R E ST R I C T E D Report No. A.S. 59 FILECI? This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT QUARTERLY ECONOMIC REVIEW No. 7 March 1957 Department of Operations Asia and Middle East EXCHANGE RATES IN TERMS OF U.S. DOLLARS LEBANON - pound a $0.31 IRAN - rial * $0.013 PAKISTAN - rupee a $0.21 INDIA - rupee = $0.21 CEYLON - rupee * $0. 21 BURMA - kyat . $0.21 THAILAND - baht $0.049 JAPAN - yen = $0.0028 TIABIE aF CONTENTS Pag RECENT CHAI&ES IN IDDLE EAST CRIUDE OIL PRODUCTION .* ..... 1 LEBANON ................................... 3 IRAN .*...*to..................... .***..* 4 PAKISTAN ....... . .................. 8 INDIA ............................ .................. 12 CEYLON .................................... .................. 15 BURMA .E. . ..... 18 THAILAND . ............. ..................... 21 JAPAN ................................ ... 24 RECENT CHANGES IN MIDDLE EAST CRUDE OIL PRODUCTION Production of crude oil in the principal Middle East producing countries decreased 27% in the fourth as compared with the third quarter of 1956. All of this cutback occurred in November and Dec- ember when production was about 43% lower than in September-October. For 1956 as a whole Middle East crude production was only 3.4% higher than in 1955, compared to an increase of 13% which had been forecast prior to the Suez crisis. Prices of crude f.o.b. Persian Gulf ports as of the latter part of January 1957 were unchanged as compared with the pre-crisis period, apparently the higher costs of transpmrting Middle East oil around the Cape offsetting the increases in prices of Western Hemisphere crude (over 10% for East Texas and Venezuelan oil). The price of Middle East oil at Mediterranean ports increased about 9.4% during this period. The main brunt of the reduction in Middle East output fell on Iraq as a result of the stoppage of flow through the Iraq Petroleum Company pipeline across Syria from the Northern Iraq fields. Kuwait, Saudi Arabia and Iran were also adversely affected by the tanker short- age resulting from the absorption of tankers in the longer haul around Africa. In the case of Iran the cutback was only about 15%, however, owing, in part, to expansion mf throughput at the Abadan refinery. Assuming that the Canal is opened in the near future the longer term loss of revenues to Kuwait, Saudi Arabia and Iran attributable to the Suez situation may not be significant since the prices of crude on the world markets are not apt to return to the pre-crisis levels and thus they will be compensated in part at least for the temporary reduc- tion in export volume. In the case of Iraq, production increased some- what in January 1957 because of larger production in the South Iraq fields. It is reported that the Syrian Government has now agreed to permit the Iraq Petroleum Company to begin the repair of its pipeline and to resume pumping operations. By the temporary expedient of laying pipe to by-pass the damaged pumping stations the Syrian pipeline could resume over 40% of normal throughput in a week or so. This would re- store total Iraq exports to about 60% of the pre-crisis level. However, full repair of the pumping stations may require a considerable period of time. Middle East production as a whole was 28% higher in January 1957, than in the low month of November, and had recovered to 64% of the pre- crisis high ef October 1956. This compares with 58% of October production in December and 50% in November. In January, Iran, in contrast to other producers, exceeded October production by 5%. -1- Crude Oil Production in the Middle East, 1956 Millions of Metric Tons % Pro- % Pro- duction duction in fourth First Second in Nov.- quarter of half half Total Dec. of third quar- January 1956 July August September October November December 1956 1956 Sep.-Oct. ter 1956 1957* Iran 12.23 2.46 2,25 2.33 2.60 2.09 2.11 13*84 26.07 85 97 2.73 Iraq 16.97 3.16 3.1 3.06 3.16 0.73 0.88 14.10 31.07 26 51 0.92 Kuwait 29.43 5.75 5.22 4.83 5.32 2.28 3.44 26.84 56.27 56 70 3-87 Babrein 0.75 0.13 0.13 0.12 0.13 0.12 0.13 0.76 1.51 100 100 0.13 Saudi Arabia 25.45 4.28 4.17 4,20 4.37 2.88 2.86 22.76 48,21 67 80 2.74 Total 84.83 15.78 15.88 14e54 16.18 8.10 9.42 78.30 163.13 57 73 10.39 U.S9A. 176.24 29.70 30.14 28.60 29.18 28.94 29.00* 175.56 351.80 100 98 Venezuela 62.90 11.15 11.18 10.94 11U50 11U51 11.50* 67.78 130.68 103 104 / Includes Kuwait Neutral Zone. * PreliminLry. -2- LEBANON Business activity slowed down somewhat in Lebanon during the fourth quarter of 1956 owing to concern about the Middle East situation and a reduction in lebanese transit trade, particularly with Syria. Bank credit was tighter and retail trade was reduced. The flow of goods through the Port of Beirut was reduced about 18% as between October and November. The number of new building permits issued in Beirut also declined sharply. As of the end of November official foreign exchange and gold reserves had declined about 5% as compared with July, reversing an upward trend that had prevailed for several years. There does not seem to have been much speculative pressure on prices which increased only slightly despite a considerable increase in currency in circulation. No comprehensive data are as yet available on Lebanese foreign trade or government finances for 1956. Trade returns for the first nine months would indicate that both exports and imports were higher than in the corresponding period of 1955 and that the trade gap to be financed from profits on transit and entrepot trade, tourism, and other invisible receipts increased by about $15 million or over 11%. The ordinary budget (apart from the budgets of autonomous agencies and developpent projects) for 1957 provides for an increase in revenues of about 10% over 1956. -3- LEMIION 1955 1956 1951 1952 1953 1954 1955 I II I}I IV I II III IV POPULATION (million) 1,304 1,338 1,417 1,447 1,483 NET NATIONAL PRODUCT (Lk million) 1,071 1,090 1,250 1,380 1,440 NET CAPITAL IN3TES1INJT (L. million) 131 150 154 165 - PRICGS (1953 = 100) UElIesale pricea 122 I}U 100 92 93 92 91 93 96 99 98 98 98 / Cost of living 107 107 100 95 96 95 95 97 99 102 103 101 102 MiOM SUPPLY (IL mil1ion Currency (gess) 212 205 209 246 271 247 256 268 271 274 286 300 342 / Demand deposits 253 301 324 362 444 397 417 437 444 458 477 473 Totil. 1465 50b 534 60 715 6414 673 705 7}5 733 763 773 TIE DEPOSITS IN BANKS (L million) 6 12 19 27 39 29 28 35 39 39 39 43 BANK CE!DTT OUTSTANDDING (XI amllion) 318 356 357 402 492 529 / PUBLIC BUDGET (IL million)1 Rwecelpto 161 163 177 197 EaqxenSitrea _-127 -139 -131 -160 f 34 p24 f146 f'37 GOLD AND FOREIGN ASSETS B.S.L. ANDWMERMFY (US # minion) Gold 26.3 30.6 34.7 63.1 73.7 63.1 66.7 66.7 73.7 73.7 73.7 73.7 73.71 Foreign exchange 13.2 11.6 20.5 13.0 12.8 15.8 14.4 18.8 12.8 12.4 13.6 12,2 9.5 r (of wbich French francs) (12.0) (10.9) (12.8) (I1.6) (10.1) (11.14) (10.8) (10.6) (10.1) (9.3) (8.9) (7.8) (7.6)/ Total 39.5 42,Z 55.2 76.1 5.5 76.9 ta.1 o5.5 oo.5 66.1 47.3 65.9 832 y November. V/ Provisional estimate for Yay. Including oxtra-budgetary expenditures. -4- IRAN Based mainly on a level of oil production about 64% higher than in 1955 and the utilization of over $70 million in foreign loans and grants, Iran was able to sustain a rapidly increasing rate of expenditure on ec- onomic development in 1956 while maintaining a reasonable degree of ec- onomic stability. This was accomplished principally through a policy of liberal import control under which foreign exchange received by the Govern- ment in the form of oil revenues and foreign grants and loans and which was excess to its own needs, was made available for commercial imports. The rials obtained by the sale of this foreign exchange for private imports was adequate to cover the local currency costs of the development program and other public expenditures not met from internal revenues. Private bank credit expansion was moderate and prices reasonably stable except for some increases late in the year mainly attributed to the Suez crisis. Although complete data are not yet available, it appears probable that Iran's foreign exchange receipts increased about $80 million, or 25%, as between 1955 and 1956. Exports, excluding oil, seem to have declined slightly owing to smaller realizations from raw cotton and rice, and U.S. aid received as foreign exchange was also probably somewhat reduced. Thus the increased