259. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Prochnow) to the Under Secretary of State (Hoover)1
SUBJECT
- Export-Import Bank Loan Financing of Oil Pipe Line in Bolivia
Discussion
This memorandum supplements Mr. Holland’s memorandum of November 17 on the same subject. Since Mr. Holland had drafted his memorandum before he left, ARA officers with whom the problem has been discussed thought it advisable that we forward a separate memorandum to you on the subject.
The problem of oil loans has always been a delicate one for the Eximbank. There is no need for such loans in countries where the oil industry is operating on a private competitive basis. It is believed that this would be true in the present case under these conditions if the project is economic. It is only where governments are in the oil business that requests for U.S. public loans have arisen. This applies both to loans for large projects such as the current one or for exporter credits needed in connection with sales of oil field supplies and equipment. In addition to Bolivia, foreign governments are in the oil business in Argentina, Chile, Brazil, Mexico, France, Italy, Yugoslavia, and China. The need of such countries for oil financing could easily be almost insatiable, as indicated by a PEMEX request several years ago for $473 million. Once a policy were embarked upon of making loans to such entities, it is difficult to see where the line could be drawn. Reports indicate, for example, that PEMEX is about to make another effort to secure a loan and that the Argentine Government may be thinking along the same lines.
Other questions also arise regarding such loans. There is little evidence that any government has ever been really successful in running its oil industry. If the Government should embark upon a policy of making such loans, it would be vulnerable to the charge that it was supporting government rather than private enterprise. In some countries which have sought but not received such loans, the loans would have gone to foreign government oil companies in direct competition with private American oil companies. Most governments are very nationalistic with regard to their oil resources and some [Page 525] governments have actually nationalized their industries. If the U.S. Government should show a willingness to support such government operations on a large scale, there would be greater danger of nationalization of the oil industry in various countries of the world, both to the detriment of the economies of the countries concerned and to our own national interest.
As a result of the foregoing and other factors, it has never been the practice of the Eximbank to make loans for petroleum projects. Two such loans were made during World War II in exceptional circumstances—one a $10,000,000 loan to PEMEX for an aviation gasoline plant and some $8,500,000 to Bolivia for refinery and pipe line construction. No such loans have been made since.
The Eximbank has always felt it desirable to have clearly-defined policy in this field and at the request of the Eximbank the International Petroleum Policy Committee, consisting of representatives of State, Interior, Defense, Commerce and FOA, endeavored to develop such a statement in 1951–52. A copy of the policy statement developed by that group is attached as Tab B.2 While the statement was never formally transmitted to the Eximbank it was generally agreed to by all of the members of the Committee and by most of the agencies which were represented.
The essence of the statement is that there is a strong presumption against U.S. public loans for petroleum projects but that relatively small loans are not ruled out under exceptional circumstances.
Recommendation:
It is recommended that Bolivia be informed as follows: Oil is a field in which private capital is normally available in adequate amounts for economic projects where favorable conditions have been established for such investment. It is understood that private capital may be available for the pipe line project in question. It is contrary to Eximbank policy to make loans for projects when private capital is available on reasonable terms. In these circumstances there are very strong presumptions insofar as the United States Government is concerned against the lending of U.S. public funds for petroleum projects. Bolivia should therefore endeavor to arrange private financing for the project.3
- Source: Department of State, Central Files, 824.2553/11–1755. Confidential. Drafted by Prochnow and Robert H.S. Eakens of the Fuels Divisions, Office of International Trade and Resources. Concurred in by Robinson.↩
- The attachment, “U.S. Government Policy with Respect to Public Loans for Foreign Petroleum Projects,” May 14, 1952, is not printed.↩
- Hoover initialed his approval of this recommendation.↩