requested, and then referred it to that agency, e. g., the Export-Import Bank or the International Bank, with a limitation on the maximum amount that could b loaned. The Board of Directors of the Export-Import Bank would determine whether or not to make the loan and on what terms and conditions. The bank would not make a loan to a country, if it was declared to be a “persona non grata" by the State Department. Moreover, the Bank would not make a loan to a country friendly to the United States unless there was reasonable assurance of repayment (House hearings, vol. No. 1144, pt. 1, pp. 412-13, 443–44). Mr. Hawthorne Arey, Vice President of the Export-Import Bank, described the difference between exporter credit and export-trade-development credit. The latter type was extended directly to the foreign purchaser, while the former went to the supplier in the United States. An example of an export-trade-development credit was the credit extended in 1939 to the Development Corporation in Chile. The corporation used the credit for purchases in this country of equipment for rehabilitation of earthquake damage (House hearings, vol. No. 1144, pt. 1, pp. 427-428). Economic Cooperation Act of 1948 The Economic Cooperation Act of 1948 stated in section 111 (c) (2), in part: "When it is determined that assistance should be extended under the provisions of this title on credit terms, the administration shall allocate funds for that purpose to the Export-Import Bank of Washington, which shall, notwithstanding the provisions of the Export-Import Bank Act of 1945, as amended, make and administer the credit on terms specified by the Administrator in consultation with the National Advisory Council in International Monetary and Financial Problems *** Credits made by the Export-Import Bank with funds so allocated to it by the Administrator shall not be considered in determining whether the bank has outstanding at any one time loans and guaranties to the extent of the limitation imposed by section 7 of the Export-Import Bank Act of 1945, as amended" (Economic Cooperation Act of 1948, Public Law 472, 80th Cong. (62 Stat. 141, at 146); Legislative History, p. 15). Mr. John W. Snyder, Secretary of the Treasury, in the hearings on this act explained that the bank would be only acting as an agent, and therefore, these activities would not in any way affect the regular loan policies and operations of the bank. The purpose of the provision was to use an established agency which has had broad experience in the loan field rather than establishing a new agency (House hearings on United States Foreign Policy for a Postwar Recovery Program, including H. R. 4810 and H. R. 4579, Jan. 21, 1948, vol. No. 1191, pt. 5, pp. 406, 456-457). A statement by the State Department answered the question, "Why could not the loans granted by the Administrator and serviced by the Export-Import Bank be required to meet regular Export-Import Bank standards?" The answer was that these loans would be on longer terms and at a lower rate of interest than the ordinary Export-Import Bank loans, These loans would involve a greater prospect of loss than the bank's loans. Also the general policy of the bank was to restrict money loaned to purchasers in the United States, while the funds under European recovery program loans would be expended in countries other than the United States (House hearings, Mar. 10, 1948, vol. No. 1190, pt. 1, p. 2201). Government Corporations Appropriation Act (1948) At that time In March 1948, hearings were held on the Government Corporations Appropriation Act for 1949 (Public Law 150, 81st Cong. (63 Stat. 374)). Mr. William McC. Martin, President of the Export-Import Bank, described the various activities of the bank: (1) Lend-lease credits.--All $655 million of these credits were distributed as of June 30, 1946. Repayments had amounted to $19 million in 1947. (2) Reconstruction credits. As of June 30, 1947, total credits authorized were $1.1 billion and $743 million had been disbursed. (3) General foreign trade credits. (This apparently included exporter credits, commodity credits, and development loans.) As of June 30, 1947, loans outstanding of this type amounted to $380 million and undisbursed authorizations were $468.5 million. (4) Revolving credits for small exporters and importers.-$600,000 had been disbursed from the revolving fund of $1 million. The average loan was $5,000. (5) Import activities.