81. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Secretary of State and the Under Secretary of State (Hoover)1
- Inadequacies of Export-Import Bank Operations in Latin America
In my judgment the volume of new credits authorized by the bank in Latin America is falling considerably below the minimum needed to insure achievement of our foreign policy objectives in the area. This problem causes me grave concern.
Prior to the Caracas Conference in March of 1954 our policy seems to have been that the Export-Import Bank should limit its activities to the financing of United States exports, leaving developmental loans to the International Bank. Whatever may have been its virtues, this policy contributed to creating a degree of resentment and discontent in Latin America which at the Caracas Conference we recognized as a real danger to our relations in the hemisphere.
In preparing for the Caracas Conference we tried to develop a policy on developmental financing that would reduce this resentment below the danger mark. It was decided to announce that the Export-Import Bank would re-enter the field of development financing. In his opening speech at the Caracas Conference the Secretary said:2
“We have also in the United States in the public financing field the Export-Import Bank, a national institution of my own government. One important function of this institution will continue to be that of affording export credits either through direct loans or guarantees.
“There has been speculation as to whether this Bank has withdrawn from the field of economic development. I am glad to be able to clarify this matter. The Export-Import Bank will consider on their merits applications for the financing of development projects which are not being made by the International Bank and which are in our common interest, are economically sound, are within the capacity of the prospective borrower to repay and within the prudent loaning capacity of the Bank.”
This statement that the Bank would “consider on their merits applications for the financing of development projects, etc.,” did not [Page 366]achieve our objective of diminishing the open and rather bitter criticism that the United States was “abandoning Latin America.” In order to gain time to study the problem further we agreed to meet the Latin Americans at an economic conference in Rio the following November.
Upon our return to Washington we worked out with all interested agencies of the Government an Export-Import Bank policy which we hoped would be adequate to achieve our objective. That policy was approved by the National Security Council and appears in its policy paper on Latin America3 as follows:
“b. Through Export-Import Bank loans,—provided each such loan is (1) in the interests of both the United States and the borrowing country, (2) within the borrower’s capacity to repay, and (3) within the Bank’s lending capacity and charter powers,4—be prepared to assure such financing of all sound economic development projects, for which private capital or IBRD financing is not available. (Emphasis supplied.)
“c. Only if action under a. (which related to trade policies) and b. above over a period of time demonstrates that these courses of action are inadequate, and then only with Presidential approval in each case, finance through development assistance loans the initiation or acceleration of projects or activities which are in the basic U.S. interest and which, in the absence of such additional assistance, would not be undertaken or, if undertaken, would not be carried forward at the rate required by U.S. foreign policy objectives.”
At the Rio Conference a strong Latin American sector, believing that it had the support of a considerable group in our own Government, tried to force the United States to adopt a program of general grant aid, soft loans, the creation of an inter-American bank and price support programs. We refused, offering instead a policy of trade, technical assistance, encouragement to private investment and a promise to intensify substantially the activity of the Export-Import Bank in the developmental field. Mr. Humphrey in his opening statement5 said: (basing his statement on the NSC policy quoted above)
“One of the things which our governments must do to encourage free enterprise is to insure that those projects necessary for [Page 367]economic development, but for which private capital is not reasonably available, are adequately supported by public investment. We view this as a necessary support to an economy which relies principally upon private enterprise as supplementing and encouraging, rather than as displacing free enterprise. I am sure that each government will shoulder as much of their burden as it reasonably can, but we agree with you that substantial foreign lending will be necessary if we are to achieve our goals in this hemisphere. We shall do our part generously and loyally in meeting that need.
“To that end we have reviewed the whole scope of our public lending policies and have arrived at certain changes which we consider significant.
“The first relates to the United States Export-Import Bank whose activities are to be intensified and expanded.”6
. . . . . . .
“If the international finance corporation is established, we shall then have three major financial institutions to help promote economic development. We shall have the Export-Import bank that has had a long history of useful work in Latin America and whose activities are to be intensified…”7 (Emphasis supplied.)
