INTERNATIONAL :BAl~K FOR RECONSTRUCTION AND DEVELOPHENT

CONFIDENTIAL

REPORT ON TEE EeONOHY OF FINLAND

Economic Department Prepared by: H. W. Robinson

Date: December 31, 1948

Copy No. • ol..1

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FINLAND r S ECONOUr

TABLE OF CONTENTS

(For Summary of This Report See Part II Section 4 of Operational Report)

}.1:ap of Finland 0. ••••••••••••••••••••• ' ••• ' •••• ' ••••• -.• -• • ' •••

Selected Statistics ••••.••••••••.•• ~ ••••••• i •••• r •• o.~ 1

I. GENERAL ECONOiUC CONDITIONS ••••.•••..••. "...... 2

II. THE FINA1 .. rAL SITT1A.TION ........................ 15

III. FOREIGN TRADE AND BA.~CE OF PAYHENTS •••••••••• 21

IV. TEE Ftl"TU'RE OUTLOOK ............ ~ •••••••••••••••••

Appendix I.

Appendix II.

Statistical Appendix Tables 1 to 6

Finland's External Debt History

27

... ... I I

",

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G U L f • 0' ...

MAP OF

FINLAND '00

FA &3 1

)G'

FINLAND

Selected Statistics

September 19. 1944 February 10. 19L~7

Armistice Treaty Signed: . Peace Treaty Signed:

IBRn Articles of Agreement Signed: January 14, 1948 (Subscription: $ 38 milli-on)

337.130 sq. kilometres (46,058 sq. kilometres lost by transfer to USJ=)

POiJulf.l.tion: 3.9 million persons

Rate of Excha.nge: 136.00 Harks = $ 1000 1 Hark;;; $ 0.0074

Pre-Uar National Income (at 19i}8 prices); Total $1250 million : $ 320 per hef'i

Indices of Recover~ (1938 = 100)

National Income Agricultural Production Industrial Production

Export Industries Domestic Industries (including re~ara-

tiona industries) -

Volume of Exports (excluding reparations) Volume of Exports (including reparations) Volume of Imports

Foreign Trade in year 1948 435 million

Yepr 1248.

100 (ap})rox:.) 80 (ap)rox..)

100

85

125

71 92

116

Imports: ... $

Exports: - $ 380 million (plus $111 million in indemni ties)

Reparationa (vs,lued at 1948 prices). Delivered to December 31, 1948 $408 million OJ.tstanding at Decem"oer 31. 191-:..8 $159 mUlior

Transfers of German claims to the Soviet Union (valued at 19u9 prices)

Delivered by DecemDer 31, 1948 Outstanding at December 31, 1948

$1.;.7 mill: $ 1 /I

Balance of Pa~ents in 1948 (excluding reparations)

Dollar Balance of PaYment§ in 1948

$ 39 million deficit

$ 49 million deficit

,Gold and Foreign Ex~hange Reserves. Total Holdings at June 30,1948 : 0 28 million

Dollar Reserve at September 30. 1948: $ 21 million

~on€=Term Foreign Debt at December 31, 1948 (Estimated)

llholeaale Prices in 1948 (1938 ;;; 100)

Cost of Living in 1948 (19J8 = 100)

Export Goods Import Goods Internal Prices

$,:V::J million

1,080 (September) 910 (September)

: 980 (October)

8JO (SepteI:lber)

Nation~l Debt (Internal and External) at rec. 31,1948, 122 billion marks : $ 900 mill ion

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I

GENERAL Ec,ONmUC OQ}1DITIONS

a. General Charasteristics and Economic Struct'Ire

1. Finland t a :Balt ic country. lies to the east of the Gulf of :Bothnb.

Host of its frontier abuts on the Soviet Union, to \,rhom nearly one eighth of

the pre-war area (46,058 square kilometres) was transferred in September

1944, leaving 337.130 square kilometres 'voi thin the nell boundaries. The po:)U­

lation of 3.9 million persons is well educated and culturally best classified

'iith the Scandinavian nations.

2. History and Const! tution. Both the people l2'J1d their economic

system have been influenced by the fact that, 1~ltil the end of the first

Horld "!art~"lhen independence tlas proclaimed anet the republic established t the

country ,,,as gC'verned first by S\leden and then by RUssia. The con~ti tution

vests sovereien po':!er in the people, represen ted b~l 200 members of a sin{,:le

chamber. the Diet. w~~ch r..a.s a life of trJ.!'ee years. He:r.lbers are elected on

the basis of proportional representation. antI. all citizens over 21 years of

age are entitled to vote. The President, elected for a period of six years,

enjoys ,·lide pO"lers including initiation of legislation and relations '.dth

other pO'ITers. Government is carried on by the President and a Co'_mcil of

IIinisters.

Internal Political Situation. Coalition governments have al~~~·s

been a feature of Finnish politics. and from 1945 to July 1948 the countr~r

ims governed by a coalition. composed after the Spring of 1946. of' the

IIDemocratic League", a combination of comm'U.1'lists and ten left "dng social,...

ish. the Social Democrats (a socialist pa.rty) nnd the Agrarian p<?rty.

Elections held in July 1948 resulted in gains for the Social De:r.locrats (55

seats) n~~,Agrarians (56 seats) at the expense of the Democratic Leaglle (38

seats) 'ihich lost eleven seats. A riGht "ling p?.rt~rt the National Coalition

(32 seats) also gained slightly.. O1voing to the unt'lillingness of the

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Democratic League to participate in a ne':' coalition government unless

the i~portant ministries of Foreign Affairs. Defense and Interior and the

difficulty of lnclu(Un,,; Agrarians in a government "Thich ,,,ould encounter t;::,,9

active op~osition of the Democratic League. lfr. Fagerholm, a Social De~ocrat,

,ms chosen by the President. Mr. Paasikivi (formerly National Coalition :P~t::'ty),

Renresentation of Harior Pa,rties 1M the Diet

Party July 19h5 J 111y 1948

Social Democratic 60 (50)* 55 Agrarian 49 56 National Coalition 28 32 Communi"t 39 (49)* (38)* Other ~ 12

200 200

* Figures in parenthesis shm'l the position after the formation, in Sprin$ 1946. of the "Democratic League ll (10 Social Der:J.ocrat sand 39 Comr.nmi st s).

to form a single party government. This governrlent has the tacit sup~ort of

the Agrarian pa.rty. and can rely on the stlpyort of the National Coalition

1.1hen seriously challenged by the Democratic League; so far it has not had any

difficulty in ,'tinning votes of confidence by a tdde margin \Then threatened

by Communist p!='.rliamentary tactics ..

4. Because of their minority position in the Diet, and uncertainty

regarding the reliability of st1]Jport from the Speaker, lir .. Kok1conen (At:raria!l),

\'Iho s"rays 2lj, members, it is possible that the e:o'Vernment may have to bring

representatives of other major parties into the cabinet. It seems reasonably

certain, hm'lever, that, unless the Soviet Union brings pressure to bear, the

Communists will not obtain strong representation. Such pressure seems at

present unlikely unless the international political situation seriously

,·Toreene. Although the COIl4'Ilunists. both in the Diet and in the trade unions.

embarrass the government by demands for higher "rages and 10\'fer taxes, uhich

conflict ",ith the stabilization program, control of the Central Association

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of Trade Unions is increasingly in the h£:.nds of the Social DeI:'loc!"'ats ~lT::O

Hark \rl. th the government on most questions; ~JS a result there have been

no major strikes and the ;fb'l." minor ones have been short-lived. Neverthe:!.e:Js,

Communist pressure haw forced the trade unions to mak:e their m-ffi "'TaGe 0.8-

mande ~"hich, even though finally wi thdra'l:Jn t have made the governraen t f S ta sk

more difficult ..

5. International Relations. Finland's external political relations

have been affected by her close proximity to the Soviet Union, against uhom

she has fought and lostitwice since 1939. and to ",hom she has had heavy peEl.ce

treaty obligations. She has had to avoid arousing the antagonism of her

pO'l.1erful neighbor; thus, she declined to part icipate in the European F:ecovery

Program and, on April 6, 1948, signed a Hutual Aesistance Pact "rith the

Soviet Union. Nevertheless, she has endeavored to develop COL~ercial rela­

tions \"i th the ''lest t tmmrds ,"hich her foreign trade is naturally orienta ted,

and since the war has succeeded in obtaining $260 million in credits from

western countries.

6. Largely b~1" "lise statesmanshipt Finland has succeeded in gaining a

greater degree of independence than that enjoyed by any other cO\'U1try ill

the Russian orbit. :'lithout 'liar in Europe, military occupation or overt

intervention by the Soviet Union seems unlikely since Finnish resistance,

open or underground, "!ould involve Soviet mil! tary expenditure, /'l.nd might

diminish such economic benefits as the Soviet Union nO', derives from Finl~nd

even if it did not evoke counter action by the tlestern pm'lers. :ro.rthermore,

Scandinavian neutrality might be affectec't by any trxeat to Finnish indepen­

dence. On the other i1l;>.nd, any move b~r Sueden to join the 1'lestern -Dloc

,,,ould introduce a ne't·, factor into the Soviet Union Is SCfmdinavian policy

and she might then take vigorous action in Finland; but such S't'ledish action

seems improbable,

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7. Economic Structure. Finland Is agriculture. forestry and industry

are carried on by private enterprise. except for State operation of rail­

roads. important po,"er plants. mining. RIld the monopoly of ,~rines and s:;:;iritc.

The firms in each major export industry, ho"rever, have formed an ~\ssoci1?­

tion which negotiates foreign sales contracts ~nd arranees shipments on be­

half of the ,",hole industry. Co-ol')erative societies are of great imporkncA

in retail trade and agriculture~ A committee on nationalization recently

recOIlll'nended nationalization of the principal ~'rood1Torking industries. b',l.t the

government has sho,m no intention of acting quickly on this suggestion. ~e­

lations between employer and ,.,orkers are often paternalistic especially Nhen

communities have gro'o;,rn around a fe,', concerns; conditions of Hork, ,'lalfare,

social activities ~~d in many cases housing. all receive close attention

and account for an important part of labor costs.

8. Unlike other agricultural countries in Europe, Finland r~s generally

high levels of education and efficiency and the average national income per

head had been brought, in 2S ye~rSt to $320 per ann~~ (1948 prices) in 1939,

a level higher than in the Balkans and Poland. about the same as in

Czechoslovakia, but lO\"er than in the other Scandinavia...'1 countries. About

three~fifths of the ,.,orking population is engaged in agriculture and forestry

compared ,'lith only 2S per cent in industry 1',nd handicrafts. T:"Pical holcl­

lngs combine cultivated land and forest and thus provide :rear-round errrploy­

ment for the farming community. There is no coal or oil ane;' fei,r raN mater­

ials except copper ores (extensive nickel deuosits 1:1ere lost in the trans­

fer of territory). The nationRl income ,.,.es therefore attained by gro~'ling

nearly all food at home (even exporting some animal products sUX?luses) and

by e::q,orting timber and ''load products to pay for ra','l materials .?nd fuel

needed in manufacturing goods at home,. and for import of some ccn~umer goods.

Forests. ,.,hich cover 71 per cent of the land area [llld rank next after

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Russian forests in quality, combined ,,,ith lakes and rivers ~'rhich provic'te

cheap transportation and ,'rater pO't·~ert ',Iere the basis of the countr:r' s st~.n­

dard of living. lTood \'laS used for houses and for fuel. )0 ller eent 0: in­

dustrial output consisted of pulp and paper and other ''load products ana. 37

per cent of the national income '-JaS derivecl. from the export of timber and

'II'ood products t "'hieh formed 80 per cent of all export!;!. Another iror-orta-nt

exchange-earning asset "ras the merchant marine ,..,hich totalled 64~>tOOO gross

tons.

