R ES T-RI C-T-E D FILE COPY otrN%E ONE K This document was prepared for internal use in the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CURRENT ECONOMIC POSITION AND PROSPECTS OF ITALY October 4, 1956 Department of Operations Europe, Africa and Australasia Conversion Rates of Italian Currency U.S. $1 - Lit. 625 Lit. 1 - U.S. $.0016 Lit. 1,000,000 - U.S. $1,600 TABLE OF CONTENTS CHARTS BAFIC DATA SUMRY AND CONCLUPIONS I. GENERAL INTRODUCTION .............. .a........ .............. 1 NlATIONAL INCOME ...................................,... 1 USES OF NATIONAL INCOME ........................ 1 INVE'TMENT ACTIVITY ................................. 2 POPULATION AND UNEMPLOYMENT ........................... 5 II. SPECIFIC ECONO4IC SECTORS AGRICULTURE ........................... ........... .9... 6 MINING AN7D FNERGY ................................. 7 INDUSTRI .............................................. 8 CONSTRUCTION AED SERVICE ..n............................... 94010 III. MONETARY.INANCIAL AVD FISCAL POSITION PRICE STABILITY .... ..........................................11 CAPITAL MARKET ..................... ..............1 SHORT-TERM CREDIT MARKET ...............................12 PUBLIC FINANCES ..................... *...........1 IV. TERNAL ACCOUNTS FOREIGN TRADE . ... ............ ...... BALANCE OF PAY14ENTP ,...............................15 CREDITUORTHINESS ....................................... 17 STATISTICAL APPENDIX ANNEX I - PROGRESS OF THE CASA PER IL MEZZOGIORNO TABLE OF CONT2NTS CHARTS BAFIC DATA SUMMARY AND CONCLUPIONS I. GENERAL INTRODUCTION ................................ ...... . 1 NATIONAL INCOME ..................................... 1 USES OF NATIOHAL INCOME ............................ 1 IN\VE:-TMENT ACTIVITY ............... o..... ............. 2 POPULATION AND UNEMPLOYMENT ........................... 5 II. SPECIFIC ECONOIJIC SECTORS AGRICULTURE .......... ........... ................... . 6 MINING AND ENERGY ..................................... 7 INDUSTRY .......................................*... 8 CONKTRUCTION AiD SERVICES ........ ....................... 10 III. MONETARY,FINANCIAL AND FISCAL POPITION PRICE STABILITY ......... ..................... ..o.11 CAPITAL MARKET ........ .....................11 SHORT-TERM CREDIT MARKET ............. oo**ooo........12 PUBLIC FINANCES ... .................. . .... .. ..... ......12 IV. EXTERAL ACCOUNTS FOREIGN TRADE ........................................4 BALANCE OF PAYMENTS ...... .. .......... ..............15 CREDITUORTHINESS ............. o...................17 STATISTICAL APPENDIX ANNEX I - PROGRESS OF THE CAPPA PER IL MEZZOGIORNO ITALY SUPPLY AND USE OF RESOURCES -1955 (PERCENT OF TOTAL) -'SUPPLY USE- AGRICULTURE, FISHING AND FORESTRY IJ INDUSTRY 30% PRIVATE ..--.CONSUMPTION .... 62°/ Q> TRADE TRANSPORT AND SERVICES o INDUSTRYI 8 °/oPRVT PUBLIC CONSUMPTION -0 0 'J ADMINISTRATION T7/ .o. zo TAXES NOT "00 NC 1EDAOV%- GROSS INVESTMENT 20%° DEPRECIATION Q8 ° IMPORTS EXPORTS 0 -500- STERLING ARE IA 0 -200 -1000 QUARTERLY- Scale is 1/4 of annual scale 300 -1501500 I I I I i I I I TERMS OF TRADE (FIXED WEIGHTS) I(INDEX, 1948 100) 110 YEARLY QUARTERLY 90 9O 8/20/56 1953 1954 1955 1956 I80 ' IBRD- Economic Staff ITALY BALANCE OF PAYMENTS ON CURRENT ACCOUNT (BILLIONS OF U.S. DOLLARS) 0 .5 1.0 1.5 2.0 2.5 1951 EXPORTS (f.o.b.) NET INVISIBLES RECEIPTS PAYMENTS 1952 IMPORTS (f.o.b.) RECEIPTS PAYMENTS 1953 RECEIPTS PAYMENTS 1954 RECEIPTS PAYMENTS 1955 RECEIPTS PAYMENTS 1956 RECEIPTS PAY MEN TS GOLD AND FOREIGN EXCHANGE ASSETS (GROSS) (BILLIONS OF U. S. DOLLARS) 1.5 1.5 0 0 1948 1949 1950 1951 1952 1953 1954 1955 1956 8/20/56 1181 IBRD- Economic Stoff Italy Basic Data Poulation: 48,001,000 Area: 119,800 sq. miles (1955) Currency Unit: Italian lire (Lit.) U.S. $1 = Lit. 625 Trade Statistics (in million $): 1954 1955 Exports 1,648 1,853 Imports _2L06 2.705 Trade Balance - 758 - 852 Balance of Payments on Current Account: 1954 1955 Deficit (in million $ equivalent) 290 233 Gross Gold & Foreign Exchange Reserves: End of March 1956 Gold (in million $) 352 For4in exchange 889 Total exchange reserves 1,241 External Public Debt (Dec. 31, 1955) Total: Equivalent of $810 million Dollar debt: $515 million Gross National Product: 1955 Current prices (in billion $ equivalent) 19.5 Income Per Head: (1955) (Adjusted for differences in expenditure patterns) All Italy $500 - Southern Italy $250 Wholesale Prices: 1954 1955 1956 June Dec. June Dec. June (1948 = 100) 97 98 98 98 99 Cost of Living: 1954 1955 1956 June Dec. June Dec. June (1948 = 100) 121 121 123 124 130 Summary and Conclusions 1. The real national income of Italy has been increasing by approximately 5% per annum since 1950 when reconstruction was completed. 2. This growth in real income has made possible an improvement in consump- tion, an increase in domestic savings and investment which compares favorably with most other OEEC countries. 3. Although overpopulation and unemployment continue to be serious prob- lems, the recent high levels of investment and economic activity are beginning to reduce chronic unemployment and give promise of eliminating it over the next decade. 4. Agricultural production and productivity have been increasing and Italy should be able to achieve an over-all balance on food account in her foreign trade. 5. The rapid development of natural gas, the further exploitation of hydroelectric power resources, the discovery of oil on the Adriatic Coast and in Sicily, the development of natural steam and the possibility of a more effi- cient utilization of Sardinian coal may reduce dependence on imported sources of energy, If a satisfactory petroleum law is enacted encouraging oil produc- tion, the cut in imports could be very important. 6. M-anufacturing industries, especially canital goods and durable con- sumers' goods industries, have greatly increased their output under the imnetus of rising domestic investment and export demand. These factors which help re- duce unit costs and the access on equal. terms to coal and steel in the Eurooean coal and steel community are making Italy's manufacturing industries more com- petitive in domestic and foreign markets. 7. Construction and service industries have also been prosperous. There has never before been so much building--commercial and residential. Hotels and restaurants have been doing well. The shipyards are booked for several years ahead and the merchant marine is prospering. 8. Because of sound monetary policy and rising domestic savings, all this expansion has proceeded with relative price stability. 9. The rise in "transferable domestic savings"1/ has acted as a stimulant to the capital market and has allowed a substantial increase in long-term financing both for private industry and for public works. 10. Public finances have shown some improvement with revenues now exceeding current expenditures. Financing of public investment has been carried out by largely non-inflationary means. / This covers all savings other than those retained and used by the com- panies themselves. - ii - 11. Exports have on the whole been developing favorably and earnings from invisibles have increased substantially. But because of heavy investment, imports have risen considerably more than exports. 12. With investment in excess of domestic savings, the balance of payments continues to show a deficit on current account. However, external resources in the form of EPU credite, offshore procurements and troop expenditures are in sight for covering substantial deficits in the immediate future and so permitting a high rate of investment to continue. 13. If national income and savings continue to develop favorably and foreign exchange earnings increase as expected, the balance of payments position may be manageable by 1960 even at the investment levels which are presently proposed. 14. If these expectations do not materialize, Italy would have to cut back investment, which would mean that the steady reduction in unemployment would slow down or even be reversed. The willingness of the Italian people to Ec'-ept this constitutes the largest element of risk in any further lend- ing to Italy. 25. The debt service record is good and it is reasonable to expect it to continue to be so, even if it should entail taking domestically unpopular measures. The external debt service charges on Italy's foreign exchange earnings ar: relatively small, particularly in non-dollar currencies. 16. Because of all these considerations, Italy may be considered as a good risk for a further loan of approximately $75 million, I. GENERAL Introduction 1. Since the Bank's most recent appraisal of Italian creditworthiness (May 20, 1955), the Italian economy has expanded somewhat faster than had been expected. National income in 1955 rose by 7%, with both industry and agriculture contributing to the increase. The increase in national income for 1956 is now expected to be about 5% which is in line with the Vanoni Plan forecasts. Employment has improved although unemployment and under- employment remain a serious problem. Vhile there is a slight pressure on the price level, there are no indications of any serious inflation. The balance of payments in 1955 improved somewhat over 1954, but it continues to be a weak point. National Income 2. The continuing growth at satisfactory rates of the national income constitutes the most favorable feature of the recent economic history of Italy. It is due to a soundly guided investment policy with internal mone- tary and price stability, a high degree of trade liberalization, and favorable economic conditions in the European and world economies. 3. The national product of Italy fell to catastrophically low levels during and immediately after World War II, reaching in 1945 about half the pre-war level. It recovered very rapidly and by 1950 sufficiently exceeded the pre-war level to offset the growth in population and to allow a real income per head equivalent to that of 1938. Once reconstruction was com- pleted with the aid of substantial U. S. grants, the rate of growth of national income subsided somewhat, but nonetheless the performance continued satisfactorily. It is estimated that real national income increased by 7% in 1953, by approximately 5% in 1954, and by an additional 7% during 1955;i/ that is to say, the pace of growth has been slightly above that in the rest of Western Europe. The performance during 1955 is particularly significant because weather conditions were by no means outstanding. As a result of bad weather and a drop in agricultural output, it is now expected that the national income will rise by 5% in 1956. The expansion in business activity is largely attributable to increased productivity in agriculture and industry as a result of a high level of public investment and of the rising volume of private investment. This record of postwar performance demonstrates the basic vitality of the economy and holds out promise of further growth, with reasonably good fortune. Uses of National Income 4. Because of increased productivity it has been possible to increase both consumption and investment. Private consumption, which by 1952 exceeded pre-war levels, increased by 6% during 1953, by 3% in 1954 and by 4% in 1955. hile consumers were rebuilding their stocks of clothing, furniture and other durable goods in the immediate post-war period, expenditures on foodstuffs lagged somewhat. By now, however, per capita consumption appears to have well surpassed pre-war levels in all major fields. Furniture, electrical 1/ Fcr details see Appendix Table 2, - 2 - appliances, motor vehicles and other durable goods have been selling well. Current expenditures of the government have also risen, but less rapidly than national income, thereby reducing their relative share in the national product. 5. A substantial part of the increased incomes has been savod. Indeed, for the future growth and viability of the economy, the post-war growth in total savings and the more recent large increases in "transferable domestic savings". are most encouraging. Gross investmentJ/ was at a rate of about 200 of gross national product during 1951-54 and in excess of 21% in 1955, which is somewhat better than the Vestern European average. An appreciable increase in private investments took place in 1955, while public investment remained at roughly the sarm,e level. If income and consumption continue to increase in the same proportion as in recent years, the growing volume of savings should assure continued high levels of private and public investment. This would Yake it possible to increase the national product per head above its present level of approximately $500 equivalent annually. The most urgent need to increase incomes is in the South where they are only about half the national average. Investment Pctivity 6. Public works and housing together now account for roughly a third of total investment and have registered the largest percentage growth of all sectors. This is explained by the rapid growth in housing construction and by the public works of the Cassa per il Mezzogiorno which in many instances serve as forerunners of increased private and public investments both in agriculture and in industry. Industrial investment in 1955 amounted to almost a third of gross investment in Italy. Gross Investment-/ 1948-1955 (in billions of current lire) 1948 1949 1950 1951 1952 1953 1954 1955 1. Agriculture 160 190 180 265 270 310 337 370 2. Industry 460 520 570 700 780 740 750 846 3. Transport & communications 280 250 270 270 330 358 414 422 4. Public works and housing 260 340 410 485 620 726 821 951 5. Others 50 70 90 115 120 120 132 146 6. Total 1210 1370 1520 1835 2120 2254 2454 2735 7. Percentage of investment to GNP 17.1 18.0 18.1 18.9 20.8 20.3 20.5 21.2 7. The recent growth in investment has been largely made possible by the rise in "transferable savings." The flow of savings through financial institutions and the capital market has practically trebled since 1951. About one-third of total savings are now thus available through the market; the other two-thirds are still utilized directly by the companies making them and by the government's investing its current account surplus and social 1/ This covers all savings other than those retained and used by the companies themselves. 