Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

NAC Files, Lot 60 D 137

Draft of Minutes of Meeting No. 172 of the National Advisory Council, Washington, April 17, 1951

Washington, April 17, 1951

secret

[Participants:]	Secretary John W. Snyder (Chairman), Treasury Department
	Mr. W. Averell Harriman, Special Assistant to the President, Visitor
	Mr. Elmer B. Staats, Bureau of the Budget, Visitor
	Mr. Eugene R. Black, International Bank, Visitor
	Mr. Willard L. Thorp, State Department Secretary Charles Sawyer, Commerce Department
	Mr. William McC. Martin, Jr., Board of Governors, Federal Reserve System
	Mr. Herbert E. Gaston, Export–Import Bank;
	Mr. Hawthorne Arey, Export–Import Bank
	Mr. William C. Foster, Economic Cooperation Administration
	Mr. Richard M. Bissell, Jr., Economic Cooperation Administration
	Mr. Frank A. Southard, Jr., International Monetary Fund
	Mr. John S. Hooker, International Bank
	Mr. Thomas J. Lynch, Treasury Department
	Mr. C. Dillon Glendinning (Secretary)

The Chairman opened the discussion by indicating that there were three interrelated questions for discussion, namely: (1) relation of operations of the Export–Import Bank and the International Bank; (2) coordination of loan and grant assistance; and (3) U.S. Government lending for foreign assistance under the fiscal 1952 program.

Mr. Glendinning noted that no formal actions had been prepared by the Staff for review in the Council. He summarized Staff discussion of the three questions as follows:

1. Relation of Operations of the Export–Import Bank and the International Bank.—Since the establishment of the International Bank it had been the NAC view that there was a presumption that members of that institution should look first to it in planning and financing their development. The Staff had felt that for the longer term this thesis might stand but that it was necessary to have a clear understanding as to the implications of the presumption for the longer term and particularly to note its qualifications with respect to the immediate period ahead. The Staff felt that it would not be desirable, either for the immediate period ahead or for the longer term, for this Government to attempt to delineate fixed geographical areas of operations for the two banks or to approve a policy of banking monopoly of one or the other institution with respect to any specific area.

With reference to the financial policy questions which might arise in areas in which the two banks were operating simultaneously, U.S. views should be expressed directly to the Export–Import Bank through the Council and to the International Bank through the U.S. Executive Director. Perhaps the most important question in this context which might arise would be differing judgments by the two banks as to the capacity to repay of particular countries.

With reference to the immediate period ahead, it was the general view of the Staff that in the field of strategic material development the Export–Import Bank rather than the International Bank should assume primary responsibility, especially where materials were being developed for U.S. procurement.

A further important factor which would inevitably affect the area of activities of the two banks in the immediate period ahead was the problem of coordinating grant assistance being given by this Government with loan assistance, especially in areas of particular political significance such as Southeast Asia and the Middle East. In general it was felt in the Staff that in special cases where the U.S. would be linking development assistance with other specific objectives of a political, economic and in some cases military character, the planning of such programs would probably have to be worked out within this Government rather than by an international institution. The fact that primary responsibility would have to be assumed within this Government should not, however, preclude the International Bank from operations in such areas in supplementing or in cooperating with programs undertaken unilaterally by this country.

2. Coordination of Loan and Grant Assistance.—It was noted that this problem had a marked bearing, as previously indicated, upon the relative areas of operation of the two lending institutions in this period. It was suggested that in general, especially in areas of particular political significance, it would be essential that the loans and grants be extended within the framework of a coordinated program and that there be continuous and close cooperation between the lending agencies and the granting agencies. It was also suggested that it would probably be necessary in the presentation of the program to the Congress to indicate in greater detail a more specific lending program than had hitherto been the case.

3. Lending under the Foreign Assistance Program for Fiscal 1952.—It was noted that the Council in December had taken the following action: “Where a country is in a position to service a loan and the projects are of the appropriate type, they should be financed by the established lending institutions under their usual terms and conditions. The Executive Branch should not request authority from Congress or appropriations for special categories of loans under this program.”

It was suggested that the Council might wish to review this action at this time specifically in terms of the possibility that the Congress might desire to place some funds now scheduled on a grant basis to a loan basis and also with reference to implication of this action for advances by the ECA for strategic materials.

