Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

NAC files, lot 60 D 137, “Documents”

Draft Position Paper Prepared in the Department of State¹

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Document No. 1477

[Washington,]June 17, 1953.

Draft Position Paper Concerning the International Finance Corporation (IFC)

Problem

What should be the U.S. Delegation’s position on the further report of the International Bank² on the status of the International Finance Corporation proposal?

Recommendations

1. The U.S. Delegation should state that the U.S. Government has not formulated a position on the feasibility or desirability of the IFC. It should make clear in the debate that it cannot support any resolution favoring the establishment of IFC or recommending that the Assembly give it sympathetic consideration. The U.S. Delegation should not vote in favor of a resolution of this kind.

2. The U.S. Delegation should support a resolution calling upon the Bank to continue its study of the IFC proposal. As subjects to be considered in such further study, the Delegation may mention the questions raised in paragraphs 3(a) and 3(b) of the discussion section below. At its discretion the Delegation may also include as an appropriate related matter for study by the Bank the question of whether it would be useful to establish an international clearing house of investment information for dissemination, among private investors.

Discussion

1. At its 14th Session the ECOSOC had before it a report of the International Bank on the proposal for an International Finance Corporation. The purpose of the Corporation was described in the report as “to promote economic development through the stimulation of private investment in its member countries”, which it would do “through equity investments and loans without government guarantee”. The report was discussed at some length, although the Council took no position on the establishment of such a Corporation. However, it did adopt a resolution^* which noted the Bank’s intention of continuing its examination of the proposal, and requested the Bank to inform the Council during 1953 of the results of its further examination of the proposal and the action it has taken concerning it. The General Assembly subsequently adopted a resolution which took note of the foregoing resolution of ECOSOC, and requested the Council “to report to the General Assembly at its eighth session on the progress made in regard to the proposal for the establishment of an International Finance Corporation”.^‡ The present report on the status of the International Finance Corporation proposal has been submitted pursuant to these resolutions.

2. The purpose of the present report is, in the Bank’s words, “to inform the Council of the results of the Bank’s consultations concerning the proposed institution since transmittal of its earlier report”. These consultations have been largely of an informal nature. Although the Council’s resolution left the nature of the requested consultations to the discretion of the Bank, certain delegations may express regret that the Bank did not take more initiative in seeking authoritative expressions of opinion from its member governments. Clearly, it is not incumbent upon the U.S. Delegation to defend the Bank from this sort of criticism, although the Bank’s reluctance to undertake formal consultations presumably arose from its knowledge that the U.S. Government had not, and probably could not, reach a firm decision on the IFC proposal prior to this session of the ECOSOC. Although, in terms of the ECOSOC resolution, the criticism is probably justified, the Delegation should not associate itself with criticism of this kind.

3. Certain delegations may also be critical of the Bank for not reporting upon its further examination of the IFC proposal. The Bank excuses itself with the statement that “countries on whom the Corporation would necessarily have to depend for the greater part of its funds have not as yet indicated that they are ready to commit themselves to subscribe to its capital”. On the other hand, the positions which governments eventually take will be influenced by the way in which the proposal is presented, and the nature of the examination to which it is subjected. Clearly all the procedural and organizational problems need not and cannot be determined in advance, but the basic purposes and functions require thorough examination. Some of these basic questions are:

(a) To what extent will the Corporation be oriented toward attracting more local capital from within underdeveloped countries for productive investment purposes? Again, this is a basic element in the consideration of the IFC proposal. In practically every country there are privately held resources which should be channelled into local enterprises insofar as possible. How would the IFC attempt to bring this about?

(b) Can the Corporation fulfill a useful function in improving the investment climate within underdeveloped countries generally as well as with respect to specific enterprises in which it participates. Will it offer, for example, advice concerning the measures required to attract private capital, in the necessary legislative and administrative changes, in establishing the local financial and other institutions important for this purpose? There is need for this kind of assistance, which is an obvious complement to the other functions proposed for the IFC, and the use of an international organization has certain apparent advantages.

