740.00119 Council/9–1445: Telegram
The Acting Secretary of State to the Ambassador in the United Kingdom (Winant)
8009. Secdel 51. For Secretary of State. Yesterday Lord Keynes presented an analysis of the current and prospective deficit of the UK on current account.41 As of V–J Day the deficit at the current annual [Page 127] rate was running at about $5 billion which is expected also to be the approximate figure for the whole of 1945. This 1945 deficit will be met to the extent of about $2 billion by non-munitions Lend-Lease and to an extent of about $3 billion by Mutual Aid and increase in sterling balances. There will be little reduction in the rate of deficit before the end of 1945. Despite the assumption that exports in 1946 will be almost double those for 1945, the deficit is expected to be about $3.2 billion for the coming year. It should fall very sharply in 1947. The UK expects to have to run a deficit for the next 3 to 5 years. Keynes states that the UK can recover in 5 years with a “very austere” import program and in 3 years with an “austere” import program which would permit greater expansion of exports. An “austere” import program will have to be instituted in any event. Whether recovery will come in 3 or 5 years depends also on the amount of pressure exerted to increase exports and the degree of curtailment and regulation of domestic consumption. The cumulative deficit over the 3 to 5-year period will fall between 4 and 6 billion and will probably be nearer to $6 billion. It is “inconceivable,” Lord Keynes stated, that the deficit will be less than $4 billion. The crucial factor, aside from the ability to hold down imports and to taper off overseas military expenditures rapidly, is the question of expanding exports; the major difficulties here being the manpower shortage (slow rate of release from military service), reconversion of factories, and availability of factory space. While Keynes gave no estimates of exports for 1947 and subsequent years, he stated that the UK had to increase them by 50 percent over their pre-war volume (not value) to reach balance on current account.
At Friday’s meeting Lord Keynes is expected to cover the accumulated deficit during the war, the manner in which it was financed and especially the blocked sterling balance problem.42
- To accompany his oral statement, Lord Keynes presented to the U.S.–U.K. Top Committee a document entitled “Tables Relating to U.K. Financial Position”. (611.4131/5–146, Folder 4, 3) Some of the material prepared by the British delegation is published in British Cmd. 6707 (1945): Statistical Material Presented During the Washington Negotiations. ↩
- At the meeting of the U.S.–U.K. Top Committee on Friday, September 14, Lord Keynes continued his analysis of the United Kingdom’s external financial position, its gold and dollar reserves and liabilities, mainly expanding upon the salient points made in the meeting of September 13 (611.4131/5–146, Folder 4, Third Meeting).↩