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Loans and Debt Resolution

Loans and Debt Resolution

Richard W. Van Alstyne and

Joseph M. Siracusa

Problems arising from unpaid debts owed by foreign governments to private bankers and, later, to international agencies, troubled American policymakers during the twentieth century. Initial concerns arose regarding the political motives of European governments who sought to employ their military forces to enforce repayment of financial debts incurred by South American and Central American countries. When its World War I allies stopped paying on wartime loans during the 1920s and 1930s, U.S. officials were faced with a series of unpleasant choices. To avoid this problem during World War II, President Franklin D. Roosevelt established the lend-lease program that provided economic and military aid to America's allies yet left no substantial postwar debt.

During the Cold War years, the United States employed foreign aid packages that consisted largely of grants with occasional loans to aid its allies. Initially, the new International Monetary Fund and the World Bank provided developing countries with economic assistance; later, in the 1970s, commercial agentsindividual banks and consortiumsextended loans to the same clients. This subsequent surge of credit resulted in greatly increasing Third World debt and, after 1981, increasing concern with possible defaults and debt rescheduling.

CARIBBEAN PROTECTORATES

In the early twentieth century, debt repayment emerged as a significant U.S. foreign policy issue when dictatorships in several Caribbean republicsregimes that had managed to live on loans granted by European banking and speculative interestsdemonstrated an incapacity or plain unwillingness to pay that brought threats of armed intervention from European powers. The classic instance was that of Venezuela, whose reckless behavior had aroused the anger and contempt of the great powers, including the United States. In 1902 the British and German governments, joined nominally by Italy, blockaded Venezuela and seized the country's customs, the revenues from which would then be utilized toward redemption of the debts. This method, which proved effective but also aroused American susceptibilities over the Monroe Doctrine (1823), soon brought from the administration of Theodore Roosevelt (19011909) an important policy shift, namely, that the United States would henceforth be responsible for the behavior of the Latin American republics toward Europe. In due course, then, the United States assumed fiscal supervision over several Caribbean countries.

The principal recipients of American "protection" were Cuba, Panama, the Dominican Republic, Nicaragua, and Haiti. The special relations of the United States to these republics were embodied in treaties, no two of which were exactly alike. To only one such statethe Republic of Panamadid the United States actually promise "protection," in the declaration that "the United States guarantees and will maintain the independence of the Republic of Panama." Other treaties, such as those with Cuba and Haiti, contained engagements on the part of the "protected" states not to impair their independence or cede any of their territory to a third party; and the same two treaties permitted intervention by the United States for the maintenance of independence or of orderly government. Since careless public finance was likely to lead to foreign intervention and possible loss of independence, a number of the treatiesthose with Cuba, Haiti, and the Dominican Republiccontained restrictions upon, or gave the United States supervision over, financial policy.

American investments existed in all the countries of this Caribbean semicircle of protectorates. These no doubt benefited from the increased stability and financial responsibility induced by governmental policy. In the Dominican Republic, Haiti, and Nicaragua that policy resulted in a transfer of the ownership of government obligations from European to American bankers. Yet in none of the five republics save Cuba were American financial interests especially large or important. The dominant motive was clearly political and strategic rather than economic. The acquisition of the Canal Zone and the building of the Panama Canal made the isthmian area a crucial concern in the American defense system.

CUBA AND THE PLATT AMENDMENT (1901)

The end of the war with Spain in 1898 left Cuba occupied by the armed forces of the United States but with the future status of the island not clearly defined. Spain had relinquished sovereignty over Cuba, and the United States had renounced any thought of annexing it. But that renunciation did not absolve the United States, in its own eyes, from responsibility for Cuba's future. President William McKinley remarked in his annual message of 5 December 1899 that the United States had assumed "a grave responsibility for the future good government of Cuba." The island, he continued, "must needs be bound to us by ties of singular intimacy and strength of its enduring welfare is to be assured."

What those ties were to be was defined by Elihu Root, McKinley's secretary of war. General Leonard Wood, America's military governor of Cuba, convoked a constitutional convention, which sat in Havana from November 1900 to February 1901. It completed a constitution for independent Cuba but failed to carry out a directive of the governor to provide for relations between the Cuban government and the government of the United States. Secretary Root outlined his concept of what those relations should be in a set of proposals that were introduced in the U.S. Senate by Senator Orville H. Platt of Connecticut and were known henceforth as the Platt Amendment. This was actually an amendment to the Army Appropriation Bill of 2 March 1901; the amendment authorized the president to terminate the military occupation of Cuba as soon as a Cuban government was established under a constitution that provided, among other things, that Cuba should never permit any "foreign power" to gain a foothold in its territory or contract any debt beyond the capacity of its ordinary revenues to pay; and that Cuba should consent that the United States might intervene in its affairs for the preservation of Cuba's independence.

The new Cuban government was inaugurated on 20 May 1902. The Platt Amendment took its place as an annex to the Cuban constitution and was embodied in the permanent treaty of 1903 between Cuba and the United States. It remained in force until 1934, when all of the treaty except the naval base article was abrogated. Under that article the United States enjoyed the use of Guantánamo Bay, on the south coast near Santiago, as a naval station. Under Article 3 the United States exercised the right of intervention from time to time, notably in 19061909, following a breakdown of the Cuban government, but more frequently in subsequent years.

THE ROOSEVELT COROLLARY OF THE MONROE DOCTRINE

Secretary Root spoke of the Platt Amendment as supplying a basis in international law for intervention by the United States under the Monroe Doctrine to protect the independence of Cuba. But with how much justice or logic could the United States enforce the Monroe Doctrine against European intervention in turbulent Western Hemisphere republics if it took no responsibility for the behavior of such republics or for the fulfillment of their obligations to Europe? The Platt Amendment, by restricting the debt-contracting power of Cuba and permitting the United States to intervene for the preservation of orderly government, hinted that the Monroe Doctrine involved certain policing responsibilities for the United States. That idea, though previously suggested from time to time, was now for the first time written into law. Need for such a principle was emphasized by events in Venezuela in 19021903.

In 1901, when the German and British governments were contemplating the use of force to collect debts from the Venezuelan dictator, Cipriano Castro, Theodore Roosevelt (then vice president) wrote to a German friend: "If any South American country misbehaves toward any European country spank it." In his first annual message as president a few months later he declared that the Monroe Doctrine gave no guarantee to any state in the Americas against punishment for misconduct, provided that punishment did not take the form of acquisition of territory. When, however, in the winter of 19021903, Germany and Great Britain actually undertook to bring Castro to terms by a "pacific blockade," anti-German sentiment flared up in the United States, and Roosevelt became alarmed over the possibility that such a situation might produce a serious quarrel between the United States and some European power. The Venezuelan crisis was settled when Castro agreed to submit the question of his debts to arbitration, but no one knew when Venezuela or one of its neighbors might present a new invitation to coercion. It seemed to Roosevelt desirable to find a formula by which all excuses for European intervention in the New World might be removed.

