[From the Journal of Commerce, Feb. 28, 1974]

DESPITE PROBLEMS-WEST GERMANY BOOSTS EXPORTS 32 PERCENT IN JANUARY BONN-The West German export machine achieved an impressive foreign trade surplus in January of 3,600 million d-marks, according to provisional figures released by the Department of Statistics on Monday. This near-record figure resulted in a current account surplus of 2,100 million d-marks up from DM1300 million in December and compared with a small deficit in January 1973 of DM 300 million.

The export figures seem to defy a period of worldwide economic uncertainty, and even, to some observers, the laws of economic themselves.

INCREASE OF 32 PERCENT

Compared with the previous January, German industry achieved a 32 per cent increase in exports to 17,518 million d-marks against an increase of imports of 19 per cent to 13,946 million d-marks. Between December and January both imports and exports rose 16 per cent.

These figures tell of the pace of business in Germany at present, and also demonstrate how Germany's export performance has been able to more than offset the rise in price of imported raw materials. In the year to December 1975 the average price of imports rose 14 per cent and that of exports only 4 per cent. Businessmen agree with the point made in the last monthly report of the Bundesbank-that Germany's strong export performance is due to its industry's ability to predict deliveries exactly and reliably even in the middle of such traumas as the Arab oil embargo.

DEFICIT IN SERVICES

The difference between the latest trade surplus and the current account surplus resulted from a deficit in services of 50 million d-marks and one of 1,000 million d-marks in the transactions balance. The foreign exchange markets reacted without much excitement to the news, partly because the figures had been widely predicted in currency trading circles and partly because political events in Britain and elsewhere in Europe rather overshadowed them. The deutsche mark firmed slightly.

On March 1 the deutsche mark was showing a weighted up valuation against the rest of the world of 14 per cent since the end of 1972. At the beginning of this year the equivalent figure was 10 per cent.

The trade figures further support the contention of the latest IFO survey that the worst of West German industry's winter gloom has passed. The country's fears now concern not so much the level of business activity as the level of inflation. With wage settlements of between 10 and 20 per cent threatening to become the norm there have been calls from various quarters for wage and price controls. So far the Economics Minister Hans Friederichs has firmly turned down the idea.

[From the Wall Street Journal, Mar. 27, 1974]

REPORT OF RECORD BONN TRADE SURPLUS NIPS MODEST RECOVERY OF DOLLAR ABROAD

The U.S. dollar attempted a modest recovery on international currency markets yesterday but was hit by press leaks that West Germany had a record monthly trade surplus in February.

For the same month, Britain reported a record deficit, but sterling rose nearly a cent against the dollar despite it. News of Britain's stern budget came too late to affect the market much, though late dealings appeared influenced by the announcement that Britain was floating a $2.5 billion dollar loan in Europethe biggest ever in the Eurodollar market-and had boosted to $3 billion from $2 billion its swap line with the U.S. Federal Reserve System.

With the focus of attention back on currencies, the gold price retreated $4.50, to $172.25 an ounce, at London's afternoon fixing.

WEST GERMAN FIGURES

West Germany isn't due to report its February trade figures until Friday, but German sources confirmed a newspaper's report that the surplus of exports over imports reached a record equivalent to about $1.85 billion, up from $1.42 billion in January and $763.9 million in February 1972. The previous monthly record was $1.56 billion in October 1973.

Rumors of a record trade surplus had fueled the mark's gains against the doilar on exchange markets in recent days. The latest news revived speculation that the mark would be untied from six smaller European currencies and float freely upward.

Sources in Bonn's economics ministry played down such talk, and emphasized the trade surplus had to be viewed in the context of the nation's overall balance of payments. But Paul Lichtenberg, chairman of Germany's big Commerzbank, forecast that the country probably would be the only industrial nation in the world to produce a payments surplus in 1974.

SLIGHT NET GAIN

On the day, the dollar strengthened to 2.5475 marks around midday, making up some of Monday's losses that carried it down to 2.5373 marks. Then, as news of the trade surplus circulated, the dollar fell to 2.5395 for only a slight net gain.

Sterling benefited more from the dollar's weakness against the mark than from its own strength, foreign exchange dealers in London said. It drifted downward to around $2.3600 in morning trading, then jumped to $2.3720 in later activity, from $2.3630 late Monday.

The British government reported Britain had a record $1.02 billion trade deficit in February, after adjustments for seasonal variations. January's deficit was $908.1 million.

Analysts said the cost of oil undoubtedly played a key role in the deficit. The country's recent three-day workweek also curbed exports. Imports, too, were higher because home production was unable to supply demand.

ANNUAL PACE

The analysts didn't think the indicated $12 billion annual-rate deficit would continue at that pace through the full year. For one thing, the return to normal working conditions would aid exports and reduce the need to import. But economists still are forecasting a deficit of at least $8 billion.

Covering this deficit was a major task of the budget that the new Labor Party government unveiled yesterday. In his budget speech, Denis Healey, chancellor of the exchequer, announced that Britain had secured a $2.5 billion loan in the international marketplace and had boosted its swap line of reciprocal credit facilities with the U.S. Federal Reserve System by 50%, to $3 billion.

