Chapter

Chapter 8: The Industrial Countries: Balance of Payments

Author(s):
International Monetary Fund
Published Date:
September 1963
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Global Survey

INTERNATIONAL payments relationships over the past five years have been dominated by the structural disequilibria among the industrial countries which became apparent in 1958. The progress since made toward reducing these disequilibria has been somewhat obscured by year-to-year changes in international payments brought about by diverse cyclical developments in various countries, by movements of volatile capital arising from cyclical and other factors, and by the large advance repayments of government debt that have, from time to time, been made in part to ease balance of payments pressures. Consequently, the broader changes in international payments during the past year can usefully be evaluated in relation to a longer period, and in terms of changes in what are here referred to as basic balances, i.e., current and long-term capital transactions, excluding certain transactions of a nonrecurring character (mainly advance repayments of government debt).

Chart 7 shows the basic balances so defined, as well as balances on goods, services, and private transfers, for the United States, the United Kingdom, the industrial countries in continental Europe, Japan, and the primary producing countries as a group, for the years 1956-62. Because of statistical uncertainties, the data in the chart (which usually exclude errors and omissions) should be regarded as indications of order of magnitude rather than precise estimates. In general, the basic surpluses tend to be understated, and the basic deficits to be overstated; in particular, it is believed that the basic balances of the United Kingdom and of continental Europe omit net receipts averaging a few hundred million dollars annually, although the amounts vary from year to year. Also, it should be remembered that some countries may be exporters or importers of private short-term capital over the long run, so that positive or negative (rather than zero) basic balances, as defined above, may be necessary if their balances of payments are to be in equilibrium.

Chart 7.Selected Areas: Balance of Payments, 1956-621

(In billions of U.S. dollars)

1 See also Chart 8 (p. 152).

The major balance of payments problem of recent years has comprised the basic deficit of the United States and the basic surplus of the industrial countries in continental Europe. Within continental Europe, the Common Market countries have contributed the principal part of the area’s surplus, but some of the other industrial countries, such as Austria and Switzerland, have also at times had substantial surpluses in their balances of payments. The close economic relationships of all the industrial countries in continental Europe with one another makes it convenient to treat them as a group. The United Kingdom and Japan have shown no clear tendency toward either surplus or deficit in their basic transactions; nor, as is shown in Chapter 9, have the primary producing countries.

The years 1956 and 1957 were comparatively favorable for the balance of payments of the United States, partly as a result of changes in trade in connection with the Suez crisis, which coincided with strong pressures of demand in the other industrial countries. The change from near balance in 1957 to large deficits in 1958 and 1959 arose mostly from the normalization of trade following the reopening of the Suez Canal and the relaxation of the strong pressures of demand in the other industrial countries. U.S. exports of manufactured products to the other industrial countries at that time showed a positive correlation with the rate of expansion in those countries. For this reason, the effect on the U.S. balance of payments of the recession in the United States and other industrial countries in 1958 was very unfavorable. From 1958 to 1959, the U.S. deficit increased, primarily because the United States was leading the other industrial countries in the recovery; and it decreased from 1959 to 1961, largely because the continued high rate of expansion in the other industrial countries coincided with a recession in the United States. During the low point of the recession in the early part of 1961, the U.S. basic deficit was eliminated, but it reappeared in the course of the year as the economy recovered; during the second half of the year, it reached an annual rate of about $2¼ billion, slightly above the rate for 1962 as a whole. There was a surplus on goods and services account (including private transfer payments) throughout the years 1956-62 except in 1959. But while this surplus was in most years substantial, it has not in any full year since 1957 been sufficient to offset the outflow on account of private long-term capital transactions and government financing (other than advance debt repayments), which has tended to increase.

While the adjustment in the U.S. balance of payments has been hesitant, the reduction of the extreme surplus position of continental Europe has been continuous during the last three years. This surplus was highest—about $3 billion—in 1958 and 1959. In 1962, the elimination of the basic surplus position was speeded up by the sharp rise in costs in several countries, together with the revaluations in the previous year of the deutsche mark and the Netherlands guilder. The surplus positions of the Federal Republic of Germany and the Netherlands disappeared in the course of 1961, and that of Italy seems to have been eliminated. The only country in the group with a major surplus in 1962 was France, whose basic surplus remained at about $1 billion; the other countries had a combined basic deficit of perhaps half a billion dollars. In evaluating these figures, it should be kept in mind that the basic surplus position of continental Europe may be underestimated in the statistics, probably by a few hundred million dollars annually.

The reduction in the basic surplus of the industrial countries in continental Europe, and the small rise in the basic deficit of the United States from 1961 to 1962, had a counterpart in improvements in the basic balances of Japan, the United Kingdom, and the primary producing countries as a group. The measures taken by the United Kingdom and Japan, in the course of 1961, to eliminate a balance of payments deficit have been described in Chapter 7; the improvement in Japan’s basic balance was particularly marked in 1962. Developments in the balance of payments of the primary producing countries are reviewed in Chapter 9.

Individual Countries

United States

Although the U.S. deficit on goods, services, aid, and long-term capital, excluding advance debt repayment and subscriptions to international organizations, rose from almost $0.7 billion in 1961 to over $1.9 billion in 1962, the latter rate was only slightly higher than in the second half of 1961 (Table 15).

