INTERNATIONAL FINANCE CORPORATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP59-00224A000100340002-6
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: November 11, 2016
• Document Release Date: January 19, 1999
• Sequence Number: 2
• Content Type: REPORT

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84TH CONGRESS 1 HOUSE OF REPRESENTATIVES REPORT
1st Session No. 1299
INTERNATIONAL Fl N ANCE CORPORATION
-JULY 20, 1955.-Committed to the Committee of the Whole House on the;,5tate.
of the Union and ordered to be printed
Mr. SPENCE, from the Committee on Banking and Currency,
submitted the following
REPORT
The Committee on Ban king and Currency, to whom was referred
the bill (S. 1894) to provide for the participation of the United States
in the International Finance Corporation, having considered the
same, report favorably thereon without amendment and recommend
that the bill do pass.
PURPOSE OF THE BILL
The bill authorizes the President to accept membership on behalf
of the United States in the International Finance Corporation, author-
izes the payment of the United States subscription of $35,168,000,
contains several provisions of law necessary to make our membership
effective, and provides for the coordination of the United States
representatives to the IFC by the National Advisory Council on
International Monetary and Financial Problems. The bill requires
the approval of Congress for certain major actions on behalf of the
United States with respect to the IFC, namely, voting for an increase
in capital or subscribing to additional stock, accepting amendments
to the articles of agreement, and making any loan to the Corporation.
HISTORY AND DESCRIPTION OF THE INTERNATIONAL FINANCE
CORPORATION
The International Finance Corporation has been under discussion
since 1951, and in November 1954 the United States administration
announced its support of this proposal. On December 1.1, 1954, the
General Assembly of the United Nations adopted a resolution by a vote
of 50 to 0 with 5 abstentions, endorsing the IFC and requesting the
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1NTERNATIONAI, FINANCE CORPORATION
International Bank for Reconstruction and Development to take
steps to bring the Corporation into being. On April 11, 1955, the
executive directors of the International Bank approved, for submission.
to member governments, the articles of agreement of the IFC, and an
accompanying explanatory memorandum, both of which were then
transmitted by the International Bank to member governments for
consideration.
The International Finance Corporation will be an international
organization, whose members must be members of the International
Bank. It will be affiliated with the International .Bank through com-
mon membership in their Boards of Directors and Boards of Governors.
The President of the International Bank will be the Chairman of the
Board of the IFC, and the management and operations of the two
institutions will be closely coordinated in the interest of achieving
maximum efficiency with a minimum staff. The authorized. capital
of the IFC will be $100 million. The amount available for subscrip-
tion by each member will be proportionate to that :member's sub-
scription to the capital stock of the International Banl.
The objective of the International Finance Corporation will be to
encourage the growth of private enterprises in its member countries,
particularly the less developed areas, by-
Investing in productive private enterprise, in association with
private investors without government guaranties of repayment
where sufficient private capital is not available on reasonable
terms ;
Serving as a clearing house to bring together investment oppor-
tunities, private capital, and experienced management;
Creating conditions conducive to and otherwise stimulating the
productive investment of private capital.
The International Finance Corporation is intended to provide
venture capital but is not authorized to invest in capital stock or to
assume responsibility for managing an enterprise in which it has
invested.
The International Finance Corporation will revolve its funds by
selling its investments to private investors whenever it can appro-
priately do so on satisfactory terms. Such transactions :in the markers
of the United States will not be exempt from the applicable laws
administered by the Securities and Exchange Commission. Securities
issued or guaranteed by the Corporation will be protected against
discriminatory taxation but will have no special tax privileges.
Employees of the IFC will enjoy privileges and immunities identical
to those granted to the employees of the International Bank. No
employee will be exempt from taxation on his salary by his own gov-
ernment. Accordingly, employees who are citizens of the United
Mates will be fully subject to our tax laws.
