The Export-Import Bank Act (1945)

In the meantime, congressional hearings were also being held on the ExportImport Bank Act of 1945 (Public Law 173, 79th Cong. (59 Stat. 526)). Mr. Leo T. Crowley, Foreign Economic Administrator, explained the essential changes made by this act, as follows:

(1) The lending authority of the bank was raised from $700 million to $3.5 billion.

(2) The prohibition on loans by the bank to any government in default on the payment of its obligations to the United States Government as of April 13, 1934, was removed. Also the Johnson Act prohibiting loans by private individuals to such governments was repealed.

(3) The bank was established as an independent agency and given indefinite life.

(4) The management of the bank was vested in a Board of Directors consisting of 1 ex officio member, the Secretary of State, and 4 full-time members. Also an Advisory Board, made up of the same persons who were on the National Advisory Council set up by the Bretton Woods Agreements Act, was established to assist in formulating major policy decisions for the bank.

(5) The bank was required to make semiannual reports to Congress.

(6) Provision was made for the purchase by the Treasury Department of $1 billion of the capital stock of the bank, and also for the purchase by the Treasury Department of obligations of the bank to the extent of two and one-half times the capital stock (House hearings on H. R. 3464 and H. R. 3490, superseded by H. R. 3771, July 11 and 12, 1945, vol. No. 1060, pt. 2, p. 6; Senate hearings on H. R. 3771, July 17 and 18, 1945, vol. No. 754, pt. 6, pp. 4–5).

Mr. Cowley testified that the increase in lending authority was necessary because:

(1) The bank's outstanding loans and undistributed commitments totaled $583 million, leaving $117 million of lending authority, which loans then under consideration would soon absorb. Thus other loans had to be held in abeyance, and the bank anticipated heavy demands for loans as the world adjusted to peacetime conditions.

(2) The lending program of the bank would aid the major problem of peacetime reconversion faced by the greatly expanded heavy industry in the United States. The foreign demand for products to aid in reconstruction and econornic development would be concentrated principally on the products of heavy industry. As a result, if foreign countries could obtain credit to buy these goods in the United States, the problem of reconversion of heavy industry would be eased and maintenance of high foreign-trade levels would be assisted.

(3) Private capital would be encouraged to participate in the financing of capital goods. However, there was a need for financing beyond that which private capital would supply. The need arose because it would be necessary to grant longer terms of credit for capital goods than the commercial banks would undertake and because the credit of some of these foreign countries was not established to the satisfaction of the commercial banks.

(4) Lend-lease aid would not be used for tasks of relief, rehabilitation, and reconstruction. Although the prime responsibility for rehabilitation of the foreign countries rested on their own governments, the United States had an obligation to help these countries to help themselves. The Export-Import Bank was the most suitable agency to provide these funds, and the $2.8 billion increase in lending authority would suffice for this purpose during the current fiscal year. (5) The International Bank for Reconstruction and Development would provide large and long-term credits to foreign countries for reconstruction and development. However, it would be many months before the International Bank went into operations, and the Export-Import Bank must fill the gap until that time (House hearings, vol. No. 1060, pt. 2, pp. 6-7; Senate hearings, vol. No. 754, pt. 6, pp. 4, 10).

Mr. Crowley stated that the removal of the prohibition on loans to governments which had defaulted on their obligations was necessary if the bank was to be in a position to assist in reopening important markets in a number of foreign countries. The repeal of the Johnson Act (act of April 13, 1934) was necessary if private banks were to participate with the Export-Import Bank in financing foreign trade with these countries. The bill repealed the Johnson Act in the same way as it was done in the Bretton Woods Agreements Act (House hearings, vol. No. 1060, pt. 2, pp. 7, 13).

42493-54-pt. 1-4

Mr. Crowley testified further that the extension of life of the bank was necessary for the bank to be of effective assistance in the postwar period. After the International Bank was established, there would still be the necessity of financing this country's export trade. The requirement of semiannual reports was considered self-explanatory, and the method for obtaining capital was recommended on the score of simplicity. In discussing the bank's policy in making loans, the Mr. Crowley stated that the National Advisory Council would coordinate the operations of the Export-Import Bank with the policies of the representatives of the United States on the International Bank and Fund. The Chairman of the Board of Directors of the Export-Import Bank would keep the Council informed of the bank's activities and would be guided in turn by the Council's policy decisions (House hearings, vol. No. 1060, pt. 2, p. 8; Senate hearings, vol. No. 754, pt. 6, p. 18).

On page 9 of the Legislative History of the Export-Import Bank, there is an excerpt of Mr. Crowley's testimony in which he stated that the money loaned should not be used for diplomatic or political pressures, and that the money loaned would be spent in the United States.