2/ Exclusive of inventories. - 3 - security funds and postal savings. The public sector, including the Treasury, parastatal agencies, local authorities and public housing, takes between half and three-fifths of the "transferable savings" and the remaining portions are utilized by the private sector. More than two-thirds of all investment activity in Italy during 1955 was carried out by private enterprise, while all public entities combined were responsible for approximately one-third. 8. The sources of financing of private and public investment in 1955 are shown below: Financing of Investment/ Total: 2,925 billion lire Sources of Amount in /0 of Sources of Amount in o of private in- billion total public in- billion total vestment lire investment vestment lire investment Capital market 403 13.8 Budgetary surplus over current Self-financing, account 202 6.9 direct savings and short-term Borrowing 659 22.5 credits 1,562 53.4 Note issue 3-4 Sub-total Sub-total private 1,965 67.2 public 960 32.8 Capital from abroad, including E.P.U. credits, U.S. aid and IBRD funds, provided roughly 3Z of total investment resources. 9. Public investment, in addition to the CaFsa per il Mezzogiorno (Fund of the South) program, covers a wide scope of activities besides the usual public works included in the budget. Investment appropriations in the budget (including funds for the Cassa per il Mezzogiorno) have accounted during the last several years for approximately half of total public investment, the remainder being carried out by the several parastatal corporations in the fields of industry, mining, communications, transportation, as well as by local and regional authorities. The public investments (outside of the Cassa per il Mezzogiorno) included in the budget are coordinated by the usual budgetary processes and influenced by the normal economic, social, and politi- cal pressures. The public investments outside of the budget are in part influenced by market needs, as well as the possibilities of rais-ng funds and in part by the profit expectations of managements. Although the bulk of public investments has not been coordinated by any overall program, certain studies of the problem are going forward, which are alluded to in the follow- ing paragraph. 1/ For details see Appendix Table 3. 10. The so-called "Vanoni Plan" is not a plan in the normal sense of that word. Its author, the late Budget Minister Vanoni, has himself des- cribed it as "a statement of the problem." On the basis of certain assump- tions, probably not all of them valid - assumptions as to extent of unem- ployment and underemployment, population growth, normal growth of employment opportunities in the private end public sectors, changes in consumption and investment habits, etc., the "plan" sets an employment goal of four million new jobs in ten years. It then goes on to analyze the domestic end foreign investment resources which would be required under still other assumptions to reach that goal. It concludes, probably correctly, that the magnitude of such investment would be well beyond Italy's unaided resources. While as an analytical tool its value is unquestionable, it does not purport at this stage to be a firm plan to be carried out in all its details. It has, however, stimulated interest in the direction of coordinating public investments. An analysis of the investments included in the budget has been undertaken by the economic staff of the Iinistry of the Budget to determine their relationship to the Varoni investment framework. This useful first step will be followed in the fall of 1956 by a broadening of the study to include the whole field of foreseeable oublic investment, both budgetary and parastatal. It is hoped that this study will result in a further tightening of controls over the use of scarce public investment resources. 11. The implementation of the Cassa program has on the whole proceeded satisfactorily. Progress was recorded during the sixth year (1955/56) in screening investment anlications and in the awarding of project contracts. The cumulative value of contracts awarded increased in the course of the year from Lit. 472 billion to Lit. 606 billion. Total works comleted under the Cassa program reached Lit. 266 billion as compared with Lit. 184 billion at the end of 1954/55, and if the land reform works financed by the Cassa are added, the total completed reached Lit. 347 billion--almost 30% of the funds for the entire twelve-year program. Investments actually realized under the Cassa program in the course of the year amounted to roughly Lit. 170 billion in 1955/56, or about the same as in the preceding year. These investments have continued to stimulate the development of the economy of the South end have induced additional investments in power, industry and other sectors within the area. The equivalent of 200,000 full- time jobs have been created directly and indirectly by the Cassa program and it is continuing to stimulate the demand for investment and consumers goods made in Northern Italy. All told the Cassa program has continued to give a satisfactory account of itself. (For more details see Annex I to this report). 12. On the other hand, the expenditures by the Cassa during the past two years, well in excess of the current annual aDrropriations (Lit. 100 billion), have placed a heavy burden on the Treasury and indirectly on the Barca d'Italia. In order to alleviate somewhat this burden and enable the Cassa program to proceed at its recent pace without current inflationary con- sequences, an inflow of external capital is essential. This function was performed by Loan 117-IT and would continue to be performed by any addi- tional lending by the Bank to the Cassa. -5- Population and Unemrloyment 13. Italy's most serious economic and social problem is population pressure. Compared to other western countries, the current rate of growth, 0,68,l per year, is not high. For is it too high in relation to the amount of current investment available to put to work the annual net increase in labor force. The problem is an inherited one; it is due to the existence of a large pool of unemployed and underemployed. This pool was essentially created in the period since the first World ',ar, and particularly during the 'thirties and the second World War. Up to World War I, the population was kept down by emigration, particu- larly from the South whe..e birth rates were high. The curtailment of emigration to the United States in the early 'twenties and then to the rest of the world during the depression of the 'thirties and World War II and after, coupled with the then national policy of encouragement of a high birth rate, led to a growth of population beyond the capabilities of the economy - as organized - to provide sufficient investment capital to put the growth in labor force to work. It is this accumulated sur- plus that constitutes the population problem. 14. The current outlook is for an annual increase of population of roughly 400,000. Since emigration prospects are limited and are not likely to relieve Italy of more than 200,000 persons annually, the net increase in population may be estimated at 200,000 and in the labor force at roughly 100,000. Population growth is not expected to cease until 1981 when total population is expected to be around 51 million. 15. In a very real sense, the population pressure has become the focal point of economic policy. With unemployment at a level of about 1.3 million and widespread structural underemployment, bridging the gap between the growing labor force and available employment opportuni- ties constitutes the greatest challenge to Italian social and economic policy. ,ith reconstruction fully completed and with the economy having been raised to a much higher level of efficiency, employment- creating investments are receiving much greater emphasis, particularly in the public sector. Various estimates indicate that the increases in employment during the past two or three years were sufficiently large to absorb the natural increase in the labor force as well as to furnish jobs for some 150,000 to 200,000 workers formerly unemployed. Although this represents only a dent in the employment problem, it is a significant development. Providing that domestic investment resources continue to be used effectively and reasonable amounts of capital from abroad are received, the next decade could witness the disappearance of Italy's sore spot - unemployment. With its disappearance Italy should become more productive and government policies would become less suscept- ible to pressures emanating from social instability. Thus while a large - 6 - population is likely to continue to exert a depressing effect on incomes because of the need to develop relatively low yielding resources, large scale chronic unemployment need not remain a permanent feature of the econciny, II. SPECIFIC ECONOMIC SECTORS Agriculture 16. Agriculture is Italy's primary economic pursuit, giving employ- ment to approximately 40% of the total working population and producing about one-third of the national product. Although her agriculture is severely handicapped by such natural factors as mountainous terrain and inadequate water, modern scientific techniques can increase its productivity. 17. The progress in agricultural output since the end of the war has been satisfactory. Agricultural production by 1950 exceeded prewar levels. An increase in output of about 5% took place during the ensuing 2 years and a further rise of roughly 101o in 1953 as a result of exceptionally good weather as well as of some improvements in techniques. Even with bad weather in 1954, output was 5% above 1952 and the 1955 harvest is estimated at about 8% above 1954, largely as a result of the use of improved seed selection. The most significant increases in output have taken place in such commodities as fruits and vegetables, sugar beet, wines, olive oil, milk and cheese. The production record of cereals was on the whole not very impressive until 1953, when an unprecedently large crop was raised on a reduced acreage. Grain production suffered in 1954 owing to exceptionally bad weather conditions; but the rising trend was resumed in 1955 when enough wheat was produced to meet domestic needs. Because of unfavorable weather, the 1956 wheat crop is now estimated at 9 million tons as against the record yield of 9.5 million tons in 1955. Meat output is somewhat above prewar and the outlook appears favorable as the livestock population has been growing. 18. Considerable agricultural potentialities exist and they will have to be exploited if the economy is to be strengthened. Broadly speaking, the present agricultural policy is to raise output in all branches of agriculture, largely by a more rational utilization of the country's sparse land resources, by introduction of scientific farming techniques, 1/ For details see Appendix Table 4. -7 - and by irprovcrent in credit facilities. Studies made in Italy suggest that an increase of up to a fourth of the current levels in agricultural output could be achieved over the next decade. Achievement of this goal is largely predicated on the continuation for some years to come of present high levels of public and private investments in arriculture, and on a successful cam- paign by the Ministry of Agriculture Extension Service to overcome the inertia of farmers' adherence to antiquated farm methods and practices. If this goal is realized, and it is an ambitious one, it would permit Italy to achieve an over-all external balance on food account, at the same time allowing a small increase in caloric (and protein) consumption. The program pri7arily contem- plates a reduction in cereal imports, increased imports of meat and an expan- sion in exports of fruits, vegetables and other specialty foods. Its achMeve- ment will thus depend not only on the success of the Italian development ef- forts but also on foreign markets. Mining and Ener 19. Until recently the subsoil resources have been believed to be limited and of low grade. Mining has therefore been largely confined to relatively small quantities of poor quality coal, iron ore and such non-ferrous ores as bauxite, lead and zinc. Consequently, extractive industries have played a very minor role in the economy and have contributed only about 1% of national income. 