A Study of the INJBER-AMERICAN BANK A Thesis Presented to the School of Business Administration University of Southern California In Partial Fulfillment of the Requirements for the Degree of Master in Business Administration By Luis Eduardo Laso May, 15th, 1941 UMI Number: EP43151 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI EP43151 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 & 1W I h\^t 4-/ This thesis, written by .........X3nS..^UARDQ.JLASQ............. under the direction of hX§.. F ac u lt y Committee, a n d a p p r o v e d by a l l its m em be r s, has been presented to and accepted by the Council on Graduate Study and Research in pa rt ia l f u l f i l l m en t o f the r e q u i r e m e n t s f o r the de gr ee of MSTSE.JN..3nSINES5..ADMIKISTEAIIDN.... Dean Secretary D a te .... F a c u lty Com m ittee C hairm an .Contents Chapter Page INTRODUCTION I I-II HISTORY OP THE PROJECTED INTER-AMERICAN BANK* 1-11 First Pan-American Conference Second Pan-American Conference Third Pan-American Conference First Inter-American Finance Conference Second Inter-Americah Finance Conference Sixth Pan-American Conference Seventh Pan-American Conference Eight Pan-American Conference First Meeting of Foreign Ministers of the American Republics. Panama II 2 3 3 4 6 7 7 10 1 PROPOSED LAWS FOR THE INTER-AHERICAB BANK; :I2-25 Study of the Convention Study of the Charter of the Inter-American Bank Study of the By-laws of the Inter-American Bank IIJ ' IV INTER-AMERICAN COOPERATION V THE INTER-AMERICAN BANK AS AN INSTRUMENT VII 14 15 ECONOMIC FOUNDATIONS OF INTER-AMERICAN RELATIONS VI 13 26-42' 43-59 ■ FOR HEMISPHERE COOPERATION 60-67 APPENDIX List of the appendix, see next page. i 68-86 BIBLIOGRAPHY 87-88 Appendix 't* igm w jm r Number I II III IV V VI VII VIII IX X XI Page First Pan-American Conference.-Washington,1890 Recommendations related with the adoption of a common money, and the creation of an InterAmerican Bank - - - - - - - - - - - - - - - - 68 Second Pan-American Conference.-Mexico,1902, Recommendation related with the creation of an Pan-American Bank - - - - - - - - - - - - - - 69 First Inter-American Finance Conference,1905, Washington D. C. Credits to Latin America - - 70 Third Pan-American Conference,1906, Brazil, Recommendation related with Fluctuations in Exchange — — — — — — — — — — — — — — — — — — 71 Sixth Pan-American Conference,La Habana,Cuba. 1928. Recommendation related with the adoption of a common money - - - - - - - - - - - - - - 72 First Inter-American Conference for the Maintenance of the Peace, 1936, Argentina,, Recommendation related with monetary stabili zation- - - - - - - - - - - - - - - - - - - - 73 Imports of Latin American countries from the United States and Germany.-1929,1932 and 1938- 78-79 Long Term Investment of the United States, Great Britain, France and Germany in Latin America - - - - - - - - - - - - - - - - - - - - 80 Foreign Exchange Rates in Latin America - - - - 81 Position of Latin America in the Foreign Trade ■ of the United States, 1929-1939 ---World Trade.- United States Forfefegn Trade.-Latin American Forfefegn Trade . 1929 to 1938 82 83 XII Foreign Trade of the Twenty Latin American Countries with selected countries 1929 and 1938 84 XIII Approximate distribution of the total World’s trade and the share of the Western Hemisphere, 1938 85 INTER-AMERICAN BANK INTRODUCTION The problem of the Inter**American Bank may be studied from various points of view. Peculiar problems and difficulties are presented to the investigator because of the diversity and extensiveness of the subject. The difficulties of this work arise from many points. Sometimes they come from the lack of agreement among the economists about those principles which might be utilized as tools for scientific investigation. It is a well known fact that Economics as a social science does not have the facilities of a mathematical science. Other difficulties also arise when a person endeavors to select the correct viewpoint. This problem is due to the fact that changes in the complicated economic mechanism, accord ing to the different interestsf actually play a dominant role in economic activity. Many of them are engaged in an opposing struggle. Sometimes in a country these different interests may be offset but the difficulties arise when on tries to place them In relation to the interests of another country. If we remember that a complete treatment of this subject would involve a consideration of the diverse characteristics II of production and consumption in each of the American countries, as well as the problems of foreign trade, custom tariffs, gold problems, domestic and international credit, capital investments, prices, and so forth, we get an idea of the number of different factors which might be treated. Therefore, the scope of an individual work must necessarily be limited. However, in spite of these difficulties, the idea of solidarity and good will come forth at this time with more intensity than ever before perhaps among the several American countries in the north and in the south. Common dangers and common Interests have brought these ideas to the fore. To clarify the way In which these institutions, dedicated to the furtherance of continental solidarity, could be established is a duty of Inestimable value. This was the writer*s purpose when he selected the thesis of the Inter-American Bank, and such a purpose, in itself, Justifies all attempts and forgives all errors. CHAPTER I HISTORY OP THE PROJECTED INTER-AMERICAN BANK On September 23, 1939, amidst the world wide confusion attending the outbreak of war in Europe, the Foreign Ministers of the American Republics met in Panama to discuss measures to be taken in order to keep the New World out of the conflict and to devise means by which the nations of the Western hemisphere could adjust themselves to the Impact of the European war. The numerous economic questions inevitably connected with any discussion of hemisphere cooperation were referred to an Inter-American Financial and Economic Advisory Committee. Among the tasks of this committee was the drawing of plans for the creation of an inter-American bank, designed to promote "a fuller exploitation of the natural resources of Latin America in order to Intensify economic and financial relations among the American countries and to mobilize for the solution of economic problems the best thought and experience in the Americas. Although given new impetus under the pressure of war and threat of aggression, demands for a closer economic and financial integration of the American Republics have been con1 "Inter-American Bank," Federal Reserve Bulletin, Washington, D. C. June, 1940, p. 61?. ~ tinually voiced over a period of more than fifty years. Ever since the ideal of American solidarity was crystallized in the formation of the Pan-American Union, the need for economic cooperation among all American Republics was recognized as a basic condition of peace and prosperity as well as of any po litical and oultural nappoiit among the several republics of the South and North. From the first International American conference in 1890 to the present day, questions of economic cooperation, have been on the agenda of inter-American meetings. Problems of economic collaboration naturally brought into focus the need for monetary stability and for greater unity and uniform ity in matters of banking and currency. Stable exchange rates, a common ourrency for all American countries, the gold stand ard, establishment of central banks for more effective monetary control, and, finally, the creation of an inter-American bank, were continuous topics of conversation. The resolutions and recommendations of the successive Pan-American conferences clearly indicate how the desirability of, and need for, eco nomic and financial collaboration was recognized by all Amer ican nations. The first International American conference, held at Washington, D. C. in 1890, was called mainly for the purpose of considering the adoption of a uniform coinage, to be issued within each country by the respective governments. This con- ferenoe also brought up, for the first time, the project for the establishment of an inter-American bank. ^ Both these proposals, however, remained in the stage of discussion and failed to elicit positive action. In 1902, the second International Conference of the American Republics held at Mexico City.reiterated the recom mendations of the previous conference, again urging the ore s’ ation of an Inter-American Bank. Another meeting was held in 1905, once more in Wash ington, D. C. It was the first Inter-American Financial Congress, whose main objective was to study measures to facil itate the extension of credits by United States business men and bankers to Latin America.4 In the following year, 1906, the third International American Conference met in Brazil. The problems of exchange fluctuations were the principal topics on the agenda of this Conference. Ways and means were discussed by which such fluc tuations could be avoided and stability of exchange rates as sured. P ^ See appendix 1 3 See appendix 2 4 See appendix 3 5 See appendix 4 In 1915, another International Financial Conference was held in Washington. The outbreak of the World War had created special problems affecting all American Republics and it was the task of the Conference to work out measures to cope with these war difficulties. The delegates stressed the fact that the financial and trade dislocations attending the European War had found the American countries unprepared and had plunged them into a de plorable state of economic disruption. This state of affairs, in the opinion of the representatives, demonstrated more em phatically than ever before, the need for the creation of some sort of inter-American organization which could serve to co ordinate and equilibrate the economies of the several American states. Such an organization, they felt, would be a great boon and the best defense for the economic, industrial, com mercial and financial, of the American nations. Their concrete suggestion for the creation of such an organization which could serve as a center of balance was, once again, the establishment of an Inter-American Bank. At last it seemed as if, under stress of war and with the inspiration of a common political cause, something might be done to further the old project of an inter-American bank, as well as of other methods of monetary and financial collab oration reiterated at each previous conference. The time seemed propitious for pushing these plans beyond the verbal stage and actually to put them into operation. The working out of details for specific proposals was entrusted to a commission of experts, appointed for that pur pose hy the Conference. The commission began its work a year later and, at the conclusion of its studies, sent to the PanAmerican Union a Memorandum containing a series of recommen dations for monetary and banking cooperation among the Amer ican nations. The memorandum emphasized the importance of exchange stability and, to achieve this end, urged adoption of the gold or gold-exchange standard by all American nations, as well as the establishment of eentral banks in all those countries which as yet had no such institutions. In one of its memorandum, the commission also pointed to the desirability of creating an Inter-American gold fund in order to make unnecessary the shipment of gold between countries in settlement of balances. If each country had a deposit in the common fund, the memorandum stated, all gold movements would be reduced to simple debit and credit entries on the books of the fund, while each country could continue to use its share of the fund as part of its monetary reserve. Such an arrangement would have represented an extension of the United States gold settlement fund to the entire Western hem isphere. The old idea of a uniform currency for all American countries was also studied "by the commission. But it con cluded that the adoption of a common coinage was an ideal im possible of realization and that the only advisable measure would be the adoption of a common unit of account, 6 while the coinages of the several countries were to be left unchanged. The various suggestions and recommendations of the com mittee of experts were finally approved by a Second InterAmerican Financial Conference which met at Washington in 1920, The prompt adoption of all the proposed measures wan urged upon the countries of North and South America. In response to the Committee's appeals several countries established central banks; Colombia, in 1923, Chile in 1925, Bolivia in 1926, Ecuador in 1927, and Peru in 1929. Several countries which already had national banks, such as Argentina, Brazil, Uruguay, Nicaragua, Costa Rica, changed the laws regulating their insti tutions in order to improve their capacity to function as cen tral banks. Later Argentina, (1934) and Brazil (1939) also created special central banking institutions. Although these steps undoubtedly represented a con siderable advance in hemisphere financial cooperation, they fell far short of the stated objectives. Nothing further was done about the plan for an inter-American bank, the common 6 The commission suggested a standard unit equivalent to 0,33437 grams of gold, 9/10 fine, with fractions and multi pliers according to the decimal system. standard unit of account and the gold settlement fund. The sixth Inter-American Conference meeting at Havana, Cuba, in 1928, therefore, reiterated these goals, stressing in particular the need for greater unity and uniformity among *7 the currencies of the several countries.' As usual, however, the Conference adjourned with pretty speeches, but without following them up with action. The situation, therefore, was practically unchanged when the seventh International Conference met at Montevideo, Uruguay, in 1933. The urgent need for action, however, had by this time once more been driven home with great emphasis as a result of the confusion and despair caused by the great eco nomic crisis. The Hew World, as well as the old, was in a mood for reform even if it involved drastic steps. Under the impetus of the Hew Deal economic policy in the United States and the atmosphere of the “good neighbor11 sentiment, the Montevideo Conference promised to be more fruitful than its predecessors. Quite naturally, this Conference again dealt very largely with economic and financial problems, such as customs duties, currency stabilization, the possibility of adopting a 'uniform monetary system, etc,, and again, as so many times be fore, this Conference unanimously approved the project for the 7 See appendix 5 creation of an international American bank. Among the resolutions and recommendations pertaining to economic and financial questions, the Montevideo Conference passed three which appeared to be of outstanding significance and, therefore, deserve special mention. The first was a resolution® taken on a motion by the Secretary of State of the United States and dealing with matters of tariffs and of economic and commercial policy. The Governments of the American republics, according to this resolution were "impressed with the disastrous effects of the obstruction to international trade upon the full and stable business recovery of individual nations as well as upon gen eral world prosperity" and, therefore, were "desirous of aban doning economic conflict and of achieving some measure of eco nomic disarmament." They were "confident that through mutu ally profitable exchange of goods they themselves and the governments of the other nations of the world could reduce un employment, increase domestic prices, and improve business conditions in their respective countries" and, therefore, re solved to promote trade by reducing high tariff barriers, by the negotiation of reciprocity treaties, bilateral or multi lateral agreements, etc. Thus, the keynote was sounded for a new epoch in the 8 Seventh International Conference of American States, Minutes and Antecedents, Montevideo, 1933, Inaugural Session, December 3, 1933, pp. 40-41. international trade of the American countries. Since that time a large number of such agreements 'have been" negotiated and trade nearly doubled. The second resolution 9 referred to currency stabiliza tion and the possibility of adopting a common monetary system. In its desire to achieve currency stability the Conference reflected a universal demand which only a few months pre viously had been the chief topic of discussion at the London Economic Conference. But in the opinion of the delegates, the traditional gold standard could no longer be regarded as a satisfactory solution for monetary stabilization. Instead, a closer cooperation among central banks was urged as more likely to achieve this purpose. The third resolution dealt with the establishment of an inter-American bank.’