THE FIRST DRAFT
The Inter-American Bank
The negotiation of the Inter-American Bank was the most ambitious initiative undertaken by US and Latin American policymakers under the Good Neighbor financial partnership. Beginning in the fall of 1939, they set out to construct a multilateral financial institution that would help achieve their new partnership’s goals. By April 1940, they had drafted a convention and by-laws for a publicly owned multilateral financial institution to foster regional cooperation.
Although the IAB was never established, various historians have argued that it acted as key precursor to the Bretton Woods initiative. Robert Oliver suggests that “in a sense, the Inter-American Bank plan was the first draft of subsequent plans for a Stabilization Fund and a World Bank.”
1
John Horsefield agrees, noting that the IAB “clearly formed part of the background against which these drafts [of the Bretton Woods institutions] were evolved.”
2
Morgenthau’s biographer John Morton Blum also makes the point that the IAB initiative “gave the Americans concerned, White in particular, an experience which was to prove useful years later in the organization of postwar financial institutions.”
3
Despite these and other similar comments, historians of Bretton Woods have not undertaken a detailed analysis of the politics of the IAB negotiations.
4
The IAB initiative is not even discussed in much depth in the historical literature on the Good Neighbor policy, with the important exception of David Green’s 1971 book
The Containment of Latin America
.
5
This chapter builds on Green’s work by drawing on new archival sources, providing more detail about specific features of the IAB negotiations, and stressing the IAB’s broader significance for Bretton Woods (an issue that Green neglects). It is particularly noteworthy that the IAB was the first international organization to be formally negotiated whose central mandate included the promotion of international development. This innovation set the stage for the development orientation of the Bretton Woods agreements.
The Latin American Push for an Inter-American Bank
Proposals for an Inter-American Bank had been put forward by US and Latin American individuals as far back as the First International Conference of American States in 1890. Initially, the goal was to simply to facilitate payments and strengthen banking linkages through the creation of a US-incorporated bank with branches or agencies in other countries.
6
At an important December 1933 inter-American conference in Montevideo, however, several Latin American governments proposed the creation of a new international financial institution with a more ambitious mandate aimed at addressing the economic distress engendered by the Great Depression. These proposals set the stage for the development focus of the IAB initiative of 1939–40 (and the subsequent early US drafts of the Bretton Woods proposals).
The most ambitious and controversial proposal came from Mexico’s foreign minister, José Manuel Puig, who called on the conference to explore “the possibility of establishing public international organizations to take care of debts negotiations and agreements, in order to exclude thereby the intervention of Bankers’ Committees and to look for the interest of both debtors and creditors.”
7
At the time, almost every government in Latin America had defaulted on its external debts as a consequence of the Great Depression. As the wording of Puig’s proposal made clear, his proposal was designed primarily to strengthen the bargaining position of debtor countries vis-à-vis private creditors (a point reinforced by the fact that he also requested a six-to-ten-year moratorium on all foreign debt payments). Private creditors from many countries were organized into Bankers’ Committees that negotiated with debtors with one voice in times of difficulties. Puig explicitly set out to undermine the power of the committees by transferring debt-restructuring negotiations to an international organization in which sovereign debtors and creditor
governments
were represented.
Although a number of Latin American countries favored Puig’s proposal, it failed to generate the necessary level of support to be placed on the conference’s agenda and it was shelved for further study.
8
Some Latin American governments feared that a public expression of support for debt restructuring might undermine their creditworthiness in the eyes of foreign investors, while the Roosevelt administration was reluctant to get involved directly in the resolution of private US loans to Latin American governments.
9
Delegations from Peru, Uruguay, Chile, and Cuba advanced other proposals for new Pan-American international financial institutions at the Montevideo conference.
10
After extensive discussion of these various ideas, two conference subcommittees recommended the creation of an Inter-American Bank that would be empowered to grant credit facilities, “mobilize” capital, and “improve the onerous conditions in which many of the Latin American countries negotiate their foreign loans.”
11
Latin American supporters of the IAB, such as Peru’s Felipe Barreda Laos, argued that it would consolidate “the definite economic liberation of Latin America.” The conference as a whole then passed a resolution unanimously recommending consideration at the next Pan-American Financial Conference of the creation of an IAB with purposes “to establish and promote Inter-American credit and the interchange of capital” and “to collaborate in the reconstruction of national monetary conditions.” Its membership was to be confined to central bankers in order to protect the body from political influence, while a broader “Inter-American Organization” including government representatives would set “its general plan of work.” The resolution also noted that the IAB’s headquarters should be in a Latin American capital, an idea that Barreda Laos had argued would help “create centers of equilibrium and counterweight.”
12
The resolution passed the conference unanimously, but the US delegation added a reservation that the United States could not commit to participate in a future IAB. The US delegate involved in the committee discussions of the IAB, Spruille Braden, reported back to Hull that he had been surprised by how strongly Peru and Uruguay had pushed for the IAB idea. Given the wider enthusiasm for their proposals, he pointed out that it “seemed unwise for the American delegation to openly oppose these projects, particularly as it is conceivable that at some future time a central bank comparable to the International Discount Bank at Basle may prove advantageous to the Americas.”
13
The latter was a reference to the Swiss-based Bank for International Settlements (BIS) that had been established in 1930 to facilitate reparations payments from World War I and encourage central bank cooperation. Although the planned Pan-American Financial Conference never took place, the IAB idea continued to be raised by Latin American governments at subsequent conferences in the 1930s, including at an inter-American meeting in Lima in late 1938 where a unanimous resolution was passed once again calling for study of the IAB idea. But the United States remained wary.
14
The idea then finally took flight at an important Panama meeting of foreign ministers of the Americas in late September 1939 just after World War II had begun. At the Panama meeting, Mexico presented a proposal for an IAB that could: (1) act as an inter-American clearing house; (2) serve as financial agent of central banks in international capital markets; (3) assist central banks in stabilizing the internal and external value of currencies; (4) study trade, exchange, and other problems; and (5) contract with the US government to accept not just gold but also silver in settlement of international balances owed by any country.
15
United States officials suddenly showed more enthusiasm for the idea, agreeing to a resolution authorizing the establishment of the IFEAC, whose functions included the study of “the necessity of creating an inter-American institution which may render feasible and ensure permanent financial cooperation between the treasuries, the central banks and analogous institutions of the American republics.”
16
The US delegation had not come to Panama intending to back the IAB proposal, but their views were changed by what David Green calls the “adamant” Latin American support for the Mexican idea.
17
The central US goal at the conference was to persuade Latin American countries to remain neutral in the war and to check the growing Nazi economic and political influence in the region. United States policymakers recognized that they could cultivate goodwill in the region by signaling their support for this popular proposal.
Within the US government, some officials had in fact favored an inter-American financial institution before the Panama meeting, such as Treasury official Simon Hanson, a graduate of Harvard who had published a 1938 book that sympathetically analyzed Uruguay’s extensive social reforms and state-led industrialization initiatives.
18
In June 1939, Hanson had written to White with a proposal for an institution—headquartered in Latin America—that would facilitate capital flows to Latin American countries in default by guaranteeing their new bond issues. In an echo of Mexico’s 1933 proposal, Hanson also suggested that the body could select commissioners general to force debt resettlement deals on past defaults within two years. These officials were to be selected by a process in which all member countries had an equal vote so that “any suggestion of single-nation impingement upon autonomy and sovereignty is avoided.” To reinforce the point, Hanson added that it was “desirable that the commissioner-generals not be State Department imperialists and that control not be limited to North Americans.”
19
Hanson’s frustration with US policy toward Latin American debt was apparent in another August memo when he wrote: “the President has spoken sharply about the ‘ancient fraud’ of Latin American loans of the twenties…[but] his administrators have given the bondholders the identical dollar-diplomat protection which they would have received from an administration that openly catered to bondholders.”
