L RIS1 EC - 14 This report is not to be published nor may it be quoted as representing the Bank's views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT SUMMARY OF THE EXTERNAL PUBLIC DEBT OF JAPAN June 22, 1953 FILE COPY Economic Staff Prepared by: Carel deBeaufort James J. Lynch Table of Contents Page I. Debt Outstanding 1 II. Service Payments a) Default and settlement 2 b) Current and future service payments 5 III. Pledge Clauses 6 Annex A: External Public U.S. Dollar Debt Annex B: External Public Sterling Debt Annex C: External Public French Franc Debt SUMARY OF THE EXTERNAL PUBLIC DEBT OF JAPAN I. Debt Outstanding As of December 31, 1952 the funded public external debt of Japan amounted to the equivalent of US$328.9 million. In addition there were external obligations which arose from the War rad the post-ar period. Settlement of these obliga- tions may bring the total debt figure to a much higher level. The chief components of the external public debt of Japan are: 1. Pre-war bonded debt In September 1952 a conference held in New York on Japan's External Debt reached an agreement with representatives of the holders of the pre-war dollar and sterling bonds as to a method of settlement. As of December 31, 1952 1/ the debt thus settled amounted to the equivalent of US3289.2 million.2/ Dollar securities listed in Annex A amounted to US'76.h million 2/ and steralng securities listed in Annex B to =61.5 million 2/ of the original principal amount (equivalent to US.212.8 million if full effect Is given to currency clauses). The conference reached no agreement on the settlement of the tranches issued in France of two bond issues. Particulars regarding these tranches are given in Annex C. 2. U.S. Government loans As of December 31, 1952 an Export-Import Bank loan of US$39.7 million was outstanding. During the early months of 1953 most of this loan was repaid and an additional loan was granted for USWh0 million. Both loans were for the financing of cotton purchases by Japan; the second loan has a 15-month maturity. 3. Post-h.-ar Economic Assistance The cost of economic aid furnished to Japan during the post-War period by the U.S. Government &mounted to about US91.9 billion. The debt arising from this assistance has not yet been settled between the two governments and no positive information is at present available as to the proposed basis of settle- ment. If the German formula were applied in the case of Japan the debt would amount to Us.750 million and service charges to US 18,750,000 per annum for the first five years and US$35,833,000 per annum thereafter, but these figures are purely hypothetical. 4. Reparations The Potsdam Declaration of July 26, 1945 called for payment by Japan of reparations. During the first few post-war years, partial reparations, delivered in the form of equipment, were made to China, Great Britain, the Netherlands and the Philippines. The Peace Treaty signed at San Francisco on September 8, 1951 recognized that Japan should pay reparations. Nevertheless it also recognized that the resources of Japan were not sufficient to make complete reparations. 1/ No later figures are available. / Excluding interest arrears which were not funded. - 2 - Consequently claims for reparations were limited by waiver and Japan agreed to negotiate with those allied powers whose territories were occupied with a view to making Japanese services available in their rehabilitation. Reparation claims by Far Eastern countries are reported to amount notionally to $12.2 billion for Indonesia, 4p8 billion for the Philippines, 62.5 billion for Burma and b2 billion for Vietnam. Settlements are currently being negotiated with Indonesia and the Philippines. II. Service Payments a) Default and settlement From the time of the original issuance of the first Japanese external public bond issue in 1868 until Vqorld VVar