PART THREE MONETARY A N D FISCAL DEVELOPMENTS

PART THREE
MONETARY A N D FISCAL DEVELOPMENTS
C H A PTER V III
Currency
T his ch a p ter surveys developments in 1948 as com pared w ith 1947
and, to some extent, w ith p rew ar years, in the field of currency, u n d er
the following sections: (1) changes in the m onetary system, (2) com position of the currency reserves, (3) tendency towards m anaged currency, (4) exchange control, (5) relationship w ith the International
M onetary F und. A sum m ary is given at the end of the chapter.
C
h a n g e s
in
M
o n e t a r y
Sy
s t e m s
T h e year u n d e r review witnessed im portant changes in the m onetary
systems of a n u m b er of countries of the region. A brief account of these
changes is given below.
A currency reform was introduced in China on August 19, 1948,
the m ain features of w hich are described in chapter X I. In those parts
of C hina held by the C om m unist authorities the Peoples’ Bank of C hina
was established in D ecem ber 1948 as the central bank having the sole
right of note-issue for the areas u n d er C om m unist control. T he currency
system is to be a m anaged one and the note issue is to be backed by essential com m odities such as food, cloth, etc. No free m arket in foreign
exchange is to be perm itted.
T h e m onetary system of India and Pakistan underw ent an im portant
change d urin g 1948. A t the tim e of partition of the In d ian subcontinent on 15 August, 1947, Pakistan, for obvious reasons, did not have
a currency system of its own. I t was, therefore, arranged th a t the Reserve
Bank of In d ia should continue as the com m on currency authority in both
countries until P akistan established its own currency system, and th at
the Bank should ad op t such measures during the interim period as were
considered necessary. T h e year 1948 witnessed the em ergence of an
independen t currency system in Pakistan.
W hile In d ia n m oney was still legal tender the Reserve B ank of In d ia
p u t P akistan notes (In d ia notes overprinted w ith “G overnm ent of Pakista n ” ) in circulation in Pakistan w ith effect from 1 April, 1948. T h e
In d ia n notes lost th eir legal tend er character on 30 Septem ber, 1948.
123
124
PART III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
T h e Pakistan G overnm ent would, however, continue to accept them a t
p ar till 30 June, 1949. T h e Reserve Bank of In d ia ceased to be the cu rrency authority on 30 June, 1948 and did no t p u t any notes into circulation in Pakistan after th a t date. T h e State Bank of Pakistan was in au g u rated on 1 July, 1948 and was given the sole right of note issue w hich
is to be fully covered by assets consisting of gold coins, gold bullion,
silver bullion, sterling securities, approved foreign exchange, rupee coin
an d rupee securities. O f the total assets of the Issue D ep artm en t of the
Bank, not less th an 30 p er cent shall consist of gold coins, gold bullion,
sterling securities an d approved foreign exchange. T h e balance of the
assets shall be held in rupee coins, rupee securities, approved bills of exchange and promissory notes.
T h e Pakistan rupee is the m onetary u n it in P akistan an d its ra te of
exchange has been fixed a t one Pakistan rupee = 1s. 6d. sterling, the same
as th a t of the In d ian rupee. T h e State Bank of Pakistan issued its own
notes, w hich are distinct from the overprinted notes first issued by the
Reserve Bank of India, an d are now legal tender in the country.
T h e assets of the Issue D epartm ent of the Reserve Bank of In d ia are
being divided between In d ia and Pakistan on the basis of the note circulation in the two countries. Subject to certain modifications, the general principle is th a t Pakistan’s share of the assets such as gold, sterling
securities, In d ia rupee coin and In d ia rupee securities, would be in the
same proportion in which these assets were held in the Issue D epartm ent
of the Reserve Bank of In d ia on 30 June, 1948.
In d ian notes w ithdraw n from circulation in Pakistan were being
returned to the Reserve Bank of In d ia against the transfer of assets of
equal value to the State Bank of Pakistan. T h e process is likely to continue for some tim e after 30 June, 1949. U p to 31 D ecem ber, 1948,
In d ian notes w orth Rs. 814 million h ad been returned to the Reserve
Bank of In dia. A nother Rs. 810 m illion were held by the S tate Bank
aw aiting transfer to India.
T h e changeover from the Reserve Bank of In d ia to the S tate Bank
of Pakistan as the currency authority in Pakistan was smooth. I t was
not accom panied by any dislocation and did not cause any serious in convenience to the public.
T h e m onetary system of Pakistan is elastic and leaves sufficient scope
for the State Bank to expand or contract the note issue in accordance
w ith the needs of the country. B ut the obligation on the p a rt of In d ia
an d Pakistan to m ain tain p arity between th e In d ia an d Pakistan rupees
an d to allow free m ovem ent of funds between the tw o countries, while
very desirable in the interests of trade, implies th a t the respective p u r-
C U R R E N C Y
c h a s in g
a n d
p o w e r
t h a t
o p e r a tio n
in
C e n tr a l
a
n e w
e x c h a n g e
s y s te m
o r
o f
th e
o f
n o te
c o n tr a c tio n
o f
th e
$ 1 .0
is s u e
o f
c o u n tr y .
h a s
fo rc e s
h is to r y
b e e n
o f
b e e n
m o n e y
is
r e q u ir e d
s u p p ly
to
in
P 2 ,
a lth o u g h
u n d e r
in s u la te d
in
th e
e s ta b lis h m e n t
J a n u a r y ,
th e
c o u n try .
a n d
h a s
w id e
o th e r ,
th e
o f
w h ic h
1 9 4 9 . T h is
T h e
u s h -
a u to m a tic
in d e p e n d e n t
p o w e rs
th e
c e r ta in
a n
b e e n
a c c o r d a n c e
m a in ta in
e a c h
a g a in s t
o th e r.
3
B a n k
g iv e n
f r o m
b e
th e
o n
a b a n d o n e d
C e n tr a l
h a s
d if f e r e n t
c a n
P h ilip p in e s ,
T h e
a n d
f a r
in a u g u r a te d
th e
I t
=
th e
c u r r e n c y
s ta n d a r d
b e
c o u n tr y
d e f la tio n a ry
1 9 4 7 , w a s
in
c a n n o t
n e ith e r
e s ta b lis h e d .
o r
n a m e ly
in
e r a
d o lla r
r ig h t
ru p e e s
o f
B a n k
u p o n
r e n c y
s o le
tw o
in f la tio n a r y
d e c id e d
e rs
th e
e c o n o m y
o f
T h e
w a s
o f
th e
1 2 5
v e s te d
f o r
w ith
th e
th e
e x is tin g
th e
e x p a n s io n
re q u ir e m e n ts
r a te
c o n d itio n s
c u r -
w ith
o f
th e
e x c h a n g e ,
r a te
m a y
b e
a lte r e d .
T h e
a te d
I n d o c h in e s e
S ta te s
p r e s e n t
b a n k
n o r
a
w a s
b y
w a s
p a s s e d
re n c y
in
th e
o n
th e
H ig h
b y
to
b e
a d v a n c e
s u s p e n s io n
th e
n o te
f r a n c s
is
n o t
3 3
T h e
f r a n c
th e
th e
p o w e r
T h e
A n
c e n tr a l
o f
f o r
th e
o f
o f
th e
r a te ,
th e
c r e d it.
ju r is d ic tio n
c o n tr o l
o f
is
a s
c r e d it.
2 5
n o r
a d v a n c e
I t
p a r ity
1
in
n o t
th e
b e
th e
o f
o f
a
C u r -
th e
c o n -
n o te
is s u e
its
e v e n t
th e
n o te
th e
a n d
o f
th e
b a c k in g
B o a r d ’s h o l d i n g
to
b y
A c t
I n d o c h in a ,
f o r
n o t
w a s
th e
p ia s tr e
=
7
o f
o f
F r e n c h
T r e a s u r y
to
is
to
t h a t
p r o v id e
c o n s id e r e d
a u th o r ity
d e c id e d
1
w ith
fr a n c s ,
th e
b u t
F r e n c h
w ill
h a v e
c irc u m s ta n c e s .
s u b je c t
B o a rd
w ill
y e t
o f
p ia s tr e
c e r ta in
c u r r e n c y
n o t
th e
A n o th e r
I n d o c h in a ,
I n
p a y m e n ts
F r e n c h
ra tif ie d
u n d e r
in
in
c irc u la tio n .
th e
w ill
o f
in
B o n d s
p ro v id e s
T h e
b e
a t
d ir e c -
w h ic h
w a s
m o n o p o ly
T re a s u ry .
e x c h a n g e .
n a m e ly
r a te
a
c o n tro l
A c t
th e
to
1 9 4 8 .
is
c e n tr a l
th is
e s ta b lis h m e n t
h a v e
a
r e f o r m
in
b e tw e e n
w o u ld
T r e a s u r y
th e
s te p
A s s o c i-
a n d
c u r re n c y
a g r e e m e n t
th e
th e
n e ith e r
a c c o rd in g
B o a rd
e x c h a n g e
its
a
S e p te m b e r ,
In d o c h in e s e
T h is
h a v e
T h e
w o u ld
c o n tro l,
is
a g r e e m e n t
T h e
fr a n c s ,
m a in ta in
f e a tu r e
w h ic h
o n
a n d
n o te
f u n c tio n s .
c o n tr o l
its
th e
c u r r e n c y
p o r ta n t
S ta te s
to
b e lo w ,
w ill
b a n k in g
t h a t
b e r
fa ll
c e n t
m o d ify
is s u e
th e r e
F r e n c h
o f
o f
L a o s )
im p o r ta n t
a u th o r iz in g
o r fo r e ig n
e x is tin g
to
im
o th e rw is e
f a c t
to
g o ld
B o a r d
a t
a s
b y
a n
is s u e .
A c t
d a te
A n
l’I n d o c h i n e
n o te
a n
e x c h a n g e
b y
b y
d e
te n d e r
a n d
w h ic h
in tr o d u c tio n
d ’E m i s s i o n ) .
lo n g
th e
p e r
b y
le g a l
C a m b o d ia
1 9 4 6 .
1 9 4 7
o f
s a m e
p a y m e n ts
o f
T h e
C o m m is s io n e r
S o
c o m m o n
l ’I n d o c h i n e
in
B a n q u e
r ig h t
b a c k e d
is s u e
e x c e e d ,
b a n k .
J u ly ,
( I n s t i t u t
I n d o c h in a .
is
its
th e
d e
u p o n
P a r lia m e n t
B o a r d
o f
1 0
th e
r e n o u n c e d
F r e n c h
is s u e
o n
a n d
is
( V ie t- N a m ,
B a n q u e
d e c id e d
ta k e n
th e
tr o l
th e
g o v e r n m e n t
w a s
G o v e r n m e n t
la tte r
p ia s tr e
I n d o c h in a
is s u e d
I n d o c h in a
tio n
o f
to
p o litic a l
it
is
n o t
to
in te rf e re n c e .
p e r f o r m
r e d is c o u n tin g
n e c e s s a ry
w o u ld
h a v e
a
o th e r
fa c ilitie s
in
v ie w
e x te n d
o v e r
c o m m o n
o f
a
o r
th e
n u m -
in s titu tio n
126
P A R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
T h e Currency Board has not yet come into existence. I t w ould be
established by a decree supplem enting the A ct of 25 Septem ber, 1948,
stating the date on w hich it is to begin to operate. Besides, an agreem ent
between the Board on the one hand, and the M inisters of F inance and of
France Overseas on the other, would be necessary for the allocation to
the Board of assets and liabilities required for its successful working.
Since the passage of the two Acts on 25 Septem ber, 1948, Indochina
has entered upon the transitional period provided for in the agreem ent
dated 10 July, 1947 between the F rench G overnm ent and the B anque de
l’I ndochine. T h e latter continues to be the currency authority until the
Board starts functioning.
T he existing note issue of the B anque de l’Indochine is based on the
exchange standard, nam ely the fixed convertibility of the piastre into the
French franc and is therefore autom atic and rigid. A certain m easure of
elasticity would be introduced u n d er the reform ed scheme of note issue
by the proposed Currency Board.
No changes have been reported in the m onetary systems of Burm a,
Ceylon, H ong Kong, Jap an , M alaya and Siam. B urm a’s central bank
which started functioning w ith effect from Jan u a ry 1948 is not to perform any currency functions; the C urrency Board w hich was established
in April, 1947 continues to be the currency authority. In Ceylon the p ro posed central bank, on the establishm ent of w hich a decision was taken
in 1947, has not yet come into existence. N ote issue is, therefore, still the
responsibility of the existing C urrency Board.
C
o m po s it io n
o f
C
u r r e n c y
R
eser v es
Currency reserves are nowadays regarded as im p o rtan t not so m uch
to provide for the internal convertibility of p ap e r m oney as to ensure its
convertibility into foreign exchange, consistently w ith the needs of the
economy. A nother im portant object of the reserve requirem ents is to p ro vide a safeguard against excessive note issue. Furtherm ore, in so fa r as
the reserves are sound and consist of gold, foreign exchange, etc., they do
m uch to inspire public confidence in the currency— a factor of no m ean
im portance. But the soundness of the reserves does not, by itself, ensure
the successful working of a m onetary system, as witness recent experience
in C hina (see chapter X I ) .
T here is always a h ard core of currency w hich m ust rem ain in circulation for the public cannot do w ithout it. No liquid reserves are required against this. A currency system can work successfully if it has in its
reserves m ore than sufficient foreign exchange to m eet all eventualities
th at are likely to arise. T his m ay not necessarily be a very large p a rt of the
total currency reserves.
127
CURRENCY
A n exam ination of the reserves and of changes in their composition
gives a fairly good idea of the present position and working of the various
currency systems.
T h e reserves usually consist of gold and silver, foreign exchange, including the securities of foreign G overnm ents, securities of the hom e Governm en t an d o th er assets. A significant developm ent has been th a t gold no
longer occupies an im p o rtan t position in the currency reserves, as will be
seen from table 44. T his is a basic change. In the days of the gold standT
a b l e
44
Percentages of Various Classes of Reserves Against N o te Issue
Country
Date
. . . ............ 1937
Dec. 1948
Ceylon . . . ............ 1939
1947
. . .31.10.48
C h in a
1 9 38/39
In d ia
1947
19.1.49
In d o n esia . .M a r . 1941
M ar. 1947a
M ar. 1948a
19.1.1949a
Ja p a n
. . .31.12.36
31.12.47
31.12.48
M alay a . . . . . .31.12.39
31.12.47
1.12.48
P akistan . . . . .31.12.48
Philippines ............ 1938
28.6.47
31.1.49
Siam .......... . . .31.12.47
Nov. 1948
B u rm a
N ote Issue
(m illions)
380
Rs.
Rs.
400
53
Rs.
Rs.
396
G.Y. 1,595
Rs.
2,106
12,658
12,181
fl.
420e
fl.
946
fl. 1,365
fl.
1,627
1,866
Y.
Y. 219,142
Y 355,280
M. $ 126
M. $ 412
M. $ 401
Rs.
1,697
205
P.
P.
695
P.
622
Bt.
2,174
Bt.
2,323
Govt.
securities
Total
Other
and
G old and Foreign
assets
assets
silver exchange advance
per cent per cent per cent per cent per cent
100
27.2
—
40.7
21.1
3.5
3.4
80.0
50.4
28.9
30.9
1.3
0.2
2.7
65
71.1
77.0
0.9
31.7
89.7
63.1
100
1.2
35.9
—
15.2
4.6
29.8
0.5
100
—
112.9d
58.4
32.0
2.2
3.7
..
..
100
100
100
100
..
..
..
..
..
..
..
54.4
91.6
93.8
—
—
14.7
7.1
6.0
—
—
2.1
1.0
117.4
107.7
2.7
92.3
2.9
95.0
114.9
0.4
35.3c
19.6
33.1 c
27.1
—
—
38.1
33.4
7.0
6.4
100
100
100
120.1
114.5
100
115.3b
100
100
a T h e figures relate to th e note issue of th e B ank of J a v a only. In fo rm atio n
a b o u t th e currency reserve of th e gov ern m en t note issue is n o t available.
b J ournal of Philippines Statistics, Jan.-D ec. 1947, a n d R e tu r n d a te d 31.1.49
issued by th e C e n tra l Bank of th e Philippines. T h e foreign exchange holdings of
th e C en tral Bank of th e Philippines also cover c erta in o th e r liabilities of th e Bank
besides th e note issue.
c T h is includes th e gold h eld in Ja p a n . I f th a t w ere excluded th e p ercen tage
w ould fall to 15.5 a n d 14.5 fo r 1947 an d 1948 respectively.
d T h e assets cover besides note issue some o th e r liabilities such as subsidiary
coin, etc.
e In c lu d es coins.
128
PART III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
ard, countries which were on the gold standard h ad to m ain tain substantial quantities of gold in their currency reserves to ensure the convertibility of the local currency into gold. C ountries on an exchange standard,
w hether it was the sterling, dollar, franc or the guilder exchange stan d ard, held substantial am ounts of gold in their currency reserves, because
their holdings of foreign currencies were in effect as good as gold, since
those currencies were based on gold. A fter the breakdow n of the in te rnational gold standard in 1931, and later during W orld W ar I I , the im portance of gold in the currency reserves substantially declined.
This decline in the proportion of gold in the currency reserves is
shown for individual countries in table 44. In the case of In d ia the q u a n tity of gold in the reserve rem ained practically unaltered, b u t as there was
a great increase in the note issue its proportion to the note issue fell substantially. T h e proportion of gold in the currency reserve of Siam is substantial, but a considerable p a rt of it is held in Jap an , an d if th a t is
excluded the proportion is not very high. In the case of countries on the
exchange standard, the “gold” holdings w hich consisted m ainly of foreign
exchange, lost their gold character w hen the foreign currencies concerned
ceased to be convertible into gold. T h e small proportion of gold in the
reserves does not, of course, by itself d etract from the soundness of the
currency systems.
T h e H ong K ong currency is based on the autom atic sterling exchange standard. All notes in excess of a small fiduciary issue are to be
covered 100 p er cent by the H ong K ong G overnm ent Certificates of
Indebtedness which the three issuing banks can obtain from the G overnm ent against paym ent of sterling in London. E xact inform ation ab out the
sterling assets is not available, b ut these m ust constitute a very high p ro portion of the currency reserves.
In the case of India, the foreign exchange reserves were as high as
89.7 per cent of the note issue in 1947 against 31.7 p er cent in 1938-39.
T h e increase was mainly due to the issue of currency during the w ar
against sterling credited to the account of the Reserve Bank of In d ia in
London. T he proportion fell to 63.1 per cent in January, 1949. T h e fall
was due to the purchase by the G overnm ent of In d ia from the U n ited
Kingdom G overnm ent of annuities for financing the paym ent of sterling
pensions, the acquisition of the defence installations an d stores left behind
in In d ia by the U nited K ingdom a t the end of the w ar, an d the adverse
balance of paym ents on current and capital account. T h e arrangem ents
for further release of sterling balances are described in chap ter X II .
T h e foreign exchange reserves of the M alayan currency am ounted to
107.7 p er cent of the total note issue on 31 D ecem ber, 1947. T h e law
129
CURRENCY
regulating the issue of currency requires th a t the assets of the M alayan
C urrency F u n d are not to fall below 110 per cent of its liabilities. T h e
currency is based on the autom atic sterling exchange standard and can,
therefore, be issued only against sterling credited to the account of the
C urrency F u n d in London. T h e sterling holdings of the M alayan C u rrency F u n d are not blocked. T hey consist of liquid assets and of longterm securities. T h e form er exceeded 62 per cent of the note circulation
on 31 Decem ber, 1947. T h e liquid assets of the C urrency F u n d declined
to 41 per cent of the note issue on 30 June, 1948. But even this is fa r in
excess of any possible requirem ents of foreign exchange.
Foreign exchange constituted 92.3 per cent of the currency reserves
of Pakistan on 31 Decem ber, 1948. This consisted mostly of sterling assets,
p a rt of w hich is available for current use and p a rt of which is blocked
(see chapter X I I ) , an d to a smaller extent of G overnm ent of In d ia
securities.
T h e foreign exchange holdings of the C entral Bank of the Philippines am ounted to 114.9 per cent of the note issue on 31 January, 1949.
These holdings consist of dollar assets and cover certain other liabilities
of the Bank besides the note issue.
T h e com bined reserves of gold, silver and foreign exchange in the
case of most countries of the region, w ith the exception of C hina and
Jap a n , are sufficient to enable the successful working of the currency
systems, provided th a t the general economic an d political conditions are
satisfactory.
T
e n d e n c y
T
o w a r d s
M
a n a g ed
C
u r r e n c ie s
T h e changes in m onetary systems reviewed above indicate th a t the
tendency towards m anaged currencies, which was already very m arked,
has become still m ore pronounced. Pakistan’s central bank, established in
July, 1948, has been given wide powers for the expansion or contraction
of currency. Again, the inauguration of the C entral Bank of the Philippines on 3 January, 1949, marks the abandonm ent of the autom atic dollar
exchange standard and the introduction of an independent m anaged
currency system. T h e note issue of the Bank has to be covered by assets
w hich have not been defined. This allows the Bank full discretion to
expand or contract the volume of currency in accordance w ith the re quirem ents of the country and no t w ith the availability of dollars. I t is
required to m aintain the existing rate of exchange, nam ely US$1 = P2.
U n d e r certain conditions the rate can be altered, b u t only w ith the agreem ent of the President of the U n ited States of America.
T h e new currency system w hich is being introduced in Indochina
envisages a certain degree of m anagem ent. T h e reserve requirem ents for
130
P A R T III. M O N E T A R Y A N D F ISC A L D E V E L O P M E N T S
note issue are such as to leave an element of liberty to the Currency
Board in the m atter of expansion or contraction of currency. T h e Board
is required to m aintain the parity of the piastre with the F rench franc
at the existing rate, but it has been given power to modify the rate under
certain conditions.
M alaya and H ong K ong continue to be on the sterling exchange
standard, and there has been no move for the introduction of an element
of m anagem ent into their currency systems. This is partly explained by
the fact that both Singapore and H ong K ong are mainly entrepot centres
and, therefore, the question of the adjustm ent of the internal cost-price
structure to world conditions through the m onetary m echanism does not
arise. Exchange stability is of m uch greater im portance, and this is
achieved through the exchange standard, to some extent limited, in the
case of H ong Kong, by the existence of a free exchange m arket.
T he currency reform of 19 August, 1948 in C hina was an ambitious
attem pt to p u t the m onetary system on sound lines in a m anner in which
the element of “m anagem ent” was to play a very im portant role. T he
attem pt failed because certain basic conditions for success were lacking
(see chapter X I ) . T he experience of C hina has shown th at m ere m an agement is no panacea for the currency ills of a country. T h e general
political and economic conditions in the country and the ability an d skill
of the currency authorities play a determ ining role in the success of a
m anaged system.
Ex
c h a n g e
Co
n t r o l
O n account of the serious shortage of foreign exchange, dealings
in it remained subject to control in varying degree in all countries of the
region. In order to make the best use of limited resources, the control
measures usually required the surrender of foreign exchange earnings
which were m ade available to importers and others for approved p u rposes only. A brief account of some of the im portant developments in the
exchange control systems of various countries of the region is given
below.
T here was no im portant change in the system of exchange control
in Burma except th at the control, which was rather loose up to the end
of August, 1948, was tightened in the latter p art of the year on account
of the unfavourable balance of payments. W ith effect from 1 September,
1948, remittances which could be m ade to the Sterling Area w ithout the
prior approval of the control authorities were reduced from Rs. 1,350/to Rs. 50 0/-. W ith effect from November, 1948, the control was further
tightened and remittances of whatever am ount w ithout the prior approval
of the control authorities were disallowed.
CURRENCY
131
As a result of the progress of inflation in China, the official ra te of
exchange was consistently unrealistic. This resulted in smuggling of exports and in free m arket operations. A system of Exchange S urrender
Certificates was introduced in May, 1948 to encourage exports through
official channels. These certificates were issued to exporters surrendering
foreign exchange who could sell them to approved importers at a
prem ium . This m ade the sale of foreign exchange conform more to the
m arket rate th an to the official rate. Besides, the holders of these certificates were saved from loss resulting from a fall in the value of the
Chinese currency during the period in which they held them. T h e system
was suspended when the currency reform was introduced on 19 August,
1948, but was re-introduced on 22 November, 1948.
T h e system of exchange control in H ong K ong was the same as was
in force in the U n ited K ingdom , b u t in view of the fact th at H ong Kong
was m ainly an entrepot centre, considerable discretion was allowed to the
local authorities in the adm inistration of the control. T he discretionary
powers were interpreted quite liberally and only 25 per cent of the foreign
exchange proceeds of a few selected exports were collected, the balance
being left w ith the traders. However, in order to prevent sterling area
produce from passing through H ong K ong en route to h ard currency
areas w ithout the surrender of the exchange proceeds to the sterling
area pool, re-exporters of sterling area goods from H ong Kong had to
surrender 100 p er cent of the foreign exchange proceeds.
T h e com parative freedom from exchange control enjoyed by the
H ong K ong traders, and the existence of a free m arket in foreign exchange, led to certain developments which were not looked upon with
favour by the authorities. For example, considerable quantities of m erchandise coming from sterling area countries could be re-exported to soft
currency destinations which, but for the facilities provided by Hong
Kong, would in m any cases have been directed to hard currency areas.
Besides, the unofficial rate of exchange between sterling and the U.S.
dollar was more favourable to sterling in H ong K ong th an in such
centres as New York, Zurich, Antwerp, A m sterdam and Paris. Thus it
paid a dealer to convert sterling into U.S. dollars at H ong Kong and
reconvert the dollars into sterling in other markets.
As a remedial measure, new exchange regulations were issued in
1948 the m ain features of which were as follows: (1) M onetary transactions between th e U n ited K ingdom and H ong K ong were (with a
few exceptions) m ade subject to licence. This resulted in a considerable
reduction in the U.S. dollar transactions in the H ong K ong free market.
(2) T h e proceeds from the export of goods which were not financed in
U.S. dollars and w hich were destined to countries other than the Sterling
132
PART III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
Area were (with a few exceptions) to be surrendered. (3) Businessmen
were allowed to retain the entire proceeds from the export of certain
goods, and a p art of the proceeds from certain other goods, originating
from China, H ong Kong, M acao or Korea.
After the partition of the Indian subcontinent, the Reserve Bank
of In d ia adm inistered exchange control for both countries. T h e balance
of the sterling released by the U nited K ingdom as on 14 August,
1947, plus the current earnings of foreign exchange by exports from
Pakistan and India, constituted a common pool from which requirements of both countries were met. T here was a list of articles included
under the open general licence which could be im ported by m erchants
in either country w ithout obtaining a licence and for which the necessary
foreign exchange was provided by the Reserve Bank of India. Ceilings
were fixed in respect of the im port of other items. T h e im port control of
ceiling items was exercised independently by the two countries as from
15 August, 1947. Pakistan was allotted a fixed share of foreign exchange
for these items.
W ith effect from 1 January, 1948 the exchange control of the two
countries was separated, although the Reserve Bank of In d ia continued
to adm inister the exchange control on behalf of Pakistan until 1 July,
1948. Foreign exchange earnings on account of exports from each country accrued to the country concerned. F or this purpose the earnings of
each were determ ined on the basis of the port from which the goods were
exported and not on the basis of the origin of the goods. Pakistan jute
exported through C alcutta (an In d ian port) was treated as an export
of the In d ian Union. Similarly Assam tea (In d ia n origin) exported
through C hittagong (a Pakistan port) was treated as an export from
Pakistan. L ater in the year this arrangem ent was modified and foreign
exchange earnings accrued to the country from w hich the goods originated irrespective of the p ort from which they were exported.
W ith effect from 1 January, 1948, agreements for the release of
sterling by the U nited K ingdom were negotiated independently by the
two countries (see chapter X I I ) . O n 1 July, 1948 the State Bank of
Pakistan came into existence and, as the central bank of the country,
took over the exchange control of Pakistan from the Reserve Bank of
India. T h e transition from the unified adm inistration of the exchange
control by the Reserve Bank in U ndivided In d ia to the assum ption of
independent control for Pakistan by the State Bank of Pakistan was
smooth and did not bring about any dislocation of trade or industry.
I t was arranged th at for one year in the first instance, th a t is from
1 July, 1948 to 30 June, 1949, there would be no exchange control
between In d ia and Pakistan, th a t the transfer of funds between the two
CURRENCY
133
c o u n tries w o u ld be freely allow ed a n d th a t th e p a rity betw een I n d ia n a n d
P a k ista n ru p ees w o u ld be m a in ta in e d . T h is rem oved a possible obstacle
to th e flow of tra d e , a n d has c o n trib u te d greatly to th e m a in te n a n c e of
tra d e a t a h ig h level b e tw een th e tw o countries.
T h e system of ex ch a n g e c o ntrol in Ja p a n is u n iq u e . T h e re was w h a t
is called a “ m ilita ry ra te of ex c h an g e ” h a v in g a n extrem ely lim ite d scope.
D ollars co u ld be co n v e rte d in to yen a t this ra te (w h ich re m a in e d a t 270
yen to one U .S . d o lla r since M ay, 1948) b u t yen could n o t be reco n v erted
in to dollars. S u c h conversion could n o t be used, how ever, fo r th e e x p o rt
of com m odities.
F o r p u rp o ses of in te rn a tio n a l m e rc h a n d ise tra d e th e re w as no single
or fixed r a te of ex ch an g e betw een yen a n d d o lla r o r an y o th e r currency.
S C A P receiv ed all p a y m e n ts fro m foreign dealers fo r exports a n d m a d e
all p a y m en ts to th e m fo r im p o rts in U .S . dollars o r o th e r a p p ro p ria te
currency. T h e dom estic p u rc h a se r o r seller m a d e o r received p ay m en t,
as th e case m ig h t be, in yen. F o r this p u rp o se th e ra tio b etw een yen a n d
the fo reig n c u rre n cy was d iffe re n t fo r d iffe ren t types of im p o rts o r exports.
T h e ra tio a p p ro v e d by S C A P fo r any p a rtic u la r ty pe of tran sa c tio n was
a n im p o rta n t fa c to r on w h ich th e success of negotiations b etw een the
dom estic a n d th e fo reig n d e a le r d ep e n d e d , fo r this ratio d ete rm in ed h ow
m u c h th e local d e a le r h a d to p a y in th e case of im p o rts o r to receive in
th e case of exports. T h is m a d e foreign tra d e on p riv a te a cc o u n t m ore
cu m bersom e a n d co m p lic a te d th a n it w ou ld h av e been otherw ise. B ut
it w as in ev itab le, for, as a resu lt of th e isolation of th e Ja p a n e se econom y
for m o re th a n a d ecade, th e in te rn a l cost-price stru ctu re was n o t in
h a rm o n y w ith th e rest of th e w orld. I t h a d been fu rth e r disto rted by th e
fa c t th a t in th e case of m a n y in dustries, in w h ich th e o u tp u t is ab n o rm ally
low, th e u n it costs a re extrem ely h ig h .1
T h e P hilipp ines h a s a fa v o u ra b le b ala n c e of paym ents, th a n k s to
h eavy disbursem ents m a d e by th e U n ite d States G o v e rn m e n t fo r various
purposes. I t, th erefo re, h as large d o llar resources. T h e co u n try could
afford to h a v e a n u n fa v o u ra b le b ala n c e o n c u rre n t tra d e acco u n t, a n d th e
im p osition o f e x ch an g e c o n tro l was n o t considered necessary. I n D e c e m ber, 1948, how ever, in o rd e r to conserve foreign e xchange resources for
th e eco n o m ic d e v e lo p m en t of th e country, a n im p o rt c o n tro l was
in tro d u c e d to restrict th e im p o rt of lux ury goods a n d of articles c o n sidered non-essential.
I n 1946 th e re w as g re a t disp arity betw een th e official a n d th e free
m a rk e t rates of ex ch a n g e in S ia m , th e b a h t bein g very m u c h o v er-valu ed
a t th e official rate . T h e obligation to sell foreign e xchange proceeds to
1A fixed rate of 360 yen to one U.S. dollar was introduced in April, 1949.
134
PA RT III.
M O N E T A R Y A N D FIS C A L D E V E L O P M E N T S
th e B ank of Siam a t the official ra te e n couraged sm uggling of e x p o rt
goods a n d discouraged th e ir e x p o rt th ro u g h n o rm a l channels. I n o rd e r
to rem edy th e situation th e foreign ex ch an ge a n d tra d e regulations w ere
considerably m odified fro m tim e to tim e d u rin g 1946. Som e of th e
im p o rta n t features of these m odifications w ere as follows:
T h e obligation to sell foreign exchange proceeds to the B ank of
Siam a t th e official rates was abolished excep t for rice, tin, teak, ru b b e r
a n d cem ent. 100 p e r cen t of th e proceeds in th e case of rice a n d cem ent,
50 p er cent in the case of tin a n d teak, a n d 20 to 25 p e r c en t in th e case
of ru b b e r w ere to be su rren d ered a t th e official rates. F oreign exchange
could be p u rch ased from th e B ank of S iam a t th e official rates fo r th e
im p o rt of c ertain p rio rity goods. A u tho rized banks w ere allow ed to buy,
sell a n d re m it foreign exchange. T h e existence of a free m a rk e t w as thus
officially recognized.
D u rin g 1947 a n d 1948 th e exchange co ntrol w as exercised m o re or
less on th e sam e lines as in 1946. I n M a rc h , 1948 th e p rio rity system of
g ra n tin g foreign exchange a t th e official rates w as abolished. Since th en
exchange c an be p u rch a sed a t th a t ra te only for th e im p o rt of fu el oils
a n d lubricants, for e d u catio n al purposes, fo r th e re q u irem e n ts of p ub lic
h e a lth bodies a n d fo r rem ittan ces to no n -resid en t shareholders of th e
dividends of p u b lic utility com panies registered in Siam . T h e e x p o rt of
teak was freed from exchange control. T h e existing a rra n g em en ts have
p e rm itted foreign tra d e to re m a in a t a reasonably h ig h level a n d a t th e
sam e tim e have en ab led th e G o v ern m en t to e a rn a large rev en u e by the
purchase, a t th e official rate, of a p a r t of th e foreign ex chan ge acquired.
R
e l a t io n s h ip
w it h
t h e
I
n t e r n a t io n a l
M
o n e t a r y
F
u n d
O f countries of the region, C h in a, In d ia a n d th e P hilippines are
m em bers of the In te rn a tio n a l M o n e ta ry F u n d .1 I n a cco rd an ce w ith the
obligations of this m em bership, In d ia a n d th e P hilippines fixed th e values
of th e ir currencies in term s of gold. T h e se values have n o t been altered.
C h in a, because of its p ec u liar circum stances, has been varying its ra te of
exchange fro m tim e to tim e. W h e n th e curren cy reform of 19 A ugust,
1948 was in tro d u c e d , th e ra te of exchange of G.Y. to th e U .S . d o lla r
w as fix ed a t U .S .$ 1 = G .Y .4, a n d t h a t w i t h s t e r l i n g a t £ 1 = G .Y .1 2 .
S iam ’s ap p licatio n fo r th e m em bership of th e F u n d w as a c c ep ted on
1 O ctober, 1948, a n d fo rm al adm ission follow ed in 1949. P ak ista n ’s a p p lication fo r m em bership is still p en din g. I t seems th a t P akistan h a s not
pressed fo r a n early decision on th e applicatio n , since it has fairly large
1 M e m b e rs h ip o f th e I n t e r n a t io n a l M o n e t a r y F u n d a u to m a tic a lly involves m e m be rsh ip o f th e I n t e r n a t io n a l B a n k fo r R e c o n s tru c tio n a n d D e v e lo p m e n t.
CURRENCY
135
balances of foreign exchange a n d is in no im m e d ia te n eed of acco m m o d a tio n fro m th e F u n d .
I n d ia p u rc h a se d 52 m illion U .S . dollars fro m th e F u n d u p to 10
D ecem ber, 1948. T h is was necessitated by I n d ia ’s c u rre n t deficit in h a rd
cu rren cy, w h ich is m ain ly th e resu lt of h a v in g to im p o rt large q u an tities
of food fro m h a rd -c u rre n c y areas.
S
u m m a r y
T h e re is considerable diversity in th e m o n e ta ry systems of th e co u n tries of th e A F E region. C h in a , In d ia , P ak istan , th e P hilippines, Siam
a n d J a p a n h a v e c e n tra l banks w h ich a c t as th e currency a u th o rity in
e a c h case. B u rm a has a c e n tra l b a n k b u t it is n o t a b a n k of issue. N ote
issue in B u rm a a n d C eylon is e n tru ste d to C u rre n c y B oards w hich d o n o t
p e rfo rm o th e r c e n tra l b a n k in g functions. I n M a la y a th e notes are issued
by a C u rre n c y C om m ission a n d a re legal te n d e r in a n u m b e r of te rritories, nam ely, th e F e d e ra tio n of M alay a, th e C olony of Singapore, B runei,
N o rth B orneo a n d S araw ak . T h e C u rre n c y C om m ission has no responsibilities in resp ect of c re d it control. Sim ilarly, in In d o c h in a , th e proposed
C u rren cy B oard w ould be only fo r th e issue of currency a n d w ould n ot
p e rfo rm any o th e r c e n tra l b a n k in g fu n c tio n s; like th e C u rre n c y C om m ission of M alay a, its n o te issue w o uld be legal te n d e r in a n u m b e r of te r ritories, nam ely, V ie t-N a m , C a m b o d ia a n d Laos. N otes are issued a t
p resen t by th e B anque de l’I n d o ch in e w h ich is a p riv ate bank. I n In d o nesia, n o te issue is th e responsibility of th e B ank of J a v a w h ich is also a
p riv a te bank . I n ad d itio n , th ere is also th e G o v e rn m e n t note issue. In
H o n g K o n g th e n ote issue is n o t unified b u t is e n tru ste d to th re e p riv a te
banks. E v e n in th e case of countries h a v in g c e n tra l banks, th e pow ers
of th e c e n tra l b a n k in respect of n o te issue v ary considerably fro m c o u n try to country.
C h in a , Siam a n d J a p a n h av e in d e p e n d e n t currencies w h ich a re n o t
linked to an y o th e r currency. I n th e cases of In d ia , P ak istan , B u rm a an d
Ceylon, th e re exists a de facto link w ith sterling. B u t th e v olum e of c u rrency in circ u la tio n in e a c h of these countries is n o t entirely governed
by th e sterling reserves of th e currency. M a la y a a n d H o n g K o n g a re on
th e a u to m a tic sterling exchange sta n d a rd , a n d changes in note circulation
a re d e te rm in e d en tirely by th e ir b alan ce of p a y m e n t position. In d o c h in a
u n d e r th e new c u rren cy system w o u ld h av e a m odified fo rm of exchange
sta n d a rd . T h e Philip p in es is n o t o n th e d o lla r e x ch ange s ta n d a rd b u t th e
c u rren cy is linked to th e d o lla r a n d th e ra te of e x chan g e w ith th e do llar
c a n n o t be a lte re d ex cep t u n d e r c e rta in conditions.
136
PA RT III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
T h e lack of u n ifo rm ity in th e m o n e ta ry systems of th e cou n tries of
the region is qu ite in keeping w ith th e special circum stances a n d th e
varying requirem ents of th e econom y of ea c h country.
T h e re is a strong ten d en cy to give g re a te r pow ers to th e n o te issuing
au th o rity to enable it to m a n a g e th e currency. T h is is p ro b a b ly a desirable
developm ent, for m oney should rightly be re g a rd e d as a n “in stru m e n t”
to be used in th e best interests of th e country. I t is, how ever, necessary
th a t th e pow ers of this in stru m e n t should n o t be o v e rra ted . T h e re are
c e rtain lim its w ith in w hich it c a n w ork a n d w h ich c a n be ig n o red only
a t the risk of serious consequences. A m a n a g e d curren cy req uires c e rtain
basic conditions fo r its success, nam ely, political security, a h ig h level of
p ro d u ction , availability of essential req u irem en ts a n d a level o f pu b lic
e x p en d itu re w hich is n o t very m u c h in excess of w h a t th e c o u n try can
afford. I n so fa r as these conditions a re n o t satisfied, th e c o n tro l of th e
econom y to m obilize excess p u rc h a sin g p o w e r a n d to ensure eq u itab le
distrib ution of scarce supplies is essential. T h ese a re n o n -m o n e ta ry m easures on w h ich th e success of a m a n a g e d cu rren cy is d e p e n d e n t. T h e im p o rta n c e of th e n o n -m o n e ta ry sphere of th e econom y fo r th e success of
a m a n a g e d cu rren cy system c a n n o t be too strongly em phasized. Besides,
th e m o n e ta ry m echanism in a m an a g e d system is a very d elicate in s tru m en t, th e use of w hich requires g re a t care, ju d g m e n t, ability a n d e x p e rience, besides m o ral in teg rity a n d re g a rd fo r th e p u b lic good. U nless
th e currency a u th o rity is possessed of these qualities, th e success of th e
system will be in g re a t jeo pardy.
A n o th e r im p o rta n t tendency is th e m o re or less com plete subservience of th e curren cy a u th o rity to th e state. T h e c e n tra l bank s of
P ak istan a n d th e Philippines, as state banks, a re directly con tro lled by
th e ir G overnm ents. T h e R eserve B ank of In d ia , w h ic h w as h ith e rto a
shareholders’ bank, has been nationalized. G o v ern m e n t c o n tro l of th e
bank was alread y m ore o r less com plete, a n d n atio n a liz a tio n only re g u larized the existing situation. T h e c e n tral banks of C h in a , J a p a n a n d S iam
were alread y state banks. T h e C u rren c y B oards of B u rm a a n d C eylon a n d
the C u rren cy Com m ission of M a lay a are g o v e rn m e n t d e p a rtm e n ts a n d
are therefore u n d e r com plete g o v ern m en t control. T h e proposed C u rren c y
B oard of In d o c h in a is also to be governm ent-controlled. I n H o n g K ong,
the th re e note-issuing banks w ork u n d e r an a u to m a tic exchange sta n d a rd
a n d have no discretionary powers.
T h e evolution of this ten d en cy can be easily exp lained. W o rld
W a r I I c reated conditions in w h ich th e in stitu tio n of econom ic controls
becam e inevitable. Besides, th e com pelling n eed fo r in flatio n ary w a r
finance req u ire d th e com plete su b o rd in a tio n of th e curren cy a u th o rity
to th e governm ent. T h e sam e ten d en cy co n tin u e d to o p e ra te a fte r th e
CURRENCY
137
w a r o w ing to th e in creasin g com plexity of prob lem s re q u irin g g o v e rn m e n t in te rv e n tio n in th e econom ic sphere. As things a re a t p re se n t, th e re
is n o im m e d ia te p ro sp e c t of th e reversal of this tend en cy . I t seems d e sirable, how ev er, th a t in th e fra m in g a n d ex ecu tio n of m o n e ta ry policy,
th e lo n g -te rm objectives of a c o u n try ’s econom y are n o t sacrificed to
im m e d ia te needs. T h e history of th e w o rld affords n u m e ro u s instances
of th e abuse of th e m o n e ta ry m e c h a n ism by short-sighted g overnm en ts to
th e d e trim e n t of th e p u b lic good. T h e re is th u s a case, a t least in n o rm a l
tim es, fo r th e c u rren cy a u th o rity , so c o n stitu te d as to a c t in th e best
interests of th e co m m u n ity , to be reasonably free fro m go vernm ental
in te rv e n tio n .
C H A P T E R IX
Banking
Ba n k in g
St r u c t u r e
T h e m o d ern b an k in g systems of m an y countries of th e region are
as yet in early stages of developm ent. T h e y are d o m in a te d by com m ercial
banks, a n d specialization of fu n ctio ns has n o t gone very fa r. A g ric u ltu ra l
cred it in stitutions, such as co-operative societies, occupy a com paratively
u n im p o rta n t position, a n d th e c re d it facilities p ro v id e d by th e m a re n o t
a d eq u ate. T h is is significant in view of th e p re d o m in a n tly a g ric u ltu ra l
c h a ra c te r of th e econom y of th e region. Special in stitutions for in d u stria l
finance are p ractically non-existent, a lth o u g h in some countries they are
springing u p u n d e r g o v ern m en t auspices. T h e region has to d e p e n d to a
g reat ex te n t on th e services supplied by foreign banks.
Before th e w a r th e b a n k in g system of B u rm a consisted of th e R eserve
B ank of In d ia a n d th e bran ch es of fo reig n banks. T h e m a in business of
the la tte r was th e fin an cin g of foreign tra d e . T h e y ear 1948 w itnessed
some im p o rta n t changes resu ltin g in th e g re a te r p a rtic ip a tio n of th e
Burm ese in th e b a n k in g business of th e country. I n F eb ru a ry , 1948 th e
U n io n B ank of B u rm a was established to replace th e R eserve B ank of
In d ia as th e cen tra l b a n k of th e country. T h e B urm ese N a tio n a l B ank, a
private bank ow ned by th e Burm ese, w as also op en ed in 1948. A t th e end
of the year th e re w ere 20 registered banks as ag ain st 13 a t th e beg in n in g
of 1946. M ost of these banks w ere, how ever, b ranch es of fo reig n banks.
T h e b an k in g system of Ceylon consists m ain ly of fo reig n banks w hich
are e ith er th e bran ch es of In d ia n banks o r of B ritish E x ch an g e Banks.
T h e re is no cen tra l bank.
T h e b an k in g system of C h ina consists of th e fo u r lea d in g g o v e rn m en t banks— th e C e n tra l B ank of C h in a , th e B ank of C h in a , th e B ank of
C om m unications a n d th e F a rm e rs B ank of C h in a — a n d th e C e n tra l T ru s t
of C h in a, the Postal R em ittances a n d Savings B ank, th e indigenous banks
a n d th e foreign banks. Before th e w a r th e re was no effective cen tra l
control over th e b an k in g system n o r was th e re an y specialization of
functions. T h e foreign banks a n d th e indigenous p riv a te banks occupied
138
B A N K IN G
139
a n im p o rta n t p o sitio n in th e system. D u rin g a n d since th e w a r th ere
w ere, how ever, c e rta in im p o rta n t changes. T h e g o v ern m e n t banks
assum ed a n o verw helm ingly im p o rta n t positio n a n d th e ir deposits rose
fro m 59 p e r c en t of th e to ta l deposits of all banks (excluding foreign
ban k s) a t th e e n d of 1936 to 92 p e r c en t a t th e en d of 1946. T h e relative
im p o rta n c e of foreign bank s greatly declined. F u n c tio n a l specialization
of th e fo u r g o v e rn m e n t banks w as decided u p o n in July, 1942. T h e rig h t
of n o te issue w as ce n tralized in th e C e n tra l B ank of C h in a . T h e Bank
of C h in a w as to specialize in foreign tra d e finance, th e B ank of C o m m u n ic a tio n s in in d u stria l finance, a n d th e F a rm e rs’ B ank of C h in a in
ru ra l finance. T h e C e n tra l B ank of C h in a has em erged as th e m ost
p ow erful financial in stitu tio n in th e country, exercising unified control
over th e b an k in g system, in c lu d in g th e o th e r th re e g o v ern m en t banks.
T h e re was a p h e n o m e n a l in crease in th e to tal n u m b e r of b an k offices
w h ich rose fro m 2,065 in 1942 to 5,859 in 1947. T h is does not, how ever,
re p resen t a h e a lth y expansion, fo r m ost of th e new banks w ere a m u sh room gro w th .
T h e financial p o w e r of th e banks was greatly reduced. D eflated by
the S h a n g h a i w holesale p rice index, th e to ta l deposits of g overnm ent
banks in 1947 a m o u n te d to only 10 p e r c e n t of w h a t they w ere in 1937.
T h is was a n a tu ra l consequence of inflatio n ary conditions u n d e r w hich
people p re fe rre d to keep th e ir w e a lth in th e fo rm of goods r a th e r th a n
ba n k deposits.
T h e b a n k in g system of H o n g K o n g com prised 143 registered banks
in 1948, 23 of w h ich w ere au th o riz e d to deal in foreign exchange. I t is
d o m in a te d by British a n d foreign banks. Besides, th e re a re a n u m b e r of
sm all C hinese e xchange shops w h ich p ro v id e some b a n k in g facilities b u t
w h ich c a n n o t be re g a rd e d as banks in th e norm ally ac c ep ted m e a n in g of
th e term . A lth o u g h th e re is n o c e n tra l b an k , a d m in istra tiv e con trol is
exercised by th e G o v e rn m e n t in a c c o rd a n c e w ith th e B anking O rd in a n c e
p ro m u lg a te d in 1948.
I n 1947 th e b a n k in g system of In d ia a n d Pakistan consisted of the
R eserve B ank of In d ia , th e m o d e rn jo in t stock banks, in c lu d in g th e
foreign exchange banks, a n d th e co-op erativ e banks. E x c e p t in th e case
of local a n d c o m p arativ ely u n im p o rta n t banks, th e bigger banks h a d
th e ir b ran c h e s all over th e In d ia n su bco ntinen t. T h e system w as b u ilt
on th e basis of th e w hole su b c o n tin e n t as one econom ic u n it a n d was
u n d e r th e unified c ontrol of th e R eserve B ank of In d ia . Its division in to
tw o p a rts a fte r p a rtitio n p rese n te d considerable difficulties. I t so h a p p e n e d th a t th e h e a d offices o f all ex cep t one of th e im p o rta n t banks w ere
lo cated in th e In d ia n U n io n . T h u s, in so fa r as im p o rta n t indigenous
jo in t stock banks w ere concerned, th e P ak istan areas w ere served by
140
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
branches of In d ia n banks. T h is fa c t by itself w o uld n o t h a v e p ro d u c e d
any serious repercussions, h a d th e conditions re m a in e d otherw ise fa v o u rable. B ut p a rtitio n was a cco m p an ied by a m ass exchange of p o p u la tio n s
betw een W estern P akistan a n d th e ad jo in in g In d ia n territories. T h e staff
of th e banks in W estern P ak istan , w h ich consisted m ostly of non-M uslim s,
m ig ra te d to In d ia a n d in consequence a b o u t 300 offices, re p re sen tin g
ab o u t tw o-thirds of th e to ta l n u m b e r of b a n k offices in W e ste rn P ak istan ,
closed dow n. T h e others w h ich w ere still o p e n w ere fu n c tio n in g in a
sm all w ay a n d h a d greatly restricted th e ir business. T h e b an k in g services
w ere m ore or less dislocated. T h e position, how ever, im p ro v e d a fte r som e
tim e. T h e co-operative banks, w h ich a re sem i-governm ent institutions a n d
w hich are n o t d ep e n d e n t on p riv a te enterprise, d id n o t suffer th e sam e
fate. O n th e o th e r h a n d , th e n u m b e r of th e ir offices a n d th e scope of
th eir business was increased to fill in, a t least partially, th e g a p c re a te d
by th e closing d ow n of th e o th e r banks.
I n 1948 th e to ta l n u m b e r of b a n k offices in P ak ista n w as 908, of
w hich 745 w ere located in E a ste rn P ak istan a n d 163 in W e stern P akistan.
T h e b an k in g system is d o m in ate d by foreign banks, b ra n c h es e ith e r of
In d ia n or of E u ro p e a n banks. T h e d ev elo pm en t of banking, fo r w h ich
there is very g re a t scope, is h eld u p m ainly for w a n t of tra in e d personnel.
T o m ake u p this deficiency, th e S tate B ank of P akistan, w ith th e coo p e ra tio n of com m ercial banks, has m a d e special a rra n g em en ts fo r tr a in ing prom ising young m en fo r th e b a n k in g profession. T h e com m ercial
banks provid e facilities fo r p ra c tic a l tra in in g to students w h o receive
theoretical in stru ctio n u n d e r th e auspices of th e S ta te Bank.
As regards In d ia , th e b a n k in g business in th e c o u n try as a w hole did
no t suffer very serious dislocation. Som e of th e banks, how ever, fo u n d
th a t considerable p a rts of th e ir assets w ere e ith e r frozen o r lost as a
result of developm ents in th e w ake of p a rtitio n . T o save th e m fro m ru in ,
the G overn m en t of In d ia d eclared a m o ra to riu m fo r c e rta in bank s
w ith registered offices in E ast P u n ja b a n d D elhi. T h e b a n k in g system,
how ever, soon recovered fro m th e shock a n d c o n tin u e d to m ak e steady
progress. T h e total n u m b e r of scheduled banks w as 99, h a v in g 3,490
offices a n d branches a t th e e n d of Ju n e , 1948. T h e n u m b e r of n o n scheduled banks a t th e beginning of th e y ear was 685.
T h e b a n k in g system of In d o c h in a consists of th e B ank of In d o c h in a
a n d o th e r banks. T h e fo rm er is n o t a c en tra l ban k. I t is su b je c t to co n trol by th e G o v ern m en t w h ich owns one-fifth of its c a p ita l stock. T h e
in tro d u c tio n of th e new currency system described in c h a p te r V I I I w ou ld
result in a fu n d a m e n ta l ch ange in th e c h a ra c te r of this in stitu tio n . I t
w ould cease to be a b a n k of issue. T h e G o v e rn m e n t w o u ld sell its holdings
of th e b a n k ’s stock. T h e la tte r w ould, how ever, be sub ject to new re g u la -
B A N K IN G
141
tions, w h ic h w o u ld en su re effective g o v e rn m e n t c o n tro l b u t w h ic h w ould
en ab le it to re ta in its role as a b a n k of deposit.
T h e b a n k in g system of In d o n e sia consists of th e B ank of J a v a , th e
P o p u la r C re d it B a n k a n d o th e r banks. T h e B ank of J a v a is b o th a b a n k
of issue a n d a c o m m ercial bank.
T h e b a n k in g system of th e Federation o f M a la y a a n d Singapore
consists of banks w h ic h a re m ostly b ran ch es of fo reign banks. T h e re is no
c e n tra l b a n k n o r even a clearin g house.
T h e b a n k in g system of th e P hilippines consists of th e new ly-form ed
C e n tra l B ank of th e P h ilippines, th e R e h a b ilita tio n F in a n c e C o rp o ra tio n
w h ic h h as absorbed th e fo rm e r A g ric u ltu ral a n d In d u stria l B ank, th e
P h ilip p in e N a tio n a l B ank, th e indigenous jo in t stock banks a n d the
foreign banks. T h e R e h a b ilita tio n F in a n c e C o rp o ra tio n a n d th e P h ilip p in e N a tio n a l B ank a re g o v e rn m e n t in stitutio ns an d occupy a p re d o m in a n t position in th e system. T h e fo reign banks also play a n im p o rta n t
role. M o st of th e banks a re c o n c e n tra te d in M a n ila , a n d b a n k in g facilities
in th e provinces are in a d e q u a te .
T h e b a n k in g system of S ia m consists of th e B ank of Siam , w h ic h is
th e c e n tra l b a n k of th e cou ntry, th e indigenous jo in t stock banks a n d
th e fo reig n banks. T h e to ta l n u m b e r of b a n k offices in S iam w as 48 in
1948 as ag a in st 46 in 1947 an d 19 in 1942. I n 1947 a n d 1948, 50 p e r cen t
of th e b a n k offices w ere lo cated in B angkok alone. T h e n u m b e r of foreign
banks increased fro m 7 in 1941 to 9 in 1947. T h u s th e bu lk of th e
e x pansion of b a n k offices rep resents g re a te r p a rtic ip a tio n of th e Siam ese
in th e b an k in g business of th e c o u n try as co m p a re d w ith p re w a r.
T h e b a n k in g system of J a p a n consists of th e B ank of J a p a n as th e
c e n tra l b a n k of th e coun try , th e o rd in a ry jo in t stock banks in c lu d in g th e
e ig h t big banks, th e special banks, a g ric u ltu ra l c re d it co-operatives, u rb a n
c re d it co-operatives, th e C e n tra l B ank fo r A g ric u ltu re a n d Forestry, th e
R e c o n stru c tio n F in a n c e B ank, th e P ostal S av ing a n d th e P ostal T ra n sfe r
Saving B ank, etc. I t is very well o rganized as c o m p ared w ith th e b a n k in g
systems of o th e r coun tries in th e region a n d is ch a rac terize d by a c o n siderable deg ree of specialization of functions.
C
e n t r a l
Ba
n k in g
C h in a , In d ia , J a p a n a n d S iam w ere a lre a d y p ro v id e d w ith c en tra l
banks. B u rm a, P a k ista n a n d P hilip pines established th e ir c e n tra l banks
in th e course of th e year. C eylon is also going to h a v e one soon. T h e re
is a m a rk e d ten d e n cy fo r g re a te r g o v e rn m en ta l c o n tro l ov er th e c e n tral
banks a n d fo r increasing th e pow ers of th e la tte r over th e ir respective
b a n k in g systems.
142
PART III. MONETARY AND FISCAL DEVELOPMENTS
T h e U n io n B ank of B u rm a was in a u g u ra te d on 3 F e b ru a ry , 1948.
I t perform s th e usual c e n tral b an k in g fun ctions w ith th e exception of
note issue. I t is a ban kers’ b a n k a n d also b a n k e r to th e G o v ern m en t.
I t is au th o rized to buy, sell a n d red isco u n t bills, to m ak e loans a n d a d vances to ap p ro v ed bodies a n d in stitutions on p ro p e r security, to issue
d em an d drafts, to p e rfo rm transactions in gold o r bullion, foreign e x c hange a n d securities, a n d to a c t as th e G o v e rn m e n t’s a g e n t for exchang e
control. I t is a S tate bank , the G o v e rn m e n t ow ning th e e n tire capital.
I t is expected to p ro m o te indigenous b an k in g a n d secure the d ev elo p m en t
of a h ea lth y m oney m a rk e t in th e country.
T h e pow ers of the C e n tra l B ank of C hina h av e b een greatly in creased as a result of the abolition, on 30 O cto b er, 1948, of th e Jo in t
B oard of th e F o u r G o v e rn m en t Banks, w hose functions w ere ta k e n over
p artly by th e C e n tra l B ank a n d p a rtly by the M inistry of F inance. T h e
B oard was form ed in Septem ber, 1939, a n d was en tru ste d w ith th e task
of carrying ou t the w artim e financial a n d econom ic policies of th e G o v ernm ent. I n S eptem ber, 1942, th e C e n tral T ru s t of C h in a a n d th e Postal
R em ittances a n d Savings B ank w ere also p u t u n d e r its d irectio n a n d
supervision. I t becam e a very p ow erful in stitu tio n d u rin g th e w ar. Its
m a in functions w ere th e a d ju stm e n t of th e note issue am o n g th e fo u r
banks a n d the jo in t g ra n tin g of loans a n d discounts to g o v e rn m en t in d u stries as well as p riv a te business concerns. W ith th e suspension of th e note
issuing p ow er of the o th e r th ree go v ern m en t banks in July, 1942, the
C e n tra l B ank of C h in a began to h o ld a p re d o m in a n t position in th e su p ply of m oney a n d credit, a n d in th e course of tim e, th e o th e r g o v e rn m en t
banks w ere practically red u c e d to th e status of its subsidiaries. T h e a b o lition of th e Jo in t B oard form ally confirm ed this fact.
T h e Reserve Bank of In d ia w h ich w as h ith e rto a sh a re h o ld er’s bank,
has been nationalized, so th a t it is now form ally u n d e r com plete go v ern m e n t control. Its pow ers over th e b an k in g system h av e been greatly
e n h an ced as a result of th e p ro m u lg a tio n of th e B anking C om panies
O rd in an c e , 1948.
Pakistan established its c e n tral b an k , nam ely, th e S ta te B an k of
Pakistan, on 1 July, 1948. I t controls a n d regulates th e currency, c red it
an d foreign exchange of the country. I t is a b a n k e r’s b a n k a n d also a
b an k er to th e c e n tral a n d provincial G overnm ents. I t has th e m onopoly
of note issue a n d h as th e rig h t to h o ld th e balances of o th e r banks, to
discount p a p e r a n d to p urchase a n d sell securities.
As its n am e indicates, it is a S tate bank. T h e G o v e rn m e n t owns 51
p e r cen t of th e share-cap ital a n d has th e rig h t to a p p o in t th e G overnor,
th e D e p u ty G overnors an d a m ajo rity of th e m em bers of th e B oard of
D irectors.
B A N K IN G
143
Its relations w ith th e rest of th e b a n k in g system of P ak istan are
pra ctic ally on th e sam e lines as those of the R eserve B ank of I n d ia b efore it. T h e scheduled banks a re req u ired to deposit w ith it 2 p e r c en t of
th e ir tim e liabilities a n d 5 p e r ce n t of th e ir d e m a n d liabilities. T h e y are
also re q u ire d to su b m it p eriod ical retu rn s to it. I t has been given a d d itio n al w ide pow ers u n d e r th e B anking C om panies (C o n trol) A ct 1948.
T h e C e n tra l B ank of th e P hilippines was in a u g u ra te d on 3 J a n u a ry ,
1949. I t h a s th e sole rig h t of note-issue a n d has th e rig h t to discount
p a p e r, h o ld th e balances of o th e r banks, p u rc h a se a n d sell securities, ac t
as a b a n k e r to th e G o v e rn m e n t a n d m a n a g e the pu blic debt. Som e of its
special features are as follows:
I t is au th o riz ed to prescribe m in im u m reserve ratios w hich banks
o p e ra tin g in th e Philippin es m u st keep w ith it, p ro v id e d th a t such ratios
shall n o t be less th a n 5 p e r cen t or m ore th a n 25 p e r cent for savings an d
tim e deposits a n d shall n o t be less th a n 10 p e r cent o r m ore th a n 50
p e r cent for d e m a n d deposits. I n c e rta in circum stances it is em pow ered
to prescribe h ig h e r ratios b u t n o t exceeding 100 p e r cent for any fu tu re
increase in the deposits of a bank.
I t is a u th o rize d to fix m a x im u m rates of interest w hich a ban k m ay
pay on deposits o r charge for different types of loan or o th e r credit o p e ra tions. I t is em p o w ered to fix m a x im u m differences w h ich m ay exist b e tw een its ow n in terest o r rediscount ra te a n d th e rates w hich th e banks
m ay ch arg e fro m th e ir custom ers.
I t is au th o riz ed to prescribe m in im u m cash m argins for letters of
c red it a n d m ay re la te the size of th e req u ired m a rg in to th e n a tu re of
the tra n sac tio n to be financed. I t m ay, in p a rtic u la r, use its pow ers in this
connexion to re q u ire h ig h m argins in th e case of im ports of luxuries
o r o th e r non-essential goods.
I t c a n issue regulations a b o u t th e m a x im u m perm issible m aturities
of loans a n d in v e stm e n t w h ich banks m a y m ake a n d th e kind an d
a m o u n t of security to be req u ired ag ainst th e various types of credit
operatio ns of the banks.
I t can fix m in im u m ratios w h ich th e cap ital a n d surplus of the banks
m u st b e a r to th e v olum e of th e ir assets.
T h e tra d itio n a l in stru m e n ts of credit control a re th e b a n k ra te a n d
o pen m a rk e t operations. In fo rm a tio n a b o u t th e scale of o peration s of the
c e n tra l banks in th e o p e n m a rk e t is n o t available. B ut th ere is reason to
believe th a t th e ce n tra l contro l of cred it is f a r from effective. T h is is
p a rtly due to th e absence of bill a n d security m arkets, w h ich play an
im p o rta n t role in e n ab lin g th e c e n tral b an k to enforce its control, and
p a rtly to th e fa c t th a t th e im p o rta n t banks h av e got a m p le resources of
144
PART
III. M O N E T A R Y A N D F I S C A L D E V E L O P M E N T S
th e ir ow n a n d seldom need acc o m m o d a tio n fro m th e c e n tra l b an k . A n o th e r im p o rta n t fa c to r is th e absence of a n effective link betw een th e
organized a n d th e indigenous sectors of th e m oney m a rk e t. A n a tte m p t
has b een m a d e to rem edy th e situ a tio n in some countries by vesting th e
c e n tra l banks w ith ad d itio n a l pow ers.
C
o m m e r c ia l
Ba
n k in g
C o m m ercial b an k in g h as m a d e considerable progress d u rin g rec e n t
years, a t least in som e countries of th e region. As will be seen in tab le 45,
ban k deposits h av e registered a n increase. T h e increase is n o t only a p p a re n t b u t real, th a t is, a fte r allow ing fo r th e increase in th e n o te issue. T h e
p ercentag e of b a n k deposits to n o te issue in creased in C eylon a n d th e
Philippines a n d also in J a p a n . I t re m a in e d c o n sta n t in Siam a n d registe re d a slight fall in In d ia a n d Pakistan . A n e x a m in a tio n of th e clearing
T
a bl e
45
N o te Issue, B a n k Deposits a n d B a n k Clearings
(in m illion u n its of local currencies)
Country
B urm a
C e y lo n a
Period
. O c t. 1948
............. 1946
1947
H o n g K o n g . . D e c . 1947
J u l y 1948
I n d i a ..........
1947-48b
31.12.48
J a p a n d .......... O c t. 1947
O c t. 1948
P a k is ta n . . . . . . 1 9 4 7 -4 8 e
D e c . 1948
P h ilip p in e s . . . .3 1 .1 2 .4 7
3 1.1 2.48
S ia m g ............. . D ec. 1947
O c t. 1948
Note
issue
387
257
223
672
753
12,750
11,987
167,665
279,512
1,697f
770h
837h
2,1 7 4
2,323
Deposits
197
607
650
..
..
10,505
9,571
187,888
3 8 9 ,8 9 0
1,032
1,065
853i
1,004f
768
810
Bank
clearings
( monthly
average )
150
306
349
608
657
4,6 9 7
4 ,6 9 9 c
6 3 ,1 8 0
2 5 2 ,0 1 9
350
..
