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Office Correspondence

Chairman Eccles

From Mr. Knapp


October 10,1946.
Subject: Discussion of items on agenda
for today*s N.i.C. meet ing.

I should like to give you the following comments on items scheduled
for discussion at today1s National Advisory Council meeting.
1. Recent UK-Argentine Financial Agreement* As I have already informed you, the recent UE-Argentine agreement contains a clause concerning
the treatment of Argentine sterling balances which is a clear violation of
one of the most important clauses in the "OS-UK loan agreement . In the latter
agreement, the British committed themselves not to give artificial stimulation
to their exports by prescribing that accumulated sterling balances could be
spent only in the sterling area. In effect the agreement provides that accumulated balances must be either entirely blocked for current transactions
or freely available for expenditure in any currency area. The UK-Argentine
agreement violates this understanding by providing that Argentina may draw
up to 5 million pounds a year on its accumulated sterling balances plus any
additional amount required to meet Argentina's unfavorable balance of payments
with the sterling area. In the case of Argentina, it is most unlikely that
this provision would ever come into force, but it constitutes a very dangerous
precedent. Since this provision is so nearly meaningless to Argentina, the
British should have no great difficulty in securing its elimination.
It is suggested that the Council take action napproving the
munication by the Secretary of the Treasury to the Chancellor of the Exchequer
of the view that the terms of the UK-Argentine agreement constitute a violation
of the US-UK Financial Agreement11. Attached is the full text of the letter
from Secretary Snyder to -Chancellor Dalton as drafted by the Staff Committee.
2. Export-Import Bank Financing of Sales of Domestic Surplus to
Foreign governments. As I have reported to you, the National Advisory Council
and the War Assets Administration have arrived at more or less of a stalemate
on the subject of W.A.A. credits to foreign governments. You will recall that
the Council felt obliged to approve rather stringent terms on such credits in
order to avoid discrimination against domestic purchasers of surplus property.
It now appears, however, that the W.A.A. is unwilling to give credits even on
these terms unless it receives some stronger statement from the Council concerning the credit-worthiness of foreign governments than the Cotmcil has
hitherto been willing to give. I think the Council has perhaps been unduly
cautious in what it has been willing to state to the W.A.A., but it now appears that this whole issue can be sidestepped by permitting the Export-Import
Bank to finance on its usual credit terms purchases of surplus property in the
United States.
The only reason that Export-Import Bank financing was not used from
the outset was that the Council desired to conserve Eximbank funds for other


purposes* It now appears, in view of the early commencement of operations
by the International Bask and in view of the program for U.S. grants in aid
dtaring 1947 to Italy, Greece, and Austria, that the resources of the ExportImport Bank will be stifficient to cover a moderate program of surplus property
The Staff Gosimittee therefore recommends that the Council approve
credits for this purpose by the Export-Import Bank up to an amount of 50 million dollars whether under existing or under new coimaitments.
3. tl»S. Stabilization Fund Credit to Costa Rica. The Staff Committee recommends that the Council approve consideration by the Treasury of
a 5 million dollar 6-month Stabilization Fund credit to Costa Rica. Costa
Rica is in serious exchange difficulties because of a heavy seasonal deficit
in its foreign trade, but expects a bumper coffee crop within a few months.
This credit is suggested only to meet this seasonal need during the period
prior to the effective operation of the International Monetary Fund,