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FOREIGN DEBT MORATORIUM

DECEMBER 17, 1931.-Committed to the Committee of the Whole House on the

state of the Union and ordered to be printed

Mr. COLLIER, from the Committee on Ways and Means, submitted

the following

REPORT

[To accompany H. J. Res. 147)

The Committee on Ways and Means, to whom was referred the joint resolution (H. J. Res. 147) to authorize the postponement of amounts payable to the United States from foreign governments during the fiscal year 1932, and their repayment over a 10-year period beginning July 1, 1933, having had the same under consideration, report it back to the House without amendment and recommend that the resolution do pass.

Your committee was very desirous of obtaining all information available as to the economic situation in Germany and Europe and the necessity for the moratorium. With that end in view, it was announced that public hearings would be had. The chairman, through the press and otherwise, invited any interested parties to appear and testify before the committee. The Treasury Department was represented at the hearing by Hon. Ogden L. Mills, the Undersecretary of the Treasury, and the State Department in the person of the Secretary of State, Hon. Henry L. Stimson. Both these witnesses made full statements as to the economic conditions in Europe, and they were interrogated by the committee.

The London protocol, the agreement entered into by the interested nations agreeing to the terms of the moratorium, was before the committee and is a part of the record, as is the agreement between France and the United States, known as the Franco-American agreement. Three of the Members of the House of Representatives appeared before the committee. From time to time it was suggested to the committee that either the Treasury Department or the State Department had information that was very material to the issues involved in this bill and that such information had been withheld from the committee. Your committee, without exception, took the necessary steps to obtain such information if it existed. With this end in view, the Undersecretary of the Treasury was several times invited again before the committee and interrogated about these matters and the same was true as to the Secretary of State. In each instance the committee found nothing to substantiate these statements.

Some of the witnesses appearing before the committee opposing the bill laid particular stress on a newspaper article to the effect that some of the nations indebted to the United States had deposited the necessary funds with their fiscal agents in the United States to pay the amounts due on December 15. Your committee diligently sought to ascertain whether or not this was true. The correspondent who wrote the article was invited to appear before the committee, which he cheerfully did, but claimed his privilege and did not advise the committee from whom he obtained the information, the basis of the article above referred to. Your committee then ascertained from the Treasury Department that it understood that J. P. Morgan & Co. was the fiscal agent of some of the countries involved. Therefore the committee requested a representative from that firm to appear before the committee. Mr. Henry P. Davison, of the firm of J. P. Morgan & Co., appeared and advised the committee that his firm represented as fiscal agents in the United States Great Britain and France. Mr. Davison positively stated to the committee that these governments had not deposited any funds to pay their installments due the United States on December 15, nor had they communicated with them on the subject. The Under Secretary of the Treasury stated that the payments made to the United States by these three countries in 1929 and 1930 were made for Great Britain and France by Morgan & Co. through the Federal reserve bank in New York,

With greatest respect, your committee is of the opinion that this is an extraneous matter and has no bearing on the case whatever.

On the last day of the hearing, in the forenoon, after hearing two witnesses, no one else appeared. The chairman then stated that he had given ample notice through the press and through the members of the hearings and that opportunity would be given to anyone to appear. After stating this, the chairman then announced to the public that he would be glad to hear anyone present. Having no response, the committee went into executive session.

It seems highly significant to your committee that, despite the widespread publicity of this matter since the President's announcement of June 20, 1931, no individual or representative of any group appeared or sought an opportunity to be heard in opposition to the resolution with the exception of the three Members of the House above referred to, who were given a full hearing.

Objections have been made to the word “reparations” as it appears in the resolution on the ground that it links the United States to the whole reparations question. This term is merely intended as a description of one of the class of debts which must be postponed by the recipient countries in order for such countries as are indebted to the United States to participate under the President's proposal of June 20. This resolution in no way whatever links the United States with the payment of German reparations to the Allies nor does it in any way make the payment due the United States by the Allies dependent upon receiving reparations from Germany. In fact, if the terms of the resolution were changed in this respect, the United States would be put in the position of postponing a debt due it from a country without such country being obligated to postpone what in many cases is the most important item of the amounts due such foreign countries, namely, the reparation payments. The committee is firmly of the opinion that nothing in the resolution can in any manner be construed as indicating a policy of debt cancellation or reduction, or as committing the United States or Congress to such a policy. In view, however, of repeated statements by opponents of the resolution, the committee feels it desirable to set the matter at rest by the insertion of section 5.

