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port is restricted to use within the Bank.

No. E 97A

RESTRICTED

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

THE CREDITWORTHINESS OF ITALY

Economic Department

Prepared by: A. Stevenson

August 15, 1950

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OF CONTENTS

v.,"""' ... ' ..... AND COnCLUSICJNS

The Capacity of Italy to Service Additional External Debt

1. POLITICAL STABILITY

II. SOLIE. SALIE1J7 .F::ATUHES OF I'L'ALIAN ECONOMY

The Growth of l'oIJUla tion

National Income

Agriculture

Mining

Manufar::turing Inc:lustry

Service Industries

Conclusions

Financial Management

• THE LONG RUN ou'nOOK FOR BALANCl; OF PAYIJEIUS

Introduction

The Structure of the Balance of Payments

The Overall Balance

The Dollar Balance ---------

ANNEX I External Debt of Italy

ANNEX II Hypothetical Serial Loan

TABLES External Debt of Italy: Amount Outstanding Each Year 1950-1974 External Debt of Italy: Payments Each Year 1950-1974

i.

1

1

3

3

5

c: .-'

5

6

6

8

9

10

12

SUltwIARY AND CONCLUSIONS

The Capacity of Italy to Service Additional

External Debt

1. At its present stage of development, it is l'Enso:l',.ble :['01' ~JC;' to rcr':\in a capital importing country. Consequently, its balance of pay­merits can be considered to be in equilibrium if there is an inflow of long-term investment capital from abroad which offsets the current accC'unt deficit. By the end of ERP, particularly as a result of reduced dollar imports, the pres­ent abnormally large current account deficit with the dollar area should shrink very considerably and Italy should be able to achieve equilibrium, in this sense, in interna.tional accounts.

2. Italyls international economic position, however, is particularly vulnerable since, very broadly speaking, it imports essentials and exports luxuries (including tourism). Thus, a drop in national incomes abroad, or, for example, a crop failure outside the dollar area, would have very serious effects on the country's international economic position. Furthermore, Italy's ability to achieve equilibrium in its balance of payments dependent upon certain conditions being achieved, both in Italy aLd elsevrhere in the world. The degree of uncertainty surrounding their fulfilment constitutes the major risks involved in a Bank loan to Italy.

3. Some of the necessary conditions are applicable to any Bank loan. These include the assul!l);;tion that there will be neither another world war nor a major depression in the large industrial countries of the w·orld, especially in the U.S. In addition, it is assumed that:

a) In Italy itself:

(i) stable governrr~nt is maintained; (ii) despite a relatively rapid population increase for some time,

the per capita real income will rise, although not rapidly enough to avo:Ld substantial structural unemployment;

(iii) the Italian fiscal and monetary authorities will ensure as high a rate of investment as possible without causing undue pressure on domestic prices or on the balance of payments;

(iv) the U.K. and Germany will grow in importance as Il13.rkets for Italian production and as suppliers of raw materials and capi­tal goods, Argentina will contu1ue to playa prominent role in Italian trade, while Italy will in part recover its position in trade with Eastern Europe, particularly Yugoslavia;

b) In the v;orld as a whole:

(i) the volume of world trade will continue to expand, though more slowly than that of world production, and with a shift in geo-

ii.

graphical patterns involving a further reduction in Western Europe's dependence on the Western Hemisphere as a source of supply and a rise in sales of European goods to that area;

( ) gradual progress 'will be made towards general currency con­vertibility, although complete convertibility is not expected by the end of ERP;

4. Italy1s present external indebtedness amounts to the eq'uivalent of ~533 million, practically all payable in U.S. dollars. Bj' far the largest amount (,"374 million) is composed of loans from the U ,S. Goverillllent since the end of the Seconddorld War. It also includes about :~150 million of privB.tely held bonds, mostly payable in dollars. Interest payments on the outstanding debt vary betweenjlO million and,..13 million between 1952 and 1960. Amortiz­ation payments falling due average abouti,i22 million in that period so that, by 1960, both the total and dollar debt outstanding would be reduced to just under ~p300 million.

5. Apart from cessation of pa;y1ilent on inter-governmental war debts in 1933, Italy's recent record of service on foreign debt is good. By 1947, a settlement had been reached on the major portion of the dollar bonds and on the small amount of sterling bonds outstanding, on which service was suspended when Italy entered the lTmr, Agreement has since been reached on practically all the remaining privately held bonds.

6. In view of the preGent size of Italy1s external debt, and the rather rapid amortization schedule, the most suitable pattern of external assistance viTould be one which would be continuous over a period of years but would not raise the total outstanding indebtedness significantly above the present level. ASStllling, for the sake of illustration, that IBRD assistance took the form of 10 annual loans each of $10 million and that no other new borrowing took place within that period, total Italian dollar indebtedness by 1960 would still have fallen to $380 millton from the present $533 million. On these assumptions, total service on Italian external debt during the decade of the ~950'S would average about qp38 million annually, of which about ~l3 million would be for interest B.nd 0,25 million for repayment of principal.

7. Italy1s ability to repay loans of the type under consideration may be judged on two sets of assumptions:

a) If it is assumed that a substantial net export of capital from the U.8. continues, Y1hich makes possible for (l high degree of currency conyerttbility to be [tchieved soon [~fter the end of LEi'. ~.nd th:::t the rate of inflmv of long-term capital into Italy is r~ughlY equal to the amortization payments due on outstanding' indebtedness i e $20-25 million per annum, foreign exchange earnings on curre~t ~c~ount ~ould ~ave.to be sufficient to cover total interest payments only, l.ncludl.ng l.nterest on new indebtedness. For the period 1952-60 these

iii.

would average only about,).). million, about one percent of probable Italian foreign exchange earnings on current account and about one­tenth of probable Italian gross dollar receipts. On these assump­tions, Iotaly should be well able to service external debt, including addi ti onal dollar loans at an annual rate of ,;)20-25 millj"on.

b) If, on the other hand, it is assumed that future U.S. capital export is much smaller, that the restoration of convertibility proves much more difficult or even impossible, and that, as a consequence, total dollar debt service payments have to be met out of current dollar earnings, the Italian dollar debt burden, including the IBRD assist­ance assumed, would be much heavier. Total dollar debt service pay­ments of.i4l million in 1953 would probably amount to more than one­fifth of gross dollar earnings at that time. 'l'hereafter the burden would become less, amounting to (~33 million in 1955, rising to ip37 million in 1957 and 1958, and subsequently declining gradually. Under these circumstances the IBRD assistance ass~~ed in the previous paragraphs would tax Italy's capacity to repay dollar indebtedness up to or even beyond the lilnit, and since Italy1s creditworthiness for non-dollar loans is considerably higher than for dollar loans it would be desirable if as large a proportion as possible of any addi­tional indebtedness assumed were in currencies other than U.S. dollars.

If, as may well be, the truth will be somewhere be+,ween the optimism and the pessimism of these two sets of assumptions, and if allowance is made for the con­tingency that some of the other assumptions on which the analysis is based are achieved only in part., then Italy should still be in a position to repay loans from the IBRD of $10 million per annmn, advanced over a ten-year period.

