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Further evidence of the replacement of private capital by Government funds is supplied by the loan of $425,000,000 by the RFC to the United Kingdom, announced in July 1941. This loan was backed by the pledge as collateral of a large volume of British holdings of United States securities and direct investments.

Table XI.-United States Long-Term Investments in Foreign Countries, by Types of Investment and by Geographic Areas, December 31, 19401

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1 Types of values used are as follows: Direct investments, book value; foreign dollar bonds, par value: miscellaneous securities, estimated value.

2 A new census of direct investments is being made. It is too early to forecast the results, which will not be available before the end of 1941.

3 The estimated market value of these holdings was $1,791,000,000.

Investments in Latin America Exceed $4,000,000,000.

United States investments in Latin America, exclusive of loans by United States Government agencies, were estimated at $4,152.000,000 at the end of 1940. Thirty-eight percent of this total was in rawmaterial-producing enterprises-the mining and smelting of copper, gold, and silver; the production and refining of petroleum; and the cultivation and marketing of sugar and bananas. The manufacture of war equipment in Europe and in this country, and the stimulus thereby given to industry in general, created a large demand for copper and other metals and kept the earnings of those enterprises at a high level. Large military requirements of gas and oil increased the production of petroleum and the income received from those investments. As export industries, these extractive enterprises were in a favorable position for the transfer of their earnings to the United States. Public utility and transportation enterprises comprised about 25 percent of the total United States investments in Latin America. In order of value, these were concentrated largely in Cuba, Argentina, Mexico, and Brazil. The earnings of these enterprises have been relatively low in Cuba and Mexico and they have been subjected to some restrictions, particularly in Brazil, without completely stopping the remittance of income.

The economic difficulties brought upon Latin America by the war, and the desire of this country to help in relieving the situation, have given rise to many proposals for new investments of United States capital in that area. However, political conditions in most of the Latin American countries for several years have not been conducive to any substantial flow of new private capital for permanent investment

there. Nevertheless, the stimulation of production in some of the extractive industries, which resulted from the war demands for raw materials, may necessitate the expansion of existing plant facilities and thus induce a moderate outflow of private funds from this country. United States holdings of Latin American dollar bonds, aggregating $993,000,000, yielded only $21,000,000 on income in 1940.48 Approximately two-thirds of these bonds are in partial or complete default, including especially Brazilian and Chilean obligations. Some of the Latin American countries that are in default have been severely handicapped since the war started by being cut off from their normal European markets while additional United States buying of their products has not yet offset the loss incurred. Steps taken to adjust these defaults have been of some significance as evidenced by the fact that the interest and sinking fund provisions of $148,000,000 of outstanding bonds have been altered in recent years. In addition, plans were announced in 1941 for the adjustment of the defaults on the Colombian and Panamanian national issues.

The Government of the United States, through the Export-Import Bank and the Stabilization Fund, extended credits or loans in 1940 to 12 Latin American countries. Although these net commitments of the Export-Import Bank totaled more than $168,000,000, the actual disbursements during 1940 were less than $6,000,000. Disbursements under commitments previously existing were of about the same amount. Among the largest of these commitments was $62,000,000 to Argentina,19 and $55,000,000 to Brazil. The primary purpose of the loans was to relieve economic distress in the borrowing countries by facilitating purchases of certain much-needed commodities in the United States, and to strengthen their foreign exchange position. These loans are another evidence of the growing dominance of governments in foreign financial transactions.

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Investments in British Empire First in Value.

