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

GT–11. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State for Economic Affairs (Dillon)¹

Washington, December 9, 1958

SUBJECT

• DLF Staff Request for Board Guidance on Loan for Housing in Guatemala.

I am informed that the DLF staff has requested by close of business Tuesday, December 9, guidance from the DLF Board as to whether an application from the Government of Guatemala for a loan of $12 million to be used for the purchase of housing mortgages should be placed under DLF review. The application has been summarized in DLF–IC/P–116 of November 26.² The necessity for prompt guidance in this matter stems from the circumstance that the DLF Latin American loan officer, Mr. William Ryan, is now in Guatemala City attempting to clarify and assess the intent and significance of four applications submitted by the Government of Guatemala for DLF loans totaling $33.5 million, of which this $12 million housing application is one. The staff paper emphasizes that consideration of this application would represent a departure from previously expressed views of Board members with respect to advisability of using DLF funds to finance housing construction.

I am grateful to the DLF staff and to Ambassador McIntosh for the expeditious action which they have taken to facilitate consideration of the Guatemalan loan applications in line with my memorandum to you of November 14.³ Your support of the recommendation contained in that memorandum is greatly appreciated. The political and economic importance of extending DLF loan assistance to Guatemala at this time suggests the advisability of sympathetic consideration of an alternative to this present application.

As currently cast, the housing loan application of Guatemala does not appear to me to merit DLF Board approval. It looks to the extension of a $12 million 30 year loan to enable the Central Bank of Guatemala to purchase first mortgages now held or scheduled to be field by private banking institutions. No evidence is presented that this action per se would stimulate further savings or investments within Guatemala in the housing field. While it would presumably make possible the financing of 3000 additional houses, this volume would appear only marginal in relation to the total volume of housing foreseen by the Government of Guatemala as likely to stem from governmental and privately sponsored housing activities in the next 5 years. It would not, therefore, appear likely significantly to contribute to Guatemala’s economic development. At the same time, it would saddle the Government with a substantial dollar repayment obligation and might establish an unfortunate precedent complicating DLF efforts to fend off voluminous loan requests for housing construction in other countries in Latin America and elsewhere. For these or those reasons, despite the high priority attached to this loan application by the Government of Guatemala primarily on political grounds, we would not favor favorable action on this present request.

On the other hand, we would strongly recommend sympathetic consideration by the DLF Board of a loan to Guatemala of a sum approximating $2 million which might serve as a catalytic medium to foster greater housing construction and the accumulation of savings to flow into this field on a continuing expanding basis. Such a loan, matched in equal amount by the Government of Guatemala, might be used to create a mortgage credit institution. Such an institution would have features akin to the combined functions of the Federal Housing Administration and the Federal Home Loan Bank in the U.S.: the guarantee of mortgages on insurance principles and the provision of a credit pool upon which building and loan associations and insurance companies and savings banks might draw as occasion warranted to prime private housing financing. To the capital of such an institution these private lending agencies might also be called upon to contribute in an amount equal to the DLF-Government of Guatemala subscription. The primary purpose would be two-fold: the creation of a more orderly, secure market for mortgage money and of institutions to attract savings to such a market. The precise pattern for such an institutional arrangement and related details require more discussions and study both here and in Guatemala.

These have already been initiated. Experts of ICA’s Housing Division, the FHA, HHFC and FHLB hurriedly convened last Friday referred to the favorable experience with such institutions in the U.S. and Puerto Rico and are prepared to shape up a detailed program for DLF Staff and Board consideration. Should this be approved in principle, they might then be despatched to Guatemala City to assist in an on-the-spot discussion and draft of an application. Such action would signify to the Government of Guatemala our sympathetic interest in resolving its political concern for improved housing along sound economic lines.

At this point I would merely recommend that you attempt to dissuade other Board members at this time from taking so rigid a position on DLF financing in the housing field as to preclude further consideration of the limited but potentially significant approach briefly outlined above. This approach is designed to take account of the fact that while the financing of housing construction primarily is a subject for local action, it may be initiated and spurred by U.S. guidance, expression of confidence and relatively small loan assistance in the same way that the currently huge mortgage market in the U.S. initially was stimulated by temporary Federal Government loans⁴.

1. Source: Department of State, Central Files, 814.02/12–958. Official Use Only. Drafted by Harry Conover, Deputy Director, Office of Inter-American Regional Affairs.
2. A copy of the referenced item, a memorandum to the Board of Directors of the DLF, is attached to a memorandum from William V. Turnage, Deputy Director, Office of International Financial and Development Affairs, to Dillon, December 8, 1958. A notation by Turnage on his covering memorandum indicates that Dillon approved the recommendation “that we would be prepared to consider on their merits modest loans to participate with local capital in sound proposals for establishing savings and loan Institutions coupled with mortgage insurance schemes.” (814.02/12–858).
3. Not found in Department of State files.
4. In a letter dated December 24 to Ambassador Mallory in Guatemala, Assistant Secretary Rubottom stated that DLF policy apparently ruled out housing and rural resettlement loans for the present, but he hoped for DLF approval of a $5 million rubber project loan without too much delay. (720.5–MSP/12–1958).