Memorandum by the Secretary of State to the President


Subject: Statement of United States Foreign Credit and Investment Policy

There is submitted herewith for your approval a summary statement of this Government’s foreign credit and investment policy intended to serve as a guide to Executive agencies, United States missions abroad and, when appropriate, to United States representatives on international bodies.1 The statement, in which I concur, has been approved by the National Advisory Council as well as the Executive Committee on Economic Foreign Policy.2

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Part I deals with Government loans and credits and includes the following sections: Occasion for Government loans and credits, consideration in extending loans and credits, and terms and conditions of Goverment loans and credits.

Part II, which relates to private investment, outlines measures for Government encouragement of new investment, and includes sections with respect to regulations by foreign governments, desirable attributes of private investment, protection of investments, and information for United States Government.

G. C. Marshall

Statement of United States Foreign Credit and Investment Policy 3

(This Statement is intended to serve as a guide to the executive agencies of this Government in the further development of foreign lending programs, to our foreign missions and to executive agencies in their consultations with foreign governments and with private investors, and wherever appropriate to United States representatives on international bodies concerned with international financial matters.)

The foreign credit and investment policy of the Government of the United States is an integral part of its foreign policy. Within the framework of this foreign policy, it is designed to facilitate the expansion of production and trade, to raise standards of living, and to foster economic and social progress and development, thereby promoting security, fundamental freedoms and peaceful conditions through the world. This country’s desire to see a world trading system established on a multi-lateral and nondiscriminatory basis cannot easily be achieved without the flow of capital in adequate amounts to foreign countries for economically desirable purposes. United States foreign investment policy is supported by measures to minimize barriers to international trade and to eliminate discriminatory restrictions; thereon.4 Such barriers and restrictions discourage investments, limit [Page 954]the capacity to service investments, and interfere with the benefits from investments.

It is the policy of this Government to maintain high and stable levels of domestic economic activity through a comprehensive program that takes into account both domestic and international considerations. Thus, the Government regards it as desirable to include foreign investment as one among several elements of economic activity that should be timed with a view to mitigating economic fluctuations, but only in so far as such timing is consistent with other major domestic and international objectives.

In addition to its foreign loans and credits, the Government may make grants under special programs where it seems desirable to assist foreign countries without requiring repayment. This Statement, however, does not deal with the subject of grants.5

part i. government loans and credits

1. Occasion for government loans and credits

This Government, in furtherance of its foreign policy, and in the absence of an adequate flow of private capital, may help finance the reconstruction or development of the economies of foreign countries. During the post-war period a large share of United States foreign lending is, necessarily, to aid foreign countries in dealing with the difficulties of the reconstruction period.6 The United States at the same time recognizes a world-wide need for accelerated economic development, including the expansion of the production of agricultural and other primary products, and will continue to assist such development.

2. Consideration in extending loans and credits

This Government is concerned to see that adequate economic justification exists for the particular purposes to be served by its loans and credits and that the undertakings involved are adapted to local conditions and can survive without permanent protection or subsidy and without the exploitation of labor.

The United States Government regards it as desirable that foreign investment be provided as far as possible by private capital or, where private funds are not available on reasonable terms, by the International [Page 955]Bank for Reconstruction and Development. During the next few years it is likely that a substantial part of United States lending and investment abroad will take the form of government credits notably through the agency of the Export-Import Bank.7 It is the policy of the United States not to compete with private lending or investing when private funds are available on reasonable terms. The United States seeks maximum private participation in its new and outstanding foreign loans. It may also issue guaranties in connection with private foreign credits and investments.

The United States regards the International Monetary Fund as the appropriate agency to provide short-term financial aid where needed to assist in maintaining exchange stability. In special cases, the United States may, in harmony with the International Monetary Fund, supplement the Fund through the United States Stabilization Fund.8

While it is not the policy of this Government to refuse credits to countries simply on the ground that they are conducting state enterprises or are pursuing nationalization programs, or on the ground that the enterprises to be assisted are in greater or lesser degree controlled by the foreign government, the treatment accorded United States property owners by countries engaged in nationalization programs is of concern to the United States-and is taken into consideration when those countries seek loans from the United States.

The external debt record of the borrower is also taken into consideration as an important factor in the determination of whether a loan shall be extended. Appropriate allowance is made in cases where a borrowing country has defaulted due to difficulties outside its control and has taken such steps as it can toward a reasonable settlement of the default.

The loans of the United States Government are not ordinarily available to finance the acquisition either by government or private enterprise of existing properties in foreign countries. In many instances new enterprises will to some extent increase the competition confronting existing firms, including United States firms, whether the enterprises are financed by private or governmental agencies. Careful consideration is given to these competitive aspects. Where projects are economically justified, however, it is not the policy of this Government to refuse credits on the ground that competition confronting established enterprises will be increased thereby.

It is also the general policy of the Government that its credits should not strengthen or extend business arrangements or practices (whether [Page 956]engaged in by public or private commercial enterprises) affecting international trade which restrain competition, limit access to markets, or foster monopolistic controls.

3. Terms and conditions of government loans and credits

The United States Government recognizes the need for credit terms which borrowing countries can reasonably be expected to meet without undue burden on their balance of payments.

Although the United States for national policy reasons may on occasion undertake special financial risks, its foreign loans and credits, as distinct from grants or other special arrangements authorized by the Congress, are made with the expectation and on the understanding of full repayment according to their terms. In special cases, these terms may provide for repayment in materials desired by the United States Government.

