The Economic Outlook
We hear frequently bitter complaints that the low value of our money corresponds in no way to the economic strength of our state and to the purchasing value of the Czechoslovak crown at home.
According to the reports of the ministry of finance we have a favorable balance of foreign trade, and the circulation of our paper money does not exceed six billion crowns; that does not constitute serious inflation, when we consider that France, a country with three times our population, has a circulation of about 34 bilion francs.
The view is wide-spread that the cause of the low value of our crown is lack of knowledge in the West of our conditions, distrust in our economic stability etc. But the causes are more concrete than that.
We shall arrive at a clear view of this matter, if we realize the amount of commodities that our highly developed industry must get from abroad, before it can run at full speed.
According to figures compiled by the Manufacturers’ Association we would have to import approximately raw materials worth eight billion francs which at the present rate of exchange would be about fifty billion Czechoslovak crowns.
Against this total our present export, which comes to about four billion crowns a year of which sum the greater part is sent to countries with depreciated money is altogether too small and cannot at all balance the immense needs of our industry.
If under these conditions we left everything to free development, the value of our crown abroad would drop so low that soon any purchases in foreign countries would be impossible.
Therefore our financial policy aims to make only such purchases abroad as can be covered by available foreign money which we get for our exports; thus our industry will get its full amount of raw materials only gradually and we can return to normal economic life gradually.
That of course deprives the exchange value of our crown of its real basis, and it thus becomes dependent on arbitrage of foreign money against our money, on speculations and transactions in exchange which cannot be controlled by the ministry of finance and which of course are not likely to improve the value of our crown.
This condition may be counteracted to some extent by well-planned operations in foreign exchanges, but that again presupposes considerable financial resources which in view of the pressing needs of our industry cannot readily be spared.
This slow and difficult transition to normal financial and economic conditions could be considerably accelerated by one effective means. That is long term credit abroad which would get our shops going at once and thus would enable us to create new values by our work.
The endeavor of our government from the beginning has been to secure foreign credit, with slight success. Besides, with few exceptions the credit we got was unproductive, for it was consumed as food.
Early last summer we convinced American cotton men that we are a good risk; they furnished our banks 26,000 bales of cotton which the “Gulf of Mexico” discharged at Hamburg. But this amount was not sufficient even to cover our domestic needs.
We took up all forms of raw material credit: we pointed out to financial circles in Allied countries, how important it was for the Allies to maintain mutual financial solidarity and exchange of raw materials and manufactures. But the West could not understand and sought to solve the whole problem in a one-sided manner. It was itself in a dificult economic situation and looked across the ocean with the hope that the United States would continue to advance money to its impecunious debtors.
But there with the ending of war a great change occurred. The United States entered the war of its own accord, being dragged in partly by necessity, partly by opposition to the inhumane German war practices. By the declaration of war and all that followed it America interfered effectually in European affairs, and without being conscious of it or perhaps against its desires it was being bound more and more closely to Europe. The result was a tremendous indebtedness of Europe, and Europe today cannot pay the interest, to say nothing of capital.
When armistice came, America began to realize that to give more credit to European governments would mean further strengthening of the ties which bound it to Europe, and it would also involve the definite abandonment of the Monroe doctrine.
But since the United States even from the point of view of its own interests could not refuse altogether credit to Europe, discussion went on beyond the ocean as to the form which this credit coud take, so that it would be a matter of business solely. The result of this discussion was the Edge bill, passed in January of this year.
This law places at the disposal of American exporters one billion dollars which will be used to discount invoices, when guaranteed in some manner by the importing states. The credit may extend for as long as five years or even ten years.
Translated from the “Sborník zahraniční politiky” (Review of Foreign Politics), No. 4, Prague.
