Business: Free Enterprise for Franco?

In Madrid, the jittery trading on the Bolsa (stock exchange) last week reflected the seriousness of Spain’s financial crisis. Fortnight ago, stocks plummeted in the worst crash in Franco’s 21-year regime. Some fell as much as 50% in a week, and the average of 99 selected stocks was down 7.5%. The market recovered somewhat, but last week started down again, and trading was so feverish that the Franco-controlled paper Arriba cried: “The Bolsa has become a roulette wheel.”

In an effort to restore confidence, Franco issued a rosy and unsolicited statement of 1,600 words to the New York Times, had it bannered in all Spanish papers. “What certain people choose to call a crisis,” said Franco, “is only a small difficulty among the many arising in the course of our economic progress.” This gave rise to a wry joke circulated among the businessmen in Madrid cafes: “In Spain we have nothing—no dollars, no foreign trade, no economic crisis.”

The market panic was the latest example of the disintegration of confidence by investors in Spain’s down-sliding economy. Cost of living has shot 8% above last November, and now is four times the 1940 base, largely because worker unrest forced an untimely general wage boost last year. On top of this, Franco’s government cranked out 30% more paper money to pay its bills, knocking down the value of the peseta to a free-market low of 56 to $1. Last week the peseta improved slightly to 51 (official rate: 38.95 to $1). The foreign-trade deficit is up to $220 million v. $173 million in 1955, largely because of drought and last year’s early frost, which lopped 50% off agricultural Spain’s usual exports of $600 million. Dollar reserves are down to $40 million, and there is talk of dipping into the Bank of Spain’s $120 million in gold bullion.

“Slow Restoration.” To shore up his country, Franco has moved to surrender some of his tightfisted control over every facet of the Spanish economy. When he recently sacked many of his top Cabinet members (TIME, March 11), he recruited the nation’s top economist, outspoken Pedro Gual Villalbi, to boss economic policy. Villalbi quickly warned that Spain was in a sickly state and that the road to recovery would be painful—the first time in 21 years that a top government spokesman has admitted that Franco’s economy was in trouble. What Spain needs, he said, “is a slow restoration of economic freedom,” a return to many of the principles and practices of free enterprise.

In a frantic rush to catapult its horse-and-buggy economy into the 20th century, Spain for six years has gone on a Soviet-like factory-building spree. But planning was poor; there was often a lack of raw materials, modern machines and technical know-how to keep the showplace plants running at planned capacity. Power also is short. Spain depends on hydroelectric power for three-quarters of its supply, and last year’s drought held output to a low 13.75 billion kwh. Faced with such bottlenecks, the Pegaso factories have turned out only 4,000 heavy-duty trucks since 1947, although capacity is 3,000 a year. Shortages of iron ore, coal and electricity cut last year’s steel output by 9%, to 1,146,000 tons. Payrolls are overloaded. Until last December, an employer could not fire incompetent or excess workers without paying staggering fines. Many plants that needed only 400 workers had 1,000. Production costs are so high that Spanish industries cannot compete in world markets.

Slow Progress. Economist Villalbi’s cure for these ills calls for a mixture of more freedom in some areas and more government control in others. He aims to brake the factory-building fling, concentrate instead on developing raw materials. To conserve the current supply of basic metals and coal, he wants to set up procurement priorities that would give the first choice to heavy industry. In hope of winning the support of businessmen, Villalbi has even promised that they will get a toe hold in the basic industries owned or controlled by the government.

But progress toward economic freedom is likely to be slow, is already being fought by Minister of Industry Joaquin Planell Riera, who runs the state-owned industries. At first the government may give private businessmen a share in its consumer-goods and service industries, such as textile plants and the Iberia Air Lines, while holding fast to shipyards, auto plants, utilities and oil refineries.

Until the reforms get under way, Spain hopes to get a temporary summer fillip from the tourist trade (about $100 million a year). But for the long haul, Spain looks for U.S. aid to put the country on its feet. Since 1954, stopgap U.S. food shipments at times prevented near fam ine, and $460 million in U.S. aid virtually kept the country solvent. Last week Span ish newspapers were blasting the U.S. for doling out less than the $200 million a year that Spain insists it needs. Actually, Spain will get very close to that amount: about $150 million a year in 1957 and 1958 in direct grants, money to build Air Force bases, and the sale of U.S. surplus food for pesetas that are plowed back into the Spanish economy. Thereafter, the U.S. figures that Spain will need at least $100 million a year for five years in grants and food before it will be a fair risk for Government loans.