FILE COP L-55

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

KINGDOM OF DENMARK - FIRST PERIODIC REPORT

AUGUST 22, 1947 TO MAY 31, 1948

PART I SURVEY OF ECONOMIC CONDITIO10 IN DENMARK

PART II UTILIZATION OF THE LOAN OF 1947

Loan Department June U, 1948

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

KINGDOM OF DENMARK

First periodic report - August 22, 1947 to May 31, 1948

C 0 NTENT

Part I. Page

Survey of Economic Conditions in Denmark

Introduction 1Agriculture 3Animal Products 3Industrial Production 5Employment 6Foreign Trade 7Trade Agreements 7Balance of Payments 9Public Finance 12Banking 14Prices and Wages 15National Income 17Investment 18Internal Political Developments 29External Relations 20The Future 21

Part II.

Statement of the Utilization of the Loan

Planned Rate of Utilization 23Actual Utilization 23Reasons for Slow Rate of Utilization 23Currency of Utilization 24Relationship Between the Loan and the 25

Danish Government's Reconstruction Program

I. SURVEY OF ECONOMIC CONDITIONS IN DENMARK

Introduction

1. Reconstruction 'ontinued in 1947. Under conditions of full

employment, industrial output rose in spite of inadequate stocks

of raw materials and, in the early part of the year, shortage of

fuel. Progress was made in the replacement of merchant ships lost

during the war and in the renewal of obsolete and worn out industrial

equipment and machinery. Inflation, although still a danger, has

been kept under control by means of a conservative financial policy,

price control and an efficient rationing system. Limitation of

consumption in this way made possible a diversion of resources towards

reconstruction without undue reliance on foreign aid. The deficit

on the balance of international payments on current account was less

than in 1946, although it was still large. Finally, it was possible

to reduce the number of German refugees who were constituting a drain

on the country's resources.

2, These favourable developments,wre, however, overshadowed by

the severe winter of 1946-47 and the drought in the succeeding summer.

As a result, there was a disastroudly bad harvest which had not merely

a direct effect in reducing the quantity of dairy products available

for export, but also necessitated heavy slaughterings of animals

in the autumn and winter, thus bringing the livestock population to

a level well below normal. In all, 1947 may be characterized as a

year of limited progress under exceptional difficulties.

-2-

3. The first few months of 1948 have been months of slow recovcr.

Given favourable weather in the next few weeks, there should be

a satisfactory harvest. Stocks of cattle and pigs have started

to increase again, home consumption of animal products have been

further restricted to make more available for export, and a

moderately satisfactory trade agreement with the United Kingdom

has resulted in higher prices being secured for dairy products.

Stocks of industrial raw materials have been built up and, thanks

to a mild winter and increased imports, stocks of fuel are now

substantially higher than a year ago. Of overwhelming importance

for the whole economy, however, was the passage by the U.S.

Congress of the Foreign Assistance Act of 1948, under which

Denmark expects to receive substantial benefits during 1948-1949,

and which will enable further progress to be made in reconstruc-

tion and re-equipment. The prospects for 1948 are, on the whole,

favourable.

4. The longer term outlook is obscure and depends mainly on

factors outside Denmark's control, the most important of these

being the prospects of recovery in Western Europe, convertibility

of sterling and the world price of oilcakes and grains in rela-

tion to dairy products. If the favourable conditions Which pre-

vailed up to the thirties cannot be restored; if international

trade becomes more and more bilateral instead of multilateral,

Denmark may be forced to adapt her economy to meet the changed

conditions.

-3-

Agriculture

5. The production of the most important export commodities,

namely, butter, cheese, bacon, meat and eggs, is traditionally

based on a large domestic output of feeding stuffs rich in

proteins. The crop yield normally amounts to 110 - 120 million

crop units, corresponding to 11 - 12 million tons of grain.

In 1946 the harvest had been exceptionally good, amounting to

126 million crop units compared with an average for the years

1934-1938 of 116 million crop units. As a consequence of the

exceptionally cold winter of 1946-1947 and the summer drought,

however, the 1947 harvest was equivalent to only 98 million crop

units, representing a fall of 22 per cent, compared with 1946.

Root crops fell from 32 million crop units to 30 million, a fall

of 7 per cent; grain and straw from 47 million to 37 million,

a reduction of 23 per cent, and fodder crops, from 48 million

in 1946 to 32 million, a fall of 33 per cent. In normal times

the deficiency could have been mitigated by increased imports

of oil cakes. Shortage of dollars and high prices, however,

made it impossible to increase oilcake imports beyond 149,000

tons, roughly the same quantity as in 1946 and less than a quarter

of the prewar average.

Animal Products

6. The failure of the harvest had a direct and immediate effect

on the output of animal products. From May 1947 onwards, the

output of milk, butter and cheese was below that for the

corresponding period of 1946, so that the figures for the whole

of 1947 showed declines of 10 per cent, 11 per cent, and 20

per cent respectively. For the first quarter of 1948 output

still remained below the 1947 level.

7. Shortage of fodder made it necessary to slaughter large

numbers of cattle and pigs. The production of beef and veal

rose above the previous yearts level in April 1947 and remained

above until the end of the year. For the whole of 1947 produc-

tion was 17 per cent above 1946. Production of pork and bacon

was below the 196 level for most of the year, but was substan-

tially higher in the last quarter, so that for the whole year

the increase was 2 per cent.

