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

ETA–12. Minutes of the 273rd Meeting of the National Advisory Council on International Monetary and Financial Problems¹

Washington, November 25, 1958

• Secretary Robert B. Anderson (Chairman), Treasury Department
• • Mr. Julian B. Baird
  • Mr. Tom B. Coughran
  • Mr. Nils A. Lennartson
  • Mr. Philip P. Schaffner
  • Mr. Elting Arnold
  • Mr. Henry J. Bittermann
  • Mr. Ralph V. Korp
  • Mr. E. Jay Finkel
• Mr. C. Douglas Dillon, State Department
• • Mr. Thomas C. Mann
  • Mr. John M. Leddy
  • Mr. William V. Turnage
  • Mr. John Parke Young
  • Mr. Harry R. Turkel
  • Mr. Alexander M. Rosenson
  • Mr. Phil R. Atterberry
• Secretary Lewis Strauss, Commerce Department
• • Mr. Henry Kearns
  • Mr. Marshall M. Smith
  • Mr. Clarence I. Blau
• Governor Wm. McC. Martin, Jr., Board of Governors, Federal Reserve System
• • Governor M. S. Szymczak
  • Mr. J. Herbert Furth
• Mr. Samuel C. Waugh, Export-Import Bank
• • Mr. R. H. Rowntree
• Mr. Dempster McIntosh, Development Loan Fund
• • Mr. Robert M. Cabot
• Mr. Walter Schaefer, International Cooperation Administration
• • Mr. Hale T. Shenefield
  • Mr. Charles Warden
  • Mr. Thomas P. Doughty
• Mr. Frank A. Southard, Jr., International Monetary Fund
• Mr. John S. Hooker, International Bank
• Mr. Max Myers, Department of Agriculture, Visitor
• • Mr. William F. Doering, Department of Agriculture, Visitor
  • Mrs. Katherine Wiley, Department of Agriculture, Visitor
  • Mr. Larry F. Thomasson, Department of Agriculture, Visitor
  • Mr. Bartlett Harvey, Bureau of the Budget, Visitor
  • Mr. Hal B. Lary, Council of Economic Advisers, Visitor
• Mr. George H. Willis, Secretary
• • Mr. C. L. Callander, Assistant Secretary
  • Mr. Victor A. Mack, NAC Secretariat

1. Inter-American Development Banking Institution

The Council considered the paper submitted by the Staff Committee on policy issues involved in the Inter-American Development Banking Institution (NAC Document No. 2431). The Secretary of the Council reviewed the Staff Committee discussion, pointing out that the basic assumption of the Working Group was that the institution would be a conservative financial institution which would revolve its funds through a banking operation. If this broad principle were altered to emphasize the possibility of soft loans, the paper would have to be modified. The Staff Committee had discussed the question of currency of repayment and agreed this matter required further Council consideration. Another important issue was whether the authorized capital should be $600 million as outlined in the paper, or $1 billion as suggested by the State Department in the Staff discussion. The Secretary noted that these questions also involved the question of U.S. voting power in the institution.

The Chairman asked for the views of the Department of State. Mr. Dillon recalled the political motivation of United States support for the institution, and informed the Council that the Latin American participants in the meeting of the Special Committee of the Council of the Organization of American States (OAS) were insisting on discussing the details of the new institution despite United States efforts to confine the discussion to general matters. The Latin American delegates felt they did not have significant resources to contribute to the institution, and that the main Latin American need was an increase in capital availability from outside Latin America. It appeared that Latin American hard currency contributions would be insufficient to have much effect, and that hard loans by the new institution would tend to reduce the possibility of loans from the Export-Import Bank and the International Bank. Accordingly the State Department felt that the United States must make additional funds available to the new institution for loans involving repayment in local currencies. State felt that the 1/3–2/3 ratio for hard loan contributions was no longer realistic, and that the United States should offer to contribute half the hard loan currency.² Mr. Dillon continued that in his view Latin American countries would be expected to look to the new inter-American institution for soft loans, and the Development Loan Fund would not make loans to Latin American countries except in special circumstances. The new institution would have broad authority to borrow, which would make it possible to borrow from the Development Loan Fund should that be considered appropriate at the time. On a 50/50 basis the initial capitalization might be $500 million, in addition to the borrowing from the DLF. The institution should also have more freedom in the technical assistance field than the Working Group recommended, particularly in assisting Latin American countries in preparing economic development programs.

Mr. Mann, commenting on the meeting of the OAS Special Committee, said that some Latin American delegates were seeking a United States commitment for a “Marshall Plan” for Latin America involving some 2½ to 3 billion dollars. It was felt important for the United States to present the non-controversial aspects of the Inter-American Bank and if time permitted some of the major points, in order to avoid a formal request for such an aid program and widespread criticism of the United States.

The Chairman commented that the United States had been exporting large sums of dollars in a variety of ways over the preceding 10 years, and that it was necessary to consider the extent to which continued exportation of U.S. dollars and gold was desirable. The proposal for an Inter-American Bank envisaged a revolving financial institution, but the Latin Americans were saying that the institution could not be established unless the United States put up the money. A division of contributions would need to be worked out, but it was imperative that the Latin Americans have a real and hard sense of contribution. He preferred a ⅓–⅔ ratio because it was consistent with the idea of an international institution, and agreed that if the contributions were on a 50/50 basis the capitalization should be smaller than if it were ⅓ and ⅔. He would be willing to consider soft loan authority for the institution, but would oppose creating a soft loan institution with a commitment of constant replenishment by the United States without participation by the Latin Americans. United States participation must be by direct appropriations from Congress on the basis of a clear understanding of the amount and nature of the capitalization and the dividing line between hard and soft loans, and a clear understanding that further appropriations would be necessary in the future. The Chairman agreed that the institution should have the right to borrow in private markets, and that the emphasis should be on project loans, with the possibility of other types of loans to the extent feasible.