II, interest and amortization payments were made on schedule. After the outbreak of World 14ar II Japan effected the following measures as regards payments on dollar and sterling bonds: 1) interest was paid in Japan in Yen to Japanese and non-enemy nationals, 2) interest payments in Switzerland were (subject to the Law of I'larch 1943 referred to below) continued to Japanese and non- enemy nationals, 3) interest due on bonds held by enemy nationals was paid into a special account with the Yokohama Specie Bank. In March 1943 the Law relating to the Treatment of Foreign Currency Bonds came into effect. This law, which dealt with all dollar and sterling bonds but not with franc bonds, provided for: 1) the cancellation of foreign currency bonds which were acquired by issuers, thus precluding reissue, 2) the conversion, in some cases, into yen bonds 1/ of foreign currency bonds held by Japanese and non-enemy nationals, 3) the assumption by the Japanese Government of the bonds of municipalities and corporations. Security clauses in the relative loan contracts were simultaneously eliminated. 1/ The Japanese Law Concerning the Revalidation of Certain Categories of Certi- ficates of Foreign Currency Bonds (Law No.289 of 1951) provides for the re- conversion of these yen bonds into dollar or sterling bonds if 1) they were converted without the consent of the owners, 2) they had been in pledge at the time of conversion and were converted without consent of the pledgee; or 3) they had been under liquidation or under custody as enemy properties after December 1941, on the basis of relevant laws of countries at war with Japan. - 3 - As a result of these measures, bonds in possession of issuers totalling 4$23.8 million and 1194,000 were cancelled and bonds for a total principal amount of ;191.4 million and L27.1 million were converted into yen bonds. Service payments on all other dollar and sterling bonds were discontinued. On September 26, 1952 the Japanese Government and representatives of the holders of Japanese dollar and sterling bonds agreed upon a method of settlement. Japan undertook to resume service on the outstanding issues at the full contractual rates. The basis of the settlement on dollar bonds was to be as follows: 1) Maturities will be extended for ten years, 2) Arrears of interest, accumulated between December 22, 1942 and September 26, 1952 are to be paid in full, in equal instalments, over the next ten years, 3) Sinking fund payments, to be resumed in 1953, will be in accordance with the original schedules, but reduced proportionately to the amount of bonds that were converted into yen bonds. The sterling issues were settled in a similar manner except that the maturities of bond issues containing currency options were extended 15 years in- stead of 10 years. Two sterling loans have fixed option clauses entitling bondholders to payment in dollars as regards both principal and interest, at the rate of $4.8665 for each pound sterling. Four sterling loans have option clauses entitling bond- holders to payment in alternative currency at the current rate. The settlement provides for payment in the currency in which the loan was issued of the equivalent, converted at the rate of exchange on the date payment originally falls due, of the amount of alternative currency which would have been payable under the options. The U.K. Government agreed to payments being made in sterling on the bonds with currency option clauses as long as the payments relations between the United Kingdom and Japan remain on the present sterling basis. During the Conference on Japan's External Debt, held in New York from July 21 to September 26, 1952, no agreement was reached with the representatives of the French bondholders on the two issues listed in Annex C. Subsequent dis- cussions took place in Paris, but as yet the matter remains