811.516 Export-Import Bank/12–2347
Memorandum by the Special Assistant of the Division of Investment and Economic Development (Stenger) to the Director of the Office of Financial and Development Policy (Ness)
Subject: Agenda for Meeting of Board of Directors Eximbank December 24, 1947.
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4. Brazil—Laminacao Nacional de Metais. Reynolds & Company of New York, acting on behalf of Laminacao Nacional de Metais of São Paulo, has requested a credit of $4,869,923 to finance the purchase of U.S. equipment and materials required by Laminacao Nacional de Metais for the expansion of its existing facility for the manufacture of non-ferrous metal products. The application covers two credits; (1) $3,569,923 for the purchase of equipment and materials required for plant construction and equipment and (2) $1,300,000 for the purchase of U.S. raw materials to be processed in the plant. The latter to be in the form of a revolving credit.
The total cost of the expansion program is estimated at about $5.5 million, of which $4,358,000 represents the cost of U.S. equipment and materials. Virtually all contracts for the equipment and materials have been placed and an advance payment of $788,000 has already been made to U.S. supplies. The credit requested for the purchase of capital goods is, therefore, equal only to the residual payments to be made or $3,570,000.
The Company had expected to finance the entire cost of the expansion program out of earnings and borrowings in Brazil, but credit limitations imposed by the Brazilian Government in an effort to restrain inflation and a shortage of dollars in Brazil had made it impossible for the company to complete the program without [Page 457] foreign credits. Reynolds state they have found it impossible at this time to obtain credits from private U.S. sources.
Laminacao Nacional de Metais is one of a group of Brazilian companies reported to be the largest and most important distributors and producers of non-ferrous metals and their products in South America. The stock of the entire group, which consists of about eight affiliated companies, is owned by Francisco Pignatari. From a small beginning in 1983 Laminacao has grown rapidly, and its indicated net worth at the end of 1946 was $9,435,000 as compared with $300,000 in 1936.
The conclusions reached by the staff of the Bank are: (1) expansion of non-ferrous metal manufacturing in Brazil appears to be a sound line of development for Brazilian economy and should result in substantial foreign exchange savings equivalent to at least $2.5 million per year; (2) the prospective earnings of the company after completion of the proposed expansion program should be adequate to permit repayment of the credit within a period of 7 years; (3) the guarantee of the Banco do Estado of São Paulo, which was offered by the applicant, does not appear to be entirely satisfactory, but it should considerably reinforce the obligations of the company; (4) extension of the credit would be a material assistance to a number of U.S. manufacturers; and (5) the request for a revolving credit of $1.3 million for the purchase of raw materials should not be approved because it appears that the company should be able to finance such imports without recourse to the Eximbank.
There are really two questions to be decided, and the one of paramount importance is whether or not the Bank should delay action on this application until the Bank has received adequate assurances that the Victoria-Minas Railway (Rio Doce) will be completed. The staff of the Bank recommends that the Board not delay action on the Laminacao Nacional de Metais credit application because of the Rio Doce matter. The staff of the Bank further recommends that the Board approve a credit of up to $3,570,000 for the purchase of U.S. materials and equipment required for the expansion program, the credit to be unconditionally guaranteed by the Banco do Estado with adequate assurances of availability of exchange, the credit to be repaid in 7 years from June 30, 1949 with interest at 4 percent.
Recommendation: The interested divisions in the Department have agreed unanimously that the Bank should not withhold action on this application or any other application for Brazil, with the possible exception of a government credit, because of the delay in the execution of the Rio Doce contract. It is the firm conviction of the people in the Department that applications for exporter credits and other applications for credits which may benefit Brazilian economy should be [Page 458] considered on their merits. The Rio Doce project was a war-time emergency project, and the Eximbank should consider it fortunate that it has not received a request for a moratorium or for the cancellation of the credit.
Insofar as this particular application is concerned, the Department is not prepared to go along with the recommendation of the staff. In spite of much discussion and a number of meetings, the people in the Department have been unable to agree with the staff of the Bank. ED, FN, IR and CP object to its approval until certain objections have been clarified. (1) Laminacao has stated that it will force the competing Brazilian producers out of the market. Do we wish to assist one individual in establishing a monopoly? (2) The inability to obtain private capital financing has not been conclusively demonstrated. (3) A possible tie up with Aluminum of Canada with restrictive trade agreements. (5) Expansion of Laminacao’s facilities might result in competition with the U.S. for raw materials of which there are serious shortages; such as, copper and lead. (6) Interference with the Marshall Plan.
I am not entirely in agreement with the above. I am merely reciting some of the objections, especially on the part of CP and IR. In view of this, I suggest that the Department propose that the Bank defer action until the differences of opinion have been reconciled. It may be a good idea also to clear this project with the Embassy in Rio, which I believe has not been done.
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