The formula was announced by Roosevelt in 1904, first in May in a letter to Secretary Root, then, in almost identical language, in his annual message of 6 December 1904. As stated in the annual message:

Any country whose people conduct themselves well can count upon our hearty friendship. If a nation shows that it knows how to act with reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations, it need fear no interference from the United States. Chronic wrongdoing, or an impotence which results in a general loosening of the ties of civilized society, may in America, as elsewhere, ultimately require intervention of some civilized nation, and in the Western Hemisphere, the adherence of the United States to the Monroe Doctrine may force the United States, however reluctantly, in flagrant cases of such wrongdoing or impotence, to the exercise of an international police power.

THE DOMINICAN RECEIVERSHIP

The Roosevelt Corollary of the Monroe Doctrineso called because it was assumed to follow as a necessary consequence of the doctrinewas to serve, whether expressly mentioned or not, as the theoretical basis for the subsequent establishment of protectorates in the Caribbean. The United States now assumed the role of international policemankindly to the law-abiding but apt to lay a stern hand upon little nations that fell into disorder or defaulted on their obligations, since disorder or default, if allowed to continue, might invite intervention from outside the hemisphere. The first application of the new doctrine was in the Dominican Republic.

The government of the Dominican Republic, or Santo Domingo, after that state won its independence from Haiti in 1844, had been a dictatorship generously tempered by revolution. Revolutions were costly, and by 1904 the Dominican debt had grown to a figuresome $32 millionwhich the national revenues, as administered by native collectors of taxes and customs, were incapable of servicing. The foreign debt was widely distributed. Portions of it were held in France, Belgium, Italy, and Germany. The largest single creditor, representing both American and British capital, was the U.S.-based San Domingo Improvement Company. From time to time, the Dominican government pledged the customs duties at various ports as security for its debts, and the pledges sometimes conflicted. Intervention by the United States on the company's behalf resulted, in 1903 and 1904, in the San Domingo Improvement Company being placed in charge of the collection of customs at Puerto Plata and Monte Cristi on the north coast. This action brought protests from the European creditors, who claimed that those same revenues had previously been pledged to them. An international scramble for control of the Dominican customhouses threatened, with the possible development of a situation resembling the one in Venezuela that had alarmed Roosevelt a scant two years earlier.

It was under these circumstances that Roosevelt formulated his famous corollary, which was without doubt intended as a forecast of coming events. With the encouragement of Thomas C. Dawson, U.S. minister to the Dominican Republic, President Morales invited the United States to take charge of the nation's customhouses and administer the collection of import duties for the purpose of satisfying the creditors of the republic and providing its government with revenue. An executive agreement to this effect was signed on 20 January 1905, but this attempt of Roosevelt to bypass the Senate excited so much criticism that Dawson was instructed to put the agreement into the form of a treaty, subject to ratification in the constitutional manner. The treaty was duly signed and its approval urged upon the Senate by President Roosevelt with reasoning based, like his corollary message, upon the Monroe Doctrine.

Democratic opposition prevented action upon the treaty, but the president, with characteristic determination, put the essence of the arrangement into effect by a new executive agreement, referred to as a modus vivendi, signed 1 April 1905. The Dominican government agreed to appoint as receiver of customs a citizen of the United States nominated by the U.S. president. As in the proposed treaty, 45 percent of the receipts were to be turned over to the Dominican government; the remainder, less costs of collection, was to be deposited in a New York bank, to be apportioned among the creditors of the republic if the Senate approved the treaty, or returned to the Dominican government if the treaty was finally rejected.

The modus vivendi remained operative for more than two years. During that period the creditors of the Dominican government agreed to a downward adjustment of the debt from over $30 million to $17 million. A new $20 million bond issue was floated in the United States, and the proceeds were applied to the paying off of the adjusted debt and to the execution of needful public works on the island. In February 1907 a new treaty was signed, which the Senate promptly approved through the switch of a few Democratic votes to its support. The treaty, proclaimed 25 July 1907, perpetuated the arrangement under the modus vivendi, with minor modifications. A general receiver of Dominican customs, named by the president of the United States, was to have full control of the collection of customs duties until the $20 million bond issue was liquidated.

The Dominican receivership, under the modus vivendi and the subsequent treaty, produced results. For some four years after the conclusion of the treaty, the republic experienced the unaccustomed blessings of financial solvency and political stability. Then began a new series of revolutionary disturbances that led to a more drastic form of intervention by the United States.

DOLLAR DIPLOMACY IN NICARAGUA

The next Caribbean country to receive the "protection" of the United States was Nicaragua. Intervention in Nicaragua, initiated under President William H. Taft and Secretary of State Philander C. Knox in 1912, was a prominent example of the so-called dollar diplomacy usually associated with that administration. Dollar diplomacy had a dual character. On one side, it was the use of diplomacy to advance and protect American business abroad; on the other side, it was the use of dollars abroad to promote the needs of American diplomacy. In the first sense, it was practiced by many an administration before Taft and since. The employment of American dollars to advance the political and strategic aims of diplomacy was a less familiar technique.

There was a hint of it in the Platt Amendment. It was plainly seen in the refunding of the debt and the instituting of the receivership in the Dominican Republic under Theodore Roosevelt. Invoking, as Roosevelt had done, the Monroe Doctrine as their justification, Taft and Knox made a similar arrangement with Nicaragua and sought unsuccessfully to do the same with Honduras and Guatemala.

The setting up of the Nicaraguan customs receivership came at the conclusion of some years of turmoil in Central America, largely the work of the Nicaraguan dictator, José Santos Zelaya. Having lent support to the ousting of Zelaya, Taft and Knox were anxious to bring peace and order to Central America by applying in Nicaragua the same remedy that had some success in the Dominican Republic. They found a cooperative leader in Nicaragua in the person of Adolfo Díaz, who succeeded Zelaya as president in 1911. A businessman who despised militarism and craved order and good government, Díaz was willing to compromise his country's independence by granting to the United States broad powers of intervention. In 1912, when he was faced with insurrection, the United States, at his request, sent 2,000 U.S. marines to Nicaragua, suppressed the rebellion, deported its leaders, and left a 1egation guard of one hundred marines thatuntil 1925"stabilized" the Nicaraguan government under Díaz and his successors.

Secretary Knox's attempt, with the aid of Díaz, to set up a customs receivership in Nicaragua by treaty was blocked in the U.S. Senate, but a receivership was established nevertheless by agreement between Nicaragua, certain American banks, and the State Department. A mixed claims commission reduced claims against Nicaragua from $13.75 million to a mere $1.75 million. Another mixed commission was given limited control over Nicaragua's spending policy. The policy of Taft and Knox was continued by their successors, President Woodrow Wilson and his first secretary of state, William Jennings Bryan. To meet Nicaragua's urgent need for funds and at the same time to provide for the future canal needs of the United States, the Bryan-Chamorro Treaty, signed 5 August 1914 and approved nearly two years later, provided for a payment of $3 million to Nicaragua in return for the grant of certain concessions to the United States. These included the perpetual and exclusive right to construct a canal through Nicaragua and the right for ninety-nine years to establish naval bases at either end of the route, in the Corn Islands in the Caribbean and on the Gulf of Fonseca on the Pacific.

