R ESTR I CT E D

Report No. EC-65a

TO BE RETU-?U';LD T.J 1 3 V i '70I

This report was prepared for use within the Bank. In making itavailable to others, the Bank assumes no responsibility to them forthe accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

UNITED STATES LOANS REPAYABLE IN LOCAL CURRENCIES

September 16, 1958

Economic StaffPrepared by Bruce M. Cheek

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UNITED STATES LOANS REPAYABLE MT, LOCAL CURRENCIES/

I. A Review of Lendin Activities

During Fiscal 1955, the United States began making loans to foreigngovernments which were repayable in dollars or in local currency at theoption of the debtor. It is the purpose of this paper to review these loanoperations in terms of the programs under which they are made and of theconditions attaching to the loans with respect to amortization, interest,and the currency of repayment. Changes adopted during Fiscal 1958 are alsoindicated. In Tables I - II, details of the various programs are given ona country-by-country basis to the end of 1957; Table III reviews theoperations of January-June 1958.

The programs under which these loans have been made are (a) the surplusagricultural disposals program authorized by the Agricultural Trade Developmentand Assistance Act of 1954 (Public Law 48o, 83rd Corgress) and (b) the programsfor military, and economic assistance under the Mutual Security Act of 1954.There are two ways in which U. S. lending operations under these programs maygive rise to repayments in local currencies. The one entails the actual loanof U.S.-owned local currency, repayment also being made in that currency. Theother operation involves the extension of lines of credit in terms of dollarsor other foreign currencies, the U.S. accepting repayment in the currency cfthe debtor country.

At present, outstanding loans repayable in local currency are predominantlyof the first kird - loans of U.S.-owned local currency, repayment being inlocal currency or in dollars at the debtor's option. These currencies areacquired by the U. S. through the sale of surplus farm products under Title Iof PL 480 or Section 402 of the Mutual Security Act.2/ The second form of loanrepayable in local currency has been made under other provisions of the MutualSecurity Act whereby the U. S. has extended long-term lines of credit toforeign governments in terms of dollars or other foreign currencies, generallyfor the purchase of goods and services required for economic development. Thisform of operation will become increasingly important as it is the principalactivity of the Development Loan Fund established last year. In most cases,the debtor has been given the choice of servicing the debt in dollars or inlocal currency. However, the DIF has specified the currency of repayment ineach loan contract without any such opt-on.

The PL 480 loans are specifically stated to be for the promotion ofecoromic development and multilateral trade; the Mutual Security loans, alsogenerally used for these purposes, are more broadly defined to incltde "suchother purposes as may be agreed upon" by the foreign government and the UnitedStates. In fact, most of these loans, especially under PL 480 and Section 402of the Mutual Security Act, are disbursed against development projects on whichboth governments are agreed. So far, these projects have generally beengovernment-owned; but, in accord with recent amendments to PL 480 and theMutual Security Act, it is the policy of the U.S. Government to increase thevolume of lending for development projects sponsored by U. S. or local privateenterprise. Indeed, this emphasis began early in Fiscal 1957.

1/ The over-all foreign aid program of the United States is discussed in U. S.Foreign Aid in 1958 : Programs and Administration (IBRD Report EC-59a,prepared by Stanley Nehmer, Economic Staff, February 24, 1958).

2/ Appendix I reviews the size and disposition of these U. S.-owned foreigncurrencies as a whole, whe-ther or not they are to be part of the loanprograms discussed in the text of this paper. Appendix II distinguishesbetween U.S0 -owned local currencies and "counterpart funds."

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By December 31, 1957, the United States had agreed to enter into loanagreements, repayable in local currency, with a total value equivalent to over$14 billion. More than half this amount has been ccntracted by four countries- India, Brazil, Yvgoslavia, and Japan. In addition, at the end of 1957,negotiations were in process for loans equivalent to a further $490 millionunder PIL 480. The appropriations for Fiscal 1958 and requests for Fiscal 1959indicate that these loan programs wi'll be substantially expanded, under bothPL 480 er.d the Mutual Security Act.

The majority of these loans, both by number and by value, is for 40 yearsfrom first disbursement, with interest rates of 4% per annum when debt isservicecL in terms of local currency and 3% when in dollars. However, asdescribed in Section IV below, a greater variety and range of interest ratesapply tco loans made under the program of Fiscal 1958. In addition, the 3-yearwaiver of interest has been abandond.' anid interest is to accrue from thefirst disbursementu

From the time a loan is disbursed to the scheduled dates of repayment, thedebtor government is required to mairLtain the dollar-equivalent value of cut-standing debt according to an agreed rate of exchange. Otherwise, the Un5 tedStates miay ;equire payments to be made in dollars. However, no such provisicnfor mainterance of do'lar-equivalent value applies to loans under the CoolavAmendment to PL 480, to U.S. deposits of local currency reserved for u'E;S cthe-than leiding, or to U.S.-owned deposits created by debt service paymew:s.