NEED FOR :ESTABLISHING THE INTERNATIONAL FINANCE CORPORATION
On May 2, 1955, the President recommended to the Congress that
legislation be enacted providing for United States participation in the
International Finance Corporation. The President stated:
The entire free world needs capital to provide a sound basis for economic
,?rowth which will support rising standards of living and will fortify free social
and political institutions. Action to that end by cooperating nations is essential.
li its own enlightened self-interest, the United States is vitally concerned that
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INTERNATIONAL FINANCE CORPORATION
capital should move into productive activities in free countries unable to finance
development needs out of their own resources.
Government funds cannot, and should not, be regarded as the basic sources
of capital for international investment. The best means is investment by private
individuals and enterprises. The major purpose of the new institution, conse-
quently, will be to help channel private capital and experienced and competent
private management into productive investment opportunities that would not
otherwise be developed. Through the Corporation we can cooperate more effec-
tively with other people for mutual prosperity and expanding international
trade, thus contributing to the peace and the solidarity of the free world.
On July 11 and 14, 1955, public hearings on H. R. 6228, which is
a companion bill to S. 1894, were held by your committee. Secretary
of the Treasury Humphrey, Assistant Secretary of State Waugh,
President of the Export-Import Bank Edgerton, and representatives
of the American Farm Bureau Federation, the Committee for a
National Trade Policy, and the Washington Board of Trade testified
in support of the bill. Letters and statements in support of the bill
were received from the Secretary of Commerce, the Acting Secretary
of Agriculture, the American Bankers Association, the Investment
Bankers Association of America, and the United States Council of
the International Chamber of Commerce. The president of the
National Foreign Trade. Council filed a statement in opposition to the
proposal.
There is almost universal agreement that increased investment and
development would be desirable in less developed areas of the free
world. Many benefits would result to the people of those areas
through raising their standard of living, often tragically low; the
United States could anticipate increasing consumption of American
agricultural and industrial products; and the entire free world would
gain by relaxation of the discontent and unrest which make a fertile
field for Communist activity.
It is hoped that by channeling private investment into the less
developed areas the International Finance Corporation will lessen
the need for public grants and loans.
Currently private United States and other capital flowing into the
underdeveloped regions is concentrated in relatively few areas and
industries, particularly oil and mining. Private capital for general
industrial and commercial purposes in these areas is generally conceded
to be inadequate.
One of the problems of the underdeveloped regions is the low rate
of capital formation. What capital there is, all too frequently is
invested in the more highly developed areas. It is hoped that the
examples of productive and profitable enterprises which the IFC will
help to start in these areas will generate local confidence and increase
the available supply of local capital.
The International Finance Corporation would stimulate private
capital investment in several ways. The use of its own funds, multi-
plied several times by the private capital with which it would be
associated, would be the most direct form of stimulation. Secretary
Humphrey gave the following example of the kind of situation in
which the direct financing authority might be used:
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4 INTERNATIONAL FINANCE CORPORATION
manufacturer wishes to open a jute plant in Asia. He needs machinery and
equipment from the United States to start operations. He has some money of his
own to invest but has been unable to raise the balance in the local capital market.
The Export-Import Bank, upon being approached for a loan to finance the sale of
United States equipment for the project, finds that there is insufficient equity in
the operation. The prospective borrower then goes to the IFC which advances
the necessary equity capital. This allows the Export-Import Bank to finance the
sale of United States equipment. The convertible debentures purchased by the
IFC from the jute manufacturer would be behind the Export, Import Bank: loan
but ahead of the manufacturer's own investment. In short, the Export-Import
Bank makes a loan it couldn't otherwhe make, the jute manufacturer goes into
business, and, if he succeeds, the IFC sells the convertible debentures at a profit
and is able to loan the money to someone else.
The International Finance Corporation will also help to create con-
ditions conducive to the flow of private investment into the productive
investment in member countries. By virtue of its international status
and its affiliation with the International Bank it may well he in. a
position to lead governments exercising restrictive practices to realize
the wisdom of adopting an attitude more conducive to the flow of
private investment. The IFC would serve as a forum for it discussion
of problems of private investors in member countries.
The. International Finance Corporation would also serve as a..
clearinghouse to bring together investment opportunities, domestic
and foreign private capital, and experienced management. A clear-
ing-house of this sort on a wide international basis with direct access
to the world's principal capital markets could be extremely useful.