Table 15.United States: Balance of Payments Summary, 1961-First Quarter 1963 1(In millions of U.S. dollars)
1961196219632
19611962First

half
Second

half
First

half
Second

half
First

quarter
A. Goods, Services, Aid, and Long-Term Capital
Main categories, seasonally adjusted, excluding major special transactions 3
Exports19,91320,4799,80510,10810,28410,1954,998
Imports-14,497-16,145-6,790-7,707-7,972-8,173-3,985
Trade surplus5,4164,3343,0152,4012,3122,0221,013
Services, remittances, and pensions-677-244-425-252-210-34-37
Government grants and capital-3,279-3,542- 1,566-1,713-1,814-1,728-939
U.S. direct investment abroad-1,598-1,557-802-796-705-852-556
Other U.S. long-term capital-1,011-1,209-313-698-686-523-457
Foreign long-term capital4662714323143261104284
Total-683- 1,947232-915-842-1,105-948
Seasonal influences-252530-3025
Major special transactions3497544704-2075349125
Total-186-1,403911-1,097-759-644-898
B. Unrecorded Transactions-905-1,025-447-458106-1,131106
C. Short-Term Capital. n.i.e.
U.S. private assets-1,541-507-845-696-234-27331
Foreign nonliquid capital2624981231399240629
Foreign liquid capital48834886402525-177-7
Total-791339-636-155383-4453
D. Liquid Liabilities to Foreign Commercial Banks595-148395200198-346383
E. Total (B through D)-1,101-834-688-413687-1,521542
F. Reserves and Related Items
Net IMF position-13562636-171281345-46
Liabilities, mainly liquid, to central banks and governments6817044-274955-19189543244
U.S. convertible currency holdings (increase—)-11617-18670-438455-33
Gold sales857890201656420470111
Total1,2872,237-2231,510722,165356
Memorandum item: reduction in monetary reserve assets and increase in liquid liabilities, seasonally adjusted2,3702,18654411,9291,0371,14958065
Source: U.S. Department of Commerce, Survey of Current Business, June 1963.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Advance debt repayments and subscriptions to international organizations.

Increases in foreign official holdings of U.S. Government nonmarketable, medium-term, inconvertible securities (credit of $251 million for the second half of 1962 and $63 million for the first quarter of 1963) are included with liquid liabilities.

Excluding the U.S. Government securities referred to in footnote 4.

Source: U.S. Department of Commerce, Survey of Current Business, June 1963.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Advance debt repayments and subscriptions to international organizations.

Increases in foreign official holdings of U.S. Government nonmarketable, medium-term, inconvertible securities (credit of $251 million for the second half of 1962 and $63 million for the first quarter of 1963) are included with liquid liabilities.

Excluding the U.S. Government securities referred to in footnote 4.

The trend in the deficit, quarter by quarter during 1962, is impossible to trace with any certainty because of special circumstances. The Canadian exchange crisis in the first half of the year and that country’s recovery after June had a strong favorable effect on many categories of transaction in the U.S. balance of payments during the first half of the year and an unfavorable influence in the second half. The amounts cannot be closely assessed in dollar terms, although such appraisals as can be made suggest that the favorable and unfavorable effects canceled out fairly well over the full year. The dock strikes in October and again beginning in December distorted the quarterly trade pattern in the second half of the year as well as in the first quarter of 1963. Here again, however, the net effect in 1962 is not believed to have been large.

The trade surplus in 1962 was almost $470 million below the annual rate of the July-December period of 1961, as a 5 per cent rise in imports was only partly offset by an increase of less than 2 per cent in exports. If trade with Japan is excluded, however, imports increased at only a slightly higher rate than exports, and the trade balance showed a much smaller decline in 1962. Military expenditures (net of military sales) at $2.4 billion were virtually the same in 1962 as in the second half of 1961 (at annual rate). Net receipts for other services in the same periods rose from $2.6 billion to $2.9 billion, mainly because of higher income from investments abroad. Remittances and pensions, and net U.S. Government grants and loans (excluding advance debt repayment), showed little change, the portion of government assistance that resulted in dollar payments to foreign countries and international institutions also remaining stable. U.S. direct investment abroad and other U.S. private long-term capital showed the customary large outflow, some $2.8 billion in 1962. As in recent years, the share of Western Europe in this outflow was substantial, and private investment in that area was maintained at the 1960-.61 level of about $1 billion; private investment in Latin America fell further, to about $100 million.

The recorded outflow of U.S. private short-term capital, which exceeded $1.5 billion in 1961 and had been almost as large in 1960, dropped to $0.5 billion in 1962. The major change was in the outflow to Japan, which ceased after the first quarter of 1962. On the other hand, there was a withdrawal of liquid capital by foreign commercial banks of $150 million in 1962, contrasted with an inflow of almost $600 million in 1961. The difference in the pattern of the two years is even greater if account is taken of the large temporary withdrawal of funds by foreign commercial banks late in 1961 and their return at the beginning of 1962; movements of this type did not occur on anything like the same scale at the end of 1962. This reversal of the movement of bank funds into the United States is believed to have had, to a considerable extent, a counterpart in changes in the flows of funds into and out of the Federal Republic of Germany and Italy; the relationships are necessarily indirect, however, since a large part of the transactions was conducted through the Euro-dollar market. After the year-end movements, the prevailing tendency was for German bank assets to be repatriated, while during the last quarter of 1962 and in early 1963 Italian commercial banks borrowed large amounts abroad. These developments brought about a rise in interest rates in the Euro-dollar market which may have influenced the movements of bank funds and those movements of U.S. short-term funds that are reflected in unrecorded transactions; the net debit for the latter item was about $0.9 billion in 1961 and over $1 billion in 1962. In both years, there was a substantial inflow of foreign short-term capital, other than bank funds, reaching about $750 million in 1961 and some $850 million in 1962 (Table 15, Group C). This inflow included short-term investments by international organizations and also, in 1962, advances on U.S. military exports.

As a result of all these transactions, the deficit financed by changes in U.S. reserves and foreign official reserve holdings in the United States and in IMF accounts increased from $1.3 billion in 1961 to $2.2 billion in 1962. By far the most important element in financing the increase was a shift from net use of the Fund’s dollar holdings by Fund members in 1961 to net repayments in 1962, which accounted for more than $750 million. U.S. official holdings of convertible currencies were almost unchanged in 1962, in contrast to an increase of more than $100 million in the preceding year. Gold sales and increases in claims on the United States that represent the reserves of foreign central banks and governments were virtually the same in both years. In 1962, these claims included $250 million of foreign official holdings of nonmarketable U.S. Treasury bonds denominated in foreign currencies with an original maturity of more than 12 months. During the early months of 1963, the U.S. Treasury continued to borrow from foreign central banks and governments, a technique that may help to moderate the outflow of gold.