*'® Three delegations independently TT submitted plans for the creation of such an institution. M "It is urgent," said the subcommittee, presenting the report On that question, "to create an Inter-American organization which shall be capable of putting coherence and order into the life of international economic relationship among the 9 Ibid., pp. 39 ff. 10 Ibid., pp. 39 ff. ^■1 The institution was to be called "Inter-American Organization of Economic and Financial Cooperation, compris ing two bodies: one a consulting Economic Commission, the other an Inter-American Bank. 10 American States, and shall act as a real regulating factor for moderating and tempering the pressure of the economic forces which are today unbalanced." The resolution urging the creation of this Inter-American Bank was referred to the third Pan-American Financial Conference which was to take place in Santiago, Chile. But the Santiago Conference never materialized and the next meeting of the American States, the Inter-American Con ference for the Maintenance of Peace, special conference,which was held in Buenos Aires, 1936, did nothing to promote the establishment of an inter-American bank, although it did take up, in rather perfunctory manner, the question of monetary stabilization. problems of economic and financial cooperation were once more taken up by the Eighth International Conference of American States at Lima, Peru, in 1938. That Conference re iterated the basic principles which had been adopted in 1933 and 1936, stressing particularly the need for eliminating re strictions and limitations on international trade, and urging the extension of the most favored nation clause. The Pan-American Union revived the question of an inter-American bank by proposing the creation of such an institution to the Conference. But the Conference limited itself to a recommendation that "the Pan-American Union should continue its activities in this field in order to give full effect to the objectives sought in the afore-mentioned 11 13 proposal.” Again, nothing had been accomplished. Thus, over half a century, lip service had been paid to the ideals of economic and financial unity in the Western hemisphere, yet no significant steps were taken to bring these ideals to fruition. Minor successes were achieved, especially when particularly bad economic conditions, for in stance in 1933, made action imperative. But on the whole, inter-American economic and financial relations have changed, if at all, for the worse rather than for the better. Espe cially the stability of currencies and exchange rates leave much to be desired. For many years the Latin American coun tries have suffered from exchange difficulties leading to trade restrictions which, in turn, had adverse effects on the prosperity of the several nations. The creation of the inter- American bank, so consistently advocated by successive InterAmerican Conferences might well have proved to be the means of alleviating, if not of eliminating, these difficulties and of assuring a greater prosperity for all American nations. It remains to be seen, if, under the impact of the present world crisis, words will finally be relinquished for deeds; if the plea of the Panama Conference for the estab lishment of an inter-American bank as "a center of economic stability and equilibrium" will meet with better success than its predecessors. 12 j|ee appendix 6 CHAPTER II PROPOSED LAWS FOR THE INTER-AMERICAN BANK There are indications that the project for an interAmerican bank is nearer to being realized now than It ever was before. At any rate, the recommendations of the Conference of Foreign Ministers have progressed from the verbal stage to specific proposals which have been followed by action on the part of several of the American governments. The Inter-American Financial and Economic Committee which was created by the Conference for the purpose of formu lating measures of economic defense began its work in Washington in November, 1939 formulating plans for the Inter-American Bank. After three months of intensive work the committee pre sented three projects to the different American countries. The first one related to a convention that might be signed by the governments of the American Republics, who wished to participate in the new bank. A second project con sisted of a charter for the projected Inter-American Bank, to be adopted by the Congress of the United States of America and to be incorporated into a law establishing the bank as a corporation operating under the jurisdiction of the United States. The third project was devoted to the by-laws of the proposed Inter-American Bank. Let us examine briefly each of the three projectst 13 I. THE CONVENTION The convention represents the agreement or contract to he signed by all the American Republics desiring to participate in the new institution# The convention enumerates all the powers, rights, and privileges which the several Republics agree to give to the bank in order to enable that institution to engage in the various activities, transactions, and operations envisaged in the charter and by-laws# Besides, it pledges these same governments to the enactment of any legislation necessary to effectuate and protect such powers, rights and privileges# In addition, the convention contains a declaration by the government of the United States of America to the effect that the latter will grant to the bank a charter substantially in accordance with the charter proposed by the committee# Finally, the convention contains the declaration of the participating governments to the effect that they agree to subscribe to the minimum number of shares required for par ticipation in the bank as provided in the by-laws* The rights, privileges, immunities, and exemptions that the several governments grant to the bank are enumerated in full in the text of the convention# It provides, for the protection of the bank, that its assets, obligations to it, as well as its real and personal property of whatsoever nature, shall be exempt and immune from requisition, seizure, 14' attachment, execution, confiscation, moratoria, and expropiation, etc. Also, each country agrees to make available to the bank, regardless of any existing exchange restrictions, foreign exchange and precious metals, which the bank may require in exchange for local currency acquired by it as a result of loans, discounts, extensions of credit, etc. It is furthermore provided that the bank and its assets shall be exempt and immune from any and all taxation. Lastly, the converit'fon deals with all the requirements of international law, XI. PROPOSED CHARTER OF THE INTER-AMERICAN BANK The Charter drawn up by the Committee was to bestudied by the Congress of the United States and enacted into a law. The Inter-American Bank was to function as a United States Corporation, Among the principal provisions of the charter are the following: 1, Authorization is granted for the functioning of the Inter-American Bank in the United States, according to the by-laws annexed to the convention. 2, The bank may begin operations when at least a total of 145 shares of stock of the bank have been subscribed at least five governments. to by 15 3* The charter of the bank shall be valid for a period of not less than twenty years, this period to be extended for additional twenty year periods upon the request of the bank pursuant to a four-fifths majority vote of the board of directors of the bank* 4* Authorization is granted for amendments to the by laws of the bank, by a four-fifths majority vote of the board of directors* This provision refers to all articles of the by-laws except article 5A, which may be changed only with the unanimous consent of the representatives of all the partici pating governments* 5* The bank is authorized to adopt, alter, and use a corporate seal; also to sue and to be sued, complain and defend in any court of competent jurisdiction. III. BY-LAWS OF THE INTER-AMERICAN BANK The by-laws of the inter-American bank are grouped in six different chapters: I. II. III. Capital structure and participation Management IV. Accounts and profits V* Purposes and powers VI. I. Location LOCATION. Interpretations and definitions The principal office of the bank is to be located in the United States. At least one branch, or agency of the hank shall he established in the territory of every Qther participating government* II. CAPITAL STRUCTURE AND PARTICIPATION. A Capital of $100,000,000 is authorized, consisting of 1000 shares having a par value of $100,000 each. Shares are to he paid for in gold or in United States dollars. Fifty per cent-of the issue price of each share is to he paid at the time of subscription and the balance may he called at a later date or dates, at the discretion of the hoard of directors of the bank.1 The different governments are classified according to the by-law, as follows: Group A...Up to 25 million dollars: Costa Rica, Ecuador, El Salvador, Haiti, Honduras, Nicaragua, and Paraguay............................... Group B...Over 25 million dollars and up to 50 million dollars: Dominican Republic, Guatemala and Panama. 5 shares 10 shares 1 An exception is made for shares subscribed to by Governments in groups A, B, and C, which are to be paid for in the following manner: 25$ at the time of subscription, another 25$ within 12 months after subscription. The bank may call for payment of the rest at its discretion, but shall not require any government in such groups to pay more than 25$ of the issue price within any twelve months period. 17 Group C...Over 50 million dollars and up to 75 million dollars: Bolivia...... ...................... . 15- shares Group D...Over 75 million dollars and up to 100 million dollars: Uruguay. ............ 20shares Group E.,.0ver 100 million dollars and up to 150 million dollars: ........ ....... . Peru 25 shares Group F...0ver 150 million dollars and up to 250 million dollars: Chile, Colombia andCuba.......... 30 shares Group G...0ver 250 million dollars and up to 500 million dollars: ............ . Mexico and Venezuela. 35 shares Group H •••Over 500 million dollars: Argentina, Brazil and United States...... 50 shares This number of shares in each case, represents the minimum subscription required by the law. However, each parti cipating government may subscribe for additional stock if it so desires. Governments of American Republics not participating in the bank at the time of its formation or having withdrawn from participation in the bank, nevertheless retain the privi lege of subscribing to the stock of the bank at any subsequent time, provided they comply with the regulations of the bank. The capital- structure of the bank, including the number and par value of shares may be increased or decreased by a four-fifths majority vote of the board of directors. A unanimous vote of the representatives of all of the participating governments shall be required to increase or 18 decrease the minimum holdings of participating governments* The voting power of the participating governments on the board of directors shall be distributed as follows: twenty votes for each government for its minimum shares, and one vote for each additional share. However, regardless of the amount of stock owned by it, no government shall have a voting power in excess of fifty per cent of the total voting power of all the other participating governments. The chapter of by-laws dealing with capital structure and, participation contains two paragraphs which require special comment. Paragraph (3) reads as follows: If a government defaults on any other obligation to the Bank, the Bank may, after taking reasonable action to realize on any other collateral given to secure such obli gation and after giving reasonable notice to such government, vest in itself title to an appropriate number of shares belonging to such government and apply to the defaulted obligation the fair value of such shares, as determined by the Bank. The purpose of this provision is to give the bank ad ditional security by empowering it to seize the shares of de faulting members. A provision of this sort, while apparently desirable from the point of view of strengthening the bank, must, never theless, have a discouraging effect upon the financially weaker members of the American family of nations* It might have been better to omit this clause in the interest of promoting greater confidence and a better understanding. It should not seem necessary to permit the bank to proceed against its stockholders, who, after all, are friendly governments, in a manner more drastic than is permitted to any ordinary corporation in dealing with its stockholders. Again in paragraph (4) it is provided that, If, after a government has had a reasonable opportunity to present its position to the Board of Directors, the Board by a four-fifths majority vote finds that such government has violated any provision of the Convention relating to the Bank, such government shall cease to parti cipate in the Bank, but its obligations and duties with respect to the Bank shall continue and the Bank may vest in itself title to an appropriate number of shares be longing to such government and apply the fair value of such shares as determined by the Bank to compensate the Bank for such damages as the Bank determines it suffered