Foreign Relations of the United States Diplomatic Papers, 1932, General, Volume I
800.51W89 Estonia/101
The Estonian Minister for Foreign Affairs (Rei) to the American Chargé in Estonia (Carlson) 71
Monsieur le Chargé d’Affaires: On November 29 last I had the honour to hand you a copy of the note addressed the day before to the Secretary of State of the United States of America and requesting the United States Government to see its way to enter into a friendly exchange of views regarding the question which arises from the change of the capacity of Estonia to pay the debts incurred during her War of Independence, and to agree in the first place to a suspension of the next payment due from Estonia to the United States Government under the Debt Funding Agreement of 1925.
A reply of the United States Government having not yet reached the Estonian Government, but this day being the date on which the payment referred to is due to be made, I have the honour to present you herewith a memorandum setting forth the circumstances in which the Estonian Government does not see its way to effect the said payment, and feels justified in requesting the United States Government to agree to a friendly exchange of views regarding the possibility of a reconsideration of the Debt Funding Agreement of 1925.
I avail myself [etc.]
In view of the fact that the Agreement made the 28th October, 1925, at the City of Washington between the Republic of Estonia and the United States of America regarding the settlement of the indebtedness of Estonia incurred during her War of Independence, was based on the capacity under normal conditions of Estonia to pay, as estimated at that time, and, moreover, thus as to permit Estonia as any other debtor country to preserve and improve its economic position, to bring its budget into balance, and to place its finances and currency on a sound basis, and to maintain and, if possible, to improve the standard of living of its citizens,—it is proposed to show below by presenting detailed figures the considerable and unforeseen changes that have taken place in the economic and financial position of Estonia, which conclusively prove that the basis of the settlement of 1925 no longer exists.
As international debts in general and those of Estonia in particular can only be paid in the form of exported goods, the foreign trade figures of Estonia in the first place deserve attention.
[Page 724]Table of general commodity imports and exports of Estonia in 1925–1932.
(In American dollars).
| Imports to Estonia. | Exports from Estonia. | |
| 1924 | 21,090,488.— | 20,220,565.— |
| 1925 | 25,953,225.— | 25,980,108.— |
| 1926 | 25,485,333.— | 25,662,933.— |
| 1927 | 25,711,200.— | 28,206,933.— |
| 1928 | 35,126,471.— | 33,986,363.— |
| 1929 | 32,791,200.— | 31,325,600.— |
| 1930 | 26,197,070.— | 25,681,491.— |
| 1931 | 16,296,414.— | 18,918,085.— |
| 1932 (9 months) | 7,420,099 | 8,674,571.— |
The above figures show a striking parallel with the course and phases of universal post-war economic developments. They prove that Estonia, while not failing to share the general economic progress of 1925–1929, has since fallen a victim of the collapse of world trade, the application of protectionist and mercantilistic principles, depreciation of currencies and heavy fall of commodity prices, for which Estonia herself, one of the smallest economic units of the world, bears no responsibility. The practical effect of these changes, however, has been that the value of commodity exports from Estonia has since 1928 fallen by about 8, 25, 45 and 67 per cent, in the years 1929, 1930, 1931 and 1932, respectively. Unfortunately at the present moment a further decline, rather than a recovery, must be anticipated.
Moreover, increasing objections are being raised against selling across the exchange obtained on the market of a given country in order to meet obligations elsewhere. It follows that a foreign debt can nowadays be paid indeed in the form of exports to the creditor country herself. The trade figures between Estonia and the United States of America are, however, as follows:
| Imports to Estonia from U.S.A. | Exports from Estonia to U.S.A. | |
| (In American dollars) | ||
| 1924 | 2,532,133.— | 72,493.— |
| 1925 | 6,131,183.— | 267,086.— |
| 1926 | 3,056,533.— | 355,200.— |
| 1927 | 3,663,733.— | 335,733.— |
| 1928 | 6,309,358.— | 800,535.— |
| 1929 | 4,402,666.— | 631,466.— |
| 1930 | 3,317,177.— | 516,644.— |
| 1931 | 1,446,671.— | 484,176.— |
| 1932 (9 months) | 787,367.— | 320,558.— |
These figures show a trade balance constantly adverse to Estonia. They further show that in 1932 the value of her exports to the United States is only about equal to the instalment due under the Debt Funding Agreement, leaving her without an American cent to pay for imported American goods. They also demonstrate that in the course of the last eight years about $28,000,000 net, or twice as much as the total of the funded indebtedness, has been paid by Estonia to the American producer, in addition to the net balance of trade in favour of the United States also in earlier years, and in addition to the sum of $1,001,441.88 already paid by the Estonian Treasury to the United States Treasury on account of the Estonian debt.