20. This picture has been materially altered during the past several years as the result of the discovery of natural gas in Northern Italy and will be further improved when the recently found oil deposits on the Adriatic coasU and in Sicily are developed. The gas is of the greatest importance to Italy because of her heavy dependence on coal imports. Her industry is now in a position to expand substantially without the need to increase coal imports; on the other hand, should industrial growth proceed more slowly than gas out- put goes up, large savings in coal imports may be realized. Development of gas has proceeded rapidly as is indicated by the following table: Year Million of Cu. M. of Gas Produced 1950 522 1951 977 1952 1,443 1953 2,298 1954 2,982 1955 3,627 The 1955 output is equivalent to 4 million tons of imported coal. Present plans envisage an expansion of natural gas over the next decade to the level of 6,000 million cubic meters annually or 7 million tons of coal equivalent. 21. Another important development may materialize in Sardinia. The coal reserves located in the southwestern part of the island are estimated at 600 million tons, but because of the high sulfur content, costly mining and transportation, exploitation has proceeded slowly with actual extraction fluctuating around 1 million tons annually. Recent construction of an over- head conveyor belt to the sea should reduce costs somewhat and make this coal more attractive. The Sardinian regional authorities have been also exploring the possibilitics of establishing a heavy chemical industry, based on the sulfur content of the coal. Natural steam also is being slowly developed as a power source. 22. In addition to importing about 10 million tons of coal annually at a landed cost of approximately $180 million, Italy now also imports about 10 million tons of petroleum for domestic use at a cost of approximately $200 million. The combined cost of these two, about 15% of total imports, con- stitutes a heavy drain. The oil companies now operating in Sicily may pro- duce at an annual rate of 1 mil3ion tons by the end of 1956. Zxploration on the Adriatic coast suggests the existence of sizeable petroleum deposits there. If these turn out to be only partly as rich as first preliminary reports seemed to indicate, substantial import savings would be realized. Enactment of satisfactory legislation which would encourage exploration and exploitation by domestic and foreign private capital is essential. Progress in this direction has so far been very slow and the most recent developments have been disappointing. 23. The magnitudes and sources of energy utilized by the Italian economy in 1955 are readily seen from the following table: Equivalent in million tons of coal Energy Source Amount (7,400 calories) Percent of Total Electric energy 38 billion kwh 21.5 42.3 Petroleum 9.7 million tons 13.1 25.8 Coal 10.4 million tons 10.6 20.9 Natural gas 3.6 billion m3 5.6 11.0 50.8 100.0 Because of the importance of hydroelectric power, Italy has implemented a large hydroelectric development program in the postwar period, installing new capacity in excess of a million kw since 1951 alone. While it is intended to increase the supply of hydro power by 50% over the next decade, greater reliance will henceforth have to be placed on thermal power because it is expected that the economic hydro resources of Italy will soon be fully harnessed, and because of the need for a more balanced system. In this connection, the role of natural gas, of Sardinian coal, and especially of the newly discovered petroleum resources will be most important as savers of foreign exchange. Industry 24. Manufacturing plays an important role in the economy since it is responsible for nearly 40% of the national income and gives employment to about 35% of the working population. Badly damaged during the war, plant and equipment have now been completely reconstructed, modernized and in some industries even expanded. All this has been achieved through substantial -9- private and public investments. While Italian industry has been able to increase exports of mechanical products, further rationalization will be necessary to assure its future vitality. Especially important are adjust- ments required by the newly introduced common European market in coal and steel and further reduction in costs in order to compete effectively abroad. 25. The postwar performance of the manufacturing industries has been satisfactory. By 1951, the index of manufacturing production exceeded 1938 by 40% and it rose by an additional 25% between 1951 and 1954, or at an average annual rate of 8%. A further increase of 9% took place during 1955. In very large measure, this performance was made possible by the growth in the output of investment goods industries. Although overshadowed, the pro- duction of consumers' goods has also developed favorably. Practically all the major manufacturing industries have been recently enjoying a high degree of prosperity. The chemical, mechanical and building materials industries have been particularly prosperous. The textile industries which experienced a recession because of a severe decline in export demand after the boom during the Korean war have only partially recovered, and the cotton sector is still sufferingl/ 26. The outlook for Ita!l.an manufacturing industries has greatly improved as the result of the establishrnent of a common European market for coal and steel. Qr giving Italy access on equal terms to the raw materials for her new and efficient iron and steel plants, the high domestic price of steel as much as 50% above other Mestern European countries--should be eliminated in the next few years and one of the chief obstacles to the competitivene': of her mechanical industries will go with it. Steel production in 1955 reached 5.4 million tons and exceeded 1954 by as much as one-third. 27. The mechanical industries, which suffered from chronic overcapacity in the early postwar period, now find themselves in a particularly favorable position. The reduced cost of steel, the increased demand for capital goods because of the high level of domestic investment and the substantial off- shore orders by the U.S. Government have all served to bolster them. Even export prospects have been rendered more favorable as volume of output has risen and Ithlian prices have become more acceptable to the highly competi- tive international markets. 28. All these developments are of particular significance to the ship- building industry. This industry, which suffered from overcapacity more than any other, has been revitalized as a result of a number of measures taken by the Government. Italy has an annual shipbuilding capacity of 300,000 tons of which domestic requirements do not exceed 100,000 tons. The need for export orders is obvious, but until very recently, the high cost of steel, the practice of carrying excessive labor as an overhead cost and the pyramiding of indirect taxes have managed to price the Italian ship- building industry out of the market. Somewhat belatedly, the damage done by these practices was recognized and corrected with the result that the Italian shipbuilding industry is now operating at full capacity and is booked well in advance. 1/ Detailed figures are contained in Appendix Table 5. - 10 - 29. The outlook for the other manufacturing industries, including chemi- cals, textiles (other than cotton) and building materials depends on the continued growth of the domestic economy and export markets. Petroleum refining currently has an overcapacity, but this should be altered in the long run as the result of the normal growth in the demand for petroleum products. Consumption is now limitod because of the foreign exchange cost of imported crude oil but should domestic reserves prove large, it is likely to rise quickly to a point where no overcapacity in refining will exist. Construction and Services 30. The recent expansion in production, incomes and profits has acted as a powerful stimulus to the service and construction industries, which contribute approximately a quarter of the national income. The improved position of the consumer coupled with government subsidies for low cost housing have increased residential construction to boom levels by Italian standards. Some 972,000 habitable rooms were completed in 1953, as compared with 749,000 in 1952 and only 592,000 in 1951. The housing boom has recently further expanded, reach- ing 1.2 million habitable rooms during 1954, and 1.4 million in 1955. Furthermore, public works construction increased from less than 100 million man-days in 1951 to about 135 million man-days in 1955. To support this high rate of construction, it was necessary to nearly double cement production between 1951 and 1955 and also to increase the production of bricks and tiles by more than 50,0. Expancion in construction activities has served as the main source of additional employment during the past several years. The out- look for the building and construction industries is favorable, providing investment and national income continue to grow at least at the present rates, 31. Most service industries are prospering and their performance in 1955 was on the average as satisfactory as that of the other sectors of the economy. Noteworthy among these, for the national income and even more the balance of payments, are the activities centering around tourism, hotels and restaurants, and ocean shipping. Expansion in moderate priced tourist facilities, the active attempt on the part of the Cassa and other agencies to develop and popularize new tourist attractions, should encourage more tourists to come to Italy. Barring deterioration in the international situation, the outlook for tourism continues to be favorable. 32. The merchant marine has staged a complete comeback, and the serious iwar losses have now been more than made up. The gross registered tonnage was 4 million tons at the end of 1955, which is 25% above prewar. As a result, the large postwar balance of payments deficit on shipping and freight accounts has now been almost eliminated. With the recent further expansion in the passenger and tanker fleet, a moderate surplus ray be reasonably projected on transportation account. Needless to say, its realization will depend on continued high levels of international trade and a growing tourist traffic. - 11J - III. MONETARY, FINACIAL AND FISCAL POFITION Price Stability 33. Italy has maintained a high degree of price stability in the face of an accelerated investment program and greatly expanded demand. This has been accomplished mainly by a sound domestic monetary policy and a high degree of liberalization of foreign trade. The "opening up" of the economy has injected a vital element of competition and has increased production in response to growing demand, allowing wholesale prices to remain stable or even to droo in some instances. On the other hand, behavior of the cost of living indices indicates the existence of a slight inflationary pressure. 34. The wholesale price index has remained'virtually unchanged during the past several years. The actual cost of living in 1955 was somewhat higher than a year earlier and has continued to increase in 1956. This was due in pa -t to an increase in indirect taxes, to authorized increases in controlled re--ts and utilities, but also to an upward pressure on foods and sundry expenditures.1/Italian prices of investment goods, which rose more in the post-Korean boom than did international prices, have now dropped more steeply, placing Italy in a more competitive position in international markets. On the other hand, prices of consumers' goods, which were held down in Italy during the post-Korean period better than in other countries, have been edging forwa-rd during the past two or three years and are now less favorable in interncticnal comparisons. Capital Market 35. By far the most significant recent development in the Italian economy has been the rise in "transferable savings" and the growing availabilities of long-term funds. Although this savings trend is observable in many economically developed countries, it is particularly significant for Italy where the capital market is thin, the propensity to consume is very high because of living standards lower than those in most of Western Europe, and where the need to maintain development investment at high levels is a con- stant threat to internal monetary stability and to foreign exchange reserves. The Italian capital market has been expanding considerably as evidenced by the increase in the amounts of securities issued. The aggregate amount of funds raised in the market by the Government, by special credit institutions and by corporations has been much larger in the last two years than in the preceding ones.27 The widening demand for investment capital was well absorbed by the market which continued to maintain a liquid position. 36. Resort to the capital market for the financing of industry is carried out either directly by the larger firms or indirectly through a variety of "special financial institutions." The latter, including IMI and others, play Detailed figures are contained in Appendix Table 6. Detailed figures are contained in Appendix Tables 7 and 8. - 22 - an important role in providing medium- and long-term funds to smaller Italian industrial firms. Although these special institutions are frequently govern- ment owned, as are the major banks of Italy, they furnish investment funds on a commercial basis, mostly to private firms. Depending on prevailing condi- tions, they raise funds by selling their obligations to the public and to the banks, as well as by securing funds from the government, and they channel them into productive investment. 