896.10/11–951
Memorandum by Mr. John F. Shaw of the Office of Philippine and Southeast Asian Affairs to the Acting Officer in Charge of Economic Affairs in that Office (Tyson)
Subject: Meeting of the NAC Working Group on Refunding of the RFC Loan to the Philippines.
The NAC Working Group met on Thursday, November 8 to consider the preparation of a staff document for the NAC relating to the refunding of the RFC loan. The document drafted by Treasury officials and presented to the Working Group is attached.1
During the course of the discussion Mr. Penick of the RFC2 circulated an opinion of the corporation’s legal counsel to the effect that [Page 1581] the RFC was unable to refund these loans of $60 million but might be able to extend the loans. Mr. Penick explained that the loans were made initially pursuant to Section 3, Public Law 656, 79th Congress3 and that the RFC authority with respect to these loans expired July 1, 1947. Consequently the RFC has no authority to refund the loans. The legal counsel, however, was of the opinion that the corporation’s administrative responsibility in connection with these loans continued and that the corporation could take action, postponing the due date. Mr. Penick also noted that the RFC was unable to do anything on the loan due in 1953 since it was not clear at the present time as to whether the Philippines might default on this loan. He said that the RFC hoped to be able to sell these loans to the Export–Import Bank.
The Export–Import Bank representative, Mr. Lynch, apparently had no instructions as to the position which the Bank might take with respect to these loans. The opinions which he expressed during the meeting were his own. He seemed strongly of the opinion that refinancing of these loans would place them in the category of new loans. Initially the RFC loans had been made for budgetary purposes. The Philippine Government now wishes them refinanced because of the hardship which repayment of these loans would now make upon efforts of the Philippines to further their economic development. He argued strongly for higher interest rates if the loans were to be refinanced, pointing out that the Philippine Central Bank charges 4½% interest for its loans. Others present also seemed to be of the opinion that the Philippines will have to pay at a higher interest rate if the loans are refunded. The RFC representative spoke in favor of an interest rate which might be adjusted in accordance with the cost of borrowing money over the next ten years.
The legal problem raised by RFC appears to have stalled NAC action for the present on the Philippine application for extension of the due date on these loans. In the meantime the RFC is to re-examine its position with respect to refunding the loans; the State Department was requested to submit its views on refunding for incorporation into the staff document prepared by the Working Group.4
- Not found attached.↩
- J. Dabney Penick, Consultant to the Administrator.↩
- 60 Stat. 901.↩
- In telegram 1823, from Manila, November 19, directed to ECA and the Treasury Department as well as to the State Department, Chargé Harrington, Dr. Renne, and Mr. May jointly recommended refunding of the RFC loans on economic, financial and political grounds. They emphasized in part that strain on the Philippine balance of payments was to be avoided and stated a preference that the interest rate under refunding not be raised. “Quid pro quos which US Govt might exact in event refunding approved we might seek obtain strong Phil Govt statement re determination effectively enforce income tax collections minimum wage legislation and agric reform programs along lines proposed by STEM. Also we might request concessions re mil bases.” (896.10/11–1951)↩