United States investments in the British Empire totaled about $4,600,000,000 at the end of 1940. Investments of $3,786,000,000 in Canada comprised the largest part of that total, while our holdings in the United Kingdom amounted to between $575,000,000 and $600,000,000. In addition, there were fairly large investments in Australia, British Malaya, and South Africa. Direct investments, which comprise the bulk of the total in the British Empire, are much more highly concentrated in fabricating enterprises than is the case in the Latin American holdings. Nevertheless, these investments have fared very well, even since the start of the war. Exchange restrictions have in general worked no great hardships, inasmuch as the remittance of current (in some instances "ordinary", net earnings has been freely permitted. The controls have served to freeze some investments because the authorities have ruled that certain items in intercompany accounts and advances are part of the permanent capital of the foreign company and not subject to withdrawal. The only British Empire dollar bonds now held in the United States are those of Canada and Australia. Their record as regards interest payments has been excellent, yielding $65,000,000 in 1940, an average return of 4.36 per

48 See appendix A-IV.

49 The loan of $60,000,000 to the Central Bank of Argentina, included in this total, and the Stabilization Fund Loan have not been, ratified by the Argentine National Congress.

cent. Short-term investments of $75,000,000 were sufficient for trade demands on the present rather limited basis.

After the defeat of France, United States investments in the United Kingdom were subjected, in intensified form, to many of war's hazards. Among these, of course, was damage from aerial bombing. The damage done to United States owned plants in this manner has not, according to the best information available, been very great. A few companies have been forced to move to other quarters by the partial or complete destruction of their plants. However, the actual losses from bombing have been greatly reduced by the widespread use of war risk insurance. Other hazards are associated with the reorganization of British industry in the interests of enhanced war effort. Occasionally the productive capacity of plants has been shifted, in part or in whole, to the manufacture of war materials from that of related or even unrelated goods. Plants producing essential materials have been moved from exposed areas to places less exposed to general attack in order that the chances of continued operation may be improved.

Holdings in Continental Europe and Rest of World.

Investments in continental Europe were estimated at $1,500,000,000 at the end of 1940. With the exception of business enterprises valued at about $35,000,000 in Sweden and Switzerland, the total is invested largely in Axis-controlled territories. Exchange controls have for several years prevented any large remittances of income from those investments and the withdrawal of capital has been almost entirely prevented. There have been a few instances in which business enterprises have been sold, particularly in the Axis-controlled countries. Although the amounts involved were not large, such liquidation by American investors usually represented a loss of a considerable part of the value of the enterprises.

Portfolio investments in continental Europe were estimated at $530,000,000 at the end of 1940, of which about 59 percent were in default. About $15,000,000 of income was received on these investments during 1940. Among defaults, the German and Italian issues constituted the major portion. At the same time, Germany repatriated an appreciable volume of these securities during the last quarter of the year at prices ranging between 15 and 50 percent of the original purchase price. Thus it appears that United States assets in continental Europe, which for all practical purposes have been frozen for several years, are small compared with the European assets frozen in this country, as shown in appendix A-VI, table 5.

Out of loans totaling $42,000,000 granted to Scandinavian and other European countries by the Export-Import Bank in March 1940, only $9,565,000 was actually disbursed.

The hazards of war have affected United States investments in continental Europe to a greater extent than in the United Kingdom even though damage as a result of aerial bombing was probably small, at least up to the time of the intensification of the British aerial attack in June 1941. Previously, the rapidity of the German conquest of the Low Countries and France had greatly reduced the destruction of property, even though demolition squads, particularly in France, had destroyed some large plants of strategic importance before the German conquest and occupation was completed.

Of perhaps greater significance are the political hazards. A number of plants in Germany and occupied countries have been placed under military control and the management taken out of the hands of the owners and their agents. Rarely, if at all, has title to the properties been formally seized although, as mentioned before, the withdrawal of capital and the remittance of earnings have both been effectively blocked by exchange controls. For most purposes, therefore, it can be said that a number of plants have been taken over by the German Government, at least for the duration of the war. The aggregate income from United States holdings of European dollar bonds has not been greatly affected by the war. On the one hand, Poland and Greece were forced to discontinue servicing their obligations in this country, but both had been in partial default before the time of invasion. On the other hand, Belgium, Denmark, and Norway have continued to service their bonds out of funds frozen by our Executive orders. Germany continued into 1941 to pay part of the interest due on the Dawes and Young Plan bonds, and to repatriate in considerable volume German dollar bonds, many of which had been in complete default for several years.

