NAC files, lot 60 D 137, “Documents”

Memorandum by the Staff Committee of the National Advisory Council on International Monetary and Financial Problems to the Council 2

Document No. 1245
  • Subject:
  • International Bank Use of U.S. 18% Contribution Recovered by Principal Re-payments or Portfolio Sales


By letter of December 3, 1951, (NAC Document No. 1234)3 the International Bank requested the approval of the United States, pursuant to Article IV, Section 2(b), of the Articles of Agreement of the Bank,4 for the re-loaning by the Bank of sums received as principal repayments by borrowers, or as the proceeds of portfolio sales [Page 307] of obligations taken from borrowers, where the loan was originally made with U.S. 18% funds.


It is provided in Article IV, Section 2(b), that repayments of principal received by the Bank on account of loans made out of 18% funds may only be re-loaned with the approval of the member whose currency is involved. The Executive Directors of the Bank have adopted a formal interpretation (Res. 192, June 14, 1951, reproduced in NAC Document No. 11565 as Appendix B) concluding that the consent of member countries is also required when the Bank recovers the principal of loans made out of 18% funds through portfolio sales, rather than through direct repayments by the borrowers. This interpretation is discussed in NAC Document No. 1156 (June 22, 1951).

On December 12, 1946, the Council decided to give blanket U.S. approval to the use of the entire 18% contribution of the U.S. ($571.5 million) for loans. (Action No. 104, December 12, 1946)6 This decision was taken in the light of a staff paper which expressed the view that it would be unwise, as a matter of policy, for the U.S. to seek to review individual loans through its veto power over the use of its 18% contribution. Only Ecuador, El Salvador and Honduras, in addition to the United States, have given the Bank blanket authority to use their 18% contributions for loans. The use of limited amounts of currency has been agreed to by Belgium, Canada, Denmark, France, Guatemala, Italy, Mexico, Netherlands, Norway, Paraguay, and the United Kingdom. Certain other members of the Bank have indicated their willingness to consider releases at such time as particular cases arise. The bulk of the loans made by the Bank thus far have been disbursed in U.S. currency, either from the 18% contribution, or from funds raised by borrowing in the American market, although small amounts of other currencies have been made available and advanced to borrowers.

Principal repayments on and the proceeds of portfolio sales of loans originally made from the U.S. 18% contribution have been accumulating, and the Bank now holds about $6 million in such funds. This amount is neither being loaned nor invested, while the proceeds of the Bank’s bond issues are invested in short-term U.S. obligations until needed for operations. Hence, the Bank would prefer to meet its current requirements with recovered 18% funds rather than with the proceeds of its bond issues.

[Page 308]

The considerations which dictated giving blanket approval to the Bank for use of the original 18% contribution would appear to argue for a similar blanket approval for the relending of all recoveries of principal on loans made with such funds. However, the context of that decision is not the same as the situation today. The failure of most of the members of the Bank to give general approval to the use of their 18% contributions suggests the desirability of placing some limit on the further blanket authorization sought by the Bank at this time. While a requirement that the use of such recovered funds be subject to U.S. approval, loan by loan, would doubtless make the Bank’s task more difficult in securing greater cooperation from its other members, a time limit on the U.S. approval for re-loaning recovered 18% funds might have a salutary effect in stimulating greater cooperation by other members of the Bank. Accordingly, it is proposed that the Bank’s request be granted for a period of approximately one year so that the situation can be reviewed again near the end of 1952.7

  1. The National Advisory Council on International Monetary and Financial Problems (NAC) was established pursuant to Public Law 171, “An act to provide for the participation of the United States in the International Monetary Fund and the International Bank for Reconstruction and Development” (Bretton Woods Agreements Act), approved July 31, 1945 (59 Stat. 512). The purpose of the NAC was to coordinate the policies and operations of U.S. representatives on the International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD), Export-Import Bank of Washington, and all other U.S. agencies involved in the areas of foreign loans, financial exchange, and monetary transactions. The Secretary of the Treasury served as Chairman of the NAC; its membership included the Secretaries of State and Commerce, Chairman of the Board of Directors of the Federal Reserve System, Chairman of the Board of Directors of the Export-Import Bank, and the Administrator of the Economic Cooperation Administration (and successor agencies responsible for foreign assistance programs). The master file of NAC records for the years 1945–1958, retired as lot 60 D 137 by the Bureau of Economic Affairs of the Department of State, comprises item 70 of Federal Records Center Accession No. 71 A 6682.
  2. Not printed. (NAC files, lot 60 D 137, “Documents”)
  3. For text of the Articles of Agreement of the International Bank for Reconstruction and Development, formulated at the U.N. Monetary and Financial Conference, held in Bretton Woods, New Hampshire, July 1–22, 1944, and opened for signature at Washington, Dec. 27, 1945, see Department of State Treaties and Other International Acts Series (TIAS) No. 1502, or 60 Stat. 1440. For documentation concerning the Bretton Woods Conference, see Foreign Relations, 1944, vol. ii, pp. 106135.
  4. A memorandum by the NAC Staff Committee to the NAC, dated June 22, 1951, not printed. (NAC files, lot 60 D 137, “Documents”)
  5. Not printed. (NAC files, lot 60 D 137, “Actions”)
  6. NAC Action No. 519, taken unanimously by the Council through a telephone poll completed on Jan. 7, 1952, reads as follows:

    “The National Advisory Council grants the approval of the United States, pursuant to Article IV, Section 2(b), of the Articles of Agreement of the International Bank for Reconstruction and Development, to the reloaning by the Bank of any United States dollars which may have been, or may hereafter be, received by the Bank from borrowers or guarantors (including the proceeds of portfolio sales) on account of principal of direct loans made with the dollars paid into the Bank by the United States pursuant to Article II, Section 7(i). This approval shall be effective until January 1, 1953, unless sooner revoked.” (NAC files, lot 60 D 137, “Actions”)