per cent, economic
and social services 5.7 per cent, other current
expenditure 3.4 per cent. Of the total revenue, 90
per cent came from taxes and 10 per cent from non-tax
sources.
The consolidated national, provincial and local
budget of the Government in 1956/57 showed an
estimated expenditure of NT$6,653 million, an increase
of 9.4 per cent over 1955/56. The increase would
have been greater had United States aid for direct
forces support been included.2 The share for defence
and the police forces dropped from 57.9 per cent
to 54.2 per cent; investment rose from 19.5 to 20.8
per cent; government administration from 14.2 to
15.4 per cent; other current expenditure from 8.4
to 9.6 per cent. Of the consolidated budget central
government expenditure reached NT$3,791 million
and central government revenue NT$3,635 million,
resulting in an estimated deficit of NT$155 million,
or 4.1 per cent of total estimated expenditure for the
central government.
In 1956 improvements were instituted in the tax
system and in tax collection methods. Under the
revised income tax law approved by the Legislative
1 T h e fiscal year is from 1 July to 30 June. Fiscal data were
supplied by the G overnm ent of the Republic of China, in a com m unication dated 26 Decem ber 1956 from the Ministry of Foreign
Affairs.
2 Starting w ith 1956/57, the G overnm ent dropped this item
from its budget.
Part II.
82
Yuan on 13 December 1955, the former “accumulative
income tax” became in essence a personal income tax
for which the individual was to report all types of
taxable income, while the business income tax was
made applicable to all business organizations. The
rates on personal income tax, as finalized in June 1956,
were progressive, from one per cent for total cumulative income under NT$10,000 to 50 per cent for
amounts over NT$1 million.1 For business income,
the taxable starting point was an annual income of
NT$5,000, above which the rates ranged from 5 per
cent to 25 per cent (for business income above
NT$100,000). A defence surtax of 30 per cent was
imposed on all income tax payments. To encourage
economic development, a three-year tax exemption was
granted to all newly established enterprises in the field
of utilities, industry and mining, and to “ important”
transportation business, as well as to income obtained
from the expansion of an industrial enterprise in
cases when its former output was increased by more
than 30 per cent.
In order to avoid the double taxation which arose
from regulations governing the collection of the
household tax, formerly imposed both on the
properties involved and on annual personal income,
these regulations were revised in June 1956 to the
effect that the household tax became a tax on
property only.
A land value tax has been levied and collected
since September 1956, at rates progressing from 1.5
to 6.5 per cent.
With a view to achieving improvement in tax
collection, a purchase certificate was introduced in
November 1955, whereby all transactions in the sale
and purchase of goods are recorded, and opportunities
for tax evasion by business firms are considerably
reduced. To help meet the requirement for greater
revenue, the Tobacco and Wine Monopoly in April
1956 raised the sales prices of its products, originally
fixed in August 1953. This revision was expected
to increase the monopoly’s profits by about 45 per
cent.2
MO NEY AND PRICES
A 25 per cent expansion in the net money supply
from April to October 1955, from NT$2,304 million
to NT$2,885 million, accounted for largely by
increased bank loans and an unusual increase in
1 A n exemption lim it of N T $2,500 is provided for the taxpayer, and one of N T $5,000 if he supports a spouse; dependants’
credits are NTS600 per person if related to the taxpayer by blood,
otherwise NTS300.
2 Profit from monopoly sales has been the largest single source
of national revenue, accounting for over 20 per cent of the C entral Governm ent revenue in recent years.
Country Surveys
export exchange proceeds requiring new note issues,
brought about a 10 per cent rise in wholesale prices
in Taipei. In November, in the interest of price
stability, the Government took a series of measures,
which included: (1) transfer to the Bank of Taiwan
of a portion of the proceeds from the sale of United
States aid commodities originally deposited with
commercial banks; (2) strict enforcement of the
required cash reserve minimum (in addition to
security reserves) of 15 per cent for demand deposits
and 7 per cent for time deposits, with instructions
to commercial banks to refrain from extending any
new loans prior to fulfilling their reserve requirements; and (3) establishment of a working group on
the supervision of commercial banks, under the
Economic Stabilization Board’s Committee A (on
money, credit, foreign trade and exchange), to watch
closely the lending operations of commercial banks
and recommend appropriate action. The net money
supply declined 2.2 per cent in November and 9.6
per cent more by April 1956, and the wholesale price
index in Taipei responded more slowly and in
moderate degree— rising by 6.6 per cent in November
but falling slightly (by one per cent) between then
and April. From April to August 1956, the situation
was reversed, wholesale prices continuing to fall by
one per cent, even though the net money supply
rose by 8 per cent. A factor contributing materially
to the improvement in the price situation was the rise
in ordinary imports plus United States aid imports,
to $114 million in the first six months of 1956, compared with $87 million and $94 million, respectively,
in the first and second halves of 1955.
SECOND FOUR-YEAR PLAN
In the second Four-Year Plan for Economic
Development, which was under consideration during
1956, total national income was expected to rise, on
the average, by 5 per cent per annum and per capita
national income, by 2 per cent a year. Since foreign
exchange earnings from exports are planned to rise
from the estimated total of $130 million in 1956 to
$185 million in 1960 and foreign exchange outlays
for imports are planned to remain at a steady annual
level of around $220 million during 1957-60, it
appears to be the hope that United States aid would
continue to meet the expected deficit in the external
account, though on a decreasing scale.
Some of the priority projects in the field of
production and transport under the second Four-Year
Plan have begun to take shape. In agriculture, the
multiple-purpose Shihmen reservoir and dam, begun
early in 1956, was expected to irrigate 54,340 hectares
of land for an additional production of 69,000 tons
of brown rice per year. Another multiple-purpose
project at Ta Chia Chi was to irrigate 51,540 hectares
of land for a further production of 63,000 tons of
Chapter 7.
83
China: Mainland
brown rice per year.
About 55,000 hectares of
tidewater land may be reclaimed and developed along
the west coast of Taiwan, with government assistance
in building dikes and providing water supply and
other facilities.
In industry, emphasis has been laid on the further
generation of power. When completed, the Shihmen
project is expected to generate 120,000 kW of power,
and Ta Chia Chi ultimately, 543,450 kW. It was
estimated that 108,600 kW of power installation
initiated in the period of the first Plan would be
completed in the early part of the second Plan, with
additional projects started for the installation of
300,000 kW capacity about half hydroelectric and
Section 2.
Note:
The present review of the economic
situation in mainland China is necessarily based
on official news releases and other publications
in which official statistics and estimates are given.
The data cannot be verified by the ECAFE
secretariat through methods that can be utilized
for obtaining information elsewhere— direct
contact with government agencies and officials,
and access to other sources of news and criticism
available from within the country concerned.
There is thus a distinction between this
review of the economic situation in mainland
China and the other reviews presented in this
report. Furthermore, as noted in earlier issues
of the Economic Survey of Asia and the Far East,
and elsewhere in the present section, many of
the statistics for mainland China are not strictly
comparable, either in concept or in method of
compilation, with those used in many other
countries. Frequent revisions of actual and target
figures add to the difficulties of interpretation.
On the other hand, absolute figures have in
recent years become increasingly available on
production,
transportation
and
government
finance, though not on labour conditions, money
supply (on which there is virtually no information), prices (information unavailable or only
relative figures given, except for essential consumer goods in principal cities), and foreign trade
and payments (for which as a rule only relative
figures or percentage changes have been issued).
Of the sources quoted below, the more important
include the annual budget statement, government
reports and statements by representatives at the
annual session of the National People’s Congress,
the annual official communique from the State
half thermal. Three of the four chemical fertilizer
plants proposed under the first Plan are scheduled
for completion under the second Plan, raising annual
production to 420,000 tons, while the second expansion project of the Kaohsiung Ammonium Sulphate
Corporation was expected to further increase annual
production by 108,000 tons. Other important items
proposed are the development of coal mines, an
integrated steel mill of 200,000 tons annual capacity,
export industries and building material industries,
including cement and lumber. In transportation, the
east-west highway across the island begun in 1956,
is to be built with United States aid by retired
servicemen, for many of whom resettlement opportunities are being provided.
M AINLAND
Statistical Bureau, and reports and statements by
members attending the eighth national congress
of the Chinese Communist Party.
In 1956 mainland China accelerated its socialization. Although some objections were encountered,
agriculture, still the mainstay of the country’s
economy, has been largely collectivized, industry and
commerce almost completely transformed into enterprises jointly owned and operated with the Government, and handicraft production mostly brought under
the co-operative form of organization. This move
towards socialism enabled the Government to bring
the private sector under virtually complete control,
especially in implementing the Five-Year Plan for the
country’s “socialist industrialization” which stresses
the early establishment of heavy industries and the
reinforcement of defence.
The rapid socialization in early 1956 caused the
Government to anticipate completion of the first FiveYear Plan ahead of schedule, and prompted the
formulation of a draft Twelve-Year Plan (1956–1967)
for agricultural development. However, the view had
altered by September, when the eighth national
congress of the Chinese Communist Party took stock
of the situation and found that the high production
targets for some agricultural and industrial products
announced earlier for 1956 had to be lowered on
account of floods, drought and typhoons, and also
on account of difficulties encountered in the process
of socialization in agriculture, industry, handicrafts
and trade. At the end of the year, production in
1956 was reported to have exceeded that of 1955, but
there were indications that, owing to higher imports
resulting from an accelerated rate of capital formation
in the public sector, coupled with a decline in some
P art II.
84
branches of rural subsidiary production and export,
a trade deficit might emerge, with probably a lower
rate of rise in the total value of trade in 1956 than
in 1955.
THE ACCELERATED SOCIALIZATION
The movement to extend agricultural co-operatives
and collectives, which started in December 1951 with
the issuance by the Central Committee of the Chinese
Communist Party of a draft Decision on Agricultural
Mutual Aid and Co-operation, received setbacks in
early 1953 and early 1955 but was vigorously carried
forward after July 1955, when the Chairman
announced a target date of 1960 for completion of
the process. Agricultural producers’ co-operatives
were reported to cover 63 per cent of all peasant
households in the country at the end of 1955,1 and
91.7 per cent of the total, or 110 million peasant
households, at the end of June 1956. At that point,
of the 992,000 agricultural producers’ co-operatives
of two types, the “ advanced” type was reported to
include 62.6 per cent and the “elementary” type 29.1
per cent of all peasant households.2 The distinction
between the two is that the “elementary” or
co-operative type allows private ownership of land
and other means of production, but pools the land
on a share basis for operating purposes, centralizing
management, whereas the “ advanced” or collective
type operates on the basis of full collective ownership of land and other means of production; the
former pays returns to members for both landownership and labour contribution, the latter for labour
contribution only.3
This rapid extension of agricultural co-operatives
and collectives encountered some difficulties with
peasants who were averse to collective ownership of
land and other means of production, somewhat low
prices for members’ livestock, farm tools, woods,
fruit trees and irrigation facilities placed under
collective ownership, confusion in operation and
management of some co-operatives, and lack of
“reasonable” distribution of income and profits of
the co-operatives and collectives.4
Country Surveys
The agricultural producers’ co-operatives of both
types were, among other things, intended to facilitate
the collection of the agricultural tax on food grains
and the sale of peasants’ surplus food grains and
other farm crops to the Government, and to pave the
way for agricultural mechanization and electrification.5
The Government’s task of ensuring an adequate supply
of farm products— food grains for deficit areas, raw
materials for industries and agricultural exports to
pay for capital goods imports— was thus expected to
be considerably simplified when over 100 million
individual peasant households had been organized into
nearly a million agricultural producers’ co-operatives.6
It was planned to transform capitalist industry
and commerce in two stages: State capitalism (joint
Government-private ownership) and socialism (complete Government ownership). Since the launching
of the Five-Year Plan in 1953, the extension of State
capitalism has been accelerated, especially after the
announcement in November 1955, by the All-China
Federation of Industry and Commerce, of a programme to hasten its rate of establishment. After
intensive publicity campaigns by local party organizations and people’s congresses in December, the movement to expedite the transformation of capitalist
industry and commerce into joint Government-private
ownership started in early January 1956 in Peking
and spread rapidly to other cities.7 By the end of
that month, the share of total industrial output still
accounted for by private industry was stated to have
declined to 2 per cent, compared with 63 per cent in
1949. On 21 March it was officially reported that
almost all the private industrial enterprises in 118
large and medium-size cities had come under joint
government-private ownership.8
However, this process gave rise to temporary
dislocation of supply, production and marketing, and
the State Council on 8 February decided that “private
enterprises should in general continue their operations
as formerly for about six months beginning from the
approval of joint ownership.” 9 While the work of
transformation was reported to have been more or less
according to plan in certain places, “ in other places,
owing to the lack of adequate investigation and study
and over-all planning, the merger of factories was
blindly carried out to excess, with the result that
1 N ew China News Agency, Press Release (P eking) , 16 June
1956.
2 Chou En-lai, “Report on the Proposals for the Second FiveYear Plan”, presented on 16 September 1956 to the eighth national
congress of the Chinese C om m unist Party, quoted in People's Daily
(Peking; in Chinese), 19 September 1956.
3 T h e latter also tend to be larger. By mid-A pril 1956, the
collectives had an average m em bership of 254 households each, and
the co-operatives one of 49. (K w an Meng-chueh, “T he question
of relationship between the productive forces and production
relations of the higher agricultural producers’ cooperatives” , in
N e w Construction (Peking; in C hinese), N o.7 1956.
4 T eng T ze-hui, “Report to the T h ird Session of the First
National People’s Congress,” reprinted in People’s D aily, 20 June
1956.
5 T h e two objectives arc specifically provided for in article 5
a nd article 3 of the m odel regulations for advanced agricultural
producers’ co-operatives adopted by the first National People’s Congress on 30 June 1956. ( People's D aily, 1 July 1956).
6 T en g T ze-hui, op.cit.
7 N ew C hina News Agency, Press Release, 1 January 1956.
Private industrial and commercial establishments were generally
small in size. According to statistics for 1954, of the 130,000
private factories in the country, m ore than 90,000 employed fewer
than ten persons each; private comm erce was com m only on an even
smaller-scale basis.
( People’s D aily, 3 January 1956).
8 People’s
D aily, 21 March 1956.
9 New China News Agency, Press Release, 10 February 1956.
Chapter 7.
85
China: Mainland
the original supply and marketing arrangements or
co-operative relationships were dislocated, leading to
less variety in products and poorer quality, overcrowding of workshops with equipment, and difficulty
in making arrangements for suitable living conditions
for workers.” 1
On 8 February, the State Council adopted
regulations providing for the quarterly payment of
interest on private shares in joint government-private
enterprises, irrespective of losses or gains by the
enterprises.2 The annual rate of interest to be paid
to private shares was subsequently fixed at 5 per
cent;3 Vice-Premier Po I-Po announced that payment
would be made until at least 1962.4
sumption in mainland China9 were defined for the
first time, the ratio of “accumulation” to national
income for the period 1952– 1956, as given in table
17, is close to the earlier estimate, but somewhat
lower. Capital accumulation is defined to include:
(a) government investment in both productive and
non-productive capital construction,10 ( b ) capital
formation of government enterprises based on their
own savings, (c) increases in surpluses in various
types of co-operatives,11 and (d ) investments by
private industry and commerce, individual peasants and
individual handicraftsmen. Of these four items, the
largest and most important is the first, namely, capital
construction as provided for in the government budget.
Since handicraft production meets domestic consumption requirements to a considerable extent and
helps to increase exports to pay for imports needed
for development, its expansion was deemed essential
to the country’s programme for economic development.
Individual handicraft production during 1953-1955
was officially reported to have risen by 38.4 per cent
in value, as compared with 54.4 per cent for handicraft
factory production during the same period.5 In early
1956, a movement was launched to hasten the growth
of co-operatives in the handicraft field. The number
of handicraftsmen in producers’ co-operatives, given
as 2 million or 25.5 per cent of the total number
in mainland China at the end of 1955,6 was reported
to have risen in early August 1956 to 4.7 million.7
Table 17. China: National Income at Market Prices
and Net Capital Accumulation on the Mainland
(Ratios in percentages)
NATIONAL INCOME AND CAPITAL
ACCUMULATION
From the reported ratio of government revenue
to national income for the period 1952-1956, the
size of the national income may be calculated by
reference to the annually published figures for government revenue.12 The national income, calculated
in this manner, would appear to have risen from
74.300 million yuan in 1953 to 81,700 million yuan
in 1954, 85,700 million yuan in 1955 and 94,500
million yuan (estimated) in 1956.13 Based on these
figures and the 1953 census total of 582 million
population on the mainland, rising at the officially
The term “national income” was first employed
by the Chairman of the State Planning Commission
in June 1956, when he stated that, according to
preliminary estimate 22 per cent of the national
income during the Five-Year Plan period (1953– 1957)
would be set aside for capital accumulation and 78
per cent for consumption.8
In a statement on 18 September by the Chairman
of the State Economic Commission, in which the
concepts of national income, accumulation and con1 Editorial in People’s D aily, 30 June 1956.
2 N ew C hina News Agency, Press Release, 10 February 1956.
3 C hen Yun, “Report to the E ig h th N ational Congress of
Chinese C om m unist P arty”, reprinted in T a K u n g Pao (T ientsin),
18 June 1956.
4 N ew C hina News Agency, Press Release, 10 Decem ber 1956.
5 State Statistical Bureau, C o m m unique on the Results o f I m plem enting the Plan for the D evelopm ent o f N ational E conom y in
1955 (Statistical Publication Press, Peking, June 1956; in C hinese),
p.20.
6 People’s Daily, 31 Decem ber 1955.
7 Ta K u n g Pao, Tientsin, 20 A ugust and 12 Septem ber 1956.
8 Li Fu-chun, Report presented on 16 June 1956 to the third
session of the N ational People’s Congress, People’s D aily, 19 June
1956. T h e term "national incom e” is not defined, b u t apparently
refers to national incom e at m arket prices.
Year
1952
1953
1954
1955
1956c
M inim um for
future years
R atio of
accumulationa
to national
income
R atio of
governm ent
revenue to
national income
15.7
18.3
R atio of governm ent capital
constructionb
to governm ent
expenditure
22.8
27.6
29.2
32.4
31.9
31.5
29.9
37.9
38.9
35.6
46.7
20.0
30.0
40.0
21.6
20.5
Source: Po I-po, op.cit.
a N e t.
b P r o b a b l y gro ss .
c E stim a te .
9 Po I-po, “Relationship between A ccum ulation and Consum ption in Socialist C onstruction” , People’s D aily, 20 Septem ber 1956.
N ational incom e, obviously a t m arket prices, is there defined as
“the rem aining p art (com m only referred to as net product) of the
value of total social outp u t (com m only referred to as gross p ro duct) turned out by industry, agriculture, construction, transport
th at serves production, and comm ercial workers, after deducting
such p a rt as makes up for the capital goods consum ed”. This
definition appears to exclude transport of passengers as distinct
from goods, as well as w h a t is customarily k now n as “services”.
10 Less depreciation on fixed assets, plus increased w orking
capital and stock. N on-productive capital construction refers to
items n o t directly contributing to production, for exam ple, construction of w orkers’ living quarters, cultural and educational in stitutions and public health buildings.
11 W hether increases in surpluses are reflected in increases in
stocks (including or excluding fixed assets) or in cash and deposits
is not specified.
12 T h e fiscal year corresponds w ith the calendar year.
13 T h e official rate for the dollar was 2.367 yuan for sales and
2.343 yuan for purchases.
P a rt II.
86
estimated rate of natural increase of 2 per cent per
annum, per capita income during these years would
have risen from 127 in 1953 to 137, 141 and 154
(estimated) yuan.1
The accounts for 1953– 1955 and budget estimates
for 1956 show a 44 per cent rise in the government’s
development expenditure, during 1953– 1956, from
13,834 million yuan to 19,971 million yuan
(estimated). The rate of increase for economic construction (capital construction plus certain economic
services) was 53 per cent; that for culture, education,
health and social welfare, 12 per cent. In the four
years, four-fifths of the total development outlay was
for economic construction, one-fifth for culture, education, health and social welfare. Over the four years,
almost one-half of the total development outlay for
economic construction was for industry, particularly
heavy industry; one-sixth was for transport and communications; agriculture and trade (both domestic
and foreign) accounted for about one-eighth each.
PRODUCTION2
In 1955, as compared with 1952, the year before
the start of the Plan, the value of gross agricultural
and industrial (including handicraft) production at
constant prices was officially stated to have risen by
1 A ccording to Po, op.cit., industrial production d u rin g 1952-56
rose by 104 per cent, giving an average annual rate of increase
of 19.5 per cent. T he average annual rate of increase was
stated to be 23.9 per cent for heavy industry, 14.8 per cent
for light industry, and 12.6 per cent for handicraft industry. In
the governm ent estimate released by the N ew C hina N ew s Agency
from Peking on 31 December 1956, industrial output, excluding
handicraft output, was reported to have risen to 55,800 m illion
yuan, that is, by 106 per cent over the total of 27,014 m illion yuan
reported for 1952. In view of the considerably slower average
annual rate of increase for handicraft production d u rin g 1952-56,
the 104 per cent increase d u rin g the sam e period for industrial
(including handicraft) production, as estimated by Po and used
by him in constructing the ratios quoted in table 17, appears rather
high. T his w ould affect the estimated increase in total and per
capita income.
A ccording to an analysis of farm family income (both cash
and in k in d ) for m em bers of 26,935 cooperatives in 1955, the
average was estimated at 424 yuan, giving a per capita farm in come of 94 yuan for an average family of 4.5 persons. ( H sin-hua
Sem i-m o n th ly, Peking, in Chinese, no.24, Decem ber 1956, p .64,
quoting Statistical A ctivities N ew s, Peking, in Chinese, no. 17,
1956). T h e average farm family income was 776 yuan for the
m em bers of 202 collective forms.
2 T h e terms “industrial production” , “agricultural production” ,
“handicraft production” and “subsidiary rural production” require
explanation for readers unfam iliar w ith the term inology used in
m ainland China. Industrial production refers to production from
“m odern industry” , em ploying pow er-driven m achinery in factories,
as well as from handicraft factories; “ factory” is, however, not
clearly defined. “H andicraft production” refers to production by
h andicraft producers’ co-operatives, as well as individual h a n d icraftsm en; it excludes not only production from handicraft factories
but also production from rural handicrafts carried on as supplem entary em ploym ent by peasants in the country-side, k now n as
“subsidiary rural production.” “Agricultural production” includes
subsidiary rural production as well as agricultural production itself.
First Five-Year Plan fo r the D evelopm ent o f N ational E conom y in
the People’s Republic o f China (People’s Press, Peking, A ugust
1955; in Chinese), pp. 14, 26, 27.
Country Surveys
33.2 per cent,3 to 110,415 million yuan. The latter
figure, however, is almost 30 per cent higher than
the above estimated 1955 national income of 85,700
million yuan, because of considerable double-counting
of raw materials and intermediate products consumed
in the process of industrial and handicraft production.
Partly because of this double-counting, the share of
agricultural production was reported to have declined
from 58.5 per cent of the total value of gross agricultural and industrial (including handicraft) production in 1952 to 50.3 per cent in 1955; the share
of industrial production during this period was
reported to have risen from 32.7 per cent to 40.5
per cent and of handicraft production from 8.8 per
cent to 9.2 per cent.
A G R IC U L T U R A L O U T P U T
Agricultural production has been rapidly brought
under government control in recent years through the
establishment of a network of co-operatives, as
noted above. Because of the great emphasis on
raising production of staple food grains (rice and
wheat) and raw cotton, other products have been
relatively neglected. In 1955, as compared with 1952,
published official statistics show that soyabeans, jute,
and hogs fell, resulting in some cases in short supply
and increased prices.4 This imbalance had been
mainly due to the threefold policy of “ fixed production, fixed purchase and fixed sale of food grains” 5
initiated in the spring plowing season of 1955, coupled
with government marketing of other farm products
at comparatively low procurement prices set by the
Government and with inadequate provision by the
Government of measures to improve the situation.6
Attempts have been made to rectify conditions by
counter-measures, such as the readjustment of procurement prices,7 the promotion of subsidiary rural
employment8 and extension of improvements through
agricultural co-operatives and collectives.
3 Because of double-counting of ra w m aterials and interm ediate
products in the industrial and handicraft sectors, w hich have registered larger increases in production than the agricultural sector, the
com bined rate of increase in gross agricultural and industrial p ro duction also tends to be overstated.
4 State Statistical B ureau, op.cit. T hus, in 1955, a year of
bum per crops, as com pared w ith 1952, before the Plan, w hile
p a d d y and cotton o u tp u t rose by 14.0 an d 16.5 per cent, respectively, soyabean and jute production fell by 4.2 and 15.9 per cent.
Production of pigs also dropped 2.1 per cent d u rin g this period,
giving rise to a shortage of p o rk and to hig h er prices. O ther
crops also appear to have failed to m eet the planned rate of in crease (see text, below ).
5 T h at is, fixed by the G overnm ent in the lig h t of existing
circumstances. U nited N ations, E conom ic Survey o f A sia a n d the
Far East, 1955 (sales n u m ber: 1956. II.F .l) p .87.
6 Chou
En-lai, op.cit.
7 See section on prices a n d wages below.
8 People’s D aily, editorial, “ T h e D evelopm ent of R ural Subsidiary E m ploym ent” , 24 May 1956.
Chapter 7.
87
China: Mainland
The target for food grain production in 1956 was
originally fixed at 199.5 million tons,1 but owing to
damage sustained in many areas from floods, waterlogging, typhoons and drought, it was lowered to
192.8 million tons.2 The actual food grain production
was estimated at mid-December 1956 to be 10 million
tons higher3 than the 1955 bumper crop, reported as
184 million tons—paddy 78 million tons; wheat 23
million tons; coarse grains, including barley, oats,
maize, millet, proso-millet, kaoliang, 55 million tons;
potatoes 18.9 million tons; and soyabeans 9.1 million
tons.
Raw cotton production, estimated at 1,518,000
tons for 1955, was estimated to have risen to 1,579,000
tons in 1956,4 (as compared with the 1957 target of
1,640,000 tons) despite typhoon damage in Shantung,
Honan and other provinces. It was reported that,
owing to the good work done by agricultural producers’ co-operatives, high yields had been achieved,
for example, 825 kg of ginned cotton per hectare
over 35,000 hectares in the north-west province of
Shensi.
It was stated by the Vice-Minister of
Agriculture that cotton harvests in Kansu, Shensi and
Hupeh provinces were from 20 to 49 per cent larger
than the 1955 bumper crop.5
1956 output was reported to have surpassed the
1957 targets for tobacco and tea and exceeded the
1955 output for oil bearing crops, sugar cane and
sugar beet.6
Other crops appear to have failed to meet the
planned rate of increase. According to the Premier,
“soyabeans, ground-nuts, rape-seed, jute, ambary
hemp and certain kinds of livestock will probably
1 N ew C hina News Agency, Press Release, 16 June 1956.
2 Chou E n-lai, op.cit.
3 N ew C hina News Agency, Press Release, 13 December 1956.
4 Ibid, 1 January 1957.
5 Yang H sien-tung, in ibid, 25 October 1956.
6 Ibid, 13 Decem ber 1956.
Table 18.
China:
not be able to reach the original targets set
down in the first Five-Year Plan.” 7 He also criticized
the failure in some localities to pay adequate
attention to increasing production of “all industrial
crops, except cotton; livestock breeding; forestry;
fisheries; sericulture; and subsidiary cottage occupations,” and stressed the need for those localities which
had attached importance only to the increase of grain
and cotton output to “ avoid the tendency towards
uniformity and one-sidedness.” 8
INDUSTRIAL OUTPUT
Industrial output, excluding handicraft output,
registered a decline in its annual rate of increase from
31.7 per cent in 1953 to 16.7 per cent in 1954 and 7.8
per cent in 1955, owing partly to the short supply of
raw materials for consumer goods industries and
partly to the time required for new capital goods
industries to begin production. In 1956, with a
reported 19.7 per cent increase in labour productivity
in State industries, a reported 64 per cent rise in
industrial capital formation9 and the bumper 1955
harvest which provided a plentiful supply of raw
materials to consumer goods industries, industrial
production was reported to have risen by 25 per cent
over 1955.10 A number of m ajor industrial products,
especially capital goods, were reported to have reached
or surpassed the targets originally set for 1957—the
final year of the Five-Year Plan, in many cases, the
exceptions being electricity, coal, crude petroleum,
ammonium sulphate, cotton cloth and sugar.
7 Chou En-lai, op.cit.
8 Ibid.
9 N ew C hina News Agency, Press Release, 1 January 1957.
C hina News Agency, Press Release, 31 Decem ber 1956.
O ther products not given in table 18 were also reported to have
reached the 1957 target levels; these, w ith the 1957 targets given
in brackets, included generators (227,000 k W ), steam turbines
(84,500 k W ), hydraulic turbines (79,500 k W ), steam boilers
(2,734,000 ton-hours), caustic soda (154,000 tons), am m onium
nitrate (44,000 tons), etc.
10 N ew
Production of Selected Industrial Items on the Mainland
1955
I t e m a n d u n it
Electricity (m illions of k W h ) .............................................................
Coal, crude (m illions of tons) ...........................................................
Petroleum , crude (thousands of tons) .............................................
Pig-rion (thousands of tons) ...............................................................
Steel ingots (thousands of tons) ........................................................
Steel, rolled (thousands of tons) ......................................................
A m m onium sulphate (thousands of tons) ...................................
C em ent (thousands of tons) ...............................................................
Metal cutting lathes (nu m b er) ...........................................................
Cotton yarn (thousands of bales)b .................................................
Cotton cloth (m illions of bo lts)c ......................................................
Paper, m achine m ade (thousands of tons) ...................................
Sugar (thousands of tons) ....................................................................
Cigarettes (thousands of cases) ...........................................................
a N ew C hina New s Agency, Press Release, 31 Decem ber 1956.
b b a l e = 4 0 0 p o u n d s = 1 8 1 . 4 kg.
c 1 bale= 3 6 metres.
A m ount
12,278
94
966
3,630
2,853
2,505
324
4,500
13,708
3,968
103
570a
410
3,567
Index
( 1954= 100)
112
117
122
123
128
128
109
98
86
86
84
106
118
96
1956
In d e x
( 1955= 100)
A m o u n ta
15,278
195
1,176
4,630
4,353
3,605
444
6,400
21,708
5,100
138
710
520
. .
124
112
122
128
153
144
137
142
158
129
134
121
127
..
1957
T a rg e t u n der
P la n
15,900
113
2,012
4,674
4,120
3,045
504
6,000
..
5,000
164
655
686
4,700
P a rt II.
88
The increase in industrial production appears to
have been accompanied by deterioration in the quality
of new construction as well as of certain industrial
products. The Vice-Premier stated that because of the
“one-sided emphasis on quantity of products and
speed of construction, the quality of quite a number
of products and engineering projects is not as good
as it should be. Certain products failed to measure
up to the required specifications and had to be
classified as low quality goods.” 1 In a statement by
the Premier, this lowering in the quality of industrial
products was attributed to the policy of reaching and
even surpassing targets which in some cases were set
at too high a level.2
The pressure for reaching and surpassing production targets has been severe, especially under successive
campaigns for the promotion of “ socialist emulation.”3
According to the Chairman of the State Economic
Commission, the number of deaths in the coal industry
during the first five months of 1956 was 15 per cent
higher than in the corresponding period a year before.
During the first quarter of 1956, the Electric
Power Equipment Bureau of the First Ministry of
Machine Building had 105 equipment mishaps,
causing a total stoppage of 2,794 generator-hours.4
The Government, however, has stressed the adoption “of practical measures wherever possible, now
and in the second five-year period, to improve workers’
housing, safety, medical and health services step by
step and duly provide additional welfare amenities.” 5
Nevertheless it has also indicated that the rise in living
standards must be restrained to assure expansion of
capital formation.6
TRANSPORT
In 1955, the proportion of freight carried by
railways and coastal shipping declined to 84.9 per
cent and 3.9 per cent, respectively, of the total volume
of freight, as against 89.6 per cent and 4.0 per cent,
1 L iu Shao-chi, in People's D aily, 17 Septem ber 1956.
2 Chou En-lai, op.cit. According to his report, som e of the in dustrial departm ents in the G overnm ent “are very often concerned
about w hether the target of o utput is reached, b u t n o t w hether the
target for quality and the production of new types of product are
completed. Prizes are aw arded to those w ho have overfulfilled
the outp u t plan in quantity but not to those w ho have raised the
quality and increased the types of product” .
3 W orkers’ D aily (Peking; in C hinese), 5 July 1956; also 1
A pril, 23 June, 6,8 and 15 July 1956.
4 Po I-po, “T h e Im plem entation of State Plans in 1956” , N ew
C hina N ew s Agency, Press Release, 21 June 1956.
5 Chou E n-lai, op.cit.
6 Po I-po, in his article on “Relationship between A ccum ulation
and Consum ption in Socialist C onstruction” , op.cit., stated that “for
the sake of industrialization of our country, th at is, for the sake of
the collective and long-term interests of the people, the speed of
the elevation of our people’s level of consum ption should not only
be lower than the speed of developing social production, particularly the need of raising the labour productivity, b u t also lower
th an the speed of accum ulation”. See also editorial in People's
D aily, 27 N ovem ber 1956.
Country Surveys
respectively, in 1952, while inland water-ways and
highways increased their resepective shares to 9 per
cent and 2.2 per cent, from 5.4 per cent and 1.0 per
cent. The decline in the proportion of freight traffic
carried by railways was in m arked contrast to the
rapid progress in new railway construction, since the
length of railways open to traffic in 1955, 26,931
kilometres, was 11.1 per cent greater than in 1952.
The new railways, however, were located mostly in
sparsely populated parts of the country with a
relatively small volume of traffic; they served the
dual purpose of opening up new areas for development and facilitating access to neighbouring areas,
including northern Korea, Outer Mongolia and the
Union of Soviet Socialist Republics.
The slowing down in the annual rate of increase
in the total volume of freight traffic carried by all
types of modern transport, from 23 per cent in
1954 to 8 per cent in 1955, continued into early
1956.7 It was attributed mainly to the diversion of
local transport facilities (for exeample, wheelbarrows
and carts) in rural districts by agricultural producers’
co-operatives.8
Targets for the construction of new railways and
highways in 1956 were raised above those previously
set under the Five-Year Plan, and efforts were also
made to raise the rate of increase in the volume of
traffic moved. The Five-Year Plan contemplated the
construction of 4,084 km of new railway trunk and
branch lines; by early December 1956 4,104 km was
reported to have been completed.9 Of the 10,000
km of highways to be built during the five-year period,
9,053 km was reported completed by the end of 1955.
It was planned to add 4,611 km in 1956, which
would bring the total for four years to 37 per cent
above the original 1957 target.
7 W ang Shou-tao, D irector of the Sixth D epartm ent of the
State Council, in charge of transport, in a rep o rt to the third
session of the first N ational People’s Congress on 23 June 1956,
stated th at “our w ork of organizing transport service is also lagging
behind the increasing volum e of freight transport. T his has becom e all the m ore obvious since the beginning of 1956” (N ew
C hina N ew s Agency, Press Release, 23 June 1956).
8 A ccording to a n article in P lanned E conom y (P eking; in
C hinese), the principal problem in transport, despite its rap id p ro gress in construction, is the “failure to organize well, o r to m ake
suitable arrangem ents for, available transport facilities in the rural
districts, seen for instance in the fact th at carts a n d carriages in
the rural districts w hich w ere originally intended for transport
purposes are now used, follow ing the form ation of the agricultural
producers’ co-operatives, for production purpose; a n d in the practice am ong cadres in the chu (district) a n d hsiang (m ark e t tow n)
of certain localities, stressing one-sidedly the im portance of doing a
good job of agricultural production, to revoke the licences of these
vehicles and to stop them from leaving village lim its, a t the sam e
tim e forcing vehicles originally intended specifically for the tran sp o rt trade to be diverted to and incorporated into agricultural p ro ducers’ co-operatives. T hese factors have contributed to the shortage
of transport facilities to and from railw ay lines w ith the result th at
frequently large quantities of capital goods for agriculture a n d of
b uilding m aterials for construction depots w ere k e p t from being
conveyed in tim e to the ru ra l districts a n d construction depots for
th e needed purposess” .
9 N ew C hina N ew s Agency, Press Release, 8 D ecem ber 1956.
Chapter 7.
China: Mainland
The total volume of goods carried by modern
means of transport was to be raised by 15 per cent
in 1956, to 324 million tons, compared with an 8
per cent rise in 1955. The total volume of passenger
traffic was also expected to rise, to 406 million
persons. If these aims were achieved, the 1957 target
as originally established in the Five-Year Plan would
have been achieved to the extent of 89.6 per cent
for goods traffic, and 97 per cent for passenger
traffic.1
TRADE AND PAYMENTS
Under the Central People’s Government, the
traditional pattern of trade and payments of mainland
China underwent a radical change. The stoppage in
the flow of foreign investments and the decline in
remittances of oversea Chinese contributed to the
almost complete dominance of the country’s payments
position by trade, with some inflow of Soviet aid
which was, however, offset by the outflow of
aid from mainland China to northern Korea,
northern Viet-Nam and, to a more limited extent,
Cambodia, Nepal and Outer Mongolia in Asia,
Egypt and Hungary. A radical change also took
place in the pattern of trade: capital goods imports
began to predominate, while agricultural exports
tended to decline in relative importance; furthermore,
trade gravitated increasingly, if not exclusively, to
the Soviet Union and countries of eastern Europe,
with a corresponding reduction in importance, or
elimination, of trade with former trading partners,
particularly the United States, the United Kingdom
and Japan. There has been no trade with the United
States since 1951. On the other hand, in the past
two years there has been some revival of trade with
the United Kingdom and Japan, and some increase
in trade with a number of other countries.
According to the foreign exchange records of
the People’s Bank, the ratio of external payments
to external receipts was 90 per cent in the three-year
period, 1950– 1952, and averaged 98.6 per cent in
the two years, 1953– 1954.2 Although data are not
available for 1955– 1956, it appears probable that the
Government has found it increasingly difficult to
achieve equilibrium in its international payments
position, since growing requirements for development
imports have been paid for primarily from the
country’s agricultural production, whose rate of
increase has lagged considerably behind that of industrial production in recent years.
Trade was reported to have expanded greatly
in value, by 25 per cent in 1953, 4.6 per cent in
1954 and 30 per cent in 1955 (compared with the
previous year in each case); the gain in 1955 over
1952, the year before the Plan, was 61 per cent.3
1 Li Fu-chun, op.ctt.
2 T a K u n g Pao (T ientsin), 21 February 1955.
89
The 1956 rate of rise was, however, expected to be
much lower— 2.4 per cent.4
Imports have tended to shift increasingly from
consumer goods to capital goods, which constituted
88.5 per cent of total imports in 1954.5 It was
reported that in 1955 complete sets of factory equipment, machine tools, agricultural machines and other
means of production constituted over 90 per cent of
total imports. Much of the equipment for the 156
major capital construction projects which the Soviet
Union was to supply by 1960 was reported to have
been already imported by 1955. It was proposed to
reduce the dependence on imports for machinery and
equipment, from 40 per cent under the first Five-Year
Plan to 30 per cent under the second.6
Exports, consisting mainly of agricultural, mineral
and handicraft products in earlier years, were reported
to have begun to include more and more industrial
products. In view of the lack of information on
the subject, it is difficult to assess the extent to
which agricultural exports, which were reported to
have constituted almost 70 per cent of total exports in
1950,7 have risen to correspond with the official
statement of an increase in total imports and exports
of 61 per cent during 1952– 1955. The rapid decline
in the rate of increase of total imports and exports
in 1956, referred to above, suggests that the rate
of expansion of agricultural exports was lowered as
a result of the recent decline in subsidiary rural
production, whose export formerly occupied an
important place in total agricultural exports.
In an effort to increase exports, the policy has
been that “ domestic sales come after foreign sales.”
This was illustrated at a meeting of exporters in
3 Ta K u n g Pao (T ientsin), 4 October 1956. According to the
official com m unique of the State Statistical Bureau, the 1953 rate
of rise in trade was m uch higher— 36 per cent.
4 Derived from Liu Shao-chi, op.cit. w here the increase in 1956
over 1952 was estimated at 65 per cent. In contrast to previous
practice, neither the 1955 C om m unique from the State Statistical
Bureau nor the 1955 budget report from the Finance Minister
specified the annual target of increase in foreign trade for 1956.
5 In a recent estimate of imports d u rin g the period 1949-1955,
the follow ing quantities, imported mostly d u rin g 1953-1955, were
notew orthy: 245 complete sets of industrial equipm ent, 20,639
m etal cutting machines, 4.25 m illion tons of iron and steel, 4.35
m illion tons of petroleum and its products, 438,000 tons of raw
cotton. (C hao Chi-chung, “ Seven Years of Foreign T rade, 194955” , T a K u n g Pao (H o n g K o n g ), 1 October 1956).
6 Chou En-lai, op.cit. Despite its recent rapid increase, the
level of industrial production in m ainland China is admittedly
low. According to the C hairm an of the State Planning Com m ission, in spite of the fairly rapid rate of grow th of heavy industry,
in 1956 m ainland C hina w ould have to im port, for instance,
750,000 tons of steel products, over 10,000 metal cutting lathes
and a great deal of other equipm ent, m achinery and materials, to
m eet dem ands in various fields (L i Fu-chun, op.cit.).
7 N e w China M onthly (Peking; in C hinese), April 1951. Of
total exports in 1950, 31.7 per cent consisted of food and fibre
crops, 14.3 per cent forest products and 23.0 per cent livestock and
poultry. Mineral products contributed 5.3 per cent and handicraft
products 2.7 per cent. T he rem aining 23 per cent was unclassified.
P a rt II.
90
Shanghai in August 1956 by the statement that “since
liberation, although each of us has eaten a few
packages less of ground-nuts, we have obtained in
exchange a considerable amount of machinery and
equipment.”1 The implementation of the policy,
however, has been confronted with difficulties.
Planned targets for export often have been lowered
because of increased domestic demand. Some exporters, on account of heavy taxation, including “planned
profits,” could not recover their cost of production,
especially since export prices were apparently fixed at
lower levels than domestic market prices.2
The geographic pattern of trade has also undergone a significant change since 1950, as noted, through
the rapidly increasing orientation of trade towards
the Soviet Union and countries in eastern Europe,
whose combined share in mainland China’s trade
rose from 23.4 per cent in 1950 to about 80 per cent
in 1954. In 1955 and 1956, trade with the Soviet
Union and countries of eastern Europe continued, and
trade with many Asian-African and western countries
was developed. In 1956 mainland China traded with
68 countries, and had concluded or renewed trade and
payments agreements with one-third of these. Under
these agreements, trade has taken place mostly in the
form of barter with the centrally planned economies
of eastern Europe and Asia, but generally for settlement in terms of pounds sterling with the rest of the
world. Among these agreements, the most significant
is that signed with the Soviet Union on 7 April 1956,
whereby the latter agreed to supply mainland China
with 2,500 million roubles’ worth of capital equipment and supplies for 55 new industrial enterprises,
in addition to the 156 industrial enterprises for which
Soviet imports had been contracted under earlier
agreements. The account was to be settled by the
export of Chinese agricultural, mineral and handicraft
products.3
1 “O n the Problem of Sources of Supply for our E xports”,
N ew s Daily (H sin W en Jih Pao; Shanghai; in Chinese), 10
A ugust 1956.
2 Ibid. It was reported that in one paper factory in Shanghai,
“ the factory price of 3,960 yuan per ton of ‘glass paper’, after
deduction of industrial taxes, leaves a cost of production of 1,679
yuan and a profit of 1,526 yuan (or 38.5 per cent of the factory
price but 90 per cent of the cost of production), inflicting an exp o rt loss of 78.7 per cent.” Again, “of a factory price of 3,432
yuan per ton of red gloss paper, profits and industrial taxes alone
reach 1,396 yuan or 40.4 per cent, inflicting an export loss of 77.8
per cent” . In the 1956 budget, the net sum from profits and
taxes to be turned into the treasury by joint governm ent-private
enterprises, after deduction of governm ent investm ent, was estim ated at 200 m illion yuan.
3 T rade o r paym ents agreements were renewed w ith the Soviet
U nion and countries in eastern Europe (Albania, Bulgaria,
Czechoslovakia, eastern Germ any, H ungary, Poland, R om ania) and
w ith Finland, and were concluded for the first tim e w ith Yugoslavia; agreements were also concluded or renew ed w ith Cambodia,
northern Korea, Pakistan, northern V iet-N am , and O uter
Mongolia in Asia, and w ith Egypt, L ebanon and Syria in the
M iddle East. T rade continued u n d e r treaties signed earlier w ith
Burm a, Ceylon, India, and Indonesia. T rad e w ith H o n g K ong,
Japan, and Malaya in Asia, and w ith France, western G erm any
a nd the U nited K ingdom in western Europe, also continued.
Country Surveys
FINANCE AND PRICES
PUBLIC FINANCE
The 1956 budget estimated a greater rise in
receipts (from 27,203 million to 29,732 million yuan)
than in expenditures (from 29,347 million to 30,743
million yu an ), thus anticipating a decline in the
deficit to 1,011 million yuan, or 3.3 per cent of the
total expenditure, as compared with 7.3 per cent in
1955.5 It was planned to meet this deficit, as in
1955, by utilizing the previously accumulated surplus.
The increased receipts were expected to come
mainly from the profits of government enterprises and
from taxes on industry and commerce, while the
increased expenditure was for financing a higher rate
of outlay on development projects. Expenditure on
defence was to be reduced from the 1955 total of
6,500 million yuan (22.1 per cent of the total) to
an estimated 6,141 million yuan (or 20 per cent).
The 1956 budget provided for total government
expenditure of 19,971 million yuan for economic and
social development, equal to 64.9 per cent of total
government expenditure, compared with 57.7 per cent
in 1955.6 A further breakdown for 1955 and 1956
shows that, in the former year, 87 per cent of the
economic development expenditure was allocated to
the Central Government and 71 per cent of the social
development expenditure to local governments, and
that the corresponding percentages for 1956 were 86
and 66.
P R IC E S A N D W A G E S
The bumper harvest in the winter of 1955,
reported to have resulted in a 9 per cent rise in food
grain output and a 43 per cent gain in raw cotton
production, exerted a stabilizing influence on the
price situation in 1956, although the rise in wages
agreed upon by the State Council in June, retroactive
to 1 April 1956, the restoration of m arket mechanism
for certain food and other items, and the increase in
prices of subsidiary food items (particularly pork)
and procurement prices paid to peasants for certain
agricultural and handicraft export products tended
to have an opposite effect. As noted above, it was
planned that the government deficit in 1956 would be
lower. Industrial production reportedly rose at a
substantially higher rate in 1956 than in 1955.7 On
the whole, price levels in 1956 appear to have risen.
4 N ew C hina News Agency, Press Release, 7 A pril 1956.
5 Li
H sien-nien. Report on 1955 accounts and 1956 budget,
People’s Daily, 16 June 1956.
6 Investm ent in capital construction, w hich rose sharply in 1956
com pared to 1955, is expected to be slowed d ow n in the rate of
g ro w th in 1957. Except for industries (iro n a n d steel, coal,
pow er, crude petroleum , tim ber and other building m aterials, textiles and pap er), the m ag n itu d e is expected to rem ain unchanged
in 1957 as in 1956, w ith reduction how ever for some branches of
national economy. ( Planned econom y, Peking, in Chinese, no.12,
Decem ber 1956, p .1).
7 N ew C hina N ew s Agency, Press Release, 1 January 1957.
C hap ter 7.
C h in a :
91
M a in la n d
T h e e a rlie r im p a c t o f prices on p ro d u c tio n — a
fall in the supply of non -stap le fo o d a n d in d u stria l
raw m ate ria ls o th e r th a n ra w co tto n — received c o n siderable atten tio n d u rin g the y e a r. A s a result of
the G o v ern m en t’s p ro c u re m e n t p ric e s fo r these co m m odities, w hich a re in m a n y cases p ro d u c ts of ru r a l
s u b sid ia ry o ccupations, p e a sa n ts h a d e ith e r red u c ed
th e ir o u tp u t o r shifted to th e p ro d u c tio n of m o re
profitable item s, th u s g iv in g rise in som e cases to
shortages in supply a n d in crease in price.
The
F inan ce M in iste r d eclared in S eptem ber th a t the
p ro c u re m e n t prices as estab lish ed by the G overnm ent
were too low, a n d should be ra ise d still fu rth e r fo r
hogs, rape-seeds, tung-oil a n d tea oil; th a t they should
be increased a p p ro p ria te ly fo r sesam e a n d tea and,
in som e areas, fo r g ro u n d -n u ts a n d silkw orm cocoons;
a n d th a t they shou ld also b e su itab ly ra ise d fo r co arse
g ra in s.1
T h e F in a n c e M in ister fu rth e r stated, in re g a rd
to m a n u fa c tu re d goods, th a t failu re to b r in g a b o u t
tim ely a n d p r o p e r a d ju stm e n t of p ro c u re m e n t prices
fo r ra w m a te ria ls h a d resulted n o t only in sh o rt
supply, b u t also in “ d isguised p rice in crease,” th ro u g h
d e te rio ra tio n in qua lity a n d decrease in v ariety. As
a w ay out, he p ro p o sed th a t “ the policy of fixing
prices a c c o rd in g to q u ality a n d g iv in g h ig h e r p rices
fo r better q u ality should be strictly m a in ta in e d .”2
In 1955, as c o m p a re d to 1952, a v erag e m oney
wages fo r wage e a rn e rs a n d sa la rie d em ployees in the
v a rio u s G ov ern m en t de p a rtm e n ts a n d e nterp rises were
re p o rte d to have risen 2 0 p e r cent a n d average real
wages 12 p e r cent,3 th e d iscrepancy in rates of rise
between m o n e y a n d re a l w ages re su ltin g p a rtly
fro m p ric e rise a n d p a rtly fro m th e abolition
of th e sup p ly system (ho u sin g , e d u catio n etc.)
in Ju ly 1955.4
In the m eantim e, while la b o u r
p ro d u c tiv ity in in d u s tria l ente rp rise s ro se by 15 p e r
cent in 1954 a n d 10 p e r cent in 1955, increases in
m oney w ages av e ra g e d only 2.3 p e r cent a n d 0.6 p e r
cent in these y e a rs.5 T h e N a tio n a l W a g e C onference,
m eeting fro m 29 F e b r u a ry to 7 A p ril 1956, em phasized
th a t, a lth o u g h w age gains sh o uld be less th a n g row th
in la b o u r p ro d u c tiv ity in o rd e r to ensure accum ulation
o f fu n d s fo r the G o v ernm en t, unification of th e w age
system sh o u ld m e a n u n ificatio n of w age policies a n d
w age co n tro l b u t n o t e n fo rc e m en t of id entical w age
sta n d a rd s fo r th e whole c o u n try , reg ard less of in d u stries a n d a re a s. On th e b asis of re c o m m o n d a tio n s
em e rg in g fro m this conference, the State C ouncil on
16 J u n e 1956 decided to re fo rm th e w age stru c tu re
1 Li Hsien-nien, “ Price Policy that Promotes Production” , a
speech delivered to the eighth national congress of the Chinese
Com m unist Party on 22 September 1956. (N ew C hina News
Agency, Press Release, 22 September 1956).
2 Ibid.
3 Ma W en-jui (M inister of L abour), “O n wage reform and
em ploym ent” , Ta K ung Pao (T ientsin), 1 July 1956.
4 E conom ic Survey o f A via and the Far East, 1955, p.99.
5 Ma W an-jui, op.cit.
a n d established new w age scales restro activ e to 1
A p ril 1956.6 T he rise in p a y of w age e a rn e rs a n d
sa la rie d employees in g o v ern m ent d e p a rtm e n ts a n d
g o v e rn m e n t enterprises w as expected to averag e 13
p e r c e n t in 1956, w ith different ra te s o f increase fo r
w o rk e rs in different d ep artm en ts, in d u stries a n d
g ra d e s.7 T h e av erag e ra te of w age increase w as to
b e 15.6 p e r cent fo r en terp rises u n d e r the M inistry
fo r H eavy In d u stry , 12 p e r c e n t fo r enterprises u n d e r
th e M in istry fo r L ig h t In d u stry , 10.9 p e r cent fo r
o th e r m in istrie s (exclusive of th e M in istry of E d u c a tion, a n d supply a n d m a rk e tin g co-operatives) a n d
10 p e r cent fo r g o v e rn m e n t agencies.8 In creases in
wage ra te s in 1956 fo r different g ra d e s of la b o u r w ere
also to v a ry a c c o rd in g to skill; fo r exam ple, 8 p e r
cent fo r g ra d e one, the lowest g rade, a n d 18 p e r cent
fo r g ra d e 8.
T h e State C ouncil decision to re fo rm th e w age
stru c tu re in cluded extension in the scope of piecera te w ages; all en terp rises in w hich w ages could
be calculated by piece-rates were to install such a
system e ith er com pletely o r to a g re a t extent by
1957. H ig h ly skilled technical perso n n e l a n d those
m a k in g im p o rta n t c o n trib u tio n s were to receive special
allowances. Bonuses w ere to be p a id fo r th e tria l
m a n u fa c tu re of new p ro d u c ts, fo r econom y in th e use
of ra w m a te ria ls or in the co n su m p tio n of fuel o r
electricity, fo r im p ro v e m e n t in the qua lity of p r o ducts, a n d fo r over-fulfilm ent of tasks. In ad d itio n ,
the decision p ro v id e d fo r a cost of living su b sidy in
areas w here c om m o dity prices w ere hig h er.
D EV ELO PM EN T PLANS
On 1 J a n u a ry 1956, an e d ito ria l in People's D aily
u rg e d the com pletion of the first Five-Y ear P la n
(1953– 1957) in fo u r years, th a t is, by th e end of
1956. T h e C h a irm a n of the State P la n n in g C om m ission, in h is re p o rt on the im plem en tation of th e
F iv e-Y e a r P la n (1 95 3 – 1957) on 16 J u n e 1956,9
forecast the achievem ent of 1957 in d u stria l p ro d u c tio n ta rg e ts a n d over-fulfilm ent of p la n s f o r m a jo r
item s of a g ric u ltu ra l p ro d u c tio n (fo o d g ra in s a n d raw
cotton, w hich to g e th e r occupy a b o u t 95 p e r cent of
the to tal sown a re a ) b y the end of 1956. However,
in m id-S eptem ber at the eig h th n a tio n a l co ngress of
th e Chinese C o m m u n ist P a r ty , the P re m ie r p red ic te d
th a t in d iv id u a l pla n ta rg e ts fo r several a g ric u ltu ra l
p ro d u c ts, like soyabeans, o il-bearing seeds, ju te a n d
a m b a ry hem p, fo r c e rta in types of livestock, a n d fo r
6 N ew C hina News Agency, Press Release, 4 July 1956.
7 Chou En-lai, op.cit.
8 T h e 1956 average rate of wage increase was estimated at
32.88 per cent for prim ary school teachers, 25.87 per cent for staff
m em bers of supply and m arketing co-operatives and 68.76 per
cent for certain adm inistrtative cadres w orking in villages. P rofessors, scientific and technical personnel and other intellectuals in
Peking were to receive a wage increase of 36 per cent (N ew China
New s Agency, Press Release, 4 July 1956).
9 Li Fu-chun, op.cit.
92
P a rt II.
in d u stria l p ro d u c ts like c ru d e oil, s u lp h u r black,
vegetable oils, c ig arettes a n d m atches, w ould n o t be
atta in e d b y the en d of 1957.1
A n outline fo r a second F iv e-Y ear P la n (1 9 5 8 –
1 9 6 2 ), p resen ted by the P re m ie r, w as accepted by
the C ongress on 27 S eptem ber. A s c o m p a re d w ith
the first Five-Y ear P la n , th e p ro p o se d second FiveY e a r P la n show ed h ig h e r ra te s of ex p an sio n
fo r the p e rio d of th e P la n in p ro d u c tio n (b o th
a g ric u ltu ra l a n d in d u s tr ia l) , em p lo y m en t a n d investm ent, b u t lower ra te s of in crease in p ro d u c tiv ity ,
wages of w orkers, salaries of em ployees a n d incom e
of peasants (table 1 9 ).
T able 19. P la n n e d R ates of In crease in N a tio n a l
Incom e, P ro d u c tio n , E m ploy m en t, P ro d u c tiv ity , W ages
a n d In v estm en t u n d e r T w o Five-Y ear P la n s
(percentages, unless o therw ise sta te d )
Item
N a tio n a l i n c o m e .
Production: ...........................
A g ric u ltu ra l o u t p u t .
Industrial (including handicraft) o utput.
Em ploym ent (millions of additional jobs in
governm ent enterprises) . . . . . . . . . . . . .
Productivity of labour in governm ent
enterprises . . . . . . . . . . . . . . . . . . . . . . . . . .
1953- 1957
..
19 5 8 -1962
51.1a
23.3b
90.3C
50
75
35
100
4.2
6-7
64c
50
Wages and income
W age earners and salaried employees:
wages and salaries . . . . . . . . . . . . . . .
Peasants’ income . . . . . . . . . . . . . . . . . . . .
Investm ent in capital construction
(millions of yuan) . . . . . . . . . . . . . . . . .
33c
30
42,740
25-30
25-30
85,480
Source: C hou En-lai, op-cit.; Resolution of the Chinese C om m unist Party adopted at E ighth National Congress on 27 Septem ber 1956, T a K ung Pao (H o n g K o n g ), 30 September 1956.
a Subsequently raised to 60 percent.
b T arget for grain production was reported to be reached in
1956, one year ahead of schedule.
c T h e targets were reported to have been reached in 1956, one
year ahead of schedule, for industrial (excluding handicraft) production (N ew C hina N ews Service, Press Release, 31 Decem ber
1956), for wages of wage earners and salaried employees ( Ibid, 30
Decem ber 1956), and for labour productivity in governm ent in dustries ( Ibid, 1 January 1957).
T h e ou tline fo r the second Five-Y ear P la n
p ro p o se d a 50 p e r cent in crease in n a tio n a l incom e,
th r o u g h a rise of 100 p e r c e n t in in d u stria l (in c lu d in g h a n d ic ra ft) o u tp u t a n d 35 p er c e n t in a g ric u ltu ra l
p ro d u c tio n , as c o m p a re d w ith the low er rates of
increase of 90.3 p e r cent a n d 23.3 p e r cent,
respectively, u n d e r the first Five-Y ear P lan.
1 T h e unusually high increase proposed by the Political Bureau
of the Central Com m ittee of the Chinese C om m unist Party on 23
January 1956 in a draft twelve-year (1956-1967) program m e for
agricultural developm ent— 150 per cent for food grains and 200
per cent for ra w cotton— were cited by the Prem ier as “m istakes”
or examples of “ the tendency of certain departm ents and localities
towards doing everything at once, taking no account of actual conditions, and recklessly ru n n in g ahead” .
C o u n try S urveys
In a g ric u ltu ra l p ro d u c tio n , o n e-h alf of the cash
inco m e o f p e a sa n ts is e x p e c te d to be d e riv e d fro m
g ra in p ro d u c tio n a n d th e o th e r h a lf f r o m o ther
p ro d u c ts, in c lu d in g in d u s tria l ra w m a te ria ls, livestock
(especially p ig s a n d p o u l tr y ) , fo re st p r o d u c ts, fishery
o u tp u t a n d p ro d u c ts of r u r a l in d u strie s, w h ic h a re
officially sta te d to h a v e been neglected u n d e r th e first
P la n a n d a re to be stressed u n d e r th e second.
H ow ev e r, th e r a te o f in c re a se sc h e d u le d f o r g ra in
p ro d u c tio n , 4 7 p e r cent u n d e r th e second P la n , is
c o n sid e ra b ly h ig h e r th a n th e 17.5 p e r c e n t p ro je c te d
u n d e r the first P la n , a n d is c learly h ig h e r th a n the
ra te of in crease f o r o th e r p ro d u c ts if to ta l a g ric u ltu ra l
p ro d u c tio n is to rise by 35 p e r c e n t, a s p ro p o se d . T h e
c h ief e m p h a sis is on im p ro v in g th e y ield p e r
h e c ta re of g ra in a n d o th e r c ro p s— a p p a re n tly , h o w ever, w ith o u t the extensive use of c h e m ic a l fertilizers,
since the p ro v isio n of locally p ro d u c e d c h e m ic a l
fertilizers, a c c o rd in g to th e 1962 ta rg e t, w ill b e only
a b o u t 3 0 kg p e r h e c ta re .
