BERLIN, June 10, 1927


III. The Work of the Commissioners and Trustees.

The Commissioners and Trustees are all presenting at this time interim reports covering the work in their respective fields.


a. The Commissioner of the Reich bank.

The report of the Commissioner of the Reichsbank reviews the policies pursued by the Reichsbank in the light of credit conditions in Germany during the first nine months of the current Annuity year. It refers in this connection to the report of the Reichsbank for the calendar year 1926, presented at its annual meeting on March 28, 1927. German credit conditions and the currency in their more general bearing upon the operation of the Plan as a whole are considered later in this Report in the chapter devoted to that subject.


b. The Commissioner for the German Railways.

The report of the Commissioner for the German Railways considers in detail the results attained by the German Railway Company during its second business year ended December 31, 1926, for which the accounts have just been approved. It also reviews in a preliminary way the operations of the Company during the first part of the year 1927.

Considering first the results of the business year 1926, the Commissioner points out that in the early part of the year the monthly receipts of the Company from both passenger and freight traffic fell below those of the corresponding period in 1925, primarily because of the business depression that prevailed at the time. The situation with respect to passenger traffic did not improve materially during the year. From June, 1926, onwards, however, the monthly receipts from freight traffic, stimulated in part by the effects of the British coal stoppage and in part by the general revival of business, exceeded those of 1925. As a result, total operating receipts for the year amounted to about 4,541 million reichsmarks, or 3 per cent less than the total for the previous year. Total operating expenditure amounted to about 3,681 million reichsmarks, or 7 per cent less than in 1925, so that operating receipts exceeded operating payments by approximately 860 million reichsmarks. This result, in the opinion of the Commissioner, is to be regarded as satisfactory, in view of the unfavourable conditions that prevailed at the outset of the year. The Company was able, during the year, out of its current earnings, to provide the necessary sums for the service of its reparation bonds and its outstanding reference shares, to make substantial contributions to its reserve funds, and to realize a net profit of about 85 million reichsmarks, setting aside 70 millions for new orders and carrying forward a balance of 15 millions to 1927. Capital expenditures, amounting altogether to about 408 million reichsmarks for the year, were financed for the most part, out of the proceeds of the issues of reference shares and the credits made available to the Company by the Reich for the purpose of combating unemployment.

For the first part of the business year 1927, the Commissioner reports that the results are favorable. Passenger traffic remains at about the 1926 level, but freight traffic in the early months of the year has shown a large increase as compared with the returns of the same months in 1926, and even a small increase as compared with 1925. In consequence, the Company's receipts have shown an encouraging upward tendency. At the same time the Commissioner points out that the Company is confronting many demands for increased expenditures and for lower tariffs and that it will have to continue to follow a prudent financial policy, "since any exaggerated increase in charges or decrease in receipts would rapidly eliminate the margin of profit left by the operation of the railway."

The Commissioner calls attention to the fact that during the entire period under review the Company has effected punctually and in full all payments that became due on account of the service of its reparation bonds. These amounted during the business year 1926 to a total of 580 million gold marks, or only 80 millions less than the sum payable during a standard reparation year. The payments out of the yield of the transport tax have also been regularly made either by the Company in behalf of the Reich or by the Reich itself, in accordance with arrangements which have been previously described. The transport tax contribution during the third Annuity year amounts to 290 million gold marks. The actual yield from the tax in respect of the first eight months of the year is reported to have been about 182.3 million reichsmarks. This figure, however, as the Commissioner points out, is based on provisional receipts and is subject to adjustment in connection with subsequent payments.

The Commissioner indicates that reduction in staff has continued the number employed having decreased from about one million in October, 1923, to about 680,000 in March, 1927, and that the staff may now be considered as at a normal figure. The savings, however that have resulted in 1926 from the reductions in staff have bee largely offset by increased requirements for pensions and social charges. No salary or wage increases took effect during the year 1926, but increases in housing allowances and wages during 1927 will call for an additional expenditure estimated by the Company at 96 million reichsmarks.

The Commissioner reports that no changes have been made in the normal tariffs either for passenger or freight traffic, but that the Company has continued its policy of extending special rates to numerous classes of traffic in the interests of the German economy. The Commissioner points out in this connection that the average rates for both passenger and freight traffic during 1926 exceeded those of 1913 by about 35 per cent; this increase he compares favorably with the increases that have taken place in other countries with stabilized currencies and with the general increase in the cost of living in Germany. He also refers to the steps which have been taken with a view to a possible revision of the normal freight tariff structure, and states that a report on this subject from a special committee of enquiry is expected in the near future. The Commissioner points out that the possibility of revision is necessarily limited by the progress of receipts and by the increased expenditures for payments to staff and otherwise which may be contemplated.

The Commissioner's report speaks in detail of the competition that the Company has been meeting from motor, water, air and transport enterprises, and of the steps which have been taken in this connection to protect the proper interests of the Company. The Commissioner refers particularly to the aids and subsidies which some of these competitive services have received from the Reich and the States, and also to the programme for the construction of canals and improvements to waterways.

In considering the finances of the Company, the Commissioner calls attention to the fact that preference shares in the principal amount of 780 million gold marks, or 88 1/2 per cent of all those issued and outstanding, are held by the Reich or its public services, and to the desirability under favorable conditions of repurchase and sale to the public as contemplated by the Plan. He also refers to the Company's relations with the so-called Verkehrs-Kredit-Bank, and to the new arrangements for depositing with the Gold Discount Bank the working funds of the Company in excess of those required for the settlement of cash transactions and freight credits. This matter is the subject of discussion elsewhere in this Report in the chapter on Credit Conditions and the Currency.


c. The Commissioner of Controlled Revenues.

