NAC files, lot 60 D 137, “Minutes”
Minutes of the 211th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, June 1, 1954
Mr. W. Randolph Burgess (Acting Chairman), Treasury Department
- Mr. Andrew N. Overby
- Mr. George H. Willis
- Mr. Henry J. Bittermann
- Mr. George Bronz
Mr. Thorsten V. Kalijarvi, State Department
- Mr. Jack C. Corbett
Mr. Samuel W. Anderson, Commerce Department
- Mr. Clarence I. Blau
Mr. M.S. Szymczak, Board of Governors, Federal Reserve System
- Mr. Lewis N. Dembitz
Mr. Ellsworth B. Buck, Foreign Operations Administration
- Mr. Steuart L. Pittman
- Mr. Arthur E. Burns
- Mr. Jack F. Bennett
Gen. Glen E. Edgerton, Export-Import Bank
- Mr. Hawthorne Arey
Mr. Frank A. Southard, International Monetary Fund
Mr. John S. Hooker, International Bank
Mr. Percival F. Brundage, Bureau of the Budget, Visitor
Mr. Edmond C. Hutchinson, Bureau of the Budget, Visitor
Mr. C. Dillon Glendinning (Secretary)
- Mr. C. L. Callander (NAC Secretariat)
1. Foreign Operations Administration Loan-Grant Policy Proposal
The Council considered NAC Document No. 1635,1 a proposal advanced by the Foreign Operations Administration for a loan-grant policy in the foreign aid program. The Council also had before it NAC Document No. 1636,2 submitted by the Department of Commerce in connection with the proposed policy.
Mr. Buck explained that the FOA proposal was a step toward using loans rather than grants in the aid program. Under the proposal, repayments of loans in either foreign currencies or dollars would go into a special revolving fund, which could be used for [Page 282] loans and other purposes without further reference to the Congress, provided the uses were covered by the original loan agreement. The FOA proposal would permit such use of local currencies without regard to the provision of law (Section 1415 of Supplemental Appropriation Act, 1953)3 which requires corresponding payments out of dollar appropriations. He added that the special fund was envisaged as a fund that would be built up over the years; to the extent that it did so the need for additional appropriations would be obviated.
The Council discussed the proposal at length, with particular reference to United States policy on loans with uncertain repayment prospects. Mr. Anderson felt that the FOA proposal would put a premium on attempting to devise schemes for using repayment proceeds which would be received a considerable time in the future. Mr. Kalijarvi foresaw difficulties with the Congress on the proposal because of its departure from usual fiscal practices. Mr. Brundage stated that the Bureau of the Budget and the General Accounting Office are opposed to the use of contingency reserves, of which the proposed special fund would be one type. Mr. Overby recalled that the Executive Branch has historically been opposed to “fuzzy” loans, but he noted the recent statements of the Randall Commission and of the President which appeared to involve approval of the concept. Mr. Hutchinson felt that Mr. Randall was thinking in terms of dollar loans with vague repayment prospects rather than of loans which would be repaid in local currency. General Edgerton stated that “fuzzy” loans are distinguished from Eximbank and International Bank loans by the interest rate provisions and by terms of repayment. He felt that under some unusual conditions there might be a place for loans which would leave a residual amount for renegotiation at the end of the repayment term, or for loans with grace periods long enough to allow the projects to begin to pay off. The normal business of the Eximbank could be damaged if such loans were ineptly negotiated, however, and he felt that the Eximbank should be informed about such loan proposals early, before the prospective borrowers have their appetites whetted for easy loan terms. The Chairman directed that the minutes record the importance of close consultation between FOA and the Eximbank and the International Bank with respect to such loan proposals.
The Chairman observed that the discussion indicated the need for great ingenuity in providing for a satisfactory mechanism for making “fuzzy” loans without raising the likelihood of disputes with prospective borrowers over the terms of repayment and possible [Page 283] formal default, and that it raised a serious question concerning the use of contingency reserves by Government agencies.
After some further discussion of the mechanics of the proposed fund, the Council turned to the question of the amount. It was suggested that it might be undesirable to name a specific sum, especially in view of the fact that $100 million would be a very substantial proportion of the total aid funds available, apart from the amount earmarked for Korea and Formosa. Mr. Buck felt that $100 million represented a fair proportion of the total aid program. Mr. Anderson pointed out that in view of their past exclusion from the foreign aid program and their continuing aspirations for aid from the United States, Latin American countries might feel that a “fuzzy” loan program with a specific sum named would be earmarked for them. He felt that this might raise problems in the administration of the program.
The Council then discussed the question of whether the draft legislation should provide for Congressional authorization for the use of the repayment proceeds paid into the proposed special fund. Several legal questions were raised which it was agreed would be checked by the legal staffs. Subject to resolution of these questions, the Council agreed that the paper should provide that the special fund could be used for either new loans or new purposes only if authorized by the Congress. The Council also discussed the type of projects which would be appropriate for “fuzzy” loans and agreed that the paper should allow flexibility in the selection of such projects. The Council finally agreed that the part of the paper dealing with the use of local currency repayments should refer to agreements between the United States and the borrowing countries. (Following the meeting the Foreign Operations Administration revised the paper in accordance with these suggestions. See NAC Document No. 1635 (Revised).)4
- Entitled “FOA Loan-Grant Policy Proposal,” dated May 28, 1954, not printed. (NAC files, lot 60 D 137, “Documents”)↩
- Entitled “Loan-Grant Policy Proposal,” dated May 28, 1954, not printed. (NAC files, lot 60 D 137, “Documents”)↩
- Public Law 547, enacted July 15, 1952; for text of Section 1415, see 66 Stat. 662.↩
- Infra.↩