HARRY S, TRUMAN LIBRARY Papers of Stuart Rice | Suamary and Recommendations el Chapter 1 - Public Finance ij Chapter IZ Currency, Banking ei ant Grelit Chapter III - Internations) Connsretal ‘nd Fananeial Relations Chapter IV - Govérnnent Administration Chapter Y= Price, Rent and Yege Controls f Chapter VI. - Reconstruction end Development : Chapter VIT.- Industry and Mines Chapter VILI- Agriculture, Food and Fishing Ohayter IX >, Shipping Chapter X > Foreign Aid Since Liberation surplus Property Letter atepont by the Prima tinieter reney Gommittoe Letter igoirations Lotteree HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice ee sooner BBE RE OF THE AMERICAN BOONOWTO MISSION TO GREECE ‘SUWURE ‘the people of Greece have en opportunity to nove forward to an ere of reconstruction and interne] peace. Alternatively 4¢ the present peloton of drift and expediency arp continued, tey wil zesult Sn econonie disaster to all her poopie and perhaps forfelt for @ genera tion Greege's chance ‘to rebuild and to establish « etable econony, The Imerican Boonomie Mission to Greece has attenpted to @iscover what foreign Aid 1e headed and what interns] econonic and administrative noasures mist te enployed if Greece 4s to move formard, Wo hove exanined problens of governmental orgentzation, tadget expenditures and revenues, exp-st potentialities and Smport require~ | nents, monetary and oredit policies, reconstruction and developnent, — ‘and many other related motters, Our aialyets of the econonic aspects: _ hae not been onsyy they sre closely. releted 46 308) eubavent lay rected by tet military and p renogicel considerations.ata HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice -2- merely sanaged to survive. There are exceptions, of course, but, in general, economic conditions heve inpraved but Little over those prevailing ob the time when the Nas$ forese ware expelled from the ‘ country. Bitter internal strife and the rapid rete of tumover of the Governnents have created a clinste of jnsecurity and instability thet has prevented any rationsl planning. ince the wer, there have been seven changes in the Greek Governnent.. Wo governnent has been able to develop en effective econonic policy and to inaugurate necessary controls. ‘Those controls viich have been ettempted have failed as result of various causes, snong which is the lack of effective government machinery for inpartiel adzinistretion. Partly because of these factors, private capitel Anstesd of devoting itself to reconstruction and development hes been preoccupied with echenos to hedge its risks, outside thé Greek i conan. tte spourity eituetion has hed a direct effect upon the econeny, ot only has this atscoureged the destrablé vepatristion trot abroad of i aisexble spcunts of private Grosk capital,’ tut the civil strife of | December 1944 stimulated social and politicel tensions of such bitterness | and intensity that the masses of the Greek people have fron thet tine | Lived in a perpetual state of fear, The succeeding govermoente have not \ een successful im aneLiorating this eltuntion and henoe there 19 Lacking | as aaa be ce cuaccay prpruletts 0.5 men tael i gcononio reform end recovery. Operations of ongenized bands of guerrillas end fear of invasion from the Yorth heve resulted in the maintenace of | military and police forces tumbering in the neighborhood of 150,000,ec HARRY _S, TRUMAN LIBRARY Papers oF Stuart Rice ao This hes been tremendous drain upon the resources of the country and tho primary cause of the budget deficit, even though the foreign ex- chango requirenente for militery expenditures heve thus far been met by the British, Greece has such Limited resources that she cemnot meintain alone amod forces of their present sito. ‘tho psychology of certain elenonte in Greece has operated as & serious inpedinent to recovery. There hes been s sense of helplessness, and In cone quarters @ fecling thet because Gresce suffered so much during the Wer, it Le now entitled to the care of its richer Allics, there As the widely held view thet external fectors in Greok problens are so large thet individual efforts ere futile, The lack of confidence enong government. officials snd th people in the ability of Greece to save itself finmncielly ond tho belief thet St must depend on aid from abrosd has contributed to an appelling inertia, In this unhealthy poychological ototo, Greece sinply hes not been able to apply to ite om problons tho determination end resolute ection essential if she ts to meot the critical Lesues she now feced.- There existe a wide disparity in the Living stendarts end income throughout e071 Greoce. FrofStesrs, thet 4s treders, speculators end black narietocrs thrive in weelth and luxury, a problem with which no governnert has effectively dealt, At the sone tine, the masses of people Live on a bare subsistence, The profiteers are relatively fen in musber end their eggregeto wealth, Af divided up enong the population, vould effect 1itt% inprovenent of generel Hing conditions, neverthe- oss,’ thot: Twxurious manner of Living in the midst of poverty sorver to onbittor, tho masses and to.und-rLine the bandshipe of the poor There is @ vast amount of eoncesicd'unomploynont with some 20 percenten a satu | HARRY S, TRUMAN LIBRARY Papers of Stuart Rice | ee | of the population eaployed by oF partially derondont upon the State, tthe substendsrd levels of oxistonce of the civil servants, indiponts, poneionors end other dependents ia an dmportent contributory factor to the political end social tonsion 1' ich characterises Greece today. Since Liberetion no effective nosvures have been taken to provide useful work for the employetles onong thie large group of the populetion, Foreign observore in Graece gonerelly egres that the past twa years have failed to repister © progress toward stable recovery comensurate with the foreign aid given. ‘The tine ought by UNRRA reldet, by the tree arle of gold ond by other devices of expediency hes not heen utilized, The various Grock Goverssonts, lecking in strength, hevo been able to acconplish Tittle, UNRRA, seslous of its mandate to evold in trusion in internal affairs, was not elwsys successful in prevailing upon uncertain and hesitating officials to progron mote effectively the distribution of rellof and reconstrvetion supplies, ‘The British Eoononie Mission, operating under the teras of the London Agrconent of Januery 1946, wes sinilerly unsuccessful, The Currency Comittee, oporating under tho authority of Greek lew, has performed « useful function during the prat year, bu? there is a basis for the conclusion thot its earlicr policies were of such a conservebive end rigid cnaracter that reconstruction and development were ectuelly inhibited. ‘Thus, two and one-half yeere efter the Liberation, Greece finds herse]f on dead-conter in spite of eubstantiel foreign efa and competent foreign advice, The Mission hae sought to anolyze the eauses of the fallyre of recovery processes to ‘got undermy go thet the, mistakes of the past can, if possible, be avoided and co thet the assistonce forth- coming from the United States will not simply be used to compoundSoe HARRY $, TRUMAN LIBRARY Papers oF Stuart Rice previous errors, Internal pacifiestion and resolution of the border disputes are the ‘tro most inportent needs in Greek recovery, It is obvious that the existing state of widesprecd violence affords an unsulteble clinste for cconoaie davelorment, 1k de hoped that the United Nations Goumissfon which nas investi. goting tho troubles on Greece's northern borders ahile this Mission was studying the Greck econony will be able to recommend noone of elininoting at loact a part of this problem, ith this esttlenent should also cone an effort on the pert of those opposing politica? elenents in Greece interested in the maintenance of Greek independence to compose their Aifferences and work for the comon benefit of the country, Until the internal politicel tensions are relieved, Greece's cconoay cannot revive, ‘The Mission has considered means of meeting the principal econonte difficulties of the country, ‘This imcivgs placing on s self-susteining basis on economy which has elsays teen weak, Gréeos has a totel area of epproxinately 50,000 equare miles. Of this, less than 20 percent is arable, The standard of living for the vast majority of its 77,500,000 population has always been dangerously lon even though there has been foreign borrowing. Nations) ineone, measured by Wostorn standards, ‘ise sinays been low - one of the lovest in alt Burope. Industrial development was only beginning to become a significant Yactor tn the tate 1930'@, and at Ste peok bore to the econony only # fraction of the Inportance of the country's primitive agriculture, Greece today faces a desperate economic crisis ~ one that shegt ‘HARRY S. TRUNAN LIBRARY Papers of Stuart Rice -6- cannot meet alone. ven considering UNRRA goods undistributed or left in tho pipeline and goods to be grovided unter the post-UNRRA reliet progran, there vill be widespread suffering unless substentisl foreign assistance 48 forthcoming. Tho dimensions of thia current erisis can best be show by the following facts: (2) the tentetive estimated ureck buiget, including the oxpanded military establishment, indicates a defictt ‘of 290,000,000 far 1947, oF about three tines the anount of eurreney now in ofreuletion, (2) reserves of nrastricted foreign oxchango by the end of 1946 vere too meager to insure nport of Greece's ninimin neods, siegossitating a severe restriction of basic imports in the absence of innediate outside essistance, (3) pressures on the retcil price Level are severe and further nerked incresses ere indicated unless there are insediate corrective meceurbe, (4) wage donands are accumilating es @ result of the fore going factors, adding the throat of wage inflation to the prospect of budget + uflation. In short, it appears that in she ebsonce of substantial foreign t assistance end the adoption by the Greck Government of strong control nossures, another round of extreme inflation with ell of ite disestzous noonanio,and political consequonaes is a certainty, It is, therefore, apparent thet, there exists e need for immodiate stops 1f inflation is to be preventéd. Recovery and reconstruction in Greece cannot bo based upon the prosont unstable economic foundations: |aera tae HARRY S, TRUMAN LIBRARY ine Stuart Rice HTS While the Wisslon's earlier inquiries were directed toverds the asccr- taingont of minimum relief requirenonts during the post-UIRRA period ‘and An addition the developaont of measures wherety the Greck economy could nake the maxinan use of her own resources, the WHssion has more recently considered tho problem on the assuaption that the United States covernmont would contribute very substantial anouts for the restoration of tho economy of Greece, and that American technicians would advise the creck Govornnent on econeate affairs, In this way St 4s hoped that the iret steps can be token vhorsty t:2 econoay of Greece could be restored to a sow level 1n order that the ureck State might aurvive as e free : and independent entity devoted to democratic principles. . ‘thet a minimun of £300 million outside assistance in addition to UNRRA, post-UIREA rellet, anf surplus property inports will be required. This astincte representa in the judgnont of tho Mission the winimun aid which chould be provided. ‘ihon it 4s considered that during 1946, the total of UKRA and British military subsidies wa¥ over $300 million, the total aount ostinated may be too conservative. However, the igaion hes operated on the aseumption thet the Greek Gevernnent xith the assurance of this amount of suport will adopt end enféree econoate policies which heretofore either have not been put Anto effect or having been procleined were evaded. ‘In neking mise use of this outside aid end nthe dovelopnont and isplonontetion of sound econonte polLetes, geriean personnel wll be needed, An Anerican Economie Wisston should go to Groce ‘the uncertain poLStieel and oconanie conditions have, ceused producing groups in Greece to lack faith in the strength and stability, of thedren HARRY S. TRUMAN LIBRARY ee Stuart Rice i a. * (eee are i goverment and of thelr economy. Tho devestetion wrought ty the Fare the civil strife of December 1944 and three successive dovaluetions of ‘the drachne hove obviously further destroyed confidence, Therefore, if the Government of the United States is going to assure the future of Greece, a continuing program 4e reqlired. This program should not te Linited tm concept to a single your. Tt ie emphasized that this program of recovery rnd restorotion should envisage a ported of about five yeors, Tt 4s hoped that airect American Pinanciol assistance will not be necessary sfter June 30, 1948, but the program should be continued in eny case whether under Anerii auspices or under the United Netions. Tt 4s impossible to foreerst vhether at thot, tine the financial burden con be turned over to an international agency. The nere decl-ration of such intentions would do mich to revive confidence and noke easier ‘the adoption of stringent mecoures thrt will bo novessrry to achieve the inrediate stability needed for reconstruction rnd development.et "| Papers oF Stuart Rice | HARRY S, TRUMAN LIBRARY re AMOUNT OF AID GRERCE, GILL NEED FORSIGH PINANCTAL AID DURING THE NEXT FIVE YEARS BIGAUSE OF THE DESTRUCTION OF WAR AND HER CURRENT CIRCUMSTANCES. TP 1S KECOWMENDED THAT THE UNITED STATES EXTEND IMMEDIATE PINANGTAL ‘AID 10 GREECE SUFFICIENT YO MEET WER REQUIREMENTS FOR RELIEF, RAGOUSURUGTLON AND MILITARY PURPOSES UNTIL JUNE 30, 1948. ‘the Grock economy will require foreign finsneial assistance until the burden of the militery and public security can be substantially reduced and probably until essential reconstruction has been carried out; the latter my take five years. ‘The snount of aid required after the crock iseal year 1947-48 dependa, one, on the extent to which foretga Pinanetel aid may be devoted to reconstruction at an esrly date es opposed to militery expenditures and, txo, on the extent to which the Greok Governnent marshals its own resources and makes effective use of outeldo ald. For 194748 the largest sing:> itea‘of oxponse is the militery. ‘The current burden of the military, estimated et about (180 aillion for tlie Greek fiscal yeer 1947-48, would have been fer beyond the capacity of the gro-wer Grosk economy. With a pre-war national income estimated Liberelly et stout {600.nillion, or about £80 per person, even the pre-war nilitery expenditure of §40,million exerted pressure on the relatively low standard of Living. With a 1946 natiémal income considerably Tess than pre-ar,in real terns, the cost of the military as currontly Gstinated by thé Greck Government is fer beyond the capacity of ths Grook economy. ‘The second iten of inportence As reconstruction. ‘The estitnated cotHARRY S. TRUMAN LIBRARY Fapers oF [ Stuart Rice + of @ fivo-yoor progran of selected roconstruetion and developnont, projects 4a about £335 million. his progran was detersined on the basis of intimin requirononts end does not purgort to indicate the costs of complete roconstruction of public and privste property in Greece, First year 16 Socond yorr % Yhird yoor B Fourth yor 55 Firth yeor 7 Totals 335 ‘the aun stated in the teblo for the first year will heve to supplasontod ly very large emounte for comnitaonts to Ve nage during 8 After the eerly months of engineering planning have becn ye cospleted theso cdditionel moneys vill heve to bo commited for recon struction equipment end material cA in setting up funds for the conplotion of projects alresdy bogun. ‘The pro-war economy of Greece could Probably have finenced Anternally the local costs of this program, but would undoubtedly have required foreign ereiite to cover the inportation of equipment. kt prosent, it 1s clesr thet for the first year (and possibly to a grect extent for the second yeer) both the internal and external costs of reconstruction W111 have to be Lorne from abroad. If United States aid, sufficient to met internal end external costs of the militely and of the reconstruction program through June 30, 1948, is forthcoming, two odditionsl objcetives of major and innediate Anportencs ogn be echioved «sat ee ie HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice -u- First, since revenues of the Gresk Governuent together with other assistence already forthconing are adequate to moet non-militery end non-reconstruction expenses, tho budget will be in balances, mith no Increcse in the note issue in prospect: fron s budget deficit, faith in tue arschina should be substantially restored, shich in turn should pronote fan incresso in business cetivity, e decrease in hoarding, a tendenoy for prices to decline, and a rouction in wage doncnds. Tho balancing of tho budget will go far to mest Treaco!s current economic crisis. Second, under this program, tveece rill be provided with civilian goods sufficient in quantsty aot only to meot minim civilien require~ gents bit elsp to most the needs of = Grook people engaged ina military ani rucoustruction offort, In fact, if further serious inflation is to be folded, At vill be nocessary to offsot intornal expenditures for tho ailitery and reconstruction with an adequate volune of consuner gocds. This will bo mede possible because all of the Anericen aid rencining after the outlay for military supplies and cepitel equipaent for reconstruction wil] be used either TOrsthe foreign purchase of consuacr goods or for tho purchase of industrish ond agriculture supplies which wil dn turn augaent Gresk production of consumer goods. Under the program here decribed the Grosk budget ard balance of paynonts for the Grock fiscal yoer beginning April 1, 1947 would be roughly 93 folloxs:} HARRY S, TRUMAN LIBRARY Papers oF bere a, I . = Ma - Budget)/ Exven 1s of dollars) 1, Military and Public Security 18} 2. Reconstruction 3. Purchaga of Govornaeut Distributed Supplies 4. Other Tote? Rossiots 1. Ordinary Taxes 150 2) Wiscellencous Recoipts 7 3: Salo of Ultth & Stete Distrit ed Supplies us X Sale of blLicd Surplus Proper 30 5. Bxinbente Gredit for Reconstr ton 2 6. Direct U. 5. ata 2 (es Poot Ulta Relief B42 50 dL Greck-Turkey aid Bill 120. Totel 554 Balance of Payzente Receipts 1. Exports v0 2. el. Invisibles 35 3 Proporty Credits 35 4. Export-Inport Bank Credit 3B 5. Ula B @) Direct U.S. aia Post UNIRs Relief 311 50 Groek-Turkey 3d BALL 350, Total, 454 1, Imports for Civilian Beonomy 320 2. Reconstruction Bquipaont a 3h 3. Supplies for itlitery . 300 ‘Total 454 U7 Tho della oqulvalonte Tor balget” categories shawn here are aaly oppTenie mats, using a conversion rate of 8,000 drachma per dollar for internal endive. the proposed total old to Grewo is tentatively £350 million ({ 300 finlton for reconstruction ond mi-‘tary ald under’ the CreskTurkish £42 BILL ena £90 nillion for relief wer the Post-UIGRd Bill). ‘The above figure of £240 million ie for the twelve nonthe period april 1, 294 t0 Apel 2, 2Bid.. Kt this sete enother (60 aillion would be expetded feos Eprit 2) 1948 wo Duly 1, 2948. After the early months oF engineering Planning and construction erginieation the renetnier of tho funda’ will Eoused in asking conmitaonts for resenstouetion equipment. ata eaterdal tnt in conploting projects already Begun-= | mines, aa Lamy | Papers oF | Stuart Rice | +m. Dus to the uncertainties regarding the future of Grosk military cxponditwes, it ie inpreeticeble to prodiet beyond the coming year the extent of foreign aid which Gresce will require. It 4s clear, howover, that the amount of reconstruction and ailitery ald rogutred can be substantially reduced, if the Grosk Government Ss pregered to sobilize tho country's om resources by taking uessures such ss those set forth Sn Part II of these Recommendations. It is elso cleer thet Sf these measures cre to be takon, advice and eid from en ucrtoan Wission along the Lines atated in Pert IIT will bo necossary. aaha HARRY S. TRUMAN LIBRARY Papers oF ‘Stuart Rice -B- nm. MEASURES 7. EE TAKRW BY GREECE. ‘THE EXTENDING OF UNITED STATE AID 70 GREECE SHOULD BE ACCOWPANZED BY EFFECTINY MEASURES BY THE GREEK COVERINENT FOR THE UTILIZATION OF GREEK RESOURCES FOR RECOVERY OF THE COUNIRY. ‘5. MBASURES 10 INCREASE REVENUES AND REDUCE EXPENDITURES. 1, Revenues. Ordinery revemies for the Greck Pisce} year 1947-48 are estimated In real terms at 65 percent of pre-wer, The Greek’ Govern wont must take affirmative steps to ineredse its om revemes, including ‘the following: y . (s) 4 study should be instituted as a long-term basis for: (1) eliminating unproductive taxes'and simplifying the tex structures (2) reslloorting the sources of revenue ‘between the nations and local governnente, (b) Income tax enforeoment should be improved by (1) com pulsory registration of 611 commoreial enterprises and maintenance by them of prescribed accounts for income ‘tax pirposes; (2) substentiel inerease in penalties now a Anposed for tax violations, including tmprisonnent for a falsification of incone tax returns. 2 a ie (e). More should be @ revision upwards on en average of et Rete least 50 percent of present schedules of income tax i : aosecsnents on professionel occupations and connereiel "based on estinated ability toa HARRY S, TRUMAN LIBRARY Yapers oF Stuart Rice - ue & (e) the present restrtetive conmuntty taxes on the tranapor~ baie | tation of goods should be atoltshat as soon as alternative © 2. Expenditures. The Greck Governnont expenditures for 194748, called for in the tentative budget estinates, aye estinstot in ses terms at 200 porcont of proar, “hile sere 4s unguestLonsbly sone exaggers~ tion in the eotisates and conasden-ole wastage of Governnoht Funds through ng in expenditures can only be inefficient adniaistration, sizable reduot achieved ty (L) a reduction of military expenditures and (2) sufficient recovery of the econony to pormlt the Governsent to terminate distribution of supplies to the general public at 2 Lose and subsidization of public utilities, te dimodiate acacures designed to reduce expenditures can con~ Serve the use of funds, however, the Folloxing steps vould achieve re- sults of sone elgatfleance: fa) The Govornment audit and accounting system should be ree vised, rerticularly in the lélnlstry of Supply which ds handling Stete distributed Yoodstutfs and other essentials i Ancluding UNRRA goods. (©) the tudgot should te prepared end ennomeed before the start of each flscet year and should constitute = real | control of Governte.