Mr. Wayne C. Taylor, President of the Export-Import Bank, reviewed the types of credit extended by the bank during the past 11 years. The types of

credit, in brief, were listed as

(1) Short-term agricultural commodity credit.

(2) Credit for American firms exporting industrial products.

(3) Credit lines to individual exporters and importers.

(4) Wartime credits to South American countries short of dollar exchange for essential purchases from the United States.

(5) Development loans to foreign governments and their agencies.

(6) Wartime credits to stimulate production of strategic materials.

(7) Underwriting letters of credit during the war in favor of approved foreign banks (House hearings, vol. No. 1060, pt. 2, pp. 32-33).

Mr. Taylor testified that the bank did not use political pressure or require a certain form of government in the countries where loans were made. However, it was hoped that the bank would have an influence in the foreign countries to stabilize them so that they might have free governments. Mr. Taylor presented the following statement on the bank's loans as of June 15, 1945:

Source: House hearings, vol. No. 1060, pt. 2, pp. 43, 51, 54. Mr. Dean Acheson, Assistant Secretary of State, in his testimony before the House committee reiterated the essential changes made by the bill. He also stated that in 1940, the bank was called upon to implement our foreign economic policy by combating the extensive penetration by the Axis powers in Latin America. He testified that the loans made by the bank would not be used for social reforms (House hearing, vol. No. 1060, pt. 2, pp. 58-61). Mr. Acheson's entire testimony in the Senate hearing, where he attempted to explain which body would determine policy for the Export-Import Bank, is set out on pages 9, 10, and 11 of the Legislative History.

Mr. W. Randolph Burgess, president of the American Bankers Association, presented the views of his organization in the House committee hearings. The association was in favor of an increase in the capital and lending authority of the bank because:

(1) It would provide means for meeting promptly deserving credit needs prior to the establishment of the International Bank;

(2) It would enable the United States to make loans where this country had special interests and which could be done more effectively through a national institution rather than an international one.

The following principles were offered to govern the operation of the bank:

(1) The bank should supplement and encourage, and not replace private capital. The bank in the past had done this.

(2) Loans should be made with practical assurance of repayment. The Export-Import Bank had followed this principle and its record in obtaining repayments was good.

(3) Too much credit was as bad as too little credit. The bank should use care and discretion in loans so as to not add to the danger of inflation

The association stated that the following provisions should be included in the bill to insure that the methods and policies of the bank for the previous 11 years would be continued:

1. A statement as to the relation between the activities of the Export-Import Bank and private lending agencies, such as that contained in the articles of the International Bank, especially a condition that the borrower was unable to obtain funds elsewhere under reasonable conditions.

2. A definition of standards to be observed in making a loan:

(a) That loans should generally be for specific purposes; (b) That they must offer practical assurance of repayment; and (c) That reconstruction and development loans should be confined to the cost of imported materials and should not cover the cost of local labor and materials.

3. A provision for a small board of directors with adequate salaries to manage the bank, and this board should be responsible as to policies to the National Advisory Council (House hearings, vol. no. 1060, pt. 2, pp. 78-80).

A letter from Ronald Ransom, Vice Chairman of the Board of Governors of the Federal Reserve System, stated that the financial and monetary policies which governed the participation of the United States in the International Bank and Fund should also govern the Export-Import Bank. To accomplish this, the members of the Board of Trustees of the Export-Import Bank should be the same officials as comprise the National Advisory Council (House hearings, vol. No. 1060, pt. 2, p. 77).

Other communications in favor of the bill were received from W. L. Hemingway of the Mercantile Commerce Bank & Trust Co. of St. Louis and Eugene P. Thomas, president of the Foreign Trade Council (House hearing, vol. No. 1060, pt. 2, p. 78; Senate hearing, vol. No. 754, pt. 6, p. 28).

A substantial portion of the Export-Import Bank Act of 1945, as passed by Congress, is set forth on pages 12 and 13 of the Legislative History of the ExportImport Bank. Later in 1945, the Export-Import Bank Act was amended to permit financing of trade with the Philippine Islands (Public Law 282, 79th Cong. (59 Stat. 666); Legislative History, p. 15). There are no hearings available on this legislation (Index of Congressional Hearings (1935 second supplement). Government Corporations Appropriation Act (1946)

The only legislation enacted during 1946 affecting the Export-Import Bank was the Government Corporations Appropriation Act for 1947 (Public Law 519, 79th Cong. (60 Stat. 588)). In the May 16, 1946, House committee's hearings on this act, Mr. William McC. Martin, Jr., chairman of the board of directors and president of the Export-Import Bank, explained the various types of credits then extended by the bank as follows:

(1) Latin-American credits. These were loans for specific projects with terms of from 5 to 20 years at an interest rate of 4 percent. Loan disbursements of this type amounted to $31.3 million in 1945 and $40 million in 1946. Examples were materials, equipment, etc., for an iron and steel plant in Chile; 14 oceangoing cargo vessels for Brazil; and materials for an electrification project in Mexico.