In explaining to the Rio conferees that the United States would not participate in the proposed inter-American bank the United States spokesman, Mr. Andrew Overby, said:
“I am sure we all agree that our mutual goal should be to supplement Latin America’s own resources with ample sources of credit for healthy economic development. Our own people believe in that sincerely. We also agree that the facilities for credit and investment which have been available to Latin America through the past few years must be strengthened if we are going to achieve this goal. Thus, there is complete agreement among us as to where we stand today and as to precisely where we want to go. The only difference of opinion is as to the best road to follow to reach our goal.”
Referring to the U.S. economic program for Latin America Mr. Overby said:
“Since the Caracas Conference we in the United States have devoted many months of sincere effort within our Administration and our Congress developing a program which is feasible for us; which we believe will carry us to our mutual goal and which we believe will mark an important change in our relations in the field of international financing.”
Finally he said: [Page 368]
“If the day should ever come when we feel that this program is not achieving the results which we believe that it can, we shall be glad to discuss other solutions.”
Thus, at the Rio Conference we repeatedly assured Latin America that our new Export-Import program meant “substantial foreign lending”, that the Bank’s activities would be “intensified and expanded”, that we were going to supply “ample sources of credit for healthy economic development.” We urged Latin America to give us a fair opportunity to demonstrate the generosity and adequacy of our proposals. We agreed that after a two year interval we would hold another Economic Conference in Buenos Aires. We argued that if in the meantime our policies are proven inadequate we would take another look at the alternative proposals we had rejected in Rio. In the NSC Policy Paper at Mr. Stassen’s insistence this is affirmatively recited (see paragraph C quoted from NSC document above).
Upon our return from the Rio Conference in April of 1954, I urged that immediate steps be taken to fulfill these promises. I urged a level of Export-Import Bank lending which at the proposed Buenos Aires Conference would be a defense against renewed campaigns for grant aid, soft loans, new lending institutions and price support programs. On March 29, 1955 the President held a conference in the White House to discuss Export-Import Bank policy in Latin America. At that meeting I submitted a memorandum8 which stated in part:
“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.”
In that memorandum I recommended eleven specific measures which it seemed to me that the Bank should take in order to insure an adequate level of operations. No one present criticized any of these measures, and the President commented that they seemed reasonable to him.[Page 369]
In fiscal year 1955 our performance was adequate, although I am afraid that the outcome was largely due to the authorization of two or three large loans. The total volume of new credits authorized increased from $52.2 million in the preceding year to $284 million. However, during the last three months of fiscal 1955 and the first six months of fiscal 1956 the level of credit authorizations has dropped alarmingly, and I am sorely afraid that in this crucially important year (the last before the Buenos Aires Conference) our performance will drop to less than one-half of the preceding fiscal year. This would surely mean that the Buenos Aires Conference will mark a real crisis for us. The proposals we have heretofore rejected successfully will be renewed even more vigorously, and I do not think that this time we will find an alternative policy acceptable to the Latin Americans.
New credits authorized during the last nine months are:
|During last three months of FY 1955||$16,829,000|
|During first six months of FY 1956||$52,200.000|
|Total during past nine months||$69,029,000|
|Monthly average past nine months||$7,669,000|
|Monthly average times 12 for indicated year||$92,028,000|
When I raised these figures with the Bank it pointed out that if a calendar year basis is used the picture is more favorable:
|New credits authorized||$315.1||$155.0||$219.5|
This answer ignores the sustained bad record for the past nine months, the unfortunate comparison between 1953 and the two subsequent years, and the fact that the Department has consistently publicized in Latin America figures on performance during fiscal years.
Alarmed at the trend of Export-Import Bank activity, I brought the problem to your attention on October 15 , 1955 saying:
“We have a showdown with the Latin Americans about twelve months off when we meet them at the forthcoming Buenos Aires economic conference. We said we were going to do something between the time of the Rio Conference and the time of that showdown. We are not doing it. We should either start doing it or we should call off the Buenos Aires conference and try to avoid the showdown. We cannot in a few months just before the conference build up a record that will get us through the test.”