*t oxponditures, The contol of the Wuriater of Finanze over the use of fmés appropriated to other ministries must be strengthened. (c) “A Yopoctal fide" should be abolished end brought within \ ‘the regular budget, ! (@) The poneion and indigent Lists shovld te reviewed, end re~ Quced, and no new nanos shonld be ated without the approw lof the Local welfare board,arene HARRY S, TRUMAN LIBRARY Papers of Stuart Rice ~~ (e) Demends for wage Increases of civil servants and other per~ sons whose salaries are dlrectly or indirectly paid by the government should be reviewed by = Wage Board which should be established, and ommltments for increased wages should i not be nade without the approval of tho Wage Board. |. MEASURES 70 AUCABNET AUD CONSERVE FORETGN. EXCHANGE Grescote exports have boon small since iteration, ese of central Buropean markets, unsettled internal political and econoste conlitions, evorvelustion of the dzachna, and other factors have tented to restrict exports, Gh the other hexd considerabte anounts of foreign exchange have toon wasted during the past year through importation of Lomzy goods, rough Government sale of gold end through Bleck market currency opera sons, XK Long range solution of Greece's foreign exchange problen wll only be achieved by expansion of Greco's export trade snd developeent of fs tonestic supply for sons of her present import needs, The attuation raced now, horever, can be aneliomted ty sone innediats weasures. 1, Tho oxshango rate and the poliey én the Government sale and yar chase of gold should be reconsider’ after consultation with the Tnter- rational Yonetary Fund, 2, Bfforts showld bo mais to build new muskets end to restore the preven Buropoan narket for Greek exports; as to sone comodtttes, notably Buropean grades of tobacco, teaporary barter errangesente should te worked out with countries whose trade does not Plow trough ontinary channels, 3 The onbargo on export of olive oll should be 16fted; exports H nowld be eended unter a progran Which provides adequate protection ox ‘the. loval price, which brings the foreign exchange received from the salePapers oF HARRY S. spp TRUMAN LIBRARY Stuart Rice || 5 = 16+ of oft under the contro of the Government, and valch retums to the Govern- went through an export tex a aubstantiel share of the aigference between the Local and foreign prices, he The national sconony's benefits fron Crack shipaing should be increased ty requiring thet 2 considerate percentage of the profits of teach ship be brought into the cour’ ty in oreign exchengo, 5, The tourist trade should be developed ty the Governnent, 6. Tnooning and outgoing mall should be subjected to financial con sorahip 50 that existing prohibitions against inport and export of forelgn exchange can be enforced, 4, Taports should be strictly controLied, Importation of Iumury goods should be prohibited and permite and foreign exchange granted only for goods whlch will be of moximua benefit to the econoyy. Inport needs on en annual basis should be determined end detailed plans for periods of at least six months should be prepared. ‘The issuance of “tenses should be scheduled accordingly. OVERANGNT ADMINISTRATIVE REPORM. ‘The effectiveness of the Greek Governsent is considerably reduced by en overexpanded, under-paid, end denoralized civil service, and by « Lack of organization anong and within the vartous ministries, These are faults nich can only e remedied by long continued efforts, Such efforts should ve started now. 1, The present civil service should be reduced in numbers, its pay scale should be increased, and Lnprovenent of the galiter of its personnel should be accomplished through training and seleotio ‘The United States | Governnant should imtediately accept the recent invitation of the Greck covernent to. send @ group of specialists to study this problem and make recomendations,} HARRY S, TRUMAN LIBRARY | Papers oF Stuart Rice | ‘ “uy - 2, The reduction in the number of ministries and the rearrangement of functions recently recoanended by the Committees on Roorganization of Ministries of the Greek Governnent should be imediately put into effect, Within the Wintstrfes there should be a substantial increase in the snount of delegation of authority; detailed duties of minteters such as conferene ces with individual mesbere of the public should be greatly reduced, :D 70 BENEFIT THE EOONOMY AS A MBOLE. ect controle over the economy, American aid, which will mean fg Belanced buiget, an increase in the supply of goods, and sone alleviation of the current inflation psychosie, is the only method of combatting inflae ‘tion tn Greeee which has any chance of success, Positive controls alone could not begin to meet the problen, given the current condition of Groscots civil sorvice, the public attitede toward "police" controls engendered ty four years of occupation, and nore inportant still, the very size of the inflation problem in Gresee, Nevertheless, for paychological reasons, and veceuse sone benefit will wloubtedly result, measures already undertaken 4n Greece to control price, ront and wage Increases should be continued and sone form of anti-hoarding measure should be added. (a) The Government should attonpt to develop a wage polly and sone machinery for settLing nanagenentelabor ateputes, Tt te realized that provious efforts of the Greek Governuent; to regulate wages have teen completely wsuscessful, thet present legal wage rates are dvarfed by wages actually paid and that under current conditions efforts to institute alvest rroge controls would probably be ‘unavatling, (0) The present iiprice controls ‘should be continued and tnt proved in spite of thelr somewhat Limited scope and values Tao Heotton contzol! has apparently had a benefictal effect, on textile prices, and retall margin limttations ant fixedsees HARRY S. TRUMAN LIBRARY Papers of Stuart Rice a -1B- retail food prices have kept retailers from gouging the public, However, an elaborate system of price control with wide coverage has n.ver been attenpted in Greece snd pro- ably could not be pit into effect successfully. (c) Rent control should be continued and extended to protect now tenants, Sone investigation is required, horever, to dotermine the desirabllity of relaxations where inflation ary dovelopaents and develustion of the drachna have caused controle to becone overly burdensome on property omers. (a) an antihoarding campaign should be undertaken ty the Govern wont, feccepaniet by the proper publictty, such s progran should take the form of an Anventory control progran unter vitich the Government confiseates inventorios which are clearly in excess of business neods efter reasonable oppor tunities to wiload have been given. onstruction end devélopnent of Public Works. Greece faces a reconstruction problem of Sniense proportfoas, oad and rellroad bridges, railroad equipment, water systens, ports, and poner stations were destroyed guring the War. ‘The Corinth canal, of major importance in Greece's economic Life, mas dlooked by huge landslides set off by German dynanite, Tack of maintenance has seriously reduced the usefulness of remaining roads end of agricultural drainage projects. Reconstruction of many of these factlities Js @ prerequisite to the restoration of the Greak economy, This reeonstruc~ tion, however, must be accomplished pursuant to a master plan which makes dus allowance for funds available end the absorptive capacity of the Grocle * economy.ee HARRY S, TRUNAN LIBRARY Papers of Stuart Rice @) ae A planning toad composed of econonists axd engineers si changed with the responsibility of Working out a program for rooonstiuction of publi works and publie utilities should be entablichod ionediately by the Government, & reconstimie~ tion program should be prepared waleh selects for Inediate attention the reconstrustion of those facilities which will contritate post to the rapid restoration of the general. eco- ony. Muere devele.rent projects will contritute more, they show be given preference, To illustrate the kind of pro- Joots wnteh should roveive top priority, the following 2st ts offered: (1) Permanent reconstruction of important sections cf rosda in all parts of the country selected on ‘he taote of traffic, population and aveilabtitty “of other transportation, (2) Restoration of bridges and tunnels on the Athens~ Selonika, Salonilgk-Chevghelt and Flati-Behessa rallzoad Lines. () supply of motive power and rolling stock for the present needs of the ratlrosds, (4) Mocessary replacenent of rails and tes on restored railroad Linss. (5) Restoratica of essential facilities at the ports of PLraous, Salontlea end Volos tn the order naned. (6) Rostoration of the Corinth Cans, inotuding high evel teldge or bridges for road end ratlzead a6 viessStuart Rice HARRY S, TRUMAN LIBRARY | Papers oF | 20 (7) Restoration of flood control, drainage and iz rigation works in the Salonika, Serres end Drama plains, (o) Bfferts should te made to induce foreign espital to under Lake on @ concession basis or otherwise projects which are self-Liguidating in character. » Gresk indus 3. Indus ) always a relatively smsli factor in ‘the economy of the country, was et stantially damaged by War and subse~ quent intemal strife, Progress toward recovery has been slow dus to in- security, lack of credit, shortage of motive poner, insbility to obtain spare parts for foreign machinery, inadequacy of transportation, spd high costs of production. Several of these deterrents would bs corrected if the recommendations of the lission ware carried out. But recovery only to the pro-usr level of industrial activity would be inaequate if Greece is to ‘nocone reasonably self sufficient; Limitations upon agricultural develop~ nent nike industrial expansion essential, (a) The prosent high costs ofproduction should be reduced by (1) correction of the abises of Government granted mono~ polies land oubsldtess (2) abandonment of Governnent po- Licies necessitating natention of umecossary enployees, and (3) implementation of other reconmendations contained herein affecting tie cost of production, (e) Preference in granting Import Lesnses should be given (2) to raw materials over finished goods which economical~ ay can be produced in the comtry, snd (2) to raw materials for the production of goods to be sold st, low prices. : (c) Credit to industries for current operations and approvedHARRY S, TRUMAN LIBRARY Papers oF Stuart Rice I, aoe new industries shold be granted where the need is cteapé ly denonstrated; a) industries granted credit should wel EGS closely observed to ensure propar use of the credit. (a) An industriel development program utilizing local re~ - sources and making Greece visble should be formilated. Mining, ignite extraction, metallurgicsl and agrioul- : tural processing industries particularly should be explor- ed. Plants and equipment which may be acquired as war reparations fran Gernsny or Ttsly should te used to the vmaxchman, he Aprdoulture and Fishing, fWgriculture in Greece is nearer to the pre-war level of production than any other segment of the Greek eco~ nowy Much of the destroyed draft power has alrendy been restored, and the smell scale and even primitive nature of Greek agriculture have ens~ bled rehabilitation by the exertion of individual effort. Fishing has ‘been handicepped ty Lack of replacsonts for var destroyed boats as ell ae by ite traditional methods, N. A distinguished group in 1946 studied the agricultural problens of Greece for the Food and Agriculture Organization of the United Nationa, ‘Their report advocates as ways of raising the contribution of agriculture to the econony of the country (1) the greater utilizstion of water through irrigation end drainage, (2) the shift of Lend from extensive to intensive crops, and (3) the educating of the farmers in nodern nethods of production, Apart from thasy long Tange measures, which can be initiated, there are innediate steps which can be taken for increased production and Sim proved use of the resulting products. (e)* A Government progzan for the collection of the 1947 grainnT HARRY S, TRUNAN LIBRARY Papers oF Stuart Rice | Le ee aaa - 2 i | j czop should be initiated to Sneure proper wee of broad arous ef eurius prottetion mit] after the exhaustion of the sndtgenous oupr ens (e) Pucsittes ssid be develoreé for proastion within Groace of ait the comtry'e ane resuirerste, {c) Credit at lon interest rates and in adequate enomts should te made available to farmers and agricultural processors; this should be done through cooperatives where feasible, (a) Export of agricultural commodities should be developed ‘through stanfardization of quality and grading of pro @ucts, improvenent in processing and packing, and en= couragensnt of the growing of citrus fruits, table grapes, early vegetables and other products which can be shipped ‘0 European ports in refrigerator ships, (e) The fishing fleet should be increased te permit a full exploitation of the resources available.$e ms sam | Papers oF Stusre Rice | ADMINISTRATION OF THE PROGRAM ‘THE GREEK GOVERNMENT WILL NSED THE ASSISTANCE OF EXPERIENCED AMERICAN ADMINISTRATORS, ECONOMISTS AND TECKNTCTANS TO INSURE THAT AMERICAN AID AND CREBCE'S OWN RESOURCES ARE USED RFFECTIVELY IN CREATING A STABLE, SELF-SUSTAINING ECONOMY, AN ANERICAN RECOVERY WISSION SHOULD BE SENT ‘To GAREGE. ‘The major problen in the estqblishnont of a Mission is the extent of Ste povers. ‘The Mission must. be able to assure efficient use of Anerican aid, but it must aloo conform to c\ereli purposes of United States policy ty operating in connection with Grock problens in a nenner secoptable to ‘tha Greek Governient, One moans of nesting this problen would be to heve in addition to an advisory mission representing the United States o msber of Anerican and othor foreign techniciens employed oe individuals by the Greek Governnont in key government posts, The edvisory mission would aid in the formirtion of policy and edvise on the administretion of these policies, while the individuals enployed by the Greck Government, such as the foreign memters of the Currency’ Coumittee and the Foreign Trade Adninistrator, would participete in day-to-dey operebions, A. FORBION EMEOUTIVES 1) THB GREEK GOVERNMEN Under thio plan the Gresk Government would employ nunber of expert foreignors as individuele in key executive positions, These men nould be solected with the advice of the itisafon on the basis of ability snd character, They should assist in aasuring the effective execution of the economic policies in the dey-to-dey operations of the Governent. Condi- | tions in Greece are such that St would be éifficult for the Gresk perc sonnel, unless, backed by foreign personnel in the Greek Government, toenn HARRY_S, TRUNAN LIBRARY Papers of Stuart Rice -%h- carry out mony of the measures adopted, since they would at tines be placed under qlnost intolerable loeal pressures. The Grook Government's enploynont of foreign technicians en the Ourrency Comittee provides & successful precedent. 1. The Currency Gomittse, ‘The Currency Committee should be con= tinued with ite prosent composition of the Kintstors of Coordination and Finonce, the Governor of the Bank of Greece, one Anertcan expert and one British expert. Its fimetdons should be modified to fit in with those of the finerican Resovery Mission and its staff enlarged as necessary. Tn addition to its present pover to control the expansion of the note issue, ‘the Gonmittes shoul: bbe authorised to sorutinize all expenditures and to Gisopprove those not in conformity vith the budget. It should also be en~ powered to proseribe such roguletione for all bsuks end lending institu tions a5 18 my deen nacessary to control epeculstion end to direct invest~ ont. 2 A Foreign Trade Administration hoaded by @ foreign technioian in the enpley of the Greok Governnont, should be established, ‘The planning and eémintstretion of the progran of Snyorts land oxports, including Lieetsing, should be centralized unter the Adminis~ trator. “In addition, he would alae heed the State organtestion responsitle for istribution within the coumtry of ell goverment supplies. ‘THE AMERICAN RECOVERY MI ‘The Americans to whom this task is entrusted mst be non of character, ability, and tact, since to on extent the sucdoss of their efforts will @epend upon the kind of reletionship they hove with one another, with Greek officials, end with the Greck publicsBARRY 8, TRUMAN LIBRARY ea Papers of Stuart Ra aa) Initially tho. tission should .+ of modest size consisting of no nore than 50 people headed by a single Ohief, ditions should be made only es the need 2 demonstrated, A top staff of specialists experienced in pract tical economics, finance, governnent adainistration, engineering, industry ond agriculture nould be required. They should be assisted by accountants, research assistants and Greek specking observers; this is particularly necessary in Gresce because of the ebsence of statistics and information upon which policies can be formulated, Clerical end translating personel will also be required, Tt is important that the Weston not bo large. ‘he caliber of the personnel’ is an all-important factor end the number of highly quslified persons available for prolonged service in Greece is limited. ‘The Greek public, whatever its initial nection, would probsbly not take kindly to an overly large group of Anericans, and particularly 20 if competence ‘had been sacrificed to nuabers. Te 4a recognized that a nell tlasion cannot itself aovomplish all the planning, advising ond observation caliné for in this program, The lesion shoud to assisted by groups of experts sent to Oresoe for Iintted periods for spectfie jobs as tonporary nonbors of the Mlasion, or exanple, studlos must be mde of the ofvil service and tax struiture tn preparation for the reorganization of each. Results fron augmenting the staff for special detailed studies will be much more satisfactory than would be re~ oults from an equivalent nunber of man on the pananent, staf? of the Mte~ sion, Such groupe of experts will be able to confine their investigations tp nersow fields, leaving the taplenentation of their plans to the Mesion's permanent stsff, The Wssion will have other Impartial foreign assistance, 4g previously noted, foreign techntctans will be employed by the Greekcee pe HARRY S. TRUMAN LIBRARY Papers of Stuart Rice 5 ~%- Government in key poste, Foreign engineering end contracting firms will bbe brought to Gresce to undertake the extensive reconstruction which is planned. Assistance of epecislists will also be required to instruct, the rock civil eorvice in modern adninistrative techniques. ‘The Averican Recovery Mission should be able through vorious ways to rnako sure thet the most effective use is being mode of Anerican ald, Tt should have the power as a last resort to stop or curtail financial aid, rat only in general. but in the case of any particular project or ectivity, should 4t becone apparent thet the conditions on which the ald was grented were not being lived up to, In addition, 1t should be required to publish quarterly reporte on the progrese of Gresk recovery for the benefit of the people end the Government of the United States, of the poople and Govern= nent of Greece, and of the United Nations and its specialized agencies, and interin reporte should te mde whenever the Mission deens s problen's urgency to necessitate insediate explanation of the facte. Supervision of the use of the funds extended ty the United States to Groeco shoud be delegated to the Mission,~end Aistursenents should bo qds by it in accordance with logisiation by Congress, with policy estat~ Lished by tho President or the Seoretary of State and with the Agresnent on this matter betnesn the United States Government and the Gresk Govern— nent ‘The obvious need of the Greck Government, for american assistance in making the most effective use of funds furnished by the United States Covernnent logically leads to the necessity of Anerican assistance in all natters relating to Greek Governnent finance since even if funds, fron the United States and Greece wore not commingled, as they inevitably will be~ HARRY S._ TRUMAN LIBRARY Papers of stuart Rice G =e An certain insten , the results of ineffective use of Greek funds per se would be as detrinentel to the Aner'can program as if United States funds vere themselves not properly used. The Mission should participete in the Govelopaent of revenue end expenditure policies; its approval of the bud~ get should be required before it bocano offective; and 1% should eid in aesuring conformance to the budget. Tt should eid in polley nattera but should not be expected to sorutinise every proposed expenditure ty the Greek Governnont, This letter responsibility should be assuned by the Currency Conntttess In addition to assuring the most effective uso of Anerican financiad aid the Mission should essist tho Grecks in planing and execution of re construction projects, inprovenent of public adninistration, control of inports and the developront of exports, control of foreign exchange, pro- notion of Industrial and egricultural secovory, control of wages snd prices, and programing the sale or other disposition of Goverment purchased sup- plies, Menbers of the Mission sho sit with the Reconstruction Board and tho proposed Industrisl Develop=2nt Agbncy, end their consent should be obtained before projects are initiated. In order to be effective the Mission should concern Itself with all expenditures mede outside of Greece with Anerican funds and necessari- ay, with Greek funds, Pureba proad should to msde in four wayss Uy the United States Government, by the Gresk Goverment, By Anericen con enoting firas cod by private Greek importers. Givilsen purchases by the Greek Governsont fn the United States should in genera) be made through ‘the procuronent facili ies of the United Stetes Treasury Department, or in case of foodetutfe, of the Depsrtnent of agriculture, and purchasesPapers oF Stuart Rice HARRY S, TRUMAN LIBRARY | = 28 in the United States ty Amporting and engingering firs should all. be revlowed by the office in the Dopartaent of State supervising this pro- gram. ‘The fission should assist in the planning snd prograting of imports. ‘The import program prepared under the direotion of the Foreign Trade Admin Setrator would become effective only after approval by the Mission; indi- vvidul applications for import Meonses will be scrutinized by an Taport Liconstng Comittee including representatives of the Forelgn Trade Mninis- trator, and on which a representative of the Mission wlll sit. ‘The Mission should be the sole United State: agency in Grosce super vising the various prograns of Arerican aid, Civilian supplies, recon~ lotion and nflitary ald under the Greck program, relief aid mder the post-UNRRA program, surplus property and Export-Import Bank credits should all be subject to the Misalon's gv dance, The Mission should also give advice with regard to the control of other imports by the Greek Government, and private individuals. c. RBLATTONS OF THE urssToN. ‘The relations of the Iission with the United Stetes Governnent, 4a Washington should te through a single official in the Departnent of