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

ETA–9. Minutes of the 271st Meeting of the National Advisory Council on International Monetary and Financial Problems¹

Washington, September 1958

[Here follows discussion of agenda items 1 and 2, dealing respectively with proposed Export-Import Bank credits to Turkey and Argentina.]

3. Inter-American Development Banking Institution

The Council then discussed the paper prepared by the Staff Committee outlining alternative approaches to the establishment of an Inter-American Development Banking Institution (NAC Document No. 2383). The Chairman said he expected that the Latin American countries would want to proceed with the planning of the Institution. He suggested that during the absence from Washington of many interested persons for the meetings of the International Monetary Fund and the International Bank in New Delhi,² discussions with the Latin Americans on the Bank should be minimized, and work should proceed toward the development of a United States position, with the understanding that the position would not be made final until after October.

The Secretary reported to the Council on the Staff Committee discussions and reviewed briefly the main points raised in NAC Document No. 2383 and Document No. 2383 (Supplement).³

Mr. Waugh stressed the importance of avoiding too early a formalization of the United States position on the Bank, since the pattern might become a precedent for other regional banks. He also emphasized the need to determine the specific purposes of the Institution. He had been impressed by the lack of planning in Latin American development programs, and by the internal financing problems of these countries. He felt that most of the problems that would face the new Institution would arise in countries that were unable to handle their internal financing problems. The Latin American countries wanted low-cost housing, schools, hospitals, hotels, and local currency financing for projects financed by the Export-import Bank and the International Bank. They did not need for their development programs more dollars than were available from existing institutions. He felt it was of the utmost importance to develop clearly the ways in which the new Bank would avoid competition with existing institutions. He believed that in view of the prospective large United States budget deficit the Congress would scrutinize very closely any proposals for new institutions, and felt this was a further reason for developing carefully the way in which a new institution would operate.

Governor Szymczak⁴ said that the basic views of the Federal Reserve Board were reflected in the document and its supplement. He agreed that the Bank should supplement rather than compete with existing institutions. The most vital point was that the Bank would provide an opportunity for Latin American countries to obtain experience in lending money. In response to a question by the Chairman, Governor Szymczak said that the Institution should not accept deposits, in view of the long-term character of its loans. Mr. Southard commented that lending experience by Latin American countries would be a useful by-product of the Bank, and said that experience in the International Monetary Fund indicated that Latin Americans can be critical of the proposals and performance of Latin American countries.

Mr. Smith⁵ expressed agreement with the views of Mr. Waugh. He felt that a clear idea of the objectives of the Institution, particularly in the field of development, was needed, as well as a view of the extent to which the Bank could make funds available at reasonable interest rates.

Mr. Dillon expressed concurrence with the Chairman’s views on the time schedule. He felt that October should be used to develop the United States position, following which talks could begin with the Latin Americans to ascertain what kind of bank they desired. He agreed with the Staff emphasis on technical assistance activity, which really involved improvement of planning, and suggested that these activities be referred to as development planning so as to avoid confusion with existing technical assistance programs. He saw the task as having two parts, first to work out the objectives of the Institution, and second to determine what should be in the articles of association. He recalled that the basic motive was political, to meet the Latin American desire for a special association with the United States, and expressed preference for a flexible approach to the purposes of financing, currency of repayment, and similar matters. He expected it would be difficult to define the idea of supplementing and not competing with the existing institutions. He felt that the form of capitalization would depend to some extent on the kinds of loans to be made, and agreed that the Bank should not accept deposits. He felt the suggestion of limiting the Bank to economic development projects should be sharpened, but that too categorical a view should be avoided. He suggested that the drafts prepared by the Staff include draft policy statements for internal U.S. consideration.

Mr. Schaefer⁶ agreed that the new Institution’s activities should supplement those of existing institutions and noted that the paper offered no suggestions for using foreign currencies now available to the United States.

Mr. Reid felt that principles to apply to development banks generally were needed, and hoped that the United States would not go so far in the Latin American case as to prejudice our position in other areas. On the illustrative figures in the paper for the amount of capitalization, he felt it was difficult to determine amounts without a clear idea of the Bank’s objectives. He noted that the prospective increase in the resources of the International Bank and International Monetary Fund presumably would affect the needs of Latin America and therefore the capitalization of a new Institution.

