U/MSA files, lot 56 D 551, MSP Far East
Record of the Third Plenary Session of the Far East Regional Conference of the Foreign Operations Administration, Held at Manila, February 23, 1954, 8:30 a.m.–12:15 p.m.1
[Extract]
Guidelines From the Director
Mr. Stassen presented the following tentative policy guidelines regarding industrial development and U.S. private investment. Some of them will have to be developed further in interagency consultations before becoming firm policy.
The U.S. objective is a strengthening of the economic foundation in this area and a gradual improvement in living conditions so that there may be political stability, orientation away from Soviet infiltration or undermining, and a healthy participation in a free world economy. It has been the U.S. conviction and experience that a real change in the standard of living is achieved when production and distribution are to a maximum extent in non-governmental hands.
A program of fostering industrial development banks should be contemplated, since there appears to be a strong overriding requirement of some kind of credit availability for industrial development in the area. This would depend on our getting Executive Branch agreement for such a program and on the countries’ desire for such a program. Certain fundamental rules would, of course, be prerequisite to the furnishing of some amounts of U.S. capital to help the banks get started. We should try to get these banks into private rather than government hands. There might be an industrial development bank in each country in this area, with a group of [Page 390] country banks serviced by an area bank as we move into the regional approach.
Such a program would take time, but the institutionalizing of local industrial credit is fundamental to the economic strengthening of this area without the requirement of large U.S. dollar grants.
Action: Mr. Stassen said we will set up an inter-departmental group in Washington to try to develop a pattern for this program.
An added attraction for indigenous private capital would be provided if the U.S. were to furnish a part of the industrial development bank capital and did not require early or high interest payments. There will be increased local investment if there is a trend toward local interest payment; and there will be a remarkable change in credit availability if capital is invested rather than buried or sent out of the country.
“Pilot operations” should be considered as part of our program because of their importance in pioneering and showing the way. There can be a significant psychological impact if we can show the way that competent people can produce and accomplish something.
The Missions should look for opportunities to include assistance in our program to industries that need help in getting started—particularly from the standpoint of importing machinery, etc.—to produce something that is of value to the country. Local private industries would pay their government and this money would go into the counterpart fund.
A program of encouraging foreign private investment in this area is faced with a rather broad-based fear of foreign economic domination. There is little chance of obtaining the agreement of these countries to broad statements of principles or to new laws to encourage private foreign investment and we would lose status with the governments if we pushed for such agreements. Within the framework of these attitudes, it is possible to obtain specific accomplishments by working out individual cases of sound foreign investments that want to come in with something the country wants produced. If such investments can be linked up with local capital in a sound way, it will be all to the good.
It is not U.S. Government policy to encourage U.S. private investment opportunities just for the sake of profitable investment. Any U.S. private investment which exploits certain resources in a country is obviously not desirable from the point of view of national policy, if it is accompanied by sub-standard wages, antagonistic attitudes, and a combination of practices that cause resentment toward the U.S. instead of friendship. The President has emphasized the importance of U.S. private investment, but at the same [Page 391] time has emphasized the social responsibility of capital. We are not working on the basis that all activities of U.S. private investors should be fostered and encouraged by our Missions, but only those activities which are of a constructive and fundamental nature.
On the question of nationalization and socialism, it is broad national policy to discourage nationalization. This has to be done very carefully and always involves a policy question where the Ambassador and the Department of State must, of necessity, take the lead. Certain possible steps we might take are: to encourage a government, informally, to put up for sale certain businesses which are operating at a loss under government control but are of a type that good, local private management might operate successfully; to foster the success, to the extent that we can, of properly conducted private business; to discourage governments from trying to take over their own private business sector; to develop some projects to break down retail distribution monopolies and thus contribute to improving living standards. A great part of the progress of countries with high standards of living is due not only to high productivity but to the concept of mass distribution on limited margin so that the people can claim many goods with their wages.