9. About 45 per cent of the national income entered into foreign trade

before the "Tar and the bulk of it "las \·rith Vestern Euroue. Great :Britain took

up to 60 per cent of all exports and through her Finland "rag able to buy

im!,orts from overseas countries. Other important partners ",ere Germany,

Sl:ed~n, U:e .low. countries and Denmark. Trade "lith the USA accounted for over

10. per oent of all trade and resulted in a small dollar su!'?1us. Trade ':li th

the .USSR '-JaS almost non-existent.

10. After 1918 Finland borrowed capital to build up her economy, and

by 1931 her external debt had reached $206 million t "Thich is equivalent to

. a.bout $500 million at 1948 prices. After 1931, ho,-rever, she de7eloyed a

f~vourable balance of payments. due to the great ~emand for her e;~orts in

<Treat Britain ,,,here a building boom ','as in full mring. e~nd to drastic reduc­

tions in wages made in depression years. By 1939 she had reduced her

foreign debt. including i'Torld '-Jar I debts to the United. St2~tes (1:1hich "rere

for relief needs), to only $12 million. This achievement. "1hioh involved

a.bstention from further borro"ling and repayment of some debts before due

dates, illustrates the fact that. as a nation, the Finns prefer to C'.lt their

coat according to their cloth (md esche,'I foreign borro·uing.

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b.. Effects of, the ,Second 110rld t'Tar

after the armistice, assisted in expelling the Germans. She lost 80,000

peoplet or Z per cent of the popule.tion, in "Jar casualties. Direct \1ar d~j-

age 1,1I'as eomparatively lisht except in the far north T·,here farns, buildings,

roads. rallroadsand bridges ,'lere destroyed; timber stocks Here, hOl-TeVer, ('_e-

pleted due to lOt"1 activity in the timber and t100d products industry, and nearly

60 per cent of the merche.ut fleet 'vas lost1O Aerial bomoardment caused a cer-

tain amount of damage in the ports·, There was also a fall in productivity

of the land by over 25 per cent due to lack of fertilizers and animl'll manure

and neglect of drainage. and the livestock population fell by 25 per cent.

12. The most onerous legacies of \var resulted from the Peace Treaty.

Finnish Karelia, the Salla Region, the Province of Petstomo and the Porkke.la-

Udd enclave were transferred to the Soviet Union: these areas contained 10

to 12 per cent of the countryts agricultural and industrial production and

forest resources, about 3S per cent of hydro-electric pOi'ler capac! t:r, practi-

cally all the nickel deposits. and over 30 per cent of the fishing grounds.

Loss of the important Saima Cane,l and Karelian ports has caused ro-routing

of rail traffic and congestion on the railroads. The population of the ceded

areas, some half a million persons. migrated to Finland; as a result the

country, ~'lith 12 per cent of its ,;realth lost by transfer, must support the

same population 8.S before the ''leyr. Heavy capital expend.iture h.a.s been

necessitated by so-called "colonization" to resettle. the displaced population;

this has involved expropriation and purchase of 1l"Jld and construction of ne1V'

farm buildings and dwellings4

13. The Peace Treaty provided for reparations deliveries to the Soviet ,

Union over a period of eight years of goods valued at 300 million U.S. dollars

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on the oasis of 1938 prices. At today's prices these 1.;.1ould be 1;lOrth abO'llt

$750 million. In order to make certain of prompt delivery a penalty rate of

interest of 5 per cent per month on arrears was imliosed. The Soviet t"ll:'on

recently reduced by half the reparations outstanding at July 1. 1948 thereJ7 )./

cancelline; about $184 million (1948 pr,ioes). Commodities ve,lued at about

$408 million at current prices have already been delivered '4"p to December ::1,

1948 and deliveries to be made after tMt date £1.1"03 valued at $159 million.

though the cost to FinlRnd Will great.ly exceed this fig.lre. Outstl;1.ndlng

reparations 1,'1ill be delivered at the rate of about $44 million,at Horld mar-

ket prices t per l""nnlUU. and l-rill be al!,lOst equally divided bet'-Teen ne1.'7 ships

(not reduced Hhen outstanding repara,tions ,.,rere h.alved) and machinery and eQuip­

ment (reduced b~T 47 "ger cent). The Peace Treaty ~'tlso provided for the trans-

fer to the Soviet Union of German claims on Finland estulated at ~48 million

(1948 prices) and practically paid off by the end of 191..;.8. I1.nd. for compe~sa-

tion or return to the Soviet Union of goods removect to Finlcnd during the i"mr

valued at $24 million and already paid in full. These burdens were at a

maximum in the immediate poshmr years '-rhen they absorbed. over 20 per cent of

the country's national income. ~xrthermore since the composition of the de-

liveries does not match Finland r s economic struct~ll'e and export trg1e tiley

have involved additionfd expansion of the t-rar-inflated metals and engineering

industry and ~Ave. therefore. increased investment neeis.

14. Finland 1 s foreien tracte bas suffered greatly, as has that of l:10st

European countries, from the poshrar viCissitudes of the rest of Europe~

Economic stagnation of Germ~m~r, ,-,hieh sup:91ied 20 per eent of e,l1 imports

before the ~'lar, much in the foro of ml?,chinery and equipment, and post'\'mr o.if-

ficulties of Great Britain, Finland's largest customer, have necessitated a

re-orientation, much of ':lhich, hOi"lever. is of a temporary character. She has

1./ Timber products, paper industry products t machinery and equi::oment. old and nei'l ships a..'1.d cables ..

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had to purchase rat" materials, fuel, mach1ner~! and. equipment from the Fni td.

States ,,,ith \-Thom she had insufficient export possibilities. :Furthermore, be­

cause of increased imports of bread grains and reparations deliveries traQc

,d th the Soviet Union is no", one-sixth of all commercial trade and t ac.c_in;(;

reparations, absorbs over one third of Finnish exports. 'fuen reparations Clre

com~leted and agriculture recovers, the share of the Soviet Union should di=~

inish, but, as Finland can n011 supply her 1·ri th engineering products, sbe ~:rill

undoubtedly be a more importFlJlt trade partner tt>.an before the "far r.md may ab­

sorb about 10 per cent of Finnish trad.e.

1.5. In t':TO respects the '1ar benefited Finland. The iJar and postvar ex-

pansion of the metal, engineering ano. chemical industries, il/'hioh was almost

entirely within the present boundaries. has more than made Uy for the losn of

industrial capacity in ceded territories. Furthermore, much to Finland's advan­

tage I the ,,,,orld-,v-ide shortaee of timber, pulp and paper }:l.a.s rasul ted in rela­

tively higher prices for Finnish exports tr..an before the lJar.

c. Post"lar Recov~r;z;

16. At the end of the i<Jar industrial production as a iv-hole ,vas only 52

per cent. and production in the export industries only 40 per cent of pre-'~ar

levels tcrithin the old boundaries.. The volume of exports "ras only 17 per cent

and 0f imports only 12 per cent of trAt before the '~r. Production of food

';-ras 40 per cent belet·, pre-t1ar levels. At the same ti!'!le reconstruction a.nd rep­

arations demanc.ed heavy investment and unrequited. exports. Fricell. inflated by

\1ar-time defiei t spending, r.a.d reached three times pre-i'lar levels ~',l.; le·:,·t·l,.s

of consumption were extremely low.

17. Despite the drain of reparations the co~~try made a satisfactory re-

covery. Industrial production increased steadil;r and. (luring 191}7 "JaS 86 per

cent of the 1938 level, despite the loss of territory, thoueh out~ut in the

traditional export industries (the , .. rood'liorking ind'..lstdes) ~veraged only

I·

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67 per cento! pre-"lar and exports only 57 per cent of the 1936-38 level. Ir:l-

ports recovered more rapidly, because of the granting of credits by the ur~,

S,'reden, Brazil and Argentina. and "Tere 68 !Jer cent of pre-\'lar. The railroa":; a

carried more goods over lancer distances than before the ,'rar and, ':Jy exten-

sive purchases. the merchant marine ,!JaG increased from 40 'Per cent to 78 'Per 11 - -

cent of its pre-,'rar size. The national income recovered to over 90 pex' cent

of the 1938 level. Nevertheless. reconstruction investment absorbed 30 '~er

cent of the national income, and deSTJi te auccessive I'rage increases the standard

of living of the po:;:>ulation iiaproved only slo,'Jly; food and clothine 'vere ra-

tioned throughout the period, shops I'Jere almost bare of goods, the shortn.<'Ce of

housing ';las acute and prices mounted steadily to nine times tl1e 1938 level.

18. During 1948 the economic situation continued to Ll1prove. Agricultural

yields rose as a result of the continued application of fertilizers on a Bcale

greater than before the 'V'E-r. Oi'ling partly to lack of lime to correct acic,it~r

of the soil resultinG from neglect of drainagl:'). f\nd partly to the loss of

territory however. agricultural output. though 20 to 30 per cent higcer tban in

191}7. is still some 20 per cent belm'! pre-"rar except in tile case of potatoes.

Industrial prod11ction as a '·~hole att~ined 100 per cent. and production in the

SO called "exportllindustries 85 per cent of the pre-"'ar level. PrJd:uction in

the so-called home industry, 't'Fhich of course includes the exp~m,ied met2l ~,nd

en,s;ineering industries l'rorldng on re:parqtions, reached 25 per cent above 1933

levels. Everywhere, except in the pulp mills, stoc~cs have reached pre-uar size.

The national income is estimated to 08 at or above "0re-1:Tar levels. The volume

of ex-ports, hm'!ever, reached only some 65 'Oer cent of tl-:..e 1938 level. On the

other band the volume of imports, still financed partly by foreign loans t ex-

ceeded pre-Nar levels by 16 per cent. Increased production and imports, com-

bined 11i th diminishing reconstruction. resettlement. and r.eparations rAve

11 The gross national product less the excess of e~orts p~d reparations over impo;rt s.

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broUfht about an improvement in the standard of living during 1948. 1i'ood.

rations are fairly generous and meat and eggs are unrationed; the shops no,',

contain articles '-,hich have not been seen for years; though hif;h priced ancl

mostly rationed., clothing is nO'J available; fuel "Tood supplies tllis ye~r a~e

ample o\'fin~ to increased suppl ie s of coal. Al though 42,000 d't1elling units l'lere

built this year compared l;THh 21.).,000 per annum before the t'lar, the needs to re­

house displaced persons (one-eighth of the population) are only slm<Tly being

met. Wages have risen as much as prices and rents are controlled at pre-~~r

levels but, olfin!" to much hee,vier taxation, shortage of food and compulsory

sharing of d'1Tellings, the standard of living, thouf"h improving, remains lO~'Ter

than before the ,~r, particularly for the middle and fixed income groups.

19. The above recovery has been achieved despite several l!'.ajor cliffi-

culties. One of the first ,1as a reduced sup~)ly of timber, since the country

had lost to the Soviet Union a1)out 10 per cent of its 20 million hectares of

productive forests. Before the \'lar annual groi-Tth yielded 45 million cubic

metres of ,,,ood per annum but today it yields only some 41 million Cl.loic metres.