I. POLITICAL S'rABILITY

8. Although it is impossible to predict now whether or not the present coalition 'iiill survive until or beyond the 1952 elections, the risk that stable democratic government in Italy will be overthrovm does not seem very great. In the period immediately follmving the war the Italian Govermllent included repres­entatives of the Communist Party and the IINenni" Socialists who support them Gn major policy questions. For more than VNO years, hmvever, Italy has been governed by an anti-Communist coalition supported by about 60% of the voters, and dominated by the Christian Democratic Party~ vb!ch obto:1.ncd }7f, of tho votes c.t the If'nt election n.nn is the l~\rgest party in the ASSQT.1bly. Tho fl'oquoncy.nnd v:i,olonce of labor disputes, not to r.1ention the land occnpatiom;, in various parts of Southern Italy, indj.cate that the Communists and their allies, which obtained about 30% of the votes in the 1948 elections, still command considerable mass support, although that support has apparently become weaker since the early post-war years. Hever­theless, so long as the present degree of poverty persists, the cOlru:lUnist movement will probably retain considerable attraction for many Italians, although programs of economic development for the depressed areas should do much t.o combat its spread. Significantly enough, the only criticism of the development program for the South heard fror.l the extreme left has been that it did not go far enough.

9. The Italian Social h~ovement, accused, like the Common Man Party before it, of harboring many former Fascists and reflecting a nostalgia for the past natural to such groups as had benefited by it, is now the focal point of the opposition of the extreme right. Its recent rise, particularly in the South, gives cause for concern, but does not constitute a threat to the established form of government. The question of the monarchy now hardly seems a live issue.

10. The recent departure from the Cabinet of the Liberal Party and of Saragat and Tremelloni of the Labor Socialist Party could be interpreted as a weakening of the existing coalition. Although this formally true, however, the move may reflect gl'owing st.cength and confidence on the part of the non­COl1lJ'llUnist majority. which nOYf feels that the danger of civil war has abated enough to parmi t in'del'-party disputes.

II. SOlS SALIENT FCATUP.:c;S OF THE ITi.Lll-l.N ECOlJOMY

11. The ability of Italy to service additional foreign debt depends upon the development of its balance of pa.yments, not in the next year or t-,'Vo, but over the next decade or more. Since a country's international economic position does not develop independently but reflects fundamental economic and financial trends both at home and abroad, the long run outlook for its balance of payments can be evaluated only in '~he lie;ht of a series of judgments concerning these basic trends. The following paragraphs touch briefly on those features of the Italian economy which bear most directly upon the country's balance of payments.

'fhe Growth of Population

12. The most strikinf;; feature of the Italian economy is that the rate of population growth has far exceeded the country's ability to provide satisfac­~ory levels of income and employment. '1'his long run cycle of population increase 18 a p~enomenon common to the whole of Lurope, beginning in the United Kingdom early 1n the 19th century and subsequently spreading East and South to reach Italy perhaps half a century later. Its proximate cause was a fall in the death rate.

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The rapid population groYvth was later checked, in every case, however, by a fall in fertility which made its appearance in Great Britain about 1870 and in Italy about half a century ago.

13. The most elaborate projectj_on of the Italian populationpmade by the League/of l<ations during the war" reached the conclusion that the Italian popula­tion 1 , -wbich had increased from 26 million in 1861 to almost 34 million in 1901 and almost 43 million in 1936, would reach 47 million by the beginning of 1950 and almost 49 million ten years later. By 1965 the cycle of population increase, which has already run its course th.roughout most of Western Europe, would have been almost completed and by 1970 the population would have grovm only to 49.5 Llillion. Examination of postwar population statistics gives no grounds for believing that the trends underlying this forecast have changed in any marked degree. The cor-­tinued fall both in the total number of births and in the crude birth rate, the drop in the marriage rate from the abnormally high level reached in the first postwar years, indicate that the downward trend in fertility is still continuing. On the other hand, the decline in mortality rates has been rather more rapid than anticipated. 'rhis especially true of infant mortality which fell from 103 per thousand live births in the period 1936-1940 to 70 and 74 respectively in 1948 and 1949. Ji. crude estimate based on sRIlj8what lower death rates in the first five years of life during 19L5 to 1949 ?:! vlOuld give a total population within present frontiers of around 50 million in 1960 and perhaps 51 million ten years later. The population of working age would be about 33.5 million in 1960 and 34.5 million in 1970.

14. In the past, Italian emigration, particularly to overseas countries, has been very large. Shortly after the end of the First ·World vial', however, the obstacles to migration increased, particularly in the recipient countries, and in the last years before the Second Horld liar the net outflow of lIlj.grants from Italy had been reduced to almost nothing. For the period 1936-19hO, it averaged less than 21,000 annually compared with more than ten times that figure just before the first Horld and again in 1922-2L.,when the total population was much smaller. Since the war, emigration to overseas countries has amounted to over 50,000 in 19LI7 and rou;;hly 100,000 in each of the last two years. Considerable numbers have also gone to other European countries, but apart perhaps from the outflow to France) this movelllent appears to be transitory and already past its peak. Indeed, the en­couraging figures of overseas eIi:dgl~ation in the last few years may well also represent in part the Elxhaustion of the warUme backlog of unsatisfied demand for im.mif:,rants.

. 15. Future emigration cannot be predicted with any degree of accuracy. A few figures, however, will illustrate its potential importance. If the 1948 and 1949 rate of emigration continued over the next two decades, the total Italian population would rise to about h9 million by 1960, but would not increase at all in the following decade. Figures such as these c;:m of course have illustrative value only. They may well be too low, particularly if Italian plans for laroe­scale assisted migration should not prove fully successful. They do point o~t however, the crucial importance of continued large scale emigration now while the population, and particularly the labor force, still growing rapidly.

15. The rate of population growth is by no means equal throughout the country. Despite considerable migration from South to North, and despite the fact '1,1 "'jj Within the 1938 frontiers.

Allowing also for the effects of past (but not future) emigration, exceptional war losses, and frontier eha,nges.

- 3 -

that the majority of Italians leaving the country come from the South, the ~1POP­ulation of the Northern provinces, apart from Lati~, increaSedl,y only ~4~ be­tween 1921 and 1949, whereas the increase was 36% ~n the South - and 24p ln the islands of Sicily and Sardinia. This southward shift of the center of popula­tion may be expected to continue in the coming decades.

National Income

16. Annual income per head in Ital~' is among the lowest in Western Burope. At the current exchange rate ($1 = 625 lire) it may be estim­ated at rather more than U.S. ~~200, about half as high as in France and between one-sixth and one-seventh as high as in the U.S. It is also rather unequally distributed, with the richest fifth of the population disposing of almost half the total income and the poorest tenth of only about one-fiftieth. Moreover, the national average conceals great regional variations. Incomes are, on the whole, more equally distributed in the richer North than in the poorer South. In the northern province of Lombardy in 1948, for example, 30/b of the families had incomes of less than 390,000 lire (U.S. :~;624 at the present rate of exchange~ about two-thirds less than 650,000 lire (U.S. :;,>1,040) and less than 1% oyer 3,250,000 lire (U.S. i~5,200). In the southern provinces of Lucania and Calabria the corresponding percentages were 59, 81+ and 2.