by reason of such violation. This clause as the preceding one, seems unnecessarily harsh and not calculated to promote the confidence and good will of the smaller countries which are most likely to be affected by it, but whose whole-hearted cooperation is, never theless, essential to the success of the project. III. MANAGEMENT. The administration of the bank shall be vested in a board of directors composed of one director and one alternate appointed by each participating government. Such directors shall serve for a period of two years. Meetings of the board of directors shall be held not less than four times a year, and may be held either at the main office or any branch office or at any other city in a participating country as the board may determine. The board of directors shall select a president of the hank who shall be the chief of the operating staff of the bank* The board of directors may also appoint from among its members an executive committee* The board of directors may appoint advisory committees chosen wholly or partially from persons not regularly employed by the bank* IV. ACCOUNTS AND PROFITS. The financial year of the bank shall end on December 31 of each year* The books and accounts shall be expressed in terms of dollars* The bank shall publish an annual report and at least once a month a statement of account* The yearly net profits of the bank shall be applied as followst 25% or more into surplus j 5% per annum as dividends on the paid up amount of the stock of the bank; the balance, if any is left after these dispositions, to be transferred surplus, or by a four-fifths majority vote of the Board of Directors, to be disbursed as additional dividend* V. PURPOSES AND POWERS. The bank is to carry out the follow ing purposes: (1) Facilitate the prudent investment of funds and stimulate the full productive use of capital and credit* (2) Assist in stabilizing the currencies of American Republics; encourage general direct exchanges of the currencies of American Republics; encourage the maintenance of adequate monetary reserves; promote the use and distribution of gold and silver; and facilitate monetary equilibrium* (3) Function as a clearing house for, and in other way facilitate, the transfer of international payments* 21 (4) Increase international trade, travel, and exchange of* services in the Western Hemisphere. (5) Promote the development of industry, public utili ties, mining, agriculture, commerce and finance in the Western Hemisphere* (6) Foster cooperation among the American Republics in the fields of agriculture, industry, public utilities, mining, marketing, commerce, transportation and related eco nomic and financial matters. (7)' Encourage and promote research in the technology of agriculture, industry, public utilities, mining and com merce. (8) Engage in research and contribute expert advice on problems of public finance, exchange, banking and money as they relate specifically to the problems of American Republics. (9) Promote publication of data and information re lating to the purposes of the Bank. B. In order to carry out the foregoing purposes, the bank shall have specific power to: (1) Make and grant short-terms, intermediate and long term loans and credits in any currency and in precious metals to participating governments and to fiscal agencies, central banks, political subdivisions and nationals thereof; provided that any such loan or credit having a maturity exceeding two years to any such fiscal agency, central bank, political sub division or national shall be guaranteed by the government thereof, and provided further that any such loan or credit having a maturity not exceeding two -years shall not be made or granted by the Bank to any such fiscal agency, central bank, political subdivision or national if the government thereof makes a timely objection. (2) Buy, sell, hold and deal in the obligations and securities of any participating government and of”fiscal agencies, central banks, political subdivisions and nationals thereof, unless such government makes a timely objection to the purchase thereof; provided that such obligations and se curities having maturities exceeding two years as are not the direct liability of such government are guaranteed by such government; and provided, further, that the Bank shall not buy obligations and securities that are in default in whole or in part as to principal or interest. 22 (3) Guarantee in whole or in part credits and loans made from any source to any participating government and to fiscal agencies, central hanks, political subdivisions and nationals thereof, provided that such credits and loans having maturities exceeding two years a3 are not direct obli gations of such government are guaranteed by such government, and provided further that such credits and loans having matu rities not exceeding two years as are not direct obligations of such government shall not be guaranteed by the Bank if such government makes a timely objection* (4) Act as a clearing house of funds, balances, checks, drafts and acceptances* (5) Buy, sell, hold and deal in precious metals, cur rencies and foreign exchange for its own account and for the account of others; provided, however, that no such transaction shall be entered into with a fiscal agency, central bank, po litical subdivision, or national of a participating government, if such government makes a timely objection; and guarantee the availability and the rates of exchange of the currencies of participating governments* (6) Iasure or sell debentures and other securities and obligations of the Bank to pbtain assets for the purposes of the Bank, provided that such debentures and other securities and obligations shall not be issued or sold by the Bank in the territory of any participating government which makes a timely objection* The Bank may also borrow in any other manner from participating governments, and from political subdivisions and banking institutions thereof unless the government of the lender makes a timely objection* (7) Accept demand, time, and custoyd deposits and ac counts from others, including participating governments and fiscal agencies, central banks, political subdivisions and nationals thereof unless the participating government makes a timely objection; provided that the Bank shall pay interest, if any, only on deposits of governments, fiscal agencies and political subdivisions thereof and central banks* (8) Discount and rediscount bills, acceptances and other obligations and instruments of credit of participating governments and fiscal agencies, central banks, political sub divisions and nationals thereof, provided that such paper having maturity exceeding two years as is not the direct obli gation of such government is guaranteed by the government, and provided further that such paper having a maturity not exceed ing two years as is not the direct obligation of such govern ment shall not be discounted or rediscounted by the Bank if such government makes a timely objection* 23 (9) Rediscount with any government, fiscal agency or hanking institution hills, acceptances and instruments of credit taken from the Bank's portfolio; provided, however, that the Bank may not rediscount with a fiscal agency or a hanking institution in the territory of a participating govern ment which makes a timely object ion* (10) Open and maintain demand, time, and custody de posits and accounts with governments and hanking institutions and arrange with governments and hanking institutions to act as agent or correspondent for the Bank, unless such hanking in stitution is situated in the territory of a participating government and such government makes a timely objection* (11) Aet as agent or correspondent for any participat ing government and for fiscal agencies, central hanks and political subdivisions thereof, unless the government makes a timely objection* (12) Engage in financial and economic studies and pub lish reports thereof. (13) Buy, sell and deal in cable transfers, accept hills and drafts drawn upon the Bank, and issue letters of credit; all subject to the limitations herein provided with respect to loans, extensions of credit, discounting and re discounting of paper, and dealing in obligations and securi ties * (14) Adopt, alter and use a corporate seal; acquire, own, hold, use or dispose of such real and personal property as may be necessary for the transaction of its business; and make contracts subject to the limitations herein provided* (15) Exercise incidental powers necessary and proper to carry out the powers expressly authorized herein* C. The Board of Directors shall determine the nature of the operations which may be undertaken by the Bank in the exercise of its powers and in order to effectuate its purposes. The operations of the Bank shall at all times be conducted in conformity with the laws of the territory where the Bank is acting and, so far as possible, be conducted in conformity with the policies of the participating government directly concerned* The comprehensive and extensive powers which would 24 enable the bank to function as an international central bank and a supreme agency of economic coordination for all the Americas may be summed up under these headings, as follows: (1) Powers relating to the investment of capital. (2) Powers relating to the stabilization of all American monies. (3) Powers relating to the cooperation among the American Republics in the scientific fields research, technical advice and statistical information. The powers dealing with the investment of capital cover a wide field, extending from the direct granting of long-term loans to the indirect credit operation, such as, buying, selling, holding, and dealing in the obligations and securities of any participating government and the guaranteeing of credits and loans made from any source* The bank, also, has the power to issue or sell its own debentures and other securities and obligations in order to obtain the funds necessary for its operations. The powers through which the bank is to promote mone tary stabilization include:, the granting of short-term and intermediate loans in any currency and.in precious metal; the holding of clearing funds, for the purpose of clearing balances checks, drafts, acceptances and other obligations; the maintaining of deposits and accounts. Finally it is the purpose of the bank to encourage 25 and promote the technology of agriculture, industry, public utilities, mining and commerce of all the American Republics, and to contribute expert advice on problems of public finance, exchange, banking and money as they relate specifically to the problems of American Republics. VI. INTERPRETATIONS AND DEFINITIONS. The last chapter of the by-laws contains definitions, and interpretations of terms, used in it. The convention for the establishment of the InterAmerican Bank was signed, in May, 1940, by representatives of the United States, Brazil, Mexico, Colombia, The Dominican Republic, Bolivia, Ecuador, Nicaragua, and Paraguay. Shortly, thereafter, the Congress of the United States issued a charter for the proposed bank. All that remains to be done before the bank can actually start operation is ratification of the Con vention by all the participating countries. CHAPTER III ECONOMIC FOUNDATIONS OF INTER-AMERICAN RELATIONS At every one of the many inter-American meetings, at which since 1390, the proposal for the establishment of an Inter-American bank was brought up, the-objectives which such an institution was expected to pursue were, of course, stated But such statements were couched in the conventional highsounding and rather meaningless phrases of inter-national meetings. They affirmed the need for close cooperation among the several American Republics, the desire of each to assist the others in the realm of economic relations, and the need for the establishment Of some “center of equilibrium*11 To obtain a clearer picture of what such economic co operation entails and of how an inter-American bank could function as a center of equilibrium, it is necessary first of all to keep In mind some basic facts about the economic con ditions of the several American Republics, of their economic relations with one another and with the non-American world. For purposes of description in economic terms the western hemisphere must be divided into two great areas— not the geographical division between North and South American, the dividing line for which Is usually thought of as running through the Panama Canal— but into the United States on the one hand and all of Latin America on the other hand. The 27 third great geographical area of this hemisphere, Canada, is not, as a general rule, included in discussions of interAmerican economic problems, as it is also excluded from all inter-American meetings* The reason for this exclusion is that Canada was, in effect, as part of the world's sixth continent, the British Efopire. Its economy was so closely woven into the pattern of Empire economics that Canadian interest have never been identified with the interests of the other American Republics* On the other hand, Canada has long maintained close and extensive economic relations with the United States, of whose economy it might, in fact, be said to be simply an extension. This close collaboration has been notably furthered, in recent months by virtue of the common war effort of the two countries* In short, from the point of view of the hemisphere economy, Canada must be excluded altogether or viewed as part and parcel of the United States* The United States is, by far, the largest industrial power of the western hemisphere, in faet, of the entire world* It is a country endowed with enormous wealth in material re sources which have been developed to a high degree* In its manufacturing power, this country exceeds any other— more steel, more coal, more oil and chemical products, more manu factured goods of almost any description are produced in the United States than anywhere else in the world* At the same time the United States is also one of the leading agricultural 28 producers# In fact, until the beginning of the present century, agricultural production accounted for the largest part of the Income of the United States, and even today the majority of those gainfully employed are engaged in agriculture. Traditionally the world’s principal source of cotton, the United States produces many other agricultural products such as corn, fruits, wheat, tobacco, in excess of its domestic consumption. The United States is both a manufacturing and an agricultural economy# In contrast Latin America produces hardly any manu factured goods. There are few factories in the countries of South and Central America and the general capitalistic develop ment of these countries lags far behind that of the United States# Even transportation facilities such as roads and railroads, as well as public utilities, gas, electricity, etc., are in a most rudimentary state of development except in the very large cities. But, like the United States, Latin America harbors uncounted wealth in mineral and agricultural resources. The economic role of Latin America has been that of providing the rest of the world, specially the manufacturing States, with many essential raw materials and foods. Copper, tin, lead, zinc, manganese, silver and many other important minerals are produced in large quantities in Latin America. In the production of oil Latin America ranks second only to the United States with Mexico and Venezuela 29 the principal producers* The most important copper deposits of the world are found in Bolivia, Chile, and Peru* has long been the world's only source of nitrates* and Trinidad contain vast deposits of asphalt. Chile Venezuela This list could he extended indefinitely but the few examples given here should suffice to indicate the importance of Latin America as a supplier of raw materials. There is, in fact, not a single mineral which is not to be found in that rich area, most of them are produced in large quantities, and for some Latin America is the only- source.1 A similar abundance may be found in Latin America's other resources. Virtually inexhaustible supplies of woods and other forest products are available there, among them the finest cabinets woods, such as mahogany, rosewood, ebony, cedar, and many other. wood. Venezuela alone produces some 600 species of In addition a wide range of medicinal plants, nuts, tanning materials and dyewoods are found in Latin America. Agricultural production, too, is very extensive. The tropical and sub-tropical regions of Latin America produce vast quantities of coffee, sugar, tobacco, cotton, fruits, spices, etc., while in the more temperate areas are grown such crops as wheat, corn, flaxseed, and other cereals, fruits, 1 U. S. Tariff Commission. The Foreign Trade of Latin America, Part I, Washington, 1940. 