Nevertheless, this is still greater than the quantity of wood cut in all except

the pea.k pre-'"ar years of 1934, 1936 and 1937 though a greater proportion is

in the form of birch rather than pine and spruce, During the '-Iar actual cutt­

ing lms fa.r less than groi1Tth a.nd reserves of a.bout 1.5 million cubic metres per

annum '!.,rere accumulated. Since the war timber .h2.s been used ~o meet exceptional

postl,'lar requirement s for reconstruction and fuel t and the tim·oer available for

the woodworking industries was only 17 million cubic metres in 1947 and 16

million cubic metres in 1948 compared \'11 th 19.1l- million cubic metres in 1938 t

even though felling exceeded both the annual gro'"th and the quantity of timber

cut in 1938. Because of the necessity to rebuild stocks, this held back pro­

duction in the sa'~ills and pulp and paper mills in 1947. In the long run

felling must be restricted to growth but since improved sup~lies of coal are

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reducinf': consumption as fuel (not·' about one half of all. consumption) there

would seem to be little danger of any permanent shortage of Hood for the e:<:­

port industries. Furthermore, the sa ... ·nnills absorb over half the total conS')Il:9-

tion by these industries 8~d supplies of timber for the production of the

higher valued ply\100d, pulp and paper t on \·rhich the industr:r intencls to concen­

trate as far as possible, could be assured by limiting the exp~'\nsion of 08<~"'"

milling. At the present moment, hOi1ever, o\"ing to the necessity of restrict­

ing; costs in the export ind.uetries, prices being; offered to forest Oi-rnare tend

to discourage felling and some anxiet~r is felt as to ",hether it "rill be suf­

ficient this "!inter to maintain the export industry at its present tempo during

1949.

20. By the autumn of 1947 electric p01.1Ter had become the critical bottle-

neck in the economy, Thllty-five per Gent of the power planta we:;;-e lost in the

transferred territories and these had formerly sup~lied ?o~rer to the rest of

Finland. To add to difficulties the flo\" of ,~rater in the riYers after 1944

diminished rapidly oNing to successive 10i1 precipitations. ':rhe actW'l"l s'~pply

of pot'ler in 1947. despite increased thermal productio::l. "las only 2,850 million

kvh compared 1"7i th 3,100 million :io.-:h before the '·1P~r. Demand had re£'.(;!led 3,100

million k'I:lh and it became necessary to ration pO~',er in the 1'linter months ,'lith

serious repercussions on production in the heavy potter-using 'J' :Horking

indu.stry. Production of pO\"Ter in 1943 '.';as even lauer at onl~~ 2,750 million lo.·,h.

A large program of development of hyd.ro-electrio power had, h01:1ever t been

undertaken in the early days of the ''.Tar and this began to bear fruit in the

latter part of 1948. Furthermore, normal precipitation can be e.1..1lected to in­

crease hydro-electric po,,,er produ.ction in existing installations and I if the

program is completed on schedule, total pm'Ter production 1'1111 rapidly rise to

5,000 million k'I'Th by 1950. As a result, although pO~·.Ter "rill ag~:'vin be rationed

this '''inter, it is expected that production ,.,ill keep pace uith demand after

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next spring. Completion of plants, ho",ever .. depends upon obtr>.ining I'm', mp.t­

erials and equipment from abroad. a part of "/hich requires scarce currencies.

Uhen the pO"rer bottleneck is eliminated, existing plants in the WOod"Torking

industries can, '-lith modernization and replacement, produce about 35 per cent

more pUlp, one-third more sat-rn timber. 10 per cent more plY'-rood~ and about 20

per cent more paper than in 1948, all of "'hich \-'Quld, Qf course, be available

for export.

21. Railroads and harbors have not as yet held back the econo~y but have

demanded intense efforts ann heavy investment to satisfy the demands made upon

them. The railroads, "lith more rolling stock but QnlY 87 per cent of the trB.ck

mileage, have he"ndled more traffic than before the ,-rar; rr>.i1 s and rolling

stock, therefore, need extensive repn.ir and replacement. rTarbors. ouL'1g to the

loss of nearly 30 per cent of port C1?,pacity in the ceded territories, ha:lTe had

to randle as much traffic as in pre-t"ar days and the ports of Hanina, Tur)::u,

Tornio I Kemi and others have M.d to be /"Ind are beine: expanded. If the 1:Tood­

,-rorking indu~try increases its activity, railroad and harbor facilities ':lill be

strained. '-!hile there may be room for some compression of such traffic ao ce­

ment and fueh/ood on the railroads, there ,-rould be no alternative but to ex:pHnd

facUi ties in the harbors, particularly D. t Kotka, Hamina, n~~S~}·lkJ;. 'lnd T1.lrku.

22. A much more formidable difficulty developed in 1948. Since l10rld

prices of timber and wood products are tending to turn dmrn '·rhUe. until re­

cently, internal Finnish prices continued to increa~e. margins of profit of

some firms are endangered. In a large measure tb~s is due to the high labor

costs attendant on expansion of output. particularly the high cost of welfare,

social amenities and housing. Dev-aluation of the mark ,-rould jeopardize the

government I s financial stabilization program, as '''ould subsidizing of exports.

There is. therefore. a strenuous effort on the part of the industry to reduce

coats wherever possible by modernization and mechanization, particularly in the

case of transportation and h~ndling involved in bringing timber to the factories

- 14-

El,nd in shipping finished products. The equipment required for such pro,jects t

hO'l:!ever. is costly and almost all must be imported. Furthermore the only

possibilities for immediate procurement are often in the United Sta.tes. Cl:.a.t

pa.rt of the loan application to the :Bank for $100 million in the four ~rears

1949-l9.52 \,rhich is requested for reconstruction of the trood':TOrking industry,

ra.ilroa.ds and harbors is primarily for such projects.

- 15 -

II

THE FINANCIAL SITUATION

a. Inflation

1. The least satisfactory feature of Finland I s economic recove:::-y r.as

been the continuo'lts and rapid rise of prices since the end of the '~'ar. Des­

;')ite the necessity for government approval of all price increases, and a '\'!~=tges

stop, wholesale prices rose from three times pre-ltar levels in 1945 to over

nine times pre-'ITar levels at the end of 1947. Beti1een 1945. uhen the mark:

'-TaS devalued from 49 ms.rks to lJS ma.rks per clollar. and 1948, "orld prices

of Finnish exports were risin~ so rapidly that the internal price level never

menaced Finland's exporting possibilities. Even though the ma.rk became pro­

gressivel:-r overvalued on a purcr-asing pouer pari t~r basi s (no,', by some 60% :i.n

terms of U.S. dollars) the exchange rate remained appropriate for the export

trade. During 1948, hOl,rever. "rorld competition became keener and a dm,nmard

tendency in Horld prices of tim-oer and w'ood products made it imperative first

to bring prices under control t and. secondl~r to decide ~\rhat is the correct fis­

cal policy in the ne", circumstances.

2. Until the autumn of 1947 the prime cause of rising prices '''as success-

ive rounds of lmge increases. These aimed at restoring as soon as possible

the 1938 standard of living but since the economy, should.ering inescapable

heavy :!,)ost\1ar burdens. could not provide such a sta.ndard it '"as inevitable

that. because of budget and bank credit policy, money supply and prices rose

,\1i th every increase in "lages. After 1947 an agreement bet',leen the government

and the trade unions provided that ~'rage increases ,.rould be restricted to 5-1/2%

for each 5% rise in a special cost of living index in each three-month period.

Though this tying of wages to prices removed 'mge increases aa a prime C~lUse

of inflation, it ~~S magnified the effects of any other inflationary elements

in the economy.

- 16 -

3. There have been t"ro monetary factors in the inflation ....... 'budgt)~ d~

ficits and over-expansion of bank credit. Budget deficits arose from the

political, and economic infeasibility of raising revenue or borrm'ling to covt::r

the exceptional postwar expenditure required for reconstruction. colonizat:on.

reparations and other indemnities. and ever-grol/ing food subsidies in connec­

tion ,d th the rationing system. During the tl'lO years, 1945 and 1946. there

'..rae a defici t of some 16 billion marks on a total expenditure of about III

billion marks. These deficits "rere mainly financed in an inflationar;;7 manner

by heavy borro,,,ing from the Banl~ of Finland and by making pa;:nnent s to indi ...

viduals in the form of bonds, a large proportion of ,!;lhich, being tiecl to a

wholesale price index, became negotiable securities of a highly desirable

nature. Yet the succession of budget deficits and price rises tended to ~ring

about an equilibrium since, as prices. "rages e,nd incomes rose, the yield s from

taxes rose more than in proportion. In the year 1947, therefore, the budRet

deficit had fallen to some 4.3 billion marks on a total expenditure (includ­

ing extra-budgetary expendit1lTe) of 75.5 billion and a total national income

of over 250 billion marks. Durin~ this year, furthermore. foreign borrowing

(net) provided the government "lith 4.6 billion marks anct increased (l,eposits

in the postoffice savings bank another ).8 billion marks. Taking account of

changes in the Treasury's cash bale~ee, cash to the extent of 3.0 oillion

marks (net) "Tae abstracted by the government from the econom~r. During 1948.

revenue I particularl:T from income, property and sales taxes t increased by 30%

,,,hile t OI;dng to the diminishing real burden of reconstruction, re-settlement

and reparations, expenditure,(including extra-budgetary expenditure~ increased

by only 25%. As a result, the deficit \-las only one and a naIf billion marks

on a total expenditure of 95 billion and a national income estimated at about

350 billion marks. Furthermore I foreign borrOHing (net) yielded the govern-

ment 5 billion marl,;:st and, allo"ling for changes in cash balances,the government's

·.\

- 17 -

financial activities as a ,,,hole abstracted some 2 billion marks of ca.oh :rcn

the economy.

4. ~dng largely to a reduction of 5-1/2 billion marks in extra-

budgetary expenditure, estimated expenditure in 1949 (95.5 billion marks) i~

,I.!Imortant Change!!!. in Budget Ex;pendi ture, (all figures in billions of marks)

Sta te investment Loans for private investment Redemption of internal and foreign debt Reparations and other indemnities lie oloniz:at ion II Aid and compensation to private

individuals and enterprises

Extra-budgetary payments (net)

Expenditure in 1248

8.6 1.0 7.8

15.0 9 .. 0

9.8

9.3

Proposed .F#Fpend~ ture i11 195

7.1 4.3

11.1 11.7 8.9

no higher than in 1948 but, o'l;lin,,,!: to reductions of income tax rates of up to

50% introduced this autumn for political reasons. it is expected trat revenue

\.,ill fall short of this figure by about 3 oi11ion marks. Gro,.,th in postoffice .

savings bank deposits Nill, ho~,ever, provide some 2 billion marks and the

proceeds of further foreign borroHing another 0,6 billion marks, not a11o",-

lng for any possible loan from the International Bank. It is clear that t~e

government is no\" covering its expenditure from non-inflationary sources.

5. As a result of post\var budget deficits the public debt was increasing

rapidly until the end of 1947. It rose by some 32 billion marks in the

tHO years 1946 and 19/.j.7 and at 31 December 1947 reached 120 billion marks

($890 million), or about 35% of the national income at the 1948 level, com­

pared "ti th 12% before the ",ar. During January to September 1948 it increased

by only 4.2 billion '!larks ann -the internal debt actuftlly decreased slightly.

The foreign debt inc~eased bv 4.3 billion marks ($33 million). The estimated

foreign debt at the end of 1948 of $383 million is o~'led almost entirely

to S~"edent the United States and South American countries 'l:,ho granted

- 18 -

oredi ts for war-time aGsistanoe and postt-Tar reconstruction.

