Despite the surplus in the external current account, the Bank of England faced widespread speculation, during the 1956 crisis, that it would have to abandon the sterling parity, which had been set at $2.80 in 1949. What the United Kingdom faced in 1956 was almost purely a speculative attack on a stable currency against a backdrop of reasonably sound economic policies. One week later, however, Britain undercut the operation by accepting a United Nations resolution for a cease-fire. Although the United Kingdom had not yet established full external convertibility (it would do so in 1958), its system of capital controls was fragmented and porous, and the pound was widely held as a reserve and investment medium. On 26 July 1956 Nasser announced the nationalization of the Suez Canal Company so that its income could finance the Aswan Dam project. The Suez crisis of 1956, involving as it did nationalization by the Egyptian dictator Gamal Nasser of the Suez Canal Company, ... 10 T. Geiger, Britain and the economic problem of the cold war: the political economy and economic impact of the British defence effort, 1945-1955 (Aldershot, 2004); G. … <> See menu on the left for biographical notes on Canada’s fourteenth prime minister. On December 5, the U.K. Executive Director, Lord Harcourt, met with Jacobsson to discuss strategy for handling the financing request. A final roadblock still had to be cleared before the IMF could approve the operation. Two special relationships influenced the course of American economic diplomacy during the Suez crisis. I would just like some ideas of what I can write my arguments about. The Suez crisis had implications on both global and regional levels. ‘Nasserism’ was elevated to the status of an ideology throughout the Arab world. For the United Kingdom, however, Suez was also a financial crisis. Harold Macmillan (Chancellor of the Exchequer and soon to become Prime Minister) and Cameron Cobbold (Governor of the Bank of England) put up a brave front in characterizing the Bank's ability to stave off an attack, but by December the threat of a forced devaluation or float was very real. In 1966 there were 21,250, an average of 58 per day, with net tonnage increasing from some 437,000 long tons (444,000 metric tons) in 1870 to about 274,000,000 long tons (278,400,000 metric tons). Er sneuvelden naar schatting enige duizenden Egyptenaren, 231 Israëlische soldaten en enkele tientallen Britten en Fransen. A second line of defense was needed. by Anthony Gorst, Lewis Johnman, and W . In both cases, the key was to post a large enough number to impress financial markets, convince speculators that a bet against the currency could not be won, and persuade investors to keep their money in the country. Of more immediate concern was the amount of IMF credits to be put at the United Kingdom's disposal. Use Up/Down Arrow keys to increase or decrease volume. The Canal Company responsible for the running of the Canal was a joint Anglo-French venture. Modify your profile. Despite U.S. opposition to the European effort to force Egypt to return control of the canal, Macmillan hoped to build on the United Kingdom's and his own "special relationship" with the United States (his mother was American) to persuade Washington to help him support sterling. We want to be the preferred partner of our customers, employees and stakeholders, and to work together with them to restore and conserve the fundamental elements that are water, air and soil, starting right now. The United Kingdom's first line of defense to protect the reserve floor was intervention in the form of spot purchases of sterling in the foreign exchange market. When diplomacy failed, Israel invaded the Sinai on October 29, and France and the United Kingdom used Egypt's counterattack as an excuse to attack it by air.  The table below presents possible scenarios that affect Suez Canal revenues at each stage of the crisis cycle and the different … Moreover, if the speculative outflow from sterling was not both large and sustained, the Bank of England had enough resources of its own and enough access to credit to fend off the outflow without IMF assistance. Throughout 1956 and 1957, the United Kingdom had a current account surplus despite the disruptions to its international trade, but the value of its currency came under speculative pressure. In late September, at the Annual Meetings of the Boards of Governors of the IMF and the World Bank in Washington, Macmillan sounded out his U.S. counterpart, Treasury Secretary George Humphrey, on the prospects for U.S. assistance. What has been lost in most discussions of these events is the striking modernity of the 1956 sterling crisis and its similarity to the Mexican and other crises of the 1990s. The required size of the rescue package was determined by market psychology, not economics. The Suez Canal was the most critical waterway for Britain in its vital trade with Asia and pacticualrly for the transport of oil. Letter from Harold MacMillan, Chancellor of the Exchequer to Prime Minister Anthony Eden, 29th August 1956 (PREM 11/1135) The Egyptian President, Colonel Nasser, had announced the nationalisation of the Suez Canal over a month earlier. The New York Times Archives. At the beginning of their meeting on December 3, Humphrey continued to insist that his government could not support a large-scale support operation from the IMF. An expanded research article by the author on this topic will appear in IMF Staff Papers in December 2001. Success seemed assured, because Jacobsson shared Humphrey's view that a $1.3 billion package was needed to stem speculation against the pound. For the United Kingdom, however, Suez was also a financial crisis. The canal had been owned by the Suez Canal Company, which was controlled by French and British interests. For the first time, the IMF had played a significant role in helping countries cope with an international crisis. 1 0 obj But the inevitable climbdown might have been harder to arrange. x��YKo�F���#YD+�d��$uѠil4�$F�m��RT��wf��(K�K�������7�Yq��(��dV�W�Ư�2�ݦs�y|�\}_ݯ���&˓2[���ͷ�~N�yZL&��|���.Cv��� ���aVHƒ�p��'�Zn �m��K�Dp7%�e��p0�X$7�a�K���I��H�]�;oʁfW�Á ��)�Bm��������w�" �{7|����]�2�*��lboރ�G�v�,�����.