NAC files, lot 60 D 137, “Minutes”
Minutes of the 197th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held in Washington, October 10, 19521
[Here follows a list of those present (26).]
1. Proposed Export–Import Bank Loans to Brazil
Mr. Glendinning stated that the Export–Import Bank had requested the advice of the Council with respect to two loans in Brazil. One of the loans, a credit of $1.86 million, would be to a private Brazilian company that manufactures cast iron pipe. The other loan, of $18 million, would assist in financing Brazilian purchases of United States agricultural equipment. In the discussion of these loans in the Staff Committee, no questions were raised on the technical side. Considerable interest was shown, however, in Brazil’s current international short-term position and in the prospects of more favorable treatment for American private investment in Brazil.
Mr. Glendinning noted that the basic questions are how U.S. development lending should be affected by Brazilian action in dealing [Page 596] with Brazil’s current unfavorable balance-of-payments position and with its treatment of U.S. private investments. Brazil’s current international position is shown by reserves of approximately $317 million, and short-term liabilities of between $300 and $400 million. In addition, Brazil has a sizable payments backlog with Britain and Germany. Conflicting reports exist on the effectiveness of credit control in Brazil. There are indications that control of bank credit has been rather limited and relatively ineffective. With respect to the Brazilian action on private investment remittances, legislation has been introduced providing that such remittances would have access to a free exchange market. This legislation, which is supported by the Brazilian Executive Department, is still pending.
Mr. Glendinning concluded that considerable discussion occurred in the Staff Committee concerning additional U.S. lending to Brazil in the light of Brazil’s current treatment of private investors. During that discussion the representative of the Securities and Exchange Commission had commented on the effect of Brazil’s action on the financial position of the American and Foreign Power Company.
Mr. Gaston stated that both loans are considered to be economically justified by the Export–Import Bank as well as by the Joint Brazil–United States Economic Development Commission. The Bank is also satisfied with their soundness. From the point of view of the economy of Brazil, the farm implement loan is a valuable project. As to the other factors, in view of the steps being taken by Brazil, the problem of the arrearages should not be insurmountable, nor does the Bank think further lending should depend on such long-range problems as the inflationary situation, devaluation of the cruzeiro, and associated questions.
Concerning the issue of making loans while the investment legislation is still pending, Mr. Gaston indicated that this is a question for others than the Export–Import Bank to judge. The Bank’s impression is that the present Brazilian Government is proceeding in good faith in its attempt to carry through that legislation, and that to interrupt a soundly conceived lending program on the ground that the United States must wait until the legislation is passed would be a mistake. However, Mr. Gaston added that question is in the diplomatic field, and he would defer to the State Department in that respect.
Mr. Rossbach2 pointed out that the primary concern of the Securities and Exchange Commission was with the American investor. His situation in Brazil does not look well and has become worse in the past year.
Mr. Rossbach expressed the feeling of the Commission that the only [Page 597] way to try to improve the position of the American investor would be by withholding additional loans to Brazil until someone had talked firmly with the Brazilian Government. He agreed, however, that this procedure would be in the field of diplomacy, in which the SEC is not qualified to act. Mr. Rossbach concluded that it did not appear justifiable to make these loans while the position of the American investor in Brazil is so poor.
Mr. Linder began by saying the State Department was not unmindful of the situation of the American investor. However, he believed a different conclusion from the one arrived at by Mr. Rossbach could be drawn from the same facts. Although a good deal of discussion has taken place with the Brazilians, it is impossible to talk to each man in the legislature. The Brazilians have fulfilled their commitment. In fact, they have gone further than that. Both committees of the legislature have endorsed what the United States wants—convertibility arising out of capital transactions. The situation is complicated by reason of the fact that certain exporters have wanted to get on the bandwagon.
Mr. Linder remarked that the judgment of the State Department is that holding up these loans would have just the opposite result to that normally expected. The Brazilians are likely to draw the conclusion that the only time the United States Government will make loans is when our own special interest is involved. As an example, recently a $65 million manganese development loan was made to Brazil. To the State Department it would appear to look very bad, and would induce a very stubborn and unfortunate reaction, if we distinguish between the manganese and other loans. This would have the reverse effect from what everyone here desires.
Mr. Overby indicated that he would like to report the opinion of Mr. Black. The International Bank has had discussions with the Brazilians about the free market bill. In June, 1952, when the Bank made two loans to Brazil (see NAC Action No. 5583), it was given assurances that the bill would be passed promptly. The Bank management has taken the attitude that the Bank should not go ahead with additional loans to Brazil until the free market bill with respect to capital transactions has been enacted. Thus various projects are being held up and no final action will be taken until the free market bill is passed. Mr. Black also indicated that the granting of loans now would weaken the Brazilians in going ahead with the free market legislation and that he could not avoid the view that an element of non-parallelism exists in a situation in which the International Bank does not proceed with loans while the Export–Import Bank continues to make them.
Mr. Overby concluded that he believed the above statement fairly [Page 598] represents Mr. Black’s views, i.e., opposition to the proposed loans. Since Mr. Black believed it unwise for the International Bank to make loans to Brazil at the present time he would like to see the United States come to the same conclusion with regard to loans by the U.S. Government.