State, Thisoffictal with @ euiteble staff should tranenit policy to the Mission, review all oxpenditures nade in the United States, coordinate ell United States Governrent authorities extending ald to Gresce and give general assistance to the Mission in the United States, While basta Mission policy would, of course, be made in Washington, the Mlssion should be en autono- ous operating unlt with as broad powers as ere consistent with Congres- sonal legislation, Ib should not te mere field agent for a main officeHARRY S, TRUMAN LTBpARY Papers oF Stuart Rice ~ 2 In Washington, Tt should have conplete authority to advise the Greci covernnent, disburse funds, progran supplies and make contracts for re~ construction, Coordination betneen the Mist on and the Anerican, Greek and British nilitery authorities presente a prcslem, because such a Large part of the foreign aid and internal revenue being supervised by the Mission would go to the ailitsry. feletions with the British and Gresk armed forces should bo through the military section of the Mission, ‘The head of the section should be one of the principal advisors of the Chief of the Mission, 80 that military ond civilian activities can be fully coordinated. Sinilarly 1n the United States the military and eivilien programs should be coordin- ated through the officer of the Departnent of State in charge of the pro- gran with the assistance of representatives of the War and Navy Departments, The Migsion should operate as an entity separate fron the Anerican Babessy. The two will naturally have to work in close cooperation; the lisgston should Keep the Embassy fully informed of the general. nature of ite work, and on all matters of importanc® the Enbassy should bs consulted before action Le taken, Tt would not be desirable to give the Embassy any responsibility for the Misstonts vork since the Ambassador should be in a position to counsel the Mission and to report objectively concerning it to the United States Goverment. Appropriate meens should be devised for keeping the United Nations fand specialized and associated agencies inforned of the operation of the Mission.em WS, TRUMAN LIBRARY Papers oF Stuart Rice CHAPTER EUBLIG. FINANCE cone , and Conclusions, Greek expenditures for the fiscal yaar beginning April 1, 1947, are tontatively estinsted at approximately 200 percent in real terms of 1938-39 expenditures, while tax revenues are estimated at €5 percent of 1938-39 (eee Tables I, II, III, and IV). Apart Crom the military, which constitules 32 percent of the estinated total outlay, the budget reflects the extent to which the entire economy is directly dependent on the Gaveranent, notably for the dlatribution of foodstuffs, for relief to one million indigenta, for operation of public weilities, end for general reconstruction. Furthermore, as noted elseubere in this Report, the revival and maintenance of agricultural end industrial yro- duction is currently dependent to @ gregt extent upon government credits nade available through the central bank, the Benk of Greece. Restoration of @ sound fiscsl position will entall assuring not, only that Anericqn aid is used wisely but also that Greek funds from mhatever source are not dissipated. In facing the general problen of i restoration the following considerstions will be of prime inportance: ‘The accounting methods of the Ministry of Finance are antiquated and there is frequently a time-lag of several months i before expenditures and revenues are allocated to the proper budget categories. hile strict adherence to the budget 1s nominally required of the Wintstries, the control by the Ministry of Finances of expenditures t by the several niniatrles and agencies is weak, If the budget is to bewuney s, TaN LapeaRy | Papers of | Stuart Rice -2- nae an effective instrument of Siscsl control, it will be necessary "to increase the administrative efficiency of the Wnistry of Finsnee and to revise accounting procedures throughout the Government. Of first import- ance, in thie connection, is the institution of proper accounting con- trols for the handling of State-distributed supplies, During the past two years, neither proper inventory controle nor cost accounting controle were nsintained by the Governnent for UNARA and other suppliess if steps are not taken immediately to improve the procedures for handling supplies, this opemiton of the Governnont nay result in s serious deficit in the budget for 1947-48, Another required step in strangthening control. of expenditures 4s the abolition of the so-called “apectal funds", These should te brovsht within the appropriate national and loos] tadgets, The Anericen Esononic lesion G14 not make « detailed study of the munter end character of all such funds, but there are nom to oxigt « sizable number whieh are fed from special duties, fee8, and other sources, and vhich do not appear in the regular budgets. Sone of these funds are controlled by individual ministries and some by public and quasi-public agencies such as port authorities, "mle the suns involved are probably not great, the exie- ‘tence of those "apectal funds is an invitation to miguse of public money. Fa wures: The most Important single iten in the budget for 1947-48 19 the cost of the military and public security, This cost is estinated at 200 pervent in real ters of that for 1998-99, which was Larger thon the economy could afford and constituted 21 percent of the total expenditures, A bunien of this saguitale is hopelessly beyond the capacity of the Greek Goverasent to buar over the longer tera, Therefore, it is imperative that plans be laid now to reduce: drastically the costgeen HARRY S. TRUMAN LIBRARY Papors of Stuart Rice -3- of tke military as soon as the innadinte soourity erisis is over, Fetlure to do this 1s elnost certain to lead to another inflation once the contem- piloted aid program is finished and would preclude the Governmant from Ainancing even the internal expenditures for the completion of the five ‘year progran of reconstruction ané developnent. ‘The Greek Governent will probably not be able to finance more than 40 to 50 percent of the current level of expenditures, including mld tery, oven after q masure of recovery hao been achioved, It will be necessary, therefore, to plan the gradual reduction of expenditures to less than half their present level to coincide with the end of foreign aid: This should be possible but it wil require that the Greek Government begin now to plan elimination of subsidies to pub utilities for general operating expenses, terstnation of extraordinary relief expenditures, and withdrawal tron the bustness of distribution of essential supplies to the general Inblic. It may be possible for the Greek Sovemnont to terminate most of these functions by the end of the current fiscal year, and in any case they should be terminated by July 1923. Te will be noted from Table IIT, which gives @ rough breskdown of estimated expenditures for 1947-48 as compared to 1932-39, that ordinary expenditures (exclusive of militery and public security) for the current years are not much out of Line with those of pre-var and constitute only 29 percont of total expenditures, hile extraordinary expenditures (s1s0 exclusive of military), of which reconstruction and the purchase of State-distributed applies are the most Amportant, constitute about 40 percent of total expenditures, On the assumptions that these extr: ordinary expenditures of the Government other than for reconstruction eanHARRY S._ TRI Papers of Stuart Rice ee UMAN LIBRARY whe be virtunlly elimineted by the end of the fiserl yeer 1947-48, or in any case not Inter than July, 1948, ond thet foreign eradits orn be mede evadloble to finance the purchesss of equipsont required for the con- Limiation of reconstruction, {t should be possible to reduce the current non-military expenditures of the Governnent to within 35 pereent of the 1947-48 badget. The military is the real problem in reducing expenditures to @ figure which Gresce might reasonably be expected to bear, Tax St ‘The rebuilding of the Gresk tox structure Reve and the restorstion of revenues to the pre-wor level will be nn exceedingly aLsficult task, Bstinates of ordinary revenues fer 1947-48, while double those of 1946-47, are only about 65 percent of 1938-39 (Table IV). ‘The prinary problem is one of increasing the efficiency of tx sdainistration rather than one of finding new sources of revenue or adjusting tax rates, the principal exception being the need to adjust import duties, In theory, the tex oystem taps directly or indirectly ost sources of revenue and is reusonably’ progressive; in fect tho Govern ont hes boon deriving its tax revere principally from @ few taxes on erticles of gensrel consumption and has collected Little or nothing fron income taxes or other taxes levied on persons with the greatest ability to pay. It would be surprising if the yield fron the income tax in 1946-47 wos over 10 percent 6f what it would heve been {¢ enforcenent mere effective. Honever, given the problens of developing diract taxation sa the I prinary source of revenue, it will probably be necessary for the present and in the indefinite future for the Government to continue to depend Principally on indirect taxes, notsbly import duties end taxes on articlesaca) HARRY S,_ TRUMAN LIBRARY Papers of Stuart Rice een — of general consuiption, It should be possible to broaden the base of indirect taxation by developing » generel seles tex, although efforts in the past in thie étreotion heve rot beon successful. In the field of direct taxstion, the most promising possibility i would appear to lie in developing lend and real estate taxes, prinerily as 0 soures of revenue for.lecsl governjents. For the longer term, there is @ orying neod to sinplity the tax structure and eliminate unproductive taxes snd those unduly restrictive on business activity; dues levied ty the local governments on the movement of gooda are an outstanding example of the latter, At present thd national, Governnent 1s levying soma 45 taxes, fost of which yleld very little and \ beny of vhich protably de not pay the cost of essessaont ant collection: While & study of the entire tax structure, including eLlocation of the | | | sources of revemus betesn the nations], snd local governments, needs to pe undertaken at once ess basis for long-run reform, experinentstion in’ simplification of the tax structure Ell protebly heve to be postponed for the present. Effort will have to be concentrated on strengthening ‘tax enforcenent and exploring nethods of avgnenting revenses from present sources. ‘ e ‘Budget Estinates 1047-48 a ‘me, tentative: ootinates of expenditures an revemes for 1947-48 | (Govles Top 11) ae based on pralininery budget estinates of the > istry of Finenes with the folloning exceptions: (1) the estinated yomeg Deduced by, cnenthird on the basts of Pe ‘ : i Wsidy to the Greek Aimy; (2) xeeae aNENEINE | As innediate stepe the Coveranent should survey end classify for tax purposes all persons engaged in commerce, industry end the professions ‘and should establish presoribed cocounte to be maintained on 0 current | este for income tax purposes for at least the principal categories of _ study and Anstietty the olanos of bupingsses which are requined to tain prevotiaa agootints will oe hive to be Tintted Se rnber ondonce Si WS, TRUMAN LIBRARY Papers oF Stuart Rice fected to ep 16 - ‘Tho general structure of the Greek incoue tax is as follows: First, all net income, individual end corporate, is subject to taxation at flat rates under six so-called “analytical ostegories", nenoly, income from pollaings, incone fron lend, income from cecurities, income from commerce fend manufacturing, incone fron selaries snd wages, and income fron inde~ pendent professions, Historieslly there was a seventh category, incone from agriculture, but this was abandoned in fevor of taxes on specific agricultural commadities. The incone under each estegory 1s taxes separ- ately: Income from securities for example, an sndividuel receiving is taxed thereon at the flat rate irrespective of hs incone (or Loss) from bafldings. Second, individuals receiving # net incone fron sll sources over and stove @ fixed amount are subject to © progressive "con pound" or surtax, ‘Third, businesses and professions are currently sub- fal assessments - known as the "Professional Tax" ~ based on presuned ability to pay, regardless of profit or loss, In theory theo cssessuents, which are noninal2y fied Sn terme of a multiple of ‘tye concerns! actuel ot computed pre-nar rent, coil constitute « tax on capital rethor than on eirrent net income, but Sn practice they are the only practical nethod whereby the Governnent 43 able to Levy even @ relatively enell tax directly on the income of the business conunity. Tho esttoated returns for 194"a4@ fron the severe categories of noone tax together with inhoritance, gift and lottery taxes are as follows (in billions of drachna):on er HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice SNe aE ae ‘Tentative Pudgot Eetinstes — Additdone) eg0r 2. “Analytical Tax + Buildings 26.6 - 6 Lend ea e 2 Securities 23 - 3 2 Gonuerce & Manufacturing (1) Limited Liability Cos. (2) Other fe, Salaries and 9 £, Professions 2, "ompound" Tax 3. "Professional" ability to pey) . Inheritance Texes Tax on Gifts end Dowrsee 7 {Tax on Lottery Profite 208 (on presunea gins 5 Totals 1216 34.0 16.6 The tax on Snoone from busldings 48 currently 33 percent efter an slovance of 25 percent to cover depreciation, insurance, ete., and persona exemption of 60,000 arechnas par yer, This compares with a pre-var tax rete of 16 percent after gn allovance af 27 percent. The Ancone ftom weiLGinge has been very severely restricted ave to rent controle, which axe the only price controls sich have been generally enforced in Greece. Property owsere oxe in many inatances unable to eet maintensnee costs let ‘lone goin a net profit. During 1936, rents on chops were restricted to 20 tines those of October, 1940; vente on dwellings in gonerel wore restricted to 12 tines, and those on dosLlings of salasied lessee te 8 tines. ke of January, 1947, lege rentals on shops were raised to 50 times pre-ver and those on dwellings in general to 25 tines. Where St can be show that the tenant has an incone of five tines the rental or tho ability to pay, the maxim 1égel rentals for ell eategories is fixed ab 90 tines prowwar, Thess controls apply only to leases made before September 1, 1946.eee HARRY S, TRUMAN LIBRARY Papors oF Stuart Rico a TE - 18 - Increased returns from the tax on income from bailéings will be dependent on the further Lifting of rent ceilings. This issue in fair~ ness to the property omers and in the interest of increased tax revenues should be considered at an carly date, It will. require seconeideration from time to time in the Light of wages, the cost of Living, end the fiscal position of the Goverment, i The present tex rete on incone from leased lands is 40 percent after a general exenption of 5 percent for depreciation, ote., plus @ persons] ellowance of 60,000 drachnas per year, The pre-rar rate was 18 percent with no personal exemption, Information to judge the effective ness of the enforcement: of this tax is Limited, but it is probably poor since there oxists no adequate registry of lend omership. This is another point at which the Goyornnent should take steps to improve its basis for assesstent and collection. ‘he tax rate on incone fron securities end intengitles te also 40 percent aa against rates of 17 to 19 perdent pre-ner’. The principal lesk in thio tax 48 probetly on incone ftom investments abroad, a defect which 16 will be hard to correct, The Goverment. should at least abtenpt to require regictretion of all foreign investaente held by Sts nationale on donastic securities, the mist prectilcal step which could be teken to ck evasion ie the elimination of all bearer securities. This would : permit collection of the tax at the source of paynent, The rate of taxation on commercial And industrial net income is 40 percent and ie epplied to undistributed profits in the case of Limited eeased income Liability companies, This rate ie now epplied to ell over end above three tines the suount collected under the special "Pro- fessional Tex" based on presuned ability to pay. The pre-nar tex rateHARRY S, TRUMAN LIBRARY Papers oF Stuart Rice -19- on the net profits of Greck insted 1dabélity conpentes res 15 percent fd for a2 others 19 percent. Wages ond selaries ero currently texed at the rate of 1 percent after persone exenption of 120,000 drechnss per month. Although this rate 1s low, incone from this source, as in the cese of income from other sources, is subject to the coupound tex for whitch the exmp- tons are om. The Independent professions, conserce and industzy are ot prosent subject to the specie] "Profeestonal Tex" and sinilarly are taxed at a flet rate on ali assessed income over snd sbove three tines the anount paid under the special assessment. The flat rate is 20 percent. Individual incones fron whetever source sre subject to @ progressive “compound tax when total net icone efter ellovance for paynent of other ‘Yewms excceds 5 million drachaes, ‘The tax renges fron 3 percent on the first 1 m{2ion Grachaa to 65 percent on all. over 95 million drachnas. (See Table VI for schedule in effect dubing 1946-47). At present the Ministry of Finnnes ie planning to recomend substantiel increases in the rates for 1947-18, partiouerly in the higher brackets. However, vhat thie my mean in returns im an open question in view of the problems of enforcement. The "Professional Tex" on tusinesses and the professions, which is expected to yield about 65 percent of all income and inheritance texes tn 1947-48, i not an dncone tax in the Mestern sense of the tora, but constitutes the only feasible method of levying direct texes on ontor- prisce under present circunstences end will continue to be the only feasible method for an indefinite ported of tine. As originelly Ansti- tuted in the middle of 1945, the tax was levied on the entire businessee HARRY S, TRUMAN LIBRARY | ic i ae Stuart Rice | | -20- | ' connunity, which for purposes of the tex sas divided into six classes. Tho tax was fixed as @ multiple ranging from 3 to 30 times of hypothetical | rents of October, 1940. As now constituted, the tex is levied on an { Andividual rether then s cles basis snd the multiples rengo from 5 to 300 times the pre-ner know or computed rents of the establishments. However, the device of fixing the ex in torma of & multiple of the pre- ver rent ie primarily © fiction fer purposes of computation and the tex 4s assessed on general indications of profits and ability to pay. The aacecenonte are made by committees consisting of a monber of the trade, a tax inspecter and another civil servant of the Ministzy of Finance. Tt will be noted from cur broskdom of the estimated recetpts from ‘tha incone tax for 1947-48, thet an increase of ebout 50 percont over the Mindetry of Finence's estinnte fron the "professional tax" is indicated. Even with an uprand adjustnant of assessments to make up this anount, the usiness community will, by all indicdtions of profit margins in Grosco, be bearing © relatively small frection of the tex burden, end st may be possibile tu inereaso this estinete even further, However, as with the Ancone tax in generel, the problems of assessnent and enfores nent place great obstacles in the way of naling thie nake-shift form of income tax yield substantial revenue. ‘The edninistration of the ineone tax ie briefly es follows: Assess mont end collection ero seperate functions, Any assessuent nay be appecied to special tax courts consisting of a judge, © civil servant, and @ somber of the public. (About 60 percent of assessnonte are appealed.) Apponis to higher courts ere also possible, though rere in prectice, The sane courts also hear the Goverment charges of tax evasion.| HARRY S, TRUMAN LIBRARY ao | i Papers oF Stuart Rice -a- ‘Tho prosent pensltdes for evasion of the incon tax lew cre 10 por- cent of the tex for feslure to file a return on tine, 20 percent of the aitrerence beteen the correct anount of tex and tho anount declared in the cage of inet wect returns, and 30 percent of the tax in the esse of es tated by increasing these penalties 26 {a now velng contemplated hy the ee to make wittfed evasion of the income tax 6 erininal offenee puntshette by inprisonent, Nosther step wii probably neke mich etfverence in Imediate rotums fron tho incose tax tot they ere éestrotie tn providing «a basis for improving income tax enforcenent over the Jong run, Th addition to the insane tex, tho Goverment Jovios inheritence, dowry end gift taxes on the basis of progressive rates which in range ore approxiontely those of te compound tax, varying fron 3 to 68 peresat recipient and the sun of the bequest of gift. Ae with the incone tox, the problon is enforcenent mather then rates, although the Mintstny of Finance 4s contemplating en Anorease in the rates tm e9 effert to euguent rovonias Pros this course. Inport Duties: ‘The weakest spot im the Grek tax structure, and 1 wesioess thich can and should be renetied at once, 1s the present rr psincipad tndividuet source of raveme of the Goverment ent in the yost-nar pericd witt conttme to be the principal source because of the ature of the coonosy. ‘the need for an edgustaent of duties arises primarily fran the fact that while the internal price level has risen by at least 145 tines,nn gat HARRY $._TRUNAM LIBRARY Papers oF Stuart Rice at) since post war, the specific aut: levied by the Governsent have been adjusted upwerd gexerally only by 40 tines, The profit margins erising from the difference between internal and externs] price levels are cur- rently in excess of 100 percent on essentials and reach fantastic heights on lumury goods. A further resson for @ complete revision of custons schedules is that the pressnt duties were drawn up not only for revenue | purposes tut also to fos 7 © self-cufficient pre-wir sconory. The effects of tariffs on the peter of dovelopnent of Oreck industry and egriculture should be reexamined; it is important thet the sohedule of duties be ro- vised not oily for revenue purposes but else to assure thet the pattern of duties facilitates reconstruc nn and development in the Light of present conditions. While an adjustment of the exchenge rete, which it is assuned will be about 7,000 drachno per doller, will reduce to a degree the gap hetween {interne and externe] prices, such « step 4s not 8 conplete solution of ‘the problem, Tt is important not only that duties te reised to increase current revenues but clso thet in the peridd imodistely shead prices be forced to adjust themselves to the pattern of duties which will have to he imposed in the longer tern for revenes purposes. With Anerican ssist- ‘ance to assure en edequete volune of essentinl imports, it should be possible to raise teriff duties to meet this requiresent without: inducing fo gensrel increase in the free merket prices of essentinls, Raising of duties will, of courso, ostablish a higher floor on the prices of such items for the longer tera than would otherwise be the ose. In caleulnting the returns from import duties for 1947-48, as shown in Table IT, it 4s estinated that $200 million of the $320 million of imports for the civilian economy will be significant. Excluded areii HARRY S_ TRUMAN LIBRARY Papers oF Stuart Rice Be State-inported essentiels for general distribution and relief cnd fucl for wtilitiee which are now subsidii bby the Governsent, Also @ soall ; allowance has been made for the privete importation of capitel equipment without substantial duties. On the tox bese of anproxinntely $200 million, it 4s assumed thet duties equivelent to about 27 percant ad velorem wil] be collected ot the exchange rate of 7,000 drachne per dollar, This compares with duties equivalent to 28 percent ad valoren in 1938-39. 