147. Letter From the Secretary of the Treasury (Humphrey) to the President1
My Dear Mr. President: These are a few thoughts to have in mind in considering the relative advantages and disadvantages of new proposals for multilateral aid.
There are two main fields for aid. One is to advance our military objectives with direct or indirect support required to finance or maintain military strength of the recipients. The other is designed to promote the economic strength and freedom of friendly countries by helping them to help themselves and so increase their independence of action and avoid reliance upon Russia.
Military aid, of course, must be worked out between ourselves and the recipients on a bilateral basis or with the help of some trusted military ally of ours if occasion requires and, for limited aspects, through NATO.
In discussing multilateral aid we are, therefore, concerned principally with economic aid. This, however, is so closely related to military aid that in most cases they are inseparable. In the remaining cases which clearly permit separate consideration, we already have instruments to handle them satisfactorily, either multilaterally or bilaterally as our own best interests may dictate.
There already exists in the World Bank a large, well-financed and active instrument of multilateral lending either to governments or, upon government guaranties, to private enterprise. It has excellent [Page 381]management and good organization, and wide contacts with fifty-eight countries. It has been in existence for several years and has a thorough knowledge of world conditions. (Soviet and iron curtain countries are not members by their own choice.)
Theoretically, the World Bank’s funds were multilaterally supplied by the participating countries, with our share being approximately 30 percent; actually, we have put up approximately 80 percent of the capital and 60 percent of their bonds have been purchased by Americans. The others mostly have put up small amounts of their own inconvertible currencies, or tickets of good intent. If any other countries are anxious to engage in multilateral loans, it would be much more appropriate for them, instead of starting a new institution, to first pay up what they already owe in the one we now have and open their markets more freely for its bond issues.
The World Bank has the great advantage of proven and experienced management and it can be enlarged to any amount that the participating countries are willing to put up. It has authorized lending power of about $9 billion under its statutes.
The World Bank is supplemented by the new International Finance Corporation which we started nearly two years ago but which is still inactive awaiting the promised participation and contribution of various countries. It is expected to begin operations sometime this summer, and then the activities of the World Bank will be so supplemented that venture loans can be made without government guaranties. In this way, the entire field of development lending, clear through to venture capital investment, will be fully covered.
We have also contributed $2¾ billion to the International Monetary Fund which is helpful to its 58 member countries in providing needed temporary financial assistance to give them time to correct their short term balance of payments difficulties.
We are also already contributing substantially to the U.N. budget and technical assistance activities, in the amount of about $100 million a year.
Despite these very substantial provisions for multilateral lending, there are several current suggestions for new organizations:
Cabot Lodge is urging that we support SUNFED primarily as a direct maneuver to put Russia in the hole. He suggests that we start in a very small way, but experience has shown us that such a scheme once started never ends and continually grows—with the great bulk of the money always coming from us.
There are proposals for an Asian Corporation, in which a number of countries interested in that area would start a new lending organization there.[Page 382]
Then, there is always the recurring request for a bank or a finance company for South America.
These all follow the same pattern. We put up the great bulk of the convertible dollars. They put in their own inconvertible currencies or promises to pay at some future time. We supply the money. They supply the majority of the board of directors to dispense it.
If we engage in any one, we will be set upon immediately for the others, and unless we join with them, we will make more enemies than friends.
If new organizations are established to make loans on a looser basis than the International Bank or Fund, it will clearly undermine their work.
Much of the success of the banks’ operations lies in the aid they have given member countries in working out sound economic programs. Without such programs, funds lent by looser methods might be largely wasted.
There is nothing any of these proposed schemes can do which cannot be done better by a combination of the World Bank, the Monetary Fund, and the International Finance Corporation, as multilateral agencies, supplemented by our own Export-Import Bank, the ICA, and P.L. 480 agricultural sales and loans.
Through the combination of the Export-Import Bank, the ICA, and P.L. 480, we are in position to make bilateral arrangements to cover every reasonable need for loans, “soft” loans, and gifts. The only thing missing is authority to make commitments of funds to be appropriated in future years.
It is to cover this lack of authority to make long-term commitments out of future appropriations that you have asked for the extra legislation that is now pending in this Congress.
I think it is a very wholesome thing that such funds must be obtained from the Congress as a part of the budget so that they are under constant review and subject to the limitations of continuing legislation and criticism by the public. Otherwise, the pressures on the Executive are so great that it would be extremely difficult to resist unjustified expenditures.
I have a growing conviction that we will better promote our own global purpose; that we will more nearly comply with the growing public demand for tightening up aid activities; and that we will better serve the interests of those peoples whom we are trying to assist by gradually, but firmly, shifting our financial relations with them to sound, constructive, commercial relations, including sound but imaginative loans.
In this way, I think we will gain in their respect and we will help them develop sound enterprise. This program will not be popular with the politicians temporarily in control of such countries [Page 383]as are currently receiving our support; they want our money to spend for their own purposes and in their own way. But such a program will certainly increase the respect for us of all sound thinking citizens everywhere. And in the long run it will accomplish much more.