8. Against the temporary benefits of a larger output of meat

must be set the serious depletion of stocks of cattle and pigs.

The number of cattle fell from 3.00 million at the end of 1946

to 2.67 million at the end of 1947, and the number of pigs from

1.69 million at the end of 1946 to 1.60 million at the end of

1947. The total decline in the value of domestic animals is

estimated at Kr. 206 million (363 million). Signs of recovery,

however, are already to be seen. By March 1948 the number of

cattle had increased to 2.78 million; the number of pigs on

May 1, 1948 was 1.31 million, a level substantially lower than

that of the end of 1947, but it is significant that the number

of sows had increased to 0.17 million from 0.14 million at the

-5-

end of 1947. It is estimated that in terms of value roughly

half the livestock losses of 1947 will be recovered in 1948.

Industrial Production

9. During 1947 there was a steady increase in the output of

manufacturing industries, an increase which has extended into

1948. The index of industrial production for all industries,

based on 1935, stood at 135 in April 1948 compared with 120 in

January 1947. The index for consumption goods industries was

somewhat lower and that for capital goods industries a little

higher, a relationship which has remained more or less constant

over the period. Industrial employment has followed the same

general trend. The average number of working hours per working

day in April 1948 was 1.75 million against 1.59 million in the

same month in 197 and 1.44 million in the same month in 1946.

Productivity of labour rose in 1947 compared with 1946.

10. Some progress was made in building up raw material stocks.

Examples are seen in the increase in stocks of solid fuel which

totaled 917,000 tons at the end of 1947 compared with 373,000

tons a year earlier, and in the increase in stocks of iron and

steel from 185,000 tons at the end of October 1946 to 206,000

tons at the end of 1947. On the other hand stocks of petroleum

and petroleum products were much lower, while non-ferrous metals

showed little change. Stocks of textile fibres were higher, as

were those of most fertilizers except natural phosphates.

,6,

Employment

11. A high level of employment has prevailed for some time.

Industrialists are complaining of a shortage of both skilled

and unskilled workers, although on a balance the labour force

was not materially different in 1947 from what it was in 1946.

In agriculture there has been a marked decline in the working

force during 1947; the number of permanent hands has fallen

from 122,400 in November 1946 to 110,300 a year later, while

the decline in day-labourers and other casual labour has been

from 30,100 to 22,500 over the same period. The employment of

large numbers of men in cutting peat has aggravated the shortage

of labour, particularly in agriculture, but it is hoped that

the higher coal imports will make possible some reduction in

the numbers employed on peat production. The supply of labour

for agriculture is likely to remain a problem, for in Denmark,

as in other countries, there has been a tendency for workers

to move to industrial employment and the only long-term solution

appears to be a greater degree of mechanisation.

12. Unemployment in 1947 at 4.9 per cent was slightly higher

than in 1946 (4.7 per cent), owing to the loss of work caused

by the severe weather early in the year. A better comparison

is given by taking the level in April 1948 of 2.6 per cent and

comparing it with 3.1 per cent. in the previous April and 4.4 per

cent a year earlier, Unemployment is,in fact negligible.

-7-

Foreign Trade

13. In the year 1946, imports amounted to Kr. 2,775 million

("'578 million) and exports to Kr. 1,600 million (4333 million)

making an excess of imports over exports of Kr. 1,175 million

($244 million). At the beginning of 1947, the Danish Government

estimated that imports for that year could be cut to Kr. 2,370

million ($493 million) and exports increased to Kr. 1,950 million

($405 million) thus reducing the trade deficit to Kr. 420 million

($87 million). By the middle of the year it became clear that

these figures were too low. In fact, the final results for the

year showed imports of Kr. 3,144 million (S654 million) and exports

of Kr. 2,371 million C493 million) making the trade deficit

Kr. 773 million (Q161 million). Of this, Kr. 670 million

($139 million) was attributable to trade with the Western Hemisphere.

14. Several factors were responsible for these changes. Imports

were higher partly because of the high cost of shipments of fuel

from the U.S.A. and the increased cost of oil-cake and grain and

partly to larger imports of machinery, vehicles and ships. The rise

in exports was due in part to the greater volume of butter, cheese,

eggs and livestock exported, in part to the better prices obtained

for butter and bacon towards the end of the year, and in part to the

greatly increased value of industrial goods exported.

Trade Agreements

15. Some two-thirds of Danish exports consist of agricultAral and

animal products, including fish. The greater proportion of these are

-8-

sold under trade agreements with a few countries,, the most important

being Great Britain, who in the nine months to September 1947, took

some 30 per cent in value of Denmarkts total exports. Since under

the old agreement with the United Kingdom, the prices of the Danish

export commodities were fixed at a relatively low level, rising

prices for imported feeding stuffs imposed a severe handicap, a

handicap all the more severe because of the bad harvest. The expiry

of the trade agreement with Great Britain on October lst, 1947, gave

Denmark the opportunity of improving this situation and in the

agreement which was signed &n February 1948, Great Britain had to

concede higher prices.

16, The agreement is a compromise in that Denmark has agreed to

accept less coal, petroleum, iron and steel than she asked for and

was given only limited facilities for purchasing outside the sterling

area, On the other hand Great Britain has to pay substantially

higher prices, although they are below those Denmark demanded.

