R E S T R I C T E D ILL CGI Report No. A.S. 53 This document was prepared for internal use in 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. INTERNATIONA]L BANK FOR RECONSTRUCTION AND DEVELOPMENT QUARTERLY ECONOMIC REVIEW N,O. 4 JIJNE 1956 Department of Operations Asia and Middle East EXCHANGE RATES IN TERMS OF U.S. DOLLARS ETHIOPIA - dollar = $0.4025 EGYPT - pound = $2.87 LEBANON - pound = $0.31 SYRIA - pound = $0.28 PAKISTAN - rupee = $0.21 INDIA - rupee = $0.21 CEYLON - rupee = $0.21 BU.RMA - kyat = $0.21 THAILAND - baht = $0.049 JAPAN - yen = $0.0028 TABLE OF CONTENTS ETHIOPIA . ......... .. .1 EGYPT . .......... 3 LEBANON . . ... 6 SYRIA.. ..... 9 PAKISTAN ........ 12 INDIA .................... . . 15 CEYLON ...... . ......... .. 17 BURMA .... . 19 THAILAND ... ... .. 21 JAPAN . ..... .. 23 ZT7PCOP IA. In 1955, economic conditions in Ltliiopia continued to be stable, although there were deteriorations in its balance of payments on current account and in the Govern- mentts fiscal position. Ethiopia's exports in 1955 continued at a high level, despite a drop by cne- third in the average price of coffee, the couLntryi's principal export. Ihis was achieved mainly by a 35% larger volume of coffee exports, 42,000 tons in 1955 as against 31,000 tons in 1954. Asa result, Ethiopia's foreign trade in 1955 shcwed an e,q ort surpluF of Eth. $24 million, only slightly loler thian in 1954. Nevertheless, the balance of payments on current account in 1955 registered a small deficit of Eth. $5 million, as aga-inst a surplus of Eth. ,8 Million ir, the previous year. The 1955 deficit was mainly due to larger deficit on service account Notwiithstanding the balance of payments deficit on current account, the State Bank's foreign assets (sold, silver and foreign exchange) rose by Eth. $11 million irL 1955 and by Eth. $12 million in the first quarter of 1956. The latter was largely seasonal, since the first part of a year is the main export season. On Narch 31, 1956, the State Bankts foreign assets totaled Eth. $163 million (uS $65 million). A preliminary estinate of Government revenue and expenditures for 1954/55 (fiscal year ending September 10) indicates a deficit of Eth. $30 million as against a small deficit of Eth. $;2 million in the previous fiscal year. TIhe large burlget deficit for 1954/55 resulted mainly from the various expenditures incurred for the celebration of the 25th anniversary of th-e Enperor's coronation. The deficit was doubtless partly Imet by drawings on Government balance with the State Bank which was reduced by Et1h. $15 million in 1955 to Eth. $66 million at the year's end. This also indicates that the actual deficit mLay have been smaller than origi.nally estimated. Recently the Government is reported to be considering certain tax reform measures with avLew to increasing revenue for development. Details of these meas- ures are not yet available. Currency in circulation (which comprises the greater part of money supply) rose by about Eth, l0 million in 1955 and further by Eth. t13 million in the first quarter of 1956. These increases correspond closely with those in the State Bank's foreign assets. The rise in the first quarter of 1956 was seasonal because oi the export season. The price level continued to be stable throughout 1955 and the first quarter of 1956, except that export prices of coffee in the latter period were some 20% higher thian the average in 1955. E T H I O P I A 1954I 1955 1956 1955I II III IV I II III IV POPULATION About 15 million (No censug baa ever been taken) BUDGET (millions Rth.$) _ Actual Rieveue 7-mR1 WIU - nr -i Ependiture 2 84 95 -2 130 22 0 -3 _-2 --3o GOVEBENDNT BALANCE at State Bank (mllion Eth,) 22 31 65 81 66 82 70 81 69 78 72 66 93 OOVERNMET DEBT (million Eth.$) Internal 68 83 102 103 99 97 103 98 99 External 36 4o 32 31 j3 32 31 32 34 MX6 123 137 37 13 129 £31 13i 3 MONEY SUPPLY (million Eth.$) Currency Circulation 87 93 115 f19 129 130 flO 119 137 130 124 129 142 Demand Deposits 1 26 30 27 106 19 UN 4 PHIVATE CREDIT (million Eth.$) 2 11 17 17 23 22 23 22 PRICES (Indexes of wholesale prices Addis Ababa, 1951-100) Coffee 100 108 97 133 89 132 154 132 113 78 80 96 107 General Exports 100 85 77 91 73 90 99 91 82 67 68 78 80 General Iuports 100 94 79 76 76 79 76 76 75 76 78 74 72 BAIANCE O0 PAYEh . Current account (million Etb.lt Prel. Exports f.o.b. 125 115 178 167 170 53 57 30 20 47 49 37 Imports f.o.b. 87 99 120 140 146 39 43 2 36 4 40 43 Trade Balance 38 6 35C f 27 -I7 15 14 -i2 _16 93 Invisibles -26 -20 - 26 -2 Surplus or Deficit (-) 13 -C jj A COFFEE EXPORTS (million Eta.$) 63 50 100 99 91 35 40 16 8 25 30 22 14 GOLD, SILVER & FOREIGN EXCHANGE HOLDINGS OF STATE BANK (million Eth $) 63 77 120 140 151 147 155 144 140 159 162 153 151 163 (million U.S. $ equiv.) (25) (31) (48) (56) (60) (59) (62) (58) (56) (64) (65) (61) (60) (65) V Fiscal year ending September 10. if Credit extended by the State Bank and the Development Bank. Quarterly trade data are based on customs statistics and not strictly comparable to annual balance of payments data. -2 - EGYPT Thus far in 1956 substantial budget and balance of payments deficits are continuing. The cotton crop is slightly smaller than in the 1954-55 crop year but cotton exports may be larger than in 1955 and prices are higher. The trade deficit was LE 5.8 million in the first quarter of 1956 as compared with LE 3 million in the first quarter of 1955, despite an increase of LE 13.5 million in exports. Large capital goods requtirements for public investment projects and heavier defense expenditures are mainly responsible for both the budget and balance of payments deficits. In 1955, foreign exchange reserves fell about $86 million, or over 12%, and in 1956 through April by about $58 million. This re- duction has been largely in sterling. Present foreign exchange bal- ances and gold holdings are about 103% of the note issue and roughly equal to a year's imports. Thus the reserve position is still fairly strong. Gold and dollar holdings were about $206 million on April 21, 1956 and sterling and other currencies $342 million equivalent. The availability of sterling is based on a recent agreement with the UK for the release of Egypt's blocked sterling balances (now probably $310-$320 million equivalent) at the rate of L20 million a year to 1960, and 1l10 million a year thereafter till all are released by 1963. 