unsettled. The Japanese representatives offered to service the 4% Government of Japan 1910 loan in current francs without giving effect to an option to receive payments in "gold yen" (at the rate of lO0 = fr 258) - the Japanese contention being that the provisions of the bonds did not amount to a gold clause. Representatives of the French bondholders are seeking a recognition of the gold option and an adjustment on a basis similar to that made in respect of gold clauses at the German Debt Conference.l/ Under the i"rench proposal, the outstanding amount of principal would be adjusted to about fr 15,000 million (US$h2.8 million) as against fr 383.2 million (US91.1 million), under the Japanese offer. Since it is estima- ted that 75, of the bonds are held in Japan the net difference between the French demand and the Japanese offer in terms of external debt is about fr 3,750 million (US810.7 million) as against fr 95.8 million (US$0.3 million). Representatives of the franc bondholders of the 5% City of Tokyo 1912 issue are seeking an adjustment of principal of that loan to about fr 3,300 million (US$9.14 million) as against fr 195 million (us$0.6 million) offered by representatives of the City of Tokyo. It is believed that of these bonds a con- siderable amount also is held in Japan and that for this reason the net difference in terms of external debt is much low.er. In both cases the differences are likely to be the subject of further dis- cussions. In the meantime it is considered that no useful purpose would be served in indicating the precise nature of the contentions between the parties. 1/ German debts with gold clauses were settled on the following basis: (a) 1 gold dollar = 1 currency dollar 1 gold Swiss franc = 1 currency Sviss franc, (b) 1 gold mark or Reichsmark with gold clause = 1 Deutsche Mark, (c) in the case of other debts with gold clauses the amounts due shall be payable only in the currency of the country in which the loan was raised or the issue was made, the amount due being computed as the equivalent at the rate of ex- change when the amount is due for payment of a sum in U.S. dollars which shall be arrived at by converting the amount of the obligation expressed in the currency of issue into U.S. dollars at the rate of exchange ruling when the issue was made. - 5- b) Current and future service payments The following table contains estimates of service charges on the bonded debt. Summary of Estimated Service Payments on the Funded External Debt of Japan (expressed in millions of U.S.$) Service payments Debt out- Payments during year by currency Calendar standing Amorti- U.S. year Jan.1 zation Interest Total dollars Sterling 1953 289.1 7.4 31.4 38.8 12.3 26.0 1954 281.8 7.4 30.9 38.3 12.6 25.6 1955 274.4 6.9 30.4 37.4 1118 25.6 1956 267.4 6.5 30.1 36.6 11.1 25.5 1957 261.0 6.7 29.7 36.4 10.9 25.4 1958 254.3 16.6 29.3 46.0 10.9 35.1 1959 237.7 7.2 28.3 35.5 10.8 24.7 1960 230.5 7.5 27.6 35.1 10.7 24.4 1961 222.9 7.7 27.2 34.9 10.6 24.3 1962 215.2 80.3 22.8 103.1 9.4 93.7 1963 134.9 47.6 7.0 54.6 25.5 29.1 1964 87.3 20.2 4.2 24.4 14.1 10.3 1965 67.2 7.6 3.3 11.0 2.1 8.8 1966 59.6 7.5 2.9 10.. 1.6 8.8 1967 52.1 7.6 2.5 10.1 1.4 8.7 1968 44.5 12.3 2.1 14.. 3.6 10.7 1969 32.2 5.3 1.4 6.6 1.2 5.5 1970 26.9 1.8 1.2 3.0 1.2 1.8 1971 25.1 2.4 1.1 3.5 1.2 2.3 1972 22.6 .9 .9 1.9 1.0 .8 1973 21.7 .2 .9 1.1 .3 .8 1974 21.5 .2 .9 1.2. .3 .8 1975 21.2 .3 .9 1.1 .3 .8 1976 21.0 .3 .8 1.1 .3 .8 1977 20.7 .3 .8 1.1 .2 .8 Note: These estimates do not include service charges on: 1) the short-term U.S. Government debt. These charges amount to $51.2 million for 1953 and $31.1 million for 1954, 2) the unsettled debt arising from post-war economic assistance by the U.S. Government, (see page 1), 3) the unsettled tranches of two loans issued in France, (see Annex C). Until 1962 payments are rather stable at the US35-39 