692
705
Percentage Percentage
of
of bank
deposits clearings
to note
to
deposits
issue
51
236
291
76
50
54
..
..
..
..
82
79
112
139
45
49
33
65
..
..
63
111
120
35
35
33
..
90
87
a D a t a su p p lie d by th e D i r e c t o r of C e n su s a n d Statistics, C eylon.
b I n d i a a n d P a k istan .
c F o r t h e m o n t h of N o v e m b e r 1948.
d B a n k of J a p a n , F in a n c ia l S ta tistic s M o n t h l y , vol. 2 2 ; all b a n k s ’ deposits.
e F r o m 15.8.47 to 31.3.48.
f E x c lu d in g th e I n d i a N o te s still in c irc u la tio n .
g R e t u r n s p u b lis h e d by th e B a n k of S iam , D e c . 1948, a n d d a t a s u p p lie d b y th e
Bank.
h T o ta l c u r r e n c y c irc u la tio n . S o u r c e : M o n t h l y B u lle tin o f S ta tistic s , U n i t e d
N a tio n s , A p ril, 1949.
i D a t a su p p lie d by t h e C e n tr a l B a n k of t h e P h ilip p in e s.
145
B A N K IN G
ho use re tu rn s also in dicates a n ap p re cia b le im p ro v e m e n t in b a n k in g business, a v erag e m o n th ly b a n k clearings in creasing in C eylon, I n d ia a n d
P a k ista n , H o n g K o n g , S iam a n d J a p a n .
T h e ten d e n c y fo r liq u id ity p re fe re n c e a p p e a rs to h a v e b een arrested ,
a t least in c e rta in countries. T h e increase in th e p e rc e n ta g e of d e m a n d
deposits to to ta l deposits was negligible in C eylon, In d ia , th e P hilip pines
a n d J a p a n , th o u g h a pp rec ia b le in P akistan . I t a ctu ally fell in th e case of
Siam .
I n som e cou n tries o f th e region, p a rtic u la rly in C eylon, th e P h ilip pines a n d S iam , th e banks h a v e to keep a fairly hig h p ro p o rtio n of th e ir
resources in liq u id form . T h is is necessary in econom ies w h ere th e b a n k in g h a b it is n o t w ell d eveloped. (See tab le 46.)
A dvances a n d bills disco u n ted h a v e registered a n increase in several
coun tries. T h e p e rc e n ta g e of advan ces a n d bills disco u n ted to to ta l
deposits in creased in In d ia , th e P hilippines, Siam , a n d J a p a n . I t fell
slightly in C eylon.
A su b sta n tia l p a r t o f th e assets o f co m m ercial banks consists of cash
a n d b alan ces w ith o th e r banks. O f th e o th e r assets, loans a n d advances
c o n stitu te by fa r th e largest p a rt. T h is in dicates th e im p o rta n c e of c re d it
supply in b a n k in g business. T h e bills disco u n ted are, how ever, a co m p a ra tiv e ly in significant p a r t of th e b a n k portfolios. T h e y w ere less th a n
10 p e r ce n t of th e to ta l deposits in S iam a n d J a p a n , a b o u t 2 p e r c e n t in
T
a b l e
46
Percentages o f D e m a n d a n d T i m e D eposits to T o ta l Deposits, of
L iq u id Assets to D e m a n d D eposits a n d of other Assets to T o ta l Deposits
Country
Date
Percentage
of demand
deposits
to total
deposits
O c t . 1948
B u r m a .............
C e y lo n ........... .................. 1947
1948
1 947-48
I n d i a ................
3 1 .1 2 .4 8
O c t . 1947
J a p a n .............
O c t . 1948
...........1947-48
P akistan
3 0 .1 2 .4 8
P h i l i p p in e s . . ...........3 1.1 2.4 7
3 1 .1 2 .4 8
S i a m ................ .................. 1947
D e c . 1948
90
91
67
70
84
85
73
84
73
75
93
90
Percentage
of cash and Percentage
Percentage balances of advances Percentage
of time
with other and bills
of
deposits
banks to discounted investment
to total
to total
to total
demand
deposits
deposits
deposits
deposits
10
9
33
30
16
15
27
16
27
25
7
10
45
47
20
16
18
21
19
68
63
45
48
26
14
12
27
25
42
46
70
80
41
25
..
39
40
43
46
57
..
8
8
14
14
...................
.
Dec.
1948
D
a a t a s u p p l i e d by t h e C e n t r a l B a n k of t h e Ph il ip p in e s.
b C urre ncy in “ active” circulation.
c T h e figures relate to scheduled banks only.
d D a ta supplied by the D irector of Census a n d Statistics,
Ceylon.
e F rom 15.8.47 to 31.3.48 (Source: Reserve Bank Bulletin,
Decem ber, 1948).
f Eastern E c o n o m ist , 14 Ja n u a ry , 1949.
.
174
423a
474a
324
345
1,407
1,073
28,727
70,987
77
265
307
Cash and
balances
with other
banks
4.443
4,421
132,050
311,703
404
411
340a
432a
352
459
52
91
83
Advances
and bills
discounted
72a
80a
106
109
76,032
96,459
176
181
Investment
g Bank of J a p a n , Financial Statistics M o n th ly , vol. 22. All
banks’ deposits.
h R e tu r n d a te d 7.1.49 a n d published by the State Bank of
Pakistan.
i Excluding I n d ia Notes still in circulation.
j T o ta l currency circulation. Source: M o n th ly Bulletin of
Statistics, U n ite d Nations. April, 1949.
k D a t a supplied by the Bank of Siam.
10,505
9,631
187,888
389,890
1,032
1,065
853a
1,004a
768
810
197
650
724
Total
deposits
FISCAL
Siam k ......................
............
..
64
67
685
21,614
3,439
2,969
29,992
58,544
283
169
233a
246a
52
84
Time
deposits
AND
Philippinesj
P ak istan e
Oct. 1948
1947-48e f
30.12.48h
31.12.47
31.12.48
31.12.48f
Sept. 1947
1948
586
657
1,317
17,047,278
12,750
7,066
11,987
6,662
167,665
157,896
279,512
331,346
749
1,697i
896
770j
620a
837j
758a
2,174
716
2,403
726
387
223b
227b
Demand
deposits
MONETARY
J a p a n 8 ....................
I n d i a c ....................
C h in a
Date
Note
issue
III.
Ceylond .................
Burma ..................
47
PART
C ountry
a bl e
Bank Deposits and Some Im portan t Bank Assets
(N ational currency unit, 000,000 omitted)
T
146
DEVELOPM ENTS
147
B A N K IN G
I n d ia a n d a little over 1 p e r c e n t in Pakistan. T h is shows th e absence of
bill m a rk e ts in th e region. In v e s tm e n t in securities shows a te n d e n c y to
decline in some countries. T h is is because of th e availability of m ore
p rofitab le avenues of em p lo y m e n t of funds, such as loans, advances, etc.
D e ta ile d in fo rm a tio n a b o u t im p o rta n t assets a n d liabilities of banks
in c e rta in cou n tries of th e region is given in table 47.
A n increase in b a n k deposits a n d b a n k clearings, a h a lt in th e te n d ency fo r liqu id ity p referen ce, a n d th e expansion of loans a n d advances by
the banks, are all in d icativ e of a revival of business confidence a n d of a
g eneral im p ro v e m e n t in conditions of tra d e a n d industry.
A
g r ic u l t u r a l
F
in a n c e
A g ric u ltu ra l finance presents m a n y difficult problem s. O n account
of sm all-scale farm in g , th e borrow ers are n um erous th o u g h th e in d iv id u al
loans a re n o t large. T h is necessitates th e h a n d lin g of a large n u m b e r
of sm all loans w hich adds to th e ir cost. M o st of the ag riculturists have
n o t g o t an y accep tab le security to offer, a n d banks, w ith th e ir offices in
towns, c a n n o t be ex p ected to h av e a d e q u a te know ledge of th e financial
status a n d credit-w orthiness of borrow ers living in rem o te a n d dista n t
villages. T h u s th e o rd in a ry banks a re p ractically ru le d o u t as a source of
ag ric u ltu ra l finance. C o-operativ e cre d it is th e obvious solution. M ost
countries of th e region h av e tried to develop th e co-operative m ovem ent
w ith v a rying degrees of success. T h e m a in cause of th e slow ra te of
progress a p p e a rs to be th e low p erc e n ta g e of literacy am ongst the
c u ltiv ato rs a n d th e ir in ab ility to a p p re c ia te th e benefits th a t can be
derived fro m co-operation. T h e village m oney-lender, w ho frequently
charges e x o rb ita n t rates of interest, continues to be th e m a in source of
ru ra l finance. H is utility as a su p plier of cre d it could be greatly increased
if h e could be m a d e a p a r t of th e b a n k in g system a n d thus b ro u g h t u n d e r
c e n tra l control.
I n B u r m a th e co-operativ e societies a n d th e m oney-lenders a re th e
m a in sources of a g ric u ltu ra l credit. I n 1941 th e re w ere 2,051 co-operative
societies (in c lu d in g 1,599 a g ric u ltu ra l c re d it societies) h a v in g a m e m b e rship of 82,000 a n d a w o rk in g c a p ita l of Rs. 14 m illion. T h e m o v em en t
was com pletely disorganized d u rin g th e Ja p a n e se o c cu pation. A fte r lib e ra tio n th e G o v e rn m e n t fo u n d it necessary to finance th e cultivators by
m a k in g d ire c t loans to th e m u n d e r its A g ric u ltu ra l C re d it Schem e, w hich
was o p e ra te d by th e F in a n c ia l C om m issioner. Efforts w ere, how ever,
m a d e to revive th e old societies a n d to fo rm new ones. T h e se h a v e m e t
w ith considerable success a n d , by th e e n d of July, 1948, th e re w ere
2,437 a g ric u ltu ra l c re d it a n d m a rk e tin g societies a n d 188 fisheries societies. A sum of Rs. 7.5 m illion was a llo tted fo r m a k in g advances to
148
PART III . MONETARY AND FISCAL DEVELOPMENTS
a g ric u ltu ra l c re d it a n d m a rk etin g societies fo r 1948. O u t of this, loans
w o rth Rs. 4.5 m illion h a d been issued by th e e n d of O c to b er, 1948.
Ceylon has a n extensive system of co-operative societies, b o th fo r
th e supply of ag ric u ltu ra l c re d it a n d for o th e r purposes. T h e m o v e m e n t
h a d a p h e n o m e n a l g ro w th d u rin g th e w ar. T h e n u m b e r of societies rose
fro m 1,300 in 1938 to 6,500 in 1947, th e latest year fo r w h ich in fo rm a tio n
is available. T h e m em b ersh ip increased fro m 56,600 to 1,157,000 a n d
th e w orking c a p ital fro m Rs. 4.5 m illion to Rs. 33 m illion d u rin g th e
sam e period. I n 1947 th e n u m b e r of m em bers w as a b o u t one-sixth of
the to tal p o p u la tio n . T h u s p ractically every fam ily in th e c o u n try w as
represented in th e m ovem ent. T h e greatest expansion took place d u rin g
th e p erio d 1942-45 a n d was acc o u n te d fo r by a re m a rk ab le increase in
th e n u m b e r of co-operative stores, w h ich afforded th e best m eans fo r
th e d istrib u tio n of scarce supplies d u rin g a p e rio d of a ll-ro u n d shortages.
O u t of th e to tal of 6,500 societies in 1947, a b o u t 4,000 consisted of
consum ers’ societies a n d a b o u t 2,100 of a g ric u ltu ra l cred it, m a rk e tin g a n d
p ro d u c tio n societies. F o r th e y ear en d in g 30 A pril, 1946, th e to ta l sales
of th e consum ers’ societies a m o u n te d to Rs. 166 m illion a n d those of th e
m ark etin g a n d p ro d u c tio n societies to Rs. 8 m illion. T h e tu rn o v e r of th e
c e n tra l banks a n d th e b an k in g unions increased rem arkably. T h e loans
g ra n te d by th e m d u rin g 1945/46 a m o u n te d to Rs. 34 m illion as ag ainst
only Rs. 15 m illion in th e previous year.
I n C hina, as n oted earlier in this c h a p te r, th e F a rm e rs’ B ank was
e n tru ste d w ith th e provision of finance fo r a g ric u ltu re . I n D ecem b er,
1946 th e C e n tra l C o -operative B ank w as also established. A t th e en d
of 1947 th e to tal loans fo r a g ric u ltu ral purposes m a d e by th e F a rm e rs’
B ank a m o u n te d to C N $934,000 m illion. T h e g re a te r p a r t of this a m o u n t
was a dv anced for financing th e d istrib u tio n a n d storage of special fa rm
pro d u cts such as cotton, silk, tobacco, etc., a g ric u ltu ra l p ro d u c tio n a n d
la n d im provem ent.
A griculture plays a very m in o r role in th e econom ies of H o n g K o n g
a n d Singapore, a n d th e re are no specialized institutions fo r th e provision
of ag ric u ltu ral finance. T h e co-operative societies in S in g ap o re are
m ostly fo r n o n -a g ric u ltu ra l purposes. A t th e en d of 1947 th e re w ere 36
societies h av in g a m em bership of 13,300 a n d a w o rk in g c a p ita l of
M $1.3 m illion. T h e re are no c e n tral banks a n d unions. E a c h society
h as to rely o n its ow n resources a n d receives no financial assistance from
th e G o v ern m en t or any o th e r source.
T h e co-operative m o v em en t in In d ia a n d Pakistan m a d e co n siderable progress d u rin g th e w ar. T h is was p a rtic u la rly tru e of th e
n o n -c re d it p a r t of th e m o vem ent. T h e consum ers’ societies received a
g re a t stim ulus o n a c c o u n t of th e shortage of co n su m er goods a n d th e
B A N K IN G
149
p re v a le n c e o f th e b la c k m a rk e t b o th in r u r a l a n d u r b a n areas. T h e
p ro d u c e rs’ societies also show ed a m a rk e d g ro w th . T h e c re d it societies,
how ever, still occupy a p re d o m in a n t position in th e m ovem ent. I n
1 9 4 5 /4 6 th e y a c c o u n te d fo r 60 p e r c e n t of th e m em b ersh ip a n d 73 p e r
c e n t of th e to ta l n u m b e r of societies.
T h e n u m b e r, m em b ersh ip a n d w orking c a p ita l of societies increased
by 41 p e r cent, 71 p e r c e n t a n d 54 p e r c e nt respectively d u rin g 1939-46.
I n 1 9 4 5 /4 6 th e re was o n e society fo r every 3.8 villages as ag a in st 5.4
villages in 1 9 3 8 /3 9 . T h e p o p u la tio n to u c h e d by th e m o v e m e n t in creased
d u rin g this p e rio d fro m 6.2 p e r cen t to 10.6 p e r c e n t of th e total.
T h e progress of th e m o v e m e n t d u rin g 1945/46, th e latest y ear fo r
w h ic h in fo rm a tio n is available, is su m m arized in tab le 48.
T a b l e
48
C o-operative Societies in I n d ia a n d Pakistan
Number of
Societies
( thousands )
1944/45 1945 /46
A g r i c u lt u r a l
societies ..........................
L a n d m o r tg a g e b a n k s
o r s o c i e t i e s .....................
N o n -a g ricu ltu ra l
societies ..........................
Total .....................
Number of
members
(thousands )
Working
capital
(million rupees)
1944/45
1945/46
1944/45
1945/46
136.4
147.0
5,0 1 3
5,501
305
330
0.3
0.3
139
142
78
83
2 1 .9
23.8
3,131
3,435
479
526
158.6
171.1
8,283
9,0 7 8
862
939
I n D ecem ber, 1947, th e R eserve B ank of In d ia p roposed th a t th e
follow ing u n ifo rm sta n d a rd of liquid resources should be fixed fo r all
p ro v in c ia l a n d c e n tra l co -o p erativ e banks w h ic h m e e t th e c re d it re q u ire m ents of th e p rim a ry societies:
1. F o rty p e r c e n t of deposits o n call o r on c u rre n t a c c o u n t a n d
cash credits a n d o v erd rafts san ctio n ed b u t n o t d ra w n u p o n ;
2. T w enty-five p e r c e n t of savings d eposits;
3. T w en ty -fiv e p e r c e n t of fixed deposits m a tu rin g w ith in th ree
m o n th s a n d 1 2 1/2 p e r c e n t of fixed deposits m a tu rin g w ith in six m onths.
As th e p ro p o sa l m e t w ith th e m o re o r less com plete a g re e m e n t of
th e reg istrars of th e co-o p erativ e societies in all provinces a n d states, th e
local g o v ern m en ts c o n c e rn e d h a v e b een req u ested to give effect to it.
T h e in d ig en o u s m on ey -len d e r co n tin u e s to be th e m ost im p o rta n t
source of r u ra l cred it. H is d o m in a tio n o f th e ru ra l econom y has, how ever,
so m ew h at declin ed , p a rtly because of th e im p ro v e m e n t in th e financial
p o sitio n of th e a g ric u ltu rists o n a c c o u n t of th e h ig h p rices of a g ric u ltu ra l
150
PA R T III.
M O N E T A R Y A N D FIS C A L D E V E L O P M E N T S
p roduce, a n d p a rtly because of the progress of th e co-operative m ov em ent. T h e R eserve Bank of In d ia has no t yet succeeded in forg ing a
link betw een th e m oney-lender a n d th e organized sector of th e m oney
m arket, as it has not been possible to p ersu a d e h im to pro v id e facilities
for the inspection of his accounts by th e R eserve B ank a n d to segregate
his lending operations from o th e r business.
T h e ru ra l credit system of W estern P akistan was disorganized as a
result of the m ig ration of th e indigenous m oney-lenders to In d ia afte r
partition. T h e G o vernm en t, how ever, stepped in a n d p a rtly filled th e gap
by advancing large sums of m oney in th e fo rm of “ta ka vi” loans
(productive loans repayable in easy in stalm ents) to a g ricu ltu rist refugees.
In fo rm atio n ab o u t th e n u m b e r, m em bership a n d w orkin g c a p ital of cooperative societies in P akistan is n o t available. T h e activities of th e coo perative banks, how ever, w hich n u m b ered 237 in 1948, a p p e a r to have
been considerably ex ten d ed a fte r p a rtitio n .
I n In d o c h in a , ag ric u ltu ral cre d it is p ro v id ed by th e C hinese m on ey lenders an d “ chettys” . T h e In d o c h in a b ra n c h of th e C re d it P o p u laire
has also resum ed its activities w h ich w ere slowed d ow n by events in
1945-46 a n d has exten d ed th e m to co-operatives a n d sm all industries.
I n In d o n esia the G en eral P o p u la r C re d it B ank is th e p rin c ip a l source
of a g ric u ltu ra l finance. I t was established in 1934. I n 1941 it h a d 108
local offices an d 1,800 “field w orkers” . T h e re w ere 750,000 o u tsta n d in g
loans, representing m ore th a n 32 m illion guilders, a b o u t 80 p e r c en t of
w hich w ere unsecured. T h e p re w a r offices a re re p o rte d to be resum in g
th eir activities in th e areas u n d e r N eth e rla n d s control.
T h e m eth o d of g ra n tin g credits is u n iq u e. A p plications fo r loans are
no t exam ined fro m b eh in d a desk in th e b a n k ’s offices, b u t th e cred it
requirem ents of th e applicants are investigated on th e spot in th e villages
or a t “sessions” held a t various places fro m tim e to tim e. T h e b a n k thus
reaches those w ho need credit in th e ir ow n localities a n d is th u s able to
su p p lan t the usurer. L oans are g ra n te d b oth fo r p ro d u c tio n a n d co n su m p tion. D u rin g 1947 it g ra n te d loans w o rth 12 m illion guilders. I n th e first
th ree m onths of 1948 its loans a m o u n te d to 7 m illion guilders.
T h e Bank also controls a n d assists th e m u n ic ip a l cre d it institutions,
called village banks a n d “loem boengs,” w hich m e et th e c re d it re q u ire m ents of th e ru ra l areas. T h is village cred it system com prises a b o u t 12,900
such organizations g ra n tin g loans in p a d d y a n d in sm all sums of m oney
for very short periods.
I n th e P hilippines, th e R e h a b ilita tio n F in an c e C o rp o ratio n , w hich
absorbed the fo rm er A g ricu ltu ral a n d In d u stria l B ank, is th e m ost im p o rta n t in stitu tio n fo r th e provision of finance for agriculture. I t w as opened
B A N K IN G
151
fo r business in Ja n u a ry , 1947, a n d u p to 26 M ay, 1947, it h a d ad v a n c e d
P 4 m illio n fo r a g ric u ltu re o u t of its to ta l advances of P33.3 m illion.
I n fo rm a tio n a b o u t its su b seq u ent loans fo r a g ric u ltu ra l purposes is n o t
available.
T h e sm all fa rm e rs h a v e to d e p e n d fo r th e ir c re d it req u ire m e n ts on
th e userers, large landow ners, a n d buyers a n d processors of a g ric u ltu ra l
p ro d u cts. T h e J o in t P h ilip p in e A m erican F in a n c e C om m ission, w hose
re p o rt was pu b lish ed in J u n e , 1947, re c o m m e n d e d a p ro g ra m m e of small
loans to farm ers based on in d iv id u a l fa rm p ro d u c tio n plans w orked o u t
jointly by th e b o rro w er a n d co m p e te n t a g ric u ltu ra l advisers a n d follow ed
up by supervision a n d advice to ensure p ro p e r utilization of th e loans.
I n Ja p a n th e A g ric u ltu ra l C re d it C o-operatives a n d th e C e n tra l
B ank fo r A g ric u ltu re a n d Forestry specialize in a g ric u ltu ra l finance.
A g ric u ltu ra l loans a re also g ra n te d by o th e r banks, tru st com panies, etc.
I n J u n e , 1948, loans fo r ag ricu ltu re, forestry, fisheries, etc., m a d e by the
vario us im p o rta n t financial institutions, a m o u n te d to Y. 26,692 m illion
as ag ain st Y. 14, 314 m illion in Ju n e , 1947.
I
n d u s t r ia l
F
in a n c e
T h e b a n k in g systems of m ost countries of th e region lack specialized
institutions fo r the provision of finance for industry. T h is is so probably
because th e p riv a te e n tre p re n e u r finds com m ercial b an k in g to be m ore
profitable th a n in d u stria l banking. Besides, the elem en t of risk in th e
case of sh o rt-te rm loans against m erchandise is m u c h sm aller th a n in the
case of lo n g -term loans to industry. W a n t of c re d it facilities for industry
is one of th e causes of th e slow pace of industrialisation in th e region.
I t seems, how ever, th a t th e various aspects of th e p ro ble m of in d u strial
finance a re b ein g recognized, a n d e ith e r special institutions a re being set
u p o r o th e r a rra n g e m e n ts a re being m a d e u n d e r g o v e rn m e n t auspices for
m eeting th e c re d it req u irem en ts of industry. A striking fe a tu re o f such
institu tion s in I n d ia a n d P ak istan is th e g o v e rn m e n t g u a ra n te e against
loss a n d for th e p a y m e n t of a m in im u m dividend.
I n B u r m a a n d Ceylon th e re a re no specialized financial institutions
for indu stry , whose cre d it needs are, therefore, m e t by th e o rd in a ry banks.
I n th e case of B urm a, adv an ces fo r th e processing a n d m a n u fa c tu rin g
of food a n d ra w m aterials a m o u n te d to Rs. 20 m illion o u t of Rs. 73
m illion o f to ta l b a n k advances in July, 1948. I n th e case of Ceylon,
ad v an ces a n d loans to in d u stry a m o u n te d to Rs. 29 m illion o u t of a
to ta l of Rs. 82 m illion of b a n k advances a n d loans on 31 D ecem ber, 1948.
C o rre sp o n d in g figures fo r 31 D ecem ber, 1947 w ere Rs. 37 m illion a n d
Rs. 90 m illion respectively.
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PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
I n C h in a , as a result o f th e fu n c tio n a l specialization of th e fo u r
g o v ern m en t banks m en tio n e d e a rlie r in this c h a p te r, th e B an k of C o m m u n icatio n s was expected to specialize in in d u stria l finance. As a m a tte r
of fact, how ever, th e B ank of C h in a also, in a d d itio n to its o th e r b a n k in g business, has been p ro v id in g c re d it facilities fo r industry. In fo rm a tio n
a b o u t advances to in d u stry in re c e n t years is n o t available, b u t in view of
th e certain ty of loss in m ak in g lo n g -term ad v ances d u rin g a p e rio d of
hyper-inflation, th e financial assistance received by in d u stry fro m th e
b an k in g system m ust h av e b een sm all, ex cep t in th e case o f g o v e rn m e n t
industries financed by g o v e rn m e n t banks.
T h e re are no special institutions fo r th e provision of finance fo r
in d u stry in H o n g K o n g , M a la y a a n d Siam .
I n I n d ia a n In d u stria l F in a n c e C o rp o ra tio n w as fo rm e d in 1948
for th e p u rp o se of m a k in g m e d iu m -te rm a n d lo n g -term c re d it availab le
to in d u strial concerns, p a rtic u la rly in circum stances w h ere n o rm a l b a n k ing acco m m o d atio n is in a p p ro p ria te o r recourse to c a p ita l issue is im p ra c ticable. T h e C o rp o ra tio n m ay g ra n t loans o r advances, g u a ra n te e loans
o r u n d e rw rite th e issue of stocks, shares, bonds, d eb en tu res etc., of in d u stria l concerns. T h e C o rp ora tio n is to h av e a n au th o riz e d c a p ita l of
Rs. 100 m illion, p a r t of w h ich is to be subscribed by th e G ov ern m en t.
T h e G o v e rn m e n t will also g u a ra n te e th e shares in respect of th e p rin c ip a l
a n d th e p a y m e n t of a m in im u m dividend. T h e C o rp o ra tio n m a y issue
a n d sell bonds a n d d eb en tu res c arry in g in te re st fo r raising its w orking
cap ital. I t m ay also accep t deposits w h ich a re rep ay ab le in n o t less th a n
five years.
I n Indonesia th e re is no im p o rta n t in stitu tio n specializing in th e
provision of in d u stria l finance. H o w ev er, th e G o v e rn m e n t m a d e o th e r
arran g em en ts for m eetin g th e p o stw a r req u ire m e n ts of in d ustry . L icences
w ere issued to in d iv id ual enterprises u n b lo ck in g th e ir frozen p re w a r b a n k
balances a n d au th o rizin g banks to m ak e fu n d s av ailab le to th e m , n o t
exceeding stip u lated a m o u n ts w ith o r w ith o u t g o v e rn m e n t g u a ra n te e .
U n d e r this system, licences w ere issued to in d u stria l enterprises to th e
a m o u n t of 11.5 m illion guilders in 1946 a n d 14.3 m illion guilders in
1947.
I n so fa r as possible, allotm ents of foreig n ex ch an g e w ere also
g ra n te d fo r th e im p o rt of essential e q u ip m e n t o r ra w m aterials. T h e
P o p u la r C re d it B ank also g ra n te d credits a m o u n tin g to 1 m illion guilders
to in d u stry a n d tra d e d u rin g 1947.
P akistan is establishing a n In d u stria l F in a n c e C o rp o ra tio n , fo r w h ich
th e necessary legislation was passed in F e b ru a ry 1949. T h e C o rp o ra tio n
will fu n c tio n m o re o r less on th e sam e lines as th e In d u stria l F in a n c e
C o rp o ra tio n of In d ia . Its p u rp o se is to m ak e m e d iu m -te rm a n d lo n g -term
c re d it av ailab le to in d u stria l concerns. I t c a n g u a ra n te e loans raised by
B A N K IN G
153
in d u stria l concerns o r u n d e rw rite th e ir issue of stock, shares, bonds o r
d eb en tu res.
T h e C o rp o ra tio n w ill h a v e a n a u th o riz e d c a p ita l of R s. 30 m illion,
51
p e r c e n t of w h ic h will be subscribed by th e G o v e rn m e n t. I n o rd e r
to raise its w o rk in g c a p ita l, th e C o rp o ra tio n m ay issue a n d sell bonds
a n d d e b e n tu re s o r a c c e p t deposits u n d e r co nd itio ns la id d o w n by th e
G o v e rn m e n t. T h e shares of th e C o rp o ra tio n will be g u a ra n te e d by th e
G o v e rn m e n t w ith re g a rd to th e p rin c ip a l a n d m in im u m a n n u a l div id en d ,
as also th e b onds a n d d e b en tu res issued by it. T h e G o v e rn m e n t will
a p p o in t th e m a n a g in g d ire c to r a n d a m a jo rity of th e m em bers of th e
B o ard of D irectors.
I n th e Philippines, th e R e h a b ilita tio n F in a n c e C o rp o ra tio n is a special in stitu tio n fo r fin an cin g th e re h a b ilita tio n of th e econom y. I t provides
fin an ce fo r in d u stry . F ro m Ja n u a ry , 1947 to O cto b er, 1948 its loans
ag g re g a te d 165 m illion pesos. I t has been decided recently to float a 50
m illion pesos b o n d issue, in a d d itio n to a sim ilar a m o u n t issued in 1947,
w ith a view to in creasin g th e C o rp o ra tio n ’s c a p ita l to 300 m illion pesos.
I n J a p a n , th e R e c o n stru c tio n F in a n c e B ank is th e m ost im p o rta n t
in stitu tio n fo r re c o n stru c tio n finance, in c lu d in g finance fo r in d ustry . A t
th e e n d of O cto b e r, 1948, it h a d a p a id u p c a p ita l (p a id by th e G o v ern m en t) of Y. 25,000 m illion a n d it h a d issued bonds w o rth Y. 72,900
m illion. Its loans a m o u n te d to Y. 97,359 m illion as ag a in st Y. 33,688
m illion a t th e e n d of O cto b e r, 1947, rep re se n tin g a n increase of a b o u t
190 p e r c e n t in th e course of tw elve m o n th s. T h e loans in c lu d e th e
a m o u n ts le n t fo r covering th e deficits of c e rta in enterprises. L oans
a d v a n c e d to in d u stry by o th e r banks a m o u n te d to Y. 57,000 m illion a t
th e e n d of O c to b e r, 1948 as ag a in st Y. 12,000 m illion a t th e e n d of
O c to b e r, 1947.
Se
c u r it y
M
a r k e t s
Stock exchanges p lay a n im p o rta n t role in m obilizing th e co m m u n ity ’s savings. T h e y im p a rt “liq u id ity ” a n d “p ric e c o n tin u ity ” to stocks
a n d shares a n d th u s e n co u rag e th e g ro w th of th e in v e stm e n t h a b it. I n
th e absence of c e n tra l p la n n in g , th ey d e te rm in e , th ro u g h th e ir price
m ech an ism , th e d ire ctio n of th e co m m u n ity ’s investm ents. By d ealin g in
g o v ern m e n t securities th ey h e lp G o v ern m en ts in raisin g funds, a n d facilita te th e “o p e n m a rk e t o p e ra tio n s” of c e n tra l banks. T h e y encourage
b ra n c h b a n k in g as they p ro v id e a c o llateral ag a in st w h ich advances can
be m a d e w ith o u t p erso n al know ledge of th e b o rro w e r’s c h a ra c te r a n d
o th e r affairs. Stock e x ch an g e activity, su b ject to c e rta in qualifications,
is a n in d ic a to r of th e g e n e ra l eco n o m ic activ ity in a country.
154
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
M a n y countries of th e region h av e no stock exchanges a n d can n o t,
therefore, avail them selves of th e facilities p ro v id ed by th e m . I n fact,
stock exchanges com e in to being only a fte r a c e rta in stage of econom ic
developm ent. T h ey are m arkets for stocks, shares a n d o th e r securities
w hich becom e available w h en a c o u n try h as achieved a c e rta in m easure
of ind ustrialisation o r w h en o the r c o rp o ra te activity h as b een w ell d e veloped. T h u s lack of stock exchanges in some countries of th e region
only indicates th e u nd er-d ev elo p ed c h a ra c te r of th e ir econom ies. H o w ever, th e question as to w h e th e r they could be usefully set u p in som e
countries requires exam inatio n.
Stock exchange facilities a re available in several countries of the
region. I n In d ia th e re w ere as m a n y as 21 exchanges, a n d th e v alu e of
the securities listed on them , in clu d in g G o v e rn m e n t securities, w as estim a ted at Rs. 28,000 m illion in 1945. B om bay a n d C a lc u tta exchanges are
the m ost im p o rta n t. M a n y exchanges w ork w ith o u t p ro p e r rules of business, w hile in some cities street m arkets exist side by side w ith them .
I n C h in a, since th e w ar, th ere are tw o stock exchanges, in S h a n g h a i an d
T ientsin. S h an g h ai Stock E x ch an g e is by f a r th e m o re im p o rta n t. I t was
organized by a n o rd e r of th e E xecutive Y u a n in M ay, 1946 a n d was
o pened for business on 16 Septem ber, 1946. I t is p riv ately ow ned an d
m an ag ed a n d is th e only exchange d ealin g in stocks a n d bonds in S h a n g hai. G o v e rn m e n t bonds a n d stocks issued by foreign firms in C h in a are
n o t listed on it. A t th e en d of 1947 it h a d 245 licensed brokers. I n H o n g
K ong th e re is one stock exchange com prising a b o u t 60 m em bers. In
J a p a n the Tokyo Stock E xchange is th e m ost im p o rta n t security m a rk e t
in the country. D efinite in fo rm a tio n a b o u t th e n u m b e r o r organization
of stock exchanges in o th er countries of the region is n o t available.
Stock exchange speculation has been th e subject of a good deal of
criticism all over the w orld. W ith in ce rta in lim its speculation is n o t only
unobjectionable b u t em inently desirable, as it m akes fo r price c o n tin u ity
a n d provides liquidity an d m arketability to securities. S peculative p u r chases, w hen the supply tem porarily exceeds d e m a n d , a n d sales w hen
d e m a n d exceeds supply, brin g a b o u t a sm ooth tra n sitio n of prices an d
p rev en t violent fluctuations. B ut this is so only w h e n speculatio n is based
o n th e anticip ation s of intelligent a n d w ell-inform ed speculators. T h e
case is d ifferent w h en the u n in fo rm e d e n te r th e field in a spirit of sheer
gam bling. A gain, the speculators m ay try to m a n ip u la te th e m a rk e t in
o rd e r to create such conditions of d e m a n d a n d supply as to m ak e the
price different from w h a t it w ould have been in th e n o rm al course of
events. I t is such speculative practices as these w hich a re undesirable.
T h e re has been a grow ing realization in In d ia th a t th e w orking of
the stock exchanges left m u c h to be desired. T h e re fo re th e G o v e rn m e n t
B A N K IN G
155
d e p u te d a n e x p e rt to study th e m a tte r. H is re p o rt was p u b lish ed in July,
1948. I t re c o m m e n d e d th e re g u la tio n a n d c ontrol of th e stock exchanges
w ith a view to p re v e n tin g som e of th e g larin g abuses. I t also em phasized
th a t th e security a n d in v estm en t m ark ets w ere closely c on n ected a n d
th a t it was n o t possible to control the one w ith o u t controlling th e other.
H e n c e th e a p p o in tm e n t was re c o m m en d e d of a sem i-judicial N a tio n al
In v e stm e n t C om m ission to be e n tru ste d w ith th e co n tro l of b o th the
security a n d in v e stm e n t m arkets. N o action has been ta k e n by the
G o v e rn m e n t o n th e rep o rt.
T h e y ear u n d e r review witnessed a fall in th e v alue of securities
in In d ia . T h e E conom ic A dvisor’s In d e x N u m b e r of g o v e rn m e n t securities
registered a fall of 2.5 points, th a t is fro m 117.3 o n 6 D ecem ber, 1947 to
114.8 o n 4 D ecem b er, 1948. As reg ards in d u stria l securities th e index
n u m b e r fell d u rin g th e sam e p e rio d fro m 168.9 to 156.6 in th e case of
fixed yield securities a n d fro m 184.7 to 156.7 in th e case of va ria b le yield
securities. T h is indicates a rising tre n d of in terest rates. T h e c o m p a ra tiv e ly g re a te r fall in th e case of v ariab le yield securities was d u e to political
factors, in d u stria l strife a n d u n c e rta in ty a b o u t ta x a tio n a n d governm ent
contro l o ver industry.
T h e two stock exchanges in C h in a w ere officially closed as a p a rt
of the c u rren cy refo rm m easures of 19 A ugust, 1948 a n d h av e rem ained
closed since. B efore th a t d ate, how ever, stock exchange activity in
C h in a fully reflected some of th e im p o rta n t econom ic developm ents th a t
w ere ta k in g place in th e country. T h e flight from currency greatly
increased th e d e m a n d fo r stocks a n d shares, an d raised th e ir prices to
g re a t heights. S u b ject to this general tendency, how ever, the prices of
C hinese in d u stria l shares flu c tu a te d w ith th e fo rtu n es of th e various
in d u stria l concerns. T h e ir prices w e n t d ow n w h en th e e a rn in g prospects
w ere sm all o n ac c o u n t of th e lack of ra w m aterials a n d hig h cost of
lab o u r, a n d w e n t u p w h e n conditions b ecam e m ore fav o u ra b le on a c co u n t
of the supervision of th e com m odity m arkets, inspection of w arehouses
a n d suppression of tra d in g in foreign securities. T h e prices of b a n k shares
w ere n o t su bject to as g re a t fluctuations because th e ir e a rn in g prospects
w ere n o t d e p e n d e n t on th e supply of ra w m aterials. F o reig n securities
w ere very m u c h in d e m a n d till 12 M ay, 1948, w h en th e C e n tra l B ank of
C h in a issued a directive th a t foreign securities could n o t be exported
w ith o u t G o v e rn m e n t perm ission a n d th a t th e ir sale proceeds and
divid en d s m u st be su rre n d e re d to th e G o v ern m ent.
T h e values of stocks a n d shares in H o n g K o n g have risen greatly
since 1946. T h is has b een due, p a rtly to th e generally prosperous co n d itions w h ich hav e existed in H o n g K o n g a n d w hich h av e been reflected
in th e profits of local com panies, a n d p a rtly to a fall in th e valu e of
156
PART III. MONETARY AND FISCAL DEVELOPMENTS
m oney. T h e m a rk e t re m a in e d du ll d u rin g 1948. T h is has been ascribed
to th e u n c e rta in political conditions p rev a ilin g in C h in a w h ich h av e
resulted in th e pu b lic’s p referen ce fo r cash o v er in v estm en t. T h e business
h a n d le d by th e Stock E x c h a n g e d u rin g 1948 a m o u n te d to H K $ 1 6 0
m illion. C o m p a ra tiv e figures fo r e a rlie r years a re n o t available. F o rw a rd
p u rch asin g a n d selling w ere p ro h ib ite d to re d u c e sp ecu latio n to a
m inim um .
I n Singapore th e share m a rk e t w as du ll a t th e close of 1948. T h is
was so in spite of th e fa c t th a t exp ectatio n s o f p ro d u c tio n in th e case of
a m ajo rity o f m ines, a n d of a rise in th e p rice of tin , h a d b een realized.
T h e d ete rio ra tio n in confidence a p p e a rs to be d u e to political factors.
T h e share m a rk e t in th e P hilippines re m a in e d p rac tic a lly u n a ffe c te d
by th e fall in general prices in 1948. T h is w as p ro b a b ly d u e to th e
pred o m in an ce of m in in g shares w h ich a re a type of security t h a t c a n
resist th e tendency to falling prices.
T h e prices of stocks a n d shares in Ja p a n show ed a n u p w a rd te n d e n c y
d u rin g th e m o n th s of J a n u a ry a n d F e b ru a ry , 1948. T h is w as p a rtly d u e
to a shortage of stock a n d p a rtly to a re c u rre n c e o f lack o f confidence
in th e currency, resultin g in a p referen ce fo r shares ov er cash. L a te r in
the year, prices show ed a te n d e n c y to sag, a n d th e m a rk e t w as extrem ely
dull in S ep tem b er a n d O ctober. T h is w as ascribed to a n over-supply of
stock. D u rin g th e last tw o m o n th s of 1948, how ever, th e sh are m a rk e t
was again very b u o y an t. T h is has b een a ttrib u te d to a fall in b lack m a rk e t
prices, w hich m a d e investors in terested in shares in p referen ce to co m m odities. As th e re was n e ith e r a sh o rtag e of m a rk e ta b le stock n o r loss
of fa ith in th e currency, a rise in th e prices of shares m a y be in d ic a tiv e
of revival of business confidence. T h e O rien ta l E c o n o m ist’s g en eral in d ex
of stock exchange securities rose fro m 100 in D ecem ber, 1947 to 289 in
D ecem ber, 1948.
Ba
n k in g
L
e g is l a t io n
L egislation vitally affecting th e w o rk in g of th e b a n k in g systems in a
n u m b e r of countries of th e region was e n a c te d in th e course o f 1948.
Som e o f th e changes are stru c tu ra l in c h a ra c te r as they h a v e resu lted
in greatly in creasin g th e pow ers o f th e c e n tra l banks a n d in b rin g in g th e
p riv ate banks, even in th e ir d ay-to-day w orking, m o re o r less u n d e r th e
com plete ad m in istra tiv e control of e ith e r th e c e n tra l b a n k o r th e G o v e rn m ent.
I n C hina th e B anking L a w of S eptem ber, 1947, re p laced th e B an k ing L aw of 1931 a n d th e Savings B ank L a w o f 1934. I t com prised d etailed
provisions governing d iffe re n t kinds o f banks, e.g., com m ercial banks,
savings banks, in d u stria l banks, tru st com panies, n a tiv e banks a n d fo reig n
B A N K IN G
157
banks. T h e a c tu a l significance of this law , h ow ever, was over-shadow ed
by th e n u m e ro u s em ergency regulations, w h ich w ere enfo rced as exchange
c o n tro l o r a n ti-in fla tio n a ry m easures. B alances of all g o v e rn m e n t in stitu tio n s, w h ic h m ig h t previously be deposited w ith g o v ern m en t banks,
w ere to be tra n sfe rre d to th e C e n tra l B ank. As p a r t of th e curren cy
re fo rm m easures in A ugust, 1948, new regulation s w ere m a d e affecting
co m m ercial banks a n d tru s t com panies, b u t these b ecam e ineffective w ith
th e su b se q u e n t collapse of th e currency.
A B an k in g O rd in a n c e w as in tro d u c e d in H o n g K o n g in 1948. U n til
th e n th e re w as no b a n k in g legislation. T h e O rd in a n c e provides th a t no
b a n k in g business shall be co n d u c te d in th e C olony except by a com pany
licensed fo r th e purpose. T h e g r a n t of a licence m ay be refused w ith o u t
assigning an y reasons. T h e G o v e rn m e n t has been given w ide pow ers for
th e c o n tro l a n d re g u la tio n of b a n k in g a n d has b een au th o riz ed to o rd e r
a licensed b a n k to re fra in fro m carry in g on b a n k in g business. T h e
O rd in a n c e w as considered necessary because of th e establishm ent of a
large n u m b e r of banks a fte r th e w ar, m a n y of w h ich possessed in a d e q u a te
c a p ita l o r c a rrie d o n only speculative business w h ich w as o ften in c o n tra v e n tio n of exchange a n d tra d e regulations in force in th e Colony.
A fte r its lib e ra tio n fro m Ja p a n e se occu p atio n , H o n g K o n g w as faced
w ith th e q uestion of p re -o c c u p a tio n debts w h ich h a d been re p a id d u rin g
th e o c c u p a tio n perio d . T h e p ro b le m was a very com plicated one, fo r in
som e cases th e debts h a d been re p a id in H o n g K o n g dollars, in others in
o c c u p a tio n currency. T h e la tte r h a d h a d a n official value in term s of
H o n g K o n g dollars b u t its real p u rc h a sin g p o w e r h a d n o t been c o n stant
a n d h a d declined rap id ly w ith th e passage of tim e. I n cases w h ere
re p a y m e n t h a d b een m a d e in o c cu p a tio n curren cy a t th e official ra te of
ex change, a n im p o rta n t fa c to r re q u irin g c onsideration w as th e ac tu a l
p u rc h a sin g p o w e r of th e o c c u p a tio n c u rre n c y a t th e tim e of rep ay m ent.
A gain, in som e cases re p a y m e n t h a d b een m a d e to th e creditors a n d in
o th ers to liq u id a to rs a p p o in te d by th e o cc u p a tio n authorities.
A m o ra to riu m o n p re -o c c u p a tio n debts was a n n o u n c e d soon a fte r
lib era tio n a n d it re m a in e d in force fo r over th re e years. As a resu lt of
its o p e ra tio n , debts, w ith a few exceptions, could n o t be enforced by law ,
d ealings in securities re q u ire d th e p revious perm ission of th e F in a n c e
C o n tro lle r, those in la n d bein g also generally restricted . T h e m o ra to riu m
w as lifted in 1948 by a p ro c la m a tio n issued u n d e r th e D e b to r a n d
C re d ito r (O c c u p a tio n P e rio d ) O rd in a n c e , th e m a in featu res of w hich
a re as follow s:
A ll p ay m e n ts in respect of p re -o c c u p a tio n debts m a d e d u rin g th e
o c c u p a tio n p e rio d h a v e been v a lid a te d w holly w h ere such p a y m e n t was
m a d e in H o n g K o n g dollars, even to th e enem y, a n d p a rtly , acco rd in g
158
PA RT III.
M O N E T A R Y A N D FIS C A L D E V E L O P M E N T S
to a re v a lu a tio n scale, w here p a y m e n t was m a d e to a liq u id a to r in o ccu p a tio n currency. In terest on such debts is lim ited to 4 p e r cen t p e r a n n u m .
T h e re is provision fo r relief in special circum stances. Securities given to
creditors a n d released by th e o ccu p atio n au th o rities w ith o u t legal discharge of the debt, re m a in in th e o riginal charg e a n d m u st be rein sta te d
o r replaced. F ro m the very n a tu re of th e problem , th e re w ere b o u n d to
be cases of hard sh ip . T h e O rd in a n c e , therefore, has n o t satisfied all th e
parties affected. I t has, how ever, rem oved a n elem en t of u n c e rta in ty fro m
the econom y of th e Colony.
M a laya was faced w ith a sim ilar p roblem . T h e re th e m o ra to riu m
still continues, for it has not yet been possible to e n a c t a law satisfactory
to the various conflicting interests.
T h e B anking C o m pan ies O rd in a n c e, w h ich was p ro m u lg a te d in
In d ia in Septem ber, 1948, gives th e R eserve B ank of I n d ia w ide powers
reg ard in g enquiry, persuasion a n d ad m o n itio n in its relations w ith the
scheduled banks. I t authorizes th e R eserve B ank to d ire c t b an k in g com panies to tak e o r n o t to tak e any a ctio n re la ting to banking, a n d to lay
dow n a policy ab o u t advances w hich they a re u n d e r obligation to follow.
T hese pow ers w ere justified on th e g ro u n d th a t th e policy of banks in
g ra n tin g advances should fit in w ith th e over-all execution of m o n etary
policy.
A B anking C om panies (C o n tro l) A ct was passed in P akistan in 1948
to provide fo r the control of b a n k in g com panies by th e S ta te B ank of
Pakistan. T h e A ct requires the b a n k in g com panies to subm it periodic
re tu rn s a n d to m a in ta in m in im u m liq uid assets. T h e S tate B ank has
been given w ide pow ers for th e control a n d reg u la tio n of th e b a nking
system. I t is au th o rized to issue directions to th e b a n k in g com panies
a b o u t the policy to be followed in m a k in g advances, th e purposes fo r
w hich advances m ay o r m ay n ot be m ad e, th e m argins to be m a in ta in e d
in respect of secured advances, a n d th e rates of in terest to be charged.
I t can require a b a nk in g com p an y n o t to e n te r in to a tra n sa c tio n o r class
of tran sactio n o r to take such action as it (th e S ta te B ank) m a y th in k
fit. I t is also em pow ered to o rd e r a ch ange in th e m a n a g e m e n t of a
ban k in g com pany, if it is considered necessary a fte r a n inspection of the
affairs of the com pany.
T h e Philippines Congress in M ay, 1948 passed a Bill to co n tin u e u n til
eight years from th e d a te of p a y m e n t of w a r dam ages by th e W a r D a m age Com m ission, th e d eb t m o ra to riu m originally declared on 8 N ovem ber,
1944. T h e law applies to all debts a n d o th e r m o n e ta ry obligations in c u rre d p rio r to 8 D ecem ber, 1941 w hich a re still o u tsta n d in g , b u t does
n o t p reju d ice an y v o lu n ta ry settlem ents agreed u p o n b etw een d e b to r an d
creditor. In terest charges fro m 8 D ecem ber, 1941 to 26 F e b ru a ry , 1945
B A N K IN G
159
o n all such debts are w aived. T h e re a fte r interest a t th e ra te of 4 p e r cen t
p e r a n n u m is to be ch arg ed , unless th e obligation itself provides a lower
rate. A d e b to r w a n tin g to enjoy th e benefits of th e A ct m u st show p ro p e r
filing of his w a r d a m a g e claim w ith th e P h ilip p in e W a r D a m a g e C o m m ission in M a n ila.
A g eneral B anking A ct was passed in th e Philippines in July, 1948.
I t harm onizes the basic b a n k in g legislation w ith th e C e n tra l B ank Act.
I t gives p referen ce to P hilip p in e banks over foreign banks, encourages
banks to invest in g o v e rn m e n t securities a n d b ro ad ens th e field of b a n k ing activity. N o foreign b u ild in g a n d loan associations a re to be p e rm itte d
to tra n sa c t any business, a n d bran ch es of foreign banks are re q u ire d to
o b ta in a licence fo r carry in g on th e ir business. 60 p e r cent of the c apital
stock of b a n k in g in stitu tio n s established in fu tu re m u st be ow ned by
P h ilip p in e n atio n als w ho m u st also co n stitu te a t least tw o-thirds of the
m em bers of th e b o a rd of directors.
T h e m a in objectives of th e b a n k in g legislation described above m ay
be briefly stated as a n increase in th e pow ers of th e c e n tra l banks to
en able th e m to enforce c re d it policies, control of th e p riv a te banks
to ensure th e ir w o rk in g o n sound lines in th e interests of the depositors
a n d of th e country, a n d a solution of th e p ro b le m of p re -o c c u p a tio n debts.
S
u m m a r y
T h e re is sufficient evidence to in d ic a te th a t b a n k in g in th e region
has m a d e a p p reciab le progress d u rin g re c e n t years. D eposits as well as
loans a n d ad v an ces h av e been on th e increase. N evertheless, th e p resent
state of b a n k in g services is fa r fro m satisfactory. T h e b a n k in g systems of
m ost co u n tries lack fu n c tio n a l specialization. In stitu tio n s specializing in
a g ric u ltu ra l o r in d u stria l finance e ith e r do n o t exist o r a re seriously in a d e q u a te fo r a c tu al requirem ents. T h is results in th e com m ercial banks
h a v in g som etim es to go o u t of th e ir w ay to finance c e rta in types of econo m ic activity fo r w h ich th ey a re n o t p ro p erly qualified. T h e banks
them selves ru n a n u n u su a l risk a n d th e services w h ich they p rov id e c a n n o t be re g a rd e d as satisfactory. L a c k of finance is one of th e m a jo r fa c tors h o ld in g u p th e dev elo p m en t of ag ric u ltu re a n d in d u stry in a n u m b e r
of countries. E x p an sio n of b a n k in g facilities, p a rtic u la rly for ag ricu ltu re
a n d industry, is u rg e n tly called for. W h a t is w a n te d , how ever, is n o t a
m ere m u ltip lic a tio n of banks b u t th e e stab lish m en t of a com paratively
sm all n u m b e r of p ow erful a n d w ell-organized banks w ith am p le resources
a n d h av in g , if necessary, a large n u m b e r of branches. T h is w o u ld ensure
b o th econom y a n d efficiency.
F o reig n bank s occupy a n im p o r ta n t p osition in th e b a n k in g stru ctu re
of th e region. T h e y specialize in foreign tra d e finance in a d d itio n to o r-
160
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
d in a ry b an k in g business. T h e y p ro v id e c e rta in essential services fo r w h ich
th e indigenous banks e ith e r lack th e resources o r th e ability a n d e x p e rience. T hese services are doubtless a n im p o rta n t p a r t of th e reg io n ’s
invisible im ports, causing a n a p p reciab le d ra in o n foreign exchange.
M a n y countries of th e reg io n h av e no security m a rk e ts a t all. I n
others w h ere they do exist, th eir o rg an izatio n a n d w o rk in g leave m u c h
to be desired. I n view of th e im p o rta n t role p lay ed by th e m in m obilizing
th e co m m u nity ’s savings a n d th u s p ro m o tin g th e econom ic d ev elo p m en t
of countries m ainly d e p e n d e n t on p riv a te en terp rise, th e question of settin g th em u p w here they do n o t exist, a n d of im p ro v in g th e w o rk in g of
th e existing m ark ets, deserves c arefu l consideration.
T h e p ro b lem of p re -o c c u p a tio n debts in th e case of countries th a t
w ere occupied by th e Ja p a n e se d u rin g th e w a r is being tackled differently
in differen t countries. I n H o n g K o n g th e m o ra to riu m o n p re -o c c u p a tio n
debts was lifted d u rin g 1948. I n th e P h ilippines th e d e b t m o ra to riu m is
to continue u n til eight years fro m th e d a te of p a y m e n t of w a r dam ages
by th e W a r D am ages C om m ission. I n M a la y a a n d S in g ap o re no definite
decision h as yet been arriv e d a t a n d th e m o ra to riu m still continues.
T h e y ear u n d e r review w itnessed a m a rk e d ten d en cy fo r th e esta b lishm ent of c e n tra l banks. T h re e countries, nam ely, B u rm a, P a k ista n a n d
th e P hilippines, now h av e c e n tra l banks of th e ir ow n, a n d a n o th e r,
Ceylon, will h av e one shortly. T h e ten d en cy is easily e x p lain ed . A c e n tra l
b a n k is a n in stitu tio n th a t c a n ensure th e fre e d o m of a c o u n try ’s
m on etary a n d b an k in g systems fro m e x te rn a l d o m in a tio n o r c ontrol. I t
is alm ost indispensable fo r th e m a n a g e m e n t of c u rren cy w h ic h h a s b ecom e essential u n d e r existing conditions. I n a d d itio n to th e u su al c e n tra l
banking functions, nam ely th e u n ificatio n of cu rren cy a n d c re d it controls,
th e cen tralizatio n of cu rren cy a n d b a n k in g reserves etc., it provides m an y
o th e r facilities such as th e m a n a g e m e n t of th e p u b lic d e b t a n d th e a d m in istratio n of exchange co ntro l w h ich h av e assum ed very g re a t im p o rtan ce in re c e n t years.
A n im p o rta n t d ev elo p m en t is th e su b o rd in a tio n of th e c e n tra l banks
to th e ir respective G overnm ents. T h e cen tra l banks established by B urm a,
P ak istan a n d th e Philippines are S ta te banks. T h o se of C h in a , J a p a n
a n d Siam w ere alread y S tate banks. T h e R eserve B ank of In d ia , w h ich
was h ith e rto , a t least in form , a p riv a te sh areh o ld ers’ b an k , h a s been
nationalized a n d p laced u n d e r com plete g o v e rnm e n t control.
T h e re has been a noticeable ten d en cy to increase th e pow ers of
cen tra l banks. L egislation passed d u rin g 1948 h as co n fe rre d very w ide
pow ers o n th e c e n tra l banks of In d ia , P ak istan a n d th e P h ilip p in es a n d
has b ro u g h t th e p riv a te banks m ore o r less u n d e r th e ir com plete ad m in istra tiv e control. T h e fre e d o m of th e p riv a te b an k s h a s b een g reatly
B A N K IN G
161
c u rtaile d , a n d even th e ir day-to -d ay w orking c a n be in te rfe re d w ith. T h e
g ra n t of such pow ers to th e c e n tra l banks has b een justified on th e g ro u n d
th a t th e u su al m eth o d s of c re d it c on tro l th ro u g h th e b a n k ra te a n d o p en
m a rk e t o p e ra tio n s h av e p ro v e d to be ineffective u n d e r th e existing o rg a n iz a tio n of th e b a n k in g systems. A n essential c o n d itio n of success,
how ever, is th a t these pow ers a re used w ith care, a n d , in p a rtic u la r, in
such a m a n n e r as will n o t cu rb in d iv id u al in itiativ e a n d ju d g m e n t o n th e
p a r t of th e p riv a te b ank er. O therw ise, in ste ad of p ro m o tin g th e d evelop m e n t of b a n k in g o n sound lines, th e c en tral banks m ay actually prove
to be a n obstacle to progress.
CHAPTER X
Public Finance
M
a g n it u d e
o f
G
o v e r n m e n t
Bu
d g e t s
Since th e w a r th e re has been a g re a t ex pansion of g o v e rn m e n t
activities in m an y countries of th e region. O w in g to u n se ttle d conditions
a n d civil disorders, defence ex p en d itu res w ere n o t substantially red u ced ,
w hile certa in fun ctio n s ta k e n over by G o v ernm en ts as w a r exigencies
con tin u ed to be p e rfo rm e d by th e civil a d m in istra tio n a fte r th e w ar. In
add itio n , th e re is a w id esp read d e m a n d for econom ic d e v e lo p m e n t in
w h ich th e G o v ern m en t is n o t only to p lay th e role of a p ro m o te r b u t also
th a t of a n active p a rtic ip a n t. D espite these factors, w h ic h call fo r large
g o v e rnm en t outlay, p o st-w a r budgets of th e w a r-d e v a sta te d co u n tries of
th e region are fo u n d to be relatively low in term s of p re w a r prices, especially fo r th e financial years 1946 a n d 1947. O n th e o th e r h a n d , for
those countries w h ich w ere n o t d irectly affected by th e w ar, th e re has
been a continuous expansion of g o v ernm ent budgets co m p ared w ith p re w ar. T a b le 49 presents th e co m p a ra tiv e indices, in term s of p re w a r prices,
of g o v ern m en t e x p e n d itu re a n d revenue fo r selected countries of th e
region. I t is im p o rta n t to note, how ever, th a t in c e rta in cases, th e b u d g e tary figures do n o t entirely rep re se n t th e G o v e rn m e n t’s over-all financial
position. I n th e a b n o rm a l p erio d im m ed iately a fte r th e w ar, m an y
ex tra o rd in a ry expenditures, w hich w ere n o t m e t fro m th e n o rm a l re sources of th e G o v e rn m en t, w ere o ften ex clu d ed fro m th e b u d g e t. In d e e d ,
th e inclusion a n d exclusion of c e rta in item s in th e b u d g e t vary by c o u n tries as well as by years. T h is seriously vitiates th e c o m p arab ility of th e
d a ta presented. N evertheless, a ro u g h p ic tu re m ay be fo rm ed by a study
of th e indices c o m p u te d in tab le 4 9 .1
F o r C eylon a n d In d ia , tw o countries w h ich suffered little d irect
d am age fro m th e w ar, th e re h as b een a n a p p reciab le increase in g o v e rn m e n t e x p e n d itu re since th e w a r in term s of p re w a r prices. O n th e o th e r
h a n d , H o n g K o n g a n d In d o c h in a registered a sh arp fall. I n th e case of
B u rm a a n d Siam , g o v ern m en t e x p e n d itu re in th e first tw o p o stw a r years,
1946
a n d 1947, fell below p re w a r, b u t in th e fin an cial y e a r 1 9 4 8 /4 9 , it
increased beyond p rew ar. E ven in J a p a n , th e y ear 1946 saw a fall in
1 F o r sources o f d a ta u se d in th is c h a p te r, unless o th erw ise s ta te d , see fo o tn o te s
to T a b l e 51.
162
163
PU B LIC FIN A N C E
T
a b l e
49
I n d e x of G o v e rn m e n t R e v e n u e s a n d E x p e n d itu re s in Prew ar Pricesa
Country
B u rm a ..........
C e y lo n ...........
C h i n a .............
Hong K ong .
I n d i a .............
In d o c h in a . .
J a p a n .............
P h ilip p in e s .
S ia m .............
Prewar
Base year
. 1939/40
. 1938/39
1936/37
. 1939
. 1937/38
. 1939
1936
. 1938
1938/39
Revenue (prewar = 100)
Financial year beginning in
1946
1947
1948
40.1
170.9
60.5
32.5 C
113.2 d
13.7
64.6
31.1
40.2
47.7
176.2
31.1
66.0
89.4e
25.7
97.5
48 .8
46 .0
65 .4
173.9
104.0b
65 .4
76.3
38.7
105.7
75.6
107.1
Expenditure (prewar = 100)
Financial year beginning in
1946
1947
1948
66.7
147.3
118.6
37.1c
207.8 d
13.9
89.0
59.8
78.5
58.6
206. 0
91.0
57.8
107. 7 e
26.0
104.7
55.8
59.1
101.3
198.4
136.1 b
71.1
114.5
39.3
103.3
94.0
101.6
a T h e figures r e fe r to C e n tr a l G o v e r n m e n t fin an c e only. F o r d e ta ile d e x p la n a tio n ,
see f o o tn o te s to ta b le 51 below . F o r la c k of d e ta ile d in f o r m a tio n a n d / o r a p p r o p r i a te p ric e in d e x , In d o n e s ia , M a la y a a n d S in g a p o re a re le ft o u t o f t h e table.
P a k is ta n , b e in g a n e w c o u n try , is n o t in c lu d e d in th is tab le .
T h e figures h a v e b e e n d e fla te d to th e p r e w a r level by m e a n s of a p p r o p r ia t e costof-liv in g ind ic e s e x c e p t fo r C h i n a a n d J a p a n fo r w h ic h r e ta il p ric e indices
c o v e rin g th e sam e p e rio d as th e re v e n u e a n d e x p e n d itu r e figures a re used. F o r
1948, th e cost-of-living indices o r re ta il p ric e indices fo r th e last m o n th of th e
fin a n c ia l y e a r 1 9 4 7 / 4 8 o r th e a v e ra g e of several m o n th s in 1948 a re used, d e p e n d in g u p o n th e a v a ila b ility o f a p p r o p r ia t e d a ta .
b P r o j e c t e d f r o m th e h a lf -y e a r b u d g e t c o v erin g J a n .- J u n e , 1948. T h e re v e n u e
is p r o b a b ly o v e r-e stim a te d .
c C o v e rin g 11 m o n th s only.
d F o r U n d i v i d e d In d i a .
e O n t h e b a s i s o f 12 m o n t h s , p r o j e c t e d f r o m t h e I n t e r i m B u d g e t f o r
2/17 o n t h s
m
f r o m 15 A u g u s t, 1947 to 31 M a r c h , 1948.
g o v e rn m e n t e x p e n d itu re ,1 b u t fro m 1947 onw ards, g o v e rn m e n t e x p e n d itu re b egan to rise above th e p re w a r (1936) level. I n th e case of C h in a ,
th e situ a tio n is such as to re n d e r a c c u ra te estim ation impossible. First, the
b u d g e t figures p r e p a re d in th e b e g in n in g of th e financial y ear w ere g e n erally re n d e re d obsolete by th e ra p id d ep re c ia tio n of currency, a n d in the
absence of revised b u d g e ta ry estim ates o r accounts figures th e original
b u d g e ta ry figures do n o t reflect tru th fu lly th e a c tu a l financial position of
th e G o v e rn m e n t. Second, in view of th e ra p id rise in prices, th e m eth o d
of deflatin g a n n u a l b u d g e ta ry figures by m eans of a n a n n u a l average of
th e m o n th ly p rice indices does n o t give a satisfactory result. N evertheless,
th e indices fo r C h in a , w o rk ed o u t in table 49, defective as they are, w ould
seem to show th a t g o v e rn m e n t e x p e n d itu re since the w a r has exceeded
p re w a r levels. M o reover, before th e w ar, n early o n e -q u a rte r of th e a n n u a l
e x p e n d itu re of th e C hinese G o v e rn m e n t was used fo r th e p a y m e n t of
1 T h is fa ll is to som e e x te n t d u e to t h e r e d u c t i o n of m ilita ry e x p e n d itu re s a n d
d is a p p e a r a n c e o f ex p en se item s fo r colo n ia l possessions in p o s tw a r years in th e
S p e c ia l A c c o u n ts.
164
PART
III. M O N E T A R Y A N D F I S C A L D E V E L O P M E N T S
in tere st charges a n d th e re d e m p tio n of p u b lic deb t, b u t since th e w ar, as
p u b lic debts h av e been v irtu ally w ip ed o u t by inflation, th e G o v e rn m e n t
has been relieved of a large b u rd e n arising fro m d e b t services. T h u s, th e
to ta l resources actually available fo r o th e r b u dgetary, m a in ly a d m in istra tive, expenses should be m u c h h ig h e r th a n a casual com parison w ith
p re w a r budgets w ould indicate.