75% to 80% of Egypt's exports are raw cotton. Although the final estimate of cotton production for the 1955-56 crop year is about 4% under 1954-55, stocks were higher on September 1, 1955 (start of the crop year), than a year before, and total availabilities for export will be a little larger this year., Preliminary reports indicate that from January through May over 42% more raw cotton was exported than in the corresponding period last year. The price of Egyptian cotton on the Liverpool and Alexandria exchanges has risen sharply in recent months. The Liverpool price on May 15 for long staple was nearly 50% higher than in December, whereas only a minor rise has occurred in American cotton on that market. It is reported that nearly one third of Egyptian cotton is now going to Eastern Europe, as compared with about 20% last year and only 6.3% in 1953-54. Six to nine month' s credits, in part guaranteed by the Government, are being extended on cotton exports to Soviet bloc countries. Egypt may have difficulty in maintaining her cotton exports to dollar and sterling markets under these price and credit conditions. Other Egyptian exports, particularly rice, increased about 11% in 1955. Textile machinery, automotive equipment, other machinery and building materials accounted for most of the 11% increase in Egyptian imports last year. Increase in local production of textile products, and fertilizer is reducing imports of these items. The policy of the Egyptian Government is to balance its ordinary budget and meet capital expenditures by borrowing. On balance, this has been nearly accomplished in recent years. For the fiscal year end- ing June 30, 1956, the total expenditures of the National and local governments are estimated at LE 345 million, about 25% higher than the previous year. The development expenditures of the National Government are estimated at LE 54 million. -3- Government debt held by the National Bank has increased about LE 49 million since January 1955, or over 100%. Out of a total of approximately LE 258 million the National Bank now holds about LE 95 million. The Government has announced that the recent bond issues for LE 25 million were all taken up outside the National Bank. However, all, except LE 4 million, was subscribed by banks, insurance companies, and larger business concerns. These issues include a LE 5 million, five year loan at 2-2%, a LE 10 million, 10 year loan at 3%, and a. LE 10 million, 15 year loan at 3*%. The issues are tax free on capital and interest except for the inheritance tax. Following the recent bond issues the Government had cash balances of about LE 33 million, as compared with LE lle7 million at the end of 1955 and LE 16e7 million at the end of 1954. The net claims on the Government; (debt less cash holdinigs) have increased roughly LE 56 million, or 33%, duLring the current fiscal year (since June 30, 1955). Since Egyptian foreign exchange assets declined about LE 68 million and bank credit expansion was moderate, little change occurred in money supply and prices. As for future prospects, Government capital expenditures will un- doubtedly remain high and a substantial part will continue to be in foreign exchange. A small 1955-56 wheat crop is expected to stimulate imports. In partial compensation, further purchases of US surplus agri- cultural commodities are probable. Also exports other than cotton are showing a long-term tendency to rise and tourist receipts are growing. On balance, given present development policies, and considering the un- certainties in the cotton situation partly because of US export policies a continuing drain on the countryts foreign exchange reserves must be expected. 33!PT 19524 _ _ 195 __ 1956 1952 1953 1954% 1955 I II III n I. II III IV I II POPULlAIOV (-V"l"ons - mld-year) 21.4 21.9 22.6 23.2 22,6 23,2 AGrICULTRAL PRDUCTION Index 1946-50 - 100 106 98 110 Cotton (iifilion 9a9ars) y.j 7.1 7.6 86 Wheat (udliom ardebs) 7.3 10.3 11.6 9.7 INDUSTRIAL PRODUCTION Cotton yarn (thousand tons) 55.7 59.h 64.3 16.1 15.0 15.5 17.6 18.6 17.0 17.2 Ceumt (thousand tows) 947 1,097 1,237 291.7 323.0 302.8 319.6 330.8 336.2 359.7 Fertiliiwer (tousaznd tons) 206 216 268 Petroilec (thouesand tone) 2,383 2,268 1,972 488 502 494 494 687 432 FORMSG TRAID (miflion iU) Exports and Re-exports 145.1 137.4 138.3 140.1 45.7 34.5 22.5 35.6 38.0 29.2 29.0 43.9 of ubioh cotton 126.i 116.3 113.1 Imports 223.g 174.4 160.2 194.1 _31.2 36.7 4M0.8 48.1 _ 41.1 M3.t 4.2 65.0 Balance _78.4 -37.0 -21.9 54.O 11.5 -2.2 -18.3 -12*5 -3.1 -14.7 -15.2 -10.2 BALANCE OF phAMU - CURRUT ACCOUNT (rMou -) Foreig Trade and Transit (net) -64.1 -28.9 -11.7 InviAibles (net) 10.7 21.0 15.3 Balance -53.4 -7.9 3,6 (id 3 I 4 an U) 248.9 240.6 246.9 217.1 250.1 250.3 211.4 246.9 249.6 244.7 233.5 217.1 200.3 GOVFRNMKB BUDGET (ri I 11 C La) Ordinary Receipts 198.2 206.4 221.8 / 238.3 / 208.4 1I9.7 227.8 ?A .3 2 -10.2 4b.7 -6*0 0 Capital (Productive Projects) 41.8 / 42.3 / 54.3 / 0OVERSUKKT DEBT I/ Total 173 172.5 173.5 164.5 160.0 171.8 173.5 198.3 217.5 213.6 21.4.6 To National Bank 57.4 55.3 46.4 87.3 39.5 43.3 71.2 46.4 55.1 73.1 74.3 87.3 97.2 OOVER00gT DEPOSITS (sdllon LE) 1/ National BaLk 7.8 9.5 7.1 1.9 20.6 12.6 3.3 7.1 34.2 40.1 11.7 1.9 9.7 6 Other Banks 8.7 8.8 9.6 9.8 9.1 8.9 7.7 9.6 9.1 8.1 9.2 9.8 1.0 / DO(ITIC LOASS AND InVFThU2B - COXHZHSIU BANKS ( d¶llon LE) 38 11B.1 118.6 151.1 153.4 121.3 106.8 112.3 151.1 140.1 125.2 128.1 153.4 NATEONA EMW CEFIT TO OUMR BANX (ndllion LE)1 4.4 4.1 12.9 13.2 5.7 1.6 3.2 12.9 10.7 7.8 5.1 13.2 MONEY SUPPLY (Mudion LE) 381.9 369.2 358.8 368.7 351.8 346.1 352.2 358.8 331.8 324.1 332.4 368.7 352.4w ourrencY 205.7 190.4 188.6 186.1 178.5 172.7 169.5 188.6 180.2 112 165.9 186.1 PRICES Wo-lesale: Index 343 354 3h2 354 339 339 342 349 346 362 350 k Cost of Livingt Index 296 294 283 288 282 282 283 284 282 284 283 y Cotton (tallaris per kantar) Karnak G 62.00 59.75 76.00 65.oo 66.50 76.00 71.50 69.50 76.33 714.30 Aahbmmni G 55 5O 5g 90 59c50 57 An5 6? an 59,50 56.50 56.75 5960 55 nR A & of Peiod Eatimte : Fiscal year beginning on the year indicated Second estimate End November J End February LEBANON No sign of slackening in the grovth of the Lebanese economy has ap- peared since 1955 when tiie national income, estimated at 1,,440 billion Lebanese pou-nds, iwas over 4p'1 higher than 1954 and nearly 15i, higher than in 1953. However, prices rose about 7-" in the first two monthis of 1956 and the expanlsion of banlc credit, combined ,.iith a tighter budget situa- tion because of larger expenditure commitments, is of some concern. All the major sectors of the national economy participated in tihe increase in national income in 1955., Agricultural and industrial produc- tion and marketing reached leve'ls higher than in 1954; the opening of the local branch of another foreign bank (Dresdner Bank) and the inauguration of a new Lebanese banking firm (Banque de Beirut et des Pays Arabes) wit- niessed to pr. a*ro TndTid TransEorta- tion activitLies, another important sector, further developed; thie 1955 traffic through the Port of Beirut wias 25,hlhiglier than in 1954), ,-hen it had been 20,v higher than in 1953. Thie situation with regard to air trafiic wras similar. The def'icit in the balance of trade, traditional in a country like Lebanon whose prosperity rests largely upon the supplying of services, con- tinued in 1955, but the overall balance of payments shovred again an esti- mated surplus of LE 75 million. The surplus vwas estimated at L; 60 million in 1954 and at LL 99 million in 195?. Tourism traffic reached a new peak; foreign travelers reportedly spent about LL 120 million of foreign currer:'cy in 1955, a;ainst LT 110 million in 1954 and LL 80 million in 1953. Monetary reserves have increased further; the Lebanese pound is now. backed 90;, by gold and 10>, by foreign exchange. Bud-et receipts are growing along witih the increasing economic pros- perity; the 1956 budget provides L;, 145 million from taxation and other sources, ag:ainst L 137 million of tax receipts in 1955 and L. 120 million in 195hi, and thie budget showed a booklkeeping surplus of LD 25 million in 1955. Howvever, commitments for future expeenditures increased more than that; among. othler reasons because of such additional outlaays as town water, telecortumunications and rural electrification projects. The cash balances of the Government, which wrere estimiated at more than LU 45 million one year before, dwindled in n.