During the first quarter of 1963, transactions in goods, services, aid, and U.S. Government long-term capital (excluding major special transactions) remained very close to the rate of the previous six months, although it appears that the adverse effects of the dock strike may not have been fully overcome by the end of March. Net outflows of private long-term capital, however, reached $1 billion in the first quarter of 1963, nearly double the amounts in the first quarters of the several previous years. U.S. direct investment abroad is estimated at more than $550 million, one of the largest amounts recorded for a single quarter, with direct investment in Western Europe alone showing a figure of over $0.4 billion. The other major source of long-term outflows was the issuance of new securities in the United States; Canadian bonds accounted for the bulk of these issues, which aggregated nearly $0.5 billion. Except for a large reduction—probably mainly for seasonal reasons—in liabilities to foreign banks, recorded changes in private short-term capital were minor. However, a decline in the balance on unrecorded transactions from a debit of almost $0.5 billion (seasonally adjusted) in each of the last two quarters of 1962 to a negligible debit in the succeeding quarter strongly suggests that unrecorded short-term outflows were sharply reduced. The deficit on all these transactions was about $350 million, a figure that coincides with the sales of U.S. Government convertible, nonmarketable securities to foreign official holders during the quarter.

United Kingdom and the Sterling Area

In 1962, the United Kingdom’s recorded current and long-term capital transactions were nearly in equilibrium, following deficits since 1958; after allowing for unrecorded transactions, there may have been a surplus of $250-300 million in the basic balance (Table 16, line C and part of line D). On a seasonally adjusted basis, the whole of this surplus appears to have been achieved in the first half of the year. The improvement in the current account, which had commenced in the second half of 1961, continued during the first half of 1962, deteriorated somewhat in the third quarter, but improved again in the last quarter. Long-term capital transactions, which had shown an exceptional net inflow of more than $200 million in the second half of 1961, were almost in balance in the first half of 1962 and reverted to a considerable outflow in the second half of the year. The improvement in the basic position after the middle of 1961 was supported by recorded and unrecorded movements of short-term capital, particularly during the early part of 1962.

Table 16.United Kingdom: Balance of Payments Summary, 1961-First Quarter 1963 1(In millions of U.S. dollars)
196119621963
FirstSecondFirstSecondFirst
19611962halfhalfhalfhalfquarter
A. Goods, Services, and Transfer Payments
Exports, seasonally adjusted10,82211,1665,4075,4155,5325,6342,876
Imports, seasonally adjusted-11,237-11,365-5,746-5,491-5,594-5,771-2,837
Trade balance, seasonally adjusted-415-199-339-76-62- 13739
Services and transfer payments, seasonally adjusted213386107106201185126
Total, seasonally adjusted-202187-2323013948165
Seasonal influences78-78141-141-8
Total, unadjusted-202187-154-48280-93157
B. Capital Movements, n.i.e.
Official long-term-117-294-33-84-76-218-28
Official liabilities to nonmonetary international institutions9872504822506
Private long-term
Investment abroad (net)-918-739-543-375-428-311-266
Investment in U.K. (net)79227751652627462313903
Total-145-186-361216-20-166-198
C. Total (A + B)-3471-515168260-259-41
D. Errors and Omissions136359379918117866
E. Private Short-Term Capital Movements, n.i.e.
Miscellaneous capital (mainly U.K. commercial banks)-174311-1374-37426348-9
Nonofficial sterling holdings
Sterling area2382381439514395113
Non-sterling area-8402-67-8292,4-114-10134-2503
Total-776482-82347305177-248
F. Official Monetary Movements
Net IMF position1,046-1,060-421,088-505-555
European central bank assistance904-904250
Other official sterling holdings
Sterling area190-1151903-1181183
Non-sterling area-165-182-21348-129-53-1373
U.K. gold and currency reserves (increase—)
Gold534-314367167-35137135
Other (mainly convertible currency)-61882995-713236593-143
Total987-8421,301-314-746-96223
Source: Central Statistical Office, Economic Trends, June 1963.

No sign indicates credit; minus sign indicates debit.

The purchase by the Ford Motor Company of the United States of the minority interest in its U.K. subsidiary for $367 million has been treated as if it had been completed in December 1960. It is therefore excluded from Group B, while the withdrawal of this amount of sterling from holdings is excluded from Group E.

For the first quarter of 1963, other official sterling holdings cover central monetary institutions only; nonmonetary official holdings are included with nonofficial sterling holdings; changes in acceptances outstanding are now included in nonofficial sterling holdings instead of miscellaneous capital; and certain liabilities formerly included in sterling holdings are now classified as private long-term investment in the United Kingdom or miscellaneous capital.

Assistance received from European central banks has all been entered in Group F, although part of it is classified in U.K. publications as liabilities to the private sector.

Source: Central Statistical Office, Economic Trends, June 1963.

No sign indicates credit; minus sign indicates debit.

The purchase by the Ford Motor Company of the United States of the minority interest in its U.K. subsidiary for $367 million has been treated as if it had been completed in December 1960. It is therefore excluded from Group B, while the withdrawal of this amount of sterling from holdings is excluded from Group E.

For the first quarter of 1963, other official sterling holdings cover central monetary institutions only; nonmonetary official holdings are included with nonofficial sterling holdings; changes in acceptances outstanding are now included in nonofficial sterling holdings instead of miscellaneous capital; and certain liabilities formerly included in sterling holdings are now classified as private long-term investment in the United Kingdom or miscellaneous capital.

Assistance received from European central banks has all been entered in Group F, although part of it is classified in U.K. publications as liabilities to the private sector.

The over-all position of the overseas sterling area remained strong in both 1961 and 1962, but this strength was not reflected in the United Kingdom’s reserves; during the two years, overseas sterling countries added the equivalent of $700 million to their own reserves in forms other than sterling, while their official sterling reserves rose little.

The United Kingdom’s exports rose quite rapidly in the first half of 1962, reflecting the general expansion in world production and trade; their value, seasonally adjusted, was about 5 per cent higher in the second quarter than in the first quarter of the year. This rise was due chiefly to a revival of exports to the sterling area (which had declined quite steeply in the course of 1961) and a further increase in exports to Western Europe, particularly the EEC countries. However, the rise in exports ceased toward the middle of 1962. During the second half of the year, there was a marked reduction in exports to Canada and Latin America, a cessation of the rapid growth of exports to the EEC countries, and a leveling off of exports to the sterling area. In 1962 as a whole, exports to the sterling area declined for the second year in succession, and the balance of trade with sterling countries showed a sizable deficit for the first time since 1953. The United Kingdom’s share of both exports and imports of the overseas sterling area again fell markedly.