Denmark undertakes to sell 62-f per cent of her exportable butter

surplus at Kr. 6.12 per kilo ($64.30 per hundredweight) against

Kr. 4.57 under the old agreement, with a guaranteed minimum-delivery

of 40,000 tons;.80-90 per cent of her exportable bacon surplus at

Kr, 4.28 per kilo ($45.00 per hundredweight), against Kr. 3.96,

the quantity involved for the period to September 30, 1948 being,

in this case, 22,000 tons,

17. The conclusion of the agreement With Great Britain has been

followed by agreements with Belgium, Sweden, Switzerland and Finland,

and negotiations are in progress, or are about to begin with the

USSR, Norway, Holland and Italy, The Belgian agreement, the largest

-9-

so far concluded apart from that with the United Kingdom, provides

for the export to Belgium of 15,000 tons of butter a year, as well

as other products, while Denmark will import 150,000 tons of

Belgian iron and steel and textile goods to a value of Kr. 45 million

(19 million).

18. Negotiations with the Anglo-American authorities in the Bizone

which took place in May 1948 were less successful. The obstacle

was the existence of a debt of about $16 million owed by Denmark

for coal imports from the Ruhr, which she hoped to be able to pay

in goods. No agreement was reached owing to the inability of Demmark

to offer food which was sufficiently cheap in terms of calories, and

discussions are to be continued in June. Meantime some shipments

of potatoes to Western Germany have been made.

Balance of Payments

19. The balance of trade for 1947 showed an excess of imports over

exports of Kr. 773 million ($161 million). Shipping produced a net

income of Kr. 420 million ($87 million) tourists a net charge of

Kr. 14 million ($3 million) and interest a net charge of Kr. 80 million

(17 million). There was a net credit in respect of miscellaneous

receipts and payments of Kr, 10 million ($2 million), making a net

deficit on balance of international payments on current-account of

Kr. 437 million ($91 million). The bulk of this deficit was met

by drawing on the foreign exchange holdings of the National Bank'

and the commercial banks to an amount of about Kr, 50 million

(U0 million), by increasing the net liability on clearing and payments

-10-

agreements by Kr. 187 million (4$39 million), by using shipping

compensation money and unblocked balances to an amount of Kr. 105

million ($22 million) and by decreasing advance payments for

imports. A minor contribution towards the deficit was provided

by $3.4 million (Kr. 16 million) drawn from the International

Monetary Fund and withdrawals of $1.3 million (Kr. 6 million) in

respect of the loan from the Bank. These movements are reflected

in a decline in Danish current assets abroad from Kr. 773 million

($161 million) at the end of 1946 to Kr. 493 million(Clo2 million)

at the end of 1947 and an increase of current liabilities to

foreign countries from Kr. 857 million ($178 million) to Kr. 975

million ($203 million).

20. In view of the heavy deficit shown for 1947 and the uncertainty

with regard to ERP, the Danish Government decided early in 1948

to cut the import program drastically. A plan made public in

February 1948 showed imports at Kr. 2,600 million ($541 million)

and exports at Kr. 2,200 million (0457 million). This implied a

substantial contraction of imports from the 1947 level of Kr. 3,144

million ($654 million), a contraction which was even more severe

in freAl' terms owing to the rise in import prices, and in spite

of the measures which the Government had taken to control

donsumption it seems doubtful if this February figure was ever a

realistic one. A revised estimate of imports made in April 1948

showed a total of Kr. 3,100 million ($644 million), excluding imports

under ERP.

-11-

21. The Danish Government are experiencing great difficulty in

planning their 1948 import program in view of the uncertainty which

surrounds the operation of ERP. For the April - June quarter,

Denmark was allocated $20 million (Kr. 96 million) of which

one half may be gift and the other half loan. For the second half

of the year ERP imports would have to be $80 million (Kr, 385 million)

in order to reach the total of $100 million for the nine months

to December 31, 1948, which is Denmarkt share of the global figure

of $6,800 million. It is not easy to fill the Danish quota with

goods which are available and which Denmark needs, and the

administrative procedure to be followed necessarily absorbs time.

Fetr these reasons it is considered unlikely that the total during

1948 will approach $100 million and a realistic estimate is for an

amount of the order of $80 million (Kr. 400 million) although in

the existing state of uncertainty this is a figure which

represents an order of magnitude rather than an exact estimate.

22. The Danish Government have tentatively estimated their 1948

imports, including ERP, at Kr. 3420 million ($711 million). Thus

the increase in total imports is Kr. 320 million ($67 million)

compared with the April estimate which excluded ERP imports. ERP

imports, however, may well be more than Kr. 320 million ('67 million)

and part of the excess will probably be offset by reductions in

the 'non ERP' imports.

23. Exports for 1948 are now estimated at Kr, 2460 million

($511 million) without allowing for any increase as a result of

-12-

ERP imports, showing a deficit on balance of trade of Kr. 960 million

($200 million). Shipping is expected to yield a net income of

Kr. 455 million ($95 million), tourists result in a net charge of

Kr. 10 million ($2 million) and interest a net charge of Kr. 65

million ($14 million), thus reducing the deficit to Kr. 580 million

($121 million). Withdrawals from the Loan from the Bank are

estimated at Kr. 124 million ($20 million); the use of short te--n

and other assets, including shipping compensation money and uib1locked

balances, is tentatively put at Kr. 146 million ($30 million).

