ETA–20. Memorandum Prepared for the President1
FINAL PROPOSAL BY THE UNITED STATES WITH RESPECT TO THE INTER-AMERICAN DEVELOPMENT BANKING INSTITUTION
A Specialized Committee of Government Representatives has been negotiating since January 8, 1959 on a U.S. proposal for an Inter-American Development Banking Institution. A large part of the draft charter has been completed, but a number of major issues are outstanding. It is important from the U.S. viewpoint that the negotiation be completed during the next two or three weeks.
The key problem in this situation is the position of Brazil regarding the size of the capital of the new institution.
The original U.S. proposal called for total initial resources of $850 million, with the U.S. subscribing $400 million. This consisted of $700 million for ordinary loans and $150 million for “soft loans.” Three hundred million dollars of the total was not to be paid in but was similar to the callable capital of the International Bank, and would in effect constitute a guarantee fund against which the Bank could borrow in the money market. Provision was made for appropriate installment payments of paid-in capital, and for a moderate part of each paid-in capital subscription to be accepted in the form of national currencies, the rest being payable in gold and dollars.
The Brazilian representative initially proposed a total capital of $5 billion and later suggested bilaterally to the U.S. an initial capital of $2 billion for ordinary loans, plus a special fund for “soft” loans, to which contributions in unspecified amounts would be made in national currencies. He has also called for a review of the capital structure at the end of three years to provide for increases to this total.
While most of the other Delegations have been prepared to accept the view that it is important to establish the organization rather than to insist upon a very large initial capital, it is evident that these other Delegations are extremely reluctant to proceed much further until they are satisfied that every effort has been made to reconcile the positions of the U.S. and Brazil, especially with regard to the capital of the institution. At the same time, there is a general feeling among the Delegations, [Facsimile Page 2] which the U.S. Delegation shares, that a strenuous effort should be [Typeset Page 59] made to conclude the work of the Specialized Committee in the next few weeks.
In an effort to reach an understanding which the Brazilians as well as the other Delegations might accept, we propose, subject to your approval, to offer a final integrated package proposal which would not be subject to any further concession as a result of Brazilian or other pressure. If you approve, we should like to present this proposal to the other Delegations, with an indication that it has been approved at the highest level. We would like to indicate that if this proposal is not found acceptable, and the drafting of the charter is not completed here in Washington by the end of March, we think it unlikely that we can obtain Congressional approval for any institution at this session of the Congress. In this event, because of budgetary considerations, no funds would become available from the U.S. for the institution under any conditions until the second half of the calendar year 1960.
With respect to capitalization, we would now propose that:
- 1.
- The initial capital of the bank should be $1 billion, to which the U.S. would subscribe $450 million, $250 million to be paid in installments and $200 million in callable capital; and
- 2.
- The charter should specify that an additional $500 million would be added to callable capital after all installments of initial paid-in capital had been paid and provided the increase was approved at that time by a 3/4 majority of the total votes in the Board of Governors, i.e., U.S. would have a veto. This would raise the total capital of the Bank to $1.5 billion. The U.S. would be morally committed to subscribe an additional amount of approximately $200 million in callable capital after three to five years, unless at that time we had very strong reasons for rejecting such an increase.
We have been reluctant to make this institution too large because (1) our influence over the use of our money once it has been committed will be limited; (2) we do not wish to have the [Facsimile Page 3] operations of the new institution impinge too heavily upon the Latin American lending activities of the Export-Import Bank and the International Bank; and (3) we are limited by the Budget statement to providing not more than $300 million in new obligational authority at the present time and are also required by the Budget to limit our expenditures in fiscal year 1959 to not more than $100 million and to have no authorization or expenditure in fiscal year 1960.
In putting forward these proposals on capitalization we also propose to take the following positions as parts of a package:
- 1.
- Some countries have expressed a desire to eliminate the proposed soft loan operation. We will indicate our willingness to transfer our subscription to the bank’s Class A (hard loan) resources, if other countries are willing to do likewise.
A memorandum has been prepared setting forth the elements of this proposed package which might be made available to the other Delegations as a statement of our position.2