61. Memorandum From the Director of the Office of International Financial and Development Affairs (Corbett) to the Assistant Secretary of State for Economic Affairs (Waugh)1

SUBJECT

  • Mr. Holland’s Memorandum on Export-Import Bank2

For your use there follows a few comments on Henry Holland’s paper on the Export-Import Bank.

I.

In the first place, there is an overemphasis on the importance of the ECLA proposals in relation to Bank policy. A vigorous and active Bank in Latin America is something we have long wanted. Such an institution will serve our interests and may reduce discontent created by the ECLA report. This discontent is worth worrying about but much more important is the creation of favorable and fair economic conditions in Latin America. An enlightened loan policy can contribute but trading conditions and domestic policies of the countries are perhaps more important.

How to deal with ECLA and Prebisch3 is another matter. The ECLA report plays upon suspicions and frustrations in a skillful manner and provides a convenient explanation of some of the economic difficulties in Latin America, properly attributable in major part to deficiencies of the countries themselves. Our task is to get the countries to recognize that their own actions underlie much of their problem and cease seeking a “foreign scapegoat”. For obvious reasons it will not be easy and, indeed, may not be possible. In any event, mixing a discussion of the Bank with this subject tends to obscure a consideration of both problems by the process of oversimplification.

There is also a great deal in the paper on private enterprise, initiative and investment. Here he seems to be setting up a straw man unless he has some specific cases which concern him. There is little, if any, evidence of complaints from private business that the Bank has encouraged socialization of industry and, as far as I know, [Page 320]no attempts have been made. The closest we have come to it, I suppose, is the Argentine steel mill but this case rather proves the difficulty of conclusive determination of the issues. On the other hand, the Bank has religiously stayed away from oil development. With respect to public utilities, I believe that American and Foreign Power has received a full measure of support from the Government and the Bank in the maintenance of their position.

II.

Specific recommendations respecting the Bank are made on pages 6 and 7 of the memorandum.

Recommendations (d) and (e) relate to interest and maturity of the Bank’s loans. While one might argue that the interest rate formula produces too high a rate, nothing prevents the Bank from extending maturities. On long-term projects the Bank now lends at about 20–25 years. Should these be extended? With respect to the interest rate a more valid comparison than the one offered—rates on similar loans in the U.S.—would be the rate at which the IBRD lends. Cost of money and Export-Import Bank profits would permit lower rates but beyond a request to review and a suggestion that loans to private borrowers should not pay a premium, I have now no specific suggestions.

Recommendation (i) suggests giving Eximbank preference over IBRD loans, “particularly those which can be made to private enterprise without governmental guarantee”. Actually, the IBRD cannot make loans without government guarantee. Loans which have a special national interest should be handled by Export-Import Bank (e.g. Inter-American Highway loans). Or is it the notion to convert IBRD loans into private loans and take them to the Eximbank? This seems unlikely. The recommendation is very confused.

The Bank is willing to sell loans out of its portfolio with or without its guarantee as suggested in recommendation (j).

The recommendation (k) that the Bank market its own securities has been kicked around from time to time. The Bank has never pleaded shortage of money for not making loans. There is a disposition against fragmenting U.S. Government financing by allowing agencies to issues securities which are backed by the full faith and credit of the U.S. In any event, this doesn’t seem to get at the problem of expanding the Bank’s activities.

In general, the recommendations are not developed or supported by the discussion. Consequently, a proper assessment of them is not easy.

III.

While the Bank’s activities have picked up considerably in recent months, there is still an incomplete understanding among borrowers of the type of loans in which the Bank is interested. The Bank could do more work country by country on the projects it [Page 321]believes to be important and could do much more about encouraging the countries to bring forward the right type of project.

The Bank is also reaching the point where it is concerned about credit to some countries (Chile, Bolivia, Brazil) and this is a matter which we should explore since our dependence in the Bank is great in Latin America.

  1. Source: Department of State, Central Files, 103–XMB/3–2955. Confidential.
  2. Apparent reference to Holland’s memorandum, supra. The page numbers and recommendation indicators cited herein, however, do not correspond exactly to those in Holland’s memorandum. No other memorandum from Holland to Waugh on the subject of Export-Import Bank lending policy with a late March 1955 date has been found in Department of State files.
  3. Raúl Prebisch, an Argentine economist; Executive Secretary, Economic Commission for Latin America (U.N.).