Post by dun roaming on Dec 28, 2006 19:25:26 GMT
The Times December 27, 2006
Sixty years on, we finally pay for the war
Philip Webster, Political Editor and Elizabeth Judge
£45m is the last instalment to US
'Support helped to defeat Nazis'
Britain will this week pay off the last instalment of the multibillion-dollar loans that were secured from the United States and Canada more than sixty years ago to help fund the war effort.
On Friday this country will make its final repayment on the US$4.33 billion loan given by the United States in 1945. Canada will also receive the last payment on its Can$1.25 billion loan.
The payments — $83.25 million (£43 million) to the US Government and $22.7 million to Canada — are the last of fifty instalments that have been paid since 1950, totalling $7.5 billion to the United States and $2 billion to Canada, including 2 per cent annual interest on the initial loans.
Britain agreed the loan with the United States in 1945 in the form of a direct line of credit worth $3.75 billion and a lend-lease facility worth $585 million. It was intended as a final settlement for the financial claims of each country against the other for costs arising out of the Second World War, and provided the essential capital to fund Britain’s postwar construction. Canada followed suit with a direct line of credit of $1.25 billion agreed in 1946.
Ed Balls, the City minister, told The Times last night that it was a historic moment. “This week we finally honour in full our commitments to the US and Canada for the support they gave us 60 years ago. It was vital support which helped Britain defeat Nazi Germany and secure peace and prosperity in the postwar period. We honour our commitments to them now as they honoured their commitments to us all those years ago.”
Under the arrangement, the US handed a financial lifeline to Britain, allowing it to secure oil, food, arms and other military equipment on credit to help the war effort. Though other countries also benefited under the programme — a $48 billion project — Britain received the largest chunk of aid.
When the war finished, the economist Maynard Keynes — by then the government adviser Lord Keynes — led a delegation to the U.S to agree repayment for those materials for which it had been charged and to secure a loan of $4 billion. He warned that Britain had been left facing a “financial Dunkirk”.
In 1950, Britain’s national debt stood at about 200 per cent of Gross Domestic Product. Today the comparable figure is 36.8 per cent.
The loans have been repaid on the same principle as a home mortgage. Repayments cover both the capital sum borrowed and the interest due on the loan. In the 1950s and 1960s, payments were geared mainly to paying off the interest, while in latter years, the repayment of capital has increased.
Under the terms of the agreement, this country was allowed to defer up to six annual instalments and did so in 1956, 1957, 1964, 1965, 1968 and 1976, on the grounds that international exchange rate conditions and the UK's foreign currency reserves made payments in those years impractical.
The loans were taken out under two facilities — a line of credit of $3.8 billion and a lend-lease loan facility of $586 million (about £145 million at 1945 exchange rates) which represented the settlement with the US for lend-lease. With interest added Britain’s total bill was $7 billion.
The conditions of the loan included that the pound should be convertible into the dollar within 12 months.
The payments will be made by a simple electronic transfer of funds, and are timed for December 29 simply because it is the last working day of the year. the British Government has never in the duration of the loans lobbied to have them reduced or cancelled, and has always insisted it is right to meet the commitments it made in return for the financial support given by the United States and Canada both before and after the war.
While Friday's payments will close the book on the UK's Second World War debts, Britain still owes and is owed billions of pounds in relation to loans made and costs incurred during the First World War. However, since a moratorium on all war debts agreed at the height of the Great Depression, no debt repayments have been made to or received from other nations since 1934.
On demand
Under the Lend-Lease Act of 1941, the US provided Britain, the Soviet Union, China, France and other allies with war supplies
$50.1bn of supplies were shipped out during the Second World War, $31.4bn of it to Britain
Washington terminated lend-lease on September 2, 1945, suddenly with goods still in transit
These were sold to Britain for 10 cents on the dollar with payment stretched out for 50 years at 2 per cent interest
The $4.34bn was to be paid back over 50 years, beginning in 1950
Britain deferred payments for six years because of economic pressures
The last payment is £43m
Source: Times Database, BBC News