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June 10, 1948 Dear Will: Our Directors and members of our s t a f f have read w i t h i n t e r e s t Mr. Douglas H. A l l e n ' s l e t t e r of May 20 in which he s e t s f o r t h c e r t a i n observations regarding the lending a c t i v i t i e s of theE x p o r t - I m p o r tBank, In general, I m i g h t say that the views expressed by Mr. Allen are e n t i r e l y c o n s i s t e n t with those which we hold. I believe t h a t i f wo were in a position to discuss the d e t a i l s of each c r e d i t with Mr. Alien he would agree t h a t the v i o l a t i o n of those principles have been l e s s frequent than he appears to conclude.. From his own experience during the war, Mr. Allen i s aware, as he s t a t e s , t h a t many projects were undertaken on an inter-governmental b a s i s which otherwise m i g h t not have been considered. The major portion of the c r e d i t extended by t h i s Bank in Latin America, however, has been u t i l i s e d for the construction of roads and similar public works or the c r e d i t has been extended to U n i t e d States manufacturers and suppliers who have obtained orders for the s a l e of United States equipment. As in m o s t p a r t s of the world the r a i l r o a d s and many of the u t i l i t i e s constructed in recent years a r e S t a t e r a t h e r than p r i v a t e l y owned and i t is with these e n t i t i e s t h a t the American supp l i e r s have sought to place o r d e r s . The a p p l i c a t i o n for a s s i s t a n c e to the Monolova Steel Mill in Mexico was presented to the Bank by the American Rolling Mills Company which obtained an equity p o s i t i o n . The stock of the Brazilian Steel Mill was offered to the public with the result t h a t about 12% i s p r i v a t e l y h e l d . The majority of the stock i n the Chilean S t e e l S i l l i s to be p r i v a t e l y owned. As you know, the Bank has not extended c r e d i t s in any appreciable amount in Latin America since the w a r . This has been due p a r t l y to the necessity of considering f i r s t the more urgent reconstruction problems of Europe and also to the policy of r e f e r r i n g a p p l i c a t i o n s wherever poss i b l e to the I n t e r n a t i o n a l Bank. We are convinced of the possibilities of sound development of the resources: of L a t i n America and are convinced a l s o of the d e s i r a b i l i t y of encouraging private c a p i t a l in t h i s d i r e c t i o n . We are a t times disappointed, however, in the response of those who seek our a s s i s t a n c e in the name of "free e n t e r p r i s e " where the amount of equity investment which they propose i s surprisingly inadequate in com¬ parison with the a s s i s t a n c e which they desire from government sources. - 2 We a r e not unaware of the r i s k s confronting private investors in Latin America or of the physical problems to be overcome in the realization of any p r o j e c t . Some of the problems are, of course, p o l i t i c a l and cannot be met solely by assistance from t h i s Bank. In connection w i t h many projects we find that i t i s necessary i n the first instance to grantl assistance to the foreign government in order that harbors, roads and other means of ingress and egress may precede the development of some r i c h resources located in an undeveloped a r e a . As Mr. Allen observes, i n t e r n a t i o n a l loans cannot be repaid unless the debtor nation earns the neccessary foreign exchange. This, of course, i s true w h e t h e r the obligation is contracted by the foreign government or by private corporations engaged in business abroad, i t is for this reason t h a t we attempt to limit the extension of c r e d i t s to those projects which will create d i r e c t l y or i n d i r e c t l y the d o l l a r exchange required for t h e i r repayment. I t is with the b e l i e f that the objectives which Mr. Allen advocates can be achieved t h a t we have approached Congress for a d d i t i o n a l lending a u t h o r i t y . We are convinced, however, t h a t assistance may be rendered by the Bank, only in those instances i n which private interests. are prepared to make a substantial and not m e r e l y token equity investment. Sincerely yours, Wm. McC. Martin, J r . HonorableW i l l i a mL. Clayton Department of S t a t e Washington, D. C. Mil
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