0n these essunptions, totel collections on imports would be about 378 billion drachnes, of which 280 billion are shown in Teble under the heading of “import dutiea” and 98 bilLion are included under the heeding of "turnover tax", This latter tax is now assessed et rates of 1.5 to 6 percont on the gross turnover of donestic mamfecturers and on imports, Tt is Deldeved thet adjusting the “turnover tax" retes to atout 7 yorcont ad veloren on inports will give sonewhat greater flexibility to the tax structure than to Anerease the specific duties to obtain the ful enount indicated stove, However, tis question aust be settled tn the Light of edministrative problens. Turnover Tay: The Ministry of Finance eatinetes that the turnover tax on donsstic manufacturers wil] yield stout 36 béllion drachna for 1947-48, The tax rate of 6 percent 4s ebout double the pre-war rate, tut the presont large spread between prices st the nanufecturing end retail levels would probably permit even a further ineresse in the tax without affecting retet2 prices perceptibly. ‘The turnover tax is in fect « manafacturor's sales tex and is favored over a general sales tax at the retail or wholestle levels by the Ministry of Finance becouse of the difficulties of checking gross trenssotions of the lergar musber of units, Enforcenent of the téx evenee HARRY S, TRUNAN LIBRARY Papers of Stuart Rice Sie fon manufacturers ie at present difficult, Fowever, it would be desirable j for the Government to gather the information and develop the techniques which would permit the early institution of a general retaii sales tax. i Such a tax would provide a much broader base than the present turnover Apart from customs duties, the tobacco consunption tax is the largest single source of revenue of the Government; it is estimated at about 19 percent of total ordinary receipts for 1947-48 or 228 billter Grachna. ‘The fect that the tebscco consumption tax yields such @ high percentage of retums is nore of an indication of the tnequi- ties of the tax syoten and the inefficiencies of the tax administration than of the Importance which this tax should asoune in well-balanced system, The present tobscco tex ranges from about 6% percent of the selling price of the common qualities of cigarettes to sbout 71 percent for luxury cigarettes. Tt is doubeful if revenves could be increased by fl further increases in these rates. This tax is the only one of a nunber of ‘ ondinsry taxes levied on agricultural produce which individually yields i @ significant revemie. Anong the others are taxes on the production of olive ofl, olives, raisins and currants, The tax 4s paid by the grover i and is collected at the time of sale, The rate is 16.8 porcent on the sale value of the tobacco, ‘8 compared with a pre-war rate of 17.8 percent; the expacted yield for 1947-48 18 25 billion drachna. ‘Stamp Duss: Stanp dues are collected for both eivil and commercial Gocunents. Fixed dues range from 100 to 100,000 drachnas, depending on ‘the type of docunent, and’ proportionate dues based on the values ofa HARRY_$,_ TRUMAN LIBRARY Ripon or Stuart Rice : = 25+ dociments range from 1 to 3 pereent for etvil and fron 5 to 10 percent for commercial docunonts. ‘The fees ave high, probably too high in sowe instanges, and there ig probably considerable ovaston on comercial docwments. an increase * of retums over the 73 billion drachns estimated for 1947-48 will depend fon an improvement of sdministration, Entertainment, Botertsinnent taxes are levied on public shows, cloonas, luxury bare and restaurants, tourint hotels snd establishments of ganes of akill and chance. Tax rates are high and probably Little further revenue cen be expected from this soures, Tt will be noted fron . Table IV that the anticipated return of {2 billion drachms for 1947-18 is wore than double the return from similar texes in 1938-39, ‘Transportation Dues: The tax on passenger and freight tickets for ratlmays and trans 1s 20 percent and for ships ani planes is 15 percent (the Hollente Blectric Systen rate ts fixed at 5 peroeat by agreement). ‘the estinoted revenie for 1947-48 is 2 .bilLion dractim as compared with 24 billion drachma in 1938-39 (adjusted). fates are higher thah pre-war " fing further returns will depond on a restoration of fact2ities and the goneral recovery of the econony, Aischol. Gone es; ‘The anticipated yield from this source . pbion. Me for 1947-48 is 35 biLLdon drachna compared with 58 billion in 1938-39 (eajieted). In spite of lower consumption in eons categories, considers ‘tion should be given to adjusting bates in an effort to bring the yield closer to the pre-war level. Jngury_frtioles Texga: The pre-war yield frou taxes on luxury articles was negligible; rater of 10 percent were oharged on’ both importedHARRY TRUNAN LIBRARY Papers oF Stuart Rice ~ 26 Atens and on donestic nenufacturers, Current rates range from 30 to €0 percent on imported lumury articles and froa 10 to 100 percent on donvsticaly produced articles, If the importation of lumury items Ss virtually climinated 4a 1947-48, a8 Le recommended to conserve foreign exchange, the estinate for 1947-48 of 12 billion drachna may be too high. Bx on olive ofl end its exportation ie prohibited. In planning the At present there existe no export duty , Bax on Olive 04) resumption of exports of olive of} under 11eonse, it te proposed as a transition measure to place « duty on tho exyort of olive ofl, which nay be adjusted domward at the discretion of the Ikinistry of Finance in consultation with the proposed Foreign Trade Administration, ‘This tax will (a) lessen the tendency of the price ‘to rise sharyly aa the sales begin abroad where prices exceed the domestic price by over 200 percent and (b) assure the Government a reasonable share of the profit arising from the difference in domestic and foreign prices, ‘The application of the tex must be flexible in onder to inaure that as the domestic price rises and the foreign price drops, as may occur over the coming year, the tax does not destroy the incentive to emport. Therefore, the' tex rate, whether fixed.on a specific or ad Yaloren basis, mist be susceptible of continuous adjustnent. The estimate of 50 billion drachnas as the yield from the tex 4s based on an export figure of 25,000 tons at a tax rate of’ sbout 2,000,000 drachmas per tony Elnense of Locel Governnents bpert from the national Government, the only tax jurisdictions in Gresce’ere those of the mmicipslities end communes, The muicipalities number 156 and the communes 5,650, The degree of autonomy exercised byge HARRY S. TRUNAN LIBRARY Paperé oF Stuart Rice ero ‘the local governments in téx matters is Lntted, and tn general 1oca Fingnces are subject to supervision ty the national Governuent, ‘The local governments undertake a wide range of functions, including public works, locel utilities, and health and welfare activities, but here also their pover ie Limited. although the burden of education aod the police has been borne by the nations) Governnent since 1920, the local ‘governsonts are reaonsible for the disposition of sone of the funds for these purposes. Prior to the ar, the total receipts af the local governnents were equal to somevhat 1ess then’ 1 gereont of the national budget and amounted to 1.6 billion drachma in 1939-40, the equivalent of 232 billion drachss at the prosont price level. Of the total receipts, @irect and indirect taxos were 60 yereunt; duties and foes 11 percent; State subventions 5 percents end miscellaneous receipts 24 percent, OF the total tax receiyts, about 35 yoreent represented taxes collected by the nations] Goverment ba behalf of the local governments in the form of additional percentages on taxes lovied for national Covernnent; duties on inports, taxes on incoue fron buildings, and taxes on leat tobacco ware the most imortent. about 50 percent were derivéd from taxes on the novenent of goods to market; and the Fonaining 15 percent wore deeived fron a miltipLicity of taxes of small return. Available data on the finances of local governments since Liberation 4s Limited and the Mission was only able to explore the problens of ji local finance superftetally, However, all available informstion , points to the existence of a state of chaos in Jocal finances. and thePapers oF Stuart Rice | HARRY Se sancti TRUMAN LIBRARY - a nansity of completely ebudlding the sources of revenue of the 2oce goverment. For the your 1945-i6, the latest for which information won obtainable, total recedpte were about 10 percont of pre-mar in : real terns, of about 20 billion drechnas. about 640 communes were reported to have reslized no receipts for the year. Some Amproveaent was expected for 19/647, but far from suffictent to pernit the rosungtion of financing of normal. activities The current principel soures of locel revenues 4a the archase tax erica on the value of goods aoving to market. after the yrosent energency, St Wil be destrable to ebolish this tex as unduly restrictive on the rovenent of goods, but this will be posstble only a alternative sources of revenue cen be four. Jn approaching the problen of rebuilding the revenue sources of the local governaents, a stuy ehould be instituted of the present division of sources of revenue between the Loeel end aatLonel. govern- rents. In this connection, one of the.nost proniaing poosibilities a e source of revenue for the local govéroments would appear to Lie {tn the developaent of the land tax. At the yresent tine, the nationel Government is lewing a tax on land classified under five categories. ‘he rates are nominel and the primary pinpose in instituting the tax was to gether infornation es a basis for developing ab equitable direct tex on agrioulturel holdings. This tex should offer gossibilittes of ultinstely ylelding aubetantial revenues and dts odaintetration would probably be sors effective Af handled by the Local governnents rather than ty the national Governnent.HARRY S. TRUMAN LIBRARY | Papers oF Stuart Rice + BB ; TABLE £ Estinated Greck Expenditures 1947-48 4 (billions of drachma) Percent gmount of tetal, Yo Pensions (including war vietins) 360, % 2, “Military ond Publis Security ay Internal 650, bd. Supplies from abroad 700. 1,350 32 3, Bwpensea of State Monopolies 22 ~ 4q Posts, Telephone, Telegraph 5 2 5. Health and Welfare 259, 6 6, | Public Norks (normal) 5 ies 2 7. ° Reconstruction a, Internal, 336 be Equipdnt ‘fren abroad oA, u 8, Distribution UNRAS, Surpuls : Property, & Stato Supplios a, Adninistration & Processing 320 b, Svpplies fron abcoad = 800 a 9. Operations Coastal Transyorb 1 10, Subsidies to, Public Utélitios 2 1, Othor (administration, ote.) 2 Total 4,189 . Zi Based on tentative Wadget sstinates except for the external cost of + the military, chich te based on Fritien estimates, and the expendi~ ture for resonstruction, vaich is based on tho first yoar of the five yoor progran outlined sith section on resonstrection. Yoroiga exchange costs are calculated on an exchange rate of 7,000 drachaa per dollar on the assusption that the prosent rate of 3,000 will he adjusted to opproximately this figure, Inctuded in this category are: Ministry of Ptnonee 140; Blucation 120; Agrieulvare 24; Inaticn $8; Interior 13) NatLosal Neonosy & Labor 5} Press 6; For Other 975 : "soe HARRY S,_ TRUMAN LIBRARY Papers oF Stuart Ric ~ 30 = capie IT ) ESTIMATED GREEK REVENUES 1947-48 (billions of drachna) Tentative ues Budget nitlaates otal 1, Incone and Inherstence Taxsa ee 2! Inport Duties 30 280 3. Tumover Tax 6 aa 2) state Monopottes 50 : 30 5! Foste, Tlephione, Telegrash 45 45 6) tohseco Consumption tax 28 228 7) Tobacco Production Tax 25 Fa 8, Stamp Duos 2 B 5. Entortainmant Taxes 2B 12 10. Transportation Dues a5 15 IL. Alcohol Consunption Taxes 5 135 12, inwury Artieles Taxoo 12 12 13, Bayport Duty on Olive O11 Es 50 Lk. Other ao a soraLs ‘0 vai Tentative Budest Ext Receinte LRsiittes AMgisionsl Totat 1. Sale of UNRRA 2 State Supplies 920 $20 2. “Sale of Allied Surplus 154 210 4. Brambynk Gress 8% Z) wixceLlancovs Recotpts 56 56 5. Direct U.S. Ala =, kb 1.65 rors T1350" Sty820" 2,950 7 Amount otal Tax Reveipte 1212 2 Total Frtraordinary Receipt 2950. ‘Total 4162 Fervent of Total gine Percent of Total Bxtraordinary a 7 3 2 Texsent of Zotab, Y sased on tentative Iudget eatimtes. «Foreign exchsnze itens are converted at 7,000 dracha per dollar,HARRY S, TRUMAN LIBRARY Sone | pea i oor ABLE IIT ok Expenditures 1938-39 (adjusted to snatoa)4* waparison “47 peiow Level) and 1947-48 (et (bition of drackna) 1938-39 Pe 1947-48 Percent 1, Pensions (neinding var vietins) 149, 360 9 2, Expenses of State Monopolies rvs 2 3. Posts, Teleghona, Telegraph 58 B : 4. Wealth and Welfare 160 175 3. Public Works (noraal} aT 6 6 Taxes collected by National Govts ‘transferred to Loca Govtss 58 3 { In Other (administration, ets.) . a (493 Totals nary.(¢ 1, Health ond Welfere (rsiter) a 2 2. Operations Coastal Transport a 1 35 Subsidies to Public Usilities © 2 42 Distribution UNRRS, Surplus 880 a Property, and Stale Supplies a, Administration & Procsseing(320)—~ bs Supplies fron abroad (eo) 5. Reconstruotica 51 u a, Internal (336)-~ ‘b. Equipment from abroad (238)-~ ‘Totels Public Debt Military ond Pte 5 be Conbined Totals An dbave tod Haze. Bla a, Military & Public Security b, Civilian Adiintstration 1 Totals | A Wdhiataaas of TTT GaAlieures ss mado on thin bests of an eotinatea Snsrense dn the prize-lavel of 143 tins. Tuc ireakdorm Botreon Ondioasy ani Exizsordinacy expevtsties 18 roaghy partioularly aa Crock ostinates foe nob bsoken dom ff thie eanner.Papers oF Stuart Rice ae HARRY S, TRUMAN LIBRARY Come: 32 - TABLE IV eon Greek Ordinary Revenues 1938-39 (adjusted to 1946 price-level) 1946-47 and 1947-48 (etineted). (billions of drachma) Income and inheritance 230 Taxes Inport Duties Turnover Tex State Monopolies Posts, Telephone, ‘Telegraph ‘Tobacoo Consumption Tobacco Predustion Stanp Duties Entertainment Taxea Trangportation Pues Mechel Consumption Taxes! 536 a1 8 6 310 By 226 16 Dy 8 Lonry Articles Taxes = Bgport Tax on Olive ‘OL other Total 3 ‘the price-level of of the Ministry of Finance, witch are cos Percent Porcent Percent of of of 2998-39 Total 1946-A7 Total lou-a# Total. 13 a 9 162 33 29 cr 10 280 23 5 52 a 1A a 6 3h 5 50 4 4 43 7 AS 4 a 194, 29 228 19 3 R 3 25 2 7 50 8 DB 6 El 22 3 Az 3 2 13 2 15 2 3 a7 3 38 3 2B 2 cry i 50 4 le Om eeee clean eo s 661 1,22 "9 actA revenues adjusted for sn ostinated incresse in Data for 1946-47 are Decenbar 1946 ostinates Data for 1947-48 are 145 times based on adjusted tontative tudget eotimates. nativesHARRY S, TRUMAN LIBRARY Stuart Rice Papers of | -33- : usey Bstinated Gresk Expenditures and Revenves 1946-47 £1 . (uitiious of drectia) Percent, Rrcondttures of total 1. Yeastons 96 2 Militery ad Zublic Sesurtty 2%, 3, Eeensis of Stale Nonopolies 1 Hi Posts, Tetemione, Telegraph 3 5, Wandth and Uo fare 5 8. Fabtic Hors (normal) 2 7. Roconstruntioa 7 8) Distetbutaon of INARA & Purchase State Distributed Suppl 2 9. Opsrations Coastal Transport 2 10s" Subsidies to Public Diilities 3 11. Taxes coltested by National Govt. ‘ransferred to Local Govts, 3 2 12, other (aininistration, ete.) 28 a Total 2,029 Revenues 1. Taxes 66 5 2, Bcbraordinary Receipts a, Sele of UNARA & State Distrituted Supplies 60 a3 d. Sale of Allied Surplus Property 45 3 €1 Sale of Totacco aoyulted by State von Liberation 5 ‘a, Other: Total Indicated daficit(l Estimated Foreigh Mid 1946-47 Greek Do (biltions of drachna) 1, pIRRA (estimate ab current prices) 2, Beimbenk Credit, 3, Miied Surplus Property Gu British Aid to Creek Wilitery Total Wtinatss based op Wnistey of Pinance aud Hiritsoh Foononie Mission date fas of Decenber, 1946, Estinates nay be stbject to apprecieble nodifteation, particularly on revenue itens, The Governtent accounts with the Bank of Greece as of February, 1947, indicated that the defiest might be as. low as 400 tillion drachna, ‘Howaver, such acoounta do not reflect outstenting obligations of the Government’ which are usually lzable at the end of the fisoal year, If the deficit 19 tm the range of 400 to 450 billion erechna, Ht RIL probably reflect increased revenues fron the sale of JNK gid Sur plus Property, for which the acogunting 4s slow, rather than a reduction ia the above intloatea expentitures, £2. These estinates are based on’a rate of 7,000 draohns yer dollar for purposes ‘of conpardaon with 1947~48 estimates. Broluded ia the British currency stabilisation loan of 10 million. sterling.Papers oF Stuart Rice nn dase HARRY S, TRUMAN LTBRARY n a st M2240n Bad bea ith tem 8 volo ® to 12 © tos eB 8 toa to 0 to 28 0 to 32 9 to 36 to 40» +045" to 50 8 0557 to 60 to 70 to 60 095 Over 95 # | i | in percent Soler 11 ~ 3h TABLE VE Sole. ITE, con Col 920,000, 2,040,000 1,160, 000 13659,000 1,850,000 2}050,000 2,250,000, 5,000,009, 5,500,000 3,000,000 Gonpound ‘Tex. r 9060, 000 22,000,000 13,0005000 15,000,000 17,000,000 20,000,000 23,900,000 2,000, 000 23,000,000 33,000,000 37,000,000 4,000,000 145,000,000 50,000,000 55,000,000 090,000 65,000,000 "75,000,000 85,000,000 109,090,000, 180,000, 320,000 460,000 60,000 860,000, 1,220,000 24,640,000 2)220,000 2/660;000, 3,460,000 * 4,380,000 5,420,000 4,509,000 8,230,000 19,080,000 12,130,000 14,280,000 19) 3605090, 24,880,000 33,880,000Papers oF Stuart Rice | HARRY S,_TRUMAN LIBRARY Chapter 11 2. BACING AND CREDIT CURR During the two and one-half years since Liberation, Greece hes ex perienced over one year of oxtrene inflation which threatened to get completely out of vontrel, and one year of relative but precarious stability during which 4% wse possible to keep the inflationary pressures 4in oheok only with the afd of substantial foreign subsidies, By Litoratiton the drachsa had virtually eased to elreulate and trade was ona batter and gold baske, Aa of Novenbor 11, 1944 the out= standing note iecue ras retired at the rate af 50 willion drachnse to ons, stop which reduced the note seue to one poroont of pra-esr and siti dlarly wiped out tank Gepostte, The exchatige value of the now dractna ftas fixed at 149,5 to the dollar as coupared with pre-nar value of avout 122 to tho doer, During the first few weeks of the nem deo%, ives were quoted in Gracia ab about 4 tines pre-war, snd although the free narket rate on the dollar was bolow the offieiaT rate, gold in tho form of sovereigns was’ quoted at the’ equivalent of about $25 an ounce, (Seo tables T anit VIII) In the firet four months after tho new issue, the note issue was xjended to the pre-rar level, largely as « result of Government exzen~ ditures, and the price-Lovel doubled, By the ond of May 1945, although ‘tho note ofseulation was only trice pre-war, prices haa risen to 15 nes provnar and tho roo naskot rate om the dollar was stout 480 parcent of the officlal rete, Gold was selling at the equivalent of $510 en ounce, | “In June, the exchange nate waa adjusted fron about 150 to 500 drashna | to the dolar, Mounting Govermont defiatte dyrine the last half of 1945 broughtHARRY S, TRUMAN LIBRARY Papers oF Stuart Rice Bea further drastic inflation, (See Table II) By the end of the year, the Priea level had risen to 160 tines pro-war, the free market, rete on the Gollar was 140 times the official rate, and gold was selling at. the equi valent of $1,500 an ounce, Im an effort, to bring some senblance of stability to the drechna, 5 well as for the broader purpese of restoring the Greek eccnony, the British at the end of the year offered financial assistance to Greece ond outlined a program of fiscal and sonetery reform wich culminated in the London Finsnelal Agreonent, of January 1946. The principal provisions of the Agreenent, bearing on monetary matters were 29 followas " 1. A sterling currency stebilization credit of $40 million. ; 2, Walver of repayment, of a sterling losn of $284 million granted in 1940-42, Establishment of Curronoy Comittee, consisting of three Greek monbers and one British and one Aiterican nonber, with statutory powers to control tenote issue, 4. Grostion of an advisory British Boononte Mission, {5s Am undertaking ty the Greck Gavernnén to take atepe tp vedues ‘the budget deficit, including incrossing the sale pricé' of INRA i ' i \ i erode tp augment xeveness 6 -Adjustoant, of tile @rachna exchange rates Pursuant tothe understanding retched wlth the ritisii, the Greek i Government took’ the follewing ‘steps: (1) the exchange rate was adjusted ron 500 to 5,000 drachna to ‘the dollar; (2) the Gresk Goverment reached @n understanding with UNRRA regerding the sale of UNRRA supplies which ee Permitted @ marked increase in revenues, although fan from sufficient, tp cover the budget dettase, Rurthennore, the Grdsks induged the Boitiat teHARRY $, TRUMAN LIBRARY | Papers oF } Stuart Rice ' h oe agree to the policy of gold sales to the public as « short-run expedient, 40 combat’ infletion, ‘The progran was begun secretly in Jamaxy and us announced publicly in February, 1946, . Maroughout the course of 1946 tho Grovk price-level reosined rela~ tively stable at 5 tp 155 tines pro-mar, and there was unquostionsbly sone increase in confidence in the arachma, Furthernore, the price stax bility was achlevet in apite of an increase in the note issue of 4 tinese However, these fects would tend to indleate the echipvenent, of 6 far greater degree of stability than the underlying fectors varrante In ap- praising the experience of 1946, the folloring considerations must, bo bore in mind: 1s Greece received during the year foreign euteidy in excess of $300 million, prinoipslly UNRRA and ‘British ald to the Greck militery. | (Gee chapter on Post Wor Md to Greste.) 