116. Minutes of the 243d Meeting of the National Advisory Council on International Monetary and Financial Problems1
- Mr. W. Randolph Burgess (Acting
Chairman), Treasury Department
- Mr. Andrew N. Overby
- Mr. George H. Willis
- Mr. Elting Arnold
- Mr. Henry J. Bittermann
- Mr. Thorsten V. Kalijarvi,
- Mr. Jack C. Corbett
- Mr. Marshall M. Smith, Commerce
- General Thomas B. Wilson
- Mr. Clarence I. Blau
- Mr. John G. Conkey
- Mr. Arthur W. Marget, Board of Governors, Federal
- Mr. Frank M. Tamagna
- Mr. Samuel C. Waugh,
- Mr. Hawthorne Arey
- Mr. Charles Shohan
- Mr. Walter Schaefer,
International Cooperation Administration
- Mr. Hale T. Shenefield
- Mr. Frank A. Southard, Jr., International Monetary Fund
- Mr. John S. Hooker, International Bank
- Mr. Gwynn Garnett, Department of Agriculture, Visitor
- Mr. Oscar Zaglits, Department of Agriculture, Visitor
- Mr. Edmond C. Hutchinson, Bureau of the Budget, Visitor
- Mr. Bartlett Harvey, Bureau of the Budget, Visitor
- Mr. C.D. Glendinning, Secretary
- Mr. C.L. Callander, NAC Secretariat
[Here follows discussion of Philippine ship sales.]
2. Use of US.-Held Foreign Currencies for Promotion of Private Investment
The Chairman referred to NAC Document No. 1925,2 in which suggestions were advanced for the use of foreign currencies for the promotion of private investment. He asked Mr. Schaefer to comment. Mr. Schaefer stated that the International Cooperation Administration had been concerned by the accumulation of local currencies arising from P.L. 480 operations and with the problem of proper utilization of these currencies. ICA had received numerous inquiries from private firms having need of local currencies as to the possible availability of foreign currencies from the Government. These firms [Page 298] were reluctant to use dollars for purchase of foreign currencies if they could be obtained from U.S. holdings.
Mr. Schaefer suggested several possible ways of dealing with the problem, including the formation of financial institutions in foreign countries similar to the Investment Credit and Investment Corporation of India (ICICI), and the allocation of a portion of the foreign currency proceeds of surplus sales for loans to private persons, American and foreign, on a non-discriminatory basis. He felt that such arrangements would not conflict with Export-Import Bank or International Bank operations, since neither bank provided local currencies, and he recalled that development banks in Turkey, India and Ethiopia had been established with the aid of counterpart funds. He felt that if the establishment of investment institutions in less developed countries proved to be impractical, the problem might be dealt with through the allocation of currencies for loans to private borrowers.
Mr. Waugh remarked that use of these local currencies for the financing of the local cost of investment projects had been proposed by many persons, including a number of United States businessmen. He felt that the availability of these currencies for use in connection with Export-Import Bank credits would be helpful. He felt that the establishment of investment institutions in less developed countries might well not be feasible in a good many cases.
The Council discussed the problem at length. The existing procedures for the use of P.L. 480 currencies were described. It was pointed out that under most existing agreements loans of the foreign currencies were made by local financial institutions, and that the United States had the power of approving specific projects for which the loans could be used. It was suggested that the foreign currencies could be made available under existing arrangements for use in connection with Export-Import Bank operations, through appropriate liaison between the Bank and ICA.
The various possibilities for the administration of the ICA proposal were considered. There was general agreement that the objective of the ICA proposal was desirable. The Chairman stated that caution was necessary in any use of U.S. Government funds to establish or strengthen foreign government institutions, as distinguished from private enterprises. Difficult problems were foreseen if the program should have the effect of entry by U.S. Government agencies into banking systems of foreign countries. It was pointed out that in many cases, foreign countries desired U.S. private investors to purchase required local currency for dollars, and that problems might arise if the local currency were obtained, instead, from the U.S. Government.[Page 299]
Mr. Overby outlined a suggested order of priority for the use of the local currency: (1) the establishment of local investment institutions along the lines suggested in the NAC investment study (see NAC Document No. 1868 (Revised)); (2) use of the foreign currency in conjunction with long-term investment projects, particularly in connection with Export-Import Bank loans to private enterprises; (3) use of the foreign currencies for certain types of public projects, such as road construction. He also raised the question of whether the P.L. 480 agreements should provide for non-discriminatory loans, as suggested by Mr. Schaefer, or whether the desired result could be achieved through representations to the foreign governments by the Department of State.
At the conclusion of the discussion, the Chairman suggested that in view of the importance and complexity of the problem, it would be desirable to have further staff work done on it, to outline what was being done in this field and to suggest the principles that should govern U.S. policies. The Council agreed to this procedure.