The increase brings the U.S. system's swap network with 14 central banks and the Bank for International Settlements to $19.98 billion. The swap network is used by central banks to intervene in foreign-exchange markets to alleviate market pressure on a currency. A swap provides a renewable, short-term exchange by a central bank of its own currency for the currency of another central bank.

The 10-year Eurodollar loan was being arranged through a consortium of British banks, a Bank of England spokesman said. He said the interest rate would float, but he didn't give details. The loan exceeds the $1.5 billion borrowing that France recently announced, amid much criticism, though British officials weren't among the critics.

TECHNICAL MOVES

In a series of more technical moves to bolster sterling, Mr. Healey also announced changes in Britain's exchange-control regulations. Their aim is to encourage the financing of British direct investment abroad with borrowed foreign currency and to require more of the proceeds of the sale of investments of all kinds to pass through the official foreign exchange market.

Britain has a separate foreign exchange market for "investment dollars." which currently cost some 41% more than dollars purchased in the official

market. Its main function is to deter investments outside the sterling area, but it can also provide a handsome profit when foreign investments are sold, as most of the proceeds so obtained can pass through the investment-dollar market to produce 41% more pounds than would be obtainable in the official market.

Foreign exchange dealers said sterling should be boosted by these changes, as they require more dollars to be sold in the official market.

DOLLAR EASES IN TOKYO

In other exchange markets, the dollar rose to 3.0015 Swiss francs from 2.9945 and to 4.7786 French francs from 4.7700.

In Tokyo, the dollar continued easing, to 275.15 yen Tuesday from 276.26 the day before.

According to Morgan Guaranty Trust Co., the dollar's strength yesterday narrowed its de facto devaluation to 7.40% from the rates set in December 1971 against 14 currencies, adjusted for their significance to U.S. trade. The rate had widened to as much as 7.46% on Monday from 5.84% a week before.

In Washington, Treasury Secretary George Shultz told newsmen that he believed the dollar has dropped so low of late that it's currently undervalued on international markets.

Mr. Shultz said he expects the value of the dollar to rebound a bit and then maintain a "center of gravity for a while around its level at the time of the second devaluation" on Feb. 12, 1973, that would be equivalent to about a 5.83% devaluation from the December 1971 rate.

The Treasury Secretary said he couldn't cite any specific reason for the swift drop in the dollar's value recently but he noted there has been "a great deal of uncertainty" over financial flows resulting from the explosive rise in oil prices during the past year.

[From the Journal of Commerce, May 30, 1974]

GERMAN RESERVES SEEN PLENTIFUL

BONN-The vast hoard of foreign exchange reserves held by the central bank insures the West German economy against any difficulties meeting its international payments obligation, even if foreign credits to German corporations and banks were suddenly withdrawn and the current account component in the balance of payments should take a turn for the worse under the impact of high oil prices.

This confident conclusion emerges from the Bundesbank's analysis of the West German balance of payments for 1973 published here today March 19, in its latest monthly report.

The figures show that West German foreign exchange reserves rose in 1973 by DM26.4 billion to reach a record high of DM90.5 billion at the end of last year. The dollar holdings worth DM65.6 billion or some $24.5 billion at the current market exchange rate accounted for nearly three-fourths of the total re

serves.

GOLD COMPONENTS

The gold components added to DM14 billion calculated on the $42.22 per ounce basis.

"The gold holdings valued at the current market price of the metal represent therefore significant hidden reserve," emphasizes the Bundesbank.

On the other hand the report points out that gold and foreign exchange reserves in the Bundesbank coffers represent by far the largest share of all West German claims against foreign debtors.

The short-term foreign liabilities of German corporations and banks added at the end of 1973 to an estimated DM80 billion and even though foreign claims of banks and corporations were at DM60 billion, also considerable, they were primarily generated by export business and therefore less "liquid" by nature.

THREE SUDDEN THRUSTS

The Bundesbank report points out that the swelling of foreign exchange reserves in 1973 was a result of three distinctive and sudden thrusts. The first came

at the heights of the dollar crisis when the Bundesbank had to absorb some DM24 billion worth of dollars (gross) in support of dollar-deutsche mark parity. Roughly DM7 billion in foreign currencies were accumulated in June and July as a result of support operations required to sustain the parity of currencies within the Euro-float bloc.

And finally the monetary disorders in September and the Bundesbank's intervention primarily to prop up the sagging French franc swelled the foreign exchange reserves by another DM5 billion (gross).

Subsequently, a steady outflow of foreign reserves has been recorded, but its magnitude, adding to only a fraction of earlier inflows, was relatively modest. On balance, a net of DM26.4 billion worth of foreign exchange was accumulated in the source of the year.

However, the devaluation of the dollar in February and the appropriate adjustment in the DM value of dollars held, had reduced the net addition to the Bundesbank reserves in 1973 to "only" DM16.1 billion.

The drastic increase in oil prices in fall of 1973 and at the beginning of 1974 have had only marginal impact on the West German balance of payments in 1973. But it is evident that the surpluses in the current account as posted in 1973 are a question of the past, states the report.

