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Mr. DOLLIVER. Give us an example.

Mr. Black. I may miss this a bit, but I will tell you approximately what it is. In the case of the French loan the loan was for 25 years. The loan to Chile was for 20 years for the hydroelectric development and for the agricultural machinery it ran for 6 years.

The loan to Denmark, I think, was for 20 years.

The loan to Luxemburg was for 20 years. That loan, by the way, was for the development of ihe big steel industry there.

The loan to Holland was either 25 or 30 years. We are making another loan to Holland for $12,000,000 repayable in annual installments from 1 to 10 years, and that loan is to enable them to buy six baby flattops that they are converting into freighters and passenger ships, and the loan is to be made to the four leading steamship companies of Holland.

Mr. DOLLIVER. Do these loans generally have a pattern of amortization?

Mr. Black. They have a pattern of amortization. The pattern on the long-term loans has beea that we have not required amortization for the first 5 years. The amortization from the fifth year to the tenth year is small; and from the tenth year on it steps up. We figured that that was the proper way to do it because of the present shortage of dollars and to give them a chance to get their productive capacity going. They all have pretty much the same amortization pattern unless it happens to be a short-term serial loan, as in the case of the ships with Holland, where we figured they could pay us back in 10 years and therefore we are making the loan for 10 years.

Mr. DOLLIVER. What about the interest rate? Is there a definite pattern for the interest rate?

Mr. Black. Yes. The interest rate we charge on the loans is based on what we pay for money. Our first bond issue, our 25-year bonds, we sold at 3 percent. We charge the borrowing nations based on that 3 percent. We have added one-quarter to cover expenses, and on top of that each nation has to pay us 1 percent per annum, and that 1 percent is used to set up this reserve fund that I mentioned, and the reserve fund is there in case of future losses. The reserve fund can only be used for that purpose and cannot be reloaned, so that the loans we have made so far have been for 314 percent plus 1 percent; in other words, it costs the borrower 414 percent.

Mr. DOLLIVER. Has that been uniform throughout!

Mr. BLACK. The last money we lent to Chile was at a rate of 412 percent, because at that time the bond market had gone off and our bonds had gone down together with other bonds, and we found that we would have to pay more for money, so we charged them a quarter of 1 percent more. Our bonds have now gone back up. It will be based on what our bonds are selling at and what we have to pay for money in the market.

Mr. DOLLIVER. Now, what is the general pattern as to security ? Suppose, for example, the ship you will take as security.

Mr. BLACK. We have a mortgage. Regarding the ship loan to Holland, we will have first an obligation of the Holland American Line, one of the finest companies in the world; the Rotterdam Lloyd Line, and we will have the obligations of two other ship companies in Hol

land. We will have a mortgage on six ships and a guaranty of the Dutch Government.

Mr. DOLLIVER. Do you undertake to secure such security as you can on all of these loans?

Mr. BLACK. Why, whenever we can, we do. We do not do it in 100 percent of the cases. Where it would lend itself to a mortgage, we do take it.

Mr. DOLLIVER. As I understood you, each of these loans is backed by the full faith and credit of the country where the loan is made? Mr. BLACK. That is correct.

Mr. DOLLIVER. You made some comment about foreign tractors. Do you in the purchase of that kind of farm machinery make a study of the domestic needs of the country as opposed to the need for those tractors overseas?

Mr. BLACK. You mean whether we can get priorities to send them that equipment?

Mr. DOLLIVER. Yes. The thing I am thinking of is this, Mr. Black. There is a considerable shortage of farm machinery, particularly farm tractors, in the United States of America. In your operations in that respect, have you made any attempt to balance the foreign demand with the domestic needs?

Mr. Black. In the first place, if we lend a country money to buy tractors, they have to buy the tractors. That is not our job.

Mr. DoLLiver. You do not undertake to control that phase of it?

Mr. BLACK. No. The only thing we do is to go to the National Advisory Council, and a member of that council is the Secretary of Commerce, so he knows what we are making the loans on and he knows what they are going to buy. He knows the situation in this country. I suppose it would come up in that case.

Mr. DOLLIVER. In other words, you would rely upon the counsel of the Secretary of Commerce, or his associates?