37. The total amount of new capital drawn from the market by the directly productive sectors was $627 million in 1955 as compared with $465 million in 1954. Likewise, the capital market took up at the beginning of 1955 a nine- year Treasury bond issue equivalent to $366 million which was $59 million larger than in 1954. Short-Term Credit Market 38. The position of the credit market has greatly benefited from the same factors which contributed so much toward the stimulation of the long-term capital market. Increases in "transferable savings" are reflected in growing bank deposit.s, in increased loans to customers and in the narrowing of the spread between the interest rates paid on deposits and those charged on loans. Time deposits in the banking system increased by Lit. 338 billion ($541 million) in 1954; and by Lit. 371 billion ($594 million) in 1955, and in the postal savings system by Lit. 117 billion ($187 million) and Lit. 96 billion ($152 million) respectively.]/ 39. The financial resources of the postal savings system are utilized by the government to finance its own activities as well as those of state enter- prises. Consequently an increase in deposits has the effect of reducing resort of the government to the money market. As for the banking system, it used the added resources to increase commercial loans and to pre-finance fixed investments. In the course of 1954 and 1955 the banking system increased its loans and investments by 15% and 16% respectively. At the same time the liquidity of the banking system has been maintained and no stringent credit situation had developed. 40. Bank credits granted during 1954 amounted to Lit. 471 billion ($754 million), and during 1955 to Lit. 521 billion (434 million). Of the credits opened in 1955, the construction industries received 12%, agriculture 24%, and the remaining sectors of productive activity 64%. The role of the banking system in financing construction and in pre-financing fixed investments in agriculture, power, communications and industry appears to be significant. This was achieved by extending short-term credits until the capital market was receptive to their consolidation and funding. Public Finances 41. The progress made by the economy has favorably affected the public finances. Budgeted expenditures have risen from Lit. 2,410 billion in 1952/53 to Lit. 2,991 billion in 1956/57. On the other hand, rising national income, combined with some changes in the rates of taxation, has raised government 1/ Detailed figures are contained in Appendix Tables 9, 10, and 11. - 13 - revenues from Lit. 1,889 billion in 1952/53 to Lit. 2,671 billion in 1956/57. Although about 80% of public revenues are still derived from indirect taxes, some progress has been made in increasing the yield from direct taxes.2/ 42. Actual Treasury expenditures have reached Lit. 2,483 billion in 1954 and Lit. 2,707 billion in 1955. Total Treasury cash receipts rose to Lit. 1,934 billion in 1954 and to Lit. 2,143 billion in 1955. The over-all cash deficits have moved as follows: 1952 1953 1954 1955 (in billion lire) Deficit 597 545 549 564 Means of financina: Foreign aid 129 74 56 25 Borrowing 386 405 429 430 of which: from banks (152) (139) (155) (165) from public (234) (266) (274) (265) Net increase in Treasury indebtedness to the Banca d'Italia 65 54 62 101 Issue of currency by Treasury 17 13 2 8 Total financinp 597 545 549 564 The significance of cash deficits has declined to roughly one-fifth of totFl expenditures. In financing the deficit, the role of foreign aid has been reduced, while reliance on domestic capital and the money market has been rising. Because of the large increase in "transferable savings", even the somewhat larger share taken by the Treasury left a larger amount for the use of the rest of the economy. The extent to which the deficit was financed by new money creation directly by the Treasury or through the Bank of Italy has on the whole been very moderate and so far has not engendered any serious inflationary pressures. 43. The outlook for the public finances is reasonably good. Government revenue will continue to rise with national income since most taxes are directly related to business activity. Some small increase in revenue may also be expected in the form of direct taxes as a result of better enforce- ment; also as a result of the recently enacted corporation tax and higher consumption taxes. The weight of evidence is that the general Italian tax structure is not apt to change basically in the foreseeable future and that indirect taxes will continue to account for most of the tax revenues. Indeed, recent increases in taxes on sugar, salt and coffee have placed a further emphasis on indirect taxation. Current public expenditures are quite high but at around 12% of GNP they are below the Western European average. It is probably this which makes it possible for gross investment in Italy, on the other hand, to be above the Western European average. Although pressures to raise expenditures further will continue, the fiscal and monetary authorities have adequately demonstrated their determination to contain public expendi- tures within limits set by the requirements of internal monetary stability. 1/_Detailed figures are contained in Appendix Table 12. - 14 - The cumulative effect of government deficits on the public debt should not be too serious because of the latter's sharp decline in real terms as compared with prewar. Finally, current revenue is expected to yield a small surplus over current expenditures in the current fiscal year as well as last year, and the government's borrowing, therefore, is strictly for investment. In a poor country like Italy, where the use of savings to finance current public consumption is a waste, the government's success in eliminating this in the last few years is commendable. IV. EXTERAL ACCOUNTS Foreign Trade 44. Broadly speaking, it is normal for Italy to incur a substantial foreign trade deficit within the limits set by her invisible earnings and receipts. In her trade relations her heavy dependence on imports of many essential raw materials is a weakness since it renders compression of imports very difficult. On the other hand, the competitiveness of her exports has been gradually improving. Moreover, her comiercial policy has attained the highest degree of foreign trade liberalization within EPU and more recently imports from the U.S. have been substantially liberalized. These developments have proved very salutary for the Italian economy and have gained for her a good standing in the international trading community. 45. Italian foreign trade is characterized by imports of such basic food- stuffs as cereals and meats and such vital raw materials as coal, petroleum, cotton, wool, hides, and rubber. Due to the virtually complete liberalization of trade vis-a-vis EPU countries, the establishment of a common European coal and steel market and the acceleration of Italian investment, imports of metallurgical and mechanical products have greatly increased in recent years and now constitute the largest single import category. On the export side, fruits, vegetables, cheeses and other specialized foods, textiles and machin- ery account for over two-thirds of the total. Refined petroleum products and chemicals account for an additional 15% of exports and the remaining 15% consist of miscellaneous products, including leather and rubber goods..1 46. Both in quantity and in value Italian exports have been growing in recent years. The volume index has increased slowly from 92 in 1950 to 124 in 1955 (1953 = 100). A somewhat more pronounced trend is observable in the value of exports which has risen annually (with the exception of 1952 when foreign markets shrank temporarily due to the world textile recession) from $1,205 million equivalent in 1950 to $1,858 million in 1955. Imports, how- ever, have increased even faster both in quantity and in value. The volume index rose from 73 in 1950 to 113 in 1955 (1953 = 100) and the value of im- ports (c.i.f.) rose from $1,482 million equivalent in 1950 to ';2,706 million in 1955.J Thus, exports covered 81% of imports in 1950 and only 70% in 1955, while the trade deficit increased from $277 million to $848 million. Since imports are treated on "c.i.f." basis, and the proportion of Italian foreign 1/ Detailed figures are contained in Appendix Tables 13 and 14. 2/ Detailed indexes are contained in Appendix Table 15. - 15 - trade carried by its own ships has greatly increased, the actual foreign ex- change burden on Italy was somewhat less, amounting to $650 million annually. Nevertheless, it is clear that as a result of trade liberalization and heavy domestic investment, a substantial increase in imports has taken place in recent years and this increase may be expected to continue. 47. The geographical distribution of Italian foreign trade reveals some striking recent shifts. In the immIediate postwar years, Italy had to rely heavily on dollar area imports, which were largely financed by grants from the U.S. Government. At the same time the sterling area and other OE'C countries served as the major outlets for her exports. This resulted in her first accu- mulating large sterling balances and in later becoming a substantial creditor in EPU. As the supply situation outside the dollar area improved and Italy liberalized her imports from EPU countries, the geogranhical distribution of her imports changed very aporeciably. Imports from U.S. and Canada dropped by $232 million between 1952 and 1954, while those from the FPU area increased by 344 million. This change improved Italy's dollar position, but brought about a serious deterioration in her EPU situation. The trade balence vis-a-vis the U.S. and Canada and the EFU area, developed as follows: 1952 153 1954 1955 (in million of U.S. ) U.S. and Canada -392 -202 -174 -258 EPU area -411 -636 -597 -603 The increased deficit with U.S. and Canada in 1955 resulted from growing trade liberalization toward the dollar area.! Balance of Payments 48. The balance of payments continues to be a problem. However, the character of the recent balance of payments deficits differs from those in the immediate postwar years in that they are not associated with a low state of activity of the economy. On the contrary, these deficits are the result of a rapid exnansion in economic activity and especially in the level of invest- ment above the level of current domestic savings and represent the import of capital or the use of available credits. 49. Italy's trade deficit is very substantial and amounted to $649 million in 1954 and to $655 million in 1955 on an f.o.b. basis. Earnings from tourism, receipts from emigrant remittances and other invisible items have provided an offset in 1955 in the magnitude of $422 million, thereby reducing the payments deficit in 1955 to $233 million. This figure was further reduced by $190 mil- lion as a result of such special receipts as offshore procurements, U.S. troop expenditures and infra-st-ucture. The remaining deficit of $43 million was financed out of EPU credits. As a result of all these payments and receipts and of fluctuations in short-term claims and liabilities, net gold and foreign exchange holdings of Italy increased from $891 million to $998 million during 1955. Thus, on balance, 1955 showed some improvement in the balance of pay- ments and a strengthening of foreign exchange reserves. / The balance of payments during 1956 is likely to be about the same as in 1955. 1/ Detailed figures are contained in Appendix Tables 16-21. 2/ Detailed figures are contained in Appendix Tables 22, 23 and 24. - 16 - 50. The shape of things to come beyond 1956 can only be described in a hypothetical manner. If the volume of international trade continues expanding, the greatly increased Italian merchant marine may be expected to get a grow- ing share and thereby convert Italy's transportation account deficit of approximately $15 million during 1955 into a surplus of roughly $10 million annually by around 1960. Similarly, if international conditions do not dete- riorate, Italy's net earnings from tourism may be expected to reach $225 million in 1960 as against $190 million in 1955. Emigrants' remittances, and earnings of Italian workers abroad, which reached $125 million in 19555 may also be expected to rise to an average level of $150 million as a result of continuing emigration, providing high levels of production and employment persist in the countries of immigration. Thus "invisibles" could improve the balance of payments by about $85 million annually. 