Foreign Relations of the United States, 1969–1976, Volume XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972

191. Paper Prepared in the Department of State¹

Washington, November 26, 1969.

Financing Romanian Imports from the United States

This paper is an initial response to the directives of the NSC Under Secretaries Committee requesting a study of proposals to alleviate the financing problem involved in expanding Romanian imports from the United States.²

There are two ways in which Romania might finance increased imports from the United States: 1) by increased exports to this country, or 2) by freer access to export credits.

The prospects for export expansion are not good. Currently, Romanian exports to the United States are running about $4 million per year and, in fact, have been declining since 1967. (Romanian imports from us are roughly three times as large.) Romanian exports consist largely of food products, residual fuel oil, footwear, furniture and other wood products. The fact that Romanian exports to the United States are subject to the high Smoot–Hawley tariff of 1930³ is one major impediment. It is difficult for them to compete against countries which enjoy the current MFN rates that have been reduced substantially over the last thirty-five years. In addition Romania does not produce the type and quality of goods which would have wide appeal in the United States. Moreover, some of their potential exports are in sensitive categories—e.g., footwear, textiles and oil. Their debt service requirements for the purchase of a catalytic cracking plant, a TV glass plant and other major equipment purchases in the United States are another obstacle to increased import financing.

The possibilities for any kind of normal United States export financing are also very limited. The Export-Import Bank is prohibited by law from financing, guaranteeing or insuring credits with respect to U.S. exports to Romania, and this has the effect of discouraging private financing. Existing law also rules out the use of P.L. 480. Under present circumstances, the best possibility seems to be in the joint venture field, which might be pursued further.

With the above as general background, it is proposed that we consider acting for the present along the following lines:

1. Long-term credits from private banks

If by long-term credits the Romanians mean loans having maturities over five years, there is little we can do to encourage United States commercial banks to undertake such financing without the customary governmental guarantee and participation. Commercial banks usually will not and in most cases cannot by the very nature of their liabilities extend export credit over five years. This is true whether the export is going to the United Kingdom (for example) or to Romania. Even export credits from three to five years are rarely without some type of United States Government guarantee and participation in the financing.

It is possible that the Romanians would be interested in credits up to five years. We might indicate to them that the United States Government is prepared to encourage American banks to undertake this type of financing of Romanian projects, despite the lack of United States governmental guarantee, in important cases that the Romanian Government identifies to us. The role of the United States Government would necessarily be limited to providing specific reassurances as to the non-applicability of the Johnson Act⁴ and informal encouragement based on the official character of the Romanian Government sponsorship of the particular project.

We might ask a group of American banks, say, ten, to form an informal consortium to finance Romanian imports from the United States. Each bankʼs exposure would be limited to a modest amount, say, $1 million, for a total of perhaps $10 million. The formation of such a consortium would not result in any dramatic increase in U.S. exports to Romania, but, as the banks gained experience, they might be willing to increase their exposure. In the absence of the political risk guarantees, the American banks would probably require higher rates of interest than European banks. Such lending would be subject to the ceilings of the Federal Reserveʼs Voluntary Foreign Credit Restraint Program.

In effect the United States Government would be asking the banks to view the financing of exports to Romania without the negative bias implied by existing legislative restraints, but the banks would still have to make their own estimate of the risk and profits involved in financing trade with Romania as against trade with industrialized free world countries.

2. Joint Romanian-American Bank

Such a project might make financing exports to Romania less unattractive but it would not get around the basic problem of loaning United States money without some type of United States Government guarantee and participation. A joint bank, on the other hand, might be useful in attracting United States capital for joint ventures. Much, however, would depend on the extent to which both sides, and especially the Romanians, are prepared to think in non-orthodox banking terms.

It is suggested that a subcommittee including Treasury, the Federal Reserve Board, the Export-Import Bank and State develop as many specific financing patterns as possible, along the lines of this and the previous section, consulting informally with knowledgeable people in the private banks.

3. Transactions of economic cooperation

This area is, of course, closely related to the previous two. The customary position of the Government has been to tell the Romanians that they are free to explore joint ventures with American firms that may be interested. We might go a step beyond this, and say to the Romanians that if they will confirm their serious interest in the list of industrial areas they gave us, or in some modified list, the United States Government, perhaps through the Department of Commerce, will undertake to arrange a series of conferences in Washington or at appropriate points in the United States between Romanian representatives and American industry representatives to explore the extent to which joint ventures in these industries may be practical.

Attached is a study of the Romanian proposals on financing.⁵

1. Source: Department of State, Romanian Desk Files: Lot 72 D 406, FT-Foreign Trade. Confidential. No drafting information appears on the paper.
2. In an October 7 memorandum to Richardson, Kissinger tasked the NSC Under Secretaries Committee with studying proposals from the Department of Commerce and the Romanian Government for financing increased U.S. exports to Romania. “The Under Secretaries Committee,” he wrote Richardson, “should study these proposals, as well as any other methods, such as government action, government persuasion or private arragements to facilitate the financing of Romanian imports from the United States within the framework of existing legislation. It should develop a course of action for the agencies involved and monitor its implementation. Periodic progress reports should be submitted for the Presidentʼs information.” Richardson informed the NSC Under Secretaries Committee of the White Houseʼs request in an October 23 memorandum, NSC–U/SM–47. Both memoranda are in the National Archives, Nixon Presidential Materials, NSC Files, Box 702, Country Files—Europe, Romania, Vol. II 9/69–Jun 70.
3. For text of the Tariff Act of 1930, approved June 17, 1930, see 71 Stat. 590.
4. The Johnson Debt Default Act, signed April 13, 1934, prohibited financial transactions with any nation in default of its obligations to the United States. (18 U.S.C. 955) It was amended on July 31, 1945, to exempt foreign governments that were members of the IMF and the IBRD from some of its provisions. (59 Stat. 516)
5. Attached but not printed is the paper entitled “Study of Romanian Proposals for Financing Imports from the United States.”