II. Prfgrar for Loans Renayabl1 in Local Currencies

1. Public Law 4_. Title I of the Agricultural Lrade Development a.-.lAssistaxnt Act of 1954, (PL 1,80) provides for the sale of surplus agricaulturalproducts to foreign governments, payment being made by the deposit of localcurrencies to U.S. account. "he Act further provides (Sec. 104(g)) that someof the currency so acquired may be lent to the local government for the purposeof promoting economic development. The proportion of the U.S. local currencyreceipts to be used for this puz-pose is decided at the time of the salesagreement. The loan agreement has generally taken longer to negotiate, and inany event it does not operate until the shipment of farm products has actuallyoccurred. By December 1957, somo 55% (4l,235 million) of the value of thesales agreements ($2,295 million) concluded with 35 nations had been plannedfor such loans, which are repayable in local currency; and loan agreements foralm8at $800 million of this sum had been signed.I/ The other major use of theU.S.-owned currencies is to meet U.S. obligations incurred in the countrieswith wh-Lch the sales agreements are made.

In August 1956, the International Cooperation Administration began asystematic policy of securing agreements with the borrowing governments to theeffect t:hat a portion of the loans should be re-lent to private investors. Thispolicy wias reflected in sales agreements made in Fiscal 1957 and in loan nego-tiations based on sales agreements of Fiscal 1955-1956. Consequently, out ofthe $11,235 million planned for inter-governmental lending under Section 104(g),

a/ In addition, loan agreements valued at $17.6 million had been made withChile and MYexiso, repayment to be made in U.S. dollars over 10 and 20 yearsres-pectively.

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some $250 million have been scheduled for re-lending by recipient governmentsto private ernterprise. Such agreements have been made with most countriesreceivirg PL 480 loans, the largest one being the pruvision that the IndianGovernment should re-lend the rupee equivalent of $55 million to privateenterprise.

in August 1957, Congress increased the scope for private enterprise lend-ing ever further. Whereas the IuA had sought to have local currency equivalentto 25% cf the loan agreement re-lent to private business, Congress accepted anamendmert to PL 4$0 whereby as much as 25% of the local currency received underthe sales agreement should be lent directly to private investors. The inves-tors may be U,S. business firms or their subsidiaries and affiliates, domesticfirms oG firms of "'friendly foreign'" natione. The UeS. firms may borrow forpurposes of business development in general. The borrowing of other firms isto be related to projects aimed at expanding the market for U.S. agriculturalproducts. This latter restriction does not, however, apply to lending toprivate enterprise under the program of' the Development Loan Fund-1/

Under tM..3 new legislation, known as the Cooley Amendment to Section 104(e)of the Act, the .-7 ortImport Bank of Washington is authorized to lend toprivate investors , to 25% of the local currency proceeds realized from thesale of farm products under Title I of PL 480. A smaller percentage may be setaside if' tcompellimg reasonsl are found to exist, as has been the case inseveral recent sales. However, no loan can be made until the sales agCreEmenehas beer followed by actual shipments, the deposit of the local curreri>y In aU.S. accoznt,, and the allocation of the currency among the various uses warnr,:d.The E:xpcrt-Jmoort Bank has in fact been receiving applications under Sec10,',Wfor loars to private business operating in countries which have signed sxle5agreemerts since August 1957. But, in the comparatively short time slr-nc tleamentmert became law., only one loan agreement has been completed.2/ By 7ecem-ber 31, 1957, local currencies equivalent to some $35 million had been sotaside fc,r private enterprise loans in 5 countries; by June 1958, sums e3li-va-lent to $88 million were schedu'led for loans in 18 countries. It should benoted that these amounts are additional to the $250 million scheduled fo? re-lending to private enterprise under Sec. 104(g)e

For any lending operation under Sec. 104(g) of PL 480, there is usually atime-lag between the various stages of the transaction. First, the sales agree-ment states the maximum amount whAich may be loaned to the local government orprivate enterprise from the local currency to be deposited to U.S. accoun^.Later, the loan agreement defines the terms and conditions of the loan. Thenthere is the approval by both governments of specific projects and, finaly,the actual disbursement of the local currency. After a period of grace,usually four years from the first disbursement, amortization begins.

/ Nor does the restriction apply to the private enterprise loans made fromthe inter-goveirnmental loans of See. 104(g) of PL 480 as part of the Ffscall9515-1957 programs..

g/ In August 1958, the peso equivalent of $3 million was lent to a group ofMexican firms. The loans are for 6-7 years with interest at 10%o p.a.

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The lag between planned loans, loan agreements, and disbursements isclearly shown in the following statistics of operations under Title I of PL 480as at December 31, 1957. In particular, one notes the large difference betweenscheduled loans ($1,235 million) and the value of actual loan agreements($779 mil2ion)l/.