51. In 1955 Italy experienced a deficit of $41 million on food account. As a result of the present intensive efforts in agriculture, it is expected that this deficit will be eliminated in spite of a growing population and rising consumption. Increased domestic production of cereals, industrial crops, fruits and vegetables as well as of various kinds of specialty foods like cheeses, olive oil, etc., should both decrease imports and increase exports. The net surplus of $183 million which Italy enjoyed in her exchange of manu- factured products with the outside world during 1955 could be expanded. Recent heavy investments in the mechanical and chemical industries should produce favorable results. Lastly, the shipbuilding industry, which has been hampered by high costs and unwise pricing policy until 1954, has now become competitive and is booked through the nineteen fifties. All told, the export-import bnI- ance on account of foodstuffs and manufactures could improve by about $150 million in the years to come. 52. Italy's biggest foreign trade deficit is in raw materials and semi- manufactures. Although some internal shifts in this account, accompanied by foreign exchange savings, are possible, on the whole it would be unrealistic to put too much reliance on it. In fact, increased exports of manufactures will require additional wool, iron ore, metals, etc., which may more than offset the import savings, and, on a net basis, some increase in the deficit for raw materials and semi-manufactures may result. The effect of all these changes might be an increase in net foreign exchange earnings of about $200 million a year by 1960. 53. This improvement in the balance of payments would go a long way toward eliminating the gap of $233 million which existed in 1955. It is, of course, quite possible that some of the increases may not materialize. On the other hand, it should be borne in mind that the above projections made no allowances for possible further foreign exchange savings resulting from a more rapid development of domestic natural gas supplies, and the successful petroleum exploration and development program. Some savings may be achieved in the case of coal imports if the natural gas program is accelerated and if some means are found to use economically the Sardinian coal deposits. Italy's growing hydro-electric network will also contribute towards this end. Some relief may also be forthcoming from the now slowly developing, but potentially promis- ing, natural steam. The crucial factor, however, in the case of subsoil energy resources is likely to be the present petroleum explorations on the Adriatic Sea and the drilling in Sicily. Italy now spends approximately $200 million annually for imports of petroleum for domestic use and if any substan- tial proportion could be replaced by domestic production, it would make a - 17 - noteworthy contribution to the balance of payments. The exploration of domestic petroleum could be the key to the problem and make possible balance of payments equilibrium without any changes in rates of investment or savings. This makes the need for a good petrolem law all the more imperative. Fur- thermore, no provision has been made in the above calculations for any special receipts in the form of offshore purchases, troop expenditures or other such inter-governmental transfers. These items, if they exist in the future, con- stitute an additional margin of safety. Creditworthiness 54. If as previously suggested, national income, savings and foreign exchange earnings continue to grow at satisfactory rates as a result of recenb and current high levels of investment and if the international situation remains satisfactory, the balance of payments deficits should become much more manageable. On the basis of reasonable assumptions, without the need to cut back investment, the prospects for achievement of equilibrium in the current account balance of payments position by 1960 are promising, especially if netroleum for domestic needs becomes available in italy by that time. 55. It is, of course, only realistic to question the underlying assumptions of the above projections for 1960 and to ask what would happen if the expected increases in foreign exchange earnings do not materialize. Postwar Italian monetary and fiscal authorities have adhered to a policy of cutting their ccat to suit the cloth, Thus, if the foreign exchange earnings do not increase as projected, the authorities could curtail foreign exchange expenditures by approximately $250 to $275 million if this became necessary to balance their current accounts and to service the external debt. Although such a measure would be very painful, it would not create unmanageable difficulties for reasons described below. Nonetheless, Italy's ability to take this measure constitutes the largest element of risk in any further lending to her. 56. The most recent import surplus is under 1% of annual resources used by the Italian economy and around 3% of gross annual investment. Assuming that no reduction in consumption can be effected, the level of gross invest- ment would have to be reduced from approximately 21% to about 20%. This would still be a very satisfactory level by Western European standards, although it might slow down somewhat the rate of eliminating chronic unemployment. Thus, even under unfavorable assumptions, the authorities should find it possible to bring the balance of payments into equilibrium and to service the debt even if the debt burden were somewhat increased. The past record of Italy gives every reason to conclude that debt service will be given a very high priority. 57. As of the end of 1955 the estimated external public debt of Italy amounted to a total of $810 million equivalent, of which the U.S. dollar debt accounts for $515 million. In addition, Italy is subject to war repara- tions claims equivalent to about $135 million. Against these claims there are, however, Italian assets and claims which in the case of some countries may wholly or partially offset them. Annual service payments on this debt (excluding reparations) average around $64 million in the 1956/59 period, drop to about $53 million in 1960 and decline steadily thereafter. Of these amounts, amortization payments account for between $38 million and $51 million in the earlier years, and under $25 million in the later ones. Total service - 18 - payments of $64 million constitute less than 3% of Italy's global foreign exchange earnings at the 1955 rate. Consequently if she can re-establish equilibrium in her balance of payments on current account - and the earlier analysis concluded that she should be able to do so - the burden of servicing this debt would be relatively light. 58. The Italian debt service record is satisfactory. There was no record of default on any publicly held extarnal obligations until June 1940 when Italy entered the war. Debt service payments on dollar bonds were resumed under the "Lombardo Plan" which went into effect in December 1947. Similar plans were adopted in 1948 for the sterling bonds and in 1951 for the Swiss franc bonds. To date all payments have been made promptly. Current yields on Italian bonds in New York, London and Zurich are 6.19, 5.72, and 5.10, respectively. Growing confidence in Italian creditworthiness in the Swiss capital market has been demonstrated when a group of private Swiss banks made a Sw. frs. 100 million loan to Italy in 1954 for a 5-year term at an average interest rate of 3-1/2%, although it was partially covered by foreign exchange deposits with the lending bank. In addition, other Swiss funds have been flowing into Italy, among them a Sw. frs. 50 million loan to Instituto Mobiliare Italiano, the Swiss Government loan of Sw. frs. 200 million to the Italian State Railways, and substantial amounts to private Italian borrowers. 59. Although the balance of payments position is still difficult and sub- stantial deficits may be expected during the next several years, the economy is being increasingly strengthened and should be able to carry an external debt above the present level. A loan to Italy at this time in an amount of' about $75 million would not increase service payments beyond 3% of present foreign exchange earnin-s. Given Italy's sound record of internal monetary management and external debt service, such a loan would carry with it a good prospect of repayment. 60. Italy's foreign exchange earnings both from exports of goods and from invisibles in European currencies are almost three times as large as its dollar earnings. On the other hand, five-eighths of her present debt is in dollars. For these reasons it is easier for her to service non-dollar debt. Table 1: ITALY - EXTERKAL PUiLIC DZ1T OUTST i' DING DECEi BER 31, 1955 National and Government Guaranteed Debt (In thousands) Page 1 Debt outstanding December 31, 1955 Item In currency In U.S. dollar of nayment equivalents TOTAL EXTERNAL PUbLIC DEBT 809.812 fl U.S. DOLi'.h DEBT $ 514.,619 514,619 Pu'blicly-issued bonds $ 135.767 135,767 $39,651,900 Rep.of Italy Ext. S.F. 1-3, 1947-1977 /2 Assented bonds $ 33,738 33,738 Eon-assented bonds $ 1,327 1,327 $37,243,200 Italian Credit Consortium for Public Works Gtd.Ext. S.F. 14-3%, 1947-1977 /2 Assented bonds $ 32,580 32,580 Non-assented bonds $ 1,365 1,365 $1,921,000 Italian Credit Consortium for Public Works Gtd.Ext. S.F., Second Series, 1%-3%, 1947-1977 12 $ 1,852 1,852 $55,o76,600 Italian Public Utility Credit Inst. Gtd.Ext. S.F.1%-3,1947-1977 L2 Assented bonds $ 48,277 48,277 Non-assented bonds $ 1,338 1,338 $18,000,000 Italian Public Utility Credit Inst.Gtd. Ext.S.F.,Special Series, 14-3, 1947-1970 L $ 15,290 15,290 Privately-placed debt $ 6,825 6,825 $1,180,125 participation in Export-Import Nank loans to Istituto Mobiliare Italiano 3 1/2% L /5 3 825 8Z5 $5,000,000 participation at 3 3/4% for 1958-1960 in $70,000,000 IBRD loan to Cassa per Il Mezzogiorno 4 3/4p, 1955-1975 /4 5,000 6 5,OQO Portion sold at 3 3/4 % for 1961 of $70,000,000 IBRD loan to Cassa per Il Mezzogiorno 4 3/4%, 1955-1975 /4 $ 1,000 6 1,000 Loans held by IBRD 78,500 78, 5o $10,000,000 loan to Cassa per II Mezzogiorno 4 3/4%, 1951-1976 .L $ 10,000 10,000 $10,000,000 loan to Cassa per Il Mezzogiorno 5%, 1953-1978 /4 $ 10,000 10,000 Portion of $70,000,000 loan to Cassa per Il Mezzogiorno 4 3/4%,1955-1975 L $ 58,500 L6 58,500 See footnotes at end of table Table 1: ITALY - EXT3RNAL PUBLIC D7TB OUTSTAkDING DECET1ER 31, 1955 (CONTINUD) National and Government 9.- ranteed Debt (In thousands) Page 2 Debt outstanding December -11, 195 Item In currency In U. S. dollar __of nayment e_quvalents U.S. DOLLAR DELT (CONTINUED) U.S. Government loans 293,527 29,527 Export-Import Bank 54,634 54,634 To Istituto Mobiliare Italiano /4 $100,465,375, 3 1/2%, 1947/1952-1959 L$ 28,279 28,279 $1,930,000, 1955 $ 1,930 /7 1,930 $6,ooo,ooo, 4 5/8%, 1955-1961 $ 6,000 11 6,oo0 $3,000,000,4 1/2%, 1955-1960 3,000 /7 3,000 $2,000,000, 4 3/4%, 1955-1965 2,000 L 2,000 $5,000oo,o 4 3/4%, 1955-1965 5,000 L 5,000 42,070,000, 4 3/4", 1955-1965 2,070 /Z 2,070 $6,355,000 loan to Aerolinee Italiane Internazionali 5%, 5 years 86,355 L 6,355 Other $ 239,8c3 238,893 $73,000,000 ERP loan 2 1/2%, 1949-1983 $ 73,000 73,000 $22,600,000 MSA loan 2 1/2A, 1952-1987 22,600 22,600 $65,222,110 Maritime Admin.loan 3 1/2%, 1946-1965 $ 31,633 31,633 Surplus property credits 19 $124,432,050 Bonner-Corbino credit 2 3/8%, 1946-1975 98,174 98,174 $18,000,000 Taff-Del Vecchio credit 2 3/8%, 1947-1976 13,486 13,486 DEBT I1N EPU UNITS OF ACCOU9T u/a I_Z2032 172,01 u/a 117,000,000 Consolidated debt 1%, 1954-1959/1960 /10 u/a 56,200 56,200 Credit from EPU L'1 u/a 122,832 122,832 SWISS FRANC DET SwF 410 268 Z2 i Publicly-issued bonds SwF 71.268 16,632 SwF 22,682,200 Italian Public Utility Institute Foreign loan 1;-3%, 1947-1977 /l2 Assented bonds SwF 21,161 $on-assented bonds S F 107 95 . 5..,63. 5.,63. Table 1: ITALf - EXTERNAL PUBLIC !ZLT LUTSTANDIAG LECEMfb-R 31, 1955 (CONTIUrD) National and Government Guaranteed Debt (In thousands) Page 3 Debt outstandina December 31,1955 Item In currency In U.S. dollar of nayment equivalents SWISS FR.!.C DIET (CO-TIEUED) Publicly-issued bonds (Continued) SwF 50,000,000 Istituto Mobiliare Italiano 4 1/2,,, 1955-1971 SwF 50,000 11,669 Privately-placed debt SwF 100,000,000 Swiss banks loan to Mediocredito 3%-4%, 1954-1959 L12 SwF 89,000 /14 20.770 Loan from BIS SwF 50,000,000 loan to Istituto Mobiliare Italiano 4%, 1955-1960 SwF 50,000 11,669 Intergovernment loan SwF 200,000,000 Swiss Railways to Italian State Railways 3 3/4%-4 3/4%, 1955-1981 14 115 SwF 200,000 46.67 ARGHTINE PESO D1BT M$N 246 5L1 13,694 Intergovernment loan M$N 316,860,600 Argentine Govt.1oan to Rep, of Italy 3 3/4 %, 1947-1972 M$N 246,511 13,694 NETHERLAiDS GUILDER DELT f. 20.900 5500 Loan hcld by IBRD Portion of $70,000,000 loan to Cassa per Il Mezzogiorno 4 3/4%, 1955-1975 /i. f. 20,900 L6 5,500 STERLING DEBT 0 _j6 1 222 Publicly-issued bonds £ 462,460 Rep. of Italy Maremmana Railway loan of 1862, 1-3"',1947-1977 /1.6 9 436 1,222 Exchange rates - The following exchange rates have been used: Par values: f.1 = $0.26316; J 1 = $2.80 Current market rEte: SwF 1 = $0.23337 Other rates: EPU u/a 1 = $1.00; M$N 1 = $0.05555 L Does not include the following: a. Italyts obligation on the Austrian Guaranteed Conversion Loan 1934-1959. Italy guarantees the principal and interest up to 20 1/2%. This loan is payable in several currencics. Payment of interest and sinkirg fund b,r the Austrian Government was suspended in 1939. The Italian Government, as one of the Luaraintors, advanced ita Table 1: ITALY - EXTERNAL PUELIC DEIT CUTSTAiLDING DECENBER 31, 1955 (CONTIFUFD) Page 4 L (Continued) shnre of the principal and interest beginning in 1948. Under an agreement concluded in December 1952, Austria resumed service of this loan. b.Italyts obligation on World lar II reparations as follows: (In U.S. dollar equivalents) Original Creditor Debt outstanding amount country Dec. 31, 1955 Total 150,00000 100,000,000 U.S.S.R. 100,000,000 125,000,000 Yugoslavia 20,000,000 25,000,000 Ethiopia 25,000,000 5,000,000 Albania 5,000,000 The following information has been received in regard to these debts: 1) U.S.S.R. - In December 1948 the two governments agreed to subtract from this debt the value of Italian properties in Hungary, bulgaria and Rumania. The Italian Government believes the value of these properties to be at least equal to the amount of the debt. Any balance is to be paid in goods. A joint Italian- Soviet Commission was to assess the value of the properties but no decision has yet been reached. 