Credits authorized, $10,000,000 and over, for fiscal year 1959

1 Various.

2 Increased.

Source: Office of the Controller, Nov. 22, 1963.

We also have to consider the balance-of-payments position of the country in which that particular firm is located. Obviously, if country X has no gold, has no foreign exchange, is very strained to make external payments, it doesn't make too much difference how good the credit of an individual firm in that country is because in the final analysis, while they may meet their obligation in their local currency, that currency may not be convertible into dollars. And, therefore, we do have to take into consideration not only the credit worthiness of the firm but the financial position of the country in which the private firm is located.

Senator TOWER. Did you apply the same considerations in this particular instance?

Mr. LINDER. We don't have a private firm here.

Senator TowER. I am aware of that.

Mr. LINDER. In my opinion there is no separable credit risk here. There is a political risk.

Senator TOWER. There are no private firms in the Soviet Union.

Mr. LINDER. To the best of my knowledge that is true. But, whenever one deals with a government, we do not feel that there is a separable credit risk. Because obviously, the government could always make available enough of its own currency to meet the obligation. The real problem is whether either they have or can get hold of enough foreign exchange to meet an obligation in dollars, or whether or not they have a willingness to meet the obligation in dollars. And, therefore, this is what is known as a political risk and normally, commercial institutions throughout the world are unwilling to take, except in very small amounts, what are known as political risks. They do take credit risks, but they always prefer to and try to obtain the guarantee of an institution like ours in every industrialized country to cover them against the political risk.

Senator TowER. Since the time of the Litvinov agreements in the early thirties, has the Soviet Union had a good record of meeting the outstanding and legitimate claims held against it by the United States? Mr. LINDER. Sir, I do not know precisely how to answer that question, except to say that I do know that there are some lend-lease obligations that have not been settled. I know there are some claims against the old czarist regime which certainly have not been settled, but I also know that every commercial obligation of which we have any knowledge that has been incurred by the present government has been met meticulously. We checked this carefully with comparable organizations, that is organizations comparable to ours in the United Kingdom, France, in Germany, and we have never heard of a single delinquency or default on the part of the U.S.S.R. or its satellites.

Senator TOWER. Would the FCIA be involved in any way in this transaction?

Mr. LINDER. They would not, sir, and they don't normally become involved in this type of transaction at all. These are commercial bank guarantees. The FCIA provides insurance, usually with respect to smaller transactions. It does not itself provide financing. Senator TOWER. Thank you, Mr. Linder.

Senator PROXMIRE. Before I yield to the distinguished Senator from New Hampshire, I would like to revise my request and ask if you

1

we began to get inquiries and some days later the President of the United States announced that it was our policy to sell to the Russians. At that point, the grain dealers and the banks wanted to know whether under those circumstances the Export-Import Bank would be prepared to guarantee the credit.

Senator TOWER. In other words, if you were considering this thing purely and wholly on the basis of commercial feasibility you might have waxed somewhat less enthusiastic than under the present cir

cumstances.

Mr. LINDER. No, I would not, sir. I believe that this is in the best interests of the United States. I believe it is wise for us to sell this grain and if there had been no prohibition heretofore, if we did not have a licensing system, I think this would have been a transaction which would have gone through and maybe many more transactions would have gone through heretofore. But this was the policy of the United States.

Senator TOWER. Did you take into consideration the possibility that the Soviet cash payments to Canada and other countries for grains and foodstuffs might conceivably reduce Soviet assets to the extent that it would pose a greater credit risk for the United States?

Mr. LINDER. Well, I can't say specifically we took that into consideration, because an obligation which is going to become due in three equal installments over 18 months is going to deplete the assets of the buyer practically to the same extent as cash. So that I don't think that their credit worthiness would be determined only by whether or not they paid cash in Canada or had used the facilities which were offered to them there.

Senator TOWER. Let's get back to this business of establishing what seems to me a new precedent here, regardless of the reason for it. We have not in the past done business with Communist countries in this way and I would like to inquire whether or not the Advisory Committee deliberated on this matter at all?

Mr. LINDER. The National Advisory Council approved this transaction. Our own Advisory Committee, yes, sir, I went to some pains to make that clear. I quoted somewhat earlier

Senator TOWER. I am sorry I wasn't here for your earlier testimony. Mr. LINDER. The Advisory Committee did consider it on October 14. The precise quotation from them, minutes prepared by their chairman, Mr. Carl Gilbert, the chairman of the Gillette Co., and the director of Morgan Guaranty, was quoted in the record.

I did make it clear that we had discussed it with them, and they approved our guaranteeing this transaction, and that they were of the opinion that the credit necessary to consummate the deal would not be available privately.

Senator TOWER. Ordinarily, in your transactions, do you rely on the credit experience of the commercial firm that you are dealing with or the record of the government of the country in which that commercial concern is located in the matter of the payment of its debts?

Mr. LINDER. We look to both. Obviously when we are extending credit to a private company abroad, and are buying or guaranteeing its obligations, we consider carefully what its balance sheet looks like, what its credit standing has been, what its records of payment have been, whether or not it has met all obligations promptly, and whether it has repetitive obligations to our bank.