Minutes of Meeting No. 177 of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, May 24, 1951
[Here follows a list of those present (20).]
1. Proposed Loans to Nicaragua
Mr. Glendinning2 said that both the Export-Import Bank and the International Bank had requested consideration of a $600,000 loan to Empresa de Luz y Fuerza Electrica, a government-owned corporation, to expand light and power facilities. The Export-Import Bank had been exploring this project with the Nicaraguans for some time. The International Bank had also expressed an interest in this particular project. In addition, the International Bank had requested the advice of the Council with respect to credits to Nicaragua of about $1 million for agricultural machinery, $3.5 million for highway construction, and $500,000 for grain storage facilities. On the technical side no questions were raised in the Staff Committee so far as capacity to repay or the character of the projects was concerned. The loans appeared to be good loans and well within the capacity of Nicaragua to service (NAC Document No. 1145).3
Mr. Glendinning added that the matter was being brought before the Council because of the question as to whether it would be more appropriate for the Export-Import Bank or the International Bank to make the electric power loan to Nicaragua in light of the general principles the Council had agreed upon with respect to the areas of operation of the two banks (See minutes of Meetings No. 172 and 173, and NAC Document No. 1122).4
Mr. Gaston5 said that this application was made to the Export-Import Bank by the light and power company in September 1950, and the Bank had had it under consideration since then. There had been some delays in getting the necessary information from Nicaragua. The item had for several months appeared on the Bank’s monthly list of pending applications, which goes to the International Bank, without protest or question. The item had been discussed with the staff of the International Bank by the staff of the Export-Import Bank, and the [Page 1521] International Bank representatives had stated that they were not interested. The International Bank had come into the picture only after the loan request had come to the NAC for consideration.
Mr. Gaston continued that this was the type of loan which was characteristically an Export-Import Bank type of credit. It involved financing the sale of a specific piece of American machinery, namely, a Diesel electric unit manufactured by the Nordberg Manufacturing Company, which had contracted with Nicaragua to provide this unit to enable it to carry out an expansion program. It was not a general improvement loan. It had never occurred to the Export-Import Bank that it would be considered as an International Bank loan. The International Bank had shifted its ground a couple of times. The IBRD had first raised the question that this loan would be in excess of Nicaragua’s capacity to repay, taking into consideration the new loans the IBRD was contemplating making, which were worked up after the Export-Import Bank loan. The IBRD had later come to the conclusion the loan was within Nicaragua’s capacity to repay, but that since Nicaragua was a member country it should be handled by the International Bank. Mr. Gaston concluded that he did not think the Council would want to make decisions which would completely debar the Export-Import Bank from making loans in IBRD member countries, from making loans in Latin America, or from carrying out its statutory function of assisting American interests in selling abroad.
Mr. Martin6 said that the International Bank had no intention of seeking decisions of the type Mr. Gaston had mentioned. The purpose of the Council’s discussion in the two previous meetings was to establish the point that the International Bank was a primary source of development lending, unless strategic reasons or special policy considerations would make it more appropriate for the Export-Import Bank, or the United States Government as such, to undertake the financing. The International Bank thought it had been agreed that such was the general policy. If that was not the policy the International Bank would like to raise it for further discussion in the Council.
Mr. Martin continued that on the historical ground that consideration of the loan had started before the Council’s action was taken, and regardless of misunderstandings between the staffs of the Bank, the management of the International Bank was perfectly willing to withdraw its request. The reason for wanting the loan was that the International Bank did not feel this was a strategic matter, and since it was making a loan for three items and this could be related to them as a part of an over-all development program the IBRD felt it would be appropriate for this loan to be made by the International Bank. Unless [Page 1522] someone wished some discussion of the strategic importance of this loan he was willing on behalf of the International Bank to withdraw the request.
Mr. Gaston commented that Mr. Martin’s position was that the Export-Import Bank should not make loans abroad except those which had strategic implications. He did not interpret the Council’s action as carrying such implication. The Export-Import Bank still had the function of making loans to promote the export and import trade of the United States, and he thought that the action of the NAC to the effect that in the case of development loans there should be primary recourse to the International Bank was not in conflict with that function.
Mr. Thorp7 expressed the view that the basis on which the Director of the International Bank had stated his position was essentially one that the Council could accept. The Council had accepted the idea that the International Bank was the bank of first resort in development lending, and he gathered that that issue was not being raised here. The Executive Director was saying that in view of the history of this loan he would not want to challenge it on the basis of the general principle that the International Bank was the bank of first resort.
