Italy Economy and Finance from 1949 to 1953 Part 1
1948 was the year that marked the return of the Italian economy to conditions of stability, after the serious disturbances caused by the war. Thanks to the credit restrictive measures adopted in the autumn of 1947, order on the money and credit market had been re-established and confidence in money had returned, severely compromised by the inflationary wave of the early post-war years. In turn, the influx of American aid, from the ERP plan, which began in April 1948, had ensured the recovery of production through the procurement of essential goods from the dollar area. In this climate of regained stability, the Italian economy, after a brief phase of adjustment, was able to begin a process of development.
The settling phase of the Italian economy lasted until the first half of 1950. The fall in prices on international markets contributed significantly to this, resulting in a correlative decrease in the cost of raw materials, with a limited impact on company balance sheets, due to reduced inventory levels. The more regular influx of supplies, the more correct use of energy sources, the lower incidence of general expenses and the better use of labor in correspondence with the gradual increase in production also contributed to further reducing costs.
According to TOP-MBA-UNIVERSITIES, domestic wholesale prices fell by 18 per cent, between December 1948 and June 1950. A decline of this magnitude, which in other conditions would have been indicative of a serious crisis situation, was instead, at that particular moment, the natural consequence of the normalization process underway in the country’s economy. It made it possible to correct many of the distortions that inflation had caused in the price system and to reduce and almost cancel the margin that had been created between the wholesale price index and the cost of living index. Encouraged by strong demand for consumer goods, both domestic and foreign, and by a growing demand for capital goods for the completion of the reconstruction and implementation of the first development programs, industrial production marked, between December 1948 and June 1950, an increase of over 20%. Between 1948 and 1950 agricultural production increased by 13% and the gross national product increased by 15% in real terms. A substantial contribution to the recovery was made by American aid from the ERP plan, which brought about 660 million dollars to our balance of payments in the two-year period 1949-50.
During 1949, economic relations with foreign countries improved significantly. The ordinary current account deficit, which had been $ 291 million in 1948, was reduced to $ 191 million, due to the improvement in the trade and transport balance and the increased influx of tourists. American aid and the surplus from capital movements, in addition to covering the current account deficit, resulted in a net accumulation of currency of $ 460 million. The result is a considerable strengthening of the external purchasing power of the currency, which allowed, at the time of the sterling crisis, in September 1949, to limit the devaluation of the lira to only 8% (from 575 to 625 lire per dollar), against devaluations of 30% for the pound sterling and the currencies of the Scandinavian countries, 21-22% for the German mark and the French franc and 12% for the Belgian franc. Until the end of 1949, exchanges with foreign countries took place under a strict administrative control regime and on the basis of strictly bilateral agreements. A first step towards the abolition of the restrictions was taken in January 1950 with the liberalization of imports from other OEEC countries of 77% of raw materials, 52% of agricultural food products and 11% of finished products. The entry into force, starting from July 15, 1950, of a new, broadly articulated customs tariff, replacing the 10% ad valorem duty and the specific duties previously applied to the generality of imported goods, constituted the indispensable premise for the implementation of a more effective trade policy and for further progress on the road to liberalization. Indeed, in September of the same year, the liberalization of imports of finished products from OEEC countries was increased from 11 to 50%.
In the money and credit sector, the formation of monetary resources, which in the early post-war years, and especially in 1948, had marked significant increases, due to the reconstitution of private liquidity reserves, thinned during the war and inflation, marked a certain slowdown in 1949, also due to the decrease in prices, and was reduced even more in the first half of 1950. In 1949 the decline mainly concerned the collection of credit companies and was partly offset by the increases in deposits with postal savings banks, in funding on the financial market and in the funds created for international aid. In the first half of 1950 almost all the collection items showed a decrease; only the collection through the financial market recorded a further expansion. On the lending side, 1949 was characterized by a significant contraction in investments in favor of the Treasury (which halved compared to 1948 in correspondence with the improvement of the state treasury situation) and by an increase in investments in favor of the economy, especially by special institutions, the financial market and the issuing institution for the financing of foreign currency purchases made by the UIC. In the first half of 1950 the share destined to the state again marked an increase due to the use of funds deriving from international aid, while bank loans in favor of the economy and those originating from the sale of foreign currency decreased.
In the early post-war years, state policy in the investment sector was dictated above all by the need to repair the damage caused by the war. A first mention of a development policy, aimed at obtaining the full use of available resources through the implementation of coordinated programs, came in February 1949 with the Plan to increase workers’ employment by building houses for workers (Piano Fanfani), with the threefold purpose of making up for the shortage of houses, alleviating unemployment and imparting, through the expansion of construction, a more intense pace of activity to the entire national economy. Similar purposes had the Tupini law of July 1949 and the Aldisio law of August 1950. construction followed, shortly after, those in favor of agriculture. With the Sila Law and the Extract Law, respectively of May and October 1950, an important experiment of agrarian reform was implemented, aimed at giving the most depressed agricultural areas a new social and economic structure by replacing the small agricultural property of origin. laborers to the previous extensive or land ownership management and the simultaneous implementation of a complex work of land and agricultural transformation of the same areas. A complete development program, not limited to a particular sector, but extended to the whole of economic activity, was put into effect with the law of 10 August 1950 which established the Cassa per il Mezzogiorno, a public body.