60. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Under Secretary of State (Hoover)1
- Export-Import Bank Policy in Latin America
At the White House dinner tonight the policy of the Export-Import Bank in Latin America is to be discussed. My views on this matter are set forth below.
Present Export-Import Bank Policy in Latin America
The Bank’s present policy was announced by the United States Delegation at the Rio Conference in more or less the following terms:
Through the Export-Import Bank the United States Government will do its utmost to satisfy all applications for sound economic development loans for which capital is not available from private sources or the IBRD provided that:
- the project is in the interest of the two governments and
- the loan is within the borrowing capacity of the applicant as well as the lending capacity and charter powers of the Bank.
Within the foregoing limitations it was stated that the Bank has authority to make loans to governmental agencies, to private enterprise, whether U.S., foreign or mixed, and that the Bank can in its discretion, waive a guarantee by the foreign government where the loan is made to a private borrower.
New Export-Import Bank Policy was U.S. Substitute for ECLA Proposal
The United Nations Economic Commission for Latin America or ECLA prepared for the Rio Conference a lengthy study on means to foster economic development in the area. While a number of aspects of economic development were considered, the overwhelming majority of the energies of the Commission were devoted to developing a case in support of a massive and socialistic U.S. financial aid program for the Latin American countries.
Another ECLA proposal was that the U.S. participate in establishing an Inter-American Bank whose capital would be largely contributed or underwritten by the United States.
The ECLA had developed strong support for its program among certain economists in Latin America. The proposals were studied and [Page 315]exhaustively discussed by the Sub-Cabinet Committee drawn from all interested agencies of the United States Government to formulate policies for the Rio Economic Conference. That Committee concluded that the ECLA proposals were not only unnecessary to U.S. foreign policy, but their adoption by this Government would be affirmatively prejudicial to our foreign policy objectives in the area. Instead the Committee recommended the financing policy outlined above. These recommendations were reviewed and approved by the NSC.
Importance of Implementing U.S. Policy Regarding Export-Import Bank
At the Rio Economic Conference it was decided that another conference of the same nature would be held in 1956 in Buenos Aires. There the Latin American advocates of the ECLA philosophy of U.S. financing will renew their efforts. If, during the intervening period, the United States has built up a record of activity on the part of the Export-Import Bank which supports our assertions at the Rio Conference, we will be in an exceedingly strong position. If, on the other hand, we have failed in this regard, then, because of our own inactivity, we may be forced into financial programs which, while superficially attractive to the beneficiary countries, are inconsistent with a private enterprise philosophy and with the best interests of the United States itself. A record of intensified activity on the part of the Export-Import Bank cannot be built up during a few months immediately before the Buenos Aires Conference in 1956. It will require constant and resourceful work throughout the entire intervening period.
Why the ECLA Proposal Prejudices the United States
Since the ECLA supporters include the most active opponents of our present lending policies in Latin America, some analysis of their philosophy and its effect on the interests of the United States might be useful.
The essence of the ECLA philosophy is the belief that if certain rather unrealistic rates of capital inflow can be achieved the economic problems of Latin America will be largely solved. Actually, in a number of the countries much more than capital is needed if major obstacles to sound development are to be overcome. The proposed “targets” for capital inflow are so high that, on the supply end they would require extensive uneconomic government loans by us. On the other hand, they exceed the amounts that can be absorbed by Latin America without extensive intervention by governments in industry.
This philosophy is prejudicial to U.S. foreign policy objectives because: [Page 316]
- It encourages state socialism.
- New capital will not alone ensure economic progress. But so long as this belief prevails, the argument will be made that no matter how much capital we supply, if the result is not satisfactory the solution is more capital, higher targets for capital inflow—and from the U.S. Government. If we do not respond with more capital we play into the hands of those who accuse us of blocking Latin American progress.
If we accept a philosophy that more capital is the answer to economic backwardness, and that the capital must come in large part from our government, then we accept substantial responsibility for the achievement of Latin America’s economic aspirations. This means that we will be blamed for the slowness with which some of the Latin American countries are going to develop so long as conditions that have nothing to do with the adequacy of available capital remain as they are.2
Our lending and our technical aid policies in Latin America should have the following characteristics:
- We should commit ourselves to assist in achieving economic goals which can be represented by trends rather than measurable amounts of progress. We should support economic progress, stabilization of economies, wholesome industrialization, encouragement of increased rates of investment. We should avoid identifying ourselves with specific targets in these fields.