T h e ra te of e x p a n sio n in in d u s tr ia l (in c lu d in g
h a n d ic ra ft) p ro d u c tio n u n d e r th e se c o n d P la n is
set a t 100 p e r cent, c o m p a re d w ith 90.3 p e r c e n t
u n d e r th e first P la n , th r o u g h a rise in th e e stim a te d
c o n trib u tio n of new ly b u ilt o r re c o n stru c te d p la n ts,
fro m 15 p e r cen t of to ta l in d u s tria l p r o d u c tio n in
1957 to 50 p e r c e n t in 1962. T h e d isp a rity in ra te s
of in c re a se betw een in d u s tr ia l a n d a g r ic u ltu ra l p r o d u c tio n u n d e r the first P la n is so m e w h a t re d u c e d
u n d e r th e second, th o u g h it is still p ro p o se d
to lay m u c h g re a te r stress on in d u stry . T h e r a te of
increase in th e value of in d u s tria l o u tp u t is still
to be fa ste r in c a p ita l g o o d s in d u s try th a n in c o n su m e r go o ds in d u stry . T h e ra te o f in c re a se in la b o u r
p ro d u c tiv ity in g o v ernm ent-ow ned in d u s tr ia l e n te rp rise s is, how ever, sched uled to rise m o re slowly—
50 p e r c e n t u n d e r th e second P la n , c o m p a re d w ith
64 p e r
cent u n d e r th e first.
T h e volum e of g o v e rn m e n t in v estm ent in c a p ita l
c o n stru c tio n is to be d oubled, the p r o p o r tio n g o in g
to in d u stry ris in g fro m 58.2 p e r c e n t u n d e r th e first
P la n to 60 p e r cent u n d e r th e seco nd , w hile th e
p r o p o rtio n g o in g to a g ric u ltu re , w a te r c o n se rv a n c y
a n d fo re stry is to rise fro m 7.6 p e r cent to 10 p e r
cent. D o u b lin g g o v e rn m e n t in ve stm e n t w hile n a tio n a l
incom e rises 50 p e r c e n t does n o t p re c lu d e in crease s
in c o n su m p tio n but, of course, calls fo r in c re a se d
ra te s o f sa v in g to be achieved b y ra is in g p ro d u c tiv ity
fa ste r th a n a v e ra g e re a l e a rn in g s of th e n a tio n ’s w age
e a rn e rs, sa la rie d em ployees as well as p e a san ts.2
2 T h e resolution on the political report, adopted 27 September
1956 by the eighth national congress of the Chinese C om m unist
Party, stated th at "th e people of the w hole country m ust
subordinate im m ediate individual interests to long term collective
interest” and appeared to support this prem ise ( T a K u n g Pao
(H o n g K o n g ), 30 Septem ber 1956).
C h ap ter 7.
C h in a :
M a in la n d
N e ith e r th e first P la n n o r th e second explicitly
provides a solution to th e p re ssin g p ro b lem of
unem ploym ent. W ith the officially estim ated rate of
a 2 p e r cent n a tu r a l in crease in p o p u la tio n each year,
and a p o p u latio n estim ated a t over 60 0 m illion, the
total p o p u la tio n c a n b e expected to rise by a n o th e r
60 m illion d u rin g th e p e rio d of th e second Five-Y ear
P lan, a n d the p o p u la tio n of w o rk in g age by p e rh a p s
24 m illion.1 T h e n u m b e r of new jo b s to be c rea te d
1 T h e population of w o rking age in Japan w ith its low birth
and death rates, is about 68 per cent of the total population; it is
40 per cent in India, largely because of the larger n u m ber of
children. W hile sim ilar consus data are not available for m ain land China, the ratio of w ork in g age population to the total may
be similar to that of India— about 40 per cent.
93
is estim ated a t 6 m illion to 7 m illion u n d e r th e
second P la n , c o m p a red w ith 4.2 m illion u n d e r the
first. A lthough th is n u m b e r refers only to jo b s to
becom e available in en terp rises covered b y p ro p o sed
g o v ern m en t investm ent, it is n o t clear how it is
p ro p o sed to p ro v id e new em plo ym ent o p p o rtu n ities of
a p ro d u c tiv e k in d elsewhere on a scale sufficient to
a b so rb th e re m a in d e r of the ad d itio n to th e p o p u la tio n
of w o rk in g age, estim ated a t ab o u t 17 m illion.
C h a p te r 8
HONG KO NG
in g w a te r schem e a t C hek K e n g , w e re 12 d a m s, 2
rese rv o irs, 20 wells, 2 tanks, 18 ir r ig a tio n channels,
2 flood p re v e n tio n b an k s, 16 b rid g e s a n d 2 piers.
A su b sta n tia l in crease in the to ta l value of tra d e ,
a c o n tin u in g h ig h level of p riv a te a n d pu b lic c o n stru c tio n activity a n d fu rth e r p ro g re ss in m a n u fa c tu rin g c o m b in e d to m ak e 1956 a co m pa ra tiv e ly
p ro sp e ro u s y e a r in H o n g K on g . T r a d e w ith m o st
m a jo r tra d in g p a r tn e r s in c re a se d ; the estim ated total
value of tra d e fo r th e ye a r exceeded even that of
1950, a b o om y e a r b ecause of the K o re a n conflict.
In c re a se d com p etition fro m m a n u fa c tu re d p ro d u c ts of
J a p a n a n d o th er m o re recently developing co u n trie s
of A sia, how ever, suggested the need fo r c o n tin u e d
im pro vem ent in p ro d u c tiv ity .
F is h m a rk e te d in the first e ig h t m o n th s to ta lled
26 ,4 40 tons, slig h tly below th e fig u re f o r th e sam e
p e rio d a y e a r b efo re. T h e G o v e rn m e n t’s policy w as
to e n c o u ra g e m e c h a n iz a tio n of fishing vessels a n d
b u ild in g of m o d e rn m o to r tra w le rs to in c re a se o p e ra tio n a l efficiency in d is ta n t w aters.
In th e first h a lf of 1956, th e p ro d u c tio n of iro n
ore, g ra p h ite a n d k a o lin c la y in c re a sed , b u t t h a t of
w o lfram a n d lead o re d e c lin e d sig n ific a n tly .
Iro n
ore w as m a in ly e x p o rte d to J a p a n , le a d o re to E u ro p e ,
w o lfra m to E u r o p e a n d th e U n ite d S tates, a n d kao lin
to Ja p a n .
U n d e rly in g H o n g K o n g ’s p ro b le m s of in d u stria l
ex pan sion a n d ov er-population— in c lu d in g difficulties
in resettling sq uatters, h o u sin g people now liv in g in
su b -sta n d a rd
dwellings
and
p ro v id in g a d e q u a te
m edical a n d school facilities— is th e lim itin g fa c to r
of la n d .1 W hile g o v ern m ental po licy h as alw ays been
one of free m ovem ent of goods a n d persons, the
scarcity of la n d h a s resulted in the re in tro d u c tio n of
a q u o ta ysstem fo r im m ig ra tio n .
I n d u s tr ia l p r o d u c tio n rose d u rin g 1956. A t th e
en d of th e year, 146,877 w o rk ers w ere em ployed by
3,319 re g iste re d a n d re c o rd e d facto ries, as a g a in st
129,465 w o rk e rs a n d 2,925 fa c to rie s a t th e e n d of
1955.
E lectricity g e n e ra te d fro m J a n u a r y to O cto b er
1956 rose to 542 m illion k W h as a g a in st 4 7 0 m illio n
k W h f o r th e sam e p e rio d in 1955. T h e H o n g K o n g
p o w e r co m p any, w h ich in 1955 a w a rd ed a U n ite d
K in g d o m firm the c o n tra c t fo r a new p o w e r sta tio n
w ith a n in itial c a p a c ity of 30,000 k W (in a d d itio n to
its p re se n t c apa c ity of 92,500 k W ) , e ventually to be
ra ise d b y stages to 180,000 kW , w as c o n sid e rin g
in stallatio n of an a to m ic p o w e r sta tio n as a n eco n o m ic
p o ssib ility w ithin th e n e x t ten to fifteen y e a rs. In
the co m in g six y e a rs th e c o m p a n y p la n n e d to sp e n d
a b o u t H K $ 7 0 m illion fo r its p ro g ra m m e of extension.
T h e K owloon p o w e r c o m p a n y , in a d d itio n to a
p re v io u s c o n tra c t fo r a steam tu rb in e g e n e r a tin g set
to be d elivered in 1957, o rd e re d two m o re sim ila r
sets fro m E n g la n d fo r d e livery in 1958. F o r th e first
h a lf of 1956, to ta l p ro d u c tio n of n a tu r a l g a s w as
8.9 m illion c u b ic m etres, c o m p a re d w ith 8.6 m illion
cu bic m e tre s fo r th e sam e p e rio d in 1955. T h e g a s
c o m p a n y c o m pleted a new p la n t in K ow loon, w ith a n
in itia l p ro d u c tio n c a p a c ity of a b o u t 4 2 ,5 0 0 m illion
c ubic m e tre s p e r day. T h e p r o d u c tiv e c a p a c ity of th e
p la n t a t J o r d a n R o a d , K o w loon, h as been in c re a se d
to 31,100 cu b ic m e tre s a day.
P R O D U C T IO N
H o n g K o n g p ro d u c e s only a lim ited q u a n tity of
ric e ; nine-tenths of the a m o u n t locally c o n su m ed
com es fro m im p o rts.2 In 1956, th e first p a d d y cro p
w as adversely affected b y d ro u g h t, w h ic h left an
estim ated 35 p e r cent of the n o rm a l p a d d y a re a
u n p lan ted, b u t the second p a d d y c ro p , h a rv e ste d
to w a rd s th e end of the y ear, was very good. V egetable
p ro d u c tio n in creased m a rk e d ly in the first eig ht
m o n t h s o f 1956, sales f r o m J a n u a r y to A u g u s t a t
the g o v ern m en t w holesale v egetable m a rk e t re a c h in g
54,300 tons, c o m p ared w ith 42,9 00 tons d u r in g the
sa m e p e rio d in 1955.
T h e G overnm ent allocated H K $2.87 m illion in
1956 fo r developm ent schem es in the New T e r r i tories, w here a g ric u ltu ra l p ro d u c tio n is c o n cen trated ,
especially fo r im p rov em ent of irrig a tio n . A m o n g th e
local p u b lic w orks com pleted in th a t a re a in th e first
n in e m o n th s, a p a r t fro m a m a jo r irrig a tio n a n d d rin k 1 H o n g K ong’s population, swollen by 1949-1950 im m igration
fro m m ainland C hina, continued to increase a t a rate of approximately 3 per cent per a n n u m and was estimated at m ore than 2.5
m illion in m id -1956. T h e estimated inflow of im m igrants from
January to m id-July 1956 was 82,000 persons by the land route
(of w hom a t least 54,000 had already elected to stay on after the
expiry of their perm its) and several thousands by the Macao route.
This population is crowded into a small area of scarcely m ore than
a thousand square kilom etres, a substantial p a rt of it m ountainous.
T h e C o lo n y’s sh ip b u ild in g a n d r e p a ir y a r d s
w orked to c a p a c ity d u r in g 1956. A c o n tra c t of 3 0
oil b a rg e s of 8 0 0 to n s e a c h fo r B u rm a w as c o m ple te d ; th ree c a rg o vessels, tw o of 1,280 ton s a n d one
of 800 tons, fo r K o re a n in te re sts w ere la u n c h e d a n d
b u ild in g a n d e n g in e e rin g w o rk on two c a rg o vessels
2 From January to Septem ber 1956, rice im ports totalled
218,300 tons, of w hich 63 per cent cam e from T hailand, 18 per
cent from m ainland China, and 15 per cent from B urm a.
94
C hap ter 8.
Hong Kong
of 5,790 gross to ns was in pro g ress. N u m e ro u s tugs,
barges, ferries, launches, y a c h ts a n d o th e r sm aller
c ra ft w ere built. R e p a ir w ork on over 1,500 vessels
of m a n y flags a g g re g a tin g m o re th a n 8.25 m illion
gross tons was c a rrie d out.
H o n g K o n g ’s m o st im p o rta n t in d u stry , cotton
textiles, re m a in e d active in 1956.
T he 19 cotton
spinn ing m ills, w ith a n a n n u a l p r o d u c in g c a p a c ity of
60,000 tons of y a rn (b a se d on 20-count y a r n ) , h a d
over 300,000 spindles a n d em ployed m o re th a n 14,000
w orkers.1 T h e w eaving in d u stry h a d 7,666 loom s in
late 1956 w ith an a n n u a l c a p a c ity of over 167 m illion
square m etres, em p lo y in g alm o st 10,000 w orkers.
Facin g intense co m p e titio n , how ever, fro m In d ia a n d
Ja p a n in south-eastern A sian m a rk e ts, a n d fro m
P ak istan in H o n g K o n g itself, the local cotton sp in n in g
in d u stry h as h a d to m a k e u p f o r th e d isa d v a n ta g e of
using im p orte d ra w m a te ria ls by in stallin g the m o st
up-to-date c a rd in g a n d c o m b in g e q u ip m e n t in o rd e r
to im prove q u a lity a n d p ro d u c e y a r n of fine counts.
M odern aid s to scientific m a n a g e m e n t h av e been
introd uced a n d specific re q u ire m e n ts of w orld-w ide
m arkets studied.
T he m a n u fa c tu re of o th e r item s also show ed p r o gress in 1956. R u b b e r, plastic, g a rm e n t a n d k n ittin g
factories operaed a t capacity.
F o re ig n investm ents
were attracted into H o n g K o n g , n o t only fro m oversea
Chinese b u t also fro m U n ite d States sources.2 New
p ro d u c ts were tu r n e d out, fro m w ooden to y s a n d
plastic b u tto ns to p re ssu re cookers a n d electric h a ir driers.
T a ilo rin g to fill m a il o rd e rs fro m a b r o a d h a s
recently g row n into a m a jo r business, w ith an
estim ated tu rn o v e r of H K $ 9 6 m illio n in 1955, th e
prin c ip a l custom ers b e in g th e U n ited States a n d
U nited States p e rso n n e l sta tio n e d in the F a r East.
T he to u rist in d u stry , w ith e a rn in g s a m o u n tin g to over
H K $160 m illion a n nu ally , w as re p o rte d to be second
only to the textile a n d clo th in g in d u stry .
One of the m ost p re ssin g p ro b le m s of H o n g
K o n g w as the sh o rta g e o f la n d on w h ic h to b u ild
factories. P a r t of th e K u n T o n g rec la m a tio n a re a
has been com pleted. Of the 1.6 m illion sq u a re m etres
of reclam ation tentativ ely envisaged a t T suen W an,
1 O f the 146,877 workers in registered and recorded industrial
undertakings in Decem ber 1956, the largest num ber— 42,254, or
about 29 per cent— w ere employed in textile m anufacturing and
14,271 of these w ere engaged in cotton spinning, as against 13,274
at the end of 1955. W ool spinning, also increasing in im portance,
provided em ploym ent fo r 847 w orkers in early 1956, com pared
with 620 in Decem ber 1955.
2 A torch battery p lan t was bought by a U nited States firm;
two w ell-know n brands of torches w ere m anufactured u nder
licence in the Colony on a substantial scale and an arrangem ent
was m ade w ith a G erm an firm for several factories to produce its
patented tricolour torch lights. U nited States interests and H ong
Kong businessmen w ere reported to be negotiating the setting up
of a m otorcar assembly plant, w ith a view to m ak in g U nited States
cars m ore competitive in price w ith U nited K ingdom and other
European cars in the H o n g K ong m arket.
95
m o re th a n 100,000 sq u a re m e tre s a lre a d y reclaim ed
h a d been m a d e available by A u g u st 1956 fo r in d u stria l a n d resid e n tial con stru c tio n .
W o rk on a new
re c la m a tio n schem e covering 12.5 h ectares of foresh o re
a n d sea bed in H u n g h o m Bay, begun to w a rd s the end
of 1956, was expected to be com pleted in a y ear.
CONSTRUCTION
T h e b u ild in g b oom w hich sta rte d in 1955
co n tin u ed in 1956. A sid e fro m su b sta n tia l c o n stru c tio n b y th e G o vernm ent a n d by U n ited K in g d o m
forces, the a n n u a l cost of new p riv a te construction,
a b o u t H K $7 m illion in 1953 a n d 1954, increased
sh arp ly, to H K $143 m illion in 1955 a n d to a n
estim ated a n n u a l ra te of H K $ 15 8 m illion d u r in g th e
first n in e m o n th s of 1956.
T h is increase in p riv a te b u ild in g activity
p rim a rily reflected the need fo r dwellings,
since
75 p e r cen t of the cost of new b u ild in g s in 1955 and
64 p e r cent d u rin g th e first n in e m o n th of 1956
w ere fo r re sid en tial c o n stru c tio n .
In ad d itio n to
in d iv id u a l house building, th e H o n g K o n g H o u sin g
Society, a n unofficial agency, h a s also been b u ild in g
flats, financed by low -interest long-term loans fro m the
G overnm ent. It expected to com plete 796 flats d u rin g
the fiscal ye a r 1 9 5 6 /5 7 3 a t a cost of H K $15 m illion.
T he cost of in d u stria l a n d com m ercial b u ildings
acco u n ted fo r less th a n 3 0 p e r c e n t of the total cost
of p riv a te new b u ild in g d u rin g the first n in e m onths
of 1956.
M u ch of the new p riv a te construction, bo th
resid e n tia l a n d non-residential, h a s been fo r r e developm ent, involving the rem oval of old structures.
T h is can be p a rtly explained by a change in the
G ov e rn m en t’s b u ild in g reg u lation s, passed in 1955,
allow ing build in g s to be as h ig h as twice th e w id th
of the street, instead of one to 1 ¼ times, as p e rm itted
previously. T he new buildings, w ith low er ceilings
a n d m o re sto rey s fo r a given height, yield h ig h e r
retu rn s. F u rth e rm o re , while re n t on pre-w ar houses
a n d b u ild in g s w as controlled, th a t on n ew building s
w as not. A bill was b e in g p ro p o se d to d eco n tro l re n t
on all buildings c h a rg in g over H K $200 p e r m onth.
Investm ent in b u ild in g h a s b ro u g h t quick re tu rn s
in H o n g K ong. In a n u m b e r of cases, ow ners of larg e
build in g s ha ve been able to sell or let th e ir flats in
the blue p r in t stage or before com pletion of construction, a n d the m o n ey thu s o b ta in e d could be reinvested
in o th e r c o n stru c tio n .
T he b u ild in g boom h as
a ttra c te d b o th local cap ital, a su b stan tial p a r t of
w hich h a d been idle, a n d investm ent fro m oversea
Chinese.
W hile p riv a te re sidential buildings have been fo r
m iddle-incom e a n d high-incom e groups, the G overnm e n t h a s u n d e rta k e n b u ild in g pro jects fo r low-incom e
3 T h e fiscal year is from April to March.
96
P a r t II.
F o re ig n T ra d e of E C A F E P r im a r y E x p o rtin g C ountries
W h a t, th e n , a re th e final p ro sp ects fo r expo rts
of p rim a ry m a te ria ls fro m th e re g io n ? T h e d e m a n d
outlook fo r su ch im p o rts in to th e in d u s tria l c o u n tries
a p p e a rs u n fa v o u ra b le , w ith th e exceptions a n d q u a lifications as to com m odities a n d co u n tries n o te d above.
O n th e supply side, as we have seen, th ere a re v a rio u s
p ositiv e a n d negative fa c to rs m a k in g f o r a ch an g e in
the sh a re of the d e m a n d a c c ru in g to th e p rim a ry
e x p o rtin g c o u n trie s of th e reg io n , b u t th e ir im p o rta n c e
w o uld seem to defy q u an tification . O n balance, it
a p p e a rs likely th a t th e re g io n will have to m ake
e very effort to re ta in its p re se n t sh a re , a n d to p rev en t
a c o n tin u a tio n of the d o w n w a rd tre n d of the p a st
tw enty y e a rs .1 Som e co u n tries m a y d o som ew h at
b e tte r if th e especially serio u s sh o rtfa ll d u e to w a r
a n d po litical u n re st is to be m ad e g o o d ; som e m ay
be fa v o u red by th e ir still u nexploited n a tu ra l resources,
b u t m o re im p o rta n t w ould a p p e a r to b e the effort a n d
investm ents c o n ce n tra ted on m a k in g th e m o st of
existing o p p o rtu n ities. In c re a sin g efficiency in the
p ro d u c tio n of p re sen t e x p o rt p ro d u c ts, a n d in tro d u c tio n of new ex p o rt p ro d u c ts w ith b e tte r d e m an d
prospects h old the key to m a in ta in in g , a n d possibly
in creasin g , the re g io n ’s p rese n t sh a re in the im p orts
of p rim a ry m a te ria ls into the in d u s tria l co u n tries.
th e re g io n to m a in ta in its ca p a city to im p o rt? These
w ould seem to fall into tw o b ro a d categories. In the
first place, it m a y be possible to develop alternative
m a rk e ts fo r its tra d itio n a l ex p o rts of p rim a ry goods,
o r to develop a n e x p o rt tra d e in m a n u fac tu re s or,
finally, to im p ro v e th e service balance. Secondly, the
c ap ac ity to im p o rt m ig h t be in creased by la rg e r
p riv a te ca p ital im p o rts o r fo re ig n aid. T he first set
of p o ssibilities will be explored in th is section, an d
it will a p p e a r th a t n o t m u c h relief can be expected
fro m these v ario u s sources, in w hich case the conclusion of a necessary tre n d to w ard s g re a te r im p o rt
s u b stitu tio n fo r the re g io n as a whole w ould a p p e a r
u n a v o id a b le .
I t seems clear, then, th a t the reg io n c a n n o t place
too m u ch reliance on in c rea sin g ex p o rts of p rim a ry
p ro d u c ts to the in d u s tria l co untries. I t w as b ro u g h t
o u t in table 38 th at, if the p r im a ry e x p o rtin g c o u n trie s
of the reg io n m an ag e to m a in ta in th e ir sh a re in the
exports of each com m odity, the prospective increases
in the tw enty-year p e rio d u p to 1975 ra n g e d , except
in the case of S ara w a k , fro m 33 to 87 p e r cent,
d ep e n d in g on the stru c tu re of ex p o rts of th e c o u n try
concerned. As noted above, even these expectations
m a y prove to be qu ite optim istic. O n a n y reaso n ab le
a ssu m p tio n as to th e d esirab le ra te of g ro w th of th e ir
n a tio n a l p ro d u c t, it a p p e a rs, th e re fo re , th a t h a rd ly
a n y c o u n try of the re g io n can look f o rw a rd to an
econom ic developm ent in w hich the g ro w th of exports
of p rim a ry p ro d u c ts to the in d u s tria l c o u n tries plays
the lead in g role.
A L T E R N A T I V E S F O R IN C R E A S IN G
E X P O R T E A R N IN G S
If the prospects fo r th e g ro w th of tra d itio n a l
ex p o rts of p rim a ry com m od ities to th e in d u s tria l
c o u n tries a re lim ited relative to th e r a p id ex p an sio n
of im p o rts fro m them , w h a t alte rn a tiv e s a re open to
1 See chapter 4, table 20, p .59.
P ROSPECTS FOR EXPORTS OF M ANUFACTURED
GO O D S A N D F O R S E R V IC E E A R N IN G S
A good case can be m ade, a n d has frequently
been m ade, fo r m a n u fa c tu re d exports fro m some
c o u n trie s of the reg io n , w h ich have h ig h p o pulation
p re ssu re a n d lim ited a g ric u ltu ra l a n d m in e ra l re sources. Low wages should m ake th em com petitive
in a t least th e sim pler type of labou r-intensive m a n u f a c tu rin g processes, su ch as p re v a il in the cheaper
lines of co n su m e r goods. In fact, ex p o rts of textiles
a n d o th er co n su m er goods have been so successful
as to provoke a re a ctio n fro m th e o th er m a n u fa c tu rin g
co u n tries, a n d d em an d s fo r p ro te ctio n a re fre q u e n t,
b o th in the U n ite d States a n d in w estern E urope.
T he old arg u m e n ts in th e U n ited States ag ain st
im p o rts fro m “ c h e ap -la b o u r” c o u n trie s in E u ro p e, are
now used b y the la tte r ag a in st textile im p o rts fro m
H o n g K ong, In d ia , J a p a n a n d P ak istan . S im ila r a rg u m en ts m a y be expected in r e g a rd to o th e r successful
ex p o rts fro m the c o u n trie s of th e region. Q uotas have
been im posed “ v o lu n ta rily ” b y J a p a n on its exports to
th e U n ite d States, fo r cotton textiles, silk goods, an d
flat-ware. In w estern E u ro p e , Ja p a n e se im p o rts a re
still h a m p e re d b y the absence of m ost-favoured-nation
tre a tm e n t u n d e r G A T T rules in several countries,
such as A u stria , the N eth e rlan d s a n d th e U nited
K in g d o m .2 E x p o rts of cotton cloth fro m H o n g K ong,
In d ia a n d P a k is ta n to th e U n ited K in g d o m are
sim ilarly su b je c t to a “ v o lu n ta ry ” q u o ta restrictio n ,
w hich m a y be e x p a n d e d to o th e r e x p o rt lines. F ra n c e
a n d Sw itzerland also have im posed im p o rt restrictions
on goods fro m H o n g K ong, a n d th e re are in d ica tio n s
th a t a sim ila r step is b e in g c o n sid ere d in th e U n ited
States.3
2 W hite Paper on International Trade, 1958, Ministry of International T rade and Industry, Japan.
3 Far Eastern E conom ic R eview , 26 M arch
Chartered Bank, C h airm an ’s Statement.
1959, p.xi, T he
C hapter 8.
Hong Kong
with an estim ated su rp lu s of H K $ 1 7 m illion in the
revised estim ate fo r 1 9 5 5 /5 6 . T h e 1 9 5 6 /5 7 deficit
was due alm ost en tire ly to an 18 p e r cent rise in
expend iture over the p re v io u s year. Since no change
in ta x a tio n was p ro p o se d , an d only a sm all increase
was expected fro m g ra n t a n d lo a n s fro m th e U n ited
K ingdom , th e b u d g e t deficit w as to be financed from
accum ulated surpluses, w h ich w ere expected to
decrease to H K $267 m illion a t the end of 1 9 5 6 /5 7 .
A b o u t one-half of the in crease in th e estim a ted
governm ent ex p e n d itu re in 1 9 5 6 /5 7 w as a cco u n ted fo r
by increased investm ent a n d sp en d in g on econom ic
and social services, th e o th e r h a lf by an increase in
other c u rre n t e x p en d itu re s. In v estm e n t ex pen diture,
m ainly on p ublic w orks, rose fro m H K $ 6 5 m illion
in 1 9 5 4 /5 5 to H K $ 1 2 4 m illion in 1 9 5 5 /5 6 a n d to
H K $155 m illion in 1 9 5 6 /5 7 . O f th is last am o u n t,
w ater supplies, K ai T a k a irp o rt developm enet, sq u a tte r
resettlem ent an d h o u sin g occupied a m a jo r sh are.
The am o u n t allotted to econom ic a n d social services
together rose fro m H K $8 9 m illion in 1 9 5 5 /5 6 to
HK$103 m illion in 1 9 5 6 /5 7 .
Inflow of ca p ita l c o n tin u e d in 1956 a n d te n d e d
to keep the m a rk e t over-supplied w ith lo a n a b le fu n d s.
The greate r p a r t of th is c a p ita l w as channelled into
building activities, ac c o m p a n ie d by risin g la n d prices
and speculation in re a l estate, especially in late 1955
an d early 1956. B ank c learin g s re a c h e d th e ir hig h est
97
p o in t in M ay (second only to th e p e a k of 1951) b u t
ta p e re d off the re a fte r.
W hile the fu tu re of th e
b u ild in g b oom was u n c e rta in ,1 the le ad in g ban k s
exercised a m o d e ra tin g influence on the g en eral
b u o y a n cy of th e m a rk e t b y re stric tin g c re d it and
keep in g interest rates at a relatively h ig h level. T hey
have been re lu c ta n t to g ra n t m ortgages, a n d in acceptin g re al estate as co llateral— p re fe ra b ly b uildings in
busy localities— ha v e cut loans fro m 50– 70 p e r cent
to 30– 50 p e r cent of the m a rk e t value. T he fo u r ban k s
of issue held the volum e of c u rre n c y in c ircu latio n
practically constant at H K $727 m illion th ro u g h o u t th e
first seven m onths of 1956, w ith only a slight increase
in A ugust.
T he cost of living index went up steadily fro m
M ay a n d reach ed 103 in O ctober, c o m p are d w ith
94 a t the b eg in n in g of 1956 ( 1 9 5 3 = 1 0 0 ) . A p a rt
fro m seasonal v a ria tio n s a n d risin g food prices, the
chief c o n trib u to ry facto rs app eared to be the continued
inflow of capital, th e h ig h level of p u b lic a n d priv ate
sp ending, especially in co nstruction, an d th e rise of
15 p e r cent in fre ig h t rates in A ugust. A n o th e r 15
p e r ce n t in crease in fre ig h t ch a rg es between E u ro p e
a n d th e F a r E a st follow ed in N ovem b er as a result
of the Suez C anal crisis.
1 In late 1956, a num ber of new flats appeared vacant, and real
estate dealers predicted a fall in rents for new buildings. W hether
or not this would affect the current building boom was not apparent.
C h ap ter 9
INDIA
T h e second P la n , w hich w as i n a u g u r a te d in A p ril
1956, is, as m ig h t be expected, m u c h m o re
a m b itio u s th a n the first.
It a im s a t in c re a sin g
n a tio n a l incom e by 25 p e r c e n t ( c o m p a r e d w ith
18 p e r cent in the first P la n ) a n d p e r c a p ita incom e
b y 18 p e r cent (a s a g a in st 11 p e r c e n t) .
The
developm ent o u tla y of the p u b lic secto r is to be
R s 4 8 billion, w hile R s 2 4 b illio n is the estim a te d
investm ent of th e p riv a te sector.
O f the pub lic
se c to r’s total of Rs 4 8 billion, R s 3 8 billio n is to be
investm ent in a stric t sense, w hile R s 10 billio n is to
be w h a t m a y be b ro a d ly called c u r r e n t e x p e n d itu re
on developm ent. In the first P la n , to ta l in v e stm e n t
in the econom y a p p e a rs to h a v e been a b o u t R s 31
billion, th e p u b lic se c to r’s s h a re b e in g a p p ro x im a te ly
half. In th e second P la n to ta l in v e stm e n t is scheduled
to be R s 62 billion o r d o uble th a t o f the first P la n ,
a n d th e p u b lic secto r’s sh a re is to be 61 p e r c e n t.4
T h e central developm ents in In d ia in the y e a r
u n d e r review related to the tra n sitio n fro m the first to
the second Five-Y ear P la n . T h e first P la n g a th e re d
m o m entum ra p id ly in the last two years, a n d this
h a s of late been reflected in signficant in te rn a l a n d
e xternal strains. T he second P la n envisages h eav ier
tasks.
S E C O N D F IV E -Y E A R P L A N
A chievem ents u n d e r the first P la n w ere im pressive.
Over the five years, n a tio n a l incom e ( i n c o n sta n t
pric e s) is estim ated to have increased by 18 p e r cent
a n d p e r cap ita incom e by 11 p e r cent. A g ric u ltu ra l
p ro d u c tio n increased 15 p e r cent a n d in d u s tria l p r o duction 32 p e r cent. O ver 2.4 m illion hectares of
la n d w ere b ro u g h t u n d e r irrig a tio n th r o u g h m a jo r
w orks, a n o th e r 4 m illion benefited t h ro u g h sm aller
w orks. E lectricity g e n e ra tio n w ent up fro m 6,575
m illion k W h to 11,000 m illion kW h. T h e o u tp u t of
cement, a n im p o rta n t in d ic a to r of the volum e of
investm ent in the econom y, rose fro m 2.7 m illio n to
4.6 m illion tons. Several im p o rta n t in d u stria l p ro je c ts
in the pu b lic sector were com pleted, a n d investm ent
in the p riv a te sector h a s risen. In th e last y e a r of
the P la n , pu b lic developm ent e x p e n d itu re was a b o u t
two-and-a-half tim es th a t in the first y e a r; c o rre sp o n d ingly, investm ent re c o rd e d a rise fro m 4.9 p e r cent
of n a tio n a l incom e to 7.3 p e r cent.1
S O C IA L IS T P A T T E R N O F S O C IE T Y
T h e second P la n h a s been fo rm u la te d in th e
perspective of d evelopm ents en v isa g e d over a m u c h
longer pe rio d . T h e goal is to d o u b le n a tio n a l in co m e
by 1 9 6 7 /6 8 , a n d the step-up in investm ent p ro p o se d
fo r the five-year p e rio d is to be ju d g e d in th is light.
F u rth e r, th e P la n h a s certain social objectives in
view, a n d these ha v e been su m m ed u p in the p h ra se
“ socialist p a tte rn of society.” T h e P la n itself in d ic a te s
the b ro a d c o n te n t of th is c oncept: essentially, “ the
basic c rite rio n fo r d e te rm in in g the lines of ad v an ce
m u st n o t be p riv a te p ro fit b u t social g a in ” a n d developm e n t should be so p la n n e d th a t it results “ n o t only
in increases in n a tio n a l incom e a n d e m p lo y m e n t b u t
also in g re a te r e q u a lity of incom es a n d w ealth .”
A g ain , “ m a jo r decisions re g a r d in g p ro d u c tio n , d istrib u tio n , co n su m p tio n a n d investm enet m u st be m a d e
by agencies in fo rm e d by social p u rp o se . . . F o r
c re a tin g the a p p ro p ria te c o n d itio n s the S tate h a s to
take heavy re sponsibilities a n d the p u b lic sector h a s
to e x p a n d ra p id ly .” 5 T he socialist p a tte rn , it h a s
been stated, is n o t a rig id one. T h e e m p h a sis is
on ce rta in basic values r a th e r th a n on a n y p a rtic u la r
type o r m odel of socio-econom ic re la tio n sh ip s, a n d
the m eans fo r re a lizin g the ends in view a re to be
d e te rm in e d p ra g m a tic a lly in the light of experience.
I f th e P la n places the resp o o n sib ilities fo r in itia tin g
a n d p ro m o tin g developm ent in c ru c ia l sectors sq u a re ly
on the State, it stresses a t the sa m e tim e th e role of
D u rin g th e P la n p e rio d as a whole, this large
m e a su re of developm ent was achieved w ith o u t
a p p re c ia b le inflatio n ary p re s s u re on p rices o r the
balance of pay m en t. A lth o u g h wholesale p ric e s rose
som ew hat in the closing m onths, they w ere actually
13.3 p e r cent low er a t the end of the P la n p e rio d th a n
a t th e beginning. E x te rn a l accounts also show ed a
positive balance every ye a r except 1 9 5 1/5 2 .2 A g g re gate d e m a n d a n d supply thus b a la n c e d a t a h ig h e r
level. H ow ever, to w a rd s the end of the P la n p eriod,
the m o u n tin g developm ent outlay show ed signs of
p ro d u c in g some strains. W holesale prices rose by 11.6
p e r cent d u rin g 1 9 5 5 /5 6 , p a rtly as a co rrectiv e to the
p revio us decline. T he balance of p a y m en ts position
also d e te rio ra te d a little, the tra d e balance show ing
a m u c h la rg e r deficit. A lth o u g h the c u rre n t a c c o u n t
balan c e fo r the y e a r h a d a la rg e r su rp lu s,3 it was
achieved by a n in crease in official don atio n s, a s well
as slightly la rg e r invisible receipts.
1 Planning Commission, Second F ive-Year Plan, (N ew Delhi,
1956), pp.2, 61.
4 Investment figures are for net investment. National income
(at 1952/53 prices) was estimated at Rs 108 billion for 1955/56
( Second F ive-Year Plan, 1956, p p .11, 74).
5 Second F ive-Year Plan, 1956, p.22.
2 T h e fiscal year is from 1 April to 31 March.
3 Em bracing goods, services, private and official donations
( Reserve Bank o f India B ulletin (B om bay), June 1956).
98
C h a p te r 9.
In d ia
99
an e x p a n d in g c o operative sector a n d the n e e d fo r
e n la rg in g o p p o rtu n ities fo r sm all e n tre p re n e u rs
th ro u g h o u t the system .
A bove all, th e ‘socialist
p a tte rn ’ is to be achieved by d e m o cratic m eans, and,
in fact, the e n tire a p p ro a c h is in term s of evolving
an in stitu tio n al fra m e w o rk a p p ro p ria te to a d e m o c ra tic way of life.
R eduction of econom ic inequalities— as between
classes as well as reg io n s— is a n essential in g re d ie n t
in th is a p p ro a c h . F o r p ro m o tin g g re a te r equality,
reliance is p laced n o t only on fiscal m easures b u t
also on pro g ressiv e in stitu tio n al changes, a m o n g
which p e rh a p s the m o st im p o rta n t is pu b lic ow nership
a n d m a n a g e m e n t over a fairly wide ra n g e of econom ic
activities.
The im plicatio ns of this a p p ro a c h in the in d u strial field hav e been set fo rth in a new In d u stria l
Policy R esolution issued in A p ril 1956. T h e reso lu tion stated:
“ T he a d o p tio n of the so cialist p a tte rn of society
as the n a tio n a l objective, as well as the need fo r
p la n n e d a n d ra p id developm ent, re q u ire th a t all
in d u stries of basic a n d stra te g ic im p o rtan ce, or
in the n a tu re of p u b lic u tility services, sh o u ld
be in th e p u b lic sector. O th e r in d u strie s w hich
are essential a n d re q u ire investm ent on a scale
w hich only th e State, in p re se n t circu m stances,
could p rov ide, have also to be in the pu b lic sector.
T h e S tate h as, th e re fo re , to assum e d irec t
responsibility fo r the fu tu re d evelopm ent of in d u stries over a w id e r a re a .”
T h e reso lution classified in d u strie s into three
categories, a c c o rd in g to the p a r t w hich the G o v ern m ent would pla y in each of them . T h e first category
consisted of in d u strie s w hose fu tu re developm ent
would be the exclusive re sponsibility of th e G overnm ent.
It included ato m ic e n e rg y ; iro n a n d steel;
h eavy e q u ip m e n t fo r specified basic in d u strie s;
g e neration a n d d istrib u tio n of e lectricity; m in in g of
T a b le 20.
In d ia:
coal, iro n a n d c e rta in o th er specified m in e ra ls; m in e ra l
oils; a ir c r a f t a n d sh ip b u ild in g ; a ir a n d railw ay
tra n s p o rt; a n d telecom m unications.
In the second
c ateg o ry w ere in d u strie s w hich would be progressively
G overnm ent-ow ned; in these, th e G overnm en t w ould
gen erally take the in itiativ e in establish ing new u n d e rtakings, b u t p riv ate ente rp rise s w ould be expected
to supplem ent the G overnm ent’s effort. T he th ird
c a tegory com prised all the re m a in in g in d u strie s; th e ir
fu rth e r developm ent would in general be left to the
initiative a n d en te rp rise of the p riv ate sector. T he
categories were not, however, in tended to be rig id
o r w atertight. T he new policy lim iting private investm ent w as to apply equally of course to p riv a te foreign
investm ent.
P R IO R IT IE S A N D PR O D U C T IO N T A R G E T S
W hile th e accent in the first P lan h a d been on
agriculture, the second P lan p a rticu la rly sressed in d u stria liz a tio n ,1 since it was considered th a t the chronic
evils of poverty, unem ploym ent, under-em ploym ent
a n d in eq u ality could n o t be corrected w ith o ut ra p id
in d u strializatio n .
Since in d u strialization re q u ire d
basic h eavy in d u stries— in d u stries “ to m a k e m achines
to m ake m achin es”— the public sector’s large allocation
fo r in d u stry was alm ost entirely fo r th is purpose (see
table 2 0 ) . In the p riv a te sector, w here total investm ent on the basis of p ast tren d s was expected to be
R s 24 billion, investm ent in in d u stry a n d m in in g
w as estim ated at Rs 5,750 m illion or 24 p e r cent of
the total.
T he p h y sical targ ets of the second Five-Y ear
P la n , to be achieved by 1 9 6 0 /6 1 , were as follows:
food g ra in output, 76.2 m illion tons (15 p e r cent
increase2 over 1 9 5 5 / 5 6 ) ; irrig a te d area, 35.6 m illion
1 However, both planned expenditure on agriculture and the
planned increase of agricultural output (as revised) were greater
in the second Plan than in the first.
2 Subsequently revised by the Planning Commission to 81.7
million tons (25 per cent increase over 1955/56). T h e T im es of
India (N ew D elhi), 5 Novem ber 1956.
D is tr i b u t i o n o f O u tla y s u n d e r T w o F iv e -Y e a r P l a n s b y M a j o r Ite m s of D evelo p m e n t
F i r s t F i v e - Y e a r P la n
Total
Item
p r o v is io n
( m illio n s of
rupees)
P e r c e n ta g e
of
to ta l
S e c o n d F iv e - Y e a r - P la n
T o ta l
p r o v is io n
( m illio n s o f
ru pees)
Agriculture and com m unity developm ent ........................................
Irrigation and power ................................................................................
Industry a nd m in ing ................................................................................
Large and m edium -sized industries .................................................
Mineral developm ent ................................................................................
T ransport and comm unications ...........................................................
Social service ..............................................................................................
Miscellaneous ..............................................................................................
3,570
6,610
1,790
1,480
10
5,570
5,330
690
15.1
28.1
7.6
6.3
—
23.6
22.6
3.0
5,680
9,130
8,900
6,170
730
13,850
9,450
990
T OTAL
23,560
100.0
48,000a
P e r c e n ta g e
of
to ta l
11.8
19.0
18.5
12.9
1.5
28.9
19.7
2.1
100.0
P e r c e n ta g e
in c re a s e o v er
fir s t P la n
59.1
38.1
397.2
—
—
148.7
77.3
43.5
103.3
a O n 30 Novem ber, the Finance Minister stated that the figure was likely to be higher, by Rs 4 billion to 5 billion, because some
of the original provisions were inadequate and subsequent increases had taken place in domestic and external prices.
100
P a rt II.
h ectares (31 p e r cent in crease); installed c a p a c ity of
electricity, 6.9 m illion kW (103 p e r cen t in crease);
iro n ore, 12.7 m illion to n s (191 p e r c e n t in c re a se ) ;
coal, 61 m illion tons (5 8 p e r cent in crease); finished
steel, 4 .6 m illion to n s (40 0 p e r c e n t in crease); cem ent,
16.3 m illion tons (3 20 p e r cent in crease); n itro g e n o u s
fertilizers, 0.7 m illion tons (5 0 0 p e r cen t in crease);
cotton textiles, 7.8 billion m etres (2 4 p e r cen t
increase); ra ilw a y passenger-kilom etres, 200 m illion
(1 5 p e r cen t increase); ra ilw a y freig h t, 165 m illion
tons (40 p e r c e n t i n c r e a s e ) ; n a tio n a l highw ay s, 2 2 ,20 0
kilom etres (7 p e r cent increase); su rfaced ro ads,
232,000 kilom etres (1 8 p e r cent in crease); elem enta ry basic schools, 350,000 (19 p e r cen t increase) ;
m edical institutio n s, 12,600 (2 6 p e r cent i n c r e a s e ) .
R e g a rd in g em ploym ent, it w as envisaged th a t
d u rin g the P la n p e rio d the increase in the la b o u r
force (e stim ated at 10 m illio n ) w ould be fully
ab so rb e d by new oppo rtu n ities fo r em ploym ent, w ith
som e im p ro v em en t in under-em p loy m en t also, b u t
th a t the backlog of u n e m ploym ent (e stim ated a t 5.3
m illion) a n d of under-em p loym ent w ould in larg e
p a r t rem ain.
F INANCE
R e g a rd in g finance, the P la n expects a substantial
step p in g up of dom estic resources fro m 7 p e r cent
of n a tio n a l incom e in th e first y e a r to a b o u t 10 p e r
cent in the last y ear. T h is will necessitate a steep
increase in ta x a tio n .
D om estic n o n-in flatio n ary
b o rro w in g is also to b e raised significantly. N e v e rtheless, as m u ch as 25 p e r cent of th e developm ent
e x p e n d itu re in the pu b lic sector is to be deficit
financed. T h e increase in dom estic savings envisaged
im plies an in crem ental ra tio of 20 p e r cent, w hich
is n o t excessive in itself, b u t given th e lim ita tio n
of initially low incom e, the task is by no m eans easy.
T he P la n p ro p o se s to m a k e u p the sh o rtfa ll in dom estic
savings by se c u rin g an inflow of R s 11 billion of
e x te rn a l re so u rc e s: R s 8 b illion by w ay o f new
e x te rn a l assistance, Rs 1 b illion th ro u g h p riv a te
investm ent a n d Rs 2 billion a g a in st ex istin g fo reign
e x ch an g e reserves.
T h e p recise dom estic sources fro m w hich the
p riv a te sector is to ra ise its in vestm ent cap ital is
no t stated. As usual, the b ulk is expected to com e
fro m d ire c t savings (sav in g s of investors p lo u g h e d
back into th e ir own e n te rp ris e s ), a lth o u g h a g ro w in g
p a r t m a y com e fro m n o n-in vesto rs th ro u g h fin an cial
in stitu tion s. F o r th e p u b lic sector, th e P la n m ak es
th e p ro v isio n s show n in table 21.
T h e im p a c t of the P la n on the bala n c e of
pa y m e n ts is difficult to fo rec a st accu rately, b u t on
c e rta in a ssu m p tio n s, p a rtic u la rly of stability of the
term s o f tra d e a n d of dom estic p rices a n d costs, it
is estim ated th at, over the P la n p e rio d , In d ia w ould
h av e a c u rre n t ac c o u n t deficit of R s 11 billion. T he
C o u n tr y S urveys
T ab le 21. I n d ia : F in a n c in g of D evelopm ent
E x p e n d itu re u n d e r S e c o n d F iv e-Y ear P la n
( M illions o f r u p e e s )
Am ount
Ite m
Surplus from current revenues .............................
T axation at 1 9 55/56 rates ..................................
Additional taxation ................................................
Borrow ing from the public ....................................
M arket loans ............................................................
Small savings ..........................................................
O ther budgetary sources .........................................
Railway contribution to the developm ent
program m e ..........................................................
Provident funds and other deposits ...............
External assistance .....................................................
Deficit financing .........................................................
Rem ainder, to be covered by additional
measures to raise domestic resources . . . .
8,000
3,500
3,500
12,000
7,000
5,000
4,000
1,500
2,500
T OTAL
8,000
12,000
4,000
48,000
P la n , as n o ted , co n te m p la te s c o v e rin g R s 2 billion of
th is b y d ra w in g dow n ste rlin g b a la n c e s a n d th e
re m a in in g R s 9 billion (o f w h ic h R s 8 billion is
e a rm a rk e d fo r use by th e p u b lic se c to r) p r im a r ily b y
fo re ig n loans a n d g ra n ts.
T H E B A L A N C E S IN T H E P L A N
A plan o f these d im e n sio n s re p re se n ts a b ig
u n d e rta k in g .
It involves a fin a n c ia l a n d o rg a n iz a tio n a l effort m u c h g re a te r th a n w as n e c e ssa ry fo r
the first P la n . T h e successful im p le m e n ta tio n of th e
P la n p resu p p o ses fa v o u ra b le c o n d itio n s, b o th d om estic
a n d ex tern al, w h ic h m a y o r n o t alw ays exist. I t is
possible to ask— a n d re tu rn a sceptical a n sw er to
— questions, su c h as, ( 1 ) w h e th e r the P la n is n o t to o
a m b itio u s in te rm s of reso u rces, (2 ) w h e th e r it
assigns too g re a t a s h a re of re sp o n sib ility to th e
p u b lic sector a n d too little to th e p riv a te sector, a n d
(3 ) w h e th e r it does n o t e m p h asize in d u strie s (a n d
a m o n g th em heavy in d u strie s) too m u c h a t th e cost
of a g ric u ltu re . In a w o rd , th e q u e stio n is w h e th e r
the P la n is w ell-balanced— in te rm s of o b jectiv es a n d
a p p ro a c h e s, in te rm s of reso u rc es a n d yields, a n d in
te rm s of th e o u tp u t of v a rio u s sectors a n d th e stra in s
on them .
In th e n a tu re of th in g s, a c a te g o ric a l
answ er c a n n o t b e given to these qu estio n s. O n th e
one h a n d , In d ia is a m o n g th e best-placed c o u n trie s
in the re g io n to u n d e rta k e d ev elo p m en tal p la n n in g on
an a m b itio u s scale. In d ia h a s a lre a d y som e e x p erien ce
in th e field of in d u stry . T h e su p p ly of te c h n ic a l a n d
m a n a g e ria l p ersonnel, th o u g h by no m e a n s a d e q u a te ,
is n o t incon sid e ra b le . T h e re is c o u n try -w ide a p p re c ia tio n of th e P la n a n d w hat it sta n d s fo r, a n d th e re
a p p e a rs n o re a so n why, w ith c o n tin u e d in te rn a l
sta b ility a n d th e reso u rces of e x p e rie n c e d le a d e rsh ip ,
the re q u ire d effort sh o u ld n o t be fo rth c o m in g .
T h e re are, on the o th e r h a n d , u n c e rta in tie s. T he
tax ta rg e ts m ig h t n ot, in p ra c tic e , m a te ria liz e ; it is
n o t easy to ta x aw ay a sig n ifican t p r o p o rtio n of new
incom es, w hen these a re still n e a r o r even below
Chapter 5.
101
P ro sp e c ts a n d P ro b le m s
SO M E I M P L I C A T I O N S A N D P R O B L E M S
T H E N E E D F O R IM P O R T S U B S T IT U T IO N
The u psh ot of th e discussion of the ex p o rt
prospects of the p rim a ry e x p o rtin g c o u n tries of the
region is th a t th e ir ca p acity to im p o rt m a y be
expected to grow p e rh a p s by no m o re th a n 60-70
per cent up to 1975. T h is assum es, a m o n g o th er
things, th at the term s of tra d e will n e ith e r im prove
nor d eteriorate re la tire to 1954-1956. A m a jo r
im plication of th is outlook is th a t the developm ent
of the region can h a rd ly rely exclusively on ex ports
even in the countries w ith fa v o u rab le ex p o rt prospects.
The m om entum p ro v id e d b y th e ex p an sio n in the
export in dustries will be too sm all to b rin g a b o u t
an adequate increase in total outp ut. R isin g exports
are unlikely to play a lead in g role in the developm ent
process of m ost co u n tries of th e reg ion. In view of
the m uch g reater expansion of im p o rts expected b y
1975, th e ir functio n, a n d th a t of an y fo re ig n a id
and capital inflow, is ra th e r to p ro v id e th e necessary
foreign exchange fo r developm ent, the p rim e m overs
of which will have to com e fro m w ithin.
A shortage of fo re ig n exchange to finance im p o rts
of p ro d u cer goods a n d som e ra w m ate ria ls (in d ispensable fo r developm ent p ro g ra m m e s a n d p ro c u ra b le
at hom e only w ith g re a t difficulty) is likely to
constitute a cru cial p ro b le m fo r m a n y c o u n tries of
the region. In the p re se n t circu m stances, it a p p ea rs
that, to a v ary in g extent, the p rim a ry ex p o rtin g
countries of the region will experience an in creasin g
gap between th e ir capacity to im p o rt p ro d u c e r goods
and their req u irem en ts in o rd e r to achieve rea so n a b le
rates of gro w th in th e ir n a tio n a l incom es; a n d it
therefore seems th a t m a jo r efforts will have to be
made to expand o r establish dom estic p ro d u c e r goods
industries in the region.
Some countries of the reg io n a re m o re fa v o u rab ly
placed than others in this respect. T he F e d e ra tio n
of M alaya, fo r instance, w hose ca p acity to im p o rt
may be expected to in crease b y th re e -q u a rte rs in the
next tw enty years, a n d w hose relatively low sh are
of capital goods in to tal im p o rts could be ra ise d
considerably, especially if less fo o d im po rts were
needed, is unlikely to have m u c h of a p ro b le m in
meeting the d em an d fo r ca p ital goods im p o rts re q u ire d
for a rap id in crease in its n a tio n a l incom e. T o
varying degrees, how ever, p rim a ry ex p o rtin g co u n tries
of the region will be co n fro n te d w ith the need b o th
to curtail the d e m a n d fo r p ro d u c e r goods, a n d to
make efforts to in crease th e ir supply, o r bo th ,
C urtailm ent of p ro d u c e r goods re q u ire m en ts, b y a
shift tow ards less “ c ap ital intensive” investm ents in
agriculture, m ay facilitate a n in crease in th e ir supply
at a later stage, b y re d u c in g th e n eed fo r foo d
im ports. M ore generally, g re a te r supplies of p r o -
d u c e r goods can be m a d e available eith e r b y directly
e x p a n d in g th e ir p ro d u c tio n , o r b y an expansion of
p ro d u c tio n of im p o rt-su b stitu tin g food a n d consum er
goods, p ro v id in g a fo re ig n exchange m a rg in fo r la rg e r
im p o rts of p ro d u c e r goods. H ow ever, fo r some
co un tries the la tte r course alone will p ro b a b ly n o t
suffice to m ake these goods available in sufficient
quantities. B u ild in g up a p ro d u c e r goods in d u stry
is by no m eans easy a n d m ay, in the s h o rt ru n ,
even ag g rav ate fo re ig n exchange difficulties. B ut it
w ould a p p e a r th a t th e y have no o th er choice if a
reaso n ab le ra te of gro w th of th e n a tio n a l p ro d u c t
is to be a ttain e d . F o r m ost o ther countries, it will
be an easier a n d less costly ad ju stm e n t to e x p a n d
th e ir food p ro d u c tio n a n d consum er goods in d u stries
to the re q u ire d extent. Im p o rt su b stitu tio n of services
such as ship p in g , b a n k in g an d in su ra n c e will also
help to alleviate th e ir fo re ig n exchange problem .
R EGIONAL CO-OPERATION
T h is im p o rt su b stitu tio n of co n su m e r goods m ay,
to som e extent a t least, be fa cilitated fo r th e region
as a whole, a n d o bviated fo r in d iv id u al countries, by
developing in tra re g io n a l tra d e in food, ra w m aterials
a n d co n su m er goods.
If, how ever, th e p a st is an y guide, th e tre n d
is in the opposite d ire c tio n .1 T h is is largely due to
the fa ct th a t ex p o rt developm ent in several p rim a ry
ex p o rtin g c o u n trie s of the reg io n h as been d irected
to w ard s sup p ly in g the m a rk e ts of the in d u stria l
c o u n tries, w hich re m a in the p re d o m in a n t suppliers
of th e ir needs fo r m a n u fa c tu re d goods. C o nfronted
w ith a fo reig n exchange shortage, co u n tries, in th e ir
econom ic developm ent plans, have a im ed a t selfsufficiency in cereals, in su g a r a n d in textiles, to the
d e trim e n t of the p rim a ry ex p o rtin g c o u n trie s of the
reg ion. Even so, th e reg io n is im p o rtin g fro m outside
fa irly la rg e q u a n tities of m a n u fa c tu re d c onsum er
goods (such as te x tile s ) , foodstuffs (such as w heat
a n d s u g a r ) , a n d ra w m a te ria ls (such as oil a n d
c o tto n ) , w hile a t the sam e tim e it is difficult fo r som e
c o u n tries in the re g io n to dispose of th e ir ex p o rtab le
surplu ses of some of these goods. T his is pre su m ab ly
due to the h ig h e r prices of re g io n al p ro d u c ts, taste
preferen ces, a n d o th e r facto rs. I t w ou ld seem re a so n ab ly clear, how ever, th a t it w ould be of benefit
to the re g io n as a w hole to m obilize available
und er-u tilized reso urces in m a n u fa c tu rin g a n d a g ric u ltu ra l p ro d u c tio n a n d substitute them fo r supplies now
o b tained fro m outside the region. T he expansion of
p ro d u c tio n w ith in th e re g io n w ould, m oreover, tend
to low er the a p p a re n tly h ig h e r costs of im p o rt
substitutes.
T h e textile in d u stry in In d ia , fo r
exam ple, a n d rice p ro d u c tio n in B u rm a a n d T h a ilan d ,
etc. a re obvious exam ples of these possibilities.
1 See chapter 4, chart 6, p .80.
102
P a r t II.
Quite a p a rt fro m the co-existence of u nder-u tilized
capacity w ithin th e reg io n a n d im p o rts fro m outside
of p ro d u cts identical o r sim ilar to those p ro d u c e d in
the region, th ere is likely to be considerable scope
fo r co-operation in im p o rt su b stitu tio n betw een the
coun tries of th e region. I t w ou ld be in tere stin g to
m ake a system atic investigation of th e type of com m odities w hich a t p re sen t a re b e in g im p o rte d , a n d
th e extent to w hich these could be replaced by
p ro d u ctio n in the reg io n w ith in the cost differentials
(betw een regionally p ro d u ce d a n d im p o rte d goods)
w hich m ay be p e rm itte d if a cco u n t is tak en of the
real cost of fo reig n exchange. I t is ce rta in th a t these
differences in cost w ould b e k ept w ith in n a rro w e r
bounds, especially fo r the sm aller countries, if som e
specialization could be agreed u p o n w ithin the re g io n ,1
enab lin g it to benefit as m uch as possible fro m the
econom ies of scale in m an u fac tu rin g , a n d fro m
the differences in n a tu ra l endow m ent fo r p rim a ry
production.
A lthough it is h a r d to deny the advan tages of
such a policy fo r the p rim a ry ex p o rtin g coun tries
of the region, some difficulties re q u ire to be tackled,
since th e ir interests, th o u g h convergent in some
respects, diverge in others. T hey converge in the
com m on d isc rim in a tio n a g a in st outsiders, b u t they
diverge in the c o u n try d istrib u tio n of the increases
in p ro d u ctio n resulting fro m it. C o untries need to
a rriv e a t an agreem ent as to w hich co u n try shall
produce which goods an d to w h a t extent. As re g a rd s
the possible conflict of interest betw een the countries
w ith well-developed c onsum er goods in d u stries an d
the other countries of the reg io n w hich desire to
sta rt or expand such in d u stries, w h at is w anted is
a com prom ise satisfying b o th the need fo r protection
of the “ late-com ers” a n d fo r p re fere n tial trea tm e n t of
regional sources of supply w ithin a schem e such as
a com m on m a rk e t in the p rim a ry ex p o rtin g co untries
of the E C A F E area.
1 Som e or the fields suitable for such specialization and worthy
of further investigation are those relating to the industries m a n u facturing iron and steel and engineering goods. A n iron and
steel industry located in a convenient place w ith good h arbour and
transport facilities and near deposits of raw materials m ay prove
to be an economic proposition. It m ay provide an assured m arket
for the region’s iron ores and coals and an assured source of
semi-finished steel say, for example, for the re-rolling industries or
other engineering industries in other ECAFE countries. T his m ay
also perhaps stimulate the idea of specialization by countries w ith
the m ost suitable facilities for particular products. Plates for ships
m ay, for example, be produced in a large plate m ill in one country and these may be m ade available for the m anufacture of coastal
ships and barges in others specializing in their production. Tool
and alloy steels and ferro-alloys m ay be produced in a country
at a location w ith abundant pow er but the ores themselves m ay be
brought from nearby countries. Ferro-m anganese, ferro-tungsten
and high carbon tool steels in electric furnace are some of the
piojects which m ay prove w orthy of investigation w here the re quired quantities of pow er and necessary ra w materials such as
manganese ores and w olfram are available. T w o other products
w hich may perhaps be m anufactured w ith advantage w ithin the
region are cem ent and paper.
F o re ig n T ra d e of E C A F E P r im a r y E x p o rtin g C ountries
I t should, p erh ap s, be stressed th a t the exports
re fe rre d to h e re should be a d d itio n al, n o t only to
those w ith in the region, b u t to to tal exports. Sw itchovers of ex tra re g io n a l into in tra re g io n a l exports do
n o th in g to alleviate the exchange difficulties of the
region. T h e re is also th e possibility th a t im p o rt
su b stitu tio n m a y have adverse repercussions on
existing in tra re g io n a l exports. T hus, fo r instance,
C eylon’s T e n -Y e a r P la n aim s a t fu rth e r red uctio n
in the volum e of im ports of rice, m eat, pou ltry , fruits,
spices a n d vegetable,2 a t p resen t ob tain ed fro m B urm a
a n d In d ia. T h is illustrates the need to co-ordinate
n o t only tra d e policies (in the n a rro w s e n se ), b u t
also the policies, p ro g ra m m e s an d plans of resource
developm ent in general— a m u ch m o re difficult m atter.
