418. Memorandum of a Conversation, Department of State, Washington, June 19, 19581

SUBJECT

  • Philippines—U. S. Economic Assistance Loans

[Here follows the same list of participants as the memorandum supra.]

Secretary Dulles stated that the most important item for the meeting was to complete the text of the joint communiqué to be issued by President Garcia and President Eisenhower. He asked Mr. Dillon and Mr. Waugh to outline the conclusions reached on the question of economic development loans.

Mr. Waugh stated that the Export-Import Bank was willing to issue a new line of credit to the Philippines for project loans in both the public and private sectors up to a total of $75 million. This new total would replace the remainder of $44.5 million from the existing line of credit which is to expire June 30. The $75 million would include a loan to the Manila Electric Company of $10 million and $15 million in bank lines to finance industrial development in the Philippines. Of the latter some $10 million would be loaned through the Central Bank of the Philippines and $5 million through private banks.

Mr. Dillon then explained the position of the Development Loan Fund (DLF). The DLF cannot make definite commitments of funds until Congress has appropriated funds for the coming fiscal year. The DLF has requested $625 million from Congress but since this has not yet been appropriated, the DLF must avoid making firm commitments for funds not yet appropriated. If, however, Congress does appropriate additional funds approximately equal to this total, the DLF will be prepared to examine specific projects in the Philippines, not to exceed [Page 883] a ceiling of $50 million. On the other hand if the appropriation request is cut substantially by the Congress then we would have to consider reducing the ceiling of $50 million for the Philippines.

Steel Mill

Mr. Dillon said that the complete report (made by Koppers, Inc.) on the Philippine steel mill project had arrived in Washington only four to five days ago and is now being studied thoroughly in the Export-Import Bank. The United States will be unable to make a commitment at this time, but if thorough study shows that the steel mill is economically and technically feasible, the United States will give consideration to dollar financing by the DLF or the Export-Import Bank, depending upon the nature of the financing needed.

Mr. Dillon stated that any participation of the DLF in the steel mill project would be out of the $50 million ceiling already mentioned. Mr. Waugh stated that, conversely, any loans made for the steel mill by the Export-Import Bank would be made separate and apart from the $75 million line of credit which he announced. It was agreed that an aide-mémoire embodying the two positions of the DLF and the Export-Import Bank with regard to steel mill financing would be drawn up and given to the Philippines.

Financing for Imports of Raw Materials

The Secretary stated that he believed President Garcia would appreciate that the United States had tried very hard to meet the Philippine program laid before us. He emphasized that that program was designed for a three-year period and pointed out that the United States could not act at this time except upon the more immediate Philippine requirements. He stated that in later years if the Philippines came back with appropriate projects we would be prepared to study them in the light of the developments at that time. President Garcia asked whether the United States could consider assisting in the maintenance of the new industries in the Philippines by financing the importation of replacement parts for machinery and raw materials for those industries.

Mr. Waugh stated that on the overall program the Export-Import Bank had expressed a suggestion that the Philippines approach the International Bank for Reconstruction and Development (IBRD) on the question of obtaining financing for electrical equipment and for development of ports. He pointed out that the U.S. does not influence the IBRD but that the size of the program would appear to justify approaching the IBRD on these two items. As to the President’s question on the financing of machinery and raw materials, he pointed out that the Export-Import Bank has little difficulty in financing machinery as [Page 884] part of specific projects but that financing the importation of raw materials which would be used up in one year but not paid for in five years presented real problems for the Export-Import Bank.

President Garcia asked whether a five-year payment plan for raw materials was not possible. Mr. Waugh replied that there was no such plan, that the Export-Import Bank would finance imports of cotton paid off in over a one-year period, but that it could not finance other raw materials to be paid off over a five-year period.