In contrast to the imports of most industrial countries, those of the United Kingdom did not rise appreciably in value from 1961 to 1962, despite exceptionally heavy imports of food and fuels in the middle of the year, and despite a renewed growth of inventories, following some reduction in the first quarter. The seasonally adjusted value of imports reached its peak in the third quarter, when it was about $200 million (7 per cent) higher than at the end of 1961; it declined by about $100 million in the fourth quarter. The volume of imports had fallen slightly from 1960 to 1961, and an increase of about 3 per cent between 1961 and 1962 was just sufficient to bring them above the previous record, reached in 1960. The principal element in this increase was a 4 per cent growth in the volume of imports of food.

The surplus on transactions in invisibles, which had deteriorated sharply after 1958, recovered by about $170 million in 1962. Net receipts on profits and dividends rose, oil earnings revived, interest payments to overseas holders of sterling were reduced by lower interest rates, government expenditure rose less than in recent years, and the deficit on shipping was reduced.

The improvement in the total balance of current transactions of nearly $400 million from 1961 to 1962, and of more than $1,000 million from 1960 to 1962, occurred wholly in transactions with non-sterling countries. During these two years, the large current account deficit with these countries was reduced by about $1,350 million, while the surplus with sterling area countries declined.

The net outflow of private and official long-term capital was slightly larger in 1962 than in 1961, excluding the Ford Motor Company transaction. Private long-term investment in the United Kingdom was about the same in the two years, but it was at its peak in the second half of 1961, when it included a substantial net inflow of portfolio funds which ceased after the first quarter of 1962. Private investment abroad was materially lower than in 1961, partly as a result of lower investment by oil companies; other direct investment was about the same as in recent years. Official capital receipts in 1962 did not include any extraordinary items like the advance repayments of debt by the Federal Republic of Germany and France and the loan from Switzerland, which together amounted to more than $250 million in 1961. Thus, although new official lending was about the same as in recent years, the net outflow on official transactions increased by some $200 million.

In contrast to the large outflow of short-term funds in 1961, there was a marked inflow in 1962, mainly in the first quarter of the year when short-term interest rates in the United Kingdom were most favorable. In each month from January to March, funds held by London banks against deposits in foreign currencies rose substantially, reflecting both increases in such deposits and their greater utilization for domestic rather than foreign lending. A considerable growth in the positive balance for errors and omissions probably implies that unrecorded capital and monetary transactions were moderately positive in 1962, whereas they were negative for 1961 as a whole.

Favorable changes in both basic transactions and movements of short-term capital resulted in the over-all balance of the United Kingdom showing a substantial surplus in 1962, following a slightly larger deficit in 1961. As noted in an earlier chapter, the United Kingdom repaid its 1961 drawing to the Fund; liabilities to official holders of sterling also decreased substantially, and reserves fell by about $500 million. The reduction by countries in the overseas sterling area of their official sterling holdings in 1962, following a marked rise in 1961, in part reflected their net repayments to the Fund in 1962 following net drawings in 1961. Official sterling holdings of non-sterling countries were reduced in both years.

The improvement in the current balance continued in the first quarter of 1963. While imports remained unchanged, exports were 2 per cent higher than in the preceding quarter, as a result of a renewed expansion of exports to Western Europe and certain sterling area countries. Allowing for seasonal factors, the surplus on invisible transactions remained at the higher level attained in the last quarter of 1962, and the current account surplus ($165 million) was the largest since early 1959. However, the basic balance remained in deficit, as the net outflow of long-term capital increased to almost $200 million. Outward investment was higher and inward investment lower than in recent quarters, but this comparison is influenced by an important change in the classification of certain portfolio investments previously included in sterling holdings (see Table 16, footnote 3). There was also a marked outflow of short-term funds. At the end of January, and again in March, sterling came under strong pressure, unofficial holdings of sterling were sharply reduced, and reserves fell. These losses were largely offset by borrowing from European central banks. The position of sterling has since improved. Reserves rose in April and May, but declined in June when the assistance from central banks was repaid.

Federal Republic of Germany

The decline in the Federal Republic’s strong surplus position in international payments, which emerged in the course of 1961, continued in 1962 (Table 17). The basic balance of goods and services and long-term capital transactions, excluding advance debt repayments and certain other extraordinary transactions, showed a deficit of $325 million, compared with a surplus of about $650 million in 1961. The deterioration in the goods and services account was even more marked. Imports rose at an appreciable rate, exceeding that of exports, and payments on services, especially tourism, grew very rapidly. Consequently, the surplus on goods and services of about $600 million recorded in 1962 was only a little more than one third of that in each of the preceding two years. Apart from the nonrecurrence of the large advance payments of government debt, there was little alteration in the total of the long-term capital account. The balance of private long-term capital transactions changed from a small net outflow in the second half of 1961 to a renewed small net inflow in the first half of 1962; this increased further in the second half, owing to greater foreign net purchases of German bonds. The official capital outflow, excluding special transactions, remained in 1962 below that of the preceding years, as disbursements of development aid were slow in following the substantial commitments entered into by the Federal Government in recent years. Short-term capital transactions (other than commercial bank net foreign exchange assets and including errors and omissions) were virtually in balance in 1962 taken as a whole, whereas in both 1960 and 1961 they had resulted in a substantial net inflow.