If these obstacles
the reg io n will n o t
co-operation in solving
problem , b u t also lay
beneficial co-ordinated
are successfully su rm o u n ted
only e n jo y the benefits of
its com m on fo reig n exchange
a g ro u n d w o rk fo r m utually
econom ic developm ent.
T H E R O L E O F IN D U S T R IA L C O U N T R IE S
The fo reig n exchange problem of the p rim a ry
p ro d u c in g countries of the region w ould, of course,
be alleviated if the in d u stria l countries im ported m ore
fro m them . A m a jo r fa c to r in this respect is, as we
ha v e seen, the ra te of grow th of incom e in the
in d u stria l countries. A rate of grow th fa ste r th a n
th a t u n d e rly in g the p ro jec tio n s presented in ea rlier
sections w ould alm ost certainly result in la rg e r export
proceeds fo r the region. A p a rt fro m this, the in d u stria l co untries could help b y ta k in g specific m easures
to increase im ports. A t present, p rim a ry pro d u ctio n
is, in one fo rm o r a n o th er, an d to a v a ry in g extent,
p rotected a n d subsidized in m ost in d u stria l countries.
M oreover, a good m an y of them levy heavy taxes on
tro p ic al beverages a n d tobacco, even th oug h they do
n o t p ro d u ce such com m odities themselves. A decline
in this protection an d ta x a tio n w ould no d o u b t increase
the im ports of p rim a ry com m odities into the in d u stria l
c o u n trie s.3
I t should be realized, how ever, th a t the bulk of
the benefits w ould accrue to co u n tries outside the
region. A decline in ag ric u ltu ra l p ro tectio n w ould
p rim a rily affect cereals an d d a iry p ro d u cts an d would
h a rd ly increase the exports of countries w ithin the
region. M ore relevant to them are su g ar, cotton and
oilseeds w hich w ould pre su m a b ly benefit fro m less
protection in in d u stria l countries. B ut it is easy to
over-estim ate th e effects of such a change in policy
on th e exports of the p rim a ry exp o rtin g countries
2 A reduction of 46 per cent for all agricultural and fishery
products.
3 See General Agreem ent on Tariffs and Trade, Trends in International Trade, Geneva, October 1958, p p .80-115.
C hapter 9.
103
In d ia
to b rin g an a d d itio n a l revenue of Rs 160 m illion in
a full year. It was also a n n o u n c e d th a t the d e p re c ia tion allowances a n d developm ent rebates given to
com panies w ould be a d d e d to incom e fo r incom e tax
p u rposes unless a certain p a r t of the u n d istrib u te d
profit w as deposited w ith th e G overnm ent or the
Reserve Bank. T h e deposits were to c a rry interest
and be re fu n d a b le on the re q u e st of the com pany,
if the G ov ernm ent w as satisfied th a t they w ould be
used fo r purposes ap p ro v e d by the G overnm ent or in
fu rth e ra n c e of the objectives of the P lan.
W hile in these w ays it was ho p e d to keep the
internal p ric e situ a tio n u n d e r control, the foreign
exchange position was w orsened by the closing of
the Suez C anal in N ovem ber. Since it increased the
foreign
e x change fre ig h t a n d insu ra n c e
costs of
In d ia ’s trade, the bulk of w hich n o rm a lly m oved
th ro u g h the c a n a l.1 Basically, how ever, the foreig n
exchange p ro b le m a ro se fro m the fact
th a t the
developm ent p ro g ra m m e itself h a d a h igh im p o rt
content.
D om estic savings, in w hatever
way they
were raised, w hether by ta x a tio n or by deficit financing, could n o t cover this foreign exchange gap.
F o r this, the econom y h a d either to increase its net
foreign
exchange ea rn in g s or to raise
resources
a b ro a d . N e ith e r w as easy. T he G overnm ent took
vario us m easures to p ro m o te exports. A d ju stm e n ts
were m a d e in e x p o rt qu otas a n d duties.
E x p o rt
pro m o tio n councils a n d com m o dity b o a rd s were set
up a n d g re a te r e m p h asis w as laid on the value of
sta n d a rd iz a tio n a n d q uality c o n tro l a n d on In d ia ’s
p a rtic ip a tio n in in te rn a tio n a l fa irs and exhibitions.
An expert com m ittee w hich was appointed to exam ine
the question of export cred it insu ra nc e p ro p o se d a
schem e.2 H ow ever, ex p o rt p ro m o tio n would take
tim e to pro d u c e results a n d was lim ited by grow ing
dom estic de m a n d fo r b oth c onsum er goods a n d raw
m aterials. M o re recently, the G overnm ent has taken
steps to cu rta il non-essential im ports. But the scope
for c u rtailin g co nsum er goods im p o rts is lim ited a n d
capital goods im ports, w hich a re the m a in source
of strain on the pay m en ts position, c a n n o t be cut
w ithout c u rb in g the tem po of developm ent.
Because the possibilities of in creasin g net foreign
exchange e a rn in g s were thus lim ited, the need fo r a
generous flow of foreign loans and other assistance
was clear if In d ia was to c a rry out its developm ent
plan w ith o u t financial instability. F o re ig n assistance
would n o t only help to ensure o b ta in in g the P la n ’s
direct im p o rt re q u ire m e n ts, b u t w ould also help to
ab so rb the in d ire c t im p o rt p re ssu re generated by
the grow th of co nsum er dem and.
1 It was estimated that the shipping shortage and the increase
in freight, as well as the need to divert traffic, m ight cost India an
extra £ 3 0 m illion for the carriage of goods before the end of
1956.
2 T he comm ittee was appointed in January 1956 and reported
in June. Its report has been under consideration by the G overnm ent.
T he flow of foreign assistance so fa r h a s been
en couraging, even th o u g h n o t on a scale to provide
a full answ er to the p re se n t phase o f h ig h re q u ire m ents. R oughly, the a m o u n t m ade available d u r in g
the first P la n p e rio d was Rs 3 billion a n d the am o u n t
utilized, Rs 2 billion.3 In 1956 there w ere fo u r
notable developm ents in external assistance: (1 ) T h e re
w as the agreem ent, alread y m entioned, w ith the U nited
States fo r the im p o rta tio n of a g ric u ltu ra l p ro d u c ts on
a do lla r c re d it of $360 m illion. (2 ) T he U nion of
Soviet Socialist R epublics agreed to g ra n t export
credits to talling R s 630 million fo r eq u ip p in g a
new steel plant. (3 ) T h e U nited K in g d o m agreed to
g ra n t a loan of £15 m illion u n d e r the E x p o rt
G u arantee A ct fo r the D u rg a p u r steel plant.
In
ad dition, a £11.5 million cred it fro m U nited K ingdom
banks was a r ra n g e d fo r the project.
(4) In Ju n e
1956 negotiations were com pleted for a $75 million
loan fro m the In te rn a tio n a l B ank fo r R econstruction
a n d D evelopm ent to T a ta Iro n and Steel C om pany
fo r the ex pansion of its steel plant. T his was the
largest loan m ade by the B ank to any country in
Asia, an d the largest to any in d u strial undertaking.
In D ecem ber 1956 a $20 m illion loan was m a d e t o
the In d ia n Iro n a n d Steel com pany. A loan for one
m o re p ro je c t was also u n d e r consid e ra tio n : a $30
m illion loan fo r the K o yna hydroelectric project.
T o w a rd s the end of the ye a r the G overnm ent was
neg o tiatin g fo r assistance from the Bank fo r its
tra n sp o rt p ro jects u n d e r the Plan, and was also
neg o tiatin g with the In te rn a tio n a l M onetary Fund
fo r stand-by credit.
A p a rt from the m easures to earn and conserve
foreign exchange a n d to prom ote a larger flow of
e x ternal assistance, the G overnm ent is exam ining the
question of re p h a sin g the expenditure on the P lan
so as to give p rio rity to p rojects which yield results
quickly a n d which help to ea rn
or save foreign
exchange.
T he large variety of m easures already
taken and u n d e r contem plation are an expression of
the d e term ination of the G overnm ent to realise the
investm ent targets in the second Plan. But the contiu n in g d ra in on the econom y in recent m onths would
indicate the need for
a d d itio n a l effort to raise
resources a t hom e and fo r m uch g re a te r external
assistance if the P la n is to be c arried th ro u g h w ithout the risk of financial instability.
P R O D U C T IO N
A GRICU LTURAL OUTPUT
On ac c o u n t of u n fa v o u ra b le seasonal conditions,
a g ric u ltu ra l p ro d u c tio n in 1 9 5 5 /5 6 was lower than the
reco rd level reached d u rin g the preceding two years.
T he index of p ro d u c tio n ( 1 9 4 9 / 5 0 = 1 0 0 ) , which was
3 Budget Speech of the Finance Minister, 1956/57 (N ew Delhi,
1956). T here is thus a carryover of about Rs 1 billion of foreign
aid into the period of th e second Plan.
P a rt II.
104
114.3 in 1 9 5 3 /5 4 a n d 116.4 in 1 9 5 4 /5 5 , declined to
113.7.1 T he rise in 1 9 5 3 /5 4 w as du e to a large
increase in food g ra in p ro d u c tio n . In th e follow ing
year, alth o u g h th ere was a decrease in food g ra in
output, th e re w as an increase in o th e r item s, p a rtic u larly oil-seeds, cotton, tea a n d sugar-cane. T h e overall decline in 1 9 5 5 /5 6 w as due to a re d u c tio n b o th
in food g ra in s a n d in other crops. T h e total a re a
u n d e r food g ra in s declined by 0.5 p e r cent, th o u g h
th a t u n d e r rice a n d w heat rose. Rice o u tp u t increased
by 3.8 p e r cent (b y a m illion tons, to 25.9 m illio n
tons) b u t th ere was a co n sid erab le fall in the p ro d u c tion of other food crops, p a rtic u la rly c o arse grains.
T he p ro d u c tio n of w heat fell by 5 p e r cent. A s a
result, the total o u tp u t of food g ra in s fell n e a rly 5
p e r cent. T he to ta l o u tp u t of other cro p s fell by
1.4 p e r cent, the o utp u t of ju te increasing ly c o n sid e rably, while th a t of oil-seeds a n d cotton declined.2
S im ilarly, in the case of cotton, the a re a u n d e r the
crop w as estim ated to have increased fro m 6.2 m illion
to 6.5 m illion hectares.
E stim ates of p ro d u c tio n in th e 1 9 5 6 /5 7 season
were n o t available a t tim e of w ritin g ; th e re h a d been
extensive floods, b u t th e ir im p a c t on o u tp u t w as
n o t clear.
All state governm ents were a d o p tin g
schem es to im plem ent the decision to raise a g ric u ltu ra l
o u tp u t above the o rig in a l ta rg e t of the second FiveY ear P la n . T he m a in efforts w ere to be co n c e n tra te d
on food cro p s w hich vitally affect the p ric e situ a tio n ;
in ad d itio n , the need fo r in creased cotton p ro d u c tio n ,
p a rtic u la rly of the lo n g staple varieties, in d u c e d the
P la n n in g C om m ission to raise its p ro d u c tio n ta rg e t
u n d e r the P la n fro m 5.5 m illion to 6.5 m illion bales.
P ro sp e c ts fo r the 1 9 5 6 /5 7 s u g a r c rop w ere im proved,
since the a re a u n d e r su g a r-c a n e was estim ated to
have risen fro m 1.8 m illion to 1.9 m illion h ectares
a n d the c rop h a d n o t been adversely affected b y b a d
w eather.
I N D U S T R IA L O U T P U T
On the in d u stria l fro n t, In d ia h a s m a d e c o n spicuous p ro g re ss in recent years. In the fo u r-y ear
p e rio d , 1952– 1955, fo r w h ic h revised index n u m b e rs
o f in d u stria l p ro d u c tio n a re available, p ro d u c tio n rose
22 p e r cent. T his was achieved p a rtly by fu rth e r
utilization of existing capacity a n d p a rtly by e x p a n sion. T he pace quickened in 1954 a n d 1955 when
p ro d u c tio n rose 7 p e r cent a n d 8 p e r cent, respectively.
T h e u p w a rd tre n d c o ntinued in 1956. T he a v erage
m o n th ly ind ex of in d u stria l p ro d u c tio n in the first
n in e m o n th s of the ye a r was 145, as c o m p a re d w ith
126 in 1955 ( 1 9 5 1 = 1 0 0 ) .
P ro d u c tio n was a t a
1 T he indexes for 1954/55 and 1955/56 were subject to further
revision. These indexes, compiled by the G overnm ent differ from
those prepared by the PA O (See infra, special tables D and E in
th e appendix on Asian Econom ic Statistics).
2 Ministry of Food and Agriculture, A gricultural Situation in
India ( N e w D e lh i), October 1956.
C o u n try Surveys
h ig h e r level in b o th basic a n d c o n s u m e r g o o d s in d u stries. T h u s, a v e ra g e m o n th ly coal m in e d in the first
n in e m o n th s of 1956 a m o u n te d to 3.31 m illion tons,
c o m p a re d w ith a m o n th ly a v e ra g e of 3.23 m illion tons
in 1955. T h e g e n e ra tio n of electricity a n d the p r o d u c tio n of steel, cem ent, s u lp h u ric acid, p a p e r and
p a p e r b o a r d also rose.
A m o n g c o n s u m e r goods
in d u strie s, the a v e ra g e m o n th ly o u tp u t of co tto n pieceg oods in the first n in e m o n th s of 1956 w as 398
m illion m e tre s as a g a in s t the m o n th ly a v e ra g e of 387
m illion m e tre s in 1955.
In the fiscal ye a r 1 9 5 5 /5 6 , a la rg e n u m b e r of
item s, su c h as penicillin, D D T , n e w sp rin t, plastics,
em ulsion p a in t a n d sheet glass, w ere m a n u f a c tu r e d
fo r the first tim e, a n d sev eral of the n ew er in d u strie s,
in c lu d in g a lu m in iu m , soda ash, m o to r-c a rs, electric
m o to rs a n d diesel engines, re c o rd e d su b sta n tia l
increases in p ro d u c tio n . A m o n g b a sic p r o d u c e r g ood s
in d u strie s, cem ent, steel a n d coal sh ow ed relatively
sm all in c re a se s in o u tp u t d u r in g 1 9 5 5 /5 6 . P ro d u c tio n
of cem en t in c re a se d fro m 4 .5 m illio n to 4 .7 m illio n
tons, finished steel fro m 1.73 m illio n to 1.74 m illion
tons a n d coal fro m 38 m illion to 39 m illio n tons.
T h e o u tp u t ta rg e ts fo r these p ro d u c ts in the final y e a r
of the second P la n w e re : cem en t 16.3 m illio n tons,
finished steel 4 .6 m illion to n s a n d coal 61 m illion
tons. F u r t h e r increases in the o u tp u t of finished steel
were expected to com e m a in ly fro m th re e new p lants,
estab lished in the p u b lic sector a t R o u rk e la , B h ila i
an d D u rg a p u r, w ith th e assistance of w estern G e rm a n y ,
the Soviet U n io n a n d U n ite d K in g d o m steel interests,
a n d fro m the expected e x p a n sio n of p ro d u c tiv e
cap acity of the In d ia n Iro n a n d Steel C o m p a n y a n d
the T a ta Iro n a n d Steel C o m p a n y . T h e H in d u s ta n
C able F a c to ry , w hich b e g a n p ro d u c tio n in S e p te m b e r
1954, stepped up its o u tp u t c o n sid e ra b ly .
T he
M achine T o ol F a c to ry a t B a n g a lo re a n d the In te g ra l
C oach F a c to ry a t P e r a m b u r c o m m enced p ro d u c tio n .
In th e field of co n su m er goods in d u strie s, su b sta n tia l a d v an ces w ere m a d e in 1 9 5 5 / 5 6 in the o u tp u t
of su g a r, vanaspati (c o o k in g o i l ) , p a p e r a n d p a p e r
b o a rd , sew ing m achines, ra d io receivers a n d bicycles.
S u g a r p ro d u c tio n , w ith 1.85 m illion to n s of w hite
su g a r as a g a in st 1.62 m illion to n s in c ro p y e a r
1 9 5 4 /5 5 , set a r e c o r d ; 3 in c re a se d p ro d u c tio n m a d e it
p ossible to stop su g a r im p o rts. In the case of c otton
textiles, the in c re a se in o u tp u t w as m o d e ra te , the
c o m b in e d p ro d u c tio n of m ill a n d h a n d loom cloth
in c re a sin g fro m 5,856 m illion m e rte s to 6 ,0 1 4 m illion
m etres.
C o n sid erab le p ro g re ss h a s been m a d e in the
m a jo r in d u s tria l a n d p o w e r p ro je c ts u n d e rta k e n by
the p u b lic sector. In the B h a k ra -N a n g a l p ro je c t, the
N a n g a l d a m a n d two p o w e r houses to irrig a te 0.5
m illion he c ta re s of land, a n d w ith a g e n e ra tin g c ap acity
of 96,000 k W of p ow er, h av e been com pleted. In the
3 Ibid, June, A ugust 1956.
C hapter 9.
105
In d ia
H ira k u d p ro je c t, the d a m was p ractically com pleted
a n d w ater w as released on 7 S eptem ber 1956. A b o u t
40,000 hectares benefited im m ediately.
T he first
ge n e ra tin g u n it in th is p ro je c t, w ith an installed
c apacity of 24,000 k W , was com m issioned in
J a n u a r y 1957.
In the D a m o d a r valley project,
the T ilaiya dam a n d pow er station, the K o n a r
dam , the B okharo th e rm a l station and the D u rg a p u r
b a rra g e have been com pleted, w ith a to ta l gen e ra tin g
c a p a c ity of 1 5 4 ,0 0 0 W
k of electric pow er.
In the
T u n g a b a d h ra p ro je c t, the d a m h a s been com pleted a n d
an a re a of 23,500 hectares b r o u g h t u n d e r irrig a tio n .
P ow erhouses w ith an installed c a p a c ity of 18,000 kW
were expected to be re a d y by th e end of 1956. In
the Kosi p ro je c t, a su b sta n tia l length of e m b ankm ent
has been com pleted. T h e S in d ri fertilizer p la n t h a s
been in process of expansion. T h e p ro g ra m m e for
stepping up the cap acity of the H in d u sta n sh ip y a rd
was expected to be com pleted by the m iddle of 1957.
In early 1956, the chem ical p u lp section of the N epa
Mills was b ro u g h t into p ro d u c tio n . In A ugust, In d ia
becam e the first A sian c o u n try to set an experim ental
atom ic re a c to r in operation.
In the p riv a te sector, as noted, the T a ta Iro n a n d
Steel C om pany a n d the In d ia n Iro n a n d Steel C om pany
have p ro g ra m m e s fo r in c re a sin g th e ir capacities c o n siderably.
W o rk was in p ro g re ss on the Caltex
refinery at V isa k h a p a tn a m .
N A T IO N A L IN C O M E
N ational incom e a t co n stan t ( 1 9 4 8 /4 9 ) prices
increased by a b o u t 13 p e r c e n t in the first three
years of the first F ive-Y ear P la n , th e increase being
p a rtic u la rly m a rk e d (6.1 p e r c e n t) in 1 9 5 3 /5 4 .
P re lim in a ry estim ates fo r 1 9 5 4 /5 5 show ed th a t net
output at c o n sta n t p rices was Rs 101.7 billion, or
1.3 per c e n t m o re th a n in 1 9 5 3 /5 4 . P e r cap ita outp u t
rem ained constant at Rs 269. N o detailed estim ate
for 1 9 5 5 /5 6 was available a t tim e of w ritin g b u t it
ap peared fro m tentative estim ates th a t n a tio n a l incom e
at constant p rices in creased by a little over 2 per
cent th a t y e a r.1 T he figures suggest th a t the rate
of increase in n a tio n a l p r o d u c t h a s slackened som ew hat in the last two years.
T h e decline in the
rate was due essentially to the d ro p in a g ric u ltu ra l
output, since p ro d u c tio n in the o th e r sectors (in d u stry ,
m ining, com m erce, tr a n s p o rt a n d o th e r services)
continued to rise.
TRADE AND PAYM ENTS
T RADE
T he tra d e a n d p a y m e n ts p osition in fiscal
1 9 5 5 /5 6 w as less sa tisfa c to ry th a n in 1 9 5 4 /5 5 . T h e
deterio ratio n , as a lre a d y noted, was m a in ly due to
1 Second Five-Year Plan, 1956; A gricultural Situation in India,
June 1956.
th e faster tem po of developm ent. B oth exports a n d
im ports gained, b u t im ports rose m ore, w ith the
result th a t the tra d e deficit increased substantially
(fro m R s 872 m illion to Rs 1,095 m illio n ). T he
largest increase in im ports took place in p ro d u c e r
a n d c a p ita l goods, like iron a n d steel a n d m achinery.
T he value of im ports of iron a n d steel m a n u fa ctu res
rose 115 p e r cent a n d th a t of m ach in ery 38 p e r cent.2
A m o n g exports, the item s whose value increased
significantly were vegetable oils (72 p e r c e n t) , raw
cotton (95 p e r cent, based largely on stocks), and
m etallic ores (7 p e r c e n t) . Item s th a t declined significantly were tea (2 6 p e r c e n t), cotton and jute
m a n u fa c tu re s (5 p e r cent each) and hides and skins
(8 p e r c e n t).
H ig h e r ex p o rt e arnings were due entirely to a
rise in volume. Between fiscal years 1 9 5 4 /5 5 and
1 9 5 5 /5 6 the volum e index ( 1 9 5 2 / 5 3 = 1 0 0 ) rose by
9 p e r cent while the un it value index actually fell
by 8 p e r cent. In im ports, the volum e index rose 5
p e r cent while the p rice index fell 2 p e r cent. As a
result of these ch a n g e s in export and im p o rt prices,
the term s of tra d e declined by 6 p e r cent.
W hile the d eterio ratio n in the term s of tra d e
c o n trib u te d to some extent to the adverse balance of
trade, the m a in cause of the deficit, as already noted,
was the greatly increased q u a n tu m of developm ent
im ports. Increased dom estic dem and for domestically
p ro d u c e d g o o d s (also induced by developm ent) was
an o th e r factor. In its absence the co u n try ’s exportable
su rp lu s of consum er goods a n d raw m aterials would
have been higher.
T hese general trends in foreign trade apparently
continued into 1 9 5 6 /5 7 . In the first two q u a rte rs of
the y e a r (A p ril to Septem ber 1 9 5 6 ), the tra d e deficit
was Rs 1,722 m illion, com pared with deficits of Rs
207 m illion a n d Rs 365 million, respectively, in the
th ird a n d fo u rth q u a rte rs of 1 9 5 5 /5 6 . Im ports were
h ig h e r a n d ex p o rts low er th a n in either of the two
p re c e d in g q u a rte rs.3 C apital goods im p o rts were at
a m a rk e d ly h ig h e r ra te th a n in 1 9 5 5 /5 6 . T h e price
index of exports was slightly lower a n d that of im ports
was slightly h ig h e r th a n in 1955 /5 6 .
R e g a rd in g the direction of trade, the sterling
a re a ’s sh are in In d ia ’s exports fell fro m 57 p e r cent
in c a le n d a r ye a r 1954 to 52 p e r cent in 1955 a n d
the first h alf of 1956. Its share in In d ia n im ports
fell fro m 52 p e r cent in 1954 to 47 per cent in 1955.
In the first h a lf of 1956, it fell fu rth e r, to 41 per
cent. The c om bined share of C anada a n d the U nited
States in In d ia n exports was m a in ta in e d at 18 per
cent fro m 1954 th ro u g h the first half of 1956. T heir
2 Reserve Bank o f India Bulletin (Bom bay), November 1956.
3 Ibid, October 1956.
106
Chart 12.
P a r t II.
India: Value of Imports and Exports
(M o n th ly averag es)
sh a re in In d ia n im p o rts w as 13 p e r cent in 1954, 15
p e r c e n t in 1955 a n d 12 p e r c e n t in th e first h a lf of
1956.1
B ALAN CE OF PA YM ENTS
In spite of a larg e m e rc h a n d ise deficit, I n d ia ’s
c u rre n t acco u nt surplus rose to R s 207 m illion in
1 9 5 5 /5 6 , a g a in st Rs 6 0 m illion in 1 9 5 4 /5 5 .
The
im provem ent, as a lre a d y m en tio n ed , w as su b stan tially
due to la rg e r receipts of official d o n a tio n s (R s 450
m illion a g a in st Rs 158 m illion in the p re c e d in g y e a r ) .
T h e d o n atio n s cam e alm ost w holly fro m the d o llar
area. If this assistance h a d re m a in e d a t the 1 9 5 4 /5 5
level, o ther things b eing equal, In d ia w ould hav e h a d
a c u r r e n t acco unt deficit of R s 93 m illion in 1 9 5 5 /5 6 .
As a g a in st th e c u rre n t su rp lu s of R s 199 m illion,
th ere were u nid en tified p a y m e n t of R s 53 m illion,
m erg e d in “ e r ro rs a n d om issions.” T h e n e t outflow
of c a p ital on p riv a te a n d official accounts, on th e
o th e r h a n d , w as Rs 146 m illion. T h e second a n d
th ir d q u a rte rs o f 1956 w itnessed a s h a rp rev e rsa l of
th is tre n d . T h e c u rre n t a c c o u n t show ed a deficit of
R s 44 5 m illion a n d R s 47 5 m illion respectively, com p a re d w ith a surplus of R s 45 m illion in th e first
q u a rte r of 1956 a n d a su rp lu s of R s 162 m illion in
th e last q u a rte r of 1955. T h e deficit w as m a in ly th e
re su lt of a su b sta n tia l increase in th e volum e of
im ports, coupled w ith a seasonal d ecline in the volum e
of exports. A red u ctio n in n e t invisible receipts a n d
in th e te rm s of tra d e also c o n trib u te d .
F o re ig n
reserves fell d u r in g A p ril– J u n e 1956 b y R s 602
m illion.
By th e e n d of O ctober, th e latest d a te
fo r w hich in fo rm a tio n w as available, reserves w ere
dow n by a n o th e r R s 3 80 m illion, to R s 7,445 m illion.
C o u n try Surveys
1 9 5 5 /5 6 , th e la st y e a r o f th e first F iv e -Y e a r P lan ,
a n d a g a in in 1 9 5 6 /5 7 , th e first y e a r of th e second
P la n . A lth o u g h ta x a tio n w as in c re a se d to c over a
p a r t of th e in c re a se in o u tlay , in c re a s in g re lia n c e h a d
to be p la c e d on d o m e stic deficit fin a n c in g .
T h e c o m b in e d P la n o u tlay s of th e C e n tra l G o v e rn m e n t a n d th e state g o v e rn m e n ts u n d e r th e P la n w ere
R s 4 ,8 7 5 m illio n (a c tu a l) in 1 9 5 4 /5 5 a n d R s 6,703
m illio n (re v ise d estim a te s) in 1 9 5 5 /5 6 . T h e b u d g e t
p ro v isio n fo r th e m in 1 9 5 6 /5 7 w as R s 8 ,3 0 0 m illion.
As d istin g u ish e d fro m P la n S ch em e e x p e n d itu re s, to ta l
d e v e lo p m ental e x p e n d itu re s w ere even la rg e r, a n d at
th e sam e tim e n o n -d ev elo p m en tal e x p e n d itu re s also
ro se in v a ry in g degrees. T o ta l e x pe n d itu re s, developm e n ta l a n d n o n -d ev elo pm en tal, w ere of th e m a g n itu d e
of Rs 12,320 m illio n in 1 9 5 4 /5 5 (a c tu a l) a n d R s
15,468 m illion in 1 9 5 5 /5 6 (re v ise d e s tim a te s ). T h e
b u d g e t p ro v isio n fo r 1 9 5 6 /5 7 w as R s 18,931 m illio n .2
In In d ia a c tu a l e x p e n d itu re falls s h o r t of th e b u d g e te d
outlay (a n d the revised e stim a te ) b y a sizable m a rg in .
E ven so, it w ould a p p e a r th a t to ta l g o v e rn m e n t outlay
h a s in c re a se d significantly over the last tw o y e a rs.
A g a in st these figures of e x p e n d itu re , to ta l rev en u e
receipts of the C e n tra l g o v e rn m e n t a n d state g o v e rn m e n ts w ere R s 9,129 m illio n (a c tu a l) in 1 9 5 4 /5 5 a n d
R s 9,783 m illion (re v ise d e stim ates) in 1 9 5 5 /5 6 . T h e
b u d g e t p ro v isio n fo r 1 9 5 6 /5 7 w as R s 10,328 m illion.
A p a r t of the deficit w as fin anced b y e x te rn a l receipts
fro m lo a n s a n d g ra n ts a n d in te rn a l re c e ip ts fro m
do m estic loans, b u t th e re st h a d to be c o v e re d by
b a n k c re d it (m a in ly tre a s u ry bills su b sc rib e d by the
R eserve B a n k ) a n d d epletion of cash balances.
I f th e deficit is identified w ith th e a m o u n t
financed by in c re a sin g th e G o v e rn m e n t’s floating d e b t
w ith th e R eserve B a n k a n d d ra w in g dow n its cash
balances,3 th e c o m b in e d deficit of th e C e n tra l G o v e rn m e n t a n d th e states in 1 9 5 5 /5 6 w as of the o rd e r of
R s 1,570 m illion. T he c o rre s p o n d in g c o m b in e d deficit
in 1 9 5 4 /5 5 w as R s 950 m illio n .1 T h e deficit th u s
in c re a se d b y 65 p e r cent.
T h e b u d g e t estim ates fo r 1 9 5 6 /5 7 p ro v id e d fo r
a m u c h la rg e r c o m b in e d deficit— over R s 4,100
m illion fo r th e C e n tra l G o v e rn m e n t a n d th e states.
H ow ever, ta x a tio n h a s been in c re a se d since th e n , a n d
su b sta n tia l n e t receip ts h a v e b een o b ta in e d f r o m loan
o p e ra tio n s. B y th e e n d of th e fiscal y e a r, in c re a se d
re v e n u e a n d lo a n receip ts, c o u pled w ith th e usual
u n d e r-e x p e n d itu re on P la n schem es, will m a k e the
F IN A N C E A N D P R IC E S
G O V ER N M EN T FIN A N C E
T h e c h a ra c te r o f the bu d g ets w as larg ely d e te rm in e d b y th e re q u ire m e n ts of th e accelerated developm e n t effort. D ev elop m ent o u tlay rose co n sid e ra b ly in
1 International Monetary F und, International Financial Statistics
(W ashington, D .C .), October 1956.
2F i g u r e s g i v e n in t h e a p p e n d i x o n A s i a n E c o n o m i c Sta tis ti cs
to this report are based on a reclassification of revenue and expenditure items and are not quite com parable w ith those given here.
3
T his concept of the “over-all budgetary deficit” has been
adopted in India from the p o in t of view of tis expansionary impact
on the m oney supply.
4
Reserve Bank of India, R eport on Currency and Finance,
1 9 5 5 /5 6 (Bom bay, 1956).
C hap ter 9.
In d ia
107
actual deficit1 m u c h sm aller th a n th e o rig in a l estim ate,
but it is n o t unlikely th a t it will still be significantly
above the level reach ed in 1 9 5 5 /5 6 .
New ta x a tio n m e a su re s in tro d u c e d in th e c entral
budg et of 1 9 5 6 /5 7 in clud ed ch anges in excise duties
(chiefly increases on cotton fab rics, non-essential
vegetable oils, diesel a n d fu rn a c e oils, a n d soap a n d
a rt silk fa b r ic s ) , reim p o sitio n of the c a p ita l ga in s tax
and ch a n g e s in incom e taxes (chiefly an increase in
the su p e rta x on incom es exceeding Rs 70,000, a new
g ra d u a te d ta x on reg iste re d firm s w ith incom es above
Rs 40,000, d isc o n tin u a n c e of reb ates to co m panies on
their u n d istrib u te d profits, an a d d itio n a l g ra d u a te d
su p ertax on d iv id e n d s exceeding 6 p e r cent of paidup c ap ital a n d a new ta x on b o n u s s h a r e s ) . T he
estim ated effect of these changes w as a n increase in
revenue by R s 341 m illion. T a x a tio n p ro p o sa ls in the
state bu d gets w ere expected to b r in g a n a d d itio n a l
R s 110 m illion.2 I n S eptem b er 1956, th e C en tral
G overnm ent raised the excise duties on cloth a n d this
increase was expected to yield R s 175 m illion.
T he n e t p ro c e e d s of b o rro w in g b y th e C entral
G overnm ent a n d the states in 1 9 5 5 /5 6 w ere som ew hat
lower th a n in 1 9 5 4 /5 5 . R eceipts fro m sm all savings
increased, b u t the g a in was m o re th a n offset by the
decline in net receipts fro m long-term loans. M a rk e t
b o rro w in g in th e 1 9 5 6 /5 7 fiscal y ear, how ever, w as
highly successful, th e n et p roceeds of ce n tra l a n d
state m a rk e t loans a m o u n tin g to R s 1,430 m illion by
A ugust, as a g a in st Rs 8 2 5 m illion in 1 9 5 5 /5 6 . T his
net collection w as h ig h e r th a n the y e a rly average of
Rs 1,400 m illion p o stu la te d fo r th e p e rio d of the
second F ive-Y ear P lan.
M ON EY SU PPLY
T h ere h a s been a g ro w th of m oney supply
in the In d ia n econom y since 1 9 5 4 /5 5 , chiefly on
account of h ig h e r deficit fin an cin g b y th e p u b lic an d
the p riv a te sectors. In the in itia l th re e y ears of the
first P la n , th e m o n e y supply sho w ed a n et decline of
Rs 1,850 m illion. In 1 9 5 4 /5 5 , it ro se by R s 1,270
m illion.
In 1 9 5 5 /5 6 th e rise m o re th a n doubled,
am o u n tin g to R s 2 ,640 m illion.3 T h e m a in cause of
the rise in 1 9 5 5 /5 6 w ere la rg e r b u d g e ta ry deficits
and inc reased b a n k le nd in g to the p riv a te sector. As
noted, th e n e t indebtedness of th e G overn m en t to the
R eserve B ank (a d ju ste d fo r changes in go v ern m en t
b alances w ith the b a n k ) in creased b y R s 1,570
m illion, c o m p a re d w ith an increase of Rs 950 m illion
in 1 9 5 4 /5 5 .4 C o ncurrently , th e net indebtedness of
the p riv a te sector to the b a n k s in creased by R s 1,480
m illion, a n d its tim e deposits in b ank s b y R s 430
1 In the sense defined above.
2 Report on Currency and Finance, 1 9 55/56, p .52.
3 Ibid., p.139.
4 Ibid., p.51.
m illion. T he n et e x p a n sio n a ry effect exercised b y the
p riv a te sector on the m oney su p p ly in these two ways
was th u s Rs 1,050 m illion. T h e c o rre sp o n d in g figure
in 1 9 5 4 /5 5 was R s 130 m illion.5 The ex tern al sector
also was e x p ansio n ary, b u t its c o n trib u tio n was very
m o d erate, the fo reig n assets of the R eserve Bank
sho w in g an increase of Rs 160 million.
To som e extent the increase in m oney supply
w as p ro m p te d a n d m a tch ed b y the risin g level of
It also pa rtly
p ro d u c tio n a n d econom ic activity.
reflected th e extension of the m onetized sector, w hich
w as ta k in g place u n d e r the im pact of development.
B ut it w ould a p p e a r fro m th e em ergence of
inflationary sym ptom s th a t m oney incom es a n d m oney
h o ldin gs were on the w hole grow ing faster th a n
o u tp u t a n d econom ic activity.
In th e first eight m onths of 1 9 5 6 /5 7 (A pril to
N o v e m b e r), however, the m oney supply, instead of
risin g , fell by Rs 352 m illion. T he fall was m ainly
due to n et im ports. T he governm ent sector continued
to be e x p a n sio n a ry .6
To ge a r th e m o n e ta ry m achine m o re effectively
to the needs of m o n e ta ry expansion a n d control
cre a te d b y the c o u n try ’s bo ld er developm ent plans,
the R eserve B ank of In d ia A ct was am ended, w ith
effect fro m 6 O ctober 1956.
H ith e rto th e ban k
was re q u ire d to keep a m in im u m reserve of twofifths of its no te issue in gold a n d foreign securities.
T h e a m en d m en t su b stitu ted a m in im u m reserve in
absolute te rm s (R s 4 billion in foreign securities and
R s 1,150 m illion in gold) fo r th e older p ro p o rtio n a l
reserve.7 T h is new reserve re q u ire m e n t m ay be
su sp en ded fo r specified p e rio d s w ith th e consent of
the G overnm ent, re d u c in g th e security p o rtio n of the
reserve to R s 3 billion. T he gold p o rtio n of the
reserve, how ever, m ay n o t be red u ced below Rs 1,150
m illion. T he act also established a flexible reserve
ra tio system fo r scheduled banks in place of the
existing fixed reserve system of a m in im u m of 5 per
cent fo r d e m a n d a n d 2 p e r cent fo r tim e liabilities,
em pow ering the b a n k to v a ry the m inim u m reserves
to be held w ith it between 5 p e r cent a n d 20 per
cent in respect of d em an d liabilities, a n d between
5 Ibid., p .2 6.
6 T he m oney supply was (a) reduced by Rs 2,096 m illion by
changes in the Reserve B ank’ss foreign assets, (b ) reduced by Rs
333 m illion by changes in bank credit and tim e liabilities of banks
to the private sector, and (c) increased by Rs 1,717 m illion by
changes in Reserve Bank credit to the Governm ent, holding of
governm ent securities by the banking system, and balances of the
Central G overnm ent and state governm ents w ith the Reserve Bank.
7 O n 28 September 1956, the Reserve Bank’s total note issue
was Rs 14,505 m illion and its gold and foreign assets Rs 6,287
m illion (or 43 per cent of the note issue). T h e change in the
m in im u m gold requirem ents from Rs 400 m illion to Rs 1,150
m illion is only form al since the am endm ent also makes provision
for revaluation of gold reserves from 8.47512 grains of fine gold
per rupee to the official parity of 2.88 grains per rupee agreed to
by the International M onetary Fund.
108
2 p e r cent a n d 8 p e r cent in respect of tim e lia b ilities.1
T h e R eserve B ank m a y a t its d isc re tio n p a y in te re st
on the p o rtio n of these reserves exceeding 5 p e r cen t
of d em an d a n d 2 p e r cent of tim e liabilities.
T h e in stitu tio n a l m a c h in e ry f o r p ro v id in g in d u stria l finance h a s becom e in cre a sin g ly effective. T h e
In d u s tria l F in a n c e C o rp o ra tio n of I n d ia san ctio n ed
R s 134 m illion in loan s in 1 9 5 5 /5 6 , as a g a in st R s
71 m illion in 1 9 5 4 /5 5 .
T h re e m o re G ov ern m en t
financial c o rp o ra tio n s w ere established, in c re a sin g the
n u m b e r to th irte e n .
T h e In d u s tria l C re d it a n d
1 Further, to facilitate the flexible operation of the system of
variable reserves, the Reserve B ank has also been vested w ith the
pow er to require scheduled banks to m aintain w ith it additional
cash reserves, com puted w ith reference to the excess of dem and
and tim e liabilities over the level of such liabilities on any date to
be specified by the Reserve Bank of India subject, however, to the
overall limits prescribed for each class of liabilities u nder the
A m endm ent Act.
P a r t II.
C o u n try Surveys
In v e stm e n t C o rp o ra tio n , th e N a tio n a l I n d u s tr ia l Develo p m e n t C o rp o ra tio n a n d th e N a tio n a l S m a ll In d u s trie s C o rp o ra tio n also in c re a se d th e ir activities.
I n th e sp h e re of a g ric u ltu ra l finance, the
in te g ra te d schem e of d evelopm ent, e m b r a c in g credit,
m a rk e tin g , p ro c e ssin g a n d w a re h ou sin g , h a s been
ra p id ly im p lem en ted .
T h e fo rm a tio n of th e State
B ank o f I n d ia in 1955 w as a n im p o r ta n t step. In
F e b r u a r y 1956 the R eserv e B a n k esta b lish e d the
N a tio n a l A g ric u ltu ra l C re d it (L o n g -te rm O p e ra tio n )
F u n d a n d in J u n e 1956, th e N a tio n a l A g ric u ltu ra l
C re d it (S ta b iliz a tio n ) F u n d . T h e p ro c e ss of e x p a n sion of co-operative c re d it w ith th e help of the
R eserve B a n k h a s been p ro g re ssin g . P ro v is io n h as
also been m a d e f o r R e se rv e B a n k lo a n s a n d ad v an ces
to th e w a re h o u sin g c o rp o ra tio n s esta b lish e d u n d e r
th e A g ric u ltu ra l P ro d u c e (D e v e lo p m e n t a n d W a r e h o u sin g ) C o rp o ra tio n s A c t of 1956.
C hap ter 10.
INDONESIA
In d o n e sia ’s econom y achieved a degree of in te rn a l
financial stability in 1956 b u t th e b alance of p ay m en ts
deteriorated .
Inflation, one of the c o u n tr y ’s m ost
pressing p ro b le m s since a sp ira l tre n d developed in
late 1954 a n d th e first h a lf of 1955, becam e less
acute between m id-1955 a n d th e end of the th ir d
q u a rte r of 1956. H ow ever, the d a n g e r of a re su m p tion of the u p w a rd tren d in prices a n d the cost of
living was in h e re n t in the situ a tio n a t th a t p o in t a n d
was confirm ed by th e statistical evidence available
fo r the final q u a rte r.
In th e la tte r p a r t of 1955 th e cash o p e ra tio n s of
the G overnm ent— the b u d g e t deficit p ro p e r m in u s the
G overn m en t’s w ith d ra w a l of fu n d s fro m th e m a rk e t
th ro u g h a system of p re p a y m e n ts fo r im p orts— ceased
to exert a stro n g in flatio n ary influence; the p ric e rise
was halted, a n d th e n reversed. O n th e o th er h a n d ,
lower ex p o rt pro ceed s in 1956, coupled w ith increased
paym en ts fo r im ports, adversely affected gold and
foreign exchange h o ld in g s to an extent necessitating
a d ra w in g fro m the In te rn a tio n a l M o n e ta ry F u n d a n d
renew ed re so rt to a u th o rity to suspend the B ank of
In d o n e sia ’s 20 p e r cent cover rule. M eanw hile p r o duction trends were d iv e rg e n t: food cro p s increased
only m o d e ra te ly ; im p o rta n t estate crops, notably
ru b b e r a n d tea, co n tin u e d to decline; p etro leu m scored
fu rth e r g a in s; in d u stria l p ro d u c tio n in general did
no t m ak e a n y n o tab le p ro g re ss d u rin g the year.
b u t g ro u n d -n u t a n d soyabeans declined. On the whole,
food p ro d u c tio n in 1956 was greater, th ough not as
h ig h as in 1954.
P e r c a p ita consum ption of rice has increased,
p a rtly as a re su lt of a g row in g preference fo r rice
over o ther foods, such as maize. T he ta rg e t for
self-sufficiency in rice has generally been given as
7.2 m illion tons. In 1956 it was planned to im port
750,000 tons fo r c o n su m p tion a n d storage.
Since
the sta n d a rd of rice culture is rem a rk a b ly hig h in
m a n y areas, it is clear that, w ith fertilizer and a p p ro p ria te seed, yield could be very greatly raised. T he
G overnm ent h a s p ro v id e d 37.5 m illion ru p ia h to c arry
out a plan to raise food p ro d u c tio n in 1957— rice by
25 0 ,000 tons, m aize by 44,000 tons, sweet potatoes by
81 6 ,000 tons a n d cassava by 524,000 tons.
F ish supply presents a m o re serious problem ,
since an a d equate p ro te in diet would re q u ire a trip lin g
of p re se n t p e r c a p ita consum ption. M otorization of
the o p eratio n s of In d o n e sia ’s 400,000 fishermen
involves revolutionizing old custom s, w hich is difficult
to accom plish w ith d esired speed.
Recently the
Service of Sea Fisheries h a s set up, w ith the aid of
the U n ited States In te rn a tio n a l C ooperation A dm inistra tio n ( IC A ), a p ro je c t fo r sea fisheries in the
K a lim a n ta n 1 area, w hich it was hoped would be
com pleted in two o r th ree years.2 A n other p ro je c t
w hich will be executed w ith aid fro m ICA involves
the d re d g in g of existing artificial brack ish w ater ponds
w hich yield 30,000 tons of fish each y e a r; the co u nterp a r t funds in this case will be used to finance the
establihsm ent of an In la n d Fisheries H igh School at
Bogor.
A n event of p o te n tia l significance w as th e final
app roval by the C ab in et on O ctob er 1956 of th e
long-discussed F ive-Y ear P la n . T h e d ra ft P la n , still
to be a d o p te d b y P a rlia m e n t, fo resh ad o w ed only
m oderate im m ediate d e p a rtu re s fro m the am o u n t a n d
com position of inv estm en t a lre a d y p rev ailin g. H ow ever, its w id e sp re a d discussion by the pu b lic was
expected to stre n g th e n g e n e ra l consciousness of the
co-operative efforts needed to adv ance th e c o u n try ’s
econom ic developm ent.
A g ric u ltu ra l export c o m m odities
P ro d u c tio n of ru b b e r, In d o n e sia ’s p rin c ip a l
m eans of e a rn in g foreign exchange, continued to
decline in 1956, as w as also the case w ith tea and
coffee. O u tp u t of co pra, a n d of palm -oil a n d palm
kernels, co n tin u ed to fall d u rin g the first h alf of
th e y e a r b u t then rose, leaving the results for 1956
as a w hole in doubt. Less im p o rta n t from the export
sta n d p o in t b u t nevertheless enc o u ra g in g was th e gain
in su g a r p ro d u c tio n .
P R O D U C T IO N
A G R IC U LT U R A L O U T PU T
F o o d crops
A ided b y im p ro v e d secu rity c o n d itio n s in 1953
a n d b y excellent w e a th e r in 1954, fo o d p ro d u c tio n
re gain ed a n d slightly su rp a sse d p re -w a r p e r c a p ita
levels. B ad w e a th e r b r o u g h t a setback in 1955. In
1956, th o u g h the ric e h a rv e st w as a g a in th re a te n e d
by heavy ra in s, to ta l rice o u tp u t in creased over 1955,
the h a rv e ste d a re a b e in g som ew hat la rg e r a n d the
yield in som e places (W est a n d E a st J a v a ) som ew hat
higher. C assava a n d sweet p o ta to cro p s also increased,
W hile th e d a ta on w o rld p ro d u ctio n a n d con su m ption of n a tu r a l ru b b e r suggested a relatively
1 Borneo.
2 T he project comprises a plant for the m anufacture of fish
meal, a fish cannery, establishments for the mechanical drying and
salting of fish, plants for m anufacturing nets and a training centre
for fishermen. A start has been m ade on the various sections.
109
110
POPULATION A N D EMPLOYMENT
2.
A rea
(km2)
A R E A A N D P O P U L A T IO N
E stim a te s of m id y e a r p o p u la tio n (thousand)
L ate st c e n s u s
D a te
1937
Po p u la tio n
1953
...
A fghanistan
. . . .
B r u n e i ...................................
B u r m a ...................................
C a m b o d i a ............................
C e y lo n d ...................................
C h in a: M a i n la n d .
C h in a: T a i w a n .f
F e d e r a tio n of M a l a y a g
H o n g K ongh
. . . .
In d ia i
...................................
650,000a
5,765
677,950
172,511
65,610
9,761,012
35,961
131,313
1,013
3,263,373
1,491,562
1,648,000
369,661
2 7 /1 1 /1 9 4 7
1 / 2/1 95 3
– / 4 /1 9 5 9
2 0 / 3 /1953
3 0 / 6 /1953
1 6 / 9 /1 9 5 6
1 7 / 6 /1 9 57
7 / 3/1931
1 / 3/1951
K o re a m ...................................
R epublic of K o re an ..
220,891
7 /1 0 /1 9 3 0
1-15/11/1956
1 /1 0 /1 9 5 5
1 /1 0 /1 9 4 4
96,929
1 / 9/1955
...................................
236,800
I n d o n e s i a ............................
I r a n j ..........................................
J a p a n k ...................................
L ao sp
N e p a l ...................................
N orth Borneo
.
.
.
.
140,798
76,112
8,256,625
4 / 6/1951
2 8 / 2/1951
75,842,165
944,824
P h i l i p p i n e s ............................
299,681
– / 5/1958
S a r a w a k ............................
123,025
2 6 /1 1 /1 9 4 7
S in g a p o re u ............................
T h a i l a n d ............................
581
514,000
2 3 / 2/1956
............................
326,034
Viet-Namw
Republic of Viet-N am
S ource:
.
. ..
l,012p1
2 8 /5 /1 9 5 2 2 8 /5 /1 9 5 4
............................
Pakistans
1 7 / 6 /1 9 5 7
...
10,972
52
40,657
35
2,940,704b
15,635
19,272
4,845,000c
3,046c1 ...
8,097,895
5,725
8,290
582,603,417e 446,930
582,603
9,863,264
8,261
5,530
5,706
6,278,758
4,083
849,751
1,135
2,250
356,741,669
303,626
372,300
60,412,962
67,398
79,500
18,954,704
16,200j1 17,476
89,275,529
70,040
86,700
25,120,174m1 21,528
30,000
21,526,374
334,141q
295ql
...
1955
1956
1957
(13,000)
13,000
68
19,856
4,359
8,929
621,225
73
20,054
4,600
9,165
...
58
19,464
4,100
...
63
19,658
...
8,520
8,723
594,840
608,185
8,617
8,907
5 ,889g1
5,883
2,277
2,340
377,130
382,390
80,500
81,500
17,896g1 18,325
89,000
88,000
...
...
13,000
77 ...
20,255
20,457
4,740c2
4,845c3
9,388 ...
...
9,240
6,070
2,440
9,506
6,279
2,583
387,350
83,200
18,765
392,440
85,100
19,216
...
9,851
6,515
2,748
397,540
87,300
19,677
90,020
90,880
28,000a
31,400
32,500a
91,760
30,505
21,982
22,329
22,505
92,740
...
(1,445)
(1,505)
(1,550)
(1,600)
(1,655)
(1,690)
8,445
8,555
8,666
8,787
8,910
9,044
86,823
355
364
373
383
397
80,039
81,186
83,280
84,450
409
85,635
22,775
23,322
24,010
626
640
655
1,515
15,445
21,211
21,720
440
592
602
614
1,445,929
20,095,130v
651
14,492
1,192
1,248
1,306
1,372
19,556
19,925
20,302
20,690
25,880
(9,766)
26,000
(9,934)
26,300
(11,534)
26,600
21,474
26,800a 27.800a
12,300
12,300
U n ite d N a tio n s S t a tis tic a l Office a n d F A O , e x c e p t th o s e in
b r a c k e ts w h ic h a r e f r o m n a t i o n a l s o u rc e s .
G e n era l N o te : F o r d e ta ils a n d e x p l a n a t o r y n o te s , se e U n ite d N a tio n s
D e m o g ra p h ic Y e a rb o o k 1959.
a . U N e s tim a te .
b . D e j u r e p o p u la tio n in 252 to w n s a p p r o x i m a t i n g t h e u r b a n a r e a o f
th e U n io n , th e s e a r e t h e r e s u lts o f t h e f i r s t s t a g e o f a m u lti s ta g e
s a m p le c en su s. I n th e se c o n d s ta g e e n u m e r a tio n c a r r ie d o u t 1
F e b r u a r y 1954, a n a d d itio n a l 2,908,001 p e rs o n s w e r e e n u m e r a te d in
3,159 v illa g e t r a c t s , 2,143 o f w h ic h w e re in B u r m a p r o p e r a n d
1,016 in K a c h in S ta te . T h e r e g u l a r c e n s u s o f B u r m a w a s in 1941.
c. E s tim a te d f r o m re s u lts o f a d e m o g ra p h ic s a m p le s u r v e y c o v e r in g
345 v illa g e s, a n d s u p p le m e n ta r y a d m i n i s t r a t i v e r e p o r t s .
c 1. M id -y e a r 1936 e s ti m a t e .
c2. E s tim a te d f r o m p r o v is io n a l r e s u lts o f a n A p r il 1958 d e m o g ra p h ic
s a m p le s u r v e y in 3,460 v illa g e s, s u p p le m e n te d b y a d m i n i s t r a t i v e
r e p o r ts .
c3. E s tim a te d f r o m r e s u lts o f a n A p r il 1959 d e m o g r a p h ic s a m p l e
s u rv e y in 345 v illa g e s, s u p p le m e n te d by a d m i n i s t r a t i v e r e p o r ts .
d. P o p u la tio n e x c lu d in g n o n - r e s id e n t m i l i t a r y a n d s h i p p i n g p e r s o n n e l.
C en su s fig u re r e la te s to p o p u la tio n a c t u a ll y e n u m e r a te d ; to ta l, b o th
s e x e s , in c lu d in g 0 .7 % a d j u s t m e n t o f u n d e r - e n u m e r a tio n is 8,154,580.
e. P o p u la tio n r e g is te re d , p lu s e s ti m a t e o f 8,397,477 f o r p e r s o n s liv in g
in o u tly in g a r e a w h e re lo cal r e g i s t r a t i o n offices w e re n o t e s ta b lis h ed. N o a d j u s t m e n t h a s b e e n m a d e f o r 0 .1 % e s ti m a t e d n e t u n d e r e n u m e r a tio n . S o u r c e : H s i n H u a M o n th ly .
f. E s tim a te s e x c lu d e a r m e d fo r c e s a n d , b e g in n in g 1946, fo r e ig n e r s .
C e n s u s fig u r e in c lu d in g Q uem o y a n d M a ts u Is la n d s .
g . P o p u la tio n e x c lu d e s t r a n s i e n t s a flo a t a n d s e r v ic e p e r s o n n e l in s e r v ic e e s ta b lis h m e n ts .
g 1. E s tim a te s f o r th is a n d p re v io u s y e a r s n o t y e t r e v is e d to a c c o rd w ith
la te st census.
h. E s tim a te s e x c lu d in g a r m e d fo rc e s .
i. A r e a in c lu d in g K a s h m ir - J a m m u . C e n s u s p o p u la tio n r e la te s t o D e
ju r e p o p u la tio n a c tu a lly e n u m e r a te d (e x c lu d in g a 1.1 p e r c e n t
a d j u s t m e n t f o r n e t u n d e r - e n u m e r a tio n ) in a r e a e x c lu d in g K a s h m ir J a m m u , t h e p a r t “ B ” t r i b a l a r e a s o f A s s a m w h e re c e n s u s co uld
n o t b e ta k e n , a n d s e tt le m e n ts o f K a r ik a l, M a h é , P o n d ic h é r y a n d
a n d Y a n a o n w h ic h d id n o t beco m e p a r t o f I n d i a u n til 1 N o v e m b e r
1954 (p o p u la tio n e s ti m a t e d a t 323,000 in 1 9 5 2 ). E s tim a te s in c lu d in g S ik k im , a n d K a s h m ir - J a m m u , t h e fin a l s t a t u s o f w h ic h h a s
n o t b e e n d e te rm in e d .
2,857
402,750
89,600
20,149
21,526n1
23,749,125t
546,385
18,972w1
10,232
...
21,796g1
82,240
22,241
170,806
1959
1958
21,440
...
6,000
1954
1,446u1
21,076
12,800
22,866
...
(419)
24,718
...
1,582
21,881
...
(13,200)
j. P o p u la tio n e x c lu d e s n o m a d ic trib e s , n u m b e r in g 440,175 f o r b o th
se x e s a t 1956 c e n s u s .
j 1. 21 M a r c h e s ti m a t e .
k. P o p u l a t i o n e x c lu d e s A llie d m ili ta r y a n d c iv ilia n p e r s o n n e l a n d t h e i r
d e p e n d e n ts s t a t io n e d in t h e a r e a . C e n s u s p o p u la tio n re la te s to
p o p u la tio n a c tu a lly e n u m e r a te d , n o t in c lu d in g 0.39 p e r c e n t a d j u s t m e n t f o r u n d e r - e n u m e r a tio n .
m . D a t a a r e f o r r e s id e n t K o r e a n n a tio n a ls o n ly .
m 1. D e ju r e p o p u la tio n .
n . P o p u l a t i o n e x c lu d e s a r m e d fo rc e s , c iv ilia n a lie n s e m p lo y e d by
a r m e d fo rc e s , a n d f o r e ig n d ip lo m a tic p e r s o n n e l.
n 1. C e n s u s 1 /9 /1 9 5 5 .
p . 1953-1957 fig u r e s a r e f r o m n a t i o n a l s o u rc e , a l l re v is e d u p w a r d
f r o m p re v io u s e s ti m a t e s b e c a u s e o f th e fo llo w in g r e a s o n s : (1 )
R e i n t e g r a t i o n o f t h e tw o p ro v in c e s o f P h o n g s a ly a n d S a m n e u a ; (2 )
I m m i g r a t i o n o f 200,000 p e o p le f r o m T h a ila n d ; (3 ) In c lu d e s p e rs o n s
le ss t h a n 20 y e a r s old n o t re c o rd e d in p re v io u s e s tim a te s , th is
g r o u p is e s ti m a t e d to c o m p ris e m o re t h a n 5 0 % o f t h e t o ta l p o p u la tio n o f L a o s .
p 1. 31 D e c e m b e r e s ti m a t e .
q. E x c lu d in g 1,442 t r a n s i e n t s a n d 66 m e n o f B r itis h a r m e d fo r c e s .
q 1. E x c lu d in g p o p u la tio n o f L a b u a n a c q u ir e d f r o m S t r a i t s S e ttle m e n t
in 1946 ( p o p u la tio n 7,507 a t 1 A p r il 1931 c e n s u s ) .
s . D a t a a r e f o r t e r r i t o r y e x c lu d in g K a s h m i r - J a m m u
(p o p u la tio n
e s ti m a t e d a t 4,410,000 in 1951, a r e a 222,380 k m 2 ) , t h e fin a l s t a t u s
o f w h ic h h a s n o t y e t b e e n d e te r m in e d , J u n a g a d h , M a n a v a d a r ,
G ilg it, B a l t i s t a n a n d th e p o r t a n d p e n in s u l a o f G w a d a r a c q u ire d
f r o m M u s c a t a n d O m a n o n 8 S e p te m b e r 1958.
t . E s t i m a t e d f r o m r e s u lts o f M a y 1958 P h il ip p in e S ta t i s t i c a l ( s a m p le )
S u r v e y o f P r i v a t e H o u s e h o ld s .
u . P r e s e n t t e r r i t o r y , i.e., S in g a p o r e I s la n d o n ly , e x c lu d in g C h r is tm a s
I s la n d w h ic h c e a s e s t o b e p a r t o f t h e C o lony o n 1 J a n u a r y 1958
a n d w a s t r a n s f e r r e d to A u s t r a l i a o n 1 O c to b e r 1958. P o p u la tio n
e x c lu d e s t r a n s i e n t s a flo a t a n d n o n -lo c a lly d o m ic ile d m ili ta r y a n d
c iv ilia n s e r v ic e s p e r s o n n e l a n d t h e i r d e p e n d a n ts , n u m b e r in g 3,466
a n d 27,299, re s p e c tiv e ly , a t 1957 c e n s u s .
u 1. C e n s u s 1 7 /6 /1 9 5 7 .
v . B a s e d o n r e s u lts o f a d e m o g r a p h ic a n d e c o n o m ic s a m p l e s u rv e y
w h ic h c o v e re d 2,241 v illa g e s a n d 64 la r g e m u n ic ip a litie s . T o t a l is
s u b je c t t o e r r o r o f
1.58
±
p e r c e n t. T h e l a s t p o p u la tio n c e n s u s
w a s t a k e n in 1947.
w . C o m p r is in g f o r m e r A n n a m , C o c h in -C h in a a n d T o n k i n .
w 1. f o r 1936-37.
Chapter 10.
Indonesia
area of Central Sum atra. The last of the so-called
let-alone agreements expired on 1 Janu ary, 1956, so
that all three foreign oil companies have become
subject to Indonesian foreign exchange procedures,
receiving special treatm ent, but under year-to-year
agreements. D uring the first half of 1956, exports
of oil products fell (as contrasted with output) while
imports showed an increase, owing partly to rising
domestic consumption because of the growing num ber
of m otor vehicles and the increased home use of
kerosene for cooking purposes, and partly to substantial im ports of crude oil for local refining and
subsequent re-export. Even without the opening up
of new lease areas, however, domestic production
has been estimated as adequate for domestic consumption until about 1960.
