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5. Including these items in the reckoning we have, for the last few months, been running only about level in our external accounts. It is clear that we are not earning enough to meet our commitments of a capital nature (set out in paragraph 7 below) let alone to incur new overseas commitments, whether current or capital. At home there has been an excessive demand on our resources and, as a result, continuing inflation. We have taken a succession of measures, including a supplementary Budget, to hold and improve the situation. We cannot as yet say how successful those measures will be.

6. My colleagues will remember that not long ago we stated publicly that if we were not to run into further debt we should need a surplus of £300 millions a year on current account, year in year out, if we were to meet our capital commitments on external account.

7. The following are the main capital commitments which, in the present tate of our current balance, can only be met by running down our reserves, or by borrowing abroad or both.

8.

(i) the capital repayment of the United States and

and Canadian loans (£37 millions per annum);

(ii) releases under agreements from the sterling

balances (£27 millions);

(iii) loans for Colonial development and assistance

(£18 millions).

We are also committed as a matter of Government policy though not of contract to the financing of development in the Commonwealth - both of United Kingdom concerns (e.g. oil) and of the rest of the Commonwealth itself. The financing of some of this is included in the figures in para- graphs 4 and 7, but they make no allowance for giving Commonwealth Govern- ments access to the London market in order to achieve their development; nor, of course, do they allow for the important and desirable flow of private capital to the Commonwealth, including Canada. A further commitment which would add to the strain on the reserves if we were in no more than balance would be the use of free sterling balances by countries inside and outside the sterling area, which they are at liberty to use and which we must meet.

New Commitments

9. We already have commitments for releases from our subscription to the International Bank (£60 millions over six years from 1953); for special Export Credit Guarantee Department credits to Persia and Pakistan (17 millions); for subscription to the International Finance Corporation (£5 millions).

10.

Yet there are constant suggestions that we should un dertake further commitments in order to meet desirable objectives in political or other fields. There is pressure to increase defence expenditure substantially during the next three years; I have already referred to this - it includes expenditure overseas, not only in Germany but also on new installations in such places as Australia and Malaya. We are asked for additional expenditure onPagej £5950₤132bperations which are regarded as politikagy159efit21 or at least highly desirable. Examples of such requests which have been made

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