�e��gI(.cf$�z+`%��*�c|"�#|NQ�3M��^P��������m"�g��;�Lr���!O�� � -�� ��ҧ9�!>:]�׾��&�G�{���B���"n�1�=2R�Kp���@6�������y�;�z ՛>e�|�9�+`o0E���d�N�= Domestically it caused a massive political fallout in Britain and resulted in an economic crisis, while internationally it further complicated the politics of the Middle East, threatening Britain’s key diplomatic relationships with Commonwealth nations and the United States-United Kingdom ‘special relationship’. Because no one recognized these parallels in 1995, the Mexican case appeared to be a much more radical departure from past practice than it actually was. If the pound was to be saved, it would have to be saved on December 3. The Suez Canal had strategic and economic impact for both the Soviet Union and the United States. According to one British participant, Humphrey's stated objective "was to demonstrate beyond all doubt to the world that sterling was supported, and had resources sufficient to withstand any attack.". On July 26 of that year, Egypt nationalized the Suez Canal Company and unilaterally assumed control of the canal, displacing the international consortium that had run it for nearly a century. The length of time between the onset of the attack and approval of the financial package was almost the same. In neither case could the return of private sector investors be assured, but in both cases it eventually emerged spontaneously. Humphrey was on a short vacation and would not return to Washington until December 3, the same day that Per Jacobsson was to arrive for his first day as the IMF's Managing Director. Throughout 1956 and 1957, the United Kingdom had a current account surplus despite the disruptions to its international trade, but the value of its currency came under speculative pressure. Success would depend almost entirely on U.S. support. The Suez crisis is often portrayed as Britain's last fling of the imperial dice. Recognize the impact and effects that the Suez Crisis had; Suez crisis from those of current economic forces in the countries of the area. Lester Bowles Pearson A transcript of Lester Pearson's Nobel Acceptance Speech. I have to write an essay on the Suez Crisis and I have to explain how it has made an impact on Canada, Britain, and the world, which will be my three body paragraphs. The Suez Crisis of 1956, in which the Egyptian Government seized control of the Suez Canal from the British and French owned company that managed it, had important consequences for U.S. relations with both Middle Eastern countries and European allies. Left with no alternative, the British cabinet accepted the second half of the UN resolution and set a deadline of December 22 for a full troop withdrawal. To get the help he needed, Macmillan was forced into supplication. Northwest of Suez: The 1956 Crisis and the IMF. The effect of Britain’s declining financial position and its increasing economic dependence on the United States cast the mold in which Anglo-American policy during the crisis would be made. But the IMF's lending to the United Kingdom was cut from new cloth, and it had major implications for the IMF's later role as an international crisis manager. Even then, he warned that a drawing on the IMF of more than $561 million (the most it could draw in relation to its quota without having to apply for a stand-by arrangement) would be problematic. Israel's invasion of the Sinai on October 29 and the opening of the Franco-British military offensive two days later solidified U.S. and world opposition to this military intervention and greatly accelerated the drain on U.K. reserves, which increased to a pace that clearly constituted a speculative attack. The Bank of England was forced to deplete its U.S. dollar reserves to defend the fixed value of the pound sterling against the dollar. Although Humphrey gave Macmillan no promises, the chancellor returned home confident that he could count on his American friends to help him maintain "the strength of sterling.". For Egypt, France, and Israel, this lending was conventional balance of payments support. endobj Harcourt then made a more coherent argument: without this financing, it would be difficult for the United Kingdom to maintain progress toward establishing full convertibility of sterling for current account transactions. Those implications stem primarily from the rescue of the pound sterling from a speculative attack that created the first major financial crisis of the postwar era. Macmillan tried unsuccessfully to arrange a meeting with Humphrey in late November, but he also tried to convey to him through emissaries that a failure to support sterling could have catastrophic political consequences, including a triumph for international communism. Had Eden called a referendum during the Suez Crisis, there’s little reason to believe he would have done any better. The crisis was suddenly over. France, Israel, and the United Kingdom almost immediately began planning a joint military action to retake control while seeking to win international support for a diplomatic solution. The 1956 Suez Crisis was a savage revelation of Britain's financial and military weakness and destroyed much of what remained of Britain's influence in the Middle East. The economic consequences were more subtle and temporary and would not by themselves have constituted an international crisis. If the Americans would not provide bilateral financing, Macmillan expected to be able to count on the apolitical tradition of the IMF to permit the United Kingdom to draw the modest amounts to which it was virtually entitled. It did not push the IMF into new activities, and was of interest primarily because of the political circumstances that precipitated it. None of these three countries had a convertible currency, and speculative financial pressures were unimportant. It was not obvious that the IMF should play any role at all in the resolution of the economic or financial difficulties of the countries involved in Suez. Then, quite abruptly and to the astonishment of his visitors, he swept aside those worries and proposed that the British should draw $561 million