A p a rt fro m the fa c t n o te d above th a t c erta in e x tra o rd in a ry e x p e n d itures, in cu rre d d u rin g th e p e rio d of re h a b ilita tio n a n d reco n stru ctio n ,
w ere n o t includ ed in th e re g u la r budgets, th e smallness of g o v ern m e n t
ex p en d itu re in term s of p re w a r prices m ay be p a rtly a ttrib u ta b le to th e
relative u n d e r-p a y m e n t of g o v e rn m e n t employees. A lm ost all countries in
the region experienced a p e rio d of in flation d u rin g a n d a fte r th e w ar. I n
face of th e continuous rise in prices, g o v e rn m e n t em ployees w ere generally
h a rd hit, as th e ir scales of p a y a n d allow ances w ere n o t subject to re-ad ju stm e n t as fre q u en tly as th e changes in th e p rice level. Since th e w agebill constitutes th e m a in body of g o v e rn m e n t ex p e n d itu re , th e lag in th e
w age-rates of g o v ern m e n t em ployees b e h in d th e p ric e level n a tu ra lly
reduces th e size of th e g o v ern m en t ou tlay w h en the la tte r is deflated by th e
price index. T h e fall in real wages a n d salaries is definitely h a rm fu l to th e
efficiency of th e g o v e rn m en t m achinery, a n d th e need fo r fre q u e n t re -a d ju stm e n t of wages a n d salaries in response to changes in th e price level is,
therefore, generally recognized. Provision fo r a n increase in th e re m u n e ra tion of g o v ern m en t em ployees was in fa c t m a d e in budgets of 1947 a n d
T
a b l e
50
I n d e x of B u d g e t Deficitsa
Base Y e a r 1946 =
B urm a . . . . .
C h in a . . . . .
In d ia
..
Japan .
..
1947
1948
26.9
64.8
37 .8 b
49.2
133.4
6 3 .5d
52.1
18.0
100
1947
M a lay a
. 2 6 .9 C
P a k is ta n . . . . 100b
P h ilip p in e s . . 27.2
4 4 .0
S i a m .............
1948
9 3 .5 C
160.1
68 . 6e
34.4
a All indices h a v e b e e n d e fla te d to th e b a se -ye a r p ric e level e x c e p t th o se fo r
M a la y a , see fo o tn o te c blow. F o r a c t u a l figures of b u d g e t deficits a n d su rp luses,
see ta b le 51 below . F o r I n d i a a n d P a k is ta n , i n c lu d in g c a p ita l e x p e n d itu re s .
b H y p o th e tic a l deficit fo r 12 m o n th s , p r o j e c t e d fr o m t h e I n t e r i m B u d g e t fo r
7 1/2 m o n th s fro m 15 A u g u s t, 1947 to 31 M a r c h , 1948.
c T h e indices h a v e n o t b e e n d e fla te d to t h e 1946 p ric e level, as t h e a p p r o p r ia t e
p ric e in d e x is n o t a v ailab le . T h e 1946 defic it covers t h e p e rio d 1 A p ril to 31
D e c e m b e r only.
d P ro je c te d fro m th e h a lf-y e a r b u d g e t fo r J a n u a r y - J u n e , 1948. T h e r e v e n u e w as
o v e r-e stim a te d. A c tu a l deficit sh o u ld be l a r g e r t h a n in 1947.
e T h e la rg e deficit in 1 9 4 8 /4 9 is d u e to e x tr a o r d in a r ily h e a v y e x p e n d itu r e s in
t h a t ye ar. T h e b u d g e t fo r 1 9 4 9 /5 0 p ro v id e s a s u rp lu s of 23 m illio n pesos.
P U B L IC F IN A N C E
165
1948, b u t in m ost cases, th e increase w as n o t a d e q u a te , especially in view
of th e c o n tin u in g rise in prices. T h e gen eral e x pansio n of g o v e rn m e n t
e x p e n d itu re in 1948 is a ttrib u ta b le n o t so m u c h to th e b e tte rm e n t of th e
tre a tm e n t of g o v ern m en t em ployees as to th e expansion of th e fu nctions
a n d activities of variou s g o v ern m en t d ep a rtm e n ts, a n d in some countries
civil d istu rb an ce.
O n th e rev e n u e side, th e first y ea r a fte r th e w a r saw a sh a rp decline
in g o v e rn m e n t receipts except in C eylon a n d In d ia . I n th e case of I n d o c h in a a n d th e P hilippines th e rev en u e in 1946, in term s of p re w a r prices,
fell to as low as 13.7 p e r c e n t a n d 31.1 p e r c e n t respectively o f p rew a r.
F o r C h in a , th e rev en u e in 1946 a n d 1947 reach ed respectively a b o u t 60.5
p e r c e n t a n d 31.1 p e r c e n t of p re w a r, b u t if c e rta in e x tra o rd in a ry receipts,
such as th e p roceeds realized fro m the sale of enem y properties, a re
excluded , it w o u ld fall to even low er p ro p o rtio n s c o m p a re d w ith prew ar.
E x c ep t for C eylon, I n d ia a n d H o n g K o n g ,1 th e re w as a general im p ro v em e n t in rev en u e collection in 1948 as c o m p a red w ith 1947. H ow ever,
in alm o st all w a r-d e v asta te d countries, e.g., B urm a, C h in a , H o n g K o ng,
In d o c h in a a n d th e Philippines, th e estim ated revenue fo r th e financial
y ear b e g in n in g in 1948, in term s of p re w a r prices, was still below the
n o rm a l level of rev en u e collected before th e w ar.
I f receipts a n d e x p en d itu res are ta k en to gether, th e b u d g e ta ry situ a tio n fo r th e co untries of th e region a p p e a re d to be b e tte r in 1947 a n d
1948 th a n in 1946. T a b le 50 gives th e in d e x of b u d g e t deficits fo r th e
th re e p o stw a r years, duly d eflated by p rice indices.
F o r th e financial y e a r 1948, th e increase in rev en u e a p p e a re d to be
m o re th a n offset by th e increase in ex p en d itu re , w ith th e result th a t, fo r
all cou n tries ex cep t C eylon, J a p a n a n d Siam , th e deficit of 1948 seem ed
to be la rg e r th a n th a t of 1947.2 I n th e case of C h in a , th e estim ate for
1948 was p ro je c te d fro m th e first h a lf-y e a r b u d g e t p ublish ed in th e b e g in n in g of th e year. I t m erely re p resen ted th e p la n n e d figure of th e
N a n k in g G o v e rn m e n t. I n view of th e d e te rio ra te d cond itio n in th e second
h a lf of th e year, th e a c tu a l deficit was p ro b a b ly m u c h la rg e r th a n w h a t
h a d b een originally p ro v id e d for. F o r I n d ia a n d P ak istan, th e rev en ue
a c c o u n t was m u c h im p ro v e d in th e financial y ea r 1948/49. I n fact, th e
revised e stim ate of P ak istan o n th e rev en u e a c c o u n t fo r 1 9 4 8 /4 9 show ed
1 F o r C e y lo n a n d H o n g K o n g t h e 1947 figures a re re v ised e stim a te s, w h ile t h e
1948 figures a re p r e li m in a r y e stim a te s. I t is likely t h a t a c t u a l c o lle c tio n f o r t h e
y e a r 1 9 4 8 / 4 9 will h a v e e x c e e d e d t h e p r e li m in a r y e stim a te . F o r I n d i a , t h e fall in th e
r e v e n u e i n d e x is p a r tl y d u e to th e c o n tr a c t i o n o f th e t e r r i t o r y as a r e s u lt of p a r t i tio n a n d p a r t l y to t h e r a p i d rise in t h e prices.
2 T h e c o n c lu sio n g iv e n h e re is te n t a ti v e b e c a u se t h e 1 9 4 8 /4 9 figures u se d h e re
a re m o stly o rig in a l e stim a te s o r re v ised e stim a te s, a n d w h e n th e final o r a c c o u n ts
figures a re a v a ila b le , t h e s i tu a tio n m a y b e s u b s ta n tia lly c h a n g e d .
166
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
T
a b l e
G o v e rn m e n t R e v e n u e , E x p e n
(in m illion cu
Financial year
beginning in
Prew arb
. .R evenue
Burma
(rupees )
180.3
E x p en d itu re
163.8
S u r p l u s / D e f i c i t + 16.5
1942 .
Revenue
E x p en d itu re
Su rp lu s/D eficit
..
1 9 4 3 ___ . R e v e n u e
E x p en d itu re
Su rp lu s/D eficit
1 9 4 4 ___ R e v e n u e
E x p en d itu re
S urplus/D eficit
.. .
..
..
..
..
.
..
..
..
..
..
1 9 4 5 ____ R e v e n u e
E x p en d itu re
S u rp lu s/D eficit
1 9 4 6 ____ R e v e n u e
283.8
E x p en d itu re
429.2
S u rp lu s/D eficit - 1 4 5 . 4
1 9 4 7 ____ R e v e n u e
3 1 9 .4
E xp en d itu re
356.4
S u r p l u s / D e f i c i t - 37.0
1 9 4 8 ____ R e v e n u e
45 9 .4
E xpenditure
64 6 .4
Surplus/D eficit - 1 8 7 . 0
Ceylon
( rupees )
116.9
129.4
- 12.5
200.0
186.3
+ 13.7
250.6
23 2 .0
+ 18.6
30 3 .9
278.2
+
25.7
China
(C N$)
)$
H
K(
1,029.4
1,334.9
305.5
5 ,2 6 7 .8
24,511.1
- 19,243.3
16 ,517.3
5 7 ,8 8 1 .8
- 4 1 ,3 6 4 .5
36,315.1
172,077.9
-1 3 5 ,7 6 2 .8
K ong
+
+
21.0
51 9 .0
6 7 6 .0
-1 5 7 .0
534.8
67 5 .3
-1 4 0 .5
-
-
-
1,196.5
1,258.2
61.8
2 ,8 1 7 .6
7,191.0
4 ,3 7 3 .4
12,135.0
46,004.1
3 3 ,8 6 9 .0
5 6 ,2 8 0 .9 e
9 6 ,2 7 6 .6 e
3 9 ,9 9 5 .7 e
..
..
..
..
..
..
..
..
( CN$ thousand million)
383.3
3 2 0.4
+ 62.9
45 7 .7
43 6 .7
41 .5
37.9
3.6
..
..
8 2 . 1d
8 5 .6 d
3 .5d
150.1
120.1
+
+
30.0
151.4
150.3
1.1
India e
(rupees)
1,217.0
1,257.6
40.6
2,353.6
4,2 5 6 .9
-1 ,9 0 3 .3
3,028.7
5,572.7
-2 ,5 4 4 .0
3,994.3
6 ,4 1 7 .0
-2 ,4 2 2 .7
4,0 8 1 .9
5,890.8
-1 ,8 0 8 .9
3,361.9
5,8 6 1 .5
-2 ,4 9 9 .6
1,7 8 7 .7 f
2 ,4 2 1 .8 f
6 3 4 .1 f
2 ,5 5 2 .4 j
3 ,8 5 5 .0 j
— 1,3 0 2 .6 j
a T he figures refer to C entral G overnm ent finance only. Prew ar figures refer to accounts figures
except for C hina and J a p a n for w hich budget figures were used ; w artim e figures refer to accounts
figures; postw ar figures refer to b udget estimates except for Ceylon (1945 and 1 9 4 6 ), H o n g K ong
(1945-47) and M alaya (1946 -4 7), fo r w hich accounts figures or prelim inary accounts figures are
used. Expenditure includes both " o rd in a ry ” and "e x tra o rd in a ry ” accounts. For Ceylon, it includes
" loan expenditure” ; for India and Pakistan, it includes capital expenditures b ut excludes "recoverable w ar expenditure” on behalf of A llied Governm ents and "d isch a rg e of p e rm anent d e b t” ; for
Japan , it includes special acc o u n ts; and for Siam, it includes supplem entary budgets. Revenue does
n ot include borrowings and issue of governm ent bonds b u t includes all non-recurrent receipts such
as proceeds from the sale of properties.
b Prew ar years refer to:
Burma ....................................................... 1939/40
Indonesia .................................................1938
Ceylon ....................................................... 1938/39
Japan ..........................................................1936
C hina ....................................................... 1936/37
M alaya ......................................................1941
H ong K ong ............................................ 1939
P hilippines ....................................... ........1938
India ........ ................................................. 1937/38
Siam .......................................................... 1938/39
Indochina .................................................1939
c From January to June 1948. P a rt of the second half-year budget, 1948, know n as the General
Budget, w as also published, b u t the rem aining portion, know n as th e Special B udget, was not
m ade public. These incomplete figures are, therefore, n ot presented here.
d Eleven m onths only.
e From prew ar to 1946, the figures refer to U ndiv ided In dia.
f Interim Budget for the period 15 August, 1947 to 31 M arch, 1948.
g T h e 1947 figures refer to the original estimates.
h 1942-45 figures are more inclusive tha n o ther years so the figures are not strictly com parable.
i N o t inclu d in g receipts from some special accounts.
167
P U B L IC F IN A N C E
51
diture a n d S u r p lu s /D e fic ita
rre n cy u n its)
lndo-China
(piastres)
+
+
+
Indonesia
(guilders)
115.3
113.6
1.7
184.2
151.7
32.5
227.1
176.5
50.7
219.1
219.1
5 9 6 .6
6 4 9 .0
- 5 2 .4
299.7
299.7
..
..
..
..
..
..
..
..
—
—
2 9 3 .0
2 9 3 .0
—
+
742.1
741.1
1.0
-1 ,9 3 0
1,249.9
1,2 49.9
—
..
Malaya
Japanh
(M$)
(yen)
7,823
8,432
609
17,136.0
3 1 ,9 6 5 .8
- 14,829.8
2 7 ,0 0 3 .2
4 7 , 4 5 8 .0
- 2 0 ,4 5 4 .8
115,787.6
158,311.5
- 4 2 ,5 2 3 .9
59,403i
1 16,316
- 56,9 1 3
91,8 9 6
136,396
- 4 4 ,5 0 0
3 7 3 ,5 1 6
4 3 2 ,4 1 3
- 5 8 ,8 9 7
1,069,583
1,126,488
- 5 6 ,9 0 5
137.1
139.2
-
2.1
..
..
..
Pakistan
(rupees)
..
..
..
..
..
..
..
..
..
..
..
129.7
222.8
- 93.1
261.5
28 6.3
- 24.8
277.5
364.6
- 87.1
..
..
..
Philippines
( pesos)
Siam
(baht)
136.0
139.0
3.0
118.2
138.2
-
..
..
..
..
..
..
..
220.6
-
..
..
206.1f
494.1f
-2 8 8 .0 f g
5 8 7 .0
1,0 30.0
-4 4 3 .0
183.0
359.8
-1 7 6 .8
263.2
307.4
- 44.2
392.3
4 98.8
-1 0 6 .5
87.4
211.6
-
..
..
..
20.0
133.2
-
250.5
38.9
2 88.9
410.1
1 2 1 .2
2 4 9.0
465.7
-2 1 6 .7
5 09.0
1,163.0
-6 5 4 .0
6 85.0
1,029.7
- 344.7
1,666.1
-
1,848.2
182.1
1 B udget estimates for 1948/49 as given in the table, differ from th e final estimates w hich show smaller
deficits. See B udget Speech by th e Finance M inister, The Gazette of India, 28 February, 1949.
Source:
B urm a: Budget Estimates of the Government of Burma, 1947/48; Prime Minister’s Statement on
Supplementary Budget Estimates for 1948/49, dated 3 February, 1949.
C eylon: T h e Ceylon Year Book 1948; A Six-Year Plan for Ceylon: Budget Speech, 1947/48 and
Budget Speech, 1948/49.
C h in a : Statistical Yearbook of the Republic of China, 1948 (Chinese T ext) ; United Nations Document
E /C N .8 / 1 3 / A nnex 15, Rev. 1; Central Bank W eekly
H o n g K o n g : Annual Reports of Hong Kong, 1946, 1947 and 1948.
In d ia : Finance Minister’s Budget Speeches, 1947/48, 1948/49, and 1949/50; Explanatory Memorandum on the Budget of the Central Government for 1947/48 and 1948/49; Reserve B ank of India, Report
on Currency, 1946-47 and 1947-48; United Nations Document E /C N . 8 / 3 1 / Annex 16.
Ind o c h in a : Bulletin Statistique de l'I ndochine, année 1947 et 1948; l ’Evolution de l ' Economie lndochinoise en 1947 et 1948.
In donesia: Statistical Pocketbook of Indonesia, 1941. F o r 1947 deficit figure, based upon Press reports.
J a p a n : Suprem e C om m ander for the A llied Powers, Summation of Non-M ilitary Activities in Japan
( M o n t h l y ) ; U n ite d N a tio n s D ocu m en t E / C N . 8 /3 1 /A n n e x 2 0 ; T he Year Book of Japan, 1936 (English
te x t) .
M alaya: Annual Reports of the Malayan Union. 1946 and 1947; Estimates of the Federal Revenue
and Expenditure fo r the year 1949.
P a k ista n : Finance Minister’s Speeches on Central Budget for 1948/49 and 1949/50; Budget of the
Central Government of Pakistan for the year 1949/50; Survey of Pakistan, 1947/48.
P h ilippines: D a ta supplied by th e P h ilippine G overnm ent.
Siam : Statistical Year Book of Thailand, 1937/38-1938/39; d a ta supplied by th e Siamese G overnm ent.
168
PART III. MONETARY AND FISCAL DEVELOPMENTS
a sm all surplus, a n d it was th e larg e increase in c a p ita l o u tlay fo r develo p m e n tal purposes th a t left th e budgets of b o th In d ia a n d P a k ista n w ith
a g re a te r deficit in 1 9 4 8/4 9 th a n in 1 9 4 7 /4 8 . I n th e case of B u rm a a n d
M alaya, th e increased deficit fo r 1 9 4 8 /4 9 was a p p a re n tly d u e to th e lack
of in te rn a l stability w hich c u rta ile d th e ta x yield a n d called fo r large
ex p e n d itu re to m e et em ergencies. T a k in g in to a c c o u n t these special c ircum stances, one m ay conclu de th a t w ith th e exceptio n of those countries
w hich w ere suffering fro m civil disturbances, th e region as a w hole has
m a d e considerable progress in im p ro v in g its fin an cial p osition since th e
e n d of th e w ar.
T a b le 51 gives a su m m ary of e x p e n d itu re a n d rev e n u e figures of
countries of th e reg io n fro m p re w a r to th e financial y e a r 1 9 4 8 /4 9 . I t
is fu rth e r ex am in ed in c h a p te r X I .
A
n a l y s is
o f
G
o v e r n m e n t
E
x p e n d it u r e
a n d
R
e v e n u e
E x p e n d itu re
Im m e d ia te ly a fte r th e w ar, relief a n d re h a b ilita tio n w as th e m ost
u rg e n t task in th e w a r-d e v a sta te d countries, w hile in others, d em o bilizatio n a n d reconversion called fo r large g o v e rn m e n t outlay. I t is, how ever,
n o t possible to o b ta in a com plete p ic tu re of these a b n o rm a l expenditures.
I n C h in a, fo r in stance, goods fo r relief a n d re h a b ilita tio n pu rp oses w ere
largely supp lied by U N R R A , a n d th e a p p ro p ria tio n s fo r th e o p e ra tio n
of C N R R A , a n agency c re a te d by th e C hinese G o v e rn m e n t fo r th e
d istrib u tio n o f U N R R A supplies, w ere m isleadingly sm all; a m o u n tin g to
only 0.4 a n d 2.0 p e r c e n t of to ta l g o v e rn m e n t e x p e n d itu re in 1946 a n d
1947 respectively. F o r th e sam e tw o years, th e expenses listed by th e
C hinese G o v e rn m en t u n d e r th e h e a d in g of “relief a n d reh a b ilita tio n ”
a c co u n te d fo r only 2.0 a n d 2.6 p e r c e n t respectively of th e to ta l e x p e n d itu re. I n B urm a, th e cost of o p e ra tin g th e C ivil A ffairs Service (B u rm a ),
c re ated by th e B ritish m ilitary a u th o ritie s d u rin g th e p e rio d of r e occupation , w as b o rn e by th e U n ite d K in g d o m G o v e rn m e n t. I n th e
Philippines, relief a n d re h a b ilita tio n w ere largely covered by th e w a rd a m ag e paym en ts m a d e by th e U n ite d S tates G o v e rn m e n t u n d e r th e
P h ilip p in e R e h a b ilita tio n A c t of 1946.1 I t is d u e to special circum stances
such as these th a t th e m a g n itu d e of e x tra o rd in a ry o u tla y re q u ire d fo r
re-occu pation, relief a n d re h a b ilita tio n c a n n o t be satisfactorily asc erta in ed
fro m g o v ern m en t budgets p ro p e r.
B arrin g this fe a tu re of p o st-w a r finance, a com pariso n of p re w a r
a n d p o stw ar g o v e rn m e n t bu dg ets in dicates several n o ta b le changes b o th
1 T h e A c t a u th o riz e s a to ta l p a y m e n t o f P .8 0 0 ,0 0 0 ,0 0 0 f o r w a r d a m a g e s. A s o n
30 N o v e m b e r, 1948, a to ta l o f P .1 6 3 ,0 0 0 ,0 0 0 h a d b e e n p a id o n p r iv a te c la im s a n d
a to ta l o f P .4 7 ,0 0 0 , 0 0 0 to t h e P h ilip p in e G o v e r n m e n t f o r p u b lic c o n s tru c tio n
a n d re p a irs.
169
P U B L I C F IN A N C E
in e x p e n d itu re a n d in revenue. First, subsequent to th e fo rm a tio n of
in d e p e n d e n t n a tio n a l G ov ern m en ts or th e a tta in m e n t of a h ig h e r degree
of self-governm ent, a g re a te r sh are of g o v e rn m en t b u d g e t has been
allo tted fo r defen ce services in B u rm a, In d ia , M a la y a a n d th e Philippines.
I n som e cases, w ith d ra w a l of th e troops of th e m e tro p o lita n Pow ers
necessitated th e new ly-established n a tio n a l G o vernm ents to e x p an d th eir
a rm e d services, w hile in others, in te rn a l difficulties also com pelled G ove rn m e n ts to m a in ta in a n d eq u ip a large arm y to m e e t em ergencies. I n
th e case of In d ia , th e p a rtitio n too k p lace before its g re a t a rm e d forces
h a d been com pletely dem obilized. T h e subsequent a rra n g e m e n t to re c o n stitu te th e a rm e d forces in to tw o se p a rate forces fo r I n d ia an d
P a k ista n , a n d th e need for ea ch of th e tw o cou ntries to keep a large arm y
fo r th e m a in te n a n c e of p e a c e a n d o rd e r d u rin g th e tim e of p a rtitio n ,
T a b le 52
S h are o f D e fe n c e Service in G o v e rn m e n t E x p e n d itu re
(p e r cent)
Country
B urm a
Ceylon
C h in a ..........
I n d i a g ..........
J a p a n ..........
M alay a
P akistang . .
Philippines .
S i a m ............
a P rew a r years used
B u rm a ..........................
C h in a .............................
I n d i a .............................
Prewara
............... 14.1
............... 41.0
............... 4 3 .0 e
............... 47.2
............... 12.9
............... 25.3
in this table are:
............ 1939/40
............ 1 9 36 /3 7
............ 1 9 37 /3 8
Postwar
Financial year beginning in
1946
1947
1948
8.0b
..
45.9
62.7e
19.2
1.6
50.7
4 6 .7f
17.8c
1.2
51.5d
47.0
—
—
—
0.1
1.5
77.8f
20.8
2.4
70.7
13.4
‡‡
18.6
Ja p a n
Philippines
S i a m ..........
.1 9 3 6 /3 7
.1940
.1 9 3 8 /3 9
b T h e e x p e n d i t u r e o n “ effective d e fe n c e c h a r g e s ” w a s p a id b y t h e U n i t e d K i n g d o m W a r O ffice since 1 A p ril, 1941 u p t o 31 M a r c h , 1947. T h e d e fe n c e e x p e n d it u r e p r o v id e d in t h e b u d g e t 1 9 4 6 / 4 7 , th e re f o re , o n ly c o v e re d t h e p e r io d 1 A p ril to
3 0 S e p te m b e r, 1947 a n d c o n s e q u e n tly its p e r c e n ta g e w a s n o t as h i g h as in
1 9 4 7 / 4 8 a n d 1 9 4 8 /4 9 .
c R e v is e d b u d g e t estim a te s.
d C a lc u l a t e d fro m t h e h a lf-y e a r b u d g e t f o r J a n u a r y - J u n e , 1948, w ith t h e e x c lu sion o f t h e ite m “ R e se rv e f o r C o s t o f L iv in g A llo w a n c e A d j u s t m e n t ” , w h ic h , fo r
la c k o f d e ta ile d in f o r m a tio n , c o u ld n o t b e a p p o r ti o n e d b e tw e e n d e fe n c e a n d n o n d e fe n c e e x p e n d itu r e . T h e e x tr e m e ly lo w p a y o f C h in e s e soldiers a n d th e re lia n c e o f
th e C h in e s e G o v e r n m e n t o n le n d -le a s e su p p lie s a n d w a r-s u rp lu s m a te ria ls a re
p r o b a b ly re sp o n sib le f o r th e f a c t t h a t t h e p e r c e n ta g e o f m ilita r y e x p e n d itu r e in t h e
g o v e r n m e n t b u d g e t w as n o t as h i g h as w a s g e n e ra lly e x p e c te d .
e F o r U n d i v i d e d I n d ia .
f I n t e r i m B u d g e t f o r t h e p e r io d 15 A u g u s t, 1947 to 31 M a r c h , 1948
g N o t i n c lu d in g t h e c a p i t a l a c c o u n t.
170
PA R T I I I . M O N ETA RY AND FISCA L D E V E L O PM E N T S
h a lte d fo r a w hile th e original p ro g ra m m e of dem obilization. I n consequence, as show n in tab le 52, th e defen ce e x p e n d itu re fo r I n d ia a n d
P ak istan ra n as hig h as 47 p e r cen t a n d 78 p e r cen t in th e ir respective
in te rim budgets fo r 1 9 4 7 /4 8 ,1 a n d d id n o t fall a p p reciab ly in the
19 4 8 /4 9 budgets. I n B urm a, th e defence services acc o u n te d fo r 19.2 p e r
cen t in th e 1947/48 bu d g et, as ag ain st 14.1 p e r cen t in 1 9 3 9 /4 0 , w hile
in 1948/49 it was 17.8 p e r cent. T h e relatively low p ro p o rtio n of defence
e x p e n d itu re in th e P h ilip p in e b u d g e t fo r 1 9 4 8/49 is d u e to th e a b n o rm ally
high e x p en d itu re in o th e r item s in th a t year. I n absolute a m o u n t, the
defence e x p e n d itu re in 1 9 48/49 is h ig h e r th a n in 194 7 /4 8 .
W ith th e re-estab lish m en t of n o rm al conditions, d efence e x p e n d itu re
in these countries will no d o u b t be considerably red u ced , b u t ju d g in g
from th e experience of o th e r in d e p e n d e n t countries, its share in th e fu tu re
b u d g et m ay co n tin u e to be h ig h e r th a n it w as before th e a tta in m e n t of
independence.
T h e region is e n te rin g a n age of econom ic rec o n stru c tio n a n d d evelopm ent. I t is therefo re desirable to exam ine th e p lace of econom ic
d ev elo p m en t in g o v e rn m en t outlay. C eylon a n d I n d ia a re th e tw o
countries w h ich m a d e th e g reatest progress in ind u stria l d ev elo p m en t
d u rin g th e w ar. A fte r th e w ar, th e G o v ern m en ts of these tw o nation s
c o n tin u ed to a p p ro p ria te large am o u n ts fo r econom ic d evelo p m ent.
T h e budgets of C eylon are geared to a six-year p la n of econom ic
developm en t covering th e perio d 1947/48 to 1952 /53 . I n th e 1947 /48
b u d g et, R s.111.7 m illion fro m rev en u e w ere p ro v id e d fo r eco nom ic
developm ent, a n d R s.72.8 m illion fro m th e lo an fu n d w ere sp en t on
ag ricu ltu re, industries, posts a n d telecom m unications, tra n sp o rt a n d
works, a n d railw ays a n d electricity, m ak in g a to ta l of a b o u t 34 p e r cent
of to ta l go v ern m en t outlay. I n th e 1 9 4 8 /4 9 b u d g e t, a to ta l of Rs. 126.6
m illion, o r 18.7 p e r cen t of th e to ta l revenue a n d loan e x p e n d itu re , was
to be sp en t u n d e r th e h e a d in g “D ev e lo p m e n t o f N a tio n a l W e a lth ” .
I n In d ia , m ost of th e d ev e lo p m en t e x p en d itu re s a re c h a rg e d to the
cap ital a c c o u n t w h ich is ke p t sep arate fro m th e rev en u e acco u n t. In
1937/38, th e to ta l e x p e n d itu re o n c a p ita l a c c o u n t, exclusive of n o n develo p m en t item s, such as d efen ce ca p ita l outlays, discharge of p e rm a n e n t deb t, loans a n d advances, etc., a m o u n te d to Rs.32.8 m illion.
T h is was in creased to R s.504.8 m illion,2 R s.561.8 m illion3 a n d R s .1,124.2
1 N ot including the capital account.
U ndivided In d ia.
3
In terim B udget fo r In d ia a fte r p artitio n , n o t including Pakistan.
2F o r
P U B L IC F IN A N C E
171
m illio n 1 in th e years 1 9 4 6 /4 7 , 1 9 4 7 /4 8 , a n d 1 9 4 8 /4 9 respectively.2 As
co m p a re d w ith th e e x p e n d itu re s fro m rev en u e, c a p ita l ex p en d itu res
exclusive of n o n -d e v e lo p m e n ta l item s, w ere e q u iv a le n t to 3.7 p e r cen t
of th e size of th e rev en u e a c c o u n t in 1 9 3 7 /3 8 , a n d 13.2, 30.3 a n d 43.7
p e r c e n t in th e years 1 9 4 6 /4 7 , 1 9 4 7 /4 8 a n d 1 9 4 8 /4 9 respectively. T h e
largest item s o n th e c a p ita l a c c o u n t are e x p e n d itu re s o n railw ays an d
g ra n ts to Provinces fo r d e v e lo p m e n ta l projects. T h e p h e n o m e n a l gro w th
in th e c a p ita l a c c o u n t is h ig h ly in d ic a tiv e of th e te m p o of econom ic
d ev elo p m en t, p u sh e d fo rw a rd by b o th th e C e n tra l a n d th e P rovincial
G o vern m en ts. I n P akistan, th e sam e b u d g e ta ry system is in use. I n th e
I n te rim B u d g et fo r 1947/48, cap ita l ex p en d itu res, exclusive of n o n -d e v e lo p m e n ta l item s, a m o u n te d to R s.39,731,000, e q u iv a le n t to 9.0 p e r cen t
of th e size of th e rev en u e acco u n t. T h is w as in creased to Rs. 129,982,000
e q u iv a le n t to 22.3 p e r c e n t of th e size of rev en u e a c c o u n t in th e revised
b u d g e t fo r 1948/49.
A sim ilar b u d g e ta ry system is in use in In d o c h in a , w h ere a special
b u d g e t w as c re a te d by a decree of 30 A pril, 1948 to cover th e cost of
re h a b ilita tio n a n d d ev elo p m en t. T h e b u d g e t is fin an ced p a rtly by the
T re a su ry of th e F re n c h U n io n a n d p a rtly by th e m em b er States. T h e
to ta l a m o u n t ap p ro v e d a t th e E conom ic C onference in D a la t in D ecem b e r 1948 was 1,007 m illio n piastres, eq u iv a le n t to 80.6 p e r cen t of the
size of th e o rd in a ry b u d g et.
I n B u rm a, econom ic rec o n stru c tio n a n d d ev elo p m en t was to be
c a rrie d o u t in acco rd a n c e w ith a T w o -Y e a r P la n of E conom ic D evelopm e n t, d ra w n u p in 1947 a n d p u b lish ed in A pril, 1948. T h e financial
re q u ire m e n ts of this P la n are n o t readily ascertainable. I n view of the
fin an cial difficulties facin g th e G o v e rn m en t, few fun ds seem to h av e been
actually av ailable fo r dev elo p m ental projects in th e last tw o years. In
th e 19 46/47 a n d 1 947/48 budgets, c a p ita l o utlay on forests, irrigation,
posts a n d teleg rap h s, civil av iatio n a n d electricity, n o t in c lu d in g p u b lic
works, a c c o u n te d fo r only 1.2 p e r cen t a n d 3.6 p e r cen t respectively of
to ta l g o v e rn m e n t ex p en d itu re .
I n th e Philippines, a com prehensive 10-year p la n of econom ic
d e v e lo p m e n t was p re p a re d by th e technical staff of th e N a tio n a l D ev elo p m e n t C o m p a n y u n d e r th e supervision of th e H . E. B eyster C o rp o ra tio n of
th e U n ite d S tates in O cto b e r, 1947. A lth o u g h p riv a te in v e stm e n t is exp e c te d to be a t a h ig h level, the m a jo r sh are of th e cost of ex ecu tin g th e d e 1 N o t in c lu d in g P a k ista n .
2 T h e s e figures a re q u o te d h e re to sh o w th e re la tiv e size of th e c a p ita l a c c o u n t
as c o m p a r e d w ith th e r e v e n u e a c c o u n t. T h e y d o n o t re p re s e n t to ta l g o v e rn m e n t
o u tla y o n e c o n o m ic d e v e lo p m e n t, sin c e som e e x p e n d itu re s o n e c o n o m ic d e v e lo p m e n t a re c h a rg e d to t h e r e v e n u e a c c o u n t.
172
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
v elo p m e n t p la n w ill h av e to be b o rn e by th e P h ilip p in e G o v e rn m e n t. N o
special c a p ita l a c c o u n t is k e p t fo r d ev elo p m en tal e x p en d itu res, b u t m ost
of th e c a p ita l outlays are in c lu d e d in th e e x tra o rd in a ry b u d g e t, as d istin ct
fro m th e o rd in a ry bu d g et. I n 1937 a n d 1938, “outlays a n d in v e stm en ts” ,
n o t in c lu d in g p u b lic works, a c c o u n te d fo r 15.3 p e r c e n t a n d 13.9 p e r c e n t
respectively of th e to ta l g o v e rn m e n t e x p e n d itu re , w hile in 19 4 7 /4 8 a n d
194 8 /4 9 , “econom ic d e v e lo p m e n t” re p resen ted 14.2 p e r c e n t a n d 15.2
p e r cen t respectively of th e to ta l e x p e n d itu re . As th e figures a re n o t e x actly com p arab le, it is n o t possible to co n clu d e w h e th e r d e v e lo p m en tal
ex p e n d itu re h as in creased c o m p a re d w ith p rew ar.
I n C h in a, econom ic d ev elo p m en t p ro g ra m m e s w ere seriously
h a m p e re d by th e civil w ar. A cco rd in g to a n official estim ate, a p p ro p ria tions fo r econom ic d ev elo p m en t re a c h e d a rec o rd h ig h level in 1939,
acco u n tin g for a b o u t 40 p e r cen t of th e to ta l b u d g e t; a fte r th e w ar, h o w ever, they d ro p p e d to a b o u t 20 to 30 p e r cent, w hile in 1946, th ey
a m o u n te d to only 16 p e r c e n t of th e b u d g e t.1 T h ese figures are n o t strictly
com p arable, as in re c e n t years, relian ce h as b een in creasingly p laced
u p o n loans fro m g o v e rn m e n t banks to finance c a p ita l e x p e n d itu re in
g o vernm ent industries, com m unications, etc.
T
a b l e
53
S h are of D e b t Service in G o v e rn m e n t E x p e n d itu re
(p e r cen t)
Country
B u r m a ..............
C h in a ..............
I n d i a c ..............
J a p a n ...............
Prewara
10.6
23.1
38.1
17.6
a Prew ar years used in this table are:
B urm a ..................... . . . 1939/40
C h in a ........................ . . . 1936/37
Postwar
Financial year beginning in
1946
1947
i1948
2.1
1.4
17.4
‡‡
India . . . .
Japan . . . .
2.1
3.5
9.4d
3.6
..
4.1b
16.0
1.8
. . . 1937/38
. . . 1935 /36
b H a lf-y e a r b u d g e t f o r J a n .- J u n e , 1948.
c R e p re s e n tin g in te re s t p a y m e n ts in r e v e n u e a c c o u n t o n ly ; d e b t re d e m p tio n s
w e re c h a rg e d to t h e c a p ita l a c c o u n t.
d I n t e r i m b u d g e t f o r t h e p e rio d 15 A u g u s t, 1947 to 31 M a r c h , 1948.
F ro m this b rief acco u n t, it m ay be seen th a t a n o te w o rth y d ev elo p m e n t since th e w a r h as b een th e increasin g share o f c a p ita l o u tla y fo r
econom ic d e v elo p m e n t in th e bu d g ets of several co u n tries o f th e region.
E v en in th e case of those countries w hich, ow ing to in te rn a l difficulties,
1 D ire c to r a te - G e n e r a l o f S ta tistics, S ta tis tic a l Y e a r b o o k o f t h e R e p u b l i c o f C h i n a ,
N a n k in g , 1948 (C h in e s e t e x t ) .
173
P U B L IC F IN A N C E
could n o t raise large sums fo r econom ic developm ent, o r even h a d to cu t
a p p ro p ria tio n s fo r such purposes, th e setback m a y be re g a rd e d as te m p o ra ry ; w ith th e re-estab lish m en t of n o rm a l conditions, econom ic d ev elop m e n t will alm ost certain ly occupy a n im p o rta n t position in th e ir a n n u a l
o utlay. T h e q uestio n o f th e inflatio n ary effect of large c a p ita l outlays,
fin an ced by borro w ing , will n o t be discussed here. G o v ern m en ts a re aw a re
of th e d a n g er, a n d h a v e a d o p te d a cautious a ttitu d e in fra m in g budgets
fo r th e y e a r 1 9 4 9 /5 0 .
A f u r th e r n o ta b le c h an g e in g o v e rn m e n t finance since th e w a r has
b een th e decreasing share of d e b t service in to ta l g o v e rn m e n t e x p e n d itu re .
M o st co u n tries of th e region h a v e been p lag u e d by inflation, b u t one of
its beneficial effects, a t least so fa r as G overnm ents are concerned, is th e
lig h te n in g of th e d e b t b u rd e n . T h e e x te n t to w h ich go v ern m en t d e b t b u r d e n has b een re d u c e d c an be seen fro m tab le 53.
Revenue
O n th e rev en u e side, cou ntries of th e region h av e relied m ain ly on
in d ire c t taxes, especially custom s duties. Since th e w ar, In d ia (a n d also
J a p a n ) has m a d e considerable progress in the collection of incom e tax,
w hile in o th e r countries, n o tab ly th e M a la y a n F e d era tio n , Singapore a n d
H o n g K o n g , steps h av e b een ta k en to in tro d u c e incom e ta x for th e first
tim e in th e ir p eace-tim e financial history. T h e relative im p o rtan c e of
in d ire c t taxes a n d d ire c t taxes fo r countries, w here com plete d a ta a re
available, is show n in ta b le 54.
T
a b l e
54
P roportion of D irect a n d In d ir e c t T a x e s in G o v e rn m e n t R e v e n u e a
(p e r cen t of to ta l revenue)
C e y l o n ..........................
C h i n a ..........................
I n d i a d ..........................
J a p a n ..........................
P h ilip p in e s ................
S ia m .............................
Prewarb
I n d ir e c t T a x e s
1946
1947
56.1
77.1
4 8 .9
3 9.0
68 .9
4 5 .5
63 .0
4 2 .6
35.1
18.2
70.6
. .
68 .9
74.3
4 3 .0
4 7 .6
6 3.7
..
1948
66.7
3 6 .6 c
50 .6
..
58.3
..
D ire c t T a x e s
Prewarb 1946
1947
16.1
1.6
12.4
26.2
13.9
16.1
22.2
7.5
34.5
32.3
15.0
18.1
14.6
4 7.7
4 3.4
2 0.6
1948
21.3
19.0 c
39.2
15.6
a G o v e r n m e n t r e v e n u e in c lu d e s all n o n - t a x re c e ip ts o n t h e re v e n u e a c c o u n t. T h e
div isio n b e tw e e n d i r e c t a n d i n d ir e c t taxes, in c e r t a i n cases, is n ecessarily a rb itr a ry .
T h e figures s h o w n h e re , t h e re fo re , m e re ly r e p r e s e n t r o u g h estim a te s.
b P r e w a r ye ars u se d in th is ta b le a re as f o llo w s :
C e y lo n .....................................1 9 3 6 / 3 7
J a p a n ........................................ 1 9 3 5 /3 6
C h i n a ....................................... 1 9 3 6 / 3 7
P h ilip p in e s
................................... 1940
I n d i a ........................................ 1 9 3 7 / 3 8
S ia m .......................................... 1 9 3 8 /3 9
c F r o m h a lf - y e a r b u d g e t, J a n . - J u n e 1948.
d I n d i r e c t ta x e s in c lu d e in c o m e s f r o m m o n o p o lie s.
174
PART III. MONETARY AND FISCAL DEVELOPMENTS
A m o n g in d ire c t taxes, custom s d u ties p ro b a b ly occupy th e forem ost
position in all A F E countries except J a p a n , w h ere, before th e w ar, custom s duties acco u n ted fo r only 8 to 9 p e r cen t of to ta l rev en u e w hile in com e from m onopolies was as high as 13.5 p e r cent. A fte r th e w ar, th e size
of the custom s revenue in d ifferen t countries has been variously affected
by inflation a n d the fall in th e volum e of ex te rn a l tra d e . T o those c o u n tries, such as Ceylon a n d In d ia , w h ere th e re was a h ig h level of tra d e
a fte r th e w ar, custom s duties co n tin u e d to p ro v id e a n im p o rta n t source
of revenue. I n B runei a n d S araw ak th e p ro p o rtio n of rev en u e c o n trib u te d
by custom s duties was as h ig h as 44.8 p e r c e n t a n d 62.9 p e r c e n t in 1946,
a n d increased to 53 p e r c e n t a n d 70.2 p e r cen t in 1947 respectively. I n
th e M a la ya n F ed e ra tio n , custom s rev enu e acc o u n ted fo r 61.1 p e r cen t
of th e to ta l revenue in 19 46 /4 7 a n d increased to 75.7 p e r ce n t in 1948/49.
In o th e r countries w h ere fo reign tra d e cam e to a standstill im m ed iately
a fte r th e w a r o r w here im po rts w ere drastically restric te d by tra d e a n d
exchange control, custom s reven ue has declined considerably. I n C h in a ,
custom s duties yielded 39.3 p e r c e n t of th e to ta l rev en u e in 1 9 3 6 /37 , b u t
fell to 11.6, 19.2 a n d 11.7 p e r c e n t in 1946, 1947 a n d 1948 (h a lf y ear)
respectively. I n J a p a n , 9.0 p e r cen t of th e rev enu e in 1 9 3 5 /3 6 w as d eriv ed
from custom s, b u t since th e w ar, custom s d uties fell to insignificant
p ro p o rtio n s ow ing to th e collapse a n d sub sequ en t slow recovery of foreign
trad e.
O f d ire c t taxes, incom e ta x seems to p rom ise g re a t p o ten tialities
b o th for revenue purposes a n d fo r securing a m o re e q u ita b le d istrib u tio n
of incom es, fo r countries o n th e ro a d to ind u strialisatio n . Before th e w ar,
incom e ta x was collected in several countries of th e region, a lth o u g h
th e scope a n d m e th o d of collection d iffered widely. I n B u rm a, Ceylon,
In d ia , th e Philippines a n d J a p a n , incom e ta x yielded a b o u t 10-15 p e r
cent of to ta l revenue in th e im m e d ia te p re w a r years, w hile In d o n e sia
a n d Siam derived a b o u t 5.6 a n d 1.5 p e r cen t of th e ir to ta l rev e n u e (b o th
o rd in ary a n d e x tra o rd in a ry ) fro m incom e ta x in 1938 a n d 1 9 3 8 /3 9
respectively. C h in a sta rte d collecting incom e ta x in 193 6/37 , w h e n th e
yield was estim ated to be only 0.5 p e r cen t of to ta l revenu e. A fte r th e
w ar, in B u rm a a n d Ceylon th e share of incom e ta x in to ta l revenu e
decreased fro m 11.6 p e r cen t (in 19 39 /40 ) a n d 15.0 p e r c e n t in 1 9 3 6 /3 7 1 9 3 7 /3 8 ) to 4.2 p e r cen t a n d 12.4 p e r cen t in 1946/47, a n d 3.9 p e r cen t
a n d 10.6 p e r cen t in 1947 /4 8 respectively. O n th e o th e r h a n d , In d ia a n d
J a p a n collected a relatively large rev en u e fro m incom e taxes, w h ich
c o n trib u te d respectively a b o u t 17.1 a n d 16.5 p e r cen t in 1946/47, 25.1
a n d 36.4 p e r cen t in 1 9 4 7 /4 8 , a n d 19.0 a n d 38.3 p e r c e n t in 1 9 4 8 /4 9 .1
1 F o r I n d i a , b e fo re 1 9 4 7 /4 8 , re fe rrin g to U n d i v i d e d I n d i a , a n d fo r 1 9 4 7 /4 8 ,
a n d th e r e a f te r , r e fe rrin g to t h e D o m in io n of In d i a .
P U B L IC F IN A N C E
175
W ith th e inclusion of c o rp o ra tio n taxes, th e share c o n trib u te d to th e to ta l
revenues of I n d ia a n d J a p a n w ould be ap p reciab ly increased. I n th e case
of I n d ia , th e re m a rk a b le increase in incom e a n d c o rp o ra tio n taxes in
19 4 7 /4 8 gave rise to w idespread criticism th a t th e h ig h level of ta x a tio n
h a d adversely affected th e incen tiv e fo r p riv a te savings a n d investm ent. I n
consequence, several red u ctio n s in th e rates of profits tax, su p er-tax on
incom es, a n d in co m e ta x o n com panies w ere in tro d u c e d in th e financial
year 1948-49, re su ltin g in a n estim ated fall of the p e rc e n ta g e of incom e
a n d c o rp o ra tio n taxes fro m 47.7 p e r cen t in 1947/48 to 39.2 p e r cen t in
1 9 4 8 /4 9 .1 I t is as yet too early to ap p raise th e effects of th e tax relief on
p riv a te inv estm en t.
O f o th e r countries, th e P hilippines also show ed a n increase in th e
im p o rta n c e o f incom e tax, w h ich in 1940 c o n trib u te d 10.8 p e r c e n t of
th e to ta l rev enu e, a n d rose to 15.5 a n d 11.5 p e r cen t in th e budgets for
1 9 4 7 /4 8 a n d 1 9 4 8 /4 9 respectively. I n S ingapore a n d th e M a la y a n
F e d e ra tio n , incom e ta x cam e in to force in J a n u a ry 1948 a n d was expected
to yield rev en u e of M .$30,000,000 a n d M .$20,000,000 respectively, b u t
ow ing to delay by th e legislative councils in m ak in g a m en d m en ts to the
o rig in al Bill a n d to difficulties in setting u p th e necessary tax-collecting
m a ch in ery , n o a c tu a l collection w as m a d e in 1948. I n H o n g K on g, a
system of d ire c t ta x a tio n w as in tro d u c e d in 1940 a n d 1941 for w a r p u r poses. A fte r th e w ar, o n th e re c o m m e n d a tio n of th e T a x a tio n C om m ittee
w h ich w as a p p o in te d to advise on m easures to increase th e revenue of the
C olony, a n ew system of d ire ct ta x a tio n was in tro d u c e d u n d e r th e In la n d
R e v e n u e O rd in a n c e , 1947, w h ich p ro v id e d for th e collection of fo u r
se p a ra te taxes to be c h a rg e d o n th e sources of incom e in ste ad of the
single ta x o n th e to ta l incom e of individuals. T h e fo u r taxes th u s in tro d u c e d w ere P ro p e rty T a x , Salaries a n d A nnuities T a x , Profits T a x an d
In te re st T a x w h ich alto g e th e r yielded H K $ 14,000,000 or a b o u t 9 p e r cent
of th e to ta l e stim a te d revenue d u rin g th e y ear e n d in g 31 M a rc h , 1948.2
T h e success o f In d ia , a n d also of J a p a n , in dev elo pin g incom e ta x as a
m a jo r source of rev en u e is doubtless a ttrib u ta b le to th e relatively
a d v a n c e d stage of th e ir in d u stria l developm ent. F o r countries w h ich are
p re d o m in a n tly a g ric u ltu ra l o r a re confined chiefly to p rim a ry pro d u ctio n ,
it m a y n o t be easy to collect incom e ta x a long m o d e rn lines. W ith
im p ro v e m e n t in tax -collecting m ach in ery , how ever, th e re seems to be
a m p le ro o m fo r in creasing th e incom e ta x yield in a n u m b e r of countries
in th e region, p a rtic u la rly C h in a , w here th e existence of a relatively large
1 G o v e r n m e n t o f I n d i a , F in a n c e M in is te r ’s S p e e c h o n i n tr o d u c i n g t h e B u d g e t
p ro p o s a ls fo r 1 9 4 8 /4 9 .
2 G o v e r n m e n t o f H o n g K o n g , R e p o r t o f th e C o m m is s io n e r of I n l a n d R e v e n u e
fo r th e y e a r e n d e d 31 M a r c h , 1948.
176
PA R T III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
n u m b e r of m o d ern cities w ith in d u strial a n d com m ercial establishm ents
should form a convenient basis fo r checking a n d collecting incom e tax
return s.
M e t h o d s
o f
F in a n c in g
D e f ic it s
As m ost countries of th e region h a d u n b a la n c e d bud gets a fte r th e
w ar, it is of in terest to see how th e deficits w ere fin an ced a n d w h a t w ere
th e econom ic effects of deficit financing. I n a d d itio n to c en tra l g ov ern m e n t finance, th e finances of local o r pro v in cial G ov ern m en ts are also
im p o rta n t, since any deficits o r surpluses in local o r pro v in cial budgets
will have repercussions o n th e n atio n a l econom y. H ow ever, as in fo rm a tio n
o n local o r p rovincial finance is n o t readily available, th e analysis w h ich
follows will be confined to c e n tral g o v e rn m en t finance.
As p o in te d o u t earlier, th e b u d g e ta ry figures, as pu b lish ed by G o v e rn m ents, d o n o t always rep resen t to ta l G o v ern m en t outlay. Som e e x p e n d itures, considered by G overnm en ts to be of a special o r a b n o rm a l n a tu re ,
a re o ften n o t in c lu d e d in th e re g u la r budgets. B u d g et deficit, in its fo rm al
sense, was often, therefo re, n o t id en tica l w ith th e to ta l deficit actu ally
in c u rre d . I n C eylon, fo r instance, fro m July, 1945 to O c to b e r, 1947, th e
o p eratio n of food contro l resu lted in a to ta l loss of R s .122.8 m illion,
w h ich w as n o t covered by th e b u d g e t b u t was financed by d ra w in g u p o n
sterling balances. O n ly in 1947/48 w ere food subsidies in c lu d e d in the
budget, being responsible fo r th e very large deficit in th a t year. I n In d ia
a n d Pakistan, b u d g e t deficits o r surpluses o ften h av e n o reference to
cap ita l budgets, w hich h a v e grow n in size in re c e n t years. I n In d ia , th e
c a p ital b u d g e t was 76.2 p e r cen t of th e size of th e rev en u e b u d g e t in
19 4 7 /4 8 , a n d increased to 111.3 p e r cen t in 1 9 48/49. T h e c a p ita l b u d g e t
of P akistan grew fro m 12.3 p e r c e n t of th e size of th e rev en u e b u d g e t in
1947/48 to 76.8 p e r c e n t in 1948/49. I n C h in a, u n til th e la tte r h a lf of
1948, w h e n a n e x tra o rd in a ry b u d g e t w as created , th e b u d g e t figures
published by th e C hinese G o v ern m e n t w ere com prehensive in n a tu re , b u t
it is well kn o w n th a t c e rta in outlay, m ostly c a p ita l e x p en d itu re , d id n o t
a p p e a r in th e b u d g et b u t was financed by loans fro m g o v e rn m e n t banks.
I n 1946 a n d 1947, th e to ta l a m o u n t of loans a p p ro v e d by th e Jo in t
Office of F o u r G o v ern m e n t Banks w as eq u iv a le n t to 10.5 p e r c en t of th e
size of th e b u d g e t of b o th years.1 T h is does n o t inclu d e loans g ra n te d
directly by g o v ern m en t banks (i.e., w ith o u t clearin g th ro u g h th e J o in t
Office of F o u r G o v ern m en t B a n k s ). I n In d o c h in a , a special b u d g e t was
1 A to ta l o f C N $ 7 3 8 ,0 0 0 m illio n o f lo a n s w a s a p p r o v e d b y t h e J o i n t O ffice of
F o u r G o v e rn m e n t B a n k s in 1946. I n 1947, a to ta l o f C N $ 4 ,0 0 7 ,0 0 0 m illio n w as
a p p ro v e d f r o m J a n u a r y to O c t o b e r ( n o t in c lu d in g lo a n s g r a n te d in te rm s of
“ N o r th - E a s te r n C u r r e n c y N o te s ” fo r e x p e n d itu re s in M a n c h u r i a ) . W h e n p r o je c te d ,
th is gives a n a n n u a l t o ta l o f C N $ 4 ,8 0 8 ,0 0 0 m illio n f o r 1947.
P U B L IC F IN A N C E
177
p re p a re d fo r econom ic re c o n stru c tio n a n d developm ent, its resources n o t
bein g given in d etail. I n J a p a n , in a d d itio n to deficits in Special A ccounts
— th e G e n e ra l A c c o u n t b e in g g en erally b a la n c e d — very large loans w ere
g ra n te d by th e R e c o n stru c tio n F in a n c e B ank. I n 1947/48, th e to ta l
a u th o riz e d b orrow ings of th e R e c o n stru c tio n F in a n c e B ank a m o u n te d to
60,000 m illio n yen, la rg e r in size th a n th e b u d g e t deficit w h ich was
re p o rte d to be 58,900 m illio n yen. I n Siam , o rd in a ry bud g ets are k e p t
se p a ra te fro m e x tra o rd in a ry b u d g e ts; full details of th e la tte r are n o t
read ily available.
As to th e ways a n d m eans of fin an cin g g o v ern m en t deficits, fo u r
m e th o d s a re com m only in use: (1 ) issue of lo n g -term loans; (2 ) sh o rtte rm b o rro w in g s; (3 ) d ra w in g s o n a c c u m u la te d assets o r reserve fu n d s
a t h o m e o r a b ro a d a n d (4 ) loans o r g ra n ts fro m abroad.
O w in g to lack of d e ta ile d in fo rm a tio n , it is n o t easy to give a n ov erall q u a n tita tiv e analysis of th e ways a n d m eans used by countries o f th e
reg io n to fin an ce th e ir deficits. I n C hina , w h ere inflation has been m ost
ra p id , g o v e rn m e n t deficits w ere chiefly fin an ced by d ire c t borrow ings
fro m th e C e n tra l B ank. W h e n e v e r th e M in istry of F in a n c e n eeded m oney,
a fo rm o f p a p e r k n o w n as a “ T re a su ry C e rtific a te ” w as h a n d e d to th e
C e n tra l B ank. T h is w as used by th e C e n tra l B ank as security fo r the
c re a tio n o f n e w deposits o r th e issue of n ew currency. T h is process of
deficit fin a n c in g w as ineffectively offset by heavy sales of foreign exchange
by th e G o v e rn m e n t. U p to F e b ru a ry , 1946, th e C hinese G o v e rn m e n t also
reso rted to th e sale of gold as a m ean s to finance th e b u d g e t deficit a n d
c u rb inflation . T h e gold was p ro c u re d in th e U n ite d States o u t of th e
U S $ 5 0 0 -m illio n lo a n g ra n te d by th e U n ite d States G o v e rn m e n t in 1942.
I n 1944, th e to ta l pro ceeds realized fro m th e sale of gold a m o u n te d to
C N $ 17,455 m illion o r a b o u t 11 p e r c e n t of to ta l G o v e rn m e n t ex p en d itu re ,
b u t in 1945 a n d 1946, these sales b ro u g h t in only C N $10,290 m illion a n d
C N $19,598 m illion, o r a b o u t 0.8 p e r c e n t a n d 0.3 p e r c e n t of to ta l go v ern m e n t e x p e n d itu re respectively.1 A fte r th e w ar, ow ing to th e instability of
th e dom estic cu rren cy , it w as im possible fo r th e G o v e rn m e n t to float
dom estic loans. I n 1947, th e G o v e rn m e n t p la n n e d to issue bonds a n d
sh o rt-te rm tre a su ry bills in term s of U S dollars, w h ich w ere to be sold
o n th e d o m estic m a rk e t fo r C hinese c u rre n c y a t a ra te o f ex ch an g e to be
fixed by th e G o v e rn m e n t. A to ta l issue of U S $ 1 0 0 m illio n in b o nd s a n d
U S $ 3 0 0 m illio n in tre a su ry bills w as au th o riz e d b u t th e a c tu a l subscriptio n fell fa r below expectations. T h e fa ilu re to a ttr a c t p riv a te c a p ita l to
g o v e rn m e n t b o n d s a n d tre a su ry bills w as d u e p a rtly to lack o f confidence
1 T h e q u a n ti t ie s of g o ld sold w e re as fo llo w s: 1 9 4 4 : 30,2 1 4 .6 kgs., 1 9 4 5 :
2 5 ,3 5 6 .2 kgs., 1946 ( J a n . - F e b . ) : 6 ,8 8 1 .5 kgs. T h e sale o f g o ld w a s s u s p e n d e d o n
F e b. 13, 1946. S o u r c e : D i r e c t o r a t e of Sta tistics, S ta tis tic a l Y e a r b o o k o f th e R e p u b lic o f C h i n a (C h i n e s e t e x t ) . 1948, N a n k in g .
178
PART III.
M O N E T A R Y A N D F IS C A L D E V E L O P M E N T S
a n d p a rtly to th e fa c t th a t th e ra te of exchang e used by th e G o v e rn m e n t
for converting U S dollars in to C hinese curren cy w as u n fa v o u ra b le as
c o m p a re d w ith th e c u rb -m a rk e t ra te . I n M a rc h 1948, th e issue of sh o rtte rm U S d o llar treasury bills was suspended. I n A pril, th e G o v e rn m e n t
in tro d u c ed a new kin d of sh o rt-te rm in te re st-b e a rin g treasu ry bill w hich
was to be issued in C hinese curren cy a n d sold on th e m a rk e t a t a discount
by th e C en tra l Bank. By selling these bills a t varying rates of discount,
th e C e n tra l B ank cou ld com p ete w ith com m ercial banks a n d priv ate
firms in borrow ing sh o rt-te rm c a p ita l fro m th e m a rk e t even d u rin g a
p erio d of ru n aw a y inflation. F o r sh o rt-te rm operations, this m e th o d of
financing gave the C e n tra l B ank a pow erful w eap o n to con tro l the m oney
m ark et, b u t in financing g o v ern m e n t deficits, these bills, being sh o rt-term
in n a tu re , w ere of very lim ited use. Since th e m id d le of 1948, th e G o v e rn m e n t a tta c h e d m u c h h ope to U n ite d States a id as a m eans of financing
the b u d g et deficit. T h e aid was g ra n te d by th e U n ite d States Congress
in A pril 1948 for econom ic re h a b ilita tio n of C h in a , covering a p eriod
of one y ear fro m 3 A pril, 1948 to 2 A pril, 1949, a n d a m o u n te d to U S$275
m illion in ad d itio n to a sum of U S $125 m illion fo r th e p u rc h ase by th e
C hinese G o v e rn m e n t of m ilitary supplies. O f th e to ta l econom ic aid, a
sum of U S$35 m illion was ea rm a rk e d fo r in d u stria l a n d d ev elo p m en t
e q u ip m en t, a n d U S$1.2 m illion for a d m in istra tiv e expenses. T h e rest was
to be used fo r th e im p o rt of foodstuffs, cotton, p e tro le u m p roducts,
fertilizers, etc., th e proceeds fro m th e sale of w h ich w ere to be c red ite d to
a special ac co u n t k ep t w ith the C e n tra l Bank. T h e b a la n c e in this special
account, a fte r m eetin g existing com m itm ents, such as expenses for the
ru ra l recon struction p ro g ram m e, fre ig h t fo r relief parcels, etc., m ig h t be
e ith e r frozen or utilized fo r relief a n d reco n stru ctio n p aym ents by the
G overnm ent. T h e la tte r w o uld have th e effect of red u cin g th e gov ern m e n t deficits; as a n offset to inflation, how ever, it was im m a te ria l w h e th e r
th e balan ce w as frozen o r a p p lie d to reduce th e b u d g e t deficit. I t was
e stim ated th a t th e a m o u n t w hich co uld be utilized in this w ay w as of
th e o rd e r of U S $ 6 0 -100 m illion, as again st a n estim ated a n n u a l b u d g et
deficit of U S$300-400 m illion. T o th e en d of J a n u a ry 1949, how ever, only
a b o u t 71 p e r c e n t of th e to ta l econom ic aid to C h in a h a d been au th o rized
by th e U n ite d States G o v ern m en t, a n d th e shipm ents of a id supplies
w h ich h a d actually reach ed C h ina seem ed to be m u c h less. C onsequently,
th e to ta l c re d ite d to th e special a c co u n t u p to th e e n d of 1948 w as n o t
large e n o ugh to p ro d u ce any app reciab le offsetting effect on th e h yperinflatio nary situation, a lth o u g h th e arriv al of large shipm ents of essential
com m odities, such as p e tro le u m , cotton , rice, etc., w h ich w ou ld otherw ise
h ave been seriously cut, h e lp ed to p re v e n t a fu rth e r d e te rio ra tio n of the
supply position in C h in a.
179
P U B L IC F IN A N C E
Second only to C h in a , Ja p a n has also b een in th e g rip of ru n a w a y
in flation. T h e Ja p a n e se G o v e rn m e n t relied alm ost exclusively o n ban k
credits fo r fin an cin g its b u d g e t deficit. A lth o u g h several form s of
borrow in g , nam ely, g o v e rn m e n t bonds, treasury bills, food, silk a n d fuel
certificates, a n d d ire c t borrow ings w ere used, th e n e t effect w as m u c h
th e sam e, since d u rin g a p e rio d of inflation, p riv a te saving c a n n o t be
ta p p e d by g o v e rn m e n t loans, a n d all form s of b o rro w ing invariably result
in th e c re a tio n of new m oney. D u rin g th e years 1 9 4 6 / 4 7 a n d 1 9 4 7 / 4 8 ,
th e n e t increase in n a tio n a l d e b t in J a p a n , in fact, exceeded th e pub lish ed
b u d g e t deficits, a n d th e increase in n o te issue in tu rn exceeded th e n e t
increase in n a tio n a l debt.
I n In d ia , d u rin g th e w ar, very g re a t d efence e x p e n d itu re was
financed by th e flo tatio n of bonds, issue of treasu ry bills a n d c re a tio n of
new m on ey ag a in st d ep o sit of sterling securities w ith th e R eserve B ank
of In d ia . T h e se o p era tio n s resu lted in a g re a t increase in th e supply of
m oney a n d a ra p id rise in prices. Since th e w ar, th e financial position of
th e I n d ia n G o v e rn m e n t has been im p roved. Deficits o n revenue account
w ere re d u c e d in 1 9 4 5 / 4 6 a n d 1 9 4 6 / 4 7 , w hile in th e c a le n d a r years of
1947
a n d 1 9 4 8 a surplus on rev en u e a c c o u n t w as actu ally realized,
T
a b l e
55
R e c e ip ts a n d D isbursem ents o f the C entral G o v e rn m e n t of In d ia
(m illion rupees)
1944/45
(Accounts)
T o t a l effective
d e fic it b .....................
-2 ,2 5 0 .5
1945/46
(Revised
budget)
1946/47
(Revised
budget)
1947/48a
(Revised
budget)
-1 ,7 1 1 .4
-2 ,4 6 9 .2
-
+ 2 ,7 5 2 .1
—
+
35 9 .5
+ 1 ,3 5 1 .2
-
1948/49
( Budget )
634.1
-1 ,2 4 9 .2
186.2
100.0
+
-
3 8 6 .6
-
4 7 2 .8
N e t in c re a s e o r d e cre a se i n N a t io n a l
D eb t:
P e r m a n e n t d e b t + 2 ,0 3 1 . 1
F l o a ti n g d e b t . . 239.1
D ep o sit a n d a d v a n c e s ........... + 2 , 2 8 4 . 7
I n c r e a s e o r d e c re a s e
in b a la n c e ..............
+ 1 ,0 4 9 .4
-
254.1
+
+ 4 ,0 7 6 .7
+ 3 ,8 0 1 .5
+ 1 ,4 5 6 .6
-
+ 1 ,8 2 6 .2
+ 2 ,0 9 9 .1
-1 ,0 1 2 .6
-1 ,1 0 6 .9
+
46 2 .2
100.0
339 .0
+
223.2
-1 ,0 2 6 .0
S o u rc e : R e s e r v e B a n k o f I n d i a B u lle tin . T h e figures g iv e n h e r e a r e s o m e w h a t
d iff e re n t f r o m th o se g iv e n in ta b le 51, m a in ly b e c a u s e of t h e d iffere n ce in
a c c o u n t in g t r e a t m e n t .
a F o r t h e p e r io d 15 A u g u s t, 1947 to 31 M a rc h , 1948.
b
I n c l u d i n g c a p i t a l outlays.
180
PART III. MONETARY AND FISCAL DEVELOPMENTS
a lth o u g h sm all deficits h a d b een a n tic ip a te d in th e b u d g e t estim ates.
T h e re was, how ever, a n in crease in o u tlay o n c a p ita l acco u n t, alth o u g h ,
as will be seen in table 55, to ta l “ effective” deficits w ere m u c h low er th a n
d u rin g th e w ar.