The Chairman summarized by saying that the Staff work through October should not be considered binding on any agency with respect to policy, but that the drafting would help to sharpen up the issues for decision. The pattern for the Bank, he continued, should be considered different from the pattern of other regional banks in that the United States would be a member. The pattern announced for the Arab Bank, that the United States would support it if the Arabs would take the initiative but that the United States should not be a member, would be the pattern for all regional banks except the Latin American. He suggested that the role of the Export-Import Bank and the International Bank be protected.

Referring to the paper, the Chairman thought that the draft of II (Purposes of Financing) should be along the lines of point 5, the flexible approach, and that the draft of III (Currency of Loan Repayment) should follow point 3, the flexible policy. On IV (Capitalization) the drafting should follow B, the partially paid-in approach, with the initial United States contribution not exceeding $100 million or 1/3 of total paid-in capital. On VI (Voting Rights) he preferred alternative (b) or (c), with policy decisions to be made by the Governors under the requirement of 2/3 of the votes, and other decisions to be made by the Executive Board, possibly with a lesser proportion of votes required. Under VII (Technical Assistance Activities) the draft should be responsive to Dr. Milton Eisenhower’s suggestion that the Institution counsel and advise applicants to the Export-Import Bank and the International Bank. The Chairman concluded that the drafting along these lines should take place with a minimum of consultation with foreign governments and with no indication that any decisions had been reached by the United States.

Mr. Waugh suggested that Section VII should be called “Financial and Development Planning,” and should be moved to a place earlier in the paper. He also commented that if the Bank did not sell securities, the Latin American countries would have to make contributions annually.

Mr. Dillon agreed that the Inter-American Institution should be considered different from other regional financial institutions. With respect to voting rights and policy decisions, he agreed that policies should be made by the Board of Governors, probably by a two-thirds vote, but he noted that this raised the question of a U.S. weighted vote, which needed careful consideration. In order to avoid the necessity of seeking the support of any Latin American country on any major issue, the United States might seek a 34 percent vote in the Board of Governors. He expressed general agreement with the procedures suggested by the Chairman, but noted that it also might be desirable that the Staff prepare position papers for later negotiations with the Latin American countries.

The Chairman stated that the drafting should deal specifically with such questions as whether loans would be made to wholly-owned subsidiaries of governments, whether the Bank would lend for housing and other non-productive purposes, and similar questions. He added that any international agreement on a charter for the Bank should be reached outside the forthcoming meeting of foreign ministers in Washington, but within the OAS.⁷ With respect to a suggestion that the OAS ask the Inter-American Economic and Social Council (IAECOSOC) to draft the charter, the Chairman said that the drafting was a task for specially qualified financial experts rather than the usual delegates to IAECOSOC.

Mr. Dillon agreed the drafting of a charter should not be done by the staff of IAECOSOC, although it could be done under the aegis of that organization. The drafting should be done by specially designated representatives of governments, including ad hoc financial experts. Ambassador Randall⁸ commented that no difficulty was expected in IAECOSOC, since the United States had already made clear its view that the drafting should be done by a specially qualified group.

1. Source: Treasury Department Files, NAC Minutes. For National Advisory Council Use Only. The source text is marked “Draft of Minutes.” It is undated and contains no list of participants. A table of contents is not printed.
2. The referenced meetings took place October 6–10, 1958; pertinent documentation is in Department of State decimal file 398.13.
3. Not printed; a copy is in Treasury Department Files.
4. M. S. Szymczak, Member, Board of Governors, Federal Reserve Board.
5. Marshall M. Smith, Assistant Secretary for International Affairs, Department of Commerce.
6. Walter Schaefer, Assistant to the Director for Finance, ICA.
7. The Foreign Ministers of the American Republics met in Washington, September 23–24, 1958, to confer informally about measures to strengthen economic cooperation, including the establishment of an inter-American development bank. At the meeting, U.S. representatives took the initiative in obtaining agreement that the Inter-American Economic and Social Council (IA–ECOSOC) should convene a specialized committee to draft articles for the new institution. For text of the Communiqué on this subject approved at the meeting, see Department of State Bulletin, October 13, 1958, pp. 575–576.
8. Harold M. Randall, U.S. Representative to the IA–ECOSOC.