30 and vegetables* Here again as in the production of minerals and forest products Latin America is in some cases the world’s sole or principal provider while on the other hand there are hardly any varieties of these products that may not be found within its borders. Finally Latin America also possesses an important pastoral industry* Particularly the countries of the South, Argentina, Brazil, Uruguay and Paraguay contain vast resources of livestock and produce huge quantities of meat. In short Latin America possesses practically every conceivable kind of raw materials and its economy is geared entirely to the exploitation of these natural resources* The United States, on the other hand, while also a rich source of raw materials, and also largely engaged in the exploitation of these resources, has increasingly applied its economy to the processing of these products and to the production of manu factured goods of all varieties. Because of its economic universality the United States has not only become the richest country but has also become more nea.rly self-sufficient than any other country in the world. With a few exceptions the United States need not rely on any foreign sources of raw materials and finds markets for the great majority of its varied products in its own territory. Foreign trade for this reason is of but secondary importance to the United States. This is borne out by trade statistics which show that the total foreign trade of the United States amounts to less than 10% of the total trade of the nation while the comparable figure for England, for example, would be more nearly 40$* This is not to say, as many people hastily do say, that the foreign trade of the United States is not of paramount significance .to the welfare and prosperity of the nation. On the contrary, the country foreign trade, small though it may be relative to its domestic trade, occupies a strategic position in its economy, A. falling off in the ex ternal trade may well be a prelude to more serious internal economic disturbances and for this reason the United States has jealously maintained its external trade position and policy* But it is true that a complete cessation of inter national economic relations would probably be less disastrous to the United States than to any other civilized country, with the possible exception of Russia. Latin America is not in the same happy situation* Despite its enormous potential wealth which could and possible will eventually be the basis upon which that region could achieve economic seIf-sufficiency, Latin America is today almost entirely dependent upon its foreign trade* Except for some foodstuffs which can be used in their raw, unprocessed state, and for some goods processed or manufactured in the Latin American countries, the latter must import all the articles of consumption and tools of production. Conversely 32 they depend upon foreign countries to buy the bulk of the raw products which are produced in excess of Latin American con sumption needs or which cannot be processed in Latin America for lack of technical skill and equipment. This dependency on external trade may again be ex pressed in percentages. Although the total foreign trade of the Latin American countries is less than that of the United States, it accounts for a much larger proportion of the total trade and of the total incomes of those Nations. Statistics of this two latter magnitudes are not available and therefore only a guess may be ventured. The foreign trade of Latin America accounts probably for upward of 30$ of the total trade as against the less than 10$ figure applicable to the United States. A further grave disadvantage arises to Latin America from this dependence upon foreign trade. While the Latin Americans must buy manufactured goods in a sellers market, they are forced to sell their own products in a buyers market. A great many of the manufactured products sold to Latin America, as indeed, all over the world, are produced by giant corporations operating under conditions of monopoly, oligopoly, or highly imperfect competition. For this reason, these com panies are in a position to determine the prices at which they will sell their goods, and furthermore, can also afford to maintain their price policies even in the face of sharply 33 declining sales, since the Latin American market is not of paramount importance to them. For example, automobiles, trucks and tractors are bought almost exclusively from the United States. Germany enjoys a virtual monopoly in pre cision instruments, e.g., optical and photographic products. England has long dominated the market for certain textile products. The prices of these products are quite naturally not established in a competitive market but depend exclusively upon the decision of the sellers. It is true in spite of the increasing monopolization of manufacturing industries, some modicum of competition still exists and that this competition has been particularly evident in Latin America in recent years. Since the advent of the Hitler regime in Germany, that country has made a powerful bid for Latin American trade, based primarily on price competition. In many cases on record, German exporters, subsidized by their Government, have been able to offer their products at one half and sometimes at as low as one tenth the prices charged by their competitors in Great Britain and the United States. This development has, in fact, posed one of the greatest problems in international relations to the United States and Great Britain and will be taken up again at subsequent points. Nevertheless, the cut-throat German competition not withstanding, it is questionable whether this recent spurt in competition has had as far reaching effects on the Latin American economic condition as is generally supposed. For, after all, this competition is limited to a rather narrow range of products. In many cases competition is practically if not entirely fictitious. For instance, if a Latin American wanted to buy an automobile from a British or a German firm, he would still buy it from General Motors or some other United States automobile manufacturer who controls the foreign plants. Again, if he wanted to buy an American rather than a German optical good--camera or film--he would still buy it from the same concern which controls the entire optical in dustry of the world* In other words, many of the important manufacturing industries are controlled by international cartels which permit but a semblance of competition among their constituent enterprises if they do not openly divide the world markets among them. Again, the offer of a lower price by a foreign competitor frequently does not enable the Latin American purchaser to make a choice in his favor, since he may be forced by contract to purchase from a particular source* In a majority of cases where loans were extended to Latin American countries by the United States, Britain, Germany or other capitalistic powers, the loan contract stipulated that goods, materials, technical experts, and sometimes even labor had to be procured from the lending country and from particular firms in those countries. Naturally, in almost every case, 55 the prices charged for such goods and materials and expert advice were high if not exorbitant* While import goods are thus dearly bought, the materials exported by Latin America generally fetch very low prices* The explanation for this condition lies in the fact that the supply of these goods is in the hands of many competitive producers and that the output is almost impossible to control except on a world wide basis* For example, many of the Latin American covintries produce coffee and compete with each other for the available demand* If the supply of coffee turns out to be so large as to drive down the price to or below the level of costs of production, the producers will not for this reason alone curtail their output* To switch to some other product would be a process entirely too lengthy and expensive* It would involve the destruction of coffee trees and the planting of some other tree or plant in their stead which may require years to reach a productive stage* Solving the problem through some crop control scheme is also difficult since it would usually require cooperation among several producing countries. Some such control schemes have been put into practice, as for example, the Brazilian coffee control; but in the majority of cases attempts to regulate the output or sale of raw materials or agricultural products even if such schemes are undertaken by powerful nations (e.g., Stevenson rubber control scheme) have not proved successful. 36 It has become axiomatic that colonial products sold in world markets by many competing producers are almost invariably available at less than cost and are most sensitive to any fluctuation in demand which may send their prices to ruination levels. This vast disparity between the price of manufactured goods and agricultural goods in Latin America is closely parallel to the situation existing in the United States between the agricultural South and West and the industrial East. There, too, industrial prices are maintained at arti ficially high levels, forcing the agriculturalist to pay dearly for what he buys while he gets a mere pittance for the products of hi3 own labor. In the United States the New Deal government was able to correct this situation, at least parti ally, through crop control devices and farm subsidies. Latin America however, the evil effects of this situation had to be left largely unmitigated. The United States is the largest single buyer of Latin American products, accounting for upward of 30$ of all exports from those countries. of imports. It is also the greatest single source In spite of German competition which in the last few years before the outbreak of the present war has enabled Germany to displace the United States as the leading exporter to some countries (Paraguay and Uruguay) and to curtail the United. States* margin of leadership in practically all of them. 2 The latter still accounted for 34$ of all exports to Latin America in 1938, a3 compared with German*s 16.2$ and Great Britain*s 11.7$. In actual figures Latin American exports to the United States have,.contrary to a widely pro long impression, always exceeded imports from the United States,3 except in 1939 and 1940, when Europe's inability to supply Latin America had forced the latter to turn to the United States to obtain goods ordinarily purchased from Europe. In the.last prewar year, 1938, sales to the United States exceeded purchases from the United States by 46 million dollars. Yet, although this Latin American trade balance with the United States was favorable until the more recent past, its balance of payments was unfavorable principally because of the enormous sums required for debt service or withdrawn by foreign owners of Latin American enterprise. Payments for shopping and other services impose a further burden, which however is offset by United States' tourist expenditures, etc. Even though the United States leads all other countries in Latin American trade, the great bulk of Latin American exports, 70$ after Lalll, goes to countries other than the United States, Europe absorbing by far the largest slice. 2 See Appendix No. 7. 3 Tariff Commission, p. 41. 38 In imports, too, the European countries, taken as a whole, loom by far more important than the United States or the Latin American economic scene. The Latin American economy is unfortunately more dependent upon Europe than upon the United States and is also much more complementary to the former than to the latter, since Europe produces few of the products available in Latin America within its own borders, while the United States produces many of their goods in competition with its southern neighbors. The contrast between the United States and Latin America is further emphasized by the financial situation of these two areas. The United States is the world’s leading creditor natioa. Since 1914 a continuous stream of capital has left that country to find employement in other parts of the world. This external investment activity of the United States has, of course^ been made possible primarily by the rapidly growing accumulation of interest owed to the United States by foreign countries. Latin America, on the other hand, is a chronic debtor and an insatiable consumer of foreign capital* In spite of some 10 billion dollars worth of foreign Investment in Latin America the countries of that region have no corres*pondlng increment in wealth to show for it, and, in fact, may be said to be in a worse financial condition now than in the past. The explanation for this situation in SIMpllfied terms, would run somewhat as follows: the Latin American countries since 1930 have been unable to realize a sufficiently large income form the sale of their products abroad to finance the purchase of the needed and desired manufactured products of Industrial nations and therefore had to rely on foreign loans to make up the difference.Thus a large part of the recent external debt was Incurred not for the purpose of creating of productive equipment which might have been reduced the Latin countries dependence of Imports,but for the purpose of financing that part of consumers goods* imp ortation which could not be paid for with the proceeds of exports. To a large extent therefore the Latin American countries were in the same position as the borrower who obtains a loan from the bank to finance consumption instead of production, and who is likely to find himself plunging ever more deeply into a spiral of debt. Most of the capital equipment actually produced with the aid of foreign loans remained in the hands of foreign owners who extracted enormous profits from their Investments. In so far as the productive wealth of these countries was owned by their own nationals who extracted similarly high profits from their enterprises such ownership was typically in the hands of ’'absentee landlords'* who spent their large profits in rlotus living in European capitals,This situation naturally had exactly the same effect,from an economic point of view,as if these 40 enterprises had actually been owned by foreigners. To these circumstances must be added the well known and well advertised fact that corruption was not unknown to exist among officials of South American governments and that loans made to such governments were to a large extent diverted into the pockets of such officials Instead of finding their way into the public improvements for which they were destined,Naturally such governments were willing to pay almost any price for loans, the responsabllity for payment of which they left to their successors, while at the same time their reputed irresponsability and insta bility forced them to pay higher rates of interest. 