Some Kr. 33 million ($7 million) has been drawn from the I.M.F.

On the other hand, repayment of debt might absorb Kr. 120 million

($25 million). This would leave approximately Kr. 400 million

($83 million) to be covered by ERPO Until, however, the Danish

Government can obtain a better appreciation of the amount afd

kind of ERP imports, ary precise estimate for 1948 is impossible,

Public Finance

24. For the year 1946/47 which ended on March 31, 1947, revenle

on the current budget was Kr. 1912 million ($398 million) and

expenditure Kr. 1907 million ($396 million), thus showing a surplus

of Kr. 5 million ($1 million). In 1947/48 revenue was Kr. 2136

million ($444 million) and expenditure Kr. 2076 million ($432

million), resulting in a surplus of Kr. 60 million ($12 million).

For the current year, 1948/49, revenue is forecast at Kr. 2100

million ($436 million) and expenditure at Kr, 2050 million ($426

million) vbJ r-1 'Tould show a surplus of Kr. 50 million ($10 million).

-13-

These figures, however, do not show the true position, for

certain taxes such as excess profits, duty and death duties, are

carried direct to extra budgetary funds. Moreover, grants out of

the current budget are made to other extra budgetary funds. These

funds showed an aggregate surplus for 1946/47 of Kr. 347 million

($72 million) and the surplus for 1947/A8 is estimated at Kr. 280

million ($58 million). For 1948/49 the surplus may be of the

order of Kr. 250 million ($52 million). Thus the ttrue? budget

surpluses for the three fiscal years 1946/47, 1947/48 and 1948/49

may be put at Kr. 352 million ($73 million), Kr. 340 millicn,

($71 million) and Kr. 300 million ($62 million) respectively,

figures which are substantially greater than those shown by the

current budget alone.

25. Budgets of the municipalities also show a net surplus: for

the calendar years 1946, 1947 and 1948 the net surpluses are expected

to be Kr. 70 million ($15 million), Kr. 130 million ($27 million)

and Kr. 120 million ($24 million) respectively.

26. Against these surpluses, however, must be set the net building

and civil works expenditure charged to the capital budgets of the

central government azd of the municipalities. This expenditure is

estimated at Kr, 110 million i($23 million) for the calendar year

1946 and Kr. 140 million ($29 million) for each of the calendar

years 1947 and 1948.

27. After adjusting the surpluses on the central governments

current budgets to a calendar year basis, adding the surpluses of

the municipal budgets and deducting the net capital expenditure,

-14-

it appears that the net deflationary effect of public finance may

be estimated at Kr, 220 million ($46 million) in 1946, Kr. 320

million ($67 million) in 1947 and Kr. 270 million ($56 million)

in 1948. To produce surpluses of this size is a notable achievement

and the sound budgetary policy pursued by the Danish Government

has played an important part in limiting the effect of the

inflationary credit position which was the legacy from the

occupation period.

Banking

28. Since the liberation, b6th the Government and the National

Bank have aimed at a deflationary banking policy and on the whole

have achieved a measure of success. Even before the liberation,

in July 1943, legislation was passed requiring the commercial

banks and savings banks to maintain substantial cash reserves with

the National Bank. Early in 1947 the question of renewing this

legislation arose and banking interests pressed for a reduction in

minimum reserve requirements. The National Bank opposed such a

reduction but political pressure proved too strong and the Bank

Law of March 8, 1947 halved reserve requirements.

29. Cash reserves of the Commercial banks have fallen from

Kr. 2,523 million ($525 million) at the end of 1946 to Kr. 1,621

million ($337 million) at the end of 1947 and Kr. 1,504 million

($313 million) at the end of April 1948, largely as a result of

the budgetary policy referred to above. Since, however, the

statutory cash reserve requirements of the commercial banks were

-15-

Kr. 1,766 million ($367 million) at the end of 1946, Kr. 780

million ($162 million) at the end of 1947 and Kr. 762 million

($158 million) at the end of April 1948, there still remains scope

for credit expansion.

30. Although possessed of ample cash reserves, the commercial

banks have pursued a cautious policy. There has been some si.ft

of assets from securities to advances, and inter--bank loans have

declined, with the result that total assets have fallen from

Kr. 8,076 million ($1679 million) at the end of 1946 to Kr. 7,446

million ($1,548 million) at the end of April 1948, The rise in

bank advances was not viewed by the National Bank with much favour

and at the end of 1947 a circular was issued to banks instructing

them to pursue a cautious policy in making fresh advances. Since

then commercial bank advances have risen by nearly Kr. 100 million

($21 million) compared with a rise of Kr. 537 million ($112 million)

for the whole of 1947.

31. Interest rates have shown a tendency to rise, a movement which,

although probably not unwelcome to the National Bank, does not

appear to have been the result of deliberate central bank policy.

The yield on government bonds has risen from 3.62 per cent at the

end of 1946 to 3.91 per cent at the end of March 1948.

Prices and Wages.

