851.10/11–2351
Memorandum by A.M. Rosenson and J.L. Goetzmann of the Monetary Affairs Staff to the Director of the Office of Financial and Development Policy (Stinebower)
Subject: Need of France for Interim Aid
It would appear from the following rough calculations that the French may require some interim dollar assistance if their reserves are not to become dangerously low or, alternatively, if they are not [Page 450] to cut back on their defense effort in an attempt to prevent their reserves from dropping.
It is assumed that the French will get during the present fiscal year $300 million in economic aid and $300 million through military expenditures. They have already received $21 million against the former and approximately $25 million against the latter.
The French have made available three different dollar balance-of-payments estimates for FY 1952. We have used only one of these, i.e. the latest, which is based on intermediate assumptions between optimistic and pessimistic. We have adjusted this estimate as follows to allow for a restoration of the cut in dollar imports and to eliminate a credit item for receipts from U.S. military expenditures.
| French estimate of FY 1952 B/P deficit (actually 387) | 400 |
| Add. Restoration of previous cut in dollar imports | 325 |
| Elimination of credit item reflecting U.S. military expenditures | 125 |
| Total dollar deficit FY 1952 | 850 |
Our next step is to estimate the dollar deficit still to be incurred in the remainder of this fiscal year. For this purpose we assume that five months of the fiscal year, i.e. July to November inclusive, have elapsed. We also assume that the dollar deficit in the first five months is equal to the reduction in hard-currency holdings plus the amount of economic aid and military expenditure dollars already received. We also assume that the amount of reserves above the psychologically inviolate gold holdings will be 75 at the end of November as compared to 96 on November 5. (It is to be noted that these assumptions are not necessarily correct, among other reasons because the Bank of France is known to manipulate its gold and dollar holdings by shifts into and out of U.S. Government securities.) On this basis we derive the dollar deficit for the first five months of the fiscal year as follows:
| Gold and dollar “working reserves” on July 1, 1951 | 275 | |
| Ditto on November 30, 1951 | 75 | |
| 200 | ||
| Add: Dollar “aid” receipts | ||
| Economic aid | 20 | |
| Military expenditures | 25 | 45 |
| Total assumed dollar deficit, July to November, inclusive | 245 |
As the deficit for the entire fiscal year was estimated at 850 and 245 of this deficit has already occurred, the deficit for the seven months December 1, 1951 to June 30, 1952, should be 605, or at an average rate of approximately $85 million a month, on the basis of the reconstituted dollar import program. At this rate, it is clear that with the $75 million assumed to be in its till on November 30, the Bank of France has only enough working reserves to see it through until December 31 before it scrapes bottom. Presumably the remaining economic aid of approximately 280 (i.e. 300 less the 20 already paid out) can be made available almost immediately. If this were done, the Bank’s working reserves would rise to about 355, or sufficient to carry it through for approximately four months if we are prepared to see these reserves go down to zero, or approximately three months if it is considered that the present reserves are really the minimum consistent with safety.
It follows from the foregoing that if France is given the remainder of her economic aid almost at once and if receipts from U.S. military expenditures should begin to accrue in substantial volume by next February, France may be able to get by until the end of the fiscal year without any special short-term aid. If there are good grounds for believing, however, that either one of these conditions might not be met, it would appear from the foregoing that it would pay the French Government to try to obtain some short-term dollar funds somewhere to tide it over until the end of the fiscal year, by which time it is assumed the entire sum of $600 million in promised aid will have been delivered.
Caveat: The foregoing calculations are very rough indeed and based on a number of precarious assumptions both implicit and explicit. However, we are willing to submit this imperfect estimate as it is better than none, and may satisfy your requirement for a quick judgment. It might be added that the conclusion we come out with is generally consistent with a calculation by the French, made on a different basis, of the anticipated state of their reserves on January 2.