income from the oil industry of about $60 million, the utili- zation of a new IMF drawing of $17.5 million and about $10 million under the 1955 Eximbank loan, accounted for the rise in receipts. Foreign exchange and gold reserves increased about $20 million for the year to $230 million equivalent on December 20, 1956, approximately equal to 80% of annual imports. Imports appear to have increased about $60 million, or by roughly 20%, as between 1955 and 1956. Probably most of this increase occurred in the public sector as a result of the expanded development program. Crude oil output by the foreign oil consortium for 1956 was about 31 million cubic meters, as compared with about 19 million cubic meters in 1955. Under the oil agreement, the Consortium had guaranteed exports equivalent to 27.5 million cubic meters in the "agreement year" ending in January 1957. Since acquisitions of oil products from the Consortium for domestic consumption are normally about 2 million cubic meters, it appears that the agreed minimum for exports was exceeded by possibly 6%. Earlier estimates had anticipated exports of about 30 million cubic meters in 1956. This might have been attained except for a curtailment in production, mainly in November, because of lack of shipping space associated with the blocking of Suez through which one half to two thirds of Iranian crude is normally exported. The refinery throughput at Abadan was increased to somewhat more than half of crude production as a result of the shipping shortage. Iranian income from the oil industry amounted to $142.4 million equivalent during the first nine months of 1956, $112 million from oil revenues and $30.4 million from rial purchases by the Consortium for local expenditures. Oil revenues for 1956 as a whole are reported as $146 million. For the Iranian year ending March 20, 1957, foreign exchange receipts from oil should ap- proximate $200 million, or about 43% higher than the previous year. If oil revenues paid to Iran by the Consortium amount to about $150 million equivalent in Iranian year 1956/57, as appears likely, the Plan Organization would receive about $86 million equivalent to carry out the Seven Year Program. During the first nine months of this period (ending December 20, 1956) Plan oil revenues were reported as about $55 million, -5- and expenditures $81 million. Plan expenditures during the Iranian year ending March 20, 1957 will probably be about $110 million, making a total of $137 million for the first year and a half of the Seven Year Program as compared with oil revenues of about $112 million. Some of the more significant development projects undertaken or carried out during the last part of 1956 were the approval and contracting for the construction of the Karaj dam at an estimated cost of $53 million, the completion of a 300 ton per day privately owned cement plant near Teheran and the virtual completion of the Ahwaz-Teheran pipeline for sup- plying the Teheran area with products from the Abadan refinery. Foreign oil companies are reported to be negotiating with the Government for the development of the new oil field at Qum and the oil resources of the con- tinental shelf in the Persian Gulf. In respect of the General Budget, a deficit of Rials 2.45 billion is reported for the first ten months (March 21, 1956 - January 21, 1957) of the current fiscal year. The deficit for the same period in the year ending March 20, 1956 was Rials 2.53 billion. Both revenue and expenditures have been higher this year than last by roughly 27% for revenues and 21% for expenditures. For the year as a whole expenditures are now estimated at Rials 18 billion, and revenues at Rials 15.7 billion. The deficit of Rials 2.3 billion would be covered in part by $20 million (Rials 1.5 billion) of U.S. aid and the remainder presumably would have to be borrowed from Bank Melli. However, there was no appreciable change in the Treasury debt to the Bank Melli during the first three quarters of the current fiscal year nor in the level of Treasury cash balances. Consideration of the 1957/58 budget is still in a preliminary stage but both revenue and expenditure estimates are considerably higher than in 1956/57. The estimated budgetary deficit, however, may be about equal to the actual deficit in the current year. No significant inflationary pressures were evident in Iran during 1956, although prices appear to have risen 3 to 4% during the last half of the year. This is attributed to the Suez crisis and the stimulus to hoarding from the threatened curtailment of imports. The money supply also probably increased moderately during this period owing to some expansion of private bank credit and the $20 million increase in foreign exchange reserves. -6- nou 1956/57 Ppultion (a114sm") ugih est1tmate) na na 19 National Inccme (nil. $ equis.) (Rough estimate) na ta 1600 Arricultural Production (1000 metric tonsJ Wheat 2341 2300 Rice 443 350 Cotton (lint) 60 60 Sugar beets 521 ma Crude Oil Production 57 (million etric tons) 3.5 15.8 25.9 5.4 6.9 7.0 6.6 'holesale Prices (1953 = 100) 120 121 12a 121 125 (End of period) Coto L1l (1953 =100) (End o. peiod) 122 126 132 130 133 Monae SUDP1 (billions of rials) (End or period): Total 20.5 21.3 21.8 Currency l:5M7 0.5 11.0 Deposits 9.2 10.1 11.4 na na General Ooverment Budget (Billions of rials) (a) Expenditures 10.9 124.0 18.7 / (b) Revenues: (1) Internal Revenue 7.1 11.2 l1.6 (2) Budget Oil Revenue - - 3,0 (c) Deficit 3.8 2.8 4.1 (d) Foreign aid received as budget support 3.6 -4.1 na Internal Government Debt / (Billions of rials) (a) Treasiry debt 10.6 11.3 11.4 11.1 10.1 11.2 (b) Internal debt of GOvt. agencies 5.3 6.1 6.7 6.7 7.0 6.9 (c) Cash balances of GOvt. 3.2 3.5 4.1 4.1 4.8 4.0 (d) Net internal debt 12.7 13.9 14.0 14.0 13.3 114.1 Foreign Trade (millions $) Eip-orba(encept foreign oil companies) 248.2 288.7 56.3 / 67.7 5/ Exports (except oil) 121.1 o3.5 17*4 24. Balance -I=T Forei Exchang Received VECSUTLIdustry ta) Oil Revenues 20.2 92.1 150.0 W (b) Purchases of rials by Consortium and NIOC ma 46.6 48.0 Total Develoment Pro am (milions S) (a) Expenditwire of the Plan Organization 27.0 / 20.8 60,2 (b) Oil Revenues of the Plan Organization 25.7 / 16.5 38.8 Fore n Exchy Reserves ( Ii- ons or dollars) 211 210 218 219 230 Data, except as specifically noted, are for Iranian year beginning March 21 and quarters thereof. p/Oil production is for Oil Consortime Agreement years beginuing in January and quarters thereof. / Budget estimates. Includes only debt to Bank Melli excluding Exchange Certificate Account - other internal public debt is minor. Excludes duty-free ilports. 7/Estimate based on production data. Estimate based on nine months data. J September 21, 1955 to March 20, 1956 only. -7- PAKISTAN While Pakistan managed to maintain a rather precarious economic balance in 1956, the Government budget for 1957/58 suggests that the country may well encounter increasing difficulties in containing inflationary pressures in the period immediately ahead. The balance of payments surplus on current account in 1956 amounted to the equivalent of $2.2 million, (compared to $67.6 million in 1955); however, the official gold, dollar and sterling reserves increased by $22 million, be- cause a significant part of imports was financed by loans. The reserves increased by $50 million in the first half of the year, but declined in the second half mainly as a result of food grain purchases to meet the second major food crisis within four years. The import of food grains on government account (excluding imports financed by grants and rupee purchases) was the main factor which raised total current account payments in 1956 by $55 million over the 1955 level. A rather sharp increase in payments on invisibles was also partly responsible for the rise in total payments, the main contributing item being higher transportation payments (reflecting increased freight rates as well as a higher volume of shipping). Despite some easing of restrictions, imports on private account were virtually the same as in 1955 because of shipping diffi- culties following the closure of the Suez Canal. Foreign exchange receipts (excluding official donations) declined by the equivalent of about $ll million in 1956 as compared to 1955. The decline in earnings was due mainly to smaller export availabilities and lower world prices of raw cotton, and