Mr. Thorp added that while he did not think it was necessary to consider strategic considerations in this instance, it was important to the United States Government that this loan be made. The strategic significance was that this electricity was needed to assure proper lighting of an airport and also in connection with the possible expansion of the use of the airport in connection with protection of the Canal Zone. He added that he did not think this needed to be given consideration in the context in which the Council was considering the matter, but it was an additional fact which had some bearing on the problem.
Mr. Gaston said he would not want to let the matter rest on strategic grounds. Mr. Thorp said he was not putting it on that basis.
Mr. Martin observed that Mr. Gaston apparently did not agree with what Mr. Martin believed to be the action of the Council on this matter. It was important, as the Administration approached Congress on the proposed legislation for fiscal 1952, that it be clearly understood what the position of the Council was and perhaps there should be another meeting on this question.
Mr. Gaston commented that if Export-Import Bank were limited to loans having strategic significance it would go a long way to nullify the Act of Congress8 under which the Bank operated. He could not accept that concept.[Page 1523]
The Chairman stated that this was not the basis on which the Council was presently considering the loan. The International Bank had withdrawn its request. He understood that it was the sense of the Council that in the proposed action the reference to consideration of the Empresa loan by the U.S. Executive Director of the International Bank would be deleted. The Chairman then inquired what the sense of the meeting was with respect to paragraph 2 of the action concerning the three loans of about $5 million by the International Bank. No objection was expressed, and this item was approved.
The Chairman said that the Council would have an early meeting on this matter after careful review of the action taken in the past, and consultations with Council members.
The following action was taken (Action No. 469):
1. The National Advisory Council approves consideration by the Export-Import Bank of a credit of $600,000 to the Nicaraguan Empresa de Luz y Fuerza Electrica, S.A., for electric power equipment. It is understood that the credit would have a maturity of approximately ten years, and an interest rate of about 4 percent.9
2. The National Advisory Council advises the United States Executive Director of the International Bank that it approves his consideration, in the Board of Directors of the Bank, of loans to Nicaragua in the following approximate amounts: (a) $1 million for agricultural machinery (b) $3.5 million for highway construction and (c) $500,000 for grain storage facilities. It is understood that the loan for farm machinery would be for 7 years, and the other two loans for 10 years, and that the interest rate applicable to all three loans would be about 4 percent.10
- 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 in the Department of State and preserved as item 70 of Federal Records Center Accession 71 A 6682.↩
- C. Dillon Glendinning, Secretary of the NAC.↩
- Not printed.↩
- For NAC Doc. 1122, April 12, 1951, see vol. i, p. 1596. For NAC Minutes No. 172, April 17, 1951, and No. 173, April 20, 1951, see ibid., pp. 1599 and 1615.↩
- Herbert E. Gaston, Chairman, Board of Directors, Export-Import Bank of Washington.↩
- William McChesney Martin, Jr., Chairman, Board of Governors, Federal Reserve System.↩
- Willard L. Thorp, Assistant Secretary of State for Economic Affairs.↩
- Apparent reference to the Export-Import Bank Act (Public Law 173), approved July 31, 1945, as amended; for text, see 59 Stat. 527.↩
- On May 24, 1951, the Board of Directors of the Export-Import Bank authorized a credit of $600,000 to the Empresa de Luz y Fuerza Electrica to purchase materials, equipment, and services in the United States for the purpose of expanding its production of electricity. For further information, see Export-Import Bank of Washington, Twelfth Semiannual Report to Congress For the Period January–June 1951 (Washington, 1951), pp. 15, 38.↩
- In 1951 the Board of Directors of the International Bank for Reconstruction and Development approved three loans for Nicaragua: (1) on June 7 the Board authorized a loan of $3,500,000 to the Nicaraguan Government to help finance the cost of importing equipment and materials for highway construction; (2) also on June 7 the Board authorized a loan of $1,200,000 to the Banco Nacional de Nicaragua for the purchase in the United States of agricultural machinery and spare parts; and (3) on October 29 the Board authorized a loan of $550,000 for the construction of grain storage facilities. For additional information on these loans, see International Bank for Reconstruction and Development, Sixth Annual Report to the Board of Governors, 1950–1951 (Washington, 1951), pp. 38–39, and Seventh Annual Report to the Board of Governors, 1951–1952 (Washington, 1952), p. 33.↩