&ay 1956 to little more than L; 7 millionl. Its reduced cash position has prompted the Government not to exercise its 195 option to take over from the Beirut Port Company its plants and facilities and to limit its participation in that project to the financing of the overdue expansion of the loading, unloading and handling facilities and of other works w-hich are expected to produce substantial profits. The damage caused by an earthquake in 1plarch 1956 (estimated to be up to LU 100 million) did not directly affect the bAdget bgeause a special L1 30 million Relief Fund is being financed outside the regular budget by zpecial taxation and by U.S. grant aid. - 6- IMiore income may be put at the disposition of the Government whe!n the negotiations with the oil companies wfith a view to raising the pipeline transit royalties come to a conclusion, follo.ring similar agreements reached by Syria. But there is little likelihood of an early conclusion to these neco,otiations. Ionetary liabilities (currency and demand deposits) of the banking system went Lup to L. 714 million in December 1955 agairnst LI 608 million in December 1954 and there is evidence of a further increase in 1956. The wholesal.e price index (1953 c 100) was 100 in February 1956 against 93 in December 1955; similarly, the cost of living index, on the same basis, went up in the same Deriod from 96 to 102. It is difficult to say, with the limited information available, how grave the danger of in- flation is, but the situation is already causing some concern in the business and public circles of Lebanon, especially because the Government has little or, no institutional means of controlling the credit institu- tions and thei.r activities. L E B A N O N FEBRUARY 1951 1952 1953 1954 1955 1956 1955 1956 POPULATION (million) 1,304 1,338 1,417 1,447 1,483 - - - NET NATIONAL PRODUCT (6L million) 1,071 1,090 1,250 1,380 1,440 _ _ _ NET CAPITAL LIVVESTENT (6L million) 131 150 154 165 - - - - PRICES (1953 = 100) Wholesale prices 122 111 100 92 93 - 93. 99 Cost of living 107 107 100 95 96 - 95 102 DEPOSITS (Private and Public) CUi7iillion) Sight 253 301 324 362 444 _ _ Time 6 12 19 27 39 - - Total 259 313 343 444 483 _ _ _ (of which public deposits) 32 68 108 112 - - - - CURRENCY .L million) 206 200 205 242 270 - 246.1 266 PUBLIC BUDGET (LL million) Receipts .105- .125 .141 +134 4137V .145! - - Expenditures - 90 - 89 -117 -120 -137 1/ -1451/ _ _ Balance .15 .36 24 .14 - - NET INCREASE (4) OR DECREASE (-) IN RESERVE FUNM (EL million) .15.256 .31.952 .11.384 .14.340 - _ _ _ BALANCE OF PAYMENTS (LL million) Merchandise -155 -190 -170 - - - - Invisibles +173 -t232 *279 - - _ _ _ Balance t 18 * 42 + 99 - - - - - GOLD COVER (IL million) 93 109.2 126.7 219.0 245.0 _ _ _ GOLD AND FOREIGN ASSETS B.S.L. AND GOVERNMENT (U.S.$ million) Gold 26.3 30.6 34.7 63.1 73.7 - 63.1 73.7 Fnreipn exchange 13.2 11.6 20.5 13.0 12.8 - 15.8 11.9 (Of which French francs) (12.0) (10.9) (12.8) (11.6) (10.1) - (11.4) ( 9.3) Total 39.5 42.2 55.2 76.1 86.5 - 78.9 85.6 Estimates -8- S'YRIA By mid-.1956 Syria seems to have overcome some of the difficulties vwhich in 1955 threatened her monetary stability and weak ened her international pay- ments position. Internal credit restrictions, a larger cotton crop than had been anticifated, new arrangem.dents vrovidin fior increased foreign exchan-ge receipts from oil transit royalties and initensified irmport restrictions ap- pear to have been the principal factors in bringing about this Jmprovement. Exports for 1955 are estimated at 13i 532 million and imports at bS 647 mill'ion. This trade deficit of ;S 115 million (ES 84 million in 1.954) was manageable in view of other f oreirn exchange incoome. The new agreement on oil transit royalties is producing an extra. 6S 50 million per year in for- eign currency, and in addition Syria has received a lurp sula cayment on ac- count of arrears of oil revenues amounting to 3S 70 million. These, together writh a new loan of ES 35 million from Saudi Arabia, have resulted in an n- crease in Syria's foreign exchange reserves from 3S 92.6 million in JulY 1955 to IS 193.9 million in January 1956. In 1955 a loss of' cereal exports because of a crop failure was orne of the principal difficulties. A good cereal crop, however, is expected in 1956; and cotton production also appears favorable. New trade ag-reements signed in 1955 with Poland, Saudi Arabia, Italy, USISR, Pakistan, mainland China and Last CGeTanaiy are ex,pected to im.aprove marketing prospects for Syrian products. VYhile there is not enough iiformation to verify . that the d,anger of inflation is over, it appears that inflationary pressures have been checked. The reduced purchiasing po-ier resulting from the crop failure has been i.n- struinental in keeping internal demand dovm. A series of credit restrictions, enacted in mid-1955 vwith a vicw to curbing speculation without harming pro- ductive activities, also played an effective ro'e. Throug,h the newly estab- lished Credit & Money Council tthe CGovernmert may nowv have the basic tools to establish and enforce credit and monetary policy. In July 1956 the new liational Bank of Syria will take over responsibility for the note issue, so far left to the Sanque de 1Syrie et du Liban, a private, commercial, foreign bank wrnich, since the time of the French h1.andate, has been performing this function. Under the impact of these combined factors, the currency in circulation fell from its peak of kS 336.8 million in Hay 1955 to ;S 320.1 million in December. The total volLuie of bank credit, which during the course of 1954 had increased from IS 226.8 millionl to LS 398.8 million, was stable in 1955. Price indices, which had been mounting in 1955, remained stable in the first months of 1956. The increase in oil royalties is expected to exceed the lozses in Flpblic receipts due to a lo.rer level of general economic activity; the 1956 revenue estimates have been put at about ES 321 million, as against IS 260 million in the previous year. -9- Syrira might still have to face recurrent economic setbacks in the near future, due to occasiorial Poor crops until a larger part of the farming is done under irrigation and to difficulties in exzporting her industrial pro- ducts. The ES 650 million Developmsent Budget, approved in mid-1956, is being carried out and a larger proportion of the national income is expec- ted to coine from sources less vulnerable to the hiazards of the ueather. S Y R I A 1951 1952 1953 1954 1955 1956 POPULATION (settled) (million) 3,260 3,361 3,535 3,641 - - NATIONAL INCOME (LS million) - - 1,360 1,650 - o PRODUCTION W-eat vtons 0) _ _ 870 800 438 _ Barley (tons 000) 155 396 472 561 137 Cotton (tons 000) ginned 62 45 47 72 84 - Rice (tons 000) 1 3 16 19 - - Cattle (heads 000) _ _ 440 475 - Sheep and goats (heads 000) 4,519 5,085 5,360 5,607 - - Area cultivated (hectares 000) 3,227 3,420 3,668 3,845 - - Cement (tons 000) 39 107 224 249 - - WHOLESALE & RETAIL PRICES (Damascus, 1949 - 100) Food 121.2 118.0 107.0 96.3 102.7 - Local raw materials 128.6 118.8 109.5 124.6 128.7 - Retail 109.0 107.7 93.2 89.4 - - MONEY & CREDIT (LS million), end of period Notes and coins (net) 229.9 229.6 266.7 335.1 320.1 - Total deposits 128.8 241.8 296.2 334.0 334.4 - Private 60.4 76.3 91.8 125.3 135.6 _ Public. 