4 The result of all this was that Latin America found its resources drained by the ever increasing demand of foreign creditors, without being able to meet these demands with increased production capital, and was,therefore,compelled to go the way of all debtors into more debt. By way of homely comparison, Latin America may be thought of as being in a situation very similar to that of a consumer caught in the ever Increasing regardless of how hard he tries to catch up with them. Since today Latin Amerlcancountries cannot easily achieve a large enough favorable balance of trade to produce sufficient surplus exchange to satisfy the requirements of external debt service, that area must continue to relly on foreign loans in order to meet its foreign obligations. See appendix No. 4 It is an interesting paradox that although even an extensive inflow of foreign capital has not significantly furthered industrialization in Latin America, manufacturing industries have grown more rapidly in time of severe economic depression when the sources of foreign capital had dried up. In such time the Latin American countries were unable to purchase the required manufactured products from abroad and the resulting shortage of such goods gave a greater impetus to industrial development than the loans which, at least, in name had been madet'for such purposes. Many concrete cases could be adduced in support of this statement. In 1914, for example, and again in the depth of the depression of 1929, the textile Industry enjoyed a great upswing because of inability to Import foreign textiles. The unfavorable international financial situation of the Latin American countries caused them to be continuously short of gold and foreign payments. The slightest decline of exports or of the Inflow of foreign capital, therefore, Jeopardize these countries' ability to pay and as a result their currencies are in constant danger of depreciation in the international exchange market. This instability of Latin American exchange rates and the attendant monetary and fiscal disturbances have Indeed, become the most obvious and glaring symptom of the basic economic instability of these countries. Since the outbreak of war in Europe in September, 1939, these difficulties have been further aggravated. Latin America was practically cut off from its European markets and, therefore, from its largest source of income. This loss could not be offset by Increased sales to the United States since the Latin American countries* products are largely competitive with those of the United States. She inevitably consequence was a further disturbance of Latin American exchanges.5 But it must be emphasized that such monetary and exchange difficulties are a symptom only and not the disease Itself, as should be clear from the foregoing discussion. Any attempt to remedy Latin America’s difficulties and to create a "center of stability and equilibrium" must, therefore, pierce the superficial monetary and financial level and come ti grips with the fundamental issues if it is to be at all successful. 5. See appendix No.9 CHAPTER IV INTER-AMERICAN ECONOMIC COOPERATION The brief outline of the economic conditions and problems of the American Republics, presented in the last chapter,brings into focu8 the great obstacles facing any attempt to integrate and coadlnate the interests of the United States with those of the Latin American countries* On the one hand, the latter have followed a pattern of economic development entirely unlike that of the colossus of the North* Reconciliation of the differences resulting from this unequalldevelopment in themselves pose grave problems* Especially the great inequality of living standards, for instance, would seem to be a bar to economic unification. On the other hand, the similarity in many respects of the economic Interests of the two areas again threatens to nullify any attempts to effect an economic rapprochement. The fact that the United States as well as the Latin American countries is a producer of raw materials and of agricultural products makes it dlfiiBicult for the two areas to exchange goods on a large scale. The economies of the two areas are complementary only to a small extent. For this reason the economic orientation of Latin America has always gravitated more toward Europe than toward the United States.This orientation has been furthered and supported by the greater cultural affinity of Latin America with Europe. 1 See Appendix VII and XIII The greater extent and Intensity of Latin American economic relations with Europe was further emphasized in the last few years when the relative trade position of the United States in some countries of South America was severely cur tailed by the Inroads of German competition. Ever since the depression of 1929 the exchange difficulties of Latin America, due to extremely low prices of export goods and to the lack of gold and foreign exchange resources, had Imposed an economic strangle hold on those countries from which there seemed no hope of escape. Drastic exchange control measures, designed to protect Latin American countries against severe currency depreciation, at best served to freeze an Intolerable situation and in some cases even aggravated existing difficulties. An escape was offered by the development of new methods of inter national trade Initiated in 1932 by Switzerland and Hungary and developed to a high degree of perfection in subsequent years by Germany and known as the exchange clearing method. The essence of this new method is very simple. For instance, Germany allows the importation of so many milrels worth of coffee from Brazil to be paid for not in the customary way by draft on London or New York, but the proceeds of the sale of Germany machinery or cameras or railroad materials, the importation of which is authorized by the Brazilian Government. This method that is only one form of exchange clearing has two very beneficial results for a country, which, like Brazil, is dependent upon exports and suffers from exchange shortage. This method than is limited only by possible consumption, in the first place, it puts trade squarely on a basis of bilateralism. If Germany wants to sell more manufactured goods to Brazil she must buy more coffee, woods and other products from Brazil. Secondly, the exchange clearing method circumvents the international exchange market. Payment for Imports will not involve Brazil in the necessity of drawing upon her scanty foreign exchange reserirej which .might..become exhausted by even a temporary excess of debits over credits. Settlement of all exchange clearing transactions is made entirely through credit and debit entries on the books of the central banks. It is not surprising that the exchange poor and foreign trade hungry countries of Latin America gladly availed them selves of this new method of trading and that they diverted an increasing proportion of their foreign purchases to the countries which offered them this opportunity. A further ad vantage not necessarily implied in exchange clearing, was, nevertheless, offered to the Latin American countries through that device— lower prices for import goods. Purchasing manu factured wares from Germany not only made unnecessary for the Latin American buyer to procure foreign exchange— an advantage which by itself might have been sufficiently decisive in diverting trade to Germany since the central bank in many cases would have refused the allocation of the necessary exchange— but it also enabled him to buy al lower 46 prlceB and at more favorable terms. In many Instances German ftorms offered goods of the same quality as those of their competitors, at half the price and allowed the purchaser three times as long to pay. In view of such conditions one would naturally expect all trade to have gone to Germany. If such was not the case the reasons are to be found in the fact that: 1) G-erman sales were limited to the extent of German purchases; 2) some products could not be obtained from Germany; 3) Latin America purchasers were bound by contract to buy from other sources; and, 4) other countries countered the German methods by entering into trade agreements essentially similar to the German type. In some cases the reciprocal trade agreements between the United States and Latin American countries^ also compelled to some extent the latter to offset their sales to the United States by equivalent purchases from the United States. Nevertheless, German trade with Latin America increased by leaps and bounds and naturally undermined the position of Great Britain and the United States in those territories.! Even though United States trade with Latin America showed substantial increases in the years since 1932, reflecting the general recovery in world trade activity, the Increases in 1 See Appendix No.XII 47 German-Latin American trade during that same period, were sub stantially greater. Naturally United States business interests did not like to see this rapid rise of German competition in a market which they liked to regard as primarily their own. But they were especially disturbed by the realization that the competitor’s success was due primarily to the use of wtotalitarian11 methods of trade and finance so abhorrent to devotees of laissez faire. It was primarily this growing German competition and the increasing inclination of some Latin Americans toward the new trading methods which revived the interest in interAmerican economic cooperation and which gave rise to renewed attempts for the establishment of an inter-American bank as a central agency for such cooperation. The question naturally arises; is it possible and desirable to effect a close economic coordination between Latin America and the United States? What must be done to coordinate the economic interests of Latin America and the United States in such a way as to make a lasting cooperation and economic unification possible? How can the Latin America economy be reorientated toward the United States and away from Europe? There are those who say that an economic rapprochement between the two areas would be so difficult to effect as not to constitute a desirable objective. They point out that, on 48 naturally belongs into the orbit of European economic interests >*• the one hand, Latin America and especially South America that as long as Latin America depends primarily on Europe to buy its raw products, Europe must remain the chief source of manufactured goods for Latin America; and that Latin America could effect greater advantages by more closely its economy to Europe in such a way as to eliminate United States com petition and as to become Europe*s sole source of supply for such products as meat, wheat, etc* On the other hand the United States too— it may be argued— has little interest in effecting a reorientation of the Latin America economy towards the United States. Such a program to increase the markets of United States manufacturers would also necessitate the absorption of tremendous -quantities of South American goods which would require far reaching ad justment in the United States economy. The United States ■ interim may eventually prove more harmful that any benefits arising from Latin American cooperation. The United States is generally more autarchice than the nations to the South and their integration into the North America economic orbit would only tend to disrupt the internal economic balance and to aggravate facts of <st4sequilibrium in the United States. For these reasons it has been suggested thaft the United States might do better to turn away completely from Latin America and to concentrate and solidify its autarbhibc position* 49 The United States— so the argument runs--would not lose much by sacrificing ti r eiyrijt^s foreign trade of which Latin America trade is only a small portion. Furthermore, it would not be necessary for the United States to give up all of its foreign trade since there are certain goods which Latin America could: not obtain from any other sources: Hollywood films, certain business machines, automotive equipment, etc., would still have to be purchased from the United States, and in exchange the United States could continue to buy those few raw materials upon whibh it is chiefly dependent in Latin America. Whatever the merits of these contentions are the problem must be approached from a wider viewpoint. Immediately economic considerations must be subordinated to the more urgent requirements of Hemisphere defense. In the last few months especially the people of the United States have been awakened to the danger of foreign military aggression even if the North American continent must be considered as immune to any invasion for over seas. South America we are told is definitely exposed to that threat. In turn domination of Latin America by a foreign and unfriendly power would be re garded as an immediate danger to the security of the United States. Therefore, the United States is committed to the policy of maintaining intimate political relationswith Latin America for the purpose of keeping the latter out of the hands 50 of the hostile powers. And this cooperation In the realm of * political defense in turn necessitates economic cooperation, regardless of this desirability or undesirability in the short run. But also from the economic point of view collaboration with Latin America appears to be imperative for the United States if a long range view is taken. The world has apparent ly been divided into a few, self-contained political and economic spheres of interest. Regardless of the outcome of the war, Europe is gravitating rapidly