million level, with the exception of 1958 when they will be US446 million. This peak is caused by maturing bond issues, the Sinking Funds of which are insufficient to retire all bonds by that time. Similar situations arise in 1962 and 1963. Thereafter the greatly reduced debt will call for much lower payments. - 6- III. Pledge Clauses The bond issues of the Japanese Government were unsecured but at least one issue contains a negative pledge clause, Bonds of the Municipalities and Corporations having been assumed in 1943 by the Government, the corporate bodies concerned were accordingly relieved of their liabilities. The clauses in the original loan contracts dealing with security, liens and charges on properties, revenues and income and other such clauses were eliminated simultaneously with the assumption of the liabilities by the Government. The unsettled French tranche of the City of Tokyo 5% Loan of 1912 is secured by a first charge on the annual net revenues of the electric tramways and electric lighting undertakings of the City. In addition, it is secured by a general charge upon all the other revenues of the City. ANNEX A: JAPAN - EXTERNAL PUBLIC U.S. DOLLAR DEBT (In thousands) Page 1 Debtoutstanding Debt contracted December 31. 1952 January 1 - May 8, 1953 Identification In currency Expressed in In currency Expressed in of payment -U.S. dollars of payment U.-S, dollars TOTAL EXTERNAL PUBLIC U.S. DOLLAR DEBT 116,0901 J 40L000 Securities $76,368 76,368 $150,000,000 Imperial Japanese Government Ext. S.F. Gold 6 1/2f, 192L4-1954/64 2W $17,826 17,826 $71,000,000 Imperial Japanese Government Ext, S.F. Gold 5 1/2%, 1930-1965/75 / $10,551 10,551 $20,640,000 City of Tokyo Ext. S.F., Gold 5 1/2%, 1927-1961/71 3/ $ 3,114 3s114 $19,740,000 City of Yokohama Ext. S.F. Gold 6%, 1926-1961/71 3 $ 3,391 3,391 $15,000,000 Great Consolidated Electric Power Co., Ltd. (Daido Denryoka Kabushiki Kaisha) First Mtge. S.F. Gold, Series A, 7f., 1924-1944/54 ./ 31 $ 1)376 1,376 $13,500,000 Great Consolidated Electric Power Co., Ltd. (Daido 1 Denryoku Kabushiki Kaisha) First and General Mtge. S.F. Gold, Series B, 6 1/2e, 1925-1950/60 / 31 $ 755 755 $9,000,000 Nippot Electric Power Co., Ltd. (Nippon Denryoku Kabushiki Kaisha) First Mtge. Gold 6 1/2, 1928-1953/63 9/ 3i $ 1,166 1,166 $19,900,000 The Oriental Development Co., Ltd. (Toyo Takashoko Kabushiki Kaisha) Ext. Gold Debenture 6C%, 1923-1953/63 3 / $ 7,916 7,916 $7,650,000 Shinyetsu Electric power Co., Ltd. (Shinyetsu Dentryku Kabushiki Kaisha) First Mtge. S.F. 6 1/2,$ 289 1927-1952/62 .? 31 $ 1,298 1,298 $22,800,000 Taiwan Electric Power Co., Ltd. (Taiwan Denryoku Kabushiki Kaisha) S.F. Gold 5 1/2%, 1931-1971/81 9/ 3] $ 3,838 3,838 $19,900,000 The Oriental Development Co., Ltd. (Toyo Takushoko Kabushiki Kaisha) Ext. Gold Debenture 5 1/2o, l928-L958/68 3/ N $ 4,109 4,109 $15,000,000 Toho Electric Power Co., Ltd. (Toho Denryoku. Kabushiki Kaisha) First Mtge. (Kansai Division) SF. Gold Series A, 7%, 1925-1955/65 -/ 3 $ 413 413 $70,000,000 Tokyo Electric Light Co., Ltd. (Tokyo Dento Kabushik.i Kaisha) First Mtge. Gold, Dollar Series, 6%, 1928-195i3/63 3/ .f $19,751 19,751 ANIEX A: JAPAN - EXTERNAL PUBLIC U. S. DOLLAR DEBT (Cont inued) (In thousands) Page 2 Debt outstanding Debt contracted December 31, 1952 January 1 - May 8, 1953 Identification In currency Expressed in In currency Expressed in of .ayment U.S. dollars of payment U.S. dollars TOTAL EXTERNAL PUBLIC U.S. DOLLAR DEBT (Continued) Securities (Continued) $14,000,000 Ujigawa Electric power Co., Ltd. (Ujigawa Denki Kabushiki Kaisha) First Mtge. S.F. Gold, 7%, 1925-1945/55 21/ $ 864 864 U.S. Government loans $39,722 39,722 $40,000 40,000 Export-Import Bank loans to Bank of Japan $39,722 39,722 $40,000 40,000 $40,000000 2 3/4%, 1951-1953 $39,722 .f 39,722 $40,000,000 3 1/2%, 4/9/53-1954 $40,00o 40,ooo 1/ Does not include the following: a. Unsettled Post-World War II Economic Aid from U.S. Government. b, Surplus Property Credit payable in local currenoy or real property. The amount outstanding was $7,850,000 on December 31, 1952. c, Unsettled World War II reparations claimst E/ Paya-ble in dollars in New York or in London in sterling at the rate of al = $4.8665. 