Memorandum by the Export-Import Bank of the United States to the National Advisory Council on International Monetary and Financial Problems ( NAC )3
NAC Doc. No. 1079
Subject: Requested increase in the lending authority of the Export-Import Bank.4
Request
In a letter to the President dated November 30, 1950, the Board of Directors of the Export-Import Bank asked that the Congress be requested to increase the lending authority of the Export-Import Bank by at least $1.5 billion. The Gray Report recommended that the lending authority of the Export-Import Bank be increased by at least this amount.5 The steering group on the foreign aid program has agreed that this increase in the lending authority of the Bank is an integral part of the foreign aid program now under consideration and should be so presented to the Congress, even though the specific legislation will be separate and will be considered by the Banking and Currency Committees rather than the Foreign Affairs Committees.6
[Page 1574]Need for U.S. Foreign Lending
Foreign loans by the United States are needed for precisely the same reasons as foreign aid in other forms. The basic objective in providing foreign economic aid is to create situations of political, economic, and military strength in the free world. More specifically, foreign loans as well as grants and technical aid are necessary to fulfill three major purposes, aside from strictly military purposes: (1) Increased production and movement of critical and strategic materials required for defense, (2) increased production by friendly nations from their own domestic resources of goods required for their minimum essential consumption and maintenance, and (3) minimum essential progress on the part of friendly governments toward meeting the basic needs of their peoples and thus maintaining political stability. Foreign aid extended for these purposes is distinguishable from aid designed to bring about general improvement over the long term in levels of productivity and consumption. Aid of the latter type can be eliminated in periods when defense preparations or war make heavy demands on available resources. Aid for the three purposes listed above, however, is not marginal but instead constitutes an essential and integral part of a defense program. Although the demands of the military defense program on United States resources will sharply limit the resources available for foreign aid, non-military foreign assistance, including loans wherever repayment prospects exist, will be necessary in some minimum amount to meet the purposes mentioned.
It is believed that wherever essential United States purposes can be achieved by investment in the form of loans made on the usual economic basis including reasonable prospects of repayment and conventional terms and conditions, loans rather than grants should be made. It may be anticipated that there will be substantial opportunity for the accomplishment of United States foreign aid objectives through loans rather than grants (except for technical assistance), particularly in Latin America, parts of Asia, Africa, and Europe, and the British Commonwealth. It is believed also that the increased dollar earnings of many of the underdeveloped countries resulting from the high demand for their products will permit them to service larger debt than would have been otherwise possible.
Necessity for Increase in Lending Authority of the Export-Import Bank
The Export-Import Bank is the sole foreign lending agency of the United States Government. The Bank has the experience necessary for the conduct of the type of lending program which will be necessary and possible from this time on and for at least the next few years. However, the existing resources of the Bank do not permit any significant amount of additional lending. At present approximately [Page 1575] $500 million of its present lending authority remains uncommitted. To this there may accrue approximately $150 million from repayments of principal due up to December 31, 1951. However, commitments cannot be made on the basis of principal payments which are anticipated. Furthermore, there are now pending before the Bank and in an advanced stage of consideration applications totalling approximately $125 million. Moreover, the exigencies of the international situation and the interests of the United States require that the Bank reserve at all times a substantial fund, perhaps in the neighborhood of three hundred to four hundred million dollars, to meet sudden and unanticipated demands. Consequently, the amount available for new lending on the part of the Bank at the present time is actually only in the neighborhood of one hundred million to two hundred million dollars. Without a substantial increase in its lending authority, the Bank will not be in a position to make the foreign loans which will be necessary in the interests of the United States in the next few years. In fact, without such an increase, the Bank will very shortly be immobilized so far as new credits are concerned.
Undesirability of Pre-allocation of Increased Lending Authority
It is both unnecessary and undesirable to attempt to support a request for an increase in the lending authority of the Bank by outlining a program of loans. It is unnecessary because an increase of $1.5 billion or more in the lending authority of the Bank represents simply an increase in the capital of the Bank. It constitutes an increase in the funds available for lending but it does not constitute a commitment to lend those funds in any given period of time. In short, an increase in the lending authority of the Bank differs completely from an appropriation of funds to be spent within a given year.
It is undesirable to attempt to justify an increase in the capital of the Bank on the basis of a program of loans to be made for several reasons. First, in the rapidly changing situation of today it is believed to be important that the Bank and thus the United States Government maintain maximum flexibility. The experience of the Bank both in the last war and in the period since the last war has demonstrated the value of a fund available to be used under certain conditions to meet needs which arise quickly and are frequently quite unanticipated.
Moreover, any attempt to justify an increase in the capital of the Bank by listing and adding possible loans inevitably will result in hampering necessary freedom of judgment in making loans and quite possibly will lead prospective borrowers to believe that funds are earmarked for them. These dangers will be particularly pronounced if such pre-allocations are made by the National Advisory Council or by the Congress. The right of the United States Government to make judgments on individual loan applications must be reserved without qualification. This will not be achieved if an attempt is made to project [Page 1576] possible loans even on an area basis in support of a request for increase in the lending authority of the Export-Import Bank.
It should be noted also that it is in fact impossible to program loans to be made in any period of several years. Loans, unlike ordinary expenditures, are not unilateral actions. Loans are made by agreement with borrowers and always involve at least two parties. The probability that such agreements can be concluded cannot be predicted long in advance, particularly in a rapidly changing world situation.
For all of these reasons it is believed to be highly desirable that the request for an increase in the lending authority of the Export-Import Bank be supported on the basis of the obvious and readily understandable fact that loans will need to be made in the essential interests of the United States for the purposes mentioned above and that it will be impossible for the Export-Import Bank to make such loans unless its lending authority is increased.
- Master file of the documents of the National Advisory Council on International Monetary and Financial Problems for the years 1945–1958, as maintained by the Bureau of Economic Affairs of the Department of State.↩
- The National Advisory Council on International Monetary and Financial Problems (NAC) was an interdepartmental committee established by the Bretton Woods Agreements Act of July 31, 1945 (59 Stat. 512). The Bretton Woods Act provided for United States participation in the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, or “the Bank”). The National Advisory Council was to coordinate policies of the U.S. Government with respect to its relations with these two international financial institutions. The NAC Files of the Department of State are located in Lot 60 D 137.↩
- For documentation regarding the role of the National Advisory Council in the operations of the Export-Import Bank from the inception of the NAC in 1945, see Foreign Relations, 1946, vol. i, pp. 1391–1436 passim.↩
- For documentation on the (Gordon) Gray Report to the President on foreign economic policies, November 10, 1950, see ibid., 1950, vol. i, pp. 831 ff.↩
- For documentation on the formulation of the foreign aid program and the steering group named here, see pp. 266 ff.↩