to smaller pur- chases of raw jute by India. Exports were also affected by the post-Suez shortage of shipping space as well as by internal transportation difficulties resulting from the heavy movement of food grains. According to the White Paper on the 1957/58 budget, the total food grain imports arranged during the past year amounted to 760,000 tons of wheat and 665,000 tons of rice. The bulk of these imports were arranged on the basis of grants or rupee payments. The foreign exchange cost to Pakistan is estimated at about $35 million for the direct purchase of 117,000 tons of wheat and 24h,000 tons of rice plus $14 million for freight on food grains imported under aid programs. Of the total imports arranged, actual arrivals of wheat and rice through November 1956 are reported at 240,000 tons and 493,000 tons respectively. The worst of the food crisis appears to have passed as a result of the substantial imports and the harvesting of the main rice crop in late 1956. Estimates of the size of this crop and the wheat crop to be harvested this spring have not yet been received. Consequently it is too soon to judge how the food position may develop in 1957. Pakistan has requested the United States Government to supply, on grant or rupee payment terms, three million tons of food grains during the next three years, of which two million tons would be for current consumption and one million tons for the constitution of a reserve stock to meet emergencies. While the U.S. Government cannot act on this request until new Congressional authorization on the disposal of agricultural surpluses is obtained, Pakistan has provided in its 1957/58 budget for the purchase (with rupees) of 1,375,000 tons of food grains, including 425,000 tonw of wheat and 350,000 tons of rice for current consumption and 300,000 tons each of wheat and rice for establishment of reserves. _-8 The revised budget estimate for the year ending March 31, 1957 shows the effects of the food crisis. While revenues were approximately the same and development and defense expenditures were slightly lower, as compared to the original budget estimates, other outlays were Rs. 214 million (44%) higher than originally estimated. This increase, which more than offset the shortfalls in development and defense, was due almost entirely to larger net outlays on State Trading associated with the procurement and distribution of foodstuffs. On the financing side, net receipts from foreign aid and loans increased only slightly, since a substantial part of the food grain assistance received during the year involved purchases for rupees. Other caDital receipts (mainly intra-governmental deposit and remittance transactions) fell about Rs. 200 million below the original estimates, As a result of the increase in expenditure and the fall in capital receipts, the Government now expects internal borrowings and drawings on cash balances to amount to almost Rs. 600 million, which is Rs. 234 million over the amount originaIly budgetted and nearly double the total of the preceding year. The possible inflationary effects of this financing may have been offset to some extent by the accumulation of rupee funds in U.S. Government accounts as a result of rupee purchases of foodgrains. The outstanding feature of the 1957/58 budget is a further substantial increase in outlays for development and State Trading, with the financing to be obtained largely by increased internal borrowing from the banking system. Defense expenditure is budgetted at the same level as shown in the revised estimate for 1956/57. Ordinary revenues are estimated to increase by about Rs. 70 millUon (5%) of which Rs. 58 million is expected to accrue from new tax measures, includ- ing higher income tax rates for individuals and corporations in the upper income brackets, a new excise duty on jute manufactures, and increased taxes on petro- leum products. Development outlays are estimated to rise by Rs. 450 million (42%) over the record level achieved in 1956/57. Agriculture in particular has received greater emphasis, which is generally in line with the recommendations in the Draft Five Year Plan. The increase in net outlay on State Trading by about Rs. 250 million over the relatively high level of last year is explained by the fact that a large part of the proposed foodgrain purchases would go into a reserve stock; to the extent that new purchases are placed in reserves, there would be no sales pro- ceeds from which the Government could recover the cost of the purchases. Internal borrowing and drawing down of cash balances are estimated at Rs.1,069 million during the coming year. The White Paper states that a sum of Rs. 384 mil- lion, representing the cost of the food grain reserves, will be credited to the counterpart funds; the White Paper assumes that these funds will not be utilized, so that the inflationary effect of internal borrowing will be neutralized to this extent. Even after allowing for this factor, however, the large sum of Rs. 685 mil- lion would remain as a potential inflationary force. Tnis by itself could produce an increase of about 12%-13% in the money supply, quite apart from the effect of a possible credit expansion to the private sector. Moreover, the operation of local currency funds accumulated as a result of foreign aid programs (such as the funds arising from rupee purchases of food grains) could have potential inflationary effects. For instance if funds are accumulated in one year and released in sub- sequent years, the effect in the subsequent years would be the same as a drawing down of government cash balances. In view of the size of the foreign aid program in Pakistan, and particularly the large and growing volume of commodity purchases for rupees, these operations should be carefully watched to make sure they do not contribute to inflationary pressures. _9- The proposal to undertake a substantial amount of deficit financing in 1957/58 follows a period when the money supply has already risen sharply. As a result of the increases in the money supply which took place both before and after the devaluation of the rupee in July 1955, a substantial monetary "overhang" in all probability exists in the economy at present which even under stable con- ditions would take some time to work itself out. The recent rate of increase in the money supply has been substantially more rapid than the rather high rate implied in the Draft Five Year Plan. The Draft Plan contemplated a rise in the money supply of 28% over the five year period from April 1955 to March 1960. By way of comparison, the money supply actually increased by 25% between April 1955 and December 1956, i.e. within a period of 1 3/4 years. The deficit financing contemplated in the coming year thus gives reason for concern that the country may lose through inflation a substantial part of the benefits accruing from the devaluation of the rupee and the development effort. The Five Year Plan in final form is not yet available. The Plan was approved in principle at the first meeting of the newly-formed National Economic Council in February 1957. As approved, the total size was reduced by Rs. 80 million, as compared to the provisions of the Draft Plan, from Rs. 1,160 million to Rs. 1,080 million. The National Economic Council is scheduled to consider the Plan in detail at its next meeting in Aprils after which the final version would presumably be published. -10- PAKISTAN 1955 1956 1952 1953 1954 1955 1956 I 19 III IV 3 I II III IV POPULATION (million) 79.3 80.4 81.6 82.8 NATIONAL INCOME AT CONSTANT PRICES (billion rupees) 1/ 1 18.3 18.9 18.9 AGRICULTURAL PRODUCTION (000 tons) 2 Rice 8,151 9,151 8,405 7,209 Wheat 2,390 3,683 3,172 3,315 Cotton 339 256 295 310 286 / Jute 1,218 645 832 998 INDUSTRIAL PRODUCTION Cotton Cloth (million yds) 174 252 345 453 481 5/ 106 102 113 133 123 Cotton Yarn (million lbs) / 20 53 100 154 167 5/ 32 38 40 44 43 Jute Mfrs. (000 tons) 18 44 53 89 143 22 22 21 24 34 GOVERNMENT BUDGET (million rupees) 1 Ordinary Revenue 1,286 1,125 1,157 1,299 1,303 4/ Expenditure 2,093 1,849 1,775 2,038 2,776 4v (Development Outlay) (378) (482) (544) (765) (1,070) Excess of Expenditure 808 724 618 739 1,473 i INTERNAL PUBLIC DEBT (million rupees) n.a. 1,859 2,224 2,126 2,258 2,330 2,180 2,126 2,151 2,310 2,439 GOVERNMENT BALANCE WITH STATE BANK (million rupees) 81 377 216 173 152 433 258 107 237 152 178 250 359 433 COMMERCIAL BANK PRIVITE CREDIT (million rupees) / 792 802 984 1,183 1,048 904 902 1,183 1,168 936 988 MONEY SUPPLY (million rupees) / 3,228 3,578 3,859 4,542 4,934 3,933 3,979 4,124 4,542 4,730 4,673 4,563 4,934 PRICES - XARACHI COST CF LIVIN: INDEX (1953 = gOo) 90 100 98 94 95 92 95 95 96 96 99 BALANCE OF PAIMWITS, CURRENT ACCOUNT (million rupees) 15, Receipts 1,916 1,551 1,275 1,908 2,696 399 374 472 663 763 607 499 827 Raw Jute (729) (579) (556) (774) (872) (198) (128) (154) (294) (318) (161) (127) (266) Raw Cotton (807) (683) (370) (436) (443) ( 91) (133) ( 93) (118) (162) (119) ( 51) (110) Payments 2,767 1,428 1,437 1,619 2,686 336 330 456 497 567 623 651 845 Surplus (4) or Deficit (-) -351 123 -162 x209 11 4 63 x 44 x 16 .166 4197 - 16 -152 - 18 Errors and Omissions - 14 - 2 0 0 0 0 0 0 0 0 0 0 0 TFJMS OF TRADE (1953 . 