NAC files, lot 60 D 137, “Documents”

Memorandum by the Foreign Operations Administration to the National Advisory Council on International Monetary and Financial Problems1

for nac use only
Document No. 1690
  • Subject:
  • FOA Loan Program for Fiscal Year 1955

Section 505 of the Mutual Security Act of 19542 provides:

  • “(a) Assistance under this Act may be furnished on a grant basis or on such terms, including cash, credit, or other terms of repayment (including repayment in foreign currencies or by transfer to the United States of materials required for stockpiling or other purposes) as may be determined to be best suited to the achievement of the purposes of this Act.
  • “(b) Of the funds made available pursuant to this Act and foreign currencies accruing to the United States under section 402 (relating to sale of surplus agricultural commodities), the equivalent of not less than $200,000,000 shall be available only for the furnishing of assistance on terms of repayment. Funds for the purpose of furnishing assistance on terms of repayment shall be allocated to the Export-Import Bank of Washington . . . . Amounts received in repayment of principal and interest on any loan made under this section shall be held by the Treasury to be used for such purposes, including further loans, as may be authorized from time to time by Congress . . .”3

Section 201, relating to Development Assistance, provides:

“Such assistance may be furnished on such terms and conditions as the President may specify, except that 30 per centum (i.e. $55.35 million) of the funds appropriated pursuant to this subsection (i.e. $184.5 million) shall be available only for furnishing assistance on terms of repayment in accordance with section 505.”

Section 501, relating to transferability of funds, provides:

“Of any funds transferred under this section for the purpose of furnishing assistance under section 201, 30 per centum shall be available only for furnishing assistance on terms of repayment in accordance with section 505.”

In accordance with these legislative requirements and with the Loan-Grant Policy which was discussed in the National Advisory Council on June 1, 1954, and was agreed by the Cabinet on June 4, 1954, the Foreign Operations Administration submits for National Advisory consideration the following program for fiscal year 1955:

[Page 371]

Loans under the authority of the Mutual Security Act of 1954 will be made on terms not more lenient to the borrowing government than those described below. Loans will provide for the repayment within fifty years. Interest will begin to accrue not later than the beginning of the fourth year. Payment in full of accrued interest will begin not later than the middle of the fourth year. Repayments of principal will begin not later than the beginning of the fifth year. The applicable rate of interest will be not less than 3% if interest and amortization payments to the U.S. Government are to be in dollars and not less than 4% if the payments are to be in the currency of the borrowing government. Payments of interest and repayments of principal will be made semiannually. If the combined interest and amortization payments are to be made in ascending amounts the increase will be steady throughout the entire period of the payments. (The maximum rate of progression would then be such as to require an initial combined payment of $15,000, a semiannual increase of $136.92, and a final payment of $27,734, on a $1 million loan at 3% for 50 years.)

Loans on terms less lenient to the borrower may be made when in the opinion of FOA such loans can be made without sacrificing important U.S. objectives in the Mutual Security Program.

The choice between payments to the U.S. Government in dollars and payments in local currency will be made by a borrowing government and incorporated in the loan agreement at the time of signature. At any time during the life of a loan agreement providing for local currency repayment the borrowing government will have the right to transfer irrevocably from the local currency basis of repayment to the dollar basis of repayment.

If repayment is to be in local currency the obligation to repay will be denominated in dollars with provision for payment in the local currency equivalent of those dollars at the appropriate exchange rate current at the time of repayment. Each borrowing government will be required to agree that local currency paid to the U.S. under a loan agreement will be usable at a minimum for any expenditures or payments of the U.S. Government in the country or overseas territories of the borrowing government and that any restrictions placed by the borrowing government upon other uses of the local currency paid to the U.S. Government will not be more onerous than the restrictions limiting the use of the local currency by U.S. citizens.

The U.S. will agree to take into consideration the economic position of the borrowing country in any contemplated use of the local currency repaid by a borrowing country.

Loan agreements will allow the borrowers the option of prepayment.

[Page 372]

Loan agreements will take note of the possibility that the U.S. may wish at a later date to suggest renegotiation of the agreements to provide for direct repayment in strategic materials or other valuable considerations, and each agreement will generally provide that, if, at any time so long as the U.S. Government is the holder of the obligations under the agreement, the parties to the agreement determine that it would be in their common interests they may by mutual agreement, modify the agreement.

Each loan agreement will provide that the U.S., in consultation with the borrowing government, may convert the dollar obligations it holds under the agreement into negotiable bonds in convenient denominations for sales to investors.

Loans will be offered in the following approximate amounts:

Development Assistance Loans ($ and $ equivalents millions)
India 45
Iran 32
Egypt 15
Israel 15
Total 107
Defense Support Loans
Pakistan 38
Turkey 20
Greece 10
Berlin 25
Yugoslavia 16
Spain 40
Total 149
Military Assistance Loans
(These loans are to be allocated among countries after further discussion with the Department of Defense, priority being given to loans to the Latin American countries. The loans will be for the purchase of military equipment in furtherance of the grant and reimbursable military assistance programs. The terms of the loans and their allocation among countries will be submitted for National Advisory Council consideration at a later date.) 50
Grand Total 306

Significant variations in any of the provisions of the loan program outlined above will be submitted for advance consideration by the National Advisory Council. Arrangements will be made by the Foreign Operations Administration with the Export-Import Bank for administration of the loans in accordance with the Mutual Security Act of 1954.

  1. A covering sheet containing a draft NAC action is not printed.
  2. Public Law 665, approved Aug. 26, 1954; for text, see 68 Stat. 832.
  3. Ellipses in the source text.