toward unified control and its planndd economy, will probably rely on Africa and perhaps the near East, as areas of economic exploitation. Russia is expanding her sphere of influence in threatening to achieve control over all of Central and South Asia. In the far East the processes of integration are rapidly neering a climax. All this tends to narrow the field of economic activities of the United States, leaving that country only Latin America on which to rely as an outlet for investment, a market for surplus goods, and a source of such raw materials are not produced in the North American domain. If looked at in this light, the reason why the United States must keep hold of Latin America and seek to entwine that area more closely to itself becomes apparent. For the United States to abandon control of Latin America and to permit itself to become isolated in a totalitarian world might have the most disastrous effects. It would, for one 5l thing throw the country upon the mercies of foreign and prob ably hostile powers in obtaining any of the essential products not produced domestically. In spite of the relatively great self-sufficiency of the United States it still needs to rely on Imports for some essential materials, such as manganese, rubber and tin. Again, it would have to sell its excess products on totalitarian purchase terras which might be ruinous. In fact the United States might find Itself in a position similar to that in which Latin America is now and since many firms could not show profits without exports, they might be forced out of business. A grave and permanent economic crisis would be threatened and the institutions of free enterprise be jeopardi zed. On the other hand, the United States may assure itself of Latin America*s sphere for economic exploitation without dire results to be expected from the political and the economic changes in the rest of the world. All necessary materials almost without exception could be obtained fcom Latin America and in turn Latin America could offer an almost endless field for investment and an rich market for manufactured goods. Once the need for inter-American economic cooperation has been recognized and the desirability of an economic reorientation of Latin America established at least from the point of view of the United States the problem is no longer why but of how. 52 It ia generally recognized that the first and foremost requirement for economic cooperation would be the elimination of exchange fluctuations. Monetary stability in the sense of stable exchange rates as well as in the sense of reasonable stable price levels must be the basis for any further inter national economic cooperation. The exchange difficulties from which so many countries have suffered in the past two decades have been clearly shown to be the high road to economic nationalism or to complete economic collapse. A few people gain at the expense of the majority which suffers income reductions. These shifts in income involve further disturbances of the structures of price and production. Tax receipts fall short of public expenditures, forcing governments further into debt, endanger ing the fiscal stability of the affected countries and thereby inviting further pressure on its currency In the international exchange market. To call a halt to this vicious circle of monetary depreciation means to impose more or less sever<.exchange re strictions. These restrictions are designed to protect the country from the impact of external forces by Isolating its economy from the world economy. This may be done in varying degrees, but even in its mildest form it represents a move in the direction of economic nationalism— the opposite of economic internationalism or international economic cooperation. By the same token, the countries not suffering from exchange depreciation will also be affected since they will find their trade shrinking as a result of the restrictions imposed upon it by countries with weak currencies* Such situations are then usually met by retaliatory restriction which give a further impetus to the collapse of international economic relations* Since this vicious circle has its origin in exchange instability it becomes clear that any program of international economic cooperation presupposes the stabilization of exchange between the cooperating countries* This is not to say that inter-American cooperation would necessarily mean the main tenance of absolutely fixed rates of exchange between all the American Republics, but it would mean that any fluctuations in exchange rates would have to be held within such a narrow range as not to produce a disturbance; that, furthermore, such fluctuations should be a matter of deliberate policies based upon international agreement rather than the chance effect of the interplay of economic and speculative forces; and, finally, that such an elasticity of exchange rates should not necessitate the imposition of restrictions and retaliatory measures but, on the contrary, should encourage a freer flow of trade between the countries. Although the maintenance of exchange stability is the first and most obvious requirement of cooperation, the 54 analysis of the economic conditions of the American Republics presented in Chapter III makes it clear that more fundamental adjustments are necessary if exchange stabilization is to be made possible and meaningful* Exchange stabilization must be the basis, not the objective of inter-American economic co operation* Such cooperation would have to be aimed at elimi nating the conditions which in the past have led to exchange depreciation and economic nationalism* As has been shown, these conditions can be summarized as follows: Latin America could not sell enough products at suf ficiently high prices to pay its external debt and to buy the quantities of manufactured goods which the United States would like to sell in that market* One requirement of cooperation, therefore, would be to assure a market for Latin American products* This need is particularly urgent today when Latin America is cut off from its European customers* Sincere cooperation would require the United States to take Latin American products even if they should be competitive with its own, such a3 meat and wheat* If that is not done, cooperation will remain an empty phrase, exchange stability of no avail, and the affected countries, e*g., Argentina, unwilling to participate in the program* Recognizing this need, President Roosevelt has recently suggested the establishment of an inter-American marketing board which would have full control of the foreign trade of the Western Hemisphere and would be charged with the responsi bility of finding markets for export goods* Such surpluses as could not be sold to the external world presumably would have to be absorbed by the United States Government through agencies similar to the Wheat Stabilization Corporation and the Surplus Commodities Corporation* If the cost of such a scheme would be high it would still be small in contrast to the cost of other defense measures taken by the United States Government and would be more likely to yield greater benefits.2 Coupled with such a scheme steps must be taken to find new markets for these excess products in the Western Hemisphere to eliminate that part of the output which can not be absorbed by consumption and to shift production into such goods as could find a market in the Western Hemisphere* The consumption of many so-called surpluses could be considerably increased by raising the incomes and therefore the consumption power of the people in North and South America* Many a Brazilian cannot afford to buy coffee because his wages are too low while at thesame time his Government is forced dump shiploads of coffee into the ocean* South America is to tbe largest producer of meat, yet fifty per cent of its people cannot buy meat because their incomes are not high enough to permit them such a luxury* Even in the United States, according 2 & e b v qh'b tatl’oh -pag-. ~'8§- o d » 56 to President Roosevelt's statement, one-third of the population is under-fed in the face of huge food surpluses.3 in fact, the potentialities of the American market are in themselves almost infinite. Nevertheless, as it exists today, the hemisphere economy is lopsided and requires reconstruction. may again serve as an example. The meat industry Even a sharply increased con sumption of meat would probably still leave a considerable surplus. Unless this surplus can be disposed of by sale to foreign parts, cattle production, either of North America or of South America, must be curtailed. In this particular case the principle of comparative costs would probably require a reduction in the output of the United States. The economic policies of the latter country would, therefore, have to dis courage cattle production by permitting South American and Mexican competition or by positive action, for instance, "plowing under"every third cow. Thirdly, some Latin American countries must be encouraged to produce in greater quantities some raw materials such as tin, rubber, and manganese, which the United States at present imports from other regions. In turn, Latin America must be given the opportunity to buy more manufactured products from the United States at Although 1940 was the most prosperous year in the history of the nation, 8,000,000 families in the United States were facing starvation with incomes of less than $800 a year.* Figures taken from "The Bottlenecks of Business"by T.W.Arnold . pag. 8 57 prices as low or lower than those charged by foreign competitors* If subsidies must be given to exporters in order to achieve this purpose, the United States Government will have to stand the expense in the interest of hemisphere cooperation* For, unless this is done, there is no reason to expect the Latin American countries to participate in a hemisphere economic program* While industrial prices must thus be kept low, the United States must also raise Latin American export prices well above the present bankruptcy levels. It is only when profits can be made that incomes in Latin America can be expected to rise, and higher incomes, in turn, are necessary to enable Latin America to consume more of its own products as well as those of the United States* Higher prices for raw materials, conversely, would not reduce in any significant degree the consumption of those products* The consumer in the United States has rarely had the benefit of low prices for colonial products* That benefit went almost entirely to the importer and processor of these goods. For instance, the United Fruit., Company, which enjoys a virtual monopoly in the fruit and trans portation trade of Central and Northeastern South America, buys bananas in Ecuador and Colombia for the equivalent of ten cents or less a bunch?' (In reality, the company pays for the bananas with grapes bought in Chile and costing five cents). But the United States consumer pays from ten to thirty cents a hand or *-A bunch has approximately 200 bananas. 58 somewhere between $1,50 and $4*00 a bunch* Obviously, a doubling of the price paid to the Ecuadorian exporter would affect the United States consumer infinitesimally, if at all* When the profitability of Latin American products has been increased by higher prices obtained for export products and the purchasing power of the Latin American population has been raised through higher incomes received and through lower prices paid for import goods, a new impetus will be given to investments by the United States* These investments will have a further stimulating effect on incomes and imports, and would tend to bring into motion a cycle of economic expansion attend ed by greater prosperity for all the Americas* could probably be undertaken in Such investments large part by a private enter prise guided by the profit motive and encouraged in its foreign ventures by the promise of monetary stability* But it may have to be supplemented by loans to Governments for the purpose of public improvements designed both to increase the level of living standards in Latin America as well as to provide better facilities for transportation, power, etc*, which may be in valuable aids in defense. The completion of the Pan-American highway, additional railroad and harbor facilities, the cpnstruction of army and navy bases, are examples in point. This, in brief, would be the general nature of a program for inter-American economic cooperation* The responsibility for carrying out such a program obviously rests entirely with the United States* It is the United States which will have to make temporary sacrifices in order to achieve the greater goal of securing for itself economic domination of Latin America. The latter could have, no interest in cooperation and would readily turn to the totalitarian Governments if the benefits from economic reorientation toward the United States are not sufficient and sufficiently assured* In effect, a program for inter-American economic cooperation could be more aptly described as a program for the relief of economic distress in Latin America* Such a program would be similar to and, in a sense, simply an extension of the Agricultural Adjustment program followed by the United States Government under the Hew Deal* While the burdens of the program would rest on the United States, its incommensurable benefits would accrue to practically all classes of all the nations in South as well as in North America* CHAPTER V THE INTER-AMERICAN BANK AS AN INSTRUMENT FOR HEMISPHERE COOPERATION An investigation of tlie question: is Western Hemisphere economic cooperation desirable and beneficial, has yielded the almost unequivocal answer; yes, especially for the United States* In the last chapter the problem, how the American Republics could cooperate, was analyzed* A skeleton outline of the essentials of economic cooperation between the United States and Latin America could be summarized as follows: one, stabilization of exchange rates; two, raising the standard of living, especially in Latin America; three, purchase of Latin American surplus commodities by the United States; four, adjustments in production designed to make the Western Hemisphere entirely self-sufficient and to eliminate duplications in production; five, reduction of the disparity between industrial and agricultural prices; sixth, improvement of the productive capacity of Latin America (expansion of transportation and industrial facilities with the-aid of United States materials and skilled labor); seven, large scale export of United States capital to Latin America* The more specific question which remains to be answered is; how can an inter-American bank be the means of putting such a program for economic cooperation into effect? 