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

NAC files, lot 60 D 137, “Minutes”

Minutes of the 217th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held in Washington, October 26, 1954

October 26, 1954

• [Participants:] Secretary G. M. Humphrey (Chairman), Treasury Department
  • Mr. W. Randolph Burgess
  • Mr. A. N. Overby
• Mr. Herbert Hoover, Jr., State Department
  • Mr. Samuel C. Waugh
  • Mr. Henry F. Holland
• Secretary Sinclair Weeks, Commerce Department
  • Mr. Samuel W. Anderson
• General Glen E. Edgerton, Export-Import Bank
  • Mr. Lynn U. Stambaugh
• Mr. Edward Hall, Foreign Operations
  • Administration
• Mr. C. Dillon Glendinning (Secretary)

The Chairman asked General Edgerton to outline the Export-Import Bank’s thinking on the financing of the Toquepala Copper project. General Edgerton said that the application for Bank financing was for approximately $100 million on a $205 million project. The Bank felt that the minimum Bank financing which would permit the project to go forward would be approximately $90 million. On this assumption, total financing for the project would be as follows:

Millions of dollars

97	Equity
90	Export-Import Bank loan
10	Other loans
8	Suppliers’ credits
205	Total

Given the estimate that the project would be self-liquidating in 12 or 13 years at a 20-cent per pound price for copper, he felt that the following terms would be appropriate. On the interest rate, the NAC formula would work out at a shade less than 5½ percent, but he believed that 6 percent might be reasonable, in view of the favorable prospects of the project. The Bank would be prepared to take notes for the interest payments for the period of construction. Repayment of principal would be made in equal installments over 12 years following the construction period. Assuming the construction period were 5 years, this would make the loan repayable in 17 years.

General Edgerton said that he had discussed with the applicant for the loan making a guarantee of completion of the project a condition of Bank financing. He had also discussed inclusion of an acceleration clause on repayment of principal in the event of an increase in the price of copper.

General Edgerton indicated that the Bank did not expect to charge a commitment fee in this case and generally did not do so.

Secretary Humphrey suggested that a guarantee that the borrower would complete the project was the most important provision. He stated that in operations of this kind actual costs usually run substantially in excess of the initial estimates. Secretary Weeks asked General Edgerton what kind of a guaranty had been discussed with the applicant for the loan. General Edgerton replied that he had not discussed the precise way in which such a guaranty might be expressed in the loan contract but that the general principle had been reviewed. He said that the applicant for the loan had not indicated whether such a guaranty would be an acceptable condition. Following some further discussion of terms, Secretary Humphrey suggested that if the loan were made the terms might be as follows: (1) Export-Import Bank would lend up to $100 million participating in the financing on a 50–50 basis; (2) the Bank’s loan would be the senior obligation of the borrower; (3) the borrower would be required to guarantee completion of the project to the Bank; (4) repayment of principal would begin 5 years after the loan and be made over a 15-year period; and (5) interest would accrue from the date or dates of disbursement by the Bank and be payable with the installments on principal.

Secretary Humphrey stated that approval of this project with financing on a 50–50 basis might set a precedent for the financing of a wide range of projects of a similar nature with public funds and discourage private financing. The proposal thus raised major policy issues. In considering some of the issues raised by this and similar projects, the Council discussed briefly the question of the use of public funds to finance competitive enterprise abroad. The Council also discussed the question of whether Export-Import Bank financing of US enterprises abroad tended to discourage expropriation by foreign governments.

Mr. Hoover agreed with Secretary Humphrey that the Toquepala proposal raised some far-reaching issues, but felt that a policy of making loans of this kind would be better than a “give-away” program in South America. Mr. Holland expressed similar views. Mr. Hoover then read from the NSC decision of September 2 with respect to lending in Latin America.¹ Secretary Humphrey stated that this policy would be reconsidered in the Security Council. Mr. Hoover also referred to the ad hoc committee on Southeast Asian policy, of which he had been appointed Chairman, where far-reaching questions of foreign economic policy would have to be considered.

Secretary Humphrey said that there were a great number of important policy matters being considered by a variety of committees. He said that Mr. Dodge was working on a reorganization of the Executive Branch in the field of foreign economic policy² which should help centralize responsibility for these matters.

It was agreed with respect to the possible loan for the Toquepala Copper project General Edgerton would submit a proposal to the Council along the lines indicated by Secretary Humphrey above. The Chairman stated that because of the policy considerations raised, he proposed that the matter be discussed with the President³ before a final decison was made.⁴

1. For the memorandum of discussion at the 212th meeting of the National Security Council, held in Washington on Sept. 2, 1954, containing decisions reached regarding United States lending policy in Latin America, see p. 67.
2. For documentation relating to this subject, see volume i .
3. No record of such discussion was found in Department of State files.
4. On Nov. 1, 1954, the National Advisory Council advised the Export-Import Bank that it had no objection to the Bank’s consideration of a loan not to exceed $100 million to the Southern Peru Copper Corporation for the purpose of participating in the financing of the Toquepala copper project on not more than a 50–50 basis (NAC Action No. 733, NAC files, lot 60 D 137). The Export-Import Bank approved the loan on Nov. 4; for additional information, see Export-Import Bank of Washington, Nineteenth Semiannual Report to Congress for the Period July–December 1954 (Washington, 1955), pp. 14–15.