Minutes of the 156th Meeting of the National Advisory Council on International Monetary and Financial Problems
[Present:]
Secretary John W. Snyder (Chairman), Treasury Department
[Page 718]Mr. Harry A. McDonald, Securities and Exchange Commission, Visitor
Mr. Willard L. Thorp, State Department
Mr. Jack Corbett, State Department
Mr. J. J. Stenger, State Department
Secretary Charles Sawyer, Commerce Department
Mr. Clarence I. Blau, Commerce Department
Mr. M. S. Szymczak, Board of Governors, Federal Reserve System
Mr. Lewis Dembitz, Board of Governors, Federal Reserve System
Mr. Arthur Marget, Board of Governors, Federal Reserve System
Mr. Herbert E. Gaston, Export-Import Bank
Mr. Hawthorne Arey, Export-Import Bank
Mr. Walter Sauer, Export-Import Bank
Mr. Rifat Tirana, Export-Import Bank
Mr. William B. Gates, Export-Import Bank
Mr. Harland Cleveland, Economic Cooperation Administration
Mr. Felix I. Shaffner, Economic Cooperation Administration
Mr. Frank A. Southard, Jr., International Monetary Fund
Mr. John S. Hooker, International Bank
Mr. Walter C. Louchheim, Jr., Securities and Exchange Commission
Mr. William McC. Martin, Jr., Treasury Department
Mr. Thomas J. Lynch, Treasury Department
Mr. James J. Saxon, Treasury department
Mr. William W. Parsons, Treasury Department
Mr. Elting Arnold, Treasury Department
Mr. Charles R. McNeill, Treasury Department
Mr. Henry J. Bitterman, Treasury Department
Mr. George H. Willis (Acting Secretary)
Mr. Allan J. Fisher (NAC Secretariat)
[Here follows a table of contents.]
1. Requested Export-Import Bank Loan to Argentina
A. Statement of the Problem
[Here follows a description of the terms of the proposed loan.]
The Staff Committee had studied the proposal and reviewed the general Argentine position. It appeared that at present there were about $108 million of commercial arrears on private account, that commercial arrearages on government account amounted to approximately $30 million and sundry items approximated $40 million. In addition to these commercial obligations, it was estimated that outstanding financial arrearages accumulated during an earlier period amounted to about $67 million at the present exchange rate. The total obligations to the United States were thus estimated at about $245 million, exclusive of any new obligations that might be incurred by Argentina and exclusive of any settlement which might be made with the American and Foreign Power Company. It was understood that Argentina was hopeful of receiving new credits to the extent of $75 million from New York banks against gold collateral, and that new commercial credits were being requested. It was from these new credits that Argentina [Page 719] hoped to obtain the greatest immediate benefit from this loan, since the proceeds of the loan itself would accrue to American exporters who were already holding claims on Argentina. Through these new credits Argentina hoped to be able to acquire items like farm equipment, to improve its domestic economy and increase production.
[Here follows a summary of the NAC Staff Committee’s analysis of Argentina’s financial condition.]
B. Discussion
Background of the Loan Application.—Mr. Gaston said that the Secretary of the Council had made an accurate statement of the conditions surrounding the proposal. He added that the proposal had resulted from conversations of the Export-Import Bank with financial experts from Argentina with respect to the Argentine situation, and mutual agreement on what would probably be the most useful line of action to help reinstitute normal commercial and financial relations between the two countries. As a result of the discussions, the Bank had outlined what it would be willing to consider and the result was the proposition the Council had before it. The matter had been discussed with Mr. Cereijo, the Minister of the Treasury, who wished to get it liberalized in various ways. The Bank had not seen that it could go further than it had gone and at length Mr. Cereijo agreed that he would like very much to have this proposal explored and acted upon. At the time of the last discussion, Mr. Cereijo had asked whether the Bank would impose any impediment to Argentina’s obtaining additional credits in the United States. Mr. Gaston had told him that the Bank had no desire to put any impediments in the way but that it desired to be informed of anything Argentina should do in the way of obtaining additional credits. Indirectly the Bank had received information as to negotiations with respect to three different propositions, all involving the pledge of gold; two would be for $75 million and the third would involve $65 million. It was understood the proposal was to use about $25 million of the proceeds of these loans to complete the liquidation of the strictly commercial part of the arrearages (those on government account) and that Argentina was hopeful there would be $40 to $50 million additional for the purchase of machinery.