The Bundesbank estimates that in 1974 imports of crude oil and refined petroleum products will require expenditures of some DM32 billion or about DM17 billion more than last year, given no additional increase in oil prices and no significant change in the international value of the deutsche mark..

"Assuming a reasonable expansion of German export business and an unavoidable increase in export prices, the current account this year should be about balanced," forecasts the Bundesbank.

[From the Journal of Commerce, Mar. 1, 1974]

WEST GERMANY IS SEEN HEADED FOR HEALTHY PAYMENTS SURPLUS

(By Jess Lukomski)

BONN-Despite the sharply higher costs of imported energy supplies, West Germany expects to maintain a healthy balance of payments surplus because of the reduced remittances of foreign workers' earnings, the opening of new export markets in the Middle East, and the possible inflow of Arab oil funds.

With the vast funds accumulating in Arab hands seeking safe long term placement opportunities in hard currencies, a heavy long term capital inflow into Germany is bound to be generated. Thus the German basic balance of payments which last year was DM10.2 billion, according to preliminary Bundesbank figures, will most likely show also a surplus position this year.

Dr. Walter Hesselbach, top executive of the Bank fur Germeinwirtschaft AG in Frankfurt, discards the balance of payments worries as an "absurd hysteria" generated by very "shortsighted consideration."

The oil crisis which is seen here now as primarily a problem of prices and not of supplies "opens new trade opportunities for German exporters", points out the German Middle East Association, urging German producers of capital equipment, which is the backbone of German export business, to seek markets in the Middle East and North African countries. They account for about two thirds of the additional $70 billion estimated to swell the foreign exchange reserves of oil nations this year alone.

ARAB MARKETS

And indeed West German industry can provide first rate equipment and high quality technology for the industrial development projects that the Arab oil producing countries want with equal if not greater facility than Great Britain or France.

The Bonn Government responding to the wishes of Iran and Saudi Arabia has assumed a very active role in providing German concerns with appropriate legal framework of industrial cooperation treaties that will facilitate industry's involvement in many specific projects already in planning.

Bonn's Economic Minister Hans Friderichs, pointing out that the economic growth "is no more determined solely by the capital and labor factors but by the availability of various raw materials," is urging German businessmen to seek new forms of cooperation with the raw materials producing countries.

Mr. Friderichs himself "is determined to visit in the near future," several Latin American and African countries "to prepare the political ground" for such cooperation. At the same time the Bonn Government is encouraging German industry to pursue actively the policy of cooperation with the Arab oil producing nations in form of joint ventures, be it in their lands, in West Germany, or in third countries.

This new "foreign economic relations philosophy" which Bonn is still evolving is evidenced in the well advanced negotiations with Iran on a score of industrial projects including construction of world's largest oil refinery there.

If need be, Bonn, which heretofore has been rather reluctant to peddle its weapons for oil will hardly resist such deals-if Reza Pehlevi, the Shah of Persia, should decide that his army must be equipped with German tanks.

TAKING OVER

The Bonn Government, overriding the objections of the High Cartel Authority, has already acquired the majority of the equity capital in the German Gelsenberg oil company for the purpose of merging all German oil interests in one company thus providing an instrument designed "to facilitate the cooperation with the oil prducing countries."

Bonn's new philosophy of foreign economic relations should also provide a handy vehicle for state subsidized credits to East bloc countries-primarily Poland and the Soviet Union, with whom the deals for supplies of electric power. natural gas, and other raw materials such as pelletized iron ore, in payment for delivery of conventional power plants, atomic power plants, direct reduction steel works, chemical plants are snagged only by the issue of financing.

The Soviet Union is the number one customer of the West German machine tools industry absorbing 13.4 percent of total German exports in this branch worth about DM3 billion or nearly two-thirds of its total output.

The entire West German mechanical engineering industry with 1973 foreign sales exceeding half of its total output of some DM70 billion must rely on export business even more heavily in 1974 than last year to maintain its overall output at the last year's level.

For the propensity to invest at home has weakened visibly and the industry's outlays for capital plant equipment are expected to just about reach the last year's magnitude when they were DM98 billion for gains of 5.6 percent and 3 percent reckoned in current and constant prices.

This means that in real terms the industry's expenditure on plant equipment will fall short of last year's performance.

The forecast for building construction including housing is even more gloomy. Already last year the investments in this sector at DM131 billion though 6.5 per cent higher nominally were 0.1 percent under the previous year's level.

However, the Bonn Government has already initialed an emergency program to stimulate the sagging economy through an injection of DM600 million in additional spending for improvement of infrastructure and federal construction programs in the structurally weak regions of the country.

The producers of construction machines are bound to benefit also from such assistance.

German machine manufacturers argue that if the French monetary policy "designed to export unemployment" are not followed by other countries and the inflation of labor cost at home is kept at a reasonable rate their export chances are fair.

COMPETITION STIFFER

The impact of oil prices on balances of payments in a number of countries is bound to stiffen further international competition. But the repercussion of the energy shortage are expected to be manageable in most of the industrialized countries which absorb about two-thirds of German machines exports. The set backs on the British market will be most likely more than compensated on other