immediately and take out a stand-by arrangement for another $739 million, a massive total package of $1.3 billion (100 percent of the U.K. quota in the IMF). Receive emails when we post new As this chapter points out, the confrontation at Suez had the opposite effect to that intended by the planners of the invasion. The IMF's lending to the four countries directly involved in the 1956 Suez crisis, and particularly to the United Kingdom, raised the institution's profile and established its role in helping member countries cope with international financial crises. Up until this point, the IMF had treated the current and capital accounts as essentially separable. Maintaining that rate was important for several reasons. On December 4, Macmillan would have to announce that a massive loss of reserves in November had pushed the balance below the $2 billion floor. On December 3, the British government announced that it would withdraw its troops over the next few weeks. A large multilateral package would have to be assembled to end the crisis, and the IMF was the institution best placed to do so. Suez Crisis, (1956), international crisis in the Middle East, precipitated on July 26, 1956, when the Egyptian president, Gamal Abdel Nasser, nationalized the Suez Canal. The concept of stand-by lending subject to agreed policy conditions was still being developed and had been applied in only a few cases. Such threats doubtless seemed fanciful to Humphrey, who replied simply that the United States would support the United Kingdom when the latter was "conforming to rather than defying the United Nations." The cease-fire was announced one day later on the 6 th of November. The U.S. government wanted the British and French troops out of Egypt, and the United Kingdom's need for financial assistance gave the Americans the perfect lever to force an immediate withdrawal. In this sense, did the twenty-first century really begin in 1956? When British politicians face off against the economy, they rarely emerge victorious. endobj In both cases, the crisis was precipitated by a clash of policy goals between maintaining a stable exchange rate and simultaneously establishing open markets for the currency. That provision was intended to preserve the IMF's limited financial resources for lending to promote international trade in goods and services. The extent of bilateral support was still vague but it now could be counted upon and publicly announced as forthcoming. stream in economic terms, now moved the Egyptians to respond in kind. But first let us have the background to Suez trade. It is important to bear in mind that Pearson was the only UN diplomat who had the influence, connections and national stature to achieve what had never been achieved before . Nearly forty years before the pre-Christmas speculative attack on the Mexican peso, the IMF was drawn into its first international crisis, one that had many of the same aspects of speed and speculation that we recognize today as hallmarks of the globalization of financial markets. " �2�iզ�K�. Because the United Kingdom's role as an international banker made that separation impossible, this rescue operation was about to break the mold. If they were to fall below that floor, the Bank assumed, this would be interpreted in financial markets as a signal that devaluation or even floating would have to be seriously considered. 00/192 (Washington: International Monetary Fund, 2000). That this brief flare-up is universally regarded as a crisis is primarily because of the upheavals it engendered in political relations. The 1956 Suez Crisis is widely remembered as a critical event in post-war British history, which helped bring to an end the era of Britain as a global empire and superpower. In 1956 the Suez Canal was nationalised by Gamal Abdel Nasser.The Suez Canal Crisis of 1956 effectively ended the political career of Sir Anthony Eden but it served to greatly advance the already very high standing Nasser had in the Arab world. Indeed, the United Kingdom did not obviously qualify for IMF assistance in 1956. Britain immediately made the drawing of $561 million to replenish its reserves and announced that it had another $739 million available on stand-by. Nasser emerged from the Suez crisis as the pre-eminent leader of Arab nationalism. Interesting Facts About the Suez Crisis Sir Anthony Eden was the British Prime Minister at the time. James M. Boughton, an Assistant Director in the IMF's Policy Development and Review Department, was Historian of the IMF from 1992 to 2001. Macmillan took no further action during October, as the Bank of England continued to sell off its dollar reserves to maintain the $2.80 exchange rate and the cabinet continued to prepare for war. Suez Crisis, 1956. As noted earlier, the IMF's Articles of Agreement prohibit it from lending to finance a large and sustained capital outflow. Egypt had shown that it was determined and able to pursue its own interests. %PDF-1.5 On 13 January 1957, Fernand Baudhuin, Professor at the Catholic University of Louvain, analyses in the Belgian Conservative daily newspaper La Libre Belgique the political and economic impact of the Suez crisis … Although the IMF also began to lend regularly to help countries cope with the temporary payments effects of economic imbalances, that ongoing activity was quite small in amount relative to the occasional spurts in lending occasioned by financial crises. Johnman, Lewis, 1989, “ Defending the Pound: The Economics of the Suez Crisis, 1956, ” in P ost-W ar Britain, 1945 – 64: Themes and Perspectives , ed. In the midst of a whirl of activity, it is easy to forget history. It is just as well that we know them. He acknowledged that the credits would finance a capital outflow, but Jacobsson suggested (rather stretching the point) that, to the extent that these flows were in the form of "leads and lags" in payments, they were linked directly to the financing of the current account. Speculators against sterling still had a one-way bet, but the odds were now pretty long against it. <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>>
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