W hile th e deficits of th e w a r a n d early p o stw a r years w ere largely
financed by a n increase in p e rm a n e n t d e b t a n d sh o rt-te rm advances, th e
last th re e years, i.e., 1946 /4 7 to 19 4 8 /4 9 , saw a d ep le tio n of g o v e rn m e n t
balances as a m eans of m eetin g th e deficits. In a sm u c h as g o v e rn m e n t
balances w ere c reated by th e depo sit of g o v e rn m e n t securities, th e effect
of d ra w in g o n these b alances was n o t m u c h d ifferen t fro m th a t of sh o rtte rm advances. T h e significant ch an g e in th e last th re e years, therefore,
lies n o t in th e decrease in sh o rt-te rm advances b u t in th e declin e in the
flotation of p e rm a n e n t d e b t as a m eans to finance th e deficit. W ith th e
large a c cu m u la tio n of p u b lic bonds in p riv a te h a n d s, th e G o v e rn m e n t of
In d ia fo u n d it increasingly difficult to issue m o re lo n g -te rm b onds in th e
last tw o years, a n d consequently, in 1 9 4 7 /4 8 , th e re w as a c tu a lly a n e t
re d u c tio n in p e rm a n e n t d eb t, i.e., m o re old b o nds w ere re d e e m e d th a n
new bonds issued. I t is, how ever, possible th a t, follow ing th e stabilization
of th e g en eral situ atio n a fte r p a rtitio n , th e g o v e rn m e n t effo rt to issue
pu b lic loans will m eet w ith m o re success so th a t less in flatio n ary effect
will be p ro d u c e d in fin an cin g d ev elo p m en tal o u tla y in th e com ing years.
T h e new ly-form ed G o v e rn m e n t of P akistan sta rte d its o p eratio n s
w ith a n o pen in g b alan ce of R s.810 m illion, of w h ic h R s.750 m illion1
rep resen ted P ak istan ’s sh are of th e cash b ala n c e of th e G o v e rn m e n t of
U n d iv id e d In d ia fo r setting u p c e rta in in stitu tio n s such as o rd n a n c e
factories, security p rin tin g press, ra d io station, etc. T h e In te rim B udget
of P ak istan fo r th e p erio d 15 A ugust, 1947 to 31 M a rc h , 1948 show ed
a deficit of R s.100 m illion (revised estim a te ) o n th e rev e n u e a c c o u n t a n d
envisaged a to ta l e x p e n d itu re of R s.53.9 m illio n o n th e c a p ita l acco u n t,
w hile th e R evised E stim ates fo r 1 9 4 8 /4 9 a n tic ip a te d a surplus o f Rs.4.3
m illion on th e revenue a c c o u n t a n d a to ta l e x p e n d itu re of R s.447 m illion
on th e c a p ita l account, m ak in g a n e t effective deficit of R s.442.7 m illion.
T o m e e t these deficits, p e rm a n e n t loans o f a b o u t R s.705.7 m illio n w ere
floated in P akistan, a n d th e o u tsta n d in g b ala n c e of tre a su ry bills a t th e
en d o f 1 9 4 8 /4 9 was estim ated a t R s.112.9 m illion.
A m o n g o th e r cou ntries w h ich in c u rre d b u d g e t deficits, B u rm a ’s
position is p a rtic u la rly serious, because it h as very lim ited resources o n
w hich to fall back. F o r th e first tw o years a fte r th e w ar, its very large
deficits w ere m ain ly fin an ced by ad vances fro m th e U n ite d K in g d o m
1 T h is a m o u n t w as la t e r re d u c e d to R s.7 0 0 m illio n . D e ta ils o f th e d iv isio n o f th e
to ta l p u b lic d e b t b e tw e e n I n d i a a n d P a k is ta n a re b e in g w o rk e d o u t b y t h e A p p lic a tio n C o m m itte e a p p o in te d f o r th e p u rp o se .
P U B L IC F IN A N C E
181
G o v e rn m e n t u n d e r th e term s of th e B u rm a -U n ite d K in g d o m F in a n c ia l
A g reem en t. T re a su ry bills w ere also issued fro m tim e to tim e to brid g e
th e g a p betw een rev en u e a n d e x p e n d itu re . I n th e 1 9 48/49 b u d g e t, th e
deficit increased. Besides th e rigorous en fo rc e m e n t of re tre n c h m e n t
policies, m ain ly th ro u g h th e re d u c tio n in g o v ern m en t p ersonnel a n d a
c u t in th e p a y a n d cost-of-living allow ances of g o v e rn m e n t servants, th e
G o v e rn m e n t of B u rm a h as a n n o u n c e d its w ish to secure fu rth e r foreign
loans to m e e t th e deficit.
T h e p o stw a r b u d g e t deficits of th e P hilippine G o v e rn m e n t w ere
largely fin an ced by ( 1) a lo an of P 120 m illio n g ra n te d by th e U n ite d
S tates R e c o n stru c tio n F in a n c e C o rp o ra tio n in 1947, (2 ) th e proceeds of
th e F in a n c ia l In te re st P ro te c tio n B onds in th e a m o u n t of P10,156,000
a n d (3 ) a sum o f P 12,539,500 fro m th e sale of U .S . T re a su ry Bonds
issued to g u a ra n te e p re w a r m ilitary e q u ip m e n t lo aned to th e P hilippines
by th e U n ite d S tates.1 T h e se fo reig n fu n d s stre n g th e n e d th e G o v e rn m e n t’s b a la n c e of pay m ents position a n d m a d e possible th e heavy influx
of foreign im p o rts w h ic h served to low er dom estic prices a n d reverse th e
in fla tio n a ry te n d e n c y of th e w a r a n d im m e d ia te p o stw a r years. As a n
in d ic a tio n o f th e im p ro v e d fin an cial p ositio n of th e G o v ern m en t, th e
b u d g e t fo r 1 9 4 9 /5 0 a n tic ip a te d a surplus of P21 m illion.
Since th e w ar, b o th th e F ederation o f M a la y a a n d Singapore have
h a d u n b a la n c e d budgets, th e deficits bein g largely m e t by th e issue of
d om estic loans. I n 1946, M a la y a issued a 2 1/2% L o a n of M $7,157,100
a n d a 3 % L o a n of M $ 5 1,581,500 a n d S in gap ore issued a 3 % R e h a b ilita tio n L o a n o f M $ 7 5 m illion. T h e proceeds of these loans w ere p a rtly
c a rrie d fo rw a rd to m e e t th e e x tra o rd in a ry e x p e n d itu res of th e su b sequ en t
years. O n th e o th e r h a n d , th e o rd in a ry b u d g e t of In d o c h in a has been
re p o rte d ly b a la n c e d in th e last tw o years, a n d H o n g K o n g , w ith th e
e x ce p tio n of th e first y ear a fte r lib eratio n , realized surpluses fro m its
revenue.
I n general, countries of th e region, w ith th e exception of C h in a an d ,
to a lesser e x te n t, B u rm a a n d J a p a n , h a v e m a d e steady progress in
im p ro v in g th e ir fin an cial situ atio n since th e w ar. Deficits still occu rred
in m a n y co u n tries, b u t in m ost cases, th ey w ere n o t u n m a n a g e a b le . W ith
in creased in te rn a l stability, less fu n d s m ay be a llo tte d fo r defence
purposes, th u s leaving m o re m oney fo r d e velo p m ent projects. Also, w ith
econom ic recovery a n d d ev elo p m en t, rev en u e collection m ay be increased.
1 B u d g e t M e ssa g e o f P re sid e n t E lp id io Q u ir in o , d a te d 8 F e b ru a ry , 1949.
PART FOUR
INFLATION A N D PRICE MOVEMENTS
CHAPTER X I
Inflation and Price Movements
T
r e n d s
D
u r in g
1948
T h e po sitio n re g a rd in g in flatio n ary a n d deflationary pressure in th e
reg io n d u rin g 1948, as f a r as it c a n be ju d g e d by th e b eh a v io u r of prices,
m ay be su m m e d u p as follows:
C h in a c o n tin u e d to be in th e g rip of hyper-inflation. A n unsuccessful
a tte m p t w as m a d e to h o ld th e tid e of inflatio n by th e currency a n d
econom ic re fo rm of 19 A ugust, 1948 w h ich is described la ter in this
c h a p te r.
I n C eylon, In d ia , P a k ista n a n d In d o c h in a , in flatio nary pressure on
a m o re o r less m o d e ra te scale c o n tin u e d , especially in In d o c h in a . Price
tre n d s w ere in g en e ra l u p w a rd in all these countries. I n In d ia , th e policy
of d e c o n tro l of prices a d o p te d in D ecem b er 1947 seems m aterially to
h av e c o n trib u te d to th e rise in prices in 1948. I n th e second h a lf of 1948,
th e re fo re , th e G o v e rn m e n t re in stitu te d th e abolished controls a n d by th e
e n d of th e y e a r a d o p te d a com p reh ensiv e schem e fo r checking inflation.
N o p ric e indices are availab le fo r N o rth B orneo-—- b u t “ th e p re se n t tre n d
is a rising o n e .” 1
I n In d o n e sia , M a la y a , B u rm a, th e Philippines a n d Siam , prices h av e
e ith e r re m a in e d m o re o r less stable o r show n a slight ten d en cy to decline.
W h e th e r this m ean s th a t in fla tio n a ry pressure in these countries has now
definitely e n d e d o r even tu rn e d in to d eflatio n ary pressure, is yet too early
to say. I n B u rm a, in flatio n ary pressure developed d u rin g th e la tte r p a r t
of 1948 o n a c c o u n t o f civil d istu rb a n c e . I n th e P hilippines, as w ill be seen
fro m ta b le 56, prices a fte r re a c h in g a low level in A p ril h a v e a g a in ten d e d
to rise ow in g to a sh o rtag e of rice. P h ilip p in e prices a ctu ally re a c h e d th e ir
p e a k in 1945 — b u t ra p id ly declin ed in 1946. Since A p ril, 1947, they
h a v e sh ow n fairly larg e m o n th ly v ariatio n s, b u t re m a in e d o v er th e w hole
p e rio d m o re o r less stable. I n S iam also, rise h as a lte rn a te d w ith fall a n d
n o c le a r tr e n d seems yet visible. As f a r as those tw o c o u n tries a re c o n cern ed, it is possible th a t prices h a v e re a c h e d m o re o r less a stage of
1 D ata sent for the Survey by the Government of North Borneo.
185
In d o n e sia
In d o c h in a
.. .
. ..
.................
..
(B a ta v ia )
(S a ig o n )
W .P .
(S a ig o n )
C .L .
(A ll In d ia )
W .P .
(B o m b a y )
C .L .
R .P .
J u ly
1938:
1939
J a n .-J u n e :
1939
J a n .-J u n e :
1937:
1937:
1939
J a n .-M a r .:
100
100
100
100
100
100
1 9 3 7 :0 .0 0 0 1
1 9 3 7 :0 .0 0 0 1
100
100
3 ,2 3 8
1 ,0 1 3
2 ,3 5 9
293
254
609
1 .2
1 .1
2 ,2 8 6
1 ,0 8 1
2 ,3 7 8
294
262
540
2 .4
2 .5
259
430
370
251
June
1 ,5 2 6
1 ,3 9 0
2 ,7 0 6
302
282
539
3 .9
3 .8
2 ,0 6 7
1 ,3 5 7
2 ,8 0 2
314
269
503
1 0 .0
7 .4
251
371
393
252
D ecem ber
P rice s
S e p te m b e r
W h o le sa le
194 7
a n d
M arch
o f L iv in g
1 ,3 9 1
1 ,5 0 4
3 ,0 4 7
314
268
538
2 9 .3
1 8 .8
260
340
M arch
1 ,1 1 5
1 ,5 7 3
3 ,2 9 1
382
290
518
9 9 .2
264
364
D ecem ber
1 ,0 3 2
1 ,8 4 1
3 ,5 1 6
382
305
536
1 ,5 3 1
2 ,0 0 2
3 ,9 6 6
384
308
522
4 0 5 . 0 a 8 , 6 4 0 a,b
3 2 1 .0 a 6 ,4 3 5 a
261
391
1948
S e p te m b e r
5 7 .4
261
359
June
P R IC E
In d ia
H ong K ong
W .P .
(A ll C h in a )
C ost
AND
(S h a n g h a i)
C .L .
1 938-:
1939
N ov.
A pr.
C .L .
1937:
(C o lo m b o )
(R angoon)
C .L .
of
B a s e p e r io d
In d ic e s
IN F L A T IO N
C h i n a .................
..............
C e y lo n
. .
.............. . . .
B urm a
Index
IV .
C o u n tr y
56
PART
T a b l e
186
M O V E M E N T S
............................
S ta tis tic s ,
a n d
( W
.P .)
f r o m
t h e
s u p p lie d
b y
b y
t h e
1 0 0
B u lle -
I n d o -
d e
o f
S e r v -
D e p a r t m e n t
S ta tis tic a l
K a r a c h i
s ta tis tiq u e
f r o m
:
H o n g k o n g
M o n t h l y
t h e
1 ,5 8 6
R .P .
( C . L . ) ,
p r ic e s ;
B u lle tin
( C .L .)
C e n tr a l
f r o m
b y
U N
I n d o c h in a
s u p p lie d
.P .)
W h o le s a le
P a k is ta n
S in g a p o r e ,
s u p p lie d
1 9 4 8 ;
( W
H o n g k o n g ,
S in g a p o r e .
B a n g k o k ;
S i a m ,
a n n é é
:
I n d ia ,
W .P .
1 9 3 9 :
1 0 0
1 ,3 4 3
4 5 6
3 9 7
R e t a il
to
4 1 4
3 0 7
c A u g u s t.
2 8 2
b y
w it h
1 ,6 8 9
1 ,1 3 9
4 1 7
3 2 3
4 9 3
6 ,7 4 9
se r ie s
b O c to b e r .
o ld
se r ie s
1 ,8 0 9 c
1 ,1 6 3
a N e w
t h e
2 2 4
5 ,2 6 1
p r ic e s.
1 ,7 1 4
1 ,3 7 0
4 3 3
4 1 6
2 ,6 1 2
1 9 0
A u g .,
3 4 4
a s
b a s e
4 5 9
lin k e d
2 7 5 c
1 ,5 9 1 c
1 ,1 7 5
4 1 0
3 7 3
4 5 4 b
1 5 ,7 4 1
p e r io d ;
2 8 1
1 ,6 3 6
1 ,1 5 5
4 1 5
3 7 3
4 5 2
1 3 ,7 6 1
4 1 8
3 ,0 0 0 ,0 0 0 .
t h e
2 7 5
1 ,7 0 4
1 ,2 8 7
3 9 7
3 4 9
4 4 7
7 ,5 8 0
b y
1 9 4 8
m u lt ip ly in g
1 9
2 8 6
1 ,6 7 6
1 ,4 3 8
3 9 2
3 3 1
4 4 1
7 ,1 6 6
3 1 0
V E M
ic e .
C o m m e r c e ;
l ’I n d o c h i n e ,
C h in a ,
P a k is ta n
I n d o c h in a
S t a tis t ic s ;
a n d ,
liv in g ;
C .L .
1 9 3 9 :
M a r .
1 0 0
1 0 0
1 0 0
1 0 0
2 ,0 2 6
1 3 7
O
G o v e r n m e n t ;
o f
J a p a n
W .P .
( B a n g k o k )
1 9 3 9
1 9 3 8 - :
M a r .
A p r .
1 9 3 7 :
1 9 3 9
e n d in g :
M a r c h
e e k
1 9 3 9 :
1 0 0
1 0 0
M
tin
o f
C .L .
( B a n g k o k )
B u r m a ,
C o s t
.
C .L .
( M a n ila )
8
W
A u g .
1 9 4 7
M a r .
1 9 3 7 :
1 9 4 6 - :
A u g .
P R IC E
n e s ia ,
S o u r c e :
:
. . .
. .
( K a r a c h i)
W .P .
( L a h o r e )
C .L .
( T o k y o )
W .P .
( A ll J a p a n )
AND
C .L .
. .
............................
S in g a p o r e
S ia m
P h ilip p in e s
P a k i s t a n ................... . .
J a p a n
I N F L A T I O N
E N T S
1 8 7
188
P A R T IV . IN F L A T IO N A N D P R IC E M O V E M E N T S
stability, because of th e fa c t th a t tra d e a n d exch an g e a re largely free.
O th e r things being eq u al, any g ro w th of in flatio n a ry o r deflationary
pressure w ould th erefo re te n d a u to m a tic a lly to c o rre c t itself by a n inflow
o r outflow of goods. A ctually, heavy negativ e b a la n ce of tra d e has been
a fe a tu re of b o th S iam a n d th e P hilip p in es fro m 1946 o n w ard s a lth o u g h
a sm all positive b alan ce w as reg istered fo r S iam in 1948. T h is m o re th a n
any o th e r fa c to r p ro b a b ly accou nts fo r th e d o w n w a rd tre n d of prices
in these countries. T h e situ a tio n in M a la y a is p e rh a p s n o t q u ite tru ly
reflected by th e in d e x figures, since th e cost-of-living in d e x used h e re has
been co n stru cted in a very ro u g h w ay.1 I n th e case of In d o n e sia , th e
in d e x used in th e ta b le is only a n in d e x of food prices. N o com p lete retail
p rice o r cost-of-living in d e x is av ailable. I t m ay be m en tio n e d , how ever,
th a t th e prices of im p o rte d textiles h av e show n little o r n o ten d en cy to
go dow n. T h e 1947 b u d g e t show ed a larg e deficit, b u t its in flatio n ary
effect w as a p p a re n tly m o re th a n offset by (a) a n increase in dom estic
o u tp u t b ro u g h t a b o u t by re c o n stru c tio n of p ro d u c tio n facilities a n d ( b )
heavy m erch an d ise n e t im ports.
I n J a p a n , in flatio n ary p ressure still con tin ues h ig h, th o ug h it has
fallen considerably since last year. I n th e te n m o n th s, A u g u st 1947 to
M a y 1948, th e average m o n th ly increase in th e effective con su m er price
in d e x has been only 4 p e r c en t as co n tra ste d w ith 24 p e r c en t in th e
th re e m o n th s before. T h e g en eral a c c o u n t b u d g e t h a s b e e n b ala n c e d b o th
fo r th e financial y ear 19 4 7 /4 8 , a n d fo r 194 8/49 . P ro d u c tio n indices,
except fo r th e textile indu stry , h av e been rising satisfactorily. B u t inflatio n ary p o te n tia l still rem ains in th e fa c t th a t a lth o u g h th e g en eral
a c c o u n t b u d g e t h a s b een b a la n c e d , th e G o v e rn m e n t’s v arious special
accounts will req u ire larg e borrow ings fro m th e C e n tra l B ank w h ic h will
lead to a n increase in th e n o te issue.
T a k in g th e A F E region as a w hole, it m ay th u s be said th a t inflatio n a ry pressure still rem ains stro n g over m o st o f th e region. T a b le 56
shows in term s of w holesale prices o r cost-of-living indices, to th e e x te n t
th a t they a re available, th e c h a ra c te r o f th is pressure.
Fa
c t o r s
T
h a t
H
a v e
Pr
o d u c ed
I
n f l a t io n
In fla tio n cam e w ith th e w a r a n d developed in v arious degrees in
various p a rts o f th e region. Its violence a n d persistence h a v e b een a m a jo r
obstacle to th e recovery a n d reco n stru c tio n o f th e cou ntries of th e region.
In fla tio n in th e region w as generally caused by pressure of d e m an d
g e n e rate d by b u d g e t deficits, h ig h rates of p riv a te in v e stm e n t o r spend in g
o f a c c u m u la te d liq u id assets o n th e on e h a n d , a n d scarce supplies of
1 T h e D e p a rtm e n t of Statistics w hich p rep ares it has discontinued its p u b lication. A revised schem e is u n d e r consideration.
IN F L A T IO N A N D PRICE M O V E M E N T S
189
co n su m e r goods o n th e o th er, a n d a h ig h level of exports a cc o m p an ie d
by relativ ely sm all im ports. E x p e n d itu re o n c u rre n t a n d c a p ita l ac c o u n t
by go v e rn m e n t, on in v e stm en t by p riv a te industry, on p erso n al consum ptio n a n d on th e c re a tio n of exports, are th e m a in form s of e x p e n d itu re
w h ic h m a k e u p th e to ta l m o n e ta ry d e m a n d fo r goods a n d services
p ro d u c e d by th e co m m u n ity , th a t is to say, fo r the n a tio n a l p ro d u c t.
I n a n in flatio n a ry situ atio n , w h a t generally h ap p en s is th a t w hile e x p e n d itu re increases u n d e r these heads, c rea tin g a d d itio n al m oney incom es a n d
th u s a d d itio n a l d e m a n d , th e re is n o com pensating fall in perso nal
co n su m p tio n , th a t is to say, no rise in savings. T h e resulting rise in prices
tends to a d ju st th e d e m a n d fo r co n su m p tio n goods to th e supply by
raising profits to th e p o in t w h ere th e savings resulting fro m these profits
serve to finance th e g o v e rn m e n t deficits a n d th e increased investm ent.
I n th e process, how ever, th e relativ e share of wages in th e n a tio n a l
in co m e falls. W ag e increases lead to a f u r th e r rise in prices, a n d th e
ty pical vicious spiral develops of w ages a n d prices chasing ea ch other.
W h e re in fla tio n assumes serious pro p o rtio n s, confidence in m oney is
shaken. T h e resu ltin g desire to h o a rd goods contributes fu rth e r to th e rise
o f prices. P rofit incentives associated w ith p ro d u c tio n grow w eaker, since
m on ey c a n be m a d e m o re easily by sim ply h o ld in g ra w m aterials an d
o th e r goods. T h is has b een ta k in g p la ce in C h in a a n d to a lesser e x te n t
in J a p a n .
Precisely to w h a t e x te n t d ifferent factors h av e c o n trib u te d to p ro d u ce
inflatio n in th e d ifferen t territories of th e region is, fo r lack of a d e q u a te
statistical d a ta , difficult to assess. V e ry little in fo rm a tio n , for instance, is
a v ailab le o n th e b e h a v io u r of v o lu n tary savings, b u t th e re is n o d o u b t
th a t th e re h as b een a re d u c ed p rop en sity to save as a result of th e fall
in real incom e a n d th e ac c u m u la tio n of w a rtim e savings h e ld in liqu id
form . O f o th e r factors, av ailab le evidence suggests th a t b u d g e t deficit
has b een th e m ost im p o rta n t. In fo rm a tio n o n budgets is co n tain e d in
c h a p te r X , in p a rtic u la r tab le 51. I t is w ell to re-em phasize h e re th a t th e
b u d g e te d e x p e n d itu re very o ften does n o t re p re se n t th e w hole of th e
g o v e rn m e n ta l outlay. C a p ita l e x p e n d itu re a n d e x p e n d itu re on various
special ac co u n ts are o ften exclu ded fro m th e o rd in a ry b u dget. T h e
figures given in th e table, therefore, d o n o t show th e w hole of th e deficits.
H o w ev er, even as they are, th e figures give some id e a of th e role of
deficits in g e n era tin g in flatio n ary pressure. T h e deficits w ere m ostly
in c u rre d d u rin g th e w a r fo r financing m ilita ry ex p en d itu re , b u t d u rin g
th e p o stw a r p e rio d such factors as in te rn a l strife, large m o vem ents of
refugees, h e a v y subsidization of food, in d u stria l a n d econom ic dev elo p m e n t, etc., h a v e also co n trib u te d .
T a b le 51, it sh ould be ex p lain ed , deals only w ith th e budgets of th e
c e n tra l G o vernm ents. N o a c c o u n t has b een ta k e n of local o r pro v in cial
190
P A R T IV . IN F L A T IO N A N D P R IC E M O V E M E N T S
budgets. In c o m e includes in co m e fro m taxes a n d g o v e rn m e n t p ro p erty .
R eceip ts o n c a p ita l a c c o u n t (loans o r draw in g s fro m su rp lu s fu n d s) have
as f a r as possible been excluded. E x p e n d itu re includes, so fa r as possible,
ex p e n d itu re on all accounts, o rd in a ry a n d special, c u rre n t a n d capital.
I n m a n y cases, how ever, in fo rm a tio n o n special a n d c a p ita l e x p e n d itu re
has been lim ited o r lacking. T h e c on te n t a n d significance of th e surplus
o r deficit given th u s differs fo r d ifferen t countries. Figures fo r 1947 an d
1948 a re b u d g e t estim ates. Figures fo r th e o th e r years are actuals. I n the
case of In d ia , w a r e x p e n d itu re in c u rre d o n b e h a lf of th e B ritish G o v ern m en t, th e so-called “ recoverable w a r e x p e n d itu re ” , w h ic h was covered
by th e deposit o f sterlin g securities w ith th e R eserve B ank o f I n d ia th a t
issued rupees in I n d ia fo r e x p e n d itu re by th e I n d ia n G o v e rn m e n t, has
b een excluded. B ut th e w hole process was clearly inflationary.
T a b le 51 shows h o w deficits p ersisted a n d grew in C h in a , In d ia ,
J a p a n a n d Siam . C o m p a re d w ith th e n o rm a l p re w a r g o v e rn m e n t ex p e n d itu re in these countries, th e deficits rep resen t very larg e ad d itio n s to m oney
incom es. C eylon a n d In d o c h in a , th e tw o o th e r c o u n tries fo r w h ich figures
are available fo r all years, h a d surpluses fo r c e rta in years, b u t c u m u la tively they also h a d deficits. T h e m a g n itu d e of th e deficits w o u ld still
be g re a t even if they w ere a d ju ste d to th e rise in prices o r c o m p a re d w ith
n a tio n a l incom e.
R e g a rd in g p riv a te in v estm ent, very little in fo rm a tio n is available.
D u rin g a n d fo r som e tim e a fte r th e w ar, p riv a te in v e stm e n t w as very
strictly controlled a n d th e re w as little scope fo r expansion. C o n tin u in g
shortages of m aterials, c a p ita l goods a n d foreign exchange, as well as
th e u n c e rta in ty a b o u t g o v ern m en t policy to w ards in d u stry , h av e kept
th e level of p riv a te in vestm ent g enerally low, b u t th e re la x a tio n of
controls has given it some stim ulus in c e rta in countries, p a rtic u la rly in
In d ia . I t is possible th a t in In d ia a t least, h ig h rates of p riv a te in vestm ent
d u rin g 1947 an d 1948 h av e c o n trib u te d to inflatio n ary pressure.
T h e d e m a n d represen ted by exports has n o t been a n im p o rta n t inflatio n ary fa c to r ex cept in c e rta in countries d u rin g th e w ar, n o ta b ly In d ia
a n d Ceylon. C o n currently, w a rtim e im p o rts w ere a t a low level an d ,
th erefore, d id n o t a d e q u a te ly relieve th e shortages w h ich w ere a t th e
ro o t o f in flatio n in these countries.
A lth o u g h very little in fo rm a tio n is av ailab le on savings, it is safe
to say th a t th e p ropensity to consum e has generally in creased considerably, th a t is to say, th e p ro p en sity to save h as fallen, because (a) real
incom e p e r h e a d has fallen everyw here, d u e to th e d estru c tio n caused by
th e w a r a n d th e difficulties of recovery, ( b ) th e re h as b een a co n siderable ac c u m u la tio n of liquid assets in th e h a n d s of th e people, a n d (c)
th e re exists a backlog o f d e m a n d fo r d u ra b le c o n su m p tio n goods w hich
IN F L A T IO N A N D PRICE M O V E M E N T S
191
co u ld n o t be satisfied d u rin g th e w ar. I n I n d ia in creased p ro p en sity to
consum e seems to h a v e b een one of th e causes of th e persistence of
in flatio n since th e w ar. All G overn m ents of th e region hav e, how ever,
ta k e n steps to discourage co n su m p tio n a n d e n co u rag e savings. Special
facilities h a v e b een c re a te d in n early every co u n try fo r h e lp in g sm all
savers.
I n C h in a , as alre a d y m e n tio n e d , a m a jo r fa c to r h a s been th e lack of
confidence in m oney. P eople h a v e b een w a n tin g to get rid of m oney as
soon as possible a n d h o a rd goods. E xpressed in a n o th e r way, th e velocity
of c irc u la tio n h as g reatly increased. T h e re is a flight fro m m oney to goods,
w h ich drives u p prices a n d m oney incom es still fu rth e r.
W h a te v e r th e stre n g th of these in flatio n ary factors, th e ir effect o n
prices w o u ld certainly h av e b een less serious, if p ro d u c tio n , p a rtic u la rly
co n su m er goods, co u ld h av e b een in creased o r a t least restored to p re w a r
levels. B ut, as was seen in e a rlie r ch ap ters, recovery of p ro d u c tio n has
b een very slow. M oreo v er, in no c o u n try of th e reg io n h as any g re a t
increase of supplies b een possible th ro u g h im p o rts, because of difficulties
of foreign exch ange, tra n sp o rt a n d p ro c u re m e n t. S uch increase as has
ta k e n p lace h a s n o t b een sufficient to offset inflatio n ary pressure from
o th e r sources. I t is th u s n o t sim ply th e rise of m o n e ta ry d e m a n d from
b u d g e t deficits a n d o th e r factors th a t h as b een a t w ork, b u t also the
low level o f supply. In fla tio n a ry pressure o rig in a te d largely fro m a decline
in supplies of essential consum er goods, in p a rtic u la r food a n d textiles.
I t persists largely because supplies still re m a in in a d e q u a te . In creased
supplies, w h e th e r by p ro d u c tio n o r by im p o rt, th u s deserve a h ig h place
a m o n g m easures for checking inflation.
C
u r r e n c y
C ir
c u l a t io n
a n d
Pr
ic e s
T h e w ay in w h ic h cu rren cy circu latio n a n d re ta il prices have
b e h av ed u n d e r th e stress of inflationary pressure is show n in tab le 57. T h e
tab le shows th re e series in term s of in d ex n u m b e rs: (1) th e m o v em en t
of c u rre n c y circ u la tio n , (2 ) th e m o v em en t of re ta il prices, a n d (3) the
ra tio of (1) to ( 2 ) , th a t is to say, th e m o v em en t of th e real v alu e of
cash holdings. Since no re ta il p rice indices are available, cost-of-living
indices h a v e b een used in th e ir place. S ig h t deposits h av e been excluded
fro m c u rre n c y c irc u la tio n because of th e relatively sm all role th ey play
as c irc u la tin g m e d ia in th e region.
T a b le 57 shows th a t in B urm a, C eylon, In d ia , J a p a n , M alay a, the
P h ilippines a n d Siam price in flation has b een ap preciably less th a n c u rren cy inflation. C onsequently, th e real v alu e of th e m o ney supply has gone
u p above th e p re w a r level. I n gen eral, this m ay be ta k e n as a n in d ic a tio n
of suppression of in flatio n by p ric e co n tro l a n d o th e r m easures in th e
1939
1938
1937
1939
1937
1938
1938
1938
1937
Base
476.7C
834.5
2,187.5
388.6
1,357
638
9,526
326.5
478
1,449
444.7
849.2
8,437,500
394.1
1,525
865
10,026
327.6
503
1,548
(May)
(Oct.)
(Dec.)
(D ec.)f
(June)
(Oct.)
(June)
(Sept.)
(D e c .)e
In d e x o f currency circulation
D e c . 1947
1948
127
332
29
144
48
30.9
144
119
114
127
121
325
28
132
38.4
56.5
124
115
126
134
(May)
(Oct.)
(Dec.)
(Dec.)
(June)
(Oct.)
(June)
(Sept.)
(Dec.)
AND
PRICE
a Note issue figures for 1947 have been taken from A. C.
Huang, “Inflation in China,” Quarterly Journal of Economics, Aug., 1948.
(Dec.)
(Aug.)
(May)
(Oct.)
(Dec.)
(Dec.)
(June)
(Oct.)
(June)
(Sept.)
1948
365.9
261
30,000,000
297
3,966
1,531
3,060
282.9
397
1,154
I n d e x o f real value o f
cash h o ldin gs
D e c . 1947
1948
INFLATION
b Currency circulation figures include rupee coins.
c Currency circulation figures taken from data supplied
to ECAFE Working Group on Financial Arrangements to
Facilitate Trade.
d Reports of Commissioners of the Currency, Singapore.
e Note circulation figures for 1938 from Reserve Bank
of India Report for 1947 and 1948 from data supplied by
the Burma Government. Price indices adjusted for 1938 as
base.
f Actually this figure is for 19 January, 1949. December
figure not available.
374.7
251
7,444,000
269
2,802
2,067
6,610
272 (Mar.)
417
1,139
D ec. 1947
In d e x o f retail prices
IV.
Source: International Financial Statistics, U.N. Monthly
Bulletin of Statistics, and U.N. Statistical Yearbook, supplemented by general and statistical publications from the
countries of the region. Currency circulation refers to note
issues. Actual figures have been converted into indices. Price
indices are indices of cost of living, with source as mentioned in table 56.
Burma ........... . .
Ceylon ........... . . .
China a ........... . .
India b ..............
Indochina c . . . . .
Indonesia
...
Japan .............
M al a y ad .......... . .
Philippines . . . . .
Siam ................ . .
57
PART
C ountry
bl e
I n d e x o f C u r r e n c y C i r c u la t i o n , R e t a il P rice s a n d R e a l V a lu e o f Cash H o ld i n g s
Ta
192
M OVEMENTS
193
IN F L A T I O N A N D PRICE M O V E M E N T S
c o u n tries c o n cern ed . T h is m eans a h ig h state of liquidity. A t prev ailin g
prices th e econom y h as m o re p u rc h a sin g p o w e r o r liq uidity th a n it w ou ld
a p p e a r to need. I t is tru e th a t a rise in th e re a l value of cash holdings
does n o t necessarily m e a n suppressed inflation, since th e real v alu e m ay
rise o n a c c o u n t of a rise in pe r capita real incom e. B u t in this case, all
a v aila b le ev idence suggests th a t real incom e, if anything, has fallen ra th e r
th a n risen. F ro m a n o th e r angle, th e situ a tio n m ay be described as a fall
in th e velocity of circulatio n.
I t is w ell to p o in t o u t, h ow ever, th a t since th e rise in prices is
so m ew h a t u n d e r ra te d by th e indices used (b lack -m ark et prices being
largely ig n o r e d ) , th e figures in th e tab le te n d to exaggerate th e rise in
th e real v alu e of cash holdings.
I n C h in a , a n d to a lesser e x te n t in In d o c h in a a n d Indonesia, on the
o th e r h a n d , it w ill be seen th a t prices h av e gone a h e a d of currency
circu la tio n , a n d th e real v alu e of th e m oney supply has fallen. I n C h in a ,
of course, a very im p o rta n t fa c to r has been the flight fro m th e currency.
I n a state of h y p er-inflation, peo p le red u c e th e ir cash holdings to the
b a re st m in im u m ; in o th e r w ords, th e velocity of circu latio n rises very
high.
Fo
o d
N
a nd
o n
-F o
o d
Pr
ic e s
F o o d prices p lay a key role in inflation. T a b le 58 gives an id ea of
th e m o v e m e n t of food a n d non-food prices. I t contrasts the general costT
a bl e
58
In d ic e s of F o o d a n d N o n -F o o d Prices
B ase
Burma:
Ceylon:
April
C hina a:
1937
Nov.
1939
1936
= 1 0 0 ............
1938 to
= 1 0 0 ............
= 1 0 0 ............
M o n th
in 1948
G e n e r a l in d e x
o f co s t o f
li v in g
Aug.
378
Oct.
259
Aug.
(1st half) 363,000,000
518
June
H ong K ong: 1939 = 100. .
Oct.
297
Indiab: 1939 = 1 0 0 ............
3,614
Oct.
Indochina: 1939 = 100. . .
Japan: Aug. 1946 to
420
Aug.
March 1947 = 1 0 0 ..........
275
Nov.
M alaya c: 1939 = 1 0 0 ..........
397
June
Philippines: 1937 = 100.
Index of
th e fo o d
s ectio n
440
292
372,000,000
657
318
3,686
365
388
419
Source: U.N. M on th ly Bulletin of Statistics, International Labour Review , and
trade and statistical journals published in the countries of the region.
a Central Bank of China’s index for Shanghai working class.
b Bombay working class.
c Department of Statistics, Singapore.
194
PA R T IV . IN F L A T IO N A N D PR IC E M O V E M E N T S
of-living in d e x w ith th e in d e x of its food section. As a lre ad y m en tio n e d ,
one of th e m ost d istu rb in g aspects o f in flatio n h a s b een th a t fo o d prices
h av e risen m u c h m o re th a n o th e r prices in spite of th e a tte m p t to h o ld
th em dow n by p rice co n tro l m easures. I n c e rta in c o u n tries prices of
clothing h av e o u tru n prices o f food, b u t house re n ts a n d prices of p u b lic
services like tra n sp o rt, posts a n d electricity, h a v e been relatively rig id a n d
low, a n d consequently th e in d e x as a w hole h a s risen less th a n th e in d ex
of th e food section. Im p ro v e d supplies of food d u rin g 1948 h a v e generally
ten d e d to red u c e foo d prices to som e e x ten t, b u t as th e ta b le shows, they
still stan d a p p reciab ly h ig h e r th a n n on -fo o d prices. I t is w ell to rem e m b e r
th a t in th e p re p a ra tio n of th e cost-of-living in dex , free m a rk e t prices
of foodstuffs are in m ost cases e ith e r a lto g e th e r ex clu d ed o r only insufficiently in clu d ed . T h e “ effective” food indices fo r m ost co u n tries w o uld
be m u c h hig her.
Ef
f e c t s
o f
In
f l a t io n
In fla tio n a n d Foreign T ra d e
A h ig h level of foreig n tra d e c a n only be m a in ta in e d if th e re is a h ig h
level of p ro d u ctio n . Since inflatio n tends to d isto rt a n d e v en tu ally
decrease p ro d u c tio n , it also tends to decrease th e volum e of tra d e . A p a rt
from this g en eral effect, in flatio n in th e a re a h as te n d e d to c re ate o r
a g g rav ate b alan ce of pay m en ts problem s fo r m ost countries. T h is h a s been
d u e to tw o reasons:
(1 )
In te rn a l prices a n d costs in m ost countries h a v e risen m o re th a n
external. T h e resu ltin g o v e r-v a lu a tio n of cu rrencies h as e ith e r n o t b een
corrected a t all o r co rrected insufficiently by revision of exch an g e rates.
I n C h in a, revisions h av e been m a d e m a n y tim es, b u t th e y h a v e been
b elated a n d insufficient. I n In d ia , B urm a, C eylon a n d M a la y a , cu rren cies
have re m a in e d pegged in term s of sterling, a n d w ith sterling, th e ir v alu e
in free m ark ets in term s of th e d o llar h as te n d e d to d ep re c ia te . T h e In d o nesian g u ild er a n d th e In d o ch in ese p ia stre h a v e also b een d ev alu ed
follow ing th e d e v a lu a tio n of th e m e tro p o lita n currencies to w h ic h they
a re linked. T h e In do ch in ese p iastre w as d ev alu ed 80 p e r c e n t o n 28
Ja n u a ry , 1948. T h e ra te w ith th e fra n c re m a in e d u n c h a n g e d a t 17 fran cs
to 1 p iastre, b u t th e official r a te w ith th e U n ite d S tates d o lla r was
c h a n g ed fro m 7.5 to 12.70 piastres. T h e Siam ese b a h t has also b een
devalu ed . B u t in n early every case, a co m pariso n of re lativ e p ric e levels
a t ho m e a n d a b ro a d suggests th a t th e official o r th e officially recognized
rates of ex ch ang e (in som e cases even th e o p e n m a rk e t ra te s) h a v e n o t
been fully a d ju sted .
So far, th e effects of o v e r-v alu atio n m ay n o t h a v e b een fe lt very
acutely, because m ost in te rn a tio n a lly tra d e d goods h a v e b een in sh o rt
IN F L A T IO N A N D PRICE M O V E M E N T S
195
sup p ly a n d th e m a rk e t has been p re d o m in a n tly a seller’s m a rk et. B u t as
shortages a n d sellers’ m a rk e t conditions d isap p ear, differences in price
e x ch an g e p arities will becom e increasingly im p o rta n t.
(2 )
L im ita tio n of e x p e n d itu re o n con tro lled goods h as d iv erted
unsatisfied m o n e ta ry d e m a n d to u n c o n tro lle d goods, some of w h ich could
otherw ise h a v e b een ex p o rted . H o w ev er, since th e E C A F E region is
m ain ly a n e x p o rte r of ra w m aterials a n d only to a lim ited e x te n t of
c o n su m er goods, this “ suction” of exports in to th e dom estic m a rk e t has
generally b een small.
T h e re is no satisfactory m e th o d by w h ich th e over-v alu atio n o r u n d e rv a lu a tio n of a c u rren cy c a n be correctly m easured. B oth th e com parison
of w holesale prices a n d of e x p o rt prices, th e tw o m ethods w hich are
gen erally used, h a v e th e ir draw backs. H ow ever, a ro u g h id e a of the
a p p a r e n t o v e r-v a lu a tio n of th e currencies of th e region in term s of the
U n ite d S tates d o lla r is given by tab le 59. By co m p a rin g th e relative
m ovem ents in w holesale prices in th e U n ite d States a n d in countries of
th e region fro m th e sam e base perio d , tab le 59 shows theoretical
e x ch an g e rates side by side w ith a c tu a l rates. W h ere co m p arab le indices
of w holesale prices a re n o t available, th e average of th e e x p o rt a n d im p o rt
p rice indices o r th e cost-of-living in d ex has been used in ste a d .1
I t a p p ea rs th a t th e official o r officially to le ra te d rates of exchange
h av e been everyw here below th e p u rc h a sin g p o w er parities. T h e open
o r c u rb m a rk e t rates h av e been n earer. I n C h in a , in A ugust, 1948,
th e new gold y u an was u n d e rv a lu e d ; b u t this was exceptional a n d did
n o t last fo r long. I n general, th e position ap p ears to have been one of
o v e r-v a lua tio n in vary in g degrees. T h e disequilibrium in th e b a lan c e of
p ay m en ts w h ich this tends to p ro d u c e has been k e p t in check to some
e x te n t by co m prehensive systems of tra d e a n d exchange control. B u t the
official rates of exchange h a v e been h a rd to m a in ta in , a n d o p en or black
m a rk e t rates exist in varying degree th ro u g h o u t th e region.
1 Needless to say, the method used has many limitations. Wholesale prices are
often weighted heavily by the prices of imported goods and do not reflect properly
the prices of goods available for export. Another general limitation is that in computing theoretical exchange rates from price ratios, we assume that other things
remain unchanged. In fact, things have changed considerably during the war and
postwar period. First, cost of ocean transportation has increased very much;
second, there have been changes in the terms of trade; third, exchange and trade
controls have been imposed in practically all countries in the region; fourth, the
economy of various countries in general, and in the production sector in particular,
has been changed by the war and postwar adjustments. These changes would
cause deviation of the theoretical exchange parities from the price ratios. Moreover, a basic weakness is that there is no particular justification for assuming that
currencies were “correctly” valued in the base period.
C urrency
u n it
aNo wholesale price index being available in Ceylon, the
7.90
4.21
25.91
5.56
4.43
19.19
3.31
15.57
2.66
2.01
10.00
19.70
(September)
(October)
(June)
(June)
(official)
(open market,
November)
480,000 (open
market without
certificate)
8,287,000 (open
market with
certificate)
12,000,000
(curb market)
3.31 (2nd quarter)
(September)
(October)
(June)
(June)
17.73 (November)
4.90
35.36
5.48
4.09
8,139,811
(August)
5.51 (2nd
quarter)
R a te o f exchange
in dica te d by
relative price
m o vem ents
per US$
PRICE
average of export prices and import prices has been used as
a substitute.
b Actual exchange rates 1948 are for 19 August, 1948.
c For Hong Kong, cost-of-living index has been used to
indicate price movements.
d There being no wholesale price index in Indonesia, the
average of export and import price indices has been used.
e Cost-of-living index has been used as indicating price
movements in the Philippines.
2.01
10.00 (official)
18.18 (open
market)
3.31
7.50
178,074
5.36
Rate o f exchange
in dica te d by
relative price
1948 actual rate o f exchange
m o vem ents
per US$
per U S$
AND
Source: International Financial Statistics, U.N. Monthly
Bulletin of Statistics, U.N. Statistical Year Book, and various
economic and statistical documents published in the countries of the region. Exchange rate quotations are selling
rates. Unless otherwise stated price indices used are those
of wholesale prices.
(July, 1939)
(1937)
(1939)
(1938)
(1937)
(1938)
90,000 (open
market)
145,000 (curb
market)
12,000 (official)
3.31
D ecem ber 1947
actual rate o f exchange
per US$
INFLATION
3.3
2.68
4.01
1.88
1.99
2.33
3.33 (1937)
2.74 (1938)
Prewar rate
o f exchange
per US$
IV.
Hong Kongc . . . . HK$
India ................
In d o ch in a ......... Piastre
Guilder
Indonesiad
Philippinese . . .Peso
Siam .................. Baht
CN$
59
PART
Chinab
Ceylon a .............. Rupee
C ountry
a bl e
Exchange M ovem ents Relative to Price M ovem ents
T
196
MOVEMENTS
IN F L A T IO N A N D PRICE M O V E M E N T S
197
I t is n o t easy to say if som e m easu re of d ev a lu a tio n is necessary. T h e
alte rn a tiv e s a re e ith e r to tig h te n im p o rt a n d exchange controls o r to
a d o p t a policy of su b stan tial deflation. E a c h has its defects a n d difficulties. A n y policy of stabilization w h ich involves deflation, w ould be n o t
only difficult to ca rry o u t, b u t w o uld also seriously re d u c e th e level of
p ro d u c tio n a n d em ploy m ent. Y et, d e v alu a tio n also w ould be difficult,
since a su b sta n tial p ro p o rtio n of th e im ports a re food a n d o th e r essential
goods w hose cost in local c u rren cy w ould rise w ith devaluation .
I n c o m e D istribution
I n co u n tries of th e region th e classes w hich seem to h av e benefited
m ost fro m in flatio n a re m e rc h a n ts, industrialists a n d agriculturists. T h e
heavy b u r d e n of a g ric u ltu ra l debts b o rn e by agriculturists in countries
like I n d ia a n d C eylon has p ro b a b ly b een considerably reduced. Since the
region is p re d o m in a n tly a g ric u ltu ra l, th e rise in ag ric u ltu ra l incom es
represents a very im p o rta n t sh ift in d istrib u tio n ; m oreover it seems to be
a p e rm a n e n t shift. I t is p ro b a b le th a t a m a jo r p a r t of these gains
h a v e a c c ru e d to large agriculturists. As is u su al d u rin g inflation, the
m id d le classes seem to h av e been th e h a rd e st hit.
I t sho u ld be n o te d th a t a g ric u ltu ral prices, a n d consequently agriculturists’ incom es, h a v e b een con tro lled in various degrees n early everyw here. L ocally g ro w n foodstuffs h a v e b een com pulsorily p ro c u re d a t
c o n tro lled low prices. I n Siam , fo r exam ple, th e G overnm ent, as the
sole e x p o rte r of rice, has b een p ay in g to p rodu cers prices in dom estic
cu rren cy w h ich rep re se n t ap p ro x im ate ly h a lf th e value, a t c u rre n t m ark e t
rates of exch an g e, o f th e foreign exchange received. T h e p ro ce d u re v irtually a m o u n ts to a h u n d re d p e r cen t tax on th e e x p o rt price of rice. I t
should be a d d e d , how ever, th a t th e G o v e rn m e n t’s policy is to utilize these
profits on rice ex ports largely fo r irrig atio n , pu b lic h e a lth a n d o th e r
benefits fo r r u ra l areas. I n general, it m ay be said th a t if price a n d o th e r
controls of this n a tu re w ere absent, th e rise in a g ricu ltu ra l prices an d
incom es w o u ld h a ve been greater.
T r e n d to Controlled E c o n o m y
T h e sw ing to con tro lled econom y d u rin g a n d since th e w a r in
p ra c tic a lly every p a r t of th e region, seems p a rtly a t least to be th e result
of inflatio n a n d shortages. G o vernm ents h av e been com pelled to take
recourse to c o n tro l of prices a n d d istrib u tio n , o ften them selves engaging
in b u lk b u ying a n d selling a n d in re ta il tra d in g , to ensure e q u itab le distrib u tio n o f th e lim ited supplies available. I n C eylon a n interesting
d e v e lo p m e n t w as th e tak in g over o n a very large scale of reta il sales fro m
re ta il tra d e rs by co-o perative stores. I t represents a n im p o rta n t change
in th e field of d istrib u tiv e tra d e w h ich is also likely to stay. In d ia , too,
198
PAR T IV . IN F L A T IO N A N D PRICE M O V E M E N T S
w itnessed a rem ark ab le g ro w th of co-o perative re ta il stores. I n Siam , th e
S ta te u n d e rto o k in 1948 th e p u rc h ase a n d d istrib u tio n of various consum er goods th ro u g h state o p e ra te d stores a n d m arkets. T h e state agency
(G o v e rn m e n t P u rch a sin g B u re a u ) enjoys com p etitive a d v a n ta g e over
p riv a te im po rters a n d dealers in a sm u ch as it gets d o lla r exchange a t the
p re fe re n tia l ra te of 10 b a h t fo r a dollar.
A
n t i-In f l a t io n a r y
M
e a su r e s
A m on g an ti-in flatio n ary ac tio n ta k e n in th e E C A F E region d u rin g
1948, th e C u rre n c y R e fo rm in C h in a of 19 A u g u st a n d th e In d ia n
G o v e rn m e n t’s d e c la ra tio n a n d definition of its an ti-in flatio n a ry policy
a n d p ro g ra m m e in O c to b e r, deserve special m en tio n , th e one fo r its
failure, th e o th e r fo r its relativ e success.
C hina a d o p te d o n 19 A ug ust a sw eeping schem e of c u rren cy an d
econom ic refo rm aim ed to e n d in flation a n d stabilize th e v alu e o f the
currency. A new currency, th e G old Y u a n , convertible u n d e r c ontrol into
foreign exchange a t fixed rates a n d back ed by a 100 p e r c en t reserve,
of w h ich 40 p e r c e n t was to be in foreign e xch ange a n d 60 p e r cen t in
assets of state-ow ned enterprises, w as in tro d u c e d , re p lac in g th e existing
C hinese N a tio n a l D ollar. T h e C .N . d o lla r was to be c h a n g e d in to Gold
Y u a n a t th e ra te of one G old Y u a n fo r th re e m illion C .N . dollars. T h e
note issue was to be lim ited to G.Y. 2,000 m illion. T h e legally prescribed
gold c o n te n t of th e G.Y. w as to be 0.22217 gram s of p u re gold, e q u al to
U S$0.25. T h e exchange ra te w ith th e U .S . d o lla r w as fixed a t $ 1 = G .Y .4
a n d correspondingly w ith o th e r c u rre n c ie s , ex cep t th a t sterling a n d
re la te d currencies w ere u n d e rv a lu e d in re la tio n to th e official sterlingd o llar rate. All gold a n d silver a n d foreign cu rren cies h e ld by th e people
w ere to be su rren d ered to th e G o v e rn m e n t a t th e official rates before a
fixed date. T h e re w as to be reg istratio n of foreign c u rre n c y assets ow ned
by C hinese citizens a t h o m e a n d a b ro ad . R igo rous efforts w ere to be
m a d e to b alance th e n a tio n a l b ud get. T ax e s a n d charges of state e n te rprises a n d pu b lic utilities w ere to be raised a n d e x p e n d itu re on state
enterprises was to be cut. Im p o rt q u o tas w ere to be c u t by a t least 25
p e r cent. W ith a view to stabilizing com m od ity prices, prices p rev ailing
on 19 A ug ust (converted in to G .Y .) w ere fixed as ceilings. W ages w ere
to be frozen a t th e level prev ailin g in th e first h a lf of A ugust. G o v e rn m e n t
banks w ere to deflate th e ir loans drastically.
O th e r m easures a d o p te d in this co nnexion w ere th e p ro h ib itio n of
strikes a n d factory closures, th e abolitio n of cost-of-living indices, the
te m p o ra ry closure of th e S h a n g h a i a n d T ie n tsin Stock E xchanges, the
a d ju stm e n t of th e salaries of th e arm y a n d civil servants, a n d th e insti-
IN F L A T IO N A N D P RICE M O V E M E N T S
199
tu tio n of severe penalties, in c lu d in g c a p ita l p u n ish m e n t, for offences
a g a in st th e new regulations.
F o r some tim e th e new curren cy system w orked successfully. B ut
before lo n g th e position d e te rio ra te d , a n d on 31 O cto b er, 1948 th e price
ceilings w h ic h h a d becom e com pletely un realistic h a d to be abolished.
T h e factors w h ich led to th e b rea k d o w n of th e system m ay be sum m arized as follows:
T h e to ta l issue of fa pi o r legal te n d e r notes in c ircu latio n on 19
A ugust, 1948 was estim ated to be e q u al to G.Y. 200 m illion a t th e ra te
of G .Y .1 = C N $ 3 millions. T h e p e rm itte d issue of G.Y. w as 2,000 m illion.
T h u s th e re fo rm itself envisaged a possible expansion of p u rc h a sin g pow er
to th e tu n e of 10 tim es its vo lu m e in c ircu latio n a t th e tim e of th e in tro d u c tio n of th e reform .
T h e G o v e rn m e n t c o n tin u ed to rely m ainly on in flation ary finance to
m e e t its e x p e n d itu re , w h ich w as rap id ly m o u n tin g on a c co u n t of th e civil
w ar. By 31 O cto b e r, 1948 w h en th e failu re of th e refo rm was officially
a d m itte d by th e a bolition of p rice ceilings, th e note issue stood a t G.Y.
1,595 m illion w h ic h re p re se n te d a n increase of 700 p e r cen t com pared
w ith th e fa p i issue o n 19 A ugust, 1948.
M o st com m odity prices w ere frozen below cost. T h is b ro u g h t ab o u t
a depression in com m erce a n d in d u stry a n d the d isru p tio n of tra d e
betw een u rb a n a n d ru ra l areas, for th e farm ers w ere n o t p re p a re d to sell
th e ir p ro d u c e a t th e frozen prices a n d so did n o t send it to th e towns.
O n 19 A ugust, 1948, th e m a rk e t ra te of exchange betw een C N $ a n d
U S$1 w as e q u a l to C N $ 8 m illion. B ut th e ra te of exchange u n d e r the
re fo rm e d schem e w as U S$1 = G .Y .4 = C N $12 m illion. T h e u n d e r v a lu a tio n o f G .Y. m a d e th e rep la c e m e n t costs of im ports h ig h er th a n the
frozen prices a n d this affected im p o rters adversely.
T h e c o n tin u e d closure of th e Stock E xchanges w hich h a d a ttra c te d
a good d eal of h o t m oney, resulted in g re a te r pressure on th e com m odity
m arkets.
In creased p ro d u c tio n was essential fo r th e success of th e scheme.
A ctually th e re was a fall in p ro d u c tio n o n a c c o u n t of restriction of
im ports, in c lu d in g im p o rts of ra w m aterials a n d m achinery. T h e shortage
of con su m er goods inevitably h a d a n inflatio n ary effect.
T h e G o v e rn m e n t’s a tte m p t to siphon off excess p u rc h a sin g po w er by
th e sale of shares of official enterprises failed for w a n t of p u b lic co n fidence.
U p to 31 O c to b e r, 1948 gold, silver a n d foreign exchange a m o u n tin g
to G .Y. 663 m illion was su rre n d ere d , a n d a n e q u a l a m o u n t of G.Y. was
p u t in to circu latio n . T h is re p resen ted a n a d d itio n of a b o u t 230 p e r cent
200
PA R T IV . IN F L A T IO N A N D PRICE M O V E M E N T S
of p u rc h a sin g p o w e r as c o m p a re d w ith th e to ta l n o te issue o n 19 A ugust.
T h is fa c to r alone exerted a n enorm ous inflatio nary pressu re a n d co n trib u te d greatly to th e fa ilu re of th e reform .
A n u m b e r of factors, p e rh a p s sta rtin g w ith th e p o stp o n e m e n t of the
d a te for conversion of fo reig n currencies in to G.Y ., c o m b in ed to u n d e rm in e confidence in th e new currency.
T h e u n fa v o u ra b le m ilitary situ a tio n also resu lted in loss of pu b lic
confidence in th e currency. T h e G o v e rn m e n t trie d to resto re it by o rd e rin g u n lim ite d conversion of G.Y. in to gold bullion o n 22 N o v em ber, 1948.
B u t th e a tte m p t d id n o t succeed. As th e d e m a n d p ro v e d to be excessive,
th e a m o u t of gold to be p u rc h a se d by any in d iv id u a l w as re d u c e d to
10 oz. on 10 D ecem b er a n d to 1 oz. in th re e m o n th s on 16 D ecem ber,
1948. T h e sale was suspended a lto g e th e r on 24 D ecem ber, 1948.
In d ia : O n 5 O cto b er, 1948, th e I n d ia n G o v e rn m e n t a n n o u n c e d a
com prehensive schem e fo r fighting inflation. T h e chief featu res of the
schem e w ere as follows:
1. T h e gap betw een rev en u e a n d e x p e n d itu re was to be re d u c e d to
th e u tm o st degree possible b o th by th e Provinces a n d th e C en tre,
a n d fo r th e n e x t few years efforts w ere to be m a d e to secure
b u d g e t surpluses.
2. All u n p ro d u c tiv e g o v e rn m e n t e x p e n d iture was to be c u t. A
C a b in e t C o m m ittee w as set u p to review th e d e v e lo p m e n t plan s
of th e C e n tre a n d th e Provinces a n d fra m e a list o f priorities,
w ith a view to p o stp o n in g o r slow ing d ow n schem es w h ic h w ere
n o t likely to be im m ed iately p ro d u ctiv e.
3. P rice a n d d istrib u tio n co n tro l of essential com m odities w as to be
tig h te n e d . T h e policy of d e c o n tro l a d o p te d in D ecem b er, 1947
h a d alread y been reversed by th e reim p o sitio n o f controls o n
co tto n textiles a n d food grains. F u r th e r m easures w ere now to be
ta k e n to red u ce th e p rice of su g ar a n d ensure th e b e tte r d istrib u tio n of com m odities like kerosene, iro n a n d steel a n d cem ent.
4. T o en co urage expansion of in d u stria l p ro d u c tio n , n e w u n d e rtakings w ere to be given h ig h e r d ep re c ia tio n allow ances for
in co m e ta x assessm ent a n d m o re lib eral rebates in custom s d u ty
o n im p o rte d ra w m aterials, p la n t a n d m ach in ery . As p a r t of th e
sam e policy, steps w ere to be ta k e n to increase co -o p eratio n
b etw een c a p ita l a n d lab o u r. T h e law re la tin g to in d u stria l
disputes was to be m a d e u n ifo rm fo r th e w hole of th e cou n try .
5. F u r th e r steps w ere to be tak en to in crease savings. T o h e lp the
sm all saver, th e m a x im u m perm issible lim its fo r in v e stm e n t in
P ostal Savings Banks a n d N a tio n a l Savings C ertificates w ere
IN F L A T IO N A N D PRICE M O V E M E N T S
201
raised. I t was also decided to issue T re a su ry D eposit R eceipts for
6, 9 a n d 12 m o n th s to c a te r fo r in stitu tio n al investors seeking
sh o rt-te rm investm ent.
6. T o re d u c e th e volum e of p u rc h a sin g p o w er in th e h a n d s of the
p ublic, th e a m o u n t d istrib u te d as dividends by p u b lic com panies
w as n o t to exceed th e average fo r tw o years en d in g 31 M a rc h ,
1948 or 6 p e r c e n t on p a id -u p capital, w hichever was th e higher.
T h e re p a y m e n t of Excess Profits T a x deposits a n d of refu n d ab le
Excess Profits T a x was to be po stp o n ed for th re e years. R efu n d s
w ere, how ever, to be allow ed fo r p u rc h a se of ca p ital e q u ip m ent.
I t was also proposed to reg u late th e g ra n t of advances by banks
to co m m o d ity m a rk e t speculators.
7. Im p o rts of lu x u ry goods w ere to be m o re heavily taxed.
Fe
a t ur e s
a n d
T
r e n d s
o f
Pr
ic e
Co
nt r o l
P rice control has b een in o p e ra tio n in various degrees in all c o u n tries of th e region. G enerally, c o n tro l seems to h av e b een m ore extensive
in In d ia , P a k ista n a n d Ceylon. I t should be b orne in m in d th a t it is
difficult to establish price control o n a n extensive scale in m ost countries
of th e reg io n because (a ) they a re large in size, ( b ) th e p ro p o rtio n of
illiteracy a m o n g th e people is very high, a n d ( c ) financially, few co u n tries c a n b e a r th e heavy cost of setting u p th e a d m inistrative m achinery
necessary fo r h o n est a n d efficient a d m in istra tio n of control m easures.
I n g en eral, control seems to h av e reach ed its p eak in th e region
a b o u t 1946. D u rin g 1947 a n d 1948, th e g en eral tre n d has been one of
rem oval o r re la x a tio n of controls. As was seen earlier in this c h a p te r,
In d ia a n d C h in a h av e been p a rtia l exceptions.
Prices h av e been co n trolled in so m a n y d ire c t a n d in d ire c t ways
(fo r instan ce, by c on tro llin g foreign tra d e a n d exchange, by allocating
la b o u r a n d m aterials, by pay in g subsidies, by controlling wages, by
co n tro llin g consum ers’ e x p e n d itu re by ta x a tio n o r increased facilities for
sa v in g ), th a t it is im possible to d eal w ith th e m all in detail. H ow ever,
so f a r as d ire c t price contro l is concerned, its chief featu res in th e region
m ay be sum m ed u p as follows:
1. C o n tro l has b een p rim a rily a pp lied to food, clothing, fuel, an d
a few o th e r essential co n su m er goods. T h is has been supplem e n te d in various degrees by c ontrol of im p o rta n t p ro d u c tio n
goods such as fertilizers, a g ric u ltu ra l im p lem en ts, iro n a n d steel,
in d u stria l fuel, cem en t, etc.
2. C o n tro l of price (w h ich has generally been done by fixing a
ceiling p r ic e ) , in o rd e r to be effective, has to be a c com panied by
202
PAR T IV . IN F L A T IO N A N D PRICE M O V E M E N T S
co n tro l of m o v em en t a n d d istrib u tio n of th e goods co n cerned . In
th e case of rice, su g ar a n d textiles, in w h ic h th e sh o rtag e has
been th e m ost acute, som e system of ra tio n in g has generally been
com bined w ith p ric e co n tro l to ensure e q u ita b le distribution.
T h e position re g a rd in g rice ra tio n in g d u rin g 1948 w as th a t
ra tio n in g ap p lie d to th e p rin c ip a l u rb a n areas in In d ia , C h in a ,
Pakistan , Ceylon, M alay a, N o rth B orneo, H o n g K o n g an d
Indonesia. I n P akistan , 6.1 p e r cent of th e to ta l p o p u la tio n was
subject to food ratio n in g . I n Ceylon, ra tio n in g e x te n d e d largely
to ru ra l areas also. I n M alay a, C eylon a n d In d o n esia, consum ers
w ere allow ed to p u rc h a se a d d itio n a l q u a n titie s o u tsid e the
ra tio n in th e o p en m a rk e t. I n th e P hilippines, ra tio n in g applied
only to M a n ila a n d its a d ja c e n t areas. I n C h in a , it a p p lie d to six
p rin c ip a l cities. T h e re h as b een no ra tio n in g of rice in B urm a,
In d o c h in a a n d S iam w h ich are rice-surplus countries. I n Siam ,
how ever, rice ra tio n in g w as in tro d u c e d in B angkok fo r a short
tim e w ith a view to tid e over local shortages caused by exports.
I n J a p a n a n d S o u th K o rea, a strict ra tio n in g system was
en forced by th e occupying Pow er. R e g a rd in g ra tio n in g of cloth,
th e general tre n d d u rin g 1948 has been to rem ove a n d relax it.
3. W h ere necessary, as in th e case of rice, p rice co n tro l has been
acco m p an ied in m an y cases by com pulsory p ro c u re m e n t a t
controlled prices by th e G o v e rn m e n t of all local o r im p o rte d
supplies. T h e g en eral system h as been, as in I n d ia a n d Ceylon,
to co m m a n d e e r fro m th e p ro d u c e r his w hole o u tp u t less his own
consum ptio n requirem ents. T w o weaknesses of this policy, h o w ever, h a v e been th a t (a) it h as b een im possible to enforce
p roc u re m e n t fully, w ith th e result th a t p a r t of th e supply has
leaked in to th e black m ark et, a n d ( b ) th a t th e low -pegged price
p a id to th e fa rm e r has te n d e d to d iscourage any increase in
pro d u ctio n .
4. I n c e rta in cases, a n d h e re a g ain th e m ost n o ta b le ex am ple is
rice, th e G o v e rn m e n t has becom e th e sole im p o rte r, in o rd e r to
control supplies m o re effectively. T h e G o v e rn m e n t h as also
ta k e n a h a n d in th e w holesale o r re ta il d istrib u tio n , by e ith e r
sta rtin g its ow n shops o r assisting co-operative stores to tak e up
th e w ork. I n In d ia , th e g o v ern m en t railw ays h av e o p en ed th e ir
ow n shops. B oth in I n d ia a n d Ceylon, food im p o rts h av e largely
been tak en ov er by th e state. I n Siam , th e G o v e rn m e n t P u r chasing B u re a u im p o rts a w ide ra n g e of necessities. T h e
G o v e rn m e n t’s p ro g ra m m e is to d istrib u te essential goods
th ro u g h g o v e rn m e n t-o p e ra te d stores a n d m arkets. I n Ceylon
IN F L A T IO N A N D PR IC E M O V E M E N T S
203
a n d B u rm a, d istrib u tio n has been can alized largely th ro u g h
co n su m ers’ co-o p erativ e stores.