100) 2 / 139 100 108 98 115 108 98 82 87 91 86 STATE BANE GOLD, DOLLAR AND STERLING RESERVES (million rupees) 8/ 1/ 606 689 631 1,156 1,262 677 696 1,001 1,156 1,348 1,395 1,271 1,262 -Tilion U.S. dollar equiv.F (185) (208) (191) (243) (265) (205) (210) (210) (243) (283) (293) (267) (265) Prices: Average of 1949/50 to 1952/53 Z/ Year beginning April 1 / Crop years beginning in year indicated / Provisional 2 Estimate g Surplus to mills' own consumption 2/ Central and Provincial Government debt held by banking system, end of period End of period / Average for period 10/ Note that Pakistan rupee was devalued by 30.5% on July 31, 1955 -11- INDIA Various measures taken by the Indian government have not yet halted the drain on the country's foreign assets which has continued virtually without interruption since April 1, 1956, the beginning of the fiscal year and simultaneously the beginning of the Second Five-Year Plan. During the last nine months of 1956 total gold and foreign exchange reserves, including those held outside the Reserve Bank, fell by Rs. 2.17 billion (23.5%) on a gross basis and by Rs. 1.96 billion (23.3%) on a net basis../ This decline was approximately equivalent to the entire reduction - Rs. 2 billion - which had been expected to take place during the entire second Five-Year Plan. For 1957 data on total gold and foreign exchange holdings are not yet available, but from January 4 to February 22 the gold and foreign exchange reserves of the Reserve Bank dropped by Rs. 381 mil- lion when the first Indian drawing of $60 million (Rs. 286 million) on the IMF is left out of account. As indicated in previous reports, the sharp rise in imports was primarily responsible for the pronounced decline in foreign assets. According to customs figures, imports in the last 9 months of 1956 amounted to Rs. 6.04 billion as compared with Rs. 4.78 billion in the same period of 1955. Thanks to a marked rise in the last quarter of 1956, exports during the 9-months period - Rs. 4.39 billion - almost reached the total of Rs. 4.44 billion during the corresponding months of 1955. The trade deficit in the last 9 months of 1956 totaled Rs. 1.65 billion as compared with only Rs. 0.34 billion in the same period of 1955. It is evident, however, that a much larger volume of advance payments on imports has also been a significant factor. Normally import payments recorded in the balance of payments exceed considerably those recorded by customs. However, in the period April-September 1956, inclusive, for which balance of payments data are available, this excess of payments over recorded imports was as much as Rs. 829 million compared to Rs. 163 million in the corresponding period of 1955. Thus while import payments in the immediate past have greatly exceeded the expectations of the Indian government, it is not improbable that later payments will fall below those anticipated originally. To strengthen its reserve position India obtained from the Fund early in February a drawing of $127.5 million and a standby arrangement for $72.5 million. The first $60 million was drawn immediately and the balance in thirty days, i.e. this month (March). The standby arrangement remains in effect until March 1958. Meanwhile, India must obviously take measures designed to bring its paymento and receipts into better balance. Following the supplementary taxes enacted early in December, the government announced late that month a new import program for the first half of 1957 designed ultimately to _/ These reductions are exclusive of the increase in assets (Rs. 777.4 million) resulting from the re-valuation of the Reserve Bank's gold holdings in October 1956. -22- save Rs. 600 million in imports annually. In this connection, however, it should be noted that additional freight charges are likely at least for the time being to add over Rs. 300 million to India's annual import bill. In a further effort to ease the foreign exchange crisis the Indian government also put into effect in January new foreign exchange regulations under which licenses for private imports of plant and equipment will generally be accorded only if payment on delivery is limited to 20% and remaining payments are spread, under credit arrange- ments, over a minimum period of 7 years. This policy obviously provides an incentive to contract medium-term suppliers' credits. Finally, on February 1, in order to curb the expansion of credit somewhat, the Reserve Bank raised the rate at which it would lend to banks against government and other eligible securities from 3* to 4%. Since higher stamp duties on bills of exchange became effective at the same time, banks must now generally pay 4% when they borrow from,or rediecount with, the Reserve Bank. In the longer run, however, it is unlikely that India will be able to avoid substantial readjustments in its second Five-Year Plan. Early in February the Finance Minister indicated that the total cost of the Plan, as the result of amendments and price increases, is now probably Rs. 54 billion instead of Rs. 48 billion as originally estimated. While the size of the Plan may never be reduced even now that the completion of the elections has diminished the political pressures, its phasing may be changed so as to spread it over a longer period. A review of government commitments under the Plan appears already in progress. The scale of deficit financing will certainly have to be reduced in order to curb inflationary pressures and consequently further drains on the country's foreign assets. In the period October 1956 - January 1957, inclusive, money supply, for example, rose by Rs. 1.16 billion or 4.8% despite the deflationary effect of the large drop in foreign assets. Bank credit to the central and state governments during this period rose by Rs. 1.25 billion while bank credit expansion for the private sector amounted to Rs. 0.65 billion. The total increase in bank financing of the private and public sector was Rs. 1.9 billion compared to Rs. 1.07 billion in the corresponding period of 1955-56. It is still uncertain whether the government will be prepared to cut public as well as private outlays in any curtailment or re-phasing of the second Five-Year Plan. Up to the present retrenchment measures have been directed almost wholly at the private sector. Private business sentiment, which in recent years has been quite buoyant, has been adversely affected by these measures, particularly the requirement for deposit of a certain portion of corporate reserves with the government. The index of ordinary share prices, for example, fell from an average of 124.9 in October 1956 to a low of 112.6 by the middle of January 1957. In view of the great contribution which private enterprise made to the success of the first Five-Year Plan, it is important to India's economic growth that a disproportionate cutback in private investment plans be avoided. -13- INDIA 1952 1953 1954 1955 1956 1955 1956 I II III IV I II III IV POPULATION (million) 367 372 377 383 KATIONAL OUTPUT (Rs. billion) Net National'4roduce at factor cost - at current prices 1/ 98.2 104.9 99.1 n.a. - at 1948-49 prices V 94.6 100.4 101.7 n.a. Agricultural Production rL950 = 100) / 97 102 1314 116 114. Industrial Production (1951 = 100) 104 106 113 122 122 128 128 126 130 142 144 PRICES giiesale prices (1938/39 = 100) 387 394 388 355 404 360 313 355 363 380 393 416 425 Consuner prices (1949 - 100) 103 106 101 96 95 93 96 98 98 104 108 110 CURENCr AND BANKINGG (billion) 19 Money supply with -public 16.8 17.1 18.3 20.5 21.8 19.2 