17. Data relating to the trend of Italian national income and wealth are much less precise than those relating to population grm':th. The only compre­hensive study of the period before the Second 'Norld 'dar, which is based on in­formation that is both fragmenta.ry and non-homogeneous, and in addition appears to be somewhat over-pessimistic, indichtes that after a period of relatively rapid growth in the last quarter of the 19th century, real income per head re­mained fairly stable till the outbreak of the .First World War. Thereafter it declined sharply and had scarcely recovered its prewar position when the de­pression of the thirties caused it to fall again. By 1938 per capita real income had again risen to the 1914 level but during the Second World War it fell so catastrophically thab despite the substantial recovery since, available resources pel' head measured in real terms had even in 1949 scarcely reached the prewar level.

Agriculture

18. Rather more than one-third of total national income is derived from agriculture on which around three-fifths of the total population are depend­ent for their livelihood. Nevertheless, agricultural production cannot satisfy the country's needs of basic foods such as wheat, and in lean years olive oil, or of important raw materials such as wool, cotton, hides and rubber. Large quantities of these must be imported from abroad, largely from countries outside Europe, On the other hand, many of the agric111tural commodities which Italy does produce under relattvely favorable conditions, such as citrus and deciduous fruits, nuts, vegetables and special cheeses, are for most countries at the prese~t time luxury or semi-luxury products which are the first to be foregone when J.ncomes fall. Furthermore, the conditions under which these commodities are produced are peculiarly rigid both in that they are labor-intensive--and labor is extremely lirunobile--and that production does not respond quickly to changes in de­mand.

J/ Abruzzi, Molise, Campania, Puglia, Basilicata and Calabria.

- 4 -19. The ability of agricultural output to increase beyond present

levels, which are nO'lt'[ close to prewar, varies from product to product. Gener­ally speaking, a rapid expansion is no~ proba~le. As reg~rds wheat, not r;tuch increase beyond present levels seems eJ..ther IJ..kely or desJ..rable,. Pro~uc~J..on reached about 7 million metric tons last year and the target 01 7.5 mJ..IIJ..on for 1952-53 set in the Italian progra~nes submitted to O~EC should be considered as a maximwn, necessi ta ting continued high protection and perhaps greater Government intervention in the wheat market. Physical conditions in Italy are not suitable to any further expansion, and in fact if sufficient supplies of non-dollar "\"Jheat were available at advantageous prices" the volume of production should probably be somewhat lower. However, Italy, a poor country, can to rramble on its luxury exports to only a limited degree, and under present con­ditions must meet the bulk of its caloric requirements from home production. It seer.1S J.ikely, therefore, that Italian agricultural policy"dll aim to keep wheat production at around 7.5 million metric tons per armunl for some considerable time. Among other cereal crops the advent of hybrid corn appears to have made feasible a slow expansion of production by up to 25% of the present volume, While the prospective continued shortage of Far Eastern supplies may encoura.ge a sorf.Gwhn.t larger output of Italian rice.

20. 'rhe.ce is consj.derable scope for long-run expansion--to some extent at the expense of cereals·--both of livestock products and of fruits and vege-tables. Encouraging steps are being taken, under ECA auspices, to im-prove yields by technical education, seed selection, improvement of livestock quali ty and other similar moans. The f'tlrther growth of livestock numbers and of acreage devoted to fruits and vegetables, hovvever, depends very largely upon the carrying out of costly works of land jmprovement and irrigation. After a rather slow start, progress is being made within the framework of the ECA lire fund program" of which parts of the develoJ:..;ment plan for the South form a logical ex-tension. Such 0.n increase in output, however, likely to be slow. The spread of new methods through a rural population farming methods have scarcely changed for generations, theinprovement of plc.nt and animal stock, which some­thlles requires the discovery of neVI species suitable to local conditions, and above all, cOl:lpletion of the large scale civil engineering works and process-ing and distribution fac:ilities required, is the work of a decade rather than a year or two.

21. In practice the rate and limits of such expansion are likely to be set by marketinG considorations. i~part from a specialties, the largest major potential outlet for most livestock products is within Italy. The growth of fruit and veceta.ble production~ however, depends to a much greater extent on the developm.ent of foreign markets, mainly j.n Europe and in particular in Germany and the United Kingdom. The chief weakness in Italy's position lies in tlle fact that so lonG' as the major European currencies remain inconvertible the export of such products, largely classed as "non-essentials," will be hampered. Italian agriculture has a natural interest in freer multilateral trade and will benefit from the liberalization of European trade and payments at presen-/:. being pursued under ECA and OLEC auspices. Italy will face competition from Spain Israel and South Africa, not to mention the United States, in citrus fruits and from var­ious countries in Europe, the sterling area and the .vestern HemlsDhere in fresh and canned fruits and vegetables. There is, however, no reason to~believe that she should be unable to meet that competition, particularly if the processing industries are expanded.

- 5 -Mlnin~

22. ~,Iining accounts for only one or two percent of the Italian national income. The recent discovery of natural gas in the Po valley~ however, is worthy of mention. Production is still small, but is increasing rapidly and even at the annual rate of 400 million cubic meters achieved in recent months is equivalent to over 525,000 metric tons of bituminous coal or 6% of Italian imports last year. The precise importance of this development is difficult to aSGess now. Should the expansion continue for long at the present rate, hOl'ieVer, it would reduce coal import requirements significantly and should it presage the discovery of oil, its siGnificance to Italy would be almost incalculable.

~!ianufacturing Industry

23. Like agriculture, manufacturing indust.ry accounts for about one­third of the Itali2u national :i.ncome. No fully satisfactory index of industrial production e1:ists but the i;.ldicc~tions are that after a relatively slo1,'! rise, pro-duction now exceeds the prewar level by not more than a points. In 1949 an acute shortage of electric pOWer was partially responsible for the slow progress but certain more deep-rooted diffj.culties have also played a part. 'llhe relative­ly low aYe rage real income limits domestic demand, ·illhile the over-abundance of manpower and the consequent threat of unemploJrment act as a drag on production, raising costs and slowinb down the rate of output. High interest rates also play a part. Furth8l'InOre, while certain sectors of industry such as textiles and chemicals have recently been operating at a fairly high rate, production in others, for example shipbuilding and various parts of the engineering industry, has been well below capacity, in Great part because of past expansion--carried out without due regard for costs under the Fascist regime. A program of modern­ization is also going on, in part financed by Eel!., but its full effects cannot be felt for a considerable tjme. Some reduction in cost is apparently being achieved, however, since profits in general remained high last year though in­dustrial prices declined significantly.

24. Viewed in relation to the balance of payments the textile and engineering industries are the most important. In 1949 they accounted for around one-third and one-quarter of the total value of e:cports respectively. In neither of these does a rapid expansion of output appear very likely. At.tempts are being made to improve the position of ailing sectors of the engineering industry. ~uite recently the Italian Government :mnounced its intention to liquidate some of the finns which have been a heavy charge on the Treasury" but in the present polit.ical and economic situation it is rather unlikely that drastic steps will be taken. In t!1e textile industry, foreign demand will be an extremely im­portant factor and the long run outlook for world textile exports is not very favorable. One further point may be made. Since Italian industry is heavily de­pendent on imported raw materials, the volume of imports and of exports are close­ly related. In some cases, particularly tilat of cotton textiles, the possibility is not excluded that a fall in exports would even improve the dollar balance.