One of the earlier resolutions of ECOSOC concerning measures to stimulate the flow of private capital (No. 22 D(IC), 14 August, 1949) requested the Secretary-General to study “the possibilities of establishing an international clearinghouse of information by which potential … private investors can be brought together with …³ private persons requiring funds in underdeveloped countries”. No such study was ever made, and the subject has not been discussed further in the Council. Nonetheless, consideration might be given to the question in connection with the present ECOSOC discussion of the IFC. Such a clearinghouse might provide a central point for information of this kind and for contact between potential investors and foreign interests seeking investment which might make a helpful contribution to the encouragement of private foreign investment.

Without taking the initiative in any debate on the Bank’s failure to fulfill the terms of the last years ECOSOC resolution, the U.S. Delegation could well indicate that questions of this kind are not without merit, and should be considered in further study of the IFC proposal. The U.S. Delegation should use its good offices to avoid and abstain from voting on a motion which expresses regret at the nature of the Bank’s examination of the proposal as evidenced by the present report. It would be preferable, however, for comments of this nature to be expressed in terms of the Bank’s future study of the proposal rather than its past performance.

4. The ECOSOC resolution also suggested that governments consult with national organizations and business groups concerning the IFC. Although certain organizations, such as the National Foreign Trade Council, and individual representatives of American companies have expressed views concerning the IFC the U.S. Government has not undertaken any systematic consultations with the private community. The U.S. Delegation should acknowledge that it has not yet responded adequately to the suggestion concerning such consultations. Since the views which have been expressed in business circles have been largely negative, it has been felt that no useful purpose would be served by further consultations until the U.S. Government had reached a tentative position on the merits of the proposal.

5. The Delegation should frankly admit that the U.S. Government has not yet formulated its position on the IFC proposal. It should point out that the new Administration has determined to study all aspects of American foreign economic policy before making certain basic policy decisions. This includes the appropriate U.S. Government participation in the matter of stimulating the international flow of private capital in which the IFC has to be weighed against other proposed measures. Therefore, it has seemed premature to attempt to reach a position on the IFC until the entire subject has been studied. There may be a disposition on the part of some delegations to enter into a full discussion of the substance and merits of the IFC proposal. Obviously the U.S. Delegation cannot stop such a discussion, but it should not participate nor should it associate itself with any resolution which expresses a position on the feasibility and desirability of an IFC.

6. It is difficult to predict what action the ECOSOC is apt to take as the next step with respect to the IFC proposal. In view of the inadequacy of the Bank’s report there may be a move to take its further consideration out of the hands of the Bank and to refer it instead to the UN Secretariat or, more likely, to a group of experts designated by the Secretary-General. The U.S. Delegation should resist such a move. In view of its experience with the problem of development the Bank is particularly equipped to carry forward the study. The fact that the present report is by no means a final one, which the Bank would be the first to admit, should not be the basis for any action which implies that the Bank is incompetent to continue the study. Should a resolution be introduced which calls upon the Bank to continue its study, with the expectation of submitting a report in 1954, the U.S. Delegation should support it. Such a report should be available in time for it to be considered by governments in consultation with their private interests, prior to being called upon to express a position in the ECOSOC (preferably the 18th session) or in any other international body.

7. It is unlikely that a proposal will be made to remove the item permanently from the ECOSOC agenda and leave it entirely to the Bank for further study and action. However, the U.S. Delegation should support such a proposal if any substantial sentiment should develop for it.

1. This draft was revised by the NAC Staff Committee at its meeting of June 17, 1953. It was introduced in the NAC meeting the following day and approved without discussion. (Minutes of the 201st meeting of the National Advisory Council, June 18, 1953, NAC files, lot 60 D 137, “Minutes”)
2. International Bank for Reconstruction and Development,Report of the Status of the Proposal for an International Finance Corporation (Washington, May 1953). The report stated,inter alia, that most of the less-developed nations supported the creation of an IFC, whereas the developed countries tended to reserve judgment.
3. No. 417 of June 23, 1952. Text appended to IBRD Report. [Footnote in the source text.]
4. No. 662 of December 21, 1952. Text appended to IBRD Report. [Footnote in the source text]
3. Ellipses in the source text.