Table 17.Federal Republic of Germany: Balance of Payments Summary, 1960-62 1(In millions of U.S. dollars)
19611962
FirstSecondFirstSecond
196019611962halfhalfhalfhalf
A. Goods, Services, and Transfer Payments
Exports f.o.b.11,41012,64413,2366,1706,4746,4606,776
Imports c.i.f.-10,101-10,920-12,2632-5,243-5,677-6,0352-6,228
Other merchandise-45-116-119-33-83-83-36
Trade balance1,2641,608854894714342512
Paid services to foreign troops9439491,076493456516560
Other services-440-956-1,339-345-611-469-870
Transfer payments-685-865-941-369-496-489-452
Total1,082736-35067363-100-250
B. Long-Term Capital
Bonds33372153156-8440113
Shares-9282371451371423
Other private long-term capital-90-14183-67-743548
Advance debt redemption-780-780
Other government long-term capital-276-286-248-116-170-105-143
Repayments on post-EPU claims2782363566170629
Other Bundesbank assets (increase—)3-25-2016-29-17215
Total211-81866-625-193-975
C. Total (A plus B)1,293-82-28448-130-109-175
Total, excluding certain extraordinary transactions41,040663-325791-128-116-209
D. Short-Term Capital, n.i.e. (including net errors and omissions)5784306782-352155-149
E. Commercial Bank Liquid Foreign Assets (net)347-25359-791538-399458
F. IMF Position and Net Reserves
Net IMF position-40-330120-135-1954080
Bundesbank liabilities5-215143-1646-1
Foreign exchange (increase—)5-1,849948110495453311-201
Monetary gold (increase—)-334-692-16-542-150-4-12
Total-2,218-95219-39-56353-134
Source: Data provided by the Deutsche Bundesbank.

No sign indicates credit; minus sign indicates debit.

Because of changes in customs procedures, this amount is $116 million higher than it would have been on a basis comparable with the figures for earlier years.

Covers IBRD bonds and notes and repayments received on consolidated credits.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption, (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes and repayments received on consolidated credits. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

Foreign exchange covers freely usable foreign exchange and earmarked assets.

Source: Data provided by the Deutsche Bundesbank.

No sign indicates credit; minus sign indicates debit.

Because of changes in customs procedures, this amount is $116 million higher than it would have been on a basis comparable with the figures for earlier years.

Covers IBRD bonds and notes and repayments received on consolidated credits.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption, (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes and repayments received on consolidated credits. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

Foreign exchange covers freely usable foreign exchange and earmarked assets.

The commercial banks’ net foreign exchange assets decreased during 1962, after having risen early in the year following the usual year-end repatriations; at the end of January 1963, they were about $700 million less than they had been 12 months earlier. To some extent this reduction was due to the gradual tightening of domestic bank liquidity (which was no longer reinforced by large external surpluses) while demand for bank credit remained high. The Bundesbank refrained from action that might have strengthened bank liquidity, but—with a view to diminishing seasonal fluctuations in bank assets held abroad—it encouraged the holding of liquid bank assets in domestic money market paper rather than in foreign exchange assets; this was done through repeated increases in discounts on domestic money market paper sold to the banks. With the same end in view, the Bundesbank tightened the special conditions that it had earlier offered to the banks for swap transactions in U.S. dollar assets. In a special attempt to discourage as far as possible temporary year-end repatriation of foreign bank assets for window-dressing purposes, the Bundesbank declined to enter into swaps maturing during December 1962.

Imports rose at a particularly brisk pace in the first half of 1962, when they were 15 per cent higher in value in terms of dollars (c.i.f.) than in the same period of 1961. Special factors explain part of this sharp rise: the poor harvest of 1961 required larger purchases abroad of food and feeding stuffs; the steep rise in food imports was further augmented by the desire of importers to forestall price increases for imported farm products following the introduction on July 30, 1962 of the new marketing regulations under the common agricultural policy arrangements of the EEC; in the early months of the year, there was also a purely statistical increase in imports owing to changes in German customs procedures. To an important extent, however, the rise in imports reflected the growing share of foreign supplies in the German market for industrial goods. The value of imports of finished products (in terms of deutsche mark) rose by 20 per cent, following a 13 per cent increase in 1961; these imports accounted for 38 per cent of the total in 1962, compared with 35 per cent in 1961. Even if imports of armaments, which were particularly large in 1962, are eliminated, evidence of a very substantial rise in purchases of finished manufactured goods remains. This rise, which was especially marked in consumer goods, must to some extent be attributed to the present stronger competitive position of foreign products in the German market. In terms of deutsche mark, import prices declined on the average by 2 per cent in 1962, following a 3.5 per cent decline in 1961, while domestic prices rose appreciably. Moreover, the persistence of considerable pressure of demand on available domestic resources provided a strong stimulus to imports.

A certain weakening of the competitive position of German products in foreign markets is also apparent, although the recent less rapid growth of exports has been due, to an important extent, to a slower expansion of demand, notably of investment activity, in industrial countries in Europe. The increase from 1961 to 1962 of nearly 5 per cent in the dollar value of German exports was less than half the rate of growth from 1960 to 1961. This reduced rate is in line with that recorded for exports of other important industrial countries, but the tendency for Germany’s share in total world exports to rise has apparently not continued. The volume of exports conspicuously slackened in the early part of the year, but improved in the later months as export orders increased somewhat. The unit value of total exports declined slightly from 1961 to 1962; but those of finished manufactures, which account for nearly two thirds of total German exports, rose by 3 per cent, as they had done in 1961. The regional distribution of foreign trade—especially exports—showed a further shift toward the other members of the European Economic Community.

The balance on services account (excluding freight and insurance payments included in the cost of imports) moved into a deficit of more than $250 million in 1962, after a virtual balance in 1961 had followed considerable surpluses in earlier years. German tourist expenditures abroad rose by one third, to nearly $1.2 billion, and remittances from foreigners working in the Federal Republic again increased substantially. The net payment for profits, interest, and dividends also increased, though by less than in 1961, reflecting a smaller growth of profits. Receipts for deliveries and services to foreign troops rose from $950 million in 1960 and 1961 to $1.1 billion in 1962. Net transfer payments, consisting mainly of indemnification payments by the Government, were nearly $80 million higher in 1962 than a year earlier; however, indemnification payments are declining.

In the first quarter of 1963, both imports and exports were slightly greater than those in the same period in 1962; the trade surplus was virtually unchanged.