The International Finance Corporation would be of particular
importance to small- and middle-sized firms and investors. In the-
first place small enterprises in the foreign field frequently need invest-
ment funds beyond their own resources and beyond what they can
raise in normal banking channels. It is expected that the IFC will
cooperate with private venture capital organizations in the financing
of particular enterprises. Since the IFC can operate only in con-
junction with private investors, the IFC would encourage, and not
compete with, private investment. The experience of the IFC in
dealing with foreign problems will be available to assist small firms.
and investors directly and will render a valuable service for encourag-
ing private investment abroad.
RELATIONSHIP OF INTERNATIONAL FINANCE CORPORATION TO EXISTING
LENDING INSTITUTIONS
The urgent need for increased private investment in the, less.
developed areas cannot be met completely by either the International
Batik or the Export-Import Bank. In general, the ability of the
International Bank to make loans to private enterprises is :restricted.
by the requirement in its charter that, its loans must be guaranteed-
by an officidl agency of the country where the project is located.
Furthermore, the. International Bank's ability to finance private
enterprise is affected by the fact that the bank makes only fixed-
interest loans.
The role of the Export-Import Bank is primarily to offer banking
facilities for exports or imports from the United States and in appro-
pri zte cases capital for investment on a loan basis. Both the Export-
Import Bank and the International Bank make loans on the basis of'
it reasonable expectation of repayment, rather than supplying venture
capi tai:.
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During the hearings some concern was expressed by several mem-
bers of the committee that the operations of the Export-Import Bank
and the International Bank might be affected or supplanted by the
International Finance Corporation. In this connection, the Gov-
,ernment witnesses pointed out that the activities of the International
Finance Corporation are not intended to replace in any sense the
activities of the two institutions but rather to augment and support
their general purposes. As the example by Secretary Humphrey
which is cited above indicates, there should be fruitful opportunities
for cooperation between the IFC and the existing institutions.
The bill makes the provisions of section 4 of the Bretton Woods
Agreements Act with respect to the International Bank applicable to
the Corporation. That section created the National Advisory Council
on International Monetary and Financial Problems, (1) to recommend
general policy directives to the President for the guidance of the United
States representatives to the International Monetary Fund and. the
International Bank, and United States agencies making foreign loans
or participating in foreign. financial, exchange, or monetary transac-
tions; (2) to coordinate the policies and operations of these officials
and agencies; and (3) to determine, under the general direction of the
President, whether or not to give or refuse the approval, consent, or
agreement of the United States when it is required before any act may
be done by the fund or the bank.
The Government witnesses, including the Secretary of the Treasury,
who is the Chairman of the National Advisory Council, stated that
the Council would be alert to preclude any infringement by the
International Finance Corporation on the activities of the Export-
Import Bank. In this respect your committee desires to instruct the
Chairman and members of the. National Advisory Council that they
should be constantly vigilant and exert every effort to assure that
there will be no infringement, by the International Finance Corpora-
tion on the activities of the. Export-Import Bank. Your committee
believes that the United States Governors, Directors, or alternates to
the International Finance Corporation should not vote for any loan
which may properly be made by the Export-Import Bank. In view
of the fact that the President of the Export-Import Bank is a member
of the National Advisory Council and can readily ascertain whether
the Export-Import Bank could properly make a, loan presented to the
International Finance Corporation, your committee expects the
President of the Export-Import Bank to alert the National Advisory
Council in this respect. In this manner the National Advisory
Council should at all times be in a position to instruct the. United
States representatives to the International Finance Corporation so
that they will not vote for any loan that can properly be made by the
Export-Import Bank.
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INTERNATIONAL FINANCE CORPORATION
ANALYSIS OF THE ARTICLES OF AGREEMENT OF THE INTERNATIONAL
FINANCE CORPORATION
The purpose of the International Finance Corporation is-
to further economic development by encouraging the growth of productive private
enterprise in member countries, particularly in the less developed areas.