5. H o u se ren ts in all big cities h av e been su b ject to som e fo rm of
co n tro l in all countries.
T h e m a in reasons fo r re la x a tio n of controls d u rin g 1947 a n d 1948
h a v e b een (a) im p ro v e m e n t in th e supply position, ( b ) h ig h a d m in istra tive cost a n d th e p a rtia l ineffectiveness of th e controls, (c ) grow ing
im p a tie nc e of th e p u b lic w ith th e m , a n d ( d) th e need fo r p roviding
g re a te r incentives to p ro d u c e rs so th a t p ro d u c tio n m ay e x p a n d , a n d
h o a rd e d stocks, if any, m ay com e out.
R e la x a tio n has ta k e n th e fo rm of o u trig h t rem oval o f c ertain
controls, a n d m o d ificatio n of others. R a tio n in g of p etro l, fo r instance,
w as rem o v ed in C eylon early in 1948. C lo th ra tio n in g was also la te r
given u p . A lto g e th e r a w hole ho st of articles w ere freed fro m p rice a n d
d istrib u tio n co n tro l d u rin g 1947 a n d 1948. I n th e case of rice, as already
m e n tio n e d , p ro c u re m e n t co n tro l was given u p a n d consum ers w ere
allow ed to buy e x tra rice off th e ra tio n in th e op en m ark et. T h e sam e
th in g has ta k e n place in M a la y a a n d In donesia. T h e op en m a rk e t price
of rice in M a la y a a n d Ceylon, it m ay be m en tio n ed , has generally been
d o u b le t h a t of th e ra tio n rice. T h e ra tio n scales them selves h av e ten d ed to
be b ro a d e n e d . I n N ovem ber, 1948 th e basic daily ratio n s of rice p e r h e a d
w ere 9.6 ounces (ag ain st 7.5 in D ecem b er, 1947) in H o n g K o n g , 5.7
ounces (a g a in st 4.6) in C eylon, 7.6 ounces (ag ain st 4.6) in th e M a y a la n
F e d e ra tio n , a n d 8.3 ounces (ag ain st 4.8) in S ingapore.
PART FIVE
INTER N ATIO N A L TRADE A N D BALANCES
OF PAYMENTS
C H A PT E R X II
International Trade
In
t r o d u c t io n
W h ere as before th e Second W o rld W a r th e E C A F E region h a d a
su b sta n tial e x p o rt b a la n c e in its tra d e w ith th e rest of th e w orld, the
im m e d ia te p o stw a r years h a v e seen th e in cu rren ce of large deficits by
alm o st every c o u n try in th e region. W ith in this total p ictu re, a sim ilar
d ev e lo p m e n t has ta k e n p la ce in th e regio n’s tra d e w ith th e U n ite d States,
a n over-all e x p o rt b a lan ce being tra n sfo rm e d in to a serious deficit, w ith
th e c o n se q u e n t em erg en ce of a n ac u te d o llar shortage. T h e p re w a r
system of m u ltila te ra l exchange, w hereby th e region’s surpluses w ith the
U n ite d S tates offset its deficits w ith o th e r countries, has been, a t least
fo r th e tim e being, d isru p ted . T h e se developm ents are a d irec t result of
w a rtim e d e v a sta tio n , le ad in g as it d id to greatly red u ced o u tp u t and
e x p o rt of th e staple p ro d u c ts of th e region such as rice a n d o th e r cereals,
sugar, fats a n d oils, te a a n d fibres.
I n considering to w h a t e x te n t these changes m ay be of a lasting
c h a ra c te r, it is significant th a t th e year 1948 saw a considerable increase
in th e v o lu m e of th e re g io n ’s tra d e as well as a clear a n d substantial
im p ro v e m e n t b o th in its over-all tra d e b alan ce a n d in its b alan ce w ith
th e U n ite d States. A n im p o rta n t ex ception was C h in a, w hose exports an d
im p o rts d e clin ed steeply in 1948, a lth o u g h its tra d e balan ce im proved.
I n g en eral, th e im p ro v e m e n t in th e region’s tra d e d u rin g 1948 suggests
th a t m u c h of th e w a rtim e ch ange m ay be transitory. A significant facto r
affecting th e fu tu re p a tte r n of tra d e will be th e changes in th e c h a rac te r
a n d d ire ctio n of C h in a ’s tra d e w h ich m ay result fro m the m ost recent
political changes in th a t country. In d ia , w ith its rap id ly e x p an d in g
ind u stry , m ay em erge as a n increasingly im p o rta n t e x p o rte r of m a n u fa c tu re d goods to th e region, p ro v id e d th a t it c a n achieve prices w hich
a re c o m p etitiv e in w o rld m ark ets. A f u rth e r u n c e rta in fa c to r is th e lines
o n w h ic h th e econom y of J a p a n a n d th e c h a ra c te r of its tra d e w ith
countries of th e region are allow ed to develop. R ecovery of Japanese
tra d e w ith th e region, such as it is, h a s definitely tu rn e d tow ards the
p re w a r p a tte rn , th a t is to say, supply by J a p a n of m a n u fa c tu re d consum er
207
208
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
goods, especially textiles, in ex chang e fo r p rim a ry com m odities. I t rests
very largely w ith countries of th e region, by th e n a tu re of th e ir d em an ds,
to d ecide w h e th e r this tre n d should c o n tin u e o r w h e th e r they should
ra th e r m ak e increasing use of J a p a n ’s ability to supply th e m w ith the
eq u ip m e n t w h ich they need fo r th e ir ow n in d u stria l developm ent.
T h e re h av e been c e rta in changes, how ever, w h ic h w ou ld seem
definitely to be of a lasting c h a ra c te r, adverse to th e interests of the
region, a n d w hich are largely outside th e p o w e r of countries of the
region to correct. T h e se a re : (i) T h e relatively low price of ru b b e r. In
spite of increased c o n su m ptio n of ru b b er, w orld cap a c ity fa r outstrips
p robable w orld d e m a n d by reaso n of synthetic p ro d u c tio n . T h e re fo re ,
th e relatively low p rice of ru b b e r is likely to persist a n d m a y fall even
fu rth e r unless in te rn a tio n a l ag re e m e n t is re a c h e d to m a in ta in it. (ii) T h e
declining d e m a n d fo r n a tu ra l silk. W o rld d e m a n d fo r n a tu ra l silk, already
declining before th e w ar, is unlikely to re tu rn to a n y th in g like previous
levels o n a c c o u n t of th e increasing co m p etitio n of nylon, ray o n a n d o th e r
substitutes, (iii) T h e decline in tin m e ta l exports. T h e reg io n’s exports
of tin m e ta l (as distin ct fro m o r e ) a re unlikely to recover fully o n acco u n t
of th e w a rtim e d e velopm ent of a subsidized tin-sm elting in d u stry in the
U n ite d States.
T h e first of these changes has a n adverse effect o n th e region ’s
term s of tra d e vis-à-vis th e rest of th e w orld, p a rtic u la rly in th e cases of
M alaya, Ind o n esia, C eylon a n d In d o c h in a . T h e second is felt m ainly
by C h in a a n d , w ith in th e A F E region, p re d o m in a n tly by J a p a n . T h e
th ird is p rim a rily a p ro b le m fo r M alay a. Since n a tu ra l ru b b e r, silk an d
tin m e ta l all figure am o n g th e reg io n ’s staple exports to th e U n ite d
States, these changes, besides adversely affecting th e re g io n ’s over-all
b alan ce of tra d e position, ag g ra v a te in p a rtic u la r its sh o rtage of dollars.
I f this b rief analysis is correct, c e rta in of th e factors responsible for
th e region’s passive b alan ce of tra d e (p a rtic u la rly in re la tio n to the
U n ite d S ta te s), a re of a p e rm a n e n t ch a ra c te r. I n re la tio n to th e region’s
b alan ce of paym ents, these p ro b ab ly m o re th a n offset th e lasting im p ro v e m e n t d u e to red u ced overseas in te re st p ay m ents, n o ta b ly o n th e p a r t of
In d ia , P ak istan a n d Ceylon (see c h a p te r X I I I ) .
I n these circum stances a n d in th e light of th e region ’s c o ntinuing,
alb eit declining, tra d in g deficit, a ctio n by countries of th e region on the
follow ing lines has b een u n d e rta k e n o r is c o n te m p la te d :
(a)
C o n tin u e d resto ratio n a n d ex p ansion of p re se n t lines of p r o d u ctio n , especially food a n d c e rta in e x p o rta b le p rim a ry com m odities. T h is will be g reatly fac ilitate d if firm d e m a n d a n d
eq u itab le prices c a n be assured by in te r-g o v e rn m e n ta l agreem ents.
IN T E R N A T IO N A L T R A D E
209
( b ) R e la tiv e re d u c tio n of consum er goods im ports, to be m ad e
possible by in creased regional food p ro d u c tio n a n d by d ev elo p m e n t of c e rta in industries, especially textile m a n u fa c tu rin g .
(c) D e v e lo p m e n t of heavy industries, w h ere a p p ro p ria te .
( d ) V igorous m easures to secure th e p ro d u c e r a n d c a p ital goods
necessary fo r a c tio n as above.
I n g e n eral it is ra th e r early to ju d g e th e effectiveness of th e region’s
tra d e a n d p ay m en ts agreem ents in facilitatin g these objectives. A vailable
evidence, how ever, testifies to th e ir value, especially w here, as in the
S terlin g A re a a rra n g e m e n ts w ith SC A P, th e re is a n e lem en t of m u ltila te ra l clearing. Such evidence also indicates firstly, th e p ro b ab le scope
fo r f u r th e r agreem en ts w ith countries outside th e region, especially in
th e supply of p rim a ry com m odities in exchange fo r p ro d u c e r a n d cap ital
goods n e e d e d by th e region (in this connexion, tra d e openings in E u ro p e
call fo r special a tte n tio n ) ; secondly, th e need fo r lon g er-term agreem ents
in th e m a n y cases w h ere th e ability of one c o u n try to supply depends
o n its first securing c e rta in goods fro m a n o th e r country. T h is la tte r
contingency m a y arise e ith e r w h ere th e capita l goods p ro d u c e r first needs
ra w m aterials o r w h ere th e p rim a ry p ro d u c e r first needs p ro d u c e r a n d
c a p ita l goods, before b eing able to increase his o u tp u t. So f a r as the
E C A F E region is co ncern ed , it is a t p resen t largely a case of securing
p ro d u c e r a n d cap ita l goods before o u tp u t of p rim a ry com m odities can
be increased, a n d th e tim e-lag m ay be considerable; h en ce th e region’s
u rg e n t n eed fo r lo n g er-term tra d e arran g em en ts.
T h e p ro d u c tio n a n d tra d e objectives of th e E C A F E region p resent
th e a d v a n c e d in d u stria l countries w ith a n o p p o rtu n ity to im p le m e n t th e ir
expressed desire to help th e industrially b a ckw ard countries of th e
E C A F E region a n d of o th e r p a rts of th e w orld. Specific form s of action
o p e n to th e m a re :
1. E n c o u ra g e m e n t of im ports, n o t only of basic m aterials b u t also
o f lu x u ry goods such as h a n d ic ra ft p ro d u c ts a n d hig h qu ality
silk m an u fa c tu re s. T h is applies p articu la rly to countries w ith a
fa v o u ra b le b a la n c e of paym ents.
2. G ra n tin g of reasonab le p rio rity in th e supply of scarce p ro d u c e r
a n d ca p ita l goods.
3. Provision of financial aid in th e form of loans o r credits. A v a lu ab le type of cre d it could, in effect, be p ro v id e d by th e long-term
tra d e agreem en ts o u tlin e d above.
4. C o -o p e ra tio n in th e conclusion, w h ere a p p ro p ria te , of in te rg o v e rn m e n ta l com m o dity ag reem en ts to assure firm d e m a n d a n d
eq u itab le prices fo r p a rtic u la r p rim a ry com m odities.
210
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
5. R e co n sid eratio n of policies w h ich m ay artificially e n co u rag e com p e titio n w ith staple exports of th e region.
O n e o th e r possible field of actio n , of special v alu e in allev iating
th e region’s d o lla r shortage, is suggested by th e “ offshore” purchases
alread y bein g m a d e to some e x te n t in th e region, of com m odities n eeded
in E C A p ro g ram m es. S u c h p u rch ases in th e reg io n m ig h t b e fo u n d
capab le of extension, as m ig h t also pu rch ases by th e U n ite d S tates to
m eet th e im p o rt needs of J a p a n . T h is m ig h t p ro v e a v a lu a b le field fo r
co-operative study by th e U n ite d S tates a n d coun tries o f th e region.
Im
po r t s
, Ex
po r t s
,
a n d
Ba
l a nc e
o f
T
r ade
T a b le 60 shows th e v alu e of exports, im p o rts a n d b a la n c e of tra d e
of countries of th e E C A F E reg io n 1 in 1937, 1947 a n d 1948. I t reveals
th a t there w as considerable im p ro v em e n t in th e b ala n c e of tra d e fo r the
region as a w hole in 1948 as c o m p a re d w ith 1947. T h e d e te rio ra tio n com p a re d w ith p re w a r, how ever, still continues.
T o ta l im p o rts of countries of th e region in 1948 in creased in value
by a b o u t 20 p e r c e n t ov er th e previous year. C h in a w as th e only coun try
w hose im p o rts d eclined in 1948. T o ta l exports of cou ntries of th e region
in 1948 increased in v alu e by a b o u t 34 p e r cent. C h in a , ag ain , being
the only co u n try to show a decline. C eylon, P ak istan a n d S iam w ere th e
only countries in th e reg ion to achieve a positive b a la n c e of tra d e in
1948. C h in a h a d a sm aller neg ative b ala n c e th a n in 1947, b u t it was
effected a t th e cost of a large re d u c tio n in im po rts. I n d ia ’s negative
b ala n c e in 1948 w as so m ew h at ex a g g e ra te d by th e fa c t of p a rtitio n ,
since P ak istan is a surplus e x p o rtin g country. In d o c h in a h a d a slightly
h ig h e r negative b alan ce th a n in 1947, im p o rts a n d expo rts h a v in g risen
equally. In d o n e sia b ro u g h t a b o u t a re d u c tio n in its neg ativ e b a la n c e of
tra d e by a large increase in exports a n d a sm aller increase in im ports. T h e n eg ative b ala n c e of th e P h ilipp in es was n a rro w e d d u rin g
th e y ear d u e to a g re a te r increase in exports th a n in im po rts. T h e
M a la y a n F e d e ra tio n a n d S ing apo re c o n tin u e d to h a v e a sm all adverse
balance.
All countries of th e region a d o p te d special m easures to p ro m o te
exports. Im p o rt restrictions co n tin u e d to be m a in ta in e d , Siam a n d the
Philippines in tro d u c in g im p o rt co n tro l fo r th e first tim e. C o u n trie s of
th e S terlin g A rea in g en eral tig h te n e d th e ir co n tro l o f im p o rts fro m
d o lla r sources. P ak istan a n d In d ia relax ed co n tro l of im p o rts fro m soft1 The term “ECAFE region” as in the year under review (194 8) embraces the
following countries: British North Borneo, Brunei and Sarawak, Burma, Ceylon,
China, H ong Kong, India, Indochinese Federation, Indonesia, Federation of
Malaya and Singapore, Nepal, Pakistan, the Philippine Republic and Siam.
IN T E R N A T IO N A L T R A D E
211
cu rren cy sources, a n d in th e case of P ak istan th e re was som e re la x a tio n
in re la tio n to d o lla r sources. Ceylon, o n the o th e r h a n d , fo r th e first
tim e e x te n d e d im p o rt co n tro l to soft-currency sources.
T h e role of tra d e a n d p a y m e n t arra n g e m e n ts in stim u latin g th e
tra d e of th e reg io n is e x a m in e d la te r in this c h a p te r. E x te rn a l assistance
a n d o th e r special sources of fo reig n exchange play ed a n im p o rta n t p a rt
in m a in ta in in g tra d e in 1948. T h e E C A aid to C h in a a n d to In d o n esia
m ay be m e n tio n e d ; also E C A offshore p urchases in th e E C A F E region
w h ich a g g re g a te d U S $75 m illio n betw een A pril, 1948 a n d Ja n u a ry , 1949.
T h e follow ing notes o n in d iv id u a l countries of th e region in clu d in g
referen ce to th e ir im p o rt a n d e x p o rt co n tro l m easures, are in te n d e d to
b rin g o u t th e salien t featu res of th e ir fo reig n tra d e d u rin g 1948.
B u rm a : E x p o rts of rice c o n tin u e d to figure forem ost in th e foreign
tra d e o f B u rm a . D u rin g 1948, rice ex p o rts in creased by 421,000 tons to a
to ta l of 1,226,000 tons. I n th e second h a lf of th e year, how ever, rice
p ro d u c tio n a n d e x p o rt w ere adversely affected by civil disturbances.
E x p o rt of m in e ra l oils w as p ra c tic a lly nil because of difficulties in the
re h a b ilita tio n of th e m ines. P ro d u c tio n a n d e x p o rt of o th e r m inerals such
as lead, silver, zinc a n d c o p p e r w ere also insignificant co m p ared w ith
p re w a r. T im b e r ex p o rts w ere ro u g h ly o n e -h a lf of p re w a r q u an tities, th e
p rin c ip a l obstacles being shortages of ele p h a n ts to h a u l th e tim b er an d
of saw m ill cap acity. R ice exports ac c o u n te d fo r n early 80 p e r cent in
value of B u rm a ’s exports, a n d tim b e r a b o u t 13 p e r cent.
As reg a rd s im ports, textiles acco u n te d fo r n early 15 p e rc e n t of th e
total, vehicles a b o u t 6 p e r cen t, iro n a n d steel a n d m ach in ery 10 p e r cent,
a n d m in e ra l oils 4.5 p e r cent.
I m p o r t c o n tro l in B u rm a is o n lines m o re o r less sim ilar to
th a t in o th e r S te rlin g A re a countries. L a te in 1947, im p o rt licensing was
e x te n d e d to im p o rts fro m th e S terling A rea. A n in terestin g c h an g e in
im p o rt licensing d u rin g 1948 was th e in tro d u c tio n of th e com m u n al
p rin c ip le , by w h ic h th e B urm ese, B ritish, In d ia n a n d C hinese C h am b ers
of C om m erce w ere given b la n k e t im p o rt quotas to geth er w ith th e resp o n sibility of re c o m m e n d in g th e issue of im p o rt licences to m em bers o f th e ir
respective co m m u n ities. L icences w ere issued by th e B urm ese G o v ern m e n t in a c c o rd a n c e w ith these re c o m m e n d a tio n s a lth o u g h n o t exclusively
to m em bers of these com m ercial bodies.
E x te rn a l fin an cial aid fro m th e U n ite d K in g d o m re m a in e d a n im p o rta n t fa c to r in B urm ese foreig n tr a d e ; in 19 4 7 /4 8 th e G o v e rn m e n t of
B u rm a b o rro w e d o n sh o rt te rm £ 1 0 m illio n fro m th e U n ite d K in g d o m
fo r th e p u rp o se of fin an cin g rice purchases by th e S ta te A g ric u ltu ra l
M a rk e tin g B o ard w h ic h is th e sole p u rc h a se r of B urm ese rice fo r export.
193 7
48
2,266
2,882
110
391
89a
89
284
276
661
44
274
Im p o rt
36
32
25
45
31
271
3,323
263
94
611
66
127
l,2 22 c
123
269
231
317
E xp o rt
1947
4,272
509
140
646
128
294
441
391
1,307c
137
279
Im p o rt
5
25
35
-949
-246
- 46
-
- 74
- 85
- 71
-152
-2 1 0
-
Balance
4,439
202
815
273d
320
177
306
173b
398
1,298
92
385
E xport
1948
5,102
844
234d
524
172
241
302
226b
524
1,421
186
428
Im p o rt
-663
- 29
+ 39
-2 0 4
+ 30
- 64
+
4
- 53
-126
-123
- 94
- 43
Balance
AND
+616
+ 43
+ 24
+ 123
+
+
+
+
+ 100
Balance
TRADE
153
72
514
189a
125
252
251
706
75
545
Export
INTERNATIONAL
Note: Unless otherwise stated the source is U.N. Bulletin of Statistics, May, 1949.
Burma ...............................
Ceylon .............................
C h i n a ...............................
Hong Kong ..................
India ................................
Indochina .......................
In d o n e sia .........................
Malayan Federation
and Singapore........... . .
P akistan ...........................
Philippines.......................
S i a m ..................................
60
V.
C ountry
a bl e
PART
Total Value of Foreign Trade of E C A F E Countries
(in million U S$)
T
212
BALANCES
Includes gold and silver bullion and
specie and excludes trade on governm ent account and re-exports.
Includes re-exports but excludes silver
bullion and specie.
N et imports and exports of m erchandise, i.e. imports less re-exports and
exports less re-imports. Source: Chinese Maritime Customs Returns, Dec.
1948.
General trade. Includes silver bullion
and specie b ut excludes government
trade.
Seaborne trade only. Includes Governm ent trade and re-exports but excludes silver bullion and specie.
Scope
Siam
Philippines
General trade. Excludes purchase of
U . S. Army surplus property.
General trade in merchandise only.
Source: Bank of Siam, Current Statistics, February, 1949.
Special trade. Excludes silver bullion
and specie.
Special trade.
Indonesia
M ayalan Fed- General trade. Source: M onthly Economic Bulletin, by Commissioner-Generation &
eral for the U nited K ingdom in
Singapore
Southeast Asia, Feb. 1949.
General trade. Seaborne only.
Pakistan
Indochina
India
H ong Kong
C hina
Ceylon
Burma
Country
Rs.
Rs.
N
a t i o
currency
d Estimated from Jan.-O ct.
1948 data.
Baht
Peso
Rs.
Guilders
M alayan $
c Beginning Aug. 1947 ex- Rs.
cludes Pakistan. IndiaPakistan trade excluded
during Aug. 1947 - Feb.
1948.
Piastres
HK$
b Projected from estimates CN$
f o r J a n . - N o v . 19 48.
‘ Y ear ending M ar. 1939.
M e th o d o f co m pila tio n
n
a
2.3
2.0
3.3
1.8
1.75
3.5
2.7
3.3
3.3
2.7
2.7
3.3
3.3
10
2.0
3.3
2.7
2.12
7.0
3.3
3.97
10
2.0
3.3
2.7
2.12
12.7
3.3
3.97
Varying Monthly
A v e ra g e R a te s
3.3
3.3
A p proxim ate rate of
conversion per US$
l -----------------------------------------1937
1947
1948
IN T E R N A T IO N A L
TRADE
213
214
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
C eylon: All th e p rin c ip a l exports— tea, co co n u t p ro d u c ts a n d ru b b e r
— increased in 1948 b o th in q u a n tity a n d v alu e w ith th e re su lt th a t
C eylon secured a positive tra d e b alan ce. T h e v o lu m e of b o th ru b b e r
a n d te a exports also exceeded p re w a r levels, b u t n o t of c o c o n u t p ro d u cts,
w hich w ere only tw o -th ird s of p re w a r d u e to a decline in p ro d u c tio n .
I n value, te a a c co u n ted fo r n early tw o -th ird s of all exports, a p p ro x im a te ly
th e sam e p ro p o rtio n as before th e w a r; co co n u t p ro d u c ts in creased th e ir
share fro m 10.4 to 13.5 p e r cent, a n d ru b b e r lost g ro u n d slightly fro m
17 p e r cen t p re w a r to 15 p e r c e n t in 1948 d u e to a relativ e declin e in
prices.
I n re g a rd to im po rts, th e m ost im p o rta n t c h a n g e w as th e in creased
p ro p o rtio n of food. Im p o rts of rice a n d w h e a t alo n e rose fro m 23.5 p e r
cen t of to ta l valu e before th e w a r to 30.3 p e r c e n t in 1947 a n d 36 p e r cen t
in 1948. T o ta l food im p o rts a c c o u n te d fo r alm ost 50 p e r c e n t in 1947
a n d 52 p e r c e n t in 1948. I n q u a n tity , food im p o rts in 1947 w ere a b o u t
th e sam e as in 1938, a n d in 1948 a b o u t 16 p e r c e n t h ig h e r. A m o n g o th e r
im ports, textiles acc o u n te d fo r n early 13 p e r c e n t in v alu e in 1947 a n d
1948 as ag ain st 9 p e r c e n t p re w a r. M a c h in e ry im p o rts re m a in e d u n c h an g ed a t 2 p e r cent.
C eylon’s exports are fo r th e m ost p a r t re g u la te d by b u lk sale
arrangem en ts. As regard s im ports, im p o rta n t developm ents in 1948 w ere
th e extension of co n tro l to im p o rts fro m th e S terlin g A re a a n d th e tig h tening of controls o n im p o rts fro m h a rd -c u rre n c y sources.
C hina: T h e inten sification of civil w a r a n d g allo p in g in flatio n in
C h in a d u rin g 1948 h a d a crip p lin g effect o n fo reign tra d e . As n o te d
already, C h in a alone in th e region ex perien ced a declin e in exports an d
im p o rts (in U S $ e q u iv a le n t), a lth o u g h th e neg ativ e b ala n c e of tra d e
was sm aller d u e to th e m o re d rastic re d u c tio n in im ports. As reg ard s
export, textile fibres (silk, cotton, wool, etc.) w h ic h in v a lu e a c c o u n ted
fo r 16 p e r c e n t of to ta l im p o rts in 1936, d eclined to rou g h ly 4 p e r c e n t in
1947 a n d 1948; sim ultaneously, th e e x p o rt of y a rn a n d piece goods
(cotton, silk, etc.) increased fro m 10 p e r ce n t in 1936 to 28 p e r c e n t
in 1948, in d ic a tin g a c o n c e n tra tio n o n th e e x p o rt of textile m a n u fa c tu re s.
A nim als a n d a n im a l p ro d u c ts a n d oils, w h ich before th e w a r a c c o u n te d
fo r 28 p e r c e n t of exports, cu rre n tly co n stitu te a b o u t 35 p e r c e n t of to ta l
exports. Ite m s w h ich in d ic a te p ro p o rtio n a l decline as c o m p a re d w ith
p re w a r, a re seeds (fro m 6 to 2 p e r c e n t) , m etals a n d ores (fro m 8 to
5.5 p e r c e n t) , te a (fro m 4.4 to 2.5 p e r c e n t) , a n d cereals (fro m 3.5 to
1.3 p e r c e n t). T h a n k s to th e re stitu tio n of T a iw a n , su g ar a c c o u n te d fo r
3.6 p e r cen t of to ta l exports in 1948 as ag ain st 0.6 p e r c e n t p re w a r.
W hile no m a jo r lo n g -term changes in th e p a tte r n o f im p o rts are
discernible, increases in th e im p o rt of c o tto n , m a c h in e ry a n d tools, soaps
IN T E R N A T IO N A L T R A D E
215
a n d oils a re in d ic a te d . Im p o r t control is designed to econom ize foreign
exchange, a n d to m a k e it available for th e im p o rt of essential ra w m a te rials a n d e q u ip m e n t n eed ed fo r increasing p ro d u c tio n a n d export.
E C A assistance to C h in a of U S$275 m illion econom ic aid a n d
U S $ 1 2 5 m illio n o th e r aid , w h ich m a d e possible th e im p o rt of food a n d
grain s ($70 m illio n ), c o tto n ($70 m illio n ), p e tro le u m p ro d u c ts ($50
m illio n ), fertilizers ($14 m illion) a n d o th e r p roducts, played a n im p o rta n t p a r t in su stain in g p ro d u c tio n a n d trade.
I n d ia : As c o m p a re d w ith p re w a r, several significant features a re
noticeable in th e p a tte r n of I n d ia ’s im p o rts.1 I n relatio n to th e value of
to ta l im ports, im ports of grains, pulse a n d flour increased fro m 7 p e r cen t
p re w a r to 13.2 p e r c e n t in 1948 (te n m o n th s ). Im p o rts of m achinery
declined fro m 12 p e r c e n t to 11.1 p e r c e n t in 1947 a n d increased to 17.4
p e r c e n t in 1948. Im p o rts of ra w c o tto n rose fro m 7.2 p e r cent p re w a r
to 8.4 p e r c e n t in 1947 a n d 10.2 p e r cen t in 1948; vehicles from 4.4 to
6.2 a n d 6 .5 ; a n d chem icals, d rugs a n d m edicines fro m 3.7 to 4.6 an d
5.7. Im p o rts of o th e r item s in d ic a te d g ra d u a l po stw ar recovery, w ith
im p ro v e d supplies; iro n a n d steel 4.2, 1.7 a n d 2.7 p e r cent, prew ar,
1947 a n d 1948 respectively; m etals o th e r th a n iron a n d steel 2.7, 4.6
a n d 4.0 p e r c e n t; a n d c u tlery a n d h a rd w a re 3.8, 5.0 a n d 3.3 per cent
over th e sam e period. Significant decreases are in im ports of cotton
m a n u fa c tu re s a n d yarns — 9.5 p e r c e n t p re w a r co m p ared to 1.7 per cent
in 1947 a n d 3.0 p e r c e n t in 1948; vegetable a n d m ineral oils, 10.6 p e r
c e n t p re w a r c o m p a re d to 5.5 in 1947 a n d 7.3 in 1948; also in im ports
of a large n u m b e r of lu x u ry articles.
O n th e side o f exports, ju te yarns a n d m a n u fa c tu re s rose from 16.2
p e r c e n t of to ta l p re w a r exports (by v a lu e ) to 27.4 p e r cen t in 1947
a n d 35.9 p e r c e n t in 1948, a n d c o tto n y a m s a n d m a n u fa c tu re s from
4.7
p e r c e n t to 7.5 p e r c e n t a n d 8.9 p e r cen t over th e sam e period. These
also in creased in q u a n tity . T h e share of te a exports slightly declined
fro m 14.5 p e r c e n t p re w a r to 11.6 p e r c e n t a n d 12.3 p e r cen t respectively
in 1947 a n d 1948, b u t in q u a n tity re m a in e d fairly stable. O th e r export
com m o d ities d eclin ed b o th q u a n tita tiv e ly a n d p ro p o rtio n a te ly as co m p a re d w ith p re w a r, n o ta b ly ra w c o tto n fro m 14.7 p e r cen t prew ar, to
11.1 in 1947 a n d 5.6 in 1948; seeds a n d n u ts fo r oil from 9.9 to 1.1 an d
2.6 p e r c e n t ov er th e sam e period .
T h e se ch anges in th e p a tte r n of im ports a n d exports reflect changes
in I n d i a ’s econom y, in c lu d in g changes b ro u g h t a b o u t by partition. T h e
decline in th e e x p o rt of ra w co tto n , cou p led w ith a n increase in its im port,
1 As prewar figures refer to India and Pakistan, they are, strictly speaking, not
comparable with postwar figures for 1947 and 1948. See footnote c to Table 60.
216
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
is acco u n te d fo r by increased h o m e c o n su m p tio n in face o f a re d u c tio n
in supply b ro u g h t a b o u t by p a rtitio n . T h e decrease in ex p o rts of hides
a n d skins, seeds, etc., indicates increased h o m e d e m a n d a n d a red u ce d
capacity to exp ort. A t th e sam e tim e, th e increased p ro p o rtio n of im ports
of m achinery, m etals, chem icals a n d o th e r ra w m a te rials of in d u stry a n d
increased exports of co tto n m an u fa c tu re s in d ic a te th e effects of in d u strialisation on th e p a tte rn of I n d ia ’s foreign trad e.
In d ia ’s tra d e policy d u rin g th e y ear co n tin u e d to be influenced by
th e b alan ce of p a y m e n t p roblem s caused by large-scale foo d im ports.
T h e m easures a d o p te d d u rin g th e w a r m ay be g ro u p e d u n d e r th e follow ing head s: E x p o rt p ro m o tio n ; im p o rt c o n tro l; tra d e c o n tro l in relatio n
to h a rd -c u rre n cy c o u n tries; o th e r m easures to p ro m o te tra d e .
W ith a view to m axim izing foreign exchange earnings, e x p o rt control was liberalized e ith e r by deco n tro llin g c e rta in articles o r enlarg in g
th e e xp ortable q u o tas of others, notab ly oil seed a n d c o tto n textiles.
T h e G o v e rn m e n t’s im p o rt c ontrol is largely d e te rm in e d by th e b a lance of p ay m ents position. T h e aim of this policy is so to re g u la te tra d e
th a t w hile it is m a in ta in e d a t th e highest possible level consistent w ith
the needs of th e co untry, th e over-all deficit in b a la n c e of p ay m en ts on
cu rren t ac c o u n t d u rin g an y p a rtic u la r p erio d shou ld n o t exceed th e
am o u n t of sterling balances released by a g re em e n t w ith th e U n ite d
K ingdom . F ro m July, 1947 to July , 1948 a rigorously restrictive im p o rt
control was enforced w ith a view to econom izing foreign exchange. H o w ever, in view of th e h a rm fu l effects of such c o n tro l a n d th e failu re to
utilize in full th e agreed releases of sterling balances, im p o rt c o n tro l was
relaxed in Ju ly 1948 a n d a g a in in N o v e m b e r 1948. M a n y com m odities
needed by h om e industries w ere freed fro m control. Also, so fa r as soft
currency areas w ere concerned, several lu x u ry articles w ere released from
control.
W ith a view to re d u c in g th e deficit w ith h a rd -c u rre n c y areas caused
by increased im ports, p a rtic u la rly of foodgrains, th e policy w as a d o p te d
of the g reatest possible lim itatio n of im p o rts fro m those areas a n d th e
greatest possible en c o u ra g em en t of ex ports to them . T o this e n d , e n larged q u o tas of e x p o rt articles w ere allo tte d fo r those countries. T hese
m easures yielded fairly e n c o u ra g in g results in th e first h a lf of th e year,
but, later, exports to h a rd -c u rre n cy areas te n d e d to decline.
O th e r m easures to p ro m o te tra d e in c lu d e d th e n e g o tiatio n of tra d e
agreem ents (discussed in a la te r section of this c h a p te r ) , tra d e d eleg ations, expansion of th e tra d e com m issioner service, p a rtic ip a tio n in exhibitions a n d in te rn a tio n a l fairs, re c o n stitu tio n of th e Im p o rt a n d E x p o rt
Advisory C ouncils to h e lp th e g o v e rn m e n t in policy m atte rs, etc. D u rin g
th e year, tra d e delegations fro m J a p a n , C zechoslovakia, a n d A fg h an istan
217
IN T E R N A T I O N A L T R A D E
visited In d ia . T r a d e missions w ere sen t to J a p a n a n d G erm any. A rra n g e m en ts w ere also bein g m a d e fo r th e exh ib itio n of I n d ia n h a n d ic ra ft
p ro d u c ts in overseas m arkets. A p u rc h a sin g mission visited th e U n ite d
K in g d o m , th e U n ite d States, C a n a d a a n d c e rta in E u ro p e a n countries
a n d p laced orders for a large volum e of railw ay eq u ipm en t.
I n d o c h in a : T h e foreign trad e , especially exports, of In d o c h in a co n tin u e d to be adversely affected by civil d istu rb a n c e a n d consequent low
p ro d u c tio n , a lth o u g h considerable progress was achieved. T o ta l exports
in 1947 w ere only 24 p e r cen t of th e p re w a r volum e, an d , in 1948, 39 p e r
cent. Q u a n titie s of m aize a n d rice e x p o rte d in 1948 (24,000 a n d 247,000
tons respectively) in creased substantially over th e previous y ear (5,000
a n d 90,000 tons respectiv ely), b u t w ere still only a b o u t o n e -te n th of
pre w a r. E xports of m in in g p ro d u cts a n d ru b b e r w ere negligible ow ing
to low o u tp u t.
I n volum e, In d o c h in a ’s im p o rts in 1948 w ere 117 p e r c en t of the
1938 level, w hereas in 1947 they h a d been only 76 p e r cent. Im p o rts
w h ich in value show ed m o re th a n p ro p o rtio n a l increase co m p ared w ith
p re w a r w ere autom obiles, w ines a n d spirits, a n d p ap e r.
F o re ig n e xchange allocations fo r im p o rts in to In d o c h in a fro m do llar
a n d sterling sources c o n tin u e d to be laid d ow n by th e F re n c h G o v ern m e n t. A llocations m a d e in th e first h a lf of 1948 w ere 893,550 a n d 23,000
in U .S . d o lla r value, fo r d o llar a n d sterling sources respectively, as against
th e o riginal estim ate of 40.6 m illion a n d 11.8 m illion in U .S. d ollar
value, fo r th e w hole year, su b m itted by th e C e n tra l Supply C om m ittee
in In d o c h in a . D u rin g th e year, th e necessity of o b ta in in g im p o rt an d
e x p o rt p e rm its fo r tra d e w ith F ra n c e a n d A frican territories of th e F re n c h
U n io n was dispensed w ith, a lth o u g h te m p o ra rily c e rta in com m odity exp o rts (rice, grains, seeds a n d oils, bu llion, etc.) rem ain e d subject to
licence. W ith a view to en su rin g th e ex p o rt of rice, rice p ro d u c ts a n d
m aize fro m In d o c h in a in ac c o rd a n c e w ith in te rn a tio n a l a n d o th e r com m itm e n ts, a n In d o ch in ese R ice a n d M aize C o m m ittee w as set u p w ith
a u th o rity to c o n tro l a n d d ire c t such exports.
Indonesia: D espite c o n tin u ed p o litical disturbances, th e re was a very
considerable increase in th e p ro d u c tio n a n d ex p o rt of a g ric u ltu ra l an d
m in era l p ro d u c ts fro m In d o n e sia d u rin g 1948. T h e im p ro v e m e n t is
m ea su red by th e follow ing e x p o rt figures (in th o u sa n d gross tons) :
Rubber
1938 . . . .. 321.6
84.9
1947 . . . ..
1948 . . . . . 280.0
T in and
t i n ore
Sugar
Tea
C o pra
P a lm o il
P e tr o le u m
p r o d u c ts
26.5
21.6
45.4
1,091.8
1.7
70.8
81.8
3.2
9.3
565.4
152.6
241.4
220.8
2.2
39.6
6,067.3
770.9
3,846.0
Source: Statistical Office, Batavia.
B a u x ite
273.8
89.5
450.2
218
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T in exports w ere still below th e p ea k a tta in e d in 1941, a n d exports
of co p ra, p a lm oil, p e tro leu m p ro d u c ts a n d ru b b e r w ere below p re w a r
levels. B auxite exports w ere alm ost double p rew ar.
O f In d o n esia ’s im po rts (by v a lu e ) , textiles c o n tin u ed to a cc o u n t for
a p p rox im ately 30 p e r cent, food a n d tobacco 25 p e r cent, a n d m etals a n d
m achinery, in clu d in g vehicles, a b o u t 25 p e r cent. All p rin c ip a l im po rts
te n d e d to increase in 1948.
O f g re a t im p o rta n c e to th e speedy re sto ratio n of p ro d u c tio n was the
E C A aid, estim ated a t U S $8 4 m illion, w h ich fa c ilita te d th e im p o rt of
p ro d u c tio n e q u ip m e n t a n d m aterials. F u r th e r factors in th e recovery of
tra d e w ere im prov em ents in tra n sp o rt a n d credits fro m th e N eth erlan d s.
I n th e field of im p o rt a n d e x p o rt c ontrol th e re was a ten d e n c y for
tra d e to be increasingly restored to n o rm a l co m m ercial channels. O n th e
ex p o rt side, special g o v e rn m e n ta l agencies c o n tin u e d to c o n tro l tra d e
in copra, q uinine, m in e ra l ores a n d p ro d u c e of u n d e te rm in e d ow nership.
M a la y a n F ederation a n d Singapore: R e c o rd p ro d u c tio n a n d e x p o rt
of ru b b e r a n d im p ro v e m e n t in p ro d u c tio n a n d e x p o rt of tin a n d o th e r
m inerals such as gypsum a n d kaolin, b u t n o t of iro n ore, w ere th e m a in
features of th e e x p o rt tra d e of th e M a la y a n F e d e ra tio n an d S ingapore
in 1948. R u b b e r a n d g u tta p e rc h a a c c o u n ted fo r 61 p e r c e n t in
1947 a n d 51.3 p e r cen t in 1948 (11 m o n th s ) , w hile tin a n d o th e r n on ferrous m etals w h ich acc o u n te d fo r 21.2 p e r c en t p re w a r, declined to
8.7
p e r cen t in 1947, im proving, how ever, in 1948 to 13 p e r cent. E xports
of seeds a n d n uts increased fro m 2.8 p e r ce n t p re w a r to 4.8 p e r c e n t in
1947 a n d 7.3 p e r cen t in 1948.
As regard s im ports, significant features are a decrease in th e p e rc entag e of ru b b e r a n d g u tta -p e rc h a fro m 21.2 p re w a r to 13.5 a n d 10.0
respectively in 1947 a n d 1948, a n d increases in th e p e rce n ta g e of co tto n
a n d y a rn a n d m a n u fa c tu re s fro m 3.8 to 13.4 a n d 12.2 p e r cent, of g rain
a n d flour fro m 9.3 to 10.6 a n d 16.2 p e r cent, a n d of o th e r food, drin k
a n d tobacco fro m 12.8 to 23.8 a n d 20.3 p e r cen t respectively over the
sam e period.
A considerable degree of restriction of im p o rts fro m h a rd -c u rre n c y
sources a n d of h a rd -c u rre n c y origin in to th e F e d e ra tio n a n d S ingapore
w as a notab le developm en t, w hich is likely to h av e its full effect on
im ports only in 1949. T h e re a re no restrictions on im p o rts fro m sterling
a re a a n d soft-currency sources; a n im p o rta n t fa c t in view of S in g a p o re ’s
e n tre p o t tra d e . T h e non-issuance of im p o rt licences fo r textiles from
h a rd -c u rre n cy sources w ith effect fro m m id -1948, p e n d in g th e fixing of
textile q u o tas fo r M a la y a u n d e r th e S C A P -S terling A re a T ra d e a rra n g e m en t, w as significant in a sm u ch as M a la y a n textile im p o rts fro m th e
IN T E R N A T IO N A L T R A D E
219
U n ite d States, to ta llin g M .$ 56 m illion in 1947 a n d M .$104 m illion in
1948
as against only M .$2 m illion in 1946, w ere largely responsible fo r
th e increased sh are of th e U n ite d States in M a la y a ’s im p o rts in 1947
a n d 1948. T h e re w as a c o n tin u e d b a n o n th e im p o rt of trucks from
h a rd -c u rre n c y sources, a n d of autom obiles of over 20 hp . except from
th e U n ite d K in g d o m .
Pakistan: D u rin g 1948 P a k ista n ’s foreign tra d e increased. M a n y
difficulties w ere overcom e such as th e disorganization of b a n k in g a n d
com m ercial houses, dislocation of tra n sp o rt, a n d im m ig ra tio n of refugees,
w h ic h h a d h a m p e re d tra d e im m ed iately a fte r p a rtitio n . Im p ro v em en ts
in tra n sp o rt, th e establishm ent of new im p o rt a n d e x p o rt agencies, an d
th e ex perience gained fro m th e in d e p e n d e n t w orking of tra d e controls
a fte r p a rtitio n , w ere im p o rta n t factors in p ro m o tin g trad e. A fte r review
of its tra d e c o n tro l policy, th e G o v e rn m e n t considerably liberalized its
im p o rt c o n tro l d u rin g th e year. P ractically all im po rts fro m soft-currency
areas w ere fre e d fro m restrictions, a n d im p orts of m ach in ery a n d cap ital
goods fro m all c u rren cy areas w ere freely licenced. Betw een 15 A ugust,
1947 a n d 31 M a rc h , 1948, P a k ista n ’s sea-borne exports totalled Rs.347
m illion. B etw een 1 A pril, 1948 a n d 31 D ecem ber, 1948 exports a m o u n ted
to R s.453 m illion a n d im p o rts to Rs.372 m illion, giving a positive balance
of Rs.81 m illion. Since these totals are for sea-borne tra d e , they largely
exclud e tra d e w ith In d ia . P ak istan has a considerable positive tra d e
b a la n c e w ith I n d ia ; th erefo re its over-all fav o u rab le b alan ce is larger
th a n th e figures suggest. Its p rin c ip a l exports, ra w ju te , hides a n d skins
a n d c o tto n , a re m oving o u t sm oothly; its exports of foodgrains, largely
to In d ia , d eclined, how ever, in 1948 d u e to a b a d season.
O th e r m easures ta k e n by P ak istan to p ro m o te tra d e inclu d e negotiatio n s fo r tra d e agreem ents w ith H u n g a ry , E gypt, J a p a n , Belgium ,
C eylon a n d I n d ia a n d a tra d e m ission to J a p a n .
P hilippines: E xp orts fro m th e P hilippines d u rin g 1948 showed a
considerable deg ree of recovery, rising fro m 531 m illion pesos in 1947
to 640 m illion pesos in th e first 10 m o n th s of 1948. E x ports of coconut oil
a n d co p ra m eal in th e first h a lf of 1948 alone fa r exceeded those in the
w hole o f 1947, w hile th e e x p o rt of dessicated coconuts also increased.
A b a c a ex p o rts w ere w ell m a in ta in e d . S u g ar exports recovered substantially fro m 19 m illio n k ilogram m es in 1947 to 120 m illion kilogram m es
in th e first h a lf of 1948. T h e ex p o rta b le q u o ta of lu m b e r a n d tim b e r was
raised fro m 25 to 50 p e r cen t of p ro d u c e r’s o u tp u t w ith effect from
July, 1948. In sp e c tio n a n d certification of exports w as enforced by the
B u re a u o f Forestry. H ig h fre ig h t charges a n d o th e r difficulties, how ever,
h a m p e re d tim b e r exports. M in in g p ro d u c tio n a n d e x p o rt continued to
be im p e d e d by th e h ig h cost of cap ita l investm ent, excessive labour
220
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
charges a n d th e u n re m u n e ra tiv e p ric e o f gold. E x p o rts o f ch ro m ite
a m o u n te d to 4.5 m illion pesos a n d of em b ro id ery 10 m illio n pesos.
Im p o rts d u rin g th e first 10 m o n th s of 1948 a m o u n te d to 890 m illion
pesos. In d ic a tio n s a fte r Ju n e p o in te d to a d e clin ing tre n d . T extiles, rayon
a n d synthetic textiles a c c o u n te d fo r n early 25 p e r c e n t of im p o rts, w hile
grains, autom obiles, iro n a n d steel a n d m a c h in ery w ere o th e r im p o rta n t
im ports. N o striking changes are n o ticeab le in th e com p ositio n of the
im p o rt tra d e , ex cep t fo r a n increase in m in e ra l oil im ports.
I n th e field of tra d e policy, th e m ost im p o rta n t d e v e lo p m e n t d u rin g
th e y ear was th e passage of th e I m p o rt C o n tro l A ct. Passed by th e
Congress in Ju n e , a n d signed by th e P resid en t in A ugust, th e E xecutive
O rd e r, p ro v id in g rules a n d reg u latio n s to c a rry im p o rt co n tro l in to
effect, received p resid en tial a p p ro v a l late in D ecem ber. T h e A c t is d e signed to conserve fo reig n ex ch an g e a n d p ro te c t local industries. A n
Im p o rt C o n tro l B oard w as c o n stitu ted. N o non-essential o r lu x u ry article
(specified in a list) co u ld be im p o rte d w ith o u t a licence, a n d th e q u a n tity
o r v alu e of im p o rt of ea c h non-essential o r lu x u ry artic le w as to be
d e te rm in e d a n d en fo rced on a q u o ta basis. T w e n ty p e r c e n t of im p o rt
quo tas w ere reserved fo r new im po rters.
O th e r m easures to p ro m o te tra d e ta k e n d u rin g th e y e a r in c lu d e d
a tra d e conference (m ainly of P h ilip p in e a n d A m e ric a n b u sin e ssm e n ),
a n d a tra d e ag re e m e n t w ith th e S C A P fo r th e delivery of 200,000 tons
of iro n -o re to J a p a n o n co n d itio n th a t th e S C A P w o uld m a k e av ailable
8,500 tons of steel.
S ia m : A n a p p reciab le im p ro v e m e n t in rice e x p o rt a n d th e securing
o f a positive tra d e b alan ce w ere th e m a in d ev elo pm ents in S ia m ’s foreign
tra d e d u rin g 1948.
I n N ovem ber, a Siam ese tra d e m ission left fo r th e U n ite d K in g d o m ,
th e c o n tin e n t of E u ro p e a n d th e U n ite d States, w ith a view to n e g o tia tin g
th e p u rc h a se of a considerable q u a n tity of railw ay e q u ip m e n t, steel a n d
o th e r in d u stria l eq u ip m e n t. A n e a rlie r tra d e m ission n e g o tia te d a tra d e
p la n w ith SC A P, as resu lt of w h ich several m a n u fa c tu re d articles, in cluding railw ay rolling-stock, w ere to be b o u g h t fro m J a p a n in exchange
for Siam ese rice, tin, ru b b e r a n d o th e r p ro d u cts. T h e re h a b ilita tio n of
th e railw ays, if speeded u p , w o u ld result in a n a p p re c ia b le increase in
rice exports, since ow ing to lack o f tra n sp o rt a b o u t 400,000 tons of rice
in N o rth S iam co uld n o t be m oved.
A n im p o rta n t d ev elo p m en t in tra d e policy w as th e im p o sition of
im p o rt co n tro l in D ecem ber. G oods fo r w h ich licences a re re q u ire d
in clu d e passenger autom obiles a n d m o to r cycles, cem ent, cosm etics, luxury
food articles, toys, a n d o th e r non-essential item s. T h e o b je c t o f im p o rt
IN T E R N A T IO N A L T R A D E
221
co n tro l is to d iv e rt th e e x p e n d itu re of foreign ex change to th e p u rch ase
of p ro d u c tiv e e q u ip m e n t. T h e control, how ever, affects only a b o u t 10
p e r c e n t of to ta l im ports.
T
r ade
in
Pr
in c ipa l
Co
m m o d it ie s
T h e m a in tren d s of tra d e in th e p rin c ip a l com m odities of th e region,
b o th in th e ir in ter-reg io n al a n d in tra -re g io n a l aspects, a re analysed in
this section. T h e se com m odities a re (1 ) basic foods— rice, cereals, fats
a n d oils, su g ar a n d te a ; (2 ) fibres— cotton, silk a n d ju te ; (3) o th e r
com m o d ities— ru b b e r, tin a n d p etro leu m . I n some of these com m odities,
th e re is in tra -re g io n a l tra d e in varyin g degrees, e.g., rice, sugar, p e tro leum , cotton. I n others, th e im p o r ta n t fe a tu re is th e n e t e x p o rt of the
reg io n to e x tra -re g io n a l m arkets, e.g., ju te , tea, tin, ru b b er. I n som e cases,
b o th in tra -re g io n a l a n d in ter-reg io nal tra d e a re im p o rta n t— fats a n d oils,
sugar. I n re g a rd to rice, th e in tra -re g io n a l p a tte rn is p a rticu la rly sign ificant since it accounts fo r a h ig h p ro p o rtio n of to ta l tra d e betw een
countries of th e E C A F E region.
R ic e
N e t w o rld exports of rice before th e w a r average a pproxim ately
8.5 m illion tons, re p re se n tin g a b o u t 9 p e r c e n t of w orld p ro d u c tio n , the
bu lk of rice being consum ed in th e areas w here it was p ro d u ced . O f the
to ta l n e t exports, a b o u t 77.5 p e r c e n t cam e fro m th e surplus p ro d u cin g
countries in th e E C A F E region, w hile 13.5 p e r cent cam e from K orea.
T h e im p o rtin g countries w ere also m ainly in A sia; th u s in te rn a tio n a l
tra d e in rice was largely c o n c e n tra te d w ith in Asia. W a r in th e Pacific
caused a co m p lete dislocation in this tra d e . E xports fro m th e surplus
p ro d u c in g cou ntries w ere sharply red u ced , a n d th e E C A F E region, in stead of h a v in g n e t exports of m o re th a n 2 m illion tons as it did before
th e w a r, b ecam e a n e t im p o rte r of rice. T h is is one of th e m a in factors
in th e re g io n ’s b a la n c e of p ay m en ts a n d d o lla r problem s, w hich are
described in th e n e x t c h a p te r.
I t will be seen fro m tab le 61 th a t in 1948 w orld tra d e in rice showed
a considerable im p ro v e m e n t over th e previous year, alth o u g h to tal exports
a m o u n tin g to 3.4 m illion tons w ere still 60 p e r cen t below th e p re w a r
average. T h e share of th e E C A F E region in to ta l exports rose fro m 61
p e r c e n t in 1947 to 68 p e r cen t in 1948.
E xp o rts of rice fro m B urm a, w h ich show ed good prom ise of reviving,
h a v e slowed d o w n since th e m id d le of 1948 ow ing to civil disturbances
a n d lack of tra n s p o rt facilities. E xports fro m In d o c h in a in 1948, w hile
ne a rly fo u r tim es th e 1947 to tal, still rep resen t only 12 p e r c e n t of p rew ar.
E x p o rts fro m S iam in 1948 a m o u n te d to 58 p e r cen t of p re w a r, a n d
show prom ise of com p lete revival a n d even exp an sio n in th e n e x t tw o
222
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a bl e
61
R ic e E x p o rts
(th o u sa n d tons)
1934-38 average
1947
1948
3,070
1,290
260
1,388
612
805
42
331
384
1,226
159
145
806
ECAFE region:
Korea ...............................
Other exporting
c o u n tr ie s ......................
6,620
1,158
1,562
2,336
782
1,008
1,074
To t a l ,
8,560
2,570
3,410
I n d o c h in a ........................
Pakistan b ........................
Siam ..................................
Taiw an (Formosa) . . .
To t a l ,
World:
a
—
a
—
Source: FAO , Rice Bulletin, February, 1949.
a N o information is available on the exports of rice from T aiw an, now a
province of China, to the Chinese mainland.
b Exports from the surplus areas o f Pakistan to the deficit areas of India.
T
a bl e
62
R ic e Im p o r ts
(th o u sa n d tons)
1934-3 8
a verage
1947
1948
790
263
86
271
31
276
117
33
944
384
113
466
32
401
169
44
4,329
1,757
2,287
1,867
692
2,553
35
745
8,373
2,559
3,333
India a .........................................
China ........................................
H ong K ong .............................
Malaya ......................................
British Borneo c........................
Ceylon ......................................
Indonesia .................................
Philippines c .............................
l,9 6 1 b
797
175
548
1
530
282
35
T o t a l , ECAFE region:
Japan .........................................
Other importing countries. .
To t a l ,
World
—
Source: FAO , R ice Bulletin, Commodity Series No. 11, February, 1949, p. 21.
a Including estimated rail and river-borne trade between surplus areas of Pakistan and deficit areas of India.
b Includes inter-provincial trade between Burma and other provinces of British
India up to 1 April, 1947; thereafter imports from Burma into India.
c Figures on the Philippines and British Borneo for 1947 and 1948 are taken
from Food Statistics R elating to South-east Asia, No. 21, February, 1949. They are
not available for prewar years.
223
IN T E R N A T IO N A L T R A D E
to th re e years. T a iw a n , w h ic h before th e w a r e x p o rte d rice to J a p a n ,
is now e x p o rtin g considerab le q u an tities to C h in a. K o re a , w h ich before
th e w a r w as a large ex p o rte r, is n o t in a position to e x p o rt a t present.
I n 1948 S o u th K o re a w as a n e t im p o rte r of rice. A n o u tsta n d in g dev elo p m e n t in th e w o rld ’s tra d e in rice is th e increased role assum ed by
co u n tries o utside th e region, n o tab ly E gypt, th e U n ite d States, Brazil a n d
o th e r L a tin -A m e ric a n co untries as exporters. I n 1947 they acco u n te d for
a b o u t 39 p e r c e n t of w orld rice exports, a n d in 1948 a b o u t 32 p e r cent,
c o m p a re d w ith a p re w a r share (n o t in clu d in g K o re a ) of a b o u t 9 p e r cent.
T a b le 62 shows th a t, am o n g im p o rtin g countries, In d ia continues
to be th e largest, b o th in th e region a n d in th e w orld, acco u n tin g fo r
28.3
p e r c e n t of n e t global im p o rts in 1948. E v en so, its to ta l im ports
w ere only 48 p e r c e n t of p re w a r. C eylon a n d M a la y a h av e co n tin u e d to
be n e t im p o rte rs of rice, a n d in 1948 took a slightly larg er share of w orld
im p o rts th a n in 1947. In d o n e sia also im p o rts m ore rice th a n in 1947, on
ac c o u n t of its p re se n t low level of p ro d u ctio n .
O th e r Cereals
I n re g a rd to o th e r cereals, in c lu d in g b re a d grains (w h e a t flour, rye)
a n d coarse grains (m aize, b arley a n d o a ts ), th e re has also been a fu n d a m e n ta l ch a n g e in th e position of th e E C A F E region co m p ared w ith
p re w a r. I n 1934-38 th e region as a w hole w as a n e t im p o rte r annually
of alm ost a m illion tons of b re a d grains a n d a n e t exp o rter of ab o u t
th re e q u a rte rs of a m illion tons of coarse grains. All th e countries of th e
T
a bl e
63
N e t I m p o r t or E x p o rt of B read Grains a n d Coarse Grains
(th o u sa n d tons)
(A m inu s sign ( — ) designates n e t exports)
1934-38
C h i n a ...........................
760
Indochina .................
26
India ........................... - 2 2 6
P a k is t a n ......................
I n d o n e s i a ...................
105
Philippines ...............
107
British North Borneo
4
Malaya ......................
77
Burma ........................
43
Ceylon ........................
25
Hong K ong ...............
24
T
otal
945
W h e a t , flo u r , rye
1 9 4 6 /4 7
394
15
1,028
86
278
2
309
15
392
87
2,606
1 9 4 7 /4 8
113
19
1,302
8
80
115
M a i z e , yelo,rabst
1934-38
1 9 4 6 /4 7
-1 2 3
-4 9 2
- 14
2,203
1
645
610
-1 2 3
2
8
—
211 }
28
293
34
1 9 4 7 /4 8
1
—
-
14
1
1
-7 6 4
1
-7
—
—
1
1
2
643
622
—
Source: FAO, Grain Bulletin, Commodity Series No. 10, January, 1949.
224
PA R T V.
IN T E R N A T IO N A L T R A D E A N D BALANCES
region ex cep t I n d ia im p o rte d b re a d grains before th e w ar, w hile In d ia
a n d P ak istan, C h in a. In d o c h in a , In d o n e sia a n d B u rm a e x p o rte d coarse
grains. T h u s on balance, th e reg io n as a w hole was m o re o r less selfsufficient.
I n contrast, th e E C A F E region is now a large n e t im p o rte r of bo th
b re a d grains a n d coarse grains to th e e x te n t of 3.2 m illion tons in
1 9 4 6 /1 9 4 7 a n d 2.8 m illion tons in 1 9 4 7 /19 4 8. C hang es by c o u n try are
show n in table 63.
F a t s a n d oils
T h e position of th e region in in te rn a tio n a l tra d e in fats a n d oils has
u n d erg o n e significant changes since before th e w ar. D u rin g th e p erio d
1934-38, countries of th e A F E region (i.e., th e E C A F E region w ith th e
a d d itio n of J a p a n a n d K o re a ) h a d a n e t e x p o rt of fats a n d oils a n d oil
cake of th e o rd e r of 2.25 m illion tons o u t of a w orld e x p o rt to ta l of 5.9
m illion tons. T o ta l exports fro m th e region in 1948 are e stim ated a t 1.3
m illion tons, o r less th a n three-fifths of th e p re w a r to tal, this re d u c tio n bein g d u e to a decline in p ro d u c tio n a n d e x p o rt capacity. D u rin g a n d since
th e w ar, m a n y p la n ta tio n s w ere neglected a n d m u c h of th e in stallatio n
m a c h in e ry a n d tra n sp o rt facilities w ere b adly d a m a g e d . M o st of J a p a n ’s
w h alin g fleet was destroyed a n d th e fish oil in d u stry w as re d u c e d to
alm ost zero. I n M a n c h u r ia a n d o th e r oilseed e x p o rt areas of C h in a,
political a n d econom ic u n se ttle m e n t p reven ts a n y th in g m o re th a n very
sm all e x p o rt shipm ents of soybeans a n d o th e r oilseeds. I n I n d ia the
pressure of p o p u la tio n , in a d e q u a te supplies of cereals a n d low oilseed
crops (a n d re d u c e d c o tto n acreag e) com pelled th e G o v e rn m e n t to c u rtail sharply th e ex p o rt of oilseeds, oil a n d oilcake. A lth o u g h I n d ia ’s oilseed p ro d u c tion is believed to h av e now re g a in e d th e p re w a r levels, there
is no early prospect of any im p o rta n t increase in exports of oilseeds over
th e low level of 1948. (See tab le 64.)
P ro d u c tio n for e x p o rt is g ra d u a lly recoverin g in In d o n e sia , as well
as in M alaya, th o u g h th ere a re still some difficult a d ju s tm e n t p roblem s—
la b o u r supply, w age disparities, etc.— q u ite a p a r t fro m m a jo r p olitical
a n d social problem s. I n Ceylon, p ro d u c tio n was largely m a in ta in e d d u rin g
th e w a r b u t was subsequently affected by d ro u g h t a n d by th e fa c t th a t
some of th e coco n u t palm s are going o u t of bearing.
T h e P hilippines c o p ra in d u stry m a d e a sensational recovery a fte r its
v irtu a l ex tin ctio n d u rin g th e w ar, a n d p ro d u c tio n in 1947 rose to over a
m illion tons (640,000 tons, oil e q u iv a le n t) c o m p a re d w ith th e p re w a r
p eak of a b o u t 700,000 tons. P ro d u c tio n in 1948 fell so m ew h at below this
h ig h level, p a rtly d u e to th e effects of th e ty p h o o n in N o v e m b e r/D e c e m b e r 1947.
225
IN T E R N A T IO N A L T R A D E
Sim u ltaneo u sly w ith th e decline in ex p o rt fro m th e A F E region
th e re h as been a n increase in th e p ro d u c tio n of fats a n d oils in N o rth
A m erica, fro m 3 . 4 m illion tons in 1 9 3 4 - 3 8 to 4 . 9 m illion tons in 1 9 4 8 .
I n E u ro p e , p ro d u c tio n in 1 9 4 8 was estim ated a t 2 .9 m illion tons as against
4 m illion tons before th e w ar. I n face of rapidly recovering p ro d u c tio n
in E u ro p e a n d m o re o r less p e rm a n e n tly increased o u tp u t in N o rth
A m erica, it is questionable to w h a t e x te n t th e A F E region, even w h en its
p ro d u c tio n recovers, will be able to re c a p tu re its p re w a r ex p o rt m arkets.
M o re o v e r increased regional co n sum ptio n is likely to absorb a p ro p o rtio n
of p ro d u c tio n as it recovers.
T
a bl e
64
T ra d e in Fats a n d Oils
( O il-e q u iv a le n t)
(th o u sa n d tons)
N e t tra de
Im port
Export
Year
1934-38 average . . . .
1946 ........................ ..
1947 ........................
1948 ........................
Source:
Im ports
350
100
150
170
E x p o rts
2,600
650
1,120
1,250
-2 ,2 5 0
550
970
-1 ,3 0 0
FAO, T he State of Food and Agriculture, 1948.
Sugar
As a resu lt of th e w a r a n d its a fte rm a th , im p o rta n t changes have
ta k e n pla c e in th e in te rn a tio n a l tra d e position in sugar of th e E C A F E
region. (See ta b le 6 5 . ) T h e region as a whole, w h ich was a n et e x p o rte r
of su g ar to th e e x te n t of m o re th a n 2 m illion tons in 1934-38, becam e
a sm all n e t im p o rte r in 1947 a n d only barely reg ain ed a n e t e x p o rt
position in 1948.
F o r tw o o r th re e years a fte r the w ar, Indonesia, th e Philippines, a n d
T a iw a n , th e th re e m a jo r p re w a r exporters of sugar in th e region, alm ost
d isa p p e a re d fro m th e in te rn a tio n a l m ark et. T h e Philippines, w hich before
th e w a r e x p o rte d m o re th a n 8 6 0 , 0 0 0 tons of sugar, h a d actually to im p o rt
su g a r in 1 9 4 6 , a lth o u g h it resu m ed su gar exports in 1 9 4 8 . In d o n e sia a n d
T a iw a n , w h ic h e x p o rte d n early tw o m illion tons p re w a r, h a d p ractically
no exports in 1 9 4 7 a n d very insignificant q ua n titie s in 1 9 4 8 . S u g ar
im p o rtin g co u n tries of th e region h av e fo u n d new sources of supply in
A u stra lia a n d M a u ritiu s.
226
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
65
a bl e
N e t I m p o r t or E x p o r t o f S ug ar
(P o stw a r F igures in R a w V a lu e )
(th o u sa n d tons)
N et export: —
C o u n try
British North Borneo b. . .
B u r m a ..................................
C e y lo n .................................
China .................................
22 p r o v in c e s ............
Taiw an ......................
H ong K o n g ........................
I n d i a ....................................
Indochina ..........................
Indonesia ..........................
Pakistan .............................
Philippines ........................
Siam ....................................
N et import: +
193 4 -3 8
+
+
+
+ 186.1
— 833.2
+
4 8.4
+
62.2
—
0.3
— 1,045.0
—
— 861.6
+
39.4
Total net i m p o r t s .......... + 539.6
Total net exports .......... —2,740.1
Difference ..........................