The production of tin in concentrates dropped
7 per cent in 1955 and continued to decline in 1956,
although world dem and increased.1 After spot quotations had reached their peak in London at the end
of 1955, prices fell gradually d uring the first half
of 1956, rising slightly in July.
Production of
bauxite, which experienced a prolonged setback
because of competition from Surinam , has improved
somewhat during the past two years, as a result of
increased dem and from Japan and the Netherlands.
Output in 1955 was, however, less than one-half the
peak m onthly production of 53,500 tons achieved in
1951. Coal production, after a continuing decrease
from 1952 through 1955, rose slightly in 1956 as a
result of m odernization of the Bukit Asam mines
in Central Sum atra, for which m achinery has been
im ported under the credits from western Germany.
An am ount of Rp 18 million was allocated for investment in these mines in 1956 in the expectation that
production would ultmiately increase from 200 tons
to 500 tons daily.
There was extensive exploration for m ineral
resources during 1956, especially iron ore (Sum atra,
K alim antan) and coal (south K alim antan). A new
m ining bill was placed before Parliam ent. Am ong
plans under consideration were a gold and silver
m ining enterprise in Bantan and resum ption of operations at an abandoned m anganese m ine in the
Kaliprogo district— both in Java.
M anufacturing
Under the im port control measures adopted in
September 1955, im ports of industrial basic m aterials
increased d u rin g the last quarter of 1955 to 50 per
cent of the total value of im ports. The increased
inflow continued in the first half of 1956; the contrast
with Jan u a ry —Ju ne 1955 was particularly striking in
the case of paper, cotton yarn, unbleached shirting and
1 W orld production of tin in the first half of 1956 was 2 per
cent lower and w orld consum ption was 5 per cent higher th an in
the first half of 1955 (data do n o t include the U nion of Soviet
Socialist Republics).
111
sheet iron, for which the quantities im ported during
the six m onths were 68 per cent, 67 per cent, 46 per
cent and 62 per cent larger, respectively, than for
the entire year 1955.
Difficulties experienced by enterprises, however,
with regard to liquidity, during the last quarter of
1955, as a result of the requirem ent of prepayments
for imports, were greatly increased by rising competition from im ported finished goods, which also
arrived in greater volume than before. The resulting
price declines threatened to close a num ber of enterprises.2 The Government consequently allowed postponement of prepayments on im ports of certain raw
m aterials and auxiliary goods and denied im port
licences for certain competitive finished goods. In
addition, a fund of Rp 100 million based on foreign
credit was established to extend medium-term credit
to national private enterprises for importing industrial
equipment.
Data for 1954 show that Indonesia’s total textile
consumption am ounted to 440 million metres, of
which less than 20 per cent was domestically woven.
In addition, 80 per cent of the yarn used by the
domestic industry was imported, even though the
domestic spinning industry had greatly expanded
since before the war. In 1956 the production of
sarongs, selendangs and towels was less than in 1955,
but that of other piece-goods increased. Production
by knitting mills, except for polo sports shirts, also
was higher than in 1955. Knitting mills consumed
m ore yarn in 1956, weaving mills somewhat less.
Cultivation of ramie has been encouraged more
vigorously than that of cotton. Experimentation to
develop the most suitable varieties of ram ie has
begun on a small scale on a plantation in P agar
M arbau and the construction of a factory for ramie
is under way at Pem atangsiantar.
Two gunny bag factories, one of which is
operated by the Bank Industri Negara (BIN) at
Surabaya, produce about 3.7 million bags a year,
less than 20 per cent of domestic demand. Cultivation
of rosella, which furnishes the raw fibres for gunny
sacking, was undertaken in Central Java in 1954;
during the year 1955/56 an area of nearly 1,400
hectares, with an estimated production of 2,600 tons
of dried fibre, was under cultivation.
While current industrial production has generally
been somewhat disappointing, a num ber of industrial
projects were under way, completed or in the planning
2 Difficulties of other types also confronted some industries. In
the kretek industry (Indonesian cigarettes seasoned with clove) in
K ebum en, employing 75,000 workers, the cost of production in creased sharply; as a result 70 per cent of the factories were forced
to close. G reat difficulty has been experienced in salt production
in the past two seasons, because of unusually frequent rains. Production in 1955 was only about 15 per cent of norm al, m aking
im ports necessary. A proposal was under consideration to end
the governm ent salt monopoly.
112
stage. A soda and chlorine factory at W a ru n ear
Surabaya came into operation in July 1956. The
government turpentine factory at Lam pahan, which
was largely burnt out by terro rist action, resum ed
production in June. T he multiple-purpose (power
and irrigation) project at D jatiluhur got under way
when work on the dam was started d u rin g 1956;
on completion in 1961, it was expected to generate
100,000 kW, nearly equal to the present capacity
of West Java, and to irrigate an additional 80,000
hectare of arable land.
The establishment of a paper factory utilizing
sugar-cane waste for pulp has been under consideration by the Central Industrial Departm ent.
The
Forestry D epartm ent has worked on the construction
of a m odern board factory with a prospective daily
production of 100 tons. The h ard b o ard factory of
BIN at Banjuwangi, using coconut fibres as raw
material, was expected to be completed about the
end of 1956, its estimated production being 1,500
tons of h ard board annually. In Ju n e 1956 negotiations were undertaken to establish an asbestos factory
at Gresik with Colombo P lan aid; it was to start
operations about mid-1957.
Other plans of BIN
include a paper factory at Blabat Kedu, to use rice
straw as raw material, a food processing and canning
factory at Jogjakarta, a bottle factory at Surabaya,
a printing ink factory at D jakarta and a fish canning
factory at Ambon. A Rp 40 million sulphur factory
in Minahassa, N orth Sulawesi,1 was expected to be
completed in 1956, with an initial production capacity
of about 30 tons per day. The Gresik cement plant
was completed in 1956 with loan financing from the
Export-Im port Bank of W ashington, and was to
commence producing in 1957, adding 375,000 tons a
year to the present total of 150,000 tons.
The
possibilities of the rayon industry, fertilizer and other
chemicals, and iron and steel were, however, only in
an early stage of investigation.
In A ugust 1956 the Cabinet placed before
Parliam ent a bill on foreign investment. Based on
the Investment Law draft prepared in 1953/54 and
the foreign investment statement of the Government
on 8 December 1955, the bill provided that foreign
capital m ight be invested in fields of production other
than railways, telecommunications, domestic shipping
and aviation, electric power, irrigation an d water
supply, arm s and am m unition, atomic plants an d
certain industries which have been traditionally
operated by Indonesian nationals. It stipulated that
foreign industrial enterprises m ight be guaranteed
against nationalization for 20 years.
Transport
In addition to Rp 75 million allotted in the
1956 budget for road repair, the Government planned
1 Celebes.
P a r t II.
C ountry Surveys
to m ake Rp 50 million available fo r prom oting
increased production of ro a d construction materials
to substitute for im ports.
M ining of asphalt in
Sulawesi, resum ed in 1955, has yielded satisfactory
results; production could be increased to 40 tons
per day. P articularly in S um atra and N o rth Sulawesi,
roads are generally in a very bad state; offers received
from various countries for assistance in repairing
the road system have been u nder consideration.
The governm ent railways, within the fram ework
of their own d ra ft Five-Year P lan (1956– 1960),
expected to spend Rp 53.8 billion for rehabilitation
purposes, including im provem ent of 2,000 km of
railway track and purchase of diesel locomotives.
O rders have been placed in western Germ any and
the U nited States for 95 locomotives, including 35
diesels expected to arrive in 1957. The m ost serious
impedim ents to railway traffic were the shortage of
equipm ent and of fuel, which on some less im portant
routes in Java have caused train schedules to be cut
by 30 p er cent.
Despite expansion in 1955 of the tonnage owned
by national shipping companies, m any ships are still
needed to m aintain norm al com m unications am ong
the islands. Efficiency has not been high and operations have been unprofitable.2 Inadequacy of h a rb o u r
and repair facilities, and insufficient trained personnel,
were the principal difficulties. A ccording to estimates,
about 30 per cent of the ships were idle.
The
Government in 1956 entered into a contract with a
French com pany to im prove and enlarge h arb o u r
facilities; total costs under this contract for the
h arbours of T andjong Priok, B andjarm asin, Balikpapan and Belawan were expected to am ount to about
Rp 325 million.
A decided increase was noticeable in both the
passenger and the freight traffic of G aruda Indonesian
Airways in the first half of 1956, the gains am oun ting to 18 and 19 per cent, respectively, over the
corresponding period of 1955. The milage increased
by about 7 per cent. These favourable results were
largely due to the extension of the system, and also
to the increasing use of larger aircraft.
TRADE AND PAYM ENTS
BALANCE OF TRADE
The unusually large trade surplus resulting from
rising exports and falling im ports in 1955 changed
to a deficit in the first nine m onths of 1956. According to customs figures, export proceeds fell from
R p 7,330 million d u rin g the first nine m onths of
1955 to Rp 7,222 million in the corresponding
period of 1956, while im ports in the sam e period
2 T h e governm ent-ow ned shipping com pany showed a loss of
Rp 25.5 m illion in 1952, Rp 19.6 m illion in 1953, Rp 11.2 million
in 1954 and Rp 32.6 m illion in 1955.
113
N A T IO N A L A C C O U N T S
6.
IN D USTRIAL ORIGIN OF NET DOMESTIC PRODUCT
M illions
Country, c u rren c y
and year
B U R M A a (k y a ts)
1955 ...................................
1956 ...................................
1957 ...................................
1958 ...................................
1959 ...................................
CAMBODIAd (riels)
1955 ...................................
1956 ...................................
1957 ...................................
Total
A griculture,
forestry,
fish in g
4,813
5,144
5,340
5,182
5,345
2,026
2,101
2,270
2,184
2 ,327
M ining
C onstruction
M anufa c tu rin g
T ra n sp o rtatio n ,
com m unication,
utilities
b
W h o le sa le a n d
re ta il
tra d e
O w n e rsh ip of
d w e llin g s
CEYLONg (rupees)
5,260
1955 ...................................
4,991
1956 ...................................
5,230
1957 ...................................
h
CHINA (m ainland, yuan)
61,130
1952 ...................................
88,750
1956 ...................................
CHINA (T aiw an, new Taiwan dollars)
22,565
1955 ...................................
26,046
1956 ..................................
30,045
1957 ...................................
31,964
1958 ..................................
HONG KONGi (H o n e K ong dollars)
3,960
1954 ...................................
132
141
136
138
151
172
160
165
173
171
C
185
194
203
213
1,170
1,368
1,320
1,189
1,143
984
1,224
1,345
337
419
479
2,750
2,431
2,480
7
7
9
312
234
275
443
459
479
429
422
457
310
327
354
1,834
4,970
2,445
3,905
9,659
13,756
...
...
...
...
...
...
7,543
8,557
9,725
10,209
353
598
716
866
3,782
4,468
5,456
5,750
1,195
1,338
1,459
1,535
1,193
1,352
1,707
1,804
3,552
4,296
4,921
5,473
115
15
1,300
130
300
700
j
INDIA ( thousand m illion rupees)
99.8
45.2
1955 ...................................
55.2
113.0
1956 ...................................
113.6
53.3
1957 ..................................
JAPAN (thousand million yen )
6,707
1,520
1955 ...................................
7,563
1,456
1956 ...................................
8,208
1,533
1957 ..................................
8,484
1,561
1958 ..................................
KOREA, REPUBLIC O Fg (thousand m illion h w a n )
381.5
170.5
1953 ...................................
529.7
196.6
1954 ..................................
394.1
883.0
1955 ...................................
527.7
1,113.8
1956 ..................................
682.4
1,507.5
1957 ..................................
PAKISTANk (rupees)
19,892
1955 ..................................
21,189
1956 ..................................
21,345
1957 ..................................
21,368
1958 ..................................
PHILIPPINESi (pesos)
7,624
1955 ...................................
8,414
1956 ..................................
8,818
1957 ..................................
9,232
1958 ..................................
THAILANDa (baht)
32,458
1954 ...................................
40,983
1955 ...................................
42,500
1956 ...................................
42, 999
1957
45,970
1958 ...................................
VIET-NAM, REPUBLIC O Fg (piastres)
55,081
1955 ...................................
60,257
1956 ...................................
— — 1 1 ,0 0 3 —
23,430
...
...
...
— — 1 7 .5 —
18.8
19.5
1.0
1.2
1.4
...
...
...
1,750
1,787
1,833
1,384
1,537
1,757
509
580
606
403
422
445
97
108
125
— — 1 7 .9 —
18.5
19.1
...
...
...
...
2,964
3,202
3,555
3,732
1,983
2,235
2,606
2 ,595
260
340
800
4.6
4.8
4.9
5.7
6.1
6.6
7.9
8.4
8.8
f
184
1,593
1,969
2,149
2,153
340
383
419
463
6.3
5.2
7.8
11.9
17.3
36.9
51.0
77.0
98.5
123.4
8.7
19.7
32.8
37.2
57.0
130
167
200
n
m
11,225
12,122
11,954
11,600
f
f
2,673
2,767
3,493
270
71
90
79
89
94
97
101
453
479
504
555
550
220
5,180
6,169
6,978
36,189
42,689
O th e r
se rv ic e s
C
523
535
566
551
595
73
77
82
82
87
e
12,578
13,974
15,975
P ublic
ad m in istratio n
and
d e fe n c e
43
46
51
52
2,189
2,347
2,438
2 ,602
...
...
...
...
1,040
1,205
1,263
1,314
6.1
68.7
93.7
141.2
158.7
187.7
31.4
56.2
64.4
77.3
108.8
1,851
1,997
1,987
1,961
1,109
1,124
1,139
1,159
f
11.2
21.3
27.0
56.7
...
...
...
...
m
565
583
609
643
q
3,161
3,175
3,230
3 ,364
121
122
142
138
1,001
1,195
1,292
1,474
230
296
328
281
250
286
322
327
861
999
1,057
1,096
...
...
...
...
13,952
17,604
17,982
16,589
18,398
547
615
698
698
520
4,108
4,988
5,320
5,851
6 ,437
972
1,247
1,378
1, 765
1,975
1,824
2,098
2,310
2, 612
2 ,715
5,639
7,780
8,040
8, 374
8 ,459
...
...
15,551
18,182
88
143
5,254
5,839
1,301
1,044
2,201
2,181
14,217
15,864
Sources and tim e r efer e n c e : S ee ta b le 5.
a. Gross d om estic prod u ct a t m a r k e t p rices.
b. In cludin g m illin g an d m a r k e tin g o f fo r e s t produ ce.
c. P r iv a te tr a n sp o r ta tio n included in “ O th er s e r v ic e s.”
d. Gross d o m estic p r o d u ct a t 1956 m a r k e t p r ic e s.
e. T ran sp orta tio n an d co m m u n ic a tio n s a r e inclu ded un d er a ll o th er
sectors.
f. O w nersh ip o f d w e llin g s inclu ded u n d er “ O th er s e r v ic e s ".
g. Gross d o m estic pro d u ct a t fa c to r cost.
h. T otal n e t v a lu e added a t 1952 p r ic e s o r ig in a te d fr o m a g r ic u ltu re ,
industry, c o n stru ctio n , good s tr a n s p o r t a n d c o m m u n ic a tio n , an d
trade only.
i.
j.
k.
m.
n.
p.
q.
— — 1,471— —
1,667
1,811
1,917
614
717
833
892
24.0
44.3
58.9
68.4
120.1
p
1,130
1,164
1,318
1,463
p
648
679
685
705
28.9
51.8
85.5
107.1
154.1
n
1,780
1,806
1,849
1,888
fq
1,352
1,662
1,762
1,847
3,817
1,598
4,213
2,438
4,417
2,355
— — 7 ,1 1 0 —
7,466
2 ,010
2,049
9,498
9,870
4,961
5,085
N a tio n a l in com e.
I n c lu d in g p r o c essin g , m a r k e tin g an d a n c ilia r y a c tiv it ie s p erfo rm ed
A t fa c to r c o s t p r ic e s o f 1 9 4 9 /5 0 -1 9 5 2 /5 3 .
U tilitie s in clu d ed u n d er “M a n u fa c tu r in g ” .
C o n stru ctio n inclu ded un d er “ O ther s e r v ic e s ".
I n c lu d in g a ll s e r v ic e s o f g e n e r a l g o v e r n m e n t.
B a n k in g , in s u r a n c e an d r ea l e s t a te ser v ic e s inclu ded un der “ W h oles a le a n d r e ta il tr a d e ” .
114
P a r t II.
How effective this modified system of price
deterrents would be in reducing the foreign exchange
drain was not clear, from the data available.
D
ir e c t io n
o f
t r a d e
a n d
r e l a t e d
a g r e e m e n t s
A prelim inary analysis of the geographical distribution of Indonesian trade shows few m arked
changes in 1956. The U nited States rem ained the
largest supplier of imports (including agricultural
surplus commodities payable in rup iah under a new
agreement) and continued to buy substantial am ounts
of rubber, petroleum and its products, and tin.
Hong Kong and Japan gained somewhat in im portance as sources for imports. Singapore, in view
of its m ajor entrepôt function, continued to rank first
as the destination of Indonesian exports.
Most of the tin went to the Netherlands. In
June 1956, Pakistan bought tin from Indonesia for
the first time, and further purchases were anticipated.
The tin agreement with the United States was extended
into the third quarter of the year. On 1 F ebru ary
1956, Parliam ent agreed to Indonesia’s participation
in the International Tin Agreement. Purchases of
copra by the Netherlands and other western European
countries continued to fall off; because of the uncertainties of supplies from Indonesia, orders tended
to be placed in the Philippines instead. However, in
the case of palm-oil, the Netherlands, which was the
m ain buyer, increased its purchases substantially over
those of the previous year.
Trade with the Soviet Union and the eastern
European countries, which gained some importance
in 1955, declined considerably in 1956. The value
of trade with the m ainland of China during the first
nine months of 1956 was three times as large as in
the corresponding period of the previous y ear; the
m ainland of China bought mostly sugar and copra,
and sold mostly m anufactured goods.1
Since most of the trade agreements that had
been in effect with the eastern European countries
(Czechoslovakia, eastern Germany, H ungary, Poland,
R om ania and Yugoslavia) expired during 1956,
negotiations were initiated for renewal on a basis
more satisfactory to Indonesia, that is, without specific
commodity quotas, and with paym ents to be m ade in
pounds sterling instead of on a clearing basis as
formerly. An industrial development agreem ent was
concluded between Indonesia and Czechoslovakia on
16 May 1956, reaffirming the stipulation in the 1955
trade and paym ent agreem ent between the two countries that exporters in Czechoslovakia would deliver
l In June 1956 the Indonesian G overnm ent announced that,
because of instability in the w orld rubber m arket, it w ould no
longer be bound by the U nited Nations em bargo on shipm ents of
strategic goods to the m ainland of China, so far as rubber was
concerned. T h e am ounts shipped d u rin g the year were, however,
believed to have been small.
C ountry Surveys
capital goods on credit for development of Indonesia’s
industries. A trade and paym ent agreem ent was concluded with eastern G erm any in December.
In August 1956 a trade agreem ent was signed
with the Soviet U nion p roviding th at the latter would
purchase twenty-five kinds of commodities, including
rubber, copra, coffee, tea and sugar, and would supply
machines, tran sp o rt equipm ent, textiles and other
industrial products, with paym ents to be m ade in
pounds sterling and not through clearing accounts.
This was followed in Septem ber by the signing of an
economic and technical agreem ent u nder which the
Soviet U nion agreed to grant Indonesia $100 million
of credits for capital goods, m achinery and industrial equipment, repayable in twelve yearly instalments
at 2.5 p er cent interest beginning with the th ird year
after the extension of credit for a given project,
paym ent to be in dollars or sterling or raw materials,
The two countries at the
at Indonesia’s option.
same time agreed to co-operate in the development of
atomic energy for peaceful uses, the Soviet U nion
agreeing to provide training to Indonesians in
medical, technical and research fields. Subject to
review after P arliam ent ratified the economic and
technical agreement, it was intended that the Soviet
credit should be applied to financing eleven industrial
projects, including electric power stations, coal mines,
chemical industries and pulp and cement plants.
In M arch 1956, Indonesia concluded an agreem ent for the purchase, over a period of two years,
of United States surplus agricultural commodities
(cotton, rice, leaf tobacco and wheat flour) valued
at $97 million. Since paym ent was to be in Indonesian currency, this agreement m ay be expected to
m ake a substantial contribution towards alleviating
the foreign exchange shortage despite the fact that
trade contemplated under the United States P ublic
Law 480 program m e is above the norm al am ount. A
m ajo r p a rt of the funds were to be loaned to the
Indonesian Government on a long-term basis for
economic development. U nder this aid program m e,
an agreem ent has been reached with Japan, which
will undertake the processing of raw cotton from the
United States. If Japan processes all the raw cotton,
totalling 135,000 bales, it will ship about 120 million
square m etres of cotton cloth in addition to its
norm al cotton goods exports to Indonesia.2
B ALANCE OF PAYM ENTS
The precarious foreign reserve position in June
1954 led to restriction of imports, a policy pursued
until September 1955; at the end of 1955 Indonesia’s
foreign transactions showed a surplus for the first
time since 1951. Total foreign exchange reserves rose
to Rp 2.74 billion from their low of Rp 0.79 billion
2 Japan s total exports of cotton fabrics to all destinations were
1,069 m illion square m etres in 1954 and 952 m illion in 1955.
Chapter 10.
115
Indonesia
in June 1954. However, they rapidly declined again
during the first half of 1956, to Rp 0.99 billion at
the end of June.1 Basically this resulted from the
unfavourable trade situation— falling prices of m ajor
exports, cost-prcie difficulties accentuated by the high
official valuation of the rupiah, labour unrest, shortage
of rice, speculative increase in im ports following
removal of quantitative restrictions— described above.
On the average, export proceeds in the balance of
payments am ounted to Rp 696 million per month
in the period Jan u a ry —June 1956 against a monthly
average of R p 836 million in 1955, while imports
averaged Rp 800 million against Rp 500 million in
1955.
Faced with depletion of its foreign exchange
reserves, the Government on 11 July for the second
time invoked the escape clause in the statutes of the
Bank of Indonesia,2 which allows its 20 per cent legal
reserve requirem ent (of gold, convertible currencies
and the right to draw on the International Monetary
F und) to be suspended for as long as three months.
Since heavy paym ents for im ports in the th ird quarter
continued,3 a loan of $55 million (Rp 627 million)
from the International M onetary Fund, which was
taken up in August, came at an opportune time.4
Early in October reserves were sufficiently high to
allow the 20 p er cent m inim um to be restored. It
was hoped that the dangerous strain on the balance
of payments could be eased by realization of foreign
credits granted by various countries. By M arch 1956,
Rp 78 million had been drawn from the Netherlands
credit, Rp 187 million from the credit from western
Germany, Rp 132 million from the French credit of
12 billion francs, Rp 19 million from Czechoslovakia
and Rp 12 million from the revolving credit of 10
million kroner from Sweden.
The United States
agricultural surplus credit was also expected to bring
some relief.
However, short of a fundamental
improvement in the balance of trade, it was clear
that a precarious situation would remain.
1 By the end of July the reserves had dropped further, to a
new low of Rp 0.73 billion, but they rose to Rp 1.26 billion by
the end of Septem ber (International M onetary F u n d , International
Financial Statistics, January 1957, W ashington D .C .).
2 T he first instance was in July 1954; U nited Nations,
Econom ic Survey o f A sia and the Far East, 1955 (Sales num ber:
1956.II.F.1), p.114.
3 T he effect of tem porary suspension in the issuance of new
im port licences in A ugust was n o t reflected in im port volum e and
exchange paym ents until October o r N ovem ber.
4 This is the first instance w here the F u n d has given a loan to
a country w ithout a p a r value for its currency. (T h e advance
im proved the reserve position by only $27.5 m illion, since the
other half of the transaction consisted of replacing w ith rupiah the
dollars th at w ere on deposit as p a rt of Indonesia’s quota w ith the
F und, and th at w ere always counted by the Indonesians as p a rt of
their legal reserves.)
FINANCE AND PRICES
P UBLIC FINANCE
Exact figures on the distribution of governmental
expenditures in recent years are not available. Since,
however, capital expenditures have constituted only a
rather small p a rt of the total and, in the words of
a recent Financial Note issued by the M inistry of
Finance, “have not always a productive character,” 5
it may be judged that a balanced distribution conducive to rapid progress in economic development has
not yet been achieved. Moreover, ever since the boom
year 1951 the Government has operated with large
deficits— Rp 2.6 billion a year on the average during
1952-1955,6 or 17 per cent of average annual expenditures during that period. This has been due in part
to heavy current outlays for security services (army,
police and others) which accounted for more than
40 per cent of annual total expenditures. Salaries
of government personnel are estimated to have
absorbed 41, 38 and 34 per cent of total revenues
collected in 1954, 1955 and 1956, respectively.
Retrenchment in expenditures has been contemplated
and proposals have been made to rationalize the
adm inistration by reducing the num ber of government
personnel through transfer to semi-governmental or
private enterprises.
Since the budget deficits have generally been
financed by the creation of additional credit, they have
tended to bring about large increases in the total
money supply, thereby adversely affecting the foreign
trade balance and generating pressure for cumulative
price inflation year by year. To continue the effort
to halt this process (the actual deficit having already
been brought down from its Rp 3.6 billion peak in
1954 to Rp 2.1 billion in 1955), the 1956 budget
proposed to limit the
deficit to Rp 1.8 billion.
Expenditures were to increase by nearly 23 per cent
over the 1955 actual figures, but this rise was to
28 p e r
b e m o r e t h a n o ff s e t b y a n i n c r e a s e o f n e a r l y
cent in revenues. The m ajor factor involved was a
steep rise in additional im port duties ( T P I) , from
Rp 1.9 billion in 1955 to an estimated Rp 7.2 billion
in 1956; from the latter amount, Rp 2.2 billion was
to be used for export premiums. However, on the
basis of results from January to June, when total
r e v e n u e s a m o u n t e d toR p 8.1 b i l li o n ,
a n d o f the
expected reduction in total imports during the second
half, it was likely, in spite of seasonal variation in
some revenue items, that revenues would fall short of
their target.
This is traditionally the case with
5 Financial Note, D jakarta, September 1956, p.13.
6 N ot including expenditures of about a billion rupiah w hich
w ere carried over from 1952 to 1953 but which, ow ing to a
change in the budgeting system, failed to be included in the statistics for either year.
116
P a r t II.
government expenditures as well,1 so th at whether the
actual deficit would exceed the Rp 1.8 billion target
set in the budget rem ained in doubt.
The 1956 budget put somewhat greater em phasis
th an its predecessors on productive expenditures, a n d
carried specific entries for financing the first stage
of the Five-Year Plan. Of the m ain disbursem ents on
capital account, Rp 841.5 million was included for
the establishment and m odernization of government
enterprises, Rp 651.8 million for p articipation in
private enterprises, Rp 102.5 million for preparation
and establishment of the D jatiluhur and Asahan h y droelectric power projects, Rp 61.4 million for fisheries
and agricultural projects, and Rp 5.3 million for
mechanization of small-scale industries, while m ore
than Rp 360 million was allotted to the M inistry of
Public Utilities and Pow er for development purposes.
Retrenchm ent was indicated in the budget in the
outlays for “ ordinary” expenditures.
M ONEY AND PRICES
Governmental financial action
initiated in
September 1955 m arked a turning point in Indonesian
m onetary conditions. The gap between budget receipts
and expenditures was narrow ed. The deficit was only
Rp 314 million in the second half of 1955 and Rp
844 million in the first half of 1956, or less th an half
the deficit in the first half of 1955. A concurrent
deflationary factor was the system of prepaym ents for
imports, instituted on a lim ited basis in 1952 and
greatly strengthened in September 1955 by being
shifted forw ard to the time of application for im port
licences. D uring the period when the volume of p repayments was rising, the m oney supply was to th at
extent curtailed and the Government was provided
with finance (actually, obligatory short-term loans
from im porters, deposited with the Bank of Indonesia
and transferred by the bank to the T reasury) which
enabled it to achieve at least a tem porary independence
from central bank financing.2 D uring the second half
of 1955 prepaym ents by im porters rose by Rp 2,074
m illion; in the first quarter of 1956, by an additional
Rp 188 million.
On the other hand, the sharp increase in bank
credit to private borrow ers— about Rp 730 million
in the latter half of 1955, continuing though at a
somewhat m ore m oderate rate in the first half of
1956— appears to have been largely for financing the
1 T h e inflation of budgeted expenditures is in p a rt a necessary
result of the budgetary rules, w hich require the entire com m itm ent
for a project to be covered in advance; the unspent portion then
lapses and is authorized a second tim e in the next year’s budget;
and so on. Some m odifications in budgetary practice are, h o w ever, in process of being introduced.
2 T he G overnm ent’s debt w ith the Bank of Indonesia rose by
Rp 1,362 m illion in the first half of 1955, fell by Rp 1,501 m illion
in the second half, and rose slightly, by Rp 60 m illion, in the first
half of 1956.
C ountry Surveys
prepaym ents of im porters whose position was particularly strain ed as a result of the new regulations of
Septem ber 1955. T he m ovem ents of the reserve of
gold and foreign exchange were tem porarily inflationary in 1955, with the paym ents surplus of th a t year,
but again became a m a jo r deflationary factor in 1956
as the trade deficit drained away reserves and drew
ru p iah from circulation, m ore than counter-balancing
the inflationary effect of the budget deficit and the
increase in dom estic credit.
The inflationary or deflationary influence of the
factors affecting the m oney supply m ay be indicated
by plus and m inus signs as follows:
1954
Item
G overnm ent deficit .................
N et prepaym ent by
im portersa .............................
Increase in gold and
foreign exchange assets . . .
Increase in b a n k credit
to private sector .................
1955
1956
F ir s t S eco n d F ir s t Seco nd
h a lf
h a lf
h a lf
h a lf
+ +
+
+ +
+ + +
--
.b
+
--
.
_
+
+
+
F ir s t
h a lf
+
.
+
--
+
+
a Increase has deflationary ( – ) effect.
100 m illion rupiah.
b U nder
As a result of these developments, the annual
rate of increase in the m oney supply declined from
46.4 per cent in 1954 to 16.6 per cent in 1955, and
the money supply actually decreased by about 8 per
cent in the first half of 1956.
M ore optim istic
conclusions concerning the probable course of prices
in future could be draw n from this trend were it not
for the fact th at reserves of foreign exchange were
already down to m inim um levels. The check on inflation that large im ports provide ends when the im ports
have to be restricted. Prepaym ents also stop accum ulating, or even decline, as in the second and th ird
quarters of 1956.3 Tow ards the end of 1956 it in
fact appeared that one of the few anti-inflationary
factors in the economy was the accum ulation of
prepaym ents, not on o rdinary im ports, but on im ports
of surplus agricultural com m odities u nder the United
States aid program m e.
P rices of im ported commodities, notably textiles,
levelled out after m id-1955 an d then declined as,
aside from a dow nturn in m oney supply, available
supplies of com m odities became m ore abundant. The
D jak arta index of nineteen retail food items, however,
continued to advance th ro u g h M arch 1956, largely
as a result of the rice shortage and its consequent
increasing price, which was not relieved by large-scale
im ports until the second q u arte r of 1956. E arly in
3
In the third quarter, the G o v ern m en t’s debt w ith the Bank of
Indonesia rose by Rp 1,444 m illion, w hile im porters’ prepaym ents,
having declined by Rp 255 m illion in the second quarter, declined
fu rth er by Rp 630 m illion.
Chapter 10.
Indonesia
the final q uarter of the year, prices in general,
responding to the m onetary and production situations,
were tending to rise again.
F IR S T FIVE-YEAR PLAN
The long-awaited Five-Year Plan for development
was adopted by the Cabinet in October 1956 and
released to the public, pending final action by P arliament. The Plan seemed m oderate and realistic. The
Government’s expenditures for development were put
at Rp 12.5 billion (or Rp 2.5 billion a year, not
far from their previous level in recent years) within
a total of Rp 30 billion in which the local self-help
contribution, including com m unity development, was
visualized as Rp 7.5 billion and the private contribution was set at Rp 10 billion.1 Government
expenditures were expected to be financed to the extent
of Rp 9.5 billion from government revenues, Rp 1.4
billion from bank loans originating from increases in
time deposits, Rp 0.6 billion from the sale of government bonds and Rp 1 billion from foreign loans and
1 T hese com putations did not take into account T PI, w hich it
has been estimated m ight raise costs by about 12 per cent a t current T PI rates.
117
grants. Only 8 per cent of the cost was to be met
with capital from abroad; if large-scale foreign aid
was forthcoming, however, the Plan was expected to
be expanded.
National income under the Plan was estimated to
rise by about 3 per cent per year. W ith a net rate
of capital form ation of 6 per cent (as against a
p rio r rate officially given as 5 per c e n t), the
incremental capital-output ratio was 2:1 for this fiveyear period.2 Population was viewed as increasing
at a rate of 1.7 per cent annually, leaving a modest
increase in per capita income of 1.3 per cent per year.
Implicit in the Plan is some structural change.
Only 13 per cent of the investment budget was to be
allocated to agriculture, including transm igration and
community development. Power and irrigation, industry and mining, and transportation and communication each accounted for 25 per cent of the total, social
welfare for the rem aining 12 per cent.
2 In view of the composition of the Plan the ratio m ay prove
in practice to be som ew hat higher. Estimates contained in the
Plan itself showed this ratio as rising by stages through successive
five-year periods to 4:1 in the fourth period.
C h a p te r 11
JAPAN
The pressure of population on land in Japan,
accentuated by the loss of territory and a net inflow
of 5 million repatriates durin g 1945—1950, is being
alleviated by b irth control measures and by a rapid
increase in industrial production. F or the present,
however, largely because of increased labour force
participation, the country is confronted with a substantial problem of unem ploym ent and u nderemployment. The new Five-Year Plan for economic
self-support undertakes not only to sustain the rate
of economic growth in general, but also to prom ote
employment through the extension of public works
and small and medium-sized industries.
PO PU LA TIO N , M A N PO W E R AN D EM PLOYM ENT
Between 1945 and 1955, J a p a n ’s population rose
from 72.2 million to over 89.3 million owing to a
net n atu ral increase of about 12 million and a net
inflow of repatriates of 5 m illion.1 This rapid growth
in population in a country which is estim ated to
have lost, as a result of w ar dam age, one-quarter
of its national wealth, over one-third of its industrial
m achinery and tools, an d four-fifths of its shipping,
bro ug ht problem s of over-population and u n deremployment to the fore.
The high rate of n atu ra l increase in early postw ar
years was the result of rapidly rising b irth rate (till
19 47 ), largely due to the generally h ig h m arriag e
rate, and a rapidly falling death rate, largely caused
by im proved m edical knowledge an d public health
measures. The high b irth rates have, however, been
checked by m easures to popularize fam ily plan nin g2
and to legalize abortion for specific reasons, p rim arily
for the " protection of the life and health of the
expectant m other,” under the Eugenics P rotection
Law enacted in July 1948 and revised in 1952.3 The
rate of n atu ra l increase after reaching its post-war
peak of 2.16 p er cent in 1948, fell rapidly, to 1.56
per cent in 1951 and 1.16 p er cent in 1955. A ccording to the projection by the Institute of P opulation
Problem s of the M inistry of W elfare, Ja p a n ’s popu lation will rise to 107.1 million by 1990, and decline
thereafter until it again reaches 100 million by 2010.
The pressing problem , however, has been the greater
rate of participation in the labour force, owing
m ainly to the entry of females or other persons
hitherto unemployed who, under changed postw ar
social conditions, went to work to eke out the family
income.4
Sustained economic growth through industrialization is essential under the circumstances. However,
industrialization in a country with limited domestic
production of food and raw m aterials naturally
depends upon trade. In the greatly altered post-war
pattern of Ja p a n ’s trade, textile and processed food
exports have tended to decline, while exports of
metals, m achinery and chemicals have tended to
increase. The post-war shift away from form er areas
as sources of supply for im ports (C hina— both m ain land and Taiwan— K orea and som e other Asian
countries) to the United States and other countries
was, however, being modified, with the dual objective
of bridging the dollar gap and of increasing the
competitive power of Ja p a n ’s exports by savings in
freight costs. The trend towards a return to the
earlier pattern of trade, through a rise in exports to
fill gaps created by the cessation of U nited States
aid and, subsequently, by a fall in special procurements of United N ations and United States forces
in Japan, was m aintained in early 1956. However,
its continuation on long-term basis was recognized as
possible only through an improvement in industrial
productivity, which would require rationalization and
renovation of equipm ent as well as access to cheaper
sources of supply for im ported foods and raw
materials.
1 F rom October 1945 to 1950, about 6.2 m iilion form er servicem en and oversea Japanese residents were repatriated, w hile only
about 1.2 m inion foreign residents in Japan (m ostly Koreans and
Chinese) left the country d u rin g the sam e period.
2 A ccording to the survey conducted by the M inistry of W elfare, the proportion of families surveyed th at practiced contraception reached 33.2 percent for the w hole country 3 / 2 percent for
urb an areas, and 30.4 percent for rural districts; such proportion
was found to have been increasing. (Institute of Population
Problems, Ministry of W elfare, Population Problem s o f Postwar
Japan, Tokyo, M arch 1956).
3 Legal induced abortions rose from 246,000, or 9.1 percent of
die n um b er of livebirths, in 1949 to 1,170,000, or 67.7 percent of
the livebirthts, in 1955.
The year 1956 was thus m arked by a continuation of the process of norm alization in J a p a n ’s
economy begun in 1955, and by the inauguration of
a Five-Year P lan for economic self-support designed
to achieve an average increase of 5 per cent per
annum in Jap a n ’s national income, without foreign
aid, and to provide sufficient employment for its
growing labour force.
4 Econom ic P lanning Board, Econom ic Survey o f Japan, 1 955/
56 (T okyo, Septem ber 1956), p . l l .
118
Chapter 11.
119
Japan
C h a r t 14.
Japan:
expected to fall 12 per cent below the 1955 level;4
wheat output fell 6.3 per cent, and barley production
2.7 per cent.
P ro je c te d Population
A significant development in the post-war increase
in Jap a n ’s working population is its absorption by
subsidiary industries.
The employed population,1
which constituted about 98 or 99 per cent of the
total labour force, rose by 14.5 per cent during 1951–
1955, the increase being greater in subsidiary industries (24.8 per cent) and least in p rim ary industries
(6.6 per cent).
The definition of “ employment” used in these
estimates, however, fails to indicate the problem of
under-employment, which appears to be growing.
According to the data provided by a special labour
force survey undertaken by the B ureau of Statistics,
the num ber of under-employed from M arch 1951 to
M arch 1955 increased by 75 per cent with respect
to persons wanting to change work, and by 45 per
cent with respect to persons working for comparatively
short time per day but wanting additional work.2
SUPPLY OF FOOD AND RAW MATERIALS
D uring the post-war decade 1946– 1955, the
population increased by 18 per cent while, despite
the harvest of a record bum per crop in 1955, rice
production, limited by the fact that the arable land
was already almost fully utilized, rose by 29 per
cent.3 Rice im ports increased from 0.8 million tons
in 1951 to 1.24 million tons in 1955 (1.43 million
tons in 1954). The 1956 production of rice was
1 Japan’s labour force statistics usually classify as “em ployed”
all persons having w ork for pay or profit (including unpaid
fam ily w orkers), for at least one hour d u rin g the survey week,
and as “ totally unem ployed” persons having ability and will to
w ork and seeking jobs but n o t w orking even for one hour during
the survey w ork. (Labour Force Stirvey o f Japan, by Bureau of
Statistics, Office of the Prim e Minister, March 1956, pages 3 to 4.)
2 T he actual figures are as follows:
March 1951
1. Persons w anting to change
w orka ......................................
2. Persons w ork ing less than
35 hours a week but w a n ting additional w ork ............
March 1955
1,010,000
1,770,000 ( l,6 9 0 ,0 0 0 )b
620,000
900,000
Note: Categories 1 and 2 are presum ed to increase along with
the increase in opportunities for em ploym ent and therefore cannot
be fully relied upon as indices of under-em ploym ent.
a D ue either to low income or tem porary work.
b Figures in parentheses show persons w ho are not satisfied
with their present principal w ork and w anting new principal
work.
3
D uring 1946-1955, the population increased from 75.8 m illion
to 89.3 m illion; b row n rice production rose from 9.2 m illion to 11.9
million tons. T he conversion factor is 0.804 from paddy to brow n
rice, and 0.93 from brow n to white rice.
The fluctuations in rice production, in the face
of a continuously growing population, necessitated
food im port and control, particularly of rice, and led
the Government to encourage the cultivation of rice
on m arginal or sub-marginal land through various
incentive measures, including subsidies. The rice
yield per hectare has fluctuated widely in post-war
years, often because of unfavourable weather conditions and typhoons. Prices of im ported rice were
high until 1953; this, together with its relative scarcity,
caused considerable substitution of other staple food
grains, particularly wheat and barley, for rice.5 The
fall in average calorie intake, from 2,126 per capita
p er day in the pre-war period (1934–1938) to 2,061
in 1955 has been offset to some extent by a rise from
the pre-war portein intake of 52.8 grammes per capita
per day to 61.1 grammes in 1955— a rise made
possible by an improvement in per capita national
income. It was proposed under the Five-Year Plan
to raise the daily per capita intake to 2,143 calories
and the protein intake to 65.7 grammes by the fiscal
year I960.6
Japan is largely dependent on imports to make
up for deficiencies in domestic production of both
agricultural and m ineral raw materials— entirely so
for raw cotton, wool, crude rubber, phosphate rock,
potassium compounds, bauxite and abaca; almost
entirely for crude petroleum, iron ore and salt; and
partly dependent for coal and coke, rayon pulp and
other items. In the first ten months of 1956, raw
m aterial imports, accounting for 65 per cent of the
total value of imports, rose by 40 per cent as compared with the corresponding period of 1955. Except
for raw cotton, coal and rayon pulp, the m ajor
industrial raw m aterial imports have risen in postwar years, particularly in 1955 and 1956, as compared
to pre-war levels (1934– 1936). Decline in world
demand for cotton textiles, coupled with efforts to use
synthetics in place of cotton textiles for domestic
consumption, accounted for the decline in raw cotton
imports. Coal im ports fell on account of the reduced
supply from m ainland China, and the competition
from petroleum and hydroelectric power as substitutes.
Increased domestic production of rayon pulp helped
to reduce im port requirements. In the case of all
other items, notably iron ore, iron and steel scrap,
crude petroleum and non-metallic ores, there has been
4 Mid-October estimate by the Ministry of Agriculture and
Forestry.
5 W hile the annual per capita supply of brown rice fell from
the pre-w ar (1934- 1936) average of 131.5 kg to 109.6 k g in 1955,
the yearly per capita supply of other staple food grains rose—
barley from 12.5 k g to 20.8 kg, and w heat and its products from
9.6 k g to 27.9 kg— during the same period (Econom ic Survey of
Japan, 1 955/56, Annex, p.77).
6 T he fiscal year begins 1 April.
120
a substantial rise in the quantity im ported, with a
commensurate expansion in industrial production and
exports.
One of the significant post-war changes in the
geographical distribution of sources of raw m aterial
supply has been the decline in the im portance of
m ainland China, which has recently accounted for
only 1.7 to 3.2 per cent of the total value of Japanese
imports, as against 10 per cent (consisting mostly
of bulky commodities, such as iron ore, coking coal,
salt, soyabeans and tung oil) in 1934– 1936. Because
of the suspension of trade with m ainland China
since the Korean conflict, Japan has shifted to other
countries, especially the United States, for its supplies.
In general, changes in the economic structure of
Chinese People’s Republic as a result of its program m e
for rapid industrialization suggested th at the pre-war
pattern of trade between Japan and m ainland C hina
was likely to undergo some changes.
IND U ST RIA L OUTPU T AND PR O D U C TIV IT Y
Industrial
production
(m anufacturing
and
m in in g ), which was 8 per cent greater in 1955 than
in 19o4, increased at a faster rate during the first
half of 1956— 17 per cent over the first half of 1955—
owing to a further rise in both foreign an d domestic
demand. Durable m anufactures rose by 24 per cent,
non-durables by 15 per cent. Am ong the durables,
the most rapid gains were registered for m achinery
(particularly ship b u ild in g ), metals and ceramics,
while am ong the non-durables, chemicals and textiles
topped the list. The rate of growth in m ining pro du ction d uring the first half of 1956, as against the first
half of 1955, was 9 p er cent.
The general index of industrial production in
the first half of 1956 was m ore than double the p re war (1934-1936) level, with higher rates of increase
for chemicals (3.6 times p r e - w a r ) , m achinery (3
times) and metals (2.5 tim e s). Textile production,
however, despite an 11 per cent rise during the first
half of 1956, was still 7 per cent below pre-war levels.
This change in the pattern of industrial production
was accounted for largely by a change in the pattern
of exports. Post-war exports of industrial products
from Japan have been m arked by a rapid decline
from pre-war levels in textiles, particularly silk and
cotton, and an equally rap id rise in metals, m achinery
and chemical products. Thus, while the ratio of
exports to production fell from 76.8 to 30.3 per cent
between 1934– 1936 and 1955 for silk fabrics, from
75.7 to 37.7 p er cent for cotton fabrics and from
70.3 to 44.3 per cent for rayon fabrics, it rose from
practically nothing to steadily increasing percentages
for metal, m achinery and chemical products; for
example, du ring the sam e period, the ratio rose to
9.7 p er cent for ordin ary steel, 36.5 per cent for
cotton spindles, 48.9 p er cent for cotton looms, 68.6
per cent for ships and boats, 19.4 p er cent for
P a r t II.
C ountry Surveys
am m onium sulphate and 58.3 p er cent for staple fibre
fabrics.1
Increased production and exports have been
accom panied by an expansion in industrial capacity
and sometimes by a reduction in the rate of operation. T hus the over-all index of in dustrial capacity
fo r nine p rin cip al industries rose 18 p er cent
between the end of M arch 1955 and the end of March
1956, but the index of the rate of operation declined
by 5 p er cent. Sim ilarly, while the indu strial capacity
index h a d reached 216 by M arch 1956, the index
of the rate of operation rose m ore slowly, to 141
(M arch 1 9 5 0 = 1 0 0 ) . The situation varied, however,
with the industry. F o r ru bber, iron and steel, and
non-ferrous metals, the index of the rate of operation
rose m ore from 1950 to 1956 than the index of
industrial capacity, while for other industries, including petroleum, textiles, m achinery, p ap er an d pulp,
chemicals and ceramics, the reverse was true. In
general, in cases where industrial capacity increased
at a faster rate in 1956 than in 1955, the rate of
operation went down, as in textiles, chemicals and
petroleum ; where it increased at a slower rate, the
rate of operation went up, as in paper and pulp, and
ceramics.
This failure of the rate of operation to keep
pace with the expansion in industrial capacity m ay
be explained by a num ber of factors, in p articular,
the existence of surplus industrial capacity as a result
of investment in 1952 and 1953 for the rationalization of industries, fo r example, chemical fibres, oil
refining and cement m anufacture. On the other hand,
there was a shortage of productive capacity fo r the
m anufacture of such basic m aterials as pig-iron, steel
ingots, alum inium ingots, caustic soda, sulphuric acid,
tar p roducts; such shortages have become a problem
since fiscal 1955.2
The post-war change in the industrial and trade
pattern, from light industries, particularly textiles,
to heavy industries, particularly chemicals, metals and
m achinery, as noted above, has raised the im po rtan t
question of industrial productivity as a factor affecting
the competitive power of Japanese exports on the
world m arket. An outstanding post-war development
in Jap a n has been the disparate rate of rise in
productivity an d employment, particularly in m an u facturing industries. D uring the perio d 1953 to the
first half of 1956, the annual rate of increase in
employment in m an ufacturin g industries was only onefifth of the annual rate of increase in production.
1 O ther items w ith a rising ratio of exports to production in
post-w ar as com pared w ith p re-w ar years included steam locom otives and sew ing machines. O n the other han d, because of a rise in
real national incom e and living levels and the consequent d em and for
consum er durables, the ratio of exports to production fell between
1950 and 1955 for m otorcars, cam eras, watches and clocks.
2 Econom ic Survey of Japan, 1 9 5 5 /5 6 , chapter II, “Industrial
Production and E nterprise”.
Chapter 11.
121
Japan
The substantial increase in productivity in m anufacturing (10.7 per cent per year) has been attributed
to extensive investments for rationalization in the
case of large establishments. Small and m edium sized establishments have also been operating under
improved conditions, although to a lesser degree.1
of $106 million.3 Liberalization and normalization
of Jap a n ’s trade were pushed forward substantially
in response to this favourable situation. During
the first half of 1956, export receipts rose 34 per cent
above those of the first half of 1955, and import
payments were 22 per cent higher, bringing the trade
surplus to $77 million.4
C h a r t 15. J a p a n : Index N u m b e r s of Employment,
Production, Productivity a n d W a g e s in
M a n u f a c t u r i n g Ind ustries
Aside from merchandise trade, special procurem ents5 constituted the most im portant item in Japan’s
balance of payments. This item has been declining
since 1952, when it reached a peak of $788 million.
In 1955, it still amounted to $505 million, thus
helping to raise the payments surplus to $205 million,
a post-war peak.6 During the first six months of
1956, special procurements were actually 5 per cent
higher than in the corresponding period of 1955.
However, they were expected to disappear by fiscal
year 1960, the final year of the Five-Year Plan.
TRADE AND PAYMENTS
In 1955, while industrial production was 81 per
cent above pre-war (1934– 1936) levels, and real
per capita income was m ore than 13 per cent higher,
the quantum of exports and imports was lower— by
29 per cent and 10 per cent, respectively.2 This was,
however, considered the most favourable post-war year
for Jap a n ’s foreign trade, since, according to the
foreign exchange statistics, exports rose by 27 per
cent while im ports fell by 6 per cent, thus giving rise
for the first time since the w ar to a trade surplus
1 According to studies of the Ministry of L abour of productivity
in 1955 as com pared w ith 1954 in nine large industries, productivity rose th rough a reduction in m anpow er per u n it of production in m ost industries; the reduction in m anpow er was generally
in the range of 5 to 15 per cent.
2 As a result of the slower recovery of exports than im ports, in
1955 exports paid for only 81 per cent of im ports according to
customs clearance statistics, although according to the foreign exchange statistics exports exceeded im ports by $106 m illion. T rade
statistics in Japan, as in m any other countries, are compiled according to either customs clearance or foreign exchange transactions,
and discrepancies arise between the results obtained for im port or
export totals from these two different sources because of difference
in valuation (customs figures give im ports in c.i.f. and exports in
f.o.b. terms whereas foreign exchange figures give both in f.o.b.),
tim ing and coverage. In regard to tim ing a significant factor is
the increase (or decrease) in deferred paym ents covering usance
bills. Im port usance credit for dollar accounts runs as long as
three m onths for lim ited items, and for sterling accounts u p to
four m onths for u rg ent and essential comm odities. Delays that
ensue in settlements of accounts give rise to underestim ation to
th at extent in foreign exchange statistics compiled by the B ank of
Japan, as com pared w ith customs clearance statistics. Goods im ported on usance credit for the first eleven m onths of 1956 covered
37 per cent of total im ports for the dollar account and 82 per
cent for the sterling account.
W ith the post-war changes in the pattern of
consumption and trade, the extent of Japan’s dependence on foreign trade has tended to decline. The
ratio of exports and imports to national income
having fallen to 10.1 per cent and 13.2 per cent,
respectively, in fiscal 1954 as against 20.4 per cent
and 21.2 per cent in 1936, Japan has emphasized
exports requiring local labour and other resources
rather than imported raw materials (raw cotton, for
exam ple), and expansion of the domestic market for
some of its staple industrial products (for example,
textiles and consumer durables). Under a programme
to rationalize enterprises, Japan has been attempting
to raise its industrial productivity and consequently
the competitive strength of its exports, with a view
to overcoming its status as “ a m arginal exporter” in
the world m arket— prospering in trade as world
dem and increases, but experiencing a decline in
exports as world economic recessions begin.
PO ST -W A R R E C O V ER Y O F T R A D E
The geographical pattern of Japan’s trade has
undergone a radical change in the post-war period
through the rapid decline of trade with China
(m ainland and Taiwan) and Korea, and the equally
rapid rise of trade with other Asian countries, Africa
and the Americas. In 1950, when Japan reopened
its trade with m ainland China, exports amounted to
3 According to customs clearance statistics, in 1955 imports
reached $2,471 m illion and exports $2,010 million, resulting in a
trade deficit of $461 m illion— compared with $770 m illion in
1954.
4 D u rin g the first eleven m onths of 1956 export receipts for 25
per cent above those of the corresponding period of 1955 and im port payments rose 34 per cent, resulting in a trade deficit of $42
m illion.
5 Special procurem ents, according to the International Monetary
F und, cover total foreign m ilitary expenditures (the U nited States,
U nited K ingdom and U nited Nations forces) in Japan.
6 International Monetary Fund, International Financial Statistics,
January 1957, p.246.
P a r t II.
122
C h a r t 16.
Japan:
V a lu e of Im ports a n d Exports
(M onthly averages)
$19.6 million an d im ports to $39.3 million. Since
October 1951, trade with m ainland C hina has been
restricted by the ban on exports of strategic m aterials
imposed by the Co-ordinating Committee on Export
Control to Communist Areas (COCOM ), of which
Japan is a member. The non-strategic p a rt of the
trade has been conducted under the third unofficial
agreement between m ainland China and an association
of Jau a n ’s trade interests.1 In the first ten m onths of
1956, exports to m ainland China were equivalent to
an annual rate of $54.2 million as against $28.5
million in the year 1955, while im ports from m ainland
China, $82.5 million on an annual basis, were slightly
higher than the $80.8 million of 1955. E xports of
cement, chemical fertilizers and m achinery showed a
substantial increase, while textile exports (largely
rayon yarn) declined. Im ports of rice, soya beans,
and coal rose considerably during the same period.
D uring the first ten m onths of 1956, Ja p a n ’s
exports to Taiwan rose to $64 million, 34 per cent
higher than in the corresponding period a year before,
while im ports fell to $36.2 million, or 47 per cent.
M ajor im ports included sugar and rice; m ajo r exports,
chemical fertilizers, iron and steel, m achinery and
cement.
The share of K orea in Ja p a n ’s trad e was substantial before the war, b u t since the w ar, an d
especially since the outbreak of the K orean conflict,
Ja p a n ’s trade with southern K orea has been m uch
smaller, particularly so far as im ports are concerned.
Since A pril 1950, trade between the two countries
has been conducted under a bilateral trad e and
paym ents agreement.
This trade decreased substantially as a result of political difficulties in 1955,
and was suspended in August 1955. The suspension
was lifted in Jan u a ry 1956, and in the first ten m onths
of 1956, both im ports and exports, though substantially less than before the war, were higher than
in the corresponding perio d of 1955.
1 In July 1956, a private mission from Japan w ent to m ainland
C hina, and the third unofficial trade agreem ent was extended in
m id-O ctober to cover another year com m encing 5 May 1956.
C ountry Surveys
In contrast to C hina an d K orea, other ECAFE
countries have generally increased their sh are in
J a p a n ’s trad e since before the w ar. A rran g ed according to the m agnitude of th eir tra d e (im ports and
exports) with Ja p a n d u rin g the first ten m onths of
1956, these countries include M alaya an d B ritish
B orneo; In d ia ; Indonesia; the P hilippines; H ong
K ong; T h ailan d ; B urm a, C am bodia, Laos and
southern Viet-Nam as a g ro u p ; P ak istan ; Ceylon;
A fghanistan and Nepal. D uring the first ten m onths
of 1956 as com pared with the corresponding period
a year before, J a p a n ’s exports to ECA FE countries
other than China and K orea increased by $89 million,
o r 20 p er cent to $539 m illion and J a p a n ’s im ports
from these countries rose by $88 m illion, or 19 per
cent to $541 million.
The ra p id rise, as tra d in g p artn e rs of Japan,
in the relative im portance of the U nited States an d
other countries in the Am ericas (particularly C anada,
Mexico, A rgentina and Brazil) and in A frica
(particularly for im ports from E gypt and the U nion
of South Africa, and exports to N igeria, Gold Coast,
Liberia and the U nion of South A fr ic a ), h as been
another notable post-war development.
Ja p a n ’s post-war im ports from the U nited States
have consisted m ainly of foods (including wheat,
rice, barley, corn) and industrial raw m aterials
(including soya beans, raw cotton, iron and steel
scrap, coal, crude petroleum and its p ro d u c ts), a
m ajo r p a r t of which were obtainable in pre-w ar days
from China, K orea and countries in south-eastern
Asia. Exports to the U nited States have included
m ainly textiles and their products (particularly raw
silk and fabrics, cotton fabrics, clo th in g ), fish and
fish preparations, lum ber and its products (p a rticu larly plyw ood), toys and pottery. In post-war years,
im ports have exceeded exports, although the m onthly
trade deficit was reduced from $42 million in 1951
to $27 million in 1955. D uring the first ten m onths
of 1956, Ja p a n ’s m onthly im ports from the U nited
States reached $84 million and m onthly exports to
the United States were $45 million, giving rise to
a m onthly trad e deficit of $39 million— considerably
higher than in the year before.
C H A N G E S IN IN V IS IB L E IT E M S
M ajor invisible items other th an special p rocurement, already m entioned, included travel, tran sp o rtation, reparations, foreign investments and loans.
Expenditure by foreign visitors was estim ated to have
risen spectacularly, from $1 million in 1947 to $45
million in 1955,2 placing tourism as the seventh
largest earner of foreign exchange fo r Japan, following exports of cotton textiles, iron and steel products,
staple fibre textiles, aquatic products, vessels and
2 T ourist Industry Bureau, M inistry of T ransportation, A n n u a l
Report on T ourism in Japan (T okyo, 1956), p.28.
Chapter 11.
123
Japan
rayon textiles. D uring the first nine months of 1956,
receipts from foreign travel rose to $38 million,
compared with $34 million in the corresponding period
of 1955, and further gains were expected in the future.
Receipts from transportation in 1955 exceeded
the previous (1952) peak, and during the first eleven
months of 1956 they rose to $94 million as against
$50 million in the corresponding period of 1955.
This rapid expansion reflected the shipping boom
arising from general economic prosperity.1 However,
payments for transportation also rose to $109 million
during the first eleven months of 1956, as against $107
million in the corresponding period of 1955.
Japan concluded agreements with Burma and
the Philippines to settle its reparations obligations to
these countries, and others were expected to be concluded shortly with Indonesia and the Republic of
Viet-Nam. The agreement with Burma provided for
the paym ent in goods and services from Japan of
$200 million over a period of ten years beginning
in fiscal 1955; according to the reparations schedule
for the fiscal year 1956/57 (extending to 31 March
1957) contracts were signed for a total sum of 19.1
billion yen, or about $50 million.2 An economic
co-operation agreement was also signed, whereby
Japanese private capital was to enter into joint
ventures with Burmese capital to the extent of $50
million, for the ten-year period.3
The reparations agreement with the Philippines,
effective from 23 July 1956, called for a total payment
in goods and services from Japan of $550 million
over a period of twenty years— $25 million annually
during the first ten years and $30 million annually
thereafter. The reparations schedule for the first
reparations year 1956/57 includes $6 million
representing the cost of salvaging sunken ships, $4
million for the processing of m aterials4 and payments
for o ther services. Japan also agreed to extend loans
of $250 million on a commercial basis from private
Japanese firms to private Philippine firms.
1 T he tram p freight index as compiled by the British C ham ber
of Shipping for M arch 1956 registered a 90 per cent increase over
A ugust 1954, and continued to climb since then. (Economic
Survey o f Japan, 1955/56, p. 109). T h e Japanese shipbuilding
industry received foreign orders for 2.2 m illion tons in 1955 and
ranked second to the U nited K ingdom in the volum e of contracts
on hand (i b i d p . 116).
2 Construction of the 84,000 k W Balu C hau n g hydroelectric
pow er p lant has been undertaken w ith Japanese equipm ent and
personnel. T h e distribution of tthe total sum of ¥19,108 million,
by categories, was as follows (in m illions of y e n ): Category A
(projects or plants) 8.961, including Balu C haung hydroelectric
project 7,004, others 1,957; Category B (heavy m achinery and
equipm ent) 7,004, including railways 3,167, State Agricultural and
M arketing Board 803, Industrial Loan Board 826, Others 2,208;
Category C (other m aterials and products) 2,996; Category D
(services) 147.
