Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

159. Minutes of the 273d Meeting of the National Advisory Council on International Monetary and Financial Problems⁰

November 25, 1958.

[Here follow a list of participants, a table of contents, and discussion of an unrelated matter.]

2. International Monetary Fund and International Bank

The U.S. Executive Director of the International Monetary Fund distributed a memorandum relating to quota increases in the Fund (NAC Document No. 2440)¹ and asked the guidance of the Council on two questions in particular.

The first question was the appropriate repurchase schedule for special drawings which members might seek to obtain relief from the gold payments made in connection with quota increases. The sentiment of the Council was in favor of endeavoring to hold the repayment period to three years, with a possible compromise, if necessary, of a maximum of two one-year extensions.

With regard to special quota increases beyond 50 percent, Mr. Southard inquired whether the Council attached particular importance to a quota increase beyond 50 percent for Germany and possibly some other countries. The consensus was that it was important to have a large increase in the German quota, but that it should be linked to reasonable increases in the quotas of a few other countries having special situations.

3. Other Business

(a) Guarantee Programs

The Council gave preliminary discussion to four related questions concerning guarantee programs. The first was whether in connection with the proposed increase of $500 million in the authority of the International Cooperation Administration to issue investment guarantees it would be desirable to preserve the present 25 percent reserve against new guarantees by seeking new obligational authority of $125 million. Mr. Schaefer said that in view of the assets that would accrue to ICA in the event of payment of claims, and in view of the expectation that no large claims would be presented for payment, ICA was prepared to see the reserve reduced as low as 15 percent. The Treasury expressed concern about diluting the reserves behind outstanding guarantees and about giving Congress the impression that the guarantee program would always be costless. Mr. Smith indicated that Commerce favored expansion of the investment guarantee program. Mr. Furth noted that Chairman Martin was disturbed by any action that would give the impression that the program could be expanded without any cost to the Government. Mr. Harvey indicated that the Bureau of the Budget might be opposed to an increase in new obligational authority for guarantees because of its possible effect on the funds requested for the Mutual Security Program.

The second question was the continuation of the Development Loan Fund policy of maintaining a reserve of 100 percent against guarantees. Treasury and Export-Import Bank favored continuation of the 100 percent reserve policy. Representatives of other agencies did not express firm views on the matter, but the Department of State did indicate some consideration was being given to a fractional reserve system.

The third question was the limitation of interest to be charged by private United States lenders to foreign borrowers on loans covered by full U.S. Government guarantees—e.g., the case of the Development Loan Fund guarantee of a loan by commercial banks to the In-galls-Taiwan Shipbuilding Company (see NAC Document No. 2395, Council Minutes No. 272 and Action No. 1290).² Mr. Coughran said that the Treasury was currently thinking in terms of a maximum one percent spread above the comparable Treasury rate for loans of up to 3 years maturity, with a greater spread to be negotiated in each case for loans above 3 years maturity. The DLF representative feared that a rigid one percent formula would interfere with the DLF program. It was agreed that the agencies would consult further on this problem.

The fourth point concerned a proposed expansion of the ICA investment guarantee program by expanding war risk coverage to include risks arising from insurrection and revolution. The consensus was that such extension of the war risk coverage was reasonable, but opposition was expressed by several agencies to any credit guarantees under the ICA investment guarantee program.

0. Source: National Archives and Records Administration, RG 56, Records of the Department of the Treasury, NAC Minutes. For National Advisory Council Use Only.
1. Dated November 25. (Ibid., NAC Documents)
2. NAC Document No. 2395, September 19, is ibid.; minutes of the 272d NAC meeting, September 24, are ibid., NAC Minutes. NAC Action No. 1290 was taken at the 272d meeting.