416. Memorandum of a Conversation, Department of State, Washington, June 18, 19581

SUBJECT

  • Economic Aid

PARTICIPANTS

  • The Honorable Florencio Moreno, Secretary of Public Works, Philippines
  • The Honorable Dominador Aytona, Commissioner of the Budget, Philippines
  • The Honorable Miguel Cuaderno, Governor of the Central Bank, Philippines
  • The Honorable Eduardo Romualdez, Chairman, RFC, Philippines
  • The Deputy Under Secretary of State, C. Douglas Dillon
  • The Honorable Sam Waugh, President, Ex-Im Bank
  • The Honorable Tom Coughran, Treasury
  • FE—Gardner E. Palmer, Deputy Assistant Secretary, Economic
  • W—John M. Leddy, Special Assistant

Mr. Cuaderno as principal spokesman for the Philippine officials elaborated upon the presentation made by President Garcia at the earlier meeting covering requested credits. This assistance was to cover the importation of raw materials for some 800 new industries which have been created in the Philippines in the last several years, machinery and equipment for new projects, and public works projects. Mr. Cuaderno emphasized that to import raw materials for the second and third years he did not need cash but simply a standby credit which would be used to guarantee such cost of such imports. Mr. Cuaderno mentioned that the Ex-Im Bank had provided similar credits in 1948.

[Page 879]

Mr. Waugh pointed out that at that time the Ex-Im Bank provided only a foreign exchange guarantee rather than a full guarantee of the paper, which was quite a different thing and not normally financed by the Bank except on a short-term basis. Mr. Cuaderno indicated that if he did not get such credits he would be unable to permit a high level of profit and capital transfers.

Mr. Dillon said that we wished to be responsive to the Philippine requests to the extent feasible within our system of operation. As the Philippine officials knew, except for the Ex-Im Bank our appropriations are on a yearly basis and obviously we cannot commit funds which have not yet been appropriated. As the Secretary had said to President Garcia, we had asked for DLF funds on a longer term basis, but the Congress had seen fit to appropriate only on a yearly basis. The funds presently available to the DLF are practically all earmarked and requests for financing far exceed the total available. He further indicated that there was some misunderstanding in the case of DLF earmarked for India and made the point that the total figure announced ($75 million) was a ceiling only and not a line of credit. The DLF operates solely on a project basis and India’s applications had far exceeded the ceiling established.

In answer to a question, Mr. Cuaderno said that the funds requested were wholly apart from the steel mill project because he understood that the project was now being considered by the Export-Import Bank. In further discussion, Mr. Cuaderno related the unused balance of the Ex-Im Bank credit ($44.5 million) to the pending application for the steel mill. Mr. Waugh took exception to this statement on the grounds that the Ex-Im line of credit had been granted to the Philippines long before the steel project had been presented and that the latter never had been considered in connection with this credit. He stated that the Bank was ready and willing to discuss with the Philippines projects in the public and private sectors, and would not be averse to working out arrangements for the extension of a line of credit, but that he definitely wanted it understood that the steel mill project was separate and apart from such credit. He added that the Bank could not reach an early decision on the steel mill project since it had only just received some documentation which had been requested, and that it had not had time to study the final technical reports on the project.

Mr. Cuaderno said that the overall plan included some projects for which they hope to get financing from the International Bank for Reconstruction and Development. Specifically the Angat Hydro-Electric project for which they were asking the $20 million, and the Maria Christina Hydro-Electric project requiring $5.2 million, totaled $25.2 million. He said that the Binga Hydro-Electric project had already been approved by the IBRD. In this connection he said that IBRD [Page 880] financing is better than Ex-Im Bank loans because of the fact that it permits non-U.S. procurement. Mr. Waugh said he found difficulty in accepting this as fact since the Bank last year loaned over $900 million for financing equipment purchases from the United States which went into various markets in Europe and other places.

Mr. Cuaderno said that in discussions with the IBRD next week Mr. Rosen, the Far Eastern man, wants to talk about the general economic picture in the Philippines.

Mr. Dillon mentioned our concern over the inflation in the Philippine economy; that although we had no particular ideas of our own in this respect to be forwarded, we felt that it would be useful for them to discuss these matters with the IMF. Further discussion disclosed that the Philippines have now asked for an additional drawing from the Fund. Mr. Cuaderno said they had had some discussions with the IMF at the staff level and next week would talk with the Executive Board. U.S. officials said they thought this would call for a Fund mission to Manila. Mr. Cuaderno did not think it likely that the Fund would wish to send a mission since one had been in Manila the end of last year.

In answer to a question by Mr. Coughran, Mr. Cuaderno said that the President expected to make a general rather than detailed public statement on the result of negotiations with the United States. Mr. Cuaderno added that he and his colleagues presently plan to remain in Washington after the President left and would stay as long as necessary to complete detailed discussions with various interested U.S. agencies and other institutions.

  1. Source: Department of State, Conference Files: Lot 63 D 123, CF 1024. Confidential. Drafted by Palmer.