Loan Operations under PL 480, Dec. 31, 1957

Sales Agreements under PL 480 $2,295 millionSchediuled for loans to governments - lO(g) 1,235 it 2/Actual loan agreements - lOL(g) 779Loan projects approved under 104(g) 463Disbursements on loans under 10(g) 250Interest and amortization none yet dueScheduled for loans to private enterprise

under lO(e) 35 million

The immediate impact of this PL L80 program on economic development occurswhen the ectual shipments of agricultural products are delivered. For theseproducts constitute the new foreign resources which the United States adds tothose avaflable within the economy. By the end of 1957, these shipmentstotalled i1,650 million. Local currency loans made out of these proceeds donot constitute any further addition to total available resources, but they canmake a siEnificant contribution to a more effective mobilization and allocationof resources.

2. The 5Latual Security Program. There are three ways in which thisProgram mekes possible loans which are repayable in local currencies. Only thefirst invclves the lending of U.S.-owned local currencies; the others ertailU.S. accertance of local currency repayments of loans made in dollars or inother foreign currencies.

a. Under Section L02 of the Idutual Security Act of 1954, at least aprescribec portion of the annual appropriation must be used to buy surplusagricultuxral comnodities and to sell them to foreign governments for localcurrencies. By December 31, 1957, these sales were valued at $1.3 billionequivalent in local currencies. These currencies are to be used by the U.S.for the sEme purposes as the original dollar appropriations, namely defensesupport arLd other economic assistance. Accordingly, by the end of 1957, about65% of the currencies so acquired had been set aside for previously agreedpurposes _/, and 35% was available for other uses to be decided in consultationwith the Loreign governments. From the local currencies set aside for t other 1

uses, the equivalent of $277 million had been committed in loan agreements re-payable irL local currency and 9160 million equivalent had actually been dis-bursed,

1/ The figures are in millions of dollars equivalent to the various localcurrencies at agreed rates of exchange. In addition, there are tvwo loanagreements repayable in dollars under Sec. lO(g). These are vwrith IMIexico($813.6 million) and with Chile (P4 million).

2/ It shot.ld he noted that, if shipments fall short of the amounts listed inthe sales agreements, then the whole of the reduction in use of local cur-rency -ill be effected in the loan agreements, and not in the portions setaside for other purposes (e.g. military procurement, payment of U.S.obligatiions).

3/ Chiefly, this involves setting aside U.S.-owned currencies for financingpurchases of goods in the foreign country for use in third countries.

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b. Under othe rovisions of the Act, the United States has, sinceFiscal 1955, extended lines of credit to foreign governments "in dollars orother cirrency for financing the acquisition of such commodities and servicesand for such other purposes as may be agreed upon" by the foreign governmentand the United States. In general, these credits are repayable in dollars orlocal currencies at the option of the debtor government. By the end of 1957,credits of $460 million had been extended under the programs of Fiscal 1955-57;of this sum, $373 million are repayable in local currency.2/ Disbursementswere $177 million.

ct In Fiscal 1958, Congress established the Development Loan Fundto prov:ide economic development assistance on a loan basis. By December 31,1957, thie Fund had made no loans; but it is expected to allocate some $250million of its $300 million appropriation before June 30, 19584_/ Almost allof theseL loans will be repayable in local currency.

III. Chanaes inLotnroi Fiscal 1958.

The leg4sIatioc and appropriations of Fiscal 1958 have brought severalimportant cb5.3ages in the programs for making loans which are repayable in thecurrencies of the debtor countries. In-the first place, both the MutualSecurity and the pT 480 programs have been revised to emphasize lending toprivate enterprise. As we have seen, under Sec. 104(e) of PL 480, up to 25%of the local currency provided by the sales agreement is to be loaned to privateinvestoxs. Under the MIutual Security Program, also, the Development Lo<a Fnrdwill make loans to private enterprise repayable in local currency.

Secondly, the programs of loans repayable in local currency which will beoperated by the Development Loan Fund and under Sec. 104(e) of PL 480 willassume increasing importance as compared with the existing inter-governmentalloan prcgrams under Sec. 104(g) of PL 480 and under various sections of theMutual 2ecurity Act. IvIoreover, as indicated in Section IV of this paper, thenew loan programs will carry terms and conditions somewhat different thanthose applving to the Dresent series of inter-governmental loans. In addition,evTen the established programs have had changes made in their debt servicerequirements.

Thirdly, requests now being considered for Fiscal 1959 envisage substan-tial inoreases in those appropriations from which the government may authorizeloans repayable in local currency. The Development Loan Fund is expected tohave itE, appropriation increased from $300 million to 6925 million, andexpanded lending under FL 480 has strong Congressional support. For thisreason, and because the time-lag between sales and loan agreements is beingreduced,, the volume of loan agreements with foreign governments and withprivate enterprises may be expected to rise well above the $400-500 millionannual average of the last three Fiscal years.

.j/ Dur:Lng the first 6 months of Fiscal 1958, no loan agreements allowingrepayment in local currency had been made under the Mutual Securityappropriation for that year. There was, however, a $5 million loan toIceLand, repayable in dollars. Fiscal 1958 loans are listed in Table III,Part C.

2/ The first DIF loan agreement was signed on May 16, 1958. The terms ofthis3 loan, as well as details of other DLF loan authorizations made inl953, are given in Part D of Table III.