68.4 165.5 204.4 213.7 198.8 - Discounts, loans and advances 115.1 145.9 226.8 396.8 408.9 - ORDINARY BUDGET (LS million) Receipts 138.9 181.2 216.7 202.0 260.61/ 321.0 / Expenditures 156.1 177.4 197.0 209.1 260.6 321.0Y Balance -17.2 4 3.t5 419.7 - 7.1 0 0 BALANCE OF PAYMENTS (iS million) Imports 418.0 444.0 459.0 638.0 647.0 - Exports 292.0 337.0 408.0 554.0 532.0 Services (net) .64.0 456.o 427.0 - 4.0 - Donations and capital movements (net) -65.0 420.0 .30.0 .77.0 - Errors and Omissions 4 6.0 .31.0 - 6.0 410.0 - OFFICIAL HOLDINGS OF GOLD & FOREIGN ASSETS (bS million) Total at free rate 82.5 107.6 157.0 165.0 176.8 1/ Estimates - 1.- PI:& A Dank nissioa is current±2r reasscssin- Pakistan's econonLic position and prospects, 'he follo-aing coSn;ents are, therefores, confined to an outline of the Five-Year Flan recently announced by the Government. However, it is noteworthy that Pakistan's gold, dollar and sterling reserves continued to ircrease through March to $283 million equivalent, a rise of about $4O million during the Tl1arch quarter. The Development Plan prepared by the Planning Board covers the five years ending March 31, 19609 and it is designed to achieve the f3lloTing o'obectives: - (a) to raise the national income and standard of living; (b) to improve the balance of payments position by increasing exports and by production of substitutes for imports; (c) to increase the opportunities for useful employment; (d) to iriake steady progress in providing social services, housing, education, health, and social' welf'are; and (e) to increase rapidly the rate of devel-opment, espe- cially in East Pakistan and other relatively less-developed areas. A 20% increase in Pakistan's national income by 1960 is envisaged and, allowing for an antici- pated 71% increase in population, the per capita income is expected to rise by 12%. Implementation of the Plan is estimated to cost the equivalent of $2,436 million, expenditure in the public sector being estimated at `pl,680 million,, and in the private sector at about $756 million. This public sector expenditure ave- raging $336 million a year is about 241' above the level of 1955/56. To f'inance the Plan, the Planning Board estimates that during the five year period domestic savings can be mobilized to the extent of $1,554 million; $315 million as public savings and $1,,239 million as private savings, Included in the latter there appears to be 1147 million of contemplated borrowings from the State Bank. Of the remaining $1882 million, some `84 million are expected to be covered by i'oreign investment and the Board hopes that foreign loans and aid will be available to cover the balance of $798 million. Approximately one-third of planned public expenditures will be related in some way -to agriculture through agricultural development, village AID, irrigralion, reclamation an(d drainage programs; industry and power comprise over one-quarter; transport and communications about one-fifth; and social services one-fifth, In the private sector, the Planning Board expects that over one-third of the total expenditlure of $756 million will be invested in industry. Allowing for the encouragement provided by the housing and settlements programs in the public sector, the Board expects that private investment in construction will also in- crease and may require perhaps one-quarter of the resources available for private investment. The remaining resources are expected to be used for transport equip- ment, development of mineral resources, and in agriculture, the trades and commerce. In addition to the expenditures in the public and orivate sectors, there is expected to be an investment of labor and local materials, which would not neces- sarily involve any expenditure of money, for private and communal purposes, such as construction of houses, small irrigation and reclamation works, building of - 12 - schools and roads by rural cc'r,niti-s for coll.ctive use. c_urn e:zE--,dituro in;y be equivalent tc :;315 million to Y4^20 mil:lion during the Plan period but no esti- mate of such investment has been included in the Plan. However, it may have a substantial effect on raising living standards, particularly in rural areas. The requirements of foreign exchange for implementation of the Plan are esti- mated at 4$1,113 million; $7l4 mi-lion for the public sector and 4399 million for the private sector. During the five year period, Pakistan's total foreign exchange earnings are expected to be about $2,130 million and the minimum foreign exchange requirements for consumer goods, rawi materials, defense and other non-development imports are estimated at about $1,920 million, leaving about j210 million available for development. The Board exp7ects foreign investments will be available to the extent of `l105 million gross. Foreign loans and aid will be needed for the balance of ;798 million. Pakistan's export earnings are expected to rise by about $84 million annually during the Plan period, At the same time, requirements for imports of essential consumer goods, raw materials and fuels will drop with the expansion of local pro- duction, and the requirements for non-development imports are expected to drop by 6?21 millions During the Plan period, therefore, the countryts foreign exchange position will improve substantially, and by 1960 it is hoped that about 6105 mil- lion per year will be available for development from the country's oWln earnings. In the development of agriculture the basic target of the Plan is that by 1960 there should be an adecuate continuing food supply within the country for the growing population, and to make a substantial beginning, through research and extension programs and use of fertilizers, etc,, tow-ards more diversified agri- ultural output. Targets recommended in the i-lan include a 13% increase in food grains, and larger increases in cotton, oil seeds, sugar-cane, and fruits and vegetables. Under the Plan, the extensive program of irrigation development in West Pak- istan is to be continued. By 1960 it is expected that 2.5 million acres of new land will be brcught under irrigation, improved water supply provided for ancther 2.7 million acres, and about 560,000 acres of saline and water-logged lands re- claimed. In East Pakistan, anotler 400h000 acres of land will be brought under winter irrigatizn and about 1.5 million acres improved by drainage and flood regulation. Power development projects are estimated to cost 113.7 million and are ex- pected to increase installed capacity from 280,000 kw at the beginning of the Plan period to about 860,000 kw in 1960. Industrial development under the Plan is expected to consolidate progreEs already made and to lead to an estimated 70% increase in production and an increase in value from about $1,576 million to about ?2,740 million. Important industrial targets include the raising of productive capacity of cement from 670,000 tons per year to 1,280,000 tons; fertilizers from nil to 162,000 tons; sugar from 115,000 tons to 235,000 tons; and the number of jute looms from 3,300 to 12,000. The Plan makes provision for expenditures on rehabilitation and replacement of railway track and rolling stock, on construction and improvement of roads, on the development of inland water transport, shipping, and civil aviation, and on the expansion of telephone, telegraph and broadcasting facilities. *- 13 , P A K I S TA N 19514 1955 1956 195. 