32. So far the deflationary policy pursued by the Government atd

the National Bank has succeeded in checking, but not stopping, the

upward movement of prices, The wholesale price index, based on

-16-

1935j rose from 224 in December 1946 to 244 in March 1948. The

index for import goods rose sharply over the same period from 251

to 290, while home produced goods rose only slightly from 205 to

216. The index for export products showed only a moderate rise

from 216 in December 1946 to 234 in September 1947. The expiry

of the trade agreement with the United Kingdom in that month

made it possible for Denmark to sell dairy products elsewhere at

materially higher prices, with the result that the index jumped

to 289 in October and at the end of March 1948 was 302.

33. The cost of living, according to the official index, based

on 1935, shows only a moderate rise from 170 in January 1947 to 176

in April 1948 (SE/48/75). The truet rise in the cost of living

is probably higher. There is a strict rationing of principal

foodstuffs, fuel and clothing, and most consumer goods are subject

to price control.

34. Wages have risen more or less in line with retail prices -

indeed a large proportion of the working population come under

collective wages agreements which in effect regulate wage rates

automatically according to the cost of living. In March 1948 a

two-year agreement was signed by the Trade Unions and the Association

of Employers whereby wages increases of between 3 and 5 per cent

became effective in approximately 2000 separate agreements. No

important wage disputes have taken place since the abortive printing

strike in the spring of 1947 and its failure has to some extent

discredited labour extremists in the trade union movement. At the

moment serious labour trouble seems unlikely,

-17-

National Income

35. The trend of the national income in Denmark during the last two

years is not easy to show, as not only have there been the usual price

changes to vitiate a straight comparison in terms of money values, but

in addition, the basis of computation was changed early in 1948, which

makes difficult a comparison with earlier years. In broad terms, however,

the position can be seen by taking estimates for the years 1946, 1947 and

the forecast for 1948, all computed in terms of 1946 prices and adjusted

to the new basis of computation. National resources in 1946, i,e. the

sum of the gross national product and ihe bala.ce of payments deficit,

were estimated at Kr, 17,300 million (A3,597 million) of which Kr.14,100

million (0$2,931 million) was consumed and Kr. 3,200 million ( "665 million)

invested. In 1947, as a consequence of the unfavourable conditions already

referred to, and of a smaller deficit on balance of international payments,

national resources were equivalent to Kr. 16,500 million ("3430 million).

In spite of heavy livestock losses investment was only slightly lower at

Kr.3,100 million (8644 million), but consumption fell to Kr.13,600

million (42,827 million).

36. Reliable forecasts for 1948 cannot be made owing to the

uncertainties surrounding the amount and nature of ERP aid which may be

received in this year. Without ERP national resources are forecast

at Kr. 16,300 million (t3,389 million), investment Kr. 3,000

million ($624 million) and consumptiQn Kr. 13,300 million ($2,765

million). It is intended that the whole of the additional ERP imports

shall be devoted to an increase in investment, allowing any

secondary aPferts of FRP Pid, such as increased efficiency, to

-18-

benefit consumption. Whether this result will be achieved remains

to be seen.

37. The investment figures quoted above are "gross", i.e. they

include depreciation, repair and maintenance. In measuring

progress in reconstruction it is the 'nett figures which are

relevent. These based on 1946 prices may be put at Krc 1200

million ($249 million) in 1946, Kr, 1100 million ($229 million)

in 1947 and Kro 1100 million ($229 million) in 19.48 without FR?.

At this le3.el net inveotment is some 7 per cent of gross national

income.

38. There remains the question as to how these estim.tes compare

with those given by the Darish Government in January 1947. These

estimates showed a rise in the gross national product of 1 per

cent in 1947 and 4 per cent in 1948, compared with 1946.

Consumption was expected to fall by 14 per cent in 1947 and remain

around this level in 1948. Gross investment was to rise by 66

per cent in 1947 and by 83 per cent in 1948 compared with 1946?

It is now clear that even with a good harvest in 1947 these

estimates could not have been achieved.

39. The direction of new investment can be traced only in general

terms. Gross expenditure on building and civil works is estimated

at Kr. 1504 million ($313 millio) for 1946, Kr, 1640 million

($341 million) for 1947 and is forecast at Kr. 1644 million ($342

million) for 1948. After deducting depreciation, repair and

maintenance, the net figures are put at Kr. 579million ($120

iliMon), Kr. 754 million ($157 million) and Kr. 853 million

(.177 million) respectively. The volume of building may perhaps

-19-

be indicated better by estimates of the floor area of buildings

under construction. The 1938-39 average was 2.47 million square

metres; the total for 1946 was 1.60 million, for 1947, 2.05 million,

and the forecast for 1948, 2.29 million. Thus in 1948, building

activity should approach the prewar figure. Dwelling consj,ruction

will actually be higher in 1948 at 1,62 million square metres,

compared with 1.55 million in 1938/39, while non residential

construction will be below. There is a great shortage of hGuaing,

particularly in Copenhagen, and the program seems to strike a

reasonable balance between the need for buildings and the resources

available.