(2) Lend-lease termination credits.-These were loans to finance the purchase of projects and services for which requisitions had been filed and approved, but not contracted for, before September 2, 1945, as provided for under section 3 (c) of the lend-lease agreements. Thirty-year credits had been extended to Belgium for $50 million, to France for $550 million, and to the Netherlands for $50 million in 1946. These loans carried interest at 2% percent, and no more were anticipated to be made in the future.

(3) Reconstruction credits.—The purpose of these loans was to fill the gap in facilities for dollar credits until the International Bank was established. When the World Bank came into operation, which was expected not later than June 30, 1947, it would take the principal responsibility for reconstruction loans. This would be the principal type of credit undertaken by the bank during fiscal 1946-47. However, to avoid undue assumption of risks, these loans were made only in urgent cases for emergency purchases in the United States. It was estimated that $222 million would be disbursed in fiscal 1946. Advances were made against notes bearing interest at 22 percent which matured in 1950 or 1951. At maturity, obligors had a right to tender new notes, payable in semiannual installments over 15 to 25 years at an effective rate of interest averaging 3 percent, in exchange for the old notes.

(4) Cotton loans.-In October 1945, the bank had set up a credit line of $100 million for the purpose of financing the export of raw cotton to European countries.

The maximum term of credit was 15 months at 22 percent interest. No credit of this type had been extended in 1945, but it was estimated that $38 million of credit would be extended in fiscal 1946. The bank had also established a special cotton credit of $33 million for China for a 24-month term. The additional time granted was to cover the longer time of transport and manufacture.

(5) Other credits.-There had been a number of credits extended to exporters and importers of the United States for the purpose of financing specific export and import transactions. This type of loan had characterized the bank since its establishment and would undoubtedly increase greatly in value during the next period. Furthermore, credits of this type would to some extent reduce the need for government to government credits of the sort which predominated the operations of the bank in the recent past. There was also the possibility that the bank might set up a general system of export credit and transfer guaranties (House hearings on H. R. 6777, May 16, 1946, vol. No. 1098, pp. 1057-1059).

Mr. Martin testified that exporter-importer credits and the small development loans "the grease and lubricating oil of foreign trade"-were the concept on which the bank was built. These had been expanded into the reconstruction field only on a temporary basis until the World Bank was set up. The World Bank had been slow in getting started, slower than had been hoped. The bank had held back on these loans as much as possible, and the bank could not later transfer the outstanding reconstruction loans to the World Bank (House hearings, vol. No. 1098, p. 1064).

Mr. Martin stated that the foreign countries had been required, with 1 or 2 minor exceptions, to use their credit for purchases in the United States. The political angle did come in to a certain degree; "it cannot be disregarded and it would not be honest to do so." Since there had to be some policy to go with the reconstruction loans, they were definitely in the realm of the political. The purpose behind the loans was to preserve the trade channels that were developing before the war (House hearings, vol. No. 1098, pp. 1066, 1086–1087, 1089).

Mr. Martin also gave some statistics on the bank's operations. At the end of business on March 31, 1946, the total amount of loans disbursed was $709 million, total repayments were $321 million, leaving approximately $387 million in outstanding loans. The net income of the bank for fiscal 1945 was $8.2 million, and there were 61 persons employed in that year (House hearings, vol. No. 1098, pp. 1060-1061, 1087).

Mr. Hawthorne Arey, Vice President and General Counsel of the ExportImport Bank, stated that the total commitments of the bank as of April 15, 1946 were $2.6 billion and of this, $400 million were to private entities and the rest to foreign governments. He listed the following loans as being in default: (1) Polish cotton mill.-$3,491.96 in drafts out of a total loan of $166,742.52 made to a privately owned Polish cotton mill before World War II.

(2) American-Brazilian Corp.-Default in 1941, of $142,980 loaned for the purpose of importing babassu oil from Brazil.

(3) Home Plan Corp.-Default in 1942, of $1,218.04 loaned to a small American exporter for the shipment of radios to South America.