In carrying out this purpose, the articles provide that the Corpora-
tion shall-
(i) In association with private investors, assist in financing the establish-
ment, improvement, and expansion of productive private enterprises which
would contribute to the development of its member countries by making
investments without guaranty of repayment by the member government
concerned, in cases where sufficient private capital is not available on reason-
able terms;
(ii) Seek to bring together investment opportunities, domestic and foreign
private capital, and experienced management; and
(iii) Seek to stimulate, and to help create conditions conducive to, the
flow of private capital, domestic and foreign, into productive investment in
member countries.
Membership in the International Finance Corporation is limited
to members of the International Bank. The 100,000 shares of stock
will provide a total capital of $100 million for the IFC. The initial
subscriptions are payable in full in gold or United States dollars
within. 30 days after IFC begins operations. Shares of stock shall
not be pledged or encumbered and shall be transferred only to the
IFC. A schedule attached to the articles specifies the number of
shares and amount available for subscription in each country, ranging
from the United States with 35,168 shares and a subscription of
$35,168,000 and the United. Kingdom with 14,400 shares and a
subscription of $14,400,000, to Nicaragua with 9 shares and a sub-
scription of $9,000, and Panama with 2 shares and a subscription
of $2,000.
Countries which do not become original members by joining the
International Finance Corporation before December 31, 1956, may
join later under terms prescribed by IFC, and the capital stock. may
be increased by majority vote by as much as 10,000 shares in order
to make possible such subsequent memberships. A three-fourths ma-
jority of the total voting power may increase the capital stock of
IFC, in which event members may subscribe to their proportionate
share of the increase.
ARTICLE III--OPERATIONS
The Corporation is authorized to make investments of its funds in
productive private enterprises in the territories of its members. It is
prohibited from investing in capital stock, but otherwise may make
investments of its funds in any form considered appropriate in the
circumstances, including investments convertible to capital stock by
a holder other than the International Finance Corporation. The Cor-
poration is prohibited from exercising the right to subscribe to or
convert an investment into capital stock. In the event of actual or
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threatened default, insolvency, or similar situations jeopardizing the
investment, IFC may take any action necessary to protect its interests.
The articles set forth certain principles which are to guide its
operations:
(i) The Corporation shall not undertake any financing for which' in its
opinion sufficient private capital could be obtained on reasonable terms;
(ii) The Corporation shall not finance an enterprise in the territories of
any member if the member objects to such financing;
(iii) The Corporation shall impose no conditions that the proceeds of any
financing by it shall be spent in the territories of any particular country;
(iv) The Corporation shall not assume responsibility for managing any
enterprise in which it has invested;
(v) The Corporation shall undertake its financing on terms and conditions
which it considers appropriate, taking into account the requirements of the
enterprise, the risks being undertaken by the Corporation, and the terms
and conditions normally obtained by private investors for similar financing;
(vi) The Corporation shall seek to revolve its funds by selling its invest-
ments to private investors whenever it can appropriately do so on satisfactory
terms;
(vii) The Corporation shall seek to maintain a reasonable diversification
in its investments.
Funds received by or payable to the International Finance Corpora-
tion in respect to its investments are not exempt by reasons of the
articles from generally applicable foreign exchange restrictions,
regulations, and controls. The IFC is authorized to borrow funds
and to furnish security therefor but must, before making a public
sale of its obligations in the markets of a member, obtain the approval
of that member and the member in whose currency the obligations
are to be denominated. It may invest its funds not needed for
financing and its pension or other similar funds; and may guarantee
securities in which it has invested in order to facilitate their sale, and
exercise such powers incidental to its purpose as is necessary to its
purpose.
The Corporation shall not interfere in the political affairs of its
members, and its decisions shall be based only on relevant economic
considerations.
ARTICLE IV-ORGANIZATION AND MANAGEMENT
The articles provide that the members of the bank's Board of
Governors and their alternates, and the members of the bank's Board
of Executive Directors and their alternates shall exercise ex officio the
same offices in the International Finance Corporation, if the countries
they represent in the bank become members of the Corporation. The
President of the bank is Chairman of the Board of Directors of the
IFC. The President of IFC is appointed on the recommendation of
the Chairman and the concurrence of the Board of Directors of IFC.
