I am attaching a memorandum regarding “Points on European Lending to Less
Developed Areas for Your Conversations with European Heads of
Government.”
Though we have apparently made some progress already in shifting European
thinking toward increased lending to less developed areas, I think it is
very important for you to impress upon the Germans, Italians and British—at
the heads-of-government level—the urgency of their taking the lead with
early, concrete actions in this field.
The main points I feel you should stress, in any conversation with Europeans,
are:
[Attachment]
1
Memorandum From Secretary of the Treasury Anderson to President Eisenhower
SUBJECT
- Points on European Lending to Less Developed Areas for Your
Conversations with European Heads of Government
[Page 355]
Background
Our general view that the financially strong countries of Western Europe
should now provide a substantially increased flow of financing for less
developed areas was clearly and publicly stated by Mr. Dillon and me at the recent IMF–IBRD
meetings in Washington.2 It is also
well-known to the Europeans from numerous private statements, including
your own comments during your previous trip to Europe.
In a general way, our view on this matter is already widely accepted by
European government officials as well as private observers. As one
example of this, the Marshall Plan countries (in a recent meeting of the
Economic Policy Committee of the OEEC)
concluded unanimously that Europe should provide increased capital to
less developed areas as one means of avoiding an unnecessary and harmful
further increase in its own foreign-exchange reserves.
However, the European countries have not yet translated these general
principles into any significant concrete action; and we may not see
prompt and substantial results unless we press them further, both at a
high level and in a somewhat more specific way.
Each of the European countries, individually, would really like to
accumulate somewhat more reserves and is afraid its present strong
position may for some reason be temporary. Each of them has a strong
feeling that one or more of its neighbors is in a better position than
itself to shoulder this burden, and all of them show a tendency to
over-emphasize somewhat the question of rather detailed “coordination”
of whatever they might do in this field with similiar U.S. and IBRD–IDA
activities. Finally, and perhaps most important, none of these countries
presently has any fully satisfactory banking or budgetary arrangements
for providing long-term lending which is adapted to the needs of the
less developed areas.
Our recent action with respect to financing provided by our Development
Loan Fund is already causing some European exporters to bring the matter
of the need for more European financing to the attention of their
governments. Over time this incentive, which did not exist as long as
our DLF was providing financing for
European exporters, should provide an important additional motivation
for action by European governments.
Meanwhile, in order to get early and significant results from the
Europeans in this field, it seems necessary to impress upon the
strongest and largest of the European countries, at the
heads-of-government level, the urgency of their cutting through the
apparent difficulties and
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getting forward with early and concrete bilateral action (in addition to
supporting the World Bank’s activities and the proposed International
Development Association) to provide an increased flow of European funds
into the less developed areas. In this connection, substantial actions
by both Germany and Italy plus at least some action by the United
Kingdom are probably prerequisite to any significant action by other
European countries.
General Points
The following general points on this subject would be worth stressing in any conversation with European heads of
government:
- (1)
- Europe’s strong financial position, the Free World’s political
objectives in less developed areas, and the need to keep world
trade in balance at a high level all require increased European
financing for less developed areas—both multilaterally (through
support of World Bank activities and the proposed International
Development Association) and also through a substantial increase
in bilateral European lending to such areas at long term.
- (2)
-
Such bilateral European lending ought to be selectively
related to projects which are economically useful to the
borrowing countries and extended on a long-term basis
appropriate to the kinds of equipment involved, whereas
present bilateral European financing is almost exclusively
limited to short-term export-credit guarantees.
These European export-credit systems were designed basically
to move exports without regard to the economic needs of the
borrowing countries. Moreover, their short maturities
(limited to a maximum of 5–7 years even for heavy equipment
which the Europeans would finance for their own domestic use
on maturities of 20–25 years) have frequently contributed to
financial crises in the borrowing countries and frequently
had to be refinanced with longer-term funds from
non-European sources.
- (3)
-
Our own experience in this field has convinced us that
industrial countries cannot successfully carry out their
responsibilities in financing less developed areas solely
through private investment or purely-private lending
institutions. In the light of this we believe one urgent and
essential first step for virtually all of the European
countries, to enable them to provide long-term bilateral
financing for less developed areas, is the establishment of
appropriate public or semi-public tanking institutions for
this purpose.
Though many of these countries may be reluctant to
appropriate budgetary funds for foreign-lending
institutions, most of them could establish some sort of bank
for bilateral long-term foreign lending (similar to the
loans by our own Export-Import Bank) which would finance
itself through sale of governmentally-guaranteed securities
on the local capital market.
[Page 357]
Individual Conversations
The following special points on this subject might be stressed in
individual conversations with Chancellor Adenauer, Premier Segni, Prime
Minister Macmillan, and
President de Gaulle,
respectively:
Germany. Germany is generally acknowledged to be
financially able to make the largest European contribution to this
problem, and is probably also the most important exporter of heavy
equipment to many less developed areas.
