TRANSACTIONS WITH LATIN AMERICA AND ASIA 31

Flow of Capital to the United States.

The inflow of capital from abroad in recent years has not been confined to the flight of private capital and transfers of official funds from Europe. There has also been a heavy capital movement from Latin America and Asia. Insofar as this movement is recorded in the reports by banks and brokers to the Treasury, the net inflow from these areas amounted to $593,000,000 during the 5 years from 1934 through 1938. This figure was almost doubled by the accelerated movement of the next 2 years the net inflow amounting to $325,000,000 in 1939 and $245,000,000 in 1940. From the beginning of the war in September 1939 to the end of 1940, the total recorded movement was $290.000,000, of which $71,000,000 came from Latin America and $219,000,000 from Asia.32

The greater part of this inflow since 1934 is accounted for by a rise of $771,000,000 in balances and other funds held by United States banks for the account of the countries in question. Table VI gives the amount of such funds by principal countries for January 3, 1940, when these details first became available, and for the end of the year.

Table VI.-Short-Term Liabilities to Latin American and Asiatic Countries Reported by American Banks

1

Based on data published in the Monthly Bulletin of the Treasury Department. Includes Netherlands Indies, French Indochina, Thailand, British Malaya, British India, Palestine, Turkey, and other Asiatic countries. Individual data for these countries are not published.

Trade and Service Transactions With the United States.

The accumulation of bank balances here, together with other capital transfers for the account of Latin America, the Far East and the

31 The countries treated in this section, principally Latin America and Asia, are all those not included in the sterling area, Canada, and continental Europe, which have already been discussed. For present purposes, therefore, the British West Indies, India, British Malaya, and other sterling-area countries have been excluded from the trade and gold figures, and, insofar as possible, from other data covering Latin America and Asia. The sterling-area countries mentioned, however, cannot be scgregated in t'e data on capital movements reported to the Treasury, but capital transactions by such countries are believed to be very small. The amount of error involved on this account is probably negligible. 32 Prior to Jan. 3. 1940, the figures reported for Asia represented Far Eastern countries only, other Asiatic countries being included elsewhere. The degree of inaccuracy resulting from this difference, however, is very small.

421602-41—3

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other countries in question, has been effected largely out of the proceeds of gold and silver shipments to the United States and out of dollar funds received through triangular trade.

Merchandise trade with the United States yielded no surplus for these areas considered as a whole. There was, in fact, a small excess of exports from this country amounting to $41,400,000 during 1940 and to $108,500,000 in the 16 months from the beginning of the war to the end of 1940. In individual cases, however, the opposite situation prevailed. This was notably true of the Netherlands Indies, from which shipments of rubber, tin, and other raw materials have been greatly stimulated by increasing defense requirements in the United States. Total imports from the Netherlands Indies rose from $93,000,000 in 1939 to $169,100,000 in 1940, and the import surplus increased from $57,600,000 to $115,300,000. In addition, the Netherlands Indies also benefited by large quantities of tin and rubber which reached the United States by way of British Malaya and are credited to the latter country in our import statistics.

Cuba and certain of the Central American Republics also had favorable trade balances with the United States, but for Latin America as a whole there was an excess of exports from this country amounting to $108.900,000 in 1940, compared with $58,200,000 in 1939.33 Exports to Latin America, totaling $752,900,000 in 1940, increased by $143,200,000 over 1939, reflecting the increased dependence of these countries on the United States after continental European sources of manufactured articles and other supplies were cut off by the war and the British blockade. This increase was largely offset by a $102,500,000 rise in imports from Latin America to a total of $644,000,000, chiefly as a result of larger requirements in the United States of such key commodities as wool, hides, tin, manganese, copper, lead, and antimony.

Service transactions likewise entailed net payments by these nonBritish and non-European countries. Net receipts by the United States from these areas as a whole are estimated at about $45,000,000 in 1940, or approximately $75,000,000 from September 1939 through December 1940. As in the case of merchandise trade, however, there was considerable difference in the position of Latin America and that of some of the other countries. Chiefly because of relatively heavy interest and dividend remittances on United States investments, Latin American countries are estimated to have paid this country some $95,000,000 on service account in 1940. By contrast, the Far Eastern and other countries under discussion benefited by net receipts of some $50,000,000 on service transactions, reflecting mainly large personal and charitable remittances to China and heavy United States Government expenditures in the Philippine Islands.