19.8 19.5 20.5 21.8 21.9 21.1 21.8 Treasury Bills outstanding 3.35 3.46 3.50 4.60 6.67 4.72 5.13 4.41 4.60 5.95 6.43 5.79 6.67 Central Govt.deposits with Reserve BankY 1.75 1.10 0.55 0.54 0.57 0.59 o.58 0.58 0.54 0.67 0.64 0.71 0.57 Scheduled Bank credit to private sector 4.68 4.61 5.38 6.36 7.88 6.23 6.10 5.93 6.36 7.61 7.57 7.54 7.88 CENTRAL GOVERNMENT BUDGET (billion) lJ Revenue receipts 4.35 4.16 4.41 5.2 Current expenditurea 3.96 4.07 4.02 4.89 Capital outlay and advances to States 1.68 1.97 4.62 4.97 OVERSEAS TRADE AND PAXMET1 S Imports (c.i.f.) (billMon) 8.07 5.70 6.17 6.48 9.08 1.71 1.54 1.49 1.75 2.04 1.91 2.03 2.10 Exports (f.o.b.) (billion) 6.17 5.32 5.63 6.08 5.97 1.63 1.32 1.61 1.51 1.58 1.32 1.42 1.65 Teras of trade (1953 U 100) / 105 100 108 98 110 103 99 97 93 n.a. n.a. Foreign exchange and gold reserves 2/ aross (billion) - 8.23 8.27 8.27 7.04 8.28 8.17 8.19 8.27 8.43 7.82 7.13 7.04 6/ Net (billion - 7.31 7.42 7.73 6.44 7.52 7.50 7.66 7.73 7.62 7.18 6.52 6.44 / Note: Many of the figures for recent periods are provisional estimates subject to revision. _; Finanmial year beginning April 1 2 Crop year ending June 30 of year shown Figures relate to end of period indicated From November 1954 includes "foreign bills discounted" A rise indicates a favorable movement J Revaluation of the Reserve Bank's gold in October increased reserves nominally by Rs. 777.4 million. -14- CEYLON In the last Quarterly Economic Review attention was drawn to the marked degree of internal and external financial stability maintained over the past two years, but it was suggested that the situation might now be changing, in part as a result of the more expansionist budgetary policies pursued by the present Government. It is too early yet to judge how far this prognostication will be fulfilled. External assets have fallen a little from the peak of Rs. 1,200 million reached in August 1956 and at the end of January stood at Rs. 1,179 million. On the other hand, the budget out-turn for the year ending September 30, 1956 (an approximate overall balance) has proved to be better than the Government expected some months ago, and the balance of government receipts and payments in the first four months of the fiscal year is actually slightly more favorable than during the corresponding period a year ago. The Finance Minister has budgeted for an overall deficit of Rs. 150 million in the current fiscal year (1956-57), and on the basis of the information at present available there seems no reason to expect a larger deficit than this; indeed, it may be smaller. Revenue is reported to be coming in well, and while there have been some supplementary estimates (about Rs. 40 million to date), there is likely as in previous years to be considerable under-spending on capital account. The cost of living and wage rates, as reflected in the official indices, have shown no significant change over the past four or five months. One factor making for uncertainty in the immediate future is the large liquid assets at present held in Ceylon, particularly by tea companies. Thus private time and savings deposits with the commercial banks have risen from about Rs. 100 million at the end of 1953 to Rs. 200 million at the end of January 1957; and the steady increase in demand deposits also to some extent reflects inactive cash. The likelihood of this purchasing power being released in some way, either by increased domestic spending or by larger remittances abroad, has probably been increased by the present political uncertainties. For the time being it seems unlikely that the volume of re-investment in tea estates will be large. While the Prime Minister has made it clear that he will not carry out in the immediate future his party's platform calling for the nationalization of the tea industry, plantation owners have hardly been fully reassured about the long-term prospects. The nationalization of the bus companies this MIrch reflects the government's sympathies with nationalization. It is improbable, however, that the government's overall program, including its fiscal policies, will be clarified until the new budget is introduced in July. This budget will be the first to be prepared by the present Government, which only took over after the main lines of last year's budget had been laid down. Provisional trade figures now available for the calendar year 1956 show a 12% fall in the value of exports, as compared with 1955, and a 12% rise in the value of imports. The drop in exports is about equally attributable to lower prices and lower volume; the volume of tea exports is estimated to have declined by 3%, of rubber exports by 13%, and of coconut exports by 6%. On the import side prices were about 4% higher than in 1955 and volume about 7% higher. The price increase is, however, -15- wholly attributable to capital equipment, and it may be doubted whether the price index for this type of goods is a very reliable indicator. The increase in import volume is mainly attributable to food, textiles and other consumer goods; there was also a further increase in imports of fertilizers. Thus a substantial part of the deterioration in the balance of visible trade in 1956 was due to the worsening of the terms of trade. Tea prices were falling in the first half of the year, recovered in the second half (partly because of Suez), and in recent weeks have started to fall again. Rubber export prices depend very largely on the terms agreed with China, and these have not yet been negotiated for 1957, which is the last year of the present pact. A 3% government loan for Rs. 40 million was successfully issued on the market in February, and in the same month the Central Bank issued securities to the value of Rs. 15 million. Ahout one-third of both issues was taken up by the commercial banks, and a further substantial part of the subscriptions to the government loan came from government institutions. In all less than half the loans represented genuine borrowing from the public. It has been announced that the United States will grant aid to Ceylon to the extent of about $6 million out of the appropriation for IS fiscal 1957; this is in addition to the $5 million granted under the agreement signed in April 1956. Under the new agreement, rather over $2 million is to be accounted for by a gift of flour, the rupee proceeds of which are to be utilized for various development projects; apart from this, $990,000 has been allocated for technical assistance, $886,000 for irrigation and land development, $855,000 for highway development and $314,000 for the University of Ceylon. Most of the earlier loan is being spent on railway equipment and irrigation and land development. Canada continues to grant aid to Ceylon at the rate of about $2 million a year, including technical assistance, and small amounts are being received from other Colombo Plan countries, mostly by way of technical assistance. C E Y L O N 1952 1953 1954 1955 1956 1955 1956 I II III IV I II III IV POPULATION (million) 7.9 8.2 8.4 8.7 8.9 NATIONAL INC CE (Rs. billion) Gross National Product at factor cost 4.48 4.60 5.00 - - - - - - - - - - AGRICULTURAL PFRDUCTION Index: 1951 = 100 107 97 llO - - - - - - - - - - PRICES Cost of Living: 1938-39 = 100 281 286 284 282 282 283 283 280 282 282 282 279 283 MONEY SUPPLY (Rs. million) 1] (with the public) Currency 357 335 342 385 *401 343 349 376 385 385 409 409 401 Demand Deposits 539 492 615 688 726 611 570 636 688 664 647 655 726 Total 896 827 957 1,073 1,127 954 919 1,012 1,073 1,048 1,056 1,064 1,127 GOVE1NMENT BUDGET (Rs. million) i/ Revenue 975 952 1,032 1,176 1,257 - - - - - - - - Expenditure 1,232 1,184 999 1.049 1,258 - - - - - - - - Deficit or Surplus -257 -232 +34 +128 -1 - - - _ _ _ _ _ PUBLIC DEBT (Rs. million) i/g/ (net of sinking funds) External 73 66 126 141 144 133 136 141 140 140 143 144 144 Internal 729 926 826 753 799 791 765 753 758 805 805 799 815 Held by Central Bank 130 216 84 19 14 18 20 19 18 37 17 14 11 GOVERNMENT CASH BALANCES (Rs. million) 66 51 49 138 122 - - - - - - - COMDERCIAL BANK CREDIT (Rs. million) / 2/ 241 253 307 324 397 348 320 352 324 328 379 - 397 FOREIGN TRADE .s. million) Exports 1,502 1,568 1,809 1,940 1,734 534 417 448 540 409 433 457 435 Imports 1.702 1.608 1,397 1,461 1,629 356 368 347 389 380 373 424 452 Balance -200 -40 412 479 105 178 49 101 151 29 60 33 -17 Tea Exports 723 825 1,123 1,194 