103 XMB/10–2854

Memorandum by the Assistant Secretary of State for Economic Affairs (Waugh) to the Secretary of State 1

top secret
  • Subject:
  • Policies With Respect to the Export-Import Bank.

Problem:

Areas of difference between the Treasury Department and the State Department with respect to the policies and operations of the Export-Import Bank.

Background:

While the operations of the Export-Import Bank have not formed a major part of our overseas financial assistance in the last five or six years, the transactions of the Bank have been significant in our relations with Latin America and with certain other countries. After the extension of the $300 million loan to Brazil in early 1953, Reorganization Plan No. 52 was submitted to Congress and came into effect in early August. The principal effect of this Plan was to abolish the Board of Directors of the Bank and thereby remove the Secretary of State from his ex officio position as Director. In addition, it removed the Bank’s principal officer from membership in the NAC.

Senator Capehart, in September, commenced hearings upon the operations and organization of the Bank to determine what might be done to reactivate this Organization. At the opening session of Senator Capehart’s Committee on this subject, Secretary Humphrey stated that “The Export-Import Bank implies the aid to exports and imports and to current trade by loans of much more rapid turnover and shorter duration.” He further stated, “However, as Secretary of the Treasury I do want to make clear to everyone that the Government must question both its right and its financial ability to continue to use taxpayers’ money to finance investments abroad on a large scale in the development of competitive enterprise.” (Tab A)3

Following extensive investigations and hearings the Senate Banking and Currency Committee reported as follows: [Page 297]

“Your committee finds no legislative limitation upon the loan authority of the Export-Import Bank that would exclude it properly from making long-term, medium-term, or development loans.

“Any distinction between long-term and short-term credits or between exporter credits, as such, and loans to facilitate the purchase by United States private investors abroad of capital goods and equipment in the United States is a highly artificial one, and quite undesirable from the standpoint of the interests of our country. The bank should sympathetically consider kinds and types of proper loan applications irrespective of term which would aid in facilitating the exports of the United States, maintain our industrial potential, and provide continuing employment in our country.”

The House Banking and Currency Committee expressed similar views. The Bill reorganizing the Bank was passed in August 1954. On January 22, the NAC took action with respect to the Export-Import Bank lending policy and this action has been widely interpreted as restricting the operations and field of activity of the Export-Import Bank. (Tab B)

Bank Areas of Difference

1. The Bank as an Instrument of Foreign Policy

The Department has long regarded the Bank as an instrument of foreign policy and in this regard was supported by the Randall Commission Report which reads as follows:

“The Export-Import Bank is essentially an instrument of United States foreign policy. The International Bank for Reconstruction and Development, on the other hand, promotes the interests of the United States broadly in the field of foreign economic development. The record does not indicate that there has been harmful competition or duplication in the operations of the two banks.”4

The removal of the State Department from the Board of the Bank eliminated the statutory expression of this point of view. The Treasury was in full accord with this reorganization of the Bank. The Bank is the only permanent financial organization operating in the foreign field. The Department has and must continue to place a great emphasis on the effective operation of the Bank.

2. Types of Loans

The attitude of the Treasury towards the types of loans that the Export-Import Bank should properly make is mentioned above. In considerable measure this view was reiterated at a recent NAC meeting upon the subject. (Tab C)

The Department, both from the point of view of the conduct of foreign relations and foreign economic policy, holds the view that the Bank should not be so limited in its lending policy. The Bank’s [Page 298] lending policies should be more than the simple promotion of U.S. exports and should look towards participating in a healthy development of the economies of friendly countries, principally in Latin America. This objective cannot be served by severe limitations on the types of loans to be made and upon the terms of such loans.

3. Legal Authority

There is attached a copy of the memorandum by the Legal Adviser5 on this point. It demonstrates, and in this it is supported by the Bank’s own officials as well as by legislative history, that this point of view substantially contradicts that expressed by Secretary Humphrey at the recent NAC meeting. (Tab D)

4. Volume of Lending

No detailed discussions have taken place between the Department and the Treasury concerning the volume of prospective lending operations by the Bank. However, it is clear that unless a substantial intensification takes place repayment to the Bank will exceed disbursements. Indeed, the Bank’s officials have estimated that the Export-Import Bank can lend over $5 billion in the next ten years with no drain on the Treasury cash budget. (Tab E)

5. Loans vs Aid

Unless the Bank’s lending operations are substantially accelerated we will be under real and increasing pressure to seek appropriated funds to assist economic development in Latin America. A more vigorous Export-Import Bank will do much to avoid this eventuality and at the same time will give the U.S. a reasonable prospect of repayment with interest of such loans.

Clarification of the foregoing points would do much to give substance to the policy decisions with respect to Latin America taken by the NSC. (Tab F) While this policy envisages increased activity for the Bank, it does not deal with some of the areas of misunderstanding which have so sharply reduced the Bank’s activity in Latin America.

  1. Drafted by Corbett.
  2. An act to provide for the independent management of the Export-Import Bank of Washington (Public Law 570), enacted Aug. 9, 1954; for text, see 68 Stat. 677.
  3. No tabs found with the source text.
  4. Commission on Foreign Economic Policy, Report to the President and the Congress (Washington, Jan. 23, 1954), p. 24. See the editorial note, p. 49.
  5. Herman Phleger.