Ambassador Romulo asked whether the Export-Import Bank had not financed raw material imports in other countries. Mr. Waugh replied only in the case of one-year financing for cotton. The Secretary pointed out that we had refused a French request to finance their oil imports during the Suez crisis. Governor Cuaderno stated that in 1949 and 1950 the Export-Import Bank had financed imports of raw materials to Mexico, Yugoslavia and Brazil. Mr. Waugh replied that this is and has been for some years against Export-Import Bank policy. President Garcia asked whether, if the Export-Import Bank could not finance a deferred payments plan for raw materials, the DLF would be able to do so. Mr. Dillon answered that the legal definition of the DLF limited it to financing on a project basis only and that it was not allowed to finance general imports of raw materials. Imports designed for specific projects such as steel for factories, railroads, railroad cars, etc., could be financed, but not general imports unrelated to specific projects. He suggested that some raw materials might be financed by DLF if they could be related to specific projects already approved.

Mr. Cuaderno referred to a 1953 Export-Import Bank loan financing raw materials in Brazil. Mr. Waugh replied that that was a poor loan and could not be repeated.

Ambassador Romulo stated that the present problem is to finance raw materials for 836 new industries. Mr. Waugh stated that if the Export-Import Bank could take over financing part of present development projects perhaps the financing of imports of raw materials could be found from the exchange resources so freed. Governor Cuaderno stated that it would be very difficult to continue building an industrial economy since the Philippines could not rely on its own meager dollar earnings to supply raw materials for industries. During the last ten years, the Philippines had used its meager dollar reserve for this purpose but had gotten only one loan from the United States. In 1955, he had told the late President Magsaysay that the Philippines could no longer continue to use its dollar reserve and had obtained from the Export-Import Bank a line of credit to finance industrial expansion. He had been unable to use this line of credit for 17 months because the owners of the new industrial projects had insisted upon buying less expensive European equipment rather than drawing down the Export-Import loan by buying American equipment. He described the dollar [Page 885] savings that had already been made through the establishment of new industries and the reduction of dollar imports. He pointed out, however, that domestic prices were being forced upwards because the Philippines was so short of dollars and could no longer finance such important raw materials imports such as steel for barrel and drum factories.

Mr. Dillon stated that the United States had recognized the Philippines problem and its need for dollars to carry on an industrialization program and still be able to pay for raw materials. The United States felt that $75 million from Export-Import Bank and $50 million from the DLF, plus any IBRD financing the Philippines could obtain, would relieve the Philippines of the expense of financing development programs and leave them free to use their dollar export earnings to finance imports of raw materials. Mr. Waugh then corrected certain statements of Governor Cuaderno regarding past Export-Import Bank loans to the Philippines, and there was some discussion of details between him and Governor Cuaderno. (At this point the Secretary left.) Mr. Dillon suggested that if Governor Cuaderno and certain of his colleagues were going to remain in Washington, the details of this problem could be discussed later. He repeated that if there were imports needed for specific DLF projects the DLF could finance the importation of those raw materials.

General Discussion

President Garcia asked whether it would be possible for the United States to increase the $50 million ceiling tentatively set by the Development Loan Fund for project loans to the Philippines. Mr. Dillon answered that the DLF had a big problem in that they did not know how much money would be made available by Congress for the coming year. He pointed out that if the $625 million maximum is appropriated, the DLF is faced with requests from countries all over the world totaling over $3 billion. Under those circumstances the DLF, which is faced with problems all over the world arising out of the cold war, could not go beyond $50 million for the Philippines. Also, if Congress did not appropriate the $625 million requested, the $50 million being discussed for the Philippines would need to be reexamined.

President Garcia then suggested that some kind of an arrangement might be made which would make funds available for another year. Mr. Dillon suggested that the situation might be clarified if the communiqué were to state that the $50 million plus $75 million were intended to meet immediate requirements. President Garcia stated that he would like to increase the figures for the purpose of the communiqué. Mr. Dillon replied he did not see how that could be done but suggested the following additional paragraph for the communiqué: [Page 886]

“The Philippine officials outlined a long-term program for economic development. In view of the inability of the United States to anticipate financial availabilities and relative requirements beyond the next 12 months, consideration was given only to the current requirements of the development program of the Philippines.”