Mr. BLACK. That is right. Also, you have the staff of the National Advisory Council composed of the people from the Commerce Department, and they would know what we are lending the money for, and if there is any scarcity they would certainly bring the ques

Mr. DOLLIVER. In other words, the responsibility in that respectbalancing the foreign demand against the domestic need—would not be the direct responsibility of your bank but only insofar as you were advised by the Advisory Council?

Mr. BLACK. Plus the fact that the foreign government, when they apply to us for a loan, have to make their peace with the United States Government, and I do not think it is our responsibility to do it.

Mr. DOLLIVER. You do not consider that a part of your job?

Mr. BLACK. That is right. As a matter of fact, as I have said to you, it takes quite a long time for these countries to draw the money down, or it takes them a long time to come to us with the vouchers. The reason for that is they probably cannot get the material and equipment.

Mr. DOLLIVER. Am I correct in the assumption, then, that for the most part, or in many instances at least, the only place where these things can be purchased is in the United States?

tion up:

Mr. BLACK. Well, we do not require that. They can buy wherever they like. It is not part of the deal that they buy from the United States.

Mr. DoLLiver. For farm machinery they would have to come to this country.

Mr. BLACK. Yes. What you are talking about may well be the cause of the delay in the Danish loan; the fact that they have not taken the money down is perhaps because they cannot get deliveries.

Mr. DOLLIVER. They pay interest only on what they have taken down?

Mr. Black. We charge full interest only on the date that we disburse the money. We charge, however, until we disburse the money a stand-by commission of 112 percent, so until they take the money down they are paying us 112 percent, anyway.

Mr. DOLLIVER. On the full amount?
Mr. BLACK. That is right.
Mr. DOLLIVER. I think that is all.

Mr. BECKWORTH. With reference to the bonds, would any of those bonds be government bonds of foreign countries?

Mr. Black. Do you mean the loans we make?

Mr. BECKWORTH. I did not hear all your testimony this morning, but I heard you talking about bonds at some length.

Mr. BLACK. All I was talking about was the International Bank's bonds.

Mr. BECKWORTH. You would not be dealing at any time in the bonds of foreign countries or governments ?

Mr. BLACK. Ordinarily, no.

Mr. BECKWORTH. Now, with reference to the steel plant that you mentioned a while ago, what did you take as a mortgage with respect to the steel plant? I can understand the mortgage with reference to ships.

Mr. BLACK. We did not take a mortgage there. It is an obligation of the Government of Luxemburg.

Mr. BECKWORTH. For how long a period was that loan?
Mr. BLACK. I am not sure, but I think 20 years.

Mr. BECKWORTH. Is it calculated you will be lending a good deal of money where you will take no mortgage?

Mr. BLACK. It will depend upon whether the loan adapts itself to that or not.

Mr. BECKWORTH. Having had the experience you have had, limited though it may be, do you foresee a good many loans where you will have no security, as in this instance?

Mr. Black. I think there will be some of each. I could not answer how much of each.

Mr. BECKWORTH. Do you think the condition is such in foreign countries that you can afford to lend a great deal of money without taking security?

Mr. BLACK. I can assure you we are going to get all the security we can and all the protection we can. I do not know whether a particular loan will adapt itself to a mortgage or not.

Mr. BECKWORTH. In the making of loans do you take into consideration what will be the disposition of the product produced?

Mr. BLACK. Yes; we take everything into consideration we can, and we certainly take that into consideration—what they would do with the produce produced and whether it is an exportable product or not.

Mr. BECKWORTH. Do you inquire as to the likelihood of the products produced in that country being sent to this country?

Mr. BLACK. Do you mean whether or not the product is exportable?

Mr. BECKWORTH. You say that you have loaned money without security to Luxemburg, and I presume that they produce steel. We have had quite a few hearings in this committee about the need of steel in the oil industry. Did you interest yourself in whether there would be any chance for some of that steel getting to this country to be used in the oil industry?

Mr. BLACK. Yes: we would inquire into that.

The CHAIRMAN. I might say, Mr. Beckworth, if you will yield, when I was in Luxemburg they took a great deal of pride in the fact that they supplied the steel for the building of the Waldorf-Astoria Hotel.

Nr. BECKWORTH. I think that is something we should be interested in, particularly those things that we are in short supply of.