IV. The Servicing of Loans Renavable in Local Currency

The terms and conditions of loans made under Title I of PL 480 are setby the National Advisory Council on International Monetary and FinancialProblem:s. For loans made under the 1955-1957 programs, the terms have general-ly corresponded to those prescribed by the Council for loans under the varioussections of the Mutual Security Program.1/ However, the Council has recom-mended ,;hat somewihat different and more flexible provisions apply to the newlending progr.as irntroduced in Fiscal 1958 - the Development Loan Fund andprivate enterprise loans under Sec. 104(e) of PL 480.

1. Currenev of Debt ServIice ParMnts. Tn general, loan agreements underPL 480 and the Mutual Security Act have given the borrowing government theoption of servicing the debt in dollars or in local currency.2/ The choice ismade at each payment date, usually every six months, and payments of principaland interest must be made in the same currency. If a debtor defaults, theUnited 'tates has the right to require futuxe payments to be in dollars. How-ever, Development1 Loan Fund contracts do not contain any provision for vary-igthe currency of 7npaynent. Each agreement states the appropriate currency ofdebt service, whether in dollars or local currency.

It iF c istomarv 'or the loan agreement t o include certain provisionsdesigned tc .reserve tile dollar--equivalent value of pay_ients due ir 1 oc12currency, whether these be repayments of princinal or instalments of' iroerest.Thus, during the period between disbursement of the loan and scheduled ree-ay-ment dates, the debtor government is required to maintain the dollar-eqmivalentvalue of outstanding debt and to make debt serv-ice payments accordingl:r. Thi3provision also applies to pre-payments, the value of which must be so r- n-tained until the due date of payment. The rate of exchange on which such debtservice in local currency is based is usually one recorded with the RhF, or onemutually agreed upon from time to time. However, in the event of disagreement,the United States may insist on payment of the particular instalment ofprincipal and interest in dollars.

On the other hand, there are also circumstances under which the UnitedStates assumes the foreign exchange risk. First, for local currency loansunder the Mutual Security Program and PL 480, the U. S. assumes this risk fromthe date of the loan agreement to the actual disbursement and again after thelocal currencies ha-ve beer, repaid into U. S. accounts. Secord, loans made toprivate enterprise under the Cooley kmendment to PL 480 contain no provisionfor the maintenance of dollar-equivalent values,2/ Finally, U, S. holdings oflocal currency acquired under commodity sales agreements, and intended for suchother uses as the payment of U. S. obligations, are not protected againstdevaluation of the local currency,

1,/ Even though the loan agreement under PL 480 may be made some time afterthe sales agreement, the terms are those in effect during the Fiscal Yearin which the sales agreement was signed.

2/ There are, in addition, loans valued at $99 million which are expressly tobe Eserviced in dollars: $18 million under PL 480 and $81 million under theMutual Security Program. (See notes 1, 3, and 4 to Table 1).

2/ However, these loans will be made at rates of interest prevailing in theforeign country, and these are generally higher than the rates borne byother U. S. development loans.

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2. Rates of Dnterest. As of December 31, 1957, all except two of the

loans repayable in local currencies carried an interest rate of 4% p.a. forservice made in such currencies.21/ From the beginning of these loan programsin FisCal 1955 (the first loan agreements were with Egypt and Israel inFebruary 1955) until September 1957, the rates charged were 3% p.a. on loansserviced in dollars and 4% on those serviced in local currency. However, underthe rev-ised lending terms set by the NAC in September 1957, and in January andMarch 1958, there is a more varied pattern of interest rates for loans madefrom appropriations of Fiscal 1958.g/ First, new rates of interest were setfor loans made under the programs established in 1955. Thus, local currencyloans under Sec 104(g) of PL 480 are to carry rates of 4e p.a. when debtservice is in dollars and 5% when in local currency.3/ Mutual Security loans(except those of the DIF) carry a single rate of 31%, whether the debtor chooseto repay in local currency or in dollars.4/ Secondly, the United States hasadopted a very flexible approach to the setting of interest rates under the twonew lending programs which allow repayment in local currency. Thus, for localcurrency loans to private enterprise under the new provisions of Sec. lC4(e)of PL 480, rates of interest are to be similar to the prevailing rates forcomparable loans in the foreign countries concerned. Again, for dollar loansmade by the Develo-ment Loan Fund, interest rates are related to the cost ofborrowirng by the U.S. Treasury when the loan is for an 'economic overhead'project 5/; and to Export-Import Bank rates for comparable projects when theyare of aL profit-earning rnature. On this basis, the Fund is currently expectedto charge 3-21% p.a. on loverhead' projects and 51% on profit-earning undeOr-takings. The maximum term of lending is 40 years, deperding on the nature o'Lthe particular project.

2/ The terms and conditions described in this paper specifically exclude twoparticular cases. First, for a PL 480 loan to Brazil for $31 mili -onequivalent, the interest rate on debt serviced in local currency may be 4%or 4. At any time, the rate payable will depend on Brazil's action con-cernitng the maintenance of the dollar-equivalent value of the debt.Seccndly, in a series of triangular loan operations between the U.S.,Iceland, and Denmark under the Mutual Security Program, a Danish debtequivalent to $2.3 million carries only a 3% charge, even though paymentsare to be made in local currency. Both the Brazilian and Danish loans weremade in 1956.

