NAC files, lot 60 D 137, “Minutes”
Minutes of the 200th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, June 15, 1953
Mr. Andrew N. Overby (Acting Chairman), Treasury Department
- Mr. William L. Hebbard
- Mr. Elting Arnold
- Mr. Henry J. Bittermann
- Mr. George Bronz
Mr. Samuel C. Waugh, State Department
- Mr. Jack C. Corbett
- Mr. J. J. Stenger
Mr. Samuel W. Anderson, Commerce Department
- Mr. Clarence I. Blau
Mr. Arthur W. Marget, Board of Governors, Federal Reserve System
- Mr. Lewis N. Dembitz
Mr. Walter C. Sauer, Export-Import Bank
Mr. Melville E. Locker, Mutual Security Agency
- Mr. George L. Artamonoff
Mr. Frank A. Southard, Jr., International Monetary Fund
Mr. John S. Hooker, International Bank
Mr. R. E. Short, Agriculture Department, Visitor
Mr. Oscar S. Zaglits, Agriculture Department, Visitor
Mr. James W. Howe, Bureau of the Budget, Visitor
Mr. George H. Willis (Acting Secretary)
- Mr. C. L. Callander (NAC Secretariat)
- Mr. Sidney B. Wachtel (NAC Secretariat)
[Here follows a table of contents.]
1 and 2. Export-Import Bank Memorandum: “Basic Policy Governing the Extension of Export-Import Bank Credits” and Proposed Export-Import Bank Credits for Textile Machinery Exports
Mr Willis stated that the Staff Committee had considered the proposed textile machinery credits and had asked the Export-Import Bank for a general paper describing its policies with respect to exporter credits prior to consideration of the specific textile machinery loans. Subsequently the Export-Import Bank paper (NAC Document No. 14661) was discussed in the Staff Committee and then revised by the Bank. The revised paper, now before the Council, covers not only exporter credits but also the general lending policy of the Bank. In the Staff Committee discussion, Mr. Willis continued, emphasis was placed upon applying the same criteria to exporter credits as to other types of loans. Thus, the balance-of-payments position of the recipient country, its capacity to repay, and the contribution of the loan to its economic development should all be considered in connection with both exporter credits and development loans. Mr. Willis noted that the paper points out the unique position of the United States with respect to foreign lending and observed that one special factor in the textile machinery loans is the domestic situation of the exporting firms. These companies have suffered reduced markets and some degree of unemployment, and are therefore concerned with maintaining sales abroad. He added that the Staff had recommended discussion of the general policy paper and the textile machinery loans at the same time. Mr. Willis concluded by outlining the nature of the loan proposals, emphasizing the significance of an appropriate interest rate (NAC Documents Nos. 1458, 1460 and 14732).[Page 331]
In response to a request from the Chairman, Mr. Sauer amplified some aspects of the general paper and the loan proposals. He called particular attention to the section of the general paper relating to the dependence of certain U.S. producers and manufacturers on foreign markets, and explained that the paper was broader in scope than that requested by the Staff Committee, since the Bank wished to raise with the Council some of the general policy questions of concern to the Bank. He informed the Council that the two Whitin Company loans were first proposed to the Bank last fall, when various companies presented to the Bank an account of falling sales and the view that a large potential market existed in Brazil for textile machinery if financing were available. The Bank had suggested that the companies obtain specific orders for textile machinery and then reapply. The companies returned in April at the time the Bank was involved in extending the $300 million credit to Brazil. After considering various proposals, the Bank decided to submit the Whitin credits to the Council, emphasizing (1) the need of the company for the orders, (2) the economic need for textile machinery in Brazil, and (3) the favorable long-run prospects for Brazil. Mr. Sauer concluded by saying that the Bank was convinced there was no domestic financing available to the Whitin Company, that the company did not possess sufficient resources to finance the sales itself, and that if these loans were not forthcoming, Brazil would probably obtain the machinery from other sources.
Mr. Anderson commented that the paper is clear and concise, and pointedly raises the policy issues which are of interest. He felt that the Council must carefully consider the basic policy issues involved in exporter credits. Commerce favored the two Whitin loans and considered them justified in the light of the Bank policies stated in the paper, but wished to point out that such loans involve dollar aid supplementary to the well-developed programs of the International Bank and to our own foreign aid program. He noted that other industrial countries assist their exporters to obtain medium-term credits of this sort, and thought that the NAC should examine the proposal that the U.S. consider making funds available for such exporter credits. He added that he had no information on the magnitude of such funds in other countries.
Mr. Sauer told of another pending exporter credit, for the sale of aircraft in Brazil, involving the desire of the aircraft company to keep U.S. aircraft in the Brazilian civilian market and to keep in operation its production lines for civilian aircraft. He indicated that approval of the Whitin cases would be a precedent for submitting the aircraft loans to the Council.