Mr. Gaston continued that he agreed with the view of the Staff Committee that the faithful performance of Argentina’s obligations would involve adhering to a very prudent and thrifty program. He added that within the last year the Argentines had been carrying on a program by which they had been saving $2½ million a month, or $30 million a year, and applying it to the commercial arrearages. The arrearages had been reduced month by month. They would have to continue to be just as strict in their controls as they had been over the last year to be able to meet the liabilities they would be incurring [Page 720] under the loan. The Bank believed it was possible for them to do it. Although the Bank’s estimates had not been quite as high as those of the Staff Committee with respect to Argentina’s dollar earnings, the Bank thought the Argentines could service the Bank loan as well as any obligations they might incur in New York and have a small margin for additional payments. The present proposal seemed to be the minimum necessary to put Argentina on a relatively sound trading basis and to accomplish the other objectives of trying to regularize our relations with the Argentine Government. It was on this basis that the Bank had gone along on what it thought was the maximum loan the Bank could afford. With respect to attaching conditions concerning the treatment of American and Foreign Power Company, Mr. Gaston commented that the Export-Import Bank had not been in the habit of attaching that kind of conditions to loans. The Bank had been leaving negotiations of this nature, involving a private American company, entirely to the State Department. The Bank would prefer to refrain from action until the ground was clear rather than attach conditions to the action.
Political Background.—Mr. Thorp said that most of his comments on the political background had been incorporated by the Staff Committee in its study.2 For a considerable time, including the war period, the relations of the United States with Argentina had not been entirely happy. In the postwar period there had been very limited political and economic cooperation from Argentina. In the economic field, the treatment of American businessmen and the degree to which Argentina had not participated in general programs, such as for allocating wheat, had been very disappointing. About a year ago there began to be evidence of a shifting point of view. This was happening as their economic situation was worsening, but it was hard to determine clearly what forces brought it about. The group of people responsible for economic policies in the previous period had been replaced by a new group, and there had been a steady improvement in Argentina’s economic performance. Within the last few months, it had been extraordinary. The Argentines had taken care of a whole series of questions involving particular American businesses which were troublesome and on which the United States had been unable to get any action. There had been a number of specific actions which indicated a changed point of view on their part. A few weeks ago negotiations were started on a commercial treaty. In the normal course, this would be expected to take many months. The current negotiation, however, had moved very rapidly and it was anticipated that it would be a matter of weeks, rather than months, when agreement would be [Page 721] reached on a commercial treaty that would put into relatively permanent form this new attitude they have been displaying toward American investment and businessmen in Argentina.3
Mr. Thorp added that there had also been a real change in the political picture. President Perón had indicated to Assistant Secretary Miller that he expected the Rio Treaty to be ratified this year. This would be very important in terms of hemispheric defense. The Argentines had also indicated that they intended to join various international organizations, starting with the Food and Agricultural Organization. The schedule included eventually joining the International Bank and the International Monetary Fund. Mr. Thorp said he would not want to say that the Argentine picture was entirely a satisfactory one. There were a number of fronts on which the Argentines were still behaving outrageously, such as in their treatment of the press. Nevertheless, the judgment of the State Department was that the shift of attitude was something the United States should do everything it could to encourage and solidify. From the point of view of new working arrangements between the United States and Argentina, the State Department felt the proposed loan was a very important element and for that reason supported it not merely on economic grounds but also on political grounds.4
Inflation.—Mr. Szymczak pointed out that solution of the problem of inflation was vital to the economy of Argentina. The money supply was constantly increasing as well as credit and prices and the budget was unbalanced. This raised the question of whether Argentina should not take action as soon as possible to curb the expansion of credit and the money supply in order to be able to meet commercial as well as financial obligations. He proposed that something on this subject might be added as a final paragraph to the action.