1952 1953 1954 1955 II I5 IV II III I POPULATION (million) 75.8 78.5 79.3 80.2 NATIONAL INOOME AT FACI0R COST (billion rupees 18.3 18.1 19.3 AGRICULTURAL PRODUCTON (000 tons) 8/ Rice 7749 817 9151 8405 Wheat 3014 2438 3683 3172 Cotton 247 314 252 279 Jute 1131 1218 447 484W 998W INDUSTRIAL PRODUCTION Cotton Cloth (TMillon yds) 128 174 252 345 85 81 86 94 106 102 113 Cotton Yard (million lbs) i/ 19 20 53 100 19 22 27 32 32 38 140 '-te Efre. (000 tons, 11/ 18 1 50 V 611/ 14 8 13 19 22 22 21 24 GOVERUET BUDGET (million rupees) 11 Ordinary Revenue 15 12j6 1125 1155 31 Expenditure 1692 2093 1849 2055 (Development Outlay) (3) (48 (753) Excess of Expenditure 2bj 808 7214 900 INTERNAL PUBLIC DEBT (million rupees) / 1615 1808 2125 2400 2189 2287 2406 2400 2422 2452 GOVERNMENT BAIANCE WITH STATE BANK (million rupees) W 582 377 216 173 152 325 172 260 173 258 107 237 152 178 COMIERCIAL BANK PRIVATE CREDIT (million rupees) w f 919 792 802 984 1183 846 809 811 984 1048 904 902 1183 MONEM SUPPLY (million rupees) §/ 3761 3228 3577 3858 4542 3710 3688 3595 3858 3932 3980 4124 4542 PRICES - KARACHI COST OF LIVING INDEX (1950 - 100) 1 104 106 118 116 111 8 115 116 116 112 108 112 112 113 BAIANCE OF PAYNENIS CURRENT ACCOUNT_ (million rupees) Receipts 2878 1916 1551 1275 1757 395 302 227 350 389 373 397 598 Raw Jute (1226) (729) (579) (556) (774) (166) (121) (85) (183) (198) (128) (154) (294) Raw Cotton (1092) (807) (683) (370) (431) (146) (104) (68) (51-) (91) (133) (93) (114) Pa menta 2361 2767 1428 1437 1460 378 400 335 323 322 322 381 l3 Surplus (4) or Deficit (-) .517 -851 4123 -162 .297 17 -98 -108 .27 .67 .51 .16 .163 Errors and Omissions 42 -14 -2 0 0 0 0 n.a. n.a. 0 0 0 0 TEaMS OF TRADE (April 1948-March 1949 - 100) Z - 125 103 75 82 76 75 86 80 86 86 80 75 62 STATE BANK. GOLD. DOLLAR,AND STERLING RESERVES (million rupees) p/ 1482 606 689 631 1156 720 630 561 631 677 696 1001 1156 1348 itlTon U.S. dollar equiv.) (448) (185) (208) (191) (243) (217) (191) (172) (191) (205) (210) (210) (243) (283) T Year beginning April 1 Crop years beginning in year tndicatpd FioV4sion-YV Etlwate i Surplus to wills' own consumWtion f End of period / Average for period -14- IND IA A Bank mrssion is now in India investigating the country's economic situation. The most significant development in the first quarter of 1956 was an increase of the money supply by Rs. 1.3 billion or 6.3%, large'y as a re- sult of the need for crop finance combined with other seasonal requirements for funds to settle tax and year-end obligations*. By lViarch 31, 1956, bank credits outstanding exceeded Rs. 7 billion as compared to Rs. 6.4 billion at the end of 1955. Also the Government was in the market for funds and the amount of' treasury bills outstanding reached Rs. 5.95 billion by the end of the quarter, an increase of more than Rs. 1.5 billion from the end of 1955. This exoansion was absorbed by the public for the most part, but the Reserve b3ank of India's holdings of Government securities rose during the same period by more than Rs. 500 million to Rs. 5.5 billion. The upward trend in the overall wholesale price index continued. In particular, prices of agricultural staple comm-iodities, such as rice, wheat and raw cotton, rose considerably; prices of industrial commodities re- mained relatively stable, either due to continuing price controls (steel, coal) or a saturation of the market, especially with textile goods. Con- suner prices showed a slight decline. Anot'her manifestation of the -ressure of the expanding money supply was an increase in imports in the first quarter, while exports were main- tained at about the average monthly rate of 1955. While Indiats net; for- eign exchange reserves were on the whole rising throughout 1955, in the first quarter of 1956 they declined slightly. The inf:Lationary tendencies, which became apparent early this year after a period of monetary stability, may gain further strength due to the proposed deficit operations of the Government. Despite the levy of additional taxes (on personal and corporate income) which is expected to yield Rs. 342 million of ordinary revenue, budget estimates forecast an overall deficit of Rs. 3.56 billion to be financed by Government borrow- ings. The principal factor is a substantial increase, in connection with the Second F'ive-Year Plan, of Rs. 1.74 billion in public investment out- lays. * The Indian fiscal year ends on L1arch 31. - 15 - INDIA (All figures in Rs. billion except where otherwise stated) 1954 1955 1956 1950 1951 1952 1953 1954 1955 I II III IV I II III IV I Population (million) 358 362 367 372 377 383 National Output Net national product at factor cost - at current prices J 95.3 99.9 98.6 106.0 n.a. n.a. - at 1948/49 prices i 88.5 91.6 95.2 99.5 n.a. n.a. Agricultural production (1950c100/ 100 96 97 102 114 114 Industrial production (1946=100) 105 117 129 135 146 160 138 143 150 156 158 159 159 162 n.a. Prices -'Wfi-Tesale prices (1938/39;100) 401 1439 387 394 388 355 396 393 382 375 360 343 355 363 380 Consumer prices (19491ElOO) 101 105 103 106 101 96* 102 101 101 99 95 93 96 98* n.a. Currency and Banking - Money supply with public 18.3 17.7 16.8 17.1 18.5 20.5 18.6 18.1 17.7 18.5 19.8 19.9 19.7 20.5 21.8 Treasury Bills outstanding 3.48 3.33 3.35 3.46 3.50 4.60 3.35 3.61 3.47 3.50 4.72 5.13 4.41 4.60 5.95 Central Gov't. deposits with Reserve Bank 1.64 2.10 1.75 1.10 0.55 0-54 0.66 1.16 1.41 0.55 0.59 0.58 0.58 0.54 0.58 Scheduled Bank credit to private sector i 4.45 5.55 4.85 4.74 5.54 6.41 5.48 5.66 5.40 5.54 6.34 6.30 6.16 6.41 n.a. Central Government Budget . Revenue receipts 4.1 5.15 4.35 4.16 4.41 5.02* Current expenditures 3.51 3.87 3.96 4.07 4.02 4.89* Capital outlay and advances to States 1.37 2.06 1.68 1.97 4.62 4.97* Overseas Trade and Payments Imports (c.i.f.) 5.55 8.54 8.07 5.70 6.15 6.46 1.32 1.52 1.59 1.71 1.69 1.54 1.49 1.74 Export, (f.o.b.) 5.46 7.67 6.17 5.32 5.63 5.94 1.32 1.13 1.43 1.74 1.53 1.32 1.60 1.49 Terms of trade (1953=100) / 122 139 105 100 108 102 104 108 107 111 110 103 99 96 Official foreign exchange reserves 8.34 7.81 7.06 7.23 7.31 7.35 7.53 7.44 7.31 7.31 7.30 7.16 7.20 7.35 * Provisional estimates I/ Vi--ncial yAar bheg;nnina An-iil 1 Crop year ending June 30 of year shown 3/ Al. figures for currency and banking relate to end of period indicated From November 1954 includes "foreign bills discounted" A rise indicates a favorable movement -16- CEYLON The value of Ceylon's exports declined quite sharply during the first cquarter of 1956 by about 24%, as compared with both the last quarter of 1955 and the first quarter of that year. Imports on the other hand were slightly higher than in the preceding quarter and 7% above the first quarter of 1955. Ceylon's trade surplus Was only about $6.5 million equivalent in the period under review, as compared with nearly five times this amount in the preceding quarter. A sharp decline in the export volume of rubber was chiefly responsible. Ceylon's foreign exchange reserves rose about $9 million equiva- lent or 4.41% in the first quarter of 1956. The rise of nearly 7% in the export price of tea between January and April reversed the down- ward tendency of the last quarter of 1955 and brought the price up to the average level of 1955. Contrary to experience elsewhere, Ceylon's export price for rubber also showed a small increase in the first few months of ].956. No significeat developments occurred in the internal finances of Ceylon diuring this period. Following a substantial rise of about 12% in the money supply in 1955 due mainly to accumulation of foreign exchange, currency and demand deposits decreased rather more than seasonally during the first three months of 1956. The cash holdings of the Government increased by 45.6 million rupees during the first two months of 1956, as compared with an increase of about 50 million rupees