Service Industries

25. Among the so-called tertiary industries certain sectors, notably ocean transport, the hotel industry and allied trades catering very largely to foreign tourists, are of particular importance to Italy's balance of payments position. Har losses reduced the merchant marine drastically from its prewar figure of 3.4 million gross tons" but by purchasing ships abroad and construct­ing them at home, Italy had already increased its ocean-goinG fleet to almost 2.7

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million gross tons by the beginning of 1950. Although the rebuilding procram con­tinues, the rate of increase is falling and the Italian merchant marine vvill reo. main below the prewar level both in tonnage and carrying capacity for some con­siderable time.

26. Hotel facilities in Italy have now been restored to the prewar level and a significant amount of additional construction appears to be going on. Provided the necessary flow of private capital can be secured--and the GoverlJJnent is alreadJ" stimulating this--it should be possible to expand capacity consider­ably more in the next few years. One conunent may be added. If Italy is to off­set the disadvantage of its distance from the Hestern Hemisphere ami Northern Europe, and is at the same time to attract larger numbers of tourists in the middle income brackets, investment 'will have to be channeled into the construc­tion of hotels offering Good thouGh not luxury facilities at lower prices.

Conclusions

27. Several conclusions emerge from the analysis in the preceding para­graphs. First, it vVQuld not seem reasonable to envisage over the next decade more than a modest improvement in real income per head. As a corollary of this, unem­ployment, now estimated at about 10% of the active population excluding "hidden" unemployment in agriculture, 1J'rill continue to be heavy and to act as a brake on the increase in income per head. To mitigate unemployment and to raise incomes as far as possible ~~ll require a rate of investment as hibh as is consistent with financial stability.

28. Second, given the low average real income, a satisfactory rate of investment can hardly be expected from domestlc savings alone. At its present stage of development, Italy should be a net importer of capital. In the past two years at least one-fifth of net investment in Italy has been made possible by im­port surpluses of goods and services largely financed through the European Recovery Program.

29. Third, in view of t.he foregoing, the State will have to continue to assume a large share of the responsibility for ensuring that the financial resources required are made ava.ilable for investment. And since a substantial part of these will be used to pay wages to persons whose incomes are extremely low, most of the additional r.1oney income generated will be spent on basic items of food a.nd clothing. Given Italy1s meager resources of essential foodstuffs and raw materials, the resulting demand for imports is likely to be considerable. The task of the Italian fiscal and monetary a.uthorities, on the one hand to ensure as hibh a level of investment as feasible, and on the other to prevent that invest­ment from causing too heavy a drain on the balance of payments, is therefore par-· ticularly delicate.

Fi~ial l:ianagement

30. From 1945 to 1947, while the output of goods and services was still well below the prewar level, Italy experienced the most violent inflation seer: in ~ostwar.Wes~ern Europe. The volume of money rose sharply, the velocity of ~ts cll:'culat~on lncreased, and a rapid price-wage spiral developed with the wholesale price index reaching more than 60 times its 1938 level. Private sav­ings virtua~ly ceased and free market quotations for the lira dropped to less ~han one-th~r~ of its official dollar value. This inflation had its origin both ~n the expanSlon of bank credit to private business, and in the Government1s re­course to the banking system for funds required to finance its budget deficit.

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31. Measure:;, t!:l..ken in Septembpl:" 1947 to stop further expansion of pri­vate credit proved sufficient to !lalt. the inflationary process althQugh Lhe Treasury cash deficit .... vas still increasing and was being met by recourse to the central bank. Prices and the cost of living have since fallen steadily and the index of wholesale prices is now more than 20% belm'f its 1947 peak. The volume of money has remained fairly stable for more than a year and bank deposits have grown steadily. Some progress has been made in eliminating less essential expend­itures and, as a result of buoyant revenues, the Treasury cash deficit was re o

-

duced from 609.7 billion lire (421b of total expenditures) in 1948 to 408.h billion (28% of total expenditures) last year. It was financed by borrowing, largely from thE postal sav~.ngs system and to a less extent from the banks and the public, and also, especially in the latter part of the year, by the use of ECA counterpart funds. A combined conversion and funding operation undertaken early in 1950 brouGht a net reduction of 88 billion lire in the Government float­ing debt. iiith the Government meeting a larger proportion of its smaller deficit through the postal savings system, the increased savings mobilized in the money market have more and raore filled the needs of private business. Public subscrip­tions to industrial bonds and shares amounted to 256.7 billion lire in 1949, com­pared to 144.6 billion in the previous year. The lira, which had been substantial­ly devalued to 575 per U.s. dollar in July 1947, became a relatively hard currency from the point of vie¥( of most European countries and 'Was reduced in value by only 8% to 625 per U.s. dollar in the currency adjustments of September 1949. In 1949 as in 1940, balance of payments surpluses vdth various countries, particularly in Europe and Latin ill1lerica, were the major influence tovrards an increase in the money supply. Advances by the central banl,: to the Foreign Exchange Office to re­imburse exporters for foreign exchange surrendered to the latter, amounted to 258 billion Ij.re last year, but their potential inflationary effect was much reduced by the net accumulation in the central bank of 134.5 billion lire in counterpart funds.

32. ~l.s a greater measure of monetary stability has been achieved, the Goverrwent has gradually moved towards a more positive fiscal and monetary policy. Va:cions proposals have been made to increase revenues and to obtain a greater pro­portion of them from direct taxation, but no great changes are to be expected in the near future. .hs national income rises, however, it should be possible to raise additional revenues. To encourage private investment, the discount rate vms reduced by}% in April 1949 as were the rates on Treasury bills, and a year later was again lowered by the same amount, thus returning to 4%, the rate pre­vailing before the postwar inflation. Progress has also been made in removing the administrative obstacles to the use of counterpart funds and the rate of spending has recently been stepped up. Finally, an enlarged program of public investment, of which the development plan for Southern Italy is a si€;,niiicant part, is getting under way_ In this connection it may be noted that although the low average level of income will put a brake on the level of real investment, Italy is in a peculiarly favorable position to devote most of the funds available to productive uses since expenditures on armaments are likely, at least for a time, to be lower than ill most other countries of ties tern Europe.

33. Although the fiscal position is still not entirely satisfactory, the record of those directing Italian moneta~J and fiscal policy in the last two years lends ample support for the belief that they will not allow the investment program to endanger the foreign exchange position.

The relatively high exchange value of the lira does not.as yet appear to have ,had an adverse effect on the balance of pay­ments. If th~s should be the case ~n the future, however, there is no reason to

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believe that the Italian authorities would not take appropriate action in good time.

