170. Minutes of Meeting 59–3 of the National Advisory Council on International Monetary and Financial Problems0
[Here follow a list of participants and a table of contents.]
1. Repayment Guaranties
The Council considered the question of appropriate policy toward more active use of repayment guaranties by the U.S. Government (NAC Documents 59–98 and 59–95).1 The Chairman said that it was important to exercise the guaranty authority in the soundest possible manner. He noted that the Export-Import Bank already had authority to make repayment guaranties and that this authority had not been used extensively in recent years, largely because of the need of coordination with Treasury financing operations. The Chairman added that the Bank had had remarkable success in developing the export of capital with private participation. He referred to the studies and reports which had been prepared under the direction of Mr. Boeschenstein and Mr. Straus, and felt that the U.S. Government would enlarge its activities in this area. He believed that such enlarged use of repayment guaranties should be accomplished through the Export-Import Bank, which already had the necessary experience and the available funds. He saw an advantage from the point of view of the State Department in having this done by the Export-Import Bank, since the seeking of new funds or new authority for repayment guaranties might operate to reduce the availability of other foreign aid funds.
Mr. Waugh noted that in the years 1952 to 1958 private participation without the guaranty of the Export-Import Bank in projects partially financed by the Bank totaled about $884,000,000. In addition he noted that all Cooley Amendment loans made thus far had carried with them private U.S. capital. Private capital participated in projects financed by the Bank both by direct investment and by purchase of the Bank’s loan paper without recourse on the Bank. Mr. Waugh said that the Bank was anxious to assist in facilitating the movement of private capital abroad, and was not holding back on guaranties, but had been cooperating with the Treasury Department.
Governor Szymczak said that the Federal Reserve Bank favored expanding the guaranty program through the Export-Import Bank, especially in view of the United States balance-of-payments position and in view of the Treasury financing and public debt problem. He [Page 326] referred also to the wide contacts and experience of the Bank, and its considerable success in facilitating the movement of private capital abroad, with or without the guaranty of the Bank.
Mr. Fisk 2 said that the Department of Commerce felt that the existing authority of the Export-Import Bank and the Development Loan Fund were sufficient for an expanded guaranty program, and that Secretary Strauss thought it would not be wise to seek new legislative action at this time.
Mr. Dillon commented that there was a considerable amount of Congressional pressure for a program of increasing private investment abroad, and that the key question appeared to be that of providing a new stimulus. He noted that the Export-Import Bank guaranty authority had been relatively unused, and expressed doubt that the Bank’s efforts to obtain private capital participation had been of much effect in certain underdeveloped areas, such as South Asia. There was a general feeling that the United States should do more in such areas than it had been doing. Mr. Dillon added that he had no strong views on which agency of the Government should undertake the task, and that he was not opposed to increased use of the guaranty authority of the Export-Import Bank. He noted, however, that Export-Import Bank guaranties would be tied, and that there was a possibility that increased use of the Export-Import Bank guaranty authority would reduce the amount of private participation in Export-Import Bank loans without guaranty by the Bank.
Mr. Dillon suggested, as a possible alternative to using the Export-Import Bank’s authority, the broadening of the ICA investment guaranty authority to encompass repayment guaranties. No additional funds would be needed beyond the previously contemplated increase of $500 million in the authority to issue guaranties, and a limit could be placed on the amount of repayment guaranties, possibly as low as $100 million. If this were approved, Mr. Dillon would contemplate administrative action to require the Development Loan Fund to approve any repayment guaranties, since the ICA investment guaranty staff were not trained in appraising loans. Mr. Dillon concluded, however, that he would support more active use of the Export-Import Bank’s guaranty authority if this approach would be likely to work.
Mr. Reid commented that from the management standpoint it appeared preferable to utilize existing authority and staff in the Export-Import Bank and the Development Loan Fund rather than to seek new legislation.
Mr. Waugh commented he was not sure that the Congressional advocates of increased private investment were aware of the amount of private investment going abroad in association with Export-Import [Page 327] Bank loans. He felt that the balance-of-payments aspect was a serious matter which should be taken into account, and he noted that the existing policy of the Bank on guaranties had not been decided by the Bank alone but had been developed in response to the needs of Treasury financing policy. Mr. Arey also noted the close tie between Export-Import Bank dollar loans and loans of Cooley Amendment funds, and said that in many cases it was possible to work out financing which would use both types of funds.
Mr. Dillon said that if the Bank would be able to do an effective job it would be appropriate to try this avenue. He suggested that the Bank might differentiate as between areas in which it would be willing to give guaranties, and noted that the use of the Bank’s authority would be more likely to be successful if it became generally known that the Bank was ready to operate in new areas of the world.
(At this point the Chairman left the meeting, and the chair was assumed by Mr. Baird as Acting Chairman.)
Mr. Baird (Acting Chairman) expressed the consensus as being that it was appropriate for the U.S. Government to try some increased use of guaranties; and that the Export-Import Bank was the appropriate channel for this effort. It was also agreed that the interest rate aspects of guaranteed loans should be explored further by the Staff Committee; also that the Staff Committee would prepare an action which would record the decision of the Council that as a matter of principle the use of guaranties by the Export-Import Bank should be expanded. (The text of the Council action is as follows (NAC Action 59–101)):
“The National Advisory Council recommends to the Export-Import Bank a more active use of its guarantee authority, particularly with reference to repayment guarantees on loans made by private U.S. lenders for the development of less-developed areas. General policy matters concerning the operation of a more active program should be referred to the Council for its consideration in accordance with usual practice. The Council is of the view that no additional legislative authority should be sought with respect to a repayment guarantee program.”
Mr. Waugh informed the Council that the Export-Import Bank was considering the issuance of transfer guaranties, and was thinking in this connection of charging a rate of ½ percent per year. He expressed the hope that information on the performance of the Bank to date in facilitating the movement of private capital abroad would be brought to the attention of those pressing for increased use of repayment guaranties. Mr. Mcintosh commented in this connection that a very large amount of U.S. private investment abroad—some $25 billion worth—had taken place without any loans or guaranties by the U.S. Government.