The Secretary of State to the Ambassador in France (Caffery)
1602. ReDeptel 1585, Apr 9.42 Three meetings held to date with group led by Monick and Guindey on financial aspects balance of payments estimate.
First meeting: Concerned primarily with French gold position, foreign private assets, and credits under financial agreements third countries.
Monick explained that French consider it important to maintain present gold reserve $1.2 billion. He stated:
- Reserve must serve colonies as well as metropolitan France.
- French are accustomed to larger gold reserve, $3 billion in 1939, and further reduction would have adverse psychological effects by encouraging French people to hold goods and weakening credit standing of govt.
- Imports and exports would average $2 billion annually next 5 years, requiring substantial reserve. Little consideration being given by French to gold as backing for circulation.
- Although French have drawing power around $500 million on Monetary Fund, only $100 million available annually.
Monick thought maintenance substantial gold by French coincided with interests of US by giving support to use of gold as monetary reserve. French placed emphasis on psychological importance maintaining substantial gold reserve and thought it unwise except emergency to utilize significant amount of gold for some time to come.
On private assets abroad in balances and securities French presented confidential results of incomplete census. French planning to use $1.3 billion out of $1.5 billion private assets outside central Europe before end 1948. Discussed program of Brit and Canadians in assisting French in mobilization and liquidation of French private assets in UK and Canada with view to determining extent to which US might cooperate with French in this respect.
Under financial agreements French have incurred debt in excess of half billion, of which approx 80% due to UK to be settled largely through liquidation of sterling assets. Remaining $100 million expected to be largely liquidated in course of time through increase in French exports.
Second meeting: Main financial items discussed were arrears on interest, dividends, etc., receipts from tourist expenditures, troop pay, and possibility financing French needs in American private capital market.[Page 429]
Re arrears interest and dividends question was raised whether all or part receipts of $300 million estimated from this source for 1946 was not included in private foreign assets of $1.3 billion which French plan to liquidate 1946–1948. If so net deficit in balance of payments would be correspondingly increased. French will submit further information.
French estimate they will receive about $10 million in tourist revenues 1946 about $150 million 1947 and $350 million 1949. There was doubt on American side whether figures could be attained.
Doubt expressed whether French would receive $120 million of troop pay included in 1946 balance of payments. Present thinking on American side is to select under Mendès-France agreement an adjusted franc-rate which will cancel remaining dollar obligations on troop pay account. (Thinking might be revised if appears desirable to grant through this means additional financial assistance, although subcommittee not responsible for consideration of problem and was not discussed at meeting.)
Monick saw no hope obtaining private capital in US until completion of present 5-year program. French not inclined seek loan on gold unless loan exceeded collateral amount of gold. Saw no point in obtaining loans in anticipation liquidating private dollar assets, since prompt liquidation assets presents no problems. French balance of payments 1947 allows for average interest 2% on new loans of $1,130 million needed to finance 1946 deficit.
Third meeting: Covered budgetary, financial, and general rationing and allocation policies of French as part general program 1946–1950. Le Norcy stated French expect to finance current expenditures through taxes but reconstruction and modernization program depends on additional loans to be absorbed by public. Admitted many problems to prevent inflation but felt danger not great in view following:
- Great effort through priorities and allocations to expand rapidly parts of program resulting most promptly in flow consumption goods.
- Demand durable consumers goods expected moderate in 1946 and 1947. Although $11 billion of war damage suffered by French through destroyed dwellings and household equipment, plan to pay indemnities of one-half billion dollars annually next 5 years and make such payments only where satisfied means of reconstruction are available.
- Some imports will be consumers goods immediately available to meet increasing demands.
- Strict rationing critical consumers goods and raw materials will continue.
- Efforts to stimulate greater savings by French people. Importance thereof brought out by fact French program calls for increase in voluntary savings from 18 percent of gross national product 1929 [Page 430] to 28 percent 1949. Le Norcy admitted success of domestic fiscal program depends largely on Govt’s ability to induce greater voluntary saving.
- Price control will continue. As increased production lowers average costs expect price ceilings will be reduced. Hoped this knowledge will be added inducement to save pending reduction prices.
- Govt planning to economize current expenditures and increase revenues. Estimated deficit 160 billion francs for 1946 compared with deficit 325 billion for 1945. Reduced deficit attained by increase some 30 billion in taxes and saving 130 billion in expenditures (40 billion subsidies, 60 military establishment, 30 civilian establishment).
Guindey pointed out present national debt burden not appreciably higher than before war due to higher prices. Budgetary strain of finding funds for servicing new public issues not expected to be severe. Govt expects retain present cheap money policies.
French presented tentative estimates of balance of payments for 1946 and 1947 distributed according to currency zones. Over 50 percent of 1946 deficit will be owed to US.
Unless material French are still to present raises questions requiring additional discussion no further finance meetings to be held.