The United States also succeeded, not by treaty but by informal agreement with Nicaragua and the bankers, in reducing and simplifying the Nicaraguan debt and in setting up a customs receivership that would see to it that a suitable portion of the national revenue was applied on the debt. Application of the Roosevelt Corollary, implemented by dollar diplomacy and the landing of a few marines, had made Nicaragua secure against any violation of the Monroe Doctrine.

WILSONIAN INTERVENTION

It is ironic that the treaty that consummated the success of dollar diplomacy in Nicaragua bore the name of William Jennings Bryan, for Bryan, out of office, had been a severe critic of dollar diplomacy. Other inconsistencies were to follow. The anti-imperialist Wilson administration (19131921), with first Bryan and later Robert Lansing as secretary of state, although promoting independence for the Philippines and self-government for Puerto Rico, imposed upon Haiti a protectorate treaty of unprecedented severity and set up a regime of pure force in the Dominican Republic.

There is perhaps less of a contradiction than at first appears between the new administration's policy in the Philippines and Puerto Rico and its policy toward the independent republics of the Caribbean. The Philippines and Puerto Rico, under American tutelage, had been learning the lessons of democracy and conducting orderly elections in which ballots, not bullets, determined the outcome. Perhaps a few years of American tutelage would suffice to complete the political education of the natives of Haiti and the Dominican Republic, who hitherto had found the bullet a more congenial instrument than the ballot. At the very beginning of his administration, Wilson made it clear that he would frown upon revolutions in the neighboring republics. "I am going to teach the South American republics to elect good men," he remarked with optimism to a British visitor.

Such remarks foreshadowed a new turn in American interventionist policy in which the promotion of democracy would take its place as an objective beside the preservation of the Monroe Doctrine and the protection of the economic and strategic interests of the United States. Unfortunately, although the new measures were effective in restoring order and preventing revolutions by force, they did little or nothing toward providing a substitute for revolutions in the form of free and fair elections.

HAITI

The republic of Haiti, unlike the Dominican Republic, its companion on the island of Hispaniola, had maintained its independence continuously since the time of Toussaint Louverture in the late eighteenth century. It had also been more successful than its neighbors in meeting the interest payments on its rather large foreign debt; but in the prevalence of corrupt tyranny complicated by frequent revolution, it surpassed the Dominican Republic. In the early twentieth century, corruption grew more flagrant and revolution more frequent, and bankruptcy, default, and the menace of European intervention loomed on the horizon.

Under these circumstances the United States began urging upon Haitian presidents measures designed to bring some order out of the chaos into which the country had fallen and to guard against European intervention. Bryan asked for the United States the right to appoint a customs receiver, as in Santo Domingo, and a financial adviser. He asked for the right to supervise Haitian elections and for a nonalienation pledge regarding Môle St. Nicolas, a potential naval base at the northwest corner of the island. Negotiations along these lines proceeded, but so kaleidoscopic were the changes in Haitian administrations that no results had been achieved by July 1915, when President Guillaume Sam, following the cold-blooded massacre of 170 political prisoners in the government jail, was pulled by an angry mob from his sanctuary in the French legation, thrown into the street, and assassinated. On the same afternoon (28 July), the USS Washington, flagship of Rear Admiral Caperton, dropped anchor in Port-au-Prince harbor, and before nightfall the U.S. marines occupied the town.

Exasperated at the long reign of anarchy in Haiti and at the failure of treaty negotiations, Washington was resolved to use the new crisis to enforce its demands upon the Haitian government. By taking control of the customhouses and impounding the revenue, and by the threat of continued military government if its wishes were not obeyed, the United States was able to dictate the choice of a president as successor to Guillaume Sam and to prevail upon the new president and the National Assembly to accept a treaty embodying all the American demands.

The Treaty of 1915 with Haiti went further in establishing U.S. control and supervision than the Platt Amendment treaty with Cuba or the Dominican treaty of 1907 combined. It provided that the top officials should be appointed by the president of Haiti upon nomination by the president of the United States. Moreover, all Haitian governmental debts were to be classified, arranged, and serviced from funds collected by the general receiver, and Haiti was not to increase its debt without the consent of the United States, nor do anything to alienate any of its territory or impair its independence. The treaty was to remain in force for ten years, but a clause permitting its extension for another ten-year period upon either party's showing sufficient cause was invoked by the United States in 1917, thus prolonging to 1936 the prospective life of the treaty.

THE NAVY GOVERNS THE DOMINICAN REPUBLIC

Until 1911, the customs receivership of 1905 and 1907 in the Dominican Republic worked admirably. Under the presidency of Ramón Cáceres (19061911), stable government and orderly finance had been the rule: constitutional reforms had been adopted, and surplus revenues had been applied to port improvements, highway and railroad construction, and education. Such a novel employment of the powers and resources of government was displeasing to many Dominican politicians, and on 19 November 1911, Cáceres fell victim to an assassin's bullet. At once the republic reverted to its seemingly normal condition of factional turmoil and civil war, and the necessities incident to the conducting and suppressing of revolutions resulted in the contraction of a large floating debt, contrary to the spirit, if not the letter, of the 1907 treaty with the United States.

Thus, the Wilson administration found in the Dominican Republic a situation as difficult as that in Haiti. Under a plan drafted by Wilson himself and accepted by the Dominican leaders, the United States supervised the 1914 elections. From the new leadership, the United States demanded a treaty providing for the appointment of a financial adviser with control over disbursements, for the extension of the authority of the general receiver to cover internal revenue as well as customs, and for the organization of a constabulary. These demands were rejected as violative of Dominican sovereignty, and in the spring of 1916 the situation went from bad to worse when the Dominican secretary of war, Desiderio Arias, launched a new revolution and seized the capital. On 15 May, U.S. marines landed in Santo Domingo and the country was soon placed under military government. This arrangement lasted six years.

ECONOMIC FOREIGN POLICY DURING THE INTERWAR PERIOD

A consequence of World War I, the significance of which was little recognized save the wartime flow of gold across the Atlantic, was the sudden transformation of the United States from a debtor to a creditor nation. Like other new countries, the United States hitherto had been consistently a borrower. Its canals, railroads, and industry had been built in large measure with capital borrowed in Europe, which it had been enabled to service by an excess of exports over imports. By the end of the century, the United States was also lending or investing money abroad, but in 1914 it was still on balance a debtor, owing Europe from $4.5 to $5 billion against $2.5 billion invested abroad, chiefly in Canada, Mexico, and Cuba.

Early in the war, large quantities of U.S. securities held abroad were sold in New York in order to finance purchases of American war materials by the Allied governments. By the fall of 1915, those governments found it necessary to float a bond issue of $500 million in the United States through the agency of J. P. Morgan and Company, and such borrowings continued until the United States entered the war (1917). The role of lender was then assumed by the U.S. government, which advanced to friendly governments more than $7 billion before the armistice of 11 November 1918, and $3.75 billion in subsequent months. Without counting interest, therefore, the U.S. government at the close of World War I was a creditor to its wartime associates to the extent of $10.35 billion. Although the war impoverished Europe, it brought great wealth to the United States and thereby created a large fund of surplus capital ready to seek investment abroad. By 1928 private investments in foreign lands totaled between $11.5 and $13.5 billion. Acceptance of the new creditor role should have entailed changes in policy, especially tariff policy, which American statesmanship proved incapable of making.