III. Till LONG RUN OUTLOOK FOR TI£ BALANCE OF }'AYMGN'l'S

Introduction

34. It 'Nould be idle to suppose that the prospective overall inter­national economic position of a country" far less its accounts with particular geographical or currency areas, can be precisely predicted several years in ad­vance. Nevertheless, Italy's creditworthiness cannot be properly assessed with­out making an attempt to visualize the general outlines of the balance of IJay­ments in the years following the end of ERP. In the analysis which follows, cex·tain general assumptions are made:

1) Peace will be maintained though at the cost, in most countries, al­though not in Italy, of devoting to defense a proportion of nation­al resources substantially greater than was the case in the inter­,far period.

2) Though the cyclical pattern of economic activity will continue, on the whole fairly high and expanding levels of national income will prevail in the major industrial countries, particularly the United States.

3) iil though the outflow of funds may not be evenly distributed over time, the United States will continue to export capital at an annual rate of roughly)2 billion, compared with about ~5 billion in 1949. The effects of modifying this assumption will be discussed later.

4) The volume of world trade viill continue to expand, though more slv"ly than that of world production.vlithin the postvrar trade pattern now developing:

a) the gradual reduction of obstacles to imports particularly into the U.S. will continue;

b) the U.K. and Ge:rmany will continue to grow in importance both as markets for Italian production and as suppliers of certain raw materials and of capital goods;

c) although there may be some decline from the high levels recently achieved, Italy will continue to occupy a more prominent posi­tion in the Argentine market than was the case before the war • ./.rgentina took l2~~ of all Italian exports in 1949 compared with only 4~G in 1937 and 1938;

d) trade between Eastern and 'i~estern Europe will contj.nue to expand, though very slowly and along bilateral lines. The growth of Zast-ilGst trade particularly significant to Italy since countries of Eastern Europe, particularly Czechoslovakia Hungary, Poland and Yugoslavia, have traditionally occupied a more prominent position in the trade of Italy than in that of nost countries in \lestern Europe. The valulne of East-West trade seems unlikely, however, to achieve the prewar level for a very

e)

f)

- 9 -

considerable time although the changed political position of YUJoslavia may benefit Italy substantially, both c:s a supplier of raw materials and as a market;

the shifts in intercontinental trade patterns, involving a re­duction of -v~estern Europe I s dependence on the rJestern Hemisphere as a source of supply, and a rise in the sales of Luropean goods in that area, especially in Latin .\merica and Canada, ,:ill continue;

that gradual progress will be made towards general currency con­vortlb111ty, This' is p~rt1~lnrlf ~~ntfor sterling since a large fraction of Italian exports .find their natural and tradi­tional markets in the sterling area. This does not mean that the dollar shortage will have disappeared with the end of the European Recovery Plan. On the contrary, :destern Europe may still experience a shortage of dollars and may have to continue, for a time at least, to restrict dollar imports.

The StI'l~cture of the Italian Balanct) of Payments

.35. the divergent influences of world economic depression, autarky, war and reconstruction, cert.ain structural features have persisted in the Italian balance paY'.nents, giving eloquent testimony to the importance of resource patt.erns, established habits and trading connections in determining the network of international payments. In the period preceding the Second liorld War, t.he value of imports, of which basic foodstuffs, fuels, raw materials and semi­finished products were the most important, consistently exceeded the value of ex­ports, among which agricultural specialties and textile manufactures figured prominently. To the import surpluses was added a small but regular net deficit, on account of interest and dividends. lilthough the Italian merchant marine earned a substantial foreign exchange income, it appears probable that on an f.o.b. basis the Italian transportation account was ahout balanced. The deficits were compensated mainly by net tourist receipts" by remittances from Italians living abroad" and by an inflov{ of capital in the 20's and liquidation of I talian gold and foreign exchange holdings in the .30 t s.

36. Europe was regularly Italyls best customer, purchasinG; about two­thirds of Italian exports of which a large proportion went to Germany and the United Kj.ngdom. Lurope--especially the same tvlO countries--vias also Italyls principal supplier" althOUGh the proportion of imports from the ilJUerican contin­ent showed some tendency to gain at E1.lrOpe IS expense. This development was, how­ever, reversed by the German trade drive in the middle and late 30' s. Italy had a consistent import surplus with the i~merican continent, especially the United States, and a fairly regular eJl.-port surplus with continental Europe and the sterl­ing area.

37. In the postwar years various factors, notably losses of output and national wealth both in Italy and other European countries, the needs of recon­struction and a larger population, and the renunciation of autarky, brought con­siderable changes to the Itali<:in balance of pa:YIllents. Eost of its salient prewar features, however, are now tending to reassert themselves. The abnormally large import surplus of the first prewar years shrank to the equivalent of '",.320 million in 1948 and )27Lr million (f. o. b. basis) last year. In the first quarter of 1950, it was about the Sill-:1e as in the corresponding period of 1949. .t\, large deficit

- 10 -

has also been recorded on the transportation account, but this declined by one­third from 1941 to about ;W100 million in both 1948 and 1949. These changes, together with rising tourist and miscellaneous receipts, brought the overall deficit on account of goods and services down to ;~342 million in 1948 and ~286 million last year. Emigrants t remittances have also reappeared in substantial volume, but on the other hand, net private donations have fallen since the end of the wa:c and Italian reparation payments have begun. aougbly speaking, the overall current account deficit, exclusive of in.ter-governmental donations, has fDllen from the equivalent of around ~?'l00 million in 1947 to about ;w250 million in 1948 and rather more than ~p200 million last year.

38. This relatively favorable development conceals the f act that whereas in 1941 Italy was a debtor tovrards IT!ost countries, in the last two years it has been a crem tor towards most countries outside the dollar area. Its dollar defici t on current account, at about ;;:;400 million in 1948 eil d about ~3 75 million last year, was thus substantially larger than its overall deficit. Italy has finauced its export surpluses with tndi vidual countries mainly by extending credits on payments agreement accounts, amounting to the eq11ivalent of ~jJi70-S0 m~illion in 1949, and by accumulatinG balances of inconvertible currencies, notably sterling, of which it held the equivalent of over ':;l200 million at the end of 1949. Decause of the favorable development of its trad.e and payments with Argentina, Italy was able to repay in part the long- and short-term peso loans recei ved in 19i~ 7 and 1948 and to accumulate enough pesos to cover the remainder.

39. The ciollar deficit has been met mainly through loans and grcn ts from the United States. The latter, amounting to ~332.h million in 1948 arid ;,p3$0.$ IILl..llton last year, have been by far the most jmportant. This assistance, together with other net credits from financial transactions pnd receipts of {,old nnd, dollars fror.! countries outBids the dollar D.rea., ·'.m.s gl'eater tlY"n the doller deficit·. ConsequenJ;ly, Itf'lyl s holdinrs of !,:old :mcl dollr'.rs rosa r.ubs·(;t:ntinlly in both 1948 '·".nd 1;1490 In the latter year the :Bf'n}: of Itnly COn"loTtod part of its doll"!.r nssets into t70ld 2nd at the end of tho year had r~old reserves of $2,52 million. In addition, Italio.n official r,nd prlv[l.te short-terr: [',seets in the United States p~ounted to $304 nillion. They ~~ve since declined to $273 million at the end of !lay 1950.