3 Consideration has been given to the erection of a joint cotton spinning plant, although the Burmese G overnm ent’s socialization policy appeared to have been a deterrent to Japanese business
men.
4 Part of a total of $20 m illion over five year.
Post-war foreign investment, chiefly in Japanese
subsidiary enterprises abroad, has been limited in
amount. The largest part of the $20.9 million outstanding at the end of September 1956 was in the
United States, Canada and Latin America, the balance
of $3.34 million being mostly in subsidiary enterprises
in Asian countries and the Ryukyu Islands. On the
other hand, the inflow of foreign capital, in the form
of long-term loans exceeding one year, has been
much greater. During fiscal 1955 and up to October
1956, loans from the International Bank for Reconstruction and Development had reached $13.4 million,
to five firms in metal and heavy industries. Loans
from foreign banks, particularly the Bank of America,
were $20.8 million, mostly for the financing of
petroleum refining companies (the Idemitsu Kosan
Company received a loan of $10 million from that
b an k ).
Loans from private foreign enterprises
reached $44.5 million, mostly from German, United
States and Swiss firms to their affiliated branches in
Japan, mainly in electrical, chemical and pharmaceutical industries. In addition, the Export-Import Bank
of Washington extended a loan of $60 million to
finance cotton importers through the Bank of Japan,
and two other United States loans aggregating $108.9
million were obtained for the disposal of surplus
United States agricultural commodities in Japan;
proceeds in local currency derived from the sale of
these commodities were to be used to build up a
counterpart fund with which to finance various
development projects. All these loans, amounting to
about $248 million, have been granted, but only partly
drawn upon.
FINANCE AND PRICES
P U B L IC FIN A N C E
Great importance was attached to the fiscal year
1956 budget for the “ general account,” 5 since it was
the first budget to be considered after the merger of
the Democrats and Liberals into a single Conservative party. On the expenditure side, there was a
slight increase, of 3.4 per cent to ¥1,068 billion, over
the total of ¥1,033 billion ($2,870 million) for the
previous fiscal year.
Items of expenditure that
increased notably included defence, social services and
grants to local finance. On the revenue side, some
rise in tax revenue was anticipated on the basis of a
norm al rise in national income. The deficit of ¥20,000
5 In Japan the budget account of the national governm ent is
k n o w n as the “general account” , in addition to which there are
special accounts and accounts of governm ent agencies. In the text,
the “general account” is taken as including five special accounts
of an administrative nature. T here is, besides, the local governm en t account, w hich in recent years has been of about the same
order or m agnitude as the general account of the central governm ent, though in the local governm ent account a sizable portion of
revenue is derived from the general account under “distribution
of allocation tax” , that is, sharing of certain taxes by both national
and local governments, e.g. liquor, income and corporation taxes.
124
million ($55 million) was to be covered by governm ent cash assets.1
As com pared with the pre-war budget (for fiscal
1934),2 there have been significant post-war changes
in the structure of central governm ent revenues an d
expenditures. Grants to local finance have risen from
4.1 per cent to 24.6 per cent of total expenditure,
principally owing to post-war changes in th e tax
allocation system between central and local governm ents; expenditures for social services, from 16.8 to
27.4 p er cent, owing to the rise in social security,
pensions, education and public health outlays; and
for public works, from 9.1 to 16.1 per cent. On the
other hand, the share of defence outlays fell radically,
from 43.7 per cent in fiscal 1934 to 15.7 per cent
in fiscal 1956; interest on public debt accounted for
only 4.7 per cent of total expenditure, com pared with
16.7 per cent in fiscal 1934,3 as a result of the wiping
out of a large portion of this debt in the course of
early post-war inflation.
Of the total revenue of
¥1,048 billion or $2,911 million for fiscal 1956, tax
revenue accounted for ¥849 billion, or 81.6 per cent,
against 64.5 per cent in fiscal 1934, when public
borrow ing was m uch larger.
The ratio of national and local taxes4 to national
income in Japan rose from the pre-war (1934– 1936)
average of 12.9 per cent to a peak of 28.5 p er cent
in fiscal 1949, but thereafter the tax burden was
reduced— to 19.1 per cent in fiscal 1955 and 19.4 per
cent in fiscal 1956.
In post-war years, governm ent loans and other
fianncial investment5 have occupied an im portant
position in Jap a n ’s rehabilitation and development,
supplementing private capital, which was found to be
insufficient.6 In the fiscal 1956 budget, this item
is estimated at ¥259 billion, with 64.5 per cent for
the private enterprise sector,7 3.1 per cent for public
enterprises and 32.4 p er cent for local government.
1 T h e term is used to refer to the surplus carried over from
the previous fiscal year.
2 T h e percentages for fiscal 1934 relate to the general account
only.
3 For fiscal 1934, both debt redem ption and interest paym ents
are included, but for fiscal 1956, only interest payments.
4 National taxes include governm ent m onopoly profits.
5 “G overnm ent loans and other financial investm ent” exclude
real investm ent as well as loans to non-profit-m aking private o rganizations, but include loans to local governments.
6 A m ong the financial institutions that played leading roles in
this respect are the Reconversion Finance Corporation, particularly
from 1946 to 1947, the US Aid C ounterpart F u n d from 1949 to
1952, and the D evelopm ent Bank after 1952. T h e loans m ade by
the D evelopm ent Bank financed investm ents by private enterprises
for the rationalization of industry on a large scale; in the subseq u e n t period of “ tight m oney policy” from 1954 onw ard cam e a
trend tow ard norm alization in finance as in other fields.
7 T h e private enterprise sector includes governm ent financial
institutions supplying funds to private enterprises, am ong the m ost
im portant of w hich are the D evelopm ent Bank and the ExportIm port Bank, in addition to the Electrtic Pow er D evelopm ent C orporation, Sm aller Enterprise Loan Corporation, A griculture, Forestry and Fishery Finance C orporation, H ousing Loan Corporation,
an d H ousing Corporation.
P a rt II.
C ountry Surveys
T he higher level of econom ic activity in 1955/56
affected the G overnm ent’s cash transactions with the
private sector. As a result of increases in business
profits, personal income and consum ption, there were
substantial additions to tax revenues in such forms
as corporate and personal income taxes, liquor taxes
and com m odity taxes, as well as in the income of
public corporations. In the second q u arte r of 1956,
net receipts of the T reasury reached ¥18.8 billion as
against its net paym ents of ¥16.6 billion in the
corresponding q u arte r a year earlier. In the th ird
qu arte r of 1956 there was a notable increase in net
receipts of the T reasury to ¥36.4 billion as against
net paym ents of ¥12.4 billion in the corresponding
q u arter of 1955; in the fou rth q u arte r when the
T reasury has usually a large am ount of net paym ents,
net paym ents are expected to be fa r less than the
¥229.9 billion of the corresponding q u a rte r a year
earlier.
In the foreign sector also, the cash transaction
figures of the Foreign Exchange Fund, which has
shown continued net paym ents by the T reasu ry from
July 1954 to A pril 1956, registered net receipts from
May to A ugust and in November 1956, although, on
the whole, the general tendency towards net paym ents
has not been reversed.
M O N E Y A N D P R IC E S
The year 1955 m arked a tu rn in g point in the
post-war period; the money m arket eased considerably
from the tight situation that prevailed after the adoption of a “ tight m oney” policy in late 1953, an d
interest rates for the first time showed a decline.
This easy money situation continued generally through
the first half of 1956, but showed slight changes
recently. In the first half of 1956, loans from financial
institutions expanded m uch m ore rapidly than deposits,
reflecting the increase in business activity following
the 1955 export boom, and the need of industry and
trad e to finance th e purchase of equipm ent and
replenishm ent of declining stock-piles. In the governm ent sector, on the other hand, with increased taxes
and other revenues arising from expansion in the
country’s business activity, net receipts of the T reasury
d u rin g the first half of 1956 rose 50 per cent over
the corresponding period a year before, while its
net paym ents from July to Novem ber 1956 was only
30 per cent of the corresponding p erio d a year
before.
Prices rem ained m ore or less stable d u rin g 1955
but went up gradually d u rin g the first half of 1956,
owing to higher investm ent dem and and the continued high level of exports. In October 1956, the
wholesale price index was 104.5 (1 9 5 2 = 1 0 0 ) or 7
p er cent higher than a year before. The trends of
com ponent commodities and com m odity groups were
quite divergent. In general, indexes for capital goods
rose sharply while those for consum er goods rem ained
Chapter I I .
125
Japan
stable or even declined. Owing to 1955 bum per rice
and wheat crops, prices of foods continued to decline;
the rate was 2 per cent in the year ending October
1956. Am ong capital goods, the rise in prices of
metals and m achinery was sharp. The group index
for iron and steel, at 130.5 in October 1956, was
nearly 47 per cent higher than a year before.
D uring the first ten m onths of 1956, export prices
rose rapidly, while im port prices rose only slightly,
thus im proving the term s of trad e for Japan.
ECONOMIC SELF-SU PPO R T FIVE-YEAR PLAN
D uring the first ten m onths of 1056, export prices
1956– 1960, adopted by the Cabinet in December 1955,
had two m ajo r objectives: attainm ent of economic
self-support without foreign aid, and provision of
sufficient employment for the increasing labour force.
In fiscal 1960, as com pared with fiscal 1954,1 the
Plan provided for a 33.6 p er cent rise in gross national
product, or an estimated 18.6 p er cent increase in
the per capita annual production of the gainfully
employed. Industrial production was to rise by 53.7
per cent; agricultural production (including forestry
and fisheries) at the m uch slower rate of 20.5 per
cent.
To balance international receipts and payments
by the final year of the program m e, fiscal 1960,
exports were to rise 66 p er cent, to $2,660 million,
and im ports by 53 per cent, to $2,590 million.2
C urrent oversea surplus, on the other hand, was to
fall by 83.2 p er cent, owing m ainly to the disappearance of receipts from special procurem ents by the
Table 22.
Jap a n :
term inal year. In order to provide sufficient employment, it was proposed to increase the num ber of
gainfully employed by 12.7 per cent, so as to match
a 12 per cent rise in the labour force (as contrasted
with a 5.5 per cent rise in the population as a w hole).
The labour force participation rate (that is, the p ro portion of the labour force to the working age
population) was assumed to remain constant at 67.8
per cent. It was estimated that the num ber of totally
unemployed would fall by about 30 per cent, so that
the proportion of totally unemployed in the labour
force would be reduced from 1.58 per cent to 0.99
per cent.
In a free enterprise economy like that of Japan,
such a Five-Year Plan may perhaps be regarded
prim arily as an effort to set goals which may be
used as a guide in the formulation of private and
public policies. It appeared, for example, that some
of the specific targets were expected to be revised in
the second year of the Plan, in the light of experience
gained from the first fiscal year 1956. The FiveYear Plan has raised a num ber of problems concerning both the rate of growth, particularly in respect of
employment and productivity, and also the changes
contemplated in the pattern of production, trade and
consumption.
The proposed rise in gross national product of
33.6 per cent by the fiscal year 1960, compared with
fiscal 1954, was to consist of increases of 56.8 per
cent in private capital formation, 36.9 per cent in
government purchase of goods and services and 30.3
per cent in personal consumption expenditure; virtual
elimination of the current oversea surplus was contemplated (Table 2 2 ).
Changes in the Composition of Gross National Product under the Five-Year Plan
(A m o u n t in billions of Yen)
I te m
Private capital form ation ......................................................................
Investm ent in equipm ent ......................................................................
Inventory changes ........................................................
Residential housing ................................................
G overnm ent purchase of goods and services .................................
C u rren t oversea surplus .........................................................................
Personal consum ption expenditure ......................................................
T otal gross national expenditure ........................................................
1 T h e Plan was originally com piled for a six-year period, but
was changed to cover only five years, to fiscal 1960, since it was
approved by the C abinet only tow ards the end of fiscal 1955. T he
various rates of increase were, how ever, not recom puted as they
appeared in the Plan; they covered six instead o f five years.
2 In term s of foreign exchange statistics.
Am ount
P ercentage
o f total
Am ount
P ercentage
o f to tal
P e r c e n ta g e o f
in c re a s e s ,
fisc a l 1960
c o m p a re d
w i t h fisc a l
1954
1,110
758
254
98
1,385
131
4,615
7,241
15.3
10.5
3.5
1.3
19.1
1.8
63.8
100.0
1,741
1,238
329
174
1,896
22
6,014
9,673
18.0
12.8
3.4
1.8
19.6
0.2
62.2
100.0
56.8
63.3
29.5
77.6
36.9
– 83.2
30.3
33.6
F is c a l 1954
F isc a l 1960
P a r t II.
126
The projected over-all rate of growth in real
national income, at about 5 per cent per annum during
the Plan period, was considerably below the exceptional rates of the post-war recovery years (generally
about 10 per cent) but appeared to be in accord
with pre-war experience.
Although it was to be
achieved on the premise of a lower rate of increase
in consumption than in capital form ation (both
private and p u b lic), the projection may be regarded
as conservative. It may be noted that public investm ent, w hich h a s p lay e d a m o r e i m p o r t a n t p a r t t h a n
before the war, was expected to show a relative
decline, serving largely to supplement private investm ent (financed by increased voluntary savings of
the people), where necessary, according to established
priorities.
Some uncertainty m ay attach to the achievement
of the proposed rates of increase in productivity,
especially in view of the need to absorb surplus labour.
F or that purpose it may be essential to resort to
labour-intensive rather than capital-intensive p ro in l a b o u r
je c ts , a t t h e p r o b a b l e e x p e n se of g a i n s
productivity. Employment itself, however, in view
of the posited increase in labour force participation
and the presence of a considerable am ount of u nd eremployment, appeared to pose one of the m ost serious
problems for solution during the period of the Plan.
It is significant to note from the Plan that “ the
expansion of the economy as program m ed in the
P lan will not be enough to cope with the employment
problem, and it is therefore necessary to expand public
works, unemployment relief and the social security
system at the same time. While the aim of creating
m ore employment will be partly accomplished as a
result of the increase in production in export and
other key industries, no great increase in employment
proportionate to the expansion in production can be
expected in these fields because of the assumed rise
in their productivity. Other industries— and especially
small enterprises— are expected to make a greater
contribution to the absorption of labour. It is therefore necessary to strengthen and foster small enterprises.” 1
Economic self-support is to be achieved under
the Plan through a change in the pattern of production
and trade, with emphasis on the production and
export of heavy industrial products in relation to
textiles and processed food, and the substitution of
domestic for im ported raw materials. Such a change
was deemed essential, in view of the suspension of
special procurem ent, in order to bridge the previous
gap in payments, particularly dollars. To shift from
light industries to heavy ones, it was considered
“ necessary to take m easures for developing new
C ountry Surveys
techniques and fostering new industries, reducing costs
by rationalization and im proved productivity, strengthening enterprises and norm alizing their capital
structure, im proving basic facilities in industrial
centres and the like.” F o r the shift in the pattern
of trade, the P lan proposed to strengthen the competitive position of export products by means of
industrial rationalization and greater productivity. It
is also proposed to develop new oversea markets,
especially in south-eastern Asia. Moreover, “ foreign
paym ents should be used as economically as possible
by handling foreign exchange reserves efficiently, and
the domestic industries which are conducive to the
economical use of im ports should be developed in the
light of economic efficiency. In view of the possible
dollar gap in J a p a n ’s balance of paym ents in the
future, it is necessary, for instance, to increase its
exports to the dollar area and to shift its im port
sources from dollar areas to non-dollar areas.” 2
While the extent to which Ja p a n m ay succeed
in changing its pattern of production, trade and p ayments rem ained to be seen, a successful beginning
was m ade in 1955 and 1956.
Japan, as noted
earlier, has witnessed a process of norm alization in
its production, trade and finance since 1955, the m ost
favourable post-war year, and it was m ainly on basis
of this process that the current Five-Year P lan was
drawn up and approved by the Government. However, for a “ m arginal exporter” to expand its exports
by 66 per cent by fiscal year 1960 over fiscal 1954,3
it would have to count upon a favourable world
economic situation, accessibility to export m arket
which still have to be developed (as in south-eastern
Asia) or restored (as in m ainland China and K o re a ),
and the availability of equipm ent and raw m aterials
which m ust be partly im ported from abroad. One
item, the supply of energy, was reported to be short
of requirem ents; if Japan is forced to develop
internal energy resources m ore intensively because of
foreign exchange limitations, a further rise in energy
costs would seem inevitable. Moreover, while the
long-run downward trend in Ja p a n ’s term s of trade
has been definitely reversed since the war, it m ay be
difficult to b ring about the proposed expansion of
Ja p a n ’s exports at a rate of about 8.8 p er cent per
annum without any decline in the term s of trade.
W ith respect to imports, a m ajo r problem was defined
by the proposed 11 per cent ratio of im ports to
the gross national pro duct; somewhat lower than the
12 to 13 per cent ratio fo r 1952– 1954, this ratio was
much lower than the pre-war (1934– 1936) ratio of
20 to 21 per cent, and evidently called for a substantial am ount of substitution in im ports needed for
Ja p a n ’s domestic production of staple foods and
essential raw materials.
2 Ibid.
1 Economic Planning Board, Econom ic Self-Support Five-Year
Plan (Tokyo, 1956; in Japanese).
3 T h e rate of increase is considered too low by the governm ent,
a nd is being revised upw ard.
C hap ter 12
KOREA1
nearly 5 per cent in the year ending June 1956.3
Owing to progress in implementing rehabilitation projects, there was a general increase in production,
particularly of coal, power, textiles and other consum er goods. Gross domestic investment, in both
the private and the public sectors, showed a moderate
increase, and was estimated at about 10.5 per cent
of the gross national expenditure in 1955/56.4
D uring 1956 the m ajo r economic difficulties of
southern Korea, confronted with the two severe tasks
of defence and reconstruction, were slightly alleviated.
A larger inflow of foreign aid helped to increase
production and meet essential consum ption needs, thus
narrow ing the gap between production and dem and
in certain sectors and slowing down the rate of rise
in prices. Despite certain improvements, government
revenues for the fiscal year 1955/562 did not meet
government expenditures. Defence and reconstruction
requirem ents were m et largely by external aid and
partly by deficit financing.
Exports, which rose,
paid for 7 per cent of im ports (including aid im ports)
in the first six m onths of 1956. It appeared that
substantial external aid would continue to be needed
for some time, until the country’s economy could
achieve both internal and external equilibrium .
Agricultural output
A gricultural production, which has constituted
about 40 per cent of the gross national product in
recent years, has continued to increase moderately
since the end of the Korean conflict. However, in
1956 com pared to 1955, production of paddy5 is
estimated to have fallen by 14 per cent to 2,615,630
tons because of damage to crops by typhoons in the
plains areas and low tem perature near the harvest
season in the m ountainous districts. In 1956 production of summer grains (barley, naked barley, wheat
and rye) was higher by 6.4 per cent than in 1955,
though 11.4 per cent lower than the record 1954 crop.
Over-all production of food crops showed a moderate
increase over the level prevailing before the Korean
hostilities; on a per capita basis, however, it was
lower than in 1949 on account of the inflow of
refugees and the high rate of natural increase in
population. In order to help meet growing domestic
requirem ents, a large volume of food grain was
im ported under various aid program m es. The transform ation of southern Korea from a food surplus
area before the Second W orld W ar to a food deficit
area in the period after the K orean conflict was of
special significance to an economy whose agriculture
provided the means of livelihod for over 70 per cent
of the population.6
DEVELOPM EN T AND PRO DUCTION
D EV ELO PM ENT
The new Five-Year P lan for achieving viability
for the country’s economy, though already partly
implemented, continued to be regarded as tentative.
Total expenditures under this Plan during the fiveyear period (1956– 1960) were estimated at $1.7
billion. Of this total, a sum of $680 million, or 40
per cent, was program m ed for capital investment
projects; the rem ainder for consum er goods and raw
m aterials. Of the total for capital investment projects,
more than a half was allocated to the rehabilitation
of economic and social facilities, such as power,
transport and communications, education and health;
about one-third to industry and m ining; and the
rem ainder to agriculture, forestry and fisheries.
Am ong industrial projects, emphasis appeared to be
laid on the development of those which could contribute to reducing im port requirem ents— notably
fertilizers, cement and oil refining.
3 U nited N ations Commission for the Unification and Rehabilitation of Korea, Report to th e E leventh Regular Session of the
General A ssem bly (A /3 1 7 2 ), paragraph 47. O ther figures, prepared joindy by the Ministry of Reconstruction, the Ministry of
Finance and the Bank of Korea, indicate a tentatively estimated
increase of 6.4 per cent du rin g 1955/56 (at 1954/55 prices).
P RODUCTION
The gross national product at constant prices
(1 9 5 2 /5 3 = 100) was estim ated to have increased by
4 Estim ated by the Ministry of Reconstruction, the Ministry of
Finance and the Bank of Korea. Gross national expenditure excludes direct m ilitary aid, b u t includes foreign economic aid.
1 T he present chapter covers recent economic developm ents in
southern Korea, or the area u nder the jurisdiction of the G overnm ent of the Repulic of Korea.
5 T h e conversion ratio from paddy to brow n rice is 0.74.
6 Robert R. N athan Associates, A n Econom ic Program m e for
Korea Reconstruction, a report prepared for the U nited Nations
K orean Reconstruction Agency (W ashington D.C., March 1954),
P.261.
2 T h e tw elve-m onth period ending 30 June 1956; as noted
below, this fiscal year was later extended to cover a period of
eighteen m onths, to the end of 1956.
127
128
The A gricultural Bank, whose p rim ary purpose
is to encourage farm production, land reclam ation
and irrigation, was established in May 1956,1 taking
over the business of the form er F ederation of Financial
Associations and local financial associations.
In
addition to its authorized capital of 3 billion hwan
(of which 750 million is paid u p ) , it is authorized to
borrow from the Government and the Bank of K orea
and to issue debentures. Its head office is in Seoul
and it has 162 branches and 388 sub-branches in
different provinces.
There was some improvem ent during the year in
forestry, livestock and fishery production. Fishery
output, though contributing only about one per cent
to the gross national product in recent years, has been
im portant as a source of export earnings. Its recovery
in the period immediately following the K orean
conflict was rather slow, owing largely to the shortage
of fishing vessels. However, upon the completion of
the jo in t program m e with the United Nations Korean
Reconstruction Agency (U N KRA) for fishing boat
construction and repair, total output of m arine p ro ducts in 1956 (about 287,000 tons, assuming continuation of the rate established in the first five m onths)
was expected to show a considerable increase over
the 257,300 tons of 1955 and nearly to reach the 1949
level of 300,000 tons.
M ining, industry and transport
Mining, though accounting for only about 1.4
per cent of the gross national product in recent years,
constituted the most im portant source of export earn ings. As a result of rap id rehabilitation, production
of minerals in 1956 rose far above the 1949 level
and showed increases over 1955 in m any cases.2
Coal production has risen steadily since the end
of the Korean conflict, reaching an annual rate of
1,768,000 tons in the first ten m onths of 1956. In
order to meet growing requirem ents, the M inistry
of Commerce and Industry has drafted a Five-Year
Plan to raise coal output, mostly anthracite, to
4 ,333,000 tons by 1960, with a view to replacing
im ports of bitum inous coal and other fuels used for
railways, power plants and factories, and thereby
economizing exchange outlays.
The output of tungsten, which h ad fallen sharply
in 1954 as a result of the expiration in M arch of
the agreem ent with the United States, recovered to
1 T h e Bank was provisionally set up as a commercial bank
u nder the General B anking Act and envisages early reorganization
into a specialized bank under a Special B anking Act.
2 In the year ending October 1955, m ineral production was
valued at 11,343 m illion hw an, of w hich coal constituted 48.1 per
cent, metallic m inerals 36.7 per cent, and stone, clay and other
non-m etallic minerals 15.2 per cent (B ank of Korea, M onthly
Research B ulletin, July 1956 (Seoul; in K orean), p.27).
P a r t II.
C ountry Surveys
some extent in 1956.3 Tungsten has been sold in
the world m arket since Ja n u a ry 1955 u nder a system
of international auctions.4
Production of gold, silver and copper showed
large gains in 1956, owing partly to the fact that
a new 100-ton smelter at C hang H an g began operating in Ju n e 1955. Since O ctober 1954, the Bank of
K orea has been p u rchasing gold at th e price of 854
hwan per gram m e, which is considerably lower than
the m arket p rice; as a result m ost of the gold
output has gone into the m arket instead of the
Bank of Korea. P roduction of am orphous graphite,
exported mostly to Japan, declined in 1956.
Total pow er generated in the first ten months
was at an annual rate of m ore than a billion kW h, as
against 880 million kW h in 1955, chiefly because of
a rise in therm al power. Of the two U nited N ations
power barges which h ad supplied over one-fourth
of the total power in 1953– 1955, one left the country
and the other was under re p air in 1956.
The
consequent loss in generating capacity was m ore than
offset by the expansion in therm al power generation,
m ainly through completion (with ICA aid) of three
therm al power plants with a total capacity of 100,000
kW. It was estim ated that total dependable generating
capacity would reach 200,000 kW in th e first q u a rte r
of 1957, when three 25,000 kW therm al units were
scheduled to begin operations.5
M anufacturing has contributed about 11 to 13 per
cent of the gross national product in recent years;
it is concentrated in textiles, food and beverages,
whose com bined output in the year ending October
1955 accounted for about 56 per cent of the total
value of m anufacturing output. In 1956, production
in m any lines was substantially above the level
prevailing before the K orean conflict.6 As com pared
with 1955, gains were reported in 1956 in the
production of cotton textiles, sugar, soap, tobacco
products, and copper wire, with however declines in
several others.
The expansion in m anufacturing
output has resulted largely from increased im ports of
3 T ungsten (concentrates 64-80 percent) o u tp u t in recent years
was as follows (in tons): 7,441 in 1953, 3,831 in 1954, 3146 in
1955 and 3,989 (annual rate based on returns for first seven
m onths) in 1956.
4 By May 1956, twenty-one international auctions had been
held. Prices ranged from $18 to $35 per ton for each percentage
p oint of tungsten content in the concentrates, com pared w ith $65
u n d e r the agreem ent w ith the U nited States.
5 United Nations K orean Reconstruction Agency, R eport o f the
A g en t General for the period 1 July 1955 to 30 June 1956
( A /3 1 9 5 ), p arag rap h 159.
6 A recent governm ent study of industrial facilities reveals that,
as a result of reconstruction and new construction, investm ent in
m anufacturing facilities (dollar investm ent, plus h w a n investm ent
converted into dollars) on June 1956 reached $301 m illion, or 9
per cent above the June 1950 figure (M inistry of Com m erce and
Industry, “ Status Tables of Industrial Facilities, in Chronological
O rder, as o f A ugust 1956” , m im eographed; A ugust 1956.)
Chapter 12.
129
K orea
first six m onths of 1956 showed a substantial increase
though still m uch lower than in the corresponding
period of 1955. Commercial im ports in the first half
of 1956 were lower than in the corresponding period
of 1955, but aid im ports increased appreciably. Thus,
there was a 5 per cent rise in the over-all trade
deficit, but a 65 per cent fall in the commercial deficit,
in the first half of 1956, com pared with the corresponding period of 1955. In the first six m onths of 1956,
the value of exports was only 7 per cent of the
im port value, and the value of aid im ports constituted
87 per cent of the total value of imports.
raw m aterials and m achinery and from m ore power,
though the irregu lar supply of raw m aterials and high
interest rates have continued to ham per m any lines of
production.
Progress in the rehabilitation and construction
of large-scale factories, with financial aid from
UNKRA and the United States, has been slow because
of adm inistrative and ohter difficulties. These factories included the C hungju urea fertilizer plant, to
be completed in M arch 1958; the M ungyung cement
plant, with a planned annual capacity of 200,000 tons,
to be completed in July 1957; the Inchon glass plant,
with annual output of 120,000 cases on completion
in December 1956; the restoration of the Inchon
explosives plant, to be com pleted by the end of 1956;
the restoration of the Ulsan oil refinery; the
rehabilitation of the D ai H an heavy industry installation, for the production of 36,000 tons of steel; and
a second fertilizer plant.
C h a r t 17. Southern Korea: V alu e of
Im ports a n d Exports
In transport, construction work on five new
industrial lines of the N ational Railway was completed
between Septem ber 1955 an d M ay 1956.
These
included the M unkyong line, to aid in developing the
Unsong coal m ine (completed in Septem ber 1 9 5 5 );
the Yongam line (Decem ber 1 9 5 5 ); the YongwolChodong line; the Chungpuk-M okhyang line (A pril
1956) to connect the central line with the western
industrial area where the C hungju fertilizer plant has
been u nder construction; and a short extension of
the Sam chok-H ujin line (M ay 1956).
Am ong com m ercial im ports in the first six
m onths of 1956, m anufactured goods, consisting of
m aterials (37.6 per cent of total im p o rts), chemicals
(16.0 p er cent), food (14.2 per cent) and machinery
and tran sp o rt equipm ent (10.3 per cent) constituted
78 per cent of commercial imports, com pared with 80
per cent in 1955. The share of Japan in total im ports
fell from 43.1 per cent in 1954 to 16.1 per cent in
1955 and 13.6 per cent in the first half of 1956.
Im ports from the United States and Hong Kong in
the first half of 1956 (31.8 per cent and 8.5 per cent
of the total, respectively) were also lower than in
1955 (36.6 per cent and 13.2 per c e n t), while imports
from other countries rose from 34 per cent to 46.1
per cent of the total.
Railway freight and passenger traffic carried by
the N ational Railway in the first six m onths of 1956
rose 20 and 15 p er cent, respectively, over the
corresponding perio d of 1955. A large p art— 30 per
cent or m ore— of both freight and passenger traffic
was for m ilitary requirem ents.
TRADE AND PAYM ENTS
T RADE
Com pared with 1955, when a substantial drop in
visible exports occurred, the value of exports in the
T a b l e 2 3.
S o u th e rn K o re a :
E x p o r ts , I m p o r t s a n d T r a d e B alanc e
(m illions o f dollars)
E x p o r ts
Period
B alance
Im p o r ts
C om m ercial
F o re ig n a id a
T o ta l
C om m ercial
T otal
1953 ....................................
39.6
153.6
193.5
347.1
– 114.0
– 307.5
1954 ....................................
24.2
93.9
147.3
241.2
– 69.6
– 216.9
1955 ....................................
17.6
82.5
245.3
327.8
– 64.9
– 310.2
1955, First h a l f ..............
7.7
38.5
129.1
167.6
– 30.8
– 159.9
180.1
– 10.7
– 167.5
1956, First h a l f ..............
Sourcc:
Bank of Korea.
a Including relief imports.
12.6
23.3
156.8
P a r t II.
130
Exports from southern K orea were chiefly crude
m inerals (m ainly tungsten) whose share in total
exports rose from 75 per cent in 1955 to 81 per cent
in the first half of 1956. Exports of tungsten have
risen to some extent since the opening of international
tenders in early 1955. Exports of rice, the largest
source of foreign exchange receipts before the Second
W orld W ar, have continued to decline in post-war
years. The fall in exports to Japan, from $4.5 million
in the first half of 1955 to $3.2 million in the first
half of 1956, was m ore than offset by a rise in
exports to the U nited States, H ong K ong an d the
rest of the world, from $4.5 million to $10 million
during th e same period.
A treaty of friendship,
commerce an d navigation was signed with the United
States in November 1956.
E XTERNAL A ID
C ountry Surveys
such receipts since A ugust 1955, owing largely to
devaluation in the official exchange rate of hwan
currency, from 180 to 500 to the dollar. Receipts
from U nited N ations and U nited States forces declined
from $34.0 million in the first half of 1955 to $9.2
million in the second half, and rem ained at the latter
level in the first half of 1956.
The net deficit on current transactions in goods
and services, caused p rim arily by the trade deficit,
continued to increase in 1956. In the first six m onths
of the year, it am ounted to $160 million, com pared
with $135 million in the first half of 1955. Increasing
arrivals of aid goods, however, served to offset the
increase in the net cu rren t deficit, and a t the end of
Septem ber 1956, gold an d foreign exchange holdings
of the Bank of Korea, at $98.5 million, were virtually
unchanged from their level at the end of 1955.
The volume of external economic aid has been
a m ajor factor in the economic situation. Exclusive
of direct m ilitary aid, external assistance to the
Government totalled slightly over $1.5 billion between
June 1950 and June 1956. By the end of June 1956,
the am ount available from the United Nations Korean
Reconstruction Agency reached $139 million. United
States aid for the support and rehabilitation of the
economy am ounted to $806 million through the International Cooperation A dm inistration (ICA) and its
predecessors, and $58.8 million in the form of surplus
agricultural commodities. U nder the program m e for
Civilian Relief in Korea, handled by the K orean
Civil Assistance C om m and,1 economic aid am ounting
to $427 million was received by June 1956. A nother
sum of $39 million came under the p rogram m e of
the A rm ed Forces Assistance to Korea. International
voluntary agencies supplied about $39 million in
direct relief.
The budget consists of a general account and
special accounts. The general account records tax
and other revenues, and expenditures fo r the ord inary
functions of governm ent; while the special accounts
cover reconstruction, defence, and the operations of
revenue-producing government enterprises, such as the
railway, com munications, the tobacco and salt m on opolies, and sim ilar items.
There appeared to be need for closer coordination of program m es and their implem entation;
and there has been considerable delay in the actual
arrival of goods from the United N ations and the
United States. However, the volume of aid arrivals
has increased considerably, from $147 million in 1954
to $244 million in 1955, and at an annual rate of
$287 million in the first six months of 1956.
The basic features of public finance in the period
since K orean hostilities have been the predom inance
of the defence outlay and the increasing outgo for
economic reconstruction, on the expenditure side;
the high degree of dependence on counterpart funds
from foreign aid to finance defence and reconstruction, on the revenue side; and continued budget
deficits.
B ALANCE OF PA YM ENTS
Aside from the foreign economic aid mentioned
above, receipts from United Nations and United States
forces in southern Korea, mainly through sale of
local hwan currency for dollar exchange, were of
m ajo r im portance in the country’s balance of p ayments. F rom 1953 to mid-1956, such receipts totalled
$122 million, com pared with export earnings of $94
million. However, there has been a sharp decline in
1 In N ovem ber 1955, this agency was term inated and
Office of the Economic Coordinator took over its duties.
the
FIN A N C E AND P R IC E S
P U B L IC F IN A N C E
The 1954 /5 5 budget covered the fifteen-month
period, from A pril 1954 to June 1955, on account
of a change in the fiscal year. In Ju n e 1956, the
fiscal y ear was again changed, to conform with the
calender year.2 As a result, the 19 55 /5 6 budget
ultimately covered an eighteen-month period, from
July 1955 to December 1956.
W ith the devaluation in the exchange rate of
hwan currency in A ugust 1955 and its effects on the
valuation of aid goods, the budget for the fiscal year
1955/56, which h ad originally been subm itted to the
N ational Assembly in June 1955, was revised in midDecember, calling for cancellation of scheduled
increases in fees and prices charged by government
2 T h e change was approved by the N ational Assembly on 27
June 1956. T h e G overnm ent hoped that by this change the necessity for supplem entary budgets, w hich have been frequent in recent
years, could be reduced, since aid expected in any year could be
m ore accurately estimated at the end of a calendar year than
in m id-year.
C hapter 12.
131
Korea
enterprises and in salaries of government employees.
Further changes of a m inor character were m ade
in the first supplem entary budget, approved on 18
F ebruary 1956 by the N ational Assembly. W hen, in
the process of aligning the fiscal year with the
calendar year, fiscal 19 55 /5 6 was extended through
December 1956, a second supplem entary budget was
approved by the N ational Assembly in A ugust 1956.
Owing to changes in accounting methods, the figures
for expenditures and receipts for 195 5/56 are not
comparable with those of earlier years. F urtherm ore,
the second supplem entary budget, covering the halfyear period from July to December 1956, was probably
tentative, because the m agnitude of United States aid
for the United States fiscal year beginning 1 July
1956 was not known when the estimate was made.
Table 24.
Republic of K orea: Consolidated Budget
of the Central Government
(Billions of hwan)
July 1955- JulyJune 1956 December
1956
Item
E xpenditures:
A dm inistrationa ..........................
Defenceb ........................................
N et deficit in special accountsc
G rain control ............................
T ransport s e r v i c e .....................
Com m unication services . . . .
Office of s u p p l y ........................
Econom ic rehabilitationd .........
Loans to industry and agriculturee
61.6
69.9
33.4
39.5
95.0
109.4
6.4
—
0.9
0.8
70.5
50.4
14.4
2.2
1.2
3.5
14.8
14.4
20.8
2.2
2.1
4.3
85.3
64.8
expenditures . . . .
260.5
123.4
383.9
Taxesf
Internal taxes ............................
L and tax ...................................
Customs ......................................
Monopoly profits ..........................
Lotteries ........................................ ..
O ther revenueI ............................
48.9
7.9
15.0
7.7
1.4
9.8
25.1
3.9
8.6
2.3
—
13.3
74.0
11.8
23.6
10.0
1.4
23.1
..............
90.7
53.2
143.9
Deficits financed by
Vested propertyg
C ounterpart fund ...................
National bonds ........................
Industrial Recovery Bonds ..
Borrow ing from Bank of Korea
10.6
148.5
9.0
7.9
– 6.2
1.9
34.2
4.5
10.9
18.9
12.5
182.7
13.5
18.6
12.7
260.5
123.4
383.9
TOTAL,
I nthe fiscal year ending 30 June 1956, government expenditure rose by 1.1 times to 260.5 billion
hwan, but governm ent revenue increased by only 31
per cent to 90.7 billion hwan, thus giving rise to a
deficit of 169.8 billion hwan financed largely by
counterpart fund receipts.1 Expenditures on defence
account continued to be the most significant item
on the expenditure side, although their expansion
was checked, largely by the cancellation of salary
increases, m entioned above. In 1955 /56 (to June
1956), defence outlays am ounting to 69.9 billion
hwan constituted 26.8 per cent of total government expenditure.2
Increased counterpart fund
receipts enabled the Governm ent to allocate a substantially higher am ount for economic reconstruction
(27 per cent of total expenditure) and for loans
to industry and agriculture (20 per c e n t ) . The
supplementary budget to cover the period June to
December 1956, adopted in August, showed a higher
proportion going to defence and lower proportions
to reconstruction an d loans to industry and agriculture, owing to the fact th at much smaller receipts
were expected to be derived from the counterpart
fund. Thus, the over-all budget for the eighteenmonth period July 1955 to December 1956 showed a
higher percentage of budget deficit in total government expenditure than that for the preceding fiscal
year, though with greatly increased allocations for
economic reconstruction. Indeed, " norm al revenues
are clearly inadequate to meet the costs of either
m aintaining the present defence forces, or of financing
the local costs of the economic rehabilitation
program m e."3
1 These represent the local currency value of total foreign aid
arrivals, including receipts from the disposal of U nited States su rplus agricultural products.
2 U nited States m ilitary aid, w hich has been substantial, m ust
be added to this a m o u n t in gau g in g the m agnitude of defence
outlay.
3 U nited Nations K orean Reconstruction Agency, op.cit. It was
reported th at substantial expansion was envisaged in both revenues
Total
R evenue:
T o t a l ,
revenue
TOTAL
Source: Inform ation supplied by the Governm ent.
a F rom the general account, covering economic services, social
services, other current expenditures, subsidies and contributions to
provincial and local governments.
b Financed from the general account surplus and counterpart
fund.
c A p a rt of the deficit in C om m unication Services and Grain
Control are m et by transfer from General Account, w hile the rest
of the deficit in G rain Control and all the deficits in T ransport
Service and Office of Supply are m et by borrow ing from the Bank
of Korea.
d Financed by proceeds from the counterpart fund.
e Financed by proceeds from the counterpart fund and Industrial Recovery Bond.
f F rom the general account.
g 9.8 billion h w a n for July 1955-June 1956 and 1.9 billion
h w a n for July-December 1956 were frozon for release in the
follow ing fiscal year.
and expenditures in the budget for the fiscal year 1957 (January
to D ecem ber). Tentative estimates were reported as follows (in
billions of h w a n ) : total expenditure (exclusive of economic re habilitation) 220; defence expenditure 20; total receipts 200:
taxes 100; m onopoly profits 15; U nited States farm surplus 52.5;
national bonds 15; miscellaneous 17.5. Increases in rates of public
utility services and prices of governm ent m onopoly products were
also u n d e r consideration (T h e Korean Republic (Seoul; daily), 11
October 1956).
P a r t II.
132
M
o ne y
a nd
pr ic e s
D uring the first half of 1956, the money supply
rose by 5.5 billion hw an,1 or 6 per cent, com pared
with an increase of 7 billion hwan, or 12 per cent,
du rin g the corresponding period of 1955. Because
of the increased arrival of aid goods and the
consequent increased availability of counterpart fund
recepits, the Government consider ably reduced its net
overdraft (overdrafts m inus deposits) at the Bank of
Korea, while governm ent securities held by the Bank
of K orea and other banks showed a slight increase
during the first half of 1956. Increases in savings
and time deposits also served to slow down the
expansion in m oney supply. D uring 1955 an d the
first half of 1956, the most significant factor contributing to the expansion of money supply was the increase
in loans by banking institutions to the private sector.
Despite various counter-inflationary measures, such
as direct credit control under a " loan ceiling" system
and a rise in the m inim um reserve requirem ent for
current deposits (from 15 to 25 per cent in 1955),
outstanding loans of all com m ercial banks to the
private sector increased by 18.3 billion hwan, or 60
p er cent in the first six m onths of 1956, com pared
with an increase of 8.4 billion hwan, or 43 per cent,
in the corresponding period of 1955. Borrow ing of
all com m ercial banks from the Bank of K orea showed
a sharp rise, am ounting to 9.4 billion hwan, or
72 per cent, in the first six m onths of 1956. Thus
about one-half of the total increase in com m ercial
bank loans was financed by the creation of inflationary
credit through borrow ing from the central bank.
O utstanding loans of the K orean Reconsrtuction Bank
(for long-term investment) and the A gricultural Bank
also continued to expand.
Trends in price movements in southern K orea
continued to be inflationary during 1956, though at
a slower rate than in 1955. The wholesale price
index in Seoul rose by 48 per cent in the first eight
1 T here was an increase 9.9 billion h w a n in deposits and a
decline in notes in circulation of 4.4 billion hwan.
C ountry Surveys
m onths of 1956, com pared with a rise of 65 per cent
d u rin g the corresponding perio d of 1955.2 A rise
of 109 per cent in the group index for food grains,
which accounted for 39 p er cent of the whole in
com puting the index, was largely responsible for the
rise in the general index, though in the corresponding
period of 1955, the rate of rise was higher— 142 per
cent. The trend in the group index for meat, eggs
and fish was sim ilar to that in food g rain s; it rose
39 p e r cent, com pared with 25 per cent for the
corresponding period of 1955. U nder the agreem ent
between the Bank of K orea and the U nited States,
fertilizer im ports under the aid program m e have been
priced to reflect the new exchange rate of 500 hwan
to the dollar. Between A ugust 1955, when the new
exchange rate was adopted, and A ugust 1956, the
price index for fertilizers went up by 538 per cent.
The ra te of increase in other com m odities slackened
considerably in the first eight m onths of 1956, as
com pared with the same perio d a year before, owing
to the arriv al of m ore aid goods and the rise in
domestic production. T here was a decline in the
group indexes for fuel and miscellaneous items.
Retail prices showed a sim ilar trend in the first
eight m onths of 1956, with a som ewhat lower rate
of increase than wholesale prices.
The index num bers for wages of labourers in
Seoul continued to rise in the first six m onths of
1956, although the rate of increase was som ewhat
slower th an in the corresponding period of 1955.
Wage movements varied considerably according to
industry and occupation. Between June 1955 and
June 1956, the rate of increase was highest in the
chemical, building, and m achine and tool industries,
followed by textiles, ceramics, and clothing and
accessories, while there was a decline in the p rinting
and book binding, and lum ber and furnitu re
industries.
2 In the fourth quarter of 1955, there was a decline in w holesale prices, ow ing largely to a seasonal fall in prices of food grains,
particularly rice. For the entire year 1955, the wholesale price
index was 43 per cent higher than in 1954.
C h ap ter 13
LAOS
Laos, which achieved independence in 1954 after
years of w arfare, returned to conditions of peace
only after settlement of differences with the northern
provinces in late 1956. F urtherm ore, after ab ro g ation of the form er q u ad rip artite agreements at the
end of 1954, Laos had to start almost from the
beginning to build up the necessary institutions to
carry out its new responsibilities.
the plantations. A variety of coffee (the robusta)
considered m ore resistant to frosts was reintroduced.
W ith the exception of tin ore and of paddy,
whose output was expected to increase in 1956/57,
few if any m arked production gains occurred in Laos
in 1956. Value of imports, mostly financed by United
States aid and com ing in increasing degree through
Thailand, m ore than doubled during the first six
months of the year com pared with the corresponding
period of 1955.1 Prices in Vientiane, after having
remained fairly stable in 1955, increased considerably
during 1956.
D uring the first ten m onths of 1956, the production of tim ber is considered to have decreased by 15
p er cent as com pared to the first ten m onths of
1955; during the same period the production of firewood m ore than doubled while production of charcoal
rem ained stationary.
Production of benzoin and
cardam om increased in response to rising export
demand.
Production of hides and skins, which increased
in 1955, rose further in 1956, but the export volume
continued its falling trend, a figure quoted being 35
tons in the first six m onths of 1956 as com pared with
156 tons for the year 1955.
Production of electricity, though extremely
limited and mostly for household use, increased by
50 p er cent in 1956, reaching an esitmated annual
rate of 1.9 million kWh. The output of the tin
mine at P hontiou, which produced 100 tons of ore
(50 per cent metal content) per m onth before 1945,
was between 50 and 60 tons a m onth in 1956; it
was expected that production of 100 tons a month
would again be reached by June 1957. Two additional sawmills were established in 1955, bringing the
total to 24.
Since there was a wide discrepancy between the
official rate of exchange of 35 kips per dollar and
the rate prevailing outside of the country (for
example, in Bangkok and H ong K o n g ) , there was a
tendency for com m ercial and financial activities to
be stimulated to the detrim ent of production.
Development has proceeded slowly.
Late in the
year, the first Five-Year P la n 2 was being redrafted
in the various m inistries concerned. Lack of basic
data and of trained personnel has contributed to
delays in implem enting proposed projects. Although
external aid has been received on a substantial scale,
particularly from F rance and the United States, its
full and effective utilization for the country's
development is likely to take time.
In 1955 the special budget of 553 million kip for
the development of transport and construction, to be
financed by foreign aid, was not implemented. In
1956, in addition to 39 million kip for maintenance
work, a sum of 200 million kip was allocated in the
national budget for new construction, including 41
million kip for roads and bridges, and 114 million
kip for adm inistrative buildings; the rem ainder was
for irrigation, water supply, airstrips, river ports,
electricity and industrial equipment. The total num ber
of passenger cars and trucks showed some increase.
PRO D U C TIO N
In 1955/56, paddy production, estimated at
510,000 tons, was greater than the exceptionally poor
crop of the preceding year, but was lower than the
average for the years 1951– 1953.
Production of
other crops showed little change from 195 4/5 5:
according to very rough estimates, 12,000 tons of
maize, 240 tons of cotton, 600 tons each of tobacco
and potatoes. Coffee, which was form erly a m ajo r
means of earning foreign exchange, had not recovered
from the 1955 frost which almost completely destroyed
The government-owned portion of the river
fleet, built in 1955, was leased to a private firm
when traffic with Cam bodia and southern VietN am declined, owing to a continued increase
in the movement of goods on the cheaper route
between Laos and Thailand.
On the latter route,
goods arriving by train at Nongkhai from Bangkok
are loaded on Thai trucks to cross the river at
Thadeua, and then trans-shipped by Laotian trucks
for a distance of twenty-two km to Vientiane. It was
expected th at assistance— possibly in the form of
150 additional waggons— would be provided through
1 Im ports m ay be som ew hat overstated in the statistics because
of inflated invoices and the failure of some goods recorded in the
statistics to reach their ultim ate destination.
2 Described in U nited Nations, E conom ic Survey o f Asia and
the Far East, 1955 (sales num ber: 1956.II.F.I.)
133
P a rt II.
134
the United States International Cooperation A dm inistration (ICA) to the Royal State Railways of T hailand
for dealing with the expected additional traffic for
Laos.
TR ADE AND PAYM ENTS
There has been a deficit in the external trade of
Laos ever since a relatively complete record of trade
began to be kept in 1951. In 1955, exports financed
only 11 per cent of imports. D uring th e first six
months of 1956, im ports increased to 623 million kip,
more than twice the recorded value of 295 million kip
in the same period of 1955, while exports, including
re-exports, rose to 49 million kip, or by 75 per cent.
Thus exports financed less than 8 per cent of imports,
the deficit being financed by foreign aid. Moreover,
of the total exports, only 18 million kip, or 37 per
cent, consisted of Laotian products, which showed a
15 per cent increase over the corresponding period
of 1955. W ith the exception of tin ore, whose xeport
of 495 tons in the first half year of 1956 was twice
the 247 tons in the whole of 1955, practically all
other exports of domestic produce declined.
In
particular, the share of coffee in total exports of
domestic produce fell from 19 per cent during the
first six m onths of 1955 to barely 2 per cent during
the corresponding period of 1956.
Im ports of
petroleum products, textiles and m achinery in six
m onths of 1956 exceeded the total amounts for the
year 1955.
T hroughout 1954, m ore than 80 per cent of the
trade of Laos passed through Cam bodia and southern
Viet-Nam, but, as a result of the transit agreem ent of
1955 with Thailand, trade through the latter country
am ounted to almost 50 per cent of the total during
the first half of 1956.
Sources of im ports have
likewise shifted. Before 1954, the French Union was
the m ain supplier of im ports; this was still true in
the first half of 1955, when 39 per cent of total
im ports came from the French Union. D uring the
first half of 1956, however, T hailand was the first
source of imports, with 25 per cent of the total;
Hong Kong, whose position as supplier was formerly
negligible, accounted for 18 p er cent; and the share
of the French Union was only 17 per cent.
Balance of paym ents statistics are not available
for Laos; with the persistent trade deficit, the lack
of a tourist industry and practically no other invisible
exports, there has been a continuing heavy payments
deficit, financed by foreign aid. In 1955 the deficit
was much m ore than offset by foreign aid, so that
the foreign reserves of the N ational Bank rose by
883 million kip.
P rio r to September 1956, capital transfer out of
the country was not perm itted, but 40 per cent of
profits on foreign capital and of salaries of foreign
C ountry Surveys
personnel could be transferred.
In that month
provisional regulations issued by the M inistry of
Finance allowed transfers of up to 70 per cent of
net profits derived from foreign capital1 and further
stipulated that capital m ight be repatriated in the
currency in which it was originally im ported, provided
the annual am ount repatriated did not exceed 10 per
cent of the capital invested, or 5 million kip, whichever
was smaller.
A paym ents agreem ent was signed with Cam bodia
and southern Viet-Nam in Ja n u a ry 1956.
There were only a few im porters doing business
in Laos until the end of 1954; since then the
num ber has grown to 400. Few im port restrictions
have been imposed. At the end of Decem ber 1956
new foreign trad e regulations were enacted with a
view to stim ulating exports; they provided for three
types of exports: licensed exports with total or p artial
retention of foreign exchange proceeds; b arte r trade
with licence; and barter trade w ithout licence.
FIN A N C E AND PR IC E S
Total governm ent expenditure in 19562 was
estimated at 1,169 million kip, exclusive of the
m ilitary budget which was entirely financed by
United States aid at nearly twice the 1955 expenditure
of 601 million kip. The budgeted revenue was 490
million kip, leaving a deficit of 679 million kip to
be financed partly by a loan from the N ational Bank
(479 million kip) and p artly by foreign loans (200
m illion k ip ). T ax revenue in 1956 was expected to
reach 441 million kip, an increase of m ore than 90
per cent over th at of 1955. Of this total, customs
duties were estimated at 248 million kip, or 75 per
cent m ore than in 1955. Increases were also expected
in revenue from taxes on income and wealth and
from transaction and consum ption taxes, as a result
of higher tax rates.
A id from the United States am ounts to $48
million in the U nited States fiscal year 1955 /5 6 and
is believed to be approxim ately the same in 1956/57,
including the financing of national defence and the
police force.
Of 1955/56 U nited States economic
aid, 20 million kip was allocated to agriculture, 88
million kip to transport and 39 million kip to health
and education, am ong other projects.
F rench aid
during 1955– 1957 am ounted to 2,573 million francs
of which 1,055 million francs was expected to be
spent by the end of 1956. Am ong the m ajo r items
were 435 million francs for transport (including 85
1 Foreign capital was defined as investm ent either in the form
of foreign exchange or in the form of capital equipm ent bought
w ithout official allocation of foreign exchange.
2 T he fiscal year corresponds w ith the calendar year.
C hapter 13.
Laos
million francs for the L uang P ra b a n g bridge over
the Nam K han R iv e r), 105 million francs for hospitals
and 175 million francs for education.
Currency outstanding1 rose rapidly, from an
estimated 667 million kip in Jan u a ry 1955 to 1,538
million kip in October 1955; it dropped to 1,164
million kip in M arch 1956 but increased again, to
1,338 million kip by A ugust 1956.
The foreign
reserves of the N ational Bank showed a sim ilar though
somewhat wider movement— from 200 million kip in
Jan u a ry 1955 to 1,431 million kip in October 1955,
a downward tendency to the end of the year and
then a steadily upw ard trend, to 1,559 million kip
1 C urrency issued, less cash in the N ational Bank.
135
in July 1956. A t that point, the ratio of foreign
assets to currency outstanding was 120 per cent.
Government loans to agriculture and livestock
breeding were discontinued in 1956, but the forestry
fund, financed by United States aid, granted loans
am ounting to 3 million kip in 1956. A new commercial bank was established in Vientiane in the course
of the year.
The cost of living index in Vientiane was fairly
stable in 1954 and most of 1955, but turned upward
in October 1955, rising by 19 per cent to August
1956; the index for the food group increased only
8 per cent, clothing m aterials (mostly im ported) fell
in price, house rent and wages of servants rose by 70
p er cent.
C h a p te r 14
M ALAYA A N D BRITISH BORNEO
gram m es have been held back by serious lim itations
in staff, skilled labour and construction capacity; in
N orth Borneo lack of finance an d delays in delivery
of equipm ent from ab ro ad have acted as additional
lim iting factors. In Brunei, where development has
proceeded rapidly, fu rth er acceleration of development
expenditures has been lim ited by the lack of skilled
workers and supervisory staff.
In the economies of the M alayan area (F ed e ration of M alaya an d Singapore, Brunei, N orth Borneo
and S a ra w a k ), the contribution of exports to the
gross domestic product usually ranges from one-third
to over one-half. In 1956, the export and domestic
activities of these economies were at com paratively
stabilized levels, in com parison with boom conditions
prevailing in 1955. The effects on their incomes of
the decline in their term s of trade in 1956— the result
of the fall in export prices, especially of ru b b e r,1
and a small rise in im port prices over the 1955 level
— were largely offset by an increased volume of
exports and a rise in domestic activities.
These
economies, with high m arginal as well as average
propensities to im port, reacted to the high level of
export earnings in 1955 an d 1956 by increased
imports, especially of consumer goods.
A lthough there has been substantial grow th in
gross domestic pro d u ct in these areas, governm ent
revenues have n o t always risen proportionately, partly
owing to the com paratively n arro w coverage of
income and profit taxation.
On the other hand,
expenditures, especially for education a n d other social
objectives, have been m ounting rapidly because of the
accum ulated need for social services an d the rap id
increase in population, especially in M alaya. In view
of these an d other grow ing needs of development,
these areas have been faced with the problem of
increasing their tax revenues and otherwise m obilizing
their domestic capital. In the F ederation of M alaya
and Singapore, efforts at domestic m obilization of
capital, which have been grow ing in im portance, have
been som ewhat im peded by the institutional structure
of the banking an d currency system, which has
responded to the dem ands of foreign trade m ore
readily than it has encouraged domestic industrial
and investment activity. Recently, the Governm ents
of the Federation of M alaya and Singapore have
agreed in principle on the establishm ent of either a
separate or a jo in t central b anking system for the
two areas with a view to rem edying some of the
defects arising from the autom atic sterling exchange
stan d ard under currency b o ard m anagem ent an d
from banking practices oriented to foreign trad e .5
A final decision on the form and organization of such
a system was, however, still pending, aw aiting the
outcome of the constitutional changes under way in
both areas.
However, the Borneo areas— Brunei,
N orth Borneo and S araw ak— have decided to continue
the currency b o ard mechanism.
While in 1955 and 1956 these areas enjoyed
prosperity, with com parative price stability, various
bottle-necks limited the extent to which they could
accelerate development activities, especially such longterm projects as rubber replanting or new planting
in M alaya, N orth Borneo and Saraw ak or m ineral
prospecting to replace worked-out mnies in M alaya,
and development of secondary industry in Singapore.2
In N orth Borneo and Sarawak, there is, in addition,
the problem of integration of indigenous peoples in
a m odern commercial economy. Except perhaps for
Singapore, the supply of labour has generally been a
limiting factor; in Singapore the m ain difficulty, ap a rt
from continued labour unrest both in 1955 and in
1956, has been in acquiring and clearing sites for
public developmental purposes in view of the serious
squatter problem and the large areas reserved for
United K ingdom establishments.3 In the Federation
of Malaya, the continued burden of m ilitary expenditures for m eeting insurgency has considerably
affected the pace of development program m es.4
In Saraw ak and N orth Borneo, the investment p ro 1 T h e Singapore price of rubber (first grade) fell fro m 1.47
M alayan dollars p e r pound in Septem ber 1955 to M$ 0.83 in June
1956 and subsequently rose, to over one M alayan dollar, at the
tim e of the Suez Canal crisis.
2 T h e recent establishm ent of elected governm ents in the
Federation of Malaya and Singapore has heightened the consciousness of the people in these areas w ith respect to developm ent
activities.
3 " T h e land utilization problem s of the Colony of Singapore
are u nique because of the greatly restricted area of the island
w hich inhibits norm al expansion; a n d because of the large areas
w hich m ust of necessity be given over to Im perial establishm ents."
A R eport on Control o f L a n d Prices, Valuation a n d C om pulsory
A cquisition o f Land, Singapore, 1956, p.9.
4 T h e fiscal year in the five territories of Malaya and British
Borneo corresponds w ith the calendar year.
FE D E R A T IO N OF MALAYA
P roduction and export trends in the first three
quarters of 1956 indicated that the condition of the
M alayan economy in 1956 was nearly as favourable
as in 1955, the peak year since the boom d u rin g the
K orean conflict. Estim ated total export proceeds rose;
the decline in export prices, chiefly of ru b b e r and
5 For details on the central bank proposal, see G.M. W atson
a nd Sir Sydney Caine, Report on th e E stablishm ent o f a Central
B ank in Malaya (K uala L um p u r, 1956).
136
Chapter 14.
M alaya and British Borneo
copra, from their high levels in 1955 was m ore
than offset by an increase in the volume of other
exports. However, the capacity to im port appeared
to have declined in 1956, owing to a small rise in
im port prices. In addition to the anti-inflationary
cess imposed on ru b b e r exports, the inflationary effect
of increased export activity and earnings in 1955 was
cushioned by the high volume and lower prices of
im ports of consum er goods and also by increased
domestic produ ction ; in 1956 both the volume of
output of domestic consum er goods and the volume
of. im ports continued high.
In 1955 the rate of
government expenditures, for development purposes as
well as others, was hardly greater than in 1954 but
it rose in 1956, especially on development account.
The high level of export earnings in 1955 raised the
share of profits in exporting and ancillary sectors;
in view of heavy foreign interests in the export sector,
there was a substantial outflow of funds abroad in
the form of profits, dividends and other remittances.
The effect of th e decline in export prices on profit
levels in 1956 was som ewhat offset by a downward
revision in wage rates. P rivate capital expenditures
were probably ra th e r low in 1955; there was a
considerable rise in the volume of private savings in
1955, which m ay have been used to some extent in
1956. The increase in money wage rates in 1955 was
reinforced in real term s by a significant decline in
the cost of living; in contrast, in 1956 there was a
slight dow nw ard adjustm ent of earnings and wage
rates and an upw ard pressure on the cost of living,
owing m ainly to a small rise in the price of im ported
consumer goods other than rice.