40. Gross investment in machinery and industrial equipment

increased from Kr. U01 million ($229 million) in 1946 to Kr. 1347

million ($280 million) in 1947 but is expected to be slightly

lower at Kr. 1323 million ($275 million) in 1948. In shipping, gross

investment shows a large increase from Kr. 150 million (,31 million)

in 1946 to Kr. 245 million ($51 million) in 1947 and Kr. 253 million

($53 million) in 1948. At the beginning of 1946 the Danish merchant

fleet (ships of 100 tons and over) totalled 807,000 gross registered

tons compared with 1175,000 tons in 1939, By the end of 1946 the

fleet totalled 837,000 tons. In 1947 the tonnage increased by

195,000 tons to 1032,000 tons and by the end of 1948 should

surpass the prewar level, The age distribution however is

seriously distorted; more than a quarter of the tonnage is now

over 25 years old, while much of the new tonnage is unsuitable,

some 88,000 tons of Liberty and Victory ships having been bought

in the past two years, Net investment, taking both machinery and

-20-

industrial equipment and shipping together, is estimated at

Kr. 130 million ($27 million) in 1946, Kr, 275 million ($57

million) in 1947 and in 1948.

Internal Political Developments

41. The internal political situation underwent a change during

the year. After surviving several crises the minority government

formed by the Moderate Liberals under Knud Kristensen, which had

been in power since November 1945, was defeated in October 197,

partly on its economic policy but mostly on the question as to

whether Denmark should sponsor a clause in a coming peace treaty

with Germany providing for a special status for South Slesvig.

At a general election held in the same month, Social Democrats

and Moderate Liberals gained at the expense of Conservatives aid

Communists, the representation of the latter falling from 18 seats

to 9. Since no party had a clear majority, an attempt was made

to form a coalition government. This attempt failed and a

government was formed by Hans Hedtoft as the head of the Social

Democrats who formed the largest party. The government controls

only 57 of the 149 seats in the lower house and is having to steer

a middle course.

External Relations

42. An interesting deveiopment in recent months in Denmarkts

external relations has been the formation in February 1948 of a

Northern Committee for Economic Cooperation consisting of

representatives of Denmark, Norway, Sweden and Iceland. The

Committee will study the establishment of uniform customs tariffs

as a preliminary condition for a customs union, the reduction of

tariffs and restrictions on trade between the four countries, the

-21-

division of labour and specialization of production and the

further development of cooperation in the economic field.

Experience elsewhere has shown the practical difficulties which

arise in reconciling the divergent interests involved in even

a limited degree of economic integration, and spectacular progress

is not to be expected.

43. The most important development in the past year has been

ERP, not merely on account of the material aid which it promises

to bring in the next year or so, but in the hopes that it inspires

of a greater degree of economic and political integration in

Western Europe. This, however, is a question in the solution of

which Denmark can play only a limited role.

The Future

44. The longer term outlook for Denmark is bound up with the

future of Western Europe. Before the war the United Kingdom

provided the main outlet for Danish agricultural products. 1enmarkls

balance of trade with the United Kingdom was favourable but since

sterling was freely convertible Denmark could obtain whatever

currencies she wanted. If, however, sterling is to remain inconvertible,

Denmark may have to consider broadening the basis of her export

trade. Germany, too, was important both as a market for lower grade

animal products and as a supplier of manufactured goods. Hence

Denmark is vitally interested in the economic recovery of Western

Germany. Trade with other European countries, formerly important,

has been restricted by bilateral agreements. Full recovery in

Denmark can hardly be achieved without gither a return to traditional

-22-

markets or an adjustment of her economy to a new basis, within

or outside the ERP framework.

45. Much attention is being given to possible changes in Denmarkts

internal economy to meet the new conditions. Further

industrialisation to lessen Denmarkta dependence on imported

manufactured goods and to increase industrial exports seems probable

It also seems likely that in future Denmark will become less

dependent on imported oileake by devoting more attention to

growing special crops such as lucerne, clover and corn (maize)

for ensilage, A greater degree of mechanisation of agriculture

has been advocated, not merely because it saves labour but because

by decreasing the need to grow oats to feed horses, it releases

land for other purposes. Some advantage, too, might be gained

by a greater centralisation of dairies. Changes of this sort

are, however, likely to come slowly, but perhaps this is not wholly

bad, for the future pattern of European trade, both within Europe

and with the world outside, is so obscure that caution rather than

innovation may be Denmarkts best policy.

-23-

PART II. UTILISATION OF THE LOAN

Planned rate of utilisation

46. In the course of the Loan negotiations, the Danish Government

estimated that they would utilise the loan as follows:

(in millions of $) Total1947-1948 1947 1948

Machinery 15.1 6.4 8.7Other Capital Equipment 3.1 1.6 1.5Materials for Capital Equipment 11.0 2.5 8.5Raw Materials 10.8 8.4 2.4

40,0 18.9 21.1

The closing date is December 31, 1948.

Actual utilisation

47. Disbursements have been made as follows:

(in millions of $) To end of Jan.1 -1947 May 31 1948 Unspent

Machinery 0e2 3.5 11.4Other Capital Equipment 0.1 1.1 1.9Materials for Capital Equipment 0.1 2.4 4.3Raw Materials 0.9 5.1 9.0

1,3 12.1 26.6

The above table is adjusted for a transfer of $4.2 million from

*Materials for Capital Equipmentf to 'Raw Materials'.