2/ By December 31, 1957, no loans repayable in local currency had been madefroml Fiscal 1958 funds. Those made during January-June 1958 are given inTable III.

i/ These rates apply to loans made from the proceeds of sales agreementsreached under the Fiscal 1958 program. However, during 1958, several loanagreements are being concluded on the basis of sales agreements of previousyears, and these will carry the 3-4% interest rates. (See Table III,Part A)

A/ The Fiscal 1958 interest rates for both the PL 480 and the Mutual SecurityPrograms were set in September 1957 at 4 and 5%, depending on the currencyof repayment. In March 1958, however, the Mutual Security rate was reducedto correspond to the DLF rate of 3-21 p.a. for loans of an 'economic over-headl) nature.

2/ These are projects which are basic to economic development but notgenerally of a profit-making nature - roads, harbors, irrigation works,etc.

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Most of the loans made under the provisions of Fiscal 1955-1957 carry a3-vear waiver of interest, and an additional 6 months elapse before the firstinterest payment. For Fiscal 1955, the waiver extends from the date of the3oan agreement; but for Fiscal 1956 and 1957 it is from the first disbursement.Under the new conditions set by the National Advisory Council in September1957, lDans made from Fiscal 1958 appropriations carry no such waiver, interestaccruinw from the first disbursement.

3>. Amortization. For most loans under the programs begun in Fiscal 1955,repayment of' principal is to begin four years after the first disbursement.This provision holds for Fiscal 1958, too. Debtors also have the right to makeprepa,ymunats, As the first disbursements were made in Fiscal 1955, repaymentsbegin in Fiscal 19,59. However, for some years the major portion of debtservice payments will be for interest due.l/

4t Use of Dqbt, Serviqe Pa, jmnt;. The United States has generally ensuredthat the loan agr'enments contain certain provisions concerning the use of localcurrenc,y receitrec.i as interest and as repayment of principal. These provisionlsmay be sumirrizcd as follows:

a. The currency may be used for any U.S. expenditures in the country;b. The currency may be used in other areas or transferred into other

currencies by mutual agreement;c. The parties agree to negotiate for payment in strategic materials

at prices and on terms to be mutually agreed;d. The parties agree to negotiate for payment by such other valuable

consideration as may be mutually agreed.e. Unexpended balances are eligible for investment in interest-

bearirng obligations or deposits denominated in local clirrerr^y.

In all cases, the U.S. is to take into account the effects on the economicposition of the debtor country of any contemplated use of its local currencydeposits. It should also -be n-ted that, although the actual loan contra.ctsinclude provisions for the use Jf debt serrice payments, the Congress has stillto take legislative action on this matter. Thlis step is expected to occarduring Fiscal 1959.

The duration of the loans varies between 15 and 40 years; but over 85% ofthe value of present loan agreements is in loans of 40 years' duration. Almostall Mutual Security Act loans are for this period, while FL 480 agreemertsinclude some $150 million in loans of 20-30 years' duration.

For the loan programs newly established in Fiscal 1958, the terms of amor-tizaticn are not yet known., but it is expected that the duration of loans willoften te less than the 40 years commonly granted under the older programs.Thus, natuLrities of loans made under Sec. 104(e) of PL 480 are expeGfed to besimilar to those for comparable dollar-repayable loans made by the Export-

. Import Bank. The duration of loans made by the Development Loan Fund is to bedecided on a project-by-project basis, with a maximum of 40 years.

V. StAtisticjs of Loasand Disbusements by Proeram and by Country

The following three tables indicate the size of the loan agreements plannedor reached with various countries by Dec. 31, 1957, the value of disbursementsunder each program at that date, and loans agreed or planned during the firstsix morLths of 19158,1/ Unc.er the PL 480 program, debt service (mostly interest) will be equivale:it

to about $4 million in Fiscal 1959 and some $60 million in Fiscal 1961.

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Table I

U. S. Loans Repavable in Local Currencies(at December 31, 1957, in terms of $ million equivalent)

Public law 4/80 Mutual Sea.rity Proeram Total Lending ActivityTitle I Planned Loan Loan Agreements under Agreements Agreed

Sales for loan Agree- Appropriations for (columns andCountry Agreements to ments Fis¢al 1955-6-7 4, 5 and Planned

Govern- Private 6) (columnsment enter- Sec. 402 Other 3a, 3b,

nse ((3a only)5 nd6(1) (2) - (3a) 53bl (4) ()7) (8)