The Chairman stated that he wanted to make clear to Mr. Black that the considerations as to the role of the International Bank were directed toward instructions to be given to the U.S. Executive Director and that there was no thought that the Council should impinge on the independence of the Bank as an international institution.

Mr. Gaston indicated that he was in general agreement with the analysis developed in the Staff paper (NAC Document No. 1122).¹ He said that he thought there was ample room for the operations of both of the banking institutions in this period. He stated that the Staff paper had not mentioned two areas in which the Export–Import Bank might operate which were barred to the International Bank, namely, exporter credits and loans without government guaranty.

Mr. Black then read a prepared statement to the Council on his views on the problem (NAC Document No. 1125—copy attached).² At the close of his prepared statement Mr. Black emphasized that he thought the basic issue being discussed by the Council was whether there was an area for operation of an international lending institution in this period. Mr. Black said he recognized the problems in areas of special political importance which were mentioned in the Staff paper, the Philippines, for example, and suggested that the International Bank might appropriately leave those areas to U.S. programs not involving the Bank.

The Chairman asked if any of the members wished to question Mr. Black on the statement which he had just presented.

Mr. Thorp asked Mr. Black why he thought the International Bank should stay out of the Philippines. Mr. Black said he understood the Philippine assistance program would be all grants. On this point he was advised that the Philippine program would involve a substantial amount of loans, more so than grants over the 5-year period. Mr. Thorp commented that he thought the International Bank might make a major contribution to development in the Philippines.

Mr. Martin commented that he could not accept the statement of the issue as Mr. Black had presented it, namely that we were considering whether there was a role for the International Bank in this period. He said our problem was a product of the times. It was his view that there was no formula by which we could clearly resolve the types of loans and areas of operations of the two banking institutions. Rather in this difficult period we must adopt a flexible approach and decide the major questions on an ad hoc basis. He said he felt it most important for the managements of the two Banks to keep in close contact and for the International Bank to be kept fully apprised of U.S. plans for unilateral assistance in areas of particular political importance in order that the International Bank and the Export–Import Bank might make their maximum contributions. He indicated that he thought all the Staff paper really implied was the necessity of adopting our policies and practices to changing circumstances.

Mr. Gaston also indicated that he thought that Mr. Black had not stated the central problem correctly. He suggested that Mr. Black’s statement implied that this Government was endeavoring to plan development on a global basis. He indicated that this was not the case, and that the United States had no global development program. What the Staff had pointed up were the problems to be dealt with in a number of key countries. These were spot conditions and comments with respect to them could not be generalized. Even in these areas he thought there was an important contribution for the International Bank to make.

Mr. Foster indicated general agreement with the outline in the Staff paper and stressed that he felt that there was an important role for grants and for the operations of both lending institutions in facilitating development in this period. He suggested that our current objective was to enable the backward areas to develop their own resources and to offer prospect to their peoples of a rising standard of living in an expanding economy within the free world.

He noted that the problems of development varied considerably from area to area. In some areas, especially Southeast Asia, it was necessary to provide a considerable degree of U.S. leadership. Pie said that in the short-run in such areas the programs undertaken would have to have a heavy unilateral emphasis, but over the longer turn this would not necessarily be the case. He also indicated that the areas in which the United States would have to assume such direct leadership were limited and in many cases the International Bank could and should be expected to evolve longer-range development programs without any direct element of U.S. leadership.

Mr. Foster referred to the cooperation between ECA and the International Bank in Turkey as evidence of the type of joint activity which would contribute to our objectives.

Secretary Sawyer said he was impressed by a suggestion made by Mr. Black, that there might be competition in rendering certain types of assistance, that is between the two Banks on loans, and also between loan and grant assistance. He asked if there were concrete cases which could be cited which would illustrate this problem. Mr. Black said many governments were uncertain in their development planning whether to go to the ECA, the Export–Import Bank, or the International Bank.

With respect to loan assistance, Mr. Thorp said some cases in point were those of India, Pakistan, and Australia, where these governments had approached the U.S. as to whether they should inquire of the International Bank or Export–Import Bank as to their development needs.

