398.051 IFC/11–254

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

official use only
  • Subject:
  • U.S. Participation in the International Finance Corporation.
[Page 299]

Problem:

To determine the Department’s position on the Treasury’s proposal concerning U.S. participation in the International Finance Corporation, and the Government’s position on this subject in the U.N. General Assembly.

Recommendations:

1.
The Department should support the position of the Treasury Department as presented in Tab A.2
2.
The Department should seek NAC authorization to use this position as the basis for a statement in the General Assembly that the U.S. is prepared in principle to support the establishment of the International Finance Corporation, and to recommend to the U.S. Congress that the necessary funds be made available to pay our share of the capital required. Accordingly, the delegation should be authorized to initiate and/or support a resolution requesting the International Bank for Reconstruction and Development, in consultation with its members, to take the steps necessary for formulating a specific proposal for the establishment of the Corporation.

Discussion:

1.
The Treasury’s paper summarizes the nature of the proposed International Finance Corporation, and the principal conditions which would be attached to its establishment. This proposal has been under discussion in the U.N. since 1951, and throughout these discussions U.S. Delegations have maintained a position against the immediate establishment of an International Finance Corporation but have supported resolutions which kept the proposal alive through further reviews and studies. Upon the recommendation of the entire U.S. delegation to the current session of the General Assembly, this position is now being reviewed (See Tab B).3
2.
The Department has reviewed its own position with respect to the International Finance Corporation proposal, and is prepared to support it in principle along the lines of Treasury’s recommendations. It is felt that the proposal is sound in principle and that it should be undertaken as an experiment in the encouragement of sound private enterprise abroad. Although a great many details of organization, operations and policies remain to be worked out, these can be handled in subsequent consultation with the International Bank for Reconstruction and Development which will presumably be called upon to formulate specific proposals for the establishment [Page 300] of the International Finance Corporation at an early date.
3.
Although the Treasury’s paper does not address itself to a statement of our position during the present session of the General Assembly, it is highly desirable that the Council authorize the delegation to indicate that the U.S. Government now supports in principle the establishment of an International Finance Corporation and to support a resolution in the Assembly to that effect which would also request the International Bank to proceed with the necessary preparations. (This would, of course, be conditional upon securing the necessary appropriation from Congress.) The U.S. delegation is faced in the General Assembly with a number of economic subjects on which it is forced to take negative or neutral positions. Accordingly, if the U.S. is prepared to support the International Finance Corporation proposal, it is essential that this be indicated during the present session. Although this will not necessarily detract from the pressures for favorable U.S. action on other economic subjects, it will demonstrate that the U.S. is approaching these matters with some flexibility and is prepared to exercise leadership in an important area of U.N. concern; namely, measures to encourage private enterprise and the international flow of private capital.

[Tab A]

Paper Prepared in the Department of the Treasury4

nac use only
Document No. 1698
  • Subject:
  • U.S. Participation in the International Finance Corporation, an Affiliate of the International Bank

The Treasury Department submits for consideration of the Council the recommendation for U.S. participation in an International Finance Corporation to be organized as an affiliate of the International Bank for Reconstruction and Development to stimulate private investment by making loans without member government guarantee along the lines indicated below.

If the Council concurs, the Chairman would seek approval of the President to consult with Congressional leaders, to enter into discussion with the International Bank and other members, if appropriate, looking to the establishment of the Corporation, and to [Page 301] submit legislative proposals to the Congress at the appropriate time.

The International Finance Corporation would be an intergovernmental body whose basic purpose would be to assist in the development of productive private enterprises in its member countries and to that end to encourage and promote the flow of private capital, domestic and foreign, into such enterprises. The Corporation would emphasize the financing of development projects in under-developed areas. The Corporation would be created by international agreement open to signature by any member of the IBRD. Membership in IBRD would be a prerequisite to membership in the Corporation.

The Corporation’s initial capital would be provided by member countries through subscriptions to its stock. The authorized capital of the Corporation would be $100 million, the subscription of each member country being in proportion to the member’s share in the capital stock of the International Bank for Reconstruction and Development. The U.S. subscription would be approximately $35 million. The Charter would not come into effect until $75 million had been subscribed by a minimum of 30 countries.

While the capital of the Corporation would be subscribed by governments, the Corporation would be empowered to sell its own obligations in private capital markets without government guarantee as a source of additional funds. The Corporation would also be expected to sell securities from its portfolio to private investors whenever feasible.

The Corporation would be empowered to make loans to private enterprise without government guarantee, including debentures bearing interest, payable only if earned, and debentures convertible into stock when purchased from the Corporation by private investors.

The Corporation would not provide equity financing as had been discussed in some of the earlier proposals for an International Finance Corporation. It is the view of the President of the International Bank that the features of actual ownership and voting power can be eliminated without seriously handicapping the Corporation.

  1. Drafted by Robinson.
  2. Below.
  3. Delga 77 from New York, Oct. 8, 1954, p. 295.
  4. The Treasury Department submitted this paper to the National Advisory Council for consideration at its Nov. 3, 1954, meeting, the minutes of which are printed infra.