22 The inflationary offect, of the tudget deficit mas offset ty the } net, sale of $68 million in gold and féreign exchanges (See Tables IIT | and IV) The sale of gold and foreign oxchange was mado possitie in part, ly tho Britton currenoy stabilization 2osn of $40 mitten, 3. onrecurring extraordinary revenes‘of the Goverment, prinar= ay receipts fron the esle of UNHRA goods; consistuted about 60 percent, of total revemiese he With the budget detiott oftest, ty sales of gold and foveten exe change, the prinery source of the inorease in note Aesue was agriculture credits extended through the banking systems, On the basis of the init of svoileble information, 1% ds believed that there was a relative sea city of curronoy in mural area, ariaing in part, from increased agrion~ tural activity, and for ‘thie reaeon the impact of ‘the inereased note”pe. HARRY S$, TRUNAN LIBRARY | Bltar! Rice . Hi IF aa issus was not folt in the principaD urban markets. 5. While statistioal data Se inadequate to aske a precise ootinate of the velocity of ofreuletion during 1946, the velooity was at least, a ‘Ainimun of 3 times and possibly es much os 5 tinos pro-nor, As of the end of the year, the note © ulation was 40 tines and the price-level about 150 times, pre-war, Brivate bank deposits wore about 40 percent of prewar, The policies which wortt special comment ere those on gold sales and the increased price of UNRRA goods, Whatever might be sald for the gold sales policy es e short-run means of "buying tine", the poliey in the long run was little loss than adnission by the Governnent of inabi- lity or unwillingness to tackle the basic causes of instability, The gold which was sold added nothing to national incons, reduced the availabb exchinge for essential imports, end faeliiteted the flight of capital from Greece, While tho retiring of some 260 billlon drachaa from olreulation | in 1946 ty this method ms a signtfleant defletionsry factor, the undei~ dying inflationary pressures renained essentially the ease as before the sales begane In eppraising the inpact on the Oreck people of the experience of inflation ductog ond stnoe the ovoupation period; it 1s important, to bear Sn mind that the, sbtion hes acquired & phobia of tuflation yhioh even upler fovoruble coudstioas oan only,bo aispelled with tings Mats fear is conditioned probably as much ty political a0 purely economic considerations, partioularly inasmch as the threot of inflation comes prlvelpelly fron « budget pit out of balance ty nilttany expenditures, Ab foatcative of the Importance of tho political factor, #8 aroma be noted that thors has toon very little private investuent. 4n capitaleee HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice ' oio ‘hat would be expected on purely economic growds as such investments fare usually good long-run hodges against inflation, Investment, hovever, has boon alnost, exolusively in gold, Dlack market exehango, and hoards of consmer goods vhich could be quickly sold for gold or exchange. The reason for this, in part at least, ta that persona of means have sought assets which would enable thoa to escape the county with thetr walth in the ovent of @ political upheavs2, Assurance of Arorican aid to permit balancing the budget ond pro- ‘vide on adequate volune of imports, should go far in dispelling the pre« sent.nonotary phobias, It should have the effect both of reducing the ' velocity of circulation and inducing a nore nernal flew of investments Novertuelens, after the experience of the last six years, changes in tho present psychology moy well be slows and until it 4s clear that the shole | clinate of public feeling has changed,, it will bo necessary to exert rie! gorous contol of the note dssue and ell forms of credit, | AAEDNG AND opr Prior to the War, comercial ‘and other banking institutions played © relatively minor role in the Greck cconony, Total capital and surplus of the contral bank and principal comercial mortgage, ani savings bonks vvas less than the equivalent of $85 million and deposits ware about, $300 million, Privete deposits of the principal comereial banks, oxclusive of the central bank, were the equivalent of about $135 million. The use of chooks a8 noane of permet wie relatively insignificant compared to ‘the volume of payments mide by curzeney and was confined almost, exolue sively to large comercial intepeats, (Soe Table V)pienigiiga l HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice poe ne The major classes of banking institutions yore as fellows? (1) The Bank of Greece (contral bank) whlch hed the usual functions ef note issue, Tiseal agent of the Goverment, depository of compulsory reserves of private batle, and rediscoant end open | market operations, In practicg, the exercise of the Ametion of rediscounting was limited primarily to periods of erisis and open-rarket operations were not used as a moans of in- : | ‘Alueneing the money darkot, The central bani also engagod (2) Me comercial, banks which confined thot operations alaost | exclusively to short term financing of trade and coumerce, (3) he Wations2 Wortgago Bank (anA one other) engaged in real estate loans, (4) The Government-owned Agricultural Bank ongaged in extending short, medium, end to a limited extent, long term crodits to agriculture, MS (5) The Governmest-ormed Postal. Savings’ Honk plus minor private institutions of similer character, Interest, retes pre-oar were high conpared «ith Western Europe and America ond reflected the low voluse of saving ond phortege of Liguia capital. The rediscount rate of the Bank of Greace nas, 6 percent, in the late Thirties and that of coméroial banks ranged fron 7 to 9 por= | Tntorest rates on othor than discount bills wero oven’ highcr, Aecioultuenl asedity 40 tie Agricultural Bank ranged fron 5-} to’ 8p _poreent, depending on the Aongth oo Sroractor of the Jom, |et HARRY S. TRUMAN LEBRARY Papers oF Stuart Rice -o- Aeposits vere wiped out by the Inflation, Ae a result, all Greek bank~ ing institutions since Liberation have boen alnost entirely dependent on ‘tho Central Bank as a source of funds for relending, In fact, up to the ‘present, time ,tho banks have been dependent on the Bank of Greece aven. for funds to mect pay-rolle, Such Lending has, of course, nesossitated an expansion of tha note issue an@ thus has cone under the jurisdiction of the Currency Comnittes during 1946. The inflation experioned since Liberation has prevented alsost ary noasure of recovery in tho normal functions of the teniing systen and recovery, is likely to be slow even with the proposed American aid, ‘As will bo noted fron Table VI} the ratio of the private deposits of thd principal Greek banks to the hote iesue was 1,6 te 1 in 1939, was up to 1 to 23 in Doconbor, 1945, and dom to 1 to @ An Decenber, 1946, ‘Tho Gecline in the ratio during 1946 exaggerates the dogreo of recovery in- asmuch as these deposits represent principally loans Tor specific pur= poses mado with funds of the Bank of Grgoce shich had not been fully : dram dom in the form of cash rather than a grouth of deposits made “fosoible through a return of nomal conditions. 4 Daring the inflation of 1945, negligible cnounte of benk ebedit : ‘wore made ovatiable for private account. During 1946 erodlts in linited ‘anounts, made’possiblo by the expansion of the note issue, were granted for eesentil agricultural, comercial, ond industrial purposes. As of Tovotter 2 the total scont of crete eutrtanting forthe puporon‘HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice ee The interest rates currently in.effeot, as determined by official poldey are as follows: The Central Bark lends to coumercial: banks ot, the rate of 3$ pércent for approved Loans to commerce and industry and, ‘to the Agricultural Bani et 3 percent. Loans to ‘industry and comieree are nade at tho fixed rate of 10 poroont ond to agriculture at rates of 6 to 8b percent, depending on the length and type of loan, Jt 4s roliebly roported that in actual practice the banks are lewy~ ing charges enounting to an additional 2 pereent per month for eocmer- ciel and industrial loans, uhich makes the effective rate of interest + considerably higher, Because of the demand’ for hank credit for speculative purposes and ‘the reluctance of private copitel to invest in other than gold and for- eign exchange, it has been necessary for the Currency Connittee to aain~ tain the gost rigorous sorutiny of all tak lending. The naxina which ‘were approved ty the Currency Connittes, in the Fall of 1946 for various categories of bank credit are givon‘isitis attached table, Howver, due : ‘to the heavy denand for gb in Novenber, the Curreney Committee was “forced to place o freeze on all further bank credits and tho freeze has been nainiteinod with fey excoptiona ever since. Tho necessity of the closest control df bank lending vill contime for an indefinite poriod and thexp are. mmber of indications, sueb ce the roported adding of en extra 2 percont to intorost changos, which suggest that the activities of the private benke should bo brought unior | closer regulation, Tn thts conneotién, 4% would bo advigahle if the Gurteney Comittee wero given the pomars to requind fron tho banks ro7 fuller reporting as to assets, 1isbilries, and operations; in addition, ee the Cuereney Cenmtttee shoud ee edHARRY S, TRUMAN LIBRARY Papers of Stuart Rice | a and practices as it deemed necessary to insure effective control of the danking systemsaieessatBSRReS a HARRY S, TRUMAN LIBRARY Papors oF Stuart Rice or) TABLET ' Indices of Greek Note Circulation and Pree Market Prices a Date Woks Gireulatton Eres Market, Prices ~~ 200 Base Ost. 1940 Nove 11, 1944 (Hew Hote Tesue) /2 an, 31, 1965 Feo. 28, * Wars 31," apres 30)" Mey ai 8 we June 30, ‘ July 31, 5 tage 231 Sopt.23, Gots 31, anv foo gan 1 sete’ PH a Boos 31, 45209 (welt) Index of Note Circulation from Bank of Greece and of Pree Market, Prices from HARA, Index of Market Prices 1s a geometric moan of unweighted price relatives of. 20'comodities, ZB Converston of outstanding note isaue et 40 billion to 2 drechna, 2B Index based on officiel prices,net HARRY S, ‘TRUMAN LIBRARY Papors oF Stuart Rice ec ATCT ee ‘TABLE IE eee eee reed e le Aocounts of Bank of Greece + (billions of drackma) Percentage Re- ceipte to py 7! Peplod Wore 11, 1944 Mars 31) 1945 19 15 18 Fiscal Year Apre 1, 1945 = Mar. 31, 1946 188, ATH 29% . Fiscal Year Apes 1, 1946 = dar, aL, 1947 (9 months) 1,152 1450.7 18Papers of SS eee ioe ‘TABLE IIT Sourees of Increase and Decrease Drachsa Note Isaue Froa Wov, 11, 1944 ~ Deos 32, 1946 {1 (billions of drackna) Sourees 4f Increase Jane 3s 1946 Boos 31 1946/3 1. Gredits to the State/? 96 568 2. Payonts to les 5 3 SE ae aeeecet Other Credits 38 643 da ot Rerhases foreign | Brohange mh | Se Varios iettanta | | Total mm | Sources. of Decreas: | Ly Depstte ant Current / , | ecrontg of Sete oe @ a 2, obit Depaetee ana | Garren Aeosnta s 3 pc leas e a | | ok BPS ee Exchange 261 4 5. Various Accounts 3 | . notet a : f Tnerease in Circulation 520 D1 bate of Bank of Greece, 22 Paynonts. to Stetp ninse receipts, of State by Bank of Grecco. Includes avences fpr parohase foreign exchange. QB Provisional,erica | HARRY §._ TRUMAN LIBRARY Papers of Stuart Rice et wus TABLE IV Sale of Sovereigns by Bank of Greece 1946 Month January February March april Sune uly August September October , Novexber | Decesber Total (4n thousands) Humber of Sovereigns ag 29.7 296k is7.0 403.2 22h asd, 5303 115.9 123.5 36808 508 beh Delia? Value sales 1946 (gold 6 $354 per ounce) .. Dally Averagea HARRY $, TRUMAN LIBRARY Papers of Stuart Rice ue TABLE V Tata on Principal Greck Pinancial Institutions August 1939 (bitLions of drachsa) Cap,& Deposits Other La- Cash & due Govt, Other Other secu Surplus bilities fron bes. Debt, Loans ities #ear~ * a elite Bank of Greco 46 1000 nsfE 306 Ahad 4 National Bank 142-10. dah Be 9 Other Commercial , Banks ow : hod Mortices Banks 2h 209 Bt perioittural ek 13 BT a 38 Savings ' ‘institutions 28 Total 25,0 17 ‘19.4 . 26.5 2.0 ZI thaintes note Tseuesieee HARRY S, TRUMAN LIBRARY Papers of Stuart Rice er emer ~be TABLE VI Bank Deposits of Frincipal Oreck Senks 4 (oiltions of éraciaa) Dete Gonpulacry Deposit Private Total Ratio Private Depo j of Public Tnstitu- Deposits sits to note issue, ‘Honge Deventer 31, 1939 303 Bal Bok 16s Sune 30, 1945 6 638 ag Decesbior 21, 1945 40 oS 805 123 Jane 30, 1946 2502 267 She ang | December 31, 1946 68.7 1 LS “8 { i 5 | Ziv Dats Frog Bonke oF Greece, TncIudos Notignal Bink of Greece, Bonk of . ‘Athens, Comercial Bonk of Greece, Tonion Bank, Led,, Popular Bank, National Mortgage Bank, and Posted Savings Bank,ee | RS Papers oF | Stuart Rice -w- TMBLE VIE Greek Hank Credits Exelusive of Loans to Government (Financed directly by Bank of Greece or indirectly through other banks) Outstanding Approved Maxine 1 poo, 31, 1946 “Chillions of drachia] 1. Ihdustey 38 a. Rehnbiiitation a bi forking Capiten 50 2. Gonmarce 120 a. Iaports - wo bi Exports exolustve of Tobacco ‘& Currants 20 c+ Byorte of Tobacco ; | 2 Ourrante (ce approved) i d. Cooperatives: (ss approved) ! 30 Agriculture . 443 ae Agrtoustural, Bante y 250 | b, Fertilizere (thra Agri. | Banik or other) n | fe Netional Nortgage Banke 2 = : 5. Tages of Bankes Personnel « {a8 proved) a 6. HisceLimeous (68 approved) n i : total 3 Dollar equivalent outstanding eredits (8000 drachna GL) ecaesG8004 mi2lion Di ipprovea ty Carrency Coantttee,HARRY Papers oF Stuart Rice Date Nov 30, Yay 30, June 30, Dec 31, gan “1, Juno 28; Dec 31, AL Based on data of Bank of Greece. ee TRUMAN LIBRARY Dreohnas per deller Official Free tarket 1938 19h4 1965 1545 194 ise 19h6 19h6 ~~ TABLE VEIT Greck Foreign Exchange Rates and Gold Prices 4 Rate ail 149.5 sis 500 500 «3,000 3,000 53000 Rate Ly ‘720 Bhs 6,523 5,778 6,130 7,307 Bree Market as percent of of- ficial rate Free Market/? Gold Price per price of the ounce in dollars Sovereign-- (conversions at in thous drs) official rote) a 85 510 B in a 1,530 us & 127 136 16 BF ug 22 Gold sales ty the Bsnk of,Grecce bogan in January 1946 and were contimied ‘throughout ,the year, 23 Svorage of onnusl buying rates in New Yor A teroroge price month of January, \ee HARRY S, TRUMAN LTBRARY Papors oF Stuart Rice CHAPTER TIT INTERVATIONAL, COWMERCTAL AND FINANOTAL RELATIONS Fayzonts ‘The batance of payments of Greece reflects the singular importance of foreign trade in the Greek economy. Tt is estinated that prior to the War the ratio of imports to national income exceeded that of Britain and . may have been as high as one to five, It is 9 poor and undeveloped country \ 1 i | | | | which is self-sufficient neither in basic foodstitffs nor elenentary indus : | teiel profucts, Tis extensive morte are paid oor by the export of eget: cultural products, and unlike other Eastern Buropean coutries, by invis- | | | has been dependent on foreign borrowing to finance most of what little capitel dovelopuont hes taken place and hes also incurred heavy fereign obligations in past wars; these debts were only partially serviced during ‘the Thirties and are not now being serviced ati al. The countsy has always been prinarily agricultural, but due to the Linited erable area and low productivity the lend has afforded only « very lov standard of Living to the relatively heavy population. Until recently the intustry of the country mas inslgniflean! and even tho rapld grovth since orld War I has only enabled her to produce 0 percent of hor donestic needs and virtually no goods for export. In the Last century as the Greek population increased and the needs a could no longer be mot by the traditional olives, vhost, and herds of sheep and goats, Greece turned to specialty crops, currants and raisins and then tobacco, crops whose production in Greece was especially favored ‘by coll end climate. With specialisation in these comogities, the Amportence of foreiga trade in the Greek economy markedly increased,i. HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice : - ae Until the First orld ar there was practically no investment of private Greek capltsl in Industty and there has teen but moderate invest rent olnes then, Primary factors in the lack of gromth of Sndustry na been the size and character of the local market and lon volume of saving Other factors which Mmited industriel investment are Likely to con tinue to operate in greater or less degree during the next five yeura and therefore are significant in an appraisal of the balance of paynents. iret the tradition of Greek businass men led them to keep their weslth in trade, Greok merchante having handled mush of the commerce of the Ottoman Bupire excelled in buying and selling, Dut having no experience | in mamufacturing, did not turn naturally to industry even though there was in Greece a market for manufacture! goods. Second, a sense of insoourlty an@.e lack of faith in Greece's future militated against patting savings into local investmente. Prosparous business men sought safety for their savings through investment sbrosd which was at | once both more secure and more profitable. Thind, during the long years of Turkish occupation, Greece wae, oriented toward the Bast and neither fook part in nor was noticosbly affected by the gronth of new ideas, skilis and techniques in “estern Europe, ‘The failure of Greece te’ develop smgl} industries as well ae the high cost of production in exjeting industries axe basic factors in the poverty of the country. If the living standard of the mess of the Greeks 49 to rise mci! above the pro-war. level, it will be necessary for Greece to develop enall industry te absorb her cursus farm population and to rely-té a lesser degree on the export of specialty crops. Grooee has traditionally ran en adverse trade balance, as indicated MBM YS ne ieeevam HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice oe By the Grook batance of paymonte for the years 1935 to 1938 as compiled by the League of Nations given below: Bolance of International Payments: 4935-1998. (wiaiton Credits Debits 19351936 1937 1938 19351926 19371938) Merchandise 46.8 47.2 62 67 1 77 9% 95 Furchase of ships x07 Service of public abt farce Teo) esate) ee 0) eo ee) Interest & dividende fon foraiga inveat~ ents in Greece 39 RT AT 6 Interest & dividends on Greek invest~ monts sbrosd ra)eu7Oet Grete Shipping income | (oss insurance) 5 5.8 5.5 6.2 t Bnigrants remit tances ire eg ate] i Tourist expend! tures GO MT 5.4 47 26 2 25 2.5 i Goveranent raceipte 2 expendi tures L4 8 L2 Le 29 18 5.6. 69 Changes in gold for- eign exchange con- borcisl sccomte i & debts i Reduction in for- t eign assets of shipowners Ungreci fied movonant of tends Statistics from which to compile a statement of the 1946 balance of peynents have not yet been esembled, The following broad eatinates were t nade by the Wission.from data obtained from the Greek Government, INARA and the military authorities:— HARRY S, TRUMAN LIBRARY Stuart Rice Exports 33 Inporte ty UNRRA Roni ttances 32 Other non-military imports Shipping earnings 6 Total non-military imports Wiscellaneous a Military auppl tmeRA 198 Total imports British Govern- Niscellsneous nent for militery Total supplies 100 Deficit “3 This fs not @ true balance of payments atatedent aa not all financial itens have been incluted. The deficit of $13,000,000 shown in these estimates was met through an equivalent reduction in the foreign ascots of the Bark of Greece, In 1946 through Novenber 20th the Greek Government sold foreign exchange far confirmed letters of credit tn total aout of about $120,000,008, but many of the Imports had not toon brought into the comtry by the end of the year, 'Thie float of goods enroute or on order wider letters of credit vas variously estineted at the year-end to anount to 454,000,000 to $90,000,000, though it 1 not possible for available information to reton- cite the higher estinste with othor Sinanetat figures believed to be ebrrecti! The balance of payments for 1947 as estiaated by the Mission is as foLtows: be Exports 220 Imports: i Renittances OR Civitan 354 shipping i0 uiitery 300° MseelLaneous 8 pesee | AM Yied Surplus as a Rroperty Credite 3 jovernnent expanse Belmbink sredit i2 abroad 6 UREA 12 ravel & miacel, | _9 Direct, U.8. Ald Aalto? w Greciebuskoy Ala BILLte HARRY S, TRUMAN LIBRARY Bapers of Stuart Rice : -5- Because of their general Importance, exports and isrorts are éis~ cussed in separate chapters of this report; the sunmuy figures are Listed above, Other tens will be taken up at this point. Remittances from enigrants to their relatives in the homeland azounted to $17,000,000 1n 1938 and sre now estimated at elnost double that figure. : Because of the world wide syupythy for the plight of the Greeks, renit tances will remain high during the next fev years, but after that shrink age must be expected; Lange scale enigrations corsed thirty year ago and ‘hos grow thin with the passnge of time, 4b present: most remittances cone into the country and are converted to loca). currency without ever pissing through banking channels so ex- change 1a at the open merkot rather than the official rate. If the die- parity botveon these tno rates continves and financial consorsbip of mail ie instituted to force all renittances to pass through banking chennels, the Forelgn exchange thus captured by the Sovernsent egn be used effec~ tively for. the Greek econoay. At the present time, much of this exchango goes into luxuy inporte or is a vehicle for the flight of capital. Tt Lb claimed that forcing recipients of remittarices to exchange dollars for 4 Grachma at the official rate will result in a radical decrease in renit~ tances, There is no doubt sone truth in this olin if the disparity in rates continues, since the senders vill feel that their relatives are not i receiving full value for the dollars aent. However, its nore probable that se long as the nocd extate in Grice the reuitiances will continue An gubitantial ancunte. Reneipts from cedan shipping are an inportant item in the Greek’ balance of payments. In 1936 they amounted to some $@ million and during loft snug roach $20'xtDlton. fe chom tn the chapter on Shipping, theseSet caaeer Stuart Rice ae Figures are not ae high ae might be expected from a feet the size of Greece's. Gresce's ocesn Fleet 4s Grevk in the sense that it has Greek : crews and Greek ounars, but most of the shins never touch at Greece, never are repalred or provisioned there and do not return their profits to the country. Only goanon'e earnings and 1 small part of the owners! profite ' fare returned to the country; before the War this anounted to an eatimted 4 2 pereent of the gross eamings of the merchant marine. Although Greece!s | shipping took heavy Losses in the Yar, tonnage has been restored and gross evmings and net profits are for higher thin they were before the War, Tt 4a unlikely thet even this sill perventage of gross Incote wLID be re- tuned to Gresce unless the Givarnmont takes vigerous mexsutes 4s suggest ca in the chapter om Shipping. xchange srlaing out of soney spent in Greece by teurlets mounted Tefore the war to abeut $5 millon annually in the balance of poymmtsy Tourkste ate drum to Gresee from “estorn Burope ond Anrien by intoroot in the anclont civilisation and by blood ties to the hoaeland. They cone fron the Have Eastern countries, partioularly Egypt, seeking relief trom ie sunvor nest, With « Little ffort, this source of rovente could be developed. Better transportation, inproverent of hotels, and advertising should yleld substantial retums in foreign exchange and also in incresaed eaploynont. Thore'will be sone! receipt from WIRRA for slip over from its relief progran to be brovght into Gresce ap smports during the year. ‘hie 4s estinated at $12 ailion; there are still Langer nnounts of undLstottuted UDvRGA goods 4n warehouses Sn the eountay. Part of the Export=Inport Bark loan will te entered among receipts, as equipment now under construction estimeted at $12 million should be| et HARRY S$, TRUMAN LIBRARY Papers oF Stuart Rice otivered during the yexr. Amore oubstantial volun of goods - porhaps $35 million - seen Lely to be imported mmder OIL credits, These surplus materials are of variable quality ard often ure not weld adepted to Oreck needs, How ever they could be obtained a sre quickly by Greece than goods purchased new, snd they constitated s t}pe of immediate assistance which the United Statée ma in a position to oftant, toy are in part cansier goods a in part transport anc capital! equipmert. "me item "Goverement Rec bipta se Bipendttures! ty the pre-war bal- sce of payments would show jfostly Incronsed Government expend tures tn 1917-48 12 a11 mounts spent hoy the Covornnent for consad.ties were Uated 18 Covornnent expandt hures. afore the az, these oxpendl tures wares 1935 ere 997 (in millions of dollars Covernont sxponit ts ave 29 ne 68 Tho tocredse in these figy fis after 1938 reflects expenditures for ilituy cupten oad ogut font as th.s mes Uh ported sen the Grek Governsat wer Hatesne “as tabling up 428 tod forsee, Those amounts tive an indlestion of thd shitty of she pre-nar Gresk econony to provide fovolgn exchnge for govrfmment uses sbrond and may bo gone indioetion of what can te expacted from the post-war Grosce. It is obvious, of course, thet the postr fr military sipytes, $100 aition tn tho 2946 balance of pyynonts, og fld not be Esta for by any Greek economy.HARRY S. THUAN LIBRARY Papers oF Stuart Rice | Bmmorts Before the war egriculturel products made up sbout three quarters of Greek exports, with totacco alone accounting for one half, Of the tovaceo, gost of the better grades went to tho United States mith Ceritny taking the greater part of the remainier. Average exports of Loading comodities for the years 1936-1938 were as followa: Minions of dollars Tobacco 39,039 Currants 8,635 Raising 4,066 Olive 011 3,85 Edible olives 25585 i Figs Minorals Other exports Duriug the years that preceded World Yar IT, Germany using aggressive trsding methods becare increasingly important in Greek trede. Exports to countries taking the largest anounts of Greek products 1936-1938 were ap follors ty amount end peroantage of total exsort. 