1,044 359 257 279 301 257 269 256 272 TERMS OF TRADE 1948 100 109 122 155 160 138 179 146 139 148 137 134 133 (147) EXTERNAL ASSETS (Rs. million) / 837 607 895 1,155 1,179 1,020 1,034 1,091 1,155 1,177 1,185 1,195 1,179 / End of neriod g/ Annual figures refer to fiscal year beginnirg October 1 of oreceding year 2/ Loans and advances -17- BURMA During the fiscal year ending September 1956 Burma had succeeded in overcoming most of the difficulties that had resulted from previous ex- cessive government investment and falling rice prices. This was accomplished principally by reducing public investment and stepping up the volume of rice exports. By the end of the year foreign exchange reserves had risen 25% above the previous low, while the budget had been almost balanced and the money supply had remained unchanged for several months. During the second half of the year, a seasonal contraction in the volume of comrmercial bank credit to the private sector had offset the effect of the surplus in foreign transactions on the money supply. Statistical information on the first quarter of the new fiscal year is as yet incomplete. However, further progress has evidently been made in the stabilization of the economy. From October to December government cash transactions were in surplus. Internal public debt declined from K.1,386 million to K.1,352 million, while government cash balances are reported to have shown little change. There was also a surplus in the balance of pay- ments and at the end of the calendar year, foreign exchange reserves stood at K.672 million against K. 638 million three months before. Credit to the private sector was expanding seasonally. As a result of these changes, money supply is likely to have remained virtually stable. During the quarter under review the index of consumer prices has fallen by 2% owing to a seasonal reduction in food prices. Prospects for the remaining months of the fiscal year 1956/57 are favorable. With an exceptionally good rice crop this year, growth in national output should exceed the 3% reached in 1955/56, when the rice crop was below average. The government deficit to be met from internal borrowing or cash balances is likely to be less than half of the total of K. 140 million anticipated by the budget. The shortfall in public invest- ment, which was 10-15% of budget estimates in previous years, may well be greater this year owing to delays in shipping caused by the Suez crisis. Export earnings will probably continue at a high level. Total rice ex- ports are expected to increase from the 1955/56 level of 1.93 million tons to over 2.08 million tons; the exportable surplus from current crop will probably be 1.8 million tons, while existing stocks totalling 750,000 tons at the beginning of the fiscal year will be reduced to make up the balance, However, the average export price per ton of rice is likely to fall from L34 during 1955/56 to about L32 during 1956/57, thus partly offsetting the greater export volume. While prospects for a further increase in exports of minerals are good, Burma is having difficulty at present in marketing its teak. More than two-thirds of teak exports went to India last year; these exports have now become affected by recent import restrictions imposed by the Indian Government. The government is considering an increase in the permitted imports for the private sector to a total of K.l,O00 million -1i8 against K. 700 million in 1955/56 and has already somewhat extended the list of imports under open general license. However, the total volume of imports, including those of the government,may be restricted by the closing of the Suez Canal. On balance, foreign exchange transactions are likely to result in about the same surplus as during the preceding year (K.120 million). A four-year development program ending 1959/60 is being worked out by the Government. Administrative and technical factors will continue to set rather severe limits on the government's ambition to step up the rate of development. From the standpoint of financial resources, a sub- stantial amount of external assistance is already assured. Apart from a Az,7 $; million loan extended by the U.S. late in 1955 under the terms of P.L.480, negotiations are virtually completed for a new loan of $P25 million, repayable in local currency, which will be used to finance a number of social and economic projects still to be agreed. The Burmese government also expects to draw on an Indian loan of Rupees 200 million ($42 million) convertible in sterling, which was originally extended in October 1955 but not utilized. This loan was renegotiated this month (March), provides for an interest rate of 4-3/4% and is repayable over 12 years beginning in 1960 instead of in five years under the old agreement. From West Germany credits up to D.M. 100 million (about (>24 million) are available under arrangements made in 1956 whereby German suppliers are insured by an agency of the German government for advances up to a maximum of 4 years to cover deliveries of equipment required for sound economic projects, The Burmese government also expects to receive K.150 million($31.5 million) in Japanese reparation during the current fiscal year. Finally, it should be noted that the Soviet government has undertaken to carry out a number of projects, including a stadium, a permanent industrial fair and a technological institute for which the Burmese government intends to reciprocate with equivalent "gifts" of rice. B U R xA 195T 1956 =21 195 i53 1q54 1255 IT~ TTL TVJ III POPULATION (million) 18.7 18.9 19.0 19.2 19.4 19.7 NATIONAL INCOXi (K billion)I/ Gross National Product at market prices 3.68 4.08 4.62 4.59 4.79 5.01 RICE PRODUCTION (million tons) Rice and Products 4.63 5-03 4.70 4.63 4.78 4.84 - - _ _ - _ _ _ Consumer's Price Index: 1941=100 354 338 334 311 317 361 293 300 343 335 334 381 378 371 XOIEY OllPLY 2/ With the Public (K million) 606 599 753 842 1,176 - 1,011 1,024 1,089 1.116 1,384 1,368 1,358 - CONSOLIDATRD GOOERNNT BUDGET (K million) ./ / Receipts 681 701 956 864 980 1,098 - - - - - - - Expenditure B23 64 92 1.2_45 "471 1.158 - Surplus or Deficit +208 + 56 + 53 -381 -91 -160 - - - GOVENK99 CAS B"m (K million) Z (incl. State Boards) 432 572 512 336 275 - 152 241 183 275 17? 289 359 - INTERNAl PuMIC DMOT (K million) / 5t Total 218 370 413 774 1,201 1,352 840 1,013 1,060 1.201 1,279 1,286 1,386 1,352 Held by Union Bank n.a. 306 294 533 796 806 596 820 820 796 911 900 819 806 COXKMRCIAL BAMNS CREDIT TO PRIVA_T SECTOR (K mlllion) 159 162 148 163 190 - 195 165 133 173 238 222 179 - IVREIGN TRLD2 Terms of Trade 1/ 1952.100 88 89 122 105 95 - - - - - - - - _ Rice Exports million toneS / 1.37 1.15 1.20 1.27 1.6? 1.93 - - - - - - - _ million 14/ 758 809 818 953 826 - 218 276 117 214 224 451 - Exchange Transactionc (K million) xlportu 963 1.153 1,219 989 1,016 - 229 214 261 312 236 315 319 - Imrortg a s= 952 1.097 _ - 5 -9M -t a Z 3Q3 Balance of Trade +305 +375 +367 -108 + 85 - -24 -24 +43 +90 + 1 +12 +56 _ Balance of Non-trade Transction -_22 -1'74 -28 -2 -209 -- +8 s -2 -Z +_ + -.52 Change in Foreign Exchange Reserves +213 +201 + 79 -394 -124 - +65 -78 -19 +38 +34 +44 + 6 - FOREIGN XC_GN3E R1SYEVZS (K million) 792 993 1.072 678 554 _ 613 535 516 524 588 632 638 672* SAY GS or IVA 3STOB/ 76 91 105 160 233 250 179 190 207 233 236 246 246 250 * Provisional estimate. )./ Annual figures refer to fiscal Year beginning October of preceding year. 4/ Prior to 1953, data refer to fiscal year beginning October 1 of preceding year. 2/ End of period j/ Includes Govt. securities held by Union Bank,Comaercial Banks, and the public; also includes provident funds, postal savinges and liability on account of 3/ Net of current receipts and expenditures of commercial departments: does currency issue. not include net change in internal public debt; reviaed eatimates for 1955/56. / Includes time deposits by the private sector at commercial banks, postal savings and Govt. securities held outaiide of banks. -20- THAILAND Owing principally to a sharp rise in rice and rubber exports in the last quarter of the year, Thailand's balance of payments and budgetary po- sition were considerably more favorable for 1956 as a whole than had been anticipated earlier. The trade deficit for the year was reduced to some $17 million as against a deficit of $32 million for the first three quarters. The Government's