The Overall Balance

ho. The great bulk of Italy's imports consist of basic foodstuffs and raw materi.als or semi-manufactured goods such as coal, petroleum products, ferrous and non-ferrous metals, v"heat and flour and textile raw materials. In 1949 these accounted for about three-fifths of the total value of imports. Since the war the volume of cereals, notably wheat, has been abnormally high (almost one-fif'th of the total value of Italian imports in 1949). Under normal condi­tions, imports of wheat and flour may be expected to f all to about 1.5 million metric tons compared with 1.84 million in 1949. In view of the expansion of natural gas production, coal imports at the end of ERP will probably not be higher than the 1949 volume of almost 9 million metric tons. They will fall further if the natural gas deyelopment continues. Oil imports will probably continue to rise fairly rapidly from the 1949 total of 3.3 million metric tons amd may well rise to 4~ million by 1953. The rate of expansion of imports, however, would, of course, be considerably less if new domestic supplies were discovered. Imports of ferrous and non-ferrous metals may be expected to

- 11 -

conttnue at or somewhat above pt'esent levels. Because of the increasing use of synthetics and the weakening of the export market for textiles, cotton and wool, on the other hand, may be expected to decline somewhat from their 1949 levels of 197,000 and 82,000 metric tons respectively. Reductions are also possible in various smaller imports such as corn, sugar and chemical products, but on balance, in view of the growing populat:j..on and the likely investment requirements, it would be difficult to depress Italian imports after the end of ERP much below their present volume ($1377 million f.o.b, in 1949).

41. The volume of Italian exports is much more difficult to estimate. In its program for 1951/52, the Italian Government has estimated total exports at the equivalent of ~1280 million (at end 1949 prices) or about 15% above the 1949 level. In the light of the discussion of Italian agriculture and industry in the previous pages, this seems rather too optimistic. In later years, as dev'elop­ment plans progress and real income levels in Europe continue to rise, additional exports may be expected, but these can hardly be substantial for several years. An overall trade deficit of the order of 'h~150 million equivalents (f .0. b. basis at present price levels) seems likely. Naturally price movements will be import­ant. Tho recent rise in reM :::aterin.l prices, for instance, will affect Italy ad­vorncly. On the wholo. Italyt s terns of trl1de "rill probably be less favorable ttl1n in tho inter-war period, thourh perhaps more favorable tr~n in the ir~ediate post ... ,.,D.T years".. In view of the very great degree of uncertainty involved in such forecasts, however, it would be unwise to give much weight to this factor.

42. Although the deficit on transportation account viill continue to decline, it will probably remain considerable for some time, perhaps aro\md the equivalent of;;>50-75 million the middle fifties. On the other hand, tourism should bring larger net receipts, whlch under favorable cond1.tions might approach the equi va­lent of ~:100 million. Private donations and remittances from emigrants may bring a slightly larger amount, provided that the rate of emigration does not decline.

43. In the years folloViing ERP, Italy vdll have to make annual net pa;yruents of :;;>15-20 nrillion equivalents on account of interest and dividends, depending on the rate of capital inflow in the interim. !leparations payments will also cause a drain on the Itijj.lian balm ces. These cannot be precisely estimated but their inpact may be less than m.i.ght be expected. Total reparations were set at the e qui valent in goods of ·w360 million and deliveries ace to be completed by February 1954, seven years after the signing of the Italian Peace Treaty. The Treaty provides that the recipient countries are to furnish on commercial terms the necessary raw materials and that POW ments shall be so distributed as not to interfere with Italian reconstruction nor burden the other allied powers. The Italian obligation becomes automatic, however, only after agreements have been signed with the respective partner countries. So far a definite payment schedule providing for payments of ;,plOO.9 million to be completed by 1954 has been reached with Greece alone. In the two years following the end of ERP, these payments amount to '1t'20.5 and 4::10.2 million. No final agreement has been reached vdth the USSR and Yugoslavia while diplomatic relations were resumed with Albania only a year ago and do not yet exist with Ethiopia.

44. The above estimates, which can be only rough orders of magnitude, would leave a small overall deficit (say {ji50 million) on current account" Naturally such a situation could exist only if it could be financed through capital move­ments. By no means all the capital inflow need be in U.S. dollars. A significant

- 12 -

amount, for instance, might be in S'Viiss francs. In this connection it may be noted that Italy's present external debt payable in currencies other than U.s. dollars is very small. The estimates, which have mainly illustrative value, indicate that the overall current account deficit in the years following ERP will probably not be very large and that, at its p~esent stage of development, Italy is still, as it was a quarter of a century ago, normally a net importer of capital.

The Dollar Balance

45. In view of the probability that some of the major cUl~rencies will not be fully convertible by the end of ERP, the prospective balance with the dollar area at that time assumes a ol'.ucial importance. Although efforts are being made to increase exports to the dollar area, these C&lnot be expected to make a major contribution to the solution of the dollar gap. 'Ehe long run outlook for sales in the American market of many Italian special ties such as olive oil and tomato products is none too favorable. Fucthermore, even a large percentage increase, which is unlikely to occur, would not mean much jn absolute terms. Allowing for sales in Canada, lviexic(l and Central America, perhaps 10% of Italian exports might be sold in the ~iestern Hemisphere against dollars. In addition, increased tourist receipts should make a modest contribution.

46. Nevertheless, Italy's large dollar deflcit is far from incompressible, and may well shrink rather rapidly. As in the past., reduced dollar expenditures will be most important. Imports of U.S. coal, which amounted to about '!liSO million (f .o.b.;.) in 1949, have alrea.dy virtually ceased. Gi ven normal weather condi tions, increB'sing non-dollar supplies of wheat should make it possible to reduce imports of dollar wheat very considerably to about 0.5 million tons com­pared with 1.35 million tons last year. Conm_tions are less favorable as regards prospecti ve supplies of non-dollar cotton, but Italian requirements may be expected to decline somewhat, making possible a reduction in imports of dollar cotton to around 400 thousand bales compared with around 700 thousand in 1949. If some decline in prices of both v(heat and cotton ta.kep place, dollar savi!lgs on account of these two commodities might well be in the neighborhood of ,,;)150 million. On the other hand, poor harvests outside North Americalt'Vould affect the situation seriously and cause a SUbstantial drain on Italian gold and hard currency reserves. At their present levei these appear sufficient to cope vdth such an emergency f

Reduced dollar purchases of meat, dairy products;> sugar and other minor imports could yield savings of ;;;25-50 million. By the end of ERP, most of the machinery and equipment needed by should be available in Europe, particularly in Germany and the United Kingdom, which are among Italy's most important customers. In 1949 Italian imports of machinery and equipment financed by ECA totalled more than :",80 million. Finally, as a result of the shrinkage of bulk cargo imports from the U.S., the decline in the use of ~nerican vessels after the end of ERP, and increased Italian earnings, particularly from passenger fares, the dollar deflcit on trans­porta~ion account should practically disappear. Thus, dollar savings alone obtainable by the end of ERP might well be of the same order of magnitude as . the 1949 dollar deficit.