60 During 1946 and 1947 the banking system ,.,as extending reconstruc-

tion credits to the economy on a large scale and in 1947 became the c111ef

inflationary element. Bills discounted by the Bank of Finl~nd increased in

1947 by 5.7 billion to reach 34.5 billion marks. At the ~ame time the B~nk

rediscounted bills for the commercial banks to the extent of 3.5 billion

marks. About one third of gross investment (tt-To-fifths of net :1.nveatm('nt) \*-',8

financed out of bank credit advanced to inclustry and individuals by the :3ank

of Finland and credit institutions. The total credit outstanding increased

in 1947 from 37.5 billion marks to 49.8 billion marks. In consequence, notes

in circulation climbed steadily;

25.2 billion marks during 1947.

they increased from 18.2 billion marks to

Betueen the middle of 1947 p"nct February 19l j.8.

hot-rever, the BaD.k of Finland inorse.sed the discount rate "~..r stages from 4%

to 7-1/4% and total outstandinf, bank credit fell slightly in the second half

of 1948. 1'lholesale prices t/hich reached ten times the pre-t-lar level in July

this year, actually fell by about 1% between July and October.

7* In vie,;? of the satisfactory status of the bud,-?;et und bank credi t the

main financial problem is now the stabilization of \~ReS~ Although price

stability has been almost achieved and the cost of living index rose only 3 to

4;t .. in the previous three months. a demand vas made in November by the Centr~>l

Association of Trade Unions for a general "anticiI'atoryll increase of "rages

of the full 5.5%. This demRnd ,~s not t hO',-Tever I put fort"!ard ~:!ith much deter­

mination since its main purpose '"!as to preserve th!'; pan tion of th~ u..'1.ion

leadership againat communist competition. and an Elgreement ~'ras finally reached

that the demand ",auld be wi thd.ra~:.rn but that I in return t cert~dn 10'" '"!ages

llould be adjusted upwards.

So Although immediate demands he.ve thus been successfully resisted. the

Communists are ffi8-~ing as much political capital as uossible o~t of the situa-

- 19 -

tion and the question of a general increase in ,..rages vTill almost certp,inl~T

be raised again. To allo"1 such an increase before there is a substantial

increase in the national income "'ould mean sacrificin:;:; all that has been a;'!­

complished in the effort to stabilize prices. Furthermore. Nages nre L~5 to

50% of costs in the ex-port inclustry and ",rage increases 1:lOuld therefore m!',ke

almost :1mpossible the reduction in costs ~,'hich must go :band in hand 'Ii t~ the

fall in world prices of timber r.Jnd ,('lood products if devalua.tion of the mari{

is to be avoided. A slight devaluation bas been considered 1:ut this 1,\!Quld

increase import :9rices and thereby start a ne'" spiral of price and wage in­

creases. Subsidies to the export industry might have a similar effect via

the budget. Considerable economies. how'ever, should accrue 'rhen the pO\ver

shortage is eliminated in 1949, p,nd ",hen ne'''equipment is installed in the

factories; the best policy therefore seems to be to a~t~ii to stabilize

prices and t"'ages and e.Ildeavol:, b~r reducin,g other costs I to :?Ostl)one devalua­

tion at least until 1950. T"TO other problems must eventually be solved. Food

subsidies are gradually being reduced - they are elftimated to cost only 1.2

billion marks in 1949 compared with 4.0 billion marks in 1948 - but must be

eliminated if possible '"ithout provoking demands for \-rage increaMs. The

greatly improved harvest this year has undoubtedly assisted. through its

depressing effect on farm prices, and further improvement next year miFht

make elimination of subsidies possible. Unfortunately; farmers are disturbed

by the fall in pr:ices and the Agra.rie"n party is therefore pressing for removal

of food rationing, a step '''hieh night cause a rise in food prices sufficient

to revive 'I...rage demands. Removal of rent control, uhich keeps rents at pre­

l'!ar levels. is a much more difficult problem since rent accounted for 14)'& of

the family budget before the 1,Jar. The uide discrepancy betireen controlled

rents and present buildinG costs creates many anomalies for both workers end

employers J particularly ,·then firms provide housing. A solution of this

problem seems far distant.

- 20-

b. Ca~it~l Market

9. According to recent estimates gross investment in Finland r~s been

running at the extremely high level of over 30% of the national income. a:ld

at the same time reparattons deliveries have been absorbing some 10;6. Du.ring

the period of inflation the funds to finance these expenditures, anart from

foreign borrm-ling t partly out of inflationary budget deficits I'\,nd inflatior:",r~,"

bank credit, ,,,rhUe constantly rising prices held dmm consumption. T::itI, t:-,e

slot,ring do,m of the rise in prices during the first m,lf of this year t ad,:'!.i ....

tional credit t~S no longer available on the same scale, inflationary profits

'-Tere eliminated, and the capital me,rket became extremely tight, The string­

ency continued in the second half of the year but there is n01:1 some slight

easing of the sittk~tion. Total investment demand has been reduced by the

raising of the discount rate to 7-1/4%. Stabilization of prices has dis­

couraged mere speculation and stocks are being reduced from unnecessarily

high levels~ The present price difficulties of the export industry are tend­

ing to diminish timber cutting by forest Ol,mers which bas decreased clemand

for credits.

10. Furthermore, investment needs for reconstruction, IIcolonization" and

reparations are no'., diminishing and from no'''' on total investment d.emo,nd should

decrease and the emphasis should increasingly be placed on modernization of

existing equipment and addition of ne'l.'" ,.,Ood'·10rking processes. The extent of

such investment depends more on success in obtaining imported equipment and

therefore upon the extent of foreign credits.

11. Savings have recently tended to incr~se m1ing to grm1ing confidence

in the mark and the higher rate of interest, but redistribution of incooe in

favor of the lo,.,er income groups and higher levels of taxation mean a lOi-ler

level of voluntary saving than before the ,~r. Furthermore, sh.ortage of

dt.,ellings ,.,ill continue to stimulate investment of savings directly in ne,"

- 21-

houses. detracting from other forms of investment. The capital market is.

therefore. likely to improve only slo'l;rly.

3.20 There are no estimates of the extent and type of investments likely

'.. be undertaken in 1949 and subsequent years nor of the fund.s likel~! to "ce

available. It does seem probable. hm'lever. that the capital market uil1 re-

main tight. and internal expenditure required to supplement foreign cre~its

more difficult to obtain than in 1948. If, nO"lever t the foreign credits arc

used mainly for such investments as improvement of efficiency or addition of

ne\'l processes to existing plants '''hich do not require much complementary ex-

penditure. and if \lorking stocks are reduced 11Therever possible. it should be

possible t '.'1ith careful handling. to restrict eJq?ansion of bank crecUt to non-

inflationary dimensions.

III

FOREIGN TRADE AND BA.LAnCE OF PA'Yl:lE!:TTS .

a. Character of Pc~t\n:'"r Trade

1. The composition of Finnish post~~r trade and its distribution between

countries have been marked1~t different from pre'rc'.r but, a1 though certain

changes will be permanent. are slo,,,ly moving nearer to the old patterno Im-

ports have been concentrated more on food. fodder and fertilizers because of

Comnosition of Finnish Im~orts

1936-9 ;1.949 ~ 1m 1.9L!.8, .(Estimated}

p % % % Food 14 21 17 17 Agricultural Sq:rplies 4 6 7 5 Fuel 12 12 16 15 ~feta1 S t machinery and transportation

equipment 35 35 34 37 Other ra,., materials and can SUll1p t ion

goods ..l? 26 26 26 --100 100 100 100

22 -

the loss of territory and 10"1 yields in agriculture, and on ra,-r materials

and fuel for the ne", metal and engineering industries. Fl1.rthermore, reccn­

struction needs have emphasized imports of equipment and ra',! material for

capital goods. On the other hand, food bas disappearetl froll Finland's 9.X­

ports e,nd they 4:'we been more than ever confined to timber and ,·rooe. products

"Thlch are no,'1 90~b of all exports. Reparations deliveries. particl.llarl~r afte>r

1947, have been to a large extent composed of exports of the shipbuilding and

ne,,, metal and engineering industries and in size were 30~~ of commercial ex­

port s in 194·8.

2. There have been major changes in the volume of trade \.ri th '''arious

countries. There has been almost no trade "rith Germany, "!hich had formerly

supplied 20% of all imports. The United States had to supply cereals, meat

and fats in the first postwar years.. Cereals and fodd.er "rere bought from the

Soviet Union on a large scale after 1946. Argentina has also becooe ~tn im­

portant supplier of cereals and fodder. O\vinr to the need for quick delivery.

much coal, cotton and cotton yarn, metal products and equipment could only be

procured in the United States and, although some of this could be paid for

t'rith exports of new'sprint and cellulose, reconstruction needs llere so great

that the country had to seek extensive dollar credits to finance a continuous

dollar deficit. Trade ,.,i th Great Britain "Tas much lo'\,rer tban before the yar

O'l;!ing to that country's severe restrictions on the use of timber and "1000.

products, its inability to supply convertible currenCY. and the limited

possibilities of obtaining desired imports. 1'.'hereas trade with the Soviet

Union had been almost negligible before the ':ra.r, in 1948 it accounted for 16;b

of all exports (.35% if reparations are included) and some 14?h of all imports.

Similarly the United States sup:!>lied 13% of imports (24% in 1947) compared 1:lith

11% before the war. Great Britain t s ahare in Finnish eXports fell from 35.% to

29%, but her' share of imports rose from 16% to 25% (18% in 1947).

- 23 -

3. Progress in resuming trade on the pre-i-rar sce.le, a,s shoun in Ap:~cn-

dix Table 1 t has been remarkable. Fortunately. credits of $ 260 million

granted since the tolar by S'·leden. the United States. Argentina, Brazil and

Colombia enabled imports to expand ahead of exports and their volume reecned

68~ of pre-tmr in 1947 and an estimated 116% in 1948" Finland "Iao una'b:::'e to

export animal products but her timber and 1'lOod products "rere in great demand

for reconstruction by other European countries. and ~,rere fa,vored by shorta.7 8

of paper and ne'rsprint in the United States. Availability of timber and

prcduction levels in the Nood1.-rorking industry,thereforeiset the l,a,ce for ex­

ports; "commercial" exuorts. 8S distinct from reparations, reached 57~ of

pre-,·rar in 1947 and 71% in 1948. Reparations absorbed a large proportion of

Finland's export capaCity, including considerable quantities of the tradi­

tional timber and wooo. products exports in the early years. In 1948, despite

the halving of reparations after July, indemnities \-lere three-tenths as large

as "cammel'cial" exports and in 1949 it is estimated that theY"Till be about

one-six.th as large. If these indemni t:i,es to the S01>-iet t:~1!t)n are

added to "commercial" exports Finnish exports recovered in 1948 to 92% of

their pre-war volume in the old boundaries.

4. Export prices. being dependent mainly on prices of timber and ,,'ood

products. ,IIere mucn more variable than import prices before the \'Jar ~tnd it is,

therefore, difficult to choose any particular year as a basis for judging the

post'ffl.r terms of trade. In 1945 nnd 1946 the terms of trade vere a'bout the

same as in 1938, though about 10% '-lorse than in 1937 o'-ring to the exceptionally

high export prices obtained that year. In 1947. houever. export prices rose

by 40~, very much more than imDort prices; the terms of trade improved by 20%

and became 10 to 20% more favorable than in the immediate pre-war years.

Because of the fall in timber and '''ood products prices ':!hich began in 1948, the

terms of trade are no", falling off slightly

· I ..

- 24-

5. Due to higher prices, j'roceeds of exports recovered more rapic.:L-

than the volume in 1946-48. Thus "commercial" exports in 1948 are estinated

at $)80 million. a sum which, on the basis of movements in the general ,rioe

level. would have bought the same imports as in 1937/8. Including repara­

tions deliveries export~ were about $490 million. At the same ti~e Finland

bought imports, swollen by increased food requirements and reconstruction

needs, of $435 million. co~ared with 8360 million (at present prices) befo~e

the 't"l'ar. If reparations are added to "commercial" eX1)Orta, Finla.nd_1s thC1'-'

cnly cQuntr~ in Europe.which has consistently maintained an excess of e~tports

over imports in the last three years.