31 Formerly guaranteed by, but now a direct obligation of, the Japanese Government. $j Payable in dollars in New York, in sterling in London, or in yen in Tokyo at current rate of exchange. This company was designated as a closed institution on September 30, 1945, and has been placed under the administration of the Closed Institution Liquidating Commission by direction of the Supreme Commander of Allied Powers, Liquidation commenced in accordance with the Ordinance for Closed Institutions No. 74, dated March 10, 1947, issued under the Imperial Ordinance in connection with the Potsdam Proclamation. 3/ Payable in dollars in New York, or in sterling in London at £1 = $4.8665, or in Holland, Switzerland, or Sweden in the currencies of those countries at the current rates. .k/ Of the original amount of this credit, $39,900,131.79 has been disbursed an$99,868.21 has been cancelled. Repayments up to December 31, 1952 amounted to $178,362.22. IBRD - STATISTICS SECTION May 4, 1953 ANNE0X 3: JAPAN - EXTERNAL PUBLIC STERLING DEBT (In thousands) Page 1 Debt cutstanding IdenifictirzDecember 31 , 192L. IdentificationIn currency xpressed in of payment U.S. dolla.rs TOTAL EXTERAL PUBLIC STERLING DEBT l/ 212,774 Securities payable at current rate (£1 = $2.80) 2/ £25,860 ?2,408 £10,000,000 Imperial Japanese Go7ernment 4/, 1899-1953/63 Z 6,915 19,362 £25,000,000 Imperial Japanese Government 6%, 1924-1959/69 910,B55 30,394 £4,000,000 South Manchurian Railway Co., Ltd. 5%, 1923-1948/58 Z 3,467 9,707 £6,000,000 City of Tokyo 5Yf, 1926-1961/71 z 4,124 11,547 £716,500 City of Yokohama 5%, 1909-1954/644/ z 499 1,398 Securities payable at £1 - $4.8665 ] £ 8,556 41,638 £12,500,000 Imperial Japanese Government Conversion Loan 5Io, 1930-1965/80 £ 5,619 27,345 £4,500,000 Tokyo Electric Light Co. (Tokyo Dento Kaouchiki Kaisha) First Mtge. Sterlin" Series 6%, 1928-1953/68 31 £ 2,937 14,293 Security payable at £1 = .4.026875 £17,909 72,118 £23,000,000 Imperial Japanese government 5%, 1907-1947/62 6/ £17,909 72,118 Security payable under separate settlement (1 = $2.80) £ 71 198 Toho Electric Power Co., Ltd. (Toho Denryoku Kabushiki Kaisha) Reg. Debentures 5fo, 1925-1945/53 1Z £ 71 198 Securities payable at various rates 8V £ 9,1882 11,000,000 Imperial Japanese Government 4%, 1910-1970/85 Z 7,212 20,194 £5,175,000 City of Tokyo (Sterling issue) 5%, 1912-1952/67. / Z 1,710 5,353 £314,927 Osaka City Harbor Construction Loan 6%, 1901/02-1981/91. / z 191 563 800,000 City of "Iagoya 5%, 1909-1943/58 Eb 75 302 ~]see Footnote 1 on Annex A for all exclusions. IThe amounts of the securities included here were converted to dollars at £1 = 2.80 on the basis of the following provisions: Issue Contractual -orovisions Imperial Japoanese Government 4%, 18903-1953 Payable, in London in sterling Imperial Japanese Government 6%, 1924-1959 Payable In London in sterling or in Japan in yen at current rates of exchange on due dates South 'Manchurian Railway Co., Ltd. 5%, 192-3-1948 Payable in London in sterling City of Tokyo 51o, 1926-1961 Payable in London in sterling City of Yokohama 5%, 1909-1954 Payable in London in sterling AN1EX B: JAPAN - EXTERNAL PUBLIC STRLING DEBT (Continued) Page 2 Formerly guaranteed by, but now a direct obligation of, the Japanese Government. Prior to its assumption by the Government of Japan, this obligation was not guaranteed by the government. J The amounts of the securities included here were converted to dollars at 21 = $4.8665 on the basis of the following provisions: Issue Contractual nrovisions Imperial Japanese Government Conversion Payable in London in sterling or in New Loan 51%, 1960-1965 York In dollars at Zl = $4.8665. Tokyo Electric Light Co. First Mtge. Payable in sterling in London or in Sterling Series 6%, 1928-1953 dollars in New York at £1 $4.8665, or in Holland, Switzerland or Sweden in the currencies of those countries at the current rates. 