2) Yugoslavia - An agreement of December 1950 provided for an initial payment equivalent to $30,000,000. A part of this (the equivalent of Lit 10,000,000,000) was to be withheld by the Italian Government on account of Italian properties nationalized by Yugoslavia. Under the agreement reached in 1955, this obligation was settled at the equivalent of $30,000,000. The debt is to be paid in deliveries of goods and investment credits equivalent to $10,000,000 each year from 1955 through 1957. 3) Ethiopia - According to The hew York Times of March 6, 1956, Italy and Ethiooia have agreed to settle this obligation for the equivalent of $16,300,000. Italy is to build a hydroelectric power station in Ethiopia and to provide additional reparations in the form of equipment and installations. 4) Albania - According to Economic News from Italy dated July 15, 1955, the debt to Albania has been settled for the equivalent of $2,600,000, to be paid by delivery to Albania of Italian industrial products. The difference (equivalent to $2,400,000) from the original amount has been credited against Italian property located in Albania which Albania failed to return to the -proper owners. c.On May 23, 1955 the United States agreed to lend Italy the equivalent of $30,000,000 for the development of Southern Italy, Sicily and Sardinia. Although the initial agreement has been signed, the loan will not become effective until supplemental agreements (now under negotiation) are signed. The loan is to have a term of 40 years, and is to be repayable in either U.S. dollars or Italian lire at the sole option of Italy. Interest is to be calculated at 3% on the outstanding balance when payments ere made in U.S. dollars, and at 4% when payments are made in lire. Table 1: ITALY - EXTERNAL PUhLIC DEBT OUTSTAiNDING DECEMBER 31, 1955 (CONTINUED) Page 5 /2 Service on Italian bonds was paid without interruption until 1940 when payments were suspended because of the war. In December 1947 a debt adjustment plan was put into operation. This plan (the Lombardo Plan) provided for the issuance of four series of bonds: a) $39,651,900 Republic of Italy bonds to holders of Kingdom of Italy 7% bonds due 1951. b) $37,243,200 Credit Consortium for Public Works bonds to holders of bonds of the Credit Consortium, the cities of Rome and Milan, and the Mortgage Bank of the Venetian Provinces. c) $55,076,660 Public Utility Credit Institute bonds to holders of twelve issues of public utility and industrial corporation bonds not formerly guaranteed by the Reoublic of Italy. d) $1,921,000 Credit Consortium for Public ,orks bonds to International General Electric Co. The new bonds of the Credit Consortium for Public Works and the Public Utility Credit Institute are guaranteed by the Republic. Each bondholder received a principal amount of new bonds Oquivalent to the face amount of his old bond plus un-aid interest from June 10, 1940 to January 1, 1947. This unoaid interest amounted in most cases to between $400 and $500 per $1,000 bond. The new bonds are dated January 1, 1947 and mature on January 1, 1977. Interest is payable at the rate of 11o per annum from January 1, 1947 to January 1, 1950, at 2% from January 1, 1950 to January 1, 1952, and at 3 thereafter. The bonds are to be retired by a cumulative sinking fund of 1l per annum of the total bonds issued in the years 1952 to 1957 inclusive, and 2% per annum thereafter. Ii International Power Securities Corporation (a United States company) was the holder of a group of bonds of Italian companies, amounting to $26,642,000. The Public Utility Credit Institute gave this corporation $18,000,000 of new bonds in exchange for these. The reason for the reduction from $26,642,000 to '18,000,000 was that a large portion of the obligations of International Power Securities Corp. was held by Italian residents. The new bonds bear interest at the rate of 1% for the years 1947-1949, 2% for 1950-1951, and 3% thereafter. The bonds mature on January 1, 1970 and are to be redeemed by a cumulative sinking fund of 1% per annum starting in the second half of 1950 and increasin.- to 2%per annum in the second half of 1957. 4 Guaranteed by the Republic of Italy. 1s Private companies in the United States participate in the Export-Imoort Bank loan granted in 1952 to Istituto Mobiliare Italiano to the extent of $1,180,125, As of December 31, 1955 Italy reported a total of $29,108,959 out- standing on the debt to Export-Import Pank and to participants. Of this amount, $3,569 was undisbursed. The amount outstanding on the debt to participants was derived by subtracting the amount that Export-Import Bank reports as outstanding from the total amount reported by Italy. Table 1: ITALY - EXTERNAL PUBLIC DEBT OUTSTANDING DECEMBER 31, 1955 (CONTINUED) Pare 6 6 The status of this loan as of December 31, 1955 was as follows: In currency In U.S. dollar of pavyment eauivalents Total 70,000.000 Disbursed and still outstanding 12986. 659 Held by IBRD 6,986,659 U.S. dollars $ 1,305,545 1,486,659 Netherlands guilders f.20,900,000 5,500,000 Held by particioants without IBRD guarantee (U.S. dollars) $ 5,000,000 5,000,000 Held by third parties without IBRD anrantee (U.S. dollars) $ 1,000,000 1,000,000 Undisbursed portion of effective loan 37,013,341 Portion of loan not yet effective 20,000.,000 In February 1956, an additional $7,456,000 was declared effective, leavin& a balance of $12,544,000 not yet effective LZ As of December 31, 1955 this loan was completely undisbursed. L GuLranteed by the Istituto Mobiliare Italiano. /9 The agreement provides that the United States may elect to accept either real property arid improvements to real property or local curency instead of U.S. dollars for repayment of this obligation, to be used for U.S. Government pur-oses, including cultural and educational programs. /10 As of June 30, 1954 Italyts debt to EPU amiuited to u/al22,000,000. Of this amount u/a_L,000,000 remained. un- consolidated, owing to EPU, and u/a 117,000,000 was settled as follows: (In millions of u/a) Total debt sottled Repaid in Funded in bilateral Term(in years)of bi- Countr June o. 1954 july 194 settlements lateral settlements Total 1l? 19 78 Austria 3 1 2 5 BLFU 30 10 20 5 Germany 48 16 32 5 Po rtugal 6 E 4 5 Sweden 6 2 4 5 Switzerland 24 8 16 6 Payments to Portugal have been temporarily suspended for as long as Portugal remains a debtor of FPU,. As of Table 1: ITALY - EXTERNAL PJZLIC DEBT OUTSTANDING DECEiBR 31, 1955 (CONTINUED) Page 7 /)O (Continued) December 31, 1955 u/a 3,600,000 was outstanding on the debt to Portugal. LL1 :y the end of December 1955 the cumulative accounting deficit was u/a 716,127,000 of which u/a 122,830,000 was settled by credit from the Union. L1 2 Theso bonds were given in exchange for SwF 17,440,000 First Mtge. Ref. S.F.Gold Series B bonds 6 1/2%, 1930-1960 of the Pieimont Hydro-Electric Co. plus unpaid interest from April 1, 1940 to December 31, 1946 in the amount of SwF 5,242,028. The new bonds are dated January 1, 1947 and mature July 1, 177. They bear interest at the rate of 1% per annum from January 1, 1947 to January 1, 1950, at 2% from January 1, 1950 to January 1, 1952, and at 3% there- after. 1 This loan is secured up to 50% by earmarked gold. It was granted to the "Istituto Centrale per il Credito a medio termine a favore delle medie et piccole industrie" by la Societe de Banque Suisse, le Credit Suisse and l'Union de Banques Suisse. The proceeds of this loan were transferred through the EPU, and the cumulative accounting deficit of Italy was thereby reduced. /14 Estimated by I.BRD. Ll This loan bears interest of 3 3/4% per annum during the first six years, 4 1/4% from the seventh to twelfth years, and 4 3/4% thereafter. The proceeds of the loan were transferred through the EFU, thereby reducing Italy's cumulative accounting deficit. Before ratification of the agreement, 50% of the 1an was to be transferred to Italy in gold. Payments of principal and int6rest are to be made in free Swiss francs. /16 These bonds were in default from July 1, 1910 until 1948. At that time interest due Jnly 1, 1940 throuLh September 15, 1947 was paid at the old contractual rate of 5%. The debt adjustment plan provides that the bonds will mature on July 1, 1977 and bear interest at the rate of 1% per annum from September 16, 1947 to July 1, 1950, at 2% thereafter to July 1, 1952, and at 3% thereafter. The bonds are to be redeemed by an annual sinking fund of 1% per annum from January 1, 1953 to June 30, 1957 and 2% thereafter, IERD - Economic Staff August 20, 1956 Table 2 National Income and Expenditures 1953 - 1955 (in billions of current lire) Sources of Income 1953 1954 1955 Expenditures 1953 -195A 1955 Agriculture, fishing and forestry 2,479 2,462 2,586 Consumption Industry 3,507 4,001 4,404 - private 8,317 8,653 9,213 Trade, transport and services 2,462 2,463 2,700 - public 832 _2 1,000 Net product of public administration 998 1,091 1,216 Total consumpition 9,149 9,576 10,213 Duplicated items -779 -872 -952 Gross investment/ 2284 2482 2,925 Net product at factor cost 8,667 9,144 9,954 Total use of resources internally 11,433 12,065 13,138 Taxes not included in the estimate of goods and services 1,439 1,634 1,816 Exports of goods and services Net product at market prices 10,106 10,778 11,770 (incl. receipt of incomes Net income from abroad 29 20 19 from abroad) 1,27 1 1 62Q Depreciation 958 1,022 1,113 Gross national income 11,093 11,820 12,902 Imports of goods and services (incl. income payments abroad) 1,677 1,678 1,856 Total available resources 12,770 13,498 14,758 Total available resources 12,770 13,498 14,758 1/ Inclusive of inventories Table 3 Financing of Investment 1954-55 (in billion lire) 1954 1955 Amount $ Aon Sources of Private Investment Issue of stocks and bonds 153 6.1 159 5.4 Investments of special institutes for agricultural, real estate and housing credit 81 3.2 93 3.2 Investments of special institutes for mortgage credit 102 4.1 137 4.7 Medium and long-term investments of credit institutions 19 0.8 20 0.7 355 14.2 409 14.0 Less funds supplied to above institutes and institutions by the Treasury 40 1.6 49 1.7 315 12.6 360 12.3 Inve3tmonts of insurance companies 19 0.8 43 1.5 334 13.4 403 13.8 Depreciation reserves 851 34.1 944 32.3 Self-financing, direct savings and short-term credits 423 17.1 618 21.1 Total 1,608 64.6 1,965 67.2 Sources of Public Investment Budgetary surplus over current expenditures 144 5.8 202 6.9 Treasury bonds 318 12.8 249 8.5 Postal savings funds 118 4.7 109 3.7 Railroad bonds -3 -0.1 72 2.5 Bonds of parastatal entities 20 0.8 20 0.7 Bank of Italy and Treasury note issue 65 2.6 99 3.3 Borrowings by local and regional administrations 59 2.4 36 1.2 Investments by insurance companies and credit institutes 78 3.1 76 2.6 Current accounts with savings institutes and banks 56 2.2 67 2.3 Funds of Cassa per il Mezzogiorno -3 -0.1 10 0.3 C6cial security funds 29 1.2 20 01 Total 881 35.4 960 32.8 Grand Total 2,489 100.0 2,925 100.0 Table 4 Agricultural Production Percentage Percentage 1936/39 1951 1952 1953 1954 Change 1953/54 1955 Change 1954/55 General Index (1948 = 100) 112 122 124 140 132 - 6 143 + 8 (millions of metric tons) Wheat 7.6 7.0 7.9 9.1 7.3 -20 9.5 +30 Haize 3.0 2.7 2.4 3.2 3.0 - 6 3.2 + 7 Potatoes 2.7 2.8 2.7 3.1 3.2 + 3 3,4 + 6 Tomatoes 0.9 1.2 1.1 1.4 1.5 + 7 1.6 + 5 Sugarbeets 3.3 6.0 5.9 6.2 6.6 + 6 9.2 +30 Grapes 6.2 8.0 7.4 8.3 8.0 - 4 9.3 +16 Olives 1.4 2.1 1.1 2.0 1.7 -15 1.1 -36 Citrus fruits 0.7 0.9 1.0 1.0 1.0 - 1.0 - Meat 0.7 0.6 0.7 0.7 0.7 - 0.7 - Milk 5.0 6.1 6.5 6.5 6.7 + 3 6.9 + 3 Table b Industrial Production Index 1938 = 100 Annual Ayfenage 1951 1952 1953 1954 1955 Total 144 150 165 131 196 Main Cate2es Manufacturing 140 145 159 176 190 Foods 140 147 152 158 163 Textiles and clothing 116 108 115 117 104 cotton 127 111 109 115 100 Silk and artificial fabrics 132 78 87 88 82 Metallurgical 134 150 149 173 212 Enineering 142 154 171 178 203 Chemicals and products 184 185 225 278 313 Chemicals 170 165 194 240 279 Coal and petroleum 356 462 591 733 784 Artificial fibers 118 70 96 114 118 Mining (including natural gas) 124 150 179 200 241 Manufactured gas and electricity 185 194 205 219 233 Table 6 Prices and N-y (1948 = 100) 1952 1953 1954 1955 1956 June Dec. June Dec. June Dec. June Dec. June Cost of living 115 116 118 117 121 123 124 130 Wholesale prices 94 97 96 96 97 98 98 97 99 Raw materials 104 ll 108 106 105 109 108 112 n.a. Semi-manufactured products 103 101 94 94 94 95 96 96 n.a. Finishe1 goods 87 90 93 94 95 96 95 95 n.a. Wages (hourly earnings) 134 141 143 144 147 153 154 154 160 Estimated real wages 116 121 121 123 121 126 124 n.a. n.a. Table 7 I7et Investments in Sh&res and Bonds of Joint-stock comoaniesl/ (In billions Lit.) 1954 1955 Banks, stock market, financial and insurance institutions 6.0 11.9 Transportation and communications 14.0 14.7 Electricity, gas and water 16.1 21.0 Hotels, rest homes and amusements 1.5 1.2 Housing, public works and land reclamation 1.4 3.0 Food products 3,6 6.7 Wood - 0.5 Non-metallic minerals 5.7 4.1 Steel, metallurgical and mechanical products 60.6 47.0 Chemical products 10.3 8.6 Paperr and printing 207 1.8 Leather and hides 0.4 0.5 Textil es and clo Thing 10.4 8.8 Miscollareous products 2.6 1.3 Retail trade alid sundry services 1.6 0.9 Natural gai and petroleum 180 27.3 Total 153.0 159.3 l/ Excludirg IRI Table 8 Total Recourse of the Several Economic Sectors to the Banks, Special Financial Institutions and the Ca:)ital Market (1955 breakdown and 199-54 totals) (Annual increases in billion lire) Jpicial Stocks Percentage Financial and Distribution Economic Sector Banks Institutions Bonds Total 1955 1. Private institutions 50.7 -- 50.7 5.2 2. Para-statal agencies 16.4 3.6 - 25.0 2.6 3. Banks, stock market, financial and insurance institutions 14.1 -h5 11.9 21.5 2.2 I. Transportation and communications 18.2 24.5 14.7 57.4 5.9 5. Electricity, gas and water 3.5 65.0 20.7 89.2 9.2 6. *iotels, rest homes and amusements 7.3 6.0 1.2 14.5 1.5 7. 