20
In the middle of the Panama conference, Hanson wrote to White again, pointing out that the IAB proposal under discussion could assist in debt settlement negotiations. Hanson also argued that the IAB could help float long-term loans “for the developmental activity of the less important countries in South America,” although he warned that the IAB should not replace the Export-Import Bank’s lending role because the United States would not control the former to the same degree. From Hanson’s standpoint, the most important role the IAB could play was to provide technical assistance: “Technical assistance offered by one country carries a connotation of arrogance and penetrating imperialism which weakens its effectiveness. If the assistance comes through the Bank it is likely to be more useful to the country since the insincerity of present-senders of technicians would be eliminated, and in addition would be accepted more generously.”
21
White himself had also been toying with a proposal for a public bank to promote lending to Latin America several months before the Panama meeting, although he initially conceptualized this as a US government bank rather than a multilateral one. In a memo written in early June, White proposed the creation of a “government bank” with $300 million in common stock purchased by the US government and with the power to issue $700m in bonds guaranteed by the government (as well as $1 billion more if the need arose).
22
The proposal appeared to build on an idea that Morgenthau had floated the previous month for a Bank of North and South America—chartered by Congress—that could lend to Latin America in a manner that took “risks for policy reasons” and was a “good gesture” to the region.
23
At the time, White had been very supportive of the concept but argued that Morgenthau’s proposed capitalization of $100 million for the bank was too low.
Under White’s new proposal, the bank’s “sole function” would be “to assist in promoting the long-run economic development of Latin America.” It would perform this function partly by offering credits to finance US exports to Latin America and short-term gold or silver loans for monetary stability. But the bank’s most important activity was to be the extension of low-interest “long-term loans for productive purposes” which would be used only to develop public works and industrial enterprises that boosted the productivity of the borrowing country. White insisted that the control of the projects would remain with Latin Americans who would also be required to provide money toward them in local currency. He also suggested that at least three-quarters of the dollar loans had to be spent in the United States and all imported goods and services used in the construction of the project had to be purchased there. White was keen to emphasize that his plan was different from past US dollar diplomacy toward the region which had meant “the exploitation of a weak country by private American commercial and industrial interests with the aid of the American government.” By contrast, White argued, his program “would have as its base the development of industrial enterprises in Latin America that would be under the control and ownership of the borrowing country or their nationals,” and he stressed that “there is no part of the program which envisages any action by the United States Government or threat of such action, subtle or overt, which would interfere with the inherent sovereignty and rights of those countries.”
24
The day after the Panama conference ended, Morgenthau asked to speak with White about his June idea.
25
With its focus on the need for both short-term and long-term lending to Latin America, White’s proposal would serve as an effective template for the multilateral IAB proposal that would soon be developed under his leadership. White was not, however, involved in the initial discussions of the IAB proposal. Those took place within the IFEAC, which had become operational by mid-November with twenty-one members appointed, including Welles as chair.
The Development of the Proposal
The initial detailed work on the IAB proposal was assigned to a financial subcommittee of the IFEAC which included Welles once again as chair and the following Latin American representatives: Antonio Espinosa de los Monteros (Mexico), Carlos Guachalla (Bolivia), C. Alonso Irigoyen (Argentina), Esteban Jaramillo (Colombia), Pedro Larrañaga Montero (Peru), and Eduardo Salazar (Ecuador). Although Welles was very keen on the IAB, he placed Adolf Berle in charge of the subcommittee and of coordinating the US position on this issue. After the subcommittee’s first meeting on November 17, Berle recorded in his diary that the topic of greatest interest was the creation of an inter-American financial institution.
26
The keen interest of Latin American officials had also been evident at a meeting in Guatemala of finance ministry officials of the American republics a few days earlier. At the meeting, Mexico’s Eduardo Villaseñor put forward his country’s proposal for an IAB once again and he added one additional function that the bank could assume: “to act as a channel for the investment of capital which will promote sound economic development in the American Republics.”
27
Villaseñor was the head of the Bank of Mexico, and as Sarah Babb notes, he was “never an orthodox central banker.” In addition to helping to modernize Mexican economics in the 1930s, he was a strong advocate of the idea that the central bank had an important role to play in promoting economic development and industrialization.
28
He carried these developmental priorities into his ideas about the IAB proposal. Other Latin American representatives at the Guatemala meeting also were keen to see the IAB proposal discussed, such as those from Brazil, Colombia, Peru, and Uruguay, and a resolution was passed urging the IFEAC to investigate the issue. The resolution reinforced Mexico’s new “development” focus for the bank by declaring that it was “desirable that the necessary capital be invested for the promotion of the agricultural and industrial development of the various countries in this hemisphere.”
29
The negotiation of the IAB then proceeded quickly. By February 7, 1940, the IFEAC as a whole had agreed on a draft convention and by-laws for the bank to be submitted to governments for comment, and final texts were released publicly on April 16. Throughout the process of drafting the IAB’s by-laws, US policymakers took the lead role because the United States was to be the largest contributor to the bank. As the head of international work at the Federal Reserve Board, Walter Gardner, told the board in mid-January 1940, “it had been understood by them [Latin American governments] all along that if a bank is created it would be what the United States gives them.” At the same meeting, the board’s director of research and statistics, Emanuel Goldenweiser, also stressed the broader political context: “[Latin American countries] would accept anything that was worked out. He said they wanted money and protection and they were enthusiastic about solidarity and offering a united front against European aggression.”
30
Who were the US officials involved in drafting the IAB? As noted above, Berle took the initial lead. He was very keen on the initiative, viewing it as an opportunity to strengthen political cooperation among the American republics.
31
Berle also saw the IAB initiative as an opportunity to implement his vision for the new kind of international finance described in the previous chapter.
32
After initial discussions within the IFEAC subcommittee, Berle decided in late November that it was not possible to proceed further without getting the Treasury involved. Berle mentioned in his diary that the task of securing Treasury cooperation was not straightforward because Morgenthau appeared to think that Welles’s appointment as US representative to the IFAEC had been an insult to him.
33
At a meeting with Berle and Welles on November 28, however, Morgenthau offered full technical assistance if Roosevelt was in agreement. At the recommendation of Berle and Welles, he also agreed to involve Federal Reserve experts in the discussions.
Morgenthau’s support for the proposal may have been encouraged by a memo White wrote to him that same day in which the latter outlined its potential benefits. Although the Treasury did not know the details being discussed, White assumed the IAB would be empowered to extend short-term credits to Latin America which could have the following advantages: “(a) Latin American countries may be able to borrow without waiting for difficult debt adjustments…(b) There would be less danger of defaulting on these obligations if the creditor were an Inter-American Bank than if it were a wealthy country, (c) The charge of dollar diplomacy would be absent.” Echoing Hanson, White also argued that “the bank might build up a corps of experts who could perform a useful service in advising Latin American countries on their financial and economic problems.” In addition to facilitating trade by guaranteeing private short-term credits, the bank could also “develop procedures to facilitate the granting of long-term loans and the settlement of outstanding debts.”
34
After Roosevelt expressed his strong support for the IAB proposal on December 4, White moved quickly to lead discussions on the IAB among an informal committee of officials from the Treasury (Edward Bernstein, Merle Cochran, Joseph Cotton, Harold Glasser, Simon Hanson, Winfield Riefler, Orvis Schmidt, [missing first name] Stewart, and Jacob Viner) and the Federal Reserve Board (Goldenweiser and Gardner).
35
This group quickly developed a questionnaire of thirty items that the IFEAC subcommittee agreed to send out to all Latin American republics.
36
From Berle’s standpoint, White also played a critical role in convincing Morgenthau to support further work on the IAB proposal on December 15.
