STUDY OF EXPORT-IMPORT BANK AND WORLD BANK MONDAY, FEBRUARY 1, 1954 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met, pursuant to call, at 10:05 a. m., in room 301, Senate Office Building, Senator Wallace F. Bennett, presiding. Present: Senators Bennett and Payne. Also present: H. K. Cuthbertson, Jr., Raymonde Alexis Clarke, and Donald L. Rogers, assistant counsel. Senator BENNETT. Gentlemen, the time has come to begin. When we recessed on Friday I announced the first witness would be Mr. Starr. When I came in this morning I found that we still have one witness from the list of bankers who was apparently not available last week who is here this morning. If Mr. Starr will permit me, I would like to call Mr. Ernest H. Meili of the J. Henry Schroder Banking Corp., so that we may complete our domestic banking picture before we go into the next session. Mr. Meili, will you identify yourself for the record? Do you have a prepared statement? STATEMENT OF ERNEST H. MEILI, SENIOR VICE PRESIDENT, I have spent all my active life in export and import financing. I probably can add to what the other banks have said in relation to the Export-Import Bank, that it has cooperated with us all along. It has done a very good job. The progressive industrialization of the world calls for more and more financing volume rather than less. If there is any criticism that I would voice, it would be that we did not have enough money at the disposal of the bank to finance all the worthwhile projects that came up. Perhaps the Export-Import Bank should, as the international bank is doing, go into the market for money. It should rely more on the commercial banks to supply money. It has in the past been too exclusively confined to Government assistance. We strongly feel there is no need for an Export-Import Bank for the day-to-day exports of consumer goods. The commercial banks can amply handle that up to 6 months and maybe as long as a year. When it comes to terms beyond that, which is normal for development projects, there just is not any private money available in our markets. Institutional financing, such as provided by the Export-Import Bank, is necessary and vital. I think that sums up what, from a banking point of view, I have to say. Senator BENNETT. Do I understand you, Mr. Meili, to suggest to the committee that the Export-Import Bank limit its activity to what you might call project loans or loans of nonconsumer goods, or, to turn the question around, do you feel there is no place in the picture for private lending even in this field of project loans? Mr. MEILI. In my experience, there is today no money at all available for project loans in the private market. It is true that corporations will finance foreign developments of their own. There is a fair amount of that going on, where large American companies build subsidiaries abroad. But a wholly independent project which is not owned by a large American company cannot find money in the private markets. It has to go to Washington. Senator BENNETT. Is that primarily because the period the loans run is too long for our private American commercial banking? Mr. MEILI. The risks are too uncertain. The experience in the past has not been very good. The period is too long. The return is not attractive enough to offset those disadvantages. Senator BENNETT. Has your company, the J. Henry Schroder Banking Corp., participated in the past in these Export-Import Bank loans on which participation has been invited? Mr. MEILI. Yes, indeed. Senator BENNETT. You would be anxious to continue that participation in the future? Mr. MEILI. Yes. We think there should be a bigger and better Export-Import Bank. Senator BENNETT. Do you think this bigger and better bank should be built along the road of participation rather than more direct loans? Mr. MEILI. I believe that, to be as flexible as possible, the ExportImport Bank should have all avenues open. It should have access to the Treasury. It should seek financing in the money market. It should also be permitted and be willing to share its business with commercial banks which might have available money. Senator BENNETT. Do you think there is enough interest in the private commercial field to support a widened participation program of the Export-Import Bank? Mr. MEILI. On the part of commercial banks? I Mr. MEILI. There is up to a point. If it goes to 10 or 12 years, would say the interest is relatively small; but up to 3 to 5 years it would be quite substantial, I believe. Senator BENNETT. I have no other questions, Mr. Meili. Thank you very much for coming. Without objection, we will insert in the record at this point your letter of October 5, 1953, in reply to the committee questionnaire. (The material referred to follows:) Hon. HOMER E. CAPEHART, J. HENRY SCHRODER BANKING CORP., Chairman of the Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR: In reply to your letter of September 10 we are pleased to give you herewith our answer to the 10 questions pertaining to the Export-Import Bank, Washington, D. C. We are at your entire disposal for any further information you may desire, and remain, Very truly yours, ERNEST H. MEILI, 1. Has the Export-Import Bank been of assistance to clients of your bank? Answer. Yes, particularly to manufacturers of capital goods. 