Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

820.00/1–2054

Memorandum by the Assistant Secretary of State for Inter-American Affairs (Cabot) to the Under Secretary of State (Smith)

confidential

[Washington,] January 20, 1954.

Subject:

• Briefing Memo for Meeting at White House, Thursday, January 21.

The most fundamental problem we have in our relations with the Latin American republics is that of their economic development. Trade and private investment, both native and foreign, can greatly stimulate this development but cannot carry the entire burden. It is essential that public financing at reasonable interest rates be available for the development of basic facilities such as roads, airports, harbor works, irrigation, railways, utilities, etc. (which are essential to increased private investment), if we are to convince our Latin American friends that our protestations of friendship are more than pious platitudes, that cooperation with us does benefit them and does raise their living standards, and that our democratic capitalism is far better for them than Communism with its rosy promises.

During the next five years some three-quarters of a billion dollars worth of loans must be repaid by Latin America to the International and Export–Import Banks. This in itself will mean a heavy drain on the economies of the Latin American republics unless it is replaced by new lending.

The Export–Import Bank has established an enviable record in the Latin American field. It has maintained friendly relations with governments throughout the area, developed many basic facilities, sustained only microscopic defaults, already collected almost 40 percent of the principal it has lent, and made a handsome profit for the United States above all interest and other charges. It has in part been superseded in this work by the International Bank. This Bank has also done creditable work in the development field and has been particularly effective in its basic economic studies. The International Bank is relatively new in the Latin American field and has in some cases been subject to criticism (not always warranted) in the development of its policies. The International Bank is, moreover, not responsible to the United States Government alone, but also to the governments of all its other member states. It does not, and should not, act as an instrument of our policy since it must bear in mind the interests of other members when making a loan. For example, Peru has been unable until very recently to obtain loans from the International Bank despite its sound economic policies and financial condition because it was unable to reach a debt settlement with the British acceptable to both American and British bondholders.

It is universally agreed that the main burden of development in Latin America should be borne by the International Bank. There are, however, cases in which the Bank will not, or cannot, make development loans which we wish to see made in our national interest, as in the Peruvian case above, in the case of the development of strategic resources, or in any case where the development is in our national interest but the guarantee of the local government (which the International Bank requires) is undesirable. We believe that the Export–Import Bank should be permitted to make loans under such circumstances; that it should be authorized to act as an instrument of national policy. Care should, of course, be taken to ensure that the two Banks between them do not overload any country with debt. We believe that the Export–Import Bank should not, as a matter of policy and existing law, make any loans unless it expects that the loan will be repaid. It is a fact, however, that the Latin American republics are seriously perturbed at the narrowing of the Export–Import Bank’s activities, and it should be given sufficient liberty of action to reassure them.

Mr. Humphrey’s reply¹ to Dr. Eisenhower states that “while the Export–Import Bank is not authorized to raise money through selling its own security issues in the market, its broad powers of guarantying notes of borrowers permit it to use this device for raising funds from the private capital market. The use of guaranties by the Export–Import Bank appears justified because they are a charge against the Bank’s authorized lending authority. They are not a charge against the Government’s cash budget except in case of default by the borrowers. It is our belief that by the use of guaranties, together with carefully worked out provisions for requiring the applicant for loans to put some of his own money at risk, the Export–Import Bank can go a long way in meeting legitimate needs.”

We believe that this statement indicates that Mr. Humphrey is prepared to permit the Export–Import Bank to operate on a somewhat wider scope in the future than it has during the past year. We understand, moreover, that there are means permissible under the existing Export–Import Bank Charter by which private capital sources could be tapped by the Export–Import Bank without even increasing the Federal debt. We hope, therefore, that while recognizing the primary responsibility of the International Bank in the development field, the Export–Import Bank will be permitted to make loans in those cases in which the International Bank is unwilling to make them and this Government, taking all considerations into account, considers that it is important in the national interest that these loans be made. We feel that we should be in a position before or at Caracas² to give the other American republics public assurances that their needs for sound loans in an amount of, say, one billion dollars for the next five years will be satisfied by the Export–Import Bank in cases where they can be properly made and the International Bank is unwilling, or unable, to make them, and they should be told that the Export–Import Bank operations will not be confined exclusively to the granting of short-term credits strictly in the import-export field.

1. Reference is to a memorandum by Mr. Humphrey to President Eisenhower, dated Jan. 15, 1954, containing comments, invited by the President, on certain recommendations made in Dr. Milton Eisenhower’s report to the President concerning U.S. relations with Latin America; a copy of the memorandum is attached to a memorandum by President Eisenhower to Secretary Dulles, dated Jan. 16, 1954, not printed. (120.220/1–1654)
2. Reference is to the Tenth Inter-American Conference, held at Caracas, Mar. 1–28, 1954; for documentation concerning the conference, see pp. 264 ff.