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Tuesday, 16 September 1958

Washington.

August 18, 1958.

Dear Mr. President:

We have frequently discussed together the importance of a sound and sustainable growth in the economy of the free world to both the foreign and domestic policy objectives of the United States. Over the longer term, I believe that the well-being of the friendly nations depends not only on the economic and financial health of the industrialized nations of Europe, North America; and elsewhere, but also upon the economic growth and progress of nations in the less developed areas of the free world.

Through a number of measures the United States has been pursuing these objectives, and this year we have taken major steps forward in our own programs. It would seem highly desirable that the nations of the free world as a whole should move forward cooperatively to deal more effectively with the problem. One of the best ways of achieving such cooperation would be by strengthening the financial institutions already established. In the International Bank for Reconstruction and Development and the International Monetary Fund we have seasoned international instruments now engaged in this work.

Both of these organizations have staffs of internationally recruited experts who, with over a decade of experience behind them, have demon strated their ability to act effectively and impartially. Both have established operating standards and policies which command the respect of their member governments. The Fund has provided short-term financial assistance to 35 member countries, aggregating the equivalent of over $3 billion. Through such assistance and the influence it has been able to bring to bear for the adoption of sound currency and exchange policies, the Fund has contributed substantially towards monetary stability and a freer flow of international trade and payments. The Bank has invested some $3.8 billion in productive development projects in 47 different countries and territories, most of them under-developed. Loans by the Bank are running at the rate of about $750 million a year. The Bank's financing and technical assistance activities have served to accelerate the pace of economic growth all over the free world; and it has carried on these activities on a basis that has earned for the Bank the confidence of all major private capital markets. The establishment of the International Finance Corporation, which supplies capital to encourage the growth of productive' private enterprise, has recently increased the scope and flexibility of the Bank's field of operation.

The International Monetary Fund utilizes for its operations gold and member country currencies which have been provided to it by the member countries through their subscriptions to its capital. Advances by the Fund in the past two years have amounted to approximately $1.8 billion and nearly $900 million additional are in effect earmarked against standby commitments which the Fund has undertaken.

Under the charter of the International Bank, a small part of its authorized capital is available for loans, but the Bank must depend primarily on borrowings in the financial markets of the world. The major part of the authorized capital in effect constitutes a guarantee for these borrowings. The Bank has raised the equivalent of more than $2 billion through issuing its bonds denominated in six different currencies. At present the equivalent of about $1.7 billion is outstanding in such bonds. The Bank's bonds are recognized throughout the world as securities of the highest quality and, as a result, the Bank has been able to borrow large sums of money at frequent intervals at rates of interest comparable to those of highly-regarded government securities. This in turn has enabled the Bank to fix interest rates on its own loans at levels not imposing undue burdens on the borrowing countries concerned. While the Bank still has unused borrowing capacity, its volume of lending has expanded greatly and, if it is to continue to be able to meet legitimate loan requests likely to be submitted to it during the years ahead, it must go to the market for larger amounts of money than ever before. This would require a broadening of the market for the Bank's bonds and the tapping of sources of capital not yet reached.

During the annual meetings of the Bank and Fund at New Delhi early in October, we should give consideration to ways and means of increasing the effectiveness of these two institutions. As U.S. Governor of the Bank and Fund, I would welcome your guidance with respect to these vital problems of policy. If you believe that certain avenues of action should be explored preparatory to the New Delhi meeting, I would ask the National Advisory Council to proceed promptly with detailed study and arrangements. We would, of course, wish to consult with members of the Congress who are particularly concerned with this subject.

A related matter has recently been under consideration by the Senate, which has adopted a resolution calling upon the National Advisory Council to undertake a study of the feasibility of an International Development Association as an affiliate of the International Bank. The resources of such an organization would be subscribed by the members of the Bank. The Association would finance development projects on the basis of long term loans at reasonably low interest rates repayable in whole or in part in local currencies. In the course of its study, the Council will also explore the possibility that such an affiliate of the Bank might prove to be a means, supplemental to our own national programs, for assuring productive investment of some part of the various local currencies becoming available to the United States through the sale of agricultural surpluses or other programs. It is intended to undertake informal discussions with other members of the Bank with a view to ascertaining their attitude toward an expansion of the Bank's activities along these lines.

I request your guidance as to whether, if the study indicates that the proposal is promising, you would wish to have the subject pursued formally with the governments of the other member countries of the International Bank.

Yours faithfully, Robert B. Anderson.

The President The White House.







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