Reasons for slow rate of utilisation

48. The reasons given by the Danish Government for the fact that

only $1.3 million was drawn in 1947 compared with the $18.p million

planned may be sWnmariged as follows;

-2l-

(a) Delay in placing orders due to: Goods affected

(i) Time taken by Danish users toformulate requirements Textile machinery

(ii) Difficulty in obtainingallocations of goods inshort supply Steel

(iii) Difficulty in placingorders Lead

(b) Impossibility of obtaining equipmentrequired in the United States Wheel banda

(c) Delivery dates longer than wereanticipated Textile machinery,

machine tools

(d) Ability to finance goods in otherways Trucks

49. In general, it may be said that even in the most favourable con-

ditions of availability of goods, it would have been difficult to

draw on the Loan at the rate planned. The list of goods and the plan

for its utilisation were drawn up in January 1947, Had the Loan Agree-

ment been made earlier than in August 1947, more would have been drawn

in 1947. It is possible that had the Danish authorities shown a little

more initiative, they might have drawn on the loan somewhat faster.

They also appear to have been unjustifiably concerned in their

attitude to end-use supervision.

50. All drawings so far have been made in dollars.

An examination of specific instances of goods to

be purchased out of the proceeds of the Loan which have long

delivery dates does not indicate that it would have been possible

to use the loan quicker by buying otherwise than in dollars.

Relationship between the Loan and the Danish Governnent'sReconstruction Program

52. Total imports into Denmark in 194? were over $600 million. The

Loan given by the Bank was for $40 million, i.e. less than 7 percent

of total imports for one year. The Loan was furthermore for general

reconstruction and was not related to a specific industry or project.

It is, therefore, impossible to separate the effect on the general

economy of the inability to utilise the loan as rapidly as was

anticipated from other and quantitatively more important factors such

as the changes in the terms of trade and the failure of the harvest

and the consequent revision of the import program.

53. All that can be said with any assurance is that reconstruction

in Denmark in 1947 made less progress than had been hoped and that

it is likely that the shortfall would have been somewhat less had

the Danish Government used in that year the Loan as planned. In the

first five months of 1948, 30 percent of the loan has been utilised,

but it is too early to attempt to measure the course of reconstruction

or to assess the effect of the Loan on such reconstruction in 1948.

聳瓤 籐遵象藥翱恥

觀牌。顛囀離亂鯽粅臘貍亂嚴篡顛鰓瞋纏懸瞧貍歟羹貍聲購

獰糼自蟋憑鳥 瞋坤恭縐騙贓鷥：瞧粤珍螂嗎雞雛輕切勸瞬囉坤以 吋寧烽臨．憐紮離鰍謬申。灘嘰綱陸無 系瞧開劇籐帥饑 嚇嫵 鑰睡 蛹磁鯀鄴鐵鸛翻嘛結 鏽瞭 亂翻囉顧織 細戲帥翻騰騖緊鎮爛次蠶

卹噸萬戰鹹繪寥團癱細縫審編鄴瓤、細向細難爍瞬數賺飯絨織嗡玲細鑪繙蜘瀾唧纖麒，

溯． 豐細 螂矇補‘據綱卹 鸞織奮細舉歡雌細睡為細鷗 頗冷絀鼴 轟綱絨網齡 飄群攤躑綠

帥鑰辭綱嗡織終頗鄴編卸 驢臨黝山與奪坤棘總顱比網州驕嫵 籌麟 勢 恥細 雞森絨繡鴉羈痲

咖 劉陣 無 瀾賺領默向糁 學躑騙 細 騰 馴即騙鄴織嗯嬝 鵠珍單觸州黝擄 爍噱】旗離糸練卹導繙

”幟龜么細糾紳鹼礬鱗瞼歸細闕瞋徐，州螂矚糱鴉森認歡編乖謬鉀妒顯晞玀緯轉黝妙癱戚製轟齡

；降 顫 釁舉州 側嫵州肄魚贓動硃轉攤贓為邸卹 切 卹緘春編劊瞋釅切顱嘟恥輿

黴轟憫爍搬＇斗 蘿轟簶鳥綱眸細為黝郵攤嘛 為群翻州織羅撼協鴛縴蝕癱礦翩越織貍j、矚 餐繙為礦緣 鄴鯽鎗紼鋤鬢馳鹹J鴉鑰 觔韓個卹躑蠔輊劬媚如袒勳榭號燭卜 痲 瑯匐躑轟

倫 系系吟中勸娜轟歸鳥 紹紳，

鑒添 鰍獻細系隨緘鑰。贓念纖 雜雜麒購期則勵購個綠 頓細物喊蟻圳雌鼴蠍購韓露歸

《1耶驕 嚼傷 輛細，無 噸細 燾葬’騙 幼編，騙贓森參類織馴顯鴉騙舞 抑輪 切 群囑 祁磯勰幼

綢齜章黝奔物響劉瞬哺弗常織騷 繡 粲撇邸矚 物 澗瞬歸峰 劍瞋鑄螂勵瞼‘誠神 緘 編編黝麒轟

焜飲釀縛悶聯騎舞瞋馴 勵無 繡雞寥血紐細騙無 鰓論韌囀闢 羚醺 織鄙憐饑幼睡‘ 驍繼緘到鑰喊疇馮

鑪 也細紅雞 喊偽 權細 訕山鄴抽喊 饑購勾嘛 黝爛曦購釦縛衫噸中紹釅 觸瞬舞鄴翱滕鬆鄴論瞬鬍

多襲豭湧綱類鱸瞼坤。 卸州卜礫鄱輪默州練叫購領編無織織癱 離論韌叫暱 婦鞠馴崛白：勸膠籐輛鸛哪 曩知 劉矚誠嫵鸞，鱗鑽離做 拙劇繡攀斗謬木 嗡縴挺黝織期胎無輛· 偽條鐵輛縫無 傘鴻韓觔

