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THE FINAL ACT of the United Nations Conference on Trade and Employment containing the Charter of the International Trade Organization (ITO Charter, or Havana Charter) was signed at Havana on March 24, 1948. The signing of the Final Act, however, does not imply an obligation to accept the Charter. Many nations are now considering its adoption, but most of them will not take formal action before knowing the final attitude of the United States. Like the Fund, the ITO aims at achieving nondiscriminatory economic intercourse among nations, limited as little as

International Monetary Fund

related international organizations tend to create some differences in emphasis and some conflict in priorities. These it is the task of constant liaison to bring into the best order. The Fund looks forward to close relations with the ITO. The Fund’s participation in the meetings at which the ITO Charter and the General Agreement on Tariffs and Trade (GATT) were drafted has been described in previous Annual Reports. At the Second Session of the Executive Committee of the Interim Commission of ITO in August 1948, a Draft Agreement on Relations between the Fund and the

International Monetary Fund. Research Dept.
This paper highlights various problems and policies related to latent inflation. Disappointment will undoubtedly be widespread if, after 10 years of inflation control, latent inflation is permitted to become active and there is a considerable rise in prices. It is not unlikely that some governments will feel they simply cannot accept such a policy. However, the prospect of wiping out or working off latent inflation in any moderate period is very slight. There is every reason to deal with the latent inflation as far as possible by absorbing it through taxation and by measures to reduce liquidity. At the same time, with increased output it should be possible to work off part of the latent inflation. Even if it becomes generally recognized that all or most of such inflation cannot be wiped out or worked off, its immediate activation may be unwise. At some stage soon, governments must face the difficulties presented by latent inflation and recognize that a comprehensive program for dealing with it must be put into effect. Unless such programs are adopted, there can be no great confidence that international payments problems can be solved simply by imposing more rigorous and more extensive controls.
International Monetary Fund


This paper reviews key findings of the IMF’s Annual Report for the fiscal year ended April 1948. The report highlights that during 1947 and in the early part of 1948, considerable progress was made in strengthening the economies that suffered devastation and dislocation as a result of the war. Over the world, generally production rose and recovery continued, despite widespread political tension and conflict, and disturbances. In nearly all countries, however, the need and demand for goods continued to be abnormally great, and there were increasing difficulties in meeting international payments for import surpluses.

IN TIME OF WAR, unless measures are taken to limit civilian demand, the aggregate demand for real resources for civilian uses and for war purposes invariably exceeds the available supply. This is an inevitable consequence of a war program, since it may be taken for granted that countries will not limit the resources they dedicate to carrying on a war. If a country engaged in war does not have an inflation problem, it is in fact not pushing its war effort to the maximum. Inflationary pressure is a natural by-product of war.

THE NATURE and processes of inflation have been discussed extensively in economic literature since the war.1 In the present paper a technique for analyzing quantitatively the forces making for inflation is described and illustrated. First the terms used and the procedures adopted under assumptions as to the statistics available are discussed; and then the technique is applied to data for Western Europe in the decade 1938-48.

Berengere Patault and Mr. Pedro C Rodriguez

ONE OF THE main purposes of exchange depreciation in industrial countries is to lower export prices in order to increase the volume of exports. The question is to what extent and under what conditions exchange depreciation will achieve this objective.

AS THE Economic Cooperation Administration entered its twentieth month (November 1949) of a planned four-year existence, the total sum committed to financing imports of ECA participating countries amounted to over $7 billion. In the early stages of this period effective aid was accelerating, but the original plan for the program as a whole called for a gradual reduction. The appropriation for fiscal 1950 was in fact 25 per cent below that for the first ECA year (April 1948–March 1949). Since indications are that termination of the program must be regarded as inevitable, the possible significance of the diminution and end of the program should be assessed from the point of view of both the imports of the participating countries and the exports of the United States.

LOCAL currency proceeds (“counterpart funds”) are the proceeds derived by a government or a central bank from (a) the sale of foreign goods or foreign exchange received as a gift, grant, or loan to the national authorities, or (b) the use of exchange reserves. Thus they are the financial counterpart of the import surplus so financed. When supplies are given by one country to another in order to assist in reconstruction or development after some major disturbance (such as a war), the recipient government may, quite appropriately, sell the supplies to its nationals in exchange for local currency, however improper it may seem at first sight that what has been received as a gift or grant should be sold. Presumably the donor country intends the gift or grant for the general benefit of the recipient country, not for particular individuals, and presumably the public has adequate funds in local currency with which to buy the goods. Indeed, if there is active or latent inflation in the recipient country, the public has more than enough money. The sale of the goods for local currency and the accrual of the proceeds to the government are simply means of distributing the goods among users and at the same time retaining the benefit of the gift for the nation as a whole. In the past, certain UNRRA and Lend-Lease supplies (especially food) have been disposed of in this way, and the same is now being done with the supplies provided under the European Recovery Program.