37
On that same day, White produced a three-page summary of some issues discussed in the informal US committee he was leading. It outlined a bank with $100 million in capital made up of government subscriptions. Countries would be assigned a minimum subscription based on their population size but could voluntarily contribute more as long as no single government subscribed more than 25–35 percent of the total. The board of directors would consist of representatives from each country with voting shares bearing “some relation to the proportion of the total capital stock held,” although “the relationship is not to be directly proportional.” This document did not say much about the goal of the bank’s lending beyond that it should be for “productive purposes.” It did point out, however, that the bank could lend only to governments, government agencies, or nongovernmental organizations whose loans were guaranteed by a government (which also had to act as the borrowing agent in those cases). Governments’ servicing of these loans also had to take priority over all other external loans. In addition, the bank would be empowered to guarantee bonds floated on the private market and it could raise funds by selling its own debentures on the open market.
38
White then worked intensely with several officials from the informal committee, particularly his assistant Edward Bernstein, to produce a detailed draft of the by-laws on January 11, 1940.
39
From the State Department, Collado also became increasingly involved at this time, playing an active role in the IAB proposal’s development and subsequent promotion.
40
Although the IAB proposal was refined in various ways after this point, much of the content of White’s January 11 draft appeared in the final documents that were approved in April. For this reason, Berle later argued that “the principal credit [for the IAB] ought to go to Harry White.”
41
Not all US officials were enthusiastic about the IAB idea. When Federal Reserve Bank of New York (FRBNY) officials such as Allan Sproul, George Harrison, John Williams, and Harold Roelse were finally consulted on the proposal by Collado in late March, they attacked it vigorously. In addition to predicting political difficulties with its management, they argued that the IAB would compete with the FRBNY’s own foreign department and existing commercial banks. Their position may also have been influenced by the fact that New York banks were also very opposed to the IAB. But one official told Collado privately that he thought the “principal objection” of senior FRBNY officials to the IAB was that they “had not been consulted in its preparation.” Indeed, Collado noted that less senior officials in the research department thought the proposal was quite good.
42
Some US officials involved in the informal committee discussions also worried that Latin American expectations of the economic benefits of the IAB might be exaggerated and that the IAB might distract attention from the necessary reforms in the region.
43
There were concerns expressed, too, about whether the IAB would be able attract good personnel and whether Latin American governments would repay loans, particularly if they had difficulties increasing exports to the United States.
44
Like Hanson in September, both Cochran and Riefler also pointed out that the United States would retain more control over lending if it performed this task unilaterally rather than through the IAB.
45
Others saw the virtues of the IAB, however. Like Berle, some US officials noted the broader political benefit that the multilateral IAB could foster cooperation and unity across the Americas.
46
From the Federal Reserve Board, Goldenweiser and Gardner also emphasized that the IAB could improve clearing facilities for intraregional transactions and provide both short-term credit to cover temporary balance of payments deficits and long-term loans that the private sector would not make. In addition, they argued that loans extended through the IAB instead of bilaterally “would throw less onus on the United States if eventually the debtor government has difficulties in paying.” They added that “advice from the bank or insistence on sound financial practices would represent the collective judgment of a group of American countries and not just the self-interest of a single creditor—the United States. It would tend to soften the charge of financial imperialism.”
47
While White and other US officials took the lead in developing the IAB proposal, the role of Latin American representatives should not be understated. Key purposes of the IAB echoed the 1939 Mexico proposals closely. The work of US officials was also informed by answers to the detailed questionnaire circulated to all participating countries in mid-December 1939. While US officials took the lead in drafting the by-laws of the bank, Jaramillo (who had been a Colombian finance minister) and Monteros (who was head of the Mexican industrial development bank Nacional Financiera) also prepared the draft convention.
48
More generally, Latin American representatives on the IFEAC participated very actively in commenting on the evolving proposal. As Collado later told a US Senate subcommittee, the IFAEC during the drafting phase “met practically every day and there were very extensive discussions, in addition to which there were innumerable private discussions outside the regular formal sessions.”
49
Berle was also struck by the quality of the contributions of Latin American officials within the IFEAC. After bringing White and Gardner to talk to his subcommittee in mid-December, he noted in his diary that “the Latin Americans, on the whole, have thought more deeply about this than the American experts; at all events, when we got through it seemed to me that the Latin Americans had all the honors of the discussion. Naturally, there was no point in saying this to the Treasury and Federal Reserve men.”
50
Throughout the drafting process, Latin American officials remained generally favorable to the IAB idea. There were, however, some exceptions. Peru’s Larrañaga urged the IFEAC financial subcommittee to embrace more ambitious thinking, preferring that the IAB be more like a international central bank “able to issue its own credit expressed in its own money-of-account.”
51
From the opposite perspective, in responding to the IFEAC questionnaire, some other Latin American governments, such as that of El Salvador and Guatemala, stated that they did not have much need for the bank.
52
The Argentine government was even less keen on the idea. As one Argentine newspaper put it, there was little point in the country contributing money to the project “as long as the hostility to its exports continues being in the United States a political banner which nobody is disposed to challenge.”
53
Innovative Features
If the IAB had been established, it would not have been world’s first multilateral financial institution established through an intergovernmental convention. The BIS had earned that title in 1930. But three aspects of the IAB proposal were highly innovative in comparison to the BIS: its mandate to provide public international loans to achieve development objectives, its provisions addressing capital flight from poorer countries, and its control and ownership by governments.
Public International Development Loans
The IAB’s draft by-laws outlined an institution with maximum $100 million in capital that had nine formal purposes:
(1) Facilitate the prudent investment of funds and stimulate the full productive use of capital and credit.
(2) Assist in stabilizing the currencies of American Republics; encourage general direct exchanges of the currencies of American Republics; encourage the maintenance of adequate monetary reserves; promote the use and distribution of gold and silver; and facilitate monetary equilibrium.
(3) Function as a clearing house for, and in other ways facilitate, the transfer of international payments.
(4) Increase international trade, travel and exchange of services in the Western Hemisphere.
(5) Promote the development of industry, public utilities, mining, agriculture, commerce, and finance in the Western Hemisphere.
(6) Foster cooperation among the American Republics in the fields of agriculture, industry, public utilities, mining, marketing, commerce, transportation and related economic and financial matters.
(7) Encourage and promote research in the technology of agriculture, industry, public utilities, mining and commerce.
(8) Engage in research and contribute expert advice on problems of public finance, exchange, banking and money as they relate specifically to the problems of the American Republics.
(9) Promote publication of data and information relating to the purposes of the Bank.
54
Many of these purposes echoed goals that the Mexican government had suggested for the IAB at the Panama conference in September 1939. A number of them were also clearly designed to help achieve the goal that Mexico had added to its proposal at the Guatemala conference in November: the promotion of economic development. Indeed, Welles argued that the IAB’s support for development was its core role. Explicitly contrasting the IAB’s purpose to that of the BIS, he pointed out that “its principal importance will lie in investigating and facilitating rather long-term development projects in other American republics.” Only as a “secondary consequence” would the bank be involved in “the extension of shorter-term facilities to the monetary authorities of the hemisphere to assist them in eliminating seasonal and temporary fluctuations in their exchanges.”
55
Other US officials also stressed the importance of the IAB’s development mandate. In testimony before a Senate subcommittee, Collado argued that the most important role of the IAB was to promote the establishment of industries and resource development in Latin America over the longer term.
56
According to Berle, when Morgenthau had supported further work on the IAB in mid-December 1939, his reasoning was also that “such an institution might introduce a significant step in the direction of a greater cooperative responsibility in the economic and financial development of the Americas.”
57
An initial January 3, 1940 draft of the IAB that Hanson helped prepare also stated very explicitly that one of the core purposes of the bank was to “assist in the movement of long-term capital for developmental purposes to regions where capital is relatively scarce and costly.” The bank was to serve this purpose not just through lending and guaranteeing private loans, but also by purchasing government bonds and “offering its services to any American Republic for investigations of the feasibility of programs of public works and agricultural and industrial development, i.e., acting as a central planning agency.”