cash deficit is estimated at Baht 600 million as compared with Baht 700 million in 1955. As in the past, most of the Government's deficit was financed by the Bank of Thailand, but credit expansion in the private sector appeared to have been less than in 1955. Official foreign exchange reserves increased by about $13 million equivalent in 1956. In- ternal prices increased moderately during the year but not so much as to indicate substantial inflationary pressures. Output in all three of Thailand's major export commodities - rice, rubber and tin - increased substantially in 1956. The 1956-57 rice crop (mainly harvested in December) is expected to reach 8 million tons, as compared with about 7.4 million tons in 1955. It was exceeded only by the record crop of 8.2 million tons in 1953. Production of both tin and rubber reached new post-war peaks, going up by 12% and 3% respectively over their 1955 levels. Teak output remained at the 1955 level. Thai exports in 1956 are estimated at about $338 million, a slight increase over 1955. Prices of the leading exports were generally somewhat lower than in 1955 but this was offset by higher quantities. Rice exports totalled 1.27 million tons against 1.24 in 1954. Rubber and tin exports rose in proportion to their respective increases in production. The average unit export price for rice fell from $118 a ton in 1955 to $111 in 1956 and during the last quarter of 1956 it was about $106. Rubber prices increased significantly for a while towards the end of the year after falling steadily from mid-1955 until mid-1956, but fell again in January. Tin prices followed a similar pattern. Preliminary estimates of Thailand's current account balance of pay- ments before aid, but after private transfers, show a deficit of some $34 million in 1956 or $10 million more than in 1955. ICA grant aid is tenta- tively put at $29 million, and drawings on loans at about $12 million in excess of repayments. Government expenditures and receipts were both higher than in 1955. Expenditures increased mainly because of higher personnel expenditures and increased outlays for Government enterprises. Revenues went up slightly more than expenditures mostly as a result of greatly increased receipts from export duties on rice and rubber. Data on monetary developments in 1956 are still incomplete but it appears that the year as a whole has been a relatively stable period. -21- Wholesale prices fluctuated around the level which was reached in the last quarter of 1955. The cost of living index, however, rose by 5%. The money supply showed only a moderate increase during most of the year, but partial data indicate that between November 1956 and January 1957, there was a rather marked rise. This suggests that some inflationary pressures are beginning to be exerted by the surplus in the balance of payments which developed in the last quarter. Prospects for 1957 appear good as far as the balance of payments is concerned. At an average unit price of around $100 a ton for rice it is reasonable to believe that Thailand would be able to dispose of its export- able surplus, which is estimated at around 1.5 million tons. Thus, export earnings from rice will probably equal or exceed the 1956 level. Moreover, trends in tin and rubber production and exports suggest that some increase in export earnings is likely from these commodities. It may be expected that imports will rise by roughly the same amount as exports but, given the prospect that foreign aid will continue at the 1956 level, no significant strains are likely to be imposed on Thailand's foreign exchange holdings, which total more than 85% of annual imports. Analysis of the Government budget for 1957 indicates that the cash deficit may be about the same as last yearts. Further increases in cost of living allowances to Government officials and larger debt service pay- ments are expected to raise total expenditures significantly, but higher revenues from indirect taxes are expected to compensate for this increase. -22- THAILAND 1955 1956 1951 1952 1953 1954 1955 1956 I II III Iv I II III IV POPULATION (million) 18.8 19.2 19.6 19.9 20.3 20.7 NATIONALITNCOMF (billion baht) Net Domestic Income at factor cost 24.7 25.8 29.4 28.1 (32.2) OUTPUT OF PRINCIPAL PRODUCTS (000 metric tons) Rice (Paddy) 7,325 6,602 8,238 5,709 7,400* 8,000* Rubber 111 100 98 119 133 136* Tin (72% concentrate 3g 13.3 13.1 14.1 13.6 15.6 17.6 2.5 2.5 3.0 3.5 3.0 2.8 3.3 3.9* PRICES Cost of Living in Bangkoke1953 - 100 82 90 100 99 105 (111) 103 106 105 107 109 110 112 (114) MONEY SUPPLY (billion baht)( Currency and deposit money with the public 4.91 4.93 5.44 6.06 6.92 6.48 6.62 7.18 6.92 7.01 7.01* GOVERNMENT BUDGET - ESTIMATED CASH BASIS (billion baht)l/ Revenue 2.52 3.34 3.93 4.24 4.37 5.06 .93 1.11 1.09 1.21 1.26 1.32 1.21 Expenditure 3.23 4.27 (5.77) (5.03) (5.17) (5.66) 1.15 1.35 1.32 1.11 1.21 1.25 1.23 Deficit - or Surplus -.71 -.93 (-1.84) (-.85) (-.70) (-.60) -.22 -.24 -.23 .lo0 f-o5 1.07 -.02 Foreign Exchange Profits of the Bank of Thailand and the Government .43 .65 .58 .73 .22W - .08.4/ -.07W .014W .17Y .08 -.05 -.05 INTERNAL PUBLIC DEBT (billion baht)g&l 1.73 2.59 4.88 6.26 5.81 6.32 n.a. 6.34 n.a. 5.81 n.a. 5.93 n.a. 6.32 EXTERNAL PUBLIC DEBT DISBURSED (million MS equivalent)Z/ 12.8 20.1 26.8 39.2 66.0 83.1 n.a. n.a. n.a. 66.0 n.a. n.a. n.a. 83.1 GOVENENT CASH BALANCES (bilulon bahtt)v 0.75 0.84 1.22 0.97 1.11 (1.52) 0.94 0.98 1.06 1.11 1.39 (1.41) COMMERCIAL BANK CREDIT (billio'n baht)2/- .94 1.44 1.98 2.28 3.00 2.61 2.60 2.90 3.00 3.20 (3.27) FOREIGN TRADE (mnlion US$) Izports 272 304 330 312 334 355* 72 76 82 104 93 89 89 84* Exports 367 329 323 283 .335 338* 85 84 82 85 83 78 77 104* Balance 95 25 -13 -29 1 -17* 13 8 - -19 -10 -11 -12 16* RICE EXPORTS Value (miMlion US$) 198 216 214 146 148 141* 41 47 33 27 32 36 34 40* Volume (000 metric tons) 1,577 1,425 1,341 1,004 1,221 1,266* 346 381 290 231 290 325 284 367* RUBBER EXPORTS Value (million US$) 98 50 38 44 84 78* 20 17 25 23 22 15 14 126* Volume (000 metric tons) 110 99 97 130 132 136* 34 30 37 31 35 31 27 43* TIN EXPORTS Value (m{llion US$) 24 23 20 18 21 25* 5 4 5 6 6 5 7 7* Volume (000 metric tons) 12.5 12.9 14.2 13.9 15.7 17.6* 3.9 3.4 3.8 4.6 4.1 3.9 4.6 5.0* UNIT VALUE OF EXPORTS (in terms of US) 1953. 100 104 102 100 93 88 85 87 88 91 83 79 FOREIGN EXCHANGE RESERVES Bank of Thailand (million US$ including gold) 359 352 302 273 298 311 295 317 299 298 309 308l 308 311 * Provisional estimate 1| Quarterly figures are less complete than annual figures v End of period Held largely by the Bank of Thailand Profits of the Bank of Thailand only. III and IV quarter data adjusted by eliminating p250.1 million charge to Stabilization Account to retire BOT foreign currency debt to Government Note: Figures in parentheses are unofficial estimates based on partial data. -23- JAPAN While the year 1956 set new postwar records in production and foreign trade and lifted living standards to the highest levels yet attained, there were growing signs of stress and strain in the economy at the beginning of 1957. The phenomenal rate of growth achieved in the last few years has severely taxed the productive facilities of the economy; and it is now evident that substantial new investment will be needed in the basic industries - iron and steel, power and transport - if the domestic market is to be satisfied and exports are to grow at the same time. During the year 1956 industrial production as a whole rose by 23% and manufacturing output by 19%. Agricultural output was generally favorable. Paddy production, estimated at 13 million tons, was well above average although 10% lower than the bumper crop in 1955. While no figures on national income are yet available, it seems likely that the increase in real terms did not fall short of the rise of 8.6% achieved in 1955. Consumption has risen markedly despite a continued high propensity to save. Department store sales, for instance, were 17% above those in 1955 even though retail prices remained about the same. Foreign trade continued to expand rapidly in 1956, exports rising by 27% and imports by 30%. Advances were made in virtually all exports with the notable exception of iron and steel where capacity was inadequate to keep pace with both domestic and foreign demand. Exports to the dollar area rose most sharply. The most marked expansion in imports took