The report of the, Commissioner of Controlled Revenues shows that the system of control established under the Plan has continued to function smoothly and effectively. The Commissioner has regularly made the monthly payments to the Agent General on account of both normal and supplementary budget contributions within the first few days of each month, and has begun, as from September 1, 1926, the accumulation of the prescribed reserve fund of 100 million gold marks, "intended primarily to meet any deficiencies in the assigned revenues." The Commissioner refers in this connection to the agreement described in his previous report, for modifying the method of administering the control of the revenues, and states that, with the co-operation of the Finance Ministry of the Reich, the new procedure has worked with entire satisfaction ever since its inauguration.

The average monthly receipts from the assigned revenues during the first seven months of the third Annuity year amounted to about 219 million reichsmarks, as compared with a monthly average of about 156 millions in the corresponding months of the preceding year. Their total yield during the financial year ended March 31, 1927, amounted to about 2,405 million reichsmarks, as compared with the Finance Minister's original estimates of about 1,900 millions and actual receipts during the preceding twelve months of about 1,850 millions. The German budget for the current financial year places the estimated yield of the assigned revenues at 2,400 million reichsmarks and the Commissioner points out that at this rate the controlled revenues would provide a margin of nearly 100 per cent over the budgetary contribution of 1,250 million gold marks payable in a standard reparation year.

The Commissioner reviews in his report the special conditions affecting the several controlled revenues, and calls attention particularly to the largely increased revenues from customs.


d. The Trustee for the German Railway Bonds.

The Trustee summarizes the various steps taken since his last report in discharge of his duties as Trustee, and reviews the payments which have been made by the German Railway Company on the 11 milliard gold marks, nominal amount, of reparation bonds given by the Company. The Trustee refers to tile Company's balance sheet as at the end of its second financial year, and in that connection emphasizes the satisfactory record of operation and earnings which it has made. As the Trustee points out, the good record of the Company, taken together with the improvement in the general credit of Germany since the beginning of the Experts' Plan, will be most helpful lit facilitating the sale of the German Railway bonds when the time comes to offer them on the investment markets of the world.


e. The Trustee for the German Industrial Debentures.

The report of the Trustee for the German Industrial Debentures covers the first half of the third Annuity year, and summarizes the measures taken during this period in the execution of the Industrial Charges Law of August 30, 1924. The Trustee refers particularly to the administrative problems which have arisen in connection with transfers of real property by concerns subject to the charge, and calls attention to the fact that under the provisions of the so-called 9th Decree in execution of the Industrial Charges Law the general redistribution of the charge has been postponed for one year and will now take place during the calendar year 1927. This postponement was made necessary by the difficulties encountered by the revenue offices of the Reich in making the assessments for the tax on real and personal property. It will be recalled that the working capital of each concern, as obtained from these assessments, forms the basis for the distribution of the industrial charge. The Trustee points out that one effect of the Government's decision to postpone the redistribution has been to compel the Bank for German Industrial Debentures and the Trustee to make claim for 1927 payments even against concerns which have failed or otherwise liquidated in 1926, and that this accounts for a considerable number of interventions in bankruptcy proceedings on the part of the Bank and the Trustee.

The Trustee refers in his report to various other transactions that took place during the first half of the third Annuity year in connection with the security attached to the individual negotiable debentures and also as a result of the movement towards concentration in industry. The Trustee describes also the further steps which have been taken in execution of the so-called Aufbringungsgesetz, or Law for the Production of the Industrial Charges, which provides for contributions from business concerns other than these directly subject to the industrial charge., with a view to adjusting and equalizing the charge on industry. In this connection, a summary is given of the 4th Decree issued under this law, which prescribes the method of determining the payments to be made under during the calendar year 1927.

The Trustee makes mention of the fact that the Bank for German Industrial Debentures completed its second business year on December 31, 1926, and gives a summary of its balance sheet and profit and loss account as at that date. The Bank, it will be noted, carries in its "Guarantee Reserve Account" a fund of over 20.7 millions of reichsmarks, resulting primarily from payments made under the Aufbringungsgesetz.

For the third Annuity year the amount payable by German industry under the Industrial Charges Law rises to a total of 250 million gold marks, representing interest at 5 per cent per annum on the 5 milliard gold marks, nominal amount, of industrial debentures. This sum is payable in equal instalments on April 1 and August 25, 1927, and the Trustee reports that the first instalment of 125 million gold marks was paid promptly when due, through the Bank for German Industrial Debentures, to the account of the Agent General for Reparation Payments at the Reichsbank. The Trustee estimates that the total payments on account of the industrial charge in respect of the third Annuity year, including the payments to the reserve fund at the Bank, represent a burden of about three-fourths of one per cent on the working capital of the concerns subject to the charge.

The Trustee states, in conclusion, that there have been no sales or redemptions of individual negotiable debentures or industrial bonds during the period covered by his report., and that he still holds in his possession the full 5 milliards of securities provided for in the Industrial Charges Law, composed of individual negotiable debentures to the nominal amount of 653.5 million gold marks and industrial bonds aggregating 4,346.5 million gold marks, nominal amount.

Section IV, The German Budget

Table of Contents