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

ETA–8. Minutes of the 269th Meeting of the National Advisory Council on International Monetary and Financial Problems¹

Washington, August 26, 1958

• Secretary Robert B. Anderson (Chairman), Treasury Department
• • Mr. Julian B. Baird
  • Mr. Elting Arnold
  • Mr. Philip Schaffner
  • Mr. Henry J. Bittermaan
  • Mr. Ralph Hirschtritt
  • Mr. Ralph V. Korp
• Mr. C. Douglas Dillon, State Department
• • Mr. John Parke Young
  • Mr. Emerson Ross
• Mr. Walter Williams, Commerce Department
• • Mr. Marshall M. Smith
• Governor Wm. McC. Martin, Jr., Board of Governors, Federal Reserve System
• • Mr. Arthur W. Marget
  • Mr. Robert S. Sammons
• Mr. Lynn U. Stambaugh, Export-Import Bank
• • Mr. Vance Brand
  • Mr. Walter C. Sauer
  • Mr. Harry R. Rowntree
• Mr. Walter Schaefer, International Cooperation Administration
• • Mr. Hale T. Shenefield
• Mr. Frank A. Southard, Jr., International Monetary Fund
• Mr. William F, Doering, Department of Agriculture, Visitor
• • Mr. Arthur G. Kevorkian, Department of Agriculture, Visitor
  • Mr. Maurice Stans, Bureau of the Budget, Visitor
  • Mr. Bartlett Harvey, Bureau of the Budget, Visitor
  • Mr. Hal Lary, Council of Economic Advisors, Visitor
  • Mr. Edmond C. Hutchinson, Development Loan Fund, Visitor
• Mr. George H. Willis, Secretary
• • Mr. C. L. Callander, Assistant Secretary
  • Mr. Allan J. Fisher, NAC Secretariat

1. Proposed Inter-American Banking Institution

The Chairman referred to the draft paper² which had been distributed as the basis of a charter approach to an Inter-American Banking Institution,³ and said that the primary problems appeared to be the kind of institution which would be set up, and the way in which the capital would be provided. He asked the other Council members for comments.

Mr. Dillon said that in view of its political objective the proposed Bank should be organized as an Inter-American Institution with control by the Latin Americans. The United States approach should be as flexible as possible. One unresolved question was whether the Institution should make hard, soft, or mixed loans. While no rigid formula should be adopted at this time, the United States should decide which approach it preferred, subject to any necessary accommodation to Latin American views. He inclined to the view that the Bank should make mostly soft loans, and should not compete with existing institutions making hard loans.

Mr. Dillon continued that the kind of loans would affect the raising of the capital. The Bank would probably be unable to borrow substantial amounts in the private market in the absence of a U.S. Government guarantee. If it made soft loans, such borrowing would be out of the question. If the Bank were a soft loan institution, replenishment of capital, although not the original capital contribution, should come from the Development Loan Fund, which he thought should develop into a central source for soft loan capital. Mr. Dillon thought that the question of U.S. representation was related to the location of the Bank. If it were located in Latin America, it would not be feasible for the U.S. Executive Director of the International Bank to be the U.S. Executive Director of the Inter-American Bank. He also raised the question of whether the management of the Inter-American Institution should be similar to that of the International Bank, or should have a greater flavor of foreign policy, with policy guidance tied in more closely with the Development Loan Fund. He thought the paper provided a good start for consideration of these various problems.

Mr. Stambaugh commented that Latin America was the most valuable and important foreign trade area of the United States. The ability of the Export-Import Bank to provide credits had always been an important factor in retaining markets in Latin America, as well as in other parts of the world, and the United States should avoid setting up an institution that would in any way handicap American industry in competing with lower-cost foreign industries. Mr. Stambaugh continued that if Latin American economic problems could be solved simply by providing more credits, a new institution would not be needed. The Export-Import Bank believed there was need for a new institution with functions different from those of the existing institutions. The problems of obtaining the local currency for development projects and for budgetary financing, were chronic in Latin America. The new Institution could usefully confine its financing to such internal expenditures, and should also be able to give technical advice and to assist the Latin American countries in planning their development programs.

Mr. Williams inquired as to the need for the proposed Institution, and whether Dr. Milton Eisenhower and Vice President Nixon had been consulted. The Commerce Department had also considered whether the Institution might not more appropriately be a Latin American than an Inter-American Institution with the function of providing local currency for local currency needs.