(4) Charles B. McDaniel.-$65,000 in three notes, the last of which was due in July 1945° The purpose of the loan was to import strategic materials from Portuguese West Africa, and the bank held 109,000 pounds in blocked sterling as security for the loan (House hearings, vol. No. 1098, pp. 1090-1093). Proposal for export credit insurance (1947)

In the spring of 1947, hearings were held on S. 414, which was a bill to encourage fuller participation by small business concerns in soundly expanding foreign trade through Government insurance for United States exports. The bill proposed that a division be established within the Export-Import Bank with capital stock of $100 million for the purpose of insuring export credit and transfer risks. The bill was not enacted into law, and, it is important to note, only for the fact that the Export-Import Bank was opposed to the bill. Mr. William McC. Martin, President of the Export-Import Bank, testified in substance that there was no need nor demand for credit and transfer guaranties and that this field was more appropriate for private enterprise (Senate hearings on S. 414, March 25 and April 8, 1947, vol. No. 819, pt. 3, pp. 56-58, 60–61).

Federal reincorporation of the bank (1947)

Hearings were held in May 1947, on a bill to reincorporate the Export-Import Bank under a Federal charter. Mr. William McC. Martin, President of the Export-Import Bank, testified that the bill was necessary for the bank to carry on its operations beyond June 30, 1948. The Government Corporation Control

Act of 1945, provided that all Government-owned corporations organized under the laws of any State or the District of Columbia would be liquidated on June 30, 1948, unless reincorporated by act of Congress (Public Law 248, 79th Cong. (59 Stat. 597)). The purpose of this bill was to bring about the necessary incorporation, extend the life of the bank until June 30, 1953, and provide for payment of dividends on capital stock (House hearings on S. 993, May 8 and 12, 1947, vol. No. 1150, pt. 4, p. 1; Public Law 89, 80th Cong. (61 Stat. 130); Legislative History, p. 15).

Mr. Martin stated that the bank's financing over the years could be classified in three major categories:

(1) Exporter-importer credits;

(2) Development loans; and

(3) Dollar exchange loans.

The dollar exchange loans were the forerunner of the reconstruction loans made at the end of the war. However, the bank had decided (in January 1947) that with the opening of the International Bank, the program of emergency reconstruction loans must be brought to an end (House hearings, vol. No. 1150, pt. 4, pp. 3-5).

The policy of the bank in the future would be to revert to the traditional types of operations and authorize credits for specific purposes which would contribute to a balanced long range expansion of foreign trade. The real problem of foreign trade was to maintain a high volume of imports in order to provide foreigners with the means of buying the products of the United States and of repaying their debts to this country. The bank worked to solve this problem chiefly by financing the export of capital goods, which in turn, would increase the capacity of the foreign countries to produce goods desired by the United States (House hearings, vol. No. 1150, pt. 4, pp. 5-6).

Mr. Martin also stated that the bank tried to avoid using loans as an instrument of political warfare and emphasized that the bank had made no purely political loans. No loans had been made to Russia, Yugoslavia or Rumania, but loans had been made to Poland ($40 million), Hungary ($7 million) and Czechoslovakia ($22 million). There were now five loans in default, the new one being to Talleries Godficas Sur, S. A. This loan involved the export of a printing press to Montevideo, Uruguay, on recommendation of the State Department during the war. The total disbursement was $78,875 and $67,310 was in default. The following statement concerning loans of the bank as of March 31, 1947, was submitted:

Source: House hearings, vol. No. 1150, pt. 4, pp. 26, 34, 37, 61-62.

Government Corporations Appropriation Act (1947)

In the hearings on the Government Corporations Appropriation Act for 1948 (Public Law 268, 80th Cong. (61 Stat. 576)), also held in 1947, President Martin explained that the bank endeavored to stimulate the use of private capital for foreign financing (1) without use of the bank's funds, i. e., financing solely by private banks and (2) by arranging for capital participation with the bank in the following ways:

Require that foreign purchasers must finance a portion of their purchases with their own dollar funds; require that exporters carry a portion of their transactions at their own risk; secure participation by commercial banks at their own risk, without the guaranty of the bank; resell some of the securities in the bank's portfolio without recourse; and provide for disbursement of the bank's loans through commercial banks (House hearings on H. R. 3756, Apr. 24, 1947, vol. No. 1144, pt. 1, p. 411).

Mr. Martin stated that there had been a net profit of $9.1 million in fiscal 1946, and that the bank was handling five different types of credits:

(1) Exporter and export-trade-development credits;

(2) Revolving credits for small exporters and importers;

(3) Commodity export credits;

(4) Lend-lease termination credits; and

(5) Reconstruction credits.

Mr. Martin also explained how the loan applications were processed. When a loan application came in, it was channeled to the National Advisory Council. The Council determined which was the proper agency to handle the type of credit