The testimony given before the committee indicated that adverse economic developments in Europe had, by the beginning of 1931, placed the national economies of certain countries, particularly of central Europe, under severe strain. By June it was evident that events were rapidly shaping toward major crises the repercussions of which would seriously affect economic conditions throughout the world and which could not but react adversely upon conditions in this country.

It had become apparent early in the year that economic conditions in Germany were deteriorating at a fairly rapid pace. In Austria the disclosure of the unsound condition of the country's largest credit institution precipitated a crisis in that country in the latter part of May which necessitated the extending of outside financial assistance and became so serious as to accentuate increasing apprehension regarding the economic and budgetary situation of Germany.

It became evident by the 1st of June that a slow run had begun upon German banks, in fact upon the central institution, the Reichsbank. Subsequently this run assumed major proportions. Between the end of May and June 20, the outflow of funds from Germany resulted in a reduction of 1,000,000,000 reichsmarks, or approximately $250,000,000, in the Reichsbank holdings of gold and foreign exchange. This represented approximately two-fifths of the bank's total reserves. On Friday, June 19, and Saturday, June 20, the withdrawals were so heavy that the reserves of the Reichsbank reached the legal minimum and it was obvious that unless some action was taken at once to change public sentiment and check the withdrawal of funds from Germany the Reichsbank would be obliged to suspend its reserve requirements and in all probability go off the gold basis with consequences most serious not only in Germany but throughout the world.

To meet the impending crisis and to avoid the inevitable adverse effects of the impending catastrophe upon conditions in the United States as well as in Europe, the President proposed, subject to confirmation by Congress, the postponement during one year from July 1, 1931, to June 30, 1932, of all payments on intergovernmental debts, reparations, and relief debts, both principal and interest. This proposal was made in the belief, which subsequent events seem to justify, that timely action should contribute to relieve the pressure of adverse forces operating in foreign countries and should assist in the reestablishment of confidence. The announcement of the proposal on June 20 resulted in the immediate termination of withdrawals of funds from Germany and increased prices of commodities and securities in world markets. Although these benefits were not entirely retained, the impending catastrophe was averted.

The resolution under consideration authorizes the Secretary of the Treasury, with the approval of the President, to conclude agreements with our debtor governments which have accepted the President's proposal of June 20, 1931, and have made or have given satisfactory assurances of their willingness and readiness to make with each of their debtor governments an agreement on substantially similar terms as the agreements proposed to be made with our debtors.

Section 2 of the resolution authorizes the amounts postponed to be repaid over a period of 10 years beginning July 1, 1933, with interest at the rate of 4 per cent per annum. In July, 1931, the principal creditor governments met in London for the purpose of putting into effect the President's proposal, at which conference it was agreed that the amounts postponed should be repaid on the same conditions as specified in the resolution except that the interest rate was 3 per cent. In view of the fact that conditions have changed since that meeting in July and that the obligations of the United States Government are now selling on the market at a rate to yield about 4 per cent, it is felt that a 4 per cent rate is justified.

The agreements to be made under this resolution should, so far as possible, be subject to the same terms and conditions as the payments to be made under the original debt funding agreements, except that there is to be no right of further postponement in respect of the payments in question, and except that payments should be made in cash. There may be a possible exception to the right of postponement in the case of Austria. It will be recalled that Austria has relief debts owing to nine different creditor governments. The conditions under which this indebtedness was created make it necessary that the postponed payments be subject to uniform terms and conditions of repayment for all creditors. Under the agreements now existing, the trustees of the League of Nations' reconstruction loan have the right to object in any year to the payments being made during that year. Depending upon the action to be taken by all the creditor governments, it may be necessary to continue this right of postponement. In the case of Greece, part of its indebtedness is serviced through the International Financial Commission and it is advisable, if possible, to continue this arrangement with respect to the postponed payments on account of this indebtedness.

The provisions of section 4 are necessarily broad in order to cover the cases of Austria and Greece, but the committee has the pledge of the Treasury that exceptions to the terms of existing agreements will be confined to the above-mentioned points.

