United States Economic Policy and International Relations

By Raymond F. Mikesell | Go to book overview

CHAPTER 4
War Debts and Foreign Investment Policy

THE CONTRAST between America's international policy after the first and after the second world wars is nowhere more clearly illustrated than in the field of intergovernmental debt settlements. After America's entry into the war in April, 1917, it became obvious that the maximum prosecution of the war required supplementing the resources of our Allies for the purchase of supplies in this country. The Allies were in no position to haggle as to the terms of this assistance, and the rates of interest charged were related to the cost of United States government borrowing from its own citizens, the rates varying from 3 per cent in April, 1917, to 5 per cent in May, 1918. By the end of 1918, the United States government had loaned $7.7 billion, and postwar lending for relief and reconstruction purposes continued until May, 1922. By the end of 1922, $9.4 billion in government loans to foreign countries were outstanding, of which the share of the United Kingdom was $4.1 billion, France $2.9 billion, Italy $1.6 billion, and the remainder divided among Belgium, Cuba, Czechoslovakia, Greece, Rumania, Russia, and Yugoslavia.1 The American public and Congress assumed that these debts would be paid in full, and this attitude was reflected in the provisions of the Act of February 9, 1922, which established the World War Foreign Debt Commission. This Act empowered the Commission to negotiate with the foreign debtors for funding the debt, but the Commission was severely limited in the terms which it could accept. The rate of interest must not be less than 4¼ per cent, the maturity of the obligations no longer than 25 years; there was to be no cancellation of principal and no transfer of allied obligations for reparations due from enemy countries.2 There was in this Act no recognition of the principle of capacity to pay and no hint of the complexities of the transfer problem.

____________________
1
Cleona Lewis, America's Stake in International Investments, The Brookings Institution, Washington, D.C., 1938, p. 362.
2
See Moulton and Pasvolsky, World War Debt Settlements, Macmillan, New York, 1929, pp. 111-112.

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