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000,000 of United States dollars, offers rates that are too high, the Treasury might be embarrassed.

The bank's officials have been sounded out on the proposal to allow exemptions from the Securities Act and Banking Act only so long as their loans do not exceed $3,175,000,000. Eugene Black, United States executive director, has assured the House Commerce Committee the bank will never need that much.

LOANS TOTAL $513,000,000 World Bank loans now total $513,000,000, with about $443,000,000 of this already disbursed. These funds went to France, the Netherlands, Luxemburg, Denmark, and Chile. About 8 or 10 loans are now under study, and these are likely to total no more than $125,000,000. They would go to Brazil, other Latin-American nations, the Netherlands, and Belgium.

The bank, headed by John J. McCloy, president, has decided against making any very large loans like the $250,000,000 granted France, and it will break down the borrowers' requests into separate projects that can be scrutinized carefully.

On the other hand, the bank is under pressure to lend more generously to Latin America. Poland long since asked for $600,000,000, and the Paris conference that worked out the original plan for European recovery earmarked $3,000,000,000 of World Bank funds for this purpose.

United States officials of the bank indicated they would not object strenuously should the House and Senate Commerce Committees warn in their reports on this legislation that they will consider withdrawing the proposed exemptions, if the bank exceeds the $3,175,000,000 figure. They would object vigorously, however, to any limitation written into the law itself for several reasons:

First, they say, the other member nations might take this to mean that the United States assumed sole responsibility for any of the bank's obligations up to a total of $3,175,000,000. In case of any default, they might say, “You make it up."

Second, they fear this suggestion would seem to make light of the good faith and financial stability of the other members.

Finally, they think it would be taken as an indication that the bank is, in reality, an instrument of the United States Government and is not genuinely international.

[From the Commercial and Financial Chronicle, Thursday, May 13, 1948]

A LOOK AT WORLD BANK Bonds

(By John H. Rumbaugh, president, John H. Rumbaugh, Inc., New York City)

Noting proposals to broaden market of World Bank debentures by permitting sale without SEC registration and by enabling purchase by savings institutions and banks, Mr. Rumbaugh contends initial financing of debentures was “a deliberate joy ride.” Holds these bonds will be considered good eply as long as amount outstanding does not exceed United States commitment

to bank's capital. For the second time since the McCloy administration took over the World Bank about a year ago, that institution has sought the help of the NAC (National Advisory Council) in getting Congress to make it easier for the bank to sell its securities. The bank is concerned over the narrow market for its debentures and feels itself hampered by the Securities Act of 1933, the Securities Exchange Act of 1934, and section 5136 of the Revised Statutes. On April 21, Treasury Secretary Snyder, as chairman of the NAC, transmitted to House and Senate with NAC endorsement two letters from Mr. Eugene R. Black, United States executive director of the bank, setting forth arguments for exempting the bank from the provisions of the three acts just named. Also Mr. Black proposed the text of a bill to permit District of Columbia insurance companies to invest in World Bank securities. If the sought for exemptions are enacted, member banks will be permitted to deal in World Bank securities, thereby facilitating the bank's flotations and “orderly markets."

Before such changes are made in the law, hearings will have to be held by the Senate Banking and Currency and the House Interstate and Foreign Commerce Committees. Congress will have to decide whether it wishes to continue as foremost objective the protection of the investor or substitute the political

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objectives of spreading dollars abroad. If the bank secures the amendments it wants, World Bank securities will no longer have to be registered with the SEC.

Mr. Black wrote the NAC that, although the initial distribution of the bank's bonds was successful, the subsequent market has been narrow; and that was the aggregate amount of its bonds outstanding increases, the bank undoubtedly will encounter increasing difficulty in placing new issues. It is important, therefore, that the bank's bonds shall be distributed to a widening circle of investors

[and that] legal restrictions which hamper the bank in its borrowing operations should be removed.” Black states that the bank, like private issuers, could offer its bonds through underwriters without violating the present law, but such course is neither practical nor economical. Another objective: The bank wants to be free, while preparing to float an issue, to buy and sell its own securities; or at other times to stabilize the market. Moreover, the bank wants exemption from present regulations which prohibit brokers and dealers from extending more than 25 percent credit on World Bank bonds. Finally, the bank wants national banks to be permitted to underwrite, deal in, or act as brokers for World Bank securities, thus contributing to "a sustained, active market.” The present market, the bank admits, is narrow, with "wide and erratic fluctuations."

Observers feel that last July the World Bank openly and knowingly promoted one of the biggest joy rides speculators ever had; and when joy riders cashed their profits the redistribution of the debentures disastrously bumped smack into the firming up of short-term Treasury borrowing rates. Careful readers of the financial news are not taken in by such publicity devices as the Hollywood-like ceremony introducing stock exchange trading in the bank's bonds at a prearranged premium, or the recent bank press release, announcing that operations are in the black, a transparent euphemism.

The World Bank's recent statement shows that during the 9 months ended March 31 the World Bank, with its top-heavy and costly overhead, had gross income of $12,800,000. Of this, $2,500,000 was interest paid by the United States on the bank's investments, which is just another way of saying that the bank lent to the United States dollars which it obtained from the United States in the first place. The $10,200,000 which the bank recorded as “interest, commitment charges, and commissions” on the long-term loans the bank has been making in effect are taken right out of the loans, or, in any case, made possible only by other aid which the Cnited States has been giving the bank's borrowers. The directors and staff are constantly moving around the world. A bank party, headed by vir. McCloy and including the bank's public-relations director, is now on what it describes as a “tour" of Latin America. Comparison of the World Bank's overhead with the much smaller cost of the Export-Import Bank is worth while.

World Bank bonds are classed as “good” so long as the total outstanding does not exceed the $3,175,000,000 limit of our commitment to the bank's capital. Is it practical to remove restrictions from the bank's borrowing operations while it is reaching that $3,175,000,000 limit, then reapply restrictions and possibly outlaw the securities when issued in excess of our liability ? For example, if a total of $6,350,000,000 bonds (double the amount of our liability) were issued they might be rated as 50 percent sound, 50 percent speculative, and the market quoted accordingly. It may sound ridiculous, but at present the appraisal of the debentures must be based upon the liability of the only solvent nation in the combine.

The CHAIRMAN. The hearings are now closed.
(Thereupon, at 2:15 p. m., the hearings were closed.)

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