119. Memorandum From the Acting Secretary of State to the Director of the International Cooperation Administration (Hollister)1


  • P.L. 480 Loans

This is in reply to your memorandum of June 23, 19562 on the above subject.

I agree with you that it should be made clear to our people, both in Washington and in the field, that under NAC policy P.L. 480 loan agreements must provide for maintenance of dollar value by requiring an exchange rate guarantee. I also agree that this should be made clear to the foreign government at the time that the sales agreement is negotiated in order to avoid future misunderstandings such as have occurred in the cases of Spain and Thailand. Accordingly I would suggest that there be a clause in the sales agreement itself providing that the loan will require an exchange rate guarantee. Thus there would be a written agreement on this matter and subsequent confusion would be avoided.

Consequently, your proposal to send out a joint instruction to the field along the lines of your attachment B is agreeable to me. We have some suggestions for modification of wording, particularly to reflect the wording of the NAC action on exchange guarantees, but I am sure these can be resolved at the staff level. Also the instruction should reflect the NAC action of July 93 favoring the negotiation of agreements which provide that some portion of the local currency shall be reloaned to private enterprise and that local governments [Page 307] should be encouraged to assume the exchange risk on the portion loaned. In the interests of harmonious interdepartmental relations, the instruction should be cleared by the Departments of Agriculture and Treasury.

I am unaware that our desk officers have delayed replies to field inquiries or that the question of maintenance of value is regarded by them as a negotiable item. In any case, the clearance of the instruction to the field and the awareness of the exchange of communications between us serves to bring the matter to the attention of our people and to make it sufficiently clear to them that a matter of NAC policy is involved.

Herbert Hoover, Jr .4
  1. Source: Department of State, Central Files, 411.0041/7–2556. Official Use Only. Drafted by James A. Lynn, Assistant Chief of the Economic Development Division, Bureau of Economic Affairs. Cleared in the Bureaus of Inter-American Affairs, European Affairs, Far Eastern Affairs, Near Eastern, South Asian and African Affairs, the Office of the Special Assistant for Mutual Security Affairs, and the Office of International Trade and Resources.
  2. Not printed. (Washington National Records Center, ICA Director’s Files: FRC 61 A 32, Box 307, Commodities—Agricultural Surplus)
  3. Action No. 903; see supra .
  4. Printed from a copy which bears this stamped signature.