Argentina 31.1 20.C 20.CAustria 43.2 26.3 16.C 16.C 26.3Bolivia 6.8 5.4 5.4Brazil 179.9 149.4 149.2 149.2 149.4Burma 22.7 18.1 17.3 25.0 42.3 43.1Ceylon 2.5 2.5 2.5Chile 40.2 27.71/ 27.71/ 0.8 28.5 28.5China 9.8 - - 60.C 60.C 60.CColombia 29.2 22.2 10.0 10.C 22.2Costa Rica 2.0 2.C 2.0Denmark 2.3 2.3 2.3Ecuador 8.1 6.3 6.3 2.0 8.3 8.3Egypt 19.5 13.6 7.5 7.5 21.1Finland 27.2 - Z/ - -France 4.6 - o.6 - 0.6Germany 1.2 - - -Greece 66.3 37.5 2.9 26.5 35.0 61.5 75.4Honduras 3.0 3.0 3.0Iceland 2.8 2.2 2.2 0.6 8.4 11.2 11.2India 360.1 234.1 234.1 53.2 76.8 364.1 364.1Indonesia 98.7 79.0 2.0 15.0 17.0 94.0Iran 12.9 2.5 / 2.5Israel 87.3 58.3 8.7 39.3 27.7 12.3 79.3 107.0Italy 128.1 88.1 30.C 30.C 88.1Japan 151.4 109.3 108.9 108.9 109.3Korea 82.3 - - - -Yexico 28.2 - 4/ 7.1 - L/ 7.1Morocco 20.0 20.C 20.CNetherlands 0.3 --Pakistan 186.1 54.4 16.4 17.0 71.0 88.0 158.8Paraguay 3.0 2.2 2.2 1.0 3.2 3.2Peru 14.4 10.4 9.8 2.0 11.8 12.4Philippines 10,3 5,2 16.7 3.3 20.C 25.2Poland 65.4 - - - -Portugal 7.2 3.5 3.4 3.4 3.5Spain 184.3 113.0 10.5 20.0 30.5 133.0Thailand 4.6 2.1 1.0 20.0 21.0 22.1Tunisia 2.5 2.5 2.5Turkey 111.6 55.5 16.7 53.3 70.0 125.5United Kingdom 35X6 - - _ _Viet Nam 50.0 50.0 50.0Yugoslavia 230.4 88.4 82.7 28.5 111.2 116.9

TOTAL $2,294.8 1,234.7!/& 35.7 779.11/-4/ 277.7 378.41/ 1,435.2 1,926.5 /

J In addition, Chile has a loan agreement for $4 million, repayable in dollars./ The sales agreements with Finland, executed during 1955-57, were revised in February 1958 to provide for a $14 million loan,

repayable in dollars./ In addition, there are $81.3 million of loans under the Mutual Security Program (Fiscal 1955-6-7) which are repayable in

dollars: Afghanistan - $10.8 million; Iran - 65.0; Libya - 3.5; Panama - 2.0./ There is a loan agreement with Mexico for $13.6 million, repayable in dollars./ By the end of 1957, the Export-Import Bank had made no agreements for loans to private enterprises under the Cooley

Amendment to PL 480 (August 1957), but some $35 million had been allocated for such purposes (Col. (3b)). In addition, itshould bs recalled that, of the $1,235 million equivalent listed in Col.(3a) for inter-governmental loans under Sec. 104(g)some $25D million are planned for re-lending by debtor governments to private enterprise. (See Sec. II of this paper).

/ The difference between this column and col.(7) represents the dollar value of local currencies scheduled for loans but notyet the *ubject of loan agreements under PL 480. No similar treatment of lending under the Mutual Security Program isavailable; but it is known that loan agreements are generally completed during the Fiscal Year in which negotiations areinitiatel.

General Notes Blank spaces indicate that no sales or loan agreements have been made, even though some such agreements may havebeen planmed as of December 31, 1957. A(-) indicates that no loan agreement was contemplated at the time of the sales agreement.

Sources: Tie Seventh Semi-Annual Report on Activities carried on under PL 480, through December 31, 1957. (Report by the Presidentt) the Congress).R-port on Country Loans, as of December 31, 1957. (Prepared by the International Cooperaticn Administration, March 1958).

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Table II

Disbursements from U. S. Loansrepaya ole in local currencies($ millions at Dec. 31, 1957)

Title I Miutual Security Act TotalCountry Public Law 480 Sec. 402 Other disbursement

Austria, 6.8 6.8Brazil 3002 30.2Ceylon 0.1 0.1Chile - 0.01 0.01China 36.7 36.7Colombia 9.0 9.0Demiarl: 2.3 2.3Ecuador 3.4 3.4Egy-t 7.5 7.5Greece 15.4 26.5 41.9IcelandL 0.8 0.5 2.9 4.2India _ 17.3 25.0 42.3Israel 37.2 27.7 9.2 74.1Italy 22.0 22.0Japan 103.7 103.7Morocco 13.0 13.0Pakistan 7.0 35.1 42.1Paraguay 2.1 - 2.1Peru 6.9 - 6.9Philip?ines 5.9 2.9 8.8Portugal 3.4 3.4Spain 9.0 20.0 29.0Thailand - 12.4 12.4Turkey 16.7 42.5 59.2Viet Nam 27.0 27.0

Total-a. Disbursements 249.9 160.6 177.6 588.1b. Loan Agreements 779.1 277.7 378.4 1,435.2

Notes to table:-1. No disbursements have been made from the loan agreements with Burma,

Costa Rica, Honduras, Indonesia, Tunis, or Yugoslavia. In addition,for countries to which disbursements have been made under one of theprograms, a (-) indicates that no disbursements have been made fromexisting loan agreements under other programs. Blank spaces indicatethe absence of both loan agreements and disbursements.

