Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

187. Memorandum From Secretary of the Treasury Anderson to President Eisenhower⁰

December 3, 1959.

SUBJECT

• U.S. Government Financing Policy regarding Economic Development Loans, and the Basis for this Policy

Public Statements: On October 20, 1959, the Managing Director of the Development Loan Fund stated:¹

“It has therefore been decided that particularly in financing the foreign exchange costs of development projects and programs the DLF will place primary emphasis on the financing of goods and services of U.S. origin. The Board of Directors of the DLF in the application of this new policy will, in the case of those projects or programs which have reached an advanced point of consideration by the DLF under its previous policies, give consideration to the avoidance of undue hardship.”

On November 16, 1959, Secretary of State Herter, in a speech before the National Foreign Trade Council, stated² that:

“In short, the circumstances under which I.C.A. operates generally differ from those applying to the D.L.F. Therefore, for the present we do not contemplate basic changes in the I.C.A. procurement policies.

“We recognize, however, the desirability of transferring from the I.C.A. to the D.L.F. to the greatest extent possible, assistance which I.C.A. grants in the form of help to specific development projects. We intend to move in this direction. Projects so transferred would then be financed under the new procedures of the D.L.F.”

Basis: The basis for the new financing policy is this. The economic and financial strength of other industrialized countries is such that continuation of DLF financing of their exports to less developed countries is no longer warranted. By using Development Loan Fund money largely to finance procurement from United States sources and by leaving other industrial countries to extend their own financing on reasonable terms in connection with their exports to less developed countries, we hope that the total amount of goods available for less developed countries may be increased.

Placing primary emphasis on D.L.F. financing of goods and services of U.S. origin cannot be regarded as a departure from a multilateral trade policy, and it is erroneous for the D.L.F. decision to be construed as a new “Buy American” policy. If a loan applicant desires long-term financing to procure equipment abroad it is the D.L.F. view that he should, when funds are not available from other international lending sources, look principally to the producing country to supply such funds on reasonable terms and conditions rather than to the D.L.F. Because of the presumption that offshore procurement can be financed abroad, the D.L.F. will now give primary attention to providing, in accordance with its criteria, development loan financing for those applicants who wish to buy goods and equipment of U. S. origin. Whether they buy in America, however, is a question of choice, a situation made possible by the improved financial position of other industrialized countries.

For various reasons, whether through export credit facilities or other formally tied financing arrangements, through traditional marketing arrangements, through discrimination against other country’s exports, or through other factors, the bulk of the development financing provided by other industrialized countries is used to buy their own products or those of the monetary areas of which they are the center. Moreover, what direct government financing they do extend is usually repayable in the lender’s currency and for a medium term of years, whereas D.L.F. generally accepts repayment in the currency of the borrower and frequently permits long repayment periods.

Under our new policy, less developed countries which find it advantageous to buy equipment from industrialized countries other than the United States will seek financing in those countries for such procurement. They will tend to concentrate on seeking D.L.F. financing for those development projects for which they may procure most efficiently in the United States. In determining the country from which they procure, they are apt to consider many factors, including price, quality, financing terms, delivery period and service facilities.

The new policy should also help to reduce this country’s losses of gold and dollars to other industrialized countries. These losses have become extremely large in the last ten years. It is hard to overemphasize the need for maintaining a sound dollar, both internally and externally, particularly at a time when the United States is playing such an important role in the leadership of the Free World and in support of the economic growth of the less developed countries.

In 1958 the outflow of gold and liquid dollars to foreigners was $3.4 billion. An even larger outflow nearer to $4 billion is likely this year. The outflow this year would be even greater in the absence of some large debt prepayments by other industrialized countries which ordinarily would have repaid their debts over a period of years in accordance with the servicing schedule. For example, in March, Germany prepaid $150 million on postwar indebtedness, and in October the United Kingdom made a $250 million prepayment on a loan by the Export-Import Bank.

The current deficit reflects the continuation at high levels of U.S. public and private capital outflow and military expenditures abroad at the same time that our export surplus of goods and services has declined. Because of the notable uncertainty of balance of payments forecasts due to the many unpredictable elements involved, it is not possible to arrive at any definite judgment as to when the current unfavorable trend in our payments will be terminated.

It must be recognized that if deficits were to continue, they could create important difficulties for this country. Although the gold holdings of the United States amount to approximately $19.5 billion, they are some $3 billion less than two years ago. During the same period United States liquid liabilities to foreign countries rose approximately $3 billion and now, on the basis of data not yet published, amount to about $18 billion (excluding holdings of international institutions but including U.S. Government bonds and notes).

Results to Date: There have been several indications to date that the new D.L.F. policy is putting pressure on European countries to do their own financing of their exports to less developed countries and on terms more appropriate for development projects. For example, Pakistan recently announced a $6 million credit from Germany for financing railway equipment which prior to the new D.L.F. policy Pakistan would have purchased in Germany with D.L.F. dollars. Similarly, there is now talk that European governments are actively considering the possibility of providing governmental guarantees on private export credits for maturities of up to 15 years, on capital equipment exports, compared with the present maximum of 5-7 years.³

0. Source: Eisenhower Library, Whitman File, Administration Series, Anderson, Robert B., Secy Treasury, 1959 (1). Official Use Only. Prepared for the President’s good will trip.
1. See Document 184.
2. See Document 184.
3. Eisenhower discussed aid to underdeveloped countries in conversations in Rome with Italian President Gronchi, Prime Minister Segni, and Foreign Minister Pella on December 4 and 5. (US/MC/1, US/MC/3, US/MC/5, and US/MC/11; Washington National Records Center, RG 59, Conference Files: FRC 83–0068, CF 1527) Murphy, who accompanied the President, discussed it in Tunis on December 17 with Tunisian Defense Secretary Ladgham and Foreign Minister Mokaddem. (US/MC/22; ibid.)