WORLD WAR I FOREIGN DEBT COMMISSION RATES
Country Principal Rate of Interest Percentage of Cancellation
Austria $ 24,614,885 70.5
Belgium 417,780,000 1.8 53.5
Czechoslovakia 115,000,000 3.3 25.7
Estonia 13,830,000 3.3 19.5
Finland 9,000,000 3.3 19.3
France 4,025,000,000 1.6 52.8
Great Britain 4,600,000,000 3.3 19.7
Greece 32,467,000 0.3 67.3
Hungary 1,939,000 3.3 19.6
Italy 2,042,000,000 0.4 75.4
Latvia 5,775,000 3.3 19.3
Lithuania 6,030,000 3.3 20.1
Poland 178,560,000 3.3 19.5
Romania 44,590,000 3.3 25.1
Yugoslavia 62,850,000 1.0 69.7
Total $11,579,435,885

SETTLING THE WAR DEBTS

The $10 billion advanced by the United States to friendly governments during and immediately after the war had unquestionably been regarded as loans by both lender and receivers. In the U.S. Congress, a few voices were raised in support of the thesis that the advances should be viewed simply as part of America's contribution to the war, as a means of enabling others to do what, for the moment, the United States could not do with its own army and navy. There were warnings, too, of the ill will that might result from an American effort to collect the debts from governments that the war left close to bankruptcy. But such pleas and warnings went almost unnoticed, and President Wilson and his advisers rebuffed all proposals for cancellation of the debts or for discussing them at the Paris Peace Conference.

In June 1921, President Warren G. Harding proposed that Congress empower the secretary of the Treasury to negotiate with the debtor governments adjustments of the war debts as to terms, interest rates, and dates of maturity. Congress responded by an act (9 February 1922) creating the World War Foreign Debt Commission, with the secretary of the Treasury as chairman and authorizing it to negotiate settlements on terms defined by the act. No portion of any debt might be canceled; the interest rate must not be less than 4.5 percent, nor the date of maturity later than 1947. The commission found no debtor government willing to settle on these difficult terms. The procedure it adopted, therefore, was to make with each debtor the best terms possible (taking into account in the later settlements "capacity to pay") and then to ask Congress in each case to approve the departure from the formula originally prescribed.

In this way, between May 1923 and May 1926, the World War Foreign Debt Commission negotiated settlements with thirteen governments. Settlements with Austria and Greece were later made by the Treasury Department. With the exception of Austria, which received special treatment, all the settlements provided for initial payments over sixty-two years. No part of the principal was canceled in practice, and the rates of interest were so adjusted downward that varying portions of the debts were actually forgiven. Comparing the total amounts to be paid under the settlements with the amounts that would have been paid at the interest rate of 4.5 percent originally prescribed by Congress, one finds effective cancellations ranging from 19.3 percent for Finland and 19.7 percent for Great Britain to 52.8 percent for France and 75.4 percent for Italy. The amounts of the principal funded, the rates of interest to be paid, and the portions of the debts that were in effect canceled can be seen in the table.

THE REPARATIONS PROBLEM

Throughout the debt-settlement negotiations, the European debtor governments argued that payments on the debts should be dependent upon the collection of reparations from Germany. The United States refused consistently to recognize any relation between the two transactions. In American eyes, the Allied governments that had borrowed from the United Stateshad "hired the money," as President Calvin Coolidge put itwere under obligation to repay their borrowings regardless of what they might be able to collect from Germany. In actual fact, however, it was obvious that the ability of the Allied governments to pay their debts would be affected by their success or failure in collecting reparations, and it is for this reason the United States took a sympathetic attitude toward efforts to solve the reparations problem.

The peace conference had left to the Reparations Commission the determination of the amount to be paid by Germany. In May 1921 the commission set the figure at 132 billion marks, or approximately $33 billion. Germany accepted the figure under threat of occupation of additional German territory. Annual payments of a minimum of 2 billion marks were to begin at once, with later payments to be adjusted in the light of estimates of capacity to pay and evaluation of payments in kind already made.

Within just fifteen months of the settlement, Germany was in default on the required payments, whether willfully or through inability to meet the schedules. Over British objection (backed by that of the American observer), the Reparations Commission authorized occupation of the great German industrial area of the Ruhr Valley. French and Belgian armies carried out the mandate in January 1923 and held the Ruhr until September 1924. Germany met the occupation with passive resistance, and its economy suffered a prolonged and disastrous inflation. Reparations payments stopped entirely.

In the meantime, Secretary of State Charles Evans Hughes had proposed that a committee of experts study Germany's capacity to pay and devise a plan to facilitate payments. Late in 1923, all the governments concerned agreed to the suggestion, and the Reparations Commission appointed two committees to study different aspects of the problem. One of the committees was headed by the Chicago banker Charles G. Dawes. The Dawes Plan, which went into effect on 1 September 1924, was admittedly a temporary expedient, providing a rising scale of reparations payments over a period in which it was hoped the German economic and monetary system could be restored to a healthy condition. Germany received an international loan of $200 million. It agreed to make reparations payments beginning at 1 billion gold marks the first year, rising to 2.5 billion in the fifth year and thereafter. Payments would be made in German currency to an agent general for reparations. Thereupon Germany's responsibility would cease. The problem of converting the marks into foreign currencies would be the responsibility of the Inter-Allied Transfer Committee. No attempt was made to reassess the total or to set a date for the termination of payments.

During the prosperous years 1924 to 1928 the Dawes Plan worked satisfactorily, and by the latter year, the time appeared ripe for an attempt at a final settlement. A new committee headed by another American, the New York financier Owen D. Young, proposed the Young Plan, which was agreed to by Germany and its creditors in January 1930. By the new arrangement, which was intended to make a final disposition of the reparations problem, Germany agreed to make thirty-seven annual payments averaging a little over $500 million, followed by twenty-two annual payments averaging slightly under $400 million. By the end of the fifty-nine years, Germany would have paid altogether about $9 billion of principal and $17 billion of interesta drastic reduction from the $33 billion of principal at first demanded by the Reparations Commission. Furthermore, the Young Plan clearly recognized the relationship between reparations and war debts through a concurrent agreement (not participated in by the United States) that any scaling down of the debts would bring about a corresponding reduction in reparations. The annuities to be distributed under the plan were so proportioned as to cover the war debt payments to be made by the recipients. As long as Germany continued to pay the Young Plan annuities, the debtor governments would have the wherewithal to satisfy their creditors, of whom the chief was the United States. If general prosperity had continued, the plan would have been workable.

