The Establishment of Internal and External Equilibrium, Mid-1951 to Mid-1952

Abstract

During the second half of 1951 the overall balance of payments returned to surplus by means of a remarkable improvement in the balance of trade. The deficit suffered in the first half of the year could be largely replenished; and between June 1951 and June 1952 the net official reserve position improved by $ 500 million, reaching a level of about $800 million. The percentage of imports that was covered by exports increased in the second half of 1951 to 77; in 1952 it became as high as 94 per cent. Underlying these changes in the external position were the effects of the disinflationary measures taken in the earlier months of 1951, combined with favorable developments in international markets (the terms of trade improved for the first time in many years) and the fact that consumers and enterprises had exhausted the liquid funds accumulated during the period of repressed inflation. Credit expansion in the private sector slowed down to what could be considered commensurate with the growth of the economy. The Central Government’s budgetary transactions had a deflationary effect that largely offset the short-term borrowing of the municipalities from the banking system.