Mr. Waugh agreed with Mr. Anderson that the policy problem must be studied, especially in view of the desire of the United [Page 332] States to promote private investment abroad. He favored granting the Whitin credits pending completion of an overall study but was not convinced that it would be wise to segregate a particular sum for exporter credits. Mr. Anderson called attention to a widely held view that the Export-Import Bank should lend for purposes such as basic development projects in which private investors are not interested. Mr. Overby agreed, saying that the point is frequently made that the Government should stay out of direct competition with private investment and should restrict its activities to projects such as sanitation, port development and the like.
Mr. Marget observed that he was disturbed by the concept of exporter credits and felt strongly that two major points need to be settled in the development of a policy toward them: (1) A careful definition of the area to be covered by these credits must be established. This would involve a deliberate finding that a given American industry is in need of this kind of assistance. (2) In view of the fact that exporter credits are in fact credits to the recipient country, we must examine the question of lending to that country just as in the case of other loans. This would mean in each case a positive finding that United States lending to that country is appropriate.
Mr. Locker felt that the main point of interest to MSA was the problem of tied loans,3 which he felt should be considered in any examination of Export-Import Bank lending policy. MSA felt that loans should be made by the established lending agencies, but that the Export-Import Bank policy on tied loans leaves a gap in the area of lending possibilities. He concluded that despite the statement in the Export-Import Bank paper that the situation of the recipient country had to be examined, the Council should allow for cases in which overriding reasons may exist for making a loan without regard to the situation of the recipient country.
Mr. Waugh felt that if this kind of credit is appropriate for the Bank, the only problem in the Whitin cases is the condition of Brazil. Mr. Sauer explained that the Bank has made a fairly large number of exporter credits in the past but that since the war the amounts have been dwarfed by the much larger amounts of reconstruction and development loans. Mr. Marget inquired whether the Bank would not welcome some protective procedure which might help the Bank in dealing with pressure groups. Mr. Southard noted that the Bank’s procedure is selective and that the Bank has been able to resist pressure in specific cases. He added that in many such cases the Department of Commerce could help the Bank.[Page 333]
Mr. Short expressed his opinion that in foreign lending the feasibility of industrial development and the question of proper balance between industry and agriculture in the borrowing countries need to be carefully weighed, as well as the contribution of the borrowing industry to the economy. From this point of view he could see no objection to the Whitin loans, especially since the Brazilian textile industry is not now self-contained.
Mr. Overby indicated that these loans might be closer to the basic functions of the Bank than a number of recent Export-Import Bank loans. Mr. Sauer agreed that this historically is true. Mr. Overby shared Mr. Marget’s concern over the ultimate outcome of the exporter credit proposals.
The discussion of the general policy paper continued for some time. Among additional points noted were the fiscal effect in the United States of a large program of exporter credits and the fact that the paper does not deal with some aspects of the broad problem of foreign lending. In concluding the discussion the Council took formal note of the paper and agreed that further consideration would be desirable both by the Staff Committee and the Council. It was agreed accordingly that this subject would be placed on the Council agenda for reexamination at a later date.
In response to a question by the Chairman as to the availability of private capital to the Whitin Company, Mr. Sauer stated that the Bank was convinced that private capital for these sales is not available at a reasonable interest rate, and that there is no source of funds in the United States for this kind of credit. It was agreed that approval of the two loans would not be considered a precedent for a general policy of exporter credits, and that until a further study of the general policy problem is completed further exporter credits would not be desirable. The question of an appropriate interest rate was discussed and agreement was reached on 6 percent.
Action: The following action was taken (Action No. 621):
The National Advisory Council approves consideration by the Export-Import Bank of two credits to finance the export of textile machinery to Brazil, one of approximately $595,000 for the export of machinery to S.A. Industrias Reunidas F. Matarazzo of Sao Paulo, and the other of approximately $255,000 for the export of machinery to S.A. Industrias Votorantim of Sao Paulo. It is understood that the applicant, the Whitin Machine Works of Whitinsville, Massachusetts, is prepared to participate in the financing to the extent of 15 percent of the purchase price and that the credits would be evidenced by the obligations of the purchasers. It is further understood that the credits would have a final maturity of 5 years from the date of shipment and that the interest rate would be 6 percent.
[Here follows discussion of a proposed Export-Import Bank loan to the Marcona Mining Company in Peru, postponement of the capital subscriptions of China and Czechoslovakia to the IBRD, and basic materials loans]
- Document No. 1466 (Revised) is printed supra.↩
- The reference documents concern applications by the Whitin Machine Works for exporter credits to enable it to finance the sale of textile machinery to private firms in Brazil. (NAC files, lot 60 D 137, “Documents”)↩
- “Tied loans” are loans with a requirement that the recipient use the proceeds to purchase goods and services from the country making the loan.↩