Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

126. Minutes of the 260th Meeting of the National Advisory Council on International Monetary and Financial Problems¹

Washington, August 21, 1957

• Mr. W. Randolph Burgess (Acting Chairman), Treasury Department
• Mr. Philip P. Schaffner
• Mr. Edwin F. Rains
• Mr. Thorsten V. Kalijarvi, State Department
• Mr. William V. Turnage
• Mr. Phil R. Atterberry
• Mr. Marshall M. Smith, Commerce Department
• Mr. Herbert N. Blackman
• Mr. M. N. Harocopo
• Mr. William Hayden
• Mr. Arthur W. Marget, Board of Governors, Federal Reserve System
• Mr. J. Herbert Furth
• Mr. Lynn U. Stambaugh, Export-Import Bank
• Mr. George A. Blowers
• Mr. Eugene Oakes
• Mr. Walter Schaefer, International Cooperation Administration
• Mr. Hale T. Shenefield
• Mr. Charles B. Warden
• Mr. Gerald M. Strauss
• Mr. Francis G. Daniels, Department of Agriculture, Visitor
• Mr. Oscar Zaglits, Department of Agriculture, Visitor
• Mr. Rulon Gibbs, Department of Agriculture, Visitor
• Mr. Harry I. Donkleberger, Department of Agriculture, Visitor
• Mr. William F. Doering, Department of Agriculture, Visitor
• Mr. Edmond C. Hutchinson, Bureau of the Budget, Visitor
• Mr. Henry J. Bittermann, Acting Secretary
• Mr. C.L. Callander, Assistant Secretary
• Mr. Victor A. Mack, NAC Secretariat

1. Terms of Private Loans Under PL 480

The Council considered the terms proposed by the Export-Import Bank for loans to private firms under the so-called Cooley Amendment to Section 104(e) of Agricultural Trade Development and Assistance Act of 1954, as amended (PL480) (see NAC Document No. 2121²). Mr. Blowers³ explained that the Bank proposed to charge interest on these loans at rates approximately equivalent to those prevailing in the foreign countries for comparable loans by local lending institutions. Since these would be local currency loans, the Bank should not compete unfairly with local lending institutions by charging rates lower than prevailing rates, and would not be able to make loans at interest rates higher than the prevailing rates. As to the maturities of the loans, the Bank proposed to follow the pattern of maturities on its dollar loans. With respect to the proposal of the Bank that the loans not include a maintenance-of-value clause, Mr. Blowers noted that the loans will be disbursed entirely in local currency, that repayments of principal and payments of interest will be in local currency, and that the currencies collected by the Bank will be turned over to the Treasury Department. In view of the complete local currency character of the loans, the Bank did not feel that a maintenance-of-value requirement in terms of dollars was appropriate, and felt that if such a requirement were imposed the result would be that no loans would be made under the program. Moreover, the interest rates to be charged would undoubtedly bear a relation to the degree of inflation in the countries in which the loans would be made, and would thus provide some protection against depreciation. At such relatively high rates of interest a maintenance-of-value requirement appeared unreasonable.

Mr. Schaefer inquired whether charging the relatively high local interest rates was expected to lead to criticism of the Bank on the grounds that it was charging usurious rates of interest. Mr. Blowers replied that some amount of criticism was to be expected of any proposal, but that the Bank felt that charging the local rates was the only reasonable proposal under the circumstances.

Mr. Stambaugh expressed concurrence with Mr. Blower’s presentation, and commented that while experience with the program might change the views of the Bank, the present views of the Bank were as stated.

Mr. Schaefer noted that the loans under Section 104(e) of PL 480 would be comparable to loans by foreign development banks rather than to loans to foreign governments under Section 104(g),⁴ on which maintenance of value is required. He saw a problem, however, in setting aside 20 percent of PL 480 sales proceeds for U.S. Government use and 25 percent for loans under the Cooley Amendment, a total of 45 percent, without a maintenance-of-value requirement. He expressed the hope that the Export-Import Bank would avoid stressing the absence of a maintenance-of-value requirement, so as to minimize the repercussions on the PL 480 loans under Section 104(g) and on ICA loans under Section 402 of the Mutual Security Act, on which maintenance of value was also required.

In response to a question as to the criteria which the Bank would apply to the Section 104(e) loans, Mr. Blowers replied that in general the Bank would require that the loans be bankable loans with a reasonable assurance of repayment, in accordance with the usual criteria of the Bank. The Bank, however, recognized the general purposes of the PL 480 Act, and might accordingly be willing to take unusual risks under appropriate circumstances.

Mr. Kalijarvi expressed concurrence in the Export-Import Bank proposal, commenting that it was important to accord national treatment in the administration of the loan program. Denomination of the loans in dollars would result in few or no loans, and foreign governments would be unlikely to approve individual loans that put their nationals at a disadvantage. With respect to interest rates, Mr. Kalijarvi commented that rates that might appear usurious in one country might not appear usurious in others.

The Council discussed the question of appropriate accounting for loan operations under the Cooley Amendment, especially with reference to a suggestion that the loans be denominated in dollars as a means of relating these loan operations to the dollar loan operations of the Export-Import Bank. Mr. Blowers stated that the Bank had considered this suggestion carefully and felt that it would not accomplish any necessary end. He stated that the Bank did not intend to keep dual currency accounts, but would keep accounts on these loans only in terms of local currencies. The program would thus have no effect on the outcome of the Bank’s dollar loan operations. The Chairman noted that the Treasury had considered whether it would be feasible to establish a reserve account as a means of reflecting to some extent the provision against exchange risks afforded by the levels of the interest rates, but had discarded the idea as unworkable. He suggested, however, that the Export-Import Bank might consider setting up memorandum accounts for the Cooley Amendment loans.