Dollar Receipts From Trade With Third Countries.

Under prewar conditions Latin America's deficit on trade and other current transactions with the United States was compensated by a surplus of exports to the industrial countries of Europe. Other countries supplying raw materials and foodstuffs, such as the Netherlands Indies and the oil-producing countries of the Near East, have also

23 The above figures on trade with Latin America exclude the British possessions, which are a part of the sterling area.

depended in large measure on European markets. Since the beginning of the war these countries have been almost completely cut off from trade with the European Continent, creating in some instances serious exchange problems and economic hardship.

In consequence this trade with third countries is now mainly confined to the United Kingdom and, to a lesser extent, to other parts of the British Empire. In a few cases special financial and trade arrangements permitting payment in sterling have been made, but payment in dollars is required for a great part of the oil, copper, and other materials which the United Kingdom buys. It has been officially esti mated that payments in dollars and in gold by the United Kingdom and the rest of the sterling area to countries other than Canada and the United States aggregated $500,000,000, net, during the first 16 months of the war.34 In estimating gold shipments for British and non-British account, the gold portion of these payments has been placed at about $150,000,000 and has already been taken into consideration.35 It is believed that virtually all of the remaining $350,000,000, representing payments in dollars, went to countries of the areas now under consideration and thus constituted an important addition to their dollar receipts.

Gold Shipments to the United States.

Further large amounts in dollars were realized by these non-European and non-British countries from gold and silver shipments to the United States, aggregating, on a net basis, $362,700,000 and $48,100,000, respectively, in 1940. From September 1939 through December 1940 the totals were $478,300,000 and $64,500,000, respectively. In several cases these gold shipments came chiefly out of new production and, from the standpoint of the country mining the metal, might perhaps be properly classified as merchandise trade. For example, 1940 gold production in Mexico was around $31,000,000; in Colombia, $22,000,000; in Chile, $12,000,000. In all, newly produced gold and silver imported from Latin America in 1940 amounted to about $140,000,000, or more than this country's merchandise export surplus to that area.

On the other hand, gold imports of $59,100,000 from Argentina came out of reserves, since that country is not an important gold producer. This gold was transferred here in the latter part of 1940 to bolster Argentina's exchange position, which had been severely strained by loss of continental European markets for its cereals, meat, and other products.

Japan also made large gold shipments to the United States in 1940. The total for the year was $111,700,000, a considerable portion of which came out of new production and the remainder out of stocks. These shipments were a continuation, on a lower scale, of a movement which aggregated almost $700,000,000 from the beginning in 1937 through 1940, and which has reduced Japan's reserves to a very low point. The liquidation of these reserves has been primarily for the purpose of financing imports required by that country's war economy. Whether because of the depletion of its gold stocks or because of increasing difficulty in obtaining materials and equipment subjected to export

34 See table III, p. 10.
35 See p. 20, footnote 21.

license control by the United States, Japan's imports from this country slackened appreciably in the last 2 months of 1940. However, the total for the year, amounting to $227,200,000, was only about $5,000,000 below the 1939 level.

In addition to gold shipped directly from Latin American, Far Eastern, and other countries under consideration, they may have held title to part of the gold transferred from the United Kingdom and Canada to the United States since the beginning of the war. As previously discussed, however, by far the major portion of this gold shipped for the account of third countries belonged to continental Europe.

Export-Import Bank Loans to Latin America.

With the exception of credits advanced to Finland during and after the invasion of that country by the U. S. S. R. in the winter of 1939-40, the activities of the Export-Import Bank since the outbreak of the war have been mainly confined to Latin American countries and China. In these fields, however, the Bank's lending operations have been sharply increased. During 1940 it authorized loans totalling $168,000,000 for Latin America, compared with $46,000,000 in

1939.

