NAC files, lot 60 D 137, “Minutes”
Minutes of the 216th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, October 11, 1954
Mr. W. Randolph Burgess (Acting Chairman), Treasury Department
- Mr. Andrew N. Overby
- Mr. Elting. Arnold
- Mr. Henry J. Bittermann
- Mr. John O. Hally
Mr. Samuel C. Waugh, State Department
- Mr. William V. Turnage
- Mr. Hamlin Robinson
Mr. Clarence I. Blau, Commerce Department
- Mr. Frederick Strauss
Mr. Lewis N. Dembitz, Board of Governors, Federal Reserve System
Gen. Glen E. Edgerton, Export-Import Bank
Mr. Edward B. Hall, Foreign Operations Administration
- Mr. E. N. Holmgreen
- Mr. Jack F. Bennett
- Mr. Robert B. Black
- Mr. Richard Lippincott
- Mr. Francis Mahon
- Mr. George W. Rothschild
Mr. John S. Hooker, International Bank
Mr. Percival F. Brundage, Bureau of the Budget, Visitor
Mr. E. C. Hutchinson, Bureau of the Budget, Visitor
Mr. Earl L. Butz, Department of Agriculture, Visitor
Mr. William G. Lodwick, Department of Agriculture, Visitor
Mr. Oscar S. Zaglits, Department of Agriculture, Visitor
Col. James K. Wilson, Jr., Department of Defense, Visitor
Mr. George C. Denney, Jr., Department of Defense, Visitor
Mr. George H. Willis (Acting Secretary)
- Mr. C. L. Callander (NAC Secretariat)
FOA Loan Program
The Council met to consider the FOA loan program for the fiscal year 1955 under Public Law 665,1 as outlined in NAC Document No. 1690.2 Mr. Burgess indicated that it might also be appropriate [Page 374] to make some comments on the loan program under Public Law 480.3 Mr. Hall stated that FOA had nothing further to add to the paper. Mr. Burgess commented that the proposed program raised questions with respect to (1) the term of the loans and the rate of interest to be charged, (2) the renegotiation formula, (3) the allocation of loan amounts by countries, and (4) continuing NAC review of the program. He asked for discussion of these issues. Mr. Brundage stated that two questions which were of interest to the Bureau of the Budget were the problem of choice of loans rather than grants and the uses to which the U.S. Government would be able to put local currency proceeds.
Mr. Overby indicated that the Treasury Department would like to see the interest rate set at the nearest ½ percent above the cost of money to the U.S. Government for comparable maturities. On this basis the proposed rates of 3 and 4 percent would be acceptable for the time being, but he felt that they should be subject to review. With respect to the maximum term of the loans, Mr. Overby preferred 30 years to 50. Mr. Hall felt that it was better for the U.S. to be lenient on the terms rather than on other aspects of the loans, and pointed out that a 50-year term would help to minimize possible conflicts with repayment schedules of Export-Import Bank and International Bank loans. Mr. Waugh argued in favor of longer rather than shorter terms. A discussion ensued in which various aspects of the interest rates and the term of the loans were explored thoroughly. Following this discussion the Council agreed to approve for the time being the 3 and 4 percent minimum rates for loans repayable in dollars and local currencies, respectively, and to accept the FOA proposal to make the loans repayable in not more than 50 years, with the expectation that FOA would renegotiate the loans before the end of the 50-year period whenever conditions made renegotiation appropriate.
The Council then discussed the formula for renegotiation. General Edgerton expressed the view that there was need in a 50-year loan for a provision for renegotiation in case conditions change. It was suggested that it would be desirable to make definite provision for renegotiation in the loan contracts, and that this could be accomplished by writing the loans with a 25-year term with the identical repayment schedule proposed by FOA for 50-year loans, making the balance unpaid at the end of 25 years due and payable at that time, subject to renegotiation. It was argued that this would provide a positive incentive for renegotiation at a stated time. These suggestions and other possible means of handling the question [Page 375] of renegotiation were discussed at length. The Council agreed at the conclusion of this discussion that the general formula for renegotiation stated in paragraph 4 on page 3 of Document No. 1690 was an acceptable formula and need not be changed.
Mr. Overby requested clarification of the language in paragraph 1 on page 3, relating to restrictions on the purposes for which the United States Government might use local currency, pointing out that such language might provide an incentive for borrowing governments to impose or increase restrictions on the use of local currency by private citizens. Mr. Willis pointed out that the language might alternatively be interpreted as making the loans very hard in the event convertibility is achieved. Mr. Bennett indicated that the language was intended to mean simply that U.S. Government holdings of local currency would not be subjected to discriminatory restrictions in the event of convertibility for other foreign balances. After discussion, it was agreed that more general language, such as that proposed by Mr. Dembitz at the meeting, should be substituted for the language in the paper.
The Council then considered the problem of allocating the loan amounts by countries. The statutory requirement of making loans of $200 million and the Congressional desire for a higher figure if possible were explained to the Council. Mr. Waugh stated that the Department of State had not had an opportunity as yet to examine the proposed area and country amounts and wished to have time to do so. He appreciated the desire of FOA to begin operations promptly under the program and he felt that State would be able to make its view known quickly so as to avoid delay. It was agreed, after some discussion, that the Council would approve the suggested program for development assistance and defense-support loans, subject to FOA’s reviewing the individual country programs in consultation with the Department of State, and that the program for military assistance loans would be submitted to the Council at a later date. It was agreed that any significant variations in the program or in the amounts proposed for particular countries would be referred back to the NAC. The representative of the Bureau of the Budget stated that the Bureau had an interest in the country allocations, and intended to make the allocations subject to the usual apportionment procedure of the Bureau of the Budget.
The Chairman suggested, as a means for providing continuing NAC review of the program, the FOA keep the Council informed of the progress under the program so that Council agencies would have opportunity to request discussion or raise objection if they felt it necessary.
Col. Wilson offered substitute language for a portion of the text describing the military assistance loan program (p. 4), which was [Page 376] accepted by the Council. Certain minor changes to the paper were agreed. The Council directed the Secretariat to revise the paper in accordance with the discussion (see NAC Document No. 16914). The Council then took the following action (NAC Action No. 730):
“The National Advisory Council informs the Director of Foreign Operations that it offers no objection to the Mutual Security Loan Program for the Fiscal Year 1955 as stated in NAC Document No. 1691, with the following understandings:
- 1.
- That the program for Military Assistance loans will be submitted for Council consideration at a later date.
- 2.
- That the FOA will refer to the Council for advance consideration any significant variations in the approved loan program or in the amounts allocated to particular countries.
- 3.
- That the FOA will keep the Council informed on developments under the loan program.”
[Here follow brief discussion of loans versus grants in the program under Public Law 480 and a related attachment.]