Mr. Gaston said that the Export-Import Bank had considered the proposed loan on the basis of quite favorable indications that the [Page 722] Argentines were beginning now to pay attention to the views of people who have economic and financial competence. He pointed out that this group realized the economic errors that have been committed in Argentina and they had to a striking extent slowed down the program of overly-accelerated industrialization which had constituted the major factor. He added that there were other matters that would require attention. The main hopeful feature was an indication of a willingness now to consult people who have some knowledge and competence in this field.
Treatment of American Investments.—Mr. McDonald reaffirmed the views of the Securities and Exchange Commission expressed in NAC Document No. 994. He said that the Commission was thinking in terms of the equity holders of the largest American enterprise in South America. The American and Foreign Power Company was facing a very difficult situation in financing its operations and in planning for future expansion. He thought this was a psychological time for some promise to be exacted as to what the Argentines might do to restore the expropriated properties and better the operating position. The Commission would like to see the suggested conditions imposed if this could be done without being out of order.
Mr. Thorp said that the State Department had taken the matter up with the Argentines and they had said they would undertake to negotiate with the American and Foreign Power Company, and they had invited representatives of the company to come to Argentina and work on settling the problem. He was not sure that the United States should use its lending authority in the way proposed. Beyond that, it would be difficult to establish conditions that would leave the way open for negotiations. He thought the two choices were either to fix an amount or to make sure there was a serious negotiation on settlement. He pointed out that there already was a commitment that the Argentines would undertake a serious negotiation and that it was understood it would start soon.
The Chairman inquired whether this would meet SEC’s point. Mr. McDonald said it would go quite a ways toward meeting it, but that much would depend on performance. He added that the question was not only one of repayment but also of setting up conditions under which the company could operate at a profit. He referred to the lack of cooperation that existed as to the working conditions under which the company was to operate. He thought this should be made a factor in the consideration of the problem. Mr. Thorp said that this was a matter that was focused on in commercial treaties. If the treaty with Argentina was concluded along the lines presently contemplated, conditions would be set up to prevent the discriminatory treatment which had been so prevalent in the past.
[Page 723]Mr. Szymczak inquired what the attitude was with respect to meeting obligations relating to American investments in Argentina. He understood there would be no payment before 1952. Mr. Thorp said that it would probably be a number of years before Argentina would start paying off arrearages. Mr. Szymczak pointed out that the United States was trying to stimulate investment abroad, and wondered how the proposed action would affect investors once it became known that American exporters were being paid but that arrearages on American investments were not being met.
Mr. Gaston observed that much had been done on this problem in the way of preliminary negotiations and the fact that current trade accounts had been regularized would be a very definite service to American investors abroad. Mr. Thorp added that the biggest change in the attitude of Argentina in recent months had been an improvement in the treatment of investments.
Mr. Gaston pointed out that there was no guaranty of good behavior in the various negotiations and that it could only be hoped that expectations would be fulfilled.
Precedents.—Mr. Szymczak inquired whether, if the proposed loan was approved, it would be setting a precedent for South America. He understood that the Export-Import Bank had made loans of a similar character to Canada and Chile. He understood, however, that there had already been some reaction in Brazil with respect to the proposed loan to Argentina.
Mr. Gaston said that the Export-Import Bank had engaged in somewhat similar transactions. A balance of payments loan had been made to Canada which was quickly repaid. This loan was for current needs. A similar loan had been made to Chile, to the extent of $20 million, because the decline in the price of copper had created difficulty for Chile due to the existence of confirmed orders for equipment. These were not arrearages in the same sense as in the case of Argentina. The nearest to the present transaction was one with Brazil which had been made a number of years earlier. So far as meeting the balance of payments difficulties of a Latin American government, the present proposal was not entirely new in character and would not constitute a precedent. Mr. Thorp commented that every time the Export-Import Bank made a loan a number of other applications were received but were not necessarily regarded favorably by the Bank.
