Memorandum by the Economic and Finance Adviser of the Bureau of Inter-American Affairs (White) to the Assistant Secretary of State for Inter-American Affairs (Miller)

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Subject: Proposed EximBank Credit to Mexico.

I am informed that ARA is giving vigorous support to a proposal that the EximBank grant a general line of credit to Mexico of $l50 million, with affirmative acceptance to be taken so that President Aléman can make public announcement of the new credit in his September 1 address to the Mexican nation. The actual disbursement of the $150 million would be made only against specific projects subsequently approved by the EximBank.

I am aware of the political reasons for this type of approach, but wish to outline to you the possible implications of this action relative to US political and economic relations with the other nineteen republics.

EximBank negotiations and decisions with the other American Republics have been based on certain guiding principles set forth in Section 7 of its General Policy Statement, Revised August 1, 1947.1 Three of these basic principles which are relevant to the Mexican proposal are as follows:

Reasonable assurance of repayment.

“(c) As a matter of prudent management and in conformity with the Act of 1945, the Bank makes only loans which offer reasonable assurance of repayment.

“In passing upon loan applications the Bank endeavors generally to select those most likely to improve the economies and international financial position of the borrowing countries. Loan applications are carefully analyzed by the Bank’s staff from the economic, financial, engineering, and legal points of view; they are approved or rejected only by the Board of Directors.”

It is quite possible that the normal procedures of the National Advisory Council would indicate that Mexico has additional borrowing capacity of a limited character. It should be pointed out, however, that with the exception of Paraguay, Mexico already has the highest ratio of dollar contractual and service obligations to annual export to the US of any Latin American country. This percentage of 17.7 compares with 10.9% for Chile, a country regarded as close to a maximum figure, and 5.4% in the case of Brazil. Furthermore, Mexico has an unusually heavy liability on the service of direct dollar investments, this item having amounted to $56.9 million in 1949. The only [Page 962] conclusion which I wish to draw at this time from the foregoing is that Mexico’s debt service position is in such a precarious position that the promotion of a $150 million additional credit without adequate NAC study carries with it a heavy responsibility.

Bank policy regarding loans only for specific purposes. The General Policy Statement contains the following paragraph:

“(b) In accordance with its established practice and with the policy of Congress expressed in the Export-Import Bank Act of 1945, the Bank generally makes loans only for specific purposes. A corollary of this principle is that disbursements under a commitment by the Bank are made only upon receipt of evidence satisfactory to the Bank that the purposes of the loan have been or are being carried out by the borrower. Conversely, the Bank does not make lump-sum advances but extends credits only for purposes which it has previously approved.”

It is my understanding that this policy has been invoked and adhered to by the Bank in numerous cases where requests from Latin American countries have been received for a general credit line.

Financing of local currency expenditures. The General Policy Statement also includes the following:

“(d) As a general rule, the Bank extends credit only to finance purchases of materials and equipment produced or manufactured in the United States and of technical services of American firms and individuals, as distinguished from outlays for goods, labor, and services in the borrowing country or purchases in third countries.”

Inasmuch as some of the operations under the proposed loan program for Mexico would include EximBank dollars to finance local currency expenditures, at least in the case of irrigation, the proposed credit would constitute a third deviation from the guiding principles of the EximBank.

Finally, it is my understanding that Assistant Secretary of the Treasury Martin has been attempting to work out a formula to settle jurisdictional differences between the International Bank and EximBank under which the former would deal with loans of a long-term character.2 It seems to me that the categories set forth by the American Embassy in Mexico for the new loan program, namely, irrigation, national railways, new railway construction and port works, would in the main fall in the long-term category.
In my judgment the adoption of the line of action proposed for the Mexican credit will raise many questions of discrimination in the minds of other Latin American countries—questions which will not be easy to answer. These problems would not be insurmountable if the EximBank had at its disposal a large enough unused lending authority [Page 963] after the granting of Mexico’s loan so that it would be in a technical position to adopt a liberalized credit policy towards the other nineteen American Republics based on investment in long-term projects, willingness to finance local currency expenditures, extension of general credit lines and liberal treatment of the question of repayment capacity. This, however, is not the case.

  1. Not printed.
  2. For additional documentation on this subject, see pp. 757 ff.