58
Latin American governments also stressed the importance of the bank’s development role. White noted that Latin American governments who responded to the IFEAC’s questionnaire were “unanimous” in arguing that “the bank is needed to provide long-term developmental capital to Latin America.”
59
Indeed, when answering the questionnaire, several governments submitted quite detailed estimates of the support needed for specific development projects in their country.
60
One of the IAB’s strongest Latin American proponents, Mexico’s Villaseñor, also emphasized its development-lending role above all else. In his view, the IAB should in fact lend “only for the type of investment which leads to the economic development and improvement of the peoples of America.” In his view, such lending would include assistance for public works programs, the development of factories, land improvements to increase commodity yields, hydroelectric power plants (“preferably for industrial use”), and the creation and development of hotels, steamship lines, and air routes for passenger transport.
61
To serve its various purposes, the IAB’s by-laws empowered the institution to grant “short-term, intermediate and long-term loans and credits.” These loans could be granted not just to “participating governments” but also to “fiscal agencies, central banks, political subdivisions and nationals thereof.” Loans with maturities over two years that were made to a “fiscal agency, central bank, political subdivision or national” had to be guaranteed by the government of the country concerned and needed that government’s approval.
62
The IAB’s lending mandate was thus a very wide one that encompassed both short-term currency stabilization loans (similar to those offered by the US Exchange Stabilization Fund) and longer-term development loans (similar to those of the Export-Import Bank). In effect, it was an institution that wrapped together the future functions of the IMF and the IBRD into one. The BIS had already pioneered the role of an international financial institution offering currency stabilization loans. But the idea of a multilateral financial institution offering public international long-term loans designed to promote economic development was entirely novel.
The architects of the IAB trumpeted this innovation at the time. In testimony before a Senate subcommittee in May 1941, Berle argued that its lending would be very different from those ”unhappy experiences” in the past of private lending “where money was squandered or where it was used to build up some kind of rather tyrannous foreign monopoly which the country resented” and where the movements of capital were regarded as “imperialist.” The goal of the IAB was to generate capital movements “following the more careful plans of the various governments involved with a view to the steady development of the country.” Instead of “the old very speculative forms of finance,” the IAB’s lending “could be made to serve national needs.”
63
The fact that the IAB would serve national needs was reinforced by a important clause in its by-laws which stated that “the operations of the Bank shall at all times be conducted in conformity with the laws of the territory where the Bank is acting and, so far as possible, be conducted in conformity with the policies of the participating government directly concerned.”
64
Welles highlighted how this protection of national policy autonomy was core to the IAB’s design: “the Bank, generally speaking, may take no action which may affect a particular nation until after that nation has been given an opportunity to object to, or to give its consent, approval, or guaranty to the operation. This safeguard to the interests of individual nations is inherent in the entire plan and appears throughout the drafting.”
65
Recycling Flight Capital
When US officials such as Berle critiqued “speculative forms of finance,” they had in mind not just the foreign lending of Wall Street but also private flight capital from Latin America that had grown considerably during the 1930s. As Berle told the US Senate subcommittee, “Latin-America is commonly said to be without capital, and, of course, that is in considerable measure true; but a part of the savings of Latin America—and there are very considerable savings—comes to the United States, and is there held on deposit in various institutions, and there is no way for a Latin-American country to get its own savings back for productive use in its own country, except by coming into the New York market or some other money market.”
66
Accordingly, a second innovative aspect of the IAB was that it was explicitly designed to recycle the foreign holdings of private Latin American citizens in the form of stable loans back to countries in the region. For this purpose, it was empowered to sell its own bonds directly to investors within those countries and to accept deposits from individual citizens across Latin America (unless the national government objected). As Gardner put it, “it was hoped that the Bank and its branches might become, by reason of its preferred position, a popular repository for Latin American funds.”
67
Flight capital could then be rechanneled to the specific country from which it originated in the form of public loans for developmental purposes. In this way, the bank’s lending capacity would be boosted well beyond the capital subscriptions of governments and the IAB could, in Berle’s words, “take some of the strain of that [Latin American development] financing off us.”
68
The mobilization of flight capital for development was in fact identified by Berle at the start of the IFEAC’s work as one of the priority roles for the IAB.
69
Gardner and Goldenweiser at the Federal Reserve were also keen to see the issue addressed.
70
At the time of the IAB’s negotiation, White was very interested in the problem of “hot money” and speculative capital inflows to the United States as well.
71
He had made sure that the IFEAC questionnaire asked Latin American governments about the size of flight capital in New York within the last five years and overall.
72
Although few countries were able to provide useful estimates, US officials estimated that Latin American private balances in New York had increased from $100 million in 1933 to over $300 million by 1939.
73
Some US officials, such as Hanson and Bernstein, questioned whether it was wise for the IAB to take on the role of recycling capital flight by accepting deposits. As White told Morgenthau on January 9, 1940, “the major objection is that local banks might be drained of deposits or feel that the Bank is acting as a competitor.”
74
Larrañaga had also raised this concern earlier, arguing that the IAB was “going to subtract the assets of others in order to redistribute them itself…it will be merely a distributor of existing poverty.”
75
After consulting with the Federal Reserve Board, even Gardner and Goldenweiser pointed out to Berle that “there is a danger that in accepting deposits from the public the bank might take a substantial amount of business away from local institutions or from branches of American banks in Latin America to which we have hitherto lent encouragement.” Still, they and other US officials remained committed to the IAB’s deposit-taking role (while warning that it should not “draw an undue amount of business away from existing commercial banks in Latin America”).
76
An Intergovernmental Institution
The third innovative feature of the IAB was that it would be owned and controlled by national governments. Although the BIS had been created by the intergovernmental Hague Convention of 1930, that agreement simply committed the Swiss government to grant a charter to the bank under which six central banks (from Belgium, Britain, France, Germany, Italy, and Japan) and one private US banking group (involving J. P. Morgan and Company, the First National Bank of New York, and the First National Bank of Chicago) became its founding members providing the initial capital. The BIS was not directly accountable to governments. The IAB was also to be established by an intergovernmental convention, but the bank’s draft by-laws described an institution in which national governments subscribed to its shares, managed its operations, and were its members. As one BIS official privately noted, “what characterizes the I.A.B. and distinguishes it clearly from the BIS is that it is
an association of governments
. All pretense that monetary and credit-regulating functions of a state are segregated from its general sovereign rights and duties and are vested in an independent Bank or banking system seems to have been entirely dropped for the purposes of the I.A.B.”
77
Morgenthau and White promoted this feature of the IAB as part of the broader New Deal struggle to wrest control of financial policy away from the Wall Street elite and the FRBNY. In the wake of the 1929 stock market crash and the Great Depression, the Roosevelt administration had asserted greater centralized public control over monetary and financial issues. Regulations had been tightened over private financial firms and markets, and New Deal legislation in 1935 had shifted power within the Federal Reserve system away from the privately owned Reserve Banks to the Washington-based Federal Reserve Board whose members were all appointed by the president and confirmed by the Senate.
78
Under Morgenthau’s leadership, the Treasury had also assumed a much more prominent role in US international financial policy than it had had during the 1920s when such policy had often been dominated by the FRBNY and private financial interests. The Treasury’s new prominence was reinforced by the Good Neighbor policy of the late 1930s, as Morgenthau and White strongly promoted US public lending to Latin America via the Export-Import Bank and the Treasury-controlled Exchange Stabilization Fund. Berle explained to Goldenweiser how Morgenthau’s insistence on a government-owned IAB needed to be seen in this context: “I think probably what you really get in the Treasury is a reflection of the classic fight between Mr. Morgenthau and the Federal Reserve Bank of New York.”
79
White had a similar perspective on the issue. After meeting him on December 8, 1939, Berle reported in his diary that White had “expressed the fear lest it [the IAB proposal] fall into the hands of the Federal Reserve which he thinks would merely throw it right back into the New York banks.”