We should publicize favorably amounts of progress achieved. We should not emphasize the amount of progress still to be achieved.
Latin America has experienced a rate of economic progress perhaps never exceeded by any comparable area and considerably better than our own. Yet the average citizen feels that his is an “underdeveloped”, “backward”, “poverty-stricken”, “semi-literate” country. Far from feeling proud of the amazing progress achieved in the area he suffers from a feeling of frustration born of the conviction that his country somehow has not achieved the level of progress which it should.
Emphasis upon future goals rather than past progress, upon invidious comparisons with more developed areas of the world, contributes to this situation. Many Latin American officials who are actually amazed at the economic progress achieved by their own countries are reluctant to comment on it publicly. The principal reason may be that such admissions weaken their governments’ claims for ever-greater aid from the United States and (in the case of men unfriendly to us) weaken the propaganda claim that the United States blocks progress in Latin America.
- We should constantly emphasize that the overwhelming credit for past progress as well as the primary responsibility for future progress lies with the Latin American people and governments and not with ourselves. If we are too eager to receive credit for our past performances, we create in the minds of people the conviction that the United States has assumed responsibility for their future progress. If to this situation is added encouragement in the establishment of unachievable goals, ill will and resentment against us are assured.
We should emphasize constantly that the quickest and surest way toward realization of economic aspirations is through aid to private enterprise.
Our own economic aid should, wherever possible, be to private enterprise rather than to governments. It is as a rule easier to grant loans to governments than it is to private entities. Yet when we grant a credit to permit some government agency to undertake a project which private enterprises would have undertaken we are financing state socialism. The accumulated effect of such credits over the past years has been to give impetus to a basic trend toward socialist economies which has developed throughout Latin America. Other factors have contributed to this trend but our own policies have been one of those factors.
- We should actively encourage governments to utilize their borrowing capacity for such projects as roads, irrigation projects, etc, in which private enterprise is not reasonably interested.
- We should concentrate our technical aid on those programs that satisfy genuine domestic aspirations in the area rather than upon those programs which, while sound and desirable in our own opinion, contribute little toward attitudes of mind which are the goal of our foreign policy.
- With respect to the Export-Import Bank in this hemisphere, the
following policies are suggested:
- Adhere to our presently announced policy which is generous and is consistent with all of the considerations outlined above.
- Without ever changing our announced policy, be prepared to deviate from it somewhat when to do so is prudent and will achieve our political purposes. This would contemplate occasional loans which could not be defended as basically sound or which enable governments to invade the field of private enterprise.
- Within prudent limits constantly publicize favorably the activities of the Bank.
- Reduce the interest rate of the Bank to one that is more comparable with rates applicable for similar loans in the United States.
- Be prepared to extend present periods of repayment where the type of loan and the characteristics of the borrower make it desirable.
- Encourage the directors of the Bank to travel frequently to Latin America, not only to retain contact with existing loans, but also to be alert for new loans consistent with the Bank’s policy.
- Have our embassies be constantly on the alert for possibilities of good loans to governments, but particularly to private enterprises, both U.S. and foreign, which can be reported confidentially to the Bank.
- Try to encourage private investors, to ask for Export-Import Bank loans for sound industrial projects which we learn are being considered by their governments as invasions of field of private enterprise.
- Permit the Bank to sell good loans out of its portfolio to private institutions.
- Permit the Bank to market its own securities as the IBRD does.
- Intensify the Bank’s general statistical and economic studies in Latin America.
The foregoing policies, it is submitted, will advance us toward these goals of our foreign policy in this hemisphere:
- To produce the attitude of mind defined earlier in this memorandum,
- To contribute toward the establishment of strong, self-reliant economies in the hemisphere,
- To bring governments to rely on private enterprises, rather than state enterprise, to exploit the many opportunities for establishing new enterprises, and enlarging existing ones that exist in the area, and
- To accomplish these ends with a minimum of cost to our Government.
- Source: Eisenhower Library, CFEP Chairman Records. Confidential.↩
- Following this paragraph in the source text appears a sentence fragment: “rapid progress towards goals.” Presumably this resulted from the retyping of the original draft. No other copy of the memorandum has been found in Department of State files or at the Eisenhower Library.↩