NAC files, lot 60 D 137, “Documents”
Representative Jacob K. Javits to the Secretary of the Treasury (Snyder), at Mexico City 1
Dear Mr. Secretary: The annual meetings of the International Bank for Reconstruction and Development and the International Monetary Fund afford an opportunity for the United States representatives to consider the usefulness of these agencies in the interests of the United States and of world peace and stability. There is widespread dissatisfaction with the operations of the Fund and the American representatives should utilize this opportunity to improve the usefulness of the resources now controlled by this agency. The Fund was established to overcome trade restrictions and currency instability. Its purposes were intended to be to deal with temporary balance of payments difficulties. But it is obvious that these purposes are unrealistic as the world has developed since Bretton Woods in 1944 and that the purposes of the Fund have become largely obsolescent due to world conditions. The following circumstances bear out this conclusion.
- 1.
- According to Sec. 4 of Article XIV of the Articles of Agreement of the Fund2 it was intended that the postwar transitional period for maintaining restrictions on payments and transfers for current international transactions on the part of the members of the Fund should end March 1, 1952. This date has come and gone; yet the 1952 annual report3 of the Fund says: “In this situation the use of exchange restrictions and quantitative import controls, frequently of a discriminatory nature, has seemed inevitable to many countries; and during the past year there has been a tendency to extend and intensify these restrictions and controls.” At the moment the Fund is engaged in a series of conferences with its members on this subject, but action apparently must be deferred to an unforeseeable future.
- 2.
- Members of the Fund are complaining that the limited nature of the Fund’s activities disables it from contributing to bring about the convertibility of currencies and from helping to facilitate international trade under existing conditions.
- 3.
- Certain countries, like France, find it impossible to arrive at an agreement as to par value of their currency with the Fund in spite of the terms of the Articles of Agreement.
- 4.
- The total business done by the Fund since its inception aggregates slightly over $850,000,000 despite the fact that its aggregate capital exceeds $8,000,000,000 and it has available over $4,000,000,000 in gold, hard currencies and equivalent which is essentially frozen in terms of usefulness to the world. It is in effect admitted in the Third Special Report to the President and the Congress of the National Advisory Council on International Monetary and Financial Problems that the main activities of the Fund are now technical advice on foreign exchange practices and balance of payments difficulties to its membership and to conduct a world forum for finance ministers at the times of the annual meetings.
- 5.
- Operations of the Fund are showing a material loss. For the fiscal year ending April 30, 1952 this loss is $1,518,345. Only $236,718 of earnings have been realized from service charges on exchange transactions while over 90% of the total income—$2,994,595 compared with a total income of $3,252,193—represents “charges on funds holding of members’ currencies and securities in excess of quotas”.
It seems clear that those of us who are deeply interested in United States leadership in international cooperation must be alert to situations of this character before the opponents of cooperation get hold of them and misuse them as arguments against such cooperation. The International Bank has on the whole had an effective and useful career. Its operations have been much more limited than they should be, considering the needs for the development of the underdeveloped areas and the rehabilitation of war-torn economies but the capital with which it has operated, though inadequate, has been well and effectively used as far as it has gone. The same cannot be said of the Fund. This agency has not met the expectations of Bretton Woods or of the Congress when it approved Bretton Woods and authorized the United States to join the Fund. It has not satisfied the international community who are its members and the events of the last five years and the foreseeable future have largely invalidated any such limited role of a great international institution as “financing temporary balance of payments deficits on current account for monetary stabilization operations”. Sufficient time has now elapsed in the course of the annual meetings so that the attitude of the other members can have been ascertained and I believe at this time the United States representatives should come forward with much more far-reaching proposals than they have already made. I commend the following to you therefore—
An effort should be made to put the resources of the Fund to much greater use than they are put to now for the purposes of [Page 319] world peace and stability. Accordingly the United States representatives should sponsor a resolution to call a conference for the amendment of the Articles of Agreement of the Fund and the Bank with a view either (a) to consolidate the Fund and the Bank; or (b) to enable the Fund to operate in developing greater international trade through clearance and financing facilities. I think that the consolidation of the Fund and the Bank is the wiser and more effective course.
A merger of the Fund and the Bank I have been advocating since 1949 and I believe it more pertinent than ever now. The European Recovery Program has come to an end with the fiscal year ending June 30, 1952 and for the fiscal year 1952–53 the United States is engaged in the Mutual Security Program. Under this program the emphasis is upon military assistance and this is shown by the fact that of the appropriations for foreign aid for this fiscal year over 90% are for military assistance and under 10% are for economic and technical assistance. The International Bank will now have a much bigger role to play in the development of underdeveloped areas and the rehabilitation of war-torn economies still presenting such difficulties in so many parts of the world. This is a vital phase of the struggle of all the free peoples against totalitarianisms and this is the time to enormously strengthen the Bank for its mission.
I urge upon you action as aforesaid and would very much appreciate your views as soon as possible.
Sincerely,
- A covering memorandum, dated Sept. 23, 1952, not printed, transmitting this letter to the members of the NAC, indicates that identical letters were received by Overby, Southard, and Hooker. Secretary Snyder was in Mexico City to attend the Seventh Annual Meeting of the Boards of Governors of the IBRD and the IMF.↩
- For text of the Articles of Agreement of the International Monetary Fund, formulated at the U.N. Monetary and Financial Conference, held at Bretton Woods, New Hampshire, and opened for signature at Washington, Dec. 27, 1945, see TIAS No. 1501, or 60 Stat. 1401.↩
- IMF, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1952 (Washington, 1952).↩