80
According to Goldenweiser, White presented a similar rationale to Latin American officials: “…if it [the IAB] were opened to central banks or to a Treasury designated bank then there would be the profit-making motive of the banks in the picture instead of an institution which because of its broad purposes would not be concerned with profits.”
81
Both Welles and Collado also supported an intergovernmental bank.
82
Federal Reserve officials, however, opposed the idea that the IAB would be owned and controlled by governments rather than central banks. Goldenweiser urged the Federal Reserve Board to resist the Treasury’s idea, declaring that he “disliked to see the Federal Reserve lose position one step after another” and that “there is greater dependability in the central banks than in South American governments.”
83
Some in the Treasury, such as Cotton, Cochran, and Hanson, agreed that the bank might be better served if it was run by central bankers.
84
At the urging of the Federal Reserve Board, Gardner and Goldenweiser sent a memo to Berle in mid-January 1940 insisting that the IAB be a “central bankers’ bank” which was not government-controlled. In their words, “a politically-minded group of directors untrained in banking and giving most of their time between meeting to political issues at home could easily convert the bank into a source of serious embarrassment for the United States and its South American relations.”
85
They also remarked that many Latin American delegates on the IFEAC seemed to share their preference for a body controlled by central banks.
86
Indeed, in a memo to the IFEAC on November 20, 1939, Larrañaga had suggested that the bank should have “no relations with the public nor with State governments.”
87
At a January 23, 1940 meeting with Berle to discuss the letter from Gardner and Goldenweiser, Morgenthau was dismissive: “Why bother with them? They have made their recommendations and if it is up to me, I just don’t accept them.”
88
White also rejected the Fed’s proposal on the following grounds:
we have created an instrument here and given it enormous powers for good or evil and for us to turn it over at this stage to banking groups, it seems to me we are just going back to all the evils that we wish to avoid…. This bank, if it is successful, if it lives up to expectations with respect to power, can have a very profound degree of influence on the small countries and whether that shall be democratically used in the sense of attaining objectives of Government to Government or whether it shall be merely a bankers’ attempt to use that to serve—not their own individual purposes but the general philosophy that they represent, I think is a very fundamental matter and I don’t see how this Administration, with its whole New Deal philosophy and with its attitude toward those fundamental problems can support an institution that becomes a super-central bank.
89
Berle was sympathetic to these arguments, and added one further “very powerful argument” that “we may at some stage be considering somewhat similar methods in the event that peace should break out…at that time this might serve as a good laboratory study.”
90
In late January 1940, the chairman of the Federal Reserve, Marriner Eccles, agreed to wording that kept the IAB as an intergovernmental institution but left open the question of how each government would appoint its director. Reflecting this agreement, the final wording of the IAB’s by-laws stated that each government appointed its director “in a manner to be determined by it.”
91
The subsequent US implementing legislation, discussed in early 1941 by a Senate subcommittee, allowed for the US director to be chosen by a committee made up of the treasury secretary, the chair of the Federal Reserve Board, and the Federal Loan Administrator. The endorsement of the intergovernmental nature of the IAB set an important precedent for the creation of the IMF and IBRD—both of which were government-owned and controlled.
Another aspect of the governance of the IAB also acted as precursor to that of the Bretton Woods institutions: its system of weighted voting in which the United States would have an effective veto over important decisions. The bank was to be governed by a board of directors with one director for each country. Each government received twenty minimum votes and then one additional vote for each additional share it held, with minimum share levels set according to the importance of their foreign trade in 1938 (White’s initial January 11 draft had used population as a determinant). Voting on the board would take place according to a simple majority-voting rule, but with important decisions requiring a four-fifths majority. Along with Brazil and Argentina, the United States would be required to subscribe to a minimum of fifty shares of $100,000 each, while other countries faced lower minimum subscriptions. With this weighted voting system, US officials anticipated that they could quite easily acquire more than 20 percent of the vote and thus have an effective veto over important decisions.
92
The board, which was to meet four times per year, was also empowered to appoint, and delegate its powers to, an executive committee. Gardner had argued in December 1939 that a body with all countries represented would be unworkable and he had suggested a small operating board made up of officials representing groups of countries.
93
This suggestion foreshadowed the constituency system of representation within the executive boards of the Bretton Woods institutions.
In other ways, however, the IAB represented a strange halfway station between the BIS governance model and that of the Bretton Woods institutions. While the bank was to be an intergovernmental one, it would be chartered as a corporation by an act of the US Congress (which promised not to change the act for twenty years without agreement) since the United States was to house its “principal office.”
94
The bank was then to establish at least one branch or agency in the territory of every member country. Unlike the IMF and the IBRD, the IAB was also empowered to act like a regular private bank, accepting private deposits and dealing with private customers in other ways. Here is how one BIS official attempted to describe its unique nature: “Although an association of governments, the I.A.B. takes the form of a private corporation. Naturally it does not conform strictly to any known type but is sui generis. It may be described as a cross between a share company and a co-operative society.”
95
Some Missing Issues
There was one other way in which the IAB was distinctive vis-à-vis the Bretton Woods institutions. Unlike the IMF’s articles of agreement, the IAB by-laws did not impose any obligations on members relating to exchange rates and currency convertibility. The IAB’s formal purposes did mention that it would “assist in stabilizing the currencies of American Republics” and “encourage direct general exchanges of the currencies of American Republics.” But members were not required to maintain a currency peg or commit to current account convertibility. Initial discussion in the IFEAC about creating a new IAB regional currency unit also went nowhere and the IAB’s capital and operations were expressed in dollars.
96
Latin American governments made it quite clear that they were not interested in undertaking exchange rate obligations. In their answers to the IFEAC questionnaire, Hanson observed, Latin American governments had emphasized that “they believe their economies must be diversified and strengthened considerably before they are ready for such a step.” United States policymakers were also sympathetic to this Latin American preference. As Hanson told White, “it would hardly do to press Latin America on currency stabilization now, in the absence of either theoretic or practical justification.”
97
. In his testimony before the Senate subcommittee, Collado also reminded his audience that “the history of the currencies of colonial and raw-material-producing nations is that they are subject to extreme exchange pressure whenever there is a world depression.” Instead of a “rigid pegging” of currencies as under the gold standard, what was needed was improvements in “the broader economic situation of the countries by diversifying their structures so that they are not dependent upon the exports of a few products.”
98
The IAB’s provisions also steered clear of one other issue: debt restructuring. We have seen how past discussions—from Mexico’s 1933 proposals to Hanson’s mid-1939 ideas—suggested that an inter-American financial institution might play a useful role in this area. As we saw, the issue was raised again by White in his initial late November 1939 memo to Morgenthau. But debt restructuring was too controversial to be included in the IAB by-laws. When Peru’s Larrañaga raised it at the first IFAEC subcommittee meeting in mid-November, Berle noted in his diary that everyone withheld comment on the issue, particularly because there were some debt-restructuring discussions going forward involving countries represented.
99
The issue was also controversial within White’s informal committee of US officials. In mid-December, White proposed that the IAB could not lend to a country in default unless that country had “made an offer of adjustment that the bank regards as reasonable.” He would insert a very similar provision into his first draft of the IBRD two years later. At this time, he was forced to acknowledge, however, there was no consensus in favor of the provision among US officials. All they could agree upon was that the bank might declare that it “was neither acting as an agency to force resumption of debt payments nor making it easy for them to borrow without regard to the status of their already acquired debts.”
100
In early January 1940, Hanson urged White to clarify to Latin American governments in advance of the IAB’s creation whether the United States would vote to block loans to countries because of past defaults or expropriations, but no such declaration was issued.
101
The Fate of the IAB
Despite backing from various quarters, the IAB was never established. Some Latin American governments had concerns about specific aspects of the final IAB plans, such as the size and timing of initial stock subscriptions, the prospect of a US veto over key decisions, the absence of a US commitment to open its markets to their exports, and the insistence on government guarantees for loans to their citizens.