2. Has it competed with private capital in your area? Answer. No. 3. Has it taken business away from your bank and, if so, how and to what degree? Answer. No. 4. Can the Export-Import Bank use the services of your bank more than in the past and, if so, how? Answer. The Export-Import Bank has used our services most effectively in transactions in which we were involved. We consider it proper for them to follow the foreign borrowers' wisnes as to the selection of the cooperating American banks. 5. What position has your bank taken with respect to term loans, i. e., where repayment exceeds a term of 6 months? Answer. We have in some instances granted longer terms (Chile, Mexico, Spain, Holland, Norway, etc.) but the aggregate is very small in comparison with the business offered to us. 6. Are you financing, without recourse, shipments to foreign countries payable over term periods? Answer. In very rare cases only but we do a considerable amount up to 3 months and some up to 6 months. 7. In cases where you have acted for the Export-Import Bank in the operation of credits has your compensation been adequate, taking into consideration the risk factors involved, by the Export-Import Bank as a Federal agency? Answer. The interest rates as the "price of money" have ranged from barely adequate to less than enough. A more generous fee basis should be found to compensate for the more than usual amount of paperwork. 8. Have you participated with the Export-Import Bank in any of its loans without the latter's guaranty? If so, was your experience satisfactory? Answer. Yes, with satisfactory experience. to 3 years. We have participated in loans up 9. Do you consider continuation of the Export-Import Bank's loaning facilities essential in the interest of international trade? Answer. Yes, if the question were rephrased to refer to American exports instead of international trade. Some financing medium is essential to the maintenance of American exports of capital goods and particularly in order to move agricultural surpluses. We do not feel that the same can be said for consumer goods which should be sold on short-term and for which adequate private finance is available, except perhaps for politically risky territories. 10. Has the Export-Import Bank facilitated the expansion of international trade in the past and, if so, how can it more adequately expand it in the future? Answer. The Export-Import Bank has in the past facilitated American exports very considerably, particularly in the capital-goods line. We feel that its management has quite successfully adhered to sound financing principles and has, with few exceptions probably beyond its control, taken sound cognizance of the borrowers' capacity to pay. As to suggestions for greater usefulness in the future we would suggest that instead of limiting itself in the main to a few specific large projects, it should make its facilities available to the exporting American manufacturers across the board, with proper safeguards such as substantial participation by the manufacturer and of course a sound overall limit for each foreign country. This would resemble somewhat the export insurance schemes in use in other countries but should in our opinion be limited to exports for which terms of payment longer than 3 months are logical. In this connection we feel that adequate finance is available for short-term transactions. Senator BENNETT. Turning now to the list that is headed, "Foreign Witnesses," I shall be happy to call Mr. H. Danforth Starr, vice president of the Cerro de Pasco Corp. of New York City. STATEMENT OF H. DANFORTH STARR, VICE PRESIDENT, CERRO DE PASCO CORP., NEW YORK, N. Y. Mr. STARR. I have a prepared statement which, with your kind permission, I should like to read. Senator BENNETT. You may proceed as you please. Mr. STARR. My name is H. Danforth Štarr. I am a resident of Greenwich, Conn., and a vice president of Cerro de Pasco Corp., a New York corporation, which has its executive office at 40 Wall Street, New York City. The president of the corporation, Mr. Robert P. Koenig, is now in Peru, where Cerro de Pasco's mines and all other operating properties are located. Cerro de Pasco Corp. has approximately 7,000 registered stockholders, and more than 95 percent of its stock is registered in names with United States addresses in all parts of the country. We believe that there are 10,000 to 15,000 beneficial owners of Cerro de Pasco shares. Cerro de Pasco is engaged in Peru, South America, in the mining, smelting, and refining of lead, copper, zinc, silver, gold, bismuth, and other metals. It has the largest nonferrous mining operations in Peru and, indeed, is the largest industrial enterprise in that country. The corporation is also engaged in the operation of numerous ancillary facilities necessary to support both its principal endeavor and its many people; such operations include powerplants, railroads, retail stores, hospitals, schools, and ranches. Its principal mines are located at Cerro de Pasco, Casapulca, Morococha, and Yauricocha, in the central Peruvian Andes at altitudes ranging from 13,000 to 15,000 feet above sea level. The corporation's smelters, refineries, and other principal metallurgical plants are located at La Oroya at an altitude of 12,200 feet. Senator BENNETT. At this point, may we suggest there are photographs on the easel over there. Mr. STARR. On the easel at my right are photographs. On the left is a general view of the metallurgical plants at La Oroya at an altitude of 12,200 feet. |