1947
118.5
11.5
73.5
—2,200.5
1948
—
—
—
+
3.9
—
—
—
+ 9.7
— 1.7
—
—
—
+120
+ 40
+120
+
+ 1 3 .6
— 1.7
+ 1 1 .9
—
- 150
+ 22
+ 20
—
— 75
+ 50
—256a
+ 10
+382
—481
-
99
Source: Figures for 1947 and 1948, from FAO , Sugar Bulletin, No. 1, July,
1948, and prewar figures from FAO , Food and Agricultural Conditions in Asia
and the Far East, 1948 ( E /C N .11 /1 4 4 ) .
a Actual export, 1 January, 1948 to 30 September, 1948, plus estimate for last
quarter, U nited States Department of Agriculture.
b Including Brunei, Sarawak.
Tea
I n th e w o rld ’s exports of tea, th e A F E region h olds a very im p o rta n t
place, acco u n tin g fo r a b o u t 98 p e r c e n t in 1937 a n d only a slightly
sm aller p e rcen tag e in 1947 a n d 1948. T h e declin e in th e q u a n tity o f te a
exports is th e result of v irtu a l cessation of exports fro m In d o n e sia a n d
C h in a (see tab le 6 6 ). R ecovery in p ro d u c tio n a n d exports of te a from
In d o n e sia has been r a th e r slow ; a lth o u g h th e re w as som e im p ro v e m e n t
in 1948, te a exports w ere still only 14 p e r c e n t of p re w a r. C h an g es in
consum er taste, lack of w arehouse facilities in B atavia, th e dam a g e caused
to th e re p u ta tio n of In d o n e sia n te a by th e e x p o rt of spoilt stocks im m e d iately u p o n lib eratio n , a n d difficulties in resto rin g p ro d u c tio n , m a k e it
p ro b le m a tic a l to w h a t e x te n t In d o n e sia n te a will re g a in its p re w a r level
of exports. R e d u c e d e x p o rt fro m C h in a in 1948 w as d u e to th e spread
of civil w ar. (See tab le 66.)
IN T E R N A T IO N A L T R A D E
T
a bl e
227
66
E xport of Tea
(th o u s a n d to n s)
Country
I n d i a a .......................................
C e y l o n ....................................
I n d o n e s i a ..............................
C h i n a ......................................
J a p a n .......................................
I n d o c h i n a ............................
1937
1 5 1 .4
9 6 .7
6 6 .7
5 1 .1
2 4 .5
2 .0
T o ta l o f AFE re g io n b
39 5 .3
1947
1 7 4 .6
1 3 0 .3
3 .2 c
1 4 .7
3 .0
0 .1
1948
1 6 1 .9
1 3 6 .2
9 .3 c
1 7 .5
4 .0
1.4
3 2 6 .0
3 3 0 .6
S o u r c e : I n d i a — G o v t . o f I n d ia , M o n t h l y A b s t r a c t o f S t a t i s t i c s , M a r c h , 1 9 4 9 ;
T h e O v e r s e a s T r a d e o f C e y l o n , 1 9 4 8 , D e p a r t m e n t o f I n f o r m a tio n , C o lo m b o ,
C e y l o n ; I n f o r m a t i o n s u p p lie d b y t h e E c o n o m i c P la n n in g D iv is io n o f B a ta v ia , d a te d
2 5 J a n u a r y , 1 9 4 9 ; T r a d e o f C h i n a , D e c e m b e r , 1 9 4 8 ; I n t e r n a t io n a l T e a C o m m it te e ,
M o n t h l y S t a t i s t i c a l S u m m a r y , A p r il, 1 9 4 9 ; B u l l e t i n é c o n o m i q u e d e L ’I n d o c h i n e ,
M a r c h , 1 9 4 9 , S a ig o n .
a I n c l u d i n g P a k is ta n .
b I n c l u d i n g o t h e r F a r E a s te r n c o u n tr ie s ( B u r m a a n d M a l a y a ) .
c G ro ss to n s.
F ib r e s
T he A FE
fib re , h a r d
r e g i o n a s a w h o l e is o n b a l a n c e a l a r g e e x p o r t e r o f j u t e
fib re s a n d r a w
a fte r-e ffe c ts o f th e
s ilk , a n d is a m a j o r i m p o r t e r o f c o t t o n . T h e
w ar are
s till h i n d e r i n g
re c o v e ry in
p ro d u c tio n
and
tr a d e o f fib re s in th e re g io n .
D e s p ite th e c o n s id e ra b le im p ro v e m e n t o v e r th e p re v io u s se a so n th e
to t a l o u t p u t o f fib re s i n th e r e g io n in
1 9 4 8 w a s o n ly 7 0 p e r c e n t o f th e
1 9 3 4 -3 8 a v e ra g e , as c o m p a re d w ith th e re c o v e ry in w o rld o u tp u t (e x c lu d in g t h e U n i o n o f S o v ie t S o c ia lis t R e p u b lic s )
to 8 8 p e r c e n t o f th e p r e w a r
av erag e.
a c c o u n te d
C o n s e q u e n tly
in
1948
th e
re g io n
fo r
o n ly
33
per
c e n t o f t h e w o r l d f ib r e o u t p u t a s c o m p a r e d w i t h 4 3 p e r c e n t f o r 1 9 3 4 - 3 8 .1
T h is w a s m a in ly d u e to
th e
c o m p a r a tiv e ly lo w
p o s tw a r le v e l o f c o tto n
a n d j u t e e x p o r ts f r o m th e s u b c o n tin e n t o f I n d ia , a n d o f h a r d fib re e x p o r ts
fro m
th e P h ilip p in e s a n d
T he
m a riz e d
im p o rta n t
changes
in
tra d e
in
th e
p rin c ip a l
fib re s
a re
sum -
b e lo w :
R aw
c o tto n
In d o n e s ia .
has
C o tto n .
The
d e c lin e d
d e v e lo p m e n t,
th e
e x p o rt c a p a c ity
o w in g
to
dependence
of
in c re a se d
of
Jap an
In d ia
hom e
on
and
P a k is ta n
c o n s u m p tio n .
e x tra re g io n a l
in
raw
W ith
th is
so u rces
of
1 T h e c a u s e s o f t h e d e c lin e in p r o d u c tio n w ill b e f o u n d in c h a p te r I V o n F o o d
a n d A g r ic u lt u r e .
228
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
supply, no tably th e U n ite d States, fo r ra w co tto n has increased. C h in a,
w h ich before th e w a r was m o re or less self-sufficient in re g a rd to its
re q u irem en ts of ra w cotton, is now d e p e n d e n t on im p o rts fo r p a r t of its
needs.
Silk. T h e progressive d isp lacem en t of C hinese a n d Ja p a n e se silk in
th e U n ite d States m a rk e t by rayon a n d nylon, h a d a very serious effect
o n th e in te rn a tio n a l tra d e in silk before th e w ar. T h is has b een considerably a g g ra v a te d since th e w ar. T h e re h as b een a steep decline in raw
silk p ro d u c tio n b o th in C h in a a n d J a p a n , a n d th e U n ite d S tates d e m a n d
for silk shows no sign of rising. A Ja p a n e se e x p o rt p ro g ra m m e in 1946
aim ed a t a ra w silk e x p o rt of 8,400 tons in 1946, rising to 11,300 tons by
1950. I n 1946, only 5,000 tons w ere ex p o rted to th e U n ite d States, of
w hich th e b u lk was unso ld a t th e en d of th e year. J a p a n ’s raw silk exports
im proved in 1948. N evertheless, th e precip ito u s decline in w o rld d e m a n d
fo r silk fro m p re w a r heig hts seems to be p e rm a n e n t. B oth C h in a ’s a n d
J a p a n ’s ra w silk exports in 1948 w ere only a b o u t o n e -e ig h th of th e q u a n tity ex p o rted in 1935.
J u te
T h e region’s p ro d u c tio n of ra w ju te is c o n c e n tra te d in P ak istan , an d
of ju te m an u fa ctu res, in In d ia . B oth p ro d u c tio n a n d tra d e of ra w an d
m an u fa c tu re d ju te is still affected by th e follow ing w a rtim e facto rs:
(a) T h e w a rtim e restriction of th e a re a u n d e r ju te to less th a n h a lf
of th a t in 1939/40, m ainly w ith a view to releasing it fo r food crops.
I n 1 9 4 7 /4 8 th e a re a w as still only h a lf th a t in 1 9 39/40.
( b ) T h e consequent decline in exports of ju te , b o th ra w a n d m a n u fa c tu re d . As c o m p a re d w ith 757,000 tons in 1935-39, exports of ra w
ju te in 1940-45 d eclin ed to 228,000 to n s; e x p o rt of ju te m a n u fa c tu re s
declined over th e sam e p erio d fro m 467,000 tons to 369,000 tons.
(c) T h e fa c t th a t in te rn a tio n a l tra d e w as largely d e te rm in e d d u rin g
th e w a r by th e availability of sh ip p in g space a n d allocations by the
C o m b in ed R a w M ateria ls Board.
Since th e en d of th e w ar, th e re has b een a n a b n o rm a l increase in
th e w orld d e m a n d for ju te w ith o u t a corresp o n d in g increase in supplies,
e x p o rt of ra w ju te in 1947 a m o u n tin g to only 276,000 tons a n d in 1948
to 252,000 tons. E xpo rts h av e been subject to d estin a tio n a l q u o tas based
on previous co n su m p tio n by in d iv id u a l countries. A n o th e r m a jo r po stw ar
c h an g e in th e ju te tra d e arises fro m th e p a rtitio n of In d ia . P akistan
p ro d u ces th re e -q u a rte rs of th e region’s ra w ju te , w hile I n d ia has v irtually
all th e ju te m a n u fa c tu rin g capacity. C onsequently, I n d ia is th e largest
im p o rte r of ra w ju te a n d continues to be the largest e x p o rte r of m a n u -
IN T E R N A T IO N A L T R A D E
229
fa c tu re d ju te . T h e tw o countries h a v e e n tere d in to a rran g e m e n ts designed
to ensure th e sm ooth flow of ra w a n d m a n u fa c tu re d ju te in to w orld trad e.
Rubber
As w as seen in c h a p te r IV , th e p o stw ar recovery in n a tu ra l ru b b e r
p ro d u c tio n in th e region h as been rem ark ab ly ra p id . W o rld consum ption
of ru b b e r h a s exceeded all an ticip atio n s, rising to 1,735,000 tons in 1947
a n d 1,900,000 tons in 1948, a lth o u g h th e c o nsum ption of ru b b e r in th e
U n ite d S tates is expected to decline fro m 1,122,000 tons in 1947 to
1,085,000
in 1948 a n d slightly f u rth e r in 1949. I n o th e r countries, in c lu d in g R ussia, d e m a n d rose fro m 613,000 tons in 1947 to 800,000 tons in
1948. D u rin g 1947 a n d 1948 th e p ro d u c tio n of n a tu ra l ru b b e r consistently exceeded con su m p tion , w ith a con sequent increase in stocks.
O n th e o th e r h a n d , th e ra te of increase in th e con sum ption of n a tu ral
r u b b e r w as g re a te r th a n th e ra te of increase in its pro d u ctio n . T h is was
d u e to th e increase in to ta l ru b b e r c o nsum p tion a n d some decrease in
synthetic r u b b e r con su m p tion . T h e p ro d u c tio n of synthetic ru b b e r has
b een a d ju ste d d o w n w ard s b u t it is still above consum ption, w ith a conseq u e n t a c c u m u la tio n of synthetic ru b b e r stocks.
T a b l e 67
N e t E x p o r t of N a tu r a l R u b b e r
(th o u san d s long tons)
C o u n try
1937
Borneo, N o r t h ...................
13
Brunei ..................................
1.8
Burma .................................
7.2
Ceylon .................................. 70
India ....................................
10
Indochina ..........................
43
I n d o n e s i a ............................. 434
M a l a y a ................................. 491
P h ilip p in e s ..........................
0.4
S a r a w a k ...............................
26
S i a m ......................................
36
T o t a l
........................ 1,132.4
1947
15
2.0
2.6
83
—
51
285
640
1.7
36
53
1,175.3
1948
19
2.2
10.1
92
41
432
679
—
40
96a
1,411.3
Source: R ubber Statistical Bulletin, Vol. 3, No. 1, October, 1948; Rubber News
Sheet, January and February, 1949; information supplied by Government.
a Imports into Malaya plus exports from Siam from 1945 onwards.
T a b le 67 shows th a t of th e m a jo r p roducers of n a tu ra l ru bb er,
M a lay a , S iam a n d C eylon h a v e all increased th e ir exports very su b stan tially c o m p a re d w ith p re w a r a n d also w ith 1947. O n ly In d o n e sia lags
slightly b e h in d p re w a r in spite of rem ark a b le progress in 1948.
230
P A R T V.
IN T E R N A T IO N A L T R A D E A N D BALANCES
T in
I n te rn a tio n a l tra d e in tin m ay be considered in tw o p a rts : tra d e in
tin concentrates a n d tra d e in tin m etal. T h e E C A F E region before th e w a r
p ro d u c ed nearly tw o-thirds of w o rld o u tp u t of tin ore, a n d in sm elting
cap acity a cco u n ted fo r 62 p e r cen t of th e w o rld ’s sm elter p ro d u c tio n ;
M a la y a ’s share of th e la tte r w as 46 p e r cent, a n d th a t of C h in a an d
In d o n esia 8 p e r cen t each. T h e region thus sm elted m o st of its ow n ore
p ro d u ctio n , b u t, bein g only a sm all con su m er of tin m etal, ex p o rte d the
bu lk of its sm elter p ro d u c tio n ; its exports of tin c o n cen trates outside the
region w ere relatively small. O n th e o th e r h a n d , because of th e heavy
co n c e n tra tio n of sm elter c a p a c ity in M alay a , th e re w as a considerable im p o rt in to M a la y a of tin co n cen trates fro m th e o th e r p ro d u c in g countries
of th e region. O n a n average M a la y a im p o rte d tin c o n cen trates in excess
of 25,000 tons p e r year, re p resen tin g m o re th a n 60 p e r c e n t o f th e com bined tin co n cen trates e x p o rt of Siam , In d o n esia, B u rm a a n d In d o c h in a .
O u tsid e th e region, Bolivia, th e B elgian C ongo a n d N ig e ria w ere
th e m a in p ro d u cers of tin o re ; th e p rin c ip a l sm elters w ere E u ro p e a n
countries, a c c o u n tin g for 35 p e r c en t a n d in c lu d in g th e U n ite d K in g d o m
(20.7 p e r c e n t) a n d N eth e rla n d s (8 p e r c e n t) . T h e p rin c ip a l consum ers
of tin m e ta l before th e w a r w ere th e U n ite d States (40 p e r c e n t ) , E urop e,
th e U n io n of Soviet Socialist R ep ublics a n d th e rest of A m e ric a (47 p er
c e n t) , a n d J a p a n (5 p e r c e n t).
O w in g to th e w ar, th e co n seq u en t d am ag e, a n d difficulties in re covery, th e share of th e E C A F E region in w orld p ro d u c tio n a n d tra d e
declined to negligible levels u n til 1946, b u t since th e n progress h a s been
m ad e in recovery. I n 1948 th e re w as m a rk e d progress in M a la y a an d
Indon esia. A n im p o rta n t d e v e lo p m e n t in tra d e has resulted fro m the
em ergence of th e U n ite d States as a m a jo r sm elter p ro d u c e r o f th e w orld.
T h e U n ite d States, w h ic h before th e w a r im p o rte d tin m etal, n o t co n centrates, is a t p re se n t im p o rtin g c o n cen trates fro m L a tin A m e ric a a n d
Asia, a n d is sm elting th e m to th e ex te n t of 75 p e r c en t of its m e ta l co nsum ption. M a la y a ’s im p o rts of tin co n cen trates h av e sharp ly declined
fro m 25,000 tons p re w a r to only 3,400 tons in 1947 a n d 3,600 tons in
1948, w hile its exports of tin m e ta l stood a t 32,600 m e tric tons in 1947
a n d 48,000 tons in 1948 as c o m p a re d w ith th e average of 78,000 tons
in 1937-39. W hile th e p re se n t position in tin is one of shortage, it is
a n tic ip a te d th a t w ith ra p id recovery, p ro d u c tio n will exceed d e m a n d
a fte r 1950.
P etro leum
B efore th e w ar, In d o n esia, B u rm a a n d B ru n ei w ere large exporters
of p e tro le u m p ro d u cts, w hile C eylon, C h in a , In d ia , In d o c h in a , th e
37.3
395.3
879.3
K ero sene
a
b
455.1
348.3c
665.6
H eavy
oils
Prewar
3.2
49.7
160.0
L u b ricating
oil
a Prewar years: Ceylon, 1938; China,
1939/40.
b Including liquid fuel, fuel oils, etc.
68
81.4
542.6
493.8d
G asolene,
benzine,
etc.
42.7
379.8
808.4d
K ero sene
1936;
India,
1947
b
5.0
63.6
245.1 d
L u b ricating
oil
106.7
338.7
579.2e
G asolene,
b enzine,
etc.
43.9
127.3
560.1e
K ero sene
1948
b
471.6
1,103.2c
516.5e
H ea vy
oils
6.9
45.7
201.9e
L u bricating
oil
c Converted from metric tons at average specific gravity of
0.90.
d Twelve months, April 1947 - March 1948.
e Projected from 6-month figures from April to September,
1948.
420.6
1,341.2c
l,204.4d
H ea vy
oils
(in million litres)
Source: Ceylon Trade Journal; Accounts Relating to
the Sea-borne Trade and Navigation in India; Chinese
Customs Trade Returns.
Ceylon
55.9
China . 172.3
India ,. 391.9
C ountry
Gasolene,
benzine,
etc.
a bl e
I m p o r t o f P e t r o l e u m P ro d u c t s
T
INTERNATIONAL
TRADE
231
232
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALAN C ES
P hilippines, a n d S iam w ere all im p orters. I n 1941, th e p ro d u c tio n of
p e tro le u m in th e reg io n w as estim a te d a t 72.4 m illio n b arre ls a g ain st
co n su m p tio n of 78.4 m illio n barrels. A fte r th e w a r, p ro d u c tio n fell
drastically o n acco u n t of w a r d a m a g e a n d lack of re p la c e m e n t a n d
personnel. T h e oil wells in B u rm a w ere n o t yet re h a b ilita te d , to any
ap p re c ia b le e x ten t, b u t con siderab le progress w as m a d e in B ru n ei an d
Ind on esia. T h e e x p o rt o f c ru d e oil in B ru nei re a c h e d 1,690,000 tons in
1947 a g ain st 851,400 tons in 1940, a n d rose sh a rp ly in 1948. T h e ex p o rt
of p e tro le u m p ro d u c ts in In d o n e sia in creased fro m 771,000 tons in 1947
to 3,846,000 tons in 1948, th e la tte r re p re se n tin g a b o u t 61 p e r c e n t of
p re w a r level.
O w ing to coal sh o rtag e a n d th e in creasin g use o f m o to r vehicles a n d
vessels, th e co n su m p tio n of p e tro le u m p ro d u c ts in th e reg io n a fte r th e
w a r rose considerably. T h is w as reflected in in creased im p o rts, as show n
in ta b le 68.
As c a n be seen fro m th e figures in ta b le 68, fo r th re e countries o f the
region w h ere c o m p arab le statistics are available, th e p o stw a r im p o rt of
kerosene te n d e d to decline, w hile fo r th e p o stw a r im p o rt o f all o th er
categories, th e re w as a n a p p rec ia b le increase.
R eg io n a l T re n d s
I t w ill be seen th a t th e p osition of th e E C A F E reg io n h a s u n d erg o n e
a considerable d e te rio ra tio n in resp ect of m a n y of th e p rin c ip a l com m odities in in te rn a tio n a l tra d e . I n rice, th e region, w h ic h w as a n e t
e x p o rte r before th e w a r, h a s now becom e a n e t im p o rte r; in cereals, it
has becom e a considerably b igg er n e t im p o rte r th a n before th e w a r. I n
sugar, th e region’s n e t ex p o rt p osition h as fa llen to negligible pro p o rtio n s.
In fats a n d oils, th e q u a n tity of n e t expo rts of th e reg io n a n d th e ir
p erc en tag e in w o rld exports of fats a n d oils h a v e re c o rd e d a considerable
decline. E v en in re g a rd to tea, th e q u a n tity of exports fro m th e region
has declined som ew hat, alth o u g h th e p re d o m in a n t position o f th e region
has n o t b een im p a ire d .
T h e regio n h as also declin ed considerably in w o rld p ro d u c tio n a n d
tra d e in fibres. I n cotton, silk, ju te a n d h a r d fibres, tra d e is lagging fa r
b eh in d p re w a r levels. O f o th e r com m odities, ru b b e r is th e only exam ple
of a co m m o dity in w h ich re m a rk a b le recovery in p ro d u c tio n a n d trad e,
even exceeding p re w a r levels in several countries, has b een reco rd ed . A
fa ir degree of recovery has b een achieved in re g a rd to tin ore p ro d u c tio n .
In p e tro leu m , th e region has becom e a sm aller p ro d u c e r a n d larg er
im p o rter.
T h e year 1948 was one of im p ro v e m e n t in v ary in g degrees over
1947 in re g a rd to m o st com m odities. T h e re g io n ’s rice p ro d u c tio n an d
IN T E R N A T IO N A L T R A D E
233
exports a n d its share of w o rld exports im proved, w hile im ports of cereals
in 1948 show ed a decline as c o m p are d w ith 1947. N e t exports of fats
a n d oils rose by m o re th a n 10 p e r cent. I n sugar, th e region reg ain ed a
n e t e x p o rt po sitio n a fte r b ein g a n e t im p o rte r in 1947.1 E xports of fibres
also in creased substantially. Progress w as m a d e in tin ore p ro d u c tio n an d
ex p o rt, p a rtic u la rly in M a la y a a n d Indonesia.
I n spite of this im p ro v e m e n t d u rin g 1948, the region still has fa r to
go in resto rin g p re w a r levels of export. E x p o rt of raw ju te, fats a n d oils
a n d rice a re unlikely to recover to p re w a r levels for some considerable
tim e o n a c c o u n t of increased reg ion al co nsum ptio n a n d red u c e d p ro d u c tion. T h e n e t im p o rt of cereals by th e region also seems likely to continue
in view of th e c o n tin u in g g ro w th of p o p u la tio n a n d the limits to increased
reg io n al p ro d u c tio n . R e-estab lish m en t of sugar in p re w a r e x p o rt m arkets
has to reck o n w ith com petitiv e sources of supply. I n reg ard to ra w cotton,
d e p e n d e n c e o n e x tra reg io n a l sources of supply c a n be red u ce d only by
increased p ro d u c tio n in th e region, a n d this is c o n tin g en t on a prio r
im p ro v e m e n t in food p ro d u c tio n a n d o n o th e r im p o n d e ra b le factors such
as th e availability of C hinese ra w cotton. As reg ards ru b b er, th e problem
of a d ju stin g supply to d e m a n d has alread y arisen, w hile w ith tin it is a
co ntingency only a y e a r o r tw o distant. I n silk, th e decline is m ore or less
p e rm a n e n t. I n p e tro leu m , th e in creased depen d en ce on extraregional
supplies is alm o st c e rta in to persist fo r a considerable tim e.
Ge
o g r a ph ic a l
D
is t r ibu t io n
o f
T
r ade
T h is section describes th e m a in changes in th e geographical distrib u tio n o f tra d e fo r ea ch c o u n try of th e E C A F E region fo r w h ich
statistics a re av ailable, as b etw een (1) p re w a r a n d 1947 a n d (2) 1947
a n d 1948. I n e a c h case, unless otherw ise stated, th e reference is to the
share of th e to ta l v alu e o f a c o u n try ’s exports o r im ports.
I n th e case of B u rm a , th e p rin c ip a l chan ge co m p ared w ith p re w a r
is a large increase in th e p ro p o rtio n of im ports fro m th e U n ite d K in g d o m ,
a n d a re d u c tio n in th e sh are of th e E C A F E region, especially of In d ia .
O n th e o th e r h a n d , exp orts to th e region (a lth o u g h n o t to In d ia )
increased to 90 p e r c e n t in 1 9 4 6 /4 7 , w hile those to th e U n ite d K in g d o m
declin ed. T h e sm all sh are of th e U n ite d States in B u rm a’s tra d e re m a in ed
a b o u t th e sam e. I n 1 9 4 7 /4 8 , th e re w as a fu rth e r substantial increase to
alm o st 50 p e r c e n t in th e U n ite d K in g d o m ’s share of B u rm a ’s im ports,
w hile th e reg io n ’s sh are a g ain declined. I n th e sam e p eriod B u rm a’s
ex p o rts to th e U n ite d K in g d o m increased, alm ost to th e p re w a r p ro p o r1 Taiw an sugar is exported to the Chinese mainland and Taiwan, having been
taken over by China, does not enter into international trade.
234
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
tion, w hile th e region’s sh are declined, a lth o u g h still re m a in in g m u ch
above th e p re w a r level.
C eylon ’s im ports fro m th e region (in p a rtic u la r I n d ia a n d B u rm a ),
w hich w ere alm ost 50 p e r c e n t of its to ta l im p o rts in 1937, fell steeply
by 1947 b u t recovered to a b o u t 34 p e r c e n t in 1948, th a n k s to a large
increase in im po rts fro m B u rm a. Im p o rts fro m th e U n ite d States an d
A ustralia, o n th e o th e r h a n d , in 1947 w ere substantially g re a te r th a n
p re w a r, b u t in th e case of th e U n ite d States declined in 1948. Im p o rts
fro m th e U n ite d K in g d o m w ere, in b o th 1947 a n d 1948, r a th e r less th a n
before th e w ar. Im p o rts fro m J a p a n in 1947 w ere m u c h less th a n p rew ar,
recovering appreciably in 1948. C eylon’s exports to th e U n ite d K ingdom ,
alm ost 50 p e r cen t of its to ta l exports in 1937, also fell sh arply in 1947
a n d re m a in e d a t a b o u t th e sam e level in 1948. A ustralia, C a n a d a , South
A frica a n d E gypt all increased th e ir shares of C eylon’s exports in 1947,
b u t except fo r A u stra lia all experien ced a decline in 1948. T h e share of
th e U n ite d States declined slightly in 1947 b u t increased in 1948, while
th a t of th e region d eclined in b o th 1947 a n d 1948.
T h e p rin c ip a l changes in C h in a ’s im p o rt tra d e c o m p a re d w ith
p re w a r a re th e g reatly increased share of th e U n ite d States (fro m 20
p e r c e n t to a b o u t 50 p e r c e n t) a n d th e re d u c tio n in th e share of J a p a n .
T h e share of th e U n ite d K in g d o m also declined sharply in 1947 b ut
recovered to some e x te n t in 1948. T h e r e h a s n o t b een m u c h c h an g e in
th e to ta l share of th e E C A F E region, a lth o u g h it in creased so m ew h at in
1948; w ith in th e region ’s to tal, how ever, I n d ia ’s share increased substantially w hile In d o n e sia ’s declined. I n re g a rd to C h in a ’s exports, th e m a in
changes c o m p a re d w ith p re w a r a re th e increased share of th e E C A F E
region a n d th e re d u c e d share of J a p a n . H ow ever, since th e fo rm e r is
alm ost entirely du e to th e increased p ro p o rtio n of exports to H o n g K ong,
w hence they are largely re-exp o rted , th e increased sh are of th e region is
probably m o re a p p a re n t th a n real. T h e share of th e U n ite d States (m ore
th a n 25 p e r cen t in 1936) declined slightly in 1947 a n d largely recovered
in 1948. E x p o rts to J a p a n also increased a p p re c ia b ly in 1948, alth o u g h
n o t n early a p p ro a c h in g th e p re w a r p ro p o rtio n of 14 p e r cent.
I t is n o t possible to assess accu rately th e p ro p o rtio n of H o n g K o n g ’s
tra d e w hich is of a n e n tre p o t c h a ra c te r, b u t before th e o u tb re a k of the
S in o -Jap anese W a r in 1937 it was e stim ated t h a t a b o u t tw o -th ird s of the
colony’s im po rts w ere subsequently re-exported. C o m p a re d w ith p re w a r
th e m a in changes in 1947 in th e sources of H o n g K o n g ’s im p o rts were
a steep re d u c tio n in C h in a ’s share (a lth o u g h C h in a is still th e largest
single su p p lie r), a n d hence in th e share of th e w hole E C A F E region,
a n d considerable increases in th e shares of th e U n ite d States a n d the
U n ite d K in g d o m (n o w respectively th e second a n d th ir d largest
IN T E R N A T IO N A L T R A D E
235
s u p p lie rs ). Im p o rts fro m M a lay a, M a c a o a n d S iam increased, those fro m
J a p a n , In d o n e sia a n d In d o c h in a declined, a n d those fro m G e rm a n y w ere
te m p o ra rily eclipsed. I n 1948 these trends co n tin u e d in re g a rd to C h in a,
th e U n ite d K in g d o m a n d Siam , b u t th e p ro p o rtio n of im ports fro m the
U n ite d States, M a la y a a n d M a c a o declined slightly w hile those fro m
J a p a n , G erm an y , In d o n e sia a n d In d o c h in a increased. Also in 1948 th ere
w ere significant increases in th e shares of B urm a, C a n a d a , N eth erlan d s,
Italy , S w eden a n d S w itzerland, th e a p p e a ra n c e of a su bstan tial new su p p lie r in th e shape of K o rea, a n d sh arp reductions in th e cases of Belgium
a n d th e P hilippines. W ith c e rta in exceptions, a tendency m ay be discerned
in 1948 fo r th e sh are of h a rd -c u rre n cy countries to decline a n d of sterling
a re a a n d relatively soft-currency countries to increase. As regards H o n g
K o n g ’s exports, th e m a in ch ange c o m p a re d w ith p re w a r ag a in relates to
C h in a , w hich, w hile still re m ain in g th e largest m ark et, has declined very
greatly in im p o rta n c e b o th in 1947 a n d 1948. Nevertheless, the share of
th e E C A F E region as a w hole has declined only slightly. I n p articu lar,
expo rts to M a la y a increased substantially in 1947, a n d to th e Philippines
a n d S iam b o th in 1947 a n d 1948. E xpo rts to th e U n ite d K in g d o m a n d
J a p a n declined in 1947 b u t recovered in 1948, w hilst those to th e U n ite d
S tates w e n t th ro u g h a reverse process. O th e r significant e x p o rt changes
in 1948 w ere increases to A u stralia, In d ia , W est Indies, M a c a o (now
o ne of H o n g K o n g ’s five p rin c ip a l m a rk e ts), Indonesia, Sw itzerland an d
th e U n io n of Soviet Socialist R epublics, th e em ergence of K o rea as an
im p o rta n t m a rk et, a n d declines in exports to S o u th A frica, Belgium,
F ra n c e , N e th e rla n d s, Sw eden a n d Italy. R e d u c ed exports to c ertain h a rd c u rren cy countries m ay be p a rtly a ttrib u ta b le to th e in tro d u c tio n in 1948
of m o re strin g en t regulations re g a rd in g su rren d er to th e auth orities of
foreign e xchang e proceeds fro m exports, thus rem oving th e in d iv id u al
tr a d e r ’s in cen tive to e a rn h a r d currency.
C o m p a rin g 1947 w ith p re w a r, th e m a in changes in In d ia ’s sea-borne
im p o rt tra d e w ere a g re a t increase in th e share of th e U n ite d States, th e
te m p o ra ry elim in a tio n of J a p a n , a n d a decline in im ports fro m th e
E C A F E region, in p a rtic u la r B urm a. T h e year 1948 saw a n a p p a re n t
increase in th e share of th e region, b u t this w ould seem to be largely due
to th e a p p e a ra n c e of P ak istan as a new tra d in g u n it.1 T h e re was a n
a p p re c ia b le decline in th e U n ite d States im po rts, w hile im p o rts from
J a p a n , a lth o u g h negligible in relatio n to th e to tal, show ed th e first traces
of recovery. T h e share of th e U n ite d K in g d o m w as relatively stable in
th e th re e years u n d e r review ; in 1948 it regained its position — lost to
th e U n ite d S tates in th e previous y ear — of being I n d ia ’s chief supplier.
1 A great part of Indo-Pakistan trade is by land, however, and does not appear
in the figures under review.
236
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
O th e r im p o rta n t dev elop m en ts in 1948 w ere su b sta n tia l increases in
im p o rts fro m A u stra lia a n d Ita ly . I n re g a rd to I n d ia ’s sea-borne exports,
th e U n ite d S tates a d v a n c e d su b stan tially in im p o rta n c e c o m p a re d w ith
p re w a r; th e U n ite d K in g d o m d e c lin e d in im p o rta n c e a lth o u g h still
re m a in in g I n d ia ’s g re a te st single m a rk e t. J a p a n , a fte r eclipse in 1947,
show ed m a rk e d signs of recovery in 1948. Also in 1948, w h ile th e U n ite d
K in g d o m a n d th e U n ite d S tates m ark ets d eclined slightly in im p o rta n c e ,
th e E C A F E reg io n a p p a re n tly d o u b le d its sh a re o f I n d ia ’s exports, b u t,
as w ith im p o rts, this w o u ld seem to be m a in ly th e re su lt of P a k ista n ’s
a p p e a ra n c e as a se p a ra te m a rk e t of m a jo r im p o rta n c e . I n re g a rd to o th e r
countries in th e region, I n d ia ’s exports to B u rm a a n d S iam in creased
ap p reciab ly in 1948, w hile its ex p o rts to C h in a declin ed . O u tsid e th e
region, th e re w ere significant increases in exports to A rg e n tin a , E gypt
a n d C u b a , a n d re d u ced exports to B elgium a n d Spain.
T h e tra d e of In d o c h in a is c o n d u c te d p re d o m in a n tly w ith F ra n c e
a n d th e F re n c h d ependencies. C o m p a re d w ith p re w a r, this c o n c e n tra tio n ,
in re g a rd to b o th im p o rts a n d exports, h as te n d e d to increase, being now
a b o u t 60 p e r c e n t; in 1948, how ever, th e re was a striking c h a n g e in th e
d istrib u tio n of exports as betw een th e m e tro p o lita n c o u n try a n d th e
d ependencies, th e la tte r in creasin g th e ir sh are very considerably. T h e
p ro p o rtio n of im p o rts fro m th e U n ite d S tates has in creased very su b stan tially, a lth o u g h th e re was som e decline in 1948. Im p o rts fro m th e E C A F E
region, o n th e o th e r h a n d , w ere a t a low level in b o th 1947 a n d 1948.
T h e p ro p o rtio n of exports to th e U n ite d S tates d e clin ed slightly as
betw een 1938 a n d 1947 a n d steeply in 1948. E x p o rts to th e E C A F E
region increased in p ro p o rtio n in 1947, b u t d eclin ed in 1948, n o ta b ly to
H o n g K ong.
T h e m ost n o ta b le featu res o f In d o n e sia ’s im p o rt tra d e in 1947
co m p ared w ith p re w a r w ere th e greatly in creased d e p e n d e n c e on th e
U n ite d S tates a n d th e re d u c tio n in im p o rts fro m J a p a n , fo rm erly its
largest single supplier. I n 1948, how ever, th e U n ite d S tates’ share
decreased sh arp ly a n d th a t of J a p a n recovered strongly, re a c h in g a b o u t
15 p e r c e n t of th e to tal. O f In d o n e sia ’s sm all a m o u n t of exports in 1947,
a very considerable p a r t — a b o u t tw ice th e p re w a r p ro p o rtio n — w e n t
to th e N eth e rla n d s. W ith th e considerable im p ro v e m e n t in ex p orts in
1948, how ever, th e share of th e N e th e rla n d s declin ed som ew hat, alth o u g h
re m a in in g considerably above th e p re w a r level. T h e re w as also some
recovery of exports to J a p a n .
C o m p ariso n of N o r th B orneo’s tra d e w ith p re w a r h a s n o t b een possible as n o p re w a r figures h a v e b een fu rn ish e d . R u b b e r c o n stitutes a b o u t
tw o-th ird s, in value, of its ex p o rts; in 1948 a b o u t 60 p e r c e n t o f ru b b e r
IN T E R N A T IO N A L T R A D E
237
exports w e n t to Singapore, 26 p e r c e n t to th e U n ite d K in g d o m a n d
8 p e r c e n t to th e U n ite d States.
I n th e case of P akistan, th e periods 15 A ugust to 31 M a rc h , 1948
(7 1/2 m o n th s) a n d 1 A p ril to 31 D ecem ber, 1948 (9 m o n th s) a re tak en
for pu rposes of a p p ro x im a te com parison. In d ia is, of course, fa r a n d
aw ay th e m ost im p o rta n t c o u n try in P a k ista n ’s tra d e , p a rticu la rly in
re g a rd to exports, P ak istan enjoying a very large e x p o rt surplus. T h e
U n ite d K in g d o m com es n e x t in im p o rta n c e ; exports to th e U n ite d
K in g d o m h a v e te n d e d to decline a n d im po rts from th e U n ite d K in g d o m
to increase p ro b a b ly reflecting th e release of sterling balances u n d e r the
U n ite d K in g d o m -P a k ista n financial agreem ent. Im p o rts h av e also
increased fro m Italy , C h in a , C eylon a n d M alaya, w hile fro m th e U n ite d
States they h a v e re m a in e d fairly stable. E xports to the U n ite d States
h av e also b een stable, a n d th e re has been a sm all surplus in P ak istan ’s
favour. A m o n g o th e r m ark ets of im p o rta n c e , exports to Spain, C h in a,
H o n g K o n g , G e rm a n y a n d C eylon h av e increased w hile th e re have been
slight falls in exports to th e U n io n of Soviet Socialist R epublics, F rance,
Ita ly a n d B elgium . E x p o rts to J a p a n h a v e been fairly stable a t a low
level.
I n th e tra d e of th e P hilippines, th e U n ite d States rem ains p re d o m in a n t, b o th as sup p lier a n d e x p o rt m a rk e t. Its share of P h ilippine im ports
has in creased fro m a b o u t 60 p e r cen t p re w a r to m ore th a n 80 p e r cent,
w hile th a t of th e E C A F E region, notably Indon esia, M alay a, H o n g K ong,
a n d In d o c h in a , h a s declined, a n d th a t of J a p a n is only a small fraction
of its p re w a r a m o u n t. As reg ard s exports, th e p ic tu re is ra th e r different.
T h e U n ite d S tates’ share has fallen fro m a b o u t 80 p e r cen t to ab o u t
60 p e r c e n t a n d th e re h as been a significant diversification of m arkets.
T h e E C A F E region, p a rtic u la rly M a la y a a n d Indonesia, has ta k e n a
la rg er share, w hile o th e r m ark ets of increased im p o rta n c e a re F rance,
D e n m a rk , Italy , C a n a d a a n d Belgium. By contrast, J a p a n ’s share in
1947 was only o n e -te n th of p rew ar. T h e lim ited d a ta available for 1948,
h ow ever, show a striking recovery in J a p a n ’s share to alm ost th e p re w a r
level; th e U n ite d S tates’ share has also recovered a sm all p a r t of its lost
g ro u n d . I t seems likely th a t th e diversification of P h ilipp in e e x p o rt
m ark e ts will be m a in ta in e d by sub stantial “ offshore” purchases in the
P hilippines fo r re c ip ie n t countries u n d e r th e E C A prog ram m e.
A lm ost th e e n tire tra d e of S araw ak, except fo r p e tro le u m exports,
is w ith Singapore. I n 1947, how ever, th ere w ere a n u m b e r of d ire c t shipm en ts of ru b b e r, sago, a n d p e p p e r to th e U n ite d States, U n ite d K in g d o m
a n d E u ro p e a n p o rts a n d th e re is a ten d en cy fo r such shipm ents to
increase. D ire c t sh ipm ents of p e tro le u m w ere m a d e to Sydney, D u tc h
B orneo a n d o th e r destinations.
238
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T h e p rin c ip a l changes in S ia m ’s im p o rt tra d e c o m p a re d w ith p re w a r
are a su b stan tial increase in th e sh are of th e U n ite d S tates, a re d u c tio n
in th a t of th e U n ite d K in g d o m a n d th e v irtu a l d isa p p e a ra n c e of J a p a n .
T h e share of th e E C A F E reg io n h as increased. I n re g a rd to ex po rts, th e
share of th e region h as d eclined slightly, w hile those of th e U n ite d
K in g d o m a n d especially th e U n ite d S tates h av e increased. E x p o rts to
J a p a n fell to negligible pro p o rtio n s.
T h e tra d e of Singapore a n d the M a la ya n F ederation m ay be com p a re d w ith th e p re w a r tra d e of B ritish M alay a. I n re g a rd to im ports,
th e m ost n o ta b le changes w ere th e re d u c e d shares of In d o n e sia a n d
J a p a n , a n d th e in creased shares o f th e U n ite d S tates a n d U n ite d
K in g d o m (10 p e r c e n t a n d 19 p e r c e n t respectively in 1 9 4 7 ). T h e r e was
little ch an ge in 1948, ex c e p t t h a t th e U n ite d S tates’ sh a re in creased
slightly a n d im p o rts fro m J a p a n show ed signs of recovery. Im p o rts fro m
th e E C A F E region, a p a r t fro m In d o n esia, re m a in e d steady a t a b o u t 30
p e r c e n t in th e th re e years u n d e r review . W ith in th a t to tal, ho w ev er, th e
shares of B urm a, S araw ak, In d o c h in a a n d th e P h ilippines in creased, w hile
those of C h in a a n d H o n g K o n g d eclined. T h e sh are of ex p o rts to I n d o nesia a n d the rest of th e region in creased considerably c o m p a re d w ith
p re w a r a n d co n tin u e d to do so in 1948, in p a r tic u la r to Siam , Ceylon,
C h in a , In d o c h in a a n d th e P h ilip p in es; exports to H o n g K o n g , how ever,
declined. T h e sh are of th e U n ite d K in g d o m in creased in 1947 a n d
d eclin ed slightly in 1948, w hile th a t of th e U n ite d S tates declin ed considerably b o th in 1947 a n d 1948. E x p o rts to J a p a n slum ped in com parison
w ith p re w a r, a n d in creased only very slightly in 1948. O th e r n o tew o rth y
changes in 1948 w ere considerably in creased exports to th e U n io n of
Soviet Socialist R epublics, G erm an y , D e n m a rk , N e th e rla n d s, Sw eden,
T u rk e y , P o la n d a n d N ew Z e a la n d , a n d re d u c e d ex p o rts to B elgium a n d
A rg en tin a. By a n d large, these changes reflect th e in creased d e m a n d for
ru b b e r a n d tin arising fro m th e qu ick en in g p a c e of E u ro p e a n recovery.
M a in T re n d s
T h e m ost striking change betw een 1937 a n d 1947 in th e d istrib u tio n
of tra d e of countries of th e E C A F E region (w ith th e exception of B u rm a)
w as th e g reatly in creased d ep e n d e n c e on im p o rts fro m th e U n ite d States.
T a b le 69 suggests th a t, fo r th e reg io n as a w hole, this in crease w as of th e
o rd e r of th re e to fo u r tim es th e p re w a r p ro p o rtio n . O n th e e x p o rt side,
th e g en eral ten d en cy seems to h av e b een th e reverse, nam ely a red u c e d
p ro p o rtio n of exports to th e U n ite d States, n o tab ly o n th e p a r t o f S in g apore a n d th e M a la y a n F e d e ra tio n a n d of th e P h ilip p in e s; th e re w as a n
a p p re c ia b le increase, how ever, in th e cases of Siam , I n d ia a n d H o n g
K ong.
IN T E R N A T IO N A L T R A D E
T
a bl e
239
69
T ra d e o f E C A F E countriesa w ith the U n ite d Sta tes expressed as
Percentages o f T h e ir T o ta l Im p o r ts a n d E xports
Im p o rts fr o m U .S .A .
(p e r c e n t)
___
C ountry
Burma b
1937
4.3
(1 9 3 7 /3 8 )
Ceylonc
2.6
China d
19.7
(1936)
H ong K on g e 8.4
India f
6.4
Indochina g 5.1
(19 3 8 )
Indonesia b 10.2
Philippines i 58.0
Siam j
5.0
(1 9 3 7 /3 8 )
Singapore k
and Malayan
Federation 2.3
_______
1947
1948
4.3
3.9
(1 9 4 6 /4 7 ) (1 9 4 7 /4 8 )
12.1
7.6
50.2
46.4
19.3
29.8
19.3
18.7
24.7
14.2
39.0
86.0
23.8
21.9
84.4
10.1
11.9
..
E xports to U .S .A .
c e n t)
_______ (p e r
1937
0.2
(1 9 3 7 /3 8 )
16.0
26.4
(1936)
8.8
10.3
8.8
(1938)
18.7
81.7
0.7
(1 9 3 7 /3 8 )
44.2
1947
0.2
(1 9 4 6 /4 7 )
14.3
23.3
1948
0.2
(1 9 4 7 /4 8 )
18.1
25.2
12.5
20.1
7.9
9.6
18.8
18.7
57.3
7.8
17.6
62.7
33.9
27.4
2.8
..
a Pakistan is not included because figures for land-borne trade, which forms the
bulk of Pakistan’s trade, are not available.
b Prewar figures from Statistical Abstract for the British Commonwealth, 193645. Postwar figures from Government of Burma, 1947/48, nine months only.
Postwar import figures are based on “private” imports only.
c Prewar figures from International Trade Statistics, 1938, League of Nations.
Postwar figures from Ceylon T rade Journal, February and October, 1948. 1948,
eight months only.
d Chinese Maritime Customs, 1936, 1947, 1948. 1948, nine months only.
e Prewar figures from Statistical Abstract for the British Commonwealth, 193645. Postwar figures from Supplement No. 4 to Hong K o n g Government Gazette,
1948.
f Prewar figures from International Trade Statistics, 1938, League of Nations.
Postwar figures from M onthly Abstract of Statistics, 1948, Government of India.
1947 and 1948 figures relate to sea-borne trade, and include sea-borne trade with
Pakistan.
g Economic Survey of Indochina, 1948 and Bulletin économique de l’Indochine,
December 1948. 1948, ten months only.
h Prewar figures from International T rade Statistics, 1938, League of Nations.
1947 figures, Central Bureau of Statistics, Batavia. 1948 figures, nine months
only, from Economic R eview of Indonesia, Oct., Nov. and Dec. 1948.
P
i r e w a r f i g u r e s f r o m International Trade Statistics, 1938, League of Nations.
Postwar figures from American Chamber of Commerce Journal and R eview of
Philippines Business Conditions, 2 October, 1948. 1948 figures, six months only.
j Prewar figures from International Trade Statistics, 1938, League of Nations.
1947 figures, estimate of nine months only, from Department of Customs, Bangkok.
k Prewar figures for British Malaya from International Trade Statistics, 1938,
League of Nations. Postwar figures from Malayan Statistics, 1948, eleven months
only.
240
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a bl e
70
T ra d e of E C A F E C ountries w ith R e st of the E C A F E R e g io n a
expressed as Percentages c.f T h e ir T o ta l I m p o r ts a n d E x p o rts
C o u n tr y
Im p o r ts fr o m rest o f E C A F E r e g i o n
(p e r c e n t)
1937
1947
1948
Burma
51.6
(1 9 3 7 /3 8 )
Ceylon
49.6
China
18.1
(1936)
Hong Kong 57.8
India
16.4
Indochina 23.7
(1938)
Indonesia 14.6
Philippines 10.4
Siam
47.6
(1 9 3 7 /3 8 )
Singapore
and Malayan
Federation 65.1
E x p o r t s to rest o f E C A F E reg io n
(p e r c e n t)
1947
1948
1937
46.5
34.5
(1 9 4 6 /4 7 ) (1 9 4 7 /4 8 )
21.5
34.3
17.7
20.2
43.3
6.7
12.6
37.8
12.7
11.6
20.2
15.5
4.6
58.6
..
52.4
50.6
66.3
(1 9 3 7 /3 8 )
6.0
23.5
(1 936)
62.7
90.3
(1 9 4 6 /4 7 )
4.2
47.8
85.0
(1 9 4 7 /4 8 )
61.4
11.5
35.0
58.3
23.9
25.9
24.2
7.1
78.0
22.4
23.4
25.3
10.0
23.6
(1938)
25.1
2.0
82.8
(1 9 3 7 /3 8 )
12.1
2.1
47.4
..
..
aFor sources and bases of figures see footnotes to table 69. T he ECAFE region
is taken to include British North Borneo, Brunei, Sarawak, Burma, Ceylon,
China, Hong Kong, India, Indochina, Indonesia. Malayan Federation, Singapore,
Nepal, Pakistan, Philippines, Siam. Figures are approximate in so far as, in certain
cases, statistics for trade with all these territories are not available.
T
a bl e
71
T ra d e of E C A F E C ountries w ith the U n ite d K in g d o m
expressed as Percentages o f T h e ir T o ta l Im p o r ts a n d E x p o rts a
Im p o rts fr o m U .K .
cent
1947
___ ( p e r
C o u n tr y
Burma
1937
19.7
(1 9 3 7 /3 8 )
Celyon
22.3
China
11.7
(1936)
Hong Kong 7.6
India
31.5
Indochina
Indonesia
8.3
Philippines 2.4
Siam
12.2
(1 9 3 7 /3 8 )
Singapore
and Malayan
Federation 15.7
)_________
1948
35.6
(1 9 4 6 /4 7 )
16.5
6.9
47.6
(1 9 4 7 /4 8 )
17.0
8.4
10.6
28.7
1.7
7.7
0.6
6.6
14.5
29.1
..
7.4
0.8
E x p o rts to U . K .
( p e r c e n t)
1947
_________
1937
1948
17.1
(1 9 3 7 /3 8 )
45.6
9.2
(1 936)
4.5
31.4
7.2
( 1 9 4 6 /4 7 )
34.0
12.4
(1 9 4 7 /4 8 )
36.4
6.7
3.1
25.9
4.7
22.9
5.3
3.7
2.6
3.2
2.7
2.2
0.1
16.1
14.1
1.6
6.6
..
..
..
( 1 9 3 7 /3 8 )
19.3
19.0
11.1
a For sources and bases of figures, see footnotes in table 69.
IN T E R N A T I O N A L T R A D E
T
a bl e
241
72
T ra d e o f E C A F E C ountries w ith Jap an expressed as
Percentages o f T h e ir T o ta l I m p o r ts a n d E xports
Im p o rts fr o m Jap a n
c e n t)
E x p o rts to Ja p a n
(p e r c e n t)
___ ( p e r
Country
Burma
1937
8.5
(1 9 3 7 /3 8 )
Ceylon
6.7
China
16.3
(1936)
Hong Kong 9.4
India
14.0
Indochina
Indonesia 25.4
Philippines 14.8
Siam
19.8
(1 9 3 7 /3 8 )
Singapore
and Malayan
Federation 5.8
1947
—
0.7
1.7
2.4
—
0.2
8.1
0.2
—
0.5
1948
0.2
(1 9 4 7 /4 8 )
1.4
0.2
3.8
0.2
0.8
..
..
4.5
0.7
0.2
(1 9 4 6 /4 7 )
14.4
(1 936)
4.2
12.4
15.1
..
..
1947
1937
2.3
(1 9 3 7 /3 8 )
1948
0.1
(1 9 4 7 /4 8 )
—
0.1
1.9
4.3
1.3
3.1
1.4
—
—
..
1.5
2.9
5.0
3.5
(1 9 3 7 /3 8 )
—
..
6.7
1.1
1.1
6.0
0.6
a For sources and bases of figures, see footnotes in table 69.
T a b le 70 shows how , d u rin g th e sam e period, th e re was a tendency
fo r in tra -re g io n a l tra d e to decline. M a in exceptions to this tendency w ere
o n th e im p o rt side, S iam a n d In d o n e sia, a n d o n th e ex p o rt side, B urm a,
C h in a , In d o c h in a a n d S in gap ore a n d th e M a la y a n F ed eratio n .
T h e re w as a m a rk e d decline in th e reg io n ’s trad e, especially e x p o rt
tra d e , w ith th e U n ite d K in g d o m (see tab le 71) . I n reg a rd to exports this
is h a rd ly surprising in view , o n th e one h a n d , of th e region’s p o stw ar
p ro d u c tio n difficulties a n d , on th e o th er, of B ritain ’s acu te b alan ce of
p a y m e n ts position. A n o ta b le excep tion w as S ingapore a n d th e M a la y a n
F e d e ra tio n , w h ere th e U n ite d K in g d o m ’s share of b o th im p o rts a n d
exports increased. T h e U n ite d K in g d o m ’s share of im ports in creased also
in th e cases of B u rm a a n d H o n g K ong.
T a b le 72 shows a n alm ost to ta l collapse in th e reg io n’s tra d e w ith
J a p a n . T h e first significant in dications of recovery are to b e fo u n d in
J a p a n ’s tra d e w ith In d o n e sia a n d H o n g K ong, w hile th e re was also some
tra d e w ith C h in a a n d S in g ap o re a n d th e M a la y a n F ed eratio n .
T h e m ost significant d ev elo p m en t in 1948 w as a m a rk e d re d u c tio n
in th e deg ree to w h ich th e region h a d , since th e w ar, becom e d e p e n d e n t
o n im p o rts fro m th e U n ite d States. I n every co u n try of th e reg io n fo r
w h ich d a ta a re available, w ith th e sole ex ception of S ingapore a n d th e
M a la y a n F e d e ra tio n , th e y e a r 1948 saw a decline in th e p ro p o rtio n of
242
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
im p o rts o b ta in e d fro m th e U n ite d States. T h is w as doubtless d u e to
m o re strin g e n t co n tro l of d o lla r im p o rts d ic ta te d b y d o lla r shortage.
M o reo v er, o n th e e x p o rt side, th e re w as in c e rta in cases a te n d e n c y for
th e p ro p o rtio n of exports going to th e U n ite d S tates also to decline. N one
th e less, it seems clear th a t in 1948 th e re was a definite tre n d tow ards
rectifying th e ac u te lack of b a la n c e in th e tra d e of th e reg io n w ith the
U n ite d States (see T a b le 7 5 ). I t m a y be n o te d th a t, of th e co u n tries of
th e region, only C eylon, P ak istan , a n d S in g ap o re a n d th e M a la y a n F e d e ra tio n a p p e a r to h av e e x p o rt surpluses in re la tio n to th e U n ite d States.
G enerally speaking, th e p ro p o rtio n of in tra -re g io n a l tra d e re m a in e d
stable in 1948. C eylon’s im p o rts fro m th e region increased considerably,
how ever, a n d In d o c h in a ’s exports to th e reg io n declin ed. T h e a p p a re n t
increase in I n d ia ’s tra d e w ith th e reg io n was, as a lre a d y no ted, probably
d u e to th e e n try of P ak istan as a n ew tra d in g u n it in th e region.
T h e y ear 1948 saw a m a rk e d increase in th e reg io n ’s tra d e w ith the
U n ite d K in g d o m , p a rtic u la rly in re g a rd to im ports, doubtless reflecting
th e progress of th e B ritish e x p o rt d riv e a n d th e fa c t t h a t fo r m a n y c o u n tries in th e reg io n sterling is relatively p len tifu l.
T h e reg io n ’s tra d e w ith J a p a n , p a rtic u la rly its exports, also increased
considerably in 1948, a lth o u g h still a long w ay below p re w a r levels. T h e
relativ e in crease of ex p orts was so m a rk e d th a t, a t an y r a te o v er th e first
6 to 9 m o n th s of 1948, th e reg io n as a w hole w o u ld h a v e h a d a large
e x p o rt surplus in its tra d e w ith J a p a n b u t fo r In d o n e sia ’s very large im p o rt surplus, rep resen tin g m ain ly p u rch ases of Ja p a n e se textile m a n u fa c tures. T h e r a th e r su rprising existence of e x p o rt surpluses is m ost probably
d u e to countries of th e region (n o tab ly I n d ia a n d th e P h ilip p in es) h av in g
allow ed such surpluses to a c c u m u la te in firm a n tic ip a tio n of th e early
availab ility of essential supplies fro m J a p a n .
I n g en eral it w ould seem too early to ju d g e h o w f a r ch an g es in the
d istrib u tio n of th e regio n ’s tra d e , c o m p a re d w ith p re w a r, m ay be re g ard ed
as p e rm a n e n t. T h e y ear 1948 in d e e d saw a g en e ra l tre n d b ack tow ards
th e p re w a r p a tte rn . O n e ch ange m ay be n o te d , how ever, w h ic h is
probably of a lastin g c h a ra c te r: assum ing th a t th e re la tiv e decline in
th e price of n a tu ra l ru b b e r persists, th e p ro p o rtio n o f M a la y a n exports
to th e U n ite d S tates is unlikely to recov er to its p re w a r level.
O th e r n o te w o rth y featu res of th e d istrib u tio n of reg io n al trad e,
p a rtic u la rly as betw een 1947 a n d 1948, w ere as follows:
(i)
T h e re w as a c o n tin u e d , alb eit decreasing, lack of b ala n c e in
tra d e w ith th e U n ite d States. E ven th e re d u c e d im p o rts in 1948 d e p e n d e d
to a large e x te n t o n dollars o b ta in e d th ro u g h n o n -co m m ercial channels,
e.g., E C A a id to C h in a a n d In d o n esia, special p o stw a r p a y m e n ts by th e
IN T E R N A T IO N A L T R A D E
243
U n ite d S tates to th e P hilippines, a n d p u rc h a se of dollars by In d ia fro m
th e In te rn a tio n a l M o n e ta ry F u n d .
(ii) T h e d istrib u tio n of th e e n tre p o t tra d e of H o n g K o n g a n d
S in g ap o re evinced a fluid p a tte rn , w h ich suggests ability to grasp new
tra d e openings quickly, cf. th e d evelopm ent of H o n g K o n g ’s tra d e w ith
K o re a in 1948.
(iii) T h e re w as som e evidence of increased exports of in d u strial
ra w m a te ria ls to c e rta in c o u n tries of E u ro p e a n d th e U n io n of Soviet
Socialist R epublics. As regards th e form er, this tendency m ay be a c c e n tu a te d in fu tu re by “offshore” purchases u n d e r th e E C A program m e.
(iv ) M o st of th e tra d e a n d financial a rran g em en ts described in th e
nex t section of this c h a p te r w ere concluded too recently to h av e any
significant effect o n tra d e in 1948. H ow ever, In d ia ’s increased im ports
fro m A u stra lia a n d increased exports to A rg e n tin a a n d E gypt in 1948
w ere p ro b a b ly th e resu lt of th e agreem en ts w ith those countries. I t is
p e rh a p s significant th a t these effects are n o ticeable only in one directio n ;
this illu strates th e tim e lag w h ich o fte n occurs before the com pletion of
th e a c tu a l physical ex ch an g e of goods u n d e r b ilateral arran g em en ts. T h e
a rra n g e m e n ts fo r g ra d u a l release of sterling b alances are reflected in the
w ell-sustained v o lu m e of im p o rts by Ceylon, In d ia an d Pakistan from the
U n ite d K in g d o m .
T
r ade
a n d
Pa
y m e n t s
Ar
r a n g e me n t s
T h e co m m ercial a n d financial a rran g em en ts n egotiated by countries
of th e E C A F E reg io n m ay be roughly classified as follows: Sterling
A rea, SC A P, in trareg io n a l, o th e r arrangem ents. A fte r a brief descriptio n u n d e r these h ead s of a rra n g e m e n ts concluded d u rin g th e year, th ere
follows a n analysis of th e ir ad v an tag es a n d lim itations.
Sterling A rea Financial A rra n g em en ts
O f th e co u n tries in th e E C A F E region, In d ia , P ak istan, Ceylon,
B u rm a , th e M a la y a n F e d e ra tio n a n d (w ith q u alifications) H o n g K o n g
a re m em bers of th e Sterlin g A rea. T r a d e b o th am o n g these countries a n d
betw een th e m a n d th e m em bers of th e Sterlin g A re a outside th e E C A F E
reg io n is c o n d u c te d in sterling, a n d th e ir c u rre n t sterling earnings are
freely usab le w ith in th e S terlin g A re a fo r c u rre n t a n d a p p ro v e d cap ital
transaction s. H a v in g re g a rd to th e considerable volum e of tra d e w hich
e a c h of th e Sterling A re a countries in th e E C A F E region has w ith th e
U n ite d K in g d o m in p a rtic u la r a n d th e S terlin g A re a as a w hole, th e
S terlin g A rea m ech an ism provides facilities w hereby a considerable
v olum e o f ex tra re g io n a l tra d e is c o n d u c te d w ith o u t recourse to special
financial o r b ila te ra l a rran g em en ts. Likewise it facilitates th e c o n d u c t o f a
co n siderable volum e of in tra re g io n a l tra d e .
244
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
S pecial b ila te ra l a rra n g e m e n ts b e tw e e n th e U n ite d K in g d o m , on th e
o ne h a n d , a n d In d ia , P a k istan , B u rm a , C eylon a n d th e M a la y a n F e d e ra tio n , o n th e o th er, re la te to (a) th e release of blocked sterling b alances
a n d / o r ( b ) allocations of h a r d cu rre n cy o u t of th e S te rlin g A re a pool.
(See ta b le 73.) I n 1948 th e U n ite d K in g d o m e n te re d in to agreem ents
w ith In d ia a n d P a k ista n fo r th e release of blocked sterling balances, in c lu d in g th e p ro p o rtio n to be conv ertib le in to h a r d curren cy , fo r a p e rio d
of th re e years e n d in g Ju n e , 1951; w ith C eylon fo r th e release o f sterling
balances a n d h a rd -c u rre n c y allo c atio n d u rin g th e second h a lf o f 1948;
a n d w ith B u rm a w h ich has no blocked sterlin g balances) fo r a h a rd cu rren cy allo ca tio n in th e second h a lf of 1948. In d ia , P a k ista n a n d
B u rm a do n o t tra n sfe r th e ir c u rre n t h a rd -c u rre n c y ea rn in g s to th e
S terling A re a d o lla r pool, w hile C eylon a n d th e M a la y a n F e d e ra tio n do
so a n d receive d o llar allocatio ns ac c o rd in g to th e ir needs.
T
a bl e
73
Release o f S te rlin g Balances a n d D ollar A llocations
C o u n tr y
P e rio d
India . . . . . . . 15, Aug. to 31, Dec. 1947
Jan.-June 1948
July 1948-June 1949
1949-1951
Pa k ist an . . . . J a n . - J u n e 1948
July 1948-June 1949
1949-1951
C e y l o n . . ....J u n e -D e e . 1948
Burma
...J u ly - D e c. 1948
S te r lin g
release fo r
S te r lin g
c u rren t
w o r k in g
tra n sa ctio n s
b ala n c e
£ m ill io n ) ( £ m i l l i o n
(
35
18
—
80
6
10
10
3.5
—
)
30
26
N o addition
to working
balance
N ot decided
14
H a rd
cu rren cy
a llo c a tio n
($ m illio n
)
N o limit
40
60
N ot decided
4 to 5
N o t decided
3.3
5
N ot decided
3
—
8
12
S C A P A rra n g e m e n ts
A n o ta b le d e v e lo p m en t has been th e n e g o tia tio n by S C A P of tra d e
a n d p aym ents a rra n g e m e n ts w ith several cou ntries o f th e region, a n d
n o tab ly w ith th e S terlin g A rea. T h e tra d e a n d p ay m en ts a rra n g e m e n ts
w ith th e S terlin g A re a a re th e first ex am p le in th e reg io n of a n a rra n g e m e n t inv olvin g a larg e m easu re of a m u ltila te ra l clearing.
T ra d e w ith J a p a n was h a m p e re d by th e fa c t th a t p a y m e n t h a d to
be m a d e in dollars, w h ic h th e S te rlin g A re a w as n o t in a p o sitio n to
expen d , w hile J a p a n ’s im p o rts fro m th e S terlin g A re a w ere lim ite d by
sh ortag e of foreign ex change. T h e p ay m en ts a rran g e m e n ts co n cluded
d u rin g th e y e a r ap p reciab ly eased these difficulties by p ro v id in g th a t all
IN T E R N A T IO N A L T R A D E
245
tra d e b etw een S C A P a n d th e S terling A rea was to be c o n d u c te d on a
sterling basis. A ny sterlin g acq u ired by S C A P in co nnexion w ith such
tra d e w as to be fully utilizable for p aym ents w ith in th e S terling A rea.