The Germans do have a public bank (Reconstruction Loan Corporation) which
has recently been given limited authority and funds to make long-term
loans to less developed countries. What seems to be most needed now is a
substantial increase in the funds available to this bank for foreign
lending, a clear policy recognition that such lending is to become a
major and continuing function of this bank, and a positive effort by
this bank to seek out suitable lending projects in less developed
areas.
The Germans currently argue that they have been losing rather than
gaining foreign-exchange reserves during 1959 as a result of large
“capital outpayments”—and that this demonstrates they are already doing
as much as they properly should or can in total foreign lending.
However, their total gold and liquid U.S. dollar holdings still exceeded
$4 billion at end of June (down only some $200 million from the end of
last year); and, against this, they have virtually no short-term
liabilities to other countries. Moreover, our understanding of the
current situation is that:
- (a)
- A very large amount of the German “outpayments” during the
first part of this year represented special, one-time
transactions (including an advance payment of $150 million on
long-term debt to the United States) which are unlikely to
recur.
- (b)
- There are no real signs that any significant decline is to be
anticipated in Germany’s large export surplus or other current
earnings from the rest of the world.
- (c)
- In addition, the Germans will apparently be receiving rather
heavy debt repayments over the next few years from other
European countries, particularly France.
Consequently, we believe that Germany is likely to be
accumulating further gold and dollar reserves, to the detriment of the
less developed countries and others, unless it promptly undertakes a
substantial and continuing foreign lending program directed toward the
needs of the less developed areas.
The Germans have also been stressing their strong desire for a rather
high degree of “coordination” of any long-term lending they might
provide bilaterally to less developed areas with similar loans or other
aid extended by the World Bank and the United States. We have
[Page 358]
already indicated our
receptiveness to some informal exchange of information, centered in the
World Bank, on the economic needs and priorities of borrowing countries
as well as their existing financial commitments; and Mr. Black and his staff are currently
exploring the details of what might usefully be done along this line.
While we seek to satisfy legitimate German concerns on this point, we
are anxious not to let any overly-perfectionist ideas about
“coordination” get in the way of early progress by Germany on practical
measures to provide increased bilateral lending.
Italy. The problem with the Italians is mainly
psychological; they still consider themselves poor, as well as small;
and they point to the development problems of Southern Italy in support
of this view. However, their official gold and dollar reserves are now
the third largest in Europe (rapidly approaching those of the United
Kingdom) and show every sign of continuing to grow.
Though Southern Italy’s needs may make it somewhat more difficult,
politically, for the Italians to finance foreign lending, it also seems
clear that Italian heavy industry has a heavy stake in the sale of
equipment to less developed areas outside of Italy. In any case, world
trade and payments cannot be kept in satisfactory balance if Italy
continues to absorb gold and liquid dollar holdings from less developed
countries and others at anything like recent rates ($1.2 billion during
the year and half ending June 1959). Moreover, the Italian banking
system appears highly liquid and the capital market increasingly strong;
and establishment of some special bank to provide financing to less
developed areas on a long-term basis should be relatively easy, as a
technical matter.
United Kingdom. The British feel they are
presently doing about all they can in the foreign financing field—on the
grounds that their gold and dollar reserves are still low in relation to
their trade needs and financial responsibilities, that their prospective
balance of payments surplus is very small, and that they already have
heavy development responsibilities within the Commonwealth. On the
whole, we can agree that the United Kingdom has been doing a good deal
in this field over a considerable period of time and in the face of
financial difficulties of its own.
However, in view of our interest in obtaining increased bilateral
development lending from many of the European countries, rather than
only one or two, it would be of great help if the British could exercise
some leadership by taking some definite additional steps in this
direction. This would involve moves to provide more financing for
development projects outside, as well as inside, the Commonwealth; and
to finance more heavy-equipment purchases by less developed countries on
appropriate long maturities rather than through present short-term
export credits. (The British already have a procedure—
[Page 359]
under Section 3 of their Export Guarantees
legislation—for providing long-term loans to overseas countries on a
project basis; but the funds so far made available under this procedure
are quite modest and have been mainly used for Commonwealth
countries.)
France. It is probably not desirable to press the
French, right now, for any action in this field—other than their firm
support of the proposed International Development Association under
World Bank management. French financial capability to provide additional
foreign lending is presently limited by the fact the recovery in their
foreign-exchange reserves has come later than, and is still somewhat
short of, that in other European countries—plus the heavy developmental
responsibilities they already have inside the franc area, particularly
in Africa. Moreover, it is currently of great importance to restrain
President de Gaulle from pressing
his previous notions about some new multilateral scheme for financing
economic development with Soviet participation.
(Later on, if the French export and reserve positions continue to improve
as they have been doing and if concrete further actions to increase
bilateral lending to less developed areas are obtained from the Germans,
Italians and British, then we may be in a somewhat better position to
urge similar action on the French.)