102
But eight Latin American governments joined the United States in signing the bank’s convention in May 1940: Bolivia, Brazil, Colombia, Dominican Republic, Ecuador, Mexico, Nicaragua, and Paraguay.
103
Mexico also ratified the IAB convention, but the other Latin American governments waited for United States to act. US ratification never came. Roosevelt asked the Senate to approve the convention on July 5, 1940, but the Senate chose to delay hearings until April 1941 and then the issue was never even brought to the full Senate for a vote.
The failure of the United States to ratify the convention was surprising given how the dramatic German victories in continental Europe at this time had made Latin America even more strategically important for US policymakers. Collado noted that the ratification of the IAB was initially delayed because attention shifted to Roosevelt’s request in July for a large increase in the Export-Import Bank’s loans to Latin America. Once Congress approved that request in late September, Collado pushed for action on the IAB but it was delayed once again, despite many inquiries from Latin American IFEAC members and diplomats.
104
Berle reported that the official initially placed in charge of steering legislation through Congress, Jesse Jones, was waiting to act until after the election that fall, and there was also some speculation that the conservative Jones himself was not that keen on the whole proposal.
105
It was also true, however, that the IAB proposal had attracted considerable controversy outside of the Roosevelt administration. Even before the final texts had been released publicly in mid-April 1940, the State Department had been inundated with letters of opposition to the proposal, many of them handwritten by senders in small towns across the country.
106
Some of the opponents feared that the organization would give more power to private international bankers. Others worried that the IAB would undermine US sovereignty. Still others saw the IAB proposal as a “Communist document.”
107
The last description would have surprised the editorial writers for the Cuban Communist daily newspaper
Hoy
which had attacked the IAB proposal in February 1940 as an instrument of US imperialism through which American private banks could consolidate their control over the economic and political life of Latin America.
108
Those editorial writers would also no doubt have been surprised by the fact the IAB was strongly opposed by New York banks. Their opposition was led by W. Randolph Burgess, vice president of the National City Bank of New York, the largest US bank operating in Latin America at the time. Burgess told Morgenthau in late May 1940 that one of his concerns was that “the set up of the proposed bank ties it too closely to politics.”
109
He preferred to see central bankers take up the bank’s stock and appoint its directors, as in the case of the BIS (whose creation he had been involved with). Burgess also worried that the IAB would be a competitor of US banks in Latin America because it would be making short-term loans and taking deposits.
To address the latter point, the State Department had already gone out of its way earlier in the month to emphasize that the IAB was meant “to complement existing financial institutions rather than to provide a substitute for them.”
110
When Congressional attention finally began to focus on the IAB in early 1941, Roosevelt administration officials—led by Rockefeller, Joseph Rovensky, and Will Clayton—also negotiated with the bankers to scale back some of the bank’s activities. Its by-laws were amended to restrict its activities involving financial instruments with less than two years maturity to those guaranteed by governments and central banks. In return, the bankers agreed not to oppose the bill.
111
The Bankers Association for Foreign Trade even passed a resolution endorsing the bank in early 1941.
112
After hearing testimony from Berle, Collado, and Clayton, a subcommittee of the Senate Committee on Foreign Relations in May 1941 approved the IAB convention with no objections.
113
But the powerful Democratic chair of the Senate Banking and Currency Committee from Virginia, Carter Glass, then insisted that his committee be permitted to examine the idea before it was presented to the Senate as a whole. Once this request was granted, the eighty-two-year old Glass simply delaying its examination.
114
An effort by some members of the Senate Foreign Relations Committee to bring the proposal to the Senate floor in January 1942 at the start of an important meeting of governments of the Americas in Rio was unsuccessful. So too were personal appeals to Glass from Eccles and even Roosevelt as late as mid-1942.
115
Years later, Berle blamed Glass’s opposition to the IAB on the influence of Burgess. He suggested that Burgess backed out of the administration’s deal with the bankers, and told Glass to “kill” the bill. It is certainly true that Burgess continued to complain—including to Glass—that the IAB would compete with the business of commercial banks and would be run by governments rather than central bankers.
116
But the conservative Glass—who had strongly opposed the interventionist economic policies of the New Deal—also had his own reasons for disliking the IAB. In addition to complaining that Congress would have no control over the IAB, Glass objected to the fact that it would “be managed largely by South American Republics; whereas the Ex-Im Bank is now managed exclusively by American citizens.”
117
Although it never came into existence, the IAB was an important initiative in symbolizing what the US government called the “the economic implementation of the Good Neighbor policy.”
118
It also left an important legacy. In early 1940, Berle had stressed that it was a “laboratory study” in how worldwide economic relations would need to be rebuilt after the war, and that “this makes a nucleus around which things will grow.”
119
When he saw White’s initial Bretton Woods plans of early 1942, Berle applauded how they built on this Good Neighbor initiative in ways he had hoped for.
120
Collado later also pointed out that the IAB served as a “predecessor” to White’s initial plans for Bretton Woods.
121
Indeed, it is striking how many of the US officials involved in the IAB’s drafting went on to participate in various ways in the discussions surrounding the Bretton Woods agreements, including not just Berle and Collado but also Morgenthau, White, Bernstein, Clayton, Gardner, Goldenwesier, Riefler, Schmidt, and Viner. In their internal memos during the drafting process, US policymakers also drew explicitly on the IAB precedent.
122
As we shall see, when responding to the US plans, Latin American officials referred back to the IAB proposal too, and some of those involved in the IAB discussions played significant roles in the Bretton Woods negotiations, such as Mexico’s Villaseñor and Monteros.
Like the IMF and IBRD, the IAB was to be a government-owned multilateral financial institution, with weighted voting, that lent for short-term balance of payments and long-term development purposes. The IAB’s mandate to address capital flight also foreshadowed White’s interest in this issue in his early drafts of the IMF (although he addressed it in a different way then, as we shall see). At more general level, the IAB combined a commitment to liberal multilateralism with support for new interventionist economic practices that had become popular during the 1930s—thus representing an important early expression of the embedded liberal vision of Bretton Woods. It was this innovative vision that led US banks, isolationists, and economic conservatives to oppose the IAB, just as they would later oppose the Bretton Woods agreements (although with less success). The rise and fall of the IAB proposal is thus properly seen as an early skirmish in the battle to shape the postwar international financial order.
In this skirmish, international development issues were front and center. Indeed, the negotiation of the IAB marked the first time in history that governments attempted to construct an international institution with a central mandate to promote economic “development” in poorer countries. To be sure, article 22 of the 1919 League of Nations Covenant had declared that the “well-being and development” of peoples in mandate territories of the League formed “a sacred trust of civilization” that must be upheld. But this reference to “development” was very vague and the commitment was restricted geographically to the former colonies of Germany and territories of the Ottoman Empire that were judged—in the paternalistic and imperial language of the League’s covenant—to be “inhabited by peoples not yet able to stand by themselves under the strenuous conditions of the modern world.” Moreover, the League’s involvement was also indirect since it had “entrusted” the administration and “tutelage” of the peoples of the mandate territories to what were called “advanced nations” such as Britain and France.
123
As noted in chapter 7, the one highly innovative proposal for the League to take on a more direct and significant international development mandate—a proposal that came from Sun Yat-sen in China—was rebuffed by Western powers at the time of the League’s founding. After its founding, the League did begin to address issues such as agriculture, public health, education, and transportation in poorer parts of the world beyond the mandate territories, but these activities were very limited in scope, and they emerged in a rather ad hoc fashion rather than as part of a new comprehensive official international commitment to promote development goals.