9Tousing, public works and land reclamation 58.4 67.0 3.0 128.4 13.2 8. Agriculture, related primary materials and equipment 13.9 37.0 - 50.9 5.2 9. Cereals and other food products 108.2 54.3 6.7 169.2 17.4 10. Wood 14.0 1.6 0.5 16.1 1.7 11. Non-metallic minerals 48.7 8.4 31.8 88.9 9.1 12. Steel, metallurgical and mechanical products 99.4 13.4 47.0 159.8 16.5 13. Chemical products 32.8 12.0 8.6 53.4 5.5 14. Paper and printing 8.1 0.5 1.8 10.4 1.1 15. Leather and hides 2.7 0,2 0.5 3.4 0.3 16. Textiles and clothing -22.4 1.0 8.8 -12.6 -1.3 17. " iscellaneous products 1.5 -4.4 0.9 -2.0 -0.2 18. retail trade and sundry services h ?9 1.1 0.9 47.9 4.9 Total 1955 521.4 291.7 159.3 972.4 100.0 1954 470,6 21.6.8 153.0 840.4 1953 493.8 198.4 181.7 873.9 1952 463. 178.9 116.6 758.9 1951 269.9 169.6 81.9 521.4 1950 292.5 176.9 89.7 559.1 1949 323.2 141.6 1014.6 655.8 Table 9 Mongy Sjr and Time Deposits (in billions of lire - end of period) March 1953 2 5 1955 1956 Money supply 3,720 4,020 4,472 3,912 n.a. Currency 1sl7 1,491 1,629 1,392 n.a. Deposit money 2,302 2,529 2, 848 2,521 2,787 Time deposits 1,755 2,094 2,465 2,152 2,561 Table 10 Foreign Assets and Domestic Credits of the Bank of Italy and Oth:r Banks ("n billion lire) December March 1951 1952 1953 _1954 1955 1955 1956 1. Foreign assets 757 732 703 707 766 695 n.a. 2. Loans to the Government (1) Bank of italy 661 652 672 784 855 763 759 (2) Other banks 776 923 1063 1214 1280 1267 1376 3. Lcans to the private sector (1) Bank of Italy 117 129 164 175 186 159 178 (2) Other banks 2023 2573 3106 3556 4155 3519 4143 (e.) own resources 1863 2369 2890 3310 3923 3299 3900 (b) Ean2: of Italy reources 160 204 216 246 232 220 243 Table 11 Liquidity of the Bking System1/ (billions of lire) December Dec. March Assets 1951 1952 1953 1954 1955 1955 1956 Cash (incl. deposits at the Bank of Italy) 260 248 241 263 274 272 n.a. Credit to the Government 776 923 1063 1214 1280 1267 1376 Credit to the private sector 2023 2573 3106 3556 4155 3519 4143 Liabilities Demard decsits 1659 2019 2302 2529 2848 2521 2787 Time dppogits 1161 1453 1755 2094 2464 2152 2561 Borrowing from the Bank of Italy 160 204 216 246 232 220 243 I7 Includes commercial banks as well as savings banks and so-called cooperative banks, to which reserve requirements do not apply. Table 12 Government "Apoorotriations" Budget (billion Lit.) 1953V 1953/4 Ic l951 L955/56 1956/572/ Authorized expenditure Current civilian expenditure 1,396 1,486 1,558 1,833 n.a. Current military expenditures 480 454 421 444 n.a. Investment expenditures 509 439 410 434 n.a. Other capital expenditures 25 30 0 n.a. Total authorized expenditures 2,430 2,409 2,419 2,775 2,991 Assessed revenue Taxes on 'ncome and property 383 440 400 537 n.a. Indirect taxes and other current revenue 1,376 1,563 1,658 1,909 n.a. Capital revenue 130 43 13 17 n.a. Total assessed revenue 1,889 2,046 2,071 2,463 2,671 Deficit -521 -363 -348 -312 -320 Final estimate Initial estimate Table 13 Commodity Distribution of Exports (in illions of 0) 1951 1952 1953 1954 19$5 Foodstuffs 328 315 363 403 b19 Textiles 616 320 339 326 347 Metals and minerals 65 75 69 72 101 Machinery 298 318 307 323 408 Coal and coke - 8 3 2 2 Mieral oils 48 86 144 179 163 All other 293 264 283 333 416 Total 1,648 1,387 1,507 1,638 1,856  Table 14 Commodity Distribution of Imports (in millions of i) 1951 1952 1953 1954 1955 Foodstuffs h8 401 448 344 438 Textiles 501 456 418 05 365 "etals and minerals 190 256 259 238 354 hachinery 197 314 357 362 360 Coal and coke 224 190 163 149 131 Hineral oil 210 256 293 336 350 All other 398 462 483 554 658 Total 2,168 2,336 2,421 2,438 2,706 Table 15 Italy: Foreign Trade (1953 = 100) 1951 1952 1953 19511 195 Volume Exports o.8 94.4 100 108.3 124.0 Imports 83.3 92.2 100 102.6 113.0 Exports : Imports 125.8 102.4 100 105.6 109.7 Unit Value of Trade EKxports 111.9 1014.7 100 103.6 102.0 Imrorts 113.7 109.8 100 99.8 101.0 Terms of trade 98.1 95.3 100 103.8 101.0 Table 16 Reg1onasl Ditribution of Trade (in millions of $) Change Change Change 1953 1954 1955 over over over 1952 1953 1954 1955 1952 1953 1954 EPU area Exports 906 986 1090 1382 +80 +104 +92 Imports 1317 1622 1661 1776 +305 +39 +115 Balance -411 -636 -571 -594 -225 +65 -23 U.S. and Canda ExIcorts 149 158 141 176 +9 -16 +35 imports 541 360 309 433 -181 -51 +124 B71ance -392 -202 -168 -257 +190 +35 -90 Other Callar area Exports 43 46 59 73 +3 +13 +14 Import3 46 40 32 33 -6 -8 +1 Balance -3 +6 +27 +40 +9 +21 +13 Other couitr-es Exports 289 317 346 426 +28 +29 +80 Imports 432 399 400 464 -33 +1 +64 Balance -143 -82 -54 -38 +61 +28 +16 Total Exports 1387 1507 1637 1857 +120 +130 +220 Imports 2336 2421 2402 2706 +85 -19 +304 Balance -949 -914 -765 -849 +35 +149 -84 Table 17 Percentage of Total Imports of Certain StapLe Commodities Suplied b -?U Countries (Percentage of total value) 1950 195. 1st half 2nd half 1st half 2nd half 1952 .953 19154 1955 Cotton 19 41 44 29 15 24 26 28 Wool 82 87 85 84 96 89 96 94 Wheat 12 0 14 20 11 26 28 24 Coal 78 84 51 46 51 75 69 44 Crut oil 21 27 30 28 26 62 41 93 Copper 28 37 44 23 40 77 79 55 Total 36 41 40 34 57 67 67 70 Table 18 Imports from U. S. and Canada (in millions 9) 51 1952 1953 124 1955 Cereals and flour 67.0 88.8 64.9 3.0 5.9 Cotton 125.0 144.0 60.8 50.9 40.1 Coal 85.6 70.1 28.2 35.7 92.9 Oils and fats 20.3 11.5 8.8 10.2 17.4 D. on and steel 13.6 18.6 15.3 16.9 16.9 CheLiAcals 31.5 33.4 26.8 48.2 57.8 Machinery 71.8 95.8 76.9 65.3 48.4 Others 89,0 73.0 78.3 78.6 153.9 Total 503.6 540.7 360.0 308.8 433.3 Table 19 Exports to U.S. and Canada (in millions $) 1951 1952 1953 1954 195 Foods 26.4 31.2 31.5 32.6 31.1 Textile3 and clobthing 26.4 24.3 32.2 29.6 18.9 Sase metals 14,1 10.2 9.7 8.2 7.0 Macinery 12.6 27.5 25.4 19.5 27.9 Others 42.9 55.6 54.6 51.8 90.8 Total 122.4 148.8 156.4 141.7 175,7 Table 20 Goods and services Trancactions with EPU Area (in millions $) i951 1952 1953 1954 1 Trade balance (exports fob. and imports cif) +18.0 -362.2 -562.3 -567.4 -621.8 Foreign travel +63.1 +59.0 +82.7 +80.6 +86.4 Investment income -2.3 -1.9 -3.5 -9.1 -15.8 Emigrants remittances +37.9 +62.6 +68.1 +62.3 +65.1 Other services +83.9 +119.0 +102.9 +139.3 +196.3 Balance goods and services +200.6 -123.5 -312.1 -294.3 -289.8 Table 21 Goods and Services Tronsactions with Convertible Currenc; Areas (in millions $) 1951 11 2 1953 1954 1955 Trade deficit (imports cif and exports fob) -421.91/ -342.11 -129.9L+ 3.42-/ - 46.cy Foreign travel + 12.1 - 17.4 + 46.8 + 55.7 +'76.7 Investment income + 4.5 + 3.7 + 4.4 - 0.7 - 1.7 Emigrant remittances + 21.3 + 28.2 + 43.4 + 49.2 + 57.3 CLhe2 services +_ 7.2 +_62.4 + 83.8 ±105.2 + 56.2 Deficit on goods and services -336.8 -223.4 + 48.5 +212.8 +141.6 2/ Includes offshore exports as follows (in millions of $) 1951, 0; 1952, 1.2; 1953, 61.3; 1954, 132.5; 1955, 128.8 Table 22 Balance of Payments (transactions basis) (in millions U.S. $) 1. Current Account 1951 1952 L953 1954 195 Exports (f.o.b.) 1641.3 1378.6 1473.1 1581.5 1778.3 Imports (f.o.b.) -1915.2 -2124.3 -2212.8 -2230.5 -2433.5 Transportation and insurance (net) 101.0 -57.5 -46.7 -19.6 -18.2 Tourism (net foreign travel) 71.9 75.0 130.7 138.1 190.1 Emigrant remittances 72.9 107.0 125.6 118.6 124.7 Investment income -7.3 -12.9 -5.7 -12.1 -17.7 Government services 2.8 -3.8 -3.1 +9.0 2.1 Other -0.5 _4.6 8 125.1 141.0 Sub totals -235.1 -596.3 -450.4 -289.9 -233.2 2. Special Receipts Offshore procurements 0 1.2 61.3 132.5 128.8 Troop expenditures 13.4 14.9 14.1 7.1 7.6 Infra structure 0 25.9 33.7 13.8 26.6 Sub totals 13.4 42.0 109.1 153.4 163.0 Deficit -221.7 -553 -31 -136.5 -70.2 3. Financing of Deficit (including capital movements) U.S. aid 277.4 199.6 124.4 63.3 37.2 Contractual repayments 28.0 -42.9 -46.2 -37.8 -29.9 Trade credits 66.6 191.4 127.3 -4.7 -42.7 Other credits (net) 63.3 90.7 65.4 194.2 244.6 Short term assets and liabilities (net)1!/ -1554 93.1 57.1 -55. 108.6 Sub totals 223.9 531.9 328.0 159.6 100.6 4. Errors and Omissions -2.2 22.4 13.3 -23.1 -30.4 Total 221.7 5540 3 136.5 70.2 11Minus (-) represents an improvement in position Table 23 EPU Position (in millions $) Gold or $ Cumulative net received by amount of gold Surplus or Credit accumu- or paid in Credit or or $ received deficit lated or repaid by Italy debit bal- or paid by during by Italy during during ance end Italy at end periodi period7 period/ of oeriod-/ of neriod5/ 1952 1st quar. +13.7 +6.9 +6.9 +251.4 +105.2 2nd quar. -42.6 -21.3 -21.3 +208.8 '+83.9 3rd quar. -3.8 -1.9 -1.9 +205.1 +82.0 4th quar. -57.6 -23.8 -28.8 +147.4 +53.2 1953 let c,uar. -95.3 -47.7 -47.7 +52.1 +5.6 2nd quar. -64.1 -58.5 -5.6 -12.0 - 3rd quai. -28.8 -24.8 -4.1 -40.8 -4.7 4th quar. -71,7 -47,1 -24.5 -112.5 -28.6 1954 1st quar. -51.2 -16.4 -34.3 -143.3 -63.4 2nd quar. -59,6 -22.0 -76.5 -166.7 -139.9 3rd quar. -29.8 +27.4 -18.2 -95.0 -158.2 4th quar. -52.3 -21.9 -30.4 -116.9 -188.6 1st quar. -77.2 -35.3 -41.9 -152.2 -230.5 2nd quar. -68.6 -30.5 -38.2 -182.7 -268.7 3rd quar. +46.9 +22.7 +24.0 -160.0 -244.7 4th quar. -91.7 -19.0 -72.5 -179.0 -317.2 1956 1st quar. -37.2 -6.0 -31.2 -185.0 -348.4 2nd quar. -48.4 +23.0 -71.3 -162.0 -419.7 1/ Surplus (+); deficit (-) 2/ Credited accumulated (+); credit repaid (-) ./ Received (+); paid (-) A/ Credit (+); debit (-) 2/ Received (+); paid (-) Table 24 Official Gold and Foreign Exchange Reserves (in millions of 1) Change Change Change Change End of End of during End of during End of during End of during 1951 1952 1952 1953 1953 1954 19514 1955 1955 Gold 333.4 345.8 +12.4 345.8 - 346.0 +0.2 324.6 -21.4 Convertible foreign exchange 233.8 199.1 -34.7 334.5 +13504 485.5 +151.0 702.9 +217.4 EPU Balance 145.0 85.0 -60.0 -95.2 -180.2 -116.9 -21.7 -179.0 -62.1 Payment agreements balances and other currencies 273.1 262.3 -10.8 249.9 -12.4 176.1 -73.8 150.8 -25.3 Total 985.3 892.2 -93.1 835.1 -57.1 890.7 +55.6 999.3 +108.6 ANNEX I FRCGRESS OF TIH CASSA FROGRAM Introduction 1. The Cassa per il Mezzogiorno was fourded in August 1950 as an agency of the Italian Government to carry out the program for the development of Southern Italy. The law by which the Cassa was established was amended in July 1952. The life of the Cassa was extended to 12 years (1950-1962), and the total amount to be spent by the Cassa for the development of Southern Italy -was increased to Lit. 1,280 billion. 2. A general study of the Cassa, its program and the progress of its activities was prepared early in 1955. The results of this study were made available in report EA-51 (Cassa per il Iezzogiorno and the Economic Develop- ment of Southern Italy, May 20, 1955). One of the conclusions of that report was that the execution of the Cassa program had made a slow start, but that after the first three years the volume of activities had risen to a satisfac- tory level. 3. The purpose of this Annex is to trace the progress of the Cassa pro- gram since the former study was made, so as to determine whether the expecta- tions of 1955 were realized. This Annex deals especially with the subjects treated in paragraphs 11-20 of EA-51, and the information used in it was largely collected during the Bank's mission of M'arch 1956. 4. The central office of the Cassa organized a series of discussions with representatives of all the regional organizations which it finances. The pur- pose of these discussions was to establish clearly for which projects of the local agencies the Cassa will allocate funds for the rest of its life. At the time of the Mission the Cassa had conducted about half of the interviews. 5. The recert progress in the execution of the Cassa program is traced below in five stages: a) final projects aproved b) contracts awarded c) financial transactions of the Cassa d) total investments e) volume of works completed a) Projects aporoved 6. During the seven months interval between June 30, 1955, and January 31, 1956, the Cassa approved projects amounting to Lit. 74 billion. The total rose from Lit. 578 billion to Lit. 652 billion, which is 51% of the planned total (Lit. 1,280 billion). As of January 31, 1956, the Cassa had been in operation for about five years and the program is to be completed in 12 years. A per- centage of 51 for projects approved at this stage shows that the effects of the slow start have been largely eliminated. - 2 - 7. The figures for the various categories are: Proje2ts Anoroved Revised % 12-year Approved at June 30, Jan. 31, Cassa Jan. 31 1955 1956 Program 1956 (billion lire) 1. Land reclamation 197 232 -2/ 2. Vlountain slcpe work 35 32 1/ 3. Aqueducts 77 86 150 57% 4. Roads 94 98 115 85% 5. Tourism 13 15 30 50% 6. Railroads 67 77 75 102% Total public works 483 539 7. Privr.te works 95 113 General total 578 652 1,280 51% 1 / 2 / 7 combined-2/ 327 377 910 41% b) Contracts rwarded 8. The nuimber of contracts awarded rose from 33,000 on June 30, 1954, to 46,000 on June 30, 1955, and 55,500 on February 29, 1956. The total amounts of awarded contracts were respectively Lit. 403 billion, Lit. 472 billion, and Lit. 539 billion. This last amount which indicates the situa- tion after 5 years of actual operation of the Cassa, represents 42% of the program total. This is satisfactory. ./ Reduction probably due to a shift between categories. 