place in the last 9 months of the year as the government made more foreign exchange to replenish inventories of raw materials which had been considerably depleted in the continuing production boom. The year accordingly ended with a somewhat larger trade deficit - $729 million as compared with $504 million in 1955. The larger trade deficit was offset to some extent by unexpectedly higher receipts from U.S. expenditures and procurement in Japan which, contrary to the expected trend, rose from $547 million in 1955 to $594 mil- lion in 1956, owing to larger procurement in Japan under U.S. aid programs. Although the increase in gold and foreign exchange assets dropped from $339 million in 1955 to $177 million in 1956, Japan at the end of the year had a comfortable gross reserve of $1,646 million, equivalent to about 6 months' imports. Japants remarkable progress in the last few years has been achieved without jeopardizing financial stability. The increase in money supply has on the whole not been disproportionate to the expanding volume of business. During the latter part of 1956, however, indications of financial strain were becoming evident. While government treasury transactions with the public continued to exercise a deflationary effect, absorbing even a large part of the impact of the foreign exchange surplus on money supply, bank credit has been expanding at a much more rapid pace. Mbney has become tighter as business required more funds to meet increasingly urgent investment demands as well as the need for more working capital. Despite a substantial increase in the flotation of corporate bonds and shares -24- during 1956, business turned increasingly to the banks for more credit. Total bank loans and discounts accordingly rose by 27.2% during 1956 as compared with 9.7% in 1955. The Bank of Japan, which had been able to reduce its financial accommodation to other banks from X 485.6 billion in March 1954 to X 37.3 billion in March 1956, gradually raised its loans and discounts again to a level of Y 143 billion at the end of 1956. Mbney supply during the year increased by 13%; and there was some upward pressure on prices, with wholesale prices rising 8.7%. With much of the Japanese industrial economy working at capacity, it is expected that the rate of economic expansion will slacken considerably. At home demand will undoubtedly continue brisk, particularly in view of the mounting investment requirements. Orders for capital equipment by Japanese industries have been rising markedly; and inquiries by the Ministry of International Trade and Industry indicate that Japanese corporations plan to step up their investment in plant and equipment in fiscal year 1957 by 14.8% over 1956. The largest increases are expected in the power, steel and non-ferrous metals industries - 37.7%, 34.8% and 33.2%, respectively. These investment plans, together with larger public outlays on roads and probably substantial investments by the Japan National Railways, will undoubtedly strain Japan's resources. The government, however, appears still determined not to add to inflationary pressures through its own financial operations. While the budget for the fiscal year 1957 (beginning April 1), provides for substantial cuts in income taxes, it is reasonable to expect that the overall increase in revenues under buoyant economic conditions will be sufficient to balance the anticipated expenditures of X 1,137.4 billion. The balance of trade and payments is also likely to be less favorable in 1957, and may in fact show a deficit. Although the rise in imports was in part caused by a desire to rebuild inventories, the general level of imports is expected to remain high, partly owing to larger purchases of rice abroad. At the same time the increasing preoccupation of Japanese industry with the home market and the inability to lift production capacity rapidly will make it difficult to sustain the export drive. Some concern has also been expressed in Japan about a possible decline in export demand owing to the slackening in the pace of economic growth in the United States and Western Europe. In addition exports to the United States will suffer from quotas imposed last January on exports of textile fabrics and certain items of apparel, even though the diversity of exports to the United States is such that the quotas on particular items may not be incompatible with a further advance in total sales. It would be a mistake, however, to conclude at this time that Japan's long-term prospects will be seriously affected. Japan has shown an extra- ordinary capacity for economic growth and an increasing ability to finance investment out of its own resources. It is unreasonable to expect that the extraordinary rate of progress achieved in the last few years could be indefinitely sustained. While economic growth will almost certainly be slower in the year or two ahead, further progress can be achieved provided a really serious inflationary bout can be avoided. -25- JAPAN 1955 1956 1952 1953 1954 1955 1956 I I 111 I I II III IV POPULATION (millions) (as Of October) 85.9 87.0 88.3 88.9 90.3 88.7 89.0 89.2 89.4 89.7 89.9 90.2 90.4 GROSS NATIODAL PRODUCT (billions of yen) (for year beginning April) 6,182 7,130 7,424 8,189 INDEX OF REAL INCOME PER CAPITA (year beginning April) 1934-36 = 100 98.1 105.9 105.4 112.2 INDUSTRIAL PRODUCTIoN (1934-36 = 100) (year or last nDntb of quarter) Total 126.4 155.1 166.9 180.7 218.9 164.3 175.4 183.1 191.5 200.1 215.4 224.9 234.8 Manufacturing 128.2 159.7 173.8 189.4 231.1 188.4 187.5 197.1 208.7 212.8 226.9 237.6 247.8 RICE PADDY PRODUCTION (thousand metric tons) 12,404 10,298 11,392 114,810 13,073 WHOLESALE PRICES (annual average; last month of quarter) 1953 - I0 100 100 99 98 102 98 97 97 98 99 101 104 106 COST OF LIVING (Tanna average; last month of quarter) 1953 U 100 93 100 105 104 105 104 105 103 104 104 106 105 106 M3NEY SUPPLT (billions of yen) (end of period) Currency and Deposits with public 1,265 1,439 1,463 1,698 2,022 1,285 1,369 1,327 1,698 1,547 1,642 1,711 2,022 CENTBAL GovsRNT TREASURY TRANSACTIONS WIIE PUBLIC (billions of yen) (excesa payments) Balance for fiscal year beginning April or for calendar year quarter a. Including foreign exchange transactions -0.7 63.6 -191.2 -285.8 102.5 -33.4 -58.5 -298.4 104.5 9.4 34.3 -146.5 b. Excluding foreign exchange trans- actions 17.9 -66.2 -116.8 -115.9 126.6 -2.0 -7.3 -245.8 139.3 18.8 36.4 -145.2 BANK LOANS AND DEPOSITS (billions of yen) (end of period) Loans and Investments (non-overnment) 1,981 2,502 2,752 3,309 4,264 2,774 2,818 2,898 3,309 3,400 3,580 3,902 4,264 Time Deposits 1,031 1,336 1,588 2,098 2,640 1,673 1,726 1,836 2,089 2,193 2,294 2,446 2,640 Goverment Deposits with Banks 93 84 84 166 186 238 150 175 166 254 176 195 186 VALUE OF TRADE (millions of U.S. $) Imports c.i.f. 2,028 2,410 2,399 2,473 3,230 576 646 591 659 692 807 824 905 Exports f.o.b. 1,273 1,275 1,629 1,969 2,501 433 460 512 607 560 601 620 722 Balance -755 -r,1314 -770 -5014 -729 -14~3 -le6 -79 -52 -132 -206 -204 -113 VOLUME OF TRADE (1953 100) Exports 89 100 131 162 142 148 163 195 193 203 203 Imports 73 100 103 107 102 109 101 115 122 161 140 TERMS OF TRADE (1953 = 100) 96 100 100 100 106 97 99 100 102 104 106 106 107 PRINCIPAL EXPORTS Cotton fabries Value (illions of U.S. S) 180 179 252 230 49 50 58 73 74 55 50 Quantity (million sq. yards) 762 914 1,278 1,138 252 246 279 362 363 260 258 Machinery & Transport equipment Value (mdions of U.S.J) 116 189 202 247 43 55 56 83 91 116 1114 Iron and Steel Value (millions of U.S. 8 263 140 167 259 57 51 69 74 58 59 56 Quantity (thousand metric tons) 1,633 843 1,187 1,989 505 493 495 496 362 356 322 Rayon fabries Value (millions of U.S. S) 65 72 103 143 28 32 37 45 43 53 53 Quantity (million sq. yards) 300 373 566 864 174 198 227 275 235 286 281 Chemicals Value (millions of U.S. S) 40 62 79 94 22 26 20 26 27 28 28 BALANCE OF FONEIGN EXCHANGE TRANSACTIONS (in milions of U.S. J) Total transactions 314 -193 100 494 293 82 58 175 179 124 125 6 38 U.S. Dollar transactions 188 209 -92 353 425 9 63 151 130 89 127 105 103 U.S. MILITARY FXPENDITURES AND OThEA GOVERNMENT PAYMENtS U.S. Dollar Receipts (millions of U.S. 8) 807 787 625 547 594 119 129 150 150 133 146 153 162 GOLD AND FORIDGN EXCHANGE (millions of U.S. $) Erd of period 1,165 1,017 1,130 1,1069 1,696 1,182 1,214 1,357 1,469 1,558 1,593 1,577 1,646 -26-