in the public debt (net of sinking funds), and of 15.6 million rupees in the debt held by the Central Bank. Fiscal operations re- sulted in Et contraction of the money supply. Little change occurred in monetary and credit situation in the private sector. - 17 - CE!LO 1951 1952 1953 1951 95 4 195$_ 19556 POPULATION (million) 7.7 7.9 8.2 8.4 8.7 - _ _ _ _ _ _ _ _ _ NACCONAL IONCOE (Rs. billion) Gross National Product at factor cost 4.62 4.51 14.49 4.77* - - - - - - - - - - - AGRICULTURAL PRODUCTION Index: 1951 - 100 100 107 97 110 - - - - - - - - - PRICES Cost of Living: 1938-39 - 100 283 281 286 284 282 283 285 283 285 283 283 280 282 279 MON SUPPLY (Rs. illion) on / (with the public) Currency 377 357 335 342 381* 325 334 350 342 343 349* 376 385* Demand Deposits 629 539 492 615 692* 485 522 532 615 611 570* 636 688* Time Deposits 361 392 390 431 472* 383 383 435 431 500 489 458 461* 00 BUDGET (Rs. mili on) g/ 2/ Revenue 836 875 871 941 1,067* 243 231 319 262 310 290 - - ExEnditure 87 1,1147 1.i66 994 1.100* 184 236 300 202 230 280 - - Balance -41 -272 -195 -53 -33* 59 -5 19 60 70 10 - - Cash Opwrating Surplus or Deficit -48 -257 -232 34 129* 46 31 -68 76 84 32 -64 -10* PUBLIC DEBT (Rs. million) / 3/ (net of sininug fmda) ERtenal 73 73 66 126 1141 74 128 126 130 133 136 141 140 Internal 502 729 926 826 753 851 782 826 755 791 765 753 737 Held by Central Bank 3 130 216 84 19 127 48 84 27 18 20 19 18 GOV0 OM CASH HATSAACES (RS. mLlaio) 139 66 51 49 - 35 57 39 514 177 187 116 135* CONECI L MM CDIT (Rs. iI 4ion) 1 iV 420 480 478 535 518 473 488 493 535 569 533 541 518 FOREIGN TRADE (Rs. million) Imports 1,559 1,702 1,608 1,397 1,461 336 3614 347 349 356 368 347 389 380 Exports 1.9091 1.502 1.568 1.809 1.40 _4 416 06 460 534 11 8 540 411 Balance 345 -200 -40 412 479 93 52 159 121 178 49 201 151 31 Tea Exports 800 723 825 1,123 1,194 243 296 300 283 359 257 279 299 TEl{s aF TRADE 1943 - 100 151 109 122 155 152* 125 131 138 164 179 146 139 - FOREIGN EXCHANGE RESERVES (RH. million) ,/ 1,133 783 547 828 1,082* 615 725 758 828 954 968 1,026 1,082* * Prisional estimate. 1 End of period. &;nua figures refer to fiscal year beginning October 1 of preceding year. Quarterly data not exactly comparable with yearly data. Jw Domestic loans and investments. -18 - B UMA Since data thus far available on Burma for the first quarter of 1956 is incomplete, a general review of the economy is not included in this report. Tentative data on Burmese rice exports for this period indicate a possible increase in quantity as compared with the first quarter of 1955 and rice export prices have risen since February. An agreement with India provides for the delivery by Burma of half a million tons of rice per year. In January the supply of money in Burma increased about 6% but the consumer's price index fell slightly owing to lower food prices. Bank credit expanded about 25% as compared with December 1955, about double the percentage increase that occurred in the same period in 1955. Import financing was an important factor in this expansion. For the first two months of the Burmese fiscal year starting in October 19455, government receipts slightly exceeded expenditures in contrast tc, a very substantial deficit incurred in the same period last year. Capital expenditures of the government were reduced about 37w as between the two periods. Current revenues were also down because of reduced imports and consequently lower customs receipts, Burmats foreign exchange reserves were $142.7 million equiivalent at the end of March 1956, an increase of $18 million over December 1955w Included in this amount, however, was a $15 million drawing from the Iflf. - 19 - BURMA 1954 1955 1951 1952 1953 1954 1955 I II III IV I II III IV POPULATION (million) 18.7 18.9 19.0 19.2 19.4 - - - _ _ _ _ _ NATIONALINCOME (K billion) ;/ (Gross National Produet at market prices 3.68 4.08 4.62 4.58 4.84* - - - _ - _ _ _ RICE PRODUCTION (million tons) Rice and Products 4.63 5.03 4.70 4.63 4.70* - - - _ _ _ _ _ PRICES Consumer's Price Index: 1941 = 100 354 338 334 311 320* 296 321 329 299 293 300 343 - IIDNEY SUPPLY 2 _icH tre c (K million) 606 599 753 842 - 950 929 893 842 1,011 1,024 1,087 - GOVERMET BUDGET (K mii Jon) j Tax ColletUDon9 K m3o5 345 374 444 494* 101 130 122 109 125 123 137* - Other Receipts 362 358 520 552 549* - - - - - - - - Expenditure 506 642 964 1,300 1,307* 158 261 826 233 252 255 - - GOVERNMIT CASW BALANCES (K million) i/ (incl. State Boards) 432 572 478 336 - 239 335 209 336 171 265 176 - INTERNAL PUBLIC DEBT (K million) 2/ Totalf 218 257 299 707 1,035* 348 385 529 707 840 948 928 1,035 Held by Union Bank 156 162 150 389 652 150 245 291 389 452 576 576 652 COMMERCIAL BARS CREDIT (K million) gi Domestic Loans and Investment 190 187 212 323 379 225 231 233 323 351 375 417 479 FOREIGN TRADE (K million) Exchanie S ansactions: Imports 658 778 952 1,097 - 249 283 312 252 253 238 188& - Exports 963 1,153 1,219 989 - 251 315 217 206 229 214 284* - Balance 305 375 367 -1O0 - 2 32 -95 -46 -24 -24 96' - Rice Exports }/ 758 809 1,019 840 875* 235 286 189 207 218 276 176* 240° TERMS OF TRADE -1952 a 100 88 89 122 105 95 - - - - - - - - FOREIGN EXCHIN RESERVES (K milion) 3/ 792 993 1,072 678 570* 991 938 760 678 613 535 516 554 * Provisional estimate. 1/ Annual figures refer to fiscal year beginning October 1 of preceding year. iEnd of period. 2/ Quarterly data not exactly comparable with yearly data. - 20 - THAILAND In 1955, Thailand had a moderate improvement in foreign trade and though more of her internal budgetary deficit was financed by Central Bank advances than in 1954 no serious inflationary impact resulted. Owing to an expansion of exports of about 23% over the previous year, the trade balance was favorable by about $13 million, as compared with a trade def'icit of about $40 million in the previous year. Thai foreign exchange reserves increased by $27 million equivalent in 1955. The budget deficit, net of' foreign exchange profits, amounted to 9% of total government expenditures in 1955, as compared with 1% in 1954 and 19% in 1953. Developments in the Thai economy in the first quarter of 1956 included some firming up of rice and rubber prices, continuing increase in foreign exchange reserves, a relatively stable free market rate of exchange, ancL arrangements for a substantial increase in government borrowings from the public to finance economic development projects. The volume of rice exports dropped dwuing this period to about 282,0OO long tons. as compared to exports of 316,000 long tons in the same period of 1955. However, export earnings from rice, rubber and tin in January and F'ebruary were about $5,5 million higher thaun durinig the same months of last year. The scale of Thai imports, which had risen sharply following the substantial removal of import restric- tions in September of 1955, has receded under the pressure of tight credit and substantial accumulation of inventories of imported goods. While the baht depreciated slightly in the free market from February through ApriL of this year, it remained a little above the level of December 1955 (20.9 baht to the dollar). On April 9, 1956, a new trade agreement was concluded between Thalland and Japan which provides that the proceeds of Thai rice exports up till June 30, 1957 can be used to liquidate Japan's credit balance amounting to $12.9 million as of February 29, .956. This arrangement might provide a stimulus for rice exports to Japan and - together with firmer prices - help to attain the government's aim to export about 5% more in 1956 than in L955 in order to compensate for the generally lower price level. On June 21, it was announced that Thailand had lifted the embargo on exports of non-strategic items to Mainland China. There are no new data available which would allow a comprehensive assess- ment of internal finances. However, indications are that the situation de- veloped somewhat more favorably than expected. Government revenues increased faster than expenditures in the first quarter of 1956. In January 1956, a measure was enacted which allowed $2 million additional borrowing authority for the government on more generous terms than previous issues. The effects of this measure remain to be seen, No recent figures on credits and money supply are available but, judging from the increase in the cost of living, it must be concluded that money supply still continues to rise and to exert some pressure on prices, - 2-. - THAILAND 1953. 