61 At first glance, it is obvious that some parts of this program could not be carried out except with the help, and on the initiative, of the Governments. The problems of price ad justments, for instance, involving, as it prdaably would, sub sidies to exporters and possibly to importers or outright price regulation could not be handled by a bank. Again, the purchase of surplus commodities could be handled only by Governments, particularly the United States Government. Similarly, all investments for defense purposes in Latin America would have to be undertaken by Governments. The policy of raising living standards would entirely transcend even the widest possible sphere of activity of an inter-American bank and would have to rely on concerted action by the several Governments. Since the program for economic cooperation must be regarded as indivisible, it is necessary for it to rest on a sound foundation of Government policy and collaboration. It is not primarily a financial, monetary, or banking problem, but rather a problem of hemisphere planning. Nor could any thing be achieved by simply establishing another institution engaged in the financing of international trade. Some of the provisions of the by-laws of the proposed bank, as well as some questions in a questionaire submitted to the several American Governments, indicate that the Financial Committee thought of the proposed bank as primarily an institution for 62 tli© financing of foreign trad© to fill a supposed gap in such, facilities. Nothing could he more erroneous than such a view. There is no shortage whatever of hanking facilities in Latin America and obviously none in the United States. Latin America, on the contrary, is suffering rather from an excess of such facilities. In addition to local domestic hanks and central hanks, able and anxious to get whatever business they can in the financing of domestic and internal and external trade, there are many foreign hanks, mostly British and United States --the outposts of economic imperialism. Yet, even if purely financial facilities are unnecessary and the economic program must rely on Government action and collaboration, the inter-American hank would constitute an invaluable and even indispensable tool of such cooperation. Most of the international economic policies would have to be translated into action by just such an institution. The plan for its establishment provides that the interAmerican bank is to be a joint venture of the Governments, not of the central banks of the several American Republics. In this respect the proposed inter-American bank differs from the bank for International Settlements at Basle which was set up as a central bank of central banks. The inter-American bank, moreover, is to be an instrumentality not merely for financial, but for economic cooperation. Since it correctly reflects the political as well as economic, in addition to 63 the financial problems of inter-American collaboration, the bank if and when it is finally established will have every opportunity of becoming a truly great inter-American institu tion. More specifically, the bank would, of 6ourse, be charged with the determination and execution of exchange policy. In so far as that policy would be primarily directed toward maintenance of exchange stability, the function of the bank would be to advance the necessary short term funds to nations suffering temporarily unfavorable balances of payments, and thus enable them to meet their obligations without endangering their exchange rates. These advances could take the form of bills discounted or bills or securities bought in the open market of the country affected in much the same way as the Federal Reserve System operates in the United States. By the same token, the inter-American bank would relieve the several central banks of the need to maintain gold and foreign ex change reserves, enabling them instead to keep their national reserves in the form of inter-American bank credit and to make all international payments by draft upon the inter-American bank. The problem of exchange difficulties could thus be overcome with one stroke. The inter-American bank, by virtue of its holdings of the several national reserves and aided by the accumulation and concentration of statistical information relative to the 64 economic conditions of each country, would also be able to determine the desirability of adjusting the exchange rates from time to time* In this manner, the inter-American bank could fulfill one of the basic requirements for the program of hemisphere cooperation# It could also play an important part in the matter of inter continental investments* Such investments as have been indicated would be encouraged im mediately with the return of confidence in exchange stability, and would receive a further fillip from the inauguration of economic policies increasing Latin American purchasing power. Nevertheless, especially in the beginning, the interAmerican bank would probably have to act as a guarantor on loans made by the United States investors to Latin America* In this respect it could model its activities on the invest ment subsidiaries created by the Bank of England in 1929 and 1930* (The Securities Management Trust, Limited and the Bankers1 Industrial Development Company, Limited). These subsidiaries were most helpful in the revival of British in vestment activities and in the rationalization of industry* The inter-American bank could, through an appropriate sub sidiary company, operate as an investment trust for Latin American securities, or could, at any rate, by its recommenda tion and guarantee of specific issues, increase the flow of funds from North to South. A further function it could per form In this connection would be to study Investment 65 opportunities in Latin America, to make information regarding such opportunities available to investors, and to sponsor the formation and rationalization of industry. In these ways the bank would be an invaluable instrument for carrying out the program of hemisphere economic coordination. Finally, the inter-American bank, in order to achieve a maximum of usefulness, would have to maintain a large research organization which would continually study all phases of the economic problems of all the nations; which could act as a clearing house of information for Governments as well as for individuals engaged in inter-American economic affairs; and which could periodically submit to the several Governments suggestions for economic and financial policies. If an inter-American bank, operating on this basis as outlined in the Convention, Charter and By-laws submitted by the Finance Committee, would have such highly valuable and desirable effects, it is a pity that it has not been established long ago. The question naturally arises; why has it not been established and why even this last effort which brought the project nearer to realization than ever before, has still, thus far, fallen short of realization? Might it be that narrow nationalistic interests have proved more powerful than the desire for international cooperation? Might it be that some particular interests in the several nations could have had a greater advantage from chaos and instability and that 66 theae interests were able to nullify the efforts of the majority? Might it be that failure to act was simply due to the notoriously slow grinding of the mills of democracy where words are plentiful and actions rare? To what extent these forces have been at work, how powerful they were, is probably impossible to establish. Some immediate obstacles to such a far reaching plan of operation as the one here suggested are obvious; one, deep seated differences in political philosophy and allegiance between Latin America and the United States; two, the immediate advantages of economic nationalism which no nation seems to be willing to give up in exchange for greater but more distant benefits; three, the tradition of economic imperialism still deeply ingrained in some United States circles in spite of more recent emphasis on the good neighbor attitude; and, four, closely connected with this is the apparent unwillingness of the Federal Government of the United States to give up its present political power over Latin America. Loans extended by the United States through the Import-Export Bank are always used to extort political concessions from the borrowing nation. Inauguration of a policy of true cooperation would deprive the United States Government of this instrument of control. TUftiatever the reasons for hesitation and procrastination, it is certainly to be hoped that better insight will prevail, that greed and imperialism will give way to an era of cooperation which will turn resentment into friendship. Of this new era in inter-American relations, the inter-American hank would he hoth a foundation and a monument. APPENDIX No.l FIRST INTERNATIONAL CONFERENCE 1890 - WASHINGTON, D- C I. ADOPTION OF A COMMON MONEY The International American Conference is of opinion that great advantages would accrue to the commerce between the nations of this continent by use of a coin, or coins, that would be current, at the same value, in all the countries represented in this Conference, and therefore recommends: (1) That an International American Monetary Union be established. (2) That as a basis for this union an international coin or coins be issued which shall be uniform in weight and fineness, and which may be used in all the countries represented in this Conference. (3) That to give full effect to this recommendation there shall meet in Washington a commission composed of one delegate or more from each nation represented in this conference, which shall consider the quantity, the kind of currency, the uses it shall have, and the value and proportion of the International silver coin or coins and their relations to gold. (4) That the Government of the United States shall invite the commission to meet in Washington within a year, to be counted from the date of the adjournment of this Conference. II. INTER-AMERICAN BANK The Conference recommends to the Governments here rep resented the granting of liberal concessions to facilitate interAmerican Banking, and especially such as may be necessary for the establishment of an International American Bank, with branches or agencies, in the several countries represented in this Conference. APPENDIX NO.2 SECOND INTERNATIONAL CONFERENCE 1902 - MEXICO PAN AMERICAN BANK On January 21, 1902, the Conference discussed and approved the following: Recommendation The undersigned, Delegates of the Republics represented at the Second International American Conference, duly authorized by their Governments, have approved the following Resolution; The Second International American Conference, Considering: That a powerful Banking Institution established in a great mercantile center of the Continent with branches in the principal cities of the American Republics, would develop mercantile relations among them; And that, if said Institution should adopt uniform rules for the granting of credits and charging of commissions, it would afford even greater advantages to industry, and be well received by all the American Nations; RECOMMENDS: That there be established in New York, Chicago, San Francisco, New Orleans, Buenos Aires, or any other important mercantile center, a Bank of the character before mentioned, and that it be assisted by the Republics of American in every manner compatible with the Internal legislation of eahh country. Made and signed at the City of Mexico, on the twentyfirst day of the month of January nineteen hundred and two, in three copies, written in the Spanish, English and French languages, respectively, which shall be deposited in the Department of Foreign Relations of the Government of the Mexican United States, so that certified copies thereof may be made in order to transmit them through the diplomatic channel, to each one of the signatory States. Signed by the Delegates for: Argentina, Bolivia, Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Haiti, Honduras, Mexico,Nicaragua, Paraguay, Peru, El Salvador, United States of America, Uruguay. APPENDIX NO. 3 FIRST FINANCIAL CONGRESS CREDITS TO LATIN 1905 - WASHINGTON AMERICA The first financial Congress which met in May, 1905, in the city of Washington had considered this subject favorably and, although no definite project was approved, stated unanimously that: . . .one of the essentials for the development of commerce and of better relations between the Latin American countries and the United States is the concession by the business-men and bankers in the United States of ample credits to LatinAmerica and the early adoption of measures to create the mechanism means to this purpose. APPENDIX No. 4 THIRD INTERNATIONAL CONFERENCE OF AMERICAN STATES RIO DE JANEIRO, BRAZIL -1906 FLUCTUATIONS IN EXCHANGE In this Conference, the following Resolution was approved: The undersigned, Delegates of the Republics represented in the Third International American Conference, duly authorized by their Governments, have approved the following Resolution: The Third International American Conference Resolves: 1. To recommend to the Governments that they cause to be prepared- for the next Conference a detailed study of the monetarysystem in force in each one of the American Republics, its history, the fluctuations in the rate of exchange which have taken place during the last twenty years, together with tables showing the Influence said fluctuations have exerted upon commerce and their industrial development; 2. To further recommend that these studies be trans mitted to the International Bureau of American Republics in order that the latter may prepare and publish a resume of said studies, and distribute the same to the several Governments at least six months previous to the meeting of the next International Confe rence. Made and signed in the city of Rio de Janeiro on August 23, 1906, in English, Portuguese and Spanish, APPENDIX SIXTH NO. INTERNATIONAL LA ADOPTION HABANA OF A 5 CONFERENCE '.-CUBA COMMON MONEY The Sixth International Conference of American States resolves: To recommend to the Governments of the States the consideration of the adoption of a common unit of currency for all of them, the following data to be given in the studies and reports which may be Issued: value of the unit of currency; its weight, fineness, name and standard; and other pertinent special circumstances. It recommended further that the states communicate with each other* for greater accuracy of the study, the projects which they have prepared respectively, and that, once the studies have been completed by the states they communicate them to the Pan American Union not later than two years from the date of the present resolution. Taking as a basis the aforementioned studies and projects prepared by the states, the Pan American Union shall draft the definite project. One the project of the Pan American Union is drafted, it shall be communicated to the States so that they may express their opinions. Finally, the project of a common unit of currency, prepared by the Pan American Union, together with the observations made by the States, shall be submitted to the Seventh International Conference of American States for the definite adoption of the common unit of currency. (February 13, 1928). APPENDIX NO. 6 INTER-AMERICAN CONFERENCE FOR THE MAINTENANCE OF PEACE BUENOS AIRES MONETARY STABILIZATION The Int fen-American Conference for the Maintenance of Peace resolves: To recommend to the Ban American Union to determine, as soon as possible after consultation with the various American Governments whether it would be opportune to hold a meeting of delegates of the Ministries of Finance and of the Central Banks of the American countries to study and endeavor to bring about monetary stabilization and the lifting or termination of the systems of exchange control of the various States members of the Pan American Union as a result of the depression. APPENDIX NO. 7 IMPORTS OP LATIN AMERICAN COUNTRIES FROM THE UNITED STATES AND GERMANY. 