Mr. Sawyer asked what happened in the case of the three countries. Mr. Gaston stated that all three of those countries had applied to the International Bank but that Pakistan had discussed its problem with the Export–Import Bank and requested the right to come back for later discussion.

The Chairman asked Mr. Harriman if he wished to comment on this general problem. Mr. Harriman said that he found himself in general agreement with the comments made by Mr. Martin, namely, on the need for flexibility and for dealing with many of the problems of this period on an ad hoc basis. He indicated that he felt that all the agencies present had the same broad objectives in mind and that the problems involved working out practical ways of channeling cooperative effort.

The Chairman summarized the discussion by stating that there appeared to be general agreement that we could not draw fine lines of demarcation of activities of the two Banks in this period. He stressed the importance of continued cooperative effort. He also indicated again that our views on the International Bank with reference to policy were those to be given to the U.S. Executive Director.

The Chairman thanked Mr. Black for the presentation of his views and asked that his statement be made available for the Council members so that they might study it as a basis for further discussion of this problem. Mr. Black then left the meeting.

The Chairman noted that the discussion had already touched upon the problem of coordination of loan and grant assistance and asked if there were any further comments on this matter.

The Council then discussed briefly the question of the programming of loans. On this subject, Mr. Thorp said he thought that in the presentation of the 1952 program to the Congress, it might be necessary to do no more than indicate our views as to the possible borrowing capacity of certain of the individual countries that might be assisted in development, and indicated that we need not give a detailed program country-by-country. Mr. Gaston noted that all the figures to be used in the presentation of the several programs would be illustrative. Mr. Foster agreed that such country-by-country estimates as would be presented on the Hill would be illustrative in character. He stated that he thought the most important problem in connection with the coordination of loans and grants was to set up appropriate channels for coordination. In this connection he referred to the current discussions between the Export–Import Bank and ECA with respect to working out techniques of coordination. Mr. Thorp also expressed the view that he thought this problem, which was one primarily for the operating agencies, was being handled satisfactorily.

The Chairman then referred to the NAC Action on lending, with respect to the fiscal 1952 program, as follows:

• “Where a country is in a position to service a loan and the projects are of the appropriate type, they should be financed by the established lending institutions under their usual terms and conditions. The Executive Branch should not request authority from Congress or appropriations for special categories of loans under this program.”

The Chairman asked whether there were any comments on this general policy statement. Mr. Foster stated that as a statement of general policy he wished to raise no question except in the field of strategic and critical materials. He then referred to the possibility of establishing guarantee arrangements with the Export–Import Bank on loans which might be desirable but which might not meet the Export–Import Bank’s normal standards of risk.

The Chairman inquired of Mr. Foster whether the ECA program for strategic materials currently involved advances with repayment in strategic materials for short-term deliveries or long-term deliveries. He said he understood that ECA was now shifting from long-term to short-term contracts. Mr. Foster replied in the affirmative that ECA was now shifting to short-term arrangements. He indicated that the periods in which they were thinking were roughly 2 to 5 years.

Mr. Gaston stated that the Exports–Import Bank was now making three types of strategic materials loans:

(A) Loans by the Export–Import Bank out of its own funds on usual terms and conditions.

(B) Loans for strategic materials assistance associated with specific stockpile purchase agreements which provide for repayment to the Bank out of the proceeds of the stockpile purchases.

(C) Loans under guarantee by the operating agency.

Mr. Thorp said he thought that the Council action of December 1950 was an appropriate general rule but that there might be exceptions in the field of strategic materials which the Council could appropriately examine.

Mr. Arey suggested that the number of cases involving financing of strategic materials which the Bank could not finance with reasonable assurance of repayment would be limited largely to instances of initial exploration and very early stages of development.

Mr. Staats said that the Bureau of the Budget had been surveying with the agencies interested in the strategic material field the adequacy of existing legislation for financing the development of such materials. He indicated that there appeared to be a number of limitations in the Defense Production Act in that the authority under the Act did not provide for governmental loans and possibly for loans for ancillary facilities such as transport and power. He suggested that it would be helpful if the Council would explore this problem and make appropriate recommendations on the financial arrangements.

It was agreed that the Council would explore this problem further and the Staff was directed to prepare a paper for the next meeting of the Council.

1. Supra.
2. Infra.