124
In contrast with the League experience, the promotion of international development was central to the purpose of the IAB (and this task was also associated by many of its supporters with rejection of past imperialist practices). This mandate was also to be fulfilled in much more ambitious ways than the League had attempted, including public international lending and the recycling of flight capital. The IAB’s negotiation even inspired some innovative ideas about the role an international institution could play in debt restructuring. Each of these aspects of the IAB proposal would be drawn upon by White in his first drafts of the Bretton Woods institutions. Some scholars have made the important point that some of the IMF activities built upon the legacy of the financial activities of the League.
125
In the case of the international development provisions of Bretton Woods, however, the experience of the IAB and inter-American financial cooperation served as the key historical precedent.
In light of recent scholarship on the origins of international development, it is also worth noting that the IAB proposal was a product of both Northern and Southern preferences. On the Northern side, US support for the IAB reflected the same complex mix of strategic concerns, New Deal values, and economic interests that drove the broader Good Neighbor financial partnership. But the original impetus for the IAB came from Latin America, not the United States. International development was not thrust upon Latin American governments; it was instead demanded by them as part of their new state-led developmental priorities that emerged out of the political and economic upheavals of the 1930s.
1.
Oliver 1975, 99. See also Oliver 1985, 19 n. 1.
4.
Oliver (1975, 92–99) provides the most detailed discussion. For other comments about the importance of the IAB, see Bordo and Schwartz 2001; Mason and Asher 1973, 16; Skidelsky 2000, 239; Bittermann 1971, 61; Steil 2013, 377–8; Rees 1973, 104.
6.
See for example Gardner and Powelson 1970; Dell 1972.
7.
“VII Conferencia Internacional Americana, Delegación de México” n.d., p. 2, RIC, Comm. On Initiatives, 2–4, box 5.
8.
Mexico’s proposal was supported by Brazil, El Salvador, and Nicaragua. See “VII Conferencia”; “Committee IV, December 14, 1933,” RIC, Comm. On Initiatives, 2–4, box 6.
9.
Braden to Hull, January 4, 1934, in RIC, Comm. On Initiatives, 7–9, Minutes and Antecedents of Final Act, box 7.
10.
Mexico also suggested the creation of a separate “central bank for the continent” that could help national central banks with international clearing and financial operations (“VII Conferencia,” p. 3).
11.
“Fourth and Ninth Committees: Minutes and Antecedents,” n.d., p. 49, RIC, Comm. On Initiatives, 7–9, Minutes and Antecedents of Final Act, box 7.
12.
“Fourth and Ninth Committees,” pp. 52, 49, 54, 57.
13.
Braden to Hull, January 4, 1934, p. 9, in RIC, Comm. On Initiatives, 7–9, Minutes and Antecedents of Final Act, box 7.
14.
US State Department 1956, 67.
15.
Villaseñor 1941, 166.
16.
Quoted in Gantenbein 1950, 791.
19.
Hanson, “Proposal for a Pan American Financial Institute,” June 5, 1939, p. 2, TSF, 450/81/02/03, box 65.
20.
Hanson to Glasser, “Economic Implementation of the Good-Neighbor Policy,” August 21, 1939, p. 1, TSF, 450/81/20/07, box 28.
21.
Hanson to White, September 27, 1939, pp. 1, 2, TSF, Entry 67A1804, box 65.
22.
“Loans to Latin America for the Industrial Development of Latin America,” June 6, 1939, p. 3, HDWP, box 5, folder 6.
23.
“Financial Assistance to Nicaragua (and Other Latin American Countries),” pp. 7, 5, May 4, 1939, MD, book 188.
24.
“Loans to Latin America,” pp. 3–4, 6.
25.
See note dated October 4, 1939 on front of “Loans to Latin America.”
26.
Berle to Welles, November 17, 1939, p. 2, BP, box 59. For Berle’s role, see “November 17, 1939,” BP, box 211; Berle and Jacobs 1973, 271–78, 284–91. For Welles’s enthusiasm for the IAB, see for example his discussions with the Brazilian representative on the IFEAC; Penteado to Aranha, December 19, 1939, FGV, Osvaldo Aranha, cp 1939.01.17 rolo 16 fl.651; Eurico Penteado to Osvaldo Aranha, January 12, 1939, FGV, Osvaldo Aranha 16-366.
27.
Villaseñor 1941, 166. See also Urquidi 1996, 33.
28.
Babb 2001, 30–31, 58–59.
29.
Quoted in Villaseñor 1941, 166. For Latin American support in Guatemala, see also US Senate 1941, 23.
30.
“The following comments are from notes taken at the meeting of the Board on January 16, 1940, on the statements made by Messrs. Goldenweiser and Gardner relating to the Inter-American Bank,” pp. 4, 7, CSF, 301.23-9.
31.
See Gardner to Board of Governors, “The Inter-American Bank Proposal,” December 20, 1939, pp. 2–3, CSF, 301.23-9.
32.
“Speech of A. A. Berle, at George Washington University conference on inter-American affairs, December 5, 1939,” pp. 6–7, BP, box 211.
33.
“November 28, 1939,” pp. 1, 4, BP, box 211.
34.
White to Morgenthau, November 28, 1939, pp. 1–2, CFHDW, box 3, file 14.
35.
For Roosevelt’s support, see “December 5, 1939,” BP, box 211. For membership, see Gardner to Board of Governors, “The Inter-American Bank Proposal.”
36.
White, “Informal Committee on Consideration of Proposal to Create a Pan-American Banking Institution,” December 7, 1939, JVP, box 49, folder 4.
37.
“December 15, 1939,” BP, box 211.
38.
Quotes from White, “Outline of Tentatively Proposed Bank for American Republics,” December 15, 1939, pp. 1–2, JVP, box 49, folder 4.
39.
“Draft of By-Laws of a Bank to be called the Inter-American Bank,” January 11, 1940, JVP, box 28, folder 11. For Bernstein’s important role, see US Senate 1941, 24, and “Status of the Proposal,” January 11, 1940, ISF, box 245.
40.
“Status of the Proposal”; McKinzie 1974, 7; Wilson and McKinzie 1971, 10.
41.
Berle and Jacobs 1973, 291. See also McKinzie 1974, 6.
42.
Quote from Collado to Berle, March 29, 1940, p. 2, DSDF 710.BANK/81.
43.
White, “Outline of Tentatively Proposed Bank,” p. 2.
44.
See Gardner to Board of Governors, “The Inter-American Bank Proposal.”
45.
Cochran to White, December 4, 1939, p. 1, ISF, box 245; Gardner to Board of Governors, “The Inter-American Bank Proposal,” p. 9. Stewart was also strongly opposed to the IAB idea from the start; White, “Outline of Tentatively Proposed Bank.”
46.
Hanson to White, December 7, 1939, TSF, Entry 67A1804, box 65; Goldenweiser and Gardner to Board of Governors, “The Inter American Bank proposal,” January 16, 1940, p. 3, CSF, 301.23-9.
47.
Goldenweiser and Gardner to Board of Governors, “The Inter American Bank proposal,” p. 3. See also Oliver 1975, 94; Bemis 1943, 353.
48.
“Anteproyecto de convención,” January 18, 1940, BP, box 59.
50.
“December 14, 1939,” p. 4, BP, box 211.
51.
Delegate of Peru, “Proposed Pan-American Bank,” November 29, 1939, BP, box 59. See also “Memo Peru No.17, December 21, 1939,” BP, box 59; Delegate of Peru, “Memorandum for the Study of Subcommittee 1: The Creation of a Pan American Bank,” November 20, 1939, TSF, Entry 66A1039, box 31.
52.
White to Morgenthau, January 9, 1940, TSF, Entry 67A1804, box 65.
53.
Quoted in White to Morgenthau, “Foreign Economic Developments,” March 12, 1940, p. 7, CFHDW, box 3, Chron 15. See also “The following comments…,” p. 7.
54.
Department of State 1940, 524.
55.
Welles to William Lancaster, June 11, 1940, pp. 2–3, DSDF, 710.BANK/193.