3936 verano ws, “98 ie Germany 25 36.4 UX 49 9.6 8.4 904 Hey 12 5k a dak other countries 29.5 3308 During the current figeal year, exports can bo substantial. They nay total {100 milton to $140 mtllion 4f the Gresk Government takes ¢he stope necessary to roesteblich this phase of the national eecnogy. Since Liberation, the sense of insecurity and uncertainty ‘that has pervaded| Papers oF Stuart Rice ile HARRY S, TRUMAN LIBRARY -9- Greece has both directly and indirectly beon « berrier to exports. Production of exgort connodities has been reduced and both farmers and siecchants have preferred to hoard rether than sell their stocks. Changing currency values, scarcity of transportation end the prostrate status of Gernany end other Buropeen customers have prevented the reestablishnont of trade, With tha prospect of substantial Anerican aid, it should be possible to take the steps necessary to reestablish exports - ait absolute essential to Greece if th country is to again become econonically independent, It 48 conmtonly recognized within Greece that the low exchange rate corstinites an important barrier to exporte, bub 1 has been felt that any change night further wecken faith in the arachsa, thet further fnelation ight follows, and that the consequences of the chenge ta rate would be miGLAfied, vith large Anerican financial aseiatence tegothor with controls which the Greck Governgent Se expected: te Ampose upon the economy, 4% de believed that it my be Possible to keep ‘the currency stable follo ng @ change in the rate. This is a matter of conjecture at it seems necessary that the risk be taken in an effort to break the barrier, ‘ A second obstacle to exports is the high cost of handling and transporting comnadities, This cost reduces the profits received by the producer and increases the price of the goods he buys. While exports can bo moved out of Greece under existing conditions, their volume and | | | the resulting profits will depend 4n part on the restorstion of ports, roeds, and railways to wore efficlent operation. ‘The disruption of markets ceused ty the Nar 1s still snother obstacle,HARRY S, TRUNAN LIBRARY Papers of Stuart Rice | ~10~ Prior to the War, a largo percentage of Greck exports went to central and eastern Barops; in 1938 Germany elon tcok 49 percent» Host of the countsioo in thie part of Europe are nx close to Grease, Brentuaiy aay nay to roopened, Yat in th meetiae, pow custonsrs mst be foun tie muy nt prove possible with respect ta the lomr grades of tabeco, cost of ahich ont to Gecmany before the Hare Hovver during the Semetsee future shile oct comedities axe in stort supply, St shoe ve gorse to osI1, and at rather high pricey the grenter part of the creek exports te obstacles to sbstentiel egarte 60 aot agpeer Lnourenuntale, other vatcen countries sn Barge have overcone sinter ones. the + extent to which the Grek Goveranot overcomes Ulam largely depends om vom extent to which it shakes off the Iethargr whlch hub some to paraipan affective action x enttneing Grok exports for he coming your, 18 46 exnunt that (a) production of export crane 4s 3947 wiN2 equal AF not exeet thal An 1otby (2) ernoportation WIL be tspovets(o) energetic stops v2 bo teuan to Sneroese eoporty (6) tw halen w expert fn the overvaluation of drachia will be ended by changing the exchange rats; and (2) new rizkote Will be sought out to replace lost markets in contrai Burope. on these assumptions estinstos for exports in the Pisce year Apri 2, 1947 te March 32, 1948 are as Follows: cumie Enon of dollars) Tobacco 45 j Olive oft a Edible olives 8 8, 8 2 currants: ‘Suieenas Figs Minerals 3 Wiscelisnsous Si Total «120. -ne Te can be scen that in this tabulation, tobacco and olive ofl ‘gccount for about 70 percent of all Greek exports. ‘The prospects for exports of each of these commodities are not at all clear. ‘Their actual export will depen toa large degree on the effectiveness of the Groek Government! offerte. The Ministry of Coordination estinates that about 31 million Kilograne of tobaceo valued at 437.5 milion will be available for export in the calendar year 1947. Of this, 13 million kilograns worth §29.5 nillson would be froz the crops prior to 1946 and 18 million Kdlogrens valued at 28 aflion ould be fron the 1946 crop. Tt seons reasonable to assuse that the exports for the fscel yoar bpril 1, 1947 to Moreh 31, 1948 as contrasted with the calender year Will be 445 nfllion. (Betre export vas carried out in the first quarter of ealendér 1947 or anf aeons iholy that exports An te fir qoarbr of extender 1918 wil bring the total for the face) yeer to « higher total then ‘the calendar year by $7.5 millon. This essutes, of course, thet the present interest of nericen buyers in Greck tobacco io translated “Yate, effective, degand in the eer future, : he export of olive 641 ia @ most cohtrovéraiel subject, Export of thie staple in tho,Grook diet has been prohibited lost it leat to "igher brices for this coinedsty ahd a resultant widespresd e£foot op gonoral Living costs and nayea, The donestic price has remsinod ‘at the low figure’ of about $520:per ton (3.9 milion drachna at tho official rate of 5000 to 1): the price in New York in lote 19/6 mas. : ase 2 42/00 per ton and more recently about §2000 por tons ‘Greece has a,= -a20 at the profits available at these prices. Substantial oncunts of this large profit could, of course, be set aside for the Government. Plans for export, have been under discussion by the Government for sone tine, but no action has been taken, The delay is undoubtedly due, “in part, to @ genuine fear for the effect of exports upon the genera grace level, but presoure by commercial interests has slso played a _ part, More recently Lhe delay has bosn attributed to a feeling on the pact of Greece that the United Btates aid program provides « bountaful assistance which makes the full vee of Greek resources umecessary, Estinetes of the amount of ofl avaiable for export during Cece) 1947 from the 1948 snk esrlser crops rango from 20,000 te 30,000 tons depending on whother governnent ministries or clive of werchents sre doing the estinating. If the 1947 olive crap 1s @ gro ore, soee vports from this crop should ela be available in the lest quarter cf Mecal 19475 thts vould inorease exports to a Figure sbovt the 20,000 to 30,000 tons, (ifth wncertatnites, toth ax to the enount of ofl aybtlable for export ami the price at which it could be sold, tno firm conclusions can bo reached et this time of the value of ' exports during 1947 but §40 a{liion seems a reasonable figure] . To counteract possible price rises resulting from the export of « olive ofl, Greek Governnent offictale wish to import’ considerable ancunta of inexpensive cottonseed ofl, This would be blended with clive ofl and ued by the Government to provent: wide advances in the . price of olive oll in the elt} serkets, This appears to be a reasonable course of action einge At would regio thé danger of price edvances' sind would leo increase the snout of ofl aveilable for export.HARRY S, TRUMAN LIBRARY Papers oF | Stuart Rice ee B- the figures given for the exports of dried fruite and other comodities are approxinately thous sade by the Government, Here aio there 1s the probability that the exports fron Jenuery 1 te March 32, 2948 wi2L be greater than those of January 1 to March 32, 1947. the total enount of exports for the fisoa) year will depend in lenge mecure on the success of the Greek Goverment in reestablishing pcacc, . in Anproving transportation, An sedomplishing wide Aistribution of consuner goods and in Coaling with the overvaluation of the drachaa. Rqorts will also be dependent ison recstablishsont in other European countries af conditions conucive to normal trade, Shortages in world narkots make St poseible that present. expectations of inports will even be exceaded Af noraal conditions cen ence again be epprocehed'. For the present, however, the Greck export trade rousins stagnant, in spite of the active domands abroad, Recognising the difficultics, des, it ie bélioved that at aled taking cognisance of the possibili Greek exports in the current fiscal yoag should equal or éxceed the estimate of (120 million male herein,tn fe! | Stuart Rice ein Inport Before the War Greece ordinarily imported about one-third of her requirenente of careal grains end substantisl amounts of meat and fish; imports of focdetuffe constituted about one-third of total imports. Cond and petroleur products vere imported, as vell ss nany of the industriel raw neteriels end a substential sreent of the namfactured goede, Imports during the years 1936-1938 averaged as shown in the follow ding table Millions of dollers Cereal grains Other foedsturre Coal Petroleum products Textiles Hides & Leather umber Iron and Steel Machinery autos Chonical & Allied Producte Misoellaneous RepaserSyeb ; Before the war Greck inports cad-fron a large mumber of countries with Germany by for the lengest supplier. Germany was: fullowed by the United Kingdon, Rumania and the United States, Greece drew onall enoints of a variety of: products from the Unttéd States, of which machinery, potro- loum products and wheat were the most important, Iaports into Greece 1936-1938 Average Milton dollars Germany, 2h United Kingdon 167 Rumonia 16 Uy 8 As VT Other Countries 512. Total 127.0 Eercént of total, eed Bb 3ebite HARRY S, TRUMAN LIBRARY Papers oF Stuart Rice Be The folowing 1s a tentative programming of inports for the fiscal year 1947-8. Tt was axa up after an appraisal of estinates of the Greck Government for current requivenents of essential foodstuffs, raw nateriels and equipnent required for maintenance of output of industry and agetoulture, and essential, equipaent for rovonstructicn and develop- rent, The esbinate of inport requirements, as noted in the Reconmenda- sions section on the Amount of 44d, was also conditioned by the fiscal position of the Governnent and the necessity of offsetting internal a! itary and reconstruction expenditures with imports of consumer goods to naintain monatary stability. While the imports of some commodities can be estimated vith no more uncerteinty then is inherent in most such figures, other imports will de~ perd on outside factors and oa the way the Greek econony responds to the aid supplied to Greece, The zefore the foLleving Figures for civilian Amports during th ‘iscal year April 1, 1947 to Narch 31, 1948 are quite tentatives s eg + Witlions of dollars Food 120 h Coal 10 Fotroleun Products B Clothing textiles inc, raw msterial. a Footmoar 8.3 Transport 8.2 Lumber 8 Metals : y Industrial raw materials B Industrial nachinary yu Medibal supplies 15 Miscellanesus 3 Reconstruction imparts 50 Agrioultual supplise a 348.0 ‘The progran will not provide a volhme of inports, in excess of that estinated for 1946-47. The estinate of $348 millifn of sports in theMARRY S, TRUMAN LTBRARY Papers oF Stuart Rice {F }t ao fiseal your copares with an average inport of $127 million in the years 1936-38, As the unit cost of imports has probably doubled since the Var, a comparison of $348 million with $254 million would be more realistic. Furthermore, the 193638 figure probably. dnclues cone inports of wilt tary material, uheress the 1947 figures do not. The problema in effective handling of Greek imports in 1947 are great~ fr than the figuros thonsclves would indionte, Difficulties growing out of destroyed ports, transportation facilities and warehouses are Likely to be overshadowed by those related to the programming, procurement and ; @istritution of imports. The bulk of 1947 inports wild not consist of ordinery comorce, thet ie norehandise purchased with Grock resources folowing through custonsry channels, They vill be norchandise phactically presented: to a country whose foreign and donestic comerce vas disrupted ly mar ~ to a countzy vblch has made but Linkted recovery in the two years during vhich IRA inports have sustained the economy, Tn 1946 uneontzol= ed imports through ordinary trade chamels, while not large in comparison with UMA tuports, resulted in quantities ef lunury goods in the Athens stores at, the sano tine mary near necessities wore scarce in Athens ond vittuslly unobteineble outside of the capital, If American aid ie to cot tribute effectively toard milding a self-supporting eednony, careful Planning snd ‘supervision of imports 4s necessary. Foreim Trade Adniniatretion In onder te control imports 4% is ossential that the Greck Goverment give broad povers over the programing and adainistration of inports to a Fotcign Trade Adiainistratton, ‘Tho contre) of dnports in Gresce, dependent fs St da on supplioe from abrosi; is so dnportait thet as’ long as Grocco 4s rocotving financial aid in largo aiounte fron the United States the control mist be shaved ty Grosse and the Anericen Recovery Kission, Theoa HARRY S, TRI | oF Rice Papers Stuart UMAN LIBRARY | at nan selected for the post of Administrator should have a detailed know ledge of Grock needs, As cn Amorican he will have some immunity from tho prasaure of Gresk polities, The Administrator and his steff, as omploycos of the Grook state, should be able to carry on the datly operation of a control systen with minimus irritation to Groek businnssnens Tho Anport program should be developed by the Foreign Trade Adainis~ tration in collaboration with the Mintstries of the Greek Government, pam tSeularly concerned with inports, and mith the assistance of the Amorican Recovery Uission, ‘The approval of tho Mission would be required before the progron would become effective. ‘The granting of Licenses for imports within the progran and other details of daily operations would be handled dy the steff of the Foreign Trade Administrater, In additiot to its funo~ ons jn relationship to dnporte, the Foroign Trade Administrator would have broad responsibilities for the pronotion of exports and with respect to the distribution of supplies purchased ty the Governnent. sol ‘The Greek ronange Rate A the prosent price-level in Grobe, the Arachne is substantially overvalued, Appraise! of tho oxtont of overvaluation and the degree of dajustment which should be made at this tine, particularly in the interest of stimiabing exports, is nade difficult ly the lack of information on prices and costs within Gresce, There 1s little date on Antemal transpor~ tation and tandting costs incident to exportation, and on present and po~ tentian narkots for many of Greece's agricultural producto. ‘the st{milus to inorossed exports fron a.change in the exchange vate Wilt probably be folt on nosrly all exports exaept olive ofl, Ae noted Glsemhere the Greek price of olive oil 4s far below the world market price because of the present enbango on ite expoit and honce en adjustacnt of ‘the exchange rate 1s unnecessary to facilitate ite exportsese : weny_s, sua Lremany | wee | Selart Rive j Ce dn edjustacat of the exchange at this tims is called for prinarily for the following reasons: (1) “It is inportant that every npetus be given to Grosk exports for the longer tera and that Groseé establish chen~ nels of marketing now vinile demand ts great for the type of eomeditics Thigh ave exporled, Rurthammore, ‘tho prices of Grae exports aro Likely | do suffer ralative to the prices of tha type of commodities inported and ‘the present exchango rate will Lecone progressively more difficult to raintain, (2) It is doubtful 4f presnnt wage levels could be maintained over the longer ‘term at the present exclange rate, even though wage rates have logged considerably behind prices. It will be desirable to change the exchange rate co os to forse as Little vage rendjustment as possible during tho period of resovery. Tt is recoamunded thst considoration be given to an adjustment of the exchange rate from 5,090 to 7,090 to the dollar, On the basis of the general pefee-levo] es compared with the United States and Britain, a sonethat greater dugree of dovaluation vould be indicated, probably about 8,000 to tha dollar, However, in recdmhending a rate of 7,000,the fo}- owing factors weve taken Snto consideration: (1) With the adjustment ‘of Tote duties, 9s recommended in the Chapter on Public Finance, a further gree Gf devaluation might ew the risk of cxe-cing considerable upward pressure on the prices of sone imported commodities; (2) in Buropean ant tiidale East markets, shich may be outlets for ot least part of Greece's niscéllameous agricultural outpot, exchange ralus aro in many cases out , . of "Line and this factor mist ho sighed in considering the, innodicte represusedons on thd Gres market of devoliiation. A In'view of thd unbértdtutiiss both du intornal! and extorel nerkots, 8% nay be doniribie to give consideration to the adoption, of a floxibls exchange hate as a tenporaty expedient ratuor than to change tke effiotel ,Papers oF Stuart Rice HARRY S, TRUMAN LIBRARY ~19- rate at this time, If thie approach to the grablen is adopted, the fol- owing pattern is reconnandod: 1, 421 exchange earnings would be surrendered to the Bank of Greoce. at the officiel rate, 2, Those surrendering exchango would bo issued freely saleable por nite which would entitle the possessor in effect to bay from ‘tho Bank of Grosco at the official rate @ portion of the foreign exchenge vbich he had surrondored, ‘Tho exchange purchsead could bo used for tho Inportation of cszontials under Liconsa, Such permits would be valid only for @ Linited time and vould net give the possessor tho right to hold exchange 3n his om nane but only to have paynont ffected for Liconsed inports through the banking systen, While a flexible aysten vould have certain advantages in the short run, Groace cannot held the 5,000 rate over the longer tort without severe adjustnents in the price structure, It gesns that a change in the official rato now chon largo Aserican aid is being extended is proferahle to adopt~ sig a tonprasy oxpediont to te followed ty a change in the rate some tine Jater. Anorican eid now being extended should enable Greece to overcons mnoortalnty and to maintain relative price stability chile the country ds adjusting itself to the change. wort Gontrells ‘he existing Grock exchange regulations provide in general for tue surronder to the Bank of Greece of all exchange earnings, toth from e+ ports and invisibles. The export of donestie and foreign ourroney and other forms of oxchango ie pormitted only under license from the Bauk of Grosce and the oxport of gold for private account ds prohiitted, Toth in ports and exports aro subject to License controlsPapers oF HARRY S, TRUMAN LIBRARY | Stuart Rice | I 29 - tn practice 4t appears that the exchange authorities obtain most of the exchongo frou lavful exports, Receipts fron smggling are, of course uncontrollable and thera 4s also sone loss of exchange through falsitica ‘tion of shipping and other docunents. Invisible carnings, of which renit~ tances are the cst inportant, escape regulation to a considerable extent, Little offort 3s made to obtain surrender of earnings on investments abroad. Tho enforeenent of controls on the export of exchange io weck. In fact, the prohibition of tho export of capital vas node virtually unenforceable by the frec sale of gold ty the Bank of Greose, Thora is also considerable outflow af exchange through the wails in the form of checks and drafts ought on tho bleck market, To plug partially the leaks of inflowing end outflewing the Goverment should atteupt to secure rogistration of the for eign assots of all nationals,’ and institute financial censorship of incon ling and outgoing nail to capture ronittances and prevent the unlasful out flow of exchange. ™ controls applied to the iapirt of goods are briefly ee follows! A Lisodse dosued By the Hintstzy of Yotional Beonony a9 well as a permit fron the Basle of Greece pertaining to the payment of the exchange is ro quired ty the inpimter, ‘Tho granting of Liconses ty the Ministry of Ha ‘onal Beonomy $0 node pursuant to the deciaions of the Inport Oomitteo, on which axe represented tho Bank of Grecce and tho Ministries of Coordi notion, National Toonemy, Financa, and Supply» The permits granted by the Bank of Gréeeo ore handled ty 0 epeciel Bechango Control Coapttteo, Peysont for Anports de node Uhrough the henklag ayston en the basis of shipping and other pertinent ocunonts dizoct to the exporter rother than ‘ubrough the Anporter, Tt has also boon the practice to pormtt tho Ampor- tation of goods under License in dngtmoes shere paymerit is nade with§, SHUNAN LIBRARY Papers of Stuart Rice } I ome funds held abroad by the importer, During nost of 1946, Licenses in such cases were granted frocly, bnt currently an effort ie boing made to tighten the control on the use of such exchonge by the Bank of Greece, Jn the case of export of goods, 1icenses axe also required from the Ministry of Nationa? Peonsay ond from the Pon of Greece, Satter transae~ tions as well 8 tranecctions provieing for yoymont tn exchango are under license. The pornits issued by the Bank of Greece, covering collection of the proccois of exports, designate the Greek honk to which the shipping docunonts are to bo oade cid tho bank this designated sssunen respensti= ity for rocatving direct poynent for the export, In certain snatances, the docmonts ore issued to the onder of the exporter or foreign anporter undor conditions deteruined ty the Bichange Control Goantttee to assure surrenter of the exchange. Tho granting of exchange for cepital tranafere, interest and dividend paynents, travel exponses, rentttanees, ond sinilor paynents is under the direct control of the Donk of Grecve, “AR), applications for such paynmnts are currently treated on an Andividual basis. In enforeing the rostrietions on tho export of exchange and gold, all travelers are required to declare their otsots upon entiy ints the comtey and upon exit to provide certificates stoning the eae thsough axthorieua channels of ony exchange disposed of in the country. Tn goneral, the nechanist of Gresk controls is reasonably adequate, though onforcoaont has been Lox and above all the poldetes thich have giv= erned their application have resulted in a squandering of exchange assets. Tor this latter recsoa, we have recomended that the control. of oxporte and imports be contralized under a forcign trode adninistrator.a aR 5, Teun Lapeany | Papers oF TE He 1 GOVERNMENT ADUINTSTRATION ‘The present capacity of the Greek Government as a functioning organt- zation mist be considered in connection with any study of economic recovery in Greece and administration of Anerican aid. Government administration must be greatly improved over that of the present Sf Greece's recovery is to be directed adequately and Anerican aid is to be used effectively. Under the parLianentary aysten, governments replace one another with alarming repidity and ease, Tt may be that this system is not well aapted to the needs of a country in which political parties are mmer- fous snd consist prinarily of personal followings of political leaders. ‘There have been seven changes in the Greek Government since Liberation, Obviously, few of the cabinet ministers have been long enough in any post to permit then to acquire more then a speaking acqustntance with ‘their jobs in the Governnont. . 