-There had been very little direct financing by the bank in this area because such financing as was required could be secured from private commercial banks. e (6) Private capital participation. The bank had diverted applications and inquiries to private banks to the extent of $25 million since 1945. The bank also sought to secure private capital participation in the bank's credits in the following ways: (a) Foreign purchasers financed a portion of the purchase price of exports with their own dollar funds. This had amounted to $25 million in recent years. (b) American exporters participated, at their own risk, in some portion of the credits in which they sought the bank's assistance. The exporters usually put up at least 25 percent, and in 1947, this had exceeded $5 million. (c) Participation by private banks in the bank's loans, at their own risk, and since 1945, had amounted to $94.5 million. (d) The bank could resell some of the securities in its portfolio, without recourse to the bank, but as yet none of them had been resold. (House hearings, on H. R. 6481, Mar. 15, 1948, vol. No. 1198, pt. 1, pp. 41–44). Mr. Martin testified that even if the Secretary of State brought forth a loan that was in the interests of our foreign policy, if there was not a reasonable assurance of repayment, the loan was not made. $16,000 was collected on the 5 loans in default, and there were no new delinquencies in 1947. The following statement on the bank's loan position on February 29, 1948 was submitted: Reconstruction loans outstanding.. Total loans outstanding Undisbursed authorizations.. Net income for fiscal 1947.... Source: House hearings, vol. No. 1198, pt. 1, pp. 45, 68, 70. The Export-Import Bank Appropriation Act (1949) Million $1,590 396 1, 987 1, 005 30 Hearings were held in February 1949, on the Export-Import Appropriation Act for 1950 (Public Law 150, 81st Cong. (63 Stat. 374)). At that time, Mr. Herbert E. Gaston, newly elected President of the Export-Import Bank, submitted the following summary of loans for the fiscal year 1948: Loans outstanding.......... Disbursement on general purpose, balance-of-payment type loans.. Total repayment... Net profit for fiscal 1948. Source: House hearings on H. R. 3083, Feb. 9, 1949, vol. No. 1229, pt. 5, p. 419. Million $2, 200 404 193 174 45 Mr. Gaston explained that the general purpose balance-of-payment type loans were from government to government for the general purpose of providing dollar exchange and were not restricted to a particular project or use. There would be a general reduction of the use of this type of loan down to an estimated $40.5 million in fiscal 1949 and $2 million in fiscal 1950. The project-type loans included commodity credits, credits for specific development projects and export participation credits, and the bank reached a point where its lending program could be more focused and restricted to these project-type loans (House hearings, vol. No. 1229, pt. 5, pp. 423-424). Mr. Gaston stated that there were 6 loans in default totaling $260,000, but there were not any other substantial amounts overdue. As a result of the bank's encouragement, over $300 million in private capital had been provided since 1945 for participation in the bank's activities. The bank's interest rate did not now go below 31⁄2 percent and in some cases went as high as 41⁄2 percent (House hearings, vol. No. 1229, pt. 5, pp. 421-422, 424-425, 427). Investigation of kickbacks (1949) In May of 1949, hearings were held by a Senate investigation subcommittee concerning kickbacks on a Polish loan made by the Export-Import Bank. Senator Clyde R. Hoey, chairman of the subcommittee, explained that this $40 million loan had been made in 1946 for equipment to increase coal production in Poland for export to Western Europe. The purpose of the hearings was to disclose a $100,000 kickback obtained by a freight forwarder as a rebate on insurance purchased to cover the shipment of goods bought with the loan money. Senator Hoey emphasized that these disclosures did not reflect upon the efficiency of the Export-Import Bank, since in view of the enormity of the problem, the bank had done a good job. The subcommittee hoped that the revelation of the scheme would aid in preventing this practice in the future (hearings before the Investigation Subcommittee of the Senate Committee on Expenditures in the Executive Department, pursuant to S. Res. 52, May 16, 17, and 18, 1949, vol. No. 907, pt. 6, pp. 1-3). Proposal for investment guaranties (1949) In the summer of 1949, hearings were held on S. 2197 and H. R. 5594 which authorized the Export-Import Bank "to guarantee United States private capital invested in productive enterprises abroad which contribute to economic development in foreign countries against risks peculiar to such investments." These bills grew out of President Truman's message to Congress in which he requested a program of guaranties to implement his point 4 program. Mr. Herbert E. Gaston, President of the Export-Import Bank, testified in behalf of the bills and stated that the first risk to be protected against was that of inconvertibility of foreign exchange. The bills were reported out by both the House and Senate Banking and Currency Committees, but were not enacted into law (House hearings on H. R. 5594, Aug. 17, 19, 22, 23, and 24, 1949, vol. No. 1261, pt. 4; Senate hearings on S. 2197, Aug. 9 and 10, 1949, vol. No. 913, pt. 2). Export-Import Bank Appropriation Act (1950) The only legislation enacted concerning the bank in 1950 was the ExportImport Bank Appropriation Act for 1951 (Public Law 759, 81st Cong. (64 Stat. 641)). In the hearings on this act, Mr. Herbert E. Gaston, President of the Export-Import Bank, stated that in 1951 most of the loans disbursed and new credits authorized would be of the project type. The bank was placing increasing emphasis on the degree to which a given project would increase productivity of the country in which it was located. The purpose being