MAKING THE CONNECTION

None of the presidents from Wilson to Franklin D. Roosevelt or the high officials under them evinced any economic enlightenment on the subject. Herbert Hoover stuck to his rigid belief in the sanctity of contracts, and in October 1930 his secretary of state, Henry L. Stimson, rejected the idea of a connection between the Allied war debts and German reparations. But by this time the Great Depression had entered its serious stage, and voices were being raised at home and abroad for a drastic reduction of the debts just as German reparations had been twice reduced. Senator Alben W. Barkley of Kentucky returned from a trip to Europe to announce publicly that the American tariff was a handicapthat there was no possibility that Britain could continue to pay, that "in every circle with which I came in contact, official and unofficial, there was a profound feeling bordering on despair and even bitterness." Europeans could not understand "our demand that they pay us what they owed us and buy the goods we send them while at the same time denying them the ability to do either by preventing them from selling anything to us." Barkley's reference was to the new Smoot-Hawley Act (June 1930), the effect of which was to reduce foreign trade to a trickle. President Hoover had brushed aside warnings of the evil consequences of the bill. Senator Reed Smoot, the principal author, had been a member of the World War Foreign Debt Funding Commission, but to his mind no "good American" would advocate cancellation of the debts or oppose his tariff bill.

The basic economic consequence of the war was to advance the United States to a position of supremacy. Despite the difficulties surrounding the war debt settlements, dollar loans poured from private American banks and investment syndicates on a vast scale, accelerating after 1924 but coming to an almost complete stop in 1930. European governments, municipalities, and private corporations sought and received these loans, paying high interest rates (in dollars) and meeting their war debt installments from the proceeds of these loans. Germany was a leading recipient of American loans and was thus able to pay reparations to the Allies, who in turn were able to pay their American creditors. The source of these extraordinary loans was the profits of American industry in the sale of its products both at home and abroad, and in the abundance of speculative capital-seeking outlets. An open dooror rather, open doorsappeared as if by magic to dazzle the American investor. Latin America, Australasia, Africa, and East Asia obtained dollar loans. The lending process was a continuation of the Open Door policy pursued in China: an attempt by means of loans to capture the world's markets, but without serious consideration as to how these loans were to be repaid. Actually interest was being paid out of principal, not out of returns on the investment. As secretary of commerce under Coolidge, Herbert Hoover encouraged loans of this type, particularly to South American countries. Criticism, scrutiny, and hints to the naive individual investor to exercise caution were alien to Hoover's peculiar laissez-faire cast of mind.

When the bubble burst in 1930, total U.S. private long-term foreign investments stood at $15.17 billion, triple the figure in 1919. Germany still routinely made payments on its reparations account, and at least some of the Allied governments were forwarding their installments to Washington. But the principal of the war debts (including the postwar loans) carried on the books of the U.S. Treasury stood at $11.64 billion, which was $120 million more than the total shown at the time the thirteen governments signed the settlement agreements. Supposing that all thirteen had continued to pay principal and interest through the entire sixty-two-year period, the grand total would have exceeded $22 billion. Meanwhile, the fascist dictatorship under Benito Mussolini had installed itself in Italy; and in Germany, the Nazis, now on the high road to power in that country, had promised to repudiate all further reparations payments. Bolshevik Russia had long ago repudiated czarist Russia's war debts.

By June 1931, Germany, the greatest of the world's debtors, was near collapse; and while continuing to maintain that debts and reparations were unconnected, Hoover, after assuring himself of sufficient congressional support, proposed a year's moratorium on all intergovernmental debts. Hoover was at last ready to admit that debt redemption on the part of any country depended upon its capacity to pay, although probably as a political gesture, he again declared his disapproval of cancellation. Hoover's opponent, Franklin D. Roosevelt, declined to take a position but did not miss his opportunity to ridicule the Republicans for their absurd policy "of demanding payment and at the same time making payment impossible."

Meanwhile, the Lausanne Agreement (1932) between Germany and its creditors put an end, for all practical purposes, to reparations payments. Then Belgium, followed by France, defaulted. Britain and Italy managed to make partial payments through December 1932. It was at this time that Finland became conspicuous. "Sturdy little Finland" earned a high mark with the American public for meeting its semiannual installment of $166,538 punctually and in full. Britain offered a token payment in 1934 but, on being informed that this would not save it from the stigma of being a defaulter, decided to make no further gesture. Spurred by Senator Hiram Johnson, most vociferous among the diehards, Congress in April 1934 made certain there would be a stigma. It passed the Johnson Debt Default Act, which originally sought to close the door to any foreign government in default on its debts. Although this is what Johnson intended to do in the bill, the act as passed applied only to World War I debts owed to the U.S. Treasury. As Harry Dexter White pointed out to Treasury Secretary Henry Morgenthau, this left open the door to public lending to Latin American states and others that defaulted on private debts only. And the act did not apply to Export-Import Bank loans, though members of Congress frowned on lending the bank's funds to governments in default on their private debt. The Johnson Act had no practical effect; no foreign nation offered to resume payments, and none of those at whom the act was pointed was in the market for further American credits.

LEND-LEASE

The reparations experience had a marked affect on the way in which the United States provided the bulk of its aid to nations fighting the Axis powers in World War II. Under the provisions of the Lend-Lease Act (1941) and in lieu of credits and loans, the United States supplied to more than thirty-eight nations whatever goods were certified by President Franklin D. Roosevelt as "in the interests of national defense."

After reelection in 1940, the president received from Prime Minister Winston Churchill a long letter setting forth Great Britain's financial straits. That nation was scraping the bottom of the barrel to pay for goods already ordered and would need "ten times as much" for the extension of the war. Churchill hoped that Roosevelt would regard his letter "not as an appeal for aid, but as a statement of the minimum action necessary to achieve our common purpose." The problem, as Roosevelt saw it, was how to aid England in the common cause without incurring such a breeder of ill-will as the war debt problem after World War I. After brooding over the matter for days during a Caribbean cruise on the cruiser Tuscaloosa, he came up with the ingenious idea of lending goods instead of money. He wanted, as he told a press conference, to get away from that "silly, foolish old dollar sign," and he compared what he proposed to do to lending a garden hose to a neighbor to put out a fire that might otherwise spread to one's own house.

In his "fireside chat" radio broadcast on 29 December 1940, Roosevelt depicted the United States as the "arsenal of democracy," and in his message to Congress a few days later, he made official the proposal that resulted in the Lend-Lease Act of 11 March 1941. The act, the complete negation of traditional neutrality, empowered the president to make available to "the government of any country whose defense the President deems vital to the defense of the United States" any "defense article," any service, or any "defense information." "Defense articles" might be manufactured expressly for the government that was to receive them, or they might be taken from existing stocks in the possession of the United States. Launched on a modest scale, the lend-lease program eventually conveyed goods and services valued at more than $50 billion to the friends and allies of the United States in World War II, and it left in its wake no such exasperating war debt problem as that of the 1920s.

Against the $50 billion of lend-lease aid furnished by the United States, it received approximately $10 billion in so-called reverse lend-lease from its allies. After the war the United States negotiated settlement agreements with most of the recipients. In general, the agreements stipulated that lend-lease materials not used in the war should be returned or paid for, but the settlements were also shaped by the proviso written into the original lend-lease agreements, that final settlement terms should "be such as not to burden commerce but to promote mutually advantageous economic relations and the betterment of worldwide economic relations." Within a decade of the war's end, settlement agreements totaling more than $1.5 billion had been negotiated, on which $477 million had been paid. The Soviet Union, which had received $11 billion, did not settle its account until 1990, in the glow of glasnost and the end of the Cold War, eager to qualify for U.S. credits.