2. The table does not include disbursements from loans repayable indollars. Under these loans, disbursements at Dec. 31, 1957 were:

Afghanistan - Mutual Security Program - $1.2 millionChile - Public Law 480 - 3.8 millionIran - Mutual Security Program - 43.2 million

Source: Report on Country Loans, as of December 31, 1957 (prepared by theInternational Cooperation Administration, Hiarch 1958).

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Table III

Loan Agreements and Loans Scheduled&nuarv - June-,195

A. Loan Agreements Concluded Under Title 1. P1480 (Sec. lOL(g&).(repayable in dollars or in local currency)

Cpuntry Amount Interest Duration(million $ equiv.) Rate (years)

Auistria 10.3 3-4% 40Colombia 12.2 3-4% 25Italy 51.2 3-4% 40Pakistan 23.6 3-4% 40Peru 2.8 3-4% 25Israel 21.0 4-5% 30Y'igoslavia 52.6 4-5% 40

173.7

NDte: The Israeli and Yugoslav loans, being part of the Fiscal1958 program, carry higher interest rates, and interestaccrues from the date of first disbursement. The otherloans, made under earlier programes, carry lower rates anda 3 year waiver of interest. In addition, PL480 loanswere made to Finland and Argentina for the equivalent of$14 million and $.2.3 million respectively. These loansare to be repaid in U.S. dollars and carry a charge of 3% pa.

B: Sales Agreements Under Title I. PLLS8(p millions)

Country Value of Planned for LoansAgreement l0L(e)-vy._ lOL(e)-Priv.Ent.

Furma 18.0 14.4 -Ceylon 6.3 2.1 1.5T'aiwan 12.1 - 3.0C2olombia 8.7 4.4 2.2Ecuador 1.8 0.9 0.5l'inland 9.0 - 2.3F'rance 25.1 - 6.3Iceland 3.1 1.7 0.8::ndia 57.0 35.1 14.2Israel 6.o 3.6 1.5:.taly 25.0 12.5 6.2]orea 50.0 - 2.0P5eru 7.8 3.5 1.9'?hilippines 4.1 _ 1.0P?oland 73.0 - -,pain 99.0 44.5 -'Turkey 52.0 20.8 7.8Jnited Kingdom 13.0 _ _7iet Nam 6.0 - 1.5Yugoslavia 65.5 46.9 _

542.5 190.4 52.7

contd.....

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C. Loan Agreements under the Xlutual1Seaurity Program

Country Amount Duration

India $20 million 18 yearsTunisia 1 40Viet NamL .3.3 30Yugoslania 8 40Burma 10 40Thailanc 7 40

All these loans carry interest rates of 32-% p.a. and are repayable indollars or local currency at the option of the debtor.

D. Loan Agreemeni and Loans Scheduled by the Development Loan Fund

During January-June, 1958, loan authorizations totaled $139 million, ofwhich $302 million was covered by actual loan agreements. Details are asfollows:

Country Amount Terms Project

Honduras $ 5.0 million* 20 years : 3B% Highways

India 140.0 " 20 " 32-% Railroads( 35.0 " 15 t : 54% Transport, jute,

and cement

Ceylon ( 1.6 " 20 " Irrigation( 0.9 " o t0 Highways

( .8 tt o Ra-ilrcads

( 3.2 ' 11 " RailroadsChina ( 2.7 " 10 " : Cement

( 0.7 " 4- " Fisheries

Israel 15.0 " 15 t Multi-project

Pakistan ( 5.5 " 30 t Water and sewage(14.2 " Industrial credit

Turkey 10.0 " 10 t Industrial De-velopment Bank

Greece 12.0 " 12 Nitrogen fertili-zer Plant

Paraguay 2.5 " Highways

* This is the first loan agreement by the DLF (May 16, 1958).** This is the first agreement with a foreign private business firm; the

contract was signed July 25, 1958.

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APPENDIX I

lJ. S.-Owned Foreign Currencies: Their Amount and -Disposition

As described in the text of this paper, the United States has acquiredtitle to a large volume of foreign currencies through the sale of surplusagricultizal products under PL 480 and Sec. 402 of the Mutual SecurityProgram. By December 31, 1957, U.S. receipts, including expected receiptsunder sales agreements as of that date, totalled 3$595 million equivalent.About 435O of this sum is scheduled to be part of the loan Programs alreadydiscussed. It is the purpose of this Appendix to review the status and useof the remaining currencies owmed by, or due to, the United States.l/ Itwill be recalled that these deposits are used for three major purposes -to meet U.S. obligations, to finance military procurement, or to make pur-chases in the foreign country for use in U.S. aid programs in third countries.