Asia, Africa, and Oceania have never ranked high as fields for the investment of United States capital. Some very profitable holdings by petroleum companies, rubber plantations held by tire manufacturers to obtain part of their own raw materials, and a portfolio of government bonds upon which service has been met regularly have, however, made these investments very desirable. The Japanese Government, while punctually remitting interest on its bonds, has prevented United States companies from transferring a large part of the earnings of their subsidiaries.

In 1940 the Export-Import Bank made commitments to China totaling $95,000,000. Disbursements under these loans totaled $29,000,000 by the end of the year, while about $6,000,000 was paid out on earlier commitments. A further loan of $50,000,000 granted by the United States Stabilization Fund was announced on April 25, 1941. That sum, together with $20,000,000 provided by the Chinese Government and £5,000,000 made available by the British Treasury, was to be used to stabilize the Chinese yuan in terms of pounds sterling.

FOREIGN INVESTMENTS IN THE UNITED STATES 50

Foreign holdings of United States stocks, bonds, cash balances, and other dollar assets at the end of 1940 are estimated at $9,695,000,000, an increase of $109,000,000 for the year (see table XII). Stocks and bonds held by foreigners at the end of 1940 had an estimated value of $2,967,000,000, reported foreign-owned dollar balances stood at $3,978,000,000, while so-called direct investments and miscellaneous holdings accounted for $2,750,000,000. The net change in the estimated value of foreign-owned assets in the United States during the year resulted from a combination of factors including a decrease of $573,000,000 in the value of long-term investments that was more than offset by an increase of $682,000,000 of foreign short-term balances in this country.

50 This section was prepared by Milton Abelson, of the staff of the Internal Economics Unit.

As in previous years, foreign long-term investments in the United States, computed at stated or par values, showed only minor changes in 1940. The major change occurred in the value of common shares, which are generally subject to a larger volume of trading and wider price fluctuations than other classes of investment. The decline in the value of common holdings during 1940 resulted from the general recession in common-share prices, as well as a decrease in the volume of foreign-held common shares-a drop in which the British net liquidation of American common stocks was the most important single factor.

Table XII.-Foreign Investments in the United States, by Principal Types, 1938-40 [Year-end data; in millions of dollars]

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The market value of the preferred stocks was estimated as follows: 1938, $372, 000, 000; 1939, $352, 000, 000; and 1940, $304, 000, 000.

2 The market value of bonds was estimated as follows: 1938, $432, 000, 000; 1939, $425,000,000; and 1940, $430,000,000.

3 Includes estimated holdings of $100, 000, 000 of United States national, State, and municipal Government bonds.

4 Exclusive of $150, 000, 000 loaned and invested in the United States by the British Government during 1940 for the construction and expansion of plant facilities.

5 Revised.

NOTE. New detailed studies of foreign direct investments in the United States and foreign holdings of United States corporate bonds are in progress and should be completed late in 1941.

British Investments Reduced.

United Kingdom investments are estimated roughly at $2,400,000,000, or 25 percent of total foreign investments in the United States at the close of 1940, compared with 30 percent a year earlier. Capitalmovement data reported by the Treasury Department indicate a net liquidation of $277,000,000 of British assets in the United States during the year-a small amount in relation to British purchases of American commodities. As previously discussed, payment for these purchases was made principally out of the proceeds of gold shipments to the United States.

In anticipation of the need for a large reserve of dollar assets the British Government had requisitioned the security holdings of its subjects in 230 United States securities during 1940.51 By the end of the year, 68 of those had been liquidated and their value was included in the net British sales of $171,000,000 of domestic stocks and bonds. These sales were effected partly through private negotiations and through specially organized selling syndicates, particularly during the last quarter of the year. No important sales of British direct investments were consummated during the year though transactions involving major holdings were reported during the first half of 1941.51 Short-term balances were drawn down by $106,000,000 to

51 See appendix A-V, table 3.

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