Secretary Strauss commented that he had a number of questions concerning the institution, including the need for it, but that he would in the first instance seek the answers from his staff.

Mr. Waugh expressed surprise at the turn of the discussion of the institution away from the hard loan approach. He questioned the notion of U.S. veto power, recalling that the initial approach involved control by the Latin Americans. He also questioned the proposal that the Development Loan Fund lend to the institution to enable it to make the same type of loans that the DLF could make bilaterally. He did not see that any approach was being made to the main Latin American problem of financing social overhead projects. He outlined the view of the Export-Import Bank’s Board of Directors: that the Inter-American Bank would necessarily involve competition with existing institutions; that the competition of a bank which made only hard loans would be preferable to competition of a soft loan institution; and that the charter of the Inter-American institution should require that its loans offer reasonable assurance of repayment in the same currency in which the loans were made. This would permit hard loans in Latin American currencies. Mr. Waugh continued that if the Inter-American Bank made soft loans it would interfere with and perhaps drive out sound loans by private lenders said existing public institutions and would require periodic new appropriations by the United States. Any soft loans of U.S. funds should be made only by agencies controlled by the United States. Mr. Waugh felt that the matter should be discussed with interested Congressional committees before commitments were made. He concluded that if the United States contributed all or nearly all of the money to this institution it would create troublesome precedents in the case of other regional institutions.

The Chairman said that as a matter of principle a sound bank required sound loans with repayments in the currency lent. However, if the Department of State believed that on this basis it would not be possible for the institution to be established, then the soft loan possibility could not be ruled out. The problem then would be to get the soundest possible institution in such a framework. This would require participation in contributions by all the members. The DLF should deal with borrowers bilaterally rather than through the Inter-American Bank, and any soft loan capital contributed by the United States should be provided by direct appropriation by the Congress.

Mr. Martin expressed agreement with the views of Mr. Waugh. He felt that a 50/50 capital contribution basis was inappropriate for an international institution and that soft loans were really more like grants than loans and that repayment would in effect be made by printing money. He felt that the best long run politics was to make the institution successful, and that the United States should not retreat from the principle that the institution was expected to make its way as an earning institution. He did not insist that loans be solely for projects or rule out social overhead loans, and he felt that if there were to be soft loans, they should be so financed that the capitalization of the institution would not be increased.

Mr. McIntosh expressed a preference for a maximum United States contribution of 1/3 and felt that it would be preferable for the Development Loan Fund to deal directly with Latin American borrowers rather than delegating control over its operations in Latin America. Governor Szymczak commented that the Latin Americans appeared to be talking about two different things, a bank and an aid program.

Mr. Dillon said that the Latin Americans have avoided the word “bank” in talking about the new institution, and he referred to an OAS publication on financing of economic development in Latin America. He thought the Latin Americans would now be satisfied with project loans, including social overhead projects, and loans to local development banks. He agreed that in a financial institution on a hard loan basis the United States share should not exceed 1/3, but he felt this would not satisfy the Latin Americans. Therefore, State felt the United States should go to a 50/50 basis for hard loan capital, plus additional soft loan capital on a loan basis. This would leave the United States in the position of not having more than a majority of the voting power. The Latin Americans might match our soft loan contribution with their own currencies. To the extent that the institution would lend for social overhead projects, it would not compete with the Export-Import Bank, the International Bank, or private capital. He agreed that the institution should not have the right to additional appropriations every year, and that the matter should be discussed with the interested Congressional committees.

Mr. Hooker suggested that the DLF could cooperate with the Inter-American institution, which could prepare soft loan projects for DLF consideration, but without itself making soft loans. He also wondered whether the Latin American delegates to the OAS Special Committee were the appropriate people to make decisions about the Inter-American Banking Institution.

The Chairman said that the main point was that the Inter-American Banking Institution should be regarded as a financial organization, and that the Latin Americans must realize that the institution would run out of funds unless the Latin Americans contribute more than the United States. If it depended only on United States contributions it would not be a financial institution even though it would be so regarded.

With respect to the meeting of the OAS Special Committee, the Secretary of the Council commented that there were still some apparent differences of opinion among the Latin Americans about the nature of the institution. He also noted that the OAS document on financing Latin American economic development had been produced by its secretariat, and that the attitudes of the Latin Americans toward it were not known.

Mr. Mann asked the advice of the Council with respect to tactics on the drafting group which had been set up by the Special Committee. The Chairman said that it was not possible to make an immediate decision on all the issues in the institution and that the best course appeared to be to tell the Latin Americans that we would try to produce an outline of the new institution by the first of the year, and that this would require bilateral consultation with individual countries and consultations with Congressional committees.

[Here follows discussion of agenda items 2 and 3: “International Monetary Fund and International Bank” and “Other Business.”]

1. Source: Treasury Department Files, NAC Minutes. For National Advisory Council Use Only. The Source text is marked “Draft of Minutes.” On January 26, 1959, NAC Secretary Willis circulated a memorandum to the members of the NAC containing revisions in the list of participants and in par. 2 of the text of the minutes. (Treasury Department Files, NAC Minutes)
2. The following two sentences replaced a single sentence in the original draft minutes, which read as follows: “The institution should have the right to borrow in private markets and should also be able to borrow from governments, specifically from the Development Loan Fund, which could make a $100 million line of credit available for project loans repayable in local currencies.”