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BOARD OF GOVERNORS

DF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Chairman Eccles

Frnm Mr. Knapp IMU

Date ^7 27,1947
Subject: National Advisory Council
meeting

I should like to give you the following comments on the items
listed for consideration at the National Advisory Council meeting this afternoon.
(1) Philippine loan. The Philippine Government has applied for the
remaining 50 million dollars of the 75 million dollar RFC credit authorized
by Congress for the current fiscal year. We have a report from the Joint
Philippine-American Financial Commission recommending a credit of this amount
minus (a) the amount of sugar taxes to be remitted by the U.S. Government to
the Philippine Government, and (b) the amount (up to a maximum of 10 million
dollars) by which Philippine budgetary revenues in the fiscal year ending
June 30, 1947 exceed 125 million pesos. Actually, the sugar taxes, amounting to 5 million dollars, have now been remitted. It will not be possible,
however, to establish the amount of Philippine budgetary revenues for fiscal
1947 until sometime this fall.
The Staff Committee recommends, therefore, that the Council approve
aiRFC credit in the amount of 45 million dollars (50 million less the 5 million of sugar taxes) and that the excess of Philippine budgetary revenues for
fiscal 1947 over 125 million pesos (up to a maximum of 10 million dollars) be
used to repay the credit as soon as the amount of such excess can be determined.
The remaining portion of the credit, in accordance with the recommendations of
the Philippine-American Financial Commission, would mature on July 1, 1953 (or
in about six years), and interest would be charged at the rate of 2 per cent
per annum as in the case of the earlier 25 million dollar advance.
This credit is not affected by the controversy which has developed
as to whether budgetary loans will be necessary for future fiscal years (see
my memorandum of May 21, 1947). We have received no further word from Manila
as to the outcome of this controversy.
(2) Report on HAC activities. The last two pages of the NAC Annual
Report to Congress have been redrafted slightly, and I suggest that you read*
them if possible, especially the final paragraph.
It is perfectly apparent that the rate of exports reached in the
first quarter of this year cannot be continued for more than a few more months
and that in subsequent years, unless the United States undertakes new foreign
financing on a large scale, it must drop substantially below present levels.
While almost all U.S. exports are accomplishing some useful economic objective




To:

Chairman Eccles

-2-

May 27, 1947.

in foreign countries (if only because they are being used to combat inflation—e.g. in Latin America), it is obvious that not all of them are "essential"
to foreign countries. Pursuant to the thought expressed in the last sentence
of the Annual Report, the Staff Committee is about to undertake a country-bycountry analysis of the outlook for the next year or so, with a view to determining the extent to which additional financing may really be required to
maintain the flow of essential supplies.
In this connection, you may have seen in the papers that Secretary
Marshall has announced that his new "top planning group" in the State Department has undertaken a study along the same lines. Nobody (at least outside
the State Department) knows much about this study, and the Treasury is pretty
sore about General Marshall's announcement, feeling that this subject is
clearly within the jurisdiction of the National Advisory Council.

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