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Office Correspondence

Chairman Eccles

p a te November 26,1947

The attached memorandum contains a report on the progress (or lack
of progress) in the thinking which is going on in the Administration and in
the International Bank concerning the division of functions in the European
Recovery Program between the International Bank, the Export-Import Bank, and
the new "Marshall Plan" agency (which it is assumed will also have lending
powers). At present there is great confusion on this subject, and it seems
to me that the only way to resolve the confusion is to have the National
Advisory Council Staff Committee prepare a report on the matter for consideration and decision by the N.&.C. If you agree with this proposal, I shall
take steps to implement it.




Office Correspondence
Chairman Eccles

* Knapp


November 25

Subject! Meeting held in the International
Bank to discuss the question of the role
of the Bank in the Marshall Program.

A meeting was held in the International Bank this morning to discuss
the question of the role of the Bank in the Marshall Program. Mong those
present were Mr. McCloy, Mr. Garner, and Mr. Black, several members of the
Bank's staff, and staff representatives from the State, Treasury and Commerce
The discussion was quite inconclusive. It was pointed out that in
the documentation which is to be presented to Congress in connection with the
"Marshall Plan" an estimate is presented that the International Bank (plus the
private capital market) will be able to finance 500 million dollars of th©
European dollar deficit in the first full year of the Program, and about 2
billion dollars over the four-year period (the Paris Report had suggested
that the International Bank and private capital market cover over 3 billion
dollars, this being the amount of European capital equipment needs exclusive
of agriculture and joining machinery). The International Bank people, although
apparently feeling that these estimates were on the high side, did not object
to them provided that they were not presented as firm figures.
Most of the ensuing discussion consisted of an exchange of ideas
concerning the type of loans that the International Bank might make under
the Marshall Program and concerning the ways in which the Bank's lending
activities might be coordinated with those of the new "Marshall Plan" agency
and the Export-Import Bank.
With respect to the first point, Mr. Garner initially made a flat
statement that the International Bank should make loans only to finance largescale capital installations (the "special project" idea in its purest form),
and of course also insisted that the credit risk must be good. There was
general agreement with the latter point (no one is trying to press the Bank
to make loans to dubious credit risks). With regard to the former point,
however, I expressed the view that such a narrow limitation would unnecessarily
hamper the Bankfs lending progreaa and would necessitate its turning down loan
applications from perfectly good borrowers just because they could not offer
the proper kind of "show piece". Mr. McCloy supported this point of view to
some extent, but he too felt that the Bank should not get into the business
of general balance of payments loans but should confine itself to fairly
concrete and definable programs. I believe that in almost every case a
prospective borrower could pick out of its import program a particular set
of imports which would satisfy Mr. McCloyfs concepts.
With regard to coordination among the various lending agencies, it
was pointed out that the National Advisory Council would presumably carry out
this function. However, Gene Black felt (I think, correctly) that there would


Chairman Eccles


have to be regular direct contact among the agencies involved, and at one
point he suggested that this might be formalized as a special committee which
would consider special coordination problems before they were referred to
the National Advisory Council. Mr. Garner was worried that if the N.A.C.
reviewed a loan application and decided that it should be referred to the
International Bank, this decision might prejudge the Bankfs consideration
of the application. He seemed reassured, however, when it was pointed out
that the N.A.C. would only refer the loan to the International Bank "for
Reference was then made to the difficulty which would arise if
lending agencies of the IKS. Government (the new "Marshall Plan" agency or
the Export-Import Bank) were making loans to the European countries at
interest rates below that applicable to International Bank loans (at
present 4-1/4 per cent) • It was pointed out that this would lead prospective borrowers to approach the U.S. Government first and to resist being
passed on to the International Bank. It was also asserted that it would
be illogical to force the better credit risks to pay the higher rates
charged by the International Bank while the inferior credit risks which
would have to be handled by the U.S. Government would get lower rates.
This led to the suggestion that the U.S. Government lending agencies
might raise their interest rates to the level of the International Bankfs
There seemed to be general agreement that this latter suggestion
was impracticable. Furthermore, I pointed out that the payment of higher
interest rates by the better credit risks could be justified on the grounds
of ability to payj in other words, the inferior credit risk countries would
be granted the lower interest rates applied by U.S. Government agencies
just because they were incapable of bearing the burden of ordinary commercial rates. This rationalization was not satisfactory to many of those
present, but no other solution was offered to the problem.
Reference was also made in the discussion to the indirect support
which the International Bank might give to the European Recovery Program
by making loans to "non-Marshall Plan" countries, either to promote the
output of commodities for export to Europe or, in a more general way, to
meet their dollar requirements so that they might be in a position to make
loans to European countries. Mention was made of the special case of
Poland where the Bank might finance the expansion of coal production which
would flow to Western Europej however, the Bank's officers were very reticent on this matter. There was more discussion of the Bankfs possible
role in Latin America, and Mr. McCloy emphasized that in the Bank!s view
loans to develop the "natural flow" of exports from Latin America to Europe
would be highly desirable and much more useful than loans to finance industrialization projects in that area.


Chairman Eccles


The question naturally arose in this discussion of what role
the Export-Import Bank would play in the Marshall Program, but no one was
prepared to answer this question in any definite way. The same subject
came up at a meeting of the "Advisory Steering Committee" for the European
Recovery Program which I attended later in the afternoon. It this meeting the State Department proposed including in one of the documents which
is to go before the Congress in connection with the "Marshall Plan" a
statement that the Administrator of the new "Marshall Plan" agency might
use the Export-Import Bank as his agent in making loans to European countries. However, Bill Martin had got advance notice of this proposal and
appeared at the Committee meeting to urge that this passage be deleted
since the Bank had not yet made up its mind as to the desirability of
such a procedure* This was agreed by the Committee, although we were
subsequently informed that the author of the initial proposal was none
other than Willard Thorp.
As you will see, therefore, there is considerable confusion as
to the role of the Export-Import Bank. I understand that the prevailing
view in the Export-Import Bank is that the Bank should have nothing to do
with the European Recovery Program and that any loans which are to be made
in connection with such Program should be made by the new agency. According to this view, the Export-Import Bank should concentrate its activities
upon other areas of the world, and engage mostly in medium-term financing
as contrasted with the long-term financing of development projects to be
handled by the International Bank. In general I find myself in agreement
with this view, since I think it would be unnecessarily confusing and complicated to have two U.S. Government agencies making loans to European
countries under the Marshall Program. However, both the Harriman and
Herter Committees have proposed that the Export-Import Bank should engage
in the European Recovery Program specifically for the purpose of financing
raw material requirements. This position is based upon the completely
illogical view that the financing of raw materials should be carried out
on a medium-term loan basis. My comment on this is that raw materials
may to go to some countries as grants, if those countries are unable
to assume the burden of repayment, and that where countries can assume
the burden of repayment there is no good reason why the International
Bank could not handle the loans, either on a medium-term or long-term