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Sat, Dec 30, 2006 - Page 10 News List

UK pays off World War II loans


For most people World War II is a distant memory or relived through books or television.

But for the British Treasury, the war only ended yesterday.

British officials will, at the push of a button, make two electronic transfers of so-called "war loan" across the Atlantic, marking the end of a chapter of British history that began in 1945.

The final payments of the loans, to the US and Canada, are not negligible -- US$83.25 million and US$22.7 million respectively.

In 1945 Britain borrowed US$4.34 billion from the US consisting of a US$3.75 billion line of credit and a "lend-lease" loan facility of US$586 million.

The following year the government agreed to a US$1.185 billion line of credit loan from Canada.

The money was primarily meant to assist in the reconstruction of Britain's exhausted economy and shattered infrastructure after the war.

But the lend-lease loan related to wartime supplies already in transit from the US under president Franklin Roosevelt's program of the same name, which began in 1941 and ended in 1945.

Roosevelt famously said the scheme was like lending a neighbor a hosepipe to put out a fire.

It marked a significant step away from the US' post-first world war isolationism.

Under lend-lease, shipments of US$31 billion worth of supplies vital to Britain's war effort, including thousands of trucks and transport aircraft, were made free of charge by the US.

After the program ended, goods already in transit were charged for, but at a huge discount.

Shipments were also made to other countries.

By the end of the war, for example, two thirds of the trucks used by the Soviet Red Army were from the US.

Repayments on the loans began in 1950.

Since then Britain has paid 50 installments worth US$7.5 billion to the US and US$2 billion to Canada at a 2 percent rate of interest.

British Economic Secretary Ed Balls, said: "This week we finally honor 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 post-war period. We honor our commitments to them now as they honored their commitments to us all those years ago."

Successive British governments have never in the duration of the loans lobbied to have them reduced or canceled, and have always insisted it is right to meet the commitments it made in return for the financial support given by the US and Canada before and after the war.

The government deferred six annual installments 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 option for the British government to defer payments was set out in the terms of the original loan agreements.

In 1950, Britain's national debt stood at about 200 percent of gross domestic product, much higher than today's figure of 36.8 percent.

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