S C A P could exercise th e rig h t of converting sterling in to dollars a t any
tim e th a t such conversion was considered necessary for th e p ro te c tio n
of J a p a n ’s foreig n exchang e assets or p ro v id e d th a t th ere was no reaso n able p rospect of utilizing sterling w ith in th e S terlin g A re a for a substantial
period . S C A P w ould, how ever, n orm ally co nvert sterling balances in to
dollars only a t intervals of six m on ths, reta in in g a b alance sufficient to
m eet estim ated n e a r-te rm com m itm ents in th e S terling A rea. C ountries
of th e E C A F E region, signatories to th e p aym ents agreem en t, w ere
B u rm a, Ceylon, In d ia , S ingapore a n d th e M a la y a n F e d e ra tio n a n d
P akistan. T h e T ra d e P lan, w h ich aim ed a t ex p an d in g tra d e betw een
S C A P a n d th e S terling A re a a n d b a la n c in g it a t th e highest practicable
level, com prised lists of com m odities ex pected to be tra d e d betw een
S terlin g A rea p a rtic ip a n ts a n d J a p a n . W hile n o t co n stitu tin g a co m m itm e n t o r being restrictive in any m a n n e r, it rep resen ted th e estim ated
volum e of tra d e b etw een th e tw o p arties d u rin g th e year en d in g Ju ne ,
1948. E a c h p a rty u n d e rto o k , subject to qualifications, to ex p en d on
im p o rts fro m th e o th e r p a rty th e full a m o u n t of th e proceeds fro m
exp orts to th a t country. O f th e E C A F E region, In d ia a n d th e M a la y an
F e d e ra tio n a n d S in gapore w ere p artic ip a n ts in th e T ra d e P lan. U n d e r
this p la n , sales by th e S terlin g A re a w ere estim ated a t $106 m illion w o rth
of goods, in c lu d in g iron-ore, salt, raw cotton, cereals, rubber, tin, m a n ganese, h ides a n d skins a n d o th e r ra w m aterials as against estim ated sales
by J a p a n of goods of th e value of $109 m illion, consisting of co tto n an d
silk textiles, in d u stria l m achinery , rolling-stock, caustic soda, a n d o th e r
m a n u fa c tu re d articles. T r a d e negotiations h av e also been en te re d into
w ith S C A P by P akistan, C eylon a n d B urm a, o th e r S terling A rea countries in th e region, w ith a view to co nclud in g sim ilar tra d e plans, w hich,
w h e n finalized, w ould o p e ra te w ith in th e fram ew o rk of th e SC A PS terlin g A re a p a y m en ts a rra n g e m e n t.
D u rin g th e y e a r S C A P also co n clud ed tra d e arra n g e m e n ts w ith th e
follow ing: N e th e rla n d s (in c lu d in g In d o n e sia a n d colonies), th e F re n c h
U n io n (in c lu d in g In d o c h in a a n d sixteen o th e r F re n c h territo rie s), E gypt
a n d Siam . T h e p rin c ip a l featu res of these ag reem ents a re : (1) tra d e is
c o n d u c te d o n a n o p en a c c o u n t basis in term s of U S $; (2) th e a cco u n t
is settled sem i-an n u ally in U S $ ; a n d (3) q u a n tita tiv e lists of goods are
p re p a re d , re p re se n tin g th e vo lu m e of tra d e exp ected to tak e place
b e tw een th e tw o p a rtie s d u rin g th e year. T ra d in g o n o pen ac co u n t w ith o u t tra d e a g re e m e n t is co n d u c te d by S C A P w ith C h in a , th e Philippines
a n d H o n g K on g.
246
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
Intraregional T ra d e A rra n g em en ts
Im p o r ta n t b ilate ral a rra n g e m e n ts co n clu d ed d u rin g th e y e a r betw een
coun tries of th e region w ere as follow s: In d ia -P a k ista n , M alay aIn d o n esia, C h in a -H o n g K o n g , a n d C h in a -In d o n e sia . T h e last-nam ed
was a b a rte r p a c t, w hile th e C h in a -H o n g K o n g p a c t a im e d a t th e p re v en tio n of sm uggling. T h e In d o n e sia -M a la y a a g re em e n t m a d e provision
inter alia, w hereby In d o n e sia could receive p a y m e n t in U n ite d States
dollars fro m S in gapore a n d th e M a la y a n F e d e ra tio n fo r its estim ated
n e t e x p o rt balan ce (th ro u g h S ingapore a n d th e M a la y a n F e d e ra tio n )
to U n ite d States d o lla r a re a s; tra d e betw een th e tw o p artie s was to be
c o n d u c te d in M a la y a n dollars.
T h e P a k ista n -In d ia tra d e a n d p ay m en ts ag reem en ts re p re se n t a
notab le effort in in tra re g io n a l co-o peration. U n d e r th e a g re e m e n t fo r th e
m u tu a l supply of essential com m odities, effective fo r a y e ar fro m July,
1948, a n d review ed a n d revised in O c to b e r a n d D e c em b e r of th e same
year, I n d ia a n d P ak ista n agreed to supply each o th e r w ith specified q u a n tities of n u m ero u s com m odities, of w h ich they stood in m u tu a l need as
th e result of p a rtitio n . P ak istan ag reed to supply I n d ia w ith food-grains
a t th e sam e prices as w ere ch a rg e d to its ow n deficit provinces. In d ia
agreed to supply coal, p a p e r a n d steel to P ak istan a t in te rn ally con trolled
prices. I n ad d itio n , c e rta in b a rte r p acts fo r th e e xch ang e of rice an d
w h ea t fro m P ak istan fo r o th e r com m odities fro m I n d ia w ere also con clu d ed d u rin g th e year. A greem en t was also re a c h e d fo r th e supply of
cloth to P akistan. W ith effect fro m July, 1948, fo r one year, a paym ents
ag reem en t w as also conclu ded betw een I n d ia a n d P ak istan , th e m a in
features of w h ich w ere: (1) th e re w ould be no ex ch an g e control as
b etw een th e tw o cou n tries; (2) th e c e n tra l banks of th e tw o countries
agreed to h o ld each o th e r’s curren cy u p to a lim it; (3 ) in th e e v en t of
th e lim it being exceeded, th e necessary a d ju stm e n ts w o u ld be m a d e in
sterling. T h e se provisions w ere calc u late d to ensure th a t p ay m e n ts difficulties d id n o t h a m p e r trad e.
N egotiations w ere well u n d e r w ay fo r a tra d e a g re e m e n t betw een
P ak istan a n d Ceylon w hereby th e la tte r w ould supply P a k istan w ith
specified q u an tities of co p ra a n d co co n u t oil fo r th e y e a r 1949 in exchange
fo r th e supply of c e rtain food p ro d u c ts fro m P a k ista n ; also b e tw een Siam
a n d In d ia , w hereby I n d ia was to supply ju te , diesel engines, a n d o th e r
m a n u fa c tu re d goods in ex ch an ge fo r rice, tim b e r a n d tin fro m Siam .
In d ia also has tra d e a rra n g em en ts u n d e r n e g o tiatio n w ith C eylon an d
B urm a.
O th e r A rra n g e m e n ts
A m o n g o th e r tra d e a rran g em en ts, those e n te re d in to by I n d ia w ith
countries o utside th e E C A F E region a re im p o rta n t b o th fo r th e ir n u m -
IN T E R N A T IO N A L T R A D E
247
b e r a n d th e ir effects on th e tra d e a n d p ro d u c tio n of In d ia . I n d ia ’s a g ree m ents d u rin g th e year w e re: w ith W estern G e rm a n y (B iz o n ia ), effective
for one y ear fro m July, involving th e e x p o rt of oil seeds a n d oils, ju te,
m ica, lac, etc., fro m I n d ia to th e value of U S$12 m illion in exchange
fo r th e supp ly by G e rm a n y of m achinery, electrical eq u ip m en t, steel,
chem icals a n d o th e r p ro d u c e r goods to th e value of U S $20 m illion,
th e b a la n c e to be settled in U n ite d States dollars; w ith A rg e n tin a for
th e su pply of 385,000 tons of w h e a t in exchange fo r In d ia n ju te ;
w ith th e U n io n of Soviet Socialist R epublics, on tw o deals, fo r the
e xchange of 150,000 tons of w h e at fo r 15,000 tons of In d ia n te a ; w ith
E gy pt, fo r th e e xch ang e of rice against I n d ia ’s e x p o rt of A rg entine
m aize; w ith E a st A frica a n d S u d a n for th e bulk purchase of co tto n ; w ith
A u stra lia fo r 680,000 tons of w h e a t; a n d w ith Belgium, for 100,000 tons
of steel, 8,000 tons of zinc a n d copper, etc., in exchange for 100,000 tons
of m an g an ese, ju te , tea, linseed, etc. F u rth e r agreem ents are u n d e r negotia tio n w ith Italy , F ra n c e , H u n g a ry , Sw eden, A fghanistan, I r a n a n d Ira q .
M e n tio n should also be m ad e of C h in a ’s agreem ents w ith Ita ly a n d
F ra n c e , involving values o f U S$2 m illion a n d U S$500,000 respectively,
C eylon’s a g re e m e n t w ith th e U n ite d K in g d o m for th e bulk sale of coconut
p ro d u c ts a t specified prices for 1948 a n d 1949, a n d P akistan’s c o n tra c t
w ith R u ssia fo r th e p u rc h a se of 60,000 tons of w heat. T h e tra d e agreem ents c o n clu d e d by F ra n c e w ith Italy , Sw itzerland, Spain, D enm ark,
P o rtu g al, N e th e rla n d s, Sw eden, F in la n d , N orw ay, G reece an d C zechoslovakia in c lu d e provision for tra d e w ith In d o c h in a , especially the
supply of com m odities such as dairy products, m achinery, electrical ap p liances, tra n s p o rt e q u ip m e n t etc.
Adva ntag es a n d L im ita tio n s
A lth o u g h n o t on th e E u ro p e a n scale, countries of the E C A F E region
h av e e n te re d in to b ila tera l tra d e arra n g e m e n ts in a significant m easure;
so also h as J a p a n . A lm ost all countries of th e region have resum ed tra d e
w ith J a p a n e ith e r on op en ac c o u n t basis, or, m ore usually, by m eans of
b ila te ra l agreem ents.
T h e S terling A re a arra n g e m e n ts en ab le a considerable degree of
in tra re g io n a l a n d ex trare g io n a l tra d e to be c o n d u cte d w ith o u t th e need
fo r special p ay m e n ts agreem ents. T h e a rran g em en ts re g ard in g th e release
of blocked sterling balances a n d h a rd -c u rre n cy allocations reinforce the
sterling a re a m u ltila te ra l system. T h e S C A P-Sterling A rea tra d e a n d
pay m en ts a rra n g e m e n ts rep resent a notab le effort to exten d in some
deg ree th e p ra c tic e of m u ltila te ra l clearing to tra d e w ith J a p a n .
T h e conclusion by I n d ia of a n u m b e r of b ilateral agreem ents, p a rtic u la rly w ith countries outside th e region, has enabled it to o b ta in supplies
248
PA R T V .
IN T E R N A T IO N A L T R A D E A N D BALANCES
of u rg e n tly n eed ed food-grains, ca p ita l e q u ip m e n t a n d essential m aterials
such as steel, o th e r m etals a n d cotto n, w h ic h a re h a v in g a stim u latin g
effect o n hom e p ro d u c tio n . T h e a rra n g e m e n ts p ro v id e so fa r as possible
fo r a b a la n cin g of m u tu a l need, so as to av oid se ttle m en t of b alances in
foreign exchange.
A lth o u g h these b ilate ra l a rra n g e m e n ts are a useful e x p e d ien t, ex p e rience of th e ir w orking h as rev ealed n um erous difficulties a n d also scope for
im p ro v e m e n t in th e ir efficiency a n d flexibility. T h e difficulties ex p erienced lie m ain ly in th e strict b ila te ra l b a la n c in g of accounts, disparities
a n d fluctuations in deliveries d u e to seasonal a n d o th e r factors, p a rtia l
non-fu lfilm ent of contracts, com pulsory p e rio d ic a l settlem e n t in a c c e p table c u rren cy or, alternatively , a c c u m u la tio n of th e deficit p ar tn e r ’s
c u rren cy by th e o th e r country. E xam ples a re : th e delay in I n d ia ’s
delivery of ju te to A rg e n tin a in exchange fo r fo o d -g rain s; th e delay in
I n d ia ’s delivery of textiles, coal, a n d o th e r m a n u fa c tu re d articles to
P akistan, a n d in P a k ista n ’s delivery of ra w ju te , c o tto n a n d food-grains,
d u e to tim e disparities a n d tra n sp o rt a n d seasonal fa c to rs ; tim e disparities
in deliveries betw een J a p a n a n d o th e r countries in th e region, resulting
in e ith e r te m p o ra ry extension of c re d it o r a delay in tra d e ; th e v irtu a l
cessation of J a p a n ’s exports to C h in a in 1948 d u e to a d e b it b alance
w h ich C h in a was u n a b le to settle in do llars; difficulties in b a r te r tra d e
w ith C h in a d u e to th e offer by C h in a of goods of a lu x u ry o r non-essential
c h a ra c te r; th e a c c u m u la tio n by S iam of In d ia n rupees o u t of th e proceeds
of rice exp orts (this e n ab led S iam to re p ay th e In d ia n ru p e e lo an of
1 9 4 6 ); a n d th e a c c u m u la tio n by P ak istan of In d ia n rupees d u e to a
positive tra d e balance.
I t w o u ld a p p e a r th a t some countries of th e region m a y n o t have
availed them selves fully of th e increase in tra d e possible w ith in p resen t
p ro d u c tio n cap acity by m eans of tra d e agreem ents. T o som e e x te n t bulk
sale co m m itm ents m ay lim it th e freed o m of b a rg a in in g of these countries.
H ow ever, th e fa c t th a t m a n y of these co untries h a v e only a few lim ited
e x p o rt com m odities to offer u n d e rlin e s th e ir n eed to m a k e th e m ost
useful disposition of them , w ith o u t p re ju d ic e , how ever, so fa r as possible,
to th e benefits of a steady a n d assured m a rk e t fo r th e ir p ro d u c ts. T h e
tra d e agreem ents of I n d ia a n d P ak istan w ith E u ro p e a n cou n tries p o in t
to th e possibilities o pen to o th e r countries.
U n lik e th e E u ro p e a n b ilate ra l agreem ents, those of th e E C A F E
region fo r th e m ost p a r t do n o t pro v id e fo r m u tu a l c re d it m argins.
E xceptions w ere th e In d ia -P a k ista n ag reem ents. T h e tra d e ag reem en ts of
F ra n c e a n d th e N eth e rla n d s, in c lu d in g tra d e a rra n g e m e n ts fo r In d o c h in a
a n d In d o n e sia respectively, a re covered by th e p a y m e n ts a rra n g e m e n ts
of th e respective m o n e ta ry areas. F o r th e rest, c re d it m a rg in s a re lacking.
IN T E R N A T IO N A L T R A D E
249
T h is m ay be a c c o u n te d fo r by lack of c e n tral b a n k in g o r o th e r technical
facilities, instability of currencies, or fe a r of a c c u m u la tin g u n u sab le c u rrencies.
Several of th e difficulties of b ila te ra l p acts derive fro m th e ir short
term s — generally one year. W h ere th e delivery of c e rta in agreed p ro d u c ts
takes tim e o r is c o n tin g e n t o n th e fru itio n of a p ro d u c tio n p ro je c t involving th e in itial im p o rt of c a p ital e q u ip m e n t a n d fin an cin g of th e
p ro d u c tio n perio d , th e n e g o tiatio n of m e d iu m -te rm agreem ents, in c lu d in g
such financing, is essential if th e tra d e is to m aterialize. S uch o pp ortun ities
m ay be fo u n d in th e supply of c a p ita l e q u ip m e n t by J a p a n a n d o th e r
a d v a n ce d in d u stria l countries fo r th e p ro d u c tio n a n d e x p o rt of m ining
p ro d u c ts by B urm a, M alay a, Indo nesia, th e Philippines a n d In d o ch in a.
I t was seen e a rlie r in this c h a p te r th a t the E C A F E region is now a
large n e t im p o rte r of cereals, in clu d in g even rice, to th e e x ten t of ab o u t
3 m illion tons p e r a n n u m . Before th e w ar, th e g ra in tra d e was in te g ra te d
w ith th e b ro a d m u ltila te ra l system of in te rn a tio n a l paym ents an d
exchan ge a n d gave rise to no exchange a n d p aym ents difficulties. B ut the
p ro b le m is now different. T h e n et im p o rts of th e region com e largely
fro m th e W e ste rn H em isp h ere countries, a n d involve p a y m e n t in h a rd
currency. T h e im p o rtin g countries a re u n ab le, ow ing to lack of foreign
exchange, to place firm orders over 3 to 5 years a n d ow ing to the u n c e rta in e x p o rt prospects th e ex p o rtin g countries of th e W estern H em isphere
are discou rag ed fro m m a x im u m p ro d u c tio n . F u rth e rm o re , th e ricee x p o rtin g co un tries in Asia a n d th e F a r E ast urg en tly stan d in need of
tra n s p o rt e q u ip m e n t, a g ric u ltu ra l requisites, a n d o th e r c ap ital e q u ip m e n t
a n d co nsu m er goods fo r th e reh a b ilita tio n of th e ir rav ag ed a g ric u ltu ral
eco no m y ; b u t th e rice-im p o rtin g countries of th e region are u n a b le to
supply these requ irem en ts. C onsequ en tly th e rice-surplus countries are
seeking to d iv ert th e ir surpluses to foreign m arkets w hich can e ith e r
p ro v id e d o llar ex ch an ge o r needed goods. T h u s th e food im p o rt problem
of th e region raises a c u te problem s of foreign exchange. E xisting in te rn a tio n a l aids, such as E C A assistance to K o re a a n d C h in a a n d U n ite d
States assistance to J a p a n , do n o t directly help o th e r im p o rtin g countries.
L o n g -te rm financin g facilities a n d special tra d in g arran g em en ts are
n eed ed to relieve th e position. Existing short-term b ila te ra l arrangem ents
a re n o t ad e q u a te.
In
t e r n a t io n a l
Co
m m o d it y
Ar
r a n g e me n t s
Several com m odities of v ital im p o rta n c e to th e E C A F E region are
th e subject of in te rn a tio n a l a rra n g em en ts w hich, in g re a te r o r less degree,
c o n fo rm to th e p rinciples fo r in te r-g o v ern m en tal com m odity agreem ents
laid d o w n in c h a p te r V I of th e H a v a n a C h a rte r fo r a n In te rn a tio n a l
250
PA R T V.
IN T E R N A T IO N A L T R A D E A N D BALANCES
T ra d e O rg an izatio n . Serious divergence fro m those principles arises only
in p a rtic u la r cases w here a rra n g e m e n ts d a te fro m before th e d ra ftin g of
th e c h arter. I n general, a lth o u g h th e c h a rte r is n o t yet in force, it will
be seen th a t th e re h as a lre a d y b een a m a rk e d ten d en c y — evidenced in
p a rtic u la r by th e establish m ent of th e In te rim C o -o rd in a tin g C o m m ittee
for In te rn a tio n a l C o m m o d ity A rran g e m en ts (see below ) — to w ard s conform ity w ith th e p rinciples w h ich it establishes in re g a rd to com m odity
agreem ents. I n p ra ctice, no agreem ents, as yet, com e w ith in th e category
of ' ‘com m odity c o n tro l ag re e m en ts” , defined in article 61 of th e c h a rte r
as a n in te r-g o v e rn m e n ta l a g re e m e n t involving “ ( a ) th e re g u la tio n of
p ro d u c tio n o r th e q u a n tita tiv e c ontrol of exports or im p o rts of p rim ary
com m odity a n d w h ich has th e p u rp o se o r m ig h t h a v e th e effect of r e ducing, o r p re v e n tin g a n increase in, th e p ro d u c tio n of, o r tra d e in, th a t
co m m o d ity ; or ( b ) th e re g u latio n of prices” . A rra n g e m en ts are, a t
present, m a in ly of a study gro u p c h a ra c te r, a n d , so f a r as th e E C A F E
region is concerned, th e only significant form s of in te r-g o v e rn m e n ta l
com m odity “co n tro l” are th e allo cation of rice, w h e a t a n d nitrogenous
fertilizers th ro u g h th e In te rn a tio n a l E m ergency F o o d C o m m itte e of the
F A O 1 a n d th a t of tin m e ta l th ro u g h th e C o m b in e d T in C o m m ittee. I n te r g o v e rn m e n tal agreem ents, w h ich w ould p ro b ab ly r a n k as c o n tro l a g reem ents, are, how ever, being cu rre n tly considered in respect of w h ea t
a n d tin.
T h e in fo rm a tio n w hich follows, re g ard in g developm ents d u rin g 1948
in com m odity agreem ents affecting th e E C A F E region, is m a in ly d ra w n
fro m th e publications of th e In te rim C o -o rd in a tin g C om m itte e fo r I n te r n a tio n a l C o m m o d ity A rra n g em e n ts ( I C C I C A ) ,2 th e body established in
1947 by th e E conom ic a n d Social C oun cil “ to keep in fo rm e d of a n d to
fac ilita te by a p p ro p ria te m ean s . . . in te r-g o v e rn m e n ta l c o n su lta tio n or
a c tio n w ith respect to com m odity prob lem s” .
T h e significance fo r th e E C A F E region of c h a p te r V I of th e H a v a n a
C h a rte r, of IC C IC A , a n d of existing com m odity a rra n g e m e n ts lies in
th e fa c t they they rep resent a w id esp read reco g n itio n of th e fa c t th a t
tra d e in p rim a ry com m odities is sub ject to special difficulties w h ic h m ay
call fo r in te r-g o v e rn m e n ta l action. S u ch action, w h ic h m u st strike a
fa ir b alan ce betw een th e interests of p ro d u c e rs a n d consum ers, will, it
is h o p ed , spare th e region some of th e w orst p roblem s w h ic h beset it in
the in te rw a r years.
1 See R epo rt of the International Emergency Food Com m ittee for the Council of
FAO at its Second Session. FAO, March, 1948.
2 R eview of International C om m odity Problems, 1948 (U .N . 1948 II D .6 ) and
Review of International C o m m od ity Arrangements, 1947. (U .N . 1947 II 9.)
IN T E R N A T IO N A L T R A D E
251
T h e In te rn a tio n a l C otton A dviso ry C o m m itte e has been in existence
since 1940, b u t was p u t o n a fo rm a l basis only in 1946. Its fu n c tio n is
to keep th e w o rld c o tto n position u n d e r continuous review. M em b ersh ip
a t p re se n t n u m b e rs tw en ty -eigh t, a n d consists of G overnm ents of b o th
p ro d u c e r a n d co n su m er countries. T h e C o m m ittee h e ld m eetings in
J u n e , 1947, a n d A pril, 1948, a n d set u p a stan d in g com m ittee to fu n ctio n
b etw een th e a n n u a l m eetings of th e C o m m ittee itself. Steps w ere taken
to im p ro v e c o tto n statistics.
A rising fro m th e re p o rt of a m eeting of rice experts in T riv a n d ru m ,
In d ia , in 1947, th e In te rn a tio n a l R ic e M e e tin g was held u n d e r th e jo in t
sponsorship of F A O a n d I C C I C A a t Baguio, in th e Philipp ine R epublic,
in M a rc h , 1948. T h is m e e tin g m a d e a n u m b e r of recom m end ations1 on
such m a tte rs as m easures to increase area, yield, a n d efficiency of rice
p ro d u c tio n ; rice m a rk e tin g a n d d istrib u tio n ; n u tritio n al m easures; a
w o rld -w id e rice conservation c a m p a ig n ; a n d a three-year p ro g ram m e
fo r a n e x p a n d in g rice econom y. R eco m m en d atio n s included the establish m e n t of (i) a F a r E a st R ice In vestig ation C om m ittee, to consist of
g o v e rn m e n t-a p p o in te d scientists a n d technicians, (ii) a n in tern atio n al
w ork in g p a rty of p la n t breeders to d ra ft a p ro g ra m m e of rice im provem e n t, (iii) a F a r E ast V e te rin a ry C o m m ittee (by F A O in consultation
w ith th e I n te rn a tio n a l B u reau of E pizootics), a n d (iv) n atio n al rice
co n serv atio n com m ittees. T h e p rin c ip a l organization al recom m endation,
addressed to th e C ouncil of F A O , was fo r th e establishm ent of an In te rn a tio n a l R ice C ouncil (subsequently te rm e d a n “ In te rn a tio n a l R ice
C om m ission” to distinguish it fro m the com m odity “ councils” w hich m ay
be set u p to a d m in iste r com m o d ity control agreem ents u n d e r th e terms
of th e H a v a n a C h a rte r) “ to deal co-operatively on the in te rn a tio n a l level
w ith th e p roblem s of rice p ro d u c tio n , conservation, distribution, an d
c o n su m p tio n ” ex cep t in m a tte rs re la tin g to in te rn a tio n a l tra d e -— the
la tte r bein g considered to be w ith in th e com petence of o th e r in te rn a tio n a l
agencies. A m o n g such m a tte rs re la tin g to in te rn a tio n a l tra d e w ere certain
suggestions by th e T r iv a n d r u m rice m eeting reg ard in g in te rn a tio n a l price
ag reem en ts,2 a n d it was re co m m en d ed th a t these should be “referred by
th e C o u n cil of F A O , in con su ltation w ith th e IC C IC A , to such in te rn a tio n a l agencies as h av e com petence to deal w ith th e m ” .
T h e first m e e tin g of th e In te rn a tio n a l R ice C om m ission was held
in B angkok in M a rc h , 1949. R eco m m en d atio n s a d o p te d in clu d ed the
follow ing: to collect in fo rm a tio n on th e m ech an izatio n of rice cultivation, in c lu d in g its econom ics; to establish a w orking p a rty on rice b re e d 1 R epo rt of the Rice Meeting, 1-13 M arc h, 1948. FAO, June, 1948.
2 R e port of the Rice S tu dy Group, 16 M ay-6 June, 1947, Chapter V II. FAO,
July, 1947.
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PART V.
IN T E R N A T IO N A L T R A D E A N D BALAN C ES
in g ; to collect descriptions of s ta n d a rd v arieties of ric e ; to collect in fo rm a tio n o n soil, clim atic, geo g rap h ical, a n d social factors affecting rice
yields; to collect d a ta o n co n tro l of crop disease a n d on fertilizer practices;
to p u b lish a n ew sletter in fo rm in g m e m b e r c ou ntries of d a ta co llected;
to express rice statistics in th e m e tric system s; to utilize by -p ro d u cts of
th e rice p la n t, such as rice straw , h u sk a n d b ra n , fo r m a n u fa c tu re of
in d u stria l a n d food p ro d u c ts; to a d o p t a sta n d a rd “ rice y e a r” fo r sta tistical purposes; to ask F A O to establish statistical advisory a n d research
un its in its reg io n al offices; to en co u ra g e use of u n d e r-m ille d ric e ; to
stan d ard ize term inology in rice g ra d in g ; to collect d a ta on m eth o d s of
rice storage.
T h e R u b b e r S tu d y G roup w as fo rm ally estab lished in 1947. A t its
m eetin g in A pril, 1948, th e follow ing cou n tries w ere a p p o in te d m em bers
of th e M a n a g e m e n t C o m m itte e : C eylon, F ra n c e , th e N e th e rla n d s, the
U n ite d K in g d o m , th e U n ite d S tates a n d th e B ritish C olonies. T h e G roup
m eets p e riodically fo r discussion of “ co m m on p rob lem s arising fro m the
p ro d u c tio n o r co n su m p tio n of, o r tra d e in, ru b b e r” , in c lu d in g e x a m in a tio n of th e w orld position a n d prospects of n a tu ra l a n d syn thetic ru b b e r
a n d th e p re p a ra tio n of estim ates.
T h e re is also a n In te rn a tio n a l R u b b e r D e v e lo p m e n t C o m m itte e ,
w hose p u rp o se is to e n co u rag e th e d e v e lo p m e n t a n d exp an sio n of the
use of n a tu ra l ru b b e r. T h is is a p ro d u c e rs’ o rg an izatio n , rep resen tin g
British, F re n c h a n d N e th e rla n d s interests. I t m a in ta in s close liaison with
th e R u b b e r S tu d y G ro u p .
A n In te r n a tio n a l S ilk Congress was h e ld in L yons in J u n e , 1948,
a t th e in v ita tio n of th e F re n c h G o v e rn m e n t, to c onsider prob lem s of the
silk in d u stry , p a rtic u la rly th e c o m p e titio n of ray o n a n d nylon. D elegates
of tw en ty -fo u r countries, in c lu d in g C h in a a n d J a p a n , a tte n d e d , re p re sen ting b o th p ro d u c e r a n d con su m er interests. T h e C ongress, w h ic h was
concerned w ith b o th ra w silk a n d silk m a n u fa c tu re s, a d o p te d a n u m b e r
of resolutions o n such m a tte rs as th e desirability of p ric e stab ility an d
th e n eed fo r restrictions on th e use of th e te rm “ silk” . I t also resolved
th a t it was necessary to establish a n in te rn a tio n a l o rg a n iz a tio n , rep resentative of all countries a n d professions in te re ste d in silk, w hile reserving
fo r ea c h its p a rtic u la r a u to n o m y w ith in th e o rganiza tion.
T h e In te rn a tio n a l S u g a r C oun cil w as set u p in 1947 to a d m iniste r
th e “A g reem en t co n cern in g th e R e g u la tio n of P ro d u c tio n a n d M a rk e tin g
of S u g a r” co n clu d ed in t h a t year. T h e a g re e m e n t w as in itia lly fo r a
p erio d of five years, a n d h as subsequently been e x te n d e d by a series of
protocols, th e m ost re cen t extension bein g u n til 31 A ugust, 1949. T h e
la te r protocols c o n ta in e d tw o n ew provisions:
IN T E R N A T IO N A L T R A D E
253
(a ) R ec o g n itio n by th e signatories th a t revision of th e a g reem en t
w ill be necessary a n d should be u n d e rta k e n w h e n th e tim e
a p p e a rs o p p o rtu n e , discussion of such revision to take th e existin g a g re e m e n t as a sta rtin g p o in t a n d ac c o u n t to be ta k en of
an y general principles of com m odity policy em bodied in any
ag reem en ts w h ic h m ay be conclu ded u n d e r th e auspices of
th e U n ite d N ations.
( b ) T h a t th e quotas fixed in th e a g reem en t should be inoperative
d u rin g th e p e rio d of th e protocol.
A t a m e e tin g in A ug ust 1948, th e C ouncil agreed to a p p o in t a
com m ittee,
“ (i) T o study th e ch an g in g sugar situation as it relates to th e need
o r desirability fo r n e g o tia tin g a new ag reem en t an d
“ (ii) T o re p o rt to th e C ouncil, as occasion arises, its finding a n d
re c o m m e n d a tio n s as to th e p u b lic bases fo r a new ag reem en t
in th e fu tu re .”
T h e In te rn a tio n a l T e a A g re e m e n t, covering p ro d u c e r interests in
C eylon, In d ia , In d o n e sia a n d c e rta in British dependencies in A frica,
e x p ired in M a rc h , 1948. P re w a r restrictions u n d e r the agreem en t have
b een in o p e ra tiv e fo r some considerable tim e in face of w orld shortage.
A rran g em en ts h av e been m a d e for th e c o n tin u a n c e of the In te rn a tio n a l
T e a C o m m ittee, a n d negotiations are proceeding for an in te rim contin u a tio n of th e ag re e m e n t w ith c e rta in modifications, p e n d in g th e
possible conclusion of a n ag reem ent co nform ing w ith th e principles of
th e H a v a n a C h a rte r.
T h e F A O is sponsoring a n u m b e r of regional conferences on timber.
T h e first of these w as h eld in Czechoslovakia in 1947, a n d th e second in
Brazil in 1948. A n In te rn a tio n a l Forestry a n d T im b e r U tilizatio n C o n ference fo r A sia a n d th e F a r E ast w as h e ld in M ysore in M a rc h , 1949.
Subjects considered in c lu d ed m easures to e x p a n d p ro d u c tio n , g ra d in g
of lum b er, needs fo r tra in e d foresters, p ro tec tio n an d d evelo pm en t of
resources, a n d various aspects of in dustrialisation.
T h e In te rn a tio n a l T i n S tu d y G roup was fo rm ed in 1947, subsequent
to th e fo rm al dissolution of th e In te rn a tio n a l T in C o m m ittee, w hich h a d
ad m in istered th e p re w a r tin con trol schem e. T h e S tu dy G ro u p m e t twice
in 1948; o n th e first occasion, in th e lig ht of its discussion of th e w orld
statistical position of tin a n d estim ates of p ro d u c tio n a n d co nsum p tion
fo r 1948-1950, th e m eeting reco m m en d ed to m e m b er G overnm ents the
establishm ent of a W o rk in g P a rty to exam ine th e app ro p riaten ess an d
prac tic ab ility of fra m in g a n in te r-g o v e m m e n ta l ag re em en t on tin, con fo rm in g to th e gen eral spirit a n d principles of th e H a v a n a C h a rte r. A t
254
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALAN C ES
its m e e tin g in O cto b er, 1948, th e g ro u p received th e re p o rt of this
W o rk in g P arty , re a c h e d a g re e m e n t o n th e d esirability o f a com m odity
ag reem en t based on th e prin ciples of th e C h a rte r, a n d ap p o in te d a
com m ittee to d ra ft a n a g re e m e n t fo r c o n sid eratio n by m em b e r G o v ern m ents.
T h e p re se n t m e m b ersh ip of th e S tu d y G ro u p n u m b e rs fo u rteen ,
a n d includes b o th p ro d u c e r a n d c o n su m er cou ntries. T h e B ritish Colonies,
C h in a , F ra n ce , In d ia , th e N e th e rla n d s, S iam , th e U n ite d K in g d o m an d
th e U n ite d S tates are a m o n g th e m em bers. T in m e ta l con tin ues to be
subject to in te rn a tio n a l a llo catio n th ro u g h th e C o m b in e d T in C o m m itte e ,
a n in te rn a tio n a l bo dy consisting of B elgium , C a n a d a , C h in a , F ra n c e ,
In d ia , th e N e th e rla n d s, th e U n ite d K in g d o m a n d th e U n ite d States.
Q u ite d istin c t fro m these in te r-g o v e rn m e n ta l bodies is th e I n te r national T in R esearch a n d D e v e lo p m e n t C ouncil. T h is represents p ro ducers in th e m a in p ro d u c in g countries, a n d cond u cts re search activities
th ro u g h a T in R esearch In stitu te .
I n re c e n t years several a tte m p ts h a v e b een m a d e to secure an
in te rn a tio n a l ag re e m e n t to p re v e n t w ide flu ctu atio n s in th e p rice of
w h eat. I n M a rc h , 1948, a n In te rn a tio n a l W h e a t A g r e e m e n t w as signed
by thirty-six countries, w h ich w o uld h a v e p ro v id e d fo r sales a n d p urchases
of fixed q u a n titie s of w h e a t w ith in ag reed p ric e lim its o v er a five-year
perio d . T h e a g re e m e n t failed to com e in to o p e ra tio n , h ow ever, since
som e c o u n tries failed to ra tify a n d o th ers w ith d rew . A f u r th e r a g ree m en t
has since been d ra w n u p , inv olvin g five e x p o rtin g a n d thirty -sev en im p o rtin g countries, w h ich if ratified w ill o p e ra te fo r fo u r years from
1 A ugust, 1949.
T h e In te rn a tio n a l W h e a t C ou ncil is th e body responsible fo r in te rg o v e rn m en tal co -operation in m a tte rs re la tin g to w h e a t. Its m em bership
num b ers tw enty-six, a n d is rep re sen ta tiv e b o th of co un tries m ain ly in te rested as p ro d u cers a n d of those m ain ly in te re ste d as consum ers.
CH A PTER X III
Balances of Payments
A satisfactory survey of b alances of pay m en ts of countries of the
E C A F E region is difficult because of lim itatio n of d a ta . F o r th re e co u n tries a t least, nam ely, B u rm a, M a la y a a n d P akistan, estim ates are n ot
available. F o r o th e r countries, estim ates, a lth o u g h available, are n o t
com plete o r con tin u o u s. I n general, m u c h less in fo rm a tio n is available
on ca p ita l th a n o n c u rre n t account. C onsequently it is difficult to explain
in m a n y cases h o w deficits o r surpluses o n c u rre n t a c co u n t h av e been
financed. A gain, since in m an y cases p re w a r estim ates are e ith e r n o t
available a t all o r av ailable only in in co m p lete form , it is difficult to
assess th e n a tu re a n d e x te n t of th e changes th a t h av e tak en place since
th e w ar. A fu r th e r difficulty is th a t, in re g a rd to m ost invisible item s,
only estim ates on a global basis are av ailable, n o t th e ir d istrib u tio n by
countries. C onsequently, th e b alan ce of a p a rtic u la r co u n try o r of the
w hole reg io n w ith a n o th e r co u n try o r region c a n n o t be exactly ascerta in e d . L astly, since th e accounts are d ra w n u p in different form s in
diffe re n t countries a n d th e definition a n d classification o f item s vary,
it is difficult to m ake an y country-w ise com parisons o r regional sum m aries.
O
v er al l
Ba
l a nc e s
A lth o u g h a d etailed study is difficult, a g en eral p ic tu re c a n be
given on th e basis of availab le statistics. T a b le 74 seeks to give a sum m a ry view of th e p re w a r a n d p o stw ar balances o n c u rre n t a c c o u n t of
countries of th e region in term s of c u rre n t U n ite d States dollars.
T a b le 74 in d icates tw o im p o rta n t changes in th e p o stw a r p a tte rn
of th e balances as c o m p ared w ith prew ar.
1. A ll countries ex cep t th e P hilippines, P ak istan a n d S iam have
developed larg e over-all deficits. A ctually, th e Philippines h as a
heavy deficit o n tra d e accou n t, b u t it is a t p resen t m o re th a n
offset by special receipts fro m th e U n ite d S tates G o v e rn m e n t on
th e services a c c o u n t (A rm y a n d N av y e x p e n d itu re , e x p e n d itu re
fo r w a r d am ag e, v e te ra n s' pensions, p ersonal disability claim s,
e tc .) . T h e se receipts a re n o t a n o rm a l o r p e rm a n e n t fe a tu re of
255
2.4
8.4h
6.5
50.7
-2 4 3 .7 i
- 38.2j
..
90.4f
-
45
65.4
-2 6 2
- 2 6 0 .4
- 53
-1 8 9 .8
- 64
+ 28a
- 53k
-1 2 6
-123
- 94
- 43
- 29
+ 39
-1 9 7 .3 i
+ 70.0j
..
..
90.4f
..
21
+ 237.5
- 19.8
-
-
..
Interest,
dividends
and services
7
+ 40.2
+ 50.2
- 2 1 3 .4
+
Total
d Figures for 1938/39.
e Balance of trade figures adjusted to include movements
of gold and sliver and currencies (from Government of
India, Monthly Abstract of Statistics, December, 1948).
f On the basis of Government of India’s estimate for the
first half of 1948.
g League of Nations estimate for 1937.
h Representing government remittance for service of foreign debt, pensions, etc. This is the only invisible item
known.
i Balance of trade figures adjusted to include movements of
gold.
j Including movements of gold and certain government
transactions not shown in customs returns.
k Projected from January-November returns.
+ 198.7
- 27.2
..
-110
-
- 34
+ 78
..
Merchandise
TRADE
AND
a Balance of trade figures adjusted to include movements
of gold and silver and corrected for under-valuation and
over-valuation.
b Balance of trade figures adjusted to include movements
of gold and corrected for smuggling and under-valuation.
c League of Nations estimate for 1936.
Source: 1938 merchandise figures from League of Nations,
Network of World Trade; unadjusted merchandise figures
from table 60 above; adjusted merchandise figures for (1)
Ceylon and Philippines, supplied by Governments, (2)
China, supplied by the Research Department of the Central
Bank of China, and (3) Siam, supplied by the Bank of
Siam; data on interest, dividends and services, unless otherwise stated, supplied by Governments.
+ 17.4
+ 24.6
110.1
-
-
- 28.9
+ 13.4
5
- 19a
—267.8b
- 74
-1 7 0 e
- 71
-1 5 2
- 35
Total
INTERNATIONAL
+
-
+ 15
+ 33
,.
—204.1 d
— 32.5g
- 1 6 9 .7
..
22
- 39.9
+ 107.4c
..
+ 94
+ 26
+119
+ 13
+
+ 96
+ 11
- 94
Merchandise
Interest,
dividends
and services
Total
Interest,
dividends
and services
1948
V.
Burma ......... . . . .
C e y lo n ......... ....
C h in a ............ . . . .
Hong Kong . ....
India ............ . . . .
Indochina . . . . . .
Indonesia . . . . . .
Malaya . . . . . . . .
Pakistan . . . .
Philippines . . . . .
Siam ........... . . . .
Merchandise
1947
1938
(For rates of conversion from national currencies to US$, see footnotes under table 60)
PART
Country
T a b l e 74
S um m ary View of Balances of Payments on Current Account
(in million U S$)
256
BALANCES
BALANCES OF PA Y M EN TS
257
th e P h ilip p in es econom y a n d w hen, by a b o u t 1951, they disa p p e a r o r consid erably shrink, th e Philippines also m ay well show
a deficit o n th e ag g reg ate c u rre n t account.
2. W h ile th e services b alances h av e generally te n d e d to im prove,
th e tra d e balan ces h av e tu rn e d heavily adverse. In d e e d , it is the
d ra stic tu r n in th e tra d e balances w h ich has caused th e over-all
balances to be so adverse.
Before th e w ar, th e n o rm a l position of th e countries of the region
w as a deficit o n n o n -tra d e a c c o u n t, covered by a surplus on th e tra d e
a c c o u n t. T h e deficit o n n o n -tra d e a c c o u n t was chiefly d u e to th e fact
th a t th e countries h a d abso rb ed a large a m o u n t of foreign c a p ita l of b o th
re n tie r a n d e n tre p re n e u r type, fo r w h ich a n n u a l p a y m e n t fo r interest,
d iv id e n d s a n d a m o rtiz a tio n h a d to be m ad e. T h e y also d e p e n d e d largely
on fo reign countries for shipping, b a n k in g a n d in su rance services. O n
th e o th e r h a n d , they h a d very little invisible exports of th e ir own. A
m e rc h a n d ise surplus was necessary to p a y fo r this deficit on n o n m e rc h a n d ise account.
C h in a was a n exception in this respect. C h in a norm ally h a d an
im p o rt su rp lu s in spite of h a v in g absorbed a large a m o u n t of foreign
c ap ital. T h is w as possible because of large rem ittan ces fro m overseas
C hinese, a n ite m of invisible e x p o rt w h ich th e o th e r countries of the
region lacked. J a p a n also h a d a n im p o rt surplus, w hich was m ore th a n
offset by large earn ing s o n shipping, b an k in g a n d o th e r services.
D u rin g th e w ar, in countries n o t occupied by th e Japanese, nam ely
In d ia a n d C eylon, th e tra d e surplus increased considerably because (a)
im p o rts w ere p a rtly u n o b ta in a b le a n d p a rtly c u t delib erately to help
th e w a r effort, a n d ( b ) exports b oom ed because of th e alm ost in satiable
w a r d e m a n d . H ig h n e t e x p o rt to g e th e r w ith large A llied w a r e x p e n d itu re
w ith in th e cou n try gave these countries large positive balances on aggreg a te c u rre n t a c c o u n t a n d en ab led th e m n o t only to rep ay large portions
o f th e ir fo reig n d e b t b u t also to b u ild u p large foreign balances.
T h e p o stw a r p ic tu re , it will be seen, is q u ite different. T h e deficit
o n n o n -tra d e a c c o u n t has co n tin u e d b u t has generally te n d e d to be
sm aller. T h is is because, a lth o u g h p ay m ents fo r c e rta in item s like shipping
services h av e te n d e d to increase, pay m en ts for c e rta in o th e r item s like
service o f foreign c a p ita l h av e in g en eral te n d e d to fall. F o r exam ple,
as m e n tio n e d above, I n d ia has largely liq u id a te d its foreign deb t, w hile
b o th In d ia a n d C eylon h av e a c c u m u la te d h an d so m e foreign balances
fro m w hich som e inco m e is o b tain ed . M o reo v er, re g a rd in g foreign e n te rprises o p e ra tin g in th e region, th e ir earnings h av e in g en eral fallen
because th ey h av e n o t yet b een com pletely re h a b ilita te d . A gain, w ith
258
PART V.
IN T E R N A T IO N A L T R A D E A N D BALANCES
po litical in d e p e n d e n c e , countries like In d ia , B u rm a a n d C eylon have
re p a tria te d a larg e p a r t of th e ir fo reign ad m in istra tiv e personnel an d
h a v e so re d u c e d c u rre n t o u tp a y m e n ts o n th a t a c c o u n t. W h ile fo r these
reasons th e size of th e n o n -tra d e deficit h as in m ost cases te n d e d to
fall, a striking ch an ge has ta k e n place in th e tra d e side of th e account.
As w as seen in c h a p te r X I I , w h a t used to be a n e x p o rt surplus has, in
alm ost all cases, tu rn e d in to a heavy im p o rt surplus. I t is because of this
d ev elo p m en t th a t th e aggregate b ala n ce has becom e so adverse.
D
o l l a r
D
e f ic it s
A p a rt fro m these tw o developm en ts, a n o th e r im p o rta n t change
h as been th a t m ost co un tries of th e region, in c o n tra st to p re w a r, now
h av e a large deficit w ith th e U n ite d States. T h e b alances o n services
a c c o u n t a re n o t know n, b u t th e w ay in w h ic h th e balan ces o n tra d e
a c c o u n t h a v e gen erally tu rn e d fro m surpluses to deficits is show n in
tab le 75. T h e services balances a re also likely to be g en erally negative,
because th e U n ite d S tates is to d a y th e w o rld ’s ch ief le n d e r a n d ocean
carrier.
T
a bl e
75
M erch a n d ise Balance o f E C A F E C ountries w ith the U n ite d S tates
(in m illio n U S $ )
C ountry
B u r m a .............................
Ceylon ..........................
China .............................
H ong K ong .................
I n d i a ...............................
Indochina ...................
Indonesia ......................
Malayan Federation
and Singapore..........
Pakistan ........................
Philippines ...................
Siam ...............................
1938
1947
1948
- 3
+11
-2 7
- 1
+11
+ 4
+20
4a
+
2
-2 0 9
- 37
-1 3 2
- 21.3
- 87
+
-
+88
+142
+ 2 g
- 288
- 24.5c
+ 1 2 5 .9 f
+
1.9h
- 231 f
-
0
3
5.7 b c
27d
63c
59
92e
21.2e
32.9
Source: Foreign Commerce Weekly, 7 February, 1949; Supplem ent to Economic
Survey of Indonesia 1948, Batavia; and data supplied by Governments.
a For year ending October, 1947.
b For year ending October, 1948.
c ro je ct io n fr om 9 mon ths .
P
P
d r oj ec ti o n fr om 8 mon ths .
P
e r o j e c t i o n f r o m 10 m o n t h s .
P
f r o j e c t i o n f r o m 11 m o n t h s .
g r o m 15 A u g u s t , 1 9 4 7 t o 3 1 M a r c h , 1 9 4 8 .
F
h
F r o m 1 A p r i l t o D e c e m b e r , 1 9 4 8.
BALANCES OF PAY M E NT S
259
T h e adverse tra d e b a lan c e w ith th e U n ite d States is a striking po stw a r p h e n o m e n o n . Before th e w ar, m a n y countries of th e region in d iv id u ally, a n d th e region collectively, no rm ally h a d a tra d e deficit w ith E u ro p e
a n d a tra d e surplus w ith th e U n ite d States, th e U n ite d States surplus
bein g used to p a y for th e E u ro p e a n deficit. Since th e w ar, th e region
collectively a n d m ost cou ntries in div idu ally h av e h a d a considerable
tra d e deficit w ith th e U n ite d States. I f currencies w ere m ultilaterally
convertible, th e curren cy com position of th e accounts w ould n o t m a tte r.
B ut th e position a t p re se n t is th a t w hile dollars (a n d o th e r h a rd c u rrencies) are convertible in to sterling (a n d soft c u rren cies), th ere is no
rig h t of u n re stric te d convertibility. Surpluses w ith o th er countries cannot,
th erefo re, be used to settle an y p a r t of th e U n ite d States deficit. F ro m
this p o in t of view, th e U n ite d States deficits m ay be said to be a b e tte r
m easure of th e b a lan c e of p aym ents difficulties of countries of th e region
th a n th e global deficits.
A few countries, nam ely, M alaya, C eylon, P akistan a n d the P h ilip pines, in d iv id u ally h av e d o llar surpluses, b u t except in th e case of
M a la y a a n d th e Philippines, th e am o u n ts a re small.
T h ese deficits do n o t give a full id ea of th e region’s d o llar shortage
because (a) d o lla r e x p e n d itu re has been deliberately a n d drastically cut
d ow n in m a n y cases, a n d ( b ) m ost countries h av e h a rd ly an y sources
of d o lla r incom e o th e r th a n tra d e , a n d h av e little o r no a ccu m u lated
d o lla r reserves.
T
h e
Po
s it io n
o f
t h e
R
e g io n
W h a t is tru e of in d iv id u a l countries is largely tru e of th e region
as a w hole. H o w ev er, it is difficult to m easure th e position of th e region
accurately, because, as n o te d earlier, alth o u g h th e d istrib u tio n by c o u n tries of tra d e tran sactio n s is know n, th e distribu tio n by countries of in te rest, d iv id en d a n d service tran sactio ns is n o t know n.
T a b le 76 shows the p re w a r a n d p ostw ar positions of th e countries
of th e region, individually a n d collectively, in re g ard to m erchandise
balances w ith countries outside th e region. A ssum ing th a t th e bulk of
th e interest, d iv id en d a n d services tran sactio ns of th e countries o f th e
region a re ex tra re g io n a l,1 th e tab le suggests th a t th e region collectively
h a d heav y over-all adverse balances in 1947 a n d 1948. F o rm in g p a r t of
this over-all deficit, th e region also h a d , as alread y show n in tab le 75,
a heavy d o lla r deficit.
T h e position im p ro v e d in 1948, some countries, n otably C h in a , In d ia
a n d In d o n e sia h a v in g red u c e d th e ir m erch andise deficits considerably.
1 This is not so in the case of China which receives large remittances from
Chinese emigrants within the region.
260
P A R T V. IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a bl e
76
M erchandise Balance o f E C A F E C ountries w ith C ountries
O utside the R eg io n
(in m illio n U S $ )
C o u n tr y
1938
B u r m a ........................
20
C e y lo n ........................
50
China ........................ — 111
H ong K ong ............
30
I n d i a ..........................
121
21
I n d o c h in a .................
Indonesia .................
56
Malayan Federation
and Singapore. . . .
148
Philippines ...............
22
Siam .......................... — 3
Tot a l fo r
R e g io n
ECAFE
....
354
(10 countries)
1947
1948
— 101
17b
— 309d
— 102
— 225
—
76.8
— 128
— 94a
72c
— 91c
— 160
— 196f h
— 83f
— 33 e
160
— 240
—
31 e
— 23 g
— 1,035.8
(1 0 countries)
—608
(8 countries)
Source: 1938 merchandise figures from League of Nations, N etw ork of World
Trade. In general, merchandise relates to general trade and also includes gold and
silver.
a Year ending October, 1948. Projection from 7 months.
b Special trade.
c Projection from 8 months.
d Balance of payments data from Research Department, Central Bank of China,
adjusted for wrong valuation and smuggling.
e Projection from 9 months.
f Projection from 10 months.
g Projection from 11 months.
h Sea-borne special trade only.
N evertheless, th e large over-all a n d d o lla r deficits c o n stitu te one of th e
m ost d istu rb in g featu res of th e c u rre n t econom ic situ a tio n of th e co u n tries of th e region.
T h e fa c t th a t, q u an tita tiv e ly , b o th ex ports a n d im p o rts a re still
generally below th e p re w a r level m ean s th a t countries are, o n th e one
h a n d , finding it difficult to restore exports a n d , o n th e o th e r, to finance
necessary im ports. C u rre n t d o llar earn in gs are also very deficient. T h e
position w ould n o t be so serious if th e co un tries h a d large foreign investm ents o r balances on w h ich to d raw , b u t this is n o t th e case except in
respect of sterling balan ces fo r In d ia , P ak istan , C eylon, etc. So f a r the
deficits h av e been finan ced p a rtly by d e p le tio n o f lim ited gold a n d foreign
exchange reserves a n d p a rtly by foreign loans a n d credits. B u t th e re is
a lim it to these m eth o d s beyond w hich stands th e th re a t of e x te rn a l
bankruptcy.
261
B ALANCES OF PAY M E NT S
Ro l e
of t h e
Ter ms
of
Tr ade
T h e causes of th e d e terio ra tio n in th e region’s tra d e have been
described in ea rlie r chapters. A tte n tio n m ay, how ever, be d ra w n h ere
to th e p a r t played by th e term s of tra d e . In fo rm a tio n is lim ited, b u t
a v ailab le d ire c t a n d in d ire c t evidence suggests th a t th e term s of tra d e
of m ost countries of th e region h a v e w orsened, thus a c c e n tu a tin g b alan ce
of p ay m en ts difficulties.
T h e term s o f tra d e of five countries fo r w hich ex p o rt a n d im p o rt
p ric e indices a re available are show n in table 77. I t will be seen th a t in
all cases, as c o m p a re d w ith th e p re w a r base year, the term s h av e distinctly, a n d in some cases seriously, deterio rated .
Ta bl e
77
T e r m s of T ra d e
1947
E xport
price
in d e x
1948
Im port
price
in d e x
Ceylon
(1934-38 = 1 0 0 ) ..............
330
488
China
(1936 = 1 ) .......................... 75,429b 176,513b
India
(1938 = 1 0 0 ) .....................
285
311
Indochina
(1st quarter 1939 = 100)
..
..
Indonesia
(1938 = 1 0 0 ) ....................
503c
712c
Term s o f
tr a d e
a
67
E x p o rt
p rice
ndex
i
Im port
price
in d e x
Term s of
tr a d e
a
344e
525e
63
l,9 6 7 b
2,095b
93
490d
685d
71
42
91
..
70
Source: Ceylon Department of Statistics; Economic Survey of China for 1947,
ECAFE Secretariat, and wholesale price index in Shanghai; Reserve Bank of India,
Annual R eport 1947-48; Bulletin Economique de l'Indochine; Economic Review
of Indonesia, and unweighted index of important export and import prices.
a Ratio of export/import price indices.
b December.
c November.
d August.
e Second quarter.
T h e position o f o th e r countries c a n n o t be definitely stated. T h e
term s of tra d e of a p a rtic u la r co u n try d e p e n d o n th e type of goods it
exports a n d im ports. T h e m a in exports from th e countries of the region
a re p rim a ry p ro d u cts, th e prices of w hich in w orld m arkets h av e chan g ed
in w idely v ary in g degrees. I n some cases, such as copra, ra w co tto n an d
ju te , prices h av e gone u p very high, w hile in others, like tea, ru b b e r an d
sugar, price increases h av e been relatively small. A m on g 46 p rim a ry
262
PAR T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
pro d u c ts w hich figure in in te rn a tio n a l tra d e , th e rise in price betw een
1938 a n d 1947 has been greatest fo r c o p ra a n d least fo r ru b b er. T h e
position of th e m o re im p o rta n t p ro d u c ts of th e region is show n in
table 78.
T
a bl e
78
Price R a tio s o f Selec ted P rim a ry P ro d u cts in S ele c te d M a rk e ts, 1947
(1938 = 1 0 0 )a
C o p r a ......................... .................
Cotton ............................. ..................
Manila Hemp ................ ................
Jute .......................... .............
Wheat .........................................
Rice ............................ .............
P rice
ratio
P rice
ratio
515
382
372
367
339
318
Raw Silk .......................... ............... 260
Hides and S k i n s ............ .............. 234
T e a .............................. ........... 196
Sugar ................................. ........... 180
R u b b e r ..................................... 142
a T he import/export price ratios being calculated on a 1938 base probably
underestimate the deterioration of the terms of trade and the changed constitution
of the imports of the countries concerned.
I t is clear th a t countries w h ich e x p o rt large q u a n titie s of high -p riced
p ro d u cts like co pra, ju te a n d co tto n h av e fa re d b e tte r in reg a rd to th e ir
term s of tra d e th a n countries w hich e x p o rt p ro d u c ts like ru b b e r, silk an d
tea.
W hile o n th e e x p o rt side th e countries of th e region a re largely
sim ilar, in th a t they all specialize in th e e x p o rt of c e rta in p rim a ry p ro d ucts, on th e im p o rt side this is n o t so. W hereas they all im p o rt cap ital
goods a n d substantial q u a n tities of finished m an u fa c tu res, some a re also
considerable im porters of p rim a ry p ro ducts, p a rtic u la rly food grains. As
was seen in c h a p te r X I I , this d ep en d en ce o n food im p o rts h a s greatly
increased since th e w ar. O n th e w hole, available evidence suggests th a t
the prices of ca p ita l goods a n d finished m a n u fa c tu re s h ave risen ra th e r
less in th e w orld m a rk e t th a n th e prices of p rim a ry p roducts. W hile this
fac to r m ay h av e m a d e fo r som e slight im p ro v e m e n t in th e term s o f tra d e
of countries of th e region, its effect h as b een m o re th a n offset by h ig h
food prices in th e case of countries w hich h av e to im p o rt large q u an tities
of food. T h is w ould ex p lain th e c u rre n t u n fa v o u ra b le term s of tra d e of
countries like I n d ia a n d C eylon w hich a re large food im p o rters. I n fact,
in b o th these countries, h ig h e x p e n d itu re on food im p o rts h a s been a
m a jo r cause of th e ir p o stw a r adverse balances. I n C eylon, fo r instance,
w here food constitutes over h alf th e to ta l im ports, th e food im p o rt price
index (1934-1938 = 100) w as as h ig h as 860 in th e second q u a r te r of
1948. I n th e cases of B u rm a a n d Siam , on th e o th e r h a n d , a lth o u g h
263
BALANCES OF PAY M E NT S
statistics are n o t av ailable, th e fa c t th a t they are large exporters of food
p ro b ab ly m eans th a t th e ir term s of tra d e h av e d e te rio ra te d only slightly,
if a t all.
T
h e
Ca
pit a l
Ac
c o un t
Som e in fo rm a tio n o n c a p ita l item s is given in th e co u n try notes
w h ich follow this section. I n general, how ever, th e in fo rm a tio n is very
lim ited, a n d know n cap ita l m ovem ents do n o t fully ex plain how th e
deficits o n c u rre n t a c c o u n t h av e b een financed. B roadly speaking, deficits
h a v e b een financed by (1 ) draw ings on gold a n d foreign exchange
reserves a n d ( 2 ) new fo reign borro w ing a n d grants. In d ia a n d Ceylon,
fo r exam ple, h a v e re d u c e d m u c h of th e ir sterling balances ac c u m u la te d
d u rin g th e w ar. I n d ia ’s sterling b alances d w in d led fro m £ 1 , 2 6 0 m illion
a t th e e n d o f 1 9 4 5 to £ 7 7 5 m illion a t th e en d of 1 9 4 8 , a n d C eylon’s
sterling balan ces fro m £ 7 0 m illio n a t th e en d of 1 9 4 5 to £ 3 8 m illion a t
th e e n d of 1 9 4 7 . T h e F e d e ra l R eserve B o a rd ’s statistics show th a t C h in a ’s
n e t sh o rt te rm d o lla r assets, in c lu d in g official a n d p riv a te funds, decreased
from $ 5 8 1 m illion a t th e e n d of 1 9 4 5 to $ 1 8 9 m illion a t th e e n d of 1 9 4 7 ,
a n d $ 1 6 7 m illio n a t th e e n d of N o v em b er 1 9 4 8 . 1 I n th e first six m o nths
of 1 9 4 8 , C h in a ’s official gold a n d foreign ex ch an ge holdings declined by
a b o u t one half.
T h e e x te n t to w h ich fo reig n loans a n d g ran ts have flowed in to th e
region since th e w a r is in d ic a te d in tab le 7 9 . T h is table covers only
g ra n ts a n d credits by gov ern m en ts a n d in te rn a tio n a l agencies. G ran ts
a n d credits on p riv a te a c c o u n t are excluded. T h e period covered is
a p p ro x im a te ly 1 July, 1 9 4 5 to 1 N ovem ber, 1 9 4 8 .
T
a bl e
79
Postwar In te rn a tio n a l Grants an d Credits
(in m illion U S $ )
R e c ip ie n t c o u n tr y
T o ta l
Burma ........................
127
C h i n a .......................... 1,959
India ..........................
67
I n d o n e s i a ...................
143
P a k is t a n ......................
10
Philippines ...............
280
S i a m .............................
25
T o t a l .................
2,611
In te r n a tio n a l
a gencies
—
527
52
—
—
10
—
589
U .S .
governm ent
O th e r
g o v e rn m e n ts
5
1,372
15
104
10
270
10
1,786
Source: U nited Nations, M ajor Economic Changes in 1948, 1949.
1 Federal Reserve Bulletin, February, 1949.
122
60
—
39
—
—
15
236
264
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
Co
N
u n t r y
o t e s
C e y lo n : E stim ates of C eylon’s balances of p ay m en ts o n c u rre n t
ac c o u n t fo r 1947 a n d 1948 a re show n in tab le 80.
T
a bl e
80
C eylon’s Balances o f P a ym en ts
(in m illion rupees)
1948
1947
C r ed it
Merchandise (including
gold and s i l v e r ) .......... 889
Interest and D ividend. . 24
Other S e r v ic e s ................. 53
To t a l
Balance
.................
...................
966
D e b it
C re d it
D e b it
952
115
75
985a
31
82c
892b
80
103
1,142
-176
1,098
1,075
24
Source: 1947 estimate from Economic Survey of Ceylon, ECAFE Secretariat;
1948 estimate supplied by the Ceylon Department of Statistics.
a Includes 45 million as correction for under-valuation.
b Reduced by 32 million as correction for over-valuation.
c Includes 53 million as military expenditure by the U nited Kingdom.
I n fo rm a tio n o n c ap ita l m ovem ents is incom plete. I n 1947 th e re was
a decline in foreign balances (sterling a n d ru p e e balances com b in ed ) of
Rs.413 m illion. I t is ap p a re n tly o u t of this th a t th e deficit on cu rre n t
acco u n t w as financed. T h e know n increase in in v e stm e n t a b ro a d in 1948
was Rs.35 m illion. T h e surplus on c u rre n t a c c o u n t w ould seem to have
covered p a r t of this investm ent.
Before th e w a r C eylon no rm ally h a d a surplus on m erchandise
a c c o u n t w hich ap p ro x im a te ly offset a deficit o n n o n -m e rch a n d ise account.
D u rin g th e w a r th e re was a very large surplus b o th on m erc h a n d ise a n d
n o n -m erch an d ise acco u n t, th an k s to th e g re a t d e m a n d fo r C eylon’s
exports a n d th e large A llied m ilitary ex p e n d itu re in th e country. T h is
m a d e possible th e a c cu m u la tio n of considerable sterling balances in E n g la n d a n d ru p e e b alances in In d ia . T h ese fa v o u ra b le factors, how ever,
quickly d isap p eared a fte r th e w ar, a n d th e over-all b a lan c e of paym ents,
a fte r show ing a m u c h re d u c ed surplus in 1946, tu rn e d h eavily u n fa v o u rable in 1947. T h e surplus in 1948 in dicates a re m a rk a b ly qu ick recovery.
T h e recovery seems, how ever, to be d u e m o re to a drastic tig h te n in g of
im p o rt a n d exchan ge control, w hich cam e in to effect on 1 Ju n e , 1948,
th a n to any basic econom ic im pro v em en t.
T h e 1947 deficit was financed by d ra w in g on a c c u m u la te d sterling
balances. C eylon has no d o llar deficit, being, on th e co n tra ry , a small
n e t e a rn e r of dollars, th an k s m ain ly to th e e x p o rt of ru b b e r to th e U n ite d
BALANCES OF P A Y M E N T S
265
States. H ow ever, its d o llar earnings go in to th e S terlin g A re a D o lla r
Pool, a n d it h as v o lu n tarily u n d e rta k e n to keep its d o llar requirem ents
a t th e lowest possible level. O n 1 J u n e , 1948, exchange control was
tig h te n e d a n d e x te n d e d also to th e Sterling A rea. E x p orters are now
re q u ire d to su rre n d e r all th e ir foreign exchange earnings to th e E xchange
C o n tro l. Im p o r t licences a re re g u la te d acco rd in g to th e h ard ness of the
cu rren cy concerned. O n ly ap p ro v e d cap ita l rem ittances are allowed.
C h ina: A lth o u g h no e stim ate of C h in a ’s b alance of paym ents is
av ailable fo r 1948, several estim ates a re available for 1947. O f these, th e
estim ate o b ta in e d fro m th e R e se a rc h D e p a rtm e n t of th e C e n tra l Bank
of C h in a is given in tab le 81 as one of th e m ost a u th o rita tiv e . T h e items
h av e b een re g ro u p e d in ac c o rd a n c e w ith th e stan d ardized fo rm suggested
by th e L e a g u e of N a tio n s S u b -C o m m ittee o n B alance of Paym ents.
U n ila te ra l tran sfers of goods a n d services (as distinguished from transfers
of m oney) such as u n d e r U N R R A , L end-L ease, etc. have been excluded
fro m th e acco u n t, b u t are show n separately.
T a b le 81 reveals th a t, in c lu d in g u n ila te ra l financial transfers in the
c u rre n t ac c o u n t, C h in a h a d a deficit of U S$189.67 m illion on c u rre n t
a c c o u n t a n d th a t th e deficit was m e t largely by depletion of govern m ent
foreign e x c h a n g e reserves. T h e c a p ita l acco u n t, how ever, show ed a surplus of only U S$ 1 38.3 4 m illion, th e difference of U S$51.33 m illion
being u n a c c o u n te d for. T h e cre d it figure of U S $9 0 m illion fo r re m ittances (w h ic h com pares w ith U S$131.9 m illion in 1937) is probably
som ew hat ex ag g erated . T h e reco rded a m o u n t, th a t is to say, the a m o u n t
collected by th e C e n tra l B ank of C h in a a n d its agencies, was only U S$18
m illion.
L a rg e u n ila te ra l receipts in k in d hav e been a fe a tu re of C h in a ’s
p o stw ar in te rn a tio n a l accou n t. B ut for these gifts, the deficit on c u rre n t
ac c o u n t w ould alm ost certain ly h av e b een greater.