Action.—Mr. Szymczak suggested that in order to cover the point he had earlier made with respect to inflation the following addition be made to the proposed action:
“The Council also calls attention to the fact that the expansion of money and credit in Argentina must be brought under control if [Page 724] the various measures that are being proposed are to be effective in reestablishing normal commercial and financial relations between Argentina and the United States.”
Mr. Thorp commented that this statement implied that the expansion of money and credit was completely out of control and suggested that the statement be modified to indicate that the expansion must be “carefully controlled.” This suggestion was accepted and the recommended action, including the addition as amended, was approved unanimously.
Action. The following action was taken (Action No. 403):
The National Advisory Council approves consideration by the Export-Import Bank of a line of credit to Argentina not to exceed $125 million, bearing interest at 3½ percent per annum and repayable in 20 semiannual installments beginning in the middle of 1954. The credit would be used to pay United States commercial creditors of Argentina on private and governmental account in liquidation of past due dollar obligations. The credit would be evidenced by the obligations of a group of Argentine banks, bearing the unconditional guaranty of the Central Bank of Argentina.
The Council understands that the Argentine Government has stated its readiness (a) concurrently to provide dollar funds that might be needed to pay outstanding dollar obligations on private and governmental commercial account in excess of the $125 million credit, and (b) to exert its best efforts to work out, within its financial possibilities, a mutually satisfactory settlement of arrears on transfers of past earnings of American investments.
The Council also calls attention to the fact that the expansion of money and credit in Argentina must be carefully controlled if the various measures that are being proposed are to be effective in reestablishing normal commercial and financial relations between Argentina and the United States.5
- Master file of the documents of the National Advisory Committee on International Monetary and Financial Problems for the years 1945–1958, as maintained by the Bureau of Economic Affairs or antecedent offices.↩
- National Advisory Council Staff Document No. 420, May 12, 1950, not printed. (Lot 60 D 137)↩
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A document entitled “State Department Views on the Political and Economic Objectives of the Proposed Loan” (Appendix II to the document cited in footnote 2) stated economic objectives as follows:
“The economic objective of a credit to Argentina is to assist that country in the restoration of its agricultural production for export to Western Europe and neighboring Latin American countries. These countries can pay for vital food imports by the shipment of their own products to Argentina, thus decreasing their dependence on the United States and reducing the “dollar gap”. As examples, the United Kingdom normally obtains one-third of its import meat requirements and 58 percent of its coarse grains from Argentina. Brazil looks to Argentina to meet all of its wheat deficit requirements.
The proposed refunding operations, coupled with bank and commercial credit, will permit Argentina to increase substantially its imports of farm machinery, other products required by agriculture, and transport and other equipment closely related to food production and distribution.”
↩ - An additional consideration was briefly stated in the document cited in footnote 2: “It is important to bear in mind that a collapse of the Perón Government would almost certainly result in its replacement by a regime considerably less friendly to the United States.”↩
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The Department’s press release of May 17, 1950, “Factors in Economic Relations with Argentina,” issued in conjunction with the Export-Import Bank’s announcement of the loan, is printed in the Department of State Bulletin, May 29, 1950, p. 860. Additional information may be found in the address of Rollin S. Atwood, Officer in Charge of River Plate Affairs, before the Export Managers Club of New York, May 2, 1950, ibid., May 22, 1950, p. 801. Pertinent also is the exchange of letters between Jacob S. Potofsky, Chairman of the Committee on Latin American Affairs, Congress of Industrial Organizations, and Mr. Miller, May 2 and 4, 1950, respectively, ibid., p. 800.
In a letter of June 1 to Christian M. Ravndal, Ambassador of the United States in Uruguay, Mr. Miller in part suggested that the Ambassador point out to certain prominent Uruguayans that “… the Argentines really swallowed their pride in asking us for this loan and Cereijo took a terrific risk in going all out to comply with a number of our requests concerning trade and investment policy without any assurance from us that we would even consider a loan. Furthermore, the bank handed them a most staggering list of questions and demands for information which the Argentines complied with to the letter in an amazingly brief period.” (611.33/6–150)
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