ANHEX I

External Debt (If Italy

At the end of 1949 Italyl s external indebtedness on long term amounted to the equivalent of :w533 million. Of this amount, no less than :w520 million was payable in U.S. dollars. By far the largest amount (~374 million) was composed of laMs from the U.S. Government since the end of the Second World "Nar. The remainder of the dollar debt consisted of $146 m:i.lllon of privately held bonds. These figures do not include reparations to be paid by Italy before 1954. Neither do they include a small a.llount of Swiss franc bonds owed by Italian private com­panies to their parent corporations in Switzerland, deiJts to Argentina which Italy is now in a position to pay' off from existing peso balances, old clearing debts to 8wi tzerland which are to be repaid gradually in lire, or the Italian portion of the Austrian Government Guaranteed Conversion Loan 1934-59.

Apart from the cessation of payment on intergovernmental war debts in 1933, Italy I s recent record of service on foreigrl debt good. Service on foreign bonds ceased with its entry into the war in 1940. After the war, however, the Italian Government took the initiative to open negotiations with the bond­holders and 1947 settlement had been reached on the ma.jor proportion of the dollar and on the small amount of sterling bonds outstanding. Agreement has since been reached on practically all the remainder. Only a dispute '\'dth the bond­holders concerning the relatively small payments dl1e in various European cur­rencies on the Ital ian portion of the Austrian Government Guaranteed Conversion Loan 1934-59 now mars a,;-1 otherwise relatively good 'debt record. ~/

Interest payments on the outstanding debt vary between *,,10 and ~13 million between 1952 and 1960. fullortization payrilents falling due average about *,22 rnillion in that pertod so that the amount outstanding declines fairly rapidly. Both the total and dollar debt outstanding would be reduced to the ecpivalent of just under ~300 million by 1960 and to about ~200 million by 1965. It should also be noted that these constitute maximum foreign exchange payments due on p,.esent indebtedness. Actual payments may be less since it is assumed that all the old dollar bonds will be exchcmged under the Lombardo plan and since pa.yments on the U.S. surplus property credits may be made in part in local currency or Italian property. Furthermore, payments on t.he EGA loan of ;~67 million may be altered or waived if the U.S. and Italian liovernments agree that thls would be in their COlllmon interests.

y According to the statement of the Council of Fo.ceign Bondholders, the Ital­ian Government paid up in 19!.+8 the arreat's of interest due under its guaranty. It refused, however, and hEls since con::'inued to refuse to fulfill its guaranty as regards sinking fund flpencLtng negotiation with the Austrian Government and clarification of i ts position". ltecently it has been stated on behalf of t.he Italian Treasury to the French and British Governments that the Itallan Government has decided to resist payment of future interest on the loan unless a conference of guarantor governments is called to investigate Italy's capacity to pay. In the opinion of the Italian Government, the occupation of Austria by France and the United Kingdom changes lIthat equality of status between the guarantors which seems indispensable if there is to be equality of obligations between the contracting powers to carry the onus of the guarantees and if they ar.e to have the same possibilities for recovery vis-a-vis the guarlli'1teed countrytl. (Unofficial translation).

External Debt of Italy

as of December 31) 1949 (in thousmds

Annex I Page 2

Outstanding

Dollar Debt

Doll ar Bonds under Lombardo Pl~22

Italian Republic 1-3%, 19).1.7-1977 Credit Consortium for Public :ivorks 1-3%,

1947-1977 Public Utility Credit Institute 1-3%, 1947-1977

'rotal dollar bonds under Lombardo Plen

Bonds Held by International Power Securities

Public Utility Credit Institute 2-3%, 1969

Total dollar bonds

U.s. Interg?vernment De~t

E.R.P~ 1983 1/ Export-Import Bank - Outstanding

Undisbursed r,Iaritirne Comrnission Surplus property 3.1

Total U.S. Intergovernment debt

Total Dollar Debt

Sterling Bonds

Marerr.mana Railway 1-3%, 1947-1977

Egyptian Debt (no interest)

S ... ti.ss Franc Bonds

In currency of payment

~~37, 854

36,833 53,772

;,p18,oao

~67,000 ;jp84,181 '11>22,644 ,?56,677

.;1>143,526

1, 700

Public Utility Credit Institute 1-3%, 1977 sw.Fcs.17~440

Total External Debt

Expressed in U.S. dollars

,~37, 854

36,833 $3,772

128,459

146,459

67,000 84,181 22, 641.J. 56,677

l43,$2~

374,028

520,487

1,959

6,201

4,059

532,706

There are in addition the following external obligations payable in foreign cur-rencies:

a) Italian guarantee on the Ll:;S Austrian bonds 1931..-59 now in dispute. b) Argentine loan of pesos J02~5 million. Sufficient funds are at present

ava:Uable to repay this obligation. c) Reparations debts. d) Societa Alluw~nio Veneta and Sismon bonds of Sw. Fes. 20.5 million, owned

by parent companies in Switzerland. No settlement has yet been reached.

,

External Debt of Italy

Annex :[ Page 3

!I This loan has a waiver clause as follows:

:5.1

"If at any time or from time t.o time the parties hereto determine that it would be in their common interests because of ao.verse econond.c condi­tions or fo~ any other reasons to postpone, or provide for the postponement of, any instalments of i!lterest or principal, or co alter or provide for the alteration of any provision of the aforesaid promissory note relating to paylnent of intej.'es"!:i and principal, or to modify the aforesaid promis­sory note in auy othel' respect, they rna:! by mutual agreement in w ri ting provide for any such postponement or alteration or other modification. II

This conSl_sts of. two credits: one for 1p125,526,020 and another for $18,000,000. On the forner, the Italian currency option provision limits the amount that the U.S. can I'8ceive in anyone year to the equivalent of .w5,000,000 but in addition t,O t.hat the U.S. C31 acq1i..re property up to an estimated ~18, 750,000. 1i110n any such currency or prop0rty is acquired, the dollar vitue is applied first to past due inte:C'est end then pro rata. Under t.he second 10M, the U.S. has tIle :dght to acquire Italian currency up to the value of iW8,000,OOO, limited to not more than ~:)l,OOO,OOO per year, and, in additio::1, may acquire property limited to a total of ~lO,OOO,OOO. Currency or prop0rty will be cr~dited first to past due interest and then pro rate;'.

1.1 The Egyptian pound equivalent is not knoym. The .3anca d'ItBl ia states that the principal is repayable in annual instalments of ;,p2, 067,000 through 1952.