to improve the country's exchange position either by increasing exports to hard currency areas or reducing imports which cause a drain on dollar reserves. The project type loan did more to overcome dollar deficiencies than the general purpose type loan. The bank also recognized the need for assisting American exporters in the coming year (House hearings on H. R. 7786, Jan. 23, 1950, vol. No. 1276, pt. 3, p. 651; Senate hearings on H. R. 7786, Mar. 7, 1950, vol. No. 942, pt. 2, p. 515). Mr. Gaston testified that the bank was permitted to guarantee loans, but that this power was practically never used. There were still only six loans in default amounting now to $254,644. The following figures were submitted on the bank's activities: PART IV. THE KOREAN WAR PERIOD (1951-53) Increase in lending authority and extension of life (1951) $37, 000, 000 176, 000, 000 262, 000 47, 000, 000 3, 000, 000, 000 2, 500, 000, 000 2, 100, 000, 000 Hearings were held in 1951, on S. 2006, which increased the lending authority of the bank by $1 billion to a total of $4.5 billion and extended the life of the bank until 1958 (Public Law 158, 82d Cong. (62 Stat. 367); Legislative History, p. 16). Mr. Gaston stated the bill was part of the general program which took into account the needs of nations friendly to the United States and was designed to hold friends for this country in the disturbed world. Mr. Gaston quoted from President Truman's message to Congress of May 24, 1951, on the mutual security program: "Loans by the Export-Import Bank will also continue to play an important role in our efforts to assist the economic progress of friendly countries. In order that full use may be made of opportunities for loans, especially to develop stra tegic materials, I recommend that the lending authority of the Export-Import Bank be increased by $1 billion. Not all of the increased lending authority, of course, will be used in the coming year." (House hearings on S. 2006, Sept. 18, 1951, vol. No. 1340, pt. 2, p. 1-2; Senate hearings on S. 2006, Aug. 28, 1951, vol. No. 980, pt. 6, p. 2). Mr. Gaston testified that the funds would be used for economic development of friendly nations and to assist in the production of strategic materials needed by the United States as a result of the Korean war. $113 million in credits had been extended in the past year for the production of strategic materials. Although the bank had $500 million still uncommitted, the additional billion dollars was needed so that there could be a reserve fund for emergencies (House hearings, vol No. 1340, pt. 2, p. 3; Senate hearings, vol No. 988, pt. 6, p. 11). Although the loans for strategic materials and exporter credits figured predominantly in the bank's operations then, there was a new class of loans to which the bank attached growing importance. These were loans to foreign business entities which were not agencies of the Government, and whose loans were not guaranteed by the foreign governments or their agencies. These loans approached more closely the standards of international banking than any other kind of financing by the bank (House hearings, vol. No. 1340, pt. 2, p. 3). In discussing the policy of the bank in its lending operations, Mr. Gaston testified that it might be necessary to change the bank's requirement that the money loaned be spent for American goods because of the growing shortages of materials in this country. He also stated the bank did not normally take collateral on a loan. The bank preferred to have the endorsement of the borrower on paper. The policy of the bank not to make purely political loans and the requirement of reasonable assurance of repayment were restated. The bank didn't make loans in countries where the Economic Cooperation Administration was operating or was expected to be operating (House hearings, vol. No. 1340, pt. 2, pp. 5, 7, 15; Senate hearings, vol. No. 988, pt. 6, pp. 4, 14-16; Legislative History, p. 16). Mr. Gaston also pointed out that Americans who represent foreign governments in obtaining loans from the Export-Import Bank could not be paid their fees out of loans granted. There was a provision in the loan agreements prohibiting this. It was also stated there was no conflict between the World Bank and the Export-Import Bank. The following statement of loans on July 31, 1951, was submitted: Source: House hearings, vol. No. 1340, pt. 2, p. 9; Senate hearings, vol. No. 988, pt. 6, pp. 14, 23. Letters were received from the following persons endorsing this bill: Charles F. Brannan, Secretary of Agriculture Dean Acheson, Secretary of State Charles Sawyer, Secretary of Commerce John W. Snyder, Secretary of Treasury William McC. Martin, Jr., Board of Governors of the Federal Reserve System and William C. Foster, Economic Cooperation Administrator Source: Senate hearings, vol. No. 988, pt. 6, pp. 26-29. Authority for Defense Production Act loans (1951) Executive Order No. 10281 of August 28, 1951, authorized and directed the Export-Import Bank to make loans (including participations in loans) to private business enterprises as provided for in section 302 of the Defense Production Act of 1950 (Public Law 774, 81st Congress (64 Stat. 798)). The Executive