6/ According to the provisions of the original contract, this obligation is payable in London in sterling, in Paris in francs at £1 : fr 25.25, or in New York in U.S. gold dollars at the current rate of exchange on the due date. The amounts of this security were converted to dollars at 21 = $4.026875, the rate in effect on March 12, 1947. 21 This obligation is unconditionally guaranteed by the British Treasury in accord- ance with the Trade Facilities Acts of 1921 to 1925, under the indenture dated July 6, 1925, between the Commissioners of His Majesty's Treasury and the Pru- dential Assurance Co., Ltd., London, the registered holder of the oblipation. Under this guaranty the British Treasury kept on deposit with the Mitsui Trust Co., Ltd. securities which were to be worth not more than 50% of the outstanding amount of the debentures. After the outbreak of World War II the British Government serviced this loan under the guaranty. As a result, all of the bonds were retired and are now held by the British Treasury. Japan has agreed to Day the British Treasury the sum of X124,8ll-l4s-2d on January 15, 1953 at which time the British Treasury will sur- render the Z70,576 of bonds in its possession. The amounts relevant to this security were converted to dollars at £1 = $2.80. 8 The original contractual provisions are as follows; Issue Contractual provisions Imperial Japanese Government Payable in London in sterling or at current rates 47, 1910-1970 of exchange on due dates in Japan in yen) in France in francs, or in Switzerland in Swiss francs. Conversion has been specifically ex- pressed as payment at bankerst buying rate for sight exchange in Zurich on London on July 1, 1970. City of Tokyo (Sterling issue) Payable in London in sterling, in aew York in 5%~, 1912-195Z d.ollarst or in Switzerland in Swiss francs at the current retes of exchange on the due dates. Osaka City Harbour Construct- Payable in yen, or, at the option of the holder, ion Loan P, 1901-02-1981 in stering in London at 1rn 2s. rd. AYL,IX B: JAPAY - EXTURYAL PUBLIC STERLING DEBT (Continued) Page 3 (Continued) Issue Contractual provisions City of Tageya 5%, 1909-1943 Payable in sterling in London, or, at the ontion of the holder, in guilders in Holland, in Belgian francs in Belgium, or in Swiss francs in Switzerland at the exchange rate of the day in London. IBRD - STATISTICS SECTION May 4, 1953 ANNEX 0 JAPA, - EXTEITAL PUBLIC FRENCH FRAITC DEBT (In thousands) Debt outstanding .a December 31, 1952 In currency Expressed in of payment U.S. dollars TOTAL EXTZREAL PUBLIC FRENCH FRANC DEBT fr 578,390 21 DBT OF TIE NATIONAL G0V1RNMNT fr 450,000,000 Imperial Japanese Government LO, 1910-1970 ZJ 31 fr 383,221 DiZT OF POLITICAL SUBDIVISIONS fr 100,880,000 City of Tokyo (Franc issue) 5%, 1912-1952 ff J fr 195,169 1 See Footnote 1 on Annex A for all exclusions. 2/ Each of these issues has been the subject of differences between bond- holders and the Japanese Government or the City of Tokyo, These differ- ences, which have so far been unresolved, are likely to be the subject of further discussions. In the meantime it is considered that no useful purpose would be served in indicatinr the orecise nature of the conten- tions between the parties. j/ The original provisions of this obligation state that it is payable in francs in Paris or at the current rate of exchange in sterling in London, in Belgian francs in Brussels, or in Japan in yen at 9 100 = fr 258. IBRD - STATISTICS SECTION May L, 1953