France and the Franc Area

The surplus of Metropolitan France on current transactions with the non-franc area was much the same in 1962 as in 1961, declining by no more than about $100 million, to $820 million (Table 18). This resulted from a somewhat larger reduction in the surplus on invisibles (mainly because of a reduction in net receipts from tourism and an increase in private transfers abroad). On a payments basis, the trade surplus with this area increased somewhat, although according to customs data the value of imports rose slightly faster than exports to that area. The surplus on current transactions was somewhat lower in the second half of the year than in the first half, owing partly to a seasonal reduction in net service receipts and partly to the replacement of a net inflow of transfer payments by a net outflow.

Table 18.Franc Area: Balance of Payments Summary, 1960 and 19621(In millions of U.S. dollars)
19611962
19611962First

half
Second

half
First

half
Second

half
I. Metropolitan France
A. Goods, Services, and Transfer Payments
Trade balance, payments basis417481167250232249
Services467287270197182105
Transfer payments7056284278-22
Total, payments basis954824465489492332
B. Long-Term Capital
Private370397211159179218
Advance debt redemption-320-584-40-280-119-465
Other official-120-137-14-106-52-85
Total-70-324157-2278-332
C. Total (A4-B)884500622262500
Total, excluding advance debt redemption1,2041,084662542619465
D. Private Nonmonetary Short-Term Capital
Operations pending settlement-1843-3517358
Other-87-114-46-41-70-44
Total-105-71-81-24-35-36
E. Total (C + D)779429541238465-36
II. Rest of Franc Area
F. Net Transactions with Non-Franc Area11815051675793
III. Total Franc Area
G. Net Errors and Omissions5419272756-37
H. Commercial Bank Assets (net)12288150-287513
I. Official Monetary Movements
Net IMF position-233-12-28-205-6250
Other liabilities52-13-1264-229
Foreign exchange (increase—)-412-195-350-62-420225
Monetary gold (increase—)-480-466-379-101-149-317
Total-1,073-686-769-304-653-33
Source: Data provided by the French authorities.

Groups A through E cover settlements by institutions in Metropolitan France on account of transactions of any part of the franc area with the non-franc area, and Group F covers similar settlements by institutions in the rest of the franc area. This distinction is administrative and does not necessarily coincide with a division between transactions for account of Metropolitan France and those for account of the rest of the franc area. Groups H and I cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world, but exclude changes in the independent reserves of countries in the rest of the franc area. No sign indicates credit; minus indicates debit.

Source: Data provided by the French authorities.

Groups A through E cover settlements by institutions in Metropolitan France on account of transactions of any part of the franc area with the non-franc area, and Group F covers similar settlements by institutions in the rest of the franc area. This distinction is administrative and does not necessarily coincide with a division between transactions for account of Metropolitan France and those for account of the rest of the franc area. Groups H and I cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world, but exclude changes in the independent reserves of countries in the rest of the franc area. No sign indicates credit; minus indicates debit.

The traditional trade surplus of France with countries in the outer franc area had been considerably reduced in 1961 (when it amounted to about $450 million, customs figures, with imports estimated f.o.b.). For most of 1962 it virtually disappeared, but it reappeared in the last quarter of the year and the first quarter of 1963. Imports from these countries increased slightly in value in 1962, but France’s exports to them fell by about $400 million (more than one fifth). The major cause was a reduction in exports to Algeria, related to the political changes in that country. These shifts of trade within the franc area had no immediate impact on the balance of payments of the franc area as a whole. The over-all surplus of the outer franc area with non-franc area countries increased in 1962 from $118 million to $150 million.

The net inflow ($400 million) of private long-term capital into Metropolitan France from the non-franc area, and the outflow ($130 million) to that area of official long-term capital, other than advance debt redemption, were much the same as in 1961. The combined surplus on current transactions and these capital transactions again exceeded $1,000 million, and was only about $100 million smaller than in 1961. That the net reserves held by France, including those of the other countries in the franc area, rose by some $400 million less in 1962 than in 1961 was due principally to the fact that advance debt repayments totaled $585 million in 1962, against $320 million in 1961. Since the greater part of these repayments was made in the second half of the year, when the current surplus was also reduced, there was little accumulation of net reserves during that period.

Italy

The strong current account position of Italy, and the apparent ability of the economy to attract considerable inward flows of capital (both short-term and long-term), have for many years been supported by such factors as a high degree of price stability, an elastic supply of labor, and a rapid rate of economic growth. For a number of years, wage costs rose less in Italy than in most other countries in Western Europe, owing mainly to substantial increases in productivity and to the prevalence of a rather high level of unemployment. The rapid economic expansion in recent years, and the concomitant decline in unemployment—despite the shift of underemployed agricultural labor to the industrial labor force—together with large-scale employment of Italian workers in other countries in Europe, have gradually given rise to pressures on wages and prices in Italy also. These developments have led to rising pressures of demand in the economy, which in turn have resulted in the weakening of Italy’s current account position (Table 19). While the decline in the current balance occurred late in the year, developments during the early months of 1963 suggest that the change was more than temporary, and give reasons for believing that a major current account surplus will not reappear in Italy’s balance of payments for some time to come.

Table 19.Italy: Balance of Payments Summary, 1961-First Quarter 19631(In millions of U.S. dollars)
196119621963
19611962First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
A. Goods, Services, and Transfer Payments
Exports f.o.b.3,8514,4578929381,0031,0181,0931,0931,1491,1221,130
Imports c.i.f.-4,937-5,884-1,241-1,231-1,181-1,284-1,389-1,436-1,398-1,661-1,641
Trade balance-1,086-1,427-349-293-178-266-296-343-249-539-511
Services (net)984979171232375206158232399190190
Transfer payments (net)46557890105132138109124178167110
Total363130-884432978-2913328-182-211
B. Capital Movements (excluding Groups
D, E, and F) and Net Errors and
Omissions
Remittances of Italian banknotes-329-766-77-123-43-86-252-202-105-207-525
Foreign investments in Italy666844133244123166195201224224
Italian investments abroad-115-279-21-25-39-30-36-59-129-55468
Other and net errors and omissions-9122-432020-628221755
Total213-79-81166144-65-38717-57
C. Total (A plus B)57651-96160390122-94-25335-165-268
D. Commercial Banks Foreign Assets,
Net (increase—)40430-3340-1750-4316-45502154
E. Advance Repayment of Foreign Debt-178-178
F. Official Monetary Movements
Net IMF position-17540-15-28-120-1220-525-5
Gold and free exchange (increase—)-339-22144-172-262-4914040-13-189115
Other foreign assets of IJIC and Bank
of Italy (increase—)-102-321--9-111-23-26-124-1484
Total-616-303129-200-373-1721379-112-337114
Source: Ufficio Italiano dei Cambi, Movimento Valutario.

