Perhaps there are there few better ways to end a year than by clearing off a long-standing debt.
If that is the case, then 2006 was a very good year for the British government who took the ultimate step towards putting an end to six decades of war debts.
A statement released by the Treasury disclosed that by the 29th of December 2006, the United Kingdom would have settled all WWII debts owed to both the United States of America and Canada.
Settlement of these decades-old debts was meant to be achieved after 50 installments. After some delay, with payments kicking off in 1950, the 50th installment was paid on the last Friday of 2006.
When the Second World War was in full swing, the British government came under heavy financial pressure as hostilities against the Axis raged on. During this period, the British economy was reportedly channeled towards war production, and exports were drastically reduced.
However, by 1941, Britain was faced with serious financial challenges and was in need of funds to finance the war.
The United States came to the rescue through low-interest loans and the Lend-Lease Act. America was neutral at the time, but such funding allowed them to help aid the war against the Nazis without getting directly involved.
Following America’s lead, Canada also came on board with additional assistance.
Under the Lend-Lease Act, Britain was able to acquire food, oil, and other materials from the United States. These items were not meant to be paid for, and Britain heavily benefitted from the arrangement, as did other countries.
However, with the abrupt end of the Lend-Lease Act, several items which were in Britain or in transit needed to be returned or paid for. Britain required most of these items during the early post-war period, and with the reality of Britain’s inability to pay immediately, an Anglo-American loan took place.
Britain was indeed, in a ‘financial Dunkirk.’
In 1945, following a number of meetings and lots of paperwork, the UK received a total of 4.33 billion dollars from the US. Canada would also loan an additional 1.93 billion US dollars in 1946.
The loans were supposed to be repaid in 50 annual installments at an interest rate of 2%. The very low-interest rate made the loan seem highly advantageous. And with payments kicking off in 1950, it was expected that the debts should become history by 2000.
However, owing to serious financial and political situations and claims that the exchange rates were impractical at certain times, the British government deferred payments for up to six years.
One of the most pressing challenges faced by the British in the course of paying back the war debts was the convertibility of the pound sterling.
After the British had made the pound convertible, there was a massive surge of activities from nations with pound sterling balances who quickly began to exchange their money for dollars, shrinking Britain’s dollar reserves.
The British government was forced to suspend the convertibility and initiated drastic measures which saw the curtailment of domestic and overseas expenditure.
By 1950, Britain was in debt equal to more than 200% of its Gross Domestic Product. Britain’s deferment of payment was never against the stipulated terms because under the agreement payments could be deferred for up to six years.
Relying on this, the UK deferred the annual installments in 1956, 1957, 1964, 1965, 1968 and 1976.
These deferments extended the duration of payment all the way to 2006. By the end of December 2006, the British government had paid the sum of 83.25 million US dollars (equivalent to 42.5 million British pounds) to the U.S and 22.7 million US dollars to Canada.
These payments were the last parts of the installment, bringing an end to Britain’s debts from the Second World War.
The amount paid together with the added interest equated to virtually twice the amount borrowed in the mid-1940s.
The last working day of 2006, being the 29th of December, was slated to be the D-Day of the final payment, and the British government showed no interest in extending the duration.
A formal appreciation from Ed Balls, Economic Secretary to the Treasury was made after the payment, to officially seal off the commitment between the British, the US, and the Canadian governments.
This debt might have been erased, but there are still debts owed by and to Britain which date all the way from the First World War. There are also huge debts owed to Britain by other countries.
However, at the height of the Great Depression, payments of all war debts relating to that conflict were suspended by a moratorium. As a result, since 1934, no repayments in respect of WWI have been received from any debtors.