The Chairman commented that the Latin American feeling of having a special relationship with the United States had been weakened by U.S. participation in regional organizations in other areas, such as NATO and SEATO. On several occasions during the past several years, the Latin American countries had proposed a regional Inter-American Bank, to include the United States. The United States had opposed such a bank on the grounds that resources could not be increased simply by multiplying institutions. The recent determination of the President to offer the support of the United States for an Arab Bank involved for the first time U.S. support of such a regional financial institution.⁴ Accordingly, it was decided to announce support of a new Institution before the announcement concerning an Arab Bank was made in the United Nations. The Chairman then stressed the importance of avoiding failure of the new Institution. It should be thought of as a financial institution subject to a minimum of political influence.

Mr. Martin questioned the need for the proposed Institution, and agreed with Mr. Stambaugh’s remarks about existing institutions. He added that a financial institution to be successful should be divorced from political influences, but noted that the new institution was being born in a political atmosphere. He agreed with the importance of a flexible approach, and of endeavoring to learn the views of the Latin Americans.

Mr. Schaefer commented that ICA had found difficulty in negotiating in Latin America on a multilateral basis. Mr. Stans inquired as to what initiative the Latin Americans had taken on the matter. The Chairman replied that the creation of an Inter-American Bank had been high on the agenda of recent Inter-American meetings. Dr. Milton Eisenhower had indicated that the Latin Americans felt “shuffled around” from bank to bank, and had suggested that there should be one central place for contacts.

The Chairman continued that many important questions would have to be considered. These included whether financing would be provided for housing; whether it should be a “soft loan” institution, in the sense of lending dollars with repayment in local currency; what would be the source of a constant stream of dollars, and who would put up funds in addition to the United States; whether the Latin American countries would make a single or a yearly contribution; what use would be made of Latin American currencies contributed to the Institution; and whether the Institution should lend for oil development in Latin America, and many other questions. The question of whether a new institution was needed was pertinent, but the demands of the Latin Americans would not be satisfied by increasing the resources of existing institutions. However, the United States could not afford to back an institution which was not soundly conceived and operated to provide a basis for healthy growth. It would be imperative not to impair the functioning of existing institutions, and there should be the closest kind of association with these institutions, including both the International Bank and the Export-Import Bank. The Chairman concluded that it would be unwise to raise any of these issues formally with the Latin American countries at too early a date, although informal bilateral discussions might be useful.

With respect to the time schedule, Mr. Dillon observed that Buenos Aires Conference Resolution XVIII directed the Inter-American ECOSOC to study and report on the needs of Latin America for capital, the possible sources of such capital, and related questions. The report to the 21 governments should be ready about the first of October. Bilateral talks could follow receipt of the report, with details to be negotiated in Inter-American Economic and Social Council, followed by a formal ratification meeting. The Secretary of the Council noted that Resolution XVIII contemplated a meeting of financial representatives. Mr. Dillon said that the representatives should meet only after informal talks had been held. He mentioned that an Inter-American Conference would be held in Ecuador about January, 1960,⁵ and that the Latin Americans would like to have the Inter-American Bank matter settled well before that meeting. He suggested, therefore, that it would be desirable to have a high-level conference early in 1959.

The Chairman suggested that the Staff prepare a paper that would present various alternatives with respect to the creation and operation of the Institution, together with the problems and issues raised by each, for subsequent consideration by the Council. This was agreed (see Staff Committee Minutes No. 556 and 557, NAC Document No. 2383, and Council Minutes No. 271).⁶

[Here follows discussion of agenda item 2, “Proposed Increase in IBRD and IMF Resources.”]

1. Source: Treasury Department Files, NAC Minutes. For National Security Council Use Only. The source text is designated “Draft of Minutes.” A table of contents is not printed.
2. Not found with the source text and not further identified.
3. On August 12, Under Secretary Dillon announced that the United States was prepared to consider the establishment of an inter-American development institution. (American Foreign Policy: Current Documents, 1958, pp. 408–409)
4. In his address to the third emergency special session of the U.N. General Assembly on August 13, 1958, President Eisenhower proposed, inter alia, consultations between the Secretary-General and representatives of the Arab states of the Near East to determine whether they could reach agreement on the establishment of a regional development institution, and he also indicated that the United States would support a “soundly organized” institution. For text of the President’s address, see Department of State Bulletin, September 1, 1958, pp. 337–342.
5. Reference is to the proposed Eleventh Inter-American Conference, scheduled to convene in Quito. The meeting was postponed several times until March 1961, when it was postponed indefinitely.
6. None of the documents cited here are printed; copies are in Treasury Department Files.