192 191955 1956 ___ 1t2 1 134 IV II IV I II III IV Population (million) 18.8 19.2 19.6 19.9 20.3 ationa Income (billion baht) Nect DomesticIncome at factor cost 25.0 26.0 n.a. n.a. n.a. Rice Production (million metric tons) Paddy 7.32 6.60 8.2b 5.7l 6.80 Rubber Production (million metric tons) .11 .10 .10 .12 .12 T Production (thousand long tons) 9.50 9,0O 10.12 13.6 13.5 Prices Jr Cost of Living in Bangkok 1953 100 82 90 100 99 103 106 105 107 109 Ilonety 9wPlI (biion babt ) 1153 -(iritbh (tePublic) b4.91 4.93 5.44 6.06 6.48 6.62 7.18 Government Budget (billion baht) V/ Revenue 2.52 3.34 3.93 h.18 4.34 .93 1.fl 1.09 1.e2 1.26 Expenditures 3.23 Is.27 5.57 4.93 4.93 1.15 1.35 1.32 1.11* 1.23 Deficit or Surplus -.71 -.93 -1.64 -.75 -.59 -.22 -.24 -.23 /.lo0 f .03 Foreigm Ixbchange Profits of the Bank 2/ 3/ _/ 2/ of Thailand and the Goverzment .43 .65 .58 .73 o22 .08 -.07 .04 .17 0.08 Intern.al Public Debt 1]/ v (billion bahtJ 1.73 2.59 4.88 6.26 6.45 6.34 5.73 5-81 Ecternal Public Debt (Disbursed) i/ (in Millon US r equivalents) 12.08 19.74 26.46 49.35 53.16 70.64 Government Casb Balances 7/ (illion baht) 753 841 1,221 974 944 980 Cosmercial Banks Credit (billion baht) 1.17 1.64 2.23 2.61 2.98 Foreign Trade (million US 2) Dportas 272 300 336 34 322 Exports 373 333 323 273 335 Balance lCQ 33 -13 41 413 Rice Fxports (Million US V 198 216 214 135 148 41 47* 33 27 (ousanditons) 1,577 1,425 1,341 1,004 1,221 346 389* RubberExPorta (milion US U 98 50 38 44 84 20 17 25 22 UthougiMtn., ) 110 99 97 113 115 Tin Exort (million US) 24 23 20 18 21 5 4 5 7 (thou tans) 12.5 12.9 14.2 13.3 12 Unit Value of arts (in teirms of US a 1953 Z 100 104 102 100 93 85 87 88 92 Foreign chme 8 §Reserves Bank of ThaiL a( on HS s including gold) 34.2 337 286 258 279 301 297 297 306 * Provisional Estimates. A/ End of Period. Quarterly figures are provisional estimates which have not been reconciled with the annual data. Profits of the R&rk of ThR.?land r TTT a 111 ^ dt J 4-at crinAatirtt r250.e' 4 g W . '. c ' ret -e foreign currency debt to Government. / Held largely by the Bank of Thailand. Change in debt between 2nd and 3rd quarters largely offset by reduction in Govt. deposits of %517 million in BOT, | Does not include payments fcr the settlement of war 'anage claims. S/ Excluding frozen sterling a.ssets. /may. _22- JP, H1 N In fiscal year 1955-56 ending in March, Japan achieved record levels of agricultural and industrial production. Although the availability of bank credit was eased considerably, the expansion of available commodities apparently kept pace with the money supply and no marked increase in prices occurred. For the year as a whole, industrial production increased 11%,l6 employment about 9%, and real wages 'oy 7.2%. Japan 'had a favorable balance of payments of "535 million and gross fOreign exchange balances; increased to over '1.N billion during fiscal year 1955-56. Foreign exchange receipts increased 20% to 62,839,(00 and payments 14p to $2,304,000. For the first time since the w^lar, Japan had a small trade surplus (about !>5 million), but her balance of payments surplus con-tinued to depend mainly on Sp,ecial U.S. Expenditures which amounted to about ¢670 million in fiscal year 1955-56. This reoresented a s.maller decline in U.S. expenditures than had been anticipated compared with the previous fiscal year. Although the total of Japants imoorts increased by $189 million, purchases from the dollar area were reduced byv $lO9 million, while those from the sterling area increased by ¢289 million. On the other hand, $313 million out of a tolal of *--,h93 million increase in exports were made to the dollar area. These imnort paments do not include ~'t75 million in surolus agricultural cormod'ities ob-tained from the United States. Despita recent grovwth, the export volume in 1955 had reached only 5'7% of the 1934-36 level and imports 781%,. The terms of trade improved slightly during 19'5. Particularly large increases in exports Y-ere achieved in iron and steel products and ships. According to custom's statistics, while all exports increased 25%, iron and steel items increased 37%, establishing an all time record of 2,178,000 tons v2lued at P'29l1 million. In l95, Japan was the worldts leading builder of ships for export, launching 583,o00 tons. At the end of the fiscal year 1,002,000 gIrosS tons were under construction, equal to about lh'g of the world's total. On ADril 309 the shipyards had orders for about 3 million gross tons, of which 2.6 million were for export. The improvement in foreign exchange reserves and trade encouraged several moves toward less governmental control. In line with GATT and IDF recommendations, the Open Account agreements for bilateral settlements, wJhich accounted for 17% off the receipts and 21% of the payments in fiscal 1955-56, are being replaced w!ith cash settlement agreements. New arrangements for settlement of trade balances in sterling or other currencies were made with W,Test Germany, Italy, Sweden and Thailand and are being negotiated with t:ne Netherlands and Tai-an. The other ten Open Account arreements will probably also be eliminated although some difficulty in this regard is expected for those countries with large unsettled trade debts, particularly Indonesia, Korea and Argentina. Other moves ,:ere made toward liberalizing foreign exchange controls and permitting partial conversion of accumulated yen by foreign corporationsdoing business in Japan. - 23 - Further easing o.f import controls and an expansion of imports has been provided in. the foreign exchange budget -or fiscal 1956-57. The budget for imports for w:hich the source is not designated and the automatic approval list have been expanded. The foreign exchange budget for the first half fiscal year 1956 has been set at l,837 million, an increase of Al12 million over the corresponding half of the previous fiscal year. Higher imports are planned in order to check price increases ;ihile allowing for expansion for production and exports. The Government, nevertheless, expects a favorable trade balarnce of $63 million for the first half of the fiscal year. A repa3rations settlement with the Philipnines waa reached on lay 9. Japan is to pay $500 million in caDital goods and %;50 million ssrvices at the rate of '325 ndillion per year for the first ten years and :_30 rrillion per year fcr the second. ten years. Payment may be accelerated in the latter period by agreement between the two countries. Japan also agreed to facil- itate