No sign indicates credit; minus sign indicates debit.

Source: Ufficio Italiano dei Cambi, Movimento Valutario.

No sign indicates credit; minus sign indicates debit.

The rise in Italian exports continued in 1962, although at a reduced rate, but it was far exceeded by the rise in imports, so that the trade balance deteriorated by some $350 million. While receipts on account of transfer payments (mainly workers’ remittances) rose further by about $100 million, the current surplus fell by about $250 million, to $130 million.1 Whereas for the first nine months of 1962 it was slightly higher than that for the corresponding period of 1961, a major deterioration set in during the fourth quarter, when the current surplus was about $250 million lower than in the same quarter a year earlier, the main factor being a sharp rise in imports. During the first three months of 1963, the customary seasonal deficit on current account was much higher than in the same months of 1962.

The reduction in the current surplus appears to have been accompanied by a deterioration in the balance of payments on capital account, excluding transactions of monetary institutions. Italy’s position on capital account as a whole is difficult to assess because of large remittances by Italian residents of Italian banknotes, which are subsequently returned to Italy. The use made of the notes sent abroad is not known; it is believed, however, that part of them are used for capital transactions through foreign banking institutions, mainly investments in Italy, the figures for which are therefore believed to be overstated. Including such remittances and other unrecorded transactions, there was a change, by almost $300 million, from a net inflow in 1961 to a net outflow in 1962 on account of capital transactions, other than those of monetary institutions.

While changes in the foreign assets and liabilities of commercial banks remained moderate during the first three quarters of the year, there was a net inflow of funds of more than $500 million during the last quarter, representing almost exclusively borrowing. This inflow was made possible by the removal, in November 1962, of the obligation imposed on the banks to match their foreign assets and liabilities. This obligation was removed to ease domestic liquidity, which was being increasingly strained.

In the course of 1962, the Italian monetary authorities cooperated with those of the United States in easing pressures on the U.S. dollar, both by making advance debt repayments to the U.S. Government of $178 million and by investing $150 million of foreign assets in nonmarketable U.S. Treasury bonds. The Italian gold reserves have not risen appreciably since the end of 1960.

Other Countries in Continental Europe

Among the other manufacturing countries in continental Europe (Table 20), there was a notable deterioration in the current balances of Denmark and Switzerland between 1961 and 1962. In Norway (where the current deficit was sizable in both 1961 and 1962) as well as in Denmark, an inflow of long-term and short-term capital, including government and commercial bank borrowing, covered most of the current deficit, so that the effect on official reserves was moderate. In both countries, the deficits were related to sharp increases in prices and incomes, and in Norway to a considerable increase in net imports of ships compared with 1960; the measures taken in Denmark to redress the balance of payments are described in Chapter 7. 2

Table 20.Other Manufacturing Countries in Continental Europe: Balance of Payments Summaries, 1961 and 19621(In millions of U.S. dollars)
Other
Goods,BasicNonmonetaryNet
Services,OfficialOtherExtraor-BalanceShort-TermCommercial
andTransfersNonmonetarydinary(Col. 1 + 2 + 3CapitalBank
PrivateandLong-TermTrans-minusand ErrorsShort-TermNet
TransfersCapital2Capitalactions3Col. 4)and OmissionsAssets4Reserves4,5
(1)(2)(3)(4)(5)(6)(7)(8)
Austria1961-5261454758-141
1962652398318378-3-261
Belgium-Luxembourg196158-7292-180258-4230-304
196272-5426-246834-11436
Denmark1961-11110828-27-124-4
1962-2472797-123336525
Netherlands1961228-147-127-6923-65170-59
1962228-114-91-2649-683015
Norway1961-204-7119-13-7920693
1962-206-1198-15-10495222
Sweden196122-4123271559-194
19628-17-41-14109-4-92
Switzerland1961-210-67-3081,117-95-437
1962-350-285755-120
Source: Based on data reported to the International Monetary Fund. For 1962, the data for some countries are provisional and are not comparable with those for 1961.

No sign indicates credit; minus sign indicates debit.

Excluding capital movements considered as reserve movements; see footnote 5.

Included in column 2; mainly advance debt repayments, but include all repayments on post-EPU debts.

Increase (—).

Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in central monetary sector, in short-term liabilities, and in net IMF position. Repayments on post-EPU claims and debts are included with official transfers and capital.

Source: Based on data reported to the International Monetary Fund. For 1962, the data for some countries are provisional and are not comparable with those for 1961.

No sign indicates credit; minus sign indicates debit.

Excluding capital movements considered as reserve movements; see footnote 5.

Included in column 2; mainly advance debt repayments, but include all repayments on post-EPU debts.

Increase (—).

Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in central monetary sector, in short-term liabilities, and in net IMF position. Repayments on post-EPU claims and debts are included with official transfers and capital.

Despite rising deficits on current account, and a reported outflow of long-term capital of about $300 million in both 1961 and 1962, the official reserves of Switzerland rose in both years, but the increase ($120 million) in 1962 was $300 million smaller than in 1961. However, in 1962, the Swiss Government invested $100 million in special nonmarketable U.S. Treasury bonds denominated in Swiss francs. In spite of efforts by the Swiss authorities to stem an inflow of capital, the unrecorded inflow of long-term and short-term capital into Switzerland appears to have been substantial in both years, reaching more than $1 billion in 1961 and somewhat less than $1 billion in 1962. It is believed that much of the unrecorded inflow stems from a repatriation of Swiss funds previously invested abroad, but it probably also includes considerable amounts of foreign capital. While some allowance has been made in the estimate, shown in Chart 7,3 of the combined basic balance of the manufacturing countries in continental Europe, for an unrecorded inflow of long-term capital into Switzerland, it is mainly because of the large credit errors and omissions in the Swiss balance of payments that the area’s basic surplus is believed to be underestimated.