P RODUCTION AND DEVELOPMENT
One of the m ost significant developments of 1956
in land utilization and agricultural progress in the
Federation of M alaya was the establishm ent of a L and
Development A u th o rity 1 to undertake development
schemes. It h ad been obvious for some time th a t the
pace of agricultural development in M alaya needed
quickening. Estate acreage was no longer expanding,
as in the first p a rt of the century. Development of
smallholdings lost impetus owing to the fact th at m any
Chinese sm allholders were living under " controlled
circum stances" both du rin g the w ar period and
during the post-war emergency period. In general,
the principal areas of M alay concentration have been
over-populated, and there is actually a lack of land
for fu rth er development in such areas. In addition,
large areas of valuable alluvial agricultural lan d have
been dam aged thro ugh loss of topsoil and silting of
irrigation channels, as a result of the operations of
tin dredges, leading to conflicts between the interests
1 In the supplem entary budget estimates of the Federation of
Malaya for 1956, an initial provision of M$1 m illion in a total
scheduled provision of M$10 m illion was m ade for the operations
of the L and D evelopm ent Authority.
137
of m ining and the interests of agriculture and forestry.
In view of the ra p id growth in population an d the
limited grow th in secondary industry, the need for
expeditious planned agricultural expansion has been
increasingly recognized. This would include, am ong
other things, co-ordinated and controlled use of land,
to ensure that the size of holdings is adequate, that
steps are taken to prevent fragm entation, that a settler
has, in addition to cash crops, one or m ore subsistence
crops, and th at reasonable standards of agricultural
and anim al husband ry are m aintained.2
Owing to favourable weather, rice production in
1955/56 was about 2 per cent higher than in the
previous season, though still below the peak reached
in 1952/53. The lifting of controls on rice trad e
after 1954, the ru b b e r boom in 1955 and the m arked
reduction in the price of im ported rice were the
principal factors responsible for the increased volume
of rice im ports in 1955 (which however did not
attain the peak reached in 1953) and in the first half
of 1956. Rice im ports in 1955 accounted for 45 per
cent of total domestic requirem ents. The Government
has im ported a substantial am ount of rice on its own
account, with a view to safe-guarding domestic stocks
and supplies in the event of any interruption in the
flow of im ports, and has continued the policy of
guaranteeing m inum um prices for locally grown
paddy.
Rubber, apart from being the m ost im portant
estate crop, is also the principal sm allholders' commercial crop. U nder the stimulus of im proved prices in
1955, when the average price of rubber rose m ore
than two-thirds over its 1954 price, total rubber
production rose by about one-eleventh and smallAverage
holders' production by almost one-fifth.
rubber prices in the first ten months of 1956 were 15
per cent below the corresponding period in 1955.
However, both production and exports were m aintained at their form er levels.
At the end of 1955, some 32,400 hectares of
smallholdings had been replanted under the smallholders' rubber replating program m es initiated in
1952, as com pared with the original target of 60,700
hectares for th a t period. It is estimated th at an
additional 19,000 hectares of smallholders' rubber has
been replanted in 1956. Since April, 1956, smallholders owning less than 12 hectares who have
replanted under the sm allholders' scheme are also given
assistance at the rate of about M $l,483 a hectare up
to a m axim um of 2.02 hectares. Replanting on estates
has been progressing satisfactorily with the superior
resources of the estates, supplemented since 1955 by
2 Report o f the W orking Party Set Up to Consider the D evelopm e n t o f N e w Areas fo r L a n d Settlem ent in the Federation of
Malaya (K uala L u m p u r, 1956).
138
government assistance, at the rate of M$988 a
hectare towards th e cost of replanting, to a m axim um
of about a fifth of the planted area of an estate.1
As m entioned above, the anti-inflationary cess
on ru bb er exports introduced in 1955 became inoperative in F ebru ary 1956 when the price of ru b b e r fell
below M$1 p er pound, bu t came into operation again
when the price rose above M$1 p er p o u n d tow ards the
end of the year. The cess was to be repaid to the
rubb er industry— in quarterly instalm ents in the case
of estates, and by a reduction in the replanting cess
in the case of smallholders.
Coconuts have been next in im portance to rice
and ru b b er as a sm allholders' crop. T he fall in
prices of copra and coconut oil, evident since 1953,
continued in the first half of 1956, when production
decreased by about a seventh from its level in the
second half of 1955.2 Output of coconut oil, however, which reached record levels in 1954 a n d 1955,
continued to advance further in the first half of
1956 when prices slightly improved. The production
and export of palm-oil an d pineapples continued to
rise in the period under review.
The fishing industry, whose im portance to
domestic food consum ption is probably second only
to rice, has recently been the subject of investigation
by the Government, because the output of fisheries
has rem ained stationary and exports have declined.3
Meat and livestock output has increased, on the whole.
Poultry production rem ained short of consum ption
requirem ents, and a significant volume was im ported,
especially from Singapore.
Forests are am ong the a re a 's m ajo r natural
resources. In spite of the steady fall in tim ber prices
since 1952, the production of sawn logs reached a
peak in 1955, and possibly also in 1956, reflecting
the rap id growth of the sawmilling industry.4
P roduction of tin in concentrates in the first
nine m onths of 1956 rose by about 2 per cent, and
prices were 6 per cent higher than in the same period
1 In the case of estates, output from high yielding seed in 1955
for the first tim e exceeded production from unselected seedlings
a nd the o u tput of concentrated latex accounted for alm ost oneth ird of estate production. In the first ten m onths of 1956 p ro duction of concentrated latex declined to 73,000 tons as against
93,500 tons in the same period of 1955.
2 In the first seven m onths of 1956, im ports on account of the
entrepot trade in copra alm ost equalled the total for 1955, and
exceeded the volum e of domestic estate production.
3 T h e Report o f th e C om m ittee to Investigate the Fishing
Industry (K uala L u m p ur, 1956) recom m ended the establishm ent
of associations or co-operatives of fisherm en, especially for m ark e ting, to be assisted by a statutory fisheries board, financed initially
from federal revenue.
4 Research into the uses of tim ber has been concentrated on the
production of hardboard and fibre boards; for these, the wood
f rom old rubber trees, heretofore burnt, provides a very cheap raw
material.
P a r t II.
C ountry Surveys
the year before.5 U nder the buffer stock arrang em ents of the In ternational T in A greem ent, M alaya's
share was expected to be approxim ately 37 per cent.
F o r M alaya, the cash equivalent of the initial contrib u tio n was M $30 m illion, of a total of M$50
m illion. T he necessary funds to finance M alaya's
contribution to the buffer stock were borrow ed from
the banks and would be recovered by instalments
through a levy on the local tin industry, which would
eventually own M alaya's share in the buffer stock.6
Except for coal, whose production h as been
steadily falling since 1950, the output of almost all
m inerals increased in 1955 and in 1956. Iron ore
production in 1955 was three times the output in
1950, and was higher by over one-half in the first
nine m onths of 1956 th an in the same perio d of
1955.
T he favourable foreign trade position in 1955,
which was only slightly less advantageous in 1956,
has provided a stimulus to processing an d ancillary
industrial activities associated with rub b er, tin, pineapples, copra and tim ber, and to engineering enterprises for the rep air and m aintenance of processing
m achinery. P roduction in light consum er industries
(soap, ru b b e r foot-wear, biscuits, soft drinks, etc.)
showed continued advances in the first half of 1956.
In the building industry, a cem ent factory started
in mid-1953 had alm ost reached its estim ated
m axim um production in 1955; domestic production
has supplied only about one-third of requirem ents,
indicating the scope for expansion of the cement
industry.
In the case of public utilities, there was, as in
other sectors, an increase in output.
Pow er consum ed by industrial and com m ercial undertakings
and for lighting and domestic purposes showed a
m arked increase.7 Railway tran sp o rt activity, as
m easured by the net ton-kilometres of paying goods
traffic, was, in the first eight m onths of 1956, oneseventh above that of the sam e period a year before.
TRADE
In the first half of 1956, the total value and
volume of both im ports an d exports exceeded the
corresponding levels for the sam e period in 1955,
5 Unofficial indications are th at for the year as a w hole tin exports rose nearly 3 per cent above 1955, reaching their highest
level since 1950.
6 T o im plem ent the buffer stock schem e in Malaya, a com pulsory levy was proposed on tin concentrates, a t an average rate of
10 per cent of the net price received by the m ine; in case of h a rd ship, the G overnm ent proposed to lend a m ax im u m of 60 per cent
o f the m in e 's contribution. T h o u g h the future prospects of the
tin m in in g industry appeared im proved w ith the com ing into force
of the International T in A greem ent, the principal problem confro n tin g the industry was the difficulty of fin d in g a n d acquiring
suitable tin-bearing lands to replace w orked-out mines.
7 Decline in coal o u tp u t was offset by rise in coal imports, to
m eet increased coal requirem ents in the pow er industry.
C hapter 14.
with the slightly smaller trade balance indicating a
greater rise in im ports. E xport prices, which rose
in 1955 by m ore than two-fifths over 1954, reached
their peak in the fourth q u arter of 1955 and after
that declined, largely reflecting the fluctuations in the
price of rub b er. Im port prices, after falling since
1953, started rising in the second q u arter of 1956.
The terms of trade, which im proved in 1955 by m ore
than one-half over 1954, have fallen since the
beginning of 1956; but, with an increase in the
volume of exports, the index of capacity to im port
fell only slightly in the first half of 1956, and the
actual value of im ports was higher than in the same
period of 1955. Food items and textiles accounted
for a large p a r t of the increase. Im ports of m achinery
and transport equipm ent, relatively constant in 1954
and 1955, increased; together with larger im ports of
cement and other building m aterials, they indicated a
higher level of domestic capital form ation.
C h a r t 18.
139
M alaya and B ritish Borneo
M alaya:
V a lu e of Imports a n d Exports
(M onthly averages)
slightly lower than in 1954, was in process of further
acceleration; emphasis was expected to be placed on
social investments, especially education,2 housing and
water supply. Provisions for agriculture and irrig a tion, railways and roads, and fuel and power were
also to be considerably increased.3 The chief problem
was to finance a progressive development program m e
oriented tow ards the creation of basic social and
economic facilities at a time when the economy was
already burdened with a high level of " emergency
expenditures."
There appeared to be need for a
faster tempo in mobilizing domestic resources, both
by increased taxation, especially personal income and
com pany taxation and additional state and local
revenues,4 and by a domestic borrow ing program m e,
which appeared especially feasible in view of the
increase in the volume of private money savings in
1955. The governm ent's budgetary deficit in 1956
was met by grants from the United Kingdom , domestic
and foreign borrow ing, and draw ing down of " general
revenue balances." It was expected that the budgetary
deficit in 1957 would be greater than in 1956.
Proposals for additional taxation have been under
discussion.
E MPLOYMENT, WAGES AND PRICES
H igh export earnings in 1955, coupled with a
high level of im ports at a time when im port prices
were actually declining, gave the M alayan economy
prosperity with a stable, or even slightly declining,
domestic price level. Employment rem ained high.
This situation continued, though it was perhaps less
favourable, in 1956.
P UBLIC FINANCE
Governm ent revenues in 1956 were expected to
show substantial decline below their 1955 level m ainly
because of the fall in rub b er prices. However, the
fall in the export duties on rubber, tin and other
products was p artly compensated by a rise in income
tax collections, largely based on income accrued in
the boom year 1955.1
In order to provide incentives for investment in
mining and agriculture, the income tax law was
am ended in early 1956 to p erm it deduction of
allowances for capital expenditures on agricultural
estates as well as certain expenditures on abortive
m ining ventures.
Defence and emergency expenditure continued at
previous high levels, constituting m ore than onequarter of all governm ental expenditures. Governm ent investment expenditure, which in 1955 was
1 E xport duty collections on rubber in the first half of 1956
were below b udget estimates, b u t export duties on tin, as well as
receipts from im port duties a n d excise, w ere well ahead of the
estimates; it was foreseen th at there w ould be a net shortfall in
customs and excise revenue unless the price of rubber continued to
increase in the second half of the year.
Wage rates on rubber estates in 1955 were
adjusted quarterly according to a sliding scale, agreed
to by both parties; the scale was related to the
average price of rubber during the preceding three
months. On this basis, standard wage rates on rubber
estates rose by approxim ately one-half during 1955
(the price of rubber rose by almost three-quarters
d uring the y e a r). The downturn in the price of
ru b b er in the first half of 1956 led to a gradual
dow nw ard revision in wages. In view of the continued
general high level of employment in the country, it
2 According to the education policy inaugurated in 1956, the
G overnm ent intended to provide prim ary education for all children
by 1960. T h e im plem entation of this policy w ould involve an
estimated capital expenditure of M$215 m illion over the 1956-60
period and an increase in recurrent expenditure of M$60 m illion a
year over the 1956 rate of around M$102 million.
3 A supplem entary budget for additional capital expenditure
of M$27 m illion in 1956 was approved by the legislature in July.
A large p a rt was to be lent to the Malayan Railway A dm inistration and otther financially autonom ous bodies for capital works.
4 Beginning in 1956, a new system of annual federal grants
and allocations to states and settlements has been introduced with
a view to defining m ore precisely the revenue sources and fields
of expenditure of state and settlem ent governm ents. U nder the
new arrangem ents, each constituent unit was entitled to retain any
surpluses rem aining to it at the end of the year, instead of tu rn ing them over to the Federal Governm ent.
P a r t II.
140
was not possible to reduce wages substantially w ithout
affecting the industry’s labour supply, a n d a new
agreem ent between estate em ployers an d employees
was therefore entered into in m id-1956; this stemmd
the pressure for wage reductions somewhat. In tin
and other industries, there h ad been a general increase
in wages and earnings in 1955, p artly because of
competition from the ru b b er industry, a n d partly
because of trad e union activities and rising wage rates
in Singapore. The tren d of wage earnings in 1956
was not so well m arked, owing to considerable
pressure for wage reductions— and resistance to them.
In several sectors, wage scales were raised by
negotiation between employers a n d employees.
In the first seven m onths of 1956 m ore than
300,000 m an-days were lost on estates because of
industrial disputes, as against 12,000 in the year
1955 as a whole. D uring these seven m onths, alm ost
half a m illion m an-days were lost th rough industrial
disputes in the Federation of M alaya.
SINGAPORE
P R O D U C T IO N A N D T R A D E
P rim ary production in Singapore is confined
largely to truck farm ing, anim al husbandry and
fishing.
The Governm ent h as encouraged food
production for local consum ption to safeguard against
interruptions in supplies. An island-wide agricultural
show was opened in Septem ber 1956 to emphasize the
im portance of farm ing in the day-to-day economy of
the island. M eat and poultry production reached their
highest points in 1955 and there was a significant
growth in exports of poultry and eggs to the F ederation of M alaya, B ritish Borneo and Ceylon. W hile fish
landings have generally rem ained stable in the past
few years, attention has been increasingly devoted to
deep-sea fishing to enlarge the catch.
Secondary production continued to show diverse
trends because of labour unrest, fu rth er restrictions
on exports of raw m aterials by neighbouring countries
and increased competition from imports. T he processing and m anufacture of rubber products— except
ru b b e r foot-wear and several light consum er items,
such as biscuits and soap— have been declining.
M anufacture of metals, m achinery and transport
equipm ent has provided about one-fifth of the total
employment opportunities and almost one-half of
m anufacturing em ploym ent; trends in 1956 indicated
no appreciable increase in employment. The construction industry—residential building was particularly
active in 1955— appeared to have slowed down
considerably in 1956, owing mostly to difficulties in
clearing land and acquiring sites. The production
of natural gas has been rising steadily. An iron
a n d steel factory, utilizing local scrap, was opened
C ountry Surveys
in 1956; its production target was 10,000 tons of
steel b ars at the end of three years.1
The entrepot trad e of Singapore, which probably
has accounted for one-tenth or m ore of its income,
is dependent on the extent of external trad e am ong
neighbouring south-eastern A sian countries. D uring
the year the trend of prices for com m odity exports
of these countries was generally dow nw ard, com pared
with high levels in 1955. However, a substantial rise
in export earnings in 1955 a n d a fairly stable level
of exports in 1956 led in general to an equally
m arked rise in im ports in the latter half of 1956
as well as in the earlier m onths, thus enhancing the
im portance of S ingapore as an entrepôt centre fo r the
region.
P U B L IC F IN A N C E
S ingapore's revenues have fluctuated in recent
years, usually around M $210 m illion a y e a r; the
estimate for 1956 is M$216 m illion as a result of
increase in taxation introduced in Novem ber 1955.
In view of the fact that general trade conditions in
1956 continued satisfactory (a p a rt from the fall in the
price of ru b b er) and that the effects of a boom in
the F ederation of M alaya tend to reach Singapore
after some delay, governm ent revenues m ay be m ore
favourable th an anticipated.
R ecurrent governm ent expenditures have been
rising steadily, and were expected to m ount considerably as im plem entation of the social service developm ent plans gathered m om entum .
The share of
education, health and social welfare in the total
estim ated recurrent expenditures rose from about
a q u arter in 1953 to 32 per cent in 1956.
Developmental expenditures, which have been m et by
contributions from general revenues and the Developm ent Reserve Fund, include outlays on education
and health, in addition to capital com m itm ents in
respect of housing, telephones, roads an d flood
alleviation.
In practice, however, there has been
considerable under-expenditure below budget allocations on capital items, owing in the m ain to
difficulties in obtaining and clearing sites.
Though S ingapore has accum ulated substantial
funds in the past, the ra p id rise in recurrent
expenditures and increasing needs fo r development
have brought to the fore the problem of finding
additional financial resources.
In addition to the
1 Industrial developm ent, one of the m ost prom ising solutions
to the problem of em ploym ent for Singapore's rapidly grow ing
labour force, has n o t yet received m u ch im petus. T h e G overnm ent, follow ing the recom m endation of the International Bank for
Reconstruction and Developm ent, has been prep arin g legislation
to set u p an industrial prom otion board to assist small-scale m a n u facture and has been exam ing the possibility of establishing an
industrial research institute.
Chapter 14.
141
M alaya a n d B ritish Borneo
possibility of loans, there i s also considerable
taxation potential which rem ains to be tapped.1 The
1956 budget increased custom s duties on liquors and
petrol and raised the rate of estate duty. Several
other tax proposals rem ained in abeyance, partly
because of the desire to m aintain a common fiscal
policy with the F ederation of M alaya, especially with
regard to rates of taxation.
E MPLOYMENT, WAGES AND PRICES
The lack of expanding opportunities in secondary
employment fo r the grow ing labour force, the im pediments to construction an d building activities m entioned
earlier and contiuned industrial unrest in 1955 an d
1956 were the principal factors affecting employment.
There has been increasing evidence of the grow th of
fringe or m arginal employment, especially in retail
trade and service industries. In 1955 nearly a million
man-days were lost in strikes; another 449,000 were
lost up to the end of November, 1956.
Average weekly earnings of all m anual workers
increased by about one-tenth in 1955 and levelled off
in 1956. The rise in wages was due m ainly to
favourable trad e conditions and the spectacular rise
in trade union organization; trad e union m em bership
rose by m ore than three-quarters during 1955.
The S ingapore retail price index (for lower
income g ro u p s ), which moved downward, in general,
after the end of the K orean hostilities, continued
falling until Septem ber 1955. It has risen steadliy,
however, since then, owing to an increase in im port
prices of m anufactured consum er goods and perhaps
also to a reduced volume of retained im ports of
consumer goods.
SARAWAK
P RODUCTION AND TRADE
In Sarawak, activities connected with four export
products— rubber, pepper, tim ber and petroleum —
contributed almost one-half of the gross domestic
product in 1955.
T hough exports of these commodities were higher in the first half of 1956 than
in the same perio d of 1955, the weakening in prices
of the first three m ust have somewhat reduced their
contribution to the economy in 1956.
R ubber accounted for m ore than one-half of the
value of all domestic exports in 1955. T hough rubber
prices declined in the first half of 1956, they were
still above those in the corresponding period of 1955,
and the volume of exports also was slightly higher.
1 T h e scope for additional taxation was exam ined in late 1955;
it was indicated th at revision of the existing tax system should
take account of Singapore's status as a free port, its alm ost com plete dependence o n trade, a n d its close economic ties w ith the
Federation of M alaya and hence the desirability of co-ordination of
fiscal policy w henever possible.
In spite of crop disease, and of falling prices in
late 1955, the volume of exports of pepper (both black
and white) in the first half of 1956 was at an annual
ra te which exceeded the record level of 1955. Pepper
prices declined further in the first half of 1956, but
started to rise in the th ird quarter.
In 1955 both the volume an d the value of timber
exports reached record levels. Since the second half
of 1955, the m arket for tim ber has become rather
weak, owing largely to the credit squeeze in the
United K ingdom coinciding with a rapid expansion
of production in Sarawak. By July 1956, the price
of ram in h ad fallen by almost one-half from the peak
in 1955; beginning in A ugust 1956, exports of ram in
have been restricted by export licences and quotas.
S purred by the high price of tim ber in 1955, there was
considerable expansion in the production capacity of
tim ber processing industries, as a result of which the
volume of sawn tim ber increased considerably.
An overwhelming share of S araw ak's petroleum
exports consists of re-exports from Brunei, by way
of Lutong where there is a refinery. Both the export
value an d the volume of refined oil have expanded
steadily in the past five years. T he " value added" to
petroleum re-exports contributed about 10 p er cent of
the gross domestic product in 1955.
T hough rice is S araw ak's staple food, a significant
portion of it is im ported. U nder the shifting system
of cultivation widely practised in Sarawak, the rest
period in the cycle has apparently been getting shorter
and shorter, to the detrim ent of soil fertility, and
yields are consequently low. The prospects for paddy
production in 1955/56 were adversely affected by the
decrease in area sown, owing largely to the relative
attractiveness of rubber in 1955.
U nder the im pact of a m inor boom in 1955 in
petroleum, tim ber and rubber, practically all categories
of im ports rose; they continued at a high level in the
first half of 1956.
P UBLIC FINANCE
Owing largely to the increase in the price of
rubber, activity in the foreign trade sector in 1955
resulted in increased government revenue from
customs and excise duties, which were expected to
decline in 1956. Actual expenditures, development
and non-developmental, were generally smaller than the
estimates. The lag was considerable in the case of
development expenditure; apparently only one-half of
the estim ated am ount was actually spent in 1955,
owing to lack of staff and skilled labour, as well as
to lim itations in domestic construction capacity,
especially because of the dem and for rubber and
timber, which heightened com petition for labour and
P a rt II.
142
materials.
Actual expenditures on development
schemes in the first qu arter of 1956 were barely 5
per cent of the total estimated expenditures for 1956.1
Am ong the m ain developmental problem s in
Sarawak, the achievement of stabilized intensive
methods of farm ing, in place of the wasteful m ethod
of shifting cultivation, has the highest priority. The
problem is linked with several others; when the
economic and social isolation of the indigenous
population has been broken by m easures for extending
communications, expanding educational and medical
facilities, resettlement in the lowlands, com m unity
development and effective land utilization, additional
economic and hum an resources will enter into the
circle of production and exchange. T h e problem of
labour shortage will no doubt be alleviated in the
process.2
BRUNEI
P RODUCTION AND TRADE
Production and export of petroleum, on which
the economy of Brunei has been dependent, reached
high levels in 1955 and the first half of 1956. D uring
1955 a new source of oil was found at Jerudong near
the town of Brunei, the first new find since the
discovery of the Seria field in 1929.
Domestic production of tim ber has m et about
one-half of domestic requirem ents, the rest being
In
imported, mostly from neighbouring Sarawak.
1955 im ports of tim ber and other building m aterials
rose considerably over their levels in 1954, indicating
acceleration of building in the m ain towns. In foreign
trade, the value of B runei's exports rose by 11 per
cent in 1955, the chief increases taking place in crude
petroleum and rubber. The total value of im ports
declined slightly, the decline in th at of m achinery and
tran spo rt equipm ent being substantial; this item has
of course been dependent, among other factors, on
the phasing of the im port program m e of the petroleum
company. In the first half of 1956, the quantity of
petroleum exports exceeded the levels in the first and
second halves of 1955; rubber exports although higher
than in the first half of 1955 fell below the level in
the second half. On the im port side, rice im ports
rose very sharply in the first half of 1956 while
im ports of cereals as a whole declined. Im ports of
cement and cotton fabrics were generally m aintained
at their 1955 levels.
1 In such circumstances it was unlikely that developm ent expenditures in 1956 reached tw o and a half times their level in
1955, as previously estimated by the Governm ent.
2 T h e revised developm ent plan of Sarawak (1955-1960) lays
emphasis on the developm ent of comm unications (approxim ately
54 per cent of the total developm ent outlay) to open u p new
country and to provide better access to already developed areas.
C ountry Surveys
P U B L IC F IN A N C E A N D T H E D E V E L O P M E N T P R O G R A M M E
Total public revenue rose som ewhat in 1955,
exceeding $100 m illion; the 1956 estimates showed a
sim ilar increase.
Petroleum royalties, which rose
largely because of an increase in the royalty rate,
and income taxes, which declined because of tax
concessions for investment and exploration in m ineral
industries, accounted for m ore than four-fifths of
governm ental revenue. G overnm ent " o rd in a ry " and
developmental expenditure has been m ounting rapidly;
in 1956 it was about seven times the 1951 amount.
Investm ent expenditures have been greatly accelerated
since 1953, generally accounting for m ore than onehalf of all expenditures. M ore than three-fourths of the
M$100 million development fund has been com m itted;
the rate of utilization, though ham pered by certain
bottle-necks, especially lack of skilled and supervisory
labour and staff, has been steadily increasing.
It
appeared unlikely that with prevailing levels of
domestic labour and building capacity, development
could be further accelerated.
N O RTH BORNEO
PRODUCTION AND TRADE
High prices for ru b b er in 1955 led to a considerable increase in the value of exports; the volum e of
exports in the first half of 1956, in spite of a weakened
price situation, was higher than in the same period
of 1955.
The 1 9 5 5/5 6 p ad d y crop was expected to be
smaller than the record output of the previous season,
owing to less favourable w eather conditions a n d also
probably to a slight shift from the area under rice
to com m ercial crops, such as rubber. Domestic rice
supplies in 1955 rose m arkedly over the 1954 level,
reflecting the fact that production increased an d
im ports doubled; the gains were facilitated by the
removal of quantitative restrictions on im port and
consumption of rice. Im ports of rice in the first half
of 1956 exceeded those of the first and second halves
of 1955.
N orth Borneo has immense forest resouercs, and
its tim ber industry was stim ulated by the cancellation
in 1952 of the exclusive exploitation licence held by
the British Borneo T im ber Company. A spectacular
rise in production followed in 1954 and there was a
smaller gain in 1955, when the area under the control
of small-scale local operators w orking on an annual
licence basis increased considerably.3 T im ber exports
3 G overnm ent tim ber policy was, however, m odified in the
latter p a rt of 1955 by a w eakening in the export m ark e t for
timber. In an attem pt to safeguard the interests of large-scale
operators w orking u n d e r long-term licences, the G overnm ent
suspended the issue o f new short-term licences to small-scale local
operators. It also attem pted, through a system of export quotas,
to control the direct access of annual concessionnaires to oversea
m arkets. T h e G overnm ent was reported to have revised this
decision in 1956.
Chapter 14.
M alaya a n d B ritish Borneo
in the first half of 1956 were at a higher rate than
in 1955; the average unit value rem ained fairly stable.
In 1955 N o rth Borneo had an exceptionally
favourable balance of trade— the m ost favourable since
the boom du rin g K orean hostilities. In the first half
of 1956 both the value and the volume of exports were
at rates that were higher than in 1955. Im ports,
however, rose m uch more, with a consequent reduction in the export surplus.
An im portant development in 1956 was the
designation of L ab uan as a free p o rt; it was expected
that this would reduce trans-shipm ent cost of im ports
through Singapore and would lead to the development
of an entrepôt centre for Borneo, Indonesia an d the
Philippines.
P U BLIC FIN A N C E A N D T H E D E V E L O P M E N T PR O G R A M M E
There has been a slight im provem ent in the
budgetary position of N o rth Borneo, partly because
of higher price of ru b b e r and the general increase in
the volume of foreign trade.
In 1955, customs
revenue rose by a th ird over 1954, but rising
trends in foreign tra d e were arrested in 1956.
The yield from income taxes was expected to
rise significantly in 1956. The m arked improvement
in the financial position obviated the necessity for
143
outright grants by the U nited Kingdom , which were
accordingly suspended in 1955. Beginning in 1956,
N orth Borneo's finances were freed from the control
of the United K ingdom Treasury. However, N orth
Borneo rem ained dependent, aside from proceeds
derived from realization on the form er Japanese assets,
on large am ounts of external assitsance— especially
the U nited K ingdom Colonial Development and
W elfare grants, contributions from the United States
International Cooperation A dm inistration and the
Colombo Plan. The pattern of government expenditures has been shifting slowly from purely economic
reconstruction to provision and expansion of social
services.
N orth Borneo has not completed its recovery
from the effects of war-time dam age and destruction.
Delays in delivery of equipment, bottle-necks in
staffing and organization, and shortage of labour,
especially skilled labour, have held up the reconstruction program m e. It was expected that in 1956 this
program m e would be practically completed, except for
railway reconstruction.1 A new reconstruction and
development plan, involving the expenditure of
approxim ately M$47 million, was prepared in 1955
for the years 1956– 1960.
1 Railways have been running at a deficit; reconstruction and
development have been held up by staffing and organizational
difficulties.
C h a p te r 15
NEPAL
to replace In d ian currency by the m oh ur might,
instead of im proving the situation, disturb the
economy and cause fu rth e r currency depreciation.
Three steps were in fact taken by the Government
du rin g the period under review.
Efforts to achieve currency and exchange stability,
and the adoption of a five-year plan, appear as the
m ain events of the year in the Nepalese economy.
Restrictions on currency issue, introduction of selective im port control and active participation by the
newly form ed Central Bank (Nepal R ashtra Bank) in
the m onetary affairs of the country somewhat strengthened the exchange position of the m ohur (Nepali
rupee) against the Ind ian rupee.1 Steps taken by
the Government to revive the entrepot trad e and
reform its tariff policy were also expected to contribute
to exchange stability. N epal's d raft Five-Year Plan
(1956 /57 – 1 9 6 0 /6 1 )2 appeared likely to have the
support of substantial foreign aid to help assure its
implementation.
T he first step was to reduce, as m uch as possible,
the issue of new currency. T his objective was on
its way to achievement when the increase in currency
issue was reduced from 11 million m ohur in 1954/55
to 0.4 million in the first half of 1955/56.
The second step was the G overnm ent's effort to
stabilize the fluctuating rate of exchange directly. On
16 A pril 1956 the M inistry of Finance announced
that thereafter the Nepal m o hur would be accepted
at all governm ent treasuries in the T arai districts for
the paym ent of land revenues, customs duties, railway
fares, fees and fines, etc., at the exchange rate of
128 m ohur to 100 Indian rupees. As controller of
foreign exchange, the Central Bank, established ten
days later, was m ade responsible for supplying Indian
rupees at this ra te to Nepalese m erchants in paym ent
for essential im ports (cloth, petrol, stationery and so
on) from India. The bank was authorized to establish
twenty-one branches, mostly in the T arai districts, to
facilitate the conversion of Indian rupees to m o h u r.4
In August the bank raised the rate from 128:100 to
145½ : 100 in K athm andu valley and other areas where
m ohur are widely used.
However, owing to the
discrepancy between the b an k 's rate and the free
m arket rate (148 m ohur to 100 Ind ian rupees in
October 1956), the ban k 's rupee reserves dwindled.
CURRENCY AND EXCHANGE STABILITY
Nepal has for years had two currencies in
circulation, the Indian rupee3 in the relatively
prosperous T a ra i districts which are both geographically and economically a p a rt of the Gangetic
plain, and the Nepali m ohur, mostly in the K athm andu
valley and other hilly districts. Since 1950/51, the
m ohur has continued to depreciate in term s of the
Ind ian rupee. T hough lack of exchange control and
suitable trade m easures have accelerated this process,
the m ain factor has been the rapid increase in currency
issue resulting from deficits in the governm ent budget.
The supply of m ohur in circulation at the end of
June 1956 was 90 million (43 million in notes and
47 million in c o in s), and estimates show th at between
1 July 1950 and 30 June 1955 about 45 million
m ohur notes and 30 million m ohur coins were issued
to meet the budget deficit. The exchange ratio of
the m ohur to the Indian rupee, which was 110:100 in
1950/51, declined to 18 5:100 in 1954/55.
T he th ird step was concerned with trade a rran g ements and had two m ain objectives— revival of the
entrepot trad e and revision of the Indo-Nepalese T rade
Treaty of 1950. Entrepot trade, though very im portant
before the Second W orld W ar, has declined rapidly
during the post-war period. Owing to the imposition
of heavy im port duties by Nepal, the high transp ort
cost in Tibet of Nepalese im ports and the ban by
Nepal on some exports to Tibet, trade between Nepal
and Tibet has consisted almost entirely of indigenous
products from the b o rd er districts. In an effort to
revive the traditional trade, Nepal in Septem ber 1956
at K athm andu entered into an eighty-year T reaty of
T rade and F riendship with m ainland China, whereby
an equal num ber of trade agencies m ay be established
by Nepal in Shigatse, K yerong and Nyalam in the
Tibet region, and by m ainland China in various
localities of Nepal, to be determ ined later.
Currency and exchange stability cannot be
achieved without the implementation of a series of
measures— hertofore lacking or ineffective— including
im port control, improvem ent in trade policy and
customs procedure, controls on money transfers and
the activities of private exchange dealers, and fiscal
reform . W ithout these, any drastic action seeking
1 T h e bank was form ed, w ith capital of 10 m illion m ohur, to
regulate the note issue, secure country-w ide circulation of m ohur,
achieve exchange stability, m obilize capital for economic developm ent, stim ulate trade and industries and develop the country's
banking system.
2 T h e fiscal year is from July to June.
3 T he a m ount of Indian rupees circulating in Nepal has been
roughly estimated at 250 million to 350 million.
4 By October, nine branches were open.
144
Chapter 15.
145
Nepal
In A ugust 1956 India accepted a proposal from
Nepal for revision of the Indo-Nepalese T reaty of
T rade and Commerce signed in 1950, especially of
article 5 relating to export and im port duties.1 W ith
the revision of this treaty, Nepal was expected to be
able to encourage exports to In dia and to reduce the
cost of its essential imports.
These several m easures have, at least tem porarily,
helped to strengthen the m ohur against the Indian
rupee on the free m arket, bringing the ratio down
from 185:100 in 19 54 /5 5 to the October 1956 level
of 148:100, as noted. However, it was recognized
that the restoration of currency and exchange stability
required further efforts, such as the prom otion of
domestic industry, tax reform and the establishment
of direct trad e links with various other countries, to
all of which the Government has given due consideration in its Five-Year Plan.
P UBLIC FINANCE
The budget deficit still rem ained the m ajor fiscal
problem in Nepal. A ccording to the revised estimates
for 1955/56 it rose to 19 million m ohur, com pared
with an actual deficit of 7 million m ohur in 1945/55.
D raft estimates for 19 56 /57 contemplate, however, a
lower deficit of 9 million m ohur, and, in the light
of recent experience, the actual deficit m ight be still
lower. A nother development regarding public finance
in 1955/56 was the increase in the ratio of development expenditures to total expenditures, which reached
28 per cent as com pared with 8 per cent in 1954/55.
The draft estimates for 1 95 6 /5 7 recorded a ratio of
30.7 p e r cent.
Them a jo r p a r t
of
d ev elo p m en t
expenditures–47 per cent in 195 5/56 and 57 per
cent in 19 56 /5 7– is allotted to social capital. So far
reduce n o n the Government has been unable to
development expenditures; on the contrary, owing to
implementation of the development plan, adm inistrative expenditures have been steadily rising. Revenue
a n d e x p e n d i t u r e t o t a l s f o r t h e p e r i o d 1 9 5 4 / 5 5 to
1956/57 are given below, in term s of millions of
m ohur:
Revenue
1 9 5 4 /5 5 (a c tu al) .
1955/56 (revised) . . .
1956/57 (estimates) . .
34
41
45
E x p e n d itu re
Total
D evelo p m e n t
41
60
54
3.3
16.9
16.6
DRA FT FIVE-YEAR PLAN 2
On 3 July, a draft Five-Year Plan (1 9 5 6 /5 7 –
1960/61) was put before the C abinet for approval.
1 U nder article 5 of the original treaty, N epal agreed to levy
on goods produced and m anufactured in N epal and exported to
India export duty at rates sufficient to prevent their sale in India
at prices m ore favourable th an those of goods produced o r m a n u factured in India w hich are subject to central excise duty. Nepal
also agreed to levy, a t rates not lower th an those leviable in India,
custom duties on im ports from a n d exports to countries other than
India.
2 G overnm ent of Nepal,
K athm andu, 1956.
D raft Five-Year Plan, a Synopsis,
The Plan, which covers only the public sector, has
two m ain objectives: (1) to provide fair returns to
agricultural workers and tenants through land reform ,
agricultural co-operatives and im provem ent in land
taxation, and (2) to pave the way for future developm ent by undertaking extensive resource surveys,
training technical and adm inistrative personnel and
establishing, though on a modest scale, basic economic
and social facilities, such as roads, irrigation works,
power plants, schools and hospitals (table 2 5 ). The
Plan proposed expenditure of 330 million m ohur
during the five years.
U nder the Plan, a Cabinet Development Committee was called for as the policy m aking authority,
to be aided by a Planning Commission charged with
prep aring programmes, devising means of implementation and reviewing reports of progress. The actual
operating units for the proposed projects were to be
the various ministries, with a new M inistry of
P lanning and Development acting as co-ordinator.3
District governors, assisted by district development
officers and other technical advisors, were to be made
responsible for local developmental activities. Special
committees were to advise the Cabinet Development
Committee on adm inistrative problem s and on coordination of foreign aid. Provision was m ade for a
separate annual development fund, and a financial
controller to supervise disbursem ent and to audit
and prepare periodic accounts.
Table 25. Nepal: Allocation of Government
Development Expenditures under the Five-Year Plan
Item
Millions Percentage of
of mohur total
Agriculture, forestry and village develop49.5
ment (including land survey and land
reform) .............................................................
Forestry ................................................
Irrigation and valley developm ent ............
Power .......................................................
T ransport and com m unication ...................
Industry and m ining .....................................
6.1
10.3
9.1
33.8
7.3
20.0
34.0
30.0
111.5
24.0
44.0
Social development .................................
Land settlement and government housing
15.0
12.5
13.3
3.8
Survey and research ........................................
4.5
1.3
TOTAL
330.0
100.0
Transport, which has been the main bottle-neck
in the country's economic development, was to receive
the largest allocation of funds under the Plan— oneth ird of the total. Construction of 1,448 kilometres
of road and 45 kilometres of railway was scheduled
for the five-year period,4 in addition to extension of
3 A n official of the Ministry of P lanning and Developm ent was
to serve as secretary both to the Cabinet Developm ent Committee
and to the Planning Commission.
4 A twenty-year road developm ent program m e has been draw n
up, to add 6,437 kilometres of road to the existing system of 499
kilometres.
P a r t II.
146
the present ropeway and establishment of A ir Nepal
for prom otion of civil aviation.
In agriculture, emphasis was placed on improved
methods of cultivation, to be prom oted by eighteen
demonstration farms to be set up in various parts
of the country, and on diversified production of
vegetables, fruits, livestock, dairy products, textile
fibres and other agricultural raw materials. A State
Forest Service was to be set up to supervise forest
protection, increase utilization of wood to meet local
fuel demand, and develop the tim ber industry.1 It
was estimated that annual lum ber exports to India
would average about 85,000 cubic metres, worth
Indian Rs 30 million, and would offer employment of
2 million man-days annually. A National Forest Law
for the m anagem ent of public and private forest land
has been under active consideration. Village aid,2
besides its social objectives, placed emphasis on
agricultural development. In addition to a n ationwide network of local improvement works, 48 development blocks were to be organized during the Plan
period and 2,350 persons trained for village work.
Irrigation works were to be reconditioned and
completed on 21,853 hectares of land, and 80,937
hectares of additional land was to be brought under
irrigation.
The annual benefit from the newly
irrigated land was estimated at 25 million m ohur,
not far short of the cost of the projects.
The
Government also expected to collect additional annual
revenue of a million m ohur from water rates.
Development of public industry was limited to
cement, forest products, textiles and sugar, in addition
to which a government-sponsored finance corporation
was proposed, to make grants and loans to various
private companies. Facilities for m anagerial training,
technological improvement and research were provided
in the Plan.
The development of new cottage
industries and the m arketing of handicrafts were also
emphasized.
1 T h e forest area of Nepal has been estimated at 4.45 million
hectares, covering one-third of the total land area. A bout twothirds of the forest area is considered potentially productive.
2 T hree stages were planned in the village aid program m e: (1)
local im provem ent works, (2 ) rural developm ent and (3 ) village
developm ent. Local im provem ent works em body small works,
such as village roads, wells, school buildings, a village hall. Rural
developm ent consists of seed distribution, use of fertilizers, scientific protection of plants and anim als and a w ider social developm e n t scheme. U nder village developm ent, all these projects and
schemes are intensified. T h e country was divided into 150 blocks
averaging 200 villages each; each block was to cover 10,000 fa m ilies in hilly districts and 13,000 families in the Tarai.
C ountry Surveys
In relation to the country's potentialities and
need for electric pow er development, the addition of
20,000 kW of generating capacity d u rin g the Plan
period appeared a modest objective.3
In education, 856 additional schools1 were to be
established and 2,494 teachers trained. In the field
of health, provision was m ade for increased hospital
facilities, dispensaries and the train in g of nurses and
health assistants.
Of the total developmental expenditures of 330
million m ohur called for under the Plan, 95 million
m ohur was to come from government savings and
internal borrowing, with virtually the entire rem ainder
expected to be covered by grants from the Governments of India, the United States, People's Republic
of China and Australia.
An additional increase of 170 million m ohur was
expected in government revenue d uring the Plan
period, 75.8 million in taxes (mostly im port duties
and land taxes), 26 million in development bonds
and payroll savings and 68.2 million in net proceeds
from sales and services of the governm ent.5 In its
negotiations for foreign aid, Nepal has received an
offer of Rs 100 million from India and Rs 17.9
million from Australia for partly financing the Plan.
The International Cooperation A dm inistration of the
United States announced in F ebruary 1956 a grant
to Nepal of $2 million in economic assistance, about
half of which was to be used for village development,
teacher training and program m es to com bat insectborn diseases, and the balance for the development
of the Rapti valley multiple-purpose scheme, mainly
through m alaria control measures, construction of an
access road, land survey and soil studies.
The
People's Republic of China has agreed to give Nepal
economic assistance am ounting to 60 million Indian
rupees, one-third in the form of foreign exchange
grants and the rest in m achinery and supplies needed
for various development projects.
3 O n 27 October 1956
vest Rs 30 m illion in the
not included in the d ra ft
k W has been in operation
it was announced th at India w ould in T risuli pow er project near K athm andu,
Plan. A therm al pow er p lant of 1,688
since May 1956.
4 Including 630 prim ary, 126 m iddle and 100 high schools.
T h e various existing colleges and a new engineering school were
to be integrated u n d e r the University of N epal. A scientific research and developm ent institute was also to be established.
5 O f the 170 m illion m o h u r increase in governm ent revenue
over the five-years 75 m illion m o h u r is seen as needed to m eet the
annual curent budget deficits.
C h ap ter 16
PAKISTAN
PRODUCTION AND DEVELOPM ENT
Food production, exports, the development effort
and the financing of defence have been outstanding
problems in P ak istan's economic life. In 1 9 5 5 /5 6 1,
the food situation again caused anxiety,2 owing to
widespread flood dam age to crops, which necessitated
imports of large quantities of rice and wheat and
raised the cost of living considerably in East Pakistan,
a food deficit area. However, export earnings rose
beginning in late 1955 and, because of strict import
control on non-essential items, could be used in part
for financing food imports.
Devaluation and the
consequent larger paym ents surplus, together with the
sizable government deficit, expanded the money
supply, but external aid and, to some extent, an
increase in industrial production helped to ease the
upward pressure on prices.
A GRICULTURE
The food situation, considered satisfactory during
1954/55, gave rise to serious concern in 1955/56,
owing to the occurrence of severe floods in late 1955
followed by hailstorms and unfavourable rains in the
succeeding months. In certain areas, insect pests and
drought also dam aged the crops. Cereal production
was 8 per cent below that of 1954/55. Rice output,
estimated at 12.8 million tons, was about the same
as in 1954/55, while wheat output at 3.2 million tons
was 14 per cent lower than in 1954/55.3 Rice and
wheat prices, which had been fairly low during
1954/55, started rising about September 1955. In
June 1956 the average wholesale prices of these grains
in Chittagong were m ore than 80 per cent higher
than a year before.
In implementing its development program m e,
Pakistan has heretofore placed great emphasis on
industry, which was practically non-existent at the
time of partition. The development of m anufacturing
industries du rin g the last few years has been very
rapid and striking, despite occasional shortages of
power, spare parts and raw materials, and some
under-utilization of capacity. The P lanning Board
recommended in its draft Five-Year Plan that from
1 955/56 to 1 9 5 9 /60 emphasis should shift from the
establishment of new industries to the consolidation of
those already established, and that first priority should
be accorded to agriculture, which had been lagging
in recent years, with a view to ensuring adequate food
production and earning sufficient foreign exchange
from the export of raw materials. The Plan set a
target increase of about 20 per cent in national income
and 12 per cent in per capita income in five years,
to be achieved with the help of an investment p ro gramme of 11.6 billion Pakistani rupees— about 70
per cent to be for public investment and m ore than
one-third from external sources.
In order to ensure a regular supply of staple
food grains at reasonable prices, government stocks
(already drawn on during the previous crop year)
were released in large quantities, at subsidized prices
in the case of rice. In West Pakistan the food grain
procurem ent drive was intensified and wheat procurement prices raised in order to encourage production.
The rice surplus was moved to East Pakistan, where
statutory rationing was introduced in nineteen towns,
with arrangements for modified rationing in rural
areas. Exports of rice abroad were banned, and
imports of rice and wheat were arranged.4 As a
result, the food situation improved after mid– 1956.5
Except for the years of Korean hostilities,
1955/56 was in general considered the best post-war
3 FA O figures quoted here differ, however w ith those supplied
by the Governm ent.
4 T h e United States agreed to supply 168,000 tons of rice and
127,000 tons of wheat. A nother 15,000 tons of rice was procured
from India. By the end of July 1956, about 252,000 tons of rice
(including 78,000 tons from W est Pakistan) has been imported
into East Pakistan and, by the end of June, about 94,500 tons of
w heat has been im ported into W est Pakistan.
5 A ttem pts to control recurrent floods have been undertaken in
several ways. Extension of the K alapani em bankm ent in the
R angpur district in East Pakistan, w hich is expected to protect a
crop-grow ing area of about 135 square kilometres from the
ravages of the river Jam una, has been taken in hand by the
N ational Flood Commission. T h e provincial governments have,
on the advice of the Central G overnm ent, established separate flood
commissions assisted by full-tim e flood control organizations. T he
commissions have been entrusted w ith the tasks of (1) assessing
the flood problem s in their provinces and subm itting their recom m endations in connexion w ith flood relief and flood control, (2)
form ulating comprehensive program m es for surveys, (3 ) collecting
necessary data for devising flood control measures and (4 ) exam ining the question of evolving a flood w arning system.
1 T h e crop year is from July to June.
2 Production of food grains in Pakistan is precarious. Since
W est Pakistan is largely desert, w ith little rainfall, and East Pakistan is largely delta, w ith too m uch rain and w ater in the w et
season, the country is apt to suffer from natural disasters w hich
can easily upset the balance between food production and consum ption. W hen nature favours Pakistan w ith good crops, and
export m arkets are favourable, the country enjoys both a high
consum ption level and an am ple supply of foreign exchange and
public savings, w hich can be m obilized for economic developm ent.
This was the case d u rin g the boom a ttendant upon K orean hostilities. W hen floods, droughts, locusts and other insects cause
crop failures, and coincide w ith bearish export m arkets, the country sustains heavy strain both in m aintaining consum ption and in
financing economic developm ent; prices are high and the payments
position becomes unfavourable; the need of external aid is greater.
This was the situation d u rin g 1951/52 and 1952/53.
147
148
year for m ajo r non-food crops, notably jute and
cotton. The total area under cotton, 1.43 million
hectares, was 11 per cent higher than a year before,
though the rise in output was only about 9 per cent,
owing chiefly to flood damage. The crop of 1.74
million bales,1 together with unsold carry-over stocks,
provided a total supply of 1.80 million bales as against
1.69 million in the preceding season. Jute production,
despite some dam age from floods, was estimated at
5.6 million bales,2 or 20 per cent higher than in the
previous year, on an acreage estimated at 661,000
hectares, or 31 per cent higher.
Conscious of the inherent danger of the substitution of other fibres and paper for jute, the Government
has endeavoured to m aintain a competitive price for
jute on the world m arket but at the same time to
There was an
ensure a fair return to growers.
ample supply of jute at reasonable prices during the
1955/56 season, and this situation was expected to
continue in the following season. The production
target for 1956/57 has been set at 5.5 million bales
(the original target for 1 9 5 5 /5 6 ), taking into
consideration the carry-over from the previous crop
and prospective world demand.
Among other agricultural items, sugar-cane and
tobacco output declined in 1955/56, while tea and
tobacco and wool production ju st about m aintained
the levels of the previous year.
Agricultural output has grown only slightly
during the post-war period as a whole. Food production has increased by one per cent per year on the
average, total agricultural production slightly less.
In 1955/56, production of all agricultural commodities
was 9 per cent above pre-war (1936– 1938) and food
production 14 per cent above.
On a per capita
basis, however, even food production was 9 per cent
below pre-war levels. Yields per hectare of m ost food
crops have not risen, the increase in food production
being generally achieved throug h cultivation of new
acreage.
The high priority given to agricultural development in the draft Five-Year Plan in p art reflected
the consideration that exchange earnings can be
increased in the short run prim arily through a rise
in exports of raw materials. A bout one-third of
planned public expenditure was to be devoted to
agriculture, including village aid, irrigation, reclam ation and drainage program m es, forestry and anim al
husbandry.
The P la n called for a 13 per cent
increase in food grain production and larger increases
in the output of jute, cotton, oil-seeds, sugar-cane,
fruits and vegetables, to be achieved largely through
a rise in yield per hectare and partly through an
l O n e b a le o f c o tt o n w e i g h s 3 9 2 p o u n d s o r 178 k g .
2 One bale of jute weights 400 pounds or 182 kg.
P a r t II.
C ountry Surveys
extension of the area under cultivation. Provision
was m ade for research in im proved varieties of crop
and for rapid adoption of the best varieties known.
The yearly consum ption of chemical fertilizers, about
51,000 tons, was expected to expand, with government
subsidy, to over 254,000 tons. Effective control of
insect pests and plant diseases, which have caused
losses averaging from 5 to 15 per cent of the total
annual value of crops, was to be achieved by strengthening the extension services.
Mechanization of
agriculture was to be on a limited scale, in view of
considerable ru ral unem plpym ent and under-employm ent and a shortage of foreign exchange. About
1.2 million hectares, or 6 per cent of the existing
area under m ajo r crops, was to be brought under
cultivation durin g the period of the Plan.
Because of the p articular im portance to Pakistan
of the development of water resources for irrigation,
flood regulation and drainage (and also for hy d ro electric power generation and transport) as a way,
am ong other things, of increasing the agricultural
yield and expanding the cultivable area, the Plan
endorsed various water resources development projects
already under way and provided for additional
projects.3 Other agricultural development items in
the P lan included soil conservation, crop rotation,
storage, range m anagem ent, land reform , village aid,
ru ral credit and co-operation, anim al husbandry,
forestry.
I NDUSTRY
Industrial production continued to gain significantly in 1955/56, rising by 22 per cent over
1954/55.4 The most notable increase was in leather
industry, by 164 per cent for upper leather and 78
per cent for sole leather. There was 6 to 10 per cent
increase for rubber tires and tubes, cotton cloth,
cotton yarn and sugar; 10 to 15 per cent for
vegetable oil, tea and electric power; 30 to 40 per
cent for safety matches, silk and artificial silk and
jute m anufactures.
Since partition, industries have developed rapidly
in Pakistan. Between 1949/50 and 1954/55 the share
of national income (at constant prices) contributed
by m anufacturing rose from 6.4 to 8.3 per cent.
The country has achieved self-sufficiency in a num ber
of m anufactured consum er articles and has been able
3 Planned w ater developm ent projects to be carried o u t during
1956-1960 were expected to (a) irrigate an additional 1.1 m illion
hectares and im prove existing irrigation facilities for 1.3 m illion
hectares, w hich together, represent 27 per cent of the total area
irrigated in 1955, and (b ) benefit 570,000 hectares by flood re gulation and drainage measures, o r 1.8 times the area so im proved
in 1955. W hen finally com pleted, these projects were expected to
result in 2.6 m illion additional irrigated hectares, 5.2 m illion
hectares w ith im proved irrigation facilities a n d 870,000 hectares
benefited by flood regulation and drainage.
4 According to the unw eighted index of industrial production
covering 17 m ajor industries, w ith 1950 as base.
Chapter 16.
Pakistan
to develop an export potential in some m anufactured
goods. Expansion of capacity, however, appears to
have slowed down since late 1955, judging by the
reduction in m achinery im ports.1 W hile the Government particularly encouraged the establishment of
new industries during the first stage of industrialization, a second stage has begun in which main emphasis
is to be placed on the consolidation of industries
already established.
The availability of m any kinds of raw material,
and the desire to diversify its economy so as to be
less vulnerable to the instability of foreign dem and
for its prim ary exports and less dependent on foreign
supplies of m anufactured products, led Pakistan to
launch its vigorous program m e of industrialization.
Several factors contributed to the success of this drive.
The very large foreign exchange earnings m ade
possible du ring K orean hostilities, coupled with the
fact that the Pakistani rupee had not participated in
the general devaluation movement in September 1949,
furnished an incentive for im porting substantial
am ounts of m aterials and equipm ent required for
establishing local industries. Tax relief was granted to
local investors and a repatriation guarantee extended
to foreign investors. When the boom subsided, the
imposition of strict im port control and the introduction of a protective tariff gave the movement further
impetus. In order to overcome the serious deficiency
in private initiative, investment and entrepreneurship,
the Government in 1952 set up the Pakistan Industrial
Development C orporation (P ID C ) to prom ote im portant industries. In the past four and a half years,
this corporation completed 26 industrial projects
(including jute, paper, sugar, fertilizer and cement
factories) involving a capital expenditure of Rs 494
million. Nineteen other projects, including newsprint,
dyestuffs, chemicals, and other products, were under
way.2
The textile industry has m ade particularly
spectacular progress. Installed cotton spindles on 31
M arch 1956 num bered approxim ately 1.7 million or
ten times those in 1947, and the num ber of looms
was approximately 26,000 or over five times th at in
1947. This rapid expansion in installed capacity has
not only m ade the country self-sufficient in coarse and
m edium varieties of cotton cloth but has also m ade
sizable quantities of cotton yarn and cloth available
for export,3 largely to H ong Kong. A stage was
reached where greater emphasis could be laid on the
1 T h e value of m achinery im ports, having reached a peak a n nual a m ount of Rs 360 m illion in 1954 and the first nine m onths
of 1955, fell to an annual rate of Rs 170 m illion from October
1955 to July 1956. If the devaluation of the Pakistani rupee at
the end of July 1955 is taken into account, it is evident th at the
quantity of m achinery im ports fell even m ore.
2 T h e total governm ent investm ent through the PID C in all
those projects up to 30 Septem ber 1956 am ounted to Rs 404
million, while private reached investm ent Rs 243 million.
149
production of fine and superfine yarn and cloth, for
which 250,000 existing spindles have been set aside
for spinning long-staple cotton im ported under the
United States surplus commodity aid program m e.
In 1956, Pakistan had fifteen woollen mills, with
19,600 worsted and 13,700 woollen spindles, and h ad
thus become not only independent of im ports of
woollen and worsted m anufactures, except for some
very special types, but also able to undertake some
exports.
In jute m anufacturing, the PID C ahs so far set
up 11 jute mills com prising 6,500 looms with a total
investment of Rs 186 million, of which Rs 60 million
was contributed by the PID C and the balance by
private capital. Installation of another 1,000 looms
was under way.
P aper production reached 25,000 tons in 1956
and b oard p ap er production 3,800 tons. Prelim inary
surveys have been completed for the establishment
of a newsprint factory with an annual capacity of
23,000 tons of new sprint and 12,000 tons of
mechanical paper.
A new cement factory, with an annual production
capacity of 122,000 tons, started functioning in
Jan u a ry 1956; this capacity was expected to be
doubled by the addition of another plant scheduled
to commence operaitons by the end of the year.
A nother factory, with a total capacity of 102,000 tons
a year, began to produce in M arch 1956.
The
country’s cement production reached self-sufficiency
with respect to current requirements.
A sugar mill in West Pakistan with a total daily
capacity of 1,500 tons started operation in May 1956.
The first phase of the schemes for establishing a
ship-repair and shipbuilding yard in K arachi has
been completed. This yard can undertake construction of ships up to a deadweight tonnage of 3,000,
besides repairs to ocean-going vessels.
3 T h e developm ent of cotton textile industry can be indicated
by the rapid increase in domestic mill consum ption of cotton and
the decrease in the export of cotton as show n in the table below
(in thousands of tons):
Year
P r o d u c tio n a
C o n s u m p tio n by
local m ills
E x p o r ts
216
1950 ..........................
221
18
1951 ..........................
264
27
2 20
33
246
1952 ..........................
251
319
59
282
1953 ..........................
256
111
142
1954 ..........................
284
154
1955 ..........................
168
..
309
1956 ..........................
154b
Source: Production figures are from FAO, consum ption and
export figures are from Central Statistical Office of Pakistan,
Statistical B ulletin.
a Referring to crop year ending July of the year stated.
b A nnual figure based on m onthly rate from January to September.
150
In 1955 and 1956 several other industries also
recorded significant gains and helped the country to
achieve self-sufficiency— or nearly so— in art silk
fabrics, matches, soap, edible oils, foot-wear, leather
goods, paints and varnishes, plastic m anufactures,
cycle parts, rubber tires and tubes, tin containers,
electric fans and lamps, sanitary fittings, certain
categories of m achine tools and other items. Am ong
the projects scheduled to start operations during
1956/57, mention may be m ade of a fertilizer factory,
a sugar mill, a penicilin plant and a dry dock at
Karachi.
Shortage of fuel and power has presented great
difficulties in Pakistan. The installed electric power
capacity is small,1 and coal production is also limited.
To meet the pressing demand, a priority program m e
of power development has been drawn up and put
into execution.2 At the end of 1955 the total installed
capacity including that owned by industry was 343,000
k W ; it was expected to rise to 400,000 kW by the
end of 1956.
Coal production during the past three or four
years has remained more or less static at 500,000 to
600,000 tons per annum. The type of coal produced
is of inferior quality and is in limited demand, having
so far been utilized only in brick burning, lime
burning, glass furnaces, steam raising and generation
of mechanical power in textile mills, ginning factories,
ice plants and similar plants.
Some successful
experiments have, however, been conducted for its
use in locomotives.
Prospecting for petroleum and n atural gas
continued. Although no new reserves of oil have
been found, extensive pools of n atural gas have
been discovered. The one discovered at Sui is a
m ajo r resource. The am ount of gas available is
estimated sufficient to supply 2.8 million cubic
metres a day, or equivalent in heating value to
approximately one million tons of coal a year for a
period of 60 years. Upon completion of a pipeline
of 563 kilometre long, n atu ral gas from Sui was
m ade available for industrial consumption in K arachi
in September 1955, and to consumers in H yderabad
1 T h e total generating capacity in Pakistan a t the tim e of
partition was only 77,700 kW , or 5.5 per cent of the total generating capacity of the entire sub-continent. T h e first industrial conference in Decem ber 1947 recom m ended an increase in total
generating capacity to 500,000 k W w ith in five years.
2 A m ong the hydroelectric projects sanctioned, three m inor p ro jects a t M alakand, D argai and Rasul in W est Pakistan, w ith a
total com bined capacity of 52,000 kW , have been completed.
M ajor projects at W arsak (160,000 k W ) and M angla (300,000
k W ) in W est Pakistan and K aruafuli (80,000 kW , first stage) in
East Pakistan have been u n d e r construction. T h e therm al pow er
projects a t Chittagong, K hulna and Sidderganj in East Pakistan
and a t L yalpur, H yderabad and Karachi in W est Pakistan, w ith
a total com bined capacity of 140,000 kW , were nearing com pletion. A therm al pow er station based on Sui natural gas, w ith a
capacity of 105,000 kW , has been u n d e r construction a t M ultan
in W est Pakistan; the first set, o f 35,000 kW , was expected to go
into operation in 1958.