2/ This combination is made because of a reshuffling of categories, which makes a comparison between Program and realization for the separate categories 1, 2 and 7 difficult. A comparison between the figures of various dates and the Program is however correct for the combination of categories 1, 2 and 7. - 3- 9. By categories the figures are: Contracts Awarded Revised % 12-year Awarded june 30, June 30, Feb. 29, Cassa at Feb. 29, 1954 1955 1956 Pro ram 1956 (billion lire) 1. Land reclamation 141 159 184 2. Mountain slope work 28 33 311 3. Aqueducts 57 63 71 150 47% 4. Roads 82 79 83 115 72% 5. Tourism 8 10 12 30 40% 6. Railroads 22 33 42 75 56% Total public uorks 338 377 423 ?. Private works 65 116 General Total 403 472 539 1,280 42% 1 / 2 / 7 cormbined 234 287 306 910 34% The value of cojtracts awarded for land improvement works (categories 1, 2, and 7 combined) lags behird the average. This is understandable because these projects are often very complicated, and need careful checking. c) Finances of the Cassa 10. The financial resources of the Casse for the Twelve-Year Program are provided from the Government budget through annual apnropriations fixed by law. In addition, the Cassa receives certain interest and amortization pay- ments from various loans made by Government agencies since 1947 with the counterpart of United States economic aid. Its funds are further increased by interest on its cash reserves, interest derived from its oim- credit opera- tions and also by the proceeds of the three IBRD loans made so far. The Government appropriations represent by far the largest part of the Cassa's resources, as will be seen from the following table, giving a breakdown of total funds made available to the Cassa since its inception up to March 31, 1956, covering a period of 5 years and 9 months. 1/ Reduction probably due to a shift between categories. -4- As of March 31, 1956 (in billions of lire) Government appropriations 548.6 IBRD loans: 1st loan $10 million 6.25 2nd loan $10 million 6.25 3rd loan $70 million, of which withdra,n $17.2 10.70 23.2 Other resources mentioned above _9.9 Total Receipts 611.7 11. Total expenditures made by the Cassa up to March 31, 1956, amounted to Lit. 526.5 billion, as follows: (in billions of Lire) Twelve-Year Program 475.2 Credit Gperations including investments of IBRD funds 47.3 Sundry investments and Cassa administration expendi- turea still to be prorated 4. Total Expenditures 526.5 12. With cLulative receipts of Lit. 611.7 billion and expenditures of Lit. 526.5 billion, the Cassa's available cash reserve as of March 31, 1956, amounted to Lit. 85.3 billion. During the first three years of its opera- tions, investments made by the Cassa for the program lagged considerably behind funds made available to it; and as a result a considerable cash balance was built up during those early years. This trend was reversed starting with the fiscal year 1953/54, as will be seen from the following table: Excess of Fiscal Total Total Receipts over Cash Balance Year Receipts Expenditures Expenditures end of year (billion lire) 1950/51 101.0 7.3 93.7 93.7 1951/52 103.6 53.4 50.2 143.9 1952/53 98.4 71.7 26.7 170.6 1953/54 112.7 127.4 (-) 14.7 155.9 1954/55 109.9 156.9 (-) 47.0 108.9 1955/56 9 mos. only up to 3/31/56 86.1 109.7 (-) 23.6 85.3 611.7 526.4 13. These figures confirm the impression that the Cassa program has gained considerable momentum during recent years. If the present rate of expenditures - 5 - is maintained, the cash reserve may become depleted within the not too distant future. In this connection it should be mentioned that the law provides for the possibility of the Cassa receiving advances on the funds provided from the budget if the need for such advances tiould arise. 14. The F'igure of Lit. 475 billion shown above as disbursements for the Twelve-Year Program can be compared with the latest available total for con- tracts awarded (Lit. 539 billion as of February 29, 1956). This comparison shows that disbursements follow the money-value of contracts awarded fairly closely. d) Total investments m2de 15. The total amount of the Cassa program of Lit. 1,280 billion refers to government investments to be made in the categories of work listed for the various sectors (see paragraph 8 of report EA-51). In various cases private individuals or organizations (such as the Consortia for land improvement) are obliged under existing Italian laws (for instance, the Reclamation Law of 1932) to suopement the government investments. For this reason, the total amount of investment resulting from the execution of the Cassa program is somewhat larger than the total of Cassa disbursements. Investments resultinq from Cassa activities (billion lire) Total l 195L2 12 195 195 f_yrs. Public lorks 17 86 132 139 146 519 Total, including industry and tourist promotion 17 88 141 152 167 565 Total investments by main categories (billion lire) 5-Year period Agricultural improvements 373 Aqueducts 45 Roads 75 Tourism 7 Railroads 18 Total Cassa works 519 Industrial and tourist ventures partly financed by Cassa funds 4 General total 56 16. These figures show that vigorous progress has been made in the last two years. There is a reasonable prospect that the Cassa will complete its program in the 12-year period of the present level of activity can be main- tained. - 6 - 17. The investments in industry, included in the last item of the above table, are financed partly by credits which the CFssa makes available to the three regional development institutes, ISVEI4ER for the southern mainland, IRFIS for Sicily, and CIS for Sardinia, for their programs of medium and long- term lending for industrial projects. Part of the funds for these credits becomes available to the Cassa from the counterpart of the IBRD loans and the remainder arises from the other sources of Cassa income. Up to the end of March 1956, the Cassa had made industrial credit commitments to the institutes as follows: Cassa Funds IBRD Funds Total (billion lire) ISVEIER 14.786 8.270 23.056 IRFIS 7.030 9.831 16.861 CIS 2.424 -- 2,424 Total 24.240 18.101 42.341 18. Of the Lit. 24.240 billion of Cassa funds allocated to industrial projects up to March 31, 1956, Lit. 16.290 billion had been disbursed. About one-third of the industrial allocations of IBRD funds was for projects which have been completed and in operation for some time and the balance is for projects in the 1955 Toan which are only now getting under way. e) Works coLeted 19. Of the greatest significance are the figures about the completion of constructions. In this respect there are two categories: projects that are completed, and projects uinder construction of which a certain part is finished. 20 The total for completed projects rose from Lit. 108 billion on June 30, 1954, to Lit. 236 billion on January 31, 1956. This latter figure is 18.5% of the program total. 21. Projects under construction amounted at January 31, 1956, to Lit. 295 billion. This total included finished parts with a value of Lit. 158 billion. The total of works completed on January 31, 1954, was therefore Lit. 394 billion, or 31% of the program total. Taking into consideration that the execution of the Cassa program made a slow start, as every complicated program does, the present situation is satisfactory. It suggests again that there is a good chance that the program will be executed by the end of the 12-year period. - 7 - Works comoleted and under corstruction on January 31, 1956 (billion lire) 1 2 4 6 Revised 12-year Under con- Part Cassa 4 in ComDleted struction Executed 1_ 3 Program %of_5 1. Land Reclamation 73 110 ) 65 151 2. Mountain slope work 13 17 ) 3. Aqueducts 26 44 20 47 150 31% 4. Roads 61 22 12 73 115 63% 5. Tourism 5 6 2.5 7 30 23% 6. Railroads 9 32 12 21 75 28% Total public works 187 231 112 299 7. Private works 49 63-- -- General Total 236 295 158 394 1,280 31% 1 / 2 / 7 conbired 135 190 111 246 910 27% 22. It is impossiblB to give a description of the work accomplished by the Cassa in a brief report, because the work covers such a wide field, technically and geographically. Hoviever, the mention of some examples may give an impres- sion of the -ignificance of the work of the Cassa. Some information of a general nature is moreover included in the list of physical data on achieve- ments on page 8. 23. In the field of irrigation work is progressing satisfactorily in the Catania plain on Sicily. At the same time, construction is progressing on works to irrigate the Cagliari plain on Sardinia, the Volturno plain near Naples, and several other projects on the eastern and southern coasts of the Peninsula. In the Bari-Brindisi area extensive works for the irrigation with subsoil water are in progress. 24. The projects for the improvement of mountain slopes and for afforesta- tion are spread all over the Cassa territory. Their general purpose is to improve the water catchment areas, to produce timber and firewood, to diminish erosion, to serve as windbreaks, and to make bare areas more attractive to tourists. 25. The highway building and improvement program will facilitate greatly the marketing of farm and industrial products. It consists mainly of the improvement of existing roads, the building of access roads, and the construc- tion of a few highways. One of the main highways under construction (Terracina- Formia) will give much improved connections between Rome, Naples and points south. A great part of this highway has already been completed. 26. As of June 30, 1955, 245 villages with 1,350,000 inhabitants have been supplied with potable water by the building of aqueducts, pumping stations and purification plants. 27. The railroad works included in the program will improve traffic all along the coast of the Peninsula, from Pescara on the east coast, via Taranto on the south coast, Reggio-Calabria at the toe to Battipaglia on the west coast. Most of these works began in 1953/54 and a, great part has been corm- pleted. 28. The storage of crops has been greatly improved by the building of more than 150 warehouses, and in the credit program for industry a great deal of work is done for the financing of processing factories. 29. To promote tourism (a major source of foreign exch.nge) many excavations and restorations are under way, access roads have been built, and the construc- tion of more than 100 hotels has been financed by Cassa credits. 30, A list of data about comnleted works in physical units as of December 31, 1955, is added. In some cases these figures can be compared with those of report E.-51. This comparison gives a good impression of the accomplishments since June 1954. Physical data about achievemerts un to Dec. 31, 1955 Dec. 31, 1955 June 30, 1954 River improvement and drainage works Canals, improved riverbeds km 1,590 772 Area with improved drainage ha 125,500 17,900 " protected against flooding ha 153,800 Irriaation works Main and secondary canals km 1,187 871 Area included in schemes ha 46,300 30,000 " actually irrigable ha 23,300 Capacity of reservoirs mln m3 5 Road building New roads constructed km 2,125 1,700 Roads improved km 9,283 7,670 Mountain slope work Watersheds consolidated ha 4,100 Land prepared for planting ha 27,400 " planted or seeded ha 29,300 21,400 Number of trees planted mln 67 Forest thinned or improved ha 48,600 Agueducts Canals and pipes km 2,097 Capacity of reservoirs 1000 m3 330 - 9 - The number of man-days worked in Cassa-financed projects amounted up until January 31, 1956, to 99 million. This is the equivalent of 400,000 man-years at 250 work-days per year. 31. It is moreover estimated that the farm improvement works financed by the Cassa until June 30, 1955, would give an increase in annual labor require- ments on farms of 11.9 million man-days; this is the equivalent of 47,500 permanent farm jobs. Summary and Conclusions 32. The Cassa has on the whole discharged its responsibilities satisfac- torily. At the half-way mark, it approved orojects amounting to more than 50% of its programmed resources and awarded more than 55,000 contracts. It disbursed by the end of !Mjarch 1956, 0030 million against work completed or in progress and has directly induced investments of an additional $60 million. In physical terms, it has completed 1,600 km of canals and improved river beds; 1,200 km of main and secondary irrigation canals; irrigated 46,000 ha. of land; constructed 2,100 km of new roads and imoroved 9,300 ka of old ones; planted 67 million trees; and brought potable water to 245 villages with 1,350,000 inhabitants. It is estimated that the farm improvement works already financed by the Cassa provide the equivalent of 47,500 permanent farm jobs. These achievements suggest th:t the Cassa should be able to com- plete its program during the period set for it, if operations are maintained at recert 2'evels,