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

NAC files; lot 60 D 137

Minutes of the 214th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, September 22, 1954¹

confidential

September 22, 1954

[Here follows a list of those present (13).]

The Chairman stated that he had called the meeting for an informal discussion of lending policy of the Export–Import Bank, particularly with reference to Latin America. He thought it desirable at this time for the Council to review the recent activities of the Bank and to reach a meeting of minds on the broad lines of future policy. He indicated that there was general understanding on the area of operations of the International Bank as a lender to governments and the role of the Export–Import Bank in facilitating U.S. exports and imports.

Secretary Humphrey suggested that it might be helpful to begin the discussion by referring to the purposes of the Bank as set forth in its basic legislation² as follows:

(1) “aid in financing and to facilitate³ exports and imports and the exchange of commodities between the United States or any of its Territories or insular possessions and any foreign country or the agencies or nationals thereof”

(2) “supplement and encourage and not compete with private capital”

(3) “that loans … shall generally be for specific purposes”

(4) “that loans … offer reasonable assurance of repayment.”

Mr. Bedell Smith stated that he thought that the provisions of the Act which Secretary Humphrey had read were subject to quite a wide range of interpretation and application. For example, he referred to the provision which stated that loans should generally be for specific purposes in relation to the action taken in the $300 million loan to Brazil for commercial arrearages.⁴ He suggested that it was necessary to take into consideration the indirect as well as direct effects of loans on U.S. exports and imports. Secretary Humphrey agreed that the Brazilian loan was an exception but felt that the Act was clear in indicating that loans by the Bank should generally have a direct relation to U.S. exports rather than a vague indirect connection.

Governor Stassen stated that he thought the language was subject to a variety of interpretations and suggested that the Attorney General might be asked for an opinion. Secretary Humphrey commented that the Attorney General would not likely give an opinion on the Act except in relation to a specific case.

Secretary Humphrey summarized the figures on Export–Import Bank and International Bank lending in Latin America (see table⁵ entitled “Eximbank and International Bank: Total Loans Outstanding to Latin America as of June 30, 1954”) and then referred to the list of credits which the Export–Import Bank had established in the period from January 1, 1953 to September 20, 1954 (see table⁵ entitled “Export–Import Bank of Washington—Credits Established During the Period January 1, 1953 to September 20, 1954”). He suggested that perhaps the best way to examine general policies was to look at the specific cases which had been before the Bank.

Secretary Humphrey noted that there had been approximately $¾ billion of loans by the Export–Import Bank from January 1, 1953 to September 20, 1954. Mr. Waugh pointed to the fact that of the $387 million credits established in the period January 1, 1953 to June 30, 1953, $300 million had been the loan to Brazil for commercial arrearages. He also noted that the amounts in subsequent six months’ periods had declined. He also noted that of the credits of $103 million from July 1, 1954 to September 20, 1954, $60 million had been for cotton to Japan and $34 million had gone to South Africa in connection with the atomic energy program. Thus he felt that the volume of lending in Latin America had been relatively small.

Governor Stassen commented that there was a fairly widespread impression that the Bank had stopped lending in Latin America since the Brazilian loan.

Secretary Humphrey suggested that the Council turn to the list of those applications which the Export–Import Bank had rejected during this period (see table⁶ entitled “Applications Rejected During the Period January 1, 1953 to September 20, 1954”). He noted that the Bank could only make loans where it had appropriate applications.

Governor Stassen inquired concerning the list of items on page 3 involving exporter credits to Argentina. General Edgerton indicated that these had not been considered because of foreign policy considerations. Mr. Bedell Smith said the State Department did not favor consideration of these loans because of the discriminatory policies which Argentina was pursuing at that time.

Inquiry was made concerning the financing of locomotives to Uruguay, Israel, and Belgium (page 2). General Edgerton indicated that these were credits to government-owned systems and it was felt at the time that they were more appropriate for the IBRD. In the case of Uruguay, the International Bank had undertaken commitments to assist in the financing of railway equipment.

In the financing of the chemical plant in Mexico (page 2) the Bank believed private financing should be available.

Regarding the financing of electrical equipment in Colombia (page 2), General Edgerton indicated that this was a group of miscellaneous items and the Bank believed it reasonable to participate in the financing of some individual items, but preferable not to finance the entire group.

With reference to credits for the Consolidated Railroads of Cuba (page 2), General Edgerton indicated that the railroad’s credit was not good. Mr. Hoover commented that in the case of many of these foreign public utilities, the local governments fixed rates so low that operations were unprofitable. Mr. Bedell Smith said he thought that the State Department could do a great deal in this field through negotiation with foreign governments for equitable treatment of utilities and other investment. In this connection, he referred to the work which had been done to obtain Mexican action on railway rates, facilitating recent lending by the International Bank. Secretary Humphrey commented that it was important for the Export–Import Bank to work closely with State on these matters.

Reference was made to the financing of tractors and spare parts for Argentina (page 5). On this credit, General Edgerton commented that the Bank was informed that Argentina would not grant the necessary licenses for the importation of the equipment.

Attention was then directed to the financing of the Chilean State Railways (page 4). It was noted that the State Railways had an International Bank loan. General Edgerton commented that the railroad was not in a sound financial position at this time. Secretary Weeks inquired whether it would be possible to influence the Chilean Government to adjust railroad rates to reflect current price conditions. Mr. Bedell Smith indicated that he thought State might be able to do so.

