Foreign Relations of the United States, 1946, General; the United Nations, Volume I

Department of State National Advisory Council Files

Memorandum by the President of the Export-Import Bank (Taylor) to the National Advisory Council

NAC–17

[Washington,] September 21, 1945.

Re: Objections to a General Rate of 2⅜% on Emergency Reconstruction Loans by Export-Import Bank

The NAC Staff Committee has proposed that the Export-Import Bank should charge a uniform rate of 2⅜% on emergency reconstruction loans to liberated and war-devastated countries. The Export-Import Bank strenuously objects to this proposal for the following reasons:

1. The Bank is obligated by the legislative history, if not by the letter, of the Export-Import Bank Act of 1945 to operate without a net loss to the United States Government. In other words, it is expected to operate on a “business” basis. To operate it on any other basis would seriously prejudice the chances of obtaining additional lending authority from the Congress.²¹

2. It has been generally agreed that an average minimum interest rate of 3% on the aggregate of its loans is probably required to enable the Bank to be self-sustaining. This rate represents the average cost to the Treasury of borrowed funds, or 2%, plus a 1% margin to cover losses and administrative expenses. The International Bank for Reconstruction and Development requires 1% to 1½% for similar purposes.

3. A 2⅜% rate is considerably below the probable cost to the United States Government of making loans through the Export-Import Bank and is, therefore, a subsidy rate. It may be justified for loans to 3(c) countries to cover the cost of goods requisitioned before V–J Day under existing agreements providing for such a rate. But to apply it to all emergency reconstruction loans would surely result in eventual heavy net losses on the books of the Bank.

4. The Bank fully appreciates that loans to liberated and war-devastated countries are for emergency purchases in the United States; that great economic benefits will accrue to the United States as a result of the acceleration of the reconstruction process which loans by the Export-Import Bank will make possible; and that the terms and conditions of such loans should be as liberal as possible.

Nevertheless, the Bank cannot keep its accounts in terms of the general economic effects of its operations. It must keep its accounts in dollars and cents.

5. The Bank is required by its basic law not to compete with but to supplement and encourage private capital. But a 2⅜% rate will clearly prevent either the participation of private capital at the time the loans are made or their refunding in the future. To charge such a rate would, therefore, violate the express instruction of Congress.

6. The recommendation of the Staff Committee sets no objective limit to the amount of loans which the Export-Import Bank shall make at a subsidy rate. Since it does not, the Bank and those who advise it would be forced into the impossible task of deciding once and for all what countries shall get credit at this rate and how much. By contrast, if emergency reconstruction loans are made at a normal rate (except for 3(c) commitments), credit can be extended as needed over a period of time. In this way, the resources of the Bank can be husbanded and made available according to need and capacity to repay as reconstruction proceeds. This would be an orderly process and promote the most effective use of the Bank’s resources.

The Export-Import Bank strongly recommends that emergency reconstruction loans, except for 3(c) commitments, be made at the rate applying to normal loans for reconstruction and development, i.e., at not less than a 3% average rate.

Wayne C. Taylor

21. The first offical intimation that the Executive Branch might request from Congress “interim” additional lending authority for the Export-Import Bank came in President Truman’s special message to the Congress on September 6, 1945 in which he set forth a 21-point program for reconversion from wartime to peacetime. He said in pertinent part: “We are preparing to extend the operations of the Export-Import Bank. Our objective is to enable the peace-loving nations of the world to become self-supporting in a world of expanding freedom and rising standards of living. … I foresee the need for additional interim lending power [for the Export-Import Bank] to insure a rapid and successful transition to peacetime world trade. Appropriate recommendations will be made to the Congress on this matter when we have completed the exploratory conversations already begun with our associates [presumably a reference to the governments of the war-devastated countries].”