President Garcia suggested that language be adopted in the communiqué to use one total figure and not to refer to specific agencies of the United States Government. Mr. Dillon stated that the problem stemmed from the fact that funds were to come from different organizations of the government. He pointed out that the Export-Import Bank is a separate organization not connected with any government department. Mr. Waugh stated that the communiqué might refer to the U.S. Government and not list the breakdown of figures.

At this point there was a long recess following which Mr. Dillon stated that an aide-mémoire spelling out Export-Import Bank and DLF financing plans would be given to the Philippine Embassy for transmission to its Government. He also stated that claims other than the dollar devaluation claim would be considered by the United States Government and that the United States Government’s decision would be communicated to the Philippines at some time in the not too far distant future. At that time the United States would also want to discuss and resolve various questions outstanding on the RomuloSnyder Agreement.2 Finally, he stated that the United States has felt that the whole Philippine development program can be effective only in an atmosphere of economic stability. He expressed United States pleasure at Governor Cuaderno’s statement that the Filipinos intended to talk with officials of the IBRD and the International Monetary Fund (IMF). The United States Government felt that such discussions would be most worthwhile. The United States has no particular suggestions of its own, but does want to emphasize the importance of such conversations.

President Garcia protested that withholding loans until a climate of economic stability was established would be putting the cart before the horse since the Philippines had planned to use the United States loans to establish economic stability. Ambassador Bohlen explained that the United States did not intend to make the loans dependent [Page 887] upon the establishment of financial stability. The reason for Mr. Dillon’s suggestion was that we would be happy to see discussions between the Philippines and the IMF especially if they were to clarify the reasons for recent Philippine difficulties with their foreign exchange reserves.

President Garcia and Mr. Dillon again discussed the clarification of steel mill financing with relation to Export-Import and DLF figures. President Garcia asked whether some mention could be made of the IBRD in the communiqué. Mr. Waugh explained that the IBRD would have to be left out since it was an international organization and could not be properly included in a communiqué between the Philippines and the United States.

At this point a discussion ensued between President Garcia and the Americans present regarding the possibility of the timing of the communiqué. It was decided that the communiqué could not be issued that evening. At this point President Garcia left for his official reception (it was then 5:30) and discussion continued between Governor Cuaderno and the Americans present. Mr. Waugh also left.

Governor Cuaderno’s discussion can best be summarized as numerous attempts to raise the overall figure of US assistance listed in the communiqué. He brought up many of the questions which had already been discussed. During the discussions he stated that the Central Bank would have to ban further dollar remittances unless the communiqué contained a definite statement concerning financing of the steel mill. Mr. Dillon replied to Governor Cuaderno by pointing out that $75 million from the Export-Import Bank plus Export-Import consideration of the steel mill as an extra project if taken up by that organization, plus $50 million from DLF was the limit of US availabilities during the coming year.

Mr. Robertson announced that President Eisenhower was leaving at 9:30 in the morning for Quantico and, therefore, the communiqué would have to be worked out and cleared by him before that time. That in effect meant that the communiqué would have to be decided upon that evening. Governor Cuaderno suggested that the DLF agree to consider any of its loans for the steel mill outside the figures of the $50 million ceiling. Mr. Dillon replied this would not be possible.

Governor Cuaderno stated that the President was very unhappy with the amount of aid made available and that the Filipinos felt that this amount would be very difficult to present to the Philippine public and would create a political problem. Mr. Dillon replied that the United States Government has made the best efforts that it can make and that the steps taken have been most unusual and would not be made for every country.

[Page 888]

Secretary Robertson pointed out that the DLF is for the whole world and must be apportioned on that basis. He expressed surprise that President Garcia was so disappointed. He stated that the United States had felt that to make available $125 million for the Philippine development program was a great accomplishment.