UNILATERAL FOREIGN ASSISTANCE: AID, GRANTS, AND LOANS

The first notice of a new American foreign economic policy that recognized aid as an integral part of its overall approach to the world came on 12 March 1947, when President Harry Truman went before Congress to ask for $400 million in military and economic aid for Greece and Turkey. Since 1945 the royal government of Greece had been struggling against communist forces within, aided by heavy infiltration from Greece's three northern neighbors, all satellites of the Soviet Union. Great Britain, which had been aiding both Greece and Turkey, informed the United States in February 1947 that it was no longer able to do so. Truman promptly accepted the responsibility for the United States. In asking authority and funds to assist Greece and Turkey, he propounded a general principle that came to be called the Truman Doctrine: "I believe that it must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures."

President Truman's proposal met a general favorable response in America, though some critics thought its scope was too broad. Congress acted after two months of debate. An act of 22 May 1947 authorized the expenditure of $100 million in military aid to Turkey and, for Greece, $300 million to be equally divided between military and economic assistance. The act also empowered the president to send military and civilian experts as advisers to Greece and Turkey. American aid thus begun and continued from year to year proved effective as a means of "containment" in that quarter. But the Truman administration moved quickly to assume broader responsibilities.

To Europe as a whole the danger from communism lay principally in the economic stagnation that had followed the war. Western Europe in the spring of 1947 was facing catastrophe after a severe winter. Food and fuel were in short supply, and foreign exchange would be exhausted by the end of the year. Large communist parties in France and Italy stood ready to profit from the impending economic collapse and human suffering.

The best protection against the spread of communism to western Europe would be economic recovery. On this reasoning, Secretary of State George Marshall, speaking at the Harvard commencement on 5 June 1947, offered American aid to such European nations as would agree to coordinate their efforts for recovery and present the United States with a program and specifications of their needs. Congress established the Economic Cooperation Administration to handle the program in April 1948 and at the end of June appropriated an initial $4 billion for the purpose. Thus was launched the Marshall Plan, or European Recovery Program, which was to continue for three years, cost the United States nearly $13 billion, and contribute to an impressive economic recovery in Europe.

The Marshall Plan was designed to aid in the recovery of nations with advanced economies that had been dislocated by the war. But communism was also a threat among the poverty-stricken masses in countries of Asia, Africa, and Latin America, where the modern economy had made little or no progress. The containment of communism required measures to raise the standard of living in countries such as these. It was with this purpose in mind that Truman, in his Inaugural Address of 20 January 1949, proposed his "Point Four," or Technical Assistance program: "We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas." The Point Four program got under way in 1950 with a modest appropriation of $35 million. Authorized expenditures for the next three years nearly totaled $400 million.

To stimulate the flow of private capital that hopefully would supplement government-to-government loans and grants, the legislation creating the Marshall Plan also called for establishing the Investment Guaranty Program. Initially, the agency issued insurance contracts for investments in Europe against the possible inconvertibility of local currency; in 1950 the coverage was extended to loss through expropriation or confiscation. As a result of the Korean War, U.S. foreign aid programs shifted in emphasis in 1951 from economic to military aid, thus increasing the importance of private U.S. overseas investment. In that vein, the Mutual Security Acts of 1951 (amended in 1953) and 1954 expanded the focus to guarantees to certain friendly developing countries. After several mutations, including a stay in the Agency for International Development, the guaranty program in 1969 was reestablished as the Overseas Private Investment Corporation and placed under the jurisdiction of the secretary of state. The program history over three decades appears to have been both a substantial inducement to private investment and, because of the fees charged, a profitable undertaking for the government.

MULTILATERAL FOREIGN LOANS

The Bretton Woods Conference of 1944, also known as the United Nations Monetary and Financial Conference and chaired by Secretary of Treasury Henry Morgenthau, ushered in a new era of international monetary cooperation. Designed to abolish the economic ills believed to be responsible for the Great Depression and World War II, it brought together delegates from most of the Allied nations. From the conference came recommendations to establish a new international monetary system and to make international rules for an exchange-rate system, balance-of-payment adjustments, and supplies of reserve assets. The conference's proposals led forty-five nations to establish the International Monetary Fund (IMF) in 1945 and the International Bank for Reconstruction and Development, or World Bank, in 1946. (Membership in the IMF is a prerequisite to membership in the World Bank. Traditionally, the managing director of the IMF is a European, whereas the president of the World Bank is an American.)

The IMF, the brainchild of Harry Dexter White, had as its chief purpose restoring exchange-rate stability in the countries that had been in the war and then to promote international monetary cooperation and the expansion of world trade. It was to provide short- to medium-term monetary assistance to member states experiencing balance-of-payments deficits and to prescribe methods by which recipient nations would be able to eliminate their deficit positions. The IMF has played a significant role in facilitating the growth of the world economy, but it has not been without its critics, who have argued that it imposes inflexible and onerous conditions on individual nations who are having difficulties in meeting their payments. They have charged that the IMF shows little consideration for differences in types of economies; that some of the stabilization programs offer no hope of permanent adjustment; and that the fund is often more interested in short-term, painful, quick-fix programs that do not address the fundamental problems. The latter complaint is bolstered by an examination of the fund's policies during the Yugoslavia crisis in the later 1980s and its failures in meeting the needs of the Haitian crisis of the 1990s. Additionally, critics have complained that the IMF is biased against socialism and favors the free-market approach. While this charge may be debated, it does appear that strategic and political concerns have led the United States to lobby the IMF for increased leniency in the rescheduling of debts for Latin American countries, especially Mexico.

The World Bank's purpose, after initially emphasizing the reconstruction of Europe after World War II, has been both to lend funds to nations at commercial rates and to provide technical assistance to facilitate economic development in its poorer member countries. Essentially, the World Bank was designed to complement the IMF's short-term focus with longer-term developmental goals. It would provide loans aimed at encouraging the development of new, productive resources in countries facing a deficitespecially those resources for which there were reliable foreign markets. The bank's charter stated that it was to promote foreign investment for development through loan guarantees; it was also to supplement private investment in projects it viewed appropriate when other sources of financing were lacking.

The World Bank obtained funds from four sources: capital subscriptions of its member countries, capital market borrowing, loan repayments, and retained earnings. In terms of its financial practices, the bank has had an excellent performance history in that it has earned a profit every year since 1948. In fiscal year 1991, it earned a net income of nearly $1.2 billion on loans in forty-two currencies of some $90 billion.

Robert S. McNamara, president of the World Bank from 1968 to 1981, shifted its goals from concentrating on infrastructure to the alleviation of povertythe meeting of basic human needs. His successor, A. W. Clausen, a former president of the Bank of America, changed the World Bank's focus in the early 1980s toward reducing the role of state in the economy and the possibilities of privatizing state-owned enterprises. By the end of the 1980s, the bank had shifted again and now began emphasizing the role of women in development and the idea of sustainable development and the environment.

As with the IMF, the World Bank has generated its share of criticism. There were complaints that the two were not coordinating their activities and in some instances actually weakened the fiscal basis of their debtor states. Also, critics have pointed out the bank's efforts to reduce the role of state in the economyin the belief that it would produce greater efficiency and better economic performanceoften did not address the root problems. But it was the bank's difficulties in dealing with debt crises, beginning in the early 1980s, that have prompted the most complaints.