A copy of the President's statement of June 20, 1931, and a statement showing the amounts due the United States from foreign governments during the fiscal year 1932, which are affected by the President's proposal, follow:

The American Government proposes the postponement during one year of all payments on intergovernmental debts, reparations and relief debts, both principal and interest, of course, not including obligations of governments held by private parties. Subject to confirmation by Congress, the American Government will postpone all payments upon the debts of foreign governments to the American Government payable during the fiscal year beginning July 1, next, conditional on a like postponement for one year of all payments on intergovernmental debts owing the important creditor powers.

This course of action has been approved by the following Senators: Henry F. Ashurst, Hiram Bingham, William E. Borah, James F. Byrnes, Arthur Capper, Simeon D. Fees, Duncan U. Fletcher, Carter Glass, William J. Harris, Pat Harrison, Cordell Hull, William H. King, Dwight W. Morrow, George H. Moses, David A. Reed, Claude A. Swanson, Arthur Vandenberg, Robert F. Wagner, David I. Walsh, Thomas J. Walsh, James E. Watson; and by the following Representatives: Isaac Bacharach, Joseph W. Byrns, Carl R. Chindbloom, Frank Crowther, James W. Collier, Charles R. Crisp, Thomas H. Cullen, George P. Darrow, Harry A. Estep, Willis C. Hawley, Carl E. Mapes, J. C. McLaughlin, Earl C. Michener, C. William Ramseyer, Bertrand H. Snell, John Q. Tilson, Allen T. Treadway and Will R. Wood. It has been approved by Ambassador Charles G. Dawes and by Mr. Owen D. Young.

The purpose of this action is to give the forthcoming year to the economic recovery of the world and to help free the recuperative forces already in motion in the United States from retarding influences from abroad.

The world-wide depression has affected the countries of Europe more severely than our own. Some of these countries are feeling to a serious extent the drain of this depression on national economy. The fabric of intergovernmental debts, supportable in normal times, weighs heavily in the midst of this depression.

From a variety of causes arising out of the depression such as the fall in the price of foreign commodities and the lack of confidence in economic and political stability abroad there is an abnormal movement of gold into the United States which is lowering the credit stability of many foreign countries. These and the other difficulties abroad diminish buying power for our exports and in a measure are the cause of our continued unemployment and continued lower prices to our farmers.

Wise and timely action should contribute to relieve the pressure of these adverse forces in foreign countries and should assist in the reestablishment of confidence, thus forwarding political peace and economic stability in the world.

Authority of the President to deal with this problem is limited as this action must be supported by the Congress. It has been assured the cordial support of leading members of both parties in the Senate and the House. The essence of this proposition is to give time to permit debtor governments to recover their national prosperity. I am suggesting to the American people that they be wise creditors in their own interest and be good neighbors.

I wish to take this occasion also to frankly state my views upon our relations to German reparations and the debts owed to us by the allied governments of Europe. Our Government has not been a party to, or exerted any voice in determination of reparation obligations. We purposely did not participate in either general reparations or the division of colonies or property. The repay. ment of debts due to us from the Allies for the advance for war and reconstruction were settled upon a basis not contingent upon German reparations or related thereto. Therefore, reparations is necessarily wholly a European problem with which we have no relation.

I do not approve in any remote sense of the cancellation of the debts to us. World confidence would not be enhanced by such action. None of our debtor nations has ever suggested it. But as the basis of the settlement of these debts was the capacity under normal conditions of the debtor to pay, we should be consistent with our own policies and principles if we take into account the abnormal situation now existing in the world. I am sure the American people have no desire to attempt to extract any sum beyond the capacity of any debtor to pay and it is our view that broad vision requires that our Government should recognize the situation as it exists.

This course of action is entirely consistent with the policy which we have hitherto pursued. We are not involved in the discussion of strictly European problems, of which the payment of German reparations is one. It represents our willingness to make a contribution to the early restoration of world prosperity in which our own people have so deep an interest.

I wish further to add that while this action has no bearing on the conference for limitation of land armaments to be held next February, inasmuch as the burden of competitive armaments has contributed to bring about this depression, we trust that by this evidence of our desire to assist we shall have contributed to the good will which is so necessary in the solution of this major question.

HR-72-1-VOL 1-3

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