Xlhen a shipment of surplus farm products is received by the foreigncountry, the local currency value of the slhipment is deposited in a U.S.accoLut. Immediately, that portion of the deposit which is not intended forlending represents a potential claim on the real resources of the foreigncountry. By the same token, so long as the deposit is unspent, it con-stitutes a short-term loan to that country. In fact, as can be seen fromTable IV below, the U.S. has exercised its claim on foreign resources to theextenl; of about $1 billion equivalent (Col. 8). In addition, 4411 millionequivalent was disbursed on loan account (Col. 7). In these wqays, alrosthalf of the $3 billion eqcuivalent actually deposited to U.S. account hadbeen expended or lent (Cols. 5 and 6). The $2.1 billion equivalent stilloutstaLnding (i.e., cash balance plus amount due) are scheduled to be dividedalmost equally betw-een development loans and other uses (Cols. 11 - 13).

St December 31, 1957, the U.S.-owTned deposits of foreign currenciescomprised the cash balance of $1,536 million equivalent and deposits of $611millicn equivalent t3 be credited to U.S. account when shipments under exist-ing seles agreements were complete. 0f the total $2,147 million equivalent,$1,005 million wlll be available for meeting U.S. obligations, etc., and$1,13E million will be expernded through the program of long-term loans dis-cussed. in the text of this paper.

For U.S. uses, etc. For loan($ million equivalent)

Smounts accrued or due under salesagreements, July 1953-Dec. 1957 2,0o46 1,549

imount disbursed, July 1953-Dec. 1957 1,037 411

Amount outstanding, including thatdue under shipments still to becompleted, Dec. 31, 1957 1,009 1,138

1/ Th.e distinction between these U.S.-owned currencies and the so-called"counterpart funds" is discussed in Appendix II.

-1)4w

Finally, it should be noted that U.S. deposits of foreign currencieswill bE augmented as from Fiscal 1959 by repayments-on loans made inFiscal l955 under these sane progrars. In addition, repayments in foreigncurrencies will be received in Fiscal 1959 on certain T1utual Security loansoriginelly made in U.S. dollars. At December 31, 1953, $378 million ofloan agreements come under this arrangement. Similarly, repayments on loansmade by the Development Loan Fund will augment the stock of U.S.-oawnedforeign currencies.

Table IV

Status of U. S.-Owmed Foreign Currenciesa'(Dec. 31, 1957, in $ million equivalent)

Program Deposits hmount Amount Actual Disbursements Cash Deposits Total Outstanding

due under of Col. of Col. deposits For Balance still tosales (2) to (2) re- For other be made For

agree- be com- served Total loan uses- For othe

ments mitted for Total loan uses-to loan otheagree- usesJments

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)

PL 480 2,295 1,271 1,024 1,770 527 250 277 1,243 525 1,768 1,021 747

Mutual Security(Sec. 402) 1,300 278 1,022 1,214 921 161 760 293 86 379 117 262

Total 3,595 1,549 2,046 2,984 1,448 411 1,037 1,536 611 2,147 1,138 1,009

a/ Columns (2)-(8) summarize the programs on a cumulative basis through December 31, 1957. PL 480 dates

from July 1, 1954; NIutual Security from July 1, 1953. Columns (9)-(13) represent the situation atDecember 31, 1957.

b/ 'Other uses' are mainly: to meet U.S. obligations in foreign countries;to finance military procurement and to carry out other agreed purposes in the

foreign cowutries concerned;to finance purchases for third countries under U.S. aid programs.

Sources: Based on "Counterpart Funds and ICA Foreign Currency Accounts, as of December 31, 1957" - ICA;"Status of Funds under Agreements entered into pursuant to Title I, PL 480", December31, 1957 - Treasury."International Development Association" (p. 244) - Treasury submission to Hearings beforeSubcommittee of the Senate Committee on Banking and Currency, 11arch 18-20, 1958.

APPEMDIX IIf

The Distinction between U.S.-Owned Foreign* Currencies anrd Counterpart Funds

U. S.-owned foreign currencies are not to be confused with "counter-part funds" which were first established under the Marshall Plan and havebeen continued under the provisions of the Mutual Security Act of 1954.Counterpart funds are deposits of foreign currency which are wholly theproperty of the local governments, but which cannot be expended withoutU. S. approval. These deposits have been established in accord with theU. S. requirement that foreign governments set aside in a special accountthe comnrensurate value (counterpart) in local currency of certain aidreceivel on a grint basis. The funds are then used for agreed militaryand econiomic purposes. As of December 31, 1957, the cash balance of thesecounterpart funds totalled $807 million. Of these, $265 million were heldby European governments, $325 million by Far Eastern governments, and $217million by countries in the Near East and South Asia.

There is, however, one exception to the general provision that counter-part funds are owned by the foreign government. A small part of the funds(5% before 1952 and 10% thereafter) is credited to U. S. account and istherefore one form of U. S.-owned foreign currency. We have not includedthese finds in Table IV (Appendix I) because the balance is relatively small,being $23 million at the end of 1957. Nor have we included the U. S.-ownedforeign currencies acquired incidentally by the various agencies of the U. S.government and totalling $55 million.