and equity capital, rather than competing with it or postponing the conditions abroad which will attract such capital?

2. Is it in the United States national interest that the bank be available as a flexible instrument of United States foreign policy to make loans for security-defense objectives insofar as possible without lowering the bank's financial standards? (The desirability of "fuzzy" loans is not raised in this paper.)

(a) Is its existence as an agency and as a fund (over $1.6 billion presently available for new loans) an invitation to the executive branch to buy our way out of tough foreign relations problems without recourse to Congress and the appropriation process?

(b) Can defense-security objectives be achieved through loans in a world already carrying heavy dollar debt without lowering the financial standards which the bank has generally succeeded in maintaining?

(c) Can the bank's financial standards be associated with the security-defense criterion in attempting to keep requests for foreign assistance under control?

D. Department of Commerce Activities

Granted the value of continuing some form of Government program to encourage private investment, and noting the statutory obligation of Commerce to provide information of investment opportunities and statistical services, is Commerce at present well enough staffed and financed (1) to carry out these informational and statistical responsibilities at an adequate level? and (2) to play its full part in improving the climate of overseas investment?

IV. Summary of Findings and Observations

A. General

1. It has been taken for granted that it is in the public interest to rely to the maximum on private investment abroad to help create conditions for economic progress, political stability, and military security. And our Government should do what it can through established channels and instrumentalities to improve the climate of overseas investment. Therefore a continuation of a sound program of government guaranties against devaluation, expropriation, or nonconvertibility of capital or earnings into dollars may be justified, under present conditions, despite lackadaisical administration and little results to date.

There is some question whether the guaranty program goes to the root of the matter; that is, does it affect those aspects of the investment process which really determine an investor's decisions? It does not touch such relevant areas as losses arising because a foreign government defaults on conditions offered prior to receiving an investment.

Our guaranty program to date, at best a transitional device, should not be allowed to deflect attention from the root problems of increasing the flow of foreign investment. While experience to date shows that these guaranties have not been in great demand, and there has been no case in which a warantee has come in for redress under their terms, these reasons do not fully support a conclusion to drop the device.

Administration of the program should be placed in permanent agencies of the Government-the Treasury and the Export-Import Bank— working in the framework of high policy.

2. We do not yet have adequate experience by which to judge the future effects of our policy to allow foreign countries to repay assistance loans in local currency. This may give rise to some complications, but as has been argued in our paper on surplus agricultural commodities, the more general use of world currencies may be a condition precedent to full restoration of currency convertibility, and a reduction of excess demand for dollars.

3. We have not yet adequately explored the efforts or machinery required for increasing the international flow of portfolio investment. Such investment can supplement direct investment by the founders of new enterprise.

B. FOA Operations

1. Experience of the past few years gives little reason why such an organization as FOA is needed for the full development of United States Government policies covering public lending activities abroad. Such matters are appropriately considered by the permanent agencies of Government, working in the National Advisory Committee on International Monetary and Financial Problems. FOA has been a member of this group, and there is some justification for its membership on the ground that operational experience may give some useful suggestions for the development of high policy. Such a continuation could be effectively accomplished through the representation of the Department of State on that committee, if the central management of future economic aid is located in that department. It seems obvious that any such central management agency of the future would work within the limits of established policy, arranging for loans rather than grants to the extent that high policy requires it.

2. The issue of use of local currencies derived from repayments of assistance loans for underwriting development banks has been examined in connection with the general problem of surplus agricultural commodities. There seems to be some justification for a wider use of local currencies. But the problems of continuing United States participation in the policy formation and operations of banking institutions of foreign governments include risks of undue interference with the economic decisions of foreign states, and consequent resentment and tension.

3. FOA's relationship to the Export-Import Bank seems to have been one of mutual harmony and effective collaboration. This is because the Export-Import Bank has been used fully as an instrumentality to carry out government loan operations. Naturally any future agency concerned with the central management of economic aid should continue to take advantage of the bank's facilities, working under the supervision of those permanent agencies of Government which exercise political and fiscal responsibility.

4. There seems to be no reason to continue a special agency in existence to encourage private investment abroad. The Departments of State, Commerce, and Treasury share responsibility under Presidential direction and the law for the various facets of this program. There may need to be some additional staffing to bring their activities more nearly in line with current requirements. A continuing problem for the future will be to maintain an adequate service of information of foreign investment opportunities to United States business, while avoiding discrimination between firms on the one hand, and an excessive program on the other.

C. Export-Import Bank Operations

1. The main general question raised by the use of the Export-Import Bank as an instrument of security policy, is the constant problem of reconciling the criteria of security and defense with those of reasonable prospect of repayment. About 52 percent of the bank's outstanding loans are made for direct defense and war reconstruction purposes. The remainder are for a variety of economic objects, including the stimulus to investment of private loan and equity capital.

2. Experience to date indicates that the loans of the Export-Import Bank have not competed to any significant extent with operations of private capital; this is due in part to the extent to which the bank's own policies and operations have concentrated on fields in which private capital is not forthcoming. There remains the possibility that such competition might arise at a future date.

3. The continued participation of the United States in the International Bank, and probable support of its new subsidiary, the International Finance Corporation, do not constitute unwarranted duplication of the activities of the Export-Import Bank. Under today's conditions, United States Government activities in the international banking field to stimulate exports must meet the standards of our foreign economic policy-to stimulate foreign economies and thereby to advance the level of world trade. A United States Government agency is required to ensure full compliance with our policy objectives.