Economic readjustment in Italy

«The Economist», 23 febbraio 1929, pp. 387-388

In view of Italy’s indebtedness to her former allies, the service of which amounts in the case of Great Britain to an annuity of four and a half million pounds for 62 years, the state of her foreign balance of payments is of substantial international interest. We publish below an article from our Italian correspondent which throws an interesting light on recent developments in the position.

The problem of the international balance of payments in Italy continues to be a subject of investigation and discussion among experts. According to one of the best authorities, Professor P. Jannaccone, the average yearly debit balance for the years 1915-1918 was 6,707 million lire, and was met by State foreign loans and abundant purchases of Italian paper lire by foreigners, who opened current accounts in Italian banks, until the hoped-for rise of the lira closed the transaction with profit.

After several difficult years a new equilibrium was reached in 1922-24. The average yearly figures for that period were:

The following years 1925-27 witnessed no very marked deviation from the equilibrium thus reached; an equilibrium, moreover, which corresponded closely to the pre-war balance as calculated by Signor Stringher for 1910; when debits and credits balanced around a figure of 1,264 million lire, or about one-fifth of the new 1922-24 average.

A new situation seems to have arisen in 1927 and 1928 during the revaluation process and after the stabilisation of the lira. No authoritative balance has been as yet compiled, but the fragmentary available items are viewed with a somewhat anxious interest. The excess of imports over exports was as follows, in millions of lire:

As the true figures to be taken into account are the corrected ones, the rise in the excess of imports over exports is remarkable. It is not probable that the net interests and dividends due to foreigners have fallen below the 1922-24 level (723 millions), nor that the total of reimbursements falling due according to the amortisation plans is less than the 216 millions then registered. Perhaps these items may have increased, owing to interest and amortisations of foreign loans issued since 1924. In any case, it is not likely that the total debts due from Italy, apart from investment in foreign countries, were less than 8,500 million lire. Against this debit total there is one credit item which has certainly shrunk.

The stabilisation of the lira, abolishing any chance of appreciation in lira holdings, has diminished the incentive for emigrants to convert dollars and other gold savings into lire. The decrease of emigration likewise dried up some sources of remittances. It appears that in recent years there has set in an opposite movement towards calling up old remittances by emigrants who have become permanent residents in foreign countries. It is therefore uncertain to what extent this item, which in the past was a substantial factor on the credit side of the Italian balance of payments, may now be regarded as an asset. If we assume that other items have not changed, i.e., net foreigners’ expenditure (2,500 millions), net shipping freights (666-66), St Peter’s penny, viz., gifts to the Holy See and miscellaneous, 400 millions, (and some doubts are reasonable about freights, owing to the merchant marine world crisis), it seems that an estimate between 3,500 to 5,000 million lire may be reached on the credit side of the balance. There remains a gap of from 3,500 to 5,000 to be filled. As Italian loans issued in foreign countries in 1928 were negligible the gap must have been filled by several sources: sales of Italian joint-stock companies’ shares, short credits obtained by Italian banks and firms, sales of bills and assets held by Italian firms in foreign countries and sales of bills and assets by the Bank of Italy. Only this last item can be ascertained exactly: the total gold and gold assets of the Bank of Italy decreased by 1,035-1 million lire, from 12,105.9 at January 10, 1928, to 11,070.8 at December 31, 1928.

As to the causes of the exceptional state of the balance of payments, Professor Mortara, in a thoughtful essay in the Giornale degli Economisti, is of opinion that an exceptional increase in imports, not a decrease of exports, is the main cause of it; that the imports increased mainly owing to bad agricultural yields and to replacement of industrial stocks which fell excessively during the 1927 revaluation crisis; that the growing imports of raw materials are an index of increasing industrial activity. His forecast is that in 1929 food imports will again be heavy, that raw material imports will increase further, and that the improvement in industrial activity may lead to increased exports of manufactures. Italy appears to be passing through a temporary crisis of adjustment, when imports are increasing to ward capital equipment of a growing industrial and agricultural activity, but the consequent flow of export goods is as yet not abundant enough. An analogous process went on in Germany in the past two years, and it will perhaps prove in the end to have been for the good of both nations. The technical difference between Germany and Italy is probably that Germany relies on long-term indebtedness, whereas Italy, more optimistically, is content with short credits. Perhaps there are abroad hidden resources, the property of Italian firms and individuals, accumulated in war and postwar years, on which Italy can draw. If and in so far as this is so, the indebtedness is only apparent and amounts to nothing more than the repatriation of national assets, temporarily located in foreign countries. The speech of Signor Stringher at the general meeting of the Bank of Italy, due at the end of February, is this year awaited with unusual interest, as it is widely hoped that it will throw light on this problem of international payments, which is at the moment the most momentous problem with which Italy is confronted.