Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

ETA–11. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Secretary of State¹

Washington, November 24, 1958

SUBJECT

• Inter-American Development Institution

Problem

To identify the United States with Latin American aspirations for this Institution, within reasonable limits, and to obtain Treasury support in the NAC for the kind of Institution which will attain our objectives.

Discussion

On Tuesday, November 25, the NAC is meeting to adopt the U.S. position to be taken regarding the Inter-American Development Institution. A considerable amount of staff work has already been done by the technicians in State and Treasury, and we have until January 8, at which time the Special Committee of the Inter-American Economic and Social Council will convene to chart the outline of the Institution, to complete our work.

As we were plainly told in advance, the special Committee of the Council of the OAS which began its sessions in Washington last Monday, November 17, has spent about half of its time so far discussing the general outline of the proposed Development Institution, even though we had made clear in advance our inability to make any commitments regarding it and our strong feeling that discussion of the Institution should be in the other forum.

While the delegates last week also stressed intro-regional and international trade, and technical cooperation, their main thrust has been to overcome the shortage of development capital. While the principal countries having convertible currencies state that the new entity should be both sound and permanent and, hence, operate on a basic of repayment of loans in the currency borrowed, all emphasized that the U.S. must be the major contributor. I would think that any contribution less than $100 million would be out of the question. Eventually, such a hard loan institution might be able to sell bonds in the investment market and grow to substantial proportions as has the World Bank.

However, the overwhelming majority of the Latin Americans are thinking of a development institution engaging also in soft loans, including loans for social overhead projects. They are thinking of U.S. help in economic development financing through loans of a combined magnitude not realizable by a bank to which Latin America could contribute even half of the capital. They are thinking in terms of $300 to $400 million annually for the next ten years, in addition to maintenance of the current leading activities of the IBRD and the Eximbank. Obviously we will be unable to meet that kind of request but we shall have to deal with the problem of profound disillusionment unless we can devise some means of meeting this aspiration for a soft loan institution.

Messrs. Dillon, Mann and I have discussed that probably the most feasible approach might be to establish an institution with two departments, one to operate along sound banking lines and to make only hard loans, and (2) a completely separate department that would make soft loans and that would be authorized to borrow from the U.S. Development Loan Fund, say, at the rate of $100 million per year. The latter department would be able to lend funds for certain important overhead projects, like schools, and hospitals, and could also lend money for the local currency costs of projects for which the hard loan department would lend to cover import requirements.

The Department has prepared a position paper which will be made available to the other members of the NAC at its meeting on Tuesday when this subject will be discussed. Attached is a copy.

Recommendation:

That you authorize Mr. Dillon support an institution which would make hard loans but with a department which could also handle soft loans and would be authorized to borrow from the DLF, at the NAC meeting on Tuesday, November 25;

That yon also take an early occasion to inform the President of your views that this kind of institution is absolutely necessary to meet both the urgent economic problems in Latin America and the political problems created by their increased expectations of U.S. assistance.

[Attachment]

Paper Prepared in the Department of State²

Washington, November 24, 1958

In order to permit the institution to make some loans of convertible currencies repayable in local currencies to assist in financing appropriate projects, it should be given authority to borrow for such purposes from the U.S. Development Loan Fund. Funds borrowed from the DLF would be segregated from other resources of the institution and otherwise handled on a distinctive basis in order to preserve the integrity of the Institution’s capital and the separate character of its other lending operations. Purposes of financing, terms, conditions and other relevant aspects of transactions involving funds borrowed from the DLF would be subject to determination in specific loan agreements between the institution and the DLF. In this way the United States Government could exercise adequate control over the expenditure of such funds without resort to special provisions in the institution’s charter or in the voting rights of members.

1. Source: Department of State, Rubottom Files, Lot 60 D 553, “Inter-American Regional Development Inst. Confidential. A hand-written notation on the source text, which is on unsigned carbon copy of the original, states that this memorandum was not sent forward. A typed note indicates that the original bore the following hand-written notation, dated November 24, by Under Secretary Dillon, through whom it was routed: “Mentioned orally to Secretary and received guidance.”
2. No classification marking.