The heavy decline of Estonian general foreign trade referred to above has not failed to affect Estonian State budgets, which show an equally clear parallel with post-war world economic developments. Having shown for many consecutive years of recovery (1925–1929) a surplus of receipts, they have since 1929—the year marking the turning point from economic progress to universal depression—no more ended with balanced accounts. The decline of commodity exports having compelled the Estonian Government to resort to a drastic cut-down of imports, this could not fail to result in a considerable fall in custom duties. Again, the drop of prices having been particularly marked in agriculture, on which about two-thirds of the Estonian population depend for their livelihood and income, the purchasing power of the population has fallen to the extent of severely affecting receipts from state monopolies (spirit, railways, postal service, etc.) and from excise duties, which together with custom duties amount to about 70 per cent, of the total estimated income for the fiscal year 1932/33.
Taking as a basis the actual receipts of the last budgetary year, expenditure for the current year 1932/33 was fixed at Ekr. 82 millions. Actual receipts of this year, however, for reasons stated above, have during the first eight months shown a decline of no less than 20.5 per cent. This has placed the Estonian Government correspondingly before a prospective deficit of not less than about Ekr. 16 millions, whereof the sum of Ekr. 4,651,922.—required this year to settle payments due from Estonia to foreign governments represents approximately one quarter. The Estonian Government is sincerely endeavouring to balance its budget both by introducing new taxes and by curtailing even most urgent expenditures, but it is not in the position to see its way to balance definitely its accounts, if the suspension generously initiated in 1931 on debt payments due from Estonia to foreign governments can not be further extended. Even such favour, it will be noticed, will leave the Estonian Government with a prospective [Page 726] deficit of about Ekr. 12 millions to be met by increased taxation and decreased expenditure at a time when expenditure has been allowed only for most pressing needs.
It must be added here that Estonian budgetary figures represent amounts of gross income and expenditure, whereof net budgetary figures for the current financial year will amount to no more than Ekr. 46 millions. Of this sum the Foreign Debt Service would require more than 10 per cent. The net budget for the coming financial year 1933/34 will be limited to Ekr. 40 millions, whereof the Debt Service would exact no less than 30 per cent.
In conclusion there remain to be taken into consideration the present serious exchange difficulties. In 1927/28 Estonia succeeded in carrying out a Banking and Currency Reform, stabilizing Estonian currency on a gold exchange basis. Owing, again, to the depression in world economic developments, the exchange reserves of the Central Bank, having been well over 50 per cent, and nearing 60 per cent, in proportion to current liabilities, began in their turn to decrease, and in September 1931 the Bank suffered heavy and unexpected losses on its sterling holdings. These losses amounted to more than Ekr. 7 millions, leaving the reserves on approximately Ekr. 19 millions today, or just above the legal minimum of 40 per cent, in proportion to current liabilities. The universal loss of confidence in currency values experienced everywhere since the last year was of course felt also in Estonia, and the value of national currency has since then been maintained only by severe restrictions and by application of the principle of selling no more foreign exchange than is coming in. It is relevant to recall here particularly the figures given above in respect to trade between Estonia and the United States of America. A claim at present on exchange reserves of the Central Bank on account of governmental debts to other governments would, therefore, seriously jeopardize the position of the Bank as well as that of the Government in their struggle for the maintenance of the national currency value, which is to be considered of primary importance, the Estonian population having already suffered all the disastrous consequences of the collapse of Russian, German and their own earlier currency.
It is in these circumstances which all the world hopes will be of a transient nature that the Estonian Government does not see its way to effect payment of the amount due to the United States Government from Estonia on this December 15, and feels justified in requesting the United States Government to agree to a friendly exchange of views regarding the possibility of reconsideration of the Debt Funding Agreement of 1925.
[Page 727]With regard to the latter request, the relative increase in the burden of Estonian obligations, in addition to the changes of Estonian capacity to pay, would seem of particular importance. The wholesale price index in the United States of America during the year when the Estonian debt was incurred was 199, and is now less than 94. The Estonian debt therefore represents at present in terms of goods more than twice the amount which was received in 1919. This is proved to be more than true by following figures relating to some of the goods received:
| Goods sold to Estonia | Weight. | Price charged to Estonia | Price on ⅛ Oct. 1932 | Total difference |
| Wheat flour | 20.000.000 lbs. | $0.09 lbs. [sic] | $0.0306 lbs. [sic] | $1.188.000. — |
| Lard | 6.718.241 “ | 0.363 | 0.0675 | 1.985.240. — |
| Meat preserves | 2.000.012 | 0.5195 | 0.0966 | 845.805.07 |
| Reserve rations | 997.979 | 0.80 | 0.1487 | 649.983.72 |
| Margarine | 499.960 | 0.40 | 0.0873 | 156.337.49 |
| Rice | 1.000.000 | 0.10 | 0.0160 | 84.000.— |
| Coffee | 1.000.000 | 0.28 | 0.0975 | 181.200.— |
| Tobacco | 499.999 | 0.82 | 0.0721 | 373.949.25 |
| $5.464.515.53 |
- Transmitted to the Department by the Chargé as an enclosure to his despatch No. 226, December 15; received January 6, 1933.↩