4 Prior to the Sar, a rapid turnover in ainisters did not necessarily jeopardize in an important degree the functioning of the Governnent pecause there wse in each ministry a permanent staff of trained and capable civil servanta who were quite able to carry on the day-to-day operations of the ministry, and to lend s considersble esgree of contin~ nity to the operations of exch ministzy, The war and the occupation, however, have had 4 disastrous effect on the civil service, Today it Ls overexpsnded, underpala and! denoraliced. ‘There are instances in which capable pereons have retained jobs and continued to do them well, but| HARRY S, TRUMAN LIBRARY Papers of Stuart Rico -2- these are rare, The many shifte in governmont heve lent an air of political insecurity to all major government posts so that the disorganization within the ministries hes rexched alarming proportions. Furthermore, the nunber of ministries has been expanded as each government avanded nintetertal posts to political leaders in order to obtain the support of their personal followings. As a result, the locus of responsibility is frequently aLrti- cult to determine and there 1s auch overlapping of functioning, Substantial governnont, reform will, of necessity, be a slow process Dut tho need for Lt Le such that the project should be unfertaion st once, Jn addition, thers are innediate steps which should be taken in ander to assure that the American aid program results in a aoxieun of benefits to ‘the people and to the economy of Greece. Q vi ‘The civil service in Greece consists of the aduintstrstive personnel of the ministries, the jndicisry, the police and the staffs of sone universities and institutions. Before the War, St arounted to 53,000 and now has risen to perhaps 80,000, The Givil Servants tutual Assistance Fund Organization estimated 74,000 on December 31, 1945} the governsint budget for 2946-47 was based on a strength of 85,000 This variation illustrates the lack of accurate informtion on the numbers in the civil sorvico, their pay and fumctions, and this lack of informetion in tum iMusteates the condition of aisorgantzation in the govomnmont as a whole, During tho War, civil service jobs wore handed out as a form of relief and during the disorganized post-war period they have beon used as politienl rewands, ‘This "recruitment without regord to educational or other necessary qualifications has resulted in both an unneceseeryHARRY_S,_TRUMAN LIBRARY Papers of Stuart Rice Increase in the rolls and’ a lowering of the standard of porsomndl lost of the pre-war civil servants are still in their old posttions, and alsost all of the newly eaployed persons have been given only tenporary arpotnt ents. ‘The following table submitted by the Greek Government shows the nunber of civil servants by departments in early 1947: Euployees Serv BSE Parliament 1a. 9 | Finence 8648 964. 105 iain 61 Coordination 7 7 3 i Foreign Affairs 107 45 L B Press 69 Bb Justice 4095 860 est vt) Interior 808 126 2 Bh Tiblic Security Poltce 365 m6 Gendarserie 230 82 Fire YW h Rural Security Police 842 5 i Supply 962 108 me x 167 8256 Public Norke 759 29 839473 Heconatruction 63 pt 185159 Post, Tel., Tele. 1955 4 595 ‘Transport 109 4h 125 3 Education 23549 990 42 1871 Nafionel Econeny 552 107 3 Tourisn 69 n A 7 Labor 220 4 1032 Agriculture ear 82 1908 620 Welfare 3125 43 leeaetT6) Hygiene 686 207 5 2068 War 261 227 2303 Navy 2h 6 2B sr Force 50 5 ieee 3 Mrcraft Meg. al - idoreantile Marine a - 201 } Conetal Navigation a a Totals 54477 4607 1360 4847 18335 ‘the dase pay of the civil servants ranges from 80,000 to 250,000 rachis per month, The table of monthly salaries below shows the comprri- son batween pre-war and 1946. It ie notable thst the higher grades have ppenne niin ‘HARRY, Papers 0 Stuart Rice TRUMAN LIBRARY 74 suffered relatively more than the loner ones in the decrease in dollar value of wages. 250,000 80.42 50.00 200,000 62,30 40.00 Director-General, Director, Let.class Section Ghief, Ist.class 370,000 49.83 34.00 Rapperteur 145,000 36.42 29.00 Secretary, 2nd class 325,000 30,11 25.00 Attache 10}000 201892200 100}000 18,21. 20:00 95,000 12.93 19.00 30,000 7.67 16.00 Clerk, Ist, class Usher, 1st. class Usher, 4th. class ay th dollar at 120 drachnae (prewar), 5,000 arachmae (costwor). In addition to the base pay, there sre numerous extra enclunents which supplenent the pay of all civil servante to some extent and of certein high officials te a scandslous extent, Thoy are: a) Family allowances up to 25% of base pay, b) Longevity allowances up to 25H of base pay, ©) Allowances for service in Northern Greece’ - 15% of base pay, 4) Overtine pay (received ly 25% of civil servents), e) Fee of 5,000 Drs for each attendance at a connittes meeting, 1) ‘Travel and other expenses, g) Allowances to officers on loan to other ministries, h) Bonus of one month's salary at Christmas snd aster, 4) Bonus of 100,000 Dre. per month February-itarch, 1947. ‘This hedge-podge nethod of paynent which hqs groun up in nnsver to demands for increased wagea is subject to many sbusee. No one hes s clear idea of how mich civil servants are receiving, but it seons probable that a fem receive 2s much as four tines their bass pay. The paynent ofHARRY $, TRUMAN LIBRARY Papers oF Stuart Rice -5- connittee fees, vikich are received by only the highest offietals 12 a particularly vicious practice; 1t is reported thet 2% of the civil ser wants receive 200,000 to £00,000 Dra. a month in thie miner, 5,000 Drs. are collected on the spot by the officials as they make the rounds of their countless, unnecessary committee mestings. ‘The system of over- time pay favors 4 fow eategorios of offtotels in Athens over the erent SF Tn apite of the wary aed emoluments, the bulk of the elvil servants do not receive 4 Living wige, The constant denand of the civil setvante for higher pay, which bas roccntly been answered by 100,000 Dra. tense ver month, constitutes « serious threst to the government Mager. the present civil sorvice 4s an incredibly Sneffective orgateation, Tt exinot be depented wgon to camry out the most obvious functions of overinent, svoh ne the collection of taxes, repair of ronda and sdaite satention of ecoronie regulations. The work in Greece which in nota) tines would be accouplished by tho coLleclive ettorts of aoctety - the goverment = ts to a large extent simply not Belag done, ‘he inotfootivonees of tho ctv service 4s ave to 4 number of Enctors, One of joe is plain incompetence, Host of the 20,000 or 30,000 whe have been hired since the beginning of the War are Lacking in qualifications, and many of the older etvil servants sre also unequipyed to porforn their duties, In sone casos, this incompetence could be rectified ty training, but in others the persons are inher ently untit for thoi work. Hovever, the incompetence of sone civil servants should not be interpreted 26 menning thet the whole civil service is bad, for there “ia an intelligent, experienced and willingnnn ein HARRY S, TRUMAN LIBRARY Papers of Stuart Rice eee ato nucleus which with training end erection could efficiently carry on the work of the Government. low pay undermines the otvil service moze than any other single : factor. The civil servant feels Little obligation to an employer who seers and seamen, and far Less pays less than the wages patd to Lab than can be errned in most sinple businesses. Since he cannot Live on his salary, the clvil servant usually has an additional way of earning soney; low yay decreases his efficiency in his government work and seri- ously jeopardizes his integrity. Mile most civil aervante havo renained on the rolls in spite of the low pay, there ias been no incentive for able people to join the ranks, The unduly short working hours of the Government - sornings only six days a wock - have in themaclves teen a cause of inefficiency, 33 hours 3 neck is completely incongruous with the 40 to 48 houre put in ty other workers in Grocce and far too short @ tine in which to aceon plish the necessary work, > ___lnck of strong and clear direction from above results in inafftetent uso of shat Little ability now exists in the civil service. As pointed out above, ministers cone and go st such a rapid rate that they have no time to becone fantliar with thelr organizations or to give intelligent backing to their flountoring subordinates. A consoquence has been that nost civil servants will take no responsibility for even the smallest detail, If Greece is to make use of its own resources in recovery, the Government mst fvLfi11 the normal functions of a governnent. This requires able and willing government employees in all positions fron planning staffs to rural tex collectors, at present the firet and mostHARRY S, TRUMAN LIBRARY | Papors oF Stuart Rice ae serious difficulty met in accomplishing any progran or reform in Greece rk. There 18 no body of intelli- ist lack ef enyone to perform the gent people to turn to for plans or staff work; there is no honest and hard-working group which enn be depended upon to enforce economic con- trols, collect taxas or adminiater a reconstruction program. . The need for reform of the civil service underlies all of the problems considered in thie report, The sany measures reconmended bere- i in simply cannot be carried out unless the civil service is a more effec tive ody than it now is, i Many of the needed reforms are obvious: «minim of 20,000 ungualified and unnecessary employees should be discharged; the method of payment should be siaplified; salaries stiould be raiosds trating of workers should be initisted; political interference in the civil service should be eliminated and aerit made the sole basis for selection and promotions and houre of work should be*increased. ‘The exact changes thet should be made and the method of carrying then out cannot be determined without a conplete examination of this 2 civil service problem. A group of American public almmotresion experts should study this problen in Greece and recommend the noces: measures, A complete study would probably take four to six nonths and would requize scrutiny of the functions of ali ministries and governsent services but Interim recommendations could be made concsraing steps to be taken at once. Since the pay scales of the armed services and the civil service hava always beon related in Gresce, the applicability te the armed forces of the aysten worked out fer the civil service woulé also have to be considered.rpc 8, mur saa | Wait Sg 1 Stuart Rice Under the perlianentary forn of goverment which extets in Greece, cach minister is a nesber of Ferliasent, having been elected by sone con- ctituncy. As suggested atove, Iie following 1 largely personal so that hts personel popularity 48 his principal political asset. Accordingly, each minister is constantly avare of the necessity of standing for elec- tion end of the fact that his ratum to Ferlianent depenis nore on his personal contacts and popularity than on the kind of @ job which he has “gone as a cabinet minister, The result is that the ministers conduct thetr own offices in e manner wich 4s Htersliy amaelng to any Anerican cbserver, enters of the public are not met Wy appointment but, rather, have access to the minister's office at virtually sli tiers. Large cronds are to be found in the offices and outside the doors wal ting to get tn, “hispered conferences are held by the mintater with whoover happens to be nesr his deste as the crow revolves, “hen this procedure is coupled with the fact that there is s“wintmun of delegation of cuthority, it i9 understandable that the aintetrios are able to furetion almost not at all, Of course, this difficulty will be corrected in tine 5 the chvil sorvice Improves and as capable permanent employees become wore numerous. evertheless, there is no rosoon vhy a substantial improvenont in the situation could not be achieved at once. Unified action on the part of the Goverment to organize mintsters! offices and the selection of a fon capable operating or exucutive assistants for cach ninister would do much to iaprove the effectiveness of the ministries. Regresnisataon of the Sovernuent Prior to 1911, the Governnent of Greece was mde up of 7 ministries,HABRY S, TRUMAN LIBRARY Papers of Stuart Rice -9- ‘They were: ‘The Winistry of Finance ‘The Winistry of Justice The Ministry of F The Ministry of Interior The Winistry of Bducation The Ministry of Tar The Ministry of Marine In 1912, Mr. Venizelos added the Ministry of Nattonal Economy. Tn 1918 when lands were distributed to the peasants, the Ministry of Agricelture wis added. In 1922 when Greece faced the problem of arsanging for the settlenent of 1,500,000 refugees from tata Minor, the Ministry of Social elfare and fiyglene was added. Fron tine to tine, since 1937, other ministries have been organized. They include the following: ‘The Winistey of Merchant Norine Tha Winistry of Labor ‘The Winistry of Tublic orks The Winistry of Transport ‘The Ministry of Fost, Telegraphs, ‘Telephones The Minietry of llr The Ministiy of ZubLic Order ‘The Ministry of Prege and Propaganda o The Ministry of Supply ‘the Miniatry of Reconstruction The Ministry of Politics Coondination The Ministry of Goordination In addition, as many as 7 Governors General hold the title of Minister, At one point as many a 40 ministries existed. hen Ur, Hexinos became Prine Kinister in February, 1947, he reduced the number of ministers by giving mltiple titles to the ministers who snde up hia government. He thon appointed a comittes witch was charged with the responsibility of presenting « plan for the reorganization of the Goverment. lr. Mantaavinos, Governor of the Bank of Greece, mas naned chairman of the comittes and representatives of The iintstry ofae tit Papers oF HARRY $, TRUMAN LIBRARY | Stuart Rice i | -w- Finance, The Government Economic Counsel, The University, The British Boononic Mission, and of The Anerioan Beonomic Kission made up the com mittee, ‘The committee recommended that various of the ministries be abolished end that their functions te transferred to the ministries which were to be retained, the ministries to be retalned vere: The Ministry of Finance The Ministry of Interior The Ministry of Justice The Ministry of Education The Ministry of Foreign Affsirs ‘The Winistry of Wationel Defense (to include the functions of the old ministries of far, Herine and Air) ‘The Ministry of Public Yorks ‘The Winistry of Comminicetions (to include ‘the functions of the old Ministry of Trangpart and the Ministry of Tosts, ‘Telegraphs, Telephones) The Ministry’ of Wationsl Beonony The Ministry of Coordination The Miniatry of Agriculture ‘The Ministry of Social “elfare and Hygiene The Ministry of Labor The Ministry of Public Oréer There were also to he three Governors General instesd of 7. | This commttes filed ite recomendations with the Trime iinister but, to date, Lt appears that no action has been taken. "hile s mere roorgani- sation of the government in this frshion and the mere redesignation of the ministries will not by itself achieve substantial improvement in the efficiency of the Governsent, nevertheless it is a necessary step ané will bear frult ne the condition of the civil service improvesHARRY $. TRUMAN LIBRARY Papers of Stuart Rice } ; ho policy, AAs an exanple of the situation an inquirer nsots, eriticton 9+ tvequently directed at the merchant class for the Yarge profite whfeh ‘they obtain from sales of mazchandiee, while the merciante thenselves contend that business usar strict Government requletion ean sceresly ve coniteted at a profit, ‘The (sconelusivenses of much that, follons results @troctly from the foct that the data avafleble peruits only road genezallzations, Sono form of price contyol has heen in effect in Greece since 1915, The curriculum of the polos schools liao, since that tine, con~ tained 2 course 4a prico checking avd the Govexment has boon authorized to Linkt excessive profits, The purpose of this progran tas been, and Se today, the prevention of excessive profiteering by individuals, Tt dn nob a progran destgned to afteot the price level goneredly, At tho retail and wclenale 2evele, te Governnont uniertales to prevent excessive prices in iyo ways, For nany Sapyrtent food ttans specific votail peices are oct ont Dalletins are fswved at frequent Sn- tervals by the Ministry of Supply. Other focd sbnan and most stens of textiles, clothing, hardaaro, lousoware, ote. eve aubfect to narein coatrois, Orders loawed ty Ube Ministry of Supply apeelty maximum mer- gins to be used by rotatlors ent wholesalers in conpiting prices for this noronantie, sane controls are allogediy enforced by unlfoned aartot police, of wich thers are 124 tn the Ltheas-Firaous area and aouo 5 oF 6 in each district or nomos in Gresce, Ths market police supposedly make regular imcotigattons of prtoes charged in retail stores ani follow upne ae HARRY S,_ TRUMAN LIBRARY Papers oF | Stuart Rice conauner complainta, If food prices specifically established by the valletins ave involved, the selling price (which the retailer is requir ed to post) 4s checked against the bulletin, If comodities under nar~ gin control are involved, the police eolect an item, request the invotes, and chook the margin betweenthe povted price and the daveies cost to the retetler, If prices are nproper under thase tests, or if no invoice can be produced, the retailer 4s summoned to appear before a speciel court which handles price violations and violations of the pare food laws, If the wholeeale price on an invoice appsars to be excessive, ‘the market police make a sint{lar iavestigation of the wholessler. Te should be pointed out thet the margins allowed under these oniers are low by Auerioan atendaris, In the textile field, margins are 30 percent oa cost or lower; in other words, 23 pezeent on retail, or lesa, The highast mark-up allexed at wholesale te approximately 10 percent on costs. The effectivenene of the enforcendittof these controls of whole- sale end retail prices is the subject of considerable disegresaent, the view 4s gener \y held that the costrols are meaningless, the bolder being thats none bub minor offendoxe are hailed before the bar of justice to answer for overcharges, 9a the other hat, @ tour of stores with ‘tho uarket police appesira to @lsclose foal prices in Line with prices in the published balletine-and sargins in Line wich the sargine sje.:f2el 4m the orders, The discontent with (he oysten uiloustedly stems fron the fact that the price Level, ia spite of those controls, remains ex- tremely high, largely because of the weakness in, or absonce of, con- trols at the prewholesale level,HARRY S, TRUMAN LIBRARY Papers oF Stuart aie Controle on prices charged by importers ere supposed to be stntlar in nature to those dmposed on sales by wholeselers ant retailers, tut enforoenent in this area coene to be even lees effective than at Ube rotedl Level. [Ab the nancfacturing level the principal controle relate to the price of cotton and cotton textiles, The Cotten Control was foneslly instituted vy Government Boonunie Counsel dearee on Way 28, 1946, Tks purposes were ‘the lowering of wholesale prices for cotton textiles, the establishment of @ fiom price base against which tha market police could check retail zrices, ‘the prevention of hoanting of cotton goods, aed the promotion of operating efficieny in the industry. Bfforts to institute controls made slow pro~ gross, A price for indigenous colton waa nob fixed until efter, long do~ bates lasting util September, 1946. Efforts weve made to obiain cost data fron mills bub collection of this information had not boon comploted until Jemary, 1947 and, even then, the information proved to be unbelievably accurate, For instenoe, costs for the eque cloth constructions varied ty over 200K and 1b developed that the preduesr who had reported the lonest: copt figures had omitted 37% of his produstion, Ag conte cane in, however, the Cubten Yonivel undertook to establien does for spacifle iteus, Those prices hava bsen reduced frou tine to tine a9 reductions in the price of yam were achJeved, While sb is gem ally belleved that the prices established by the cotton control are mich higher than nocd be, neverlheleso 4t is felt that tho coatrod has sorved a bonsficial purpose and thet effarts to umrove 4% should be contimed, ‘The UIRRA index indeates thet during the last hel? of 1946 textile peleos declined rather substantially while most other items in the iniex wont up, A major factor th thie decline was that transportation airfl- culties provented the ahlpuent out of the sthens-Piraeus area of any sub-HARRY 5, TRUMAN LIBRARY ‘Papers oF 1 Stuart Rice aoe stantial anount of textiles so that the market in that erea was flooded. Honover, there is a very real possibility that the cotton control. played ‘a part in causing this decline. ‘Tere are many reasons why a price control system such as that which ras enployed in the United States would have been, ani is, impossible in Grevee. First, the incompetence of the Civil Service is en important fac~ tor. A sophisticated system of price control could not be establiched by an untrained Civil Service and it could not be operated after tt was once set up by a Civil Service which was grossly underpaid and, consequent ly, susceptible to corruption, ‘ Second, the lack of statistics, both in Government and in business, constitutes a eajor handicap, Thadequate inforaation 1s avallable for the determination of (1) price novesonts and the necessity of controls in specific arens, (2) potential danger pointa in the price structure, (3) the proper relationship of wages and prices, and (4) rolated natters necessary to the planning and operating of en offective price control eylitem, Within business enterprises no records are available indicat~ ing pre-war or normal mark-up practices Which gre inflspensable to the selection of a fair set of ceiling prices. No cost accounting systen oxists which can be used to dotermine the base to which mark-upo are to be applied, yet all prices for manufactured goods must, in view of i ‘the anount of inflation which has alrealy occurred, te set by the cost plus method. 