P a r t II.
C ountry Surveys
and Sukkur later. A pipeline from Sui to Multan has
been sanctioned to supply natural gas fuel to electric
generating plants and iron and steel works.3 Recently,
a pool of natural gas has also been discovered in
Sylhet in East Pakistan.
The gas is superior in
quantity to Sui gas and is available in sufficient
quantity to meet the requirem ents of East Pakistan
for 30 years. Plans to utilize this reserve are under
consideration of the Government.
The only refinery in the country has a capacity
of 734 tons a day, which is sufficient to process oil
produced in West Pakistan.
The rapid expansion of industries processing
local m aterials has been accom panied by slower
development not only of power but of auxiliary
industries. In a num ber of cases, plants have operated
at less than capacity for want of power, raw
materials, spare parts, packing m aterials and other
necessary items, m ainly the result of the shortage of
foreign exchange.4 One of the m ain objectives in
developing these industries is, of course, to save
foreign exchange by substituting imports, and also,
to some extent, to earn foreign exchange by expanding
the m anufacture of exports. However, the establishm ent and operation of industries to save and earn
foreign exchange requires foreign exchange expenditure on capital equipm ent and spare parts, and to
some extent also on raw and semi-finished materials.
The development of exchange-earning industries, for
example jute and cotton textiles, tends to reduce the
export availability of the raw m aterials— cotton and
jute. The shortage of foreign exchange has been
sufficiently acute so that a substantial further
expansion of the investment program m e, especially
in the industrial sector, has tended to curtail the
availability of foreign exchange for operating existing
installations.
Productive efficiency has not apparently kept
pace with the rapid growth of industries, and it has
been realized that ability to compete will require
further attention to the cost factor, both for exports
and in industries producing substitutes for imports.
While devaluation helped to ad just the cost structure
in the sense that it m ade im ported items m ore
expensive in relation to local labour and furnished an
incentive for the m ore economical use of capital
goods, the need for higher productivity has remained.
" Serious attention should be paid to the problem of
rationalizing the cost structure of domestic industry,
as only thus can the real benefits of industrial progress
be passed on to the consumers."5
3 T h e next find of gas is located at U dh, 51 kilom etres away
from Sui. T his too adm its of economic exploitation as a fuel.
4 P lanning Board, First F ive-Year Plan, 1955-60 (D r a ft), vol.I
(K arachi, May 1956), p p .84, 485.
5 Speech delivered by Mr. A bdul Q adir, G overnor, State Bank
of Pakistan, at the eight annual general m eeting, on 7 September
1956, published by the State Bank of Pakistsan, p .6.
C h a p te r 16.
P a k ista n
151
T a k in g these v a rio u s fa c to rs into account, the
P la n n in g B o a rd p ro p o se d in th e d r a f t Five-Y ear P la n
th a t in d u s tria l develo p m en t b e fu r th e r ad vanced, b u t
in a m o re b a la n c e d m a n n e r, th r o u g h fuller use of
existing in d u s tria l c a p a c ity a n d d evelopm ent of new
p rojects of h ig h p rio rity .
S u b sta n tia l increases in
in d u stria l re se a rc h a n d a rra n g e m e n ts fo r im p ro v in g
p ro d u c tiv ity were p ro v id e d fo r in the P la n . A large
expan sio n of th e p r o g r a m m e to assist sm all a n d
cottage in d u strie s was also included.
C h a r t 19. P a k is ta n : Q u a n t i t y a n d Unit V alue
of Exports of Raw C o tt o n a n d J u t e
TRADE AND PAYM ENTS
E XPORTS
In spite of r a p id in d u stria l developm ent, in 1955
the e x p o rt value of ra w m a te ria ls a n d a rtic le s largely
u n m a n u f a c tu r e d still acco u n ted fo r a b o u t 85 p e r cent
of the to ta l e x p o rt value, a n d the im p o rt value of
articles w holly o r m a in ly m a n u fa c tu re d accounted for
m o re th a n 75 p e r cent of the total im p o rt value.
A b o u t 75 p e r cent of the to tal e x p o rt value was
c o n trib u te d by ra w ju te (a b o u t 4 7 p e r cent) a n d
raw cotton (a b o u t 28 p e r c ent) d u r in g the two a n d a
h a lf years e n d in g J u n e 1956. T h e ch a n g e s in e x p o rt
p rices a n d q u a n titie s of these two m a jo r com m odities
were largely re spon sib le fo r th e fluctuations in total
e xp ort proceeds.
I n m id -1955 th e u n it value indices of ju te a n d
cotton e x p o rts a g a in fell alm ost to the low level of
1953, only one-half of the 1951 peak. A fte r d e v a lu a tion a t the end of Ju ly 1955, th e rup ee p rices of
m a n y e x p o rt co m m o d ities rose co n sid e ra b ly , th o u g h
the d o lla r p rices fell. In Ju ly 1956 the u n it value of
ju te e x po rts in term s of rupees was a b o u t 45 p e r
cent h ig h e r th a n a y e a r before, a n d t h a t of raw cotton
a b o u t 30 p e r cent h ig h e r.
T h e d o lla r u n it value of ju te a n d cotton e x po rts
g ra d u a lly rose soon a fte r the d e v a lu a tio n : th a t
for cotton h a d n o t reco vered to th eir fo rm e r level by
A ugust 1956 b u t th a t for ju te a lre a d y exceeded the
July 1955 level in J u n e 1956.
T h e re d u c tio n in
d o llar p rices d u r in g this in te rv a l ten ded to p u sh up
sales of j u t e a n d cotton a b ro a d . In c re a se d b id d in g ,
together w ith the availa b ility of large stocks fro m
the carry -o v e r of p re v io u s c ro p s a n d the g re a te r o u tp u t
of the 1 9 5 5 /5 6 c ro p (stim u la te d som ew hat b y the
increase in ru p e e p r ic e s ) , resulted in a su b sta n tia l
rise in the q u a n tity of exports, of a b o u t o n e -th ird for
raw ju te a n d over one-half fo r ra w cotton, d u rin g
O ctober 1955 to M a rc h 1956, c o m p a re d w ith th e
c o rre sp o n d in g p e rio d a y e a r e arlier.
A fte r A p ril
1956, how ever, e x p o rt q u a n titie s declined sub stantially,
ow ing m a in ly to the e x h a u stio n of c u r r e n t o u tput
and p a rtly to th e g r a d u a l rise in d o llar p rices. It
was n o t c lear w h e th e r th e stim u lu s fro m d e v a lu atio n
w ould p ro v e sho rt-lived o r w o uld last fo r a n o th e r
c rop season, o r even longer.
A m o n g m a jo r e x p o rt com m odities, in th e p e rio d
fro m J u ly 1955 to J u n e 1956, only raw cotton, w ith
an increase of 57 p e r cent as a g a in st the p receding
tw elve-m onth p erio d, e x p a n d e d its e x p ort value in
te rm s of rupees by m o re than the 4 4 per c e n t1
re q u ire d to m a in ta in a con stant am o u n t of export
proceeds in dollars. T h e rupee e xport value of raw
ju te , ra w wool, a n d hides a n d skins rose between 36
a n d 39 p e r cent in each case; increased use of raw
m a terials in dom estic industries appeared, a m o n g other
factors, to have prevented it fro m risin g higher.
T he rup ee e x p o rt value of tea fell by a b o u t two-fifths
ow ing to a m a rk e d increase in dom estic consum ption,
a sizable decrease in dom estic p ro d u c tio n , a n d a sharp
fall in the w orld p rice consequent on a rise in w orld
p ro d u c tio n .
Several oth e r m ea sures w ere tak en d u rin g
1 9 5 5 /5 6 to stim ulate exports, largely in connexion
w ith in d u stria l developm ent. T h e E x p o rt Incentive
Schem e ex p ire d at the end of Septem ber 1955, but
was w idened a n d re n a m e d the E x p o rt P ro m o tio n
S chem e; originally effective until the end of Septem ber
1956, it was exte n d e d fo r a n o th e r year. U n d e r the
new p lan, e x p o rte rs of 67 p rim a ry com m odities were
entitled to o b ta in im p o rt licences up to 15 p e r cent
of th e ir fo re ig n ex c h a n g e ea rn in g s, fo r use against
im p o rts of 4 6 specified item s; while exporters of
m a n u fa c tu re d goods w ere allowed to utilize 25 p e r
cen t of th e ir e x p o rt p ro c e e d s to p a y fo r im p o rts of
t r a n s p o r t e q u ip m e n t, m a c h in e ry , ra w m aterials a n d
p a c k in g p ro d u c ts n eed ed in the in d ustry.
U nder
the scheme, a re b a te on im p o rt d u ty was allowed
1 T h a t is, the difference
rupees to the dollar.
between
3.31
and
4.76
P akistatni
P art II.
152
in the case of all ra w m a te ria ls used in th e m a n u fa c tu re of goods fo r e x p o rt, in o r d e r to p ro v id e
fu rth e r e n c o u ra g e m e n t to p ro d u c tio n fo r e x p o rt.1
T he to tal ru p e e v alue of e x po rts fo r J u ly 1955
to J u n e 1956 show ed an in crease of 4 6 p e r cent, to
R s 1,783 m illion, over J u ly 1954 to Ju n e 1955, as a
result of a 17 p e r c e n t increase in q u a n tity a n d a
21 p e r cent rise in e x p o rt prices in te rm s o f rupees.
T h e total d o lla r value of e x p o rts in c re a se d slightly.
C h a r t 20.
(a )
C o u n tr y S u rveys
P a k i s t a n : V a l u e a n d Uni t V a lu e
of T r a d e
V alue of I m p o rts a n d E x p o rts
(M o n th ly av e ra g e s)
I MPORTS
T h e u n it value of im p o rts rose sh a rp ly a fte r
devaluation. I n th e fo u rth q u a rte r of 1955, it was
m o re th a n 50 p e r cent h ig h e r th a n in th e second
q u a rte r, a n d it c o n tin u e d a t th a t h ig h level. F o r the
y e a r J u ly 1955– J u n e 1956 as a whole, im p o rt p ric e s
rose by 4 9 p e r cent as c o m p a re d w ith the p re c e d in g
year, b u t th e total v a lu e of im p o rts, at Rs 1,244
m illion, increased b y only 13 p e r c en t; the q u a n tity
( a s well as th e d o llar value) a p p e a re d to have
d ecreased by m o re th a n 25 p e r cent.
In spite of som e increase in d o llar e a rn in g s fro m
exports, there h a s been no significant re la x a tio n in
im p o rt control. In the face of u n c e rta in ty a b o u t the
f u tu re of e x p o rt m a rk e ts a n d th e possible need for
food im ports, a n d of c o n tin u e d d e m a n d fro m
in d u stries fo r foreign exchange outlays, co n tro ls on
im p o rts of c o n su m e r goods re m a in e d u n c h a n g e d in
general, a lth o u g h ru p e e im p o rt ceilings fo r essential
c o nsum er goods, like d ru g s a n d m edicines, w ere ra ise d
in o rd e r to e n su re th a t th e ir d o llar ceilings w ould not
be lowered.
M eanw hile, th e supply u n d e r U n ite d
States a id p r o g ra m m e s of som e c o n su m e r goods,
in c lu d in g cotton piece-goods, lessened the p re ssu re
exercised by im p o rt control. D isc rim in a tio n in im p o rt
licensing a g a in st im p o rts from the d o lla r a re a was
practically elim inated.
In o r d e r to give effect to
the new in d u stria l policy of e n s u rin g full use of
installed capacity, h ig h p r io r ity was assigned to
im p o rts of sp are p a r ts a n d raw m aterials. Steps w ere
also taken to sim plify the issue of licences by b a sin g
im p o rt q u o ta s of in d u stria l ra w m a te ria ls on installed
ca p acity a n d p e rfo rm a n c e .
F o r Ju ly 1955 to J u n e 1956, while the rup ee value
of c o m m e rc ia l im p o rts of m a c h in e ry a n d t r an s p o rt
eq u ip m e n t fell fro m th e ir 1 9 5 4 /5 5 level by 17 p e r
cent, th a t of c ru d e m a te ria ls an d fuels a n d allied
m a te ria ls inc re a se d a b o u t 40 an d 50 p e r cent,
respectively, reflecting the p rio rity acc o rd e d to full
utilizatio n of e x isting in d u stria l e q uipm en t. C o m m e rcial im p o rts of chem icals a n d m a n u fa c tu re d c o n su m e r
g o od s ro se in ru p e e v alue b u t declined in q u a n tity ,
in creased dom estic m a n u fa c tu re evidently help in g to
b r in g a b o u t this decline in a n u m b e r of cases.
1 T his concession was to be available, however, only in cases
w here the im porter was both m anufacturer and exporter of the
product exported.
B ALA N CE O F PA Y M ENTS
B ecause of th e in c re a se in ru p e e e x p o rt value,
w h ich o u tw eighed th e slig ht in crease in ru p e e im p o rt
value, th e p o sitive b a la n c e in th e c u r r e n t acco u n t
(e x c lu d in g a id im p o rts) rose fro m R s 3.5 m illion in
the p e r io d fro m J u ly 1954 to J u n e 1955, to Rs 350
million in th e c o rre s p o n d in g p e rio d of 1 9 5 5 /5 6 . In
te rm s of dollars, th e su rp lu s rose fro m a little over
$1 m illion to a b o u t $70 m illion. T h e te rm s of tra d e
fo r the p e rio d J u ly 1955 to J u n e 1956 d e te rio ra te d
b y 15 p e r cent c o m p a re d to the c o rre s p o n d in g
p e rio d of 1 9 5 4 /5 5 ; they showed, h ow ever, a ten d e n c y
to recover d u r in g J a n u a r y – J une 1956. T h e im p ro v e m e n t in the c u r r e n t a c c o u n t was du e p a rtly to the
rise in fo re ig n exc h a n g e e a rn in g s, a n d p a rtly to lower
p a y m e n ts in te rm s o f d o lla rs fo r im p o rts o u t of the
c o u n tr y ’s own foreig n exc h a n g e reso urces. T h e latte r
w ere m a d e possib le to som e extent by the flow of
goods u n d e r the U n ite d States C o m m o d ity A id
P ro g ra m m e .2 T h e re was also re c o rd e d a n e t inflow
of R s 97 m illion in fo reig n investm ent. T h e gold a n d
foreign exchange h o ld ings of the State B a n k increased,
fro m $327 m illion a t the end of J u n e 1955 to $390
m illio n a t the end of Ju n e 1956 (h ig h e r th a n th a t
at th e e n d of 1950, d u r in g the K o r e a w a r c o nflict),
in d ic a tin g a su b sta n tia l im p ro v e m e n t in the balance
of pa y m e n ts.
T h e b a la n c e of p a y m e n ts position,
how ever, d e te rio ra te d d u r in g th e t h i r d q u a r te r of
1956, on ac c o u n t of seasonal decline in th e volum e
2 T h e value or im ports u n d e r the U nited States C om m odity
Aid Program m e can be indicated by th e rupee deposits accruing
to the State Bank of Pakistan against these im ports. T hese deposits
deposits am ounted to Rs 186 m illion (roughly $40 m illion) in
1955/56 com pared w ith only a negligible a m o u n t d u rin g the
previous year.
C h a p te r 16.
153
P a k ista n
of ex p o rts a n d su b sta n tia l in c re a se in im p o rts of
fo o d g rain s. T h e gold a n d fo re ig n exchang e h o ld in g s
of th e S tate B a n k d e c re a se d to $ 3 74 a t the e n d of
S eptem b er a n d fu rth e r to $360 m illion at the end of
N ovember.
F IN A N C E A N D P R IC E S
P UBLIC FINANCE
T h e re has been a m o d e ra te increase in revenue
receipts of the C e n tra l G ov ernm ent.
A c c o rd in g to
the reclassified fig u re s1 th e revised e stim ate for
1 9 5 5/5 6 ,2 Rs 1,311 m illion, re p re se n te d an in crease
of Rs 82 m illion over 1 9 5 4 /5 5 ; re v e n u e budgeted
for 1 9 5 6 /5 7 w as R s 1,345 m illion.
T h e increase
in revenue in 1 9 5 5 /5 6 w as largely in ta x receipts,
especially cu sto m s du ties
and
tra n sa c tio n
and
c o n su m p tio n taxes, re su ltin g fro m a su b sta n tial
rise in the total ru p e e v alue of im p o rts a n d exports.
C ustom s duties a cco u n ted fo r alm ost one-half of th e
total tax revenue in 1 9 5 5 /5 6 , tra n sa c tio n a n d c o n su m p tio n taxes fo r over one-fourth , a nd taxes on
income a n d w ealth f o r over one-fifth.
T he 1 9 5 6 /5 7 b u d g e t d id n o t p ro p o se a d d itio n a l
tax ation , a n d it c o n tin u e d e a r lie r p ro v isio n s f o r relief
a n d concessions in co nnexio n w ith b o th d irect an d
in d irect ta x a tio n , w ith a view to lig h te n in g the tax
b u rd e n a n d e n c o u ra g in g in d u s tria l d ev elo p m en t.3
T he value of su ch concessions w as estim ated a t R s 5.6
million.
T h e rise in tax revenue in th e 1 9 5 6 /5 7
budg et w as expected to com e fro m in creases (a ) in
custom s receipts, as a resu lt of la rg e r receipts fro m
im po rt d u ties a n d th e fa c t th a t the h ig h e r ra te s of
ex p o rt d u ty on ju te a n d cotton w ould be applicable
for th e w hole y e ar in ste a d of only p a r t o f th e ye a r
as in 1 9 5 5 /5 6 ; (b ) in excise duties, on account
m ainly of in creased p ro d u c tio n ; a n d (c) in incom e
tax yield, th ro u g h a rise in c o rp o ra te a n d in d iv id u a l
incomes.
On the e x p e n d itu re side, th e revised estim ates
for 1 9 5 5 /5 6 , a t Rs 2 ,290 m illion, exceeded ex p e n d itures in 1 9 5 4 /5 5 b y 38 p e r cent, p a rtly as a re su lt
of th e rise in th e ru p e e cost of im p o rte d supplies
a n d the ru p e e e q u iv a le n t of e x p e n d itu re s in c u rre d
a b ro a d , a ttrib u ta b le to d e v a lu a tio n . D efence e x p e n d iture, w hich a c c o u n te d fo r m o re th a n o n e -th ird of the
1 See infra, special tables J, K and L in the appendix on “ Asian
Economic Statistics”.
2 T h e fiscal year is from A pril to March.
3 A m ong indirect taxes, reductions in rates were m ade in im port duties on drugs and medicines, excise duty on coarse cloth
and sales tax on cotton yarn. In the field of direct taxation,
tax exem ption for profits u p to 5 per cent of capital value was
allowed also for small-scale industries, tax relief was given to cover
educational expenses of children in low er income families, tax
exem ption on residential houses was partly extended for an a d d itional three-year period, incom e of foreign technicians and income
from production of petroleum and natural gas were exem pted
from the tax.
total, in creased by a b o u t Rs 20 0 m illion, a n d other
c u rre n t e x p e n d itu re by Rs 114 m illion.
A n o th e r
im p o rta n t item consisted of loans a n d advances to
the p ro v in c ia l gov ern m en ts fo r flood relief m easures.
Investm ent ex p en d itu re, acco u n tin g fo r 18 p e r cent
of the total, in creased by Rs 146 m illion.
E x p e n d itu re in 1 9 5 6 /5 7 w as expected to increase
fu rther, by 20 p e r cent, w ith o u t ap preciable change
in d istrib u tio n a m o n g v a rio u s items.
Im p o rta n t
p rovisions in c ap ital ex p en d itu res fo r 1 9 5 6 /5 7 were
fo r th e developm ent of railw ays, th e C h ittag o n g po rt,
posts a n d telegraph, a n d fo r th e c o n structio n of
several w a te r a n d p o w er p rojects.
Investm en t in
P I DC p ro je c ts was estim a te d at Rs 130 m illion. In
a d d itio n , p ro v isio n has been m ad e fo r loans of R s
150 m illion a n d Rs. 130 m illion fo r the governm ents
of E a st P a k ista n a n d W est P a k ista n , respectively, fo r
developm ent, a n d of R s 20 m illion to each of them
fo r o rg a n iz in g relief w o rk a n d u n d erta k in g re p a irs
of ro ad s, b rid g e s a n d canals d a m a g e d by floods.
On the basis of the above reclassified if gures,
the 1 9 5 5 /5 6 b u d g e t of the C en tral G o v ernm en t showed
a revised estim ated over-all deficit of Rs 979 million,
c o m p a re d w ith a deficit of R s 453 m illion in 1 9 5 4 /5 5
a n d one of R s 1,413 m illion f o r 1 9 5 6 /5 7 . However,
in th e w ay the d a ta a re pre se n te d in P a k is ta n ’s
b u d g e t,4 revenue receipts show ed a sm all surplus over
revenue e xpenditure, of R s 600,000 in 1 9 5 5 /5 6
(revised estim ate) a n d Rs 5.8 m illion in 1 9 5 6 /5 7 ,
(b u d g e t estim ate) to be applied to the capital budget.
T h e latter is show n a t R s 1,122 m illion in the 1 9 5 5 /5 6
budget a n d Rs 1,274 m illion in 1 9 5 6 /5 7 .
M a jo r
sources of finance fo r these capital expenditures
include in te rn a l b o rro w in g , R s 179 m illion in 1 9 5 5 /5 6 ,
Rs 4 2 8 m illion in 1 9 5 6 /5 7 ; n et foreign aid, Rs 190
m illion in 1 9 5 5 /5 6 , R s 451 m illion in 1 9 5 6 /5 7 ; d ra w ing dow n of cash balance, Rs 51 m illion in 1 9 5 5 /5 6 ,
Rs 47 m illion in 1 9 5 6 /5 7 ; receipts a n d recoveries on
c a p ital account, R s 379 m illion in 1 9 5 5 /5 6 , Rs 29
m illion in 1 9 5 6 /5 7 .
M ONEY AND PRICES
W hile m oney supply in creased only m oderately
d u rin g 1 9 5 4 /5 5 , the increase between Ju ly 1955 and
M ay 1956, a p e a k m o n th in recen t years, w as ab o u t
22 p er cent. T h is rise was p a rtly d u e to econom ic
grow th, b u t the e x p a n sio n a ry influence of devaluation, th e pa y m e n ts su rp lu s a n d th e g o v ernm en t deficit
ap p e a re d to hav e been th e p re d o m in a n t causes. The
increase w as p a rtic u la rly ra p id d u rin g the last q u a rte r
of 1955 a n d the first q u a rte r of 1956, app a re n tly in
p a rt a seasonal p h e n o m e n o n connected w ith h ig h levels
of e x p o rt a n d b a n k credit.
4 Speech of the H o n 'ble Finance Minister and W hite Paper on
the B udget of the G overnm ent o f Pakistan for 1956/57, Karachi,
15 March 1956, p.78.
154
W hile ra isin g th e p rice s of e x p o rt cro p s, d e v a lu a tio n also in c re ase d th e m o n ey incom e of e x p o rt cro p
grow ers an d tra d e r s (p a rtic u la rly since th e o u tp u t of
m a jo r ex p o rt c ro p s also in c re a s e d ), a lth o u g h a p a r t
of th e in c re ase w as sip h o n e d off by th e G o v ern m e n t
th ro u g h h ig h e r e x p o rt duties on several m a jo r
com m odities. M eanw hile, m o re m o n ey w as re q u ire d
to su p p o rt tra n sa c tio n s a t h ig h e r p rice s fo r bo th
im p o rts a n d exports. D u rin g 1 9 5 5 /5 6 th e in c rea se in
m oney supply w as R s 69 4 m illion, as com p ared
w ith the tra d e su rp lu s o f Rs 539 m illion.
T he
in crease in loans, advances a n d bills discounted
by th e scheduled b a n k s w as a b o u t Rs 32 m illion,
reflecting in p a r t th e risin g n eed fo r w o rk in g capital
by th e g ro w in g in d u s tria l sector.
M oney supply
declined slightly a fte r J u ly a n d a t th e en d of
S ep tem b er 1956 it a m o u n te d to R s 4,563 m illion,
a b o u t 11 p e r cent h ig h e r th a n a y e a r ago.
P rice s show ed a g enerally risin g tr e n d in th is
p erio d . T h e u n it value of exp orts in te rm s of rupees
in J u n e 1956 w as 35 p e r cen t h ig h e r th a n a ye ar
a g o ; th a t of im p o rts in th e second q u a rte r of 1956
53 p e r cent h ig h e r th a n the c o rre sp o n d in g p e rio d
in 1955.1 A side fro m th e g e n e ral influence of the
1 International M onetary F u n d. International Financial Statistics,
January 1957.
P a rt II.
C o u n try Surveys
e x p a n sio n in th e m o n e y su p p ly a n d th e re d u c tio n in
th e av ailab ility of im p o rts, cro p fa ilu re s cau sed a
s h a rp rise in fo o d p rice s a n d c o s t of liv in g in some
areas. In S e p te m b e r 1956, th e cost of liv in g index
in K a ra c h i w as 5 p e r cent h ig h e r th a n a y e a r ago
a n d 9 p e r cent h ig h e r th a n in J u n e 1955, a n d th a t in
N a ra y a n g a n j 42 a n d 78 p e r c en t h ig h e r, respectively.
D ire c t m e a su re s tak en to ease th e fo o d strin gency,
to g e th e r w ith selective re la x a tio n o f im p o r t controls,
re d u ctio n of im p o rt d u ties on som e essential items,
a n d inflow of c o n su m e r g oods u n d e r th e U n ite d States
a id p ro g ra m m e , helped to re s tra in th e rise in prices.
In d u s tria l p ro d u c tio n h a s a c o u n te d fo r less than
10 p e r cent of total n a tio n a l p r o d u c t; th e re fo re , the
a d d itio n a l m o n ey incom es g e n e ra te d ha v e ten ded, in
th e absence of g a in s in p ro d u c tiv ity , to in c rea se sp e n d ing even as o u tp u t h as risen, so th a t the effect of
the ex p an sio n of in d u s tria l p ro d u c tio n in h o ld in g
dow n p ric e s h a s been so m e w h a t lim ited. N evertheless,
co m p letio n of a n u m b e r of d e v e lo p m en t p ro je c ts in
th e p u b lic a n d p riv a te sectors h a s d efinitely increased
the p ro d u c tio n of goods a n d services, a n d in c o n sequence th e su p p ly of a v a rie ty of dom estically
p ro d u c e d essential c o n su m e r g o o d s h a s show n
im provem ent.
C h ap ter 17
PHILIPPINES
T he a ccelerated tem po of econom ic developm ent,
financed by g o v e rn m e n t b o rro w in g in th e p u b lic sector
a n d c re d it ex p an sio n in the p riv a te sector, in late
1955 reversed the d efla tio n a ry tre n d th a t h a d p revailed
in the P h ilip p in e s in th e p re c e d in g th re e or fo u r
years. G re a te r e x p e n d itu re resulted a t first in su b sta n tia l im p o rt ex p an sio n a n d c o n sid e ra b le d epletion
of fo re ig n exchange reserves, a n d later, afte r the
tig h te n in g of im p o rt c o n trol, in risin g prices. D u rin g
1955 and the first h a lf of 1956, the b alance of
p ay m ents p o sitio n w o u ld h a v e been b e tter h a d the
term s of tra d e n o t d e te rio ra te d by an a d d itio n a l 10
per cent, p a rtly offsetting fu r th e r in creases in p ro d u c tion.
The
u n fa v o u ra b le
in te rn a l-e x te rn a l
p rice
rela tio n sh ip u n d e rly in g the d ise q u ilib riu m in the
b alance of p a y m e n ts h a s been a m a jo r fa c to r lim itin g
the ra te of p ro g re ss of econom ic developm ent.
U n em p lo y m en t re m a in e d h ig h — at an e stim ated 13
per cent of th e la b o u r fo rc e .1
P R O D U C T IO N A N D D E V E L O P M E N T
I n 1956, p ro d u c tio n , especially in co n stru ctio n
a n d m a n u fa c tu rin g , c o n tin u e d to rise sub stantially.
W ith the over-all eco no m ic develo p m en t p ro g ra m m e
a w a itin g P re s id e n tia l a n d C o n g re ssio n a l ap p ro v al,
w ork p ro c e e d e d on v a rio u s g o v e rn m e n t developm ent
projects p re v io u sly scheduled.
diseases3— c o n trib u te d to th e increase in food crop
p ro d u c tio n .
T h e G o vern m en t h a s a n n o u n c e d that,
upon the com pletion in J u n e 1959 of a larg e irrig a tio n
p ro g ra m m e involving the c o n structio n of 4 4 irrig a tio n
system s in 26 p ro vinces a n d expected to cost 124
m illion pesos, 250,000 h ec ta re s of a g ric u ltu ra l la n d
would be opened up fo r cultivation a n d th a t this
would m a k e th e c o u n try self-sufficient in rice.4
T h ro u g h the ex pan sion of fish p o nds, increased
m o to riz a tio n of vessels, developm ent of deep-sea
fisheries a n d — m o re recently— stricter e n fo rcem en t of
p ro h ib itio n s on the use of dy n a m ite in fishing, fish
o u tp u t ro se fro m 195,000 to n s in 1 9 4 7 /4 8 to 352,000
tons in 1 9 5 4 /5 5 a n d 387,000 tons in 195 5 /5 6 .
T h e livestock p o p u la tio n also rose, fro m 3.6
m illion in 1946 to 10.0 m illion in 1955, a n d th e
p o u ltry p o p u la tio n fro m 7.5 m illion to 46 .4 m illion
d u rin g the sam e p erio d .
F o r w ater buffalo, hogs
a n d chickens, the pre-w ar level h a s been exceeded.
T he G overnm ent w as expected to continue its policy
of im p o rtin g a b o u t 7,000 live cattle a n d buffaloes
every year, th ro u g h 1959—A u stra lia, In d ia a n d
T h a ila n d b eing the m a in sources of supply to date.
It w as p la n n e d to ban im p o rts of m eat completely,
b e g in n in g in 1960, in o rd e r to encourage dom estic
m eat processing.
On a p e r c a p ita basis, food p ro d u c tio n , although
now 4 to 5 p e r cent h ig h e r th a n d u rin g the pre-w ar
p erio d , h a s re m a in e d u n c h a n g e d d u rin g the past fou r
o r five years.
A GRICULTURE
C o n tin u in g th e p ost-w ar u p w a rd tre n d , the
a g ric u ltu ra l p ro d u c tio n in d e x rose in 1 9 5 5 /5 6 by 2
per cent above 1 9 5 4 /5 5 a n d th e cereal p ro d u c tio n
index w as 3 p e r c e n t h ig h e r. T he to ta l ha rv e ste d
a re a u n d e r food c ro p s in creased fro m 4.9 m illion
hectares in 1 9 5 4 /5 5 to 5.0 m illion he c ta re s in 1 9 5 5 /5 6 .
P ro d u c tio n of rice, th e le a d in g fo o d crop, reached
3.24 m illion to n s in 1 9 5 5 /5 6 as c o m p a re d w ith 3.20
million to n s in th e p re v io u s c ro p y ear. R o o t cro p s
ra n k e d second, w ith an o u tp u t of 1.26 m illion tons
a g a in st 1.20 m illion to n s in 1 9 5 4 /5 5 , a n d m aize th ir d
with 8 81,000 to n s as a g a in st 770,000 tons.
A m o n g m a jo r ex p o rt crops, p ro d u c tio n of raw
su g a r (b y th e centrifu g a l process) decreased, owing
to re stric tio n s on pla n tin g , fro m 1.24 m illion ton s in
1 9 5 4 /5 5 to 1.10 m illion to ns in 1 9 5 5 /5 6 . T h e c u rre n t
o u tp u t was, how ever, expected to be sufficient to fulfill
the U n ite d States a n d In te rn a tio n a l S u g a r A greem ent
quotas. C o p ra o u tp u t increased to a new post-w ar
re c o rd o f 9 6 3,00 0 tons in 1 9 5 5 /5 6 , c o m p a re d with
9 4 2,000 to n s in th e p rev io u s c ro p y e a r. P ro d u c tio n
o f a b a c a p a rtia lly recov ered on acco u n t of p rogress
in th e c o n tro l of m osaic disease.
T he N atio n al
A b a c a C o rp o ra tio n w as established fo r the p u rp o se of
develo p in g b o th p ro d u c tio n a n d m a rk e tin g of th is
fibre; th e N a tio n a l E conom ic Council recom m ended
I n a d d itio n to som e ex p an sio n in th e h arvested
area, several o th e r fa c to rs— g re a te r use of fertilizers,
new a n d im p ro v e d irrig a tio n w orks, im p ro v e d c u ltiv a tion p ra c tic e s2 a n d b e tte r c o n tro l of p la n t pests a n d
1 T h e Colombo Plan for Co-operative Econom ic D evelopm ent
in South and Southeast Asia (F ifth A nnual Report of the Consultative C om m ittee), W ellington, 1957, p . 101.
3 T h e Secretary of A griculture and N atural Resources has a n nounced that the yield of rice-fields could be increased on the
average by 43 per cent, as already demonstrated in the provinces,
th rough control of rice stem borers and other rice pests by timely
spraying of infested fields w ith effective insecticides.
2 The G overnm ent has encouraged the adoption of the “M argate system” em bodying the use of selected seeds of high-yielding
varieties, better seed beds and sim ilar practices. A gricultural credit
and agricultural extension services have also been emphasized.
4 D u rin g the first half of 1956 the Philippines im ported 13,905
tons of rice, com pared w ith 15.873 tons in the first half of 1955.
155
P a r t II.
156
the release of ଑18 m illion fro m g o v e rn m e n t b o n d
issues to finance the p u rc h a se of d e c o rtic a tin g
m a c h in e ry by p ro v in c ia l m a rk e tin g o rg a n iz a tio n s,
co-operatives a n d m a n u fa c tu re rs of finished abaca
products. T o bacco leaf o u tp u t re a c h e d 4 2 ,000 to n s in
1 9 5 5 /5 6 , m o re th a n 40 p e r cent, h ig h e r th a n in the
p revious crop y e a r;
g o v e rn m e n t e n c o u ra g e m e n t
th ro u g h g ra d u a l cuts in im p o rts, a p ric e su p p o rt
scheme, extension of am ple c re d it by the A g ric u ltu ra l
C redit a n d C o-operative F in a n c in g A d m in istra tio n
a n d p ro v isio n of w a re h o u se facilities helped s u b stantially in ach iev in g this result. P ro d u c tio n of logs
re ach ed 1,824 m illion b o a r d feet in 1 9 5 5 /5 6 as against
1,540 m illion b o a r d feet in 1 9 5 4 /5 5 .
M INING AND INDUSTRY
Coal p ro d u c tio n , estim ated at 146,300 to n s in
1956, w as expected to rise fu rth e r on com pletion of
a p ro p o se d iro n a n d steel plant.
D u rin g the first
h a lf of 1956, c o p p e r a n d c h ro m ite ore registered
m a rk e d increases in output, ow ing to increased
d e m a n d fro m a b ro a d , n o ta b ly fro m J a p a n , a n d lead
a slight increase. A slight decrease o c c u rre d in the
outp u t of iro n ore. T he gold su b sid y w h ich w as due
to exp ire in Ju n e 1956 was extended fo r two y e a rs ,
thus p rev en tin g m a n y high-cost m ines fro m closing.
A ric h seam of copper, w ith an a v erag e content
of 10 p e r cent, h a s been discovered in M in d a n a o . It
was p la n n e d to establish a com b in e d sm elter and
refin in g p la n t to p r o d u c e m etallic c o pper fro m c o n centrates n e a r T oledo, Cebu. T his p la n t was designed
to han d le 20,000 to n s of c o n c e n tra te s a m o n th a n d to
w ork initially a t h a lf c ap acity until a d d itio n a l supplies
of concentrates becom e available.
U n ite d States
G o v ern m en t experts have been stu d y in g a design fo r
a com m ercial nickel m ill w h ich w ould be capable of
exploting f o r the first tim e th e la rg e deposits of lowg rade ore in Surigao.
D u rin g th e first n in e m o n th s of 1956, b u ild in g
c o n stru c tio n — m e a su re d by b u ild in g p e rm it valu atio n
in M a n ila — show ed a 21.5 p e r cent rise over the
c o rre sp o n d in g to ta l a y e a r before. In d u s tria l c o n stru c tion w as five tim es as great. C o n stru c tio n of public
w orks, in c lu d in g irrig a tio n a n d d r a in a g e p rojects,
schools a n d
a d m in istra tiv e
b u ildings,
hospitals,
m arkets, p o rts a n d roads, h a s been accelerated. A
total of 1,960 km of feeder a n d r u r a l ro a d s was
co n stru c te d in 1956.
To m eet g ro w in g in d u stria l a n d household
d e m a n d , p o w e r g e n e ra tio n of the M anila E lectric
C o m p a n y system in creased to 668 m illion k W h in
the first nin e m o n th s of 1956, 16 p e r cent h ig h e r th a n
fo r th e c o r re sp o n d in g p e rio d a y e a r before.
M a n u fa c tu rin g p r o d u c tio n also c o n tin u e d to
increase, the in d e x fo r the first h a lf of 1956 being
17 p e r cent h ig h e r th a n fo r th e first h a lf of 1955.
T h e gain w as sh a re d by alm o st all lines of m a n u fa c tu ring except foot-w ear a n d w e a rin g a p p a re l.
S h a rp
C o u n tr y Surveys
increases w ere re g iste re d in textiles a n d metal
p ro d u c ts.
S te a d ily ris in g d e m a n d a c c o u n te d fo r
chiefly b y im p o rt re stric tio n , a sm o o th flow of raw
m a te ria ls a n d m a c h in e ry in to in d u stry , im p rov em ent
in local p ro d u c tio n m e th o d s, in c re a se d availability
of skilled la b o u r a n d b e tte r m a rk e tin g facilities
c o m b in e d to accelerate in d u s tria l p ro d u c tio n . U tiliz a tion of local ra w m a te ria ls a p p e a re d to have increased,
w hile im p o rts of ra w m a te ria ls decreased.
S ev eral new v e n tu re s h a v e b een s ta rte d w ith a
view to fu rth e rin g self-sufficiency in p a rtic u la r
pro d u c ts.
T h e G o o d ric h R u b b e r C o m p a n y started
p ro d u c tio n in m id-1956 in its new tire a n d tube
factory, w hich was expected to su pp ly 50 to 60 per
cent of the c o u n try ’s tire re q u ire m e n ts. T his, to g e th e r
w ith two o th e r fa c to rie s to be built, was expected
to m eet local re q u ire m e n ts a n d to save som e $9
m illion a n n u a lly in fo re ig n exchange.
N ew plan ts
w ere set up to m a n u fa c tu re p a in ts a n d v a rn ish , and
a lu m in iu m finished p ro d u c ts, on a scale expected to
be sufficient to sa tisfy local re q u ire m e n ts.
D EVELOPMENT
In fo rm u la tin g the 1 9 5 6 /5 7 fiscal p la n a n d the
b u dget, p r i m a r y e m p h a sis h a s been given to econom ic
developm ent p ro g ra m m e s a n d services w hich directly
a d v an ce a g ric u ltu ra l a n d in d u s tria l p ro d u c tiv ity .
P rio rity h a s been a c c o rd e d to : ( 1 ) u n d e rta k in g s
w hich significantly facilitate the o p e ra tio n of dollare a rn in g or d o llar-sav in g in du stries, (2 ) r u r a l d e velopm en t p ro g r a m m e s w hich stim u la te self-help in a c h ie v in g h ig h e r living levels a n d g re a te r fa rm p ro d u c tio n .
(3 ) p ro g ra m m e s d ire c te d to w a rd s g a in in g selfsufficiency in the p ro d u c tio n of basic foodstuffs, (4 )
activities w hich e x p e d ite the p rocess of la n d d i s t r i b u tion to the landless, a n d (5 ) facilities a n d services
w hich f u rth e r the p ro d u c tiv e p ro c e ss in g en eral, fo r
exam ple, pow er, irrig a tio n a n d flood control, feeder
ro a d s a n d w a te r tra n s p o rt. T h e allocation of funds
in th e b u d g e t is show n in ta b le 26.
T a b le 26.
P h ilip p in e s: G o v e rn m e n t E x p e n d itu re on
Incom e a n d S ocial D evelopm ent
(M illio ns o f p e so s )
Yeara
Ite m
1954/ 55
( a c tu a l)
1 9 5 5 /5 6
(p r o g r a m m e d )
1 9 5 6 /5 7
(e s t i m a t e d )
1.112
1,348
154
40
215
50
204
70
10
478
229
46
100
640
229
72
16
317
244
79
19
342
908
T otal governm ent expenditure
Economic developm ent:
A griculture and natural
resources .................................
105
C om merce and industry . . .
7
T ransportation and
comm unications .................
135
O ther economic developm ent
84
Unallocated reserve ................. —
T OTAL, economic developm ent 331
Social developm ent:
Education .................................... 217
H ealth ........................................
50
15
Labour and welfare ..............
T OTAL, social d e v e lip m e n t 282
a T h e fiscal year is from July to June.
C h a p te r 17.
P h ilip p in e s
“ T r a n s p o rta tio n
and
c o m m u n ic a tio n s”
and
“ a g ric u ltu re a n d n a t u r a l re so u rc e s” w ere the two
m a jo r fields of developm ent in the fiscal plan, each
a c c o u n tin g fo r fully o n e -th ird of th e to ta l econom ic
d evelopm ent e x p e n d itu re b u d g e te d fo r 1 9 5 6 /5 7 . In
the field of a g ric u ltu re , the im p o r ta n t p ro je c ts w ere
irrig a tio n , o th e r m ean s fo r ra is in g th e yield of basic
food crops, a n d r u r a l developm ent. In tra n sp o rta tio n ,
P93 m illion was p ro v id e d fo r the b u ild in g of 4,540
k m of feeder ro a d s ; extension of the M a n ila railw ay
line to C a g a y a n valley w as expected to m a k e this
fertile re g io n m o re attra c tiv e to settlers a n d investors
a n d to speed up its econom ic g ro w th ; the m e rc h a n t
m a rin e a n d p o rts a n d h a rb o u rs were also to be
developed.
In in d u stry , a large s h a re was allocated to pow er,
fo r com pletio n of th e M a ria C ristin a u n it No. 2
h y d ro e le c tric p ro je c t (finished a t th e e n d of 1956)
a n d th a t a t A m b u k la o a n d fo r in itia tin g several new
p ro jects, in c lu d in g M a ria C ristin a u n it N o. 3, B inga,
M a rik in a a n d I log.
T hese p o w e r facilities were
expected to e x te n d the benefits of electrification to a
la rg e r n u m b e r of r u r a l a re a s a n d increase p ro d u c tio n
of ch eap fertilizer. F u n d s w ere also p ro v id e d fo r the
N a tio n a l S h ip y a rd a n d Steel C o rp o ra tio n to establish
a p ig -iro n sm elting p la n t a n d im prove its existing steel
mills.
T h e e x p e n d itu re s b u d g e te d fo r social developm ent, a lth o u g h sh ow ing a slacked ra te of in c re a se ,
acco u n ted fo r m o re th a n one-half as m u c h as econom ic
developm ent e x p e n d itu re a n d m o re th a n one-fourth
of to ta l g o v e rn m e n t ex p e n d itu re in the 1 9 5 6 /5 7 fiscal
plan.
TRA D E AND PAYM ENTS
E X PO R T S A N D IM P O R T S
W ith the g e n e ra l in c re a se in the p ro d u c tio n of
e x p o rt com m odities, th e volum e of ex p o rts gained
su bsta n tia lly a fte r 1953; the q u a n tu m index of
exports, at 121 in 1955, rose to 133 in th e first nine
m o n th s of 1956 ( 1 9 5 3 = 1 0 0 ) , or 8 p e r cent above
the c o r re sp o n d in g p e rio d in 1955.
O w ing to the
lower level of e x p o rt prices, to ta l e x p o rt e a rn in g s
re m a in e d stable d u r in g 1954 a n d 19 55; how ever, they
rose a p p re c ia b ly , to ଑667 m illion, in the first nine
m o n th s of 1956, o r 9 p e r cent above th e c o rre sp o n d in g
p e rio d of 1955. T h e increase in the to ta l value of
exports resu lted alm ost e n tire ly fro m a rise in export
volum e. T h e u n it v alue of e x p o rts— still 17 p e r cent
below the level re a c h e d in 1953—re m a in e d c o m p a ra tively constant.
A m o n g m a jo r e x p o rt com m odities, the increase
in the q u a n tity o f e x p o rts d u r in g the first h a lf of
1956 was c o n sid e ra b le fo r c o p ra (2 7 p e r cent above
th a t of th e first h a lf of 1 9 5 5 ) , a p p re c ia b le fo r a b a c a
(1 3 p e r cent) a n d slight fo r logs a n d lu m b e r (each
157
3 p e r c e n t ) . T h e q u a n tity of su g a r ex p o rted was 17
p e r cent less.
T h e a v erag e prices of c o p ra and
s u g a r fell, while those of abaca, a n d logs a n d lum ber,
rose.
P ric e s of c o p ra a n d co conut oil co n tin u e d their
d o w n w a rd tr e n d a n d by S ep tem ber 1956 w ere about
30 p e r cent below th e ir 1953 level.
Com petition
fro m cotton-seed, soya beans, other vegetable oils and
tallow in U n ite d States and E u ro p e a n m arkets
re m a in e d severe. H ow ever, it was expected th a t the
e x p o rt p o sitio n fo r c o p ra a n d c o c o n u t oil would not
be greatly im p a ire d by revision of the tra d e agreem ent
w ith the U nited States, at least in the n e a r future.
T he p re fe re n tia l p ro cessin g ta x of $0.03 p e r pound
levied by the U nited States on P hilip p in e c o p ra (a s
a g a in st $0.05 p e r p o u n d on c o p ra from o th e r
c o u n trie s) was m a in ta in e d . In the case of coconut
oil, absolute q u o ta s were replaced by duty-free quotas
w hich were to be re d u c e d every three years until their
d isa p p e a ra n c e in 1974.
S u g a r ex p o rts a m o u n te d to 534,540 tons in the
first h a lf of 1956, of w hich 439,350 tons was exported
to th e U n ited States, a g a in st th e a n n u a l quota of
863,640 tons g ra n te d to the P h ilip p in e s.1 Since 1
J a n u a r y 1956, as in the case of other Philippine
p ro d u c ts, su g a r e n te rin g the U nited States has been
subject to a tariff d u ty of 5 p e r cent of the ord inary
im p o rt d u ty on s u g a r fro m o ther sources.
The
pe rc e n ta g e is to rise every three years until
P h ilip p in e su g a r becom es subject to the full duty in
1974. H ow ever, it will have a m a rg in of preference
over C uban su g a r until 1971, when th e d u ty levied is
to be 80 p e r cent of the full duty. A sm all gain
in su g a r ex p o rts becam e possible as the In tern atio n al
S u g a r A g reem ent p e rm itte d m e m b e r countries to
pro v id e 100 p e r cent of th e ir basic q uotas in 1956.
instead of the 90 p e r cent prveiously ag re ed upon.
Several m e m b e rs w ere unable to p ro d u c e th e extra 10
p e r cent a n d in the subsequent reallocation the
P h ilip p in e s ga in e d 3,890 to n s in a d d itio n to its basic
q u o ta of 26,000 tons. M oreover, th e Philippines is
to be allowed to b a rte r a fu rth e r 20,000 tons under
a special clause of the agreem ent which allows
m e m b e rs e n c o u n te rin g difficulties in o b ta in in g needed
com m odities to exchange su rp lu s su g a r for other
goods.2
A baca p rices have im p ro v ed substantially since
late 1955, on account of increased w orld dem a n d for
rope fo r sh ip p in g a n d sh ip b u ild in g . In the first half
1 T h o u g h in principle subject to change by the U nited States
Congress, the U nited States quota for Philippine sugar has been
frozen a t this level until 1960.
2 N o difficulty was anticipated in finding m akets for this extra
allowance. Japan has announced its willingness to take larger
supplies of Philippine sugar and there m ay be prospects of concluding rice-sugar deals w ith some other Asian countries. H o w ever, the freezing of the U nited States quota at 863,640 tons may
necessitate a continuation of planting restrictions and m ay prevent
an appreciable increase in sugar exports over the next four years.
158
P a r t I I.
of 1956 th e e x p o rt q u a n tity of a b a c a w as 13 p e r cent
hig h er th a n in th e first h a lf of 1955 w hile the e x p o rt
value increased by 30 p e r cent.
T h e e x p o rt of logs a n d lu m b e r h a s g ro w n steadily
since the end of the w a r ; th o u g h it a c co un te d fo r
little m o re th a n one p e r c e n t of the to ta l e x p o rt value
a n d w as fa r below a b a c a e x p o rt in 1949, it exceeded
the a b a c a e x p o rt figure in 1954 a n d 1955 a n d rose
to m o re th an 10 p e r c e n t of the to ta l e x p o rt value
in the la tte r year. In spite of a steep rise in fre ig h t
rates, stro n g d e m a n d was m a in ta in e d d u r in g the first
half of 1956. H e ig h te n e d b u ild in g a n d c o n stru c tio n
activity in J a p a n a n d the U n ite d States a n d a
decision of the U n ite d States G o v e rn m e n t to p e rm it
the use of P h ilip p in e m a h o g a n y in house b u ild in g
a n d fu r n itu r e m a k in g p la y e d a m a j o r p a r t in su sta in ing P h ilip p in e e x p o rts of logs a n d lu m b er.
In o rd e r to p ro m o te exports, th e G o v e rn m e n t in
S eptem ber 1955 freed e x p o rte rs of c e rta in p ro d u c ts,
u n d e r certain conditions, fro m the oblig atio n to
s u rre n d e r th e ir foreign exchange e a rn in g s to the
C en tral B ank at the official rate, p e rm ittin g them to
use im m ediately all the p roceeds fo r a p p ro v e d im p o rts
instead.1 T he licensed value of su ch expo rts, to ta llin g
଑2 4 m illion d u r in g O cto b e r 1955– Ju n e 1956, was,
however, only 4 p e r cent of th e to ta l value of exports.
C h a r t 21.
Philippines: V a lu e a n d
of T r a d e
Unit V alu e
(a ) V alue of I m p o rts a n d E x p o rts
(M o n th ly av erag es)
( b ) U n it V alue In d e x ( 1 9 5 3 = 1 0 0 )
1 Products affected by this so-called no-dollar im port law in clude: (a ) “ undeveloped” or “ under-developed” m inor products
(all products in their natural state and products whose stage of
m anufacture is not up to the standard generally required for such
and sim ilar m anufactured comm odities, whose export value prior
to 1955 never exceeded ଑1 m illion per y e a r); (b) any m ajor
export product the value o f whose surplus production is in excess
of the average annual dollar receipts d u rin g 1950-1954 in any
m arket of the w orld or over and above the quota lim itation under
international agreem ents; and (c) other local products th at cannot
be sold for dollars ow ing to inferior grade and quality or high
m arginal cost.
C o u n try S urveys
T im b e r w as the m o st p o p u la r item , follow ed by s u g a r
a n d m in e ra ls. J a p a n to o k the la rg e st sh a re , followed
by H o n g K o n g a n d the U n ite d States. T h is k in d of
b a r te r tr a d e was, how ever, re stric te d in J u ly 1956.2
In 1955, the to ta l value of im p o rts was a b o u t
2 0 p e r cent h ig h e r th a n in 1953, a n d th e q u a n tu m
25 p e r cent h ig h e r. T h e rise w a s due p a rtly to the
q u ick en ed tem po of econom ic developm ent, p a rtly to
re la x a tio n of im p o r t co n tro ls in the first h a lf of 1955
to p re v e n t p ric e in c re a se s in essential c o n su m e r item s
like sa rd in e s, c a n n e d beef, flour a n d m ilk, a n d in
som e m e a su re to a n tic ip a tio n of the p a r t i a l im position
in 1956 o f im p o rt d u ties on U n ite d S tates g o o d s a n d
of the rise in a n u m b e r of o r d in a r y ta riff rates.
In the first nin e m o n th s of 1956, as fo re ig n
e xchange allocations w ere re d u c e d because of the
su b sta n tia l d epletion of in te rn a tio n a l reserves, the to ta l
v alue of im p o rts (଑ 746 m illio n ) d ro p p e d 6 p e r cent
below t h a t in the c o rre s p o n d in g p e rio d of 1955
a n d the im p o rt q u a n tu m fell 12 p e r cent.
T he
p e rcentage re d u c tio n in th e first e ig h t m o n th s of
1956, c o m p a re d w ith th e c o rre s p o n d in g p e rio d of
1955, w as especially la rg e in th e v alue o f c o n su m p tio n
goods (a b o u t 22 p e r cen t) a n d ra w m a te ria ls (a b o u t
9 p e r cen t); the value of c a p ita l g oods actually
increased, a c c o u n tin g fo r 23 p e r cent of to ta l im p o rts
d u r in g th e la te r p e rio d , c o m p a re d w ith 17 p e r cent
in the e a rlie r one.
T h e d ire c tio n of tra d e show ed n o ta b le cha n g e s
a fte r the im p o sitio n of p a r t i a l im p o rt ta riffs by the
P h ilip p in e s on U n ite d S tates g o o d s a n d vice versa.
T h e s h a re of U n ite d S tates g o o d s in to ta l P h ilip p in e
im p o rts declined fro m 65 p e r c e n t in th e first n in e
m onths of 1955 to 59 p e r cent in th e sa m e p e rio d
of 1956, a n d th a t of P h ilip p in e e x p o rts to the U n ite d
States, fro m 62 p e r cen t of to ta l P h ilip p in e e x p o rts
to 55 p e r cent. T h is m a rk e d th e first tim e since the
w ar th a t tra d e w ith the U n ite d States h a d fallen below
60 p e r cent of the to ta l P h ilip p in e tra d e .
O n the
o th e r h a n d , the s h a re of b o th J a p a n a n d w estern
E u ro p e in c re a se d ; the ra tio of im p o rts fro m J a p a n
to to ta l im p o rts ro se fro m 8 p e r cent in the first
nin e m o n th s of 1955 to 10 p e r c e n t in the first nine
m onths of 1956, a n d the sh a re of w estern E u ro p e
rose fro m 9 p e r cent to 13 p e r c e n t; the ra tio in
total e x p o rts of P h ilip p in e e x p o rts to J a p a n in c re a se d
fro m 15 p e r cent to 17 p e r cent, a n d th e w estern
E u ro p e a n s h a re ro se from 16 p e r cent to 21 p e r cent.
W ith the in c re a se in fre ig h t c h a rg e s follo w in g the
c losing of the Suez C a n a l (fo r exam ple, by over 10
p e r cen t in the case of a b a c a ) , e x p o rts to E u ro p e
a p p e a re d to be adversely affected in the last q u a r te r
of 1956.
2 Barter of m ajor exports on this basis was allow ed up to 15
per cent of their total export value; barter was no longer allowed
for any item w ith countries having no exchange control or having
free ports, except for exports in excess of U nited States quotas.
T h e possibilities of barter trade w ith H o n g K ong and the United
States thus tended to be considerably reduced.
C h a p te r 17.
BALANCE OF PAYMENTS
O w ing chiefly to a c o n sid e ra b le ex p an sio n in
im p o rts a n d a f u rth e r d e te rio ra tio n in the te rm s of
tra d e , the g oods a n d services a c c o u n t show ed a larg e
deficit— ଑321 m illio n — in 1955, follo w ing one of ଑ 163
m illion in 1954. T h e 10 p e r cent increase in ex p o rt
q u a n tity w as nullified by a 10 p e r cent d e te rio ra tio n
in th e te rm s of tra d e . N e t p a y m e n ts on tra n sp o rta tio n
a n d in su ra n c e , a n d on investm en t incom e, increased
by ଑ 18 m illion a n d ଑ 21 m illion, respectively. T he
usually la rg e U n ite d States g o v e rn m e n t e x p e n d itu re
in th e P h ilip p in e s in c re a se d slightly— fro m ଑2 4 4
m illion to ଑252 m illion. T he n et inflow of p riv a te
c a p ita l ro se b y ଑31 m illion in 1955, largely a s a
result of in c re a se d rein v e stm e n t (a s c o n tra ste d with
re m itta n c e ) of p ro fits of fo re ig n p riv a te investm ents.
T h e n et outflow of long-term official a n d b a n k in g
capital of ଑ 34 m illion in 1954 tu rn e d into a n et inflow
of ଑82 m illion in 195 5 ; th e la tte r sum consisted
w holly of d ra w in g s on lo ans fro m U n ited States
ban ks, in c lu d in g th e loan o f the E x p o rt-Im p o rt B ank
of W a sh in g to n to the N a tio n a l P o w e r C o rp o ra tio n .
On balance, the reso u rces of th e In te rn a tio n a l
M o n e ta ry F u n d w ere d ra w n upon to the extent of
଑20 m illion, w hile the gold a n d fo re ig n assets of the
C e n tra l B ank d ro p p e d fro m $207 m illion at the end
of 1954 to $155 m illion at the e n d of 1955.
B ecause of a m a rk e d re d u c tio n in im ports, the
b ala n c e o f p a y m e n ts show ed a slight im p ro v e m e n t in
th e first h a lf of 1956. T h e goods a n d services a cco u n t
h a d a sm all su rp lu s of ଑9 m illion, c o m p a re d w ith a
deficit of ଑ 72 m illion in th e first h a lf of 1955.1
Official d o n a tio n s (la rg e ly g ra n ts fro m th e U n ited
States In te rn a tio n a l C o o p e ra tio n A d m in istra tio n in
the fo rm of co m m o d ities a n d te ch n ic a l a id ) a m o u n te d
to ଑31 m illion in th e first h a lf of 1956, c o m p a re d
w ith ଑4 8 m illio n in the whole of 1955 a n d ଑46
m illion in th e w hole of 1954. In M a rc h 1956, the
P h ilip p in e s o b ta in e d e conom ic developm ent loans of
$65 m illion fro m th e E x p o rt-Im p o rt B an k a n d $20
m illion in c red its fro m p r iv a te b a n k in g sources in
the U n ite d States. T h e gold a n d fo re ig n exchange
reserves of the C e n tra l B an k w ere slightly h ig h e r—
$1 66 m illion a t th e en d of J u n e a n d a g a in a t the e n d
of O c to b e r 1956, a lth o u g h still $26 m illion below th e ir
level of a y e a r b efo re. O n th e o th e r h a n d , reserves
w ith th e I n te r n a tio n a l M o n e ta ry F u n d w ere d ra w n
dow n by $5 m illion.
T h e re p a ra tio n s a g re e m e n t betw een the P h ilip p in e s
and
Ja p a n ,
sig ned
and
ratified
about
m id —1956, p ro v id e d fo r th e p a y m e n t by Ja p a n ,
over tw enty years, of $5 0 0 m illion in capital
g oods a n d $50 m illion in services.
T he p a y m e n t w as to be m a d e a t an a n n u a l ra te of $25
m illio n fo r th e first ten y e a rs a n d $30 m illion
1
ficit of
159
P h ilip p in e s
T h e first nine m onths of 1956, however, showed a trade d e -
଑ 79 million.
fo r th e succeeding ten years. P a y m e n ts in the latter
p e rio d m ig h t be accelerated b y ag re e m e n t between
the two countries. In a se p a ra te exchange of notes.
J a p a n fu rth e r a g re e d to p rovide, also over a period
of tw enty years, $250 m illion in long-term loans to
be extended on a com m ercial basis by priv ate
J a p a n e se firm s a n d in d iv id u a ls to p riv a te P hilippine
interests. T h e re p a ra tio n s p ay m en ts fo r the first ye a r
sta rte d in late Ju ly 1956; a fter red u ctio n by $6
m illion fo r th e services re n d e re d by J a p a n in salvaging
sunken P h ilip p in e ships, $19 m illion rem ained for
im p o rts of c ap ital goods and paym en ts for other
services d u rin g the re m a in d e r of th e fiscal year.
Ja p a n e se re p a ra tio n s w ere expected to help the
c o u n try m a te ria lly in ad v a n c in g its econom ic developm ent w ith o u t im p a irin g its balance of p ay m en ts
position.