Annex I Page 4

Total Interest and Amortization Charges Required on the External Debt of Italy

(In millions of U.S. dollars)

Service P~rments by Currencies Total U.S. Swiss Egyptian Amorti- Outstand-

Dollars Sterling Francs Pow1ds Total Interest zation ing ----1950 34.1 1/ 1.4 2.1 37.6 13.2 24.4 532.7 1951 38.0 1/ 0.1 2.1 4002 11.3 28.9 508.3 1952 39.0 I/ 0.1 2.1 41.1 12.7 28.4 479.4 1953 38.6 0:1 0.2 38.9 12.8 26.1 450.4 1954 34.2 0.1 O~2 34.4 11.9 22.5 423.7 1955 30.2 0.1 0.2 30.).j. 11.2 19.2 400.6 1956 31.3 0.1 0.2 31.6 10.6 21.0 380.7 1957 31.5 0.1 0.2 31.8 10.0 21.8 359.1 1958 30.5 0.1 0.2 30.8 9.3 21.5 336.2 1959 28.4 0.1 0.2 28.6 8.6 20.0 313.5 1960 25.8 0.1 0.2 26.1 8.0 18.1 292.2 1961 23.6 0.1 0.2 23.9 7.4 16.5 272.8 1962 23.2 0.1 0.2 23.5 6.9 16.6 255.0 1963 22.9 0.1 0.2 23.2 6.4 16.8 237.0 1964 18.5 0.1 0.2 18.8 5.9 12.9 218,8 1965 18.3 0.1 0.2 18.6 5.5 13.1 204.3 1966 18.1 0.1 0.2 18.4 5.1 13.3 189.7 1967 17.9 0.1 0.2 18.2 4.7 13.5 174.7 1968 17.7 0.1 0.2 18.0 4.3 13.7 159.5 1969 17.2 0.1 0.2 17.4 309 13.5 144.0 1970 15.9 0.1 0.2 16.2 3.5 12.7 128.6 1971 15.7 0.1 0.2 16.0 3.1 12.9 113.9 19'12 15.5 0.1 0.2 15.8 2.7 13.1 98.9 19'13 15.3 0.1 0.2 15.6 2.3 13.3 83.7 1974 15.1 0.1 0.2 15.h 1.8 13.6 613.1

~/ Less than ;p;;O, 000

Assumptions:

1. That dollar bonds under the Lombardo Plan would be bought j.n the open market at an average price of 70 and that the bonds of the Public Utility Credit Institute held by International Power Securities vall be retired at par.

2. That all Export-Import Bank loans authorized but undisbursed as of 12/31/49 will be drawn down by 6/30/50.

3. That all sterling bonds vd.ll be bought in the open market at an average price of 70.

4. That all Swiss franc bonds will be retired at par. 5. That all bondholders will assent to Lombardo Plan. As of April 30, 1950

bonds amount:'ng to~109 million had been exchanged.

Due to rounding, colurr~s do not always add to totals.

Date 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1971+ 1975 1976 1977 1978 1979

ANNEX II

Hypothetical Serial Loan

~100,000,000 to be drawn ~5,000,OOO semi-annually starting June 30, 1950. Interest 4-1/4% p.a. Two years' grace on repayment of principal of each drawing. Each drawlng to be paid in 36 level semi-annual installments of principal and interest starting 2-1/2 years from date of drawing.

Principal Outstanding

Cumulative Beginning nf Principal Drawings Drawings Period Payment

;f~ 5,000,000 ;,ii 5,000,000 -10,000,000 15,000,000 ~ 5,000,000 10,000,000 25,000,000 1,5,000,000 ~ 93,874 10,000,000 35,000,000 2i.+,906,126 476,733 10,000,000 45,000,000 3h,429,393 877,351 10,000,000 55,000,000 43,552,042 1,294,519 10,000,000 65,000,000 52,257,523 1,729,607 10,000,000 75,000,000 60,527,916 2,183,379 10,000,000 85,000,000 68,3)+4,537 2,656,645 10,000,000 95,000,000 75,687,892 3,150,235 ~,000,000 100$000,000 82,537,657 3,665,027

83,872,630 4,201,931 79,670,699 4,668,022 75,002,677 4,868,520 70,134,157 5,077,631

.... 65,056,526 5,295,723 59,760,803 5,52.3,183 54,23"1,620 5,760,413 48,477,207 6,007,830 42,469,377 6,265,877 36,20),500 6,33h,882 29,868,618 5,797,974 2)+,070,644 5,238,006 18,8)2,6.38 4,653,985 14,178,653 4,041+,883 10,133,770 3,409,616 6, 72li,lS4 2,747,064 3,977,090 2,056,055 1,921,035 1,335,365

585,670 585,6'70

Interest Total Payment Payment

w 106,250 $ 10b,25'O 531,250 531,250 956,250 1,050,124

1,373,885 1,850,618 1,773,763 2,651,114 2,157,089 3,451,608 2,522,497 4,252,104 2,869,219 5,052,598 3,196,449 5,853,094 3,503,353 6,653,588 3,682,806 7,347,83.3 3,521,397 7,723,328 3,336,928 8,004,950 3,136,430 8,004,950 2,927,319 8,004,950 2,709,227 8,004,950 2,h81,767 8,004,950 2,244,537 8,004,950 1,997,120 8,004,950 1,739,073 8,004,950 1,469,944 7,804,826 1,206,356 7,004,330

965,830 6,203,836 749,355 5,h03,341 55'7,963 4,602,846 392,735 3,802,351 254,792 3,001,856 145,306 2,201,361

65,501 1,hoo,866 16,650 602,320

IBRD Statistics Section April 19, 1950

EXTERNAL DEBT OF ITALY: AMOUNT OUTSTANDING EACH YEAR 1950-1974 (MILLIONS OF U. S. DOLLARS)

600~~--~~--~~r--~~--~~--~ ----,:------.---..----;1--, I 600

500 --------11500

OBLIGATIONS 12/31/49 PLUS 10 SERIAL LOANS*'

?"o ....... 400\ '" ---------11400

300

200

100

' .... ........ ' ....

OBLIGATIONS 12/31/49

r-........ ........ ........

............

--------+--~--------~1300

........... ..............

......... ........

-----11200

~------~-------------------t~-------~~ ,,_ ~ 100

0 1 '0 1950 1955 1960 1965 1970 1975

it Amounting to $100 million to be drawn $5 million semi-annually slorting June 30,1950. Each drawing to be paId in 36 level semi-annual installments of principal and interest starting 21/2 yeors from dote of drawing. Interest 4114% per annum.

I.B.R.D. - Economic Dept.

(') ::I: » ;:0

No.488 I -i

EXTERNAL DEBT OF ITALY: PAYMENTS EACH YEAR 1950-1974 (MILLIONS OF U.S. DOLLARS)

50 ,~-~-~~-,~-~ r-\--' -l----,n ,--. I 50

40 ~ '" '" I----- ~-1

:30

TOTAL - OBLIGATIONS 12/31/49

r-, // ""'~ 12/31/49 PLUS ~

/ ~~, 10 SERIAL LOANS* "I ---.... -" ,.' ",. ' .... I '~~",~';r-- ........

----- __ u \ 140

TOTAL-OBLIGATIONS 12131/49 PLUS 10 SERIAL LOANS*

:30

-------="-----0 20 20 l-u------ y"" 7 '"" -AMORTIZATION-OBLIGATIONS 12/31/49 1',

'------~

.... .-._---... - ...........

101-------

INTEREST - OBLIGATIONS 12/31/49

, , , ""- ...... --------

INTEREST- OBLIGATIONS 12131/49

r -=::::-:-±'O SERIAL LOANS'

10

0 1 10 1950 1955 1960 1965 1970 1975

*Amounting to $100 million to be drown $5 million semi-annually starting June 30,1950. Each drawing fo be paid in 36 level semi-annual installments of principal and interest starting 21/2 yeors from dote of drawing. Interest 4 1/4% per annum.

1.8~R~D. - Economic Dept.

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No,487 IN