453. Memorandum From Albert H. Gerberich of the Office of South American Affairs to the Assistant Secretary of State for Inter-American Affairs (Holland)1
SUBJECT
- Eximbank Loans for Colombia
After staff meeting this morning I called a friend at the Eximbank to see if I could learn anything more about the Paz de Rio loan. Without mentioning Mr. Knapp’s conversation with Mr. Holland I began by asking him if he had heard any more about the exchange situation.
Apparently I picked a subject that has been giving him a great deal of unhappiness for he said at once that he has come to the conclusion that all the new regulations that the IBRD has talked the Colombians into taking have as one of their important objectives the elimination of the Eximbank as a supplier of credit and giving IBRD itself a monopoly. He added that a recent telegram of April 26 from Bogota (No. 731)2 disturbed him very much, because it seems to [Page 920] indicate that the IBRD is taking the Paz de Rio application out of Eximbank hands.
He said that the new regulations remove imports of machinery from the preferential and first class lists to “2d Class, Special”. This has the following effects:
- 1.
- An excessive prior deposit must be made, which may be as high as 50 on sight drafts.
- 2.
- In the new category there is a 10 tax.
- 3.
- The necessary dollars must be bought in the free market, in which the exchange rate now stands at about 4.80, whereas they have been bought previously at the official rate of 2.50.
It looks to him from this as if the new regulations will kill exporters’ credits for Colombia, for he cannot see how the Eximbank can take the risk involved, or be sure the importer will accept the free market rate. The free market dollars, he says, come from sales of bananas and other minor products; the IBRD has seen to it that it gets first claim on all coffee dollars.
He said the net result of the new regulations may be to halt industrialization in Colombia. The Eximbank puts money into Colombia that will either earn or save dollars for the Colombians. The IBRD projects are a drain on the economy. The big highway program, the controversial Magdalena Railway are examples of this. Even electrical power development on an expanded scale may be questionable, for the question can be asked: “Electrical power for what, if you’re going to stop industrialization?”
I asked him if he had heard anything more about the Paz de Rio credit, and on that subject he expressed some indignation. He said Urrutia has been back two or three weeks now, and has not come near the Bank. He promised to bring back with him Umaña, the manager of the steel enterprise, and sit down and discuss the credit they want. Now he hears that Umaña is going on to Europe to look into the possibility of getting credit for expanding the plant from the French—evidently with IBRD’s blessing.
All in all, he painted a very gloomy picture. To him the one bright element in the picture was the knowledge that Assistant Secretary Holland is personally interested in the success and promotion of the activities of the Eximbank as a 100 U.S. institution.
He asked me to keep him informed if I should hear anything about Umaña or if Urrutia should bring up Paz de Rio again at any time.
- Source: Department of State, Central Files, 821.331/4–2556. Confidential. Also addressed to Bainbridge C. Davis, William Belton, and Maurice M. Bernbaum of the Office of South American Affairs.↩
- In telegram 731, dated April 25, Bonsal stated that he had been informed that the Board of Directors of the Paz de Rio steel plant had accepted the major recommendations of the World Bank mission. According to the telegram the recommendations “involve house cleaning and contract with foreign firm for plant operations as prerequisite engineering of plant expansion.” (Ibid.)↩