F IN A N C E A N D P R IC E S
P UBLIC FINANCE2
In 1956 the B udget C om m ission, in consultation
with the M o n e ta ry B oard, th e N atio n a l Econom ic
C ouncil a n d the C abinet, in a u g u ra te d a com prehensive
fiscal p la n fo r 1 9 5 6 /5 7 . T h is fiscal p la n covered not
only the g en eral bu d get, b u t also a p p ro p ria tio n s fo r
p ublic w orks, su b sc rip tio n s to th e c a p ita l stock of
c o rp o ra tio n s, a n d o th e r investm ents, loans, a n d o bligatio n s of th e G overnm ent, to be financed fro m taxation
o r public b o rro w in g . T a k in g account of the present
a n d prospectiv e eco n om ic situation, the P lan attem pted
to speed up developm ent, th ro u g h p u blic b o rro w in g
a n d p ro v isio n of liberal c re d it to p riv a te enterprise,
a n d to m a in ta in m o n e ta ry stability.
T o ta l n a tio n a l g overnm ent expen ditu res for
1 9 5 6 /5 7 , b u d g e te d a t ଑ 1,348 m illion, w ere a b o u t onefifth h ig h e r th a n th e revised estim ate fo r 1 9 5 5 /5 6 .
A d d e d to th e to ta l e stim ated cost of ଑210 m illion for
p ro v in c ia l a n d local governm ents, the com bined figure
rep re se n te d ap p ro x im a te ly 17 p e r cent of the
a n tic ip a te d g ross n a tio n a l p ro d u c t in 1 9 5 6 /5 7 .
E x p e n d itu re fo r econom ic developm ent, bo th capital
a n d c u rre n t, w as estim ated a t ଑640 m illion, o r 48
p e r cent of th e to ta l n a tio n a l g o v ern m en t ex p e n d itu re ;
the c a p ita l e x p e n d itu re com ponent, a t ଑526 million,
w ou ld enable the g o v e rn m e n t to m ak e an estim ated
c o n trib u tio n of ଑347 m illion to n e t c a p ital form ation.
E x p e n d itu re fo r social developm ent accounted fo r 25
p e r c e n t of th e total, follow ed by defence (1 0 per
c e n t) , g e n e ra l g o v e rn m e n t (8 p e r cent) a n d debt
service (8 p e r c e n t ) . P la n n e d developm ent expenditu re rose 3 4 p e r c e n t over th e p re v io u s fiscal year,
while social d evelopm ent ex p en d itu re, financed by tax
revenues, in c re a se d b y only 8 p e r cent.
It was
co n sid ered th a t only by c o n c e n tra tin g on raising
2 Budget figures by the G overnm ent quoted herein are reclassified in tables J, K and L in infra, appendix on “ Asian Economic
Statistics” .
160
P a rt II.
p ro d u c tio n could n a tio n a l in com e b e increased
sufficiently to p e r m it a h ig h e r sta n d a rd of ed u catio n ,
health a n d social w elfare.
To avoid financin g c u rre n t o p e ra tio n s a n d
n o rm a l c a p ita l e x p e n d itu re s by b o rro w in g , th e fiscal
plan fo r 1 9 5 6 /5 7 p ro p o se d to b r in g g e n e ra l g o v e rn m ent e x p e n d itu re s a n d a n tic ip a te d revenues into
balance b y an in crease in revenue. E stim a te d re venue
in 1 9 5 6 /5 7 fo r the n a tio n a l G o v e rn m e n t u n d e r the
c u rre n t ta x stru c tu re w as e stim a te d a t ଑ 731 m illion,
or ଑25 m illion over the p re v io u s fiscal y ear. C ustom s
duties a n d other taxes on im p o rts w ere expected to
continue to co n trib u te a la rg e sh a re (4 6 p e r c e n t ) .
W hile th e su b stitu tio n of a special im p o r t levy fo r
the fo rm e r fo re ig n exchange ta x w as expected to have
very little n e t effect on revenue, th e im p o sitio n of
im p o rt du ties on U n ite d S tates goods (a t 25 p er cent
of o r d in a r y im p o rt du ties on g oods fro m o th e r
sources) a n d th e increase in ta riff ra te s effective 1
J a n u a r y 1956 w ere c o u n te d on to yield a d d itio n a l
returns. T h e ta x revision p ro p o sals in the budget,
including revision of th e ta x am nesty law a n d h ig h e r
rates fo r the sales tax, estate, in h e rita n c e a n d gift
tax, residence ta x a n d others, w e re to yield ଑80
m illion. W hile th e p ro sp e c t of im p le m e n tin g all these
proposals w as n ot entirely p ro m isin g , th e re also
rem ained th e p ossib ility of im p ro v in g the ta x collection
m achinery.
A su m of ଑375 m illion, to be used fo r capital
projects (u p fro m ଑2 5 7 m illion in 1 9 5 5 / 5 6 ) , w as to
be financed by pu b lic b o rro w in g . T h is w as c o n sid e re d
necessary fo r ach iev in g the m a x im u m feasible ra te of
developm ent w ithin the lim its of m o n e ta ry stability.
T o be financed b y lo an funds, developm ent p ro jects
are re q u ire d to yield q u ic k re tu rn s a n d create incom e,
that is, th e y m u st have a h ig h benefit-cost ratio.
T he b u d g e t deficit to be financed by b o rro w in g
from the b a n k in g system w as n o t to be wholly
inflationary in its first im pact, since, a m o n g o th e r
co nsiderations, p a r t of the g o v e rn m e n t e x p e n d itu re
was to be spent a b ro a d , leav in g the estim a te d net
a d d itio n to m oney supply as a result of b u d g e ta ry
o p e ra tio n s at ଑231 m illion fo r 1 9 5 6 /5 7 , c o m p a re d
with ଑ 185 m illion in 1 9 5 5 /5 6 . I t w as expected th a t
the econom y could a b so rb this a d d itio n a l a m o u n t
(ro u g h ly 16 p e r cent of th e m oney sup ply a t th e end
of J u n e 1956) into the incom e stre a m w ith a
com p ara tiv ely sm all rise in p ric e s; a n in crease of 4
or 5 p e r cent p e r a n n u m in th e p ric e level of locally
p ro d u c e d item s w as c o n sid e re d m o re likely, on c ertain
fa v o u ra b le a ssum ptions, to act as a s tim u la n t to
econom ic p ro g re ss th a n to cause econom ic dislocation.
B A N K C R E D IT
T o sp e e d up econom ic developm ent, th e C entral
Bank h a s followed a lib e ra l c re d it policy in su b -
C o u n try Surveys
s c rib in g to g o v e rn m e n t secu rities a n d m a k in g advances
to c o m m e rc ia l b anks.
In resp o n se to th e C en tral
B ank’s policy, c o m m e rc ia l b a n k s h a v e e x p a n d e d th e ir
c re d it to th e p riv a te sector a n d h a v e p u rc h a s e d g o v e rn m ent securities. T h e volum e of g o v e rn m e n t securities
held by the C e n tra l B ank ro se sh aply, fro m ଑261
m illion at th e en d of 1954 to ଑39 6 m illio n a t the
e n d of 1955, d e c lin in g slightly d u r i n g the first n in e
m onths of 1956, w hile the a m o u n t h e ld b y other
b anks in crease d fro m ଑ 77 m illio n a t the e n d of 1954
to ଑ 193 m illio n at the end of 1955 a n d ଑ 37 4 m illion
at the end of S e p te m b e r 1956. A t th a t p o in t, the
to ta l a m o u n t of o u ts ta n d in g g o v e rn m e n t in te rn a l
securities w as ଑ 739 m illion, o r 25 p e r cent h ig h er
than a t the end of 1955. T h e n e t p u rc h a s e of a b o u t
଑40 0 m illio n of g o v e rn m e n t se c u ritie s by the b a n k in g
system betw een J a n u a r y 1955 a n d S e p te m b e r 1956
m ade it possible to im p lem en t a n u m b e r of g o v e rn m ent developm ent p ro jects.
T h e re d isc o u n t rate, re d u c e d to 1.5 p e r cent in
e a rly 1954, a n d a m o n g th e lowest in the w o rld , w as
kept dow n in o rd e r to fa c ilita te b a n k b o rro w in g s
a n d th e re b y b o lste r dom e stic financing.
T he o u tsta n d in g a m o u n t of C e n tra l B an k a d v a n c e s to other
b a n k s rose fro m P25 m illion a t th e end of J u n e 1955
to ଑248 m illion a t th e e n d of S e p te m b e r 1956. D u rin g
the sam e p e rio d , c re d it a n d in v e stm e n t by com m e rc ia l
a n d savings b a n k s fo r the p riv a te sector rose by
଑219 m illion, to ଑ 1,187 m illion. A b o u t 43 p e r cent
of loans, advances a n d d iscounts g ra n te d or renew ed
b y these b a n k s d u r in g th e first h a lf o f 1956 w as fo r
com m erce, a b o u t 22 p e r cent fo r a g ric u ltu re a n d 13
per cent fo r in d u stry .
To im plem ent the G o v e rn m e n t’s developm ent
policy, several special financial in stitu tio n s, in c lu d in g
the R e h a b ilita tio n F in a n c e C o rp o ra tio n ( R F C ) , the
A g ric u ltu ra l C re d it a n d
C o-operative F in a n c in g
A d m in istra tio n (A C C F A ) a n d r u r a l b a n k s, g ra n te d
loans fo r fin a n c in g a g ric u ltu re a n d in d u stry , to
the ex tent of ଑9 4 m illion d u r in g th e first n in e
m onth s of 1956. T h e to ta l lo an s of these in stitu tio n s
o u tsta n d in g a t the end of S e p te m b e r 1956 reach ed
଑619 m illion, of w hich 28 p e r cent w as fo r a g ric u ltu re
a n d 23 p e r cent fo r in d u s try ; c o n su m p tio n a n d
com m e rc ia l lo ans acco u n ted fo r only one p e r cent.
T h e A C C FA , with its F a r m e r s ’ C o-operative M a rk e ting A ssociations (F A C O M A S ), a n d the r u r a l banks,
assu m ed a n in c re a sin g ly im p o rta n t role in a g ric u ltu ra l
financing. T h e n u m b e r of r u r a l b a n k s rose fro m 40
at the end of 1955 to 72 on 21 N o v em b e r 1956, and
the n u m b e r of F A C O M A S fro m 319 a t th e e n d of
1955 to 3 6 5 a t the e n d of J u n e 1956.
T h e R FC
is the le a d in g in stitu tio n in fin a n c in g sugar-m ills,
sawm ills, rice m ills, c em ent a n d a lu m in iu m factories,
textile m ills, utilities a n d o th e r in d u strie s.
C h ap te r 17.
P h ilip p in e s
M O N E Y A N D PR IC E S
A fte r re m a in in g fa irly stab le fo r a b o u t tw o a n d
h alf years, despite a co n tin u ed in crease in p ro d u c tio n ,
the m oney supply b eg a n to rise a fte r m id-1955. It
rose 9 p er cent in 1955 a n d a n o th e r 9 p e r cen t d u r in g
the first nine m o n th s o f 1 9 5 6 ; th e to ta l w as ଑ 1,48 8
m illion a t th e end of S ep te m b er 1956— 17 p e r cent
h ig h e r th a n a y e a r e a rlie r. T h e in crease in 1955 was
chiefly d u e to la rg e r g o v e rn m e n t sp e n d in g fo r developm en t a n d c o n c u rre n t c re d it ex p an sio n in th e p riv a te
sec to r; w hile th e d ep letion of in te rn a tio n a l reserves
acted as p a r tia l offset by re d u c in g ap p re c ia b ly th e
m oney supply. D u rin g the first n in e m o n th s of 1956
th e im p ro v em e n t in th e b ala n c e of p a y m e n ts po sitio n
c o n trib u te d la rg e ly to th e m o n e ta ry e xpansion. M oney
su p p ly also rose o n a c c o u n t of c re d it e x p a n sio n to
the p riv a te sector, a n d in c re ase d n e t b o rro w in g a n d
sp e n d in g in the p u b lic sector, w h ic h m o re th a n offset
the im p ro v e m e n t in the c a sh b a la n c e a n d in sav in gs
a n d tim e deposits of th e G ov ernm ent.
In response to th e h ig h e r ra te of g o v e rn m en t
sp e n d in g on eco nom ic developm ent, b a n k cred it
e x p a n sio n to th e p riv a te sector, tig h te n in g of im p o rt
co n tro ls a n d th e in crease o f d u ties on im p o rts, th e
slightly falling tre n d in p ric e s d u r in g th e p rec e d in g
161
th ree to fo u r y e a rs w as reversed in late 1955. The
indexes of the co st of living a n d of wholesale prices
of im p o rte d g oods rea c h e d 104.4 a n d
103.8,
respectively, in O ctober 1956 (1 9 5 3 = 1 0 0 ), o r 7 p e r
cent a n d 12 p e r cent h ig h e r th a n a y e a r earlier.
W holesale p rice s of dom estic an d ex p o rt pro d u cts,
how ever, rem a in e d m o re o r less stable an d in O ctober
1956 w ere 7 and 20 p e r cent, respectively, below 1953
levels.
G rea te r g o v ern m en t sp en d in g a n d c re d it e x p a n sion, to g eth e r w ith risin g prices, a p p e a re d to have
c o n trib u te d to an increase in em ploym ent an d w ages,
a t least in the n o n -a g ric u ltu ra l sector. T h e general
in d e x of em ploy m ent in n o n -a g ric u ltu ra l establishm en ts in th e first n in e m o n th s of 1956 was a b o u t 5
p e r ce n t h ig h e r th a n in th e co rre sp o n d in g p e rio d of
1955; m o re th a n av erag e g a in s w ere registered in
con stru ctio n , go v ern m en t services an d in m in in g and
q u a rry in g .
M eanw hile, w age rate s fo r unskilled
la b o u re rs in in d u stria l establishm ents located in
M an ila a n d its su b u rb s c o n tin u ed to rise— by 1.6 p e r
cent in in d u s try a n d 1.2 p e r ce n t in re al term s, in
th e first n in e m o n th s of 1956, co m p a re d w ith the
c o rre sp o n d in g p e rio d of 1955. W age ra te s of skilled
la b o u rers, how ever, re m a in ed stable.
C h a p te r 18
THAILAND
T h e ex ten t to w hich T h a ila n d ’s eco n o m y d e p e n d s
on th e rice cro p is attested by the fa c t th a t the sh a re
of rice in the to tal a n n u a l v alu e of e x p o rts a v e ra g e d
57 p e r cent in th e d ecade 1946– 55. T o offset the
adverse effect on its revenue p ro d u c e d by th e falling
tr e n d in th e e x p o rt p ric e of rice since 1953, the
G overnm ent h a s succeeded in stead ily in c re a sin g
revenues fro m o th e r sources. G o v e rn m e n t e x p e n d itures, how ever, ha v e c o n tin u e d to exceed revenues,
w ith heavy o u tlays on defence a n d d evelopm ent
c o n trib u tin g su b sta n tia lly to th is result. F ro m 1950
to 1956, the G ov ernm en t h a s h a d c o n sta n t reco u rse to
deficit financing. T h is h a s h a d a te n dency to lift
p riv a te spe n d in g a n d im po rts, th u s a d d in g to the
p re ssu re on th e c o u n try ’s bala n c e of p a y m e n ts cau sed
b y re d u c e d e x p o rt p ro c e e d s fro m ric e a n d (in
1 9 5 2 /5 3 ) b y th e m ea su re s ta k e n to ra ise the e x te rn a l
v alue of th e ba h t. E xcept fo r a very sm all su rp lu s
in 1955, T h a ila n d ’s b ala n c e on tr a d e a c c o u n t h a s
been ad v e rse since 1953.
B efore th e end of 1953, a c o m p rehen sive system
o f i m p o r t c o n t r o l s w a s i n t r o d u c e d in a n e ff o r t to
h a lt the d ra in on fo reig n ex c h a n g e reserves, b u t th e
effect w as m o re th a n offset b y a m a rk e d decline in
exports, especially rice, in 1954. E x p o rt lib e ra liz a tio n in 1955— n o ta b ly th ro u g h th e re tu rn of th e rice
tra d e to p riv a te h a n d s a n d th e in tro d u c tio n of slidingscale e x p o rt du ties on ru b b e r — p ro d u c e d fa v o u ra b le
results in te rm s o f la rg e r fo re ig n ex c h a n g e e a rn in g s.
I n Ju ly of th a t y ear, the E xc h a n g e E q u a liz a tio n F u n d
was set up w ith p ro fits fro m the re v a lu a tio n of fo re ig n
e x ch ang e reserves, to help stabilize the w idely fluctuatin g fre e -m a rk et e x c h an g e rates. T o w a rd s th e e n d of
th e y ear, th e G ov e rn m e n t relaxed im p o rt controls,
g re a tly re d u c in g its relian ce u p o n q u a n tita tiv e im p o rt
restric tio n s, w h ich w ere d e p riv in g it of needed custom s
revenue.
T hese m e a su re s b ro u g h t a b o u t a s h a r p
in crease in im p o rts a n d in v e n to rie s in th e first h a lf
of 1956. T h e G o v e rn m e n t ac c o rd in g ly b e g a n to g ra n t
re -e x p o rt p e rm its a n d to re q u ire m o re s tric t sc ru tin y
of im p o rt fin a n c in g by banks.
T h o u g h its eco no m y h a s been relatively stable
a n d p ro sp e ro u s, w ith pro sp e c ts th a t ha v e w a rra n te d
a g enerally o ptim istic view, it h a s been a p p a re n t th a t
T h a ila n d , like m a n y o th e r c o u n trie s of th e region,
h a s a n u n reso lv ed p ro b le m of how to quick e n th e p a c e
of econom ic develop m en t w ith o u t e n d a n g e rin g e x te rn a l
a n d in te rn a l e q u ilib riu m .
P R O D U C T IO N
A G R IC U L T U R E , F O R E S T R Y A N D F IS H E R IE S
T h e 1 9 5 6 /5 7 p a d d y c ro p w as expected to exceed
the su b sta n tia l o u tp u t of 1 9 5 5 /5 6 , w h ic h w as estim ated
a t 7.4 m illion t o n s ; 1 w ith th e a n tic ip a te d c arry-over
fro m th e 1 9 5 5 /5 6 supply, th e e x p o rta b le rice surplus
fo r 1957 w as expected to be h ig h e r th a n th a t of the
y e a r before.
T h e g a in w as a ttrib u te d largely to
fa v o u ra b le w e a th e r c o n d itio n s a n d to th e o p e n in g of
th e C h a in a t d a m a n d o th e r sm a lle r ir r ig a tio n system s.
S a tisfa c to ry p ro g re ss in th e seed im p ro v e m e n t p r o g ra m m e he ld p ro m ise of re v e rsin g in fu tu re th e fiftyy e a r d ecline in th e a v era g e yield p e r h e c ta re .2
C h a r t 22.
T h a i l a n d : Sown A re a , Pro d u c tio n a n d
Export of Rice
R u b b e r p r o d u c tio n in 1957 w as e stim a te d a t
slightly below th e re c o rd o u tp u t of 1 33,300 to n s th e y e a r
before, w h ich c o m p a re s w ith a p re -w a r level (1 9 3 8 –
1939 a v e ra g e ) of only 4 2 ,000 tons. T h e G o v e rn m e n t
h a s been d ra ftin g a bill to set u p a r u b b e r re h a b ilita tion fu n d to be collected fro m special ru b b e r e x p o rt
fees, fo r fin a n c in g th e re p la n tin g of 8 0 ,0 0 0 h ectares,
o r o n e -fo u rth of th e to ta l a re a u n d e r r u b b e r , w ith
hig h -y ie ld in g ru b b e r trees.
T h e d r a f t bill w as
expected to be in tro d u c e d a n d a d o p te d in 1957.
P r o d u c tio n of te a k w as expected to decline som ew h a t in 1956 fro m th e 1955 level of 3 06,000 cubic
m etres, su b sta n tia lly below th e 1954 fig u re of 408 ,0 0 0
1 Final revised estimate of the Ministry of Agriculture.
2 In 1950 a rice seed im provem ent p ro g ra m m e was started
w ith the co-operation of experts from the U nited States. In 1956
high-yielding varieties were obtained and m ultiplied in 3,500 stock
seed farms. T hese im proved seeds yield about 15 per cent m ore
th an the best seeds form erly used. It was planned ultim ately to
set u p one seed m ultiplication station— of w hich there w ere only
five in all— for each of the 54 rice-grow ing provinces in T hailand.
C h a p te r 18.
T h a ila n d
cu b ic m etres, w hich m a y in tu rn be c o m p a re d w ith
the p re -w a r, 1931, re c o rd o u tp u t of 388,000 c ubic
m etres. T h e fact th a t concessions g ra n te d to fo re ig n
teak lessees c a m e to an end in 1955 m a y be c o u n te d
as a c o n trib u to ry factor. I t was p la n n e d to divide
the in d u stry equally a m o n g (1 ) the governm ent-ow ned
F o re st I n d u s tr y O rg a n iz a tio n , (2 ) p ro v in c ia l c o m p a n ie s a n d (3 ) a n ew c o m pany, capitalized at 100
m illion b a h t, in w hich the G o v e rn m e n t was to hold
20 p e r c e n t of the sh a re s while the five f o rm e r foreign
teak lessees w ere to h old 80 p e r cent. D etails of the
a g re e m e n t on th is j o i n t ven tu re , w hich w as to ru n
fo r fifteen years, have been u n d e r negotiation.
T h e a n n u a l o u tp u t of fishery p ro d u c ts h a s been
estim ated at a b o u t 200,000 tons, of w h ich rou g h ly
140,000 tons h a s been m a r in e a n d 60,000 tons fresh
w ater p ro d u c ts. E stim ates based on th e q u a n tity of
fresh w a te r a n d sea-w ater fish la n d e d a t the B angkok
w holesale fish m a rk e t in the first eight m o n th s of
th e y e a r— o ver 3 3 ,000 tons co m p a re d w ith u n d e r
2 6 ,000 to n s in the sa m e p e rio d of 1955— ind ic a te d an
in c re a se d yield in 1956.
W h ile ric h in a q u a tic
resources, how ever, T h a ila n d h as lacked tra in e d
p e rso n n e l a n d c a p ita l to exploit them adequately, a n d
the G o v e rn m e n t h as re p o rte d ly co n sid e re d opening
c oastal deep-sea fishing in T h a i te r r ito ria l w aters to
fo re ig n investm ent, su b je c t to c e rta in conditions.
T h e re a re a few c a n n in g plants, w ith a total daily
cap acity o f o n e ton of fish,1 a n d th re e large cold
sto ra g e p la n ts w ith a c ap acity of 8 00 to 1,000 to n s
each. W ith a id fro m th e U n ite d States In te rn a tio n a l
C o o p e ra tio n A d m in istra tio n ( I C A ) , one fish-meal pilot
p la n t a n d one fish-liver-oil pilo t p la n t have been placed
in o p e ra tio n , a n d a tech nological la b o ra to ry h a s been
atta c h e d to the governm ent-ow ned cold sto ra g e plant.
F ro m a d ie ta ry p o in t of view, c o n sid e ra b le
interest atta c h e s to a m ilk p la n t in B angkok, w ith a
c a p a c ity of 3,000 gallons in each e ig h t-h o u r shift,
w hich w as expected to be com pleted a t the end of
1956. U n til a local d a ir y in d u s try is built up, the
m ilk p o w d e r a n d b u tte r fa t used by th is p la n t will
have to be im p o rte d .
IN D U STR Y A N D M IN IN G
T h o u g h th e m a n u f a c tu rin g sector h as been small,
ac c o u n tin g fo r less th a n 12 p e r cent of n a tio n a l incom e
in 1953, the o u tp u t of m a jo r in d u stria l p ro d u c ts has
show n a g e n e ra lly r isin g tre n d in the p ost-w ar p e rio d .
T h e o u tp u t of cem ent by the S iam C em ent C om pany
L im ite d increased fro m 386,000 tons in 1955 to a b o u t
400 ,0 0 0 to n s in 1956, a n d w as expected to re a c h
a b o u t 600 ,000 tons a y e a r— in excess of c u rre n t
1 In the four-year period, 1951-1953, T hailand im ported an
average of over 800 tons a year of canned fish products, valued at
aout 18 m illion baht a year, in addition to an average of over
3,200 tons of other fishery products, valued a t 58 million baht
annually (U nited States International Cooperation Adm inistration,
A General A ccount o f the Fisheries o f Thailand, Bangkok, 1956).
163
dom estic u tilization— upon in stallation of new e q u i p m ent in 1957. In add itio n , the Irrig a tio n D e p a rtm e n t’s C em ent C om pany, a j o in t g o v e rn m e n t and
p riv a te c oncern captialized a t 60 m illion b a h t, h a d
a plant u n d e r c o n stru c tio n w hich w as expected to
begin p ro d u c in g in 1957 a n d t u r n out 90,000 tons a
year.
W hite su g a r p ro d u c tio n by the two governm entow ned factories h a s tended to decline in recent y e a rs
b u t p riv a te factories, w hich p ro d uc e n e a rly fo u r tim es
as m u c h (ro u g h ly 40,000 tons of w hite su g a r in
1 9 5 5 / 5 6 ) , have steadily ra ise d th e ir output. A new
fa c to ry fo r white su g a r at C holburi, ow ned by th e
N a tio n a l E co n o m ic D evelopm ent C o rp o ra tio n L im ited
(N E D C O L , a p riv a te c o m p a n y w ith gov ernm en t
g u a ra n te e a n d s u p p o r t ) , sta rte d test-ru n n in g in
D ecem ber 1956; it h a d a m a x im u m cane-crushing
capacity of 1,000 to n s p e r 2 2-hour day. T he c o rp o ra tio n w as also setting up a n o th e r factory a t S u p a n b u ri
w ith a daily cane -c ru sh in g capacity of 1,500 to 2,000
tons. W ith this in p ro d u c tio n — in 1957— T h a ila n d
w as expected to be able to m eet its estim ated a n n u a l
dom estic re q u ire m e n t of a b o u t 70,000 tons.
T h e p ro d u c tio n of p a p e r by two governm ento p e ra te d p a p e r factories rose by a b o u t 10 p e r cent
in 1956 fro m the p re v io u s y e a r’s o u tp u t of 2,200 tons.
N E D C O L ’S new p a p e r m ill a t B angpa-in, w ith a daily
cap acity of 4 0 tons of w ritin g a n d p rin tin g paper,
was expected to be com pleted in 1958, rice straw
p ro v id in g 75 p e r cent of the raw m aterials used and
im p o rte d w ood-pulp the ra m in d e r. T h e re has been no
m ill in T h a ila n d to produce new sprint, which, together
w ith p rin tin g a n d w ritin g p a p e r, has been im ported
on a su b sta n tia l scale.
T h e c u r r e n t o u tp u t of a b o u t 6 m illion gunny
b ags a y e a r h as filled only a b o u t 25 to 30 p e r cent
of the local d em an d . N E D C O L has ac q u ire d a gun ny
b a g p la n t w hich it h as been e x p a n d in g ; when this is
in full p ro d u c tio n — in th e first half of 1957— present
o u tp u t m a y be n e a rly doubled.2 A n o th er g u n ny bag
fa c to ry u n d e r construction, of a b o u t the sam e capacity,
was expected to be com pleted by the m iddle of 1957.
T he cotton m ill in B angkok, w hich h as been
placed u n d e r go v ern m en t control, has 21,000 spindles
installed, em ploys m o re th a n 1,200 w orkers a n d can
p ro d u c e 35 to 40 bales of cotton y a rn p e r day. W ith
the installation of an a d d itio n a l 10,000 spindles, due
fo r com pletion in 1957, it w ould be possible to
increase p ro d u c tio n to a b o u t 20,000 bales a year.
A lth o u g h p ro d u c tio n of tin-in-concentrates h a s
n o t quite re g a in e d th e p re-w ar level, it h a s been
g ra d u a lly in c re a sin g in post-w ar years. F o r the first
ten m o n th s of 1956, th e o utpute was 10,310 tons,
2 O utput was estimated at 5,800 bags per eight-hour day; thus,
if the factory operated 300 days a year, and three shifts a day, it
could produce over 5 million bags a year.
P a r t II.
164
ag a in st 8,900 to n s f o r th e sa m e p e rio d in 1955.1 A s
a re su lt of th e fa llin g tre n d in tu n g ste n p ric e s in th e
w o rld m a rk e t in th e p o st-w a r p e rio d , tu n g ste n ore
p ro d u c tio n h a d d eclined since th e p ea k y e a r, 1952,
w hen 1,627 to n s w ere p ro d u c e d . H ow ever, fo r th e
first ten m o n th s of 1956 o u tp u t w as 93 0 tons, co m p a re d w ith 893 to n s fo r th e sam e p e rio d in 1955.2
A Ja p a n e se firm w as re p o rte d to b e o p e ra tin g a new
jo in t v e n tu re w ith a T h a i firm fo r th e ex p lo itatio n of
m in e ra l reso u rces in s o u th e rn T h a ila n d ; the re g iste re d
ca p ital w as re p o rte d as 18 m illio n baht.
L ig n ite p ro d u c tio n a t M ae M oh w a s e stim a te d a t
80,000 to 100,000 tons in 1956, a s h a rp rise fro m
the 40,000 tons m in ed in 1955. It w as p la n n e d to
re a ch a m a x im u m o u tp u t of 200,000 to n s a y e a r by
a b o u t 1958.
C o n stru c tio n of a m ine-based p o w er
statio n w ith an in itia l ca p a city of ab o u t 10,000 kW
h as been u n d e r co n sid e ra tio n .
TR A D E AND PA Y M EN TS
A dvance estim ates in d ic ate d a slig h t decline in
the value of ex p o rts in 1956, an d a co n tin u a tio n , in
spite of h ig h e r im p o rt tariffs, o f th e g enerally risin g
tre n d in the v alu e of im po rts, to a level h ig h e r th a n
th a t of e xports. In th e first n in e m o n th s of 1956,
th e value of ex p o rts a m o u n ted to $238 m illion com p a re d w ith $251 m illion fo r th e sam e p e rio d in 1955,
while the value of im p o rts (inclusive of n o n -m o n e ta ry
gold) in cre ase d to $273 m illion fro m $2 40 m illio n ;
a tr a d e su rp lu s of a b o u t $11 m illion in th e first n in e
m o n th s of 1955 w as th u s tu rn e d in to a tra d e deficit
of a b o u t $3 4 m illion in th e first n in e m o n th s of 1956.
R ice exports, w hose sh a re in th e to ta l v alue of
expo rts th o u g h alw ays d o m in a n t h a s been steadily
d ec lin in g ,3 d ro p p e d a b o u t 21 p e r cent, fro m 2,592
m illion b a h t in th e first n in e m o n th s of 1955 to
2,056 m illion b a h t in the c o rre sp o n d in g p e rio d of
1956.
In te rm s of volum e, th e decline w as fro m
a b o u t 1,016,830 to n s to 9 00,240 tons, o r 11 p e r
cent.4
H ow ever, in th e la tte r p a r t of th e y e a r
th e situ a tio n im p ro v e d a n d the to ta l rice e x p o rt
fo r 1956 w as estim a ted to b e o nly v ery slightly
below th e p re v io u s y e a r’s figure o f 1.25 m illion
1 D epartm ent of Mines, M in in g G azette (B angkok). July 1956,
p .54.
2 Ibid., p.55.
3 T h e proportions of the value of rice exports to the total value
of exports were 65.9 per cent in 1953, 51.5 per cent in 1954, 44
p e r cent in 1955 and 42 per cent in the first half of 1956.
4 Rice samples and donations (about 15,000 tons per year) are
n o t included in these figures. A lthough the 1955/56 rice crop
was large, the fact th at there was virtually no carry-over from
1955 created difficulties in the procurem ent of rice for export in
the first m onths of 1956. In addition, small rice mills in the p ro vinces had increased in num ber, and the paddy was not sent to
B angkok for m illing, w ith the consequence that m any large mills
in Bangkok were left idle and rice orders from abroad could not
be filled. It was o w ing partly to these factors, b u t perhaps m ore
to the b u m per rice crop in Japan, th at only 87,512 tons of rice
was shipped to Japan in the first half of 1956, as against 236,958
C o u n try S u rv ey s
tons.
R u b b e r, tin a n d te ak e x p o rts a p p e a re d
to h a v e re m a in e d c o n stan t o r to h a v e rise n slightly.
In th e first n in e m o n th s o f 1956, r u b b e r ex p o rts
a m o u n te d to 93,3 7 0 ton s as a g a in s t 132 ,5 00 to n s for
th e w hole of 1 9 5 5 ; e x p o rts of tin-in-concentrates,
9 ,030 to n s a s a g a in st 11,220 to n s ; teak exports,
70,830 cu b ic m etres, c o m p a re d w ith 8 7 ,9 7 0 cubic
m e tre s.5 E x p o rts of y a n g w o o d in c re a se d slightly to
44,0 0 0 cu b ic m e tres in th e first h a lf of 1956, from
38,400 cu b ic m e tre s in the sam e p e rio d in 1955.
T h a ila n d ’s tr a d e in 1956 w ith th e U n ite d K in g d o m
a n d th e ste rlin g a re a c o u n trie s in the E C A F E region
c o n tin u e d th e m a rk e d im p ro v e m e n t b e g u n in 1955,
th o u g h its sh a re in T h a ila n d ’s to ta l fo re ig n tra d e
re m a in e d c o n sid e ra b ly below th a t of th e p re -w a r an d
im m e d iate p o st-w a r p e rio d s, w hen it c o n stitu te d
a p p ro x im a te ly 60 p e r c e n t o f th e to tal. T ra n sa c tio n s
w ith th e d o lla r a re a , w h ic h in ab so lu te as w ell as
relative te rm s h a d in crease d s h a rp ly d u r in g th e p o stw a r p e rio d , w ith r u b b e r e x p o rts a n d U n ite d S ta te s a id
im p o rts p la y in g a p ro m in e n t p a rt, a p p e a re d in th e
first h a lf of 1956 to ha v e levelled off. In th e case
o f tra d e w ith J a p a n , the ris in g tre n d w as in te rru p te d
in e a rly 1956 w hile a n ew a g re e m e n t w as b en ig
n e g o tia te d ;6 th is w as sig n ed in A p ril 1956 a n d
re sto re d tra d e fro m a n open a c c o u n t to a n o rm a l basis.
T h o u g h tr a d e w ith o th e r E C A F E c o u n trie s h as
declined in th e p o st-w a r p e rio d , th e re w ere in d ic a tio n s
th a t th e G o v e rn m e n t w as tr y in g to in c rea se tr a d e
re la tio n s w ith its im m e d ia te n e ig h b o u rs ; a p p o in tm e n ts
w ere p la n n e d fo r tr a d e c o m m issio n e rs, a n d tr a n s it
tra d e a rra n g e m e n ts w ere c om pleted w ith L aos a n d
w ere u n d e r n e g o tia tio n w ith C a m b o d ia .
A d raft
ag re e m e n t on e co n o m ic a n d te c h n ic a l co -o p eratio n
w ith w estern G e rm a n y w as a p p ro v e d d u r in g 1956. O n
21 J u n e 1956 th e C o u n cil of M in isters issued a sta te m e n t liftin g th e e x p o rt e m b a rg o on n o n -stra te g ic
g oods to m a in la n d C h in a a n d n o r th e r n K o re a .
T h e m a in objectives of im p o rt c o n tro l in rec e n t
y e a rs h a v e been to im p ro v e th e b ala n c e of p a y m e n ts
p o sitio n a n d to p ro te c t a n d stim u late local in d u stries.
In S e p te m b e r 1956 co m m o d itie s u n d e r im p o rt co n tro l
n u m b e re d 52 ite m s; a b o u t o n e -th ird of these w ere
p ro h ib ite d e n try ,7 th e re m a in d e r b e in g s u b je c t to
tons for the same period in 1955; in value this represented a
decline of 713 m illion baht. In February 1956, as a stim ulus to
exports, some reductions w ere m ade in the rates of rice export
prem ium s (d u tie s); again in D ecem ber 1956 fu rth er reductions
were m ade in the export prem ium s for w hole rice, b u t prem ium s
o n broken rice (except A l Super Special), o w ing to stronger d e m an d , were increased by 10.5 per cent, w ith export o f rice flour
and rice noodles also m ad e subject to p rem ium rates.
5 T h e 1951-55 an n u al average teak export was 78,480 cubic
m etres, com pared w ith a pre-w ar (1938-1939) average of 58,300
cubic metres.
6 Especially d u rin g February, M arch and A pril 1956, large
quantities of goods of Japanese origin were im ported into T hailand
thro u g h H o n g K ong instead of directly from Japan. D irect trade
w ith Japan increased considerably in the second half of the year.
7 T hese w ere items like toothpicks, chopsticks, w icker-w ork,
bam boo woven hats and rattan, all of w hich could easily be p ro duced in T hailand.
C h a p te r 18.
T h a ila n d
im p o rt licensing. T h e licensing p ro c e d u re in clu ded a
special a rra n g e m e n t— th e so-called lin k system —
w h e re b y im p o rte rs a g re e d to b u y a certa in percentag e
of th e ir re q u ire m e n ts fro m local fa c to rie s; th is w as
th e case w ith tea, g u n n y sacks a n d g re y co tton s h irtin g .1 E x p o rt licences were re q u ire d f o r 4 0 items,
in c lu d in g m ost of th e c o u n tr y ’s p r in c ip a l exports.
T h e basis on w h ic h th e y were g ra n te d v arie d fro m
p ro d u c t to p ro d u c t b u t th e re w ere no qu a n tita iv e
e x p o rt q u o tas, except in the case o f cattle. T h e ex p o rt
o f salt to In d o n e sia a n d J a p a n w as subsidized by the
G o v e rn m e n t to help p ro d u c e rs, since salt exports to
these two c o u n trie s were pric e d below p ro d u c tio n cost.
C hart 23:
T h a i l a n d : Im ports, Exports, Foreign
A sse ts a n d E xchange Rates
165
balance of $55 m illion on goods a n d services account
in 1956, p lu s a n estim ated $10 m illion net of ou tw ard
p riv a te rem ittances, w as financed p a rtly by official
d o n a tio n s a m o u n tin g to a b o u t $26 m illion (of which
ICA a id accounted fo r a b o u t $21 m illion a n d Jap an ese
re p a ra tio n s fo r $3 m illio n ); p a rtly ($ 1 4 m illio n ) by
a c o m b in a tio n of long-term loans fro m th e In te rn a tio n a l B a n k fo r R e c o n stru c tio n a n d D evelopm ent
fo r railw ay s a n d irrig a tio n , fo reign suppliers’ c re d it
a n d IC A lo a n s; th e re m a in d e r fo r th e m ost p a r t by
d ra w in g dow n sh o rt-te rm foreign balances. A ctually,
gold a n d fo re ig n e xchange assets of th e B ank of
T h a ila n d in creased to $307 m illion a t th e end of
Ju ly as c o m p a re d w ith $295 m illion on th e sam e date
in 1955.
E x ch ange ra te s in 1956 w ere steadier th a n in
a n y o th e r p o st-w ar y e a r, ow ing m ainly to th e lib e ra liz ation of ex p o rts a n d th e stabilizing effects of
E x c h a n g e E q u a liz a tio n F u n d set up in 1955.
F IN A N C E A N D P R IC E S
P U BL IC FINAN CE3
E xcept fo r 1948 a n d 1949, g ov ern m ent finances
of the post-w ar p e rio d have been characterized by
deficits b r o u g h t a b o u t m a in ly by larg e defence
ex p e n d itu re s a n d c a p ita l outlays for developm ent.
W ith th e lib e ralizatio n of e x p o rt a n d exchange
re g u la tio n s in 1955, th e B ank of T h a ila n d ’s profits
fro m foreign e x cha n g e tra n sa c tio n s, fo rm erly a m a jo r
source fo r g o v e rn m e n t b o rro w in g , declined, and
b u d g e t deficits, w h ich w ere associated in 1955 with
su b sta n tia l in creases in c om m ercial b a n k credit, thus
cam e to have an in creasingly in flationary effect.
T h e b a la n c e of p a y m e n ts d e te rio ra te d d u rin g
1956, ow ing largely to th e tr a d e deficit w hich, fro m
a b o u t $23 m illion fo r the first h a lf of 1956, w as
expected to reach $37 m illion fo r th e y e a r as a w hole,
in c o n tra s t to a su rp lu s of $3 m illion fo r th e y e a r
1955.2 T h e service deficit declined fraction ally , to
a b o u t $ 1 8 m illion.
T h is estim a te d to ta l adverse
1 In 1954 the private weaving factories of the T h ai Textile
Com pany, Lim ited— a syndicate of 632 producing units, m ost of
them small—together had about 900 pow er looms. T ow ards the
end of 1955, w hen the G overnm ent imposed protective measures,
the n um ber of pow er looms rose to 1,800. By the end of 1956,
the syndicate had about 3,500 pow er looms and 3,000 hand looms.
2 These figures are inclusive of non-m onetary gold. T h e deficit on account of non-m onetary gold declined from about $17
m illion in 1954 to $11 m illion in 1955 and an estimated $6 in
1956; hence the trade position, exclusive of non-m onetary gold,
was estimated to have deteriorated by $46 m illion between 1955
and 1956. (T h e customs statistics from w hich the foregoing data
Were taken m ay, however, present an unduly unfavourable picture
of the trade balance by om itting considerable am ounts of “ u n recorded” exports.)
Precise ev alu a tio n of the econom ic effects of
g o v e rn m e n t finance in T h a ila n d is difficult, in view
of the com plicated b o okkeeping system in use. The
deficit o f 1,175 m illion b a h t a p p e a rin g in the 1956
b u d g e t (revenue, 4 ,737 m illion baht, expenditures
5,912 m illion b a h t; a deficit eq u al to nearly 20 per
cent of e x p e n d itu re s) co m p ares w ith a slightly la rg e r
1955 b u d g e t deficit of 1,224 m illion ba h t. T he d ra ft
b u d g e t fo r 1957 as p resen ted to the N a tio n al A ssem bly
in N ov e m ber 1956 sh o w ed m o d e ra te increases in
revenues, ex p e n d itu re s a n d deficit, the figures being
5,085 m illioin b ah t, 6,344 m illion b a h t a n d 1,259
m illion b a h t respectively.
E x p e n d itu re s in th e 1956 b u d g e t included 1,265
m illion b a h t fo r investm ent outlay (21 p e r cent of
to ta l e x p e n d itu re ), of w h ich all b u t a b o u t 100 m illion
b a h t, a c c o rd in g to th e e stim a te d deficit, w as to be
cov ered b y b o rro w in g . E co n o m ic a n d social services
am o u n te d to som ew h at less th a n 10 p e r cent of th e
to ta l o u tlay b u d g e te d ;4 defence, n o t in clu d in g police,
3 T h e fiscal year corresponds w ith the calendar year.
4 N o t including cost of living allowances to civil servants and
m ilitary personnel. If these allowances are included, the corresp o nding proportions were about 22 per cent for economic and
social services and over 25 per cent for defence.
P a rt II.
166
w as allotted n e a rly 14 p e r
e x p e n d itu re s”— in w hich a re
fo r cost of living allow ances
perso n nel, as well as som e
a cco u n ted fo r n e a rly 5 4 p e r
cent.
O th e r “ o rd in a ry
in c lu d e d la rg e a m o u n ts
to civ ilia n a n d m ilita ry
m in o r c a p ita l item s—
cent.
T h e p a r t p la y e d b y deficits in re c e n t b u d g e t
estim ates m a y be su m m e d up as follows:
Deficit (m illions of baht) .................
Deficit as percentage of expenditures
Percentage of extraordinary (investm ent) expenditures financed by
current revenue ...............................
1955
1956
1957
( p ro p o se d )
1,236
23
1,175
20
1,259
19
9
4
—
E stim a te d incom e fr o m im p o rt a n d e x p o rt d u tie s
in 1956 (in c lu d in g rice p re m iu m s) c o n stitu te d 52 p e r
cent of total re v e n u e ; d ire c t taxes on incom e a n d
wealth, a b o u t 6 p e r cent. T h is heavy dependence
on v a ria b le cu stom s revenues, as well as on o th e r
fo rm s of in d ire c t tax atio n , indicates the p ro b le m w hich
fiscal policy in T h a ila n d faces in seeking to finance a
steady p r o g r a m m e of econom ic developm ent.
D u rin g the first h alf of 1956, th e in te rn a l d e b t
in creased by 112 m illion b aht, in c lu d in g 25 m illion
b a h t realized fro m the 500 m illion b a h t lo a n floated
b y the G ov ernm en t in A p ril 1956, b u t e x clu d in g
d eb ts co n tra c te d b y g o v e rn m e n t agencies, while th e
e x tern al d e b t (inclusive of g o v e rn m e n t g u a ra n te e s)
show ed a n e t rise of $11.3 m illion.
W ith th e co-operation of ICA, experts in pub lic
ad m in istra tio n have been en g a g e d to m od e rn iz e b u d g e t
a c c o u n tin g a n d control.
M O N E Y A N D P R IC E S
F ro m 1952 to 1956, follow ing the e x p o rt surpluses
achieved d u r in g the e arly p a r t of the K o re a n conflict,
a series of im p o rt surpluses ( in te rr u p te d by a sm all
e x p o rt su rp lu s in 1955) tend ed to c ou n teract, fro m
a m o n e ta ry p o in t of view, the in flationary effects of
b u d g e t deficits. T h e net result was th a t m o ney supply
rose only m o d e ra te ly d u r in g this p e rio d , in c o n tra s t
to its s h a r p rise previously.
D u r in g th e first fo u r
m o n th s of 1956, m o n e y su p p ly in c re a se d by a b o u t one
p e r cent, a n in crease in loans a n d a d v an ces of c o m m e rcial b a n k s to p riv a te e n terp rises b a re ly ou tw e ig h in g
the d eflatio nary effect of the adverse bala n c e of
p a y m e n ts a n d of a b u d g e t w hich te m p o ra rily show ed
a sm all su rp lu s in those m onths.
I n this situa tio n a n d w ith an in creased supply
of g o od s on h a n d , ow ing in p a r t to the re la x a tio n of
im p o rt co n tro ls to w a rd s the end of 1955 a n d to th e
a b u n d a n t rice h a rvest, the wholesale p ric e re g istered
a sh a rp fall of 10 p e r c e n t in J a n u a r y 1956, followed
sh o rtly by a so m ew h at sm aller d r o p in the cost of
living index.
A fte r a s h o rt b re a k , how ever, b o th
indexes re su m e d th e ir u p w a r d tr e n d ; by J u ly the
year-end levels of 1955 h a d been a p p ro xim a te ly
C o u n tr y S urveys
re g a in e d , a n d b y N o v e m b e r th e cost of liv in g in d e x
w as 115 ( 1 9 5 3 = 1 0 0 ) , the h ig h e s t p o in t as y et
re a c h e d in th e po st-w a r p e rio d . T h e d om estic p ric e
o f ric e (1 5 p e r cent g ra d e ) fell m o r e th a n 2 6 p e r
cent d u r in g J a n u a r y b u t by J u ly h a d risen to w ithin
8 p e r cent of its p o sitio n a t the e n d of 1955.
DEVELOPM ENT
A lth o u g h no c o m p re h e n siv e p la n o r p ro g ra m m e
fo r econom ic deve lopm e nt h a s bee n fo r m u la te d in
T h a ila n d , the G o v e rn m e n t h a s u n d e rta k e n the p ro vision of basic facilities in tra n s p o rt, co m m u n ic a tio n s,
p o w e r a n d ir rig a tio n w ith p u b lic fu n d s, a n d ha s
p a rtic ip a te d in the e sta b lish m e n t of s e v e ra l im p o rta n t
ind u strie s. T h e G o v e rn m e n t h a s also re q u e ste d the
In te rn a tio n a l B ank fo r R e c o n stru c tio n a n d D evelopm e n t to m a k e a g e n e ra l su rv e y of T h a il a n d ’s econom y
a n d d evelopm ent possibilities. T h e stu d y is expected
to p ro v id e a m u c h b e tte r m e a su re of the c o u n try ’s
p o te n tia l w ealth th a n a n y h e re to fo re available.
T h e p a rtic ip a tio n of p riv a te e n te r p r is e (w ith
g o v e rn m e n t su p p o r t) in e c o no m ic d ev e lo p m e n t took
a n im p o rta n t fo rw a rd step w hen the N a tio n a l
E c onom ic D evelopm ent C o rp o ra tio n , L im ite d , w as set
u p in 1954, w ith a re g iste re d c a p ita l of 50 m illion
b a h t.
T h e c o rp o ra tio n h a s been able to c o n tra c t
b o th dom estic a n d fo re ig n loans, u n d e r g o v e rn m e n t
g u a ra n te e , a m o u n tin g to sev eral tim es its capital, and,
as n o te d above, h a s been a ctive in v a r io u s large-scale
in d u s tria l u n d e rta k in g s.
In 1956 f o u r n o tific a tio n s w ere issued u n d e r the
In d u s tria l P ro m o tio n A ct of 1954, d e s ig n a tin g a d d i tio n a l in d u strie s1 entitled to g o v e rn m e n t assistance in
th e fo rm of ta x re b a te s, re d u c tio n o r exem ption
re sp e c tin g im p o rt o r e x p o rt du ties, a n d o th e r incentives a n d facilities. A n u m b e r of ap p lic a tio n s fro m
b o th T h a i a n d fo re ig n n atio n a ls h a v e been received
a n d c o n sid e re d b y the G o v e rn m e n t.
In S e p te m b e r
1956, u n d e r the 1954 in v e stm e n t g u a ra n te e a r r a n g e m e n t w ith the U n ite d States, IC A issued its first
g u a ra n te e in T h a ila n d to a ta p io c a m illin g c o m p a n y .2
T he g u a ra n te e , to ta llin g $225,000, c overed c o n v e rtibility of re tu rn s fro m th e in v e stm e n t into dollars
a n d p ro te c tio n fro m fin ancial loss in case o f e x p ro p ria tio n .
T R A N S P O R T A N D C O M M U N IC A T IO N
I n the first fo u r-y e a r p ro g r a m m e (1 9 5 2 – 1955)
fo r h ig h w a y developm ent, c o n stru c tio n a n d re h a b ilita tion of 2,00 0 k m o f h ig h w a y was p la n n e d a t a cost of
1 T h e notifications covered spinning, w eaving, enam elled w are,
pottery, cem ent, fire-bricks, pharm aceuticals, plyw ood, tanning,
paper, lac products, canned food, alum , glassware, batteries (acc um ulator and dry cell), m ilk a n d rubber products. T h e first notification included m etal, sugar and g u n n y bags.
2 A United States firm , associated w ith the Bombay B urm ah
T ra d in g Corporation Lim ited.
C h a p te r 18.
167
T h a ila n d
1.4 billion b a h t. H ow ever, only a b o u t 8 00 m illion
b a h t was com pleted or financed. In 1956 the h ig h w a y
p ro g r a m m e w as revised, involving a d d itio n a l ex p e n d itu re s of a b o u t 3 billion b a h t fo r im p ro v e m e n t a n d
c o n stru c tio n of hig h w ay s to tallin g 3,700 km . U nited
States aid, a co n sid e ra b le p a r t of w hich h a s been
d ire c te d to w a rd s im p ro v e m e n t of roa d s, a n d tr a n s p o rt
a n d co m m u n ic a tio n s generally, a m o u n te d to 50 p e r
cen t of th e to tal ou tlay in th e first p ro g ra m m e a n d
was expected to be sub stantially g re a te r in the second.
U p o n com pletion of th is second p ro g ra m m e , T h a ila n d
was expected to have a b o u t 11,000 km of all-weather
roads.
W ith h ig h w a y s only b e g in n in g to be built, the
railw ays, w ith a total length of n e a rly 3,500 km , have
p ro v id e d the sole im p o rta n t link between the different
re g io n s of the c o u n try . In the first five-year p r o g ra m m e (1950– 1 9 5 4 ) , the State R ailw ays of T h a ila n d
spent a b o u t 700 m illion b a h t on reh a b ilita tio n . T he
second five-year p ro g r a m m e (1 955– 1959) called for
a to ta l o u tlay of 1.3 billion b a h t fo r pu rc h a se s of
ra ils a n d accessories, teleco m m u nicatio n equipm ent,
c a rs a n d coaches, as well as fo r b rid g e s a n d buildings.
T h e p r o g r a m m e w as to be financed m ostly from
r e ta in e d e a rn in g s of the railw a y itself, the re m a in d e r
c o m in g fro m g o v e rn m e n t g ra n ts a n d fro m loans by
the In te rn a tio n a l B ank for R e construction a n d
Developm ent.
I n O c to b e r 1956, the P o r t A u th o rity o b ta in e d a
second loan of $ 3.4 m illion fro m the In te rn a tio n a l
B ank fo r the p u rc h a se of th re e m o re dredges a n d
a u x ilia ry d re d g in g eq u ip m e n t to keep the p o rt of
B an g k o k a n d the ch an n el le a d in g to it open for deepsea vessels. T h e P o r t A u th o rity h a s h a d fo u r dredg es
in op e ra tio n . Also u n d e r co n sid e ra tio n by the P o r t
A u th o rity was an investm en t of a b o u t 30 m illion b a h t
in a p r o je c t to stu d y the fo rm a tio n of silt in the
channels of the C hao P h y a River.
A 78 m illion b a h t contract, w ith ICA financing,
was signed in O ctober 1956 w ith a local con tra c to r
fo r m a jo r e x p a n sio n of th e a ir p o rts a t N a k o rn Saw an
a n d N a k o rn R a jsim a . T h e T h a i A irw a y s C o m p an y, a
governm ent-ow ned body, in 1956 signed a three-year
c o n tra c t w ith a U n ite d States a irlin e co m p a n y for
im p ro v e m e n t a n d extension of the ro u te of th e T h a i
a irlin e ; m o st of the finance was supplied by ICA.
T h e co m p a n y h a s o rd e re d th re e Constellations fro m
th e U n ite d S tates to be delivered in 1957 for use in
oversea service.
In ad d itio n , 10 m illion b a h t was
allotted in the b u d g e t fo r the exp an sio n of D on M u a n g
a i r p o r t in Bangkok.
In the field of com m u n ic a tio n s, a th ree-y ear
p r o g ra m m e fo r lin k in g th e p ro v in ces th ro u g h a netw o rk of re p e a tin g sta tio n s ha s been u n d e r c o n sid e ra tion by the M in istry of C o m m u n icatio n . T h is p ro ject,
estim a te d to cost 4 0 0 m illion b a h t, was also expected
to have the co-operation of ICA. P re lim in a ry survey
w o rk was expected to s ta rt to w a rd s the latter p a r t of
1956.
P O W ER A N D IR R IG A T IO N
T o w a rd s the end of 1956 a m ission from the
In te rn a tio n a l B ank fo r R econstruction a n d Developm ent was in T h a ila n d to study the pro posed Y anhee
h y d ro e le c tric m ultiple-purpose p ro je c t at the request
of the G overnm ent. T his p roject, if un d e rta k e n , would
m eet the g re a te r p a r t of T h a ila n d ’s pow er needs for
a c o n sid e ra b le p e r io d .1 C o n struction of the first
phase would take an estim ated five years. T his phase,
estim ated to cost a b o u t 1.5 billion baht, would a d d
a b o u t 140,000 kW to installed pow er capacity. L ater
phases w ould b r in g the to ta l installed capacity of the
p ro je c t to 560,000 kW , a t an estim ated cost of
a n o th e r 1.5 billion b aht. T h e p ro je c t would provide
sub sta n tia l irrig a tio n a n d flood control benefits.
L ate in 1956, the Council of M inisters approved
in prin c ip le an offer m a d e by a U nited States com pany
to bu ild a pilot atom ic pow er plant, w ith an estim ated
ca p acity of 12,500 kW , the c o m pany to be g ra n te d a
fifteen-year concession. T h e N a tio n a l E nergy Council
was in stru c te d to study the conditions and other
m a tte rs re la tin g to it.
T h e C hao P h y a (C h a in a t) dam , completed, w ith
the g re a te r p a r t of th e m a in canals, in the latter p a rt
of 1956. was expected to p u t a b o u t 500,000 hectares
u n d e r irrig a tio n . W ith all the laterals finished— in
1958 o r 1959— a total of 940,000 hectares of farm
land was expected to be u n d e r irrig a tio n as a result
of this p ro je c t, le ading to an estim ated increase in
p a d d y p ro d u c tio n of a b o u t 800,000 tons p e r a nnum .
T h e G re ate r C hao P h y a pro je c t as a whole was
estim ated to cost a b o u t a billion baht. T o g e th e r with
the C hao P h y a d am , construction of the Y anhee dam
would m ean th a t the reach of the P in g R iver from
T a k to N a k ro n Saw an, a distance of a b o u t 200 km,
would be benefited by h a v in g a navigable channel the
y e a r ro u n d instead of only d u rin g the flood season.
F ro m the long-term p o in t of view, one of the
m ost signficant steps in 1956 was the M ekong R iver
reconnaissance, u n d e rta k e n w ith a view to exploring
the possibilities of m ultiple-purpose developm ent of
the M e k o n g th a t w ould benefit the fo u r rip a ria n
c o u n tries— T h a lia n d , C am bodia, L aos a n d southern
Viet-Nam .
G O V ER N M E N T IN D U ST R IA L P R O JE C T S
T h e in d u stria l enterprises financed wholly or
p a rtly w ith go v e rn m e n t fu n d s have been m a n y and
1 It has been estimated that, with the completion of the Yanhee
project, the retail power rate in Bangkok, allowing for distribution
costs, could be reduced to 40 per cent of the present rate.
168
v a rie d .1 A m o n g the latest develop m ents w e re a new
c an n e d fo o d fa c to ry a n d a glass fa c to ry , to be
com pleted in 1956 or 1957, a n d a ta n n e ry w h ich h a s
been u n d e r c o n stru ctio n , all to b e o p e ra te d b y m ilita ry
a u th o rities.
T h e C ouncil of M in isters h a s also
a p p ro v e d a d r a f t c o n tra c t fo r th e T h a i C em ent
C o m p an y to set up a n iro n a n d steel p la n t w ith a
d aily ca p ac ity of 100 tons. 9 G e rm a n m a n u fa c tu re r
h a s been e n g a g e d to do th e surv ey w o rk an d , s u b je c t
to c e rta in con ditions, to p a rtic ip a te in th e v en tu re.
T o red u ce th e in c re a sin g ly la rg e a m o u n t of
fo re ig n exchange sp ent fo r p etro le u m a n d p e tro leu m
p ro d u c ts every y e a r,2 th e G o v ern m e n t h a s given
co n sid e rab le a tte n tio n to th e exp lo itatio n of possible
oil reso u rces in th e co u n try . T h e M e n am C hao P h y a
R iv e r b a sin surv ey h a s revealed stru c tu re s w ith
1 T h e list includes textiles, glassware, tanning, canned food,
tobacco, food refrigeration, w oodw ork, pharm aceuticals, sugar, distilling, paper, g unny bags, ceramics, lacquer w are, pins and clips,
cem ent and possibly others.
2 Im ports of petrol in 1953 am ounted to 241 m illion litres,
com pared w ith 29 m illion litres in 1938.
P a rt II.
C o u n try S urveys
possib le oil re so u rc e s in sev eral places, a n d p r e p a r a tio n fo r te st d rillin g h a s been m ad e b y th e D e p a rtm e n t
of M in es in th e p ro v in c e of A y u d h y a . A th re e-y ea r
p ro g ra m m e f o r th e c o n stru c tio n o f a n oil re fin ery a t
an e stim a te d cost of 8 4 m illio n b a h t w as scheduled
to s ta rt in 1957 a t F a a n g , w h ere p ro v e n oil reso u rces
h av e b een estim a te d a t 22 m illion b a r r e ls ; th is refin e ry
w as expected to p ro d u c e 60 m illio n litre s o f p e tro l
a y e a r. I t w as also d e c id e d , b y a g re e m e n t w ith th e
two le a d in g oil co m p a n ies, th a t th e G o v e rn m e n t’s oil
fuel o rg a n iz a tio n la te in 1956 w o u ld resu m e the
p ractic e, given u p in 1947, of sellin g oil to th e general
public.
N o tab le am o n g c o m m e rc ia l d evelo pm ents w as the
o p ening, in N o v e m b e r 1956, o f a 75 m illio n b a h t
hotel, financed in la rg e p a r t by th e G o v ern m e n t. T he
g ro w in g im p o rta n c e o f to u ris m in T h a ila n d , w ith its
im p licatio n s as an e a r n e r of fo re ig n exchange, was
fu rth e r reflected in p la n s u n d e r c o n s id e ra tio n for
a n o th e r la rg e h o tel in B an g k o k , to b e p riv a te ly
financed as a jo in t v e n tu re of T h a i a n d U n ite d States
n atio n als.