咸曬．州亂場癩緘霧耀類鳥伙州瞬織斗 劈瀾陣細瞋義闕開叫疇驪�條誠網輛中潮斗鉛孵‘

論體圳臘無勿糅鰓鱸噸亂蛻激叢縐豳鬆鶴歟轉 編織擊訕搏爍啡頗騷繡卹細峰 哺鴛轉取鷗夠鱗網鄴織編嗡瞭翱嚇織奉綱聯戶

轉燭觔．練騙 嗨帥 鰓靨 輪 綱 瘁為疇做瞬鴉拿添切：伽瞻顰 鉍 ；魯勻膩誡篡礦 創睡纖製城囉 挪

г }&� � � � � � � � е[ � � � } � � � s � �у � С 8 � � � � � � � � � ; � � � � � � �д

�� � � �̂ '° � ' � � � � � � � �"� � � � � �Б� g� � � �у�С � � � � � � $� �� г �$ � � �}� � � � А� .� � � ; � � ' � tii � � g

� 3 д � " � � � � � � 9 � � � � � , у � ЭЯ

� � � � � � � а� � � � � � $� � � �д в I � +� rа1� � i/' � � � � � � � i! � � � 8 � � � � i � Eе у� s � � а ё � � д 8 а � А � з i� � I � � � � a°b � в i р � � s �g, �

� � �гз $ г в�аЗ $ � У i � ё� г � � � � � a� � il �

�� � ��� ���������� ����� ��� �� � �������� ��� �

����� ������� �� ���������������� ����� � ����JO ���q

� ������� ������������������ ���� � ��������� ���

���� ������������� �� ��� ������������������ ����

���� � ��� ��������� ���� ���� ��� �� ��������

����������� ���� �� � �� ������� ����� ����������

��������������������� �������������� ��

���������n�������

�����������j������ ����������� �����������

�������������������� ��� � ��� �����������f�

���� ����������d�� ������������� ��������

� ������ �� � ������ ��������������������� ���

������� ������������ � ��������������������� ��

�� ��� ����� � �� ����� ��� ��������� ����� � ����

���� ·��� ��� �� � ������������������ �� � ��� ����

I��������������� � ������� ������ �������������

�������� ���� � ������� ���������� � ��� ����

���������������� ������ �� ��� � ���������������

���������� �������������� ���������� ��

��������������

������� �� ��� ������

����� �����n���� ��� ���������� ������ � ����

����� ������������� ���� ��� ��� � �� �� �����

��� �������������� �������������������

���������� ��� ������������ ����� �

��

� �J

--���--&--(-----.&---1--���----!----&---._-��

��

�

���� f��������j

l������� �� ���� � � ��������� t�� ����� � ������� � �· � � �

����������������������������� � �����d ��

���� ����� ���� �� ����������� � ������

���6 �����

�� �����������������������������������.

� �� � ����� ���� � � ���� � � � �������� �

��� ������������������� � ��� ����� ���� �����

��� ��� � � ������ ������ ���������� �������������������&&� ����&&� �

������� ������� � ������ ·� ������ ���������

��� �� �������·� ������������ � ��p��������� �

�������� ����������� �����������q� �������� ��&

����������� ������� ������������� �� �������

� ��������� ������ � ����������� ������� �

������������� � �������� � ������� �� ����

�� ������ ·���

�� ���������� � ������ �� � � ��������� �

��� � � ��� �� � � � � � � � �� � ~&

� � �������� ����������� ���������������� ���j

� �

� ���������������������������� �������� �������.f

� �� � ������� ���������� ������ � ���������·

���� ������ ·������������ ��� ��������������� ��

����� ������·�������������� ���������� ������

�

����������� � ����� �������d������ � ����������� ������������� �������������������������� ������� � ������������������������� ���������� ��� ��������������������������������������� � �����

�� ����� ����������� ������� �� �������� ������ � �����

� ������� �� � ����������� ���������� ���������� ���������� ��������� ����������������� · �� ������ ����� ����

������ ������

�

�� �������� ���������������������

� �������� � �� � ���

�� �� ������

������������ ������ ���������������� ������ ���������� �������� ��������������������� ����� �����h���� · ����� ���������� ������ ���� �����

� ����� ������ ��������

�������� �� ����� ���� �� � ������� ��� ������ ���� ���������� � � ���

3���� �������������������� ��������������

������������������ �� ����� ���� ������ ������ ����������� ��� �� ��� ���� � ��

���� ����������������� ���k�� �������

������������������ ��� �� ���������� ����� �����

�� �� ����� ����� ������� ~__������ ����~.ha___&���,. ����.���__��������� ___�������������������k ���� ����� ���C������������������

����� h������� ������h���� �������������t ������������ ��� �� ������� ������������

������������ ��������������������������� �������

�� ������������ � ��������� � � ����� ���� ������������ �������������������������������

�����

��

���� ������������� ����������������������� ��� � ����������������� ������� �� ��� �������� � ��

������������ ��� � ����������