Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

NAC files, lot 60 D 137, “NAC Minutes”

No. 47
Minutes of the 195th Meeting of the National Advisory Council on International Monetary and Financial Problems, June 18, 1952

confidential

June 18, 1952

Participants:

• Secretary John W. Snyder (Chairman), Treasury Department
• Mr. Willard L. Thorp, State Department
• Mr. Jack C. Corbett, State Department
• Mr. J. J. Stenger, State Department
• Mr. J. Thomas Schneider, Commerce Department
• Mr. Frederick Strauss, Commerce Department
• Mr. William McC. Martin, Jr., Board of Governors, Federal Reserve System
• Mr. Lewis Dembitz, Board of Governors, Federal Reserve System
• Mr. Herbert E. Gaston, Export-Import Bank
• Mr. Walter Sauer, Export-Import Bank
• Mr. Bernard Bell, Export-Import Bank
• Mr. William H. Draper, Jr., Mutual Security Agency (U.S. Special Representative in Europe)
• Mr. Hubert Haylik, Mutual Security Agency
• Mr. Melville E. Locker, Mutual Security Agency
• Mr. Frank A. Southard, Jr., International Monetary Fund
• Mr. John S. Hooker, International Bank
• Mr. Walter C. Louchheim, Jr., Securities and Exchange Commission
• Mr. Andrew N. Overby, Treasury Department
• Mr. William W. Parsons, Treasury Department
• Mr. Elting Arnold, Treasury Department
• Mr. Henry J. Bittermann, Treasury Department
• Mr. George Bronz, Treasury Department
• Mr. C. Dillon Glendinning (Secretary)
• Mr. C. L. Callander (NAC Secretariat)
• Mr. Sidney B. Wachtel (NAC Secretariat)
• Mr. James W. Wescott (NAC Secretariat)

1. Proposed Belgian Drawing on the Fund

Mr. Glendinning explained that the Council of the OEEC had reached an agreement early in the month on the problem of the Belgian surplus in the EPU.¹ The Belgians had indicated that as a condition of their accepting the agreement, they would have to be able to mobilize $50 million immediately, either through the Fund or through some other outside financial institution. In the event that this amount was made available by the Fund, the Belgians had in mind a $50 million drawing without prejudice to their “gold tranche” drawing right, and waiver by the Fund of the automatic repurchase provisions of the Articles of Agreement. In effect this would amount to a commitment of $106 million.

Mr. Glendinning continued that Mr. Southard had indicated (see NAC Document No. 1337²) that this was an unsatisfactory proposal as far as the Fund was concerned, and had suggested an alternative approach to the problem. Under his suggestion, the Belgians would have a right for a period of six months to draw $50 million from the Fund. The drawing right could be extended for additional six-month periods. In return, the Belgians would pay for this drawing right the usual ½ of 1 percent transaction charge at the time of the initial conclusion of the agreement, even if the Belgians should not actually draw from the Fund. If the Belgians should have need of foreign exchange above the $50 million, the Fund would be prepared to consider a Belgian request at any time on the same terms as it is prepared to consider drawing requests from any member of the Fund.

Mr. Draper stated that in the discussions in Paris during the previous week the problems of the extension of the European Payments Union and of dealing with the Belgian surplus were considered very difficult. Very few persons at that time expected that a satisfactory agreement could be reached. The agreement of the Council of the OEEC on extension of the EPU for one year was very important, he observed. Whether or not the EPU is a satisfactory organization, Mr. Draper said, the termination of the EPU at this time would not only have made trade settlements move increasingly toward bilateral arrangements, but would also have tarnished the record of cooperation over the last few months with regard to defense and economic aid. Mr. Draper believed it was largely for these reasons that the Council of the OEEC found ways, through a series of compromises, to reach agreement.

The proposal of a $50 million settlement over five years had been advanced with the thought that it might be possible for Belgium to obtain this amount from the Fund, Mr. Draper explained. He added that he had made it clear that he had no authority to commit the United States to support a Belgian drawing from the Fund, but he had agreed to present the settlement proposal to the U.S. Government for consideration.

During the last few days prior to the present meeting of the National Advisory Council, Mr. Draper continued, while Mr. Frere was here with his associates, the negotiations which Mr. Southard carried on were exemplary.

Mr. Draper observed that he understood that there has been some degree of tension between the Fund and the EPU. If this transaction is approved by both the Council of the OEEC and the Fund, it might be the forerunner of closer consultation between the two organizations and perhaps could point the way to a solution of the EPU problem on a broader basis.

The Chairman remarked that it is the desire of the whole NAC to be as constructive as possible.

Mr. Southard asked the Council for some freedom of action in working out in the Fund Board the details of the proposal. He pointed out especially that the point concerning the “usual transactions charge”, (see NAC Document No. 1337, p. 2) had not been cleared in the Fund, and that while the Fund’s lawyers have no doubts as to the legality of the charge, some other arrangement might be made. The purpose of this proposal is to require a member to pay a fee in cases in which the Fund is being asked to set aside funds. Mr. Southard believed that the only important point is to have a fee so as to deter other countries from “gold tranche” drawings. With the Council’s permission, he proposed to work out with the Fund Board the exact details on the commitment fee. He stated that the proposed drawing would be strictly with Belgium’s “gold tranche” and subject to the normal repurchase requirements. Mr. Draper added that Belgium would not oppose the fee, because the EPU would in fact pay it.

Mr. Schneider observed that he had received an inquiry several days ago from the Associated Press. According to this inquiry, the AP had heard in Europe that this proposal would be acceptable to everyone in the American Government except the Secretary of Commerce. Mr. Southard commented that when the newsmen contacted him, they said that they understood that the Secretary of the Treasury was the only one opposing the proposal.

Mr. Draper suggested it might be well to raise the question of publicity at the right time. Mr. Southard said he preferred to let Mr. Rooth release the story. This was agreed to, and the Council authorized Mr. Southard so to state in the Fund Executive Board.

Mr. Thorp observed that, in connection with this item, Mr. Southard and the Fund might take the opportunity of concerning themselves with the EPU more than they have in the past. The Chairman remarked that this has been the desire of the Fund from the very beginning, with respect to both EPU and OEEC.

In passing, Mr. Draper indicated that the British Chancellor of the Exchequer, Mr. Butler, has made a splendid impression at the OEEC meetings. Up to a few months ago, it was feared that the British would undercut the OEEC in favor of NATO. However, Mr. Butler has told the OEEC that the United Kingdom would play its proper role in the OEEC. Mr. Draper added that Mr. Butler had helped greatly in working out the EPU settlement.

Without further discussion, the Council approved the proposed position of the U.S. Executive Director in the Fund on the Belgian drawing.³

Action: The following action was taken (Action No. 557):

The National Advisory Council authorizes the U.S. Executive Director of the International Monetary Fund to support a decision in the Fund on a Belgian proposal for a Fund drawing along the lines set forth on page 2 of the NAC Document No. 1337.

1. For a summary of the OEEC Ministerial Meeting held in Paris June 6–7, see Document 43.
2. Not printed. A copy of this document, a memorandum from Glendinning to Southard dated June 18 on the subject under discussion, is in NAC files, lot 60 D 137, “NAC Documents”.
3. During the Secretary’s Staff Meeting on June 19, Thorp reported that the problem involving the EPU had been settled and that the International Monetary Fund had taken action which would make funds available to Belgium. Perkins stated that this solution was a good one and that the Belgians should be commended for their reasonableness in this settlement. (Secretary’s Memoranda, lot 53 D 444, “June 1952”)