57.
“December 15, 1939,” BP, box 211.
58.
Hanson to Glasser, January 3, 1940, p. 3, TSF, Entry 67A1804, box 65.
59.
White to Morgenthau, “Foreign Economic Developments,” p. 7. See also views of Nicaragua, Honduras, and Haiti in White to Morgenthau, January 9, 1940, TSF, Entry 67A1804, box 65.
61.
Villaseñor 1941, 174, 173.
62.
Department of State 1940, 524.
64.
Department of State 1940, 525.
65.
Welles to Lancaster, June 11, 1940, p. 4.
67.
Gardner to Board of Governors, “The Inter-American Bank Proposal,” p. 5.
69.
Berle, “Thesis,” November 20, 1939, p. 3, BP, box 59; Delegate of USA, “Memorandum,” November 20, pp. 2–3, IFEAC Subcommittee 1, DSDF, 710.FEAC/143.
70.
Hanson to Glasser, January 4, 1940, TSF, Entry 67A1804, box 65; Goldenweiser and Gardner to Board of Governors, “The Inter American Bank Proposal,” p. 2.
71.
White, “Questions on Foreign Capital in the United States,” February 27, 1940, HDWP, box 3, folder 9.
72.
Question no. 10 in White, “Informal Committee,” p. 2.
73.
Goldenweiser and Gardner to Board of Governors, “The Inter American Bank Proposal”; Green 1971, 63.
74.
White to Morgenthau, January 9, 1940, p. 2, TSF, Entry 67A1804, box 65. Hanson also questioned the expected benefits, arguing that the amount of capital leaving Latin America annually was no more than $25 million and that not all of this would come to the bank. Hanson to White, January 5, 1940, and Hanson to Glasser, January 4, 1940, TSF, Entry 67A1804, box 65.
75.
Delegate of Peru, “Proposed Pan-American Bank,” pp. 1–2.
76.
Gardner and Goldenweiser, “Suggestions Relative to Proposed Inter-American Bank,” January 18, 1940, pp. 12, 4, CSF, 301.23-9.
77.
(Illegible author’s name), “Inter-American Bank,” April 3, 1940, p. 108, THMC, series 2 Business Papers, carton 9, folder 9.
78.
The Federal Reserve Board was also formally renamed the Board of Governors of the Federal Reserve System, but the name Federal Reserve Board continued to be used.
79.
“Conversation between Dr. Goldenweiser and Mr. Berle, January 25, 1940,” p. 9, CSF, 301.23-9.
80.
“December 8, 1939,” p. 3, BP, box 211.
81.
This quote is taken from a description of White’s views in “The following comments…,” p. 6.
82.
Welles to Lancaster, June 11, 1940; Collado to Secretary of State, September 7, 1943, p. 2, TSF, 450/81/02/03, box 66.
83.
“The following comments…,” pp. 9, 2–3.
84.
Hanson to White, December 7, 1939, and Cotton, “Inter-American Bank,” January 9, 1940, TSF, Entry 67A1804, box 65.
85.
Gardner and Goldenweiser, “Suggestions,” pp. 1, 3.
86.
See also Gardner to Board of Governors, “The Inter-American Bank Proposal,” p. 12.
87.
Delegate of Peru, “Memorandum,” p. 1.
88.
MD, book 237, p. 257.
91.
Department of State 1940, 523. Eccles to Berle, January 29, 1940, CSF, 301.23-9. This final wording was not in fact very different from White’s draft of January 11 which had noted that “each government shall have complete freedom in the method selected by it in appointing its director and alternate” (“Draft of By-Laws,” p. 2).
92.
For example, Welles to Lancaster, June 11, 1940. Argentina and Brazil might also have a veto. Indeed, this feature was deliberately included as a means of encouraging greater Argentine interest in the bank. If Argentina was to be granted a potential veto, US officials concluded that Brazil would need equal treatment. Hanson to White, January 5, 1940, TSF, Entry 67A1804, box 65.
93.
Gardner to Board of Governors, “The Inter-American Bank Proposal.”
94.
Quote from Department of State 1940, 522. Some US officials, such as Cotton (“Inter-American Bank,” p. 7), thought the IAB’s headquarters should be in Latin America “with a view to securing the full-time service of a few qualified Latin Americans of reputation and of keeping the institution alive to the conditions where it must invest.”
95.
(Illegible author’s name), “Inter-American Bank,” p. 4.
96.
Roosevelt had been keen on the idea of a new kind of inter-American currency that might be called “unitam” but most Latin American officials (Peru was an exception) preferred to use the dollar. US Senate 1941, 35, 38, 45, 62; “December 5, 1939,” p. 2, BP, box 211; Delegate of Peru, “Memorandum.” In White’s early Bretton Woods plans a few years later, he discussed the idea of an international currency unit and gave it a very similar name: “unitas.”
97.
Hanson to White, March 27, 1940, p. 2, HDWP, box 5, folder 6.
99.
Berle to Welles, November 17, 1939, pp. 1–2, BP, box 59.
100.
White, “Outline of Tentatively Proposed Bank,” p. 2.
101.
Hanson to White, January 5, 1940, p. 2.
103.
Department of State 1940, 517.
104.
Collado to Duggan, Berle, and Welles, September 30, 1940, DSDF, 710.BANK/218; Green 1971, 66.
106.
See letters in Louis Ludlow to Hull, April 6, 1940, DSDF, 710.BANK/90.
107.
Roy Caswell of Caswell’s Store in Wilcox, Nebraska, April 11, 1940, DSDF, BANK/110.
108.
Willard Beaulac to Hull, February 16, 1940, DSDF, 710.BANK/16.
109.
Burgess to Morgenthau, May 9, 1940, p. 1, DSDF, 710.BANK/193.
110.
Department of State 1940, 519. See also Welles to Lancaster, June 11, 1940.
111.
US Senate 1941, 16, 25; Green 1971, 69–70; Collado to Secretary of State, September 7, 1943, TSF, 450/81/02/03, box 66.
112.
“Inter-American Bank Convention,” May 6, 1942, ISF, box 245; Nelson Rockefeller to Hull, January 13, 1941, DSDF, 710.BANK/223.
114.
Green 1971, 60, 67–73, 314.
115.
Green 1971, 70–73. See also “Inter-American Bank Chronology,” January 27, 1942, ISF, box 245; Eccles to Glass, June 17, 1942, DSDF, 710.BANK/259; Southard, “Background on Senator Glass’s Proposed Amendments on the Inter-American Bank,” May 8, 1942, CFHDW, box 7, Chron 35.
116.
Quote from Green 1971, 314. See also pp. 71–72; “Inter-American Bank Convention,” May 6, 1942, ISF, box 245.
117.
Quoted in Green 1971, 71.
118.
Department of State 1940, 518.
119.
Berle’s “laboratory study” comment is cited earlier in this chapter from a January 23, 1940, conversation with Treasury officials (note 90). He made the same comment—along with the rest of the quotation here—in a conversation with Goldenweiser two days later: “Conversation between Dr. Goldenweiser and Mr. Berle,” p. 8. See also Berle and Jacobs 1973, 284.
122.
See for example “Bank for Reconstruction and Development: Points to be Discussed by American Technical Committee,” April 11, 1944, p. 2, HDWP, box 8, folder 4; LC.A. and R.B., “Agreement to Form an International Stabilization Fund of the United and Associated Nations,” October 18, 1943, pp. 28, 30–31, 34, 36, ALP, International Stabilization Fund, Memoranda, Correspondence, box 8/7.
123.
Quotes from League Covenant in Rist 1997, 60. See also Murphy 1994, 210–11, Alcalde 1987, 12–14, 49–56.
124.
Zanasi 2007; Murphy 1994, 211. See also Alcalde’s (1987, 50–53) discussion of the League’s 1922 report on economic development in Albania.