Foreign Relations of the United States, 1955–1957, American Republics: Multilateral; Mexico; Caribbean, Volume VI

87. Instruction From the Acting Secretary of State to Diplomatic Posts in the Other American Republics¹

CA–8615

Washington, May 2, 1956.

SUBJECT

• Expansion of Activities of Export-Import Bank

At both the Caracas and Rio Conferences the U.S. opposed the strenuous efforts of many Latin American countries to pass resolutions which would have favored development grants, soft loans, a regional development bank, price stabilization schemes for major Latin American exports, targets for loans to Latin America by public lending agencies, etc. To meet the capital hunger of the Latin American countries we undertook, instead, to intensify and expand the activities of the Export-Import Bank. Our statement on this point at the Rio Conference of November–December 1954 was clear and explicit, and there can be no doubt that we are deeply committed. In Vice President Nixon’s speech at the Kubitschek inauguration, we promised the other American republics that through the Export-Import Bank we would do our utmost to satisfy all applications for sound economic development loans for which capital was not reasonably forthcoming from private sources or from other official lending institutions. Eximbank has already made progress in implementing these commitments. It is clear, however, that the greater the increase in the Bank’s Latin American lending activities the less likely is the United States to be faced with impossible demands and with a challenge to its prestige and influence at the scheduled Buenos Aires Economic Conference (which may be held before the end of 1956).

Eximbank has engaged in financing large-scale development projects in Latin America over many years and is, of course, continuing to do so. Its financial assistance at the request of U.S. enterprises (industrial, agricultural or mining) has not been widely sought until recently and up to now only a modest volume of such credits has been extended. The Department and Eximbank believe that a considerable expansion in both fields can be achieved by (1) a better understanding in Latin America of the Bank’s operations, and (2) a better knowledge by the Bank of projects eligible for financial assistance in accordance with its policies.

The attached memorandum explains in detail the manner in which the Bank is prepared to assist foreign importers to obtain capital equipment on credit in the United States.

The Embassy is requested to give publicity, on a continuing basis and through such means and on such occasions as it deems appropriate, to the following:

(a) The availability of Eximbank financing for the importation of American goods by means of exporter credits, and in general the terms on which such financing is extended.

(b) The availability of Eximbank financing for private industrial agricultural and mining enterprises, large or small, by means of longer-term developmental or project loans.

(c) With rare exceptions, Eximbank finances only dollar costs. These, however, include all related dollar costs such as insurance, freight engineering fees, etc. It does not finance the local currency component of projects. (For the information of the Embassy only, local currency representing proceeds of sales of PL 480 agricultural surpluses may shortly be available for projects in which Eximbank is financing or will finance the dollar costs, and where local currency financing is a problem. Eximbank’s basic rule against financing local currency costs rests on the practical ground that it is generally imprudent to incur a dollar debt in order to have local currency to spend.)

(d) Where a shortage of dollar exchange exists, Eximbank favors those projects which either produce dollars by increasing exports, or save dollars by replacing imports. The reason is that the enterprise itself thus makes available dollar exchange in an amount sufficient not only to service the obligation but also to permit additional imports from the U.S. However, other worthwhile projects using U.S. capital equipment are by no means excluded from consideration, provided that the dollar exchange position of the importing country is such as to warrant the financing.

(e) Eximbank is prepared to carry out the policy stated at the outset of this instruction. This means that we must pay particular attention to the credit needs of the small and medium sized borrowers as well as the large ones.

(f) The Embassies are prepared to furnish information on Eximbank procedures as occasion warrants.

In the Department’s opinion, commercial banks, producers’ associations, and Chambers of Commerce are among the most useful channels for making the foregoing facts known to potential borrowers. It would also be desirable to make this information available on an informal basis to central bank and government officials.

The Embassies are also requested to report any cases coming to its attention of enterprises or projects requiring outside capital which, in its opinion, would be eligible for assistance from the Bank.

Hoover

Attachment

MEMORANDUM

The following information from the Export-Import Bank is furnished as a basis for answering questions concerning financial assistance in purchasing capital equipment from the United States.

Financial assistance from Eximbank may be requested by either the U.S. exporter or the foreign importer (public or private) of U.S. materials, equipment, supplies and services. In either case it is the foreign importer who becomes Eximbank’s obligor and so must satisfy the Bank as to his credit standing.

I. Application for credit assistance presented by U.S. sellers of merchandise sometimes are called “exporter credits”. Such applications may be filed on a case-by-case basis by the U.S. exporter, or may be presented by him as individual requests for financial assistance under previously established “exporter credit lines”. These lines, based on applications by U.S. exporters having a history of export sales of productive capital equipment, provide for financial assistance only after approval by the Bank of individual requests by the exporter for aid in connection with a single sale, or in suitable cases, a series of sales to a given private importer abroad such as a dealer.

Exporter credits and transactions under exporter credit lines must meet certain minimum requirements:

(1) The U.S. exporter is to receive from the foreign importer not less than 20 per cent of the invoice value in cash, usually by the time the goods are shipped.

(2) The U.S. exporter is to carry for his own account or with the assistance of his commercial bank at least one-fourth of the remainder or financed portion of the sale (equivalent to at least another 20 per cent of the invoice value).