“As the Buenos Aires Conference draws nearer, I cannot help but fear that we will be in a difficult, if not an untenable, position if the opportunity for sound Export-Import Bank lending has not been fully exploited by ourselves. The time is indeed short when we consider all of the problems which naturally attend the making of loans which are expected to be repaid.”
The importance of intensifying substantially Export-Import Bank activities goes beyond the reckoning that we shall face at the Buenos Aires Conference. Our whole economic policy in the area is built around this commitment, yet we are clearly failing to keep it. Latin America is awakening to our failure and criticism of our policy is becoming more open. The whole problem has been rendered much more acute by the Soviet campaign in the area to renew diplomatic relations and expand trade.
Five and one-half months remain in the present fiscal year. If the Department of State is to be successful in its field of responsibility, total credits for this fiscal year should amount to something on the order of $250 million ($284 million last year). I sincerely believe this is a practically achievable objective. The Export-Import Bank has before it a volume of loan applications out of which we believe an aggregate of $200 million can be selected which will meet our announced policy standards and which can be authorized during the balance of the fiscal year. We have rather carefully scrutinized the entire list of applications and feel that the Department and the Embassies can be quite helpful to the Bank in achieving the record of performance we need for this year.
I have been unable to obtain agreement from the Bank on the need to achieve the objective I have defined. On the contrary the President of the Bank has advised me that fiscal 1956 will be a “slim year” for the Bank in Latin America.
I can easily understand how the Bank might feel that the Department’s intense concern and continuing vigilance of its activities amounts to a meddling in the Bank’s affairs. The role, however, is forced upon us. The level of Export-Import Bank activity is one of the most important factors in determining whether the Department is successful in maintaining good political and economic relations within this hemisphere.
Whether we like it or not, our stated policies in the hemisphere make the Bank an instrument of United States foreign policy in the area. In his speech at Rio Mr. Humphrey quoted from Senator Capehart’s report as chairman of the Senate Banking and Currency Committee. There, referring to the legislation recently increasing the Bank’s lending authority, Senator Capehart said: [Page 371]
“The Export-Import Bank has played an important role in our foreign economic policy and must continue to do so on an activated scale.”
It is urgently important that we and the Bank agree on an approximate level of credit authorizations to be achieved in this fiscal year. It is urgent that the Bank take measures to insure achievement of that objective. The Bank’s apparent satisfaction with its present rate of activity, coupled with the rapid approach of the end of the fiscal year, fill me with real and growing alarm. Unless we can reach agreement on the objectives for the Bank, the Department must consider the alternative and most unfortunate programs of soft loans which the NSC policy paper provides that we shall contemplate if our existing policies fail. In my judgment we are allowing them to fail.
- Source: Department of State, Central Files, 103–XMB/1–1756. Top Secret.↩
- The full text of this speech, delivered at the Second Plenary Session, March 4, 1954, is in Tenth Inter-American Conference, Caracas, Venezuela, March 1–28, 1954: Report of the Delegation of the United States of America with Related Documents (Department of State Publication 5692, Washington, 1955), pp. 43–51.↩
- Reference is to NSC 5432/1, “United States Objectives and Courses of Action With Respect to Latin America,” approved by President Eisenhower on September 3, 1954; for text, see Foreign Relations, 1952–1954, vol. iv, p. 81.↩
- At this point in the margin appears the following handwritten notation initialed by Hoover: “Was not the charter later changed to discourage this type of financing?”↩
- The full text of this statement, made to the Plenary Session on November 23, 1954, is in Report of the United States Delegation to the Meeting of Ministers of Finance and Economy of the American Republics as the Fourth Extraordinary Meeting of the Inter-American Economic and Social Council, November 22 to December 2, 1954, Quitandinha, Brazil (Washington, 1954), Appendix 5.↩
- The following omission indicated in the source text.↩
- Ellipsis in the source text.↩
- Not further identified, but see footnote 2, Document 61.↩
- Document 74.↩