THE INTERNATIONAL DEBT CRISES

From the end of World War II to the 19731974 oil crisis, governments gave and loaned to other governments in various ways, but increasingly through international institutions. Defaults were rare. However, the oil crisis resulted in an increase in oil prices that led to the sudden availability of vast sums of "petrodollars" that banks desired to lend, often unwisely, and developing countries eagerly accepted. For example, the bank-held debt of nonoil developing countries increased from $34.5 billion in 1975 to $98.6 billion in 1982, with U.S. banks holding 36.7 percent of the loans.

With the Polish debt crisis of 1981 and Mexican crisis in 1982, the lending stopped abruptly, and since 1982 capital has flowed back from debtors to creditors, impairing the future of developing nations. In the early stages of the crises, at least nine large U.S. banks would have become insolvent if all of their foreign governmental clients had defaulted on their loans. By 1985 the severity of the crisis had passed for the creditor nations; however, the crisis was not over for developing countries, still confronted with staggering debts, who saw their standards of living decline significantly and found little hope for future relief.

Since the early 1980s, the heavily indebted developing nations have been involved in extensive financial negotiations with their international creditors. In 1992 the IMF was managing arrangements with fifty-six countries, twenty-eight in Africa, but the total number of agreements involved in the extraordinarily complex negotiations was much larger. These multilateral debt rescheduling and adjustment undertakings involved widely disparate parties, often with contradictory objectives, which included international financial institutions (such as the IMF, the World Bank, and the creditor clubs in Paris and London), plus a number of transnational banks and official aid agencies of the major creditor nations. While most Latin American debtor countries had borrowed heavily from private, transnational banks, most of the African countries had loans from official bilateral and multilateral agencies. And the debt problem varied greatly. For some nations it was a question of short-term financial liquidity; for others it was more a matter of basic financial solvency. As a result of these negotiations, a global debt regime evolved with most developing countries undertaking substantial economic reforms, but it was not evident that these reforms, by themselves, would deal with the problems.

In 1982, Mexican credits accounted for 41 percent of the total combined capital of the nine largest U.S. banks, threatening their existence should Mexico default on its repayments. In August, when Mexico did not have the $2 billion needed to meet its repayment schedule, Secretary of the Treasury James Baker's staff arranged for $1 billion from the Commodity Credit Corporation to guarantee purchases of U.S. agricultural surpluses. The second billion came in a complicated package from the Department of Energy for future oil deliveries to the Strategic Petroleum Reserve, for which Mexico ended up paying roughly 30 percent interest. The Reagan administration also provided Brazil with $1.2 billion in additional loans to allow it to meet its repayment schedules. Two other U.S. allies, Turkey and the Philippines, both of which faced defaulting on their loans, benefited from reloan packages worked out with the United States and the IMF. The United States, aiming to rescue American banks from their over-exposure, had put forward a number of plansmost notably Baker's plan (1989)which sought to relend without incurring loan writeoffs.

The 1990s saw a continuation of international financial problems. When Mexico again needed financial assistance in 1994, President William Clinton arranged for loan guarantees amounting to some $25 billion despite considerable congressional resistence. In 1997 and 1998 currency speculators disrupted the financial systems of Thailand, Indonesia, South Korea, Malaysia, the Philippines and Taiwan, and eventually impacted the American economy. With U.S. support, the IMF was able to stabilize the situation.

By the end of the 1990s many people believed that the problems of the huge debt being carried by developing countries was threatening the survivability of the creditor nations. This concern was reflected in the popular protests against the World Trade Organization, the IMF, and the World Bank in Seattle, Washington (November 1999), Washington, D.C. (April 2000), and Prague, Czechoslovakia (September 2000). The protestors argued that the developed nations were draining the developing countries of the natural resources without adequate compensation and incurring an ecological debt. They contended that this debt should be used to pay the financial debts incurred by developing nations and owed to the IMF and World Bank.

CONCLUSION

The impact of the experiences of trying to collect World War I war debts had led to the employment of lend-lease in World War II and to a grant system during the Cold War. The United States no longer wanted its foreign policy mired in the business of debt collection or to have the issue of debts cloud its relations with other nations. In 1953 the Point Four program was placed, with other forms of foreign aid, under the Foreign Operations Administration. The so-called foreign aid appropriated annually and intended for friendly nations included aid for economic development and military assistancewhich often was the larger packagein the form of grants. While somewhat diminished, grants of economic aid and military support continued into the postCold War decades.

The loans and extension of credits by the IMF and World Bank, as well as American banks, gradually came to play a major role in providing loans to developing nations. Indeed, the amount of these loans had become so large and burdensome in the postCold War decades that by the end of the century a movement had developed which asked, with modest success, that the wealthier nations agree to "forgive" substantial portions of these obligations.

BIBLIOGRAPHY

Aggarwal, Vinod K. Debt Game: Strategic Interaction in International Debt Rescheduling. New York, 1996.

Biersteker, Thomas J., ed. Dealing with Debt: International Financial Negotiations and Adjustment Bargaining. Boulder, Colo., 1993. A most helpful introduction to the basic issues of the post-1980 debt crisis.

Bergmann, Carl. The History of Reparations. Boston and New York, 1927. Presents the German side of the reparations question.

Brennglass, Alan C. The Overseas Private Investment Corporation: A Study in Political Risk. New York, 1983. Reviews the use of government loan guarantees to private investors from 1948 to 1980s.

Carew, Anthony. Labour Under the Marshall Plan: The Politics of Productivity and the Marketing of Management Science. Detroit, Mich., 1987.

Dobson, Alan P. U.S. Wartime Aid to Britain, 19401946. London and Dover, N.H., 1986.

Dougherty, James J. The Politics of Wartime Aid: American Economic Assistance to France and French Northwest Africa, 19401946. West-port, Conn., 1978.

Eckes, Alfred E. A Search for Solvency: Bretton Woods and the International Monetary System, 19411947. Austin, Tex., 1975. Standard account of the Bretton Woods system.

Eichengreen, Barry, and Peter H. Lindert, eds. The International Debt Crisis in Historical Perspective. Cambridge, Mass., 1989. Very helpful in relating the various financial and debt crises to U.S. policy.

Feis, Herbert. The Diplomacy of the Dollar: First Era, 19191932. Baltimore, 1950.

. Foreign Aid and Foreign Policy. New York, 1964. A thorough pragmatic and standard postwar analysis of Allied foreign aid and international politics.

Fossedal, Gregory A. Our Finest Hour: Will Clayton, the Marshall Plan and the Triumph of Democracy. Stanford, Calif., 1993.

George, Susan. The Debt Boomerang: How Third World Debt Harms Us All. Boulder, Colo., 1992. A critical look at World Bank and IMF policies and the dangers of the huge Third World debt to developed nations.

Healy, David. Drive to Hegemony: The United States in the Caribbean, 18981917. Madison, Wis., 1963. A revisionist study of the rise of American official dominance of independent states of Central America and Greater Antilles.

Herring, George C. Aid to Russia, 19411946: Strategy, Diplomacy, the Origins of the Cold War. New York, 1973. The starting point for the study of lend-lease.

