Memorandum by the Commercial Attaché in Italy (Hunt) to Mr. C. Tyler Wood, Special Assistant to the Assistant Secretary of State for Economic Affairs (Clayton)

Subject: 1947 Italian Foreign Loan Requirements

Forecasting Italy’s requirements and financial position for 1947 is not only difficult but basic material for the purpose of drawing up [Page 923] accurate estimates is in some cases completely lacking. Conditions in Italy are changing daily—foreign trade is developing, industrial production is increasing, immigrant remittances are coming in in increasing amounts, but such statistics as are available cover for the most part only the early months of 1946 and are not sufficient to permit accurate forecasts even for the complete year 1946, much less 1947. I still feel that forecasts of Italy’s position and needs for 1947, however seriously drawn up, cannot be reasonably well substantiated until we have at least financial data, industrial production statistics and foreign trade statistics covering the first nine months of 1946 and can see how trends are moving. However, I am willing to put forward some arguments as to why, in my opinion, current estimates of the need of a loan approaching $500,000,000 are probably exaggerated.

To start with, Italy has made very considerable strides towards economic recovery in the first half of 1946 and can hope for continued progress during the rest of the year. Transportation (a serious bottleneck) is improving; raw material stocks have been reconstituted to a considerable extent; factories are working (probably at about 50 per cent of capacity on an average); agricultural production improved greatly in 1946; exports are beginning to move out in fair quantities. This progress has been realized largely due to outside aid—UNRRA supplies, FEA 1945 supply program which carried on into the early months of 1946, AM—lire credits available to the Italian Government for its own purchasing program, and surplus property, salvage and scrap receipts. Italy, for the full year 1946, will have received, been allocated, or have ordered about $700,000,000 worth of import commodities which will have cost Italian economy none of its own foreign exchange and which will not have been paid for by Italian exports. The problem is where will Italy get the money to carry on its own import program in 1947 and continue the work so well begun by UNRRA and other non-Italian agencies.

In the first place, not all of the UNRRA supplies—and possibly not all of the Italian Government purchases with AM-lire credits—will reach Italy in 1946. There will be a time lag of at least two or three months for UNRRA deliveries, which will be the bulk of the 1946 import trade. The time lag of past operations justifies an estimate that as much as $100,000,000 of commodities ordered by UNRRA or the Italian Government in 1946 may arrive in Italy only in 1947 and should, in effect, be carried over into the 1947 balance of accounts statement (just as about $40,000,000 of the FEA 1945 import program was carried over into 1946). As for proceeds with which Italy can pay for 1947 imports, the one great source of income other than possible loans is export trade. In a “Report on Mission to Washington, [Page 924] 27 April–30 May” by Harlan Cleveland (UNRRA), Mr. Cleveland mentioned that he assisted the Department in the preparation of a memorandum on post-UNRRA needs of Italy in 1947.60 In the statistics presented, he estimated Italy’s 1946 export trade at $150,000,000 and her 1947 export trade at $400,000,000. I believe that both figures, and particularly that for 1947, are underestimates. In any case, if there is a carry-over of $100,000,000 into 1947 from the uncompleted 1946 supply programs, and if Italy receives $250,000,000 more in foreign exchange for exports in 1947 than she received for exports in 1946, she will need only another $250,000,000 dollars to maintain a flow of imports in 1947 equal to the flow of imports in 1946.

I realize that this is oversimplified reasoning, but it is something better than pure guesswork. There are other factors which will probably influence Italy’s situation favorably. For instance, it now appears that more German coal will be coming into Italy in 1947 than in 1946 and at lower prices than American coal. The Belgian-Italian agreement on Italian labor in the Belgian coal mines will mean another source of coal (possibly as much as 3,000,000 tons) plus a certain amount of remittances from the Italian labor employed in Belgium. Agricultural production in 1947—when fertilizer should certainly be available—should exceed that of 1946, and the 1946 yield was favorable and is already easing the food situation. I believe that Italian exports in 1947 will exceed the estimate of $400,000,000 used above. And, not the least important, raw material stocks will not have to be built up from nothing in 1947, but must simply be maintained as old stocks move into the production lines. I am not mentioning possible increased expenditures by American business in Italy, increased immigrants’ remittances from the United States, and any possible small renewal of tourist trade.

That is the rosy side of the picture. The dark side is largely political, and is of such a nature that it would impel me to push for less aid rather than for more aid for Italy. Italians are extremely discontented over peace terms as they are now coming out of Paris. There is, of course, hardly any possibility of Italy getting into an armed conflict at this time, but feelings are running very high concerning both Trieste and the cession of territory to France. The acceptance of what the Italians consider to be harsh peace terms by an Italian Government will undoubtedly give rise to political intrigue and attempts to weaken the Italian cabinet (now encountering some trouble in getting formed) in favor of opposing groups. Confidence in the lira appears to be weakening further, and there is serious danger that the Italian cabinet may be forced to neglect urgent economic problems [Page 925] and devote much of its time and energy to political squabbling and a struggle to hold office for fear that the Government could fall into worse hands. The outlook is not cheerful—but no amount of American financial aid can do much good to Italy if the Government and the people themselves become diverted from their own rehabilitation needs and devote their efforts to nonproductive political bickering. The country is in sore need of good leadership concentrated on economic problems and not on purely political goals. If such leadership can be established and is left free to cope with Italian finances, industry, trade and employment, Italy will be well worth the risk of a reasonably sized loan.

Leigh W. Hunt

UNRRA now has its economic staff working on 1947 requirements for Italy and Italian foreign exchange availabilities. Copies of their work, with comments, will be sent in as soon as we receive our copies. LWH

  1. Not found in Department files.