A clear guideline for the present: We should not permit our funds or our counterpart to finance a new governmental plant if it is the type which should be in private hands. That is a hard policy to apply at times; but to the extent that we use our counterpart or funds for governmental industrial development, it ought to be in those types of projects where it is not reasonable to expect private development within the country.
The code for U.S. long-term foreign private investment has to include considerable ploughing back of profits into the area of the overseas earnings. The hoped for situation is one in which the investors have the right to repatriate earnings but in fact choose to re-invest them in the country.
If the U.S. is to fulfill its creditor position in the free world and do it without large governmental grants, there must be a substantial annual flow of private capital overseas.
Mr. Stassen said it is his feeling that the Far East area, having now attained to a great degree the assurance of basic food supply in this area, and barring the outbreak of a new war, is ready for a decade of quite significant economic advance, particularly if Japan decides to play a constructive economic role in the area.
Mr. Wilsey2 referred to Mr. Stassen’s comment regarding the desirability of fostering investment banks. He asked what sort of contribution [Page 392] FOA might make to these banks. In the Philippines, counterpart arises out of Philippine Government appropriations and there is a shortage of counterpart. Therefore the normal means of contributing to the banks is very limited. Mr. Stassen said that this might require some different composition of imports. Conceivably the Mission might bring in a million dollars worth of machinery needed by certain private firms and the counterpart paid for that could become part of the capital of the industrial bank. Another possible source is the counterpart that can be developed through the sale of U.S. agricultural products.
Mr. McDiarmid3 said the Mission has been trying to bring closer together the Philippine Government and the Ex-Im Bank or other U.S. lending institutions. However, apparently because of lack of close coordination between FOA/W and the Ex-Im Bank, there has been no satisfactory follow-up on loan proposals. He suggested that FOA/W either encourage lending institutions to send experienced men to the Philippines or give a greater delegation of responsibility to the Mission for the preparation of loan proposals. Mr. Stassen said that Mr. Buck is now following through on that situation with the Ex-Im Bank. The fact that the Ex-Im Bank has been going through a revision of its own lending policies may be the reason for the delay during this particular period, but
Action: Washington will endeavor to give more constructive follow-through service on these applications from the Missions.
Miss Granby4 said there is another problem in connection with stimulating private investment. Very often a condition precedent to the stimulation is the development of public facilities, power, transportation, etc. There is no clear policy as to the extent to which we can help finance that type of development with grant funds, and the extent to which it can be financed with loan funds. The criteria for determining whether a particular project would be financiable with grant funds are not applicable across the board.
Action: Mr. Stassen said we will review this policy in FOA/W.
Mr. Stassen was asked whether he had in mind using existing credit facilities or establishing new credit institutions in direct competition with foreign and local bank institutions. He said it would depend upon the circumstances. To be really effective, it must be a private institution, not a governmental one.
Mr. Meek5 asked whether we are in the economic development or the technical assistance business. In Indonesia the Mission has [Page 393] been furnishing foreign exchange for loans to small private industries. This is a capital investment which would be ruled out completely under a purely technical assistance philosophy. Mr. Stassen said that our objective is to establish conditions of economic strength, political stability and favorable orientation toward the non-Communist world. All our operations are tools, of which technical cooperation is an important one; but the Mission is not restricted to the technical assistance technique.
The meeting recessed at 12:15 p.m.
- This record is included in a document entitled “Far East Regional Conference”, MISC/RA-24, issued by the Executive Secretariat of the Foreign Operations Administration on Mar. 6. This paper includes records of all the plenary sessions of this conference, which was held in Manila Feb. 22–26, 1954.↩
- H. Fred Wilsey, Program Officer of the FOA Mission in the Philippines.↩
- Orville McDiarmid, Assistant Director of Economic Policy of the FOA Mission in the Philippines.↩
- Helene Granby, Chief, Far East Program Planning Staff, FOA.↩
- Paul Meek, Program Officer of the FOA Mission in Indonesia.↩