FEDERAL RESERVE BULLETIN
quently the reserve ratio during the last fourmonths of the year, notwithstanding the reduc-tion in the gold and foreign exchange reserve,was higher than in the corresponding period of
The yearly average of the reserve ratioin 1929 was 42.90 per cent as against 45.95 percent in 1928. During the year the amountof the State debt due to the bank was reducedby 9,700,000 pengos ($1,697,000). The effectwhich this reduction might have exercised inlowering the reserve ratio was slight comparedwith the contrary effect produced by the farlarger reduction in demand deposits and notecirculation.
NNU L REPORT OF THE B NK OF L TVI
The Bank of Latvia has issued its annualreport covering the year 1929. Sections of thereport are given herewith:
The merchandise balance.—In consequenceof
subnormal harvest, it became necessaryto import large quantities of grain from abroad,not only for food, but also for sowing. Thus,imports were stimulated to a high degree and,in the first half of 1929, goods were imported tothe value of 176,000,000 lats ($33,968,000), asagainst 130,000,000 lats ($25,090,000) in thecorresponding period of the preceding year.The situation was aggravated by the fact thatexports, instead of showing a developmentparallel to that of imports, decreased consider-ably—from 120,000,000 lats ($23,160,000) to100,000,000 lats ($19,300,000). This was due,first, to the suspension of export traffic throughthe obstruction of navigation caused by theabnormally cold winter, while the more ex-pensive import of goods by rail was not affected;and, second, to the fact that, after unfavorableconditions in the flax market had led us topostpone the sale of our flax crop, we had todispose of it later at such low prices that therevenue from flax was considerably diminished.During the second half-year, after the newand comparatively good harvest had beengathered in, conditions became more favorable,partly because imports of grain for immediateconsumption declined. At the same time, ex-ports began to show a decidedly upward ten-dency, especially in the case of timber, flax,butter, and various manufactured goods.Trade returns for the second half of the year,therefore, were less adverse than those of thefirst half-year; but, owing to the enormousexcess of imports during the first six months,the final results of our foreign trade in 1929were very unsatisfactory.Balance of payments and reserves of thebank.—As was to be expected, the adversemerchandise balance was reflected in the bal-
i Taken with some textual revision from the English translation pub-lished by the bank. In addition, the report contains sections dealingwith State
and credits, private credit institutions, agriculture,industry, and commerce, and gives tables and charts showing detailedoperations of the bank.
ance of payments. The adverse balance ofpayments was, of course, smaller because (1)the merchandise balance is always less adversethan is shown by official calculation; (2) theinvisible items in the balance of payments aregenerally favorable, and these were augmentedlast year by the flotation of a foreign loan.Owing to the adverse balance of payments inthe first half-year, the foreign currency reservesof the Bank of Latvia declined by 27,000,000lats ($5,211,000). These reserves had alreadydeclined by 14,000,000 lats ($2,702,000) in thelast quarter of 1928. With the improvementnoted in the second half-year, and the practicalrestoration of equilibrium, there was no furtherreduction in the bank's stock of foreign cur-rency, which actually increased by nearly4,000,000 lats ($772,000). The net decline inforeign currency reserves for the year was23,000,000 lats ($4,439,000), but the bank'spermanent stable reserves always much morethan covered the issue. The bank put intocirculation only 45 per cent of the permissibleissue; and on January 1, 1930, bank notes incirculation were covered to the extent of 121per cent by gold and foreign currency.Credit policy of the bank.—Various changestook place in the employment of resources lastyear, as shown by the altered proportion of thesums allocated to loans, reserves, and bonds.Whereas in the two preceding years the reservesincreased constantly and the amount of creditsremained practically unchanged, last year cred-its increased considerably, while reserves de-clined. The actual increase of credits was evenlarger than indicated by the figures, inasmuchas for several years the bank's loans transferredto the Latvian Mortgage Bank have beenincluded among loans to manufacturers, andhave only lately, since the receipt of debenturesof the mortgage bank been shown in the figuresof investments in bonds.Although the bank's total credits increasedconsiderably last year, the fundamental prin-ciples of its credit policy have not been altered.Every precaution was taken in the granting ofnew credits, and they were extended only forpurposes of normal economic development.