(3) The Bank will participate by purchasing from the exporter or by guaranteeing the payment of not more than three-fourths of the financed portion, or 60 per cent of the invoice value. This participation is without recourse to the exporter and is pari passu with the portion which he carries.

(4) The obligations of the foreign importer in which the Bank will participate must be payable in dollars at a U.S. bank, should be payable at least semiannually, and should bear or include interest (also payable at least semiannually) at a rate not less than a minimum established by the Bank from time to time (presently 5½%). The obligations should have a final maturity of not less than one year and customarily carry final maturities which range up to 5 years or more in appropriate instances.

(5) The U.S. exporter pays the Bank a single one-time commission on the amount of the Bank’s participation at the time the Bank purchases or guarantees the obligations of the foreign importer. The exporter if he so wishes may pass the commission charge on to his importer-customer abroad. The rate of commission is on a sliding scale increasing with the term of the obligations involved. The commission will be waived if the private foreign importer offers a guaranty of payment of his obligations by a commercial bank or other acceptable guarantor in his country.

(6) The U.S. exporter is responsible for presenting to Eximbank evidence to justify the creditworthiness of his proposed private importer-customer abroad or, in lieu thereof, evidence that payment will be guaranteed by an acceptable guarantor abroad.

(7) Where exchange controls exist, Eximbank requires that the foreign importer secure such exchange assurances as are obtainable under the regulations of his monetary authorities.

Exporter credits and transactions under exporter credit lines are an effective means of financing on medium or longer terms a wide variety of U.S. exports of capital equipment and related items the nature of which justifies the extension of such credit. This assistance is available for exports to all friendly nations with which the United States maintains normal trading relations. The extent to which particular exports to a given country can be so assisted depends, however, on the dollar exchange position of the importing country and the end use to which the equipment will be put.

II. Applications to Eximbank presented directly by foreign importers, whether public or private, to finance imports of U.S. goods and services sometimes are referred to as “commodity loans” (cotton, tobacco, etc), “project credits” (private mining, manufacturing, public utility, or other business development or expansion), or “development loans” (irrigation, highways, public transportation, public power, etc) The foreign importer of U.S. goods and services, rather than the U.S. exporter, may be the appropriate applicant because the equipment is to be obtained from a number of U.S. suppliers rather than only one or two, or because the project is of such a size and would have such an impact on the economy of the importing country as to warrant direct discussion with the Bank, or because the terms appropriate for such a project are so long as to render it unlikely the U.S. supplier could participate in the financing on a pari passu basis.

In project or development loan financing, Eximbank:

(1) Does not require a specific cash payment of 20 per cent, but does require that there be adequate equity or other investment;

(2) Desires participation by U.S. exporters where it can be arranged appropriately, although it may be necessary that such participation be for a term shorter than that of the credit as a whole which may be for as long as 10 to 20 years in appropriate cases;

(3) May be able to accept obligations which in some instances carry an interest rate fractionally below the current minimum for exporter credits;

(4) Does not charge a commission; and

(5) In some cases may find it advisable to require the guaranty of a central bank or of the government itself.

III. Credit assistance to U.S. export trade provided by Eximbank under either of the devices outlined above, where medium or long terms are involved is equal or superior to that received by the exporters of any of the countries which furnish export credit insurance. The Bank’s credits, which have ranged from $5,000 to $100 million to individual private companies abroad, are available to assist U.S. foreign trade wherever the extension of credit is appropriate but is not obtainable from private sources.

Except for commodity credits to central banks to finance the purchase of U.S. cotton, tobacco, etc., Eximbank financing is confined largely to exports of U.S. capital equipment and related services. This equipment ranges from the sale, on one hand, of a power shovel or some agricultural machinery to a distributor abroad for resale by him to his local customers, to sale on the other hand of all of the items obtained in the United States for construction of an open-pit copper mine and smelter, or an integrated steel mill, or a large power plant.

In reaching a decision on each application for financial assistance, the Bank must determine, among other things, that there is reasonable assurance of repayment of the loan. This requires findings by the Bank that (1) the borrower will have earnings in local currency sufficient to meet his obligations, and (2) the monetary authorities of his country may be expected to be in a position to sell to the borrower the dollar exchange he will require to effect payment. Information available to the Bank (in part from Foreign Service Reports) is generally adequate with respect to second point. Data on the credit standing of the borrower, however, must be obtained in each case. In addition to information in WTDR’s where currently available, the Bank requires that the applicant for credit assistance furnish the requisite financial statements and other data.

In the case of exporter credits, where credit information must be obtained by the U.S. exporter from his customer abroad so that it may be submitted to the Bank, approval of an application may be delayed because the information submitted is incomplete or is only grudgingly provided by the foreign importer. In an effort to overcome this difficulty, as well as to meet the situation where information on the credit standing of such an importer leaves something to be desired, the Bank is prepared to accept a guaranty of payment in lieu of detailed credit information. Such a guaranty consists of endorsement of the foreign importer’s promissory dollar notes by a commercial bank or other suitable guarantor in the importer’s country. To encourage the use of such a guarantor, Eximbank will waive payment by the U.S. exporter of any commission when the private foreign importer’s notes are guaranteed by a private entity abroad.

1. Source: Department of State, Central Files, 103–XMB/5–256. Official Use Only. Drafted by Turkel. Sent to all ARA posts, except Buenos Aires, La Paz, and Santiago.