91. Memorandum From the Director of the Office of Inter-American Regional Economic Affairs (Turkel) to the Assistant Secretary of State for Inter-American Affairs (Holland)1
SUBJECT
- ICA’s Role in Private Investment Promotion
I have read Mr. Flesher’s memorandum of April 30, 1956 on private investment promotion2 and agree with the broad objectives. I was so provoked by the methods proposed to attain those objectives that I find it difficult to be temperate.
I agree that ICA does have a responsibility to foster private enterprise and private investment abroad but I do not agree that ICA has been charged with a specific directive to create a favorable investment climate. I feel rather that, in the carrying out of its basic statutory functions, ICA should have regard for the creation of conditions which favor private enterprise. The memorandum poses an innocent assumption: we must all promote private enterprise. Based on that simple assumption a number of foolhardy things are proposed. I am amazed that with all the really useful work to be done in the industrial field by way of increasing productivity and spreading technical know-how, ICA deems it necessary to spread out into very dubious directions.
My views on the specific proposals follow:
- 1.
- To insure that the regular aid program fosters private enterprise. I concur completely.
- 2.
- To finance supporting facilities such as roads, ports, power. I concur generally.
- 3.
- To assist an enterprise to negotiate agreements with host government on taxes, expropriation, repatriation of capital and earnings, and convertibility. Here I enter a vigorous dissent. It is a situation fraught with great potential danger for the United States for any United States officers (and especially if they are inexperienced in foreign affairs) to negotiate with foreign governments on these subjects on behalf of private individuals about to invest their capital. Insofar as it is a matter of a specific enterprise, it is one for the investor to settle. Insofar as concerns negotiations on these general subjects, such negotiations are traditionally the responsibility of the regular Foreign Service and I do not believe that we have done so badly as to be ousted from that field.
- 4.
- To provide technical assistance. I agree but would assert that we should keep a vigilant eye on the kind of people who are sent abroad to achieve that objective. Some of those I have seen, especially retired older men are wonderful—others reflect little credit on the United States.
- 5.
- Pay for training part of the management, key technicians and skilled labor within the operating facility itself. I would be reluctant to concur until I had seen an actual set of facts. Only then could I decide whether that set of facts constitutes a U.S. subsidy, a “boondoggle” or something really essential to a successful enterprise and ultimately to the security of the United States.
- 6.
- Pay for private banking and investment companies to prepare prospectuses, promote companies and arrange for sale of equities. My sole comment is that I wish the House Appropriations Committee could see this proposed use of taxpayers’ money. We wouldn’t then be bothered about the problem of division of responsibility for promoting private enterprise.
- 7.
- Make available proceeds of PL 480 for working capital and other short-term loans. This is a vast subject. In general, I feel that when a firm operating abroad is in need of working capital, it should get it by reinvesting its earnings or by raising more equity capital. If they can’t do that, I don’t like our assuming the risk of using PL 480 funds. We have plenty of good outlets for PL 480 funds without buying this turkey.
I am in hearty agreement with the idea that ICA should have only a supporting role. Why doesn’t Mr. Flesher suggest that the fellow who wants to borrow PL 480 funds from us, pay for the services of the financial consultants in the first place, and out of his own pocket, and then, if the report is favorable, we could decide what assistance to give him.
I don’t understand the concluding proposed prohibition against ICA participating financially in any project, in the light of the prior proposal to lend PL 480 funds. I assume what Mr. Flesher means is that ICA should not take any equity participation although it may provide loan capital.