Ambassador Bohlen stated that he was very surprised that the Filipinos should have expected a $300 million credit. He himself had told President Garcia and all the Filipinos present no less than five times that such a figure would be impossible for the United States to provide. In addition, the Secretary had told President Garcia at the time of the SEATO meeting that it would be very difficult to find money for economic assistance under present circumstances.3 Ambassador Bohlen had understood that the Philippines were presenting a three-year program for $300 million and, therefore, could not comprehend the Philippine reaction of disappointment at obtaining $125 million for immediate requirements. Governor Cuaderno then repeated all the previous arguments which had been thoroughly discussed several times before.

Mr. Romualdez asked why the United States was including both the Export-Import Bank and the DLF with regard to financing the projected steel mill. Mr. Dillon explained that the DLF was considering participation in part of the steel mill project in order that the United States might finance the purchase abroad of equipment for the mill. He pointed out that the Export-Import Bank was limited to financing purchases of United States equipment. Mr. Romualdez felt that there should be no reference to the DLF financing part of the steel mill. Mr. Dillon stated that the participation of the DLF in the steel mill depended upon the pattern of financing which developed between the Export-Import Bank and the DLF.

Mr. Robertson suggested that since it was not normal to include an economic section in a communiqué between heads of state that we might omit the economic section. Governor Cuaderno hastily demurred, stating that the economic section was the part about which the Filipino people were most worried. Mr. Robertson endorsed Ambassador Bohlen’s statements regarding United States inability to finance very large loans. He again stressed that the DLF was created for the whole world and reminded the Filipinos that every country has its own problems. Ambassador Bohlen stated that the communiqué referred to immediate requirements only and that the United States could not make commitments for a 3-year period. He pointed out that the Filipinos themselves could easily argue publicly that the $125 million represented the first year and that the United States would consider the next two years at the proper time. Governor Cuaderno [Page 889] stated that all projects had to be begun at once or the economic development of the country would lag. Ambassador Bohlen replied that on the contrary it would appear quite feasible to reduce their plans for starting all projects in the first year and hold off those of lower priority until credits had been raised for the following years. Mr. Robertson pointed out that the United States budgetary deficit will be $15–$20 billion for the next two years on top of an already existent United States debt base of $275 billion. He pointed out that Governor Cuaderno, as a distinguished banker, could not fail to be disturbed at these figures nor to understand that the United States just cannot make commitments for future years. Governor Cuaderno argued that the Export-Import Bank does not need appropriations from Congress and suggested that the Export-Import Bank set up a line of credit for the three-year period subject to approval of the feasible projects presented. Mr. Dillon pointed out that the Department of State had had lengthy discussions with the Export-Import Bank as a result of which the Export-Import Bank had agreed to extend a credit of $75 million, and that they would consider (without commitment) additional loans for the steel mill if their study showed that the mill was economically and technically feasible. He stated that it would be impossible to get the Export-Import Bank to go further. Governor Cuaderno replied that the Filipinos would have to report the United States position to President Garcia and await his decision. The meeting adjourned at 6:20 p.m.

  1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Secret. Drafted by Brand, who is not listed among the participants.
  2. The RomuloSnyder Agreement originated with funds (about U.S.$47 million) advanced by the U.S. Philippines–Ryukus Command to the Philippine National Defense Forces in 1948 for paying certain claims. It was also agreed by U.S. and Philippine military commanders that the sum in excess of the total amount of the claims would be returned to the United States no later than December 31, 1949. No part of it, however, was returned by the deadline date. This Philippine obligation was converted to a loan by the RomuloSnyder Agreement (signed at Washington November 6, 1950; entered into force the same day; 1 UST 765) which included conditions for the repayment of $35 million plus interest over a 10-year period. The Philippine Government defaulted in 1955. Thus the RomuloSnyder Agreement became an outstanding issue between the two governments for a number of years.
  3. See Document 399.