Secretary Humphrey then suggested that the Council turn to the list of large projects which might be coming to the Bank’s Board, submitted by General Edgerton, as a basis for appraising general policy for the future (paper attached).⁷

Secretary Weeks referred to the Senate Committee Report⁸ accompanying the recent Export–Import Bank legislation and inquired as to the implications of the legislation for NAC review of Export–Import Bank policy. Mr. Overby noted that the legislation gave the NAC the same relationship to the Export–Import Bank as it had prior to Reorganization Plan No. 5. Secretary Humphrey stated that the role of the NAC was to deal with coordination of general policy rather than a review of individual loans. He thought, however, that it was useful to look at the individual cases in the paper submitted by the Bank in terms of the policy issues raised.

General Edgerton then summarized the information contained in the Bank’s paper on a possible credit for the Compania Argentina de Electricidad, noting particularly the problems of power rates in Argentina and the questions associated with the expropriation of American and Foreign Power facilities.

Mr. Burgess commented that if a loan were granted to Argentina prior to a clear change of attitude toward treatment of foreign investors, other countries in Latin America would regard our action as inconsistent with the principles we had laid down. Mr. Marshall Smith⁹ suggested that we should make compensation to American and Foreign Power as a condition of the loan. In this connection, Mr. Hoover read a letter¹⁰ from Mr. Robertson of American and Foreign Power asking withholding of U.S. credits until the company received a just settlement in Argentina.

Mr. Bedell Smith stated that the problem in this case would be to work out appropriate understandings with Argentine Government as a condition for the credit. Secretary Humphrey agreed.

The Chairman then turned to the cases of possible financing for steel mills in Argentina, Brazil and Colombia.

General Edgerton stated that Argentina was placing the highest priority on the establishment of an integrated steel mill and would go ahead with foreign financing from elsewhere if they did not get it from the Export–Import Bank. In this connection both Secretary Weeks and Secretary Humphrey noted that some of the equipment desired by the Argentine would have to come from this country.

Secretary Humphrey reviewed the factors in this and similar cases which made steel production high cost and uneconomic. He referred to the fact that our steel industry felt disturbed at U.S. financing of foreign competitive industry. It was his view, however, that the industry would have to have recourse to the Congress inasmuch as he believed the law required us to finance export of U.S. equipment, assuming reasonable assurance of repayment.

Secretary Weeks said that he did not believe the law required the Bank to extend exporter credits if other considerations of policy were more important than the export of a particular piece of equipment.

Governor Stassen suggested that it might be desirable to have an interdepartmental committee study the problem of financing competitive industry abroad, taking into consideration both short and long term implications for U.S. exports and imports.

Mr. Martin¹¹ stated that his experience in the Export–Import Bank and since suggested a somewhat broader interpretation of the Bank’s legislation than had been indicated by the Chairman. He felt there was no mandatory requirement to finance any project simply because it contributed to some immediate exports of U.S. goods. He suggested that each project had to be examined in terms of economic soundness and its longer term implications for U.S. trade relations. Regarding the specific case of Brazil, he said the initial financing of Volta Redonda had been undertaken in circumstances peculiar to the war. He did not feel we were bound to finance the expansion of the Brazilian steel industry if we believed it not sound economics to do so.

The Chairman next raised the question of financing the Toquepala copper project. He stated that in his judgment the issue posed by this case was quite clear. The Export–Import Bank should supplement, not compete with, private capital. If this project were sound, there was no doubt in his mind that additional private money could be obtained. He thought the Bank might appropriately assist in the financing of the major U.S. equipment required for the project through exporter credits, but should not provide general capital for the operation.

Mr. Bedell Smith said the State Department thought this was a sound project and was most anxious that it move forward. He agreed that it was desirable to obtain as much private financing as possible, but indicated concern at long delay or abandonment of the project if such financing were not forthcoming. Mr. Hoover commented in looking at the data on the project that it appeared to be a very profitable venture. On the basis of these estimates, he believed further private financing should be possible.

At the close of the meeting the Chairman said the conclusions of the meeting should be regarded as tentative and opportunity would be given for further exploration of these issues.¹²

1. The National Advisory Council, established in 1945, had responsibility for coordinating the policies and operations of U.S representatives to the International Monetary Fund, the International Bank for Reconstruction and Development, and all other agencies of the government involved in making foreign loans or engaging in foreign financial, exchange, or monetary transactions. The Council 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 of 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, Under Secretary Smith represented the Department of State; he was accompanied by Messrs. Hoover, Waugh, and Woodward.

2. Apparent reference to the Export–Import Bank Act of 1945 (Public Law 173), approved July 31, 1945; for text, see 59 Stat. 526.
3. The initial words quoted in these minutes actually read as follows: “aiding in the financing and facilitating of. …”
4. Reference is to Export–Import Bank credit no. 541, authorized in favor of the Banco do Brasil, S. A., on Feb. 21, 1953; see Mr. Mann’s memorandum, Feb. 20, 1953, p. 607.
5. Attached to source text, but not printed.
5. Attached to source text, but not printed.
6. Attached to source text, but not printed.
7. Not printed.
8. Apparent reference to Senate Report 2270, Export–Import Bank Amendments of 1954, by the Committee on Banking and Currency to accompany S. 3589, 83d Cong., 2d Sess. Senate bill 3589 became the Export–Import Bank Management Act (Public Law 570), approved Aug. 9, 1954; for text, see 68 Stat. 677.
9. Deputy Assistant Secretary of Commerce for International Affairs.
10. Not found in Department of State files.
11. William McChesney Martin, Jr., Chairman, Board of Governors, Federal Reserve System.
12. The implications of Export–Import Bank loans to Latin America for the general lending policy of the United States was further and inconclusively discussed at the 217th meeting of the NAC, Oct. 26, 1954; the minutes of the meeting are in NAC files, lot 60 D 137. For documentation concerning the general lending policy of the United States, see volume i .