6. Finland I s post"Jar commercial balance of payments has been mainly in-

fluenced by the steadily grm·ring unfavorable "commercialll trade balance (see

Appendix Table 2). Iioreover the loss of 60~ of her mercl1ant marine reduced

her shipping earnings. and it "ms only in 1947 and 19L~8 that, ouing to high

post"1ar freight rates. and additions to tlle fleet * they retwned to pre-war

levels. The gro't",th of her foreign debt, from $138 million at t:le end of the

,~r to $)83 million by the end of 1948, also meant a steadily inGre~sing

burden of interest. Nevertheless in 1946 the current "commercial" -bala.'1ce of

pa.yments was approxiIuately balanced a,nd in 1947, o,dng to a stronp, recovery

in shipping earnings, the defiCit was leept dot'ffi to some $13 million. If, to

complete the picture, reparations and transfer of Germen assets to the Soviet

Union are included ($64 million in 1946 and $99 million in 1947). the total

ba.lance of payments sho",ed surpluses of $64 million e,nd $86 million in the

t'iTO years. During 1948 the II commercial ll payments deficit increased; a spurt

in imports from $345 million to ;p435 million accompanied by onlJT a modest

increase in the volume of "commercial" exports raised it to C39 million.

Reparations and other indemnities of $111 million, houever, if included , .. ould.

have again transformed the deficit into a surplus of $72 million.

- 25 -

7. The "commercial" payments defioi t m"s been financed by foreign

credits and the long term foreign debt incree,sed o;'"r some $60 million in 1946,

$33 million in 1947. and over $40 million in 1948, bringing the total 01J.t­

standing debt to $)8) million. Because S,.,eden supplied considerable lJar-tine

aid to Finland, and most post,mr credit has come from S,.,eden and the dollar

area (United States. Argentina. Brazil and Colombia), the bulk of this debt

is now in Swedish kroner ($197 million) and United States dollars ($172

million).

8. Finland was advancing short term credit to the rest of the 'Lforld. to

the extent of $20 million in 1946 and $)6 million in 1947 (see Appendix Table

)0 In one sense, therefore, the long term loans received ~p to the end of

1947 \1ere used partly to extend short-term credit to FinlBnd' s customers~

Considering reparations and transfer of German claims to the Soviet Union as

forns of foreign debt, the country in effect actually reduced its net debt to

the rest of the world by $22 million in 1946, over $101 million in 1947, and

$64 million in 1948. Nevertbeless, at the end of the latter year the out­

standing debt,including these obligations to the Sovi~t Union, amounted to

$.574 million.

9. Within the co~nercial balance of payments there r~s been a ster~in~

surplus and a dollar deficit.. In 1947 Finland :b..ad a paynents surplus of

some $)0 million with the sterling area. but a dollar pa~~ents deficit of

some $54 million. She took advantage of the short-lived convertibility of

26 -

l1!l1apA t s .l2..illar !l~+Pl1£e .of PP.ym.~

(in million U. S. dollars)

E:x;ports Imports Tra.de :sale.nce

Shipping Earnings Net Interest Pa.yments Net "Other Payments ll

Net IIInvisib1es li

Net :Balance

Loans Transferred ~ sterling Transferred from other currencies Transferred !Q other currencies

~

65.3 -98 .. 9

. -33,6

-10.2 - 209 - 7.1 -20.2

-53c8

Est" 1248.

5400 -82 9 3

....=,.28.:2

- 9.5 - 6.1 - .5.4

, -21.0

-49.3

~

40.9 2508 5.9

- 3.1 1.9

-20.0

1.1 Not allotfing for any credits from the International j3ank.

Est. 12.ti 44.0 34.3 1./

--2.~

•• •• ,.-

-12.L~

- 2.7 11

sterling to the extent of about $26 million and covered the remainder of the

dollar deficit '''ith medi1)m term borrot'ring from the United States, :Brazil and

Colombia. In 191}8, though she obtained $10 million more tl".an in 1947 in c"ollar

loans. (United States, Argentina, Colombia) this ~as offset by a fall of $11

million in dollar exports, a,nd the non-convertibility of sterling. Finland

has been forced to make her purchases wherever she has had funds. :By increas-

ing her sterling purchases of commodities and freights from $21 million in

1947 to $33 million in 1948 she achieved an approximate balance in sterling

payments. By reducing purcr.ases of commodites and freights in the dollar area.

from $110 million to $95 million she has been able to rec.uce the current dollar

deficit to some $49 million compared with $54 million in 1947. It should be

noted, however. that Finland has also had to pay dollars to certain European

countries in re~ect of trade deficits. such as $5 million for coal and coke

- 27-

imports from Poland (in January-September 191.!-8 the trade defie! t ~'Ti th Poland

"TaS nearly $17 million). During the year 1948 total dollar credits from the

United States, Argentina and Colombia provided some $51 million, abo;lt tte

same amount as the dollar deficit, but at the same time Finland made dollar

payments of some $20 million to countries outside the dollar area by clra"!i:lg

dmm her dollar reserves.

IV

~lHE FUTURE Ou"1'LOOK

1. On the asgumption t~~t developments in the international politic~l

situation do not interfere materially with internal political stability or

economic develoTlment, it is possible to make an appraisal of Finland's posi­

tion immediately after reparations deliveries have been completed.

2. It is important that the present efforts to stabilize prices and

"rages should succeed in vieu of the G.mlfll"Jard tendency of Horld timber and ,"Tood

products prices. If it does, there is a good chance that for the next ye~r

or so operating economies \'1111 enable Finnish exporters to compete in "!orld

markets ,.,i thout sacrificing their profit margins. ,,,hic11 are probably nOt'l just

adequate. It might then be possible to postpone devaluation tmtil such time

as it w'ould not I as at present, set off another inflationary SlJiral and nullif;T

the financial achievements of 1948. In this connection I the Il.rE' have agreed

to postpone the fixing of an agreed par value until the end of 1948. It is

essential, however, that the operating economies should be made in advance of

price declines I and, accordingly t rapid complet ion of thE:! electric pm'rer

.,. 28-

program and installation of nell" equipment to cut costs in h8,ndling and in

manufacturing processes is essential; Finland's need for foreign credits is

therefore urgent.

3. Clearly, Finland Is position in 1953 "Till be influenced by t1:e extent

of the foreign loans she obtains in the next four years to incre8_se t:le scc.Ie

and effectiveness of her productive apparatus. The Finnish government has

assumed in its calculations that $100 million of ne,'! dollt>.r eratH ts (includ­

ing the recent Export-Import Bank loan of $10 million) ,,!ill be obtained in the

years 1949-1952. Since Finland is not eliFible for aid under EGA such credits

could only come to any extent from the Eximbank. the IHF, ancl the I:BF.D. :1hile

the funds required lJUl.y be over esti:nated tit is clear that. unless ~.:t consid­

erable proportion is obtaineo., the economy "rill develo:? less rapidly and the

level of imports and standard of living in 1953 ~,rill be much reduced.

4. Hany conflicting tendencies affect exports and imports.. O':rinp: to loss

of territory. the best that can -oe achieved by 1953 is to reduce cere8,ls. feed

and fertilizer im:r:>orts to pre-"lar levels.. It ~."ill not be possible, h01,rever.

to resume e::qJorts of animal prod'~cts. Utilization of present u.ymsed cp_pacit;T

in the timber and ,,,ood, productS' ind1lstr~T (see Appendi;x: Table l~,) ~;'ould inc::-ease

production some 30% and by 1952 the program of modernization iiill 118.ve further

increased output and added new processes to the industrY. A conai.ierable

expansion in tlle volume of these exports ShO;llC_. therefore, be possible.

Little additional timber and HOod products e:x,orts except prefabricated hoLtses

(or the timber equivalent) '''ill t no,,,ever, be available by virtue of completion

of indemnity deliveries. Exports of tinter and Hood prod.ucts are expected to

increase in volume by about one-third above 1948 levels but ':lil1 sti11 be

about 10% less than in 1938.

n 29 -

5. By the year 1953 iIllI'orts of equipment and materials for reconstro:tc-

tion lITill be greatly reduced. Imyorts of fuel and rrnl rn.aterials for the

metals and engineering industry t nm'l largely devoted to reparations, vill

decline to some extent. but if the industry is to make its :ul1 cont~ibution

to Finland f s balance of payments, they \"lill still be greater than before the

"18.1'. Although \"lhen converted this industry can produce a considerable pro­

portion of manufactured prowlcts formerly imported, not all the present cap­

acity Can be absorbed and it ':lil1 be necessary to develop exports. The Soviet

Union, for instance, might be interested in continuing her orders on a com­

mercial basis, particularly if she continues to supply Finland \"11 th cereals.

Though the ne';T industry '-'ill undoubtedly contribute to the "oalance of pay­

ments it would be unwise to count on it to the full extent of present repara­

tions deliveries.

6. The vi tal question affect ing the future bala .... lce of trac.e is the

course of import and export p~ices. However, there is ~~doubtedly a large

pent-up demand for timber, pulp and paper in Europe owing to the much greater

deficit in housing than 'before the war, and restrictions on net·rsprint and

paper consumption. The ti:::lber resources of e:l{ ... Finnish a.nd ex-Polish terri­

tories no .. , transferred to the USSR (formerly exported to i1estern European

countries) ~rill probably be required to meet the Soviet Union t S Oi,m expE'.nded

needs. Furthermore, timber and ~"ood proctucts 8~re nm-, being purchased from

Canada on a large scale "1i th ECA dollars, a.nd in eliminating its dollar defic­

it i1estern Europe ''fill probably try to replace part of its present imports

from the tiTestern Hemisphere by Finnish products, providing the pricesof the

latter are competitive. It 't101:1.1d seem reasonable, therefore, to as::rU.l!le that

Finland can sell all she Ca.~ supnly, but that, in order to keep 11er prices

competitive she will eventually be forced to devalue the mark, and tlat the

terms of trade, though somet'rrat better than before the '.'rar, 11ill be less

- 30-

favorable t~~ at present.

7. Naturally. prediction of the value of exports and imports after

1952 involves estimates of each of the above changes flnd. iSt therefore~ su~},~ect

to '''ide error. Hot'lever t the Finnish Government calculates the,t, aEouing

for some "Torsening of the terms of trade, by 1953 commercial exports 'T;;'11

have increased by 1310 tThile imports can be reduced very slightly from 19'·~8

levels (see AppenCl.ix Table 2). Reparations, hot'lever, \1,1,11 have been com-plated,

Instead, therefore, of the present sur-plus of total e:tports (including repara­

tions) over imports of $56 million, there will be an approximate balance in

commercial trade. Turning to the "invisible" side of the balance of pay­

ments, ti.IO conflicting factors are operating. In the first 'Dlace the foreign

debt \,rill continue to rise and, therefore, net interest pe,yments ,·1111 grm'T

rapidly from the $8 million in 1948 to $15 million. On the other lm.nd t:i.le

Finnish merchant fleet is being reconstructed as rapid.ly as possible nnd it

is estimated that its net earnings will increase from $26 million in 1948 to

$39 million. N'et income from invisibles ':rill thus reach $23 million comppred

,·lith only $16 million in 1948. The complete balance of J?a.~ments. therefore t

mainly becatJ.se of the less favorable terms of trade. is e:::pectect b;;r 1953 to

yield an overall surplus of some $23 million compared ";i th the s11rplus of

$72 million (including reparations) in 19L~8.

