The League of Nations

Financial Reconstruction—Past and Future

[The writer of this article is a financier with a reputation recognized throughout Europe.—ED. Spectator.]

THE PHILOSOPHY OF LOANS.

Much has been written (and deservedly) about the work of the financial reconstruction carried out under the auspices of the League of Nations.- Both by its direct results and by its very considerable influence at once on the technique of -other reconstruction schemes and on the psychology 'surrounding those schemes the League's financial work has merited all that has been said of it. But while there has peen much appreciation in general terms, there has not As yet been much study of the underlying philosophy of the League's action in its technical aspects.

THE WORK ALREADY DONE.

k The League's financial work commenced with the Brussels Conference of 1920, out of which arose the League's Financial Committee, and the fundamental Brussels principles of

Budget equilibrium and monetary stabilization have been the guiding objects of the Committee's action, whether in `Austria and Hungary, in the currency reforms of the Free City of Danzig and of Esthonia or in Greece and Bulgaria. In the latter two countries the initial action concerned the settlement of Refugees : but only because the economic consequences of the Refugee problem were so important that on their solution depended the whole financial equilibrium of the two countries. In each case the initial Refugee settlement scheme has led to a further scheme embracing complete Budget and monetary reform. The recent discussions with Portugal have similarly been concerned with the Budget rd the currency of Portugal.

XTENT OF CONTROL.

But if we discern in Budget and monetary reform the thread of the League's financial action, and in that sense there is a certain unity in its history, it must not be supposed that the machinery has always been precisely the same. Austria was the first case and obviously a very difficult one. In such circumstances the patient's condition required a drastic diet and strict medical control. Where the disease has been less advanced or the patient's own recuperative powers were greater, the League seems to have gladly recog- nized that a less severe regime with reduced medical surveil- lance would suffice. In the case of Hungary the Budget control was much less extensive than in that of Austria. In the case of Danzig there was no control other than that of Loan Trustees as regards expenditure of loan moneys and provigion of loan service from assigned revenues. In the case of the Esthonian monetary reform there is merely a foreign expert adviser for a brief period of years at the Esti Bank. In the case of Greece, while the expenditure on Refugee settlement is administered by an International Commission '(two members appointed by the League and two by the Greek Government), there is no general Budget control, and only a foreign expert without a power of veto at the new Bank of Greece. In the case of Bulgaria the arrangement is in general very similar to that of Greece. It would seem, therefore, that the Financial Committee have been particularly anxious to avoid undermining the responsibilities of the national authorities and have in each case adjusted the degree of foreign advice to the minimum necessary for the success of the reform plan.

THE CASES SERVED.

It is sometimes thought that an appeal to the League was chiefly and primarily a procedure suitable for countries defeated in the late War.- That is a profound psychological mistake. As an historical fact, neither Esthonia nor Greece nor Portugal was among the losers in the War ; and even in pre-War days it was by no means unknown for financially needy countries to seek assistance and expert advice outside their own borders. It is the existence of certain difficulties -in public finance, rather than the political conditions which have produced those difficulties, which gives rise to a state of affairs in which'the League can be of use ; and if the League can serve not only the general interests of the world but the particular interests of the country concerned by its advice and support, it is difficult to see why any country from a misplaced sense of pride should wish to deprive itself of those advantages.

What, in fact, are the advantages which experience suggests that the intervention of the League can give ? The League has no financial resources of its own. It cannot itself provide loans or even guarantee the service of a loan. The name " League Loan " is, strictly speaking, a misnomer. But for all that the League is able to give certain tangible advantages, advantages particularly needed by those countries which are financially outside the first rank.

THE REASONS FOR RECOURSE TO THE LEAGUE.

If we consider the schemes which have so far been under- taken, it would seem thal these advantages may be sum- marized somewhat as follows : The League has at its command a body of expert knowledge probably more complete for these particular purposes than can be found in any other institution. That knowledge is freely available for those who are willing to take advantage of it. Further, the League's advisers, in applying their knowledge, are interested solely in the evolution of the best possible reconstruction scheme. They are not hampered by any consideration other than the merits of the scheme. They can truly be said to be impartial as between borrower and lender, and their minds are free to consider solely how the most successful scheme for the country concerned can be produced. It is no doubt funda- mentally for this reason that loans under the auspices of the League have acquired in the financial markets a certain good- will value which is represented in the price of issue.

ADVANTAGES OF LEAGUE ASSISTANCE.

Even on the much disputed question of control the League can claim certain advantages. " Control," or to use a more appropriate term, " foreign advice," is not peculiar to League schemes. In one form or another it is a characteristic of nearly all important financial reconstructions of recent years. It may at least be said that in League cases the supervision is elastic, international, public, and is shared by the country concerned in so far as that country always sits for such pur- poses as member of the League's Council. Another important advantage of League schemes is in their great publicity. Publicity, so greatly encouraged by the periodical reports made to the League and the discussions thereon at Geneva, is the sovereign remedy against errors or misunderstandings between nations. It is of the greatest value in making known to lending countries the needs and circumstances of borrowing countries, and in assuring lending countries that the progress of a scheme for which they have lent money will, and is, being followed with benevolent interest by those responsible for the scheme.

ISSUE OF LOANS TO MANY MARKETS.

Finally, the intervention of the League has important international aspects. After the War circumstances might easily have concentrated in the markets of one or two countries alone the financial interest in reconstruction. On the other hand, for a reconstructed country it is for many reasons important to re-establish its reputation in as many financial markets as possible. The effort of the League has always been to interest in reconstruction loans as many as possible of the available financial markets, and it may be assumed that, as internal conditions in markets hitherto not in a position to share in international financial efforts change, the tendency in this direction will continue. No one can suppose that Austria in 1922 would have been able to appeal success- fully, without the intervention of the League, to no less than ten financial markets, apart from the direct advance made by the Swiss Government. The advantages of international interest and co-operation in its widest form are not the least of the benefits which the League is able to secure for those countries who seek its support.

A FINANCIAL CORRESPONDENT.