Mr. BLACK. We are very much interested in it, too, not only for that reason but also for the reason that the more they can manufacture and the more they can sell here the better chance we have of getting our money back, because that is their way to get the dollars.

Mr. BECKWORTH. You mentioned the fact that the interest rate on some of the money is different from the interest rate on other money. I do not know that I understand exactly how you arrive at that. I do know that you said you did get money from different sources and one of the things that determined the interest rate was what you had to pay for the money.

Mr. BLACK. That is right.
Mr. BECKWORTH. Where does the money come from?
Mr. BLACK. Where do we sell our bonds?
Mr. BECKWORTH. That is right.

Mr. Black. We sell our bonds primarily to insurance companies, savings banks, and commercial banks.

Mr. BECKWORTH. Do you foresee a good deal of difference in interest rates you will have to pay?

Mr. BLACK. I wish that I knew the answer to that question. I do not know. I think the recent trend has been toward a stiffening of interests rates, but I am not qualified to foresee in the future what they will be. I think there is a possibility the rates may be somewhat higher.

Mr. BECKWORTH. What I had in mind was not necessarily the higher rates, but whether you are likely to have a good deal of spread between the lowest interest rate and the highest interest rate you pay on the money you procure. If I am not mistaken, you mentioned 3 percent and 4 percent.

Mr. Black. I said that so far we have only sold one long-term bond issue and on that bond issue we paid 3 percent for the money. When we lend that money we charge the borrower 314 percent plus 1 percent for the purpose of setting up a reserve fund, so that the borrower pays 414 percent for the money and the money costs us 3 percent.

Perhaps 1 year from now or 2 years from now the bond market will have gone down on interest rates will have gone up, and we will have

on.

to pay more for money, or the reverse may be true, and we shall have to pay less for money. Whatever we have to pay, we would pass that

In other words, we make the loan on what the money costs us. This bank was not set up as a money-making proposition. We have no profit motive. As a matter of fact, we are making money. We are in the black. When we first came here the bank was substantially in the red because at that time it had not begun to operate. Our latest quarterly statement shows that we were in the black, and at the present time we are operating on the basis of around $7,500,000 net profit per annum.

Mr. BECKWORTH. Are you borrowing money from any insurance companies in foreign countries?

Mr. BLACK. We sold some of our bonds to some of the Canadian insurance companies.

Mr. BECKWORTH. Have you sold any bonds to any other foreign insurance companies besides the insurance companies in Canada?

Mr. BLACK. I cannot answer that completely. We sold some bonds in foreign countries. I do not know whom they went to. I happen to know we sold some Canadian insurance companies, because their representatives have been here and have visited our bank and have decided that our bonds are good bonds, and they bought them. We sold some bonds in a few other countries. I do not know whether insurance companies bought them or not.

Mr. BECKWORTH. Have you sold them to any European countries?

Mr. BLACK. I think we sold a limited amount of bonds in about seven different countries.

Mr. HESELTON. I notice that you say you have obtained legislation authorizing these bonds for investment. In how many States!

Mr. BLACK. We tried to get in almost every State in the United States either legislation or a ruling from the banking or insurance authorities. In some cases we had to get legislation covering insurance investments, additional legislation covering bank investment and additional legislation covering savings banks investment. I have a list of the States here. Would you like to have me read them?

Mr. HESELTON. Is it true that in all States the bonds are now a legal investment?

Mr. BLACK. They are not legal in all States. In some of the States the legislatures were not in session this year and we could not get the legislation, but in a big majority of the States they are legal.

Mr. HESELTON. Perhaps it will save time if you will just furnish the list for the record.

Mr. BLACK. All right.
(The information referred to above is as follows:)

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

$100,000,000 10-year 244-percent bonds, due July 15, 1957

$150,000,000 25-year 3-percent bonds, due July 15, 1972

MEMORANDUM WITH REGARD TO THE LEGALITY OF BONDS FOR INVESTMENT BY COM

MERCIAL BANKS, SAVINGS BANKS, INSURANCE COMPANIES, AND TRUSTEES IN CERTAIN JURISDICTIONS

JUNE 1, 1948. In July 1947, International Bank for Reconstruction and Development (hereafter called the bank) sold $100,000,000, principal amount, of its 10-year 214percent bonds due July 15, 1957, and $150,000,000, principal amount, of its 25-year

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