E files, lot 60 D 68, “International Finance Corporation, 1950–1957”
Memorandum by the Assistant Chief for Private Investments, Monetary Affairs Staff (Robinson) 1 to the Director of the Office of Financial and Development Policy (Corbett)
- Subject:
- Eximbank’s attitude toward the IFC
At one point in the discussion of the International Finance Corporation position paper in the NAC Staff Committee, Mr. Bell of the Eximbank mentioned that such an institution might have certain harmful effects—although he did not mention them. In the course of a telephone conversation some days later I asked him to explain his comment. He did so by mentioning that the Bank had been troubled by the point frequently made in discussion that nothing would be lost by experimenting with an IFC. The Bank disagrees with this line of argument, largely because of the possible harmful effects which Mr. Bell outlined as follows:
- (1)
- In the opinion of the Eximbank the IFC will not accomplish the objective of stimulating an increased flow of private capital to underdeveloped areas. Therefore, the establishment of an IFC cannot help but result eventually in disappointment and disillusionment on the part of those countries which would look to it for great things. To set up an international institution with this as a likely result is definitely harmful—presumably it would discredit international action in the financial field, to say nothing of the waste motion involved in establishing an IFC.
- (2)
- The existence of an IFC might actually reduce the amount of private capital invested abroad. If capital is available from an IFC it may impair the incentive for private entrepreneurs to seek the additional capital they need from private sources. The Eximbank’s feeling in this regard is strengthened by its observation that in a great many cases (if not most) where it refused to participate in financing projects presented to it by private individuals and firms, the needed capital was secured elsewhere and the projects went forward despite the Bank’s non-participation. Hence had the Bank participated less private capital would have been used.
On the latter point I said that, in my opinion, if the IFC was to be merely another banking institution I thought that Mr. Bell’s argument had some force. However, I added that my own favorable reaction toward the IFC idea was based on the assumption that it would undertake rather extensive promotional work; for example, in finding and developing opportunities for profitable investment in which it would actively endeavor to interest private investors—with the carrot of some financial participation if necessary. Mr. Bell [Page 256] then queried whether there aren’t a number of private investing firms which undertake to bring projects and capital together, and wondered whether an IFC would be able to do a great deal more than that. This is obviously something that will have to be explored when we eventually come to grips with the merits of an IFC, although I rather suspect that private activity of this kind is confined to the more developed areas.
Mr. Bell again deplored the fact that there had been no discussion whatsoever of the merits of an IFC, nor any attempt by those more favorable, to its establishment to convince the Bank that it could accomplish the stated objective. He indicated that he was glad to have discussed this matter further, as he feared others had assumed that the position of the Bank had been based on jealousy of the IBRD, for example, which Mr. Bell asserted is not the case.
- Hamlin Robinson.↩