PA–10. Letter from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Managing Director of the Development Loan Fund (Brand)1
For about six weeks now Dr. Gustavo Storm has been in Washington conducting negotiations with U.S. Government agencies and the IBRD for a loan for a Paraguayan economic development bank which he is to head.
I understand that the IBRD after consideration of Dr. Storm’s proposals has now made conditions that would preclude them from participating in the loan at this time. It is my understanding that the IBRD set up-criteria which were beyond the capacity of the organizers of the bank. In view of the limited financial resources available in Paraguay it is clear that the IBRD requirements for additional capital participation by the Paraguayans and a substantial amount of junior capital from other sources could not be realized.
There is an important need for a banking establishment in Paraguay dedicated to economic development loans. For over two years the government of Paraguay has adhered to a stabilization agreement which has called for a large degree of financial austerity. It has become the tendency of political and economic leaders in Paraguay to associate stabilization with reduced economic growth or even stagnation. An economic development bank could do much to allay the fears of Paraguay that the U.S. Government supports stabilization programs but is not as sympathetic to their economic development aspirations. In addition, there is a real economic justification for a development bank which would devote its resources to productive loans which cannot be made by the present banking system.
ARA, therefore, supports the Paraguayan efforts to obtain a loan for each bank from the DLF. Since the IBRD has now decided not to participate at this time, we urge you to press forward with an arrangement with Dr. Storm on a more limited scale without the IBRD. ARA would envisage a bank which might have an initial Paraguayan capitalization of about $1 million and a loan from the DLF of about $2 million.
[Typeset Page 1018] [Facsimile Page 2]Such a bank can make an important contribution to the economic development of Paraguay and help expand production in the vital export sectors.
I have discussed this natter fully with Assistant Secretary Mann and he concurs with the views expressed.2
Sincerely yours,
- Source: Department of State, ARA/ECP Files, Lot 64 D 353, “Various AMB Turkel memos 1959–1960.” Drafted by Albert Post of the Office of Inter-American Regional Economic Affairs, and cleared with Mann, Rosenson, and [illegible in the original].↩
- In a memorandum to
Assistant Secretary Mann,
dated November 17, covering this memorandum, James A. Lynn,
Assistant Chief of the Economic Development Division, stated the
following:
“Although Mr. Rubottom’s letter makes no mention of any conditions, staff of ARA, DLF and E all agree that Dr. Storm should be provided with definite conditions precedent to consideration of the loan by the DLF. This is essential in order that there be no misapprehension on the part of prospective contributors to the Bank’s equity. Conditions should include the assurance that appropriate reserves were established before disbursements of dividends and that the bank would not limit itself to making loans to its stockholders. It should be remembered in this connection that up to the moment Dr. Storm has actually not secured any payments from prospective stockholders.”
(ARA/ECP Files, Lot 64 D 353, “Various AMB Turkel memos 1959-1960”)↩