Mr. Smith expressed agreement with the proposals of the Bank as to the interest rates and maturities on the loans, but proposed that the Bank give the borrowers an option of paying low interest rates with a maintenance-of-value clause, or higher interest rates without a maintenance-of-value clause.

The Council discussed this proposal at some length. Doubt was expressed that interest at the rates for Export-Import Bank dollar loans would induce borrowers to offer a maintenance-of-value undertaking, and it was suggested that the option might conceivably encourage speculation. Mr. Schaefer commented that the option might have an undesirable effect on Section 104(g) loans in that it would direct attention to the question of maintenance of value. Mr. Blowers stated that the Bank had considered such an option, and was unwilling to adopt the suggestion since it put a dollar denomination on a loan program which was entirely a local currency program. Moreover, the option would impose a burden of choice upon officials of borrowing corporations, who might conceivably become involved in difficulties if future events appeared to indicate that their choice of option had been unfortunate.

Mr. Zaglits stated that Agriculture fully supported the Export-Import Bank proposal as consistent with the Congressional intent that the loans should be local currency loans. Agriculture recognized that the program would create problems for ICA, but saw no way of avoiding these problems in view of the Congressional intent.

Mr. Hutchinson informed the Council that the Bureau of the Budget was concerned over the maintenance-of-value aspects of the Bank’s proposal because of its effect on ICA loans and other PL 480 loans, and because of the public policy aspects of loans to individuals in situations offering the possibility of substantial windfall profits. He noted that the Administration had opposed the Cooley Amendment but was nonetheless obliged to carry it out, but he saw no foreign policy or other reason for unduly lenient terms for the loans. The Chairman commented that the Administration had a strong obligation to administer the program in good faith in the light of the Congressional intent that the loans be made in local currency.

The question of whether every loan had to be approved by the foreign governments was discussed. Mr. Smith felt that such specific approval would inhibit the loans and would, therefore, inhibit United States investment abroad which might be associated with the loans. Mr. Blowers replied that the Bank had an open mind on the question and would seek the advice of State and Commerce in working it out.

At the conclusion of the discussion the Chairman announced that it was clear that the Council offered no objection to the Export-Import Bank proposal, with the understanding that the program would not prejudice the requirement of maintenance of value on PL 480 loans under Section 104(g) or on loans under the Development Loan Fund.

The Council also agreed that proposals for individual loans under Section 104(e) should be submitted for Council consideration until some experience had been gained under the program, and that at some future time the Council would review procedures for handling these loans.

The Council took the following action (Action No. 1049):

“The National Advisory Council offers no objection to the terms proposed by the Export-Import Bank for loans to private enterprises under Section 104(e) of the Agricultural Trade Development and Assistance Act of 1954, as amended, namely, that (1) the Bank should charge interest at rates approximately equivalent to those for comparable loans prevailing in the country whose currency is loaned, (2) the maturities should correspond approximately to those of Export-Import Bank dollar loans to foreign private enterprises, and (3) a maintenance-of-value clause should not be required.

The determination not to use a maintenance-of-value clause in this type of loan is not to be construed as a precedent in connection with other loans.

The Council advises the administering agencies that NAC Action No. 903⁵ will henceforth be applicable only to agreements negotiated pursuant to the authority of the Agricultural Trade Development and Assistance Act as it existed prior to the enactment of Public Law 85-128, 85th Congress.”

2. Interest Rates on PL 480 Loans

The Chairman stated that the discussion of interest rates under the Cooley Amendment loans led logically to the question of the interest rates charged on PL 480 loans under Section 104(g). A number of agencies felt that the existing level of rates of 3 percent for dollar repayment and 4 percent for repayment in local currency was outmoded and should be raised (see NAC Document No. 2119⁶ and Staff Committee Minutes No. 524⁷). The Chairman inquired whether it was appropriate to discuss the matter at this time.

Mr. Schaefer noted that in addition to proposing to raise the interest rates to 4 percent and 5 percent respectively, ICA proposed that the present interest free period on the loans be eliminated.

Mr. Kalijarvi informed the Council that the Department of State would require more time for the consideration of these proposals before it would be prepared to discuss them in the Council. It was agreed that the proposals would be discussed at a later date at such time as State had an opportunity to consider the matter more fully (see Council Minutes No. 261 and NAC Action No. 1054⁸).

[Here follows discussion of a proposed investment guarantee in Israel and a proposed Commodity Credit Corporation credit sale in Mexico.]

1. Source: Department of State, NAC Files: Lot 60 D 137, Minutes. For NAC Use Only.
2. Document No. 2121 was a memorandum from the Export-Import Bank to the NAC Staff Committee dated July 15, requesting the Council’s advice on the Bank’s proposed loan terms under the Cooley amendment. These proposed terms were as follows:

   “1. Interest will be charged at a rate equivalent to those prevailing for comparable loans in the country involved.

   “2. The repayment period will be roughly comparable to those used under dollar loans made by the Export-Import Bank to foreign private enterprises.

   “3. The loan agreements will not contain a maintenance of value clause.” (National Archives and Records Service, RG 56, Treasury Department Records, NAC Documents)

3. George A. Blowers, Board of Directors, Export-Import Bank of Washington.
4. Section 104 (g) of Public Law 480 provided that the President could enter into agreements with friendly nations to use the foreign currencies accruing under Title I of the act for loans to promote multilateral trade and economic development; for text, see 68 Stat. 457.
5. See Document 118.
6. Not printed. (Department of State, Central Files, 411.0041/7-1057)
7. Not printed. (Ibid.,NAC Files: Lot 60 D 137, Staff Minutes)
8. See infra.