F u ll in fo rm a tio n o n th e currency com position of th e balance is n o t
available. B ut o n p u re ly m erch an d ise a cco u n t (u n a d ju ste d fo r w rong
v a lu a tio n a n d sm uggling) tab le 75 shows very heavy deficits w ith th e
U n ite d States in 1947 a n d 1948; th e re was also a large deficit in 1946.1
D etails of th e b alan ce of p ay m en ts position in 1948 are n o t yet
available. P robably th e over-all deficit was less. T h e m erchandise deficit,
as p ro je c te d fro m 11 m o n th s’ tra d e , was app reciably less th a n in 1947.
T h e tra d e deficit w ith th e U n ite d States also a p p e a re d to be less.
I n d ia : B efore th e w ar, I n d ia n o rm ally h a d a surplus o n tra d e
ac c o u n t w h ich covered its deficit o n interest, d iv id en d a n d services
account. D u rin g th e w a r it b ecam e a large n e t seller of b o th goods a n d
1 U S$392.1 million. Foreign Commerce Weekly, 2 October, 1948.
266
P A R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a bl e
81
C h in a ’s B alance o f P a y m e n ts 1947
( I n m illion U S $ )
C redit
A.
C.
440.61
110.15
5 .2 1
288.16
555.97
3 6 .0 4
40.00
31.82
30.00
22.00
26.00
Total A ...........................................
Unilateral Financial Transfers
Personal and institutional remittances............
380.16
649.83
90.00
10.00
Total B .............................................
Capital and G old
A m o u n t o f f o r e i g n l o a n s d r a w n u p o n ...........
Sale of securities by Chinese Government
in U nited States .............................................
Flight of capital from C hin a ..........................
N e t official sa l e o f f o r e i g n e x c h a n g e ...............
90.00
10.00
II. Yield of in v e s tm e n ts .................................
III. Services
Expenditure of students and tourists,
film royalties, salaries of foreign
staff, etc......................................................
Expenditure of U nited States forces in
China .........................................................
Diplomatic s e r v ic e ......................................
B.
D ebit
Current Business Transactions
I. Goods
Exports (f.o.b.) and imports ( c .i .f .) . . 230.53
Adjustment for smuggling and undervaluation ..................................................
57.63
Non-monetary g o l d ....................................
49.49
3.00
50.00
1 3 5 .8 5
Total C ...........................................
188.34
50.00
f o r a l l g r o u p s ...............
Errors and o m issio n s ...................
658.50
51.33
709.83
T ot a l
U nilateral T ransfers o f Goods a n d Services
(N o t in c lu d e d in th e above ta b le )
R e c e iv e d fr o m
fo r e ig n co u n tries
D e liv e r e d to
fo r e ig n co u n tries
U N R R A ................................................ 278.70
P o s t - U N R R A ......................................
5.00
Surplus property ...............................
39.55
L e n d -L e a se ...........................................
10.32
T o t a l
........................................... 333.57
Source: Research Department, Central Bank of China. Conversions made at
official rate up to August, later at open market rates.
BALANCES OF P A Y M E N T S
267
services, w h ich m a d e possible th e re p ay m e n t of p ractically th e w hole of
its sterlin g deb t, th e a c c u m u la tio n of considerable sterling balances a n d
the p u rc h ase o f large blocks o f B ritish investm ents in th e country. D u rin g
this p e rio d th e re w ere also su b stan tial positive balances w ith th e U n ite d
States. F ro m 1947 o n w a rd , how ever, th e tide tu rn e d , a n d there have
been heavy adverse balances, global as well as w ith th e U n ite d States.
D e taile d estim ates are n o t available. T o tals fo r th e fiscal years (A prilM a rc h ) 1 9 3 8 /3 9 to 1946/47, how ever, are show n in table 82.
T a b l e 82
I n d ia ’s Balance of P a y m e n ts on C u rrent A c c o u n t
1 9 3 8 /3 9 to 1 9 4 6 /4 7
( I n m illion rupees)
T o ta l
1938/39
19 39/40
1940/41
1941/42
1942/43
1 9 43/44
1944/45
1945/46
1946/47
......................................... 254
.........................................
........................................
860
........................................
2,259
.........................................
3,543
........................................
4,540
........................................
5,736
........................................
4,069
........................................ - 1 , 2 5 0
U n ite d States
-1 ,4 4 0
147
151
424
340
365
-1 5 0
Source: Government of India.
A fte r M a rc h 1947 the position seems to have im proved appreciably
a lth o u g h it still re m a in e d serious. In th e last six m onths of 1947 th ere
was a n over-all deficit of Rs.330 million.
T a b le 83 o n p ag e 268 shows th e estim ated b alance of paym ents for
th e first h a lf of 1948.
I t will be seen th a t w hile th e over-all deficit was Rs.520 m illion,
th e deficit w ith th e W estern H em isp h ere w as R s.270 m illion. T h e position
does n o t seem to have im proved in th e second h a lf of 1948. Food im ports,
w hich h a d been th e largest single consum er of foreign exchange,
re m a in e d high. T h e d o lla r p o rtio n of the deficit also re m a in ed h ig h
because m u c h of th e food h a d to be im p o rte d from d o lla r sources. D u rin g
th e six m o n th s, A pril to S eptem ber, 1948, th e deficit w ith h a rd -cu rre n cy
countries was U S $45 m illion, of w hich U S$35 m illion was for food.
D u rin g th e n e x t th re e m o nths, it w as expected to be a n o th e r U S $48
m illion, of w hich U S $ 4 0 m illion was fo r foo d.1
1 Budget Speech of the Finance Minister, 1 March, 1949.
268
PAR T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a b l e
83
Ind ia’s Balance of Paym ents on Current A ccount for
the First H a lf of 1948
( I n m illion rupees)
W estern
H emisphere
Other
Total
1,310
210
1,800
280
560
1,520
2,080
430
880
1,310
210
110
400
140
610
250
10
70
100
250
320
T o t a l
............................... ___ 830
Deficit ........................ . . . 270
1,770
250
2,600
520
Receipts
E x p o r ts ............................... ___ 490
70
Others ...............................
T o t a l
............................. ___
Payments
Commercial Imports . . . . . .
Government Imports
F o o d ............................... . . . .
N o n - F o o d ...................... ___
Other Payments
G o v e r n m e n t ................... ___
Others .......................... .___
110
Source: Government of India.
In fo rm a tio n on c a p ita l m ovem ents is lim ited, b u t u n til recently the
deficits seem to h a v e been m ainly financed by th e liq u id a tio n of sterling
balances. T h e balances re a c h e d th e ir p e a k of Rs. 17,330 m illion a t the
en d of 1 9 4 5 /4 6 . D u rin g 1 94 6/47 th ey fell by R s .1,210 m illion an d d u rin g
1947/48 by R s.670 m illion. I n th e first ten m o n th s o f 1 9 4 8 /4 9 , fro m
A pril, 1948 to Ja n u a ry , 1949, th e re was a heavy d ro p of Rs.5,560 m illion,
b u t m u c h of it rep resen ted (a) p u rc h ase of sterling an n u ities to liq u id ate
a n n u a l paym ents of sterling pensions, i.e., a m o rtizatio n of sterling debt,
a n d ( b ) th e tra n sfe r to P akistan of its share of th e balances. O n ly a p a r t
of it was fo r fin an cing th e b alan ce of p ay m en ts deficit o n c u rre n t
a c c o u n t.1
Because of th e fa c t th a t, u n d e r th e S terlin g B alances A greem ent, the
d o lla r convertibility of th e sterling reserve is strictly lim ited, th e d o llar
p o rtio n of th e deficit h as h a d to be finan ced in p a r t by th e p u rc h a se of
dollars from th e In te rn a tio n a l M o n e ta ry F u n d . D u rin g th e financial year
1948/49, U S $92 m illion w as o b ta in e d fro m th e F u n d fo r this purpose.
In d ia ’s m a in p ro b le m is th e deficit w ith h a rd -c urre n cy countries. In d ia
1 Ibid.
BALANCES OF P AY M E NT S
269
has no d o lla r reserves, a n d its gold reserves a re also relatively sm all.1
N o r c a n th e sterling balances be freely used fo r settling d o llar obligations.
T h e scale of d o lla r convertibility of sterling u n d e r th e S terling Balances
A g re e m e n t is m u c h less th a n th e scale of do llar deficits w hich I n d ia
is n o w experiencing. M easu res ta k e n to d eal w ith this p ro b le m w ere
described in c h a p te r X I I .
In d o n esia : A n estim ate in b ro a d term s of In d o n e sia ’s b alan ce for
1 9 4 7 is given in tab le 8 4 .
T
a bl e
84
In d o n e sia ’s Balance of P a ym ents fo r 1947
( I n m illion guilders)
C r e d it
Exports .........................................
S e r v i c e s .........................................
Invesments .................................
Credits .........................................
Drain of c a p i t a l ........................
338
138
16
342
427
.................................
1,261
T o t a l
D e b it
Imports ..........................................
S e r v i c e s ..........................................
Interest and a m o r tiz a tio n ....
Other entries ..............................
754
387
48
72
.................................
1,261
T o t a l
Source: Statement supplied by the Government for the Survey.
A ssum ing th a t no am o rtizatio n pay m en ts are in fa c t in clu d ed in
the e n try “ In te re st a n d A m o rtiz a tio n ” , a n d th a t “ O th e r E n tries” re p re sent c a p ital m ovem ents, to tal receipts an d paym ents on c u rre n t account
com e to be 4 8 2 a n d 1 , 1 8 9 m illion guilders respectively. T h is m eans a
deficit of 7 0 7 m illion guilders. I n 1 9 4 6 , a ccord ing to a n estim ate published
in Ja n u a ry , 1 9 4 9 , In d o n e sia h a d a deficit of 2 9 7 m illion guilders in m e rchandise, 1 1 2 m illion in services a n d 5 0 m illion in investm ent yield,
m a k in g a n over-all to tal of 4 5 9 m illion guilders.2 T h e deficits w ere
covered by large im p o rts of ca p ita l on p riv a te a n d official a ccou n t. T h e
figures given fo r th e tw o years a r e : on p riv a te accou n t, 5 9 m illion guilders
in 1 9 4 6 ; o n official account, 4 4 9 m illion guilders in 1 9 4 6 a n d 5 0 8 m illion
guilders in 1 9 4 7 . T h e re was a n e x p o rt of m o n e ta ry gold of 5 9 m illion
guilders in 1 9 4 7 .
N o bala n ce of paym ents estim ate fo r 1 9 4 8 is available, b u t the
b a la n c e o n m erch an d ise a c c o u n t indicates a striking recovery. E xports
1 T he Reserve Bank’s gold holding remained unchanged at Rs.274 million from
the time of the inception of the Bank in 1934 to the time of partition. After
partition, it was Rs.264 million. In December 1948, it was Rs.256 million. There
has been a further fall since then.
2 An estimate given in the Economic Review of Indonesia, June, 1948, however,
gives for the same year a deficit of 415 million guilders on merchandise and 270
million guilders on services, making a total of 685 million guilders.
270
PAR T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
T
a bl e
85
P hilippine Balance of P a y m e n ts fo r 1947 a n d 1948
( I n m illio n pesos)
1947
A. Current Business Transaction
I. Goods ................................................
Gold ..................................................
II. Yield of in v e s tm e n ts ...................
III. Services:
U nited States Army and Navy
expenditures ....................................
Pensions to war veterans, e tc .. .
Freight, insurance, tourist and
diplomatic expenditure, etc. . . .
B. Unilateral Financial Transfers
Remittances of emigrants and immigrants .......................................................
Other U nited States Government expenditure ................................................
1948
C re d it
D e b it
531.0
4.5
22.4
1,022.7
25.5
483.5
52.0
645.0
14.5
6.5
D e b it
1,054.0
5.0*
623.0
45.9
151.0
33.5
148.0
30.0
100.0
30.0
65.0
40.1
T o t a l A and B ............................... 1,209.4
C. Capital and Gold
Loans, refunds and transfers under
Surplus Property Agreement . . . .
212.7
Contribution to Fund and Bank,
amortization of capital and other
payments ................................................
a l l
g r o u ps
...................... 1,422.1
Unaccounted ....................................
T ot a l
C re d it
1,299.2
1,352.5
1,272.0
18.0
56.0
1,355.2
66.9
21.0
1,370.5
1,293.0
77.5
Note. There was a receipt of U N R R A supplies of the value of 3 million pesos in
1947.
Source: Philippine Government Department of Commerce.
a Government.
w ere 1,043.6 m illion guilders a n d im p o rts 1,039 m illion guilders, leaving
a n e x p o rt surplus of 4.6 m illion guilders. T h e deficit o n th e invisible item s
a p p a re n tly re m a in e d large, because acc o rd in g to one estim ate,1 a n overall deficit of 417.6 m illion guilders (U S $157 m illion) w as ex p ected for
th e year. T h e deficit was to be p a rtly m e t by a c a p ita l tra n sfe r of
U S $8 4 m illion fro m th e E C A allo catio n to th e N e th e rla n d s.
D o llar deficit h as been a m a jo r p a r t of th e over-all deficit. I n 1947
th e m erch an d ise deficit w ith th e U n ite d S tates was 230.7 m illio n guilders
1 Records and Statistics, 6 November, 1948.
BALANCES OF PA Y M ENTS
271
a n d in 1948, 87.6 m illion guilders. Before th e w ar, In d o n esia norm ally
h a d a su b sta n tial e x p o rt surplus w ith th e U n ite d States.
T h e P hilippines: E stim a te d P hilippine balances of p aym ents fo r
1947 a n d 1948 a re given in table 85. T h e d a ta supplied by th e P hilippin e
G o v e rn m e n t h av e been re g ro u p e d acco rding to th e sta n d a rd form
suggested by th e L eag u e of N ations B alance of Paym ents S ub-C om m ittee.
I t w ill be seen th a t U n ite d States G o v ern m en t ex p e n d itu re has been
th e m a in b a la n c in g fa c to r in th e P hilippine balance of paym ents, alone
m a k in g possible th e h eavy deficit on m erchandise account. T h e position
was m o re o r less th e sam e in 1945 a n d 1946. D u rin g these two years the
Philippines received, in p ro p e rty transfers a n d cash paym ents, aid
a m o u n tin g to U S $5 00 m illion fro m th e U n ite d States G overnm ent. So
long as this large source of d ollar incom e rem ains, the Philippines is not
likely to h a v e any balan ce of p aym en ts difficulty o r d o llar problem . H o w ever, accord in g to projections m a d e by th e Jo in t P hilippine-A m erican
F in a n c e C o rp o ra tio n , incom e fro m this source will largely dry u p by 1951.
T h e p a tte rn of th e P h ilip p in e balan ce of paym ents is alm ost sure to
change th e re a fte r, as it will be extrem ely difficult, if no t impossible, to
m a in ta in im p o rts a t the p resen t h ig h level. T h e Philippines has substantial d o lla r reserves, w hich, w ith th e establishm ent of th e C e n tra l Bank
a n d th e m od ification of th e 100 p e r cen t reserve system of the currency,
m ay be freely d ra w n on, b u t it is doubtless ju d g e d desirable to conserve
a n a d e q u a te p a r t of th e m for o b ta in in g d evelo pm ent goods as a n d w hen
they becom e available, ra th e r th a n spend th e m im m ediately on consu m p tio n goods. A t th e en d of 1948, therefore, afte r years of free trade
u n h a m p e re d by licences a n d ex ch an ge controls, th e Philippines ad o p ted
a n im p o rt c o n tro l law restricting im p o rta tio n of relatively non-essential
goods. T h e tw o m a in objects of th e co ntrol schem e are to conserve foreign
exchan ge fo r m o re essential im p orts a n d to give necessary pro tectio n to
h o m e industries.
T h e n o rm a l p re w a r p a tte r n of the P hilipp in e b alan ce of paym ents
was a deficit on invisible item s, w h ich was m ore th a n offset by a surplus
o n m erch an d ise, leaving a n over-all fav ourab le balance. T h is favourable
b a la n c e w e n t largely to increase the d o llar reserves of th e P hilippine
G o v e rn m en t, alth o u g h a sm all p a r t of it also w ent to increase th e foreign
in vestm ents of P h ilip p in e residents. (T h e year 1938, for w hich figures
w ere given in tab le 74, w as ra th e r exceptional in this respect, since it
show ed a sm all surplus in invisible as well as visible item s.) T h e postw ar
p a tte r n of th e b a la n ce is ju st th e reverse, a heavy m erchand ise deficit
offset by a surplus on invisible item s.
S ia m : Before th e w ar, Siam was norm ally a large n et e x p o rte r of
m e rc h a n d ise to th e U n ite d States a n d to th e rest of th e w orld. T h e e x p o rt
272
PA R T V. IN T E R N A T IO N A L T R A D E A N D BALANCES
surplus, usually a m o u n tin g to a b o u t 50 p e r c e n t of th e v a lu e of to ta l
im ports, covered a deficit in invisible item s caused m ain ly by rem ittan ces
of C hinese a n d o th e r im m ig ra n ts to th e ir relations a b ro a d . T h e w a r
alte re d this p a tte rn . I n 1946 a n d 1947 th e b ala n c e o f tra d e a n d the
b alan ce of paym ents w ere b o th u n fa v o u ra b le . T h e 1948 estim ate suggests
th a t th e old p a tte r n is now re tu rn in g , a lth o u g h p e rh a p s th e size of th e
m erch an d ise surplus a n d th e size of th e services deficit will b o th be
sm aller.
S iam ’s b alan ce of p ay m en ts o n c u rre n t a c c o u n t in 1947 a n d 1948,
as estim ated by th e B an k of Siam , is show n in tab le 86.
T
a bl e
86
S ia m ’s Balance of P a y m e n ts fo r 1947 an d 1948
( I n m illion b a h t)
1947
C r e d it
1948
D e b it
C r e d it
1,132.2
67.5
208.8
295.2
2,409.6
5.8
3.9
—
1,709.1
107.2
100.6
0.1
........................................... 1,049.0
1,703.7
B a l a n c e ......................................
—6 5 4 . 7
2,419.3
1,917.0
Merchandise ...................................... 1,045.6
Services ................................................
0.6
Remittances ......................................
2.8
G o l d .......................................................
—
T o t a l
D e b it
502.3
Source: Bank of Siam Reports 1947 and 1948.
I t should be p o in te d o u t th a t these estim ates are in co m p lete in m any
ways. Services a n d R e m itta n c e s in c lu d e only receipts a n d p a y m e n ts by
G o v e rn m e n t on such item s as in terest on foreign balances, service of
foreign loans, rem ittan ces fo r d ip lo m a tic service, pensions, scholarships,
etc. T h e only p riv a te rem ittan ces in c lu d e d are some p ay m en ts fo r stu d en ts’ expenses a b ro a d fo r w h ich p re fe re n tia l exch an g e ra te s a re sought
fro m th e B ank of S iam a n d w h ich are consequently kn o w n to it. T h e
g re a t bu lk of receipts a n d p ay m en ts o n p riv a te acc o u n t, em b ra c in g
in terest a n d dividends o n investm ents, e x p e n d itu re of tourists, re m ittances by em igran ts a n d im m ig ran ts, e x p e n d itu re of foreign d ip lo m a tic
establishm ents in th e c o untry, in short, m ost of th e invisible item s, are
excluded. Som e of these item s, p a rtic u la rly o u tw a rd rem ittan ces by
C hinese im m igrants, are n o rm ally q u ite su b stan tial in a m o u n t. T h e
estim ates also do n o t in clu d e an y correction of m e rc h a n d ise figures fo r
sm uggling a n d w ro n g v a lu a tio n . I n 1948, if full a c c o u n t w ere ta k e n
of all invisible o u tp ay m en ts, th e surplus w o uld p ro b ab ly sh rin k considerably, if n o t d isap p ear.
BALANCES OF PAY M E N T S
273
G old has b een in c lu d e d in th e ac c o u n t because gold m ovem ents
w ere m a in ly of a m e rc h a n d ise c h aracter. I t should also be ex p lain ed th a t
im p o rt a n d e x p o rt figures given in the a c c o u n t w ould n o t agree exactly
w ith figures given by th e C ustom s because ( a ) c e rta in im p o rts o n g o v e rnm e n t a c c o u n t, such as p u rc h a se of w arships, are excluded from the
C ustom s re tu rn s a n d ( b ) th e B ank of S iam ’s figures relate to th e year’s
a c tu a l receipts a n d p ay m en ts w hile the Custom s figures relate to the value
of im p o rts a n d exports w h e th e r p a y m e n t is m ad e d u rin g the year o r not.
T h e c u rren cy d istrib u tio n of th e balances is n o t know n. O n purely
tra d e a cco u n t, how ever, as will be seen fro m table 75, Siam h a d a n eg ative ba la n c e w ith th e U n ite d States in 1947.
In fo rm a tio n o n ca p ita l m ovem ents is lim ited. T h e deficits in 1946
a n d 1947 seem to h av e been covered p artly by a depletion of foreign
reserves a n d p a rtly by foreign loans. Since the end of the w ar, Siam has
received a to ta l o f U S $2 5 m illion in foreign loans, of w hich U S$10 m illion has b een fro m th e U n ite d States. T h e b alan ce was a rupee loan by
In d ia , w h ic h has alre a d y been repaid.
Su m m a r y
T h e p o stw a r balances of paym en ts on c u rre n t a cco u n t of countries
of th e region show th re e im p o rta n t changes as co m p ared w ith p re w a r:
(1) n early all co un tries h av e developed heavy over-all deficits; (2) as
betw een th e m erch an d ise a n d th e services sections of the balance, while
th e services ba la n c e has generally te n d e d to becom e less adverse, the
m e rc h a n d ise ba la n c e has ch a n g e d from being substantially favourable to
su b stantially u n fa v o u ra b le ; (3 ) m ost of th e countries have developed
large d o lla r deficits.
N o t only individually, b u t also collectively, the countries of the
region h ave developed a serious over-all deficit, of w hich a heavy dollar
deficit form s a p a rt.
T h e over-all a n d d o lla r deficits constitute one of th e m ost disturbing
fe a tu re s of th e c u rre n t econom ic situation of the region. So far, they have
b een fin an ced p a rtly by a liq u id atio n of gold a n d foreign exchange
holdings a n d p a rtly by loans a n d gran ts o b tain ed chiefly on governm ent
acco u nt. B u t th e re is a lim it to these m ethods.
T h e ch ief causes of these changes in th e p a tte rn of the balan ce of
pay m en ts a r e : (1 ) a fall in e x p o rt capacity due to slow recovery of
p ro d u c tio n a fte r th e w ar, a n d (2) a rise in im p o rt needs d u e to c o n tin u ing w o rld food shortages, release of p e n t-u p d e m a n d , a n d im p le m e n ta tio n
of re h a b ilita tio n a n d developm en t program m es. I n food deficit countries
like I n d ia a n d Ceylon, e x p e n d itu re on food im ports has c onstituted the
largest single d ra in o n foreign exchange. I n ad d itio n , in c e rta in countries
274
PA R T V . IN T E R N A T IO N A L T R A D E A N D BALANCES
a significant role seems to h av e been play ed by a d e te rio ra tio n in the
term s of trad e. E vidence, how ever, is n o t conclusive as to w h e th e r or
n o t th e reg io n ’s term s of tra d e w ith th e outsid e w o rld h a v e d ete rio ra te d .
T h e position in 1948 w as distinctly b e tte r th a n in 1947, a lth o u g h
it still re m a in e d serious. In d ia , C h in a a n d In d o n e sia considerably red u c e d
th e ir over-all deficits. C eylon m ov ed fro m a large deficit to a small
surplus. O n know n figures, S iam ’s b ala n c e tu rn e d fro m u n fa v o u ra b le to
favourable. I n assessing this im p ro v e m e n t in 1948, it should be b orne
in m in d th a t it is p a rtly th e result of a tig h te n in g of tra d e a n d exchange
controls a n d n o t m erely o f a g en eral im p ro v e m e n t in econom ic conditions.
INDEX
A
Agricultural finance, 147-51
Agricultural production, predominance
of, 3-4, 5-6
Agricultural requisite, 60-67, 75, 92
A griculture:
diversification, 4
national plans, 61
population employed in, 110
production, 49ff.
Animals, draft, 60, 61
A nn am :
banking, 123
population, 13, 23
salt, 89
irrigation, 23
migration, 23
Anti-inflationary measures, 198-203
Antimony, 73
Asia, South-east:
agriculture, 7
crops, export, 3-4
labour, 43
population, 7, 13-14
Asian economy:
characteristics of, 3-9
postwar changes in, 32-46
Automatic exchange standard, 38,
125, 128, 129, 135
Aviation, 37, 95, 103-7
B
Baguio, 251
Baht, 194
Balance of payments, 32, 45ff, 194,
208, 255ff.
capital account, 263-4, 264ff.
currency composition, 264ff.
current account, 264ff.
invisible item, 255
nature of data, 255
over-all, 255-8
pattern of, 255, 273
position of ECAFE region, 259-60
Bangkok, 111, 187, 202, 251
Bank:
co-operative, see Agricultural credit
275
foreign, 138ff., 157, 159, 160
foreign exchange, 139
joint stock, 139, 141
savings, 156
scheduled, 140, 143
Bank clearings, 144
Bank deposits, 139, 143, 144, 145, 146
Bank of China, 138ff., 152
Bank of Communications, 138ff., 152
Bank of Japan, 141
Bank of Java, 141
Bank of Siam, 134, 141, 273
Bank rate, 143
Banking:
legislation, 156-9
structure, 138-41, 159
Banque de l’Indochine, 125-6, 140
Batavia, 186
Barter trade, 246
Bauxite, 90, 217
Berar Land Revenue Code, 1928, 42
Bihar State Acquisition of Zamindari
Bill, 42
Bilateral trade agreement, see Trade
agreement, bilateral
Biologics, 66
Bombay Tenancy Act, 1939, 41
Bond, Government, 177-8, 179, 180
Borneo, British North:
agricultural requisite, 60ff.
economic planning, 37
grains, 223
labour, 111
population, 12, 13
price, 185
rationing, 202
rice, 50, 202, 220
rubber, 58, 229, 236
sugar, 226
trade, 236-37
Bread grains, trade in, 223ff.
Brunei:
petroleum, 5, 72, 230, 232
population, 13
rubber, 229
taxation, 174
Burma:
agricultural credit, 147
agricultural requisite, 60ff.
276
IN D E X
Burma— continued
aviation, 107
balan ce of paym ents, 45, 195, 255ff.
banking, 38, 138, 143, 145-6, 151
b u dget, G overnm ent, 163ff.
c em en t, 76
central bank, 126, 138, 142
co-operation, 147-8, 202-3
cost of living, 186
cotton, raw, 57
crop, 4
currency, 126ff., 192, 195
dollar allocation, 243-4
economic planning, 37
exchange, foreign, 127, 130, 142
expenditure, public, 165, 168
fertilizer, 62
finance, public, 162-3
fishery, 55
food, 52, 193, 223
foreign loans and grants, 263
highway transport, 102-3
immigration, 20-21, 30
industrialisation, 171
industry, 88
inflation, 44, 185ff., 191-2
international economic relations, 45
iron and steel, 211
labour, 111, 118, 119
land reform, 41
livestock, 53, 60, 61
mining, 88, 211
petroleum, 5, 72, 211, 230ff.
political status, 17, 32, 33
population, 3, 8, 10, 13, 17, 20-21,
109
power, 82
price, 185ff., 192, 193
railway, 96ff.
revenue, public, 165, 167
rice, 50, 211, 220
rubber, 229
state enterprise, 38
sugar, 226
territorial change, 22, 36
textile, 211
timber, 211, 230
tin, 73
tungsten, 73
trade, 211, 212, 233-4, 256
transport, 88
wheat, 51
Budget:
capital, 176
extraordinary, 176
Government, 162-8
revenue, 176
special, 177
Budget deficit, 38, 164, 176, 188, 189
financing of, 176ff .
Buffalo, 60, 61
Bulk sale arrangement, 214
Burma Two-Year Plan of Economic
Development, 171
Burma-United
Kingdom
Financial
Agreement, 181
Burmese National Bank, 138
C
Cairo Declaration, 33
Cambodia, 13, 125
C apital:
accumulation of, 8
flight of, 46, 266
Capital equipment:
imports, 85
shortage of, 33, 95
Capital goods, 45, 92, 93, 209
Cash holdings, real value of, 191
Cattle disease, 66
Cement, 68, 75-6
Central bank, 38, 135, 136
Central Bank of China, 138ff., 155,
157, 177, 178, 265
Central Bank of the Philippines, 141,
142, 143, 271
Central banking, 141-2, 160-1
Central Co-operative Bank, 148
Central Trust of China, 142
Cereals, 207, 245
see also Bread grains. Coarse grains
Ceylon:
agricultural requisite, 60ff.
balance of payment, 146, 256ff., 258,
260, 264-5
banking, 38, 138, 143, 145-6, 151
budget, Government, 163ff., 190
budget deficit, 165, 176
capital account, 264
central bank, 126
coconut, 214
co-operation, 148, 197, 202-3
cost of living, 186
crops, 56
currency, 126, 127, 192
dollar allocation, 243-4
dollar surplus, 259
economic planning, 37
exchange, foreign, 127, 196, 264
expenditure, public, 165
export, net, 190, 257
fats and oils, 224
finance, public, 162, 163
fishery, 54
food deficit and import, 4, 176, 193,
202, 214, 273
IN D E X
Ceylon— continued
grain, 223
highway transport, 102-3
immigration, 21, 30
inflation, 185ff., 191-2
international economic relation, 45
investment, 264
labour, 111-12, 118, 119
machinery 214
national income, 9
petroleum, 230ff.
plantation, 38
political status, 33
population, 7-8, 10, 13, 21, 30, 109
power, 82
price, 192, 193
price control, 201ff.
railway, 96ff.
rationing, 202
revenue, public, 165, 167
rice, 50, 202, 214, 222
rubber, 58, 208, 214, 229, 264
SCAP trade agreement, 245
state enterprise, 37
sterling balance, 176, 244, 263, 267
sugar, 226
taxation, 173ff.
tea, 59, 214, 227
terms of trade, 261
textiles, 76, 214
trade, 210, 212, 214, 234, 256
wheat, 214
Ceylon Six-Year Plan of Economic D evelopment, 170
Chemicals, 68, 80-81
Chettys, 150
China:
agricultural credit, 146
agricultural requisite, 60ff.
agriculture, 49ff.
aviation, 104-5
balance of payment, 46, 255ff., 258,
260, 265, 266
banking, 38, 138-9, 144, 152, 156
176
budget, Government, 163ff.
budget deficit, 164, 165, 177, 178,
190, 198
capital, flight of, 266
capital account, 266
cement, 76
central bank, 142
coal, 5, 70
co-operation, 148
cost of living, 186, 198
cotton, raw, 6, 57, 178
cotton textiles, 76ff., 214
crops, 64
277
currency, 126, 127, 130, 163, 177,
185, 192, 198ff.
debt, public, 164
dollar assets, 263
economic planning, 37
emigration, see Migration, Chinese
exchange, foreign, 123, 127, 131,
177-8, 194, 196, 198, 199, 263, 266
expenditure, public, 165, 168
fats and oils, 214
fertilizer, 62, 178, 215
fishery, 55-6
food, 4, 178, 193, 215
foreign loans and credits, 263
grain, 52, 223
highway transport, 102-3
industrialisation, 39, 172, 178
industry, 68, 85-6
inflation, 44, 157, 164, 178, 185ff.,
214
iron and steel, 5, 69ff., 74, 75
labour, 43, 112ff., 118, 119, 198
land reform, 39-40
livestock, 53, 60, 61
machinery, 37, 214
mining, 37, 68, 85, 86
national income, 9
note issue, 123, 139, 198ff.
oversea remittance, 46
petroleum, 5, 72, 178, 215, 230ff.
population, 7, 10, 13, 14-17, 30
poultry, 54
power, 37, 82
price, 186, 192, 193, 198
price control, 2 0 1ff.
productivity, 115
railway, 96ff.
rationing, 202
rehabilitation, 178
revenue, 165, 167
rice, 50, 202, 222
salt, 81
shipping 54, 100
silk, 78-9, 214, 228
stock exchange, 154, 155, 198, 199
sugar, 214, 226
Taiwan, see under Taiwan
taxation, 173ff.
tea, 58, 214, 226-7
tin, 93, 230
tobacco, 59
trade, 207, 210, 212, 214-15, 234,
245,
255
transport, 74, 86
tungsten, 73, 246
wages, 116, 198
wheat, 6, 51, 222
278
IN D E X
China, Communist occupied:
currency, 123
exchange, foreign, 123
land reform, 39-40
China currency reform, 198
China Farmers’ Bank, 138ff.
China Proper, 8, 13, 14, 16
Chinese national dollar, 198
Chromite, 35
Circulation, velocity of, 191, 193
Civil disturbance, 33, 69, 89, 92, 96,
99, 217
Cloth rationing, 201, 203
Coal:
coking, 5, 71
consumption, 99
reserve, 5
production, 5, 68, 69-72
Coarse grains, trade in, 223ff.
Cochin-China, 13
Coconut, 214, 219, 224, 246
Colombo, 186
Colonialism, decline of, 32-3
Colonization, 24, 25
Combined Raw Materials Board, 228
Combined Tin Committee, 254
Commercial banking, 138, 144-7
Commodity certificate, 179
Commodity control agreement, 250
Communal riots, 33, 77
Communism, 38-9, 43
Consumer price index, 188
Consumers’ expenditure, control of, 201
Consumption, personal, 189
Controlled economy, 198-9
see also Economic control
C o-operation:
consumers’, 148-9
intraregional, 246
Co-operative store, 197, 203
Copper, 74
Copra, 217-8, 219, 224, 246, 262
Corporation tax, 174
Cost of living, 117
Cost-of-living allowance, 181
Cost-of-living indices, 186ff., 193
Cottage industries, 89
Cotton, raw, 245, 251, 262
production, 57
trade in, 227-8
yield, 6
Cotton textiles, 68, 76-8, 92, 245
Cloth rationing, 201, 203
Credit, co-operative, 138, 147ff.
Credit control, 161
C rops:
export, 3-4
industrial and commercial, 56ff.
loss from pests, 64
yield, 6, 62
Currency:
flight from, 155, 193
inflation, 191-2
managed, 38, 129-30, 136
over-valuation of, 194, 195
under-valuation of, 194, 195
Currency board, 38, 125, 126, 130,
135, 136
Currency circulation, 191
and prices, 191-3
Currency commission, 38, 135, 136
Currency convertibility, 259
Currency reserve, composition of, 126-9
Custom duty, 174
D
Dairy products, 53
Debt:
agricultural, 197
pre-occupation, 157-8, 160
public, 179
D efence, cost of, 168, 172-3, 181
Deflation, 185ff., 197
Demobilization, 169-70
Derris root, 66
Devaluation, 197
Direct tax, see Taxation
Discounting, 145, 146
Distribution control, 200
Dividend, 255
limitation of, 201
Dollar allocation, 244
Dollar deficit, 208, 210, 258-9, 273
Dollar surplus, 259
Domestic and personal service, 108-9
Dominion, 33
E
ECA aid, 211, 215, 218, 242, 249
ECA offshore purchase, 210, 237, 243
ECAFE Industrial D evelopm ent Working Party, 5
ECAFE, region:
trade, objectives of, 209
trade with the U nited States, 45
ECAFE session, 60
Economic and Social Council, 61, 250
Economic control, 32, 33, 36ff., 264
see also Controlled economy
Economic Co-operation Administration,
90, 96
Economic development, 168, 170ff., 273
Economic equality, movements toward,
39-45
Economic planning, 32, 36ff., 170
279
IN D E X
Economy, Japanese, 93
Egg and egg export, 54
Elephant, 211
Emigrant remittance, 270, 272
Employment exchange, 113-4
Engineering, 38
Entrepot trade, 243
Excess profit tax, 201
Exchange, foreign:
allocation, 217
control, 33, 123, 130-4, 197, 201,
216, 219
convertibility, 126
military rate of, 133
shortage, 92
Exchange Bank, British, 138
Exchange movem ent, 196
Exchange parity, 195
Exchange rate, 194, 196
official, 195
Exchange shop, Chinese, 139
Exchange surrender certificate, 131
Exhibition, trade, 217
Expenditure, Government, 167, 168-73,
189
Export, invisible, 257ff.
net, 190, 257
Export balance, 207
Export prices, 195
Export surplus, 258, 272
Financial aid, external, 211
Financial Interest Protection Bond, 181
Fishery, 55-6
Fishery requisites, 67
Flour, 223ff.
Food:
consumption, 8
control, 176, 200, 201
deficit, 4
import, 39, 92, 203, 249, 262, 273
national plans, 61
price, 193
processing equipment, 66
production, 49ff.
refrigeration, 67
storage loss, 66
subsidy, 176, 189
Food and Agriculture Organization, see
FAO
Forced labour, 119
Foreign currency, registration of, 198
Foreign loans and credits, 263
Formosa, see Taiwan
Fragmentation of land, 41
Fuel:
control, 201
shortage, 81, 93, 89, 91
F
General Popular Credit Bank, 150
Gold, 90, 220
reserve, 127-8
sale of, 177, 200
Gold yuan, 195, 198ff.
Goods, controlled, 195
Government Purchasing Bureau, 198,
202
Grain trade, 249
Grains, coarse, 49
Guilder, 194
Fairs, 216
Famine, 15, 18, 19
F AO , 11, 49ff., 60, 64, 253
FAO Council, 251
F A O /E C A F E Joint Working Party on
Agricultural Requisites, 60-61
FAO Rice Study Group, 64
Fapi, 199
Far East Rice Investigation Committee,
251
Far East Veterinary Committee, 251
Far Eastern Commission, 88
Farming:
mechanization of, 64
m ethod, 63
subsistence, 44
Fats and oils, 207
trade in, 224ff.
Fertilizers, 62-3, 92
Fibres, 207
hard, 227
trade in, 227ff.
Finance:
international, 45
local, 189
public, 162ff.
G
H
Handicraft industries, 88
Hainan Island, 69
Hard currency, 131, 211, 267
allocation, 244
area, 216, 218, 235
Havana Charter, 249, 253, 254
Heavy industry, 209
Hides and skins, 245, 262
Hoarding, 189
H ong K o n g :
aviation, 107
balance of payment, 255, 258, 260
banking, 139, 144, 157
280
IN D E X
H ong K ong— continued
budget, Government, 163ff.
budget deficit, 165, 181
currency, 126, 128, 130
exchange, foreign, 131-2, 139, 196
expenditure, public, 165
finance, public, 162-3
fishery, 56
food, 193, 223
highway transport, 102-3
labour, 111, 117-18
population, 7, 13
power, 82
price, 186, 193
railway, 96ff.
rationing, 202
revenue, public, 165, 167
rice, 202, 222
shipping, 100
stock exchange, 155-6
sugar, 226
textiles, 76
trade, 212, 234-5, 245, 246, 255
Hydroelectric power:
capacity, 5, 83
reserve, 5
I
Ice-making plant, 67
Immigrant labour, 43, 111, 116
Chinese, 111
Indian, 111, 112
Javanese 111
Import control, 132, 133, 197, 201, 211
by countries, 214, 215, 216, 217, 218,
219, 220, 264, 271
Import surplus, 257
In com e:
distribution, 197
national, 9
real, 190, 193
Income tax, 174ff.
Indebtedness, rural, 44
Index numbers, 191ff.
India:
agricultural credit, 148-9
agricultural requisite, 60ff.
agriculture, 49ff.
aviation, 104-6
balance of payment, 45, 216, 255ff.,
260, 265, 267-8
banking, 38, 140, 144, 145-6, 152
budget, Government, 163ff., 176, 190
budget deficit, 164, 165, 179-80, 190,
200
capital, 85, 268
cement, 75ff.
central bank, 142
chemicals, 80-81, 215
chromite, 35
coal, 5, 35, 70-71, 84, 85, 246
co-operation, 48-9, 198, 202
cost of living, 186
cotton, raw, 6, 35, 57, 215, 227-8
cotton textiles, 39, 76ff., 85, 200, 215
crops, 64
currency, 123, 127, 128, 192
debt, public, 179
dollar allocation, 243-4
economic control, 200
economic planning, 37
economy of, 35
exchange, foreign, 127, 132, 196,
216, 267
expenditure, public, 165, 179
export, net, 190, 257
export control, 216
fats and oils, 215, 224
fertilizer, 62
finance, public, 162, 163, 179
fishery, 55
food deficit and import, 35, 200, 202,
215-16, 246, 267, 273
foreign loans and credits, 263
grain, 52, 223
highway transport, 202-3
industrialisation, 3, 39, 171, 175, 200
industry, 39, 68ff., 83-5
inflation, 185ff., 191-2, 200ff.
international economic relations, 45
iron and steel, 5, 60ff., 74, 75, 85,
215
jute, 35, 85, 215, 228, 246
labour, 43, 111ff., 118, 119, 200
land reform, 41-2
machinery, 37, 79, 215
mining, 37, 68ff.
national income, 9
note issue, 124
partition, 35-36
petroleum, 5, 72, 230ff.
population, 3, 7, 8, 10, 13, 17-20, 30,
109
power, 37, 8 1ff.
price, 186, 192
price control, 185, 200, 201ff.
productivity, 71, 114-15
railway, 84, 96ff.
rationing, 202
revenue, public, 165, 167, 179
rice, 6, 50, 202, 222, 246
rubber, 58, 229
salt, 81
SCAP trade arrangement, 245
stock exchange, 154-5
sugar, 226
IN D E X
India— continued
taxation, 173ff .
tea, 58-9, 215
terms of trade, 261
tobacco, 59
trade, 35-6, 207, 210, 212, 215-17,
235-6, 246, 255
transport, 71, 74, 215
wages, 116-17
wheat, 6, 51, 246
Indian States, 17
Indirect tax, see Taxation
Indochina:
agricultural credit, 150
agricultural requisite, 60ff.
aviation, 106-7
balance of payment, 45, 255, 258,
260
banking, 140-1
budget, Government, 163ff., 167
budget deficit, 166, 181, 190
cement, 75, 76, 89
central bank, 125
coal, 8, 70, 72
cost of living, 186
crops, 4
currency, 125, 129-30, 192
economic planning, 37
exchange, foreign, 125, 194, 196, 217
expenditure, public, 166
fishery, 55
food, 193, 52, 223
highway transport, 23, 102-3
immigration, 30
industry, 88-9
inflation, 185ff., 192
labour, 111, 118
mining, 88-9, 217
note issue, 125-6, 127
political status, 32, 33
petroleum, 230
population, 8, 10, 13, 22-3
power, 82
price, 186, 192, 193
railway, 23, 96ff.
revenue, 166, 167
rice, 50, 217, 220
rubber, 58, 208, 217, 229
shipping, 101
sugar, 226
tea, 227
terms of trade, 261
territorial change, 22, 36
textiles, 76
tin, 73
trade, 210, 212, 217, 236, 255
wheat, 222
Indochinese Rice and Maize Committee, 217
281
Indonesia:
agricultural credit, 150
agricultural requisite, 60ff.
aviation, 106
balance of payment, 45, 255, 258,
260, 269-71
banking, 141, 152
budget, Government, 166
budget deficit, 166, 188
capital import, 269
cement, 76
central bank, 141
coal, 170
cost of living, 188
crop, 56
currency, 127, 140, 192
dollar deficit, 270
exchange, foreign, 127, 194, 196
expenditure, public, 166
fats and oils, 224
fertilizer, 62
fishery, 56
food, 186, 218
foreign loans and credits, 263
grains, 52, 223
highway transport, 102-3
immigration, 30
industry, 90
inflation, 185, 192
labour, 111, 117
livestock, 60, 61
machinery, 218
national income, 9
mining, 90
petroleum, 5, 72, 217-8, 230, 232
plantation, 38
political status, 38
population, 7, 8, 13, 24-5, 30, 109
poultry, 53
power, 82
price, 185, 186, 192
railway, 96fF.
rationing, 202
revenue, 166
rice, 50, 202, 222
rubber, 34, 57, 58, 208, 217-18, 223
shipping, 100-101
sugar, 217, 226
tea, 59, 217, 226-7
terms of trade, 261
textiles, 76, 188, 218
tin, 73, 217-18, 230
trade, 210, 212, 217-18, 236, 245,
246,
255, 269
transport, 218
Indonesian Republic, 118, 119
Industrial development, 189
Industrial finance, 138, 139, 151-3
Industrial Finance Corporation, 152-3
282
IN D E X
Industrial recovery, problems of, 92-4
Industrial under-development, 4-5
Industrialisation, 7, 32, 33, 34, 37,
38ff ., 151
Industry, 68ff .
State enterprises in, 37-8
Inflation:
and foreign trade, 194-7
and income distribution, 197
causes of, 191
effects of, 32, 44, 194-8
trends during 1948, 185-8
Inland Water Transport Board, 101
Interest, 255ff.
rate, 143, 158
tax, 175
Intergovernmental commodity arrangements, see International commodity arrangements
Interim Co-ordinating Committee for
International Commodity Arrangements, 250
International Bureau of Epizootics, 251
International commodity arrangements,
249ff.
International Cotton Advisory Committee, 251
International economic relations, 32,
44-6
International Emergency Food Committee, 250
International Forestry and Timber
Utilization Conference, 253
International Labour Organisation, 108,
116
International Monetary Fund, 134-5,
243, 268
International Rice Commission, 251-2
International Rice Council, 251
International Rice Meeting, 251
International
Rubber
Development
Committee, 252
International Silk Congress, 252
International Sugar Council, 252-3
International T ea Arrangement, 253
International T in Committee, 253
International T in Research and D evelopment Council, 254
International T in Study Group, 253-4
International Trade Organization, 240
International wheat agreement, 254
International Wheat Council, 254
International trade arrangements, advantages and limitations of, 247-9
Investment:
control, 33, 190
foreign, 257
rate of, 188, 190
taxation of, 174
Iron ore:
production, 5, 68, 69ff., 245
reserve 5
Iron and steel, 38, 68, 74-5, 93
Irrawaddy Flotilla Company, 101
Irrigation, 23, 37
J
Japan:
agricultural credit, 151
agriculture, 3, 7
aviation, 104
balance of payment, 46
banking, 38, 141, 144, 145-6, 153
budget, Government, 163ff.
budget deficit, 164, 166, 179, 190
cement, 75ff.
chemicals, 80
coal, 5, 70, 71-2, 86-7, 115
colonies, 32-3
co-operation, 141
cost of living, 187
cotton, raw, 5, 77, 227-8
cotton textiles, 34, 76ff., 80
crops, 64
currency, 126, 127, 192
economic control, 217
economic planning, 37
exchange, foreign, 127, 129, 133,
244-5
expenditure, public, 166
fats and oils, 224
fertilizer, 62, 81, 87
fishery, 56, 224
food, 4, 79, 193
grains, 52
highway transport, 102-3
immigration, 27
industrial capacity, utilization of, 93
industrialisation, 3, 38, 175
industry, 34, 68ff., 86-8
inflation, 179, 191-2
iron and steel, 5, 69, 74, 75, 80, 87
labour, 43, 112, 117, 118
land reform, 42
livestock, 60, 61
machinery, 80
mining, 68ff., 86ff.
national income, 9
note issue, 179
pesticide, 76
petroleum, 5, 72
population, 3, 7, 8, 10, 13, 25-7, 30,
34, 109
poultry, 53, 54
power, 5, 81-3, 87-8
IN D E X
Japan— continued
price, 187, 192, 193
productivity, 115
railway, 80, 96 ff.
rationing, 202
rayon, 81, 87
revenue, 166
rice, 6, 50, 202, 217 ,222
SCAP trade agreement, 244-5
shipping, 99, 100-101
silk, 45, 78-9, 208, 228
stock exchange, 154, 156
taxation, 173ff.
tea, 227
trade, 34, 93, 133, 244-5, 257
trade with Sterling Area, 244-5
wheat, 6, 51
Japan Proper, 34
Japanese economy, 207-8
Japan ese Empire, disintegration of, 34,
44
Japan’s industrial capacity, utilization
of, 93-4
Java, 7, 8, 13, 24
Joint Board of the Four Government
Banks, 142, 176
Joint
Philippine - American
Finance
Corporation, 151, 271
Jute, 227
price, 4
trade in, 228
K
Kansu oilfield, 72
Karachi, 187
Kashmir, 17
K orea:
agriculture, 7
allied occupation, 34-5
chemicals, 35
cotton, raw, 6, 57
economic planning, 37
economy, 44
iron and steel, 35
lumber, 35
metals, 35
migration, 27, 30
political status, 33, 34-5
population, 3, 8, 10, 13, 27-8, 109
power, 35
railway, 35
rice, 34, 35, 222
textiles, 35
Korea, North:
land reform, 40
migration, 27
political status, 34-5
283
population, 7, 35
rice, 6
wheat, 6
Korea, South:
agriculture, 3
fertilizer, 62
grains, 52
highway transport, 102-3
labour, 118, 119
land reform, 40-41
livestock, 53, 60, 61
political status, 34-5
population, 10, 27, 35
poultry, 54
rationing, 202
rice, 50, 202
tobacco, 59
wheat, 51
Kurile Islands, 34
L
Labour:
absenteeism, 113
allocation of, 201
conditions of work, 116-8
employment and distribution, 108-11
intensity, 6, 115
legislation, 118-20
organization, 118
productivity, 114-16
shortage, 89, 112
supply and recruitment, 111-14
Labour contractor, 113
Labour disputes, 44, 47, 117, 118, 200
Lahore, 187
Land Nationalization Act, 41
Land reform, 32, 39-43
Land tenure, 7, 39-43, 64
Land utilization, 23, 24, 49ff., 62
Landlordism, 39, 42
Laos, 13, 125
Lead, 74, 88
League of Nations Sub-Committee on
Balance of Payments, 265, 271
Lend-Lease, 265, 266
Liquid assets, accumulation of, 190
Liquidity, 193
Liquidity preference, 145
Livestock, 52-3
L oans:
foreign, 181
international, 177, 209
long-term, 177
short-term, 177, 180
Locomotives, 97-8
Loemboengs, 150
Lumber, 90
IN D E X
284
M
Machine tools, 34, 79
Machinery, 34, 38, 68, 79-80, 85, 245
agricultural, 62-3
Madura, 13, 24
Maize, 217, 223ff.
Malaya:
agricultural requisite, 60ff.
agriculture, 3, 8
balance of payment, 45, 255, 258,
260
banking, 38-41, 158
budget, Government, 166
budget deficit, 164, 166, 181
coal, 70, 72
cost of living, 188
crops, 56
currency, 126, 127, 130, 192
dollar surplus, 258
exchange, foreign, 127
expenditure, public, 166
fats and oils, 224
fishery, 56
food, 4, 56, 193, 28
highway transport, 102-3
immigration, 23-4, 29, 30
industry, 91
inflation, 185ff., 191-2
iron ore, 5, 69ff., 74, 218
labour, 111, 117, 118
mining, 91
plantation, 38
political status, 33, 36
population, 3, 8, 10, 13, 23-4
power, 82
price, 185ff., 192, 193
railway, 96ff.
rationing, 202
revenue, 166
rice, 50, 202, 222
rubber, 45, 57, 58, 208, 218, 229
SCAP trade arrangement, 245
shipping, 100-101
taxation, 174
tin, 208, 230
textiles, 218
territorial change, 23
tin, 73, 91, 218
tobacco, 59
trade, 210, 212, 218-9, 238, 246, 255
Malaya, Federation of, see Malaya
Malayan Union, 33, 36
see also Malaya
Manchuria:
coal, 71
economy, 44
fats and oils, 224
immigration, 27, 29, 30
industry, 35
iron and steel, 74
petroleum, 72
political status, 33, 34, 35
population, 8, 13, 14, 16
rice, 50
Manganese, 89, 90, 245
Manila, 82, 111, 187
Manila hemp, 262
Manufacturing, 110
Materials:
allocation of, 201
shortage of, 95
Merchandise balances, 258ff.
of ECAFE region and U nited States,
258
of ECAFE region and countries outside, 260
Metropolitan powers, 45
Middle class, 197
M igrants:
age distribution, 29
sex ratio, 29
Migration, 7, 10
Chinese, 16, 22, 23, 27, 29, 30
Japanese, 16, 17, 27, 29, 30
Korean, 16, 27
Indian, 18, 21, 23, 29, 30
Javanese, 24
restriction, 28, 112
seasonal, 113
Minimum Wages Act, 119
Mining, 68ff., 110
Monetary systems, 123-6, 135, 136
Money-lender, 149-50, 151
Motor vehicles, 102-3
Multilateral exchange, 207
Mysore, 253
N
National Development Company, 171
National Investment Commission, 155
National Land Administration, 41
National Planning Committee, 37
National Power Corporation, 82
National Resources Commission, 37
Nationalization, 38, see also State enterprises
Nepal, 13
Netherlands, 45
N ew Korea Company, 41
Non-trade account, 257
Note issue, 38, 123, 126, 135, 136, 144,
146
Nylon, 252
INDEX
O
Oats, 223ff.
Okinawa, 25, 26
Open market operation, 143, 153
Oriental Development Company, 40-41
Outer Provinces (Indonesia), 13, 24,
25
Overseas Consultants Ltd., 94
Overseas Chinese remittance. 44, 257,
272
P
Pakistan:
agricultural credit, 150
agricultural requisite, 60ff.
agriculture, 8
aviation, 105
balance of payment, 46, 255, 258
banking, 38, 138-9, 144, 145-6,
152-3, 158
budget, Government, 166, 176
budget deficit, 164, 166, 180
cement, 75ff.
central bank, 124, 129, 142
coal, 35, 70, 246
chromite, 35
co-operation, 140, 148-9, 150
cost of living, 187
cotton, raw, 57, 219
cotton textile, 76ff.
currency, 122-5, 127
dollar allocation, 243-4
dollar surplus, 259
exchange, foreign, 89, 127, 129, 132
fertilizer, 62
food, 246
foreign loans and credits, 263
grains, 52, 219
hides and skins, 219
highway transport, 102-3
industrial development, 90, 171
industry, 36, 89-90
inflation, 185ff.
international economic relation, 45
iron and steel, 246
jute, 89, 219, 228
labour, 114, 118
machinery, 219
mining, 35, 89-90
note issue, 124, 142
partition, 35-6
petroleum, 5, 35, 72, 189
political status, 17, 33
population, 8, 10, 13, 17-20, 30
power, 82
price, 187
price control, 2 0 1ff.
285
railway, 96ff.
rationing, 202
revenue, 166
rice, 50, 202, 222, 246
sterling balance, 243-4
sugar, 226
tea, 59
tobacco, 59
trade, 35-6, 46, 212, 219, 237, 246,
255
transport, 219
wages, 116-7
wheat, 51, 246
Palm oil, 217-8
Paper, 80
Partition, 17, 35, 101, 114, 140-1,
215-6, 219, 235
People’s Bank of China, 123
Pesticides, 64-5
Petroleum:
production, 5, 68, 72, 93
reserve, 5
trade in, 230-2
Philippine:
agricultural credit, 151
agricultural requisite, 60ff.
aviation, 104
balance of payment, 45, 133, 181,
255ff., 258, 260, 270, 271
budget, Government, 163ff.
budget deficit, 164, 166, 181
cement. 75, 76
central bank, 125, 129, 143, 271
cost of living, 187
currency, 127, 192
dairy products, 53
dollar surplus, 259, 271
economic planning, 37
exchange, foreign, 127, 129, 133,
196, 271
expenditure, public, 166, 168
export, net, 271
fats and oils, 224
fertilizer, 62
fishery, 56
food, 193, 220
foreign loans and credits, 263
grains, 52
highway transport, 102-3
independence, 32, 33
industrialisation, 171
industry, 90-1
inflation, 185ff., 191-2
iron and steel, 5, 69ff., 74, 220
labour, 111, 117, 118
lumber, 90, 219
machinery, 220
mining, 90-91
286
IN D E X
Philippine— continued
national income, 9
note issue, 129
petroleum, 220, 231
population, 3, 8, 10, 13, 25, 30, 109
power, 81 ff.
price, 185ff. 187, 192, 193
railway, 96ff.
revenue, 166, 167
rice, 50, 222
rubber, 229
SCAP trade arrangement, 245
state enterprise, 38
shipping, 100, 101
sugar, 219, 226
taxation, 173ff.
textiles, 76, 220
trade, 188, 210, 219-20, 237, 245,
255
transport, 90
Philippine National Bank, 141
Philippine Rehabilitation Act, 1946,
168
Philippine Ten-Year Plan of Economic
D evelopment, 171
Philippine War Damage Commission,
158-9
Piastre, 194
Plant breeders, international working
party of, 251
Plantations, 23, 38
Population:
age distribution, 14, 22, 24
birth rate, 7, 11, 12, 14ff.
census, 10, 17ff.
death rate, 7, 11-12, 14ff.
density, 7, 11 ff.,, 28-9
growth, 30
infant mortality rate, 20
marriageable age, 20, 26
migration, see Migration
mobility, 31
movement, 28-30
natural increase rate, 7, 11 ff., 14
occupational distribution, 3, 6, 14,
108-10
pressure on land, 4, 7-8, 111
sex ratio, 24
size, 13, 14
trends, 10-31
urban-rural ratio, 14, 26
war losses, 25, 26
Postal remittance and savings bank,
138, 142
Post-UN RR A aid, 95, 266
Poultry, 54
Poverty, 8-9
Power, electric, 37, 68, 81-3
see also Hydroelectric power
Price ceiling, 198
Price control, 200, 201-3
Price index, 139
import and export, 195
Price inflation, 191-2
Price movement, 185ff.
Prices:
behaviour of, 185ff.
black market, 193, 194
controlled, 197
decontrol of, 185, 200, 203
food, 43, 193-4
primary products, 4
retail, 191
Procurement, compulsory, 203
Production, diversification of, 39
Production pattern, changes in, 38-9
Productivity, 5-7, 71, 114-16
Profit, 189
Profit tax, 174
Propensity to consume, 190
Propensity to save, 189
Property tax, 175
Pumps, 64
Purchasing mission, 217
Purchasing power parity, 195
Pyretheum, 66
R
Railway traffic, 98-9
Railway transport, 95-9
Rangoon, 186
Rationing, 201ff.
Rayon, 81, 84, 228, 252
Reconstruction Finance Bank, 153, 177
Recoverable war expenditure, 190
Refrigeration, 67
R efugee movement, 189
India and Pakistan, 17, 35, 36, 96,
114, 150
Korea, 35
Rehabilitation
Finance
Corporation
141,
150-1, 153
R elief and rehabilitation, 168
Rent control, 203
Rentier class, 43
R epatriation:
Chinese, 71
foreign personnel, 258
Japanese, 16, 17, 26, 94, 116
Korean, 27, 71
metropolitan staff, 33
Reserve Bank of India, 123-4, 128, 132,
138, 139, 142, 149, 150, 179, 190
R evenue, 167, 173ff., 190
IN D E X
Rice, 6, 34, 49ff., 91-2, 207, 251, 262
allocation, 250
ration scale, 203
rationing, 202
trade in, 221ff.
Rice conservation committees, national,
251
Road transport, 95, 101-3
Rolling stock, 97-8, 245
Rubber, 23, 45, 214, 252, 262
price, 4, 208
production, 57-8
synthetic, 252
trade in, 229
Rubber Study Group, 252
Rural reconstruction, 178
Rye, 51-2, 223ff.
Ryukyu Islands, 34, 62
S
Saigon, 107, 186
Sakhalin, 30, 34
Salt, 81, 89, 245
Salaries and annuities tax, 175
Sarawak, 13, 174, 229, 237
Savings, 6, 9, 179, 189, 200, 201
Sawmill, 211
SCAP, 34, 69, 133
SCAP-Sterling Area trade and payments arrangements, 218, 244-5, 247
SCAP Trade Plan, 220, 245
Securities, Government, 180
Security markets, 143, 153-6, 166
Shan states, 22, 36
Shanghai, 77, 81-2, 86, 186
Shipping, 99, 257
Siam:
agricultural requisite, 60ff.
agriculture, 3
aviation, 104, 106
balance of payments, 46, 255, 258,
260, 271-2
banking, 38, 141, 144, 145-6
budget, Government, 163ff., 177
budget deficit, 164, 166, 190
capital movement, 273
cement, 76, 134
cotton, raw, 57
crops, 4
currency, 126, 127, 192
dairy products, 53
exchange, foreign, 127, 134, 196, 200
expenditure, public, 168
fertilizer, 62
finance, public, 162, 163
fishery, 55
food, 202
287
foreign loans and credits, 263
grains, 52
highway transport, 102-3
immigration, 22
industry, 91-2
inflation, 44, 185ff., 192
iron and steel, 220
labour, 111, 118
livestock, 60, 61
mining, 91-2
petroleum, 231
population, 3, 8, 10, 13, 21, 22, 109
poultry, 54
power, 81, 82, 91
price, 185ff., 192
railway, 91, 96ff., 220
revenue, 166
rice, 50, 67, 91, 134, 197, 220, 246
rubber, 58, 134, 220, 229
taxation, 173ff.
territorial change, 22, 36
timber, 246
tin, 73, 91, 134, 220, 230, 246
tobacco, 59
trade, 134. 188, 210, 212, 220-1, 238,
245, 255
transport, 92
Silk, 45, 208, 252, 262
price, 4
production, 78-9
reeling, 79
trade in, 288
Singapore, see also Malaya
agriculture, 8
balance of payment, 258, 260
budget deficit, 181
co-operation, 148
cost of living, 187
fishery, 56
highway transport, 102-3
labour, 111, 117, 118
political status, 36
population, 7, 8, 13, 24
SCAP trade arrangement, 245
shipping, 101
stock exchange, 156
trade, 210, 212, 218-9, 238
Small industries, 91
Smuggling, 246, 266
Social security, 119
Soda, caustic, 80, 245
Soft currency, 211, 216
Soil fertility, 62
Stabilization, 197
Standard of living, 8-9, 43
State Agricultural Marketing Board,
211
State Bank of Pakistan, 124, 132, 140,
142, 158
288
IN D E X
State enterprises, 32, 33, 37-8, 198
Sterling area, 211, 214, 218, 235
Sterling area arrangements, 209, 243-4,
247
Sterling area dollar pool, 244, 265
Sterling balance, 176
release of, 132, 216, 244
Sterling exchange standard, 130
Stock exchanges, 153ff., 198
Straits Settlements, 23
see also under Singapore
Strikes, 44, 74, 90, 198
Sugar, 38, 207, 252-3, 262
rationing, 202
Sun Yat-sen, 36
Superphosphate, 84
Synthetics, 4, 35, 79, 208, 252
T
Taiw an:
agriculture, 7
economy, 44
fertilizer, 62
immigration, 30, 35
industry, 35
pesticide, 66
political status, 16, 33, 34
population, 8, 13, 14, 16-17
productivity, 115
rice, 34, 50, 222
sugar, 214, 226
T a kavi loan, 150
Taxation, 173ff., 201
T ea, 207, 214, 253, 262
price, 4
production, 58-60
trade in, 226ff.
Teak, 134
Technical personnel, shortage of, 33,
8 9 - 9 0 , 9 5 , 1 1 6 , 140
Technical training, 108, 116, 140
Terms of trade, 4, 44, 208, 261-3, 274
Territorial changes, 32, 33-6
Textiles, 209
control, 200
rationing, 202
Tical, see Baht
Tin, 23, 68, 73, 91, ,156, 208, 245,
253-4
concentrates, 230
metal, 230
smelting, 208
trade in, 230
T in Research Institute, 254
Tobacco, 59-60
Tokyo, 187
Tonkin, 13, 72
Tractors, farm, 64
Trade, 32, 45ff., 202-54
balance of, 46, 208
balance of, and imports and exports,
210-21
bilateral, 244
financing of, 138ff.
multilateral, 45
foreign, and inflation, 194-7
geographical distribution of, 233ff.
in principal commodities, 221-33
interregional, 238ff.
intraregional, 240, 242, 243
pattern of, 207
with Japan, 93
with U nited States, 207
Trade arrangements:
bilateral, 246, 247ff.
interregional, 246
Trade and payments agreement, 209,
243ff.
Trade balance, 188, 207
Trade commissioner service, 216
Trade conference, 200
Trade control, 33, 201
see also Export control, Import control
Trade deficit, 208
Trade delegation, 216-7
Trade distribution in ECAFE countries,
main trends of, 238-43
Trade in principal commodities, regional trend of, 232-4
Trade mission, 216
Trade of ECAFE countries:
with Japan, 241
with rest of ECAFE region, 240
with U nited Kingdom, 240
with U nited States, 239
Trade unionism, 43
see also Labour organization
Trading, Government, 197-8
Training Problems in the Far East, 108
Transport, 7, 38, 67, 95-105, 110
Treasury bill, 178, 179, 181
Treasury certificate, 177
Treasury deposit certificate, 201
Trivandrum, 251
Trust company, 156
Tungsten, 73
U
Under-employment, 116
Unemploym ent, 116
Unilateral financial transfer, 265, 266,
270
U nion Bank of Burma, 138, 142
INDEX
U nion of Burma Airways Company,
107
United States aid, 178
United States Government expenditure,
271
United States Reconstruction Finance
Corporation, 181
U N R R A aid, 95, 168, 265, 266
Utilities, public, 37
V
Viet-nam, 125
289
Wage freezing, 198
Wages, 189
real, 43, 116-7
War damage, 81, 91, 168
Water power, see Hydroelectric power
Water transport, 95, 99-101
Wheat, 6, 34, 49, 51-2, 262
Wholesale price indices, 186ff.
Wholesale prices, 195
Wolfram, see Tungsten
World Health Organization, 11
Z
W
W age control, 201
Zamindari system, 41-2
Zinc, 74, 88