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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

International Monetary Fund. Secretary's Department

for government purposes. Yet this is the time when the balancing of supply and demand at stable prices can most effectively be secured. During the next few years it may still be possible to maintain investment for reconstruction somewhat above the level of domestic savings. The import surplus from foreign grants and credits will provide governments with receipts which should make them completely independent of financing by the central bank and the private banks. It is for this reason that I say that the practical task of securing internal financial reform will be

of every belligerent country in World War II. In some, as in the United States and Canada, an enormous expansion of output enabled a large part of the increased demand to be satisfied from greater production. In others, as in the United Kingdom, an import surplus financed by the liquidation of overseas investment, supplemented by lend-lease and foreign borrowing, provided resources that added to the supply available from gross national output. But neither greatly increased output nor a large import surplus was sufficient to prevent the development of inflationary

money or by increasing the supply of goods, e.g., a budget surplus, personal savings, an import surplus, or a reduction of inventories. Any element in the problem can thus be either inflationary or anti-inflationary. It is, however, convenient to be able to use a standard formulation, and the convention is here adopted of regarding all magnitudes capable of measurement as positively or negatively inflationary. It will be shown in the next paragraph that where reasonably adequate investment statistics are available, this procedure leaves only intentional savings or dis

Johan H. C. de Looper

IN THE PERIOD between World Wars I and II, Latin America had a consistent export surplus in its balance of payments with Europe, which was approximately offset by a deficit on invisible account resulting mainly from European shipping and investment earnings. 1 At the same time, there was a Latin American import surplus and a deficit on invisible account with the United States. The usefulness of this over-all picture is very limited, however, since the positions of individual Latin American countries varied widely. The southern countries of South America