Solutions to Over-importing

There are 3 solutions to over-importing*:

1. Loans

The deficit country could be given a loan.

Developing countries should resort to loans. But loans should not be made if they would not lead to the necessary adjustments in their structures of production.

Balance should be the watchword. International loans, which allow a (justifiable) long-term lack of balance, should be the exception. This might be considered too much to ask for.

Without adherence to some strict principles of this sort, no system, whatever its technical design, can do lasting service.

No system can enable some countries to follow a permanent policy of buying more than they sell.

Nor can it enable other countries to follow a permanent policy of selling more than they buy, while guaranteeing the creditor his money back, when he (or his country) is unwilling to accept it as goods and services.

2. Devaluation

The deficit country’s currency could devaluate.

There might be some fundamental rearrangements of the internal structure of production of the country concerned.

How, then, could the “exception”, i.e. capital movements for economic development, be worked into the system of Pool Clearing?

The Clearing Fund balances from past business must not be consolidated into long-term interest-bearing indebtedness. On principle, credits should be given only in connection with new deliveries to the deficit country.

The difference between a conversion of existing clearing balances and making new deliveries on credit may appear slight. If a deficit country gets dangerously near its maximum deficit limit, it makes no difference whether it transforms a part of the Clearing Fund balance into a bonded debt, or obtains current imports on credit.

Assume that Poland has incurred a large deficit. [imported more than it exported]

• The Polish Government (or even some private firm or institution) takes up a loan in the US.
• The American creditor pays dollars into the US Clearing Fund.
• The Polish Clearing Fund disburses a corresponding amount of zlotys to the Polish borrower [Polish government].

This would be a purely financial transaction. It would let the US sell more without increasing the internal indebtedness of her National Clearing Fund (which represents her export surplus and her share in the Pool).

Poland could buy more without increasing the cash balance of her National Clearing Fund (which represents her import surplus and her indebtedness to the Pool). If this is admissible, then the principal feature of Pool Clearing is marred: the pressure which the system exerts on potential surplus countries to dissipate their surpluses by increased purchases is relaxed.

1. Lending as a Solution to Devaluation

There are 2 ways to handle this problem.

1. Let us assume that all “financial” lending operations under Pool Clearing are prohibited.

If Poland needs more foreign goods and services than she can immediately pay for with her exports, she could obtain a foreign credit “in kind”.

She would ask some countries for specific deliveries on a deferred payment basis. She would then obtain goods without being obliged to pay into its National Clearing Fund at once.

Instead, she would issue a bond* specifying the interest and amortisation payments that will be made later. When these latter payments fall due, they would take the form of money and would be made into the Polish National Clearing Fund, like any other international payment.

This kind of arrangement would make international capital movements far more conscious and more easily recognisable.

New borrowing would be for specified purposes only. It would take the form of imports (which might be producers’ or consumers’ goods) without immediate payment.

Interest and amortisation charges would appear as a mortgage on the future overdraft facilities of the debtor country.

The objection is that in this way, the lending operation itself (although not the return flow of interest and amortisation) would become bilateral*. For example, Poland could not borrow in the US and then spend the proceeds on additional imports from Britain. It is difficult to estimate the weight of this objection.

2. Alternatively, the lending might be in an agreement between the U.S. Clearing Fund and the Polish Clearing Fund.

Under additional imports made by Poland up to a specified amount are not to be paid for by the Polish importer through the Polish Fund, but by the American creditor through the American Fund.

This arrangement would give Poland freedom to expend the loan money anywhere in the world.

The objection that might be raised against it is that it would lend itself too easily to misuse. The weight of this objection, again, is difficult to estimate.

Whichever of these 2 alternatives is chosen, the debtor country will always be able to discharge the legal obligations of its indebtedness.

Such payments will increase the cash balance in its National Clearing Fund. It might raise it to the upper limit specified under the general scheme. They would act in the same way as payments made for additional current imports and create the same problems of adjustment.

Similarly, the National Clearing Fund of the creditor country would make corresponding payments to the creditor, thereby possibly increasing its own indebtedness to the internal money market. These would:

• increase its share in the Pool,
• act in the same way as payments disbursed for additional current exports, and
• create the same problems of adjustment.

It would then be up to the creditor country (assuming that it is also a surplus country) to avoid becoming too large a holder in the Pool, by increasing its foreign purchases anywhere in the world.

This arrangement would show quite clearly the essential nature of international capital movements.

From the debtor country’s point of view, they always are an exchange of today’s import surpluses against future export surpluses.

They are economically sound whenever we expect that the debtor country can increase its future capacity to export by increasing its current imports.

If import surpluses are incurred without developing internal productivity and capacity to export, then existing maladjustments are not resolved and their solution is merely postponed. Any technical system cannot prevent such escapist policies.

But the arrangements suggested here will clarify the position sufficiently to make such policies less likely.