8. About $15 million ':rould be sufficient to provide for repa;j'ment of

foreign debt falling due in 1953, excluding short term cotton credl ta. The

fact that government estimates of the balance of payments surplus ~'Jould be

sufficient to meet contractual e.mortization tsyments is no accident, since Finlax

approaches its balance of payoents :problem from the point of vie,·, of giving

absolute priority to service of foreign debt. Imports are assumed to be

restricted by import 1icensine and exc~~ge control as far as is required to

achieve a balance in the balance of payments. Although. of course, restric-

- 31 -

tion of imports reaches a limit ,-,hen it begins to affect the assumed eXTor:s

or involves a politically impossible restriction of the standard of living,

it appears safe to say that, in 19.53. after the reparations period is over

and the reconstruc tion program completed, ser~ricing of foreign de"ht ,,'il1 be

feasible and '"ill not impose hardship on the Finnish popull'!.tion. In f~.ct I

l·.7ith imports of $430 million compared ,·,ith $345 million (at 1948 pricM)

before the 'var [md more manufactured goods produced at home, the mass of the

"lorking population should enjoy a higher than pre-'1ar standa.rd of living.

9. :By 1953 the total foreign debt tdll, if $100 million is borrol;led in

next four years, he,ve reached some $L~80 million allolTing for contractual

amortization of existing debt. It is clear that, if by this date. the bal-

ance of payments is yielding a surplus of $23 million per annum " .iT repay-

ment of principe,l, there should follot·, a period, simil,-"r to that in the

1930 1s, ~'rhen the existing foreign debt could be rapidly paid off. It "lCuld

not be too much, in fa.ct, to expect H.at all except the public debt to S"reden

(not amortized until 1984) 1.·Tould largely disappear by 1975. This does l'ot

teJce account of any additional debt \"Ihich mignt be incurred. after 1952, but

presumably any such debt \'1ould be for productive purposes and ~·rould save or

earn the foreign exchange for its O"Tn servicing.

10.. There is, however, a concentration of repaymel~t of the debt incut'red

in United States dollars during the years 1954 to 1958? acoentua~ed in 1954

by {'ommencement of amortization of the S,,,edisn debt;. Principal pa.yments in

dollars reach a peak of about $24 million in 1954 (excluding short term

cotton credits)and bring the total foreign debt service, in that year, up to

some $48 million, of "Ihieh some $35 million '''ill be in United States dollars.

Some $13 million is required for amortization of Export-Import Bank lo~ns in

that year. Some difficulties might be experienced, therefore, in these

years, but in vie,1)' of the f?_ct tba. t lone-run prospect s are fa.vorable, and

... J2-

debt service payments fall from $39 million in 1958 to $]0 million in 1959.

it should not prove difficult to effect some arrangement, such as short term

borrO\'ling. 't'lhereby some repayment of principl'l,l can be deferred untU aft'Jr

1958.

11. As regards the dollar deficit. e~::amination shouo it to be largely

temporary PJld due to Finland's heavy and pressing needs for reconstruction,com­

bined ''lith the present dislocation of the European econo!!l~·. Indeed, ?inl!?ncl

seems to be one of the few' countries in Europe '1111ch can look for\1ard to a

dollar surplus on current account (excluding contractual emortization).

Appendix Table 6, shm-ring her dollar trade (including that i'lith Poland) in 1948,

shows that many products, such as coal, ~~chinery, motor vehicles, and vessels,

have been obtained from the United States o':ring to the late delivery dates

quoted in Europe. 11hile it is ;rue that c.ollars i,,,ill still be requirod for

imports of petroleum, some specialized machinery, and possibly cotton and

tobacco from the United States, it should be pos~ible in futt~e to obtain bread

grains, fodd,ar Md some petroleum commercially from Russia, nnd all coal and.

manufaotured products in ~~rope, especially if there is economic recover7 in

Germany. It should :::dso be possible to purchase coffee from S012th America lrit11

sterling. At the same time, exports of cellulose and pa?er to tte United.

States provide a steady dollar revenue ,'!hich "las some $.46 million in 1948 and

might even be increased since the market on the eastern seaboard is favorable

for Finnish exports. Deliver;:r prospects for certain manu.factured equipment

are already improving in the United Kingdom and other European countries and by

1953 should be more normal. It ~'Till be a natTl.l'al development if Finlrncl supplie

timber to replace the present dollar purchases of these countries vrhile they

supply coa.l and manu.factured products to replace Finland I s current rrxrchatles

in the dollar area. Partial convertibility of sterling and recovery of the

Bri tish economy 1:Tould increase Fin19,nd Is sUP:91y of currency for overseas pur-

- 33 -

chases t especially textile raN' materials and rubber. Finland f s dollar pt.l>y ...

ments to Poland for coal and coke are completely te~porary and diminishinG;

it lms recently agreed that in 1949 only $2 million ,'!ould be :D~,id in o.ollnrs

and the remainder in sterling.

12. As at present envisaged, ho,V'ever. d.ebt service in dollars in the r.Gid-

1950 113. absorbing, as it does, up to $35 million a year, plus certain othor

minimum dollar expenditure. may mean a continued dollar deficit in the years

1954 to 1957 t even though it ~'rould !,robably be small in magnitude. If. hm'T­

ever. Finland could convert even a small part of her sterling export proceeds

into dollars by this time,the problem ",'culd be eliminated. A trade surplus

,"lith Sweden to service the S'1Tedish debt. requiring some $11 million per

annum, might not be possible because of the difficulty of exporting to a oimi­

lar economy, but the sterling surplus 1,Jould probably solve the problem nlso

13. To conclude this examination of Finlandfe economic prospects, it

should be mentioned that her credit Northiness is en,banced by the past record

of the Finnish people and government. Rer debt record is excellent: behleen

1931 end 1939 she paid off $206 million of foreign debt ,.,hich l-Tould corresr,ond

to some $500 million at present prices; and, by the end of 1952, she Nill,

in the first eight post"Tar years. have pnid off Peace Treaty obligations to

the SOViet Union t valued at nearly $6.50 million at present prices t '"hile

borro,dng from abroad (net) only to the extent of $;40 million.

APPENDIX I

STATISTICAL APPENDIX

Table 1. ~ost'mr Deve1Qp!B!lllL9L Fi~1!:nd_U~r~.trl'L.~.r§.de

Price Indices

l2J.Z l.2.:ll2. 1246 1947 1948

Import Prices 115 100 660 780 900 Export Frices 132 100 670 9,50 1070 Internal Prices 107 100 605 730 890

,Volume Indices

Commercial Imports (CIF) 103 100 37 68 116

Commercial Exports (FOB) 116 100 42 57 71 Reparations and Transfers of

German Assets (FOB)** 16 18 21 Total Exports (FOB) 116 100 58 75 92

Value at 19~8 Price1LlJn milJ!on U,S. Dollars)

Commercial Imports (CIF) 375* 380* 245 370 435 .. ~(.. '. ;

Commercial Exports (FOB) 385* 375* 230 340 380 Reparations and Transfer of

German Assets (FOB) 88 107 111 Total Exports (FOB) 385* 375* 318 447 491

Total Trade Balance 10 5 73 77 56

* Value in 1937-38 dollars corrected for changes in ,-rarld prices since that date.

** Expressed as percentage of volume of Coomercial Exports in 1938

Table 2. Finl::t.nd I s Current Balance of Pa.ilEents , . (In Hillion U. S. Dollars at Current Prices)

Est. Est. Est .. 1236-38- 1946 ~ 1248 l.2!±2. lli1

Commercial Exports (FOB) 180 170 317 380 390 430 Commercial Imports (CIF) -172 -lZ2. -ill -41~ _L~25 _Lv:l1J

COIllOercial Trade Balance 8 - 9 - 28 - 5.5 - 35 -.

Shipping Earninfs 13 10 22 26 26 39 Net Interest Payments ... 4 - 6 - 9 - 8 ..... 8 -1.5 Net 10ther"Payments _2_ .....-L -Z. - 2 -=-..£ --=--.!

IIInvisible Balance lf 11 2 --.l2. 16 16 21

Net Commercial Balance 19 -13 -39 -19 23 --Transfer of German Assets - 22 23 1 Reparations 64 77 88 64

Net Balance (Total) J.2. • 6,u. 86 -I?:. 46, -U

Note: (-) indicates t!l. debit item.

Table).,

Movements of Capital (In millions of U.S. dollars Uncorrected for price changes)

Estimated Ei1J;cess of lending over borrot,ring Out star.c.ing

Est. Debe at 1936-38 1942 194Z 1948 ~1.12$b·8

Gol2. -3.0 6.0

Snort-Term Cap i t@:l

(a) Transfer of German Assets 22.4 23,,0 1,,0 (b) Other 5.4 20.1 35.6 5.0 )1.,0 (c) Total 5.4 20.1 58.0 18.0 32,,0

#ong-~erm Oapita\

(a) Repara.tions 64.7 76 .. 8 88.0 159,,0 (b) Other 15.6 -59.7 -33 0 4 -42.0 383 .. 0 (c) Total 15.6 5.0 43.4 46.0 542,,0

Grand Tot@sl 21.0 22.1 101.4 64.0 574.0

Note: (-) indicates an excess of borro'\lring over lending.

Finnish Timber and 1:1000 Products Production and E2£I2orts

1938 1248 1242 1953 E~'Oorts Oap- Pro- Ex-* Repara- Pro- Ex- Ex-

acity duction Ports tion§ duction port~ lLorts Pitprops (thous.

mJ) 7,000 1.917 180 1.500 Sa.''Ill Timber ( thous. stds) 852 1,000 750 437 24 770 420

P1~lood{thous.m3) 213 235 208 167 12 209 191 200 Mechanical Pulp

(thous. tons) 244 1,000 570 82 13 615 175 140 Chemical Pul) ( thous. tons 1.050 1,200 1,050 663 36 1.115 815 800

Paper Board (thoue. tons) 101 145 143 108 5 145 95 100

Ne,,,sprlnt (thoue. ) tons) ) 476 650 538 404 7 560 430 500

Other Paper II " ) Prefab. Houses 156 2,575 800

th.tons houses th.m2

(*) October 1947 to September 1948.

Table 5.

Long Term Foreign De2t and Debt Service ( in million U. S. dol1a.rs)

(Assuming all ~resent credits are fully utilized and $90 million borrot-led at 4-1/2% during the years 1949-1952)

(u) Outstanding Long Term Debt

lit

u.S. dollars Pounds Sterling S-v.redish Oro\-ms French Franca

Total

Approximate estimates.

Service of Debt in 1954

Interest

On Present Loans On N elf Loan s

Total

On Present Loans On Net., Loans

Grand Total

125 18

197 -..£

342

6.4 .J±.&** 10.4

22.4 2.4

24.8

35.2

172 12

197 ~

383

--5.9

5.0

5.0

10.9

19ta1 ~.S. ~ollarr and Suea ish Orol-mt

27. 4 2.4

29.8

,46.1

*. Aasu.ming ne,,, loans of $90 million are repayable in 15 years.-

Table 6. Finland f s Dollar Tra§.LJanuarz .. Se;p\.ember 1948

Princinal E~orte

$ Uillion Poland

''looden houses and barracks 3.45*

United Statstl

Hechanical pulp Cellulose Paper

0.76 18.84 12.21

PrincinaJ, Imnor·~J?