The 1940 loan authorizations included $62,420,000 for Argentina, $55,000,000 for Brazil, $10,000,000 each for Colombia and Peru, $7,500,000 for Uruguay, $5,000,000 for Chile, and smaller amounts for many of the other Latin American countries. These loans were made chiefly to finance the sale of United States agricultural and industrial products and to support the exchange position of the countries concerned. Since the major portion of the credits to Latin America. were approved in the last 2 months of 1940, following an increase of $500,000,000 in the Bank's lending power approved by Congress in September, the amounts actually disbursed there from during the year were comparatively small. The total amount outstanding in Latin America at the end of 1940, including loans made in previous years, was $29,400,000-an increase of slightly more than $10,000,000 from the end of 1939.

The $60,000,000 Export-Import Bank loan to Argentina, authorized on December 9, was followed by a $50.000.000 credit for that country set up by the United States Stabilization Fund on January 2, 1941. Neither of these loans had been approved by the Argentine National Congress up to the end of August 1941, however, and consequently no disbursements from them had been made. Since negotiations for the loans were undertaken, Argentina's dollar exchange position appears to have improved as a result of an increase in exports to the United States and a decrease in imports from this country.

Financial Assistance to China.

In keeping with this Government's policy of providing aid to countries resisting aggression, the Export-Import Bank greatly increased in 1940 its credits for financing exports to China. At the beginning of the year the Bank's outstanding loans for Chinese account totaled almost $25,000,000-representing mainly amounts due on a $25.000 000 credit granted at the end of 1938 to the Universal Trading Cornoration and on the old cotton and wheat loans taken over from the Re

construction Finance Corporation and the Farm Credit Administration.

In March 1940 an additional credit of $20,000,000 was extended to the Universal Trading Corporation to finance exports to China. In October $25,000,000 was granted to the Central Bank of China for this purpose, followed, in November, by $50,000 000 authorized for the same institution. As a result of disbursements from these old and new credits minus repayments, the Bank's outstanding loans for Chinese account rose to $54.700,000 at the end of 1940 and increased still further to $80,800,000 on March 31, 1941. Additional aid by the United States Government to China was subsequently provided in a $50,000,000 credit by the Stabilization Fund, announced on April 25,

1941.

The stimulating effect of the Export-Import Bank's credits to China may be indicated in part by the rise in exports to that country from $55.600,000 in 1939 to $78,000,000 in 1940. Repayment of outstanding credits, which is provided for largely out of shipments of tung oil, tin, tungsten, and other strategic materials, was perhaps also responsible in large measure for the rise in imports from China from $61,800.000 in 1939 to $93,000,000 in 1940. With respect to both exports and imports, however, it is difficult to draw definite conclusions because the recorded statistics do not distinguish between trade with free China and that with the areas under Japanese occupation.

Recorded and Unrecorded Capital Movements.

The figures given above with respect to credits extended by the Export-Import Bank to Latin America and China include not only that institution's loans out of its own resources but also those made by cooperating banks under "take-out" commitments by the ExportImport Bank. The movement of funds resulting from loans of the latter type, however, is already included in the totals reported by banks to the Treasury, from which the figures previously cited on net recorded capital movements are derived. In considering the additional dollar receipts by Latin America and China from ExportImport Bank credits, therefore, it is necessary to include only changes in its direct loans to those countries. The outstanding amount of such loans rose by about $1,000.000 during the last 4 months of 1939 after the war began and by $42,500,000 in 1940.

The net capital inflow of $290,000,000 from Latin America and Asia during the period September 1939 to December 1940, as reported by banks and security dealers to the Treasury, may therefore be adjusted to $246,000,000 as a result of Export-Import Bank operations and certain other miscellaneous transactions which can be identified. This figure, however, is far too small to account for total dollar receipts by the countries in question from the other transactions which have been discussed. The position in this respect is summarized in table VII, which shows a difference of more than $450,000,000 between estimated receipts from trade, service transactions, and gold and silver shipments on the one hand, and the recorded or identifiable capital flow into the United States on the other.