103 XMB/7–654
The Assistant Secretary of Defense for International Security Affairs (Hensel) to the Managing Director of the Export-Import Bank (Edgerton)
Dear General Edgerton: I am writing with reference to the question of the extent to which the Export–Import Bank would be willing and able to finance the sale on credit of military equipment to certain Latin American countries. This letter is intended to amplify our recent telephone discussion on the same subject.
It is the policy of the United States, reflected in NSC 144/1, to encourage Latin American countries to standardize their military equipment along the lines of United States equipment. This policy is essential to the development of an effective defense force within this hemisphere. Obviously, it would place great strains on our resources in time of war to supply Latin American countries with adequate military equipment for their defense if their existing equipment did not correlate with ours. The Defense Department is having considerable difficulty in achieving this standardization for reasons set out in a memorandum which is attached as an enclosure to this letter.1 As you will see from the enclosure, our basic difficulty comes in meeting the competition being offered by European nations. One deterrent to meeting that competition is the generous credit terms which European countries are offering on the sale of military equipment to South American countries.
As you know, under existing law, no more than sixty days’ credit can be offered by the United States on the sale of military equipment to our allies. We have proposed in the draft Mutual Security bill now before Congress that maximum credit be extended to three years in those cases where the President determines that it is in the best interests of the United States to extend credit of this duration.
Unfortunately, this legislative amelioration of present credit authority will do very little substantive good, for the simple reason that for practical purposes there are no available funds through which credit sales can be financed. The funds which will be authorized under the draft Mutual Security bill are limited, and are programmed very closely, both on the economic and on the military side. Section 505 of the draft bill, which was introduced against the wishes of the Administration, will require that 10% of all funds made available under the Mutual Security [Page 175] bill be used for loans rather than aid. This in and of itself will seriously dislocate the grant aid program schedules. Further invasions of these funds for the purpose of financing long-term credit sales will simply not be possible, and the possibility of obtaining additional funds under the aid bill are nil. Nor are military department appropriations available for this purpose, except perhaps in rare and limited circumstances.
The Department of Defense recognizes that the Export–Import Bank has not traditionally financed sales of military equipment. It would seem, however, that this would be within the purview of the Bank charter. We would hope that in light of the very considerable national interest which is involved, it would be possible for the Export–Import Bank to provide a certain amount of financing of military equipment sales, where the risks seem to the Bank to be reasonable under all the circumstances involved. I am informed by technical experts within the Department that $100 million would be the top figure which we would request the Bank to finance within the first year from the date on which an understanding between us in this regard might be reached. We could subsequently discuss what further financing could be carried out by the Bank on our behalf. During the year in which the Bank financed certain of our sales of military equipment, the Defense Department would seek to develop alternative sources of financing, for use in subsequent years.
For your information, this entire problem was discussed recently in the Planning Board of the National Security Council. While General Cutler took a personal interest in the matter, he did not believe that the sources through which financing might be obtained ought to be decided at the National Security Council level. Since I expect to be in Europe for the next several weeks, I have asked Mr. DuVal,2 the Assistant General Counsel (International Matters), Department of Defense, to represent me in discussing the matter with you.
I am sending copies of this letter to the Departments of State and Treasury, to the Bureau of the Budget, and to the Foreign Operations Administration.3
Sincerely yours,
- Not printed.↩
- Clive L. DuVal, II.↩
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In a reply to the Department of Defense, dated July 28, 1954, concurred in by the Department of State, General Edgerton stated that under the Export–Import Bank Act of 1945 as amended it was not intended that the Bank’s funds be used to finance military sales on credit terms. (103 XMB/7–2854) For text of the act (Public Law 173), approved July 31, 1945, see 59 Stat. 526.
A memorandum by Phil R. Atterberry of the Office of Financial and Development Policy, dated Aug. 17, 1954, reads in part as follows:
↩“While ARA desires to see the standardization of military equipment in the Latin American countries carried out, it believes that funds for financing the program should come from some source other than the Eximbank and that perhaps little, if any, attempt had been made to seek out other possible sources. The Department’s position, as established by E and ARA, was made known informally to Eximbank on July 28, 1954.” (103 XMB/7–654)