Mr. Gaston observed that all would agree that one objective is to ease the difficulties of American investors in Brazil by adopting methods most likely to relieve their situation. The disagreement seems to be over which method would produce the best results. In commenting on Mr. Overby’s remarks, he questioned whether the Brazilians had not made predictions rather than given assurances. He did not believe that the President of the United States could have given assurances in a similar instance.
Mr. Gaston believed a judgment has to be made whether closing the gate on Brazil would so disturb the Brazilians as to complicate United States-Brazilian relations. He believed that is the situation seen by the State Department, and that the problem is to decide on the best tactics. By cutting off the proposed Brazilian loans, he concluded, the United States would be doing itself damage.
Mr. Martin4 agreed that the basic question is a matter of judgment and that it is wise to accept the judgment of the State Department and the Export–Import Bank. He pointed out that the Bank is satisfied with the soundness of the loans and that the Government has to rely on the conduct of negotiations as to what progress is being made.
The Brazilian short-run picture, Mr. Martin continued, is one of mismanagement and difficulties that the Brazilians are perhaps compounding, and every effort should be made to assist them to take steps to protect not only the investors, but the solvency of Brazil as well. Particularly since the International Bank has a different attitude, the Council should take note of the present difficulties of the Brazilians and should place the burden of responsibility on the State Department and diplomatic officials to obtain some solution of the fundamental problems.
The Chairman stated he believed that the State Department has faced this responsibility. He recalled that in discussing the Brazilian situation with Mr. Acheson, he was advised that the State Department was fully prepared to carry the matter through. The Department felt that the granting of these loans would put the situation on a better diplomatic level. The Department has the strongest assurances from the Brazilian executive side that this matter will be pushed through—so there has not been any neglect of the gravity of the situation. The Chairman concluded that, when Finance Minister Lafer was here, he [Page 599] and Mr. Acheson had impressed on the Finance Minister and the Brazilian Ambassador that the matter was one that had to be given very prompt consideration and had to be pressed on through.
Mr. Linder commented that he had considerable sympathy with the point of view of the International Bank, but he did not believe the two Bank situations were the same. The International Bank has the problem of the sale of its securities and the attitude of the public. He added that the State Department would be perfectly agreeable to the exertion of such pressure as is likely to bring about results.
The Chairman remarked that the U.S. Government cannot continue to lend funds without some definite assurances from the Brazilians that they will go through with the plans to the best of their ability.
Mr. Schneider5 said that the Department of Commerce would go along with the State Department. He questioned, however, the wisdom of lending money to a private Brazilian company for the manufacture of cast iron pipe, since the company is in competition with U.S. exporters.
Mr. Gaston explained that the Bank was lending a relatively small amount for the purchase of American materials in order to have a part in the construction of the pipe plant. It has been a part of the Bank’s policy to encourage private industry in foreign countries to expand. This industry will not be in competion with American industry because he did not believe there was any movement of pipe of this character at this time. It would seem rather illogical, he felt, for a country with Brazil’s iron resources to import so bulky a product as this large-dimensional pipe from the United States.
Without further discussion the recommended action was approved.
Action: The following action was taken (Action No. 581):
The National Advisory Council advises the Export–Import Bank that it approves consideration by the Bank of two Brazilian loans: one, a credit of $1.86 million to the Companhia Metalurgica Barbara to help finance the improvement and expansion of its cast iron pipe manufacturing facilities in Brazil; and the other, a credit of $18 million to the Banco Nacional do Desenvolvimento Economico to assist in financing Brazilian purchases of United States agricultural equipment.
It is understood that the $1.86 million credit would be repaid in installments with a final maturity of approximately eight years, including a grace period of approximately 18 months, and that the interest rate would be not more than 4½ percent. It is also understood that the $18 million credit would be repaid in installments with a final maturity of approximately five years, including a grace period of 18 months, and that the interest rate would be 4 percent or less.
[Here follows discussion concerning a proposed Greek debt settlement.]
-
The National Advisory Council (NAC), established in 1945, had responsibility for coordinating the policies and operations of U.S. representatives to the IMF, the IBRD, and all other agencies of the government involved in making foreign loans or engaging in foreign financial, exchange, or monetary transactions. The NAC consisted of the Secretary of the Treasury, as Chairman; the Secretaries of State and Commerce; the Chairman of the Board of Governors of the Federal Reserve System; the Chairman ot the Board of Directors of the Export–Import Bank; and, originally, the Administrator of the Economic Cooperation Administration (followed by the successive administrators of U.S. agencies for foreign aid).
At this meeting, Deputy Assistant Secretary of State for Economic Affairs Linder represented the Department of State; he was accompanied by Mr. Corbett and Mr. Stenger.
↩ - J. Howard Rossbach, Securities and Exchange Commission.↩
- Not printed (NAC files, lot 60 D 137, “NAC Actions”).↩
- William McChesney Martin, Jr., Chairman, Board of Governors of the Federal Reserve System.↩
- J. Thomas Schneider, Assistant Secretary of Commerce for International Affairs.↩