Poland

Coal and coke

United StRt!!!1

Coal and coke Petroleum Rubber & rubber products Cotton Cotton yarn ~nd cloth Iron and metal products Hachinery and apparatus ::lee. machinery Hotor vehicles Vessels To1:Jacco Chemicals and drugs Rolling stock

,Cyracao

Petroleum

Argenting

'Bread grains Fodder Hides and leather

J3raz:i"l

Coffee

Qolombia

Coffee

Sugar

Fodder

$ Ian ion -.....---.. __ .. -

22.1'2*

1.79 1.[0 0.98 5.21 0.7F: 4.66 5.54 1.00 1.21 1.45 0.66 1.09 0.33

4.44 2.21 1.19

1.69

1.17

2.)0

1.26

'" Only $.5 million \,lill be paid to Poland in U. S. dollars and the remainder in sterling to cover the trade deficit in the year 1948.

Finland' s IExte~na;L Debt tp.sto!:z

by James J. Lynch

The Republic of Finland has had an excellent payment record \-lith no defaults on its external debt from the time of its independence in 1917 un-til 1941, 'Hhen conditions of Horld lIar II brought default on its ste:::-l­ing issues. On November 1, 1943, it suspended interest and amortization payuents on the Swedish external issues. :Payments on the sterling iSSUE>s were resuraed on November 1, 1945 and arrangements for payrllent have been made on the SWedish debts, the interest to start at 3% in 1950 and amortization payments in 1954, ending in 1973 on private debts ~~d 1983 on Swedish government loans.

Outstanding in Finland's financial history 11a7e been the con-t.buous payments, totalling ~~7,969,072, on its Horld Har I deb-t.s ($21,695,055)" It is the only country '\:Jith Horld Har I debts outstanding '''hich$ since the 19.31 Noratorium, has consistently paid in full its req..nred pay.nents, though it must be borne in mind that the loan was for relief needs.

Of the nine dollar bonds issued in New York by the Re~ublic, totalling ~97 million (including refunding), \-/11ic11 '\tlere mainly for public works, hydroelectric, railroad and harbor deve~opnent, all have been re­tired, excep~1i three on which ~9 million was outstanding as of the end of 1947. These three issues have maturity dates of 1960, 1961 and 19630

In 19.30 Finland had outstanding some ()200 million of external debt but, through a consistent policy of debt retiroment, the debt was re­duced to about 012 million by 1939. Due to conditions arising from Horld Har II, the external debt of Finland has increased steadily. Since the cessation of hostilities in Finland in September 1944 inter-govermnontal credit of ~~260,253,OOO has been granted of '''hich the United States 10a.l1ed ~p126,314,OOO and Sweden $83 t 139,OOO ..

It is estimated that, by early 1949, the outstanding debt of Finlru:d (excluding reparations to the Soviet Union and desired new loans o~ 090,000,000) \1ill be in the amount of ~392 million" Amortization payments in 1949 will amount to aroU11d $11 million and interest payments to $7 million, a total of ~p18 million. Total service payments are expected to increase to ~\25 million by 1950,. remain at that level through 1951 -1953, rise to ~;1+1 mllion in 1954, the peak payment year, thereafter declining gradually to around f,al million by 1958 and then dropping sharply to $21 million in 1959 and then to $12 million in the period 1966 through 1973.

Finland contemplates borrowing $90 million, mainly in U.S. dollars, between 1949 and 1952. Service of this amount would call for additional payments of $lel million in 1949 rising to U.S. $8.4 r~llion in 1956, in t-1hieh year 8L1ortization payments on the ",hole (..90 million would come into effect. '.Caking account of this additional debt, total service pa;yments would reach a peale of 047.7 million in 1954, decline to t39 million in 1958, drop sharply to $30 million in 1959 and then decline gradually to ~~12 million in 1973, uhen only ~78 million of debt would be outstanding.

APPENDIX II- Contin~ed

The major portion of the service payments are on the "110 million Swedish kroner debt (~197 million), uhich calls for interest and a..."!lor~i­zation payments equivalent to 05.9 million in 1950, increasing to ~~11 million in 1951;. when amortization payments start.c lIext in importance are Export-Import Bank loans vlhich, it is estimated,i-ull be outstanding in the amount of about 095 million by early 1949.

In addition to the sizeable external debt payments, there are the remaining reparation payments to Russia discussed elseivhere in this re­port.

APPENDIX II - 'raole A

F:.!nland i s Total External Debt, Interest and Arrort.iEi!.onPayments

(in thousands of U.S. dolla,rs)

~ota1 Debt NO\IT Au.thori2ed Loans Contemplated Ii Grand Total Prin- Prin- Inte- Prin- Prin- Inte- prin- prin- Inte-

Year ci-pal cipnl rest Total cipal cipal rest Total cipal cipal rest Total oUt- Pay- Pay- Pay- Out- pay- Pay- Pay- Out- Pay- pay- pay-

standing mente ments menta standing ments menta mente standing mente menta ments Jan. 1 Jan. 1 Jan. 1

1949 391,827 lOv871 6,994 17.865 25,000 1.;L25 1,125 416,827 10,871 8,119 18,990 1950 399,122 11,471 13~805 2.5,276 50iOOO 2,250 2,250 449,122 ll t 471 16,055 27.526 1951 388,799 11,322 13~874 25,196 70.000 3,150 3,150 458,799 11,322 17,024 28,346 1952 384,610 9,740 13,651 23,391 90,000 4,050 4~050 474,610 9,740 17~701 21~441 195> 374,485 13,805 13,205 27,010 90,000 1,203 4,050 5,253 464~485 15~OO8 17,255 32,263 1954 360,332 28 9 663 12,536 41,199 88,797 2~ lj,60 '3,996 6,456 4h9,029 31,123 16,532 47,655 1955 331,226 25~767 11,441 37,208 86.337 3,533 3,885 7,418 417,563 29.300 15,326 44,626 1956 304,221 25,756 10,442 36,198 82 t 805 4,654 3,726 8,380 387,026 30,410 14,168 44,578 1957 279,301 26,118 9,408 35,526 78,106 4,863 3.517 8.380 357.407 30,981 12,925 43,906 1958 253,004 22,500 8 ,1 357 30,857 73,287 5,082 3,298 8,380 326,291 27.582 11,655 39.237 1959 230,351 13,862 7,443 21,305 68,205 5,311 3,069 8~380 298,556 19,173 10,512 29~685 1960 216,406 14,168 6,738 20.906 62,894 5,550 2.830 8,380 279,300 19,718 9.568 29,286 1961 201,163 11,945 6.089 18,304 57~344 5.800 2,580 8.380 258,507 17,745 8,669 26,414 1962 190,219 12,137 5,717 17.854 51,544 6,061 2,319 8,380 241,763 18,198 8,036 26,234 196:; 178,081 12,256 5,339 17.595 45~483 6,334 2,046 8,380 223,564 18,590 7.385 25,975 1964 170,038 11,997 4,958 16,955 39,150 6,619 1,761 8,380 209.188 18,616 6,719 25,335 :1,965 153,827 12,165 1+.584 16,749 321/531 6,916 1,464 8,380 ' 186,358 19~081 6,048 25,129 1966 141~654 8.376 4.205 12,581 25~615 71'227 1,153 8~380 167,269 15,603 5~358 20,961 1967 133,286 8.599. 3,959 12,558 18.387 7~553 827 8,380 151,673 16,152 4,786 20,938 1968 124,687 8,82~ 3.707 12,535 10,834 5,565 487 6,052 135,521 14,393 4,194 18 i 587 1969 115t857 9,064 3,447 12,511 5,270 3,488 237 3,725 121,129 12,552 3,684 16,236 1970 106,785 9.306 3,181 12,487 1,782 1,782 80 1,862 108,567 11,088 3,261 14,)49 1971 107,486 9~557 2~906 12~463 107,486 9~557 2,906 12,463 1972 87,932 9,815 2,624 12~439 87~932 9~815 2~624 12,439 1973 78,117 10,085 2.336 12,421 78,117 10,085 2,336 12,421

If Loans of $90,000,000 requested of I.~.R.D. and Export-Import ~ank.

APPENDIX II - Table E

Debt S(:rv~ce Reguirements of Finlanci in Various Currencies

(in thousancis of U.S. dollars)

----~----Total Payments - All Currencies Payments in U.S. Dollars

Expressed in Uo :39 Dollar_s_ Payments payments Payments Year On Debt Now On Debt Now Autho- On Debt Now On Loans To in in in Ar-

Authorized rized Plus LcanlJ Authorized Ee GI/nted Total Sterling S1;'edish gentine To :Be Granted 1 Kroner Pesos

1949 17,865 18.990 13.484 1,125 14,609 3,975 406 1950 25.276 27,526 17,125 2.250 19~3'75 1~617 5~921 613 1951 25,196 28,346 17,106 3,150 20,256 1,556 5,921 613 1952 2),)91 270 441 15,403 4,050 19,453 1,455 50921 612 1953 27,010 32.263 151549 5,253 20,802 1,459 5,921 4.081 1954 41,199 47,655 241/863 6,456 31,a19 1,411 lo,964 960 1955 37,208 44~626 21,866 7,418 29 \l 284 541 10.964 3,837 1956 36,198 44,578 21,310 8,380 29,690 209 10,964 3,715 :,),957 35.526 43,906 20,761 8~380 29,141 209 10~964 3.592 1958 30,857 39.237 19.684 8~380 28,064 209 10,964 1959 21,305 29,685 10,132 8~380 18,512 209 10,964 1960 20.906 29.286 9,757 8,380 18\/137 185 10,964 l,96i 18~304 26,414 7,070 8,380 15g450 10,964 1962 17,854 26~234 6~890 8,380 15~270 10~964 196:; 17,595 25.975 6~631 8~380 15p011 10,964 1964 16,955 25~335 5~991 8,380 14,371 10~964 1965 16 i 749 25,129 5,785 8,380 14,165 10,964 1966 12,581 20,961 1,617 8,380 9~997 10,964 1967 12~558 20.,938 1.594 8,380 9~974 10,964 1968 12~535 18?587 1,571 6,052 7,623 10~964 1969 12,511 16,236 1,547 3~725 5~272 10~964 1970 12,487 14,349 1,523 1,862 ),)85 10,964 1971 12,463 .12~463 1,499 1~499 10~964 1972 12,439 12,439 1,475 1~475 10.964 1973 12,421 12,421 1,452 1)452 10,969

lJ Possible loans of $90,000,000 to be granted by I.E.R.D. and Export-Import Bank.

Year

1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973

APPENDIX II - Table C

Finlpnd l s External Debt, Interest and Amortization payments ~ in~!uding schedu_~~~ payment~on World War I.~ebt)

(in thousands of dollars, except \'!here other,,;ise ind.icated)

~ 1.·1:2:at!21~~hAIdDeii:t "J1 United. states Debt

:L!lter,~~e~etit .'fL Principal Principal

Out- Principal Interest Total Out- Principal Interest standing payments Payments payments standin~ Payments payments Jan. 1

, J8n. 1 8,718 866 523 1;389 144;143 6~619 3;865 7~675 924 465 1~389 143,638 9~398 3.868 6~562 987 402 1,389 134~ 2lJ{) 8~268 3~926 5.374 862 336 1~198 125~.972 6,701 3,754 4,315 489 275 '764 119,271 7,428 3~577 3t724 527 237 764 111, 843 13,376 J~321 3,090 568 196 764 98,468 10,935 2,933 2,401 612 152 764 86,534 10,939 2,622 1 t 661 659 105 764 76,595 10,943 2,2.90

864 436 54 490 65,653 10,728 1,957 320 132 19 151 54,924 5,732 1,659 154 124 9 133 49,192 5~737 1~491~

43~455 5~742 1~328 37~.714 5~748 1,142 31,966 5.675 956 30,504 5.219 772 21,071 5,183 602 15.880 1.185 432 14~703 1,192 402 13,511 .1,199 372 12~312 1,206 341 11,106 1,213 )10 9,893 1,220 279 8,673 1,228 247 7.445 1,236 216

Total payments

10~484 13~266 12~194 10,455 11t 005 16,697 13,868 l3~561 13~233 12.685 7,391 7~231 7~070 6,890 6,631 51'991 5,785 1,617 1~594 1,571 1,547 1,523 1,499 1,475 1,452

11 It was assumed that both dollar and sterling bonds would be bought in for sinking fund at an average price of 80. Z! It was assumed that all credits now authorized but unutilized would be drawn down before their expiration date.