All powers of the Corporation are vested in the Board of Governors
and they may delegate to the Board of Directors authority to take all
but certain specified major actions. Each member has 250 votes plus
1 additional vote for each share of stock held.
The International Finance Corporation is an entity separate and
distinct from the bank and its funds must be kept separate and apart
from the International Bank. IFC cannot lend to or borrow from the
International Bank. However, it is authorized to make use of the
facilities, personnel, and services of the International Bank. Its
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principal office is to be in the same locality as the principal office of the
International Bank-Washington, D. C.
The Board of Governors is authorized to distribute shares of IFC's
net income and surplus after making provisions for the reserve to be
distributed in proportion of the capital stock held by the members.
The articles provide that a member may at any time withdraw
from the International Finance Corporation. A member may be
suspended by IFC, if it has failed to fulfill any of its obligations to
I VC, A member of IFC which is suspended from membership in,
or ceases to be a member of, the International Bank shall automatically
be suspended from membership in, or cease to be a member of, IFC.
The articles provide for the repurchase by the IFC of the stock sub-
scribed by the former member.
The articles also provide for suspension of the operations of the
IFC and its orderly liquidation.
ARTICLE VI-STATUS, IMMUNITIES, AND PRIVILEGES
The articles give to the International Finance Corporation the same
status, immunities, and privileges given to the International Bank
under the Bretton Woods Agreements Act. These are as follows:
1. The Corporation will have full juridical. personality, including
the ability to make contracts, to acquire and. dispose of all kinds of
property, and to sue in United States or other courts.
2. It will be subject to suit where it has an office or an agent to
accept service of process or where it has issued or guaranteed securities,
but its property cannot be seized or attached except after a final judg-
ment against it.
:3. The property and assets of the Corporation will be immune from
search, requisition, confiscation, expropriation, or any other form of
seizure by executive or legislative action.
4. The archives of the Corporation will be inviolable.
5. All property and assets of IFC are to be free from. restrictions,
regulations, controls, or moratoria of any nature, to the extent neces-
sary to carry out the articles and subject to the provision (which is
not contained in the bank articles) that investments by IFC shall
not thereby be exempted from generally applicable foreign exchange,
restrictions, regulations, and controls.
6. The officials and employees, including Governors and Directors,
will be immune from legal process with respect to their official acts,
and will receive the same treatment as comparable employees in the
diplomatic service of their own country.
7. The Corporation will be immune from taxation, and each officer
and employee will be immune from taxation on his salary and emolu-
ments by any country other than his own. Securities issued or
guaranteed by the Corporation will be protected. against discrim-
matory taxation, but will have no special tax privileges.
8. If the Corporation winds up its affairs and distributes its assets
to members, they would have the same privileges and immunities as
to those assets that the Corporation had before distribution.
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ARTICLE VII-AMENDMENTS
The articles of agreement may be amended by vote of three-fifths
of the Governors exercising four-fifths of the total voting power,
except that unanimous approval is required in case of amendments
modifying the right to withdraw, the preemptive right to purchase
new stock, and the limitation on liability.
ARTICLE VIII-INTERPRETATION AND ARBITRATION
Questions of interpretation of provisions of the articles arising
between a member and the International Finance Corporation or
between members are to be submitted to the Board of Directors, and
may be appealed to the Board of Governors. Disagreements between
IFC and a former member may be submitted to arbitration.
1RTICLE IX---FINAL PROVISIONS
The articles are to enter into force when accepted on behalf of not
less than 30 governments whose subscriptions comprise not less than
75 percent of the total subscriptions, but not before October 1, 1955.
Participation in the International Finance Corporation is evidenced
by signature of the articles and by depositing with the International
Bank a statement setting forth that a government has accepted the
articles in accordance with its law and has taken all steps necessary
to enable it to carry out all of its obligations under the articles. The
articles will remain open for signature by the countries specified until
December 31, 1956.
SECTION BY SECTION ANALYSIS OF TIIE BILL
The bill contains nine sections. They are summarized briefly
below, with references to major changes from the provisions of the
Bretton Woods Agreements Act (59 Stat. 512; 22 U. S. C. 286-286k)
which relate to the International Bank for Reconstruction and Devel-
opment.
