114. Memorandum From the Secretary of the National Advisory Council on International Monetary and Financial Problems (Glendinning) to the Members of the Council1
- Terms of Loans under the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480) and the Mutual Security Act of 1954 (P.L. 665)
Pursuant to existing legislation, and in accordance with subsequent implementing action by the National Advisory Council, the following terms are applicable to loans under the Agricultural Trade Development and Assistance Act of 1954 and the Mutual Security Act of 1954, as amended:[Page 290]
1. Terms Common to Loans under Both Programs
- Maturities and Grace Periods. Loans are repayable within a limit of fifty years, with grace periods of 3 years on accrual of interest and 4 years on repayments of principal. In practice, however, loans under the Mutual Security Program have not exceeded 40 years, and most P.L. 480 loans have been for shorter periods. The contemplated P.L. 480 loans to Brazil and Japan are for 40 years.
- Repayment Options. In virtually all cases, the borrowing countries have the right with respect to each payment of interest and principal to elect payment in dollars or in their own currency and to apply to each such payment the interest rate applicable to the currency in which payment is made.
- Interest Rates. On loans to which exchange guaranties apply, the interest rate is 3 percent when the borrowing country elects to make a payment of interest and principal in dollars, and 4 percent when the borrowing country elects to make such payments in foreign currencies.
- Use of Local Currency Payments. Loan terms may require the United States to take into consideration the economic position of the borrowing country in connection with the use of foreign currency paid to the U.S. under the loan agreements. In the case of Mutual Security Program loans, the Congress must approve the use to be made of the funds received. The effective dollar return to the U.S. on loans repaid and serviced in foreign currency depends primarily on the use to which the foreign currency can be put by the U.S. Government. This in turn depends upon (1) the requirements of the U.S. Government for a particular currency for purposes for which dollars would otherwise be spent, and (2) a decision of the U.S. Government to use the currency for such purposes, after taking into consideration the economic position of the borrowing country.
2. Loans under the Mutual Security Program
All loans under the Mutual Security Program contain an exchange guaranty.
3. Loans under Public Law 480
Borrowing countries may be offered loans without exchange guaranties when in the judgment of the administering agencies the objectives of the program would be jeopardized by an attempt to obtain an exchange guaranty. On loans to which no exchange guaranties apply, (1) the interest rate is 4 percent when a payment of interest and principal is made in dollars, provided, however, that the exchange rate at which the dollar payment is calculated must be negotiated at the time the payment is due; (2) the interest rate is 5 [Page 291] percent when a payment is made in foreign currency. In addition, such loans may include an option to make any payment in United States dollars at an interest rate of 3 percent in an amount determined by the average exchange rate at which the foreign currency sales proceeds were deposited.
The election to make any payment in either foreign currency or dollars applies to loans in which no exchange guaranties are provided as well as to guaranteed loans.
4. Grants under Public Law 480
An inter-agency committee has recently indicated that grants as well as loans may be used to implement programs for increasing exports of surplus agricultural commodities.
Authority exists for utilizing foreign currency proceeds of sales under P.L. 480 for grants to the purchasing governments for certain specified purposes, provided payment is made for the currency from appropriated funds. In practice this severely restricts the likelihood of grants being made unless the authority contained in P.L. 480 for a waiver of this requirement of charging such use against dollar appropriations is expressly exercised by the Director of the Bureau of the Budget, acting under authority delegated by the President.
- Source: Department of State, NAC Files: Lot 60 D 137, Documents. For NAC Use Only.↩