1929, 1932 and 1938. In thousand of dollars ARGENTINA From U. S. Germany 1929 216.112 94.247 1932 28.968 19.918 1938 74.903 44.270 1932 36.765 6.550 1938 63.027 20.668 1932 27.653 2,134 1938 75.152 4,684 1932 6.014 3.834 1938 28.620 26.534 1932 12.254 4,469 1938 45,643 15,398 1932 10,523 2,875 1938 54,939 11,681 1932 4,669 1,736 1938 20.005 11,681 1932 2.502 2.503 1938 5,039 7,001 MEXICO From; U. S. Germany 1929 127.200 14.812 CUBA From; U. S. Germany IS 29 127.051 7.477 CHILE From: U. S. Germany 1929 63.348 30.419 COLOMBIA From U. S. Germany 1929 56,169 17,634 VENEZUELA From; U. S. Germany 1929 48,057 8,021 PERU From: U. S. Germany 1929 31,767 7,605 URUGUAY From: U. S. Germany 1S29 27,796 8,905 Cont. APPENDIX No. 7 (pag. 2) IMPORTS OF LATIN AMERICAN COUNTRIES FROM THE UNITED STATES AND GERMANY. 1929, 1932, and 1938. In thousand of dollars. COSTA RICA From: U. S. Germany 1929 9,682 3,532 1932 2,874 643 1938 6,195 2,496 1932 1,142 582 1938 6,556 4,618 1932 3,662 533 1938 3,828 2,668 BOLIVIA From: U. S. Germany 1929 8,641 3,493 ECUADOR From: U. S. Germany 1929 6,929 2,142 PARAGUAY From; U. S. Germany 1929 2,467 1,244 1932 481 299 1938 860 1,027 APPENDIX NO. 8 LONG-TERM INVESTMENTS OF THE UNITED STATES,GREAT BRITAIN,FRANCE AND GERMANY OUTSTANDING IN LATIN AMERICA.-Source:Compiled by Tbe Conference Board.- MILLIONS OF DOLLARS - United States Port Direct Total folio 346 579 £31 Argentina 77 18 59 Bolivia Brazil 194 366 560 484 697 Chile 213 158 108 266 Colombia — — 5 5 Ecuador - — 5 5 Paraguay 182 86 96 Peru 14 56 70 Uruguay 186 186 Venezuela — ~ 8 8 Guiaaas 7 2,635 TOTAL SOUTH AMERICA 1,466 1,169 Country Costa Rica Cuba Dominican Rep. El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Other West Indies GRAN TOTAL L-A- 13 666 41 17 50 10 36 480 4 27 37 2.847 Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela GuAjtaas TOTAL SOUTH AMERICA 10 129 16 12 1 8 — 349 1.773 a 498 295 12 a a 112 101 92 23 795 57 29 51 18 36 829 A — 18 — 1.712 FRANCE a a a a Great Direct 45 37 4.559 425b 10 Britain Port Total folio 2.085 3l£ 22 a 771 1.269 418 123 28 16 21 a a 16 31 143 191 90 — 92 — — - — a a 4.285 a 154 a 13 23 167 — -- — a a a 652 a m a a — a 188 a 5 52 — 8 840 2 i .a a GERMANY a a a a — — a 5.382 2501 — a — — a a — — - — — — — — — — — - — - - — - — - — - — - - — a a — — - a a — — - 7 — - _ — — A a — - a Cont. a APPEMDIX NO. 8 Pag. 2 (continuation) LONG-TERM INVESTMENT OF THE UNITED STATES,GREAT BRITAIN,ETC.IN L.ACountry a Costa Rica _ _ Cuba — Dominican Republic El Salvador Guatemala - Haiti - Honduras Mexico a — Nicaragua —Panama — Other West Indies TOTAL BATIN AMERICA a FRANCE a GERMANY a 3d 4d a — — — — — — — — — — — — — — — — a — — - - — — — — — a — — _ _ a 290e — — — — 1,158g a a — a — a —> 75 — —- — — 20 — — — a 905h bonds, while direct investments represent all. other investments. The latter include Investments in foreign corporations or enterprises which are controlled by a person or gropp domiciled in the investing country,or in the management of which such person or group has an lmportan voice. Also,in this latter group would be enterprises of almost every type such as railroads, mining,petroleum, hotels, factories, etc. All data listed are estimated for the most recent years for which data are available. For this reason and because of slight differences in classifications, the data are not strictly comparable as between countries; par or book values are used. 2Sources.-United States Department of Commerce, 11American Direct Investments in Foreign Countries-1936M; “The Statistical Analysis of Publicly Offered Foreign Dollars Bonds,"published by the Institute of International Finance, New York, May, 1940.etc. 3The latest estimates are those of the end of 1936, as compiled by Mr.P.M. Dickens of the U. S. Departament of Commerce. An omission estimate of # 10 millon for Mexican Border Enterprises is included. 4Taken from the study of the Institute of International Finance fentitled "The Statistical Analysis of Publicly Offered Foreign Dollars Bonds,M published May, 1940. The estimates are as of December 31,1939. Under portfolfcfl)^ are listed national government bonds as well as those of states, prfcvfltnee and departments, municipalities and corporations. 5 Railway and miscellaneous securities as of December 31,1939 6 Government bonds only, as of December 31,1939 7 Dutch, Fremch and British Guiana, a Not available b End of 1913 c End of 1933 d End of 1932 f Mr. H.Trueblood of the Foreign Policy Association thinks $ 5 billion is too high a figure in view of defaults and expropiations. He arrives a figure of about $ 2 billion by capitalizing the British return on their investments at the American rate of return. APPENDIX No. 9 Pag. 1 FOREIGN EXCHANGE RATES 1926 - 1940 YEARLY AVERAGES 1926 1927 1928 1929 1930 1931 1932 96.4 92.1 96.2 96.4 95.1 83.5 66,7 58.4 Bolivia 36.5 34.0 34.3 35.3 - — --- --- — Brazil 11.9 14.4 11.8 11.9 11.8 10.7 7.0 7.0 Chile 12.1 12.0 12.0 12.1 12.0 12.0 12.0 7.9 Colombia 97.3 98.4 97.6 97.6 96.5 96.4 96.5 95.2 Ecuador 20.0 20.0 18.9 19.9 20.0 16.6 16.6 12.5* PERU 486.6 374.0 373.1 397.0- --- ----- ----- Uruguay 103.4 101.4 101.3 102.6 19.3 19.2 18.9 19.2 100.0 99.9 99.9 99.9 99.9 99.9 99.9 99.9 49.8 48.3 47.2 H . CO Gountries 5ar, Exch. 48.1 47.1 35,4 31.8 Argentina Venezuela Cuba Mexico 98.6 ----- 85.8 ----- 55.3 ----- 47.0 ----- Figures from 1926 through 1928 from the Federal Reserve Bulletin, January, 1929, p.35. Figures from 1928 through 1932 from the Federal Reserve Bulletin, December, 1934, p.811. APPENDIX NO• 10 POSITION OF LATIN AMERICA IN THE FOREIGN TRADE OF THE UNITED STATES, 1929-1939 Values in thousan of U. S. dollars YEARS 1929 IMPORTS ( GENERAL ) EXPORTS (INCLUDING From all From % from . To all To countries L. A* L. A._____ countries L. A. 5,241 911 1.014 23,1 4,400 REEXPORTS) % to L« A. 17,4 1930 3,060 667 22,1 3,843 628 16,4 1931 2,090 478 22,9 2,424 312 12,9 1932 1*323 323 24,4 1,611 195 12*1 1933 1,449 316 21,8 1,674 215 321,9 1934 1,665 370 22,4 2,132 307 14,4 1935 2,047 460 22,5 2,282 344 15,1 1936 2,422 501 20,7 2,455 395 16,1 1937 3,083 672 21,8 3,349 578 17,3 1938 1,960 453 23,1 3,094 494 16,0 1939* 2,318 518 22,4 3,177 569 17,9 * PreliminarySource: Compiled from official statistics of the U. S.Department of Commerce. United States Tariff Commission THE FOREIGN TRADE OF LATIN-AMERIC& Part I Pag. 64 APPENDIX WORLD TRADE. NO. XI UNITED STATES TRADE. YEARS: 1929 TO 1938 LATIN AMERICAN TRADE- FIGURES IN MILLION DOLLARS YEARS WORLD TOTAL U. S. EXPORTS L. A. EXPORTS U. A. IMPORTS L. A . IMPORTS 1929 68,606 5,241 2,912 4,400 2,425 1930 55,161 3,842 1,992 3,060 1,791 1931 39,390 2,424 1,489 2,090 1,024 1932 26,395 1,611 1,038 1,323 618 1933 24,224 1,674 1,145 1,449 781 1934 23,375 2,132 1,676 1,665 1,027 1935 23,772 2,282 1,738 2,047 1,135 1936 25,722 2,455 1,911 2,422 1,241 1937 31,223 3,349 2,420 3,083 1,656 1938 27,440 3,094 1,833 1,960 1,488 Source: Compiled by the U. S* Tariff Commission from official statistics of the Latin American countries. United States Tariff Commission.-THE FOREIGN TRADE OF LATINAMERICA.-Part. I APPENDIX No. XII FOREIGN TRADE OF THE 20 LATIN AMERICAN COUNTRIES WITH SELECTED COUNTRIES, IN SPECIFIED YEARS: 1929 AND 1938 (Value in thousand of U.S. dollars) Country Value 1929 Percent of total Value 1938 Percent of total Exports to: All countries United States United Kingdom Germany Japan Italy France All other count. 2 ,912.270 100.0 1.808.300 100.0 988.054 535.904 234.775 3.818 91.399 181.794 876.526 33.9 18.4 8.1 .1 3.1 6.3 30.1 543.989 302.457 188.915 24.128 28.383 73.487 640.941 30.2 16.8 10.5 1.3 1.6 4.1 35.5 2 .415.398 100.0 1 ,467,071 100.0 931,014 362f039 261,944 14,767 113,411 124,479 607.744 38.5 15.0 10.8 . 6 4.7 5.2 25.2 498,305 171,228 237,794 37,679 43.918 48.267 429.880 33.9 11.7 16.2 2.6 3-0 3.3 29.3 Imports from: All countries United States United Kingdom Germany Japan Italy France All other count. Source: Compiled by the U. S. Tariff Commission from official statistics: of the Latin American countries United States Tariff Commission.-THE FOREIGN TRADE OF, LATIN AMERICA.- Pag.41 Part;. I APPENDIX NO. XIII APPROXIMATE DISTRIBUTION OF THE TOTAL WORLD'S TRADE AND THE SHARE OF THE WESTERN HEMISPHERE IN 1938. ---- 6 .$ Canada United States— 20.$ Latin America— 1 2 % _______ TOTAL AMERICAS-------- 38.$ TOTAL E UROPE-----------3?.$ TOTAL ASIA ---------- 18.$ TOTAL AFRICA — ------7.% TOTAL WORLD— 100.$ THE TRADE OF THE WESTERN HEMISPHERE EXPORTS CANA DA -- 193Q IMPORTS 66.% To United States t 250 32.$ To Europe H 400 H 150 To Latin America H 25 51.% From Europe 3.% From Latlh America it 35 21.% 5.% To Asia II 90 11.% From Asia H 50 7.% To Africa II 26 n 5 1.% To Europe 560 tII 1.269 42.% From Europe $ n 250 To Canada 470 16.% From Canada To Latin America: From Latin America: To 1? countries From 17 countries with with exception of exception of Chile, Chile,Argentina,* Argentina, & UruUru.guay $ 450 guay # 400 To Chile,ArgenFrom Chile,Argen tina & Uruguay " 115 19.$ tlna AUruguay " 70 (Cont.) 29.$ 13.$ From United States $ 470 3.% From Africa UNITED STATES. 1938 EXPORTS IMPORTS 24.$ APPENDIX NO. XIII(continuation) THE TRADE OF THE WESTERN HEMISPHERE UNITED STATES. 1938 EXPORTS To Asia To Africa To Russia (continuation) IMPORTS 520• 120. 70. *n ii 19.$ 4.$ 2.$ 1557$ From Asia From Africa From Russia 570. # «? 55. it 25. 30.$ 3.$ 1.$ Too.$ LATIN AMERICA,. WITH EXdEPTION OF" C)HILE, ARGENTINA.& URUGUAYEXPORTS To United States To Europe To Argentina,Chi le & Uruguay “ To Canada To Asia $ 400. 45.$ " 350. 39.$ M w M 75. 35. 35. 8.$ 4.$ 4.$ ibb.$ IMPORTS From United States From Europe From Argentina,Chi, le &Uruguay From Canada From Asia T.% $ 450. M 325. 52.$ 37.$ H 46. " 25. H 25. 5.$ 3.$ 3.$ 1057$ LATIN AMERICA.: CHILE, ARGENTINA AND URUGUAY : 5.$ EXPORTS IMPORTS — f c w Q i To UnitedStates $ 70. 11.$ To Europe ” 590. 81.$ To the rest ofthe Latin American Countries # 45. 7.$ To Canada ” — To Asia " 10. 1.$ Io57f T i— » M From United States $ 115. 20. From Europe $ 300. 57. From the rest of the Latin American countries M 75. 14. From Canada " 6. 1. From Adia H 45. 8, 100.$ 87 BIBLIOGRAPHY A- BOOKS Alberts, Mario, Guerra de Monedas,Cadiz,Portugal, 1939 Arnold Thurman W. The Bottlenecks of Business, New York, Reynal and Hitchock, 336 pp. Baudin Luuis. La Moneda, Buenos Aires, Argentina, 1939 Frank Waldo, America Hispana, Santiago, Chile,Translation from English, 1937 Frlman, Samuel Guy, Latin America,Its Place in World Life. New York, Wlllet Clark,Co.1937 Kelchner, Warren H. Inter-American Conferences, 1826-1933 B. PERIODICAL ARTICLES Evans, John W. "Economic Policy and Latin America", The Yale Review, (Spring 1941) p.569 Llppmann Walter. "The Economic Consequences of a German Victory" Life, July 4, 1940 Trueblood, Howard J."Loans to Latin America As Anti-Nazi Weapons" The New Republic, July 1, 1940 United States News. "Four New Orbits of World Power" Vol.IX, August 16, 1940 p.24 Wilson, Charles Morrow, "Buy Hemisphere Products", Haprers Magazine, Vol.182, January 1941, pp.147-155 C. ESSAYS Williams, John H., The Lessons of Monetary Experiency, (Essays in honor of Irving Fisher) New York, Farrar and R-Inc. 26 pp. 88 D. PUBLICATIONS OF LEARNED ORGANIZATIONS Monthly Bulletins, Central Banks of Argentina, Colombia, Chile, Peru and Ecuador. 1940~41 Inter-American Bank, Federal Reserve Bulletin, Washington,D.C. June 1940 pp.51?*»525 Reports of Committees and Discussion Thereon, 1889-1890. Washington D. C. Gov. Print. Reports of the Delegates of the U. S. of America.. Hateana,1928 Washington, D- C. Gov. Print. Minutes and Antecedents, Montevideo, 1955, Washinton, Gov. Print. 3 Vols. Foreign Trade of Latin America.-United States Tariff Commission, Washington, D- C. Gov. Print. 89 QUOTATION from an article by Howard J. Trueblood, The New Republic,July,1-1940 As an emergency measure in the economic and political defense of the Western Hemisphere against a Nazi-dominated Europe, establishment of an Inter-American Marketing Board, with full control over the foreign trade of the Western Hemisphere, might be a key feature of the new Pan-Americanism. Such a Board- of necessity financed in large part by United States capital, perhaps through the intermediary of the inter-American bank- would preferably represent all twenty-one republics, although almost inevitably control and responsability would devolve upon the United States. The first task of such a board would be to shift United States imports to Latin America in so far as possible, apportioning purchases among the individual Latin American countries of the especific commodities Involved. The board would also be empowered to acquire and market all other Latin American exports products. Such exports would be used to fill the demands of the U.S.and other American republics, while the surplus would be disposed of in accordance with both the political policy of the New World and the economic needs of the Old. How much would it ’’cost” the U. S. to underpin the Latin American exports markets? Assuming, under the circumstances out lined, an immediate increase of at least $ 200,060,000 in this country’s Latin American imports, there would remain- on the basis of the 1936-38 average- a surplus of about $ 1,000,000,000 worth of goods normally outside the Western Hemisphere. This surplus, in the single year 1938 included approximately lo,000,000 bags of coffee, 700,000 tons of meat, at least 5,600,000 bags of sugar, 200.000 tons of wool, 1,500,000 bales of cotton, 200,000 tons of hides and skins, 1,950,000 tons of wheat and 2.737,000 tons of corn, to mention only a few major commodities. For economic reasons, an Inter-American Marketing Board could not throw these products on the U.S. market without serious internal repercussions on the price structure and normal trade channels. On the other hand, Latin American products bought in the interests of defense would Include many commodities now brought in part elsewhere: for example, wool, hides and skins, cacao, fibers, various nuts, waxes and vegetable oils and a number of. minerals-includlng tin, provided smelters are established. Presumably a board with the powers contemplated would find opportunities to dispose of most surplus Latin American products without subjecting the Individual countries to the danger of dealing directly with Germany. Even if the $ 1,000,000,000 were pure loss to the U. S., moreover, it would still be a small price to pay for strengthening Latin American resistance to Nazi economic penetration.