Special Message to the Congress on the Establishment of the Inter-American Development Bank.

To the Congress of the United States:

I herewith submit to the Congress the Agreement for the establishment of the Inter-American Development Bank together with a Special Report of the National Advisory Council on International Monetary and Financial Problems recommending United States participation as a member of such Bank. Representatives of the United States took an active part in the inter-American meetings which formulated the Agreement. I urge that the Congress enact legislation authorizing the President to accept membership in the Bank for the United States and to assume the subscription obligations prescribed in the Agreement.

The establishment of the Inter-American Development Bank and our participation in it will be a most significant step in the history of our economic relations with our Latin American neighbors. It will fulfill a long-standing desire on the part of the Latin American Republics to have an Inter-American institution specifically designed to promote the financing of accelerated economic development in Latin America. At the Buenos Aires Economic Conference in August and September of 1957, the United States supported a resolution calling for a study of possible solutions for the problems of financing economic development. In August of 1958 the United States indicated that it would be prepared to consider the establishment of a development institution for Latin America and in September of that year an informal meeting in Washington of the Foreign Ministers of the American Republics recommended that a specialized committee of governmental representatives negotiate and draft an instrument for the organization of such a development institution. A Specialized Committee, thereafter established by a Resolution of the Inter-American Economic and Social Council, was convened at the Pan American Union in Washington on January 8, 1959, and devoted three months of continuous effort to the preparation of the Agreement which I now lay before the Congress for its approval.

The proposed institution is well designed to serve the needs of the Latin American Republics on a sound financial basis. The bulk of its assets, $850 million, which are subscribed for the capital stock of the Bank, are to be used to make or facilitate loans on banking terms, repayable in the currency in which the loan has been made. Each member republic is called upon to make a significant subscription to the capital of the Bank. Of the $850 million in authorized capital stock, $400 million is for paid-in shares to be paid for in installments over a period of approximately three years. Half of each installment is payable in gold or dollars, and half in the national currency of the members. The United States subscription to the paid-in capital is $150 million. The Latin American subscriptions for such capital total $250 million.

The balance, $450 million of callable capital, will constitute a guarantee of borrowings by the Bank in capital markets and would only be actually expended if the Bank were unable to meet its commitments. It is planned that the Bank will rely heavily on raising funds from private sources for the financing of sound economic development projects in Latin America. The United States portion of the callable capital is $200 million.

It should be noted that the Agreement expresses the intention of increasing the capitalization of the Bank by an additional $500 million after September 30, 1962, if the increase is approved by a three-fourths vote in the Board of Governors. The increase would be in the form of callable capital and the United States share would be approximately $200 million. This arrangement was included in recognition of a deep conviction on the part of the Latin American representatives that definite provision should be made in the Agreement for an increase in the capital of the Bank at an early date. The United States representatives agreed that such an increase would be desirable but believed that it would be wise to have an initial period of experience with the Bank's operations before the additional capital was subscribed. Accordingly, if the Bank's operations are established on an effective basis in accordance with expectations, the United States will in good faith be committed to vote for the increase and subscribe to its share of the increased capital.

The Agreement also establishes a Fund for Special Operations to be financed by specified contributions by all of the member countries, half in gold and dollars and half in the national currencies of the members. Its initial resources will be $150 million. The United States contribution of $100 million is payable in installments, the first of which will be $50 million. The Fund is established for the making of loans on terms and conditions appropriate for dealing with special circumstances arising in specific countries or with respect to specific projects, where normal terms of lending would not be appropriate. Loans by the Fund may be made repayable in whole or in part in the currency of the borrowing country. The Agreement carefully segregates the resources of the Fund from the capital resources of the Bank so as not to jeopardize, in any way, the financial soundness of the institution and its ability to raise funds in the capital markets.

It is proposed that the funds necessary to meet the initial portion of the United States subscription to the Bank be provided by a no-year appropriation, to be expended at such time after its enactment as may be desirable taking into account the active role which the United States has played in formulating the proposal for the Bank.

The Charter authorizes the Bank to provide its members, and private entities in the territories of the members, with needed technical assistance. Particular attention is given to technical assistance in the fields of preparation, financing, and execution of development plans and projects, and the training of personnel specializing in the formulation and implementation of development plans and projects. These are two areas where there has long been a need for additional assistance and the facilities which will be provided by the Bank should be very helpful to member countries in utilizing their international borrowing capacity for the development projects most essential to their economies.

Throughout the Agreement emphasis is given to the promotion of private investment in Latin America. It is recognized that only through the increased flow of private investment can the desired rate of progress be attained, and that public institutions such as the one now being created, must complement, rather than substitute for, private investment.

In the preparation of the Agreement careful attention has been given to the experience of other institutions for international financing. The representatives of the Latin American countries, as well as those of the United States, have demonstrated an awareness of the necessity of making adequate provision for safeguarding the resources of the institution in order that its future existence as an important factor in the development of the hemisphere may be assured. In this respect the Agreement follows, in many aspects, the charter of the International Bank for Reconstruction and Development. It is anticipated that the new Bank will work closely with existing sources of public credit, including the International Bank for Reconstruction and Development, the Export-Import Bank, and the Development Loan Fund.

The Special Report of the National Advisory Council, submitted herewith, describes the Agreement creating the Bank in greater detail.

I am strongly of the opinion that because of the following general policy considerations the United States should support the creation of this Bank for Latin America:

(1) The special relationship, historical, political and economic, between the United States and the Latin American Republics;

(2) The pressing economic and social problems in the area resulting from a rapid rate of increase in population and widespread desire for improved living conditions; and

(3) The desirability of an institution which will specialize in the needs of Latin America, which will be supported in large part by Latin American resources and which will give the Latin American members a major responsibility in determining priorities and authorizing loans.

I urge the Congress to enact promptly legislation enabling the United States to join with the other members of the Organization of American States in establishing the Inter-American Development Bank which will foster, in a sound and efficient manner, more rapid advance by the people of the nations south of our border as they strive to improve their material well-being.

DWIGHT D. EISENHOWER