order stated that the loans would be for "the expansion of capacity, the development of technological processes, and the production of essential materials, including the exploration, development, and mining of strategic and critical metals and minerals, in those cases where such expansion, development, or production is carried on in foreign countries." The funds for the loans were to be provided by the Defense Production Act of 1950, as amended. The order stated three limitations on the loans: (1) The loans would be made on the terms and conditions as determined by the bank. (2) The loans could be made only after the bank had determined that financial assistance was not available on reasonable terms from private sources and that the loan could not be made under the provision of the Export-Import Bank Act of 1945. (3) The loans could not be made without a certificate of essentiality, issued by the Secretary of Agriculture with respect to food and by the Director of Defense Mobilization with respect to other materials and facilities. Mutual Security Act (1951) Also in 1951 the Economic Cooperation Administration was abolished and its functions transferred to the Mutual Security Agency (Mutual Security Act of 1951, Public Law 165, 82d Congress, (65 Stat. 378)). The Export-Import Bank was continued as the processing agent for loans under the Mutual Security Agency. Export-Import Bank Appropriation Act (1952) In the hearings on the Export-Import Bank Appropriation Act for 1953 (Public Law 425, 82d Cong. (66 Stat. 283)), held in January and March 1952, Mr. Herbert E. Gaston listed the principal areas of the bank's activities: (1) Loans made pursuant to section 302 of the Defense Production Act. (2) Loans for strategic and critical materials. As of December 31, 1951, there were $97 million in authorized credits of this type, of which $185,000 had been disbursed. The bank had also authorized $40 million for expansion of steel mills in Mexico, Chile, and Brazil since June 1950. (3) Credits for the export of cotton. One hundred and forty million dollars had been allocated for this purpose and $22 million disbursed (House hearings on H. R. 6584, Jan. 28, 1952, vol. No. 1350, pt. 8, pp. 537, 543; Senate hearings on H. R. 6584, Mar. 3, 1952, vol. No. 1007, pt. 1, pp. 677-678, 705). Mr. Gaston pointed out that the Bank had received no funds from the point 4 program. In the future, the Reconstruction Finance Corporation would make only domestic loans, and the Export-Import Bank would handle the foreign loans. He also explained the positions of the Export-Import Bank and the World Bank. There was overlapping between the two in that the Export-Import Bank had the power to make the same type of loans as the World Bank. The World Bank was limited to loans to member countries which were guaranteed by the government of the member country. The Export-Import Bank could make development loans to nonmember countries, and could make loans to private enterprises (House hearings, vol. No. 1359, pt. 8, pp. 511, 559). Mr. Gaston discussed several of the foreign loans, and in particular, the loan of $4 million to the Republic of Panama for the El Panama Hotel. The economic justification for the hotel would be the bringing of dollars into Panama by American tourists and other travelers. The hope was to make Panama an important stopover and recreation point. There might be other ways to invest the $4 million that would do more for the economic welfare of Panama, but nothing could more capture the imagination and enthusiasm of the people of Panama than a project of this type (House hearings, vol. Nɔ. 1359, pt. 8, p. 558). As of December 31, 1951, there were still six loans in default totaling $226,117. On January 31, 1952, there were over $4.1 million in delinquent loans. The delinquencies consisted of $3.2 million owed by Nationalist China, and $992,000 owed by the S. & S. Construction Co. of Venezuela. The summary of loans on January 25, 1952 was: Millions Millions Source: House hearings, vol. No. 1359, pt. 8, pp. 539, 543, 546-548; Senate hearings, vol. No. 1007, pt. 1, pp. 714, 732. Insurance for exports (1953) The efforts to provide export insurance through the Export-Import Bank culminated in 1953 in an amendment to the Export-Import Bank Act of 1945 (Public Law 30, 83d Cong. (67 Stat. 28); Legislative History, pp. 16-17). Mr. Glen E. Edgerton, the new President of the bank, explained that the main provisions of the bill were: (1) The bank was authorized to utilize up to $100 million of its lending authority for this insurance program. At that time, about $1 billion of the bank's lending authority was uncommitted. (2) The insurance would cover the risks of war and expropriation of goods and commodities of United States origin and ownership exported from the United States, while located in a friendly foreign country during commercial intercourse. These war risks would cover hostile action arising from civil war or revolution, as well as military hostilities between nations. The war risks did not include civil disorders such as riots and strikes. The expropriatory action covered by the insurance would have to be taken under color of official authority, but would not |