Adjustment by Aid and Controls
THERE are a number of ways in which a "deficit" country can act to bring its international economic relations more nearly into balance. It may take certain "cushioning" measures: (a) it can draw on its foreign assets or reserves, if any; (b) it can finance foreign purchases by credits, if they can be arranged; (c) it can be helped by foreign aid. It may take certain "readjusting" measures: (d) it can change the rate of exchange, thus affecting both imports and exports; (e) it can shift domestic resources into export-producing and thus endeavor to increase its foreign earnings; and (f) it can place obstacles in the way of transactions which will draw on its limited supply of foreign exchange.
All these methods have been used by various countries during the postwar period. They are not mutually exclusive and can be used in various combinations. Of course, in an inconvertible world, a country in over-all balance may still have many bilateral problems. Certain of these same processes must be followed in regional or bilateral adjustment in cases where a country has a deficit with some areas even though it may have a surplus with others, unless the obvious multilateral clearing or exchange solution is available to it.
The first of these devices, the use of foreign assets and reserves, is of course limited by the amount of assets and reserves available. Large amounts of foreign assets were liquidated during the war and in the immediate postwar years. Reserves have taken the brunt of the onset of trouble in a