Japan

In 1962, for the third time within ten years, Japan demonstrated its ability to correct a balance of payments deficit by moderating the expansion of production and stepping up efforts toward export promotion. This success in adjusting the balance of payments is particularly notable in view of the fact that neither exports nor imports account for more than about 10 per cent of Japan’s gross national product. The adjustment in 1962 was all the more remarkable because it occurred in the face of a continued liberalization of trade.

The deficit in Japan’s balance of payments had been brought about by an excessively high rate of economic expansion (financed in part by an inflow of short-term capital) combined with the effects on exports of the 1960 recession in the United States. The subsequent improvement was related both to a series of measures taken by the Japanese authorities to redress the balance of payments, resulting mainly in a reduction of imports, and to a renewed sharp rise in exports, stimulated in large part not only by the recovery of economic activity in the United States but also by reduced discrimination against Japanese exports in Europe. Contributing to the improvement in Japan’s balance of payments in 1962 was a net inflow of $147 million of private long-term capital (Table 21) in contrast to a net outflow of $41 million in 1961, the change arising in part from a decline in Japanese investment abroad.

Table 21.Japan: Balance of Payments Summary, 1961-621(In millions of U.S. dollars)
19611962
FirstSecondFirstSecond
196019611962halfhalfhalfhalf
A. Goods, Services, and Private Transfer Payments
Exports f.o.b.3,978.24,148.64,860.31,913.32,235.32,195.12,665.2
Imports f.o.b.-3,710.7-4,707.1-4,458.7-2,281.9-2,425.2-2,309.8-2,148.9
Trade balance267.5-558.5401.6-368.6-189.9-114.7516.3
Special government receipts2412.6389.2376.9190.9198.3179.7197.2
Other services and private transfer payments-456.4-714.2-742.4-330.9-383.3-410.7-331.7
Total223.7-883.536.1-508.6-374.9-345.7381.8
B. Private Long-Term Capital
Direct investment-72.9-34.7-19.0-18.2-16.5-11.7-7.3
Other-10.3-6.5166.614.2-20.748.3118.3
Total-83.2-41.2147.6-4.0-37.236.6111.0
C. Central Government Transfer Payments and
Nonmonetary Capital
Reparations and loans extended-87.3-112.4-80.9-62.2-50.2-40.2-40.7
IBRD loans received (net)74.965.250.236.728.526.423.8
Other 3-34.8-18.4-44.0-10.0-8.4-30.9-13.1
Total-47.2-65.6-74.7-35.5-30.1-44.7-30.0
D. Total (A through C)93.3-990.3109.0-548.1-442.2-353.8462.8
E. Net Errors and Omissions32.519.05.749.6-30.654.5-48.8
F. Private Short-Term Capital
Nonmonetary sector-15.821.0107.7-20.641.654.153.6
Commercial banks
Liabilities596.0781.6100.6576.9204.7105.6-5.0
Assets-202.1-229.8-86.711.6-241.458.4-145.1
Total378.1572.8121.6567.94.9218.1-96.5
G. Treasury and Bank of Japan Monetary Capital and Gold
Net IMF position-55.0-55.0
Payments agreement (net)14.64.115.810.6-6.516.3-0.5
Other liabilities 3-18.597.2102.28.488.8201.3-99.1
Official reserves (increase—)-500.0352.2-354.3-88.4440.6-136.4-217.9
Total-503.9398.5-236.3-69.4467.981.2-317.5
Source: Based on data reported to the International Monetary Fund.

No sign indicates credit; minus sign indicates debit.

Including sales to U.S. and UN forces under the special procurement program.

Yen portions of subscriptions to the International Development Association other than amounts immediately converted to U.S. dollars ($6.0 million for 1960 and also for 1961), and the corresponding increases in liabilities are excluded from this table.

Source: Based on data reported to the International Monetary Fund.

No sign indicates credit; minus sign indicates debit.

Including sales to U.S. and UN forces under the special procurement program.

Yen portions of subscriptions to the International Development Association other than amounts immediately converted to U.S. dollars ($6.0 million for 1960 and also for 1961), and the corresponding increases in liabilities are excluded from this table.

In the third quarter of 1962, Japan’s basic balance changed to a surplus, after being in deficit for the preceding six quarters. The surplus in the second half of 1962 more than offset the deficit in the first half, so that a surplus of $109 million was recorded for the full year. The deficit for 1961 was $990 million. The predominant factor in the change from deficit in 1961 to surplus in 1962 was the expansion of exports by 16 per cent, following an increase of about 5 per cent from 1960 to 1961. Imports were 5 per cent lower than in 1961, after rising by more than 25 per cent from 1960 to 1961; and the trade balance changed from a deficit of $558 million in 1961 to a surplus of $402 million in 1962.

Almost half the increase in exports was in shipments to the United States, while imports from the United States decreased by considerably more than the decline in Japan’s total imports. At the same time, trade with Europe and with Asian countries expanded in both directions, exports, however, rising much more than imports. Trade with other areas changed only moderately, although there was some increase in exports to Western Pacific countries, mainly Australia.

The net inflow of private short-term capital in 1962 was much less than in either 1960 or 1961. In the second half of 1962 there was, in fact, a net outflow. At mid-1962, as described in Chapter 7, 4 the Japanese authorities introduced certain measures aimed at discouraging a further inflow of foreign short-term capital. Because of the changes in short-term capital movements, the improvement in the over-all balance of payments was considerably less than that in the basic balance.

Part of the over-all deficit in the second half of 1961 and early 1962 had been financed by official short-term borrowing, on which repayments began late in 1962. By that time, Japanese reserves had been restored to their level at the end of 1960, and while repayments of official borrowing continued through the early months of 1963, there was a further small rise in reserves. In September 1962, an agreement was concluded between the Governments of Japan and the United States, under which Japan will pay to the United States, over a period of 15 years, $490 million in settlement for postwar economic assistance received from the United States.

1This figure, which is derived from Table 19, is on a payments basis; the current surplus on a transactions basis has been estimated for both 1961 and 1962 at about $150 million higher than indicated in that table.
2Page 113.
3Page 117.
4Page 106.

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