the extension of long-term commercial loans of $250 million by private Japanese interests to private Philippine interests. There has been much speculation about Japan making cooperative invest- ments in South Asia and South America and some such arrangements have been made. Credit w.as notably easier in i'scal 1955-56. Large excess Treasury' payments we!re made of s276,600 million, an increase of Y86,400 million from the previouts year. Unusually large net disbursements were made from the Foreign Exchange Fund-s1?8,500 million--due to the favorable balance of payments and from the Food Control Special AccoLMts--106,900 million- due to purchas of the bumper rice crop. Other Treasury acconmts ended in a small surpmlus in fiscal 1955 as opposed to a large deficit in fiscal 1951h. Tax collections were ;317,686 million, "21,000 million over budget estirmates. Bank cdeu-osits increased I566,500 million (;362,700 million in fiscal 195IJ). Bank loans increased only F333,900 million (!230,.O00 million in fiscal 1905l). Reflecting this improvement in bank liquidity, commerical banks retired *218,300 mlllion of Bank of Japan obligations and ended the fiscal year practically independent of central banik borrowing. As a result, control of the money supmly by the central bank has become more difficult even with the renewal of open market operations. The Government is again considering instituting a reserve requirement for banks. In lAarch the Finance Ministry urged the banks to raise their cash reserves. The increase in loans for plant and equipment investment was small during most of the fiscal 'year but a gradual increase occurred since July 1955. Estimated investment in plant and equipment for fiscal year 1956--57 is ;h72 bi:Llion, 2(0o above fiscal year 1955-56. Banks increased their investment in securities by M121,300 million in fiscal 1955 (*72,60o mil- lion in fiscal 1954) including short-term Government bonds marketed by the Bank of Japan, stoc:ks, public corporate bonds and financial bonds. The corporate bond market was reopened April 2, 1956 for selected public andl private is-ues. - 24 - In Line with eased supply of money, bond rates were lowered for April issues, Yields per annum on industrial corporation bonds (7 year maturity) were reduced to 7.609% from 8.22O, public corporate bonds to 7.215% froa 7.60%s financial coupon bonds (5 year maturity) to 7.411% from 7.918%, and local bonds to 7.50cr% from 8.11%. Paralleling iower yields of financial debentures, the two long-term credit institutions, The Industrial Bank of Japan and the Long.-Term Credit Bank of Japan, in the fourth reduction o.L their interest rates since July 1°55 have lowered their rates on loans by 0.365% per annum beginning April. The intere.st on loans to the electric power industry under the new schedule became 9.125% per annum and on loans to other industries 9.49%. The new schedules represents a decrease of 2.19% per annum from rates in force until Jine 1955e A cut in the compara- tively high rate on loans to the shipping industry (10.585% per annum) is under consideration. The budget for fiscal year 1956, the first year of the new Five-Year Plan, maintains in general the policy of holding down government expendi- tures and prices though endeavoring to increase production, lower unemploy- ment and promote foreign trade. Revenues are to be maintained without resorting to increased tax rates. The scale of the general accounts expenditures is to be increased slightlv but will remain at about the same level relative to the national income, lb.8% estimated for fiscallyear 1956. An increased exemption allowance for income taxes is to be offset1by higher indirect taxes. The Dlost significant developments during the past year were liberalizing of controls, both internal and external, and some interest rate reduction vwithout apparent inflationary consequences. . 25 - JAPAN 1951 1952 1953 1954 1955 1954 1955 1956 I II ~~III IV I I III IV ____ POPULATION (millions) (Ta of October) 84.6 85.9 87.0 88.3 88.9 GROSS NATIONAL PRODUCT (billions of yen) (for year beginning April) 5,541 6,182 7,130 7,359 INDEX OF REAL INCOME PER CAPITA (year beginning April) 1934-36 . 100 88.1 98.1 105.9 105.1, 112.2 DID.""'RIALL PRODUCTION (year or last month of qua.rter) 1934-36 = 100 114.4 126.4 155.1 165.14 179.7 162.7 165.2 159.8 168.0 164.3 175.4 183.1 191.5 191.0* MANUFACTURINO PRODUCTION 1953 m 100 72 80 100 109- 119 108 107 105 112 107 115 120 126 RICE PADID PRODUCTION (thousand metric tons) 11,302 12,404 10,298 11,392 13,900* NROLESALE PRICES T(RnOf p-eriod) 1953 = loo 97 100 100 99 98 103 99 97 98 98 97 97 98 99 COST OF LIVING (end of period) Tj53 _ loo 89 93 100 105 104 106 106 106 105 104 105 103 104 105 IONE! SUPPLY (billions of yen) dor period) Currency and Deposits with public 1,048 1,265 1,439 1,463 1,698 1,277 1,262 1,221 1,463 1,285 1,369 1,327 1,698 1,547 CENTRAL GOVERNMENT TREASURY TRANSACTIONS WITH PUBLIC (billions of yen)(- excess payments)- Balance for fiscal year beginning April or for calendar year quarter a. Including foreign exchange transactions 37.1 -0.7 63.6 -191.2 -285.8 206.6 -27.1 1.1 -267.4 102.5 -33.4 -58.5 -298.4 104.5 b. Excluding foreign exchange transactions 98.6 17.9 -66.2 -116.8 -115.9 124.1 -56.0 16.1 -203.5 126.6 -2.0 -7.3 _245.8 139.3 BANK LOANS AND DEPOSITS (billions of yen) (end of period) Loans and Investcents (non-government) 1,415 1,981 2,502 2,752 2,538 2,560 2,634 2,752 2,774 2,818 2,898 3,309 3,400 Time Deposits - 667 1,031 1,336 1,588 1,377 1,408 1,491 1,588 1,673 1,726 1,836 2,089 2,193 Government Deposits with Banks 33 93 84 84 130 80 63 84 238 150 175 166 254 VALUE OF TRADE (millions of U.S.$) ljport;s c.i.r. 1,995 2,028 2,410 2,399 2,473 723 689 499 489 576 646 591 659 692 Exports f.o.b. 1,358 1,273 1,275 1,629 1,969 343 377 417 492 433 460 512 607 560 Balance - 7 -13 -770 -5 - - 8 3 -Il -IM 77 - - VOLUME OF TRADE (1953 a 100) Exports 89 89 100 131 162 106 119 133 163 142 148 163 195 Imports 65 73 100 103 107 124 117 84 85 102 109 101 115 TERIHS OF TRADE (1953 = 100) 92 97 100 101 102 105 103 101 100 99 100 101 103 PEWRINIPLEXPORTS C,tton fabrics Value (millions of U.S.$) 310 180 179 252 230 66 61 58 68 49 50 58 73 74 Quantity (milion sq. yards) 1,078 762 914 1,278 1,138 327 302 296 353 252 246 279 362 363 Machinery & Transport equipment Value (milions of U.S.$) 108 116 189 202 247 41 51 51 59 43 55 56 83 91 Iron and Steel I/ Value (millions of U.S.$) 205 263 140 167 259 34 30 39 57 57 51 69 74 58 Quantity (thousand metric tons) 963 1,633 843 1,187 1,989 198 175 295 489 505 493 495 496 362 Rayon fabrica i/ Value (millions of U.S.$) 86 65 72 103 143 22 25 20 30 28 32 37 45 43 Quantity (million sq. yards) 293 300 373 566 864 109 131 119 240 174 198 227 275 235 Chemicals Value (millions of U.S.$) 36 40 62 79 94 13 24 20 22 22 26 20 26 27 BALANCE OF FOREIGN EXCHANGE TRANSACTIONS (in millions of U.S.;) Total Transactions 331 314 -193 100 494 -162 -16 95 183 82 58 175 179 124 U.S. Dollar Transactions 69 188 209 -92 353 -151 -56 47 68 9 63 151 130 89 U.S. IELITARY EXPENDITURES AND OTER GOVERNMENT PAYMENTS (net) U.S. Dollar Receipts (millions of U.S.$) 577 802 781 617 538 121 164 188 144 117 127 147 1147 132 GOLD AND FOREIGN EXCHANGE (millions of U.S.$) End of period - 1,16'. 1,017 1,130 1,469 844 831 930 1,130 1,182 1,214 1,357 1,469 1,558 * Tentative estimate Differences between 1954 annual and quarterly figures are probably attributaCble tO ye-r end rerisio-,s in annual figures. - 26 -