Hogan, Michael. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 19471952. New York, 1987.

James, Harold. The German Slump: Politics and Economics, 19241936. Oxford and New York, 1986.

Johannsson, Haraldur. From Lend-Lease to Marshall Plan Aid: The Policy Implications of U.S. Assistance, 19411951. Reykjavik, 1997.

Jones, Kenneth P. "Discord and Collaboration: Choosing an Agent General for Reparations." Diplomatic History 1 (1977): 118139.

Kent, Bruce. The Spoils of War: The Politics, Economics, and Diplomacy of Reparations, 19181932. Oxford and New York, 1989. Argues that creditor governments understood Germany could not pay but prolonged the agony to stave off challenges from below.

Keynes, J. M. The Economic Consequences of the Peace. New York, 1920. Argues that the reparations forced upon Germany were more than three times the capacity of that nation to pay.

Leffler, Melvyn P. "The Origins of Republican War Debt Policy." Journal of American History 59 (1972): 585601. Makes the case that Republican Party leaders decided that debts should be collected for domestic reasons.

Martel, Leon. Lend-Lease, Loans, and the Coming of the Cold War. Boulder, Colo., 1979.

Miller, Morris. Coping Is Not Enough! The International Debt Crisis and the Roles of the World Bank and the International Monetary Fund. Homewood, Ill., 1986.

Massad, Carlos, ed. The Debt Problem: Acute and Chronic Aspects. New York, 1985.

Moulton, Harold G., and Leo Pasvolsky. War Debts and World Prosperity. Washington, D.C., 1932. The indispensable study of the subject.

Munro, Dana G. Intervention and Dollar Diplomacy in the Caribbean, 19001921. Westport, Conn., 1964. Contends that the United States intervened in the Caribbean to promote stability and progress in order to prevent imperialist European nations from intervening and thus threatening American security.

Nelson, Joan M. Aid, Influence, and Foreign Policy. New York, 1968. A brief but useful introduction to the rationale behind American foreign aid from the end of World War II to the late 1960s.

O'Leary, Michael K. The Politics of American Foreign Aid. New York, 1967. One of the first attempts at a comprehensive analysis of how foreign aid appropriations are made.

Perkins, Dexter. The Monroe Doctrine, 18671907. Gloucester, Mass., 1937. Classic multicultural examination of the subject.

Pisani, Sallie. The CIA and the Marshall Plan. Lawrence, Kans., 1991.

Rhodes, Benjamin D. "Reassessing 'Uncle Shylock': The United States and the French War Debt, 19171929." Journal of American History 55 (1969): 787803.

. "Herbert Hoover and the War Debts, 191933." Prologue 6 (1974): 130144. Discusses that settlement of World War I debts revolved around the person of Herbert Hoover.

Schuker, Stephen A. American "Reparations" to Germany, 191933: Implications for the Third World Debt Crisis. Princeton, N.J., 1988.

Silverman, Dan P. Reconstructing Europe after the Great War. Cambridge, Mass., 1982. A persuasive account of events.

Siracusa, Joseph M. Safe for Democracy: A History of America, 19141945. Claremont, Calif., 1993. A good survey of the interwar period from an American perspective.

Siracusa, Joseph M., ed. The American Diplomatic Revolution: A Documentary History of the Cold War, 19411947. New York, 1976. Provides a good discussion of the background leading up to the Truman Doctrine and the Marshall Plan.

Trachtenberg, Marc. Reparation in World Politics: France and European Economic Diplomacy, 19161923. New York, 1980. Argues that French efforts to use reparations claims to shift costs of war and reconstruction to other countries were repeatedly rebuffed by the other major powers.

Van Tuyll, Hubert P. Feeding the Bear: American Aid to the Soviet Union, 19411945. New York, 1989.

Wertman, Patricia A. Lend-Lease: An Historical Overview and Repayment Issues. Washington, D.C., 1985.

Williams, Benjamin H. Economic Foreign Policy of the United States. New York, 1929. Perceptive and fair-minded contemporary account.

Wood, Robert E. From Marshall Plan to Debt Crisis: Foreign Aid and Development Choices in the World Economy. Berkeley, Calif., 1986.

Yielding, Thomas D. United States Lend-Lease Policy in Latin America. Denton, Tex., 1983.

See also Dollar Diplomacy; Economic Policy and Theory; Foreign Aid; International Monetary Fund and World Bank; Intervention and Nonintervention; Open Door Policy; Reparations; Wilsonian Missionary Diplomacy .

HITLER REPUDIATES THE VERSAILLES TREATY AND REPARATIONS

In a speech to the Reichstag on 17 May 1933, Adolf Hitler denounced the Treaty of Versailles because, in part, it had imposed such large reparations payments as to leave Germany in economic shambles.

"All the problems which are causing such unrest today lie in the deficiencies of the Treaty of Peace which did not succeed in solving in a clear and reasonable way the questions of the most decisive importance for the future. Neither national nor economicto say nothing of legalproblems and demands of the nations were settled by this treaty in such a way as to stand the criticism of reason in the future. It is therefore natural that the idea of revision is not only one of the constant accompaniments of the effects of this treaty, but that it was actually foreseen as necessary by the authors of the Treaty and therefore given a legal foundation in the Treaty itself.

"It is not wise to deprive a people of the economic resources necessary for its existence without taking into consideration the fact that the population dependent on them are bound to the soil and will have to be fed. The idea that the economic extermination of a nation of sixty-five millions would be of service to other nations is absurd. Any people inclined to follow such a line of thought would, under the law of cause and effect, soon experience that the doom which they were preparing for another nation would swiftly overtake them. The very idea of reparations and the way in which they were enforced will become a classic example in the history of the nations of how seriously international welfare can be damaged by hasty and unconsidered action.

"As a matter of fact, the policy of reparations could only be financed by German exports. To the same extent as Germany, for the sake of reparations, was regarded in the light of an international exporting concern, the export of the creditor nations was bound to suffer. The economic benefit accruing from the reparation payments could therefore never make good the damage which the system of reparations inflicted upon the individual economic systems.

"The attempt to prevent such a development by compensating for a limitation of German exports by the grant of credits, in order to render payments possible, was no less short-sighted and mistaken in the end. For the conversion of political debts into private obligations led to an interest service which was bound to have the same results. The worst feature, however, was that the development of internal economic life was artificially hindered and ruined. The struggle to gain the world markets by constant underselling led to excessive rationalization measures in the economic field.

"The millions of German unemployed are the final result of this development. If it was desired, however, to restrict reparation obligations to deliveries in kind, this must naturally cause equally serious damage to the internal production of the nations receiving them. For deliveries in kind to the amount involved are unthinkable without most seriously endangering the production of the individual nations.

"The Treaty of Versailles is to blame for having inaugurated a period in which financial calculations appear to destroy economic reason.

"Germany has faithfully fulfilled the obligations imposed upon her, in spite of their intrinsic lack of reason and the obviously suicidal consequences of this fulfillment.

"The international economic crisis is the indisputable proof of the correctness of this statement."

From Norman H. Baynes, ed. The Speeches of Adolf Hitler, April 1922August 1939. Vol. 2. New York, 1969

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