Section 1.-The first section provides that the act may be cited as
the International Finance Corporation Act.
Section 2.-The President is authorized, by section 2, to accept
membership for the United States in the Corporation. The effect
of this section is to give congressional approval to the articles of
agreement proposed by the Executive Directors of the International
Bank.
GOVERNOR, DIRECTOR, AND ALTERNATES
Section 3.-This section makes the United States Governor and his
alternate and the United States Executive Director and his alternate,
of the International Bank, Governor, Director, and alternates, respec-
tively, for the Corporation. This is required by the articles of agree-
ment of the Corporation. The Governor and his alternate, who serve
5-year terms, and the Executive Director and his alternate, who serve
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2-year terms, are nominated by the President and confirmed by the
senate. The Governor and his alternate receive no compensation
from the bank or the Corporation, while the Executive Director and
his alternate are paid by the bank and the Corporation. None of
these officials may, under section 3 (c) of the Bretton Woods Agree-
ments Act, receive any compensation from the United States for their
services in these capacities.
Section 4.---This section makes the provisions of section 4 of the
Bretton Woods Agreements Act with respect to the International
Bank applicable to the Corporation. That section created the
National Advisory Council on International Monetary and Financial
Problems, to recommend general policy directives to the President
for the guidance of the United. States representatives to the Inter-
national Monetary Fund, and the International Bank, and United
States agencies making foreign loans or participating in foreign finan-
cial exchange, or monetary transactions, to coordinate the policies
and operations of these officials and agencies, and to determine, under
the general direction of the President, whether or not to give or refuse
the approval, consent, or agreement of the United States when it is
required before any act may be done by the fund or the bank. (See
sec. 5 for actions not to be taken without authorization by the Con-
gress.) In addition, the National Advisory Council submits semi-
annual reports and biennial reviews and recommendations on the
activities of the fund and the bank, which under this section would
also cover the Corporation.
Section 5.-Fundamental changes in the Corporation or in the
participation of the United States in the Corporation are prohibited
by section 5 unless the Congress approves them. The following are
prohibited except with the authorization of the Congress: (1) Any
subscription by the United States to additional shares of stock of
the Corporation, (2) the acceptance of any amendment to the articles
of agreement, (3) any loan to the Corporation by the United States
or any agency of the United States, and (4) voting on behalf of the
United States for an increase in the capital stock of the Corporation.
As the vote of the shares of the United States would be necessary for
an amendment to the articles of agreement or an increase in. the capital
stock (except in the case of additional stock up to 10,000 shares to be
issued to new members), such changes could not be effected without
the approval of the Congress. Comparable restrictions on actions
with respect to and under the articles of agreement of the bank were
imposed under the Bretton Woods Agreements Act.
&ction 6.--The Federal Reserve banks are required, on request, to
act as depositories or fiscal agents of the Corporation, and in so acting
they will be supervised and directed by the Board of Governors of
the Federal Reserve System.
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Section 7 (a).-This section authorizes the Secretary of the Treasury
to issue United States Government bonds and to use the proceeds to
pay the United States subscription of $35,168,000 (out of a total of
$100 million). This is the usual method of providing capital for
investment in Government corporations, and was used for providing
funds for the United States subscription to the International Bank.
Section 7 (b).-This requires that money received by the United
States as dividends from the Corporation is to be paid into the general
fund of the Treasury, which can only be used in accordance with
appropriations by the Congress.
Section 8.-Whenever the Corporation is a. party to litigation in
the United States, the district courts of the United States will have
jurisdiction to try the case. Removal of cases where the Corporation
is a defendant from a State court to a Federal court is also authorized.
STATUS, IMMUNITIES, AND PRIVILEGES
Section 9.-This section gives full force and effect in the United
States, its Territories, and possessions, to the provisions of article VI
of the articles of agreement, which confer upon the Corporation the
same legal status and immunities and privileges given to the Inter-
national Bank under the Bretton Woods Agreements Act (set forth
above).
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