5 1 ‘Third, the attitude of the people stemming from the occupation and the prolonged experience of inflation, must he reckoned with, After i four years of occupation, during which the extent of discbediunce ofHARRY S, TRUMAN LIBRARY Papers of Stuart Rice Se ob Government edicts mas an index of onole yatrictisn, respect for or a ching, The pr desire to comply with "police! measures 1s totally pensity to hoard, developed during this period and during the periods to control prices off inflation, alons readers Covertent efor! telly tnpossible, For dusouutration one neod only Lock to the fact iat the Varveressca efforts to control prices ware defeated by a vir~ tual Blockade of £thens In the middie of 1945, or to the fact that no effort to contcl prices of olive oll, an item of major iuportancs da i all for fear that the aiot of the avorege Greek, 48 currently made Be wit) totally disappear fron the market: nop of te fact thats is in anplo supply. It must ellso be rononbered that fear of an in~ vasion frox outsige or of ags-eseful Communist cp has been @ major factor conditioning business Uacistons in all segzenis of the sconoay structure, and has teuded to promote fastabiltty in the pric Boaring Sn mind those psychological factors, ib ts necessery to conclude that a reletively weak Grooit Guvernent is not ina posi- tion to uso dinset nothods to control prices, Rent Gent: Ront control hae been euecessful in Grooce insofer oe tenents who were oocupring premises at ths baginning of the war are concerns. » vent control has undoubted In fact, with the Inccease in obber pri ay worked hardship on the landlord cles. Tt hes probably been allowed to rennin in ite present fura largely because the conditisn of yovarty lin which the civil servante and vage carnere have Lived hes mssnt that an extremly strong rent control policy was necessary if theso people wore to be provided with shelter,HARRY $, TRUMAN LIBRARY Papers of | Stuare Rice tio controls exist, hovever, for the protection of new tenants! Since techniques are available for deterntaing fair rentals of property nob previously rented, it seens clear thet this gap should be £41led, ‘tue disparity in rents betwoon property of this character and property: rented before the wer is extrensly berdancone on new tenants and the wi- fairness insofar as the Jandlonds are concerned must ultimately Jeopar~ ize the oxisLing eoutrol, Hage Controls 1A system of wage controle Insofer as industrial workers are con corned is seid to exist in Greece, Decrees and anders hsve been dosued establishing rates of yey for various Jobs, lowever, these oxders’ have beon honored solely in the bresch, Bnough methods of evasion have been developed to werrant the statement thst the current wagecoutrels eve totally devold of effect at thie stage. Th is mt ab all clear thet an effort to xevftelize these controls ould be pecductive, Rather, 1t would soua that en effort should be node to dorelep a mdlatton service whtok canto ef wo in hastening olution of the 1abor manageneat conflicts which wil2 unloubley ae ee Une daeriean aid progran 4a in full owing Inventory contre, in spite of tha aptitude of the Gresk buoiness uen for hoarding, and in spite of the absence of suc.rds by which nomuel. stocks or norael wosklag inventories can be determined, iv would oesa that @ rough ant ready methol of inventory contro, to be usod as an anti-hoarding measure, could be devised, and that such a neasure would have benefSo HARRY S_ TRUMAN LIBRARY | Eapers of Stuart Rice t -8- efects, Thoro 1s a widely held bollef 4m Greece that substantial hoards of important essential commodities are currently held by businesses ani by dndividuals at the present tine, If these goods could be foredd onto ‘tho market, it would toni to reduce prices. Barlier efforts at inventory control have failed for lack of en- forcenont, Tue controle were too complicated, called for too mich paper work by the Governnant, and were unloubtedly too drastic in éntlfel tm- pects 8s @ subshitute for dnmediate use, the following plan de suggect~ ed, A law should be passed ty FarLtanent making illegal the possession or omership of « supply of any commodity ina list of designated commodi~ ties Af the supply held or owned 4s in excess of the reasouable minimin working requivenents of the busizess of the holder cr omer, ‘The law should also provide that on ani after a specific’ date in the future tne Jaw will go into affect, bub that no individusl will be deemed to bo In violation of the low if, by that date, he bas sulmittel a List showing excoss inventory of the comoliiies on the List, chocked ant approved by a uenbor of the market poles, and 4: Wo thereatter proceeds to 14gut- date his Inventory at a glven rete (for tnstance, 14%) per monty No statonent of inventory would be required of any parson those inventory 20 not in excess of the reasonable xequinenents of his business. The eane~ tion would de goveriment confiscation of all inventories held in viols~ ton of the lew, i Such a plen could be en ffuctive snetsuban! to control hoanding 4, i first, the list designates counuditites which are carefully selevted; ex cluding any itons closrly in exeves aupply} and sacoad, 2f enfoxcenent 4s Linited to clear cases of viclaticn smd is, for these cases, swith Of courss, 4i such a program wore undertaken, ib should be preceded a = ay “ —— 15 HARRY S, TRUNAN LIBRARY Papers oF Stuart Rice I = with proper publicity, explaining the purpose of the program, the effect of hioanting on the econony, and the necessity that Greece uske the full~ est use of Zts own supply of goods, Sonclugiona Ge ie apparent that the problew of dnflation in Greece cannot be selvad by direct controle, Rather, its solution depends on foreign ‘aid which WIL furnish needed suppliss cf gools and balance the butgst, of some measure of oo% and on the reburs dence in the political sacur- sty of Greece Ooviously this solution to the probles will not oocur over might. In the intorin, direct controls, Snelating auti-nrofiteering end axtt~ hosrdisig meseures, can serve a useful econonfe porpose ani will be of real Anportence for octal and walforv, not to mention political, reasons, Toraxd thase eats poleaoastcl should be inprowed, basause it can do much to alleviate the aituapion in the interim and to hasten recovery in Greece. ortsinly, contiuiatson ant Inprcenent of the ‘ston Oontrol can be of dnportange in ihe immediate fubure ani can rosult an long turn boneftt to the inlusty, The instlintdon of an affirnative anti-hosniing campaign caa hake, Woxever, any major ef forts by the {erloan Recovery Kission te Zastitute a soputsticated eystom of peice control in Greecs will undoubtedly be dooned to fetlure until the situation de well on the way to & ection by broadar soabazes, |ae HARRY S_ TRUMAN LIBRARY Papers of | Stuart Rice Recovery for Greece will require the reconstruction of the country's var-danaged property so that normal production, aatesbution sid coneree can resume, Tn addition the further developeent of natural resources and related industries should be undertaken to dnerease snploynent, to raise the nations) incone and to elininate the persistently unfavorable balance of trade which characterized the pre-war economy. sme first efforts at reconstruction since Liberation have been handicapped by uncontrolled conpetition between Ministries xt Departments for thp lergost possible share of the Linitad finds available, This i hs resulted {n such @ thin distribution of funds that there has bean | stele accorplished. reaver, there has been an alzost complete lack of coordinated planning of @ realistic resonstraction progres, Ta an cétort to renedy this oituktion tho Gresk Goveranent, in Jvhy 1946, j estettishod a Board of Reconstruction to act sn an advisory capacity ‘under the aupervioton of the Minister of Coordination. This Board, composed of enginsors eni ecoroniats, was dispeted to work out & Jrogran for the rehabilitation from wir Ganaya, as well a2 for the development axa exploitation of the protuctirg resources of the coutry. ‘The Board of Reconstruction has served a udeful purp clearing house for Greek reconstruction needs, Unfortunately, however, pechaps because of ito troad terms of reference, it hes placed exphasis on @ long-term progvaz and neglected inaodicte and essential needs. ‘The long-tora program 4s sonovhab utopian in character and envisages a vast expansion of pre-war public works facilities without having First established their oconomio utility. The first five years of thisem HARRY 5. ‘TRUMAN LIBRARY Papers of | Stuart Rice 12 I progran include plans mich relate more to inprovenent than to recor struction, The Boordts estimate of cost for their five-year plan anoiints to £2,169,931,000. Te de ovident that the progran of the Board of Reconstruction ts unreslistie from the standpoint of axy financial resources available to Greece, Tt ie also clear that the country docs not have the capacity to absorb expenditures of this magnitute in the Une involved. Tha Mesion, therefore, revised the Board's progren ent suggests alternatives consistent with the finmetel support which aight reasonably te available, i Jt has undertekon to Linit the program to projects which are essential to a resunption of normal production, distribution ant commaree, These \ taoslsiee will, tn genre, fl Sn th follorng coopers (2) Transportation (roads, veilrosis, ports, canes) | (2) utsiities (power, telephone, telegraph, rater supply’, senego) ] (9) Beste industries (fertilizer, textiles, food processing, mining, oto.) | (4) Agriculture (flood control, drainege, irrigation) (3) Housing. tn estianting th coste of thie revised progran, the Wiecion has bean compelled to rely largelf on deta prepared by the Board of esonatruction. Dos to the absence of reliable prisent-day cost data, 42 yas nocescaiy far the Hosrd to bese its estinates on ktown soste of 1978 atjusted ronghty to cunvent prige-Jevels. The estimates assuned thot the prices of orpital oguipnent ent supplies purchesod chroot ould be about dovble prevnat and het tuterns prices for supplies ind Tabor would bo about 145 tines pre-var<(On these assuaptions, Lees ‘costs expressed in dollave are the oqiivalent’ of ,ebout, 8,000 drachmasHARRY S, TRUMAN LIBRARY Papers of Stuart Rice per dollar.) While prices in the United States have not rison to this extent, i mist be realized that many of the 1938 prices vere for German products and wore considers! bolow the then provatLing United States peices. Giving consideration to this fact, it is believed that the assuaption that dollar costs will be twice the 1938 dollar equivalent 4s a reasonable one. Tho estimated increase in drachne costs appecrs reasonable on’the basis of the prico date availebie. Te should be eaphasized that the Wission had no opportunity to make a dotatled check of the Bond of Reconstruction estinetes. it did, hovever, make spot checks whenovor possible, and is of the opinion that tho cotinates are sufficiently eccurate to afford a reasonable nocsure of tho magnitule of the reconstruction projects Solved. Recor ‘tho program of reconstruction ~ not including development ~ which tho Uission believes could be effectively carried out during the next five years Anvolvos estimated oxponditures during that period of about 4260 sition. Of these eotinates {151 atllion represente verte in | Greece end tho balence of {109 million is fer foreiya equipwant, | Jesterials and eupglies. A treakiown of this program showing evtimated Looe) and foreign coste by eatogories for each of the five years presentod in the scconparying tabulation, A nore detelled discussion of the principal elenonte Wthe progra Aa given in suhosquent sections of ths chapter. Te 49 ouphesizod thot the Misston's reeoastrvetion progran is girectod toverd tho nost essential restoration, Taken lone ib il definitely zat pesut in a complete restoration of gro-wae conditions, Wut 4% de hoped that 26 WiLL Laprove he present situation 0 as tg permit iaportant cupplomentery efforts on the part of bothHARRY S, TRUMAN LIBRARY Papers oF Stuart Rice h : ee ‘the Greak Governnent atd local industry, particularly éuring the latter part of the five-yerr period. Funds made available for reconstruction in Greece should be vised, : for csrofully selected projects end purposes. Tho dissipation of funds An snall anounts epread over many projects will net result in eny real benefit to the Greek econory. The gelection and schaduling of projects should be undertaken by board of economists end ongincora, dncluding roprosentatives of the unoricen Kecovery Wiasion, which would give duc consisieretion tor 2, Essentiality of projects, . Eeononic bonofiite to be derived, 3. Estinated cost as compared +ith available funds, 4s Relationship to entire reconstruction program. The Mission 19 of the opinion that such a selection and echeduling would j probably give high priority to the follewing préjects as yielding the greatest immodiate returns: “a | 1. Permanent recénstruction of important scctions of roeds * in all parts of the country, selected on the Basis of traffic, population and evatlebility of otker transportation, . Restoration of bridges and tunnels ofi the Athene-Selonika, Salonike-Gnevgheli and Plati-Bahessa Railroad lines, 3. Supply of aotive power and rolling stock for the present : needs of the railroads, Necessary replacenent, bf rails and ties on restéred yailroed lines, . 5. Restoration of escontiel facilities at the Ports of Piraeus, Salontka and Volos in the order named,ee HARRY S, TRUMAN LIBRARY Fapors oF Stuaré Rice : 36 6 Restoration of tho Corsnth Canal, insluding @ high level bridge or bridges for roed and railroad service, 7. Restoration of flood control, drainage and terigation works in tho Saleniia, Serres end Drane plains. fo pointed out ecrlier, econonte health in Grevce will ultimately depend on a furthor developsent of the country's resources. This vas recognized ty stutente of the Greek eoonouy before tho War and efforts vere ade at thet tine to initiate projects for the expansion of agriculture, the development of water power, tho oxplettation of i ringral resources and the establishsent of certain basic intustries. ' ‘These efforts, in most cases, resulted from individual enterprise t ooking spectal conevesions, but there wes 4 conspicuous lack of over all planing as to how the resources of Greece could bost be used. ‘The presont Greok Government rocognizes the need for such an over-all t study ani provided for it 4n tho terns of reference to the Board of | Reconstruction, The actual investigation, horever, was entrusted to a special comittee of UNRA. The work of thie comittes is still | in progress and therefore its final conclusions are not evallable to + the Mission. | r Tt is expected thet the UNARA staiies will provide e comprehensive enslysie which will indleate {ela of development offering the grentst t i pecnines Tt mist be realised, horever, that oven thesé'studtes will Probebly be inconclusive with respect to any pértiouler project or grou of projects teoanse of the Inck of definite experience sna k relisble data in Greece on these matters. Consequently, there will be 4 need for more dateiled investigations ty United States irae with specteltzed experience sn the flelde to which the nore pronising projects relete: aeee HARRY S, TRUMAN LIBRARY Papers of stuart Rice Dyzslopaent« ‘The liasion believes thet tho prospects of further development in Greece offer real opportunitive. Tt fools, hovsver, thet the musber of projects which have baen sufficiently tested to varrent an innediate undertaking Lo relatively onall, It also feols thet, in view of the agency of basic reconstruction, eny immdiste development progren should be Linited to projects which heve sufficient prospects for Anproving the goneval ceonoay of the county to Justify diversion of funds fron reconstruction of esgontial feeilities, ‘Those projects should be subject to the apzroval of the Auerioen Recovery Mission bread on satiotactory evidence of thoi technigal feasibility and ocononte Justification. In view of the forogoing; tho Wission has conelutod that only Limited funds should be mede aveileble for devslopnent projects tn the Annediate future, There exist posaibilities of expanding flood control, | | Arainege and irrigation works to inergese foo] production, Modernisation of mining mothods smi the further development of 2gntte may be tritteateds Tt may te possible to initiate one or wore of the propos hydroslectric schomes. But in the absence of tore complete conclusions, tho Mission has assuacd that invostaint in development projects during the next five yeas will not erceed .75 million end thie amount has been included in the cocompanying teble showing the estidated five-year cost of @ minimum reconstruction end development program. Thie doce not meen that Jovsl Gresk resources and properly ipervised private concessions cannot be used to a greater extent to facilitate Aoveloprent. Much til] depend upon the use siade of fareign assistance If Greece takes fulld advantageoe | HARRY S$, TRUNAN LIBRARY Papers of Stuart Rice aos of the opportunities inkerént in tho recovery progran, both forodgn and tecel capitol can be used for dovvlopnent projects considerably in excess of the saount ineluzed. Further, © continuing review should te asintatned ovér the progress of reconstruction and recovery 4n order that addtional dovelopsent projects can be considred An tho Light of Grosea!s capacity to program and absorb them. ven the reconstruction and developmont program ovtlined heroin s11 reguive an anzvol voluro of construction work Which could overtax tho planing, ongantzation ond construction capacities of the Greck anginoere snd contractors. 1% asoura tho £ui1 effectiveness of thie progran, ‘horefore, 12 will bo essential to employ United Staton and other foreign engineering and construction firms to the greatest possible extent in the planning, Investigating, designing end butlding.coqoat sunosd 04 uotsexosser ayetdmeo 2 epyosd sou TTT weuBoad Juyytusex ayy “Fuysnog pus sHeos go uot ssxoIses soy popoot oq 92 Peveuyaee spay ays Fo Wopsonpos Lrmiqyere Te SOATOATT PUY HON [E;IuEsSs Ysom oN; ATO SAMRTOUT OFMMTaES FytTe Lge grat Teatea"9S Ee LEE TG Gree zee saved «REE OGL HOH «LUGE QMO AGL THE oth Tos 7 Or “orem ore worse _o°ET_ovzt 10°02 _orTt_0%6 20°Gr__o's_orH so*oT__$°S Grn 20" 622 oat OT 5 aaa Tarte o-oH 0-02 OrET o'ZT 0°02 OTT O° HOST 08 OTL GG Gy tos Se Ge: (rem 9 seu or cr0t : : ca TROTAy ‘FieudoTeseS got ete 1271s ee vee z “TOT aot uoyaeaeToay: “Poly SOUTH sR020Tes, saz08 speos tree speoy TOE “=| Toe TTT ES SSTSVS MTT = SS ES ENE CERT ‘TERLOWOAN CAV WOTLOOESNOOE aon: Papers of Stuart RiceHARRY S, TRUMAN LIBRARY Papers oF Stuart Rice At tho outbresk of the liar, Grecee had in full operation a road network of 14,721 kilomsters of which 7030 consisted of modern roads constructed since 1927 and tho remaining 7691 consisted of older roads which wore being graduclly renewed to mect madern traffic needs. This network was classified by. width of paving end etal jarde of géade ond curvature as follows: clase 4 3967 Ea. Class B 5576" chase sure Total 1,7. ka. In eadition to the Forogoing network, the Greek State was constructing eciéitional roads having @ totel length of 4958 KLlonetera of which 2506 were in a usable, although Uncomlotel, state, Thus the totel usable Longth of road. notwork anounted to 17,227 ktloneters in 1940, Inoreased road building begen in‘1G29-31 with the oid of ‘foreign Joans in 1928. During the yeare immediately folloxing, construction figp Limited to anounte made available in the regular budget which wore progressively larger, finally ciilminsting in annual, new construction __ 9 about 410,000,009 in the’ years 1938 ant 1939. In the sane yoars fants expended, for maintenance avounted to about $1,700,000 annually, Exponditures in those loter years were largely for the construction of roeds for military purposas, particularly in northern Greses. Wost of the roads in Gresce ere of waterbound nacaden construction with wosring surface varying from asphaltic concrete in hoavily travelled sections to the simple naordam surfrce in’ sections of Light traffic. However, the wearing surface usually grovided 1a of poneteation aephelt | :