NAC files, lot 60 D 137, “Documents”
Position Paper Prepared by the Foreign Operations Administration 1
Document No. 1635 (Revised)
Suggested Loan-Grant Policy
It is FOA policy:
That loans should be made, in place of grants, only on the basis that there is a responsible estimate in the U.S. Government that the recipient country has a future capacity to repay on the terms of the loan.
That it is not desirable U.S. policy to make a loan if it is estimated the other country could not repay it; if the country could not repay a loan and needs aid, from the standpoint of our national foreign policy it should be a grant rather than a loan.
That these loans shall not be made under circumstances where the need can properly be met by either IBRD or XM Bank; that the loans shall not be made in a manner that would substantially impair the countries’ capacity to borrow from XM Bank or IBRD.
That the loans shall as a whole be medium- to long-term and shall be made under such conditions as approved by the NAC.
That loans should be generally directed, within an estimate of capacity to repay, toward and identified with those projects that are income earners within the other economy.
That the loans when made shall be serviced by the Export-Import Bank and not by any new or special agency or corporation.
That the loans should be negotiated on a basis of being repayable either in dollars or in local currency; that when loans are repayable in local currency they shall be denominated in dollars and an exchange rate guarantee shall be included; that if repayments are in local currency they shall be expended for purposes agreed between the United States and the borrowing country.
That the loans when repaid, whether in local currency or in dollars, shall be held in a special fund; that the fund may be used for either new loans or new purposes only as authorized by the Congress.
That of the total FY 1955 appropriation not less than $100 million shall be reserved for such loans and shall not otherwise be used.
- This paper, originally Document No. 1635, was revised following the National Advisory Council meeting of June 1, 1954. It was approved at the Cabinet meeting on June 4, 1954, on the understanding that the first paragraph would be modified to give due regard to the repayment of loans in local currencies. (Memorandum by Frederick E. Nolting, Special Assistant for Mutual Security Affairs to Assistant Secretary Waugh, June 7, 1954, PPS files, lot 65 D 101, “Assistance to Foreign Countries”)↩