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

ETA–14. Circular Telegram from the Acting Secretary of State to all Diplomatic Posts in the Other American Republics¹

Washington, December 21, 1958, 6:52 p.m.

793. Section 1 of 2 sections.

Section 2 of this telegram sets forth an outline of preliminary U.S. views, subject further consultations with members of Congress, regarding the structure, capitalization and functions of the proposed inter-American development institution. You requested transmit this outline to government to which you accredited together with statement incorporating points stated below. In course transmittal you should make sure that communication is brought to attention of high-level financial and economic officials of foreign government who will presumably be responsible for determining financial policy issues involved.

Points to be included in U.S. statement follow:

1. Since inauguration Operation Pan America and announcement by Under Secretary Dillon at IA-ECOSOC on August 12, 1958 of U.S. willingness to support inter-American financial institution U.S. Government has been giving intensive study to best means establishing such institution on basis (a) to assure effective support L.A. economic development, (b) to serve as instrument economic cooperation genuinely inter-American in character, and (c) to inspire confidence in long-run technical and economic soundness of institution which essential its future growth.

2. During its study U.S. Government has taken account discussions at Foreign Ministers’ meeting in Washington on September 23–24, 1958 and at meeting of Special Committee of 21 during November-December 1958.

3. As result its consideration, U.S. has come to conclusion that in order assure success inter-American development institution should reflect certain basic principles:

A. Primary funds to be administered by institution should be utilized for loans repayable in currency lent (i.e. “hard loans”). Funds to be administered by the institution on basis repayment in currency of borrower or other flexible basis (i.e. “soft loans”) should play secondary role and such funds should be segregated so as to avoid any impairment of credit of new institution in capital markets.

B. Contributions to funds for both hard loan operations and soft loan operations should come from all the American states and voting power of any state should be broadly related to size of its capital contribution.

C. United States Government should not repeat not have majority vote in management of funds for hard loan operations. However, with respect funds for soft loan operations U.S. recognizes limited extent to which Latin Americans able to contribute and hence U.S. willing accept majority contribution and majority vote in respect this department of institution’s operations.

D. Capitalization of institution should take account limited capacity Latin Americans contribute gold or dollars to paid-in capital. Hence reasonable portion L.A. contributions to funds for both hard and soft lending operations should be acceptable in local currencies.

E. Payment of capital subscriptions should be spread over reasonable period of years. This desirable view (a) fact that institution will require initial period organization before operations can begin; and (b) desirable maximize total capitalization without undue financial strain on governments any particular year.

F. Some portion total capital subscriptions should be in form contingent liability on governments meet obligations of institution. If institution soundly administered, this should enable it in time to raise capital through issuance bonds in private securities market.

4. As indicated Under Secretary Dillon’s statement at Committee of 21 on November 18, 1958 U.S. would consider that new development institution should play effective role in assisting member governments in field development planning, including selection development priorities and preparation projects. While U.S. unable elaborate further this suggestion now, anticipate will be able do so at meeting of financial experts in January.

5. U.S. would appreciate consideration by foreign governments of its proposals re inter-American development institution in preparation for January meeting and would hope to receive comments before then if practicable.

6. Understood that U.S. participation in institution to be negotiated of course subject Congressional approval.

You also requested inform appropriate officials that U.S. delegation will be headed by T. Graydon Upton, Assistant Secretary of Treasury, who will be assisted by economic and financial experts. Inform re delegation of govt to which you accredited appreciated soonest.

Outline of Proposed Inter-American Development Banking Institution Capitalization (figures in millions of dollars):

1. “Hard” operations authorized capital 700 of which 400 paid-in and 300 callable only to meet obligation (i.e. constituting guarantee fund for floatation bonds similar to IBRD’s callable capital portion). Paid-in capital (one-third payable immediately, the balance in subsequent installments): U.S., 150; L.A. gold or dollars, 150; L.A. local currency 100. Callable capital: U.S. 150; L.A. 150.

2. “Soft” operations authorized capital 150 as follows (one-half payable immediately, second half commitment to be paid in subsequently): U.S. 100; L.A. gold or dollars 25; L.A. local currency 25.

Total capital 850.

Voting:

On basis above figures, U.S. would have roughly 40% of votes in respect of funds contributed for “hard” loans and roughly 60% in respect of funds contributed for “soft” loans.

Herter
Acting

1. Source: Department of State, Central Files, 810.10/12–2158. Confidential; Priority. Sent in two sections; drafted by John M. Leddy, Special Assistant to the Under Secretary of State for Economic Affairs, and signed by Dillon. The telegram was cleared with the Treasury Department, OFD and ARA in the State Department, and the NAC approved its substance.