In those cases where the purposes of government lending can best be served by providing funds for purchases in countries other than the United States, arrangements are made to permit the proceeds of loans to be so spent.

part ii. private investment

4. Government encouragement of new investment

Recognizing the desirability both to the United States and to foreign countries of a substantial volume of private foreign investment, the United States endeavors to facilitate and encourage American private foreign investment by such measures as:

the provision of information and such other assistance as can be rendered by United States Government agencies including United States missions in foreign countries;
the negotiation or renegotiation of treaties of friendship, commerce and navigation; treaties concerning double taxation; and agreements looking toward the assurance of fair, equitable and nondiscriminatory treatment of foreign capital;
the offer for sale to private investors of foreign obligations owned, or being acquired by the Export-Import Bank;
the guaranty by the Export-Import Bank of certain private credits to foreign borrowers and the guaranty of exchange convertibility in certain cases;
the promotion of the establishment of international economic and financial conditions conducive to private investment, such as the adoption of measures to eliminate exchange and other restrictions that hamper the growth of trade and investment; and
the elimination of inequitable tax burdens on income derived from investments abroad.

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5. Regulation by foreign governments

The United States regards barriers or onerous restrictions imposed by governments on the investment and withdrawal of foreign capital as likely to deter investment and economic development generally. The United States believes that all governments should facilitate the investment of foreign capital for purposes economically suited to the area, should accord foreign capital fair and nondiscriminatory treatment, and should impose no unreasonable barriers to the transfer of capital and earnings.

In this connection the United States Government supports international action to facilitate the flow of private investment and favors the establishment of standards of fair practice with respect to the treatment and conduct of private international investment. Also, as a means of facilitating international investment, the United States favors the establishment of uniform principles of accounting and of standards of fair disclosure to investors.

6. Desirable attributes of private investment

Private investment is considered most likely to promote good international relations if the investment is made in a manner consistent with the best interests of both the supplying and recipient countries; is for an economically desirable purpose; provides adequate opportunity for the voluntary participation of capital and management of the country where the investment takes place; is adequately complemented by the providing of skills and technology where appropriate; is on an equity basis where appropriate; and when on a loan basis provides for reasonable rates of interest and amortization.

7. Protection of investments

When United States investors become engaged in disagreement with a foreign government or national over investment matters and are unable to secure adequate consideration from foreign authorities, or are subject to arbitrary or unreasonable action, the United States Government will, as the circumstances warrant, use its good offices or take other appropriate diplomatic action on behalf of the American investors. In this connection, when foreign governments take possession of the properties of United States nationals and when the owners are unable to obtain adequate and effective compensation without undue delay, the United States assists the United States owners. While negotiations to adjust defaults on financial obligations are considered the responsibility of the debtors and creditors concerned, this Government assists whenever it can appropriately promote a settlement.

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This Government discourages private investments which are accompanied by terms and conditions or are for purposes likely to become the subject of reasonable public resentment in either country or are otherwise detrimental to good relations between the United States and a foreign country. Among types of investment likely to be subject to reasonable public resentment or to be otherwise deterimental to good relations are investments accompanied by arrangements whereby the investor receives from a foreign government some special privilege such as tax or customs favors (except perhaps for an initial short period of time), exclusive concessions (unless such exclusive concessions are essential to the nature of the undertaking and are in the public interest), investments directly strengthening and extending international private monopolies and cartels, and investments involving exploitation of labor.

8. Information for United States Government

The United States Government desires that American investors contemplating new foreign investments or the expansion of existing investments keep this Government informed of their plans through the Department of State when substantial sums are involved. Foreign securities publicly offered for sale in the United States must be registered with the Securities and Exchange Commission. The Commission also requires information as to foreign loans and direct investments of registered corporations and investment companies.

  1. The Statement was approved by President Truman on August 23, 1948.
  2. The National Advisory Council on International Monetary and Financial Problems (the NAC) was a statutory body established pursuant to the Bretton Woods Agreements Act of July 31, 1945 (59 Stat. 512); it was an interdepartmental committee for the coordination of United States foreign financial policies (see Foreign Relations, 1946, vol. i, pp. 1399 ff.). The Executive Committee on Economic Foreign Policy (the ECEFP) was established on April 18, 1944 by executive authority; it was an interdepartmental committee for the formulation of United States foreign economic policy.
  3. Prepared by the Executive Committee on Economic Foreign Policy as ECEFP D–58/48 Rev. 1. Transmitted as a circular instruction to all Embassies, Legations and Consulates on October 29, 1948 (as Foreign Service Serial No. 920, file No. 800.51/10–2948).
  4. An expression of this policy may be seen in the United States effort to encourage the creation of an International Trade Organization. For documentation see pp. 802 ff.
  5. For information regarding the magnitude of this effort, see the “United States Foreign Assistance Program as of December 31, 1948,” pp. 959 ff.
  6. Notable examples included the Anglo-American Financial Agreement ratified by Congress in 1946; the “3 C” Agreements which wound up certain aspects of the Lend Lease programs with low interest rate loans; the 1948 China Aid Act; the various loans to European nations negotiated by the Export-Import Bank in the immediate post war years; and finally the loan component of the Marshall Plan. Documentation related to these subjects is printed in Foreign Relations, 1946, volume i , and in the appropriate regional volumes for the years 1945–1948.
  7. The semi-annual reports of the Export-Import Bank contain much information about the Bank’s activities.
  8. Created by the Gold Reserve Act of 1934, 48 Stat. 341, the Stabilization Fund was designed to help stabilize the exchange value of the dollar in international exchange.