APPENDIX II - Table C - Pa/?;e 2

... ------.-±J Sterling ~1?t '''-'.'---' Colo~bia and Bra?il Thousl':l.nd.s of P 01.111QS Thcusanc.s of Dollars Due in U,S" Dollars

Pril1.- Prin- Int~- Prin- Prin- Inte- Prin- Prin- Inte-Year cipal cipal rest TQt:'tl cipal cipal rest Total cipal cipal rest Total

Out- Pay- Pay- Pay- Out- Pay- Pay- Pay- Out- Pay- Pay_ Pay-standing ments ments mente I3tanding ments menta menta atan.ding menta ments menta Jan. 1 Jan. 1 Jan. 1

1949 .3,084 840 146 986 12~432 3r 386 589 3,975 130003 1~451 1~451 1950 2,184 285 116 401 8,804 1,149 468 1~617 15~000 - 2,150 2~150 1951 1,840 288 98 386 7~417 1~161 '195 1,556 15~OOO 906 2~137 3~043 1952 1.492 282 79 ,61 6~015 1~137 318 1~455 14~O94 1~040 2~069 ;3,109 1953 1,151 301 61 362 4,640 1,213 246 1~459 13~154 1~175 1,964" 3,139 1954 789 309 41 350 3~181 1,246 165 1,lnl 11,879 1.311 1,823 3,~134 1955 ' 409 114- 20 134 1,649 460 81 541 10~568 1,449 1,645 31094 1956 266 39 13 52 1,072 157 52 209 9,118 1~538 1,435 2,973 1957 218 41 11 52 879 165 44 209 7,580 1,679 1,201 2~880 1958 167 44 8 52 673 177 32 209 5,901 1,822 931 2~753 1959 112 46 6 52 451 185 24 209 4,079 1,966 624 2,590 1960 54 43 3 46 218 173 12 185 2,112 2,112 281 2,393

Argentina Due in Argentine Peso_s in U~S. Dollars _._._ ....... _ .. _- Total

(thousands of ~esos 1949 49.719 1,740 1,740 4,575 160 160 16,176 566

. 566

1950 75',000 2,625 2,625 9,,150 320 320 26,650 933 933 1951 75.000 2,625 2,625 13,725 480 480 31t 225 1,093 1,093 1952 75;000 2,625 2,625 18,300 641 641 35,800 1,25.3 1,253 1953 75.000 15,000 2~494 17,494 18,300 641 . 641 .351'800 3t500 1,222 4~722 1954 60;000 15,000 1.969 16,969 18.300 3,660 608 4~268 .32.300 7~160 1,068 8~228 1955 45,000 15,000 1,444 16,444 14,640 3,660 480 4,140 25~140 7~160 817 7.977 1956 ,30,000 15;000 919 15,919 10~980 3~660 352 4.012 17,980 7,160 567 7.727 1957 15,000 15,000 394 15.394 7,320 .3,660 224 ),884 10,820 7,160 .316 7,476 1958 3,660 ),660 96 3,756 3,660 3,660 96 3,756

:J This credit was granted in July 1948 and terms are not available, so it ,,,as assumed that they \,lould be similar to the 75,000,000 peso credit dated March 1947.

APPhl.'J.DIX II - :i.'aOle C - .t:.EifO tl ...2.

-~>'"'''- .. --.-"----.. ----~-~------.------

____ . _______________________ ~1tTed~1'l,_. _______________ - Loans To Be Gr~.nted !±I __ Thqusands..2J S\'Jcdish Kroner Tho~snnd.8 of Do11rtrs Prin- Prin- Inte- Prin- ?rin- Inte- Prin- Prin- Inte-

Year ci1'a1 ci1'a1 rest Total cipa1 ci1'a1 rest Total cipa1 ci1'a1 rest Total Out .... pay- Pay.~ Pay- Out- Pay- pay- Pa.y- Out- pay- pay- PRY-

st.anding mente ments ments stand~ ments menta menta standing ___ ments mente mente Jan. 1 Jan. 1 Jan. 1

1949 710,478 197.355 25,000 1,125 1,125 1950 710,478 21,314 21.314 197.355 5,921 5,921 50.,000 2,250 2,250 1951 710,478 21.314 21,314 197.355 5,921 51921 70,000 ),150 3,150 1952 710,478 21.314 21,314 197~355 5,921 5.921 90,000 4,050 4,050 1953- 710,478 21,314 21,314 197 .. a05 5,921 5,921 90.000 I t 203 4,0.50 5,253 1954 710,478 18,158 21.314 39~472 197.305 5,.OL~3- 5,921 10,964 88~797 2,460 '3~996 6,,456 1955 692,320 18,703 20,769 39.472 192,311 . 5,195 5,769 10,964 869 337 3,533 3i885 7. lnB 1956 673.617 19,261 20,211 39~472 187.116 5,3-50 5.614 10,96LJ. 82,805 4.654 3.726 8,380 1957 654,356 19,841 19,631 39.472 181.766 5,511 5,1+53 10,964 78,106 4,863- },517 8,380 1958 634.512 20,436 19,036 39.472 176,253 - 5.677 .5,287 10,964 73.287 5,082 ),298 8~380 1959 614,079 21,050 18,422 39.472 170,577 5:847 _ 5,117 10,964 68,205 5,311 3,069 8,380 ~960 593,029 21,681 17,791 39.472 164.730 6,022 4,942 10,964 62,894 5'1550 2,830 8,380 1961 571,348 22,331 17,141 29.472 158,708 6,203 4,761 10,964 57,344 5~800 2,580 8,380 1962 549,017 23,001 16 2 471 39,472 152~505 6,389 4,575 10,964 . 51,544 6,061 29319 8,380 1963 526,015 23,691 15.781 39,472 146,115 6,581 4,383 10,964 45,'-1-83 6~334 2.046 8,380 1964 502,324 24,402 15,070 39'1472 139,534 6,778 4,186 10,964 39.150 6,619 1,761 8,380 1965 477,922 25'.134 14,338 39,472 132,756 6,982 3,982 10:964 32,.531 6,916 1,464 8,380 1966 452,788 25,888 13~584 39,472 125~774 7~191 3~773 10~964 25,615 7,227 1,153 8~380 1967 426,900 26,665 12,807 39,472 118~583 7~407 3~557 10,964 18~387 7~553 827 8~380 1968 400,235 27,465 12,007 39~472 1110176 7~629 1~335 10~964 10~834 5~565 487 6,052 1969 372.770 28,289 11,183 '39~472 103.547 7~858 3,106 10~964 5~270 3~488 237 3,725 1970 344,481 29,137 10,335 39,472 95,689 8,093 2,871 10~964 1.782 1,782 80 1,862 1971 115,344 30?012 9,460 39.472 87,593 8~337 2,627 10~964 1972 285.332 30,912 8 0560 39.472 79,259 8,587 2,377 10,964 1973 254,420 31,856 7,632 39,488 70,672 8,849 2,120 10,969

lJ:J Possible loans to be granted by I.B.R.D. and Export-Import Bank at rate of 4-1/2% and maturity of 20 years.

APPENDIX II- -Table D

.~tstru1d~ng Debt ~f Finlan~ Dec, 31, 1947 ( exce~tllP.5lr~.~hervJise spe9ified)

Most Recent In- Final :Market terest Ha~

Quotation Rate- turity opt sta.'l1ding .m}1l.E-l~~£1 %-1.8. Debt

Dollar Bonds . (pub1ic1y-issued): No

Republic of Finland Ext. 8.F. quote* 6 196.3 $1,5,30,000 Finland Residential l~tge Bank 4.3-1/2* , 1961 .3,002,000 Helsinki 57 * 6-1/2 1960 5,162,000

Inter-sovernment De~: (1950, World"ar I Debts .3 and (1961;., 8,129,970

.3-1/2 (1984 Export-Import Bank (as of 6/.30/48): 250-251 .3 1966 25,062,408 387 2-1/2 1948 68,71,1 .387 2-i/2 191;-9 4,836,007 387 (Sept. 1948) 2 .... 1/2 1951 $5,000,000 .391 .3 1965 .35,000,000 414a .3~l/2 1954 6;1000,000 414b 3-1/2 1958 12,465,250 416 3-1/2 1950 121,460 416 .3-1/2 1951 499,952 416 .3-1/2 1951 200,000 416 .3-1/2 1950 999,297 416 3-1/2 1951 499,921 421 4 195.3 .3L .. 5,090 387 2-1/2 1950 2,163,993 414b 3-1/2 1958 1,534,750 416 ,3 .. 1/2 1950 2,678,541 421 4 1952 2,155,000 445 3-1/2 1951 675,000 New loan (Nov, 1948) 3-1/2 1959 10liOOO~OQQ

86,098,0.36 24,207,284

Maritime Commission (as of 3/31/48) 3-1/2 1962 816,000 .351,613 O.F.L.C. (as of .3/31/48) 2-3/8 1976 18,401,575 5,981,418 Har Assets .3 196.3 2aMt, 752 .k228,2~2

Totai to U.S, $126,581,336 ~33,O65~540

* New York Stock Exchange quotations.

(continued)

~PPENDIX II - Page 2

Most Recent In- Final Market terest Ma-

Quotation Rate turit;r OUtstandi:r;g Unutiliz e, 3terling Debt - % --,

Residential Mtge. Bank 72-1Ht- 5 1957 ill, 091, 6CO Industrial rutge o Bank 72-1/2,B} 6 1955 1,000,800 Helsinki 67 1Ht- 4 1961 130,500 Tampere 4-1/2 1950 17,900 Osakeyhtio Haldhol' Aktiebolag 5 .... 1/2 1950 68,772 Finland 70 1Ht- 5 1963 564,,120 War Loan of 1940 4 1949 1,'1645,861

Total Sterling Debt ;'4,519,553 (t18,213,799)

Swedish Debt

Private Debt 3 1973 Kr,,185,300,000 Public Debt 3 1973 5ll,397,605 Helsinki 3 1973 3,0)0,000 Turku 3 1973 5,850,000

Total Sw'edish Debt Kr .. 710, 577, 605 (Cl9'i·.~382;;668)

Brazilian Debt - Intergovernmental (pa~~ble in U.S. dollars) 4 1960 $9,797,960 $202,04'

Colombian Coffee Credit (payable in U.S e dollars) 3-1/2 1960 $1,006,123 $3,993,27'

Argentine Debt

3-1/2 1951 ($6,604,358) ($13,663,6l

Payable in pesos P24,438,861 p50,561,l; Payable in dollars 3-1/2 1958 $18,300,0(

Total, excluding French Franc Loans (expressed in U.S. dollars) $359,586,844 $69, 224,it9

French Franc Loans

War Loan (1946) ($1,741,884)

Fcs.374, 000, 000 Central Bank for Coop. Credit Societies ($20,959)

Fcs. 4,5002000

Total, including French Franc Debt (expressed in U.S. dollars) $361,349,687 $69,224, 49:

,Ht- London Stock Exchange quotations.