I
We are living in one of the great epochs of expansion in international finance. For thousands of banks, the years from the mid 1960s to the mid 1970s have been a dizzy time. Their business has increased in value and in geographical extent. The most euphoric increase is in the developing countries, as banks set up new offices in nations from Nigeria to Peru. Some corporations, now, have almost more operations than they can count, with Citicorp of New York, for example, acknowledging “approximately 2,026 offices in 103 countries around the world.”
Throughout the years of expansion, the political consequences of the boom have been hidden and ignored. People were busy making money. The French bankers of the Second Empire did not stop to consider the politics of finance as they lent more and more money to build ever more railroads in ever more distant countries. The bankers of the 1970s—their modern heirs—are similarly sedulous as they consider only today’s loan, to this year’s country borrowing money, not to build railroads but to explore, perhaps, for oil.
In the United States, there is a persistent illusion that the business of US banks, including their international business, is not an issue of public or political concern. But bank lending has already changed US relations with developing countries. US policy toward Chile and India, toward Argentina in the summer of 1976, is influenced by the odd, conflicting involvements of bankers and governments. The US government already pursues a politics of debt in the secrecy of the groups known as creditor “Clubs,” where countries seek to reorganize their foreign debts.
The illusion that business is private is not limited to banking. It corresponds to general changes in US policy. During the late 1960s and 1970s, the US government relinquished many of the functions of international economic hegemony that it had exercised after the Second World War, when the dollar was the main support of the international monetary system, and when most foreign aid to developing countries flowed from the United States. Since the late 1960s, the government has also permitted increasing license to US corporations as their foreign business flourished. As US arms corporations increase their commercial exports, US military assistance accounts for less and less foreign military business. Food exporters increase their commercial sales, while their exports under government aid programs dwindle.
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This Issue
June 24, 1976
This Issue
June 24, 1976
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1
Citicorp Annual Report, 1975, p. 38. The 2,026 offices belong to “Citicorp and its subsidiaries and affiliates.”
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2
International Economic Report of the President, March 1976 (US Government Printing Office) Table 62, p. 170.
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3
World Bank Annual Report, 1975. “External Public Debt Outstanding of 86 Developing Countries, December 31, 1973.” The debts covered are for terms of more than one year, owed by or guaranteed by “a public body in the borrowing country.” The eighty-six countries include southern European countries, Israel, and the oil-exporting countries as well as the non-oil developing countries whose debts are considered here.
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4
US Senate, Committee on Foreign Relations, Subcommittee on Multinational Corporations, “Foreign Assets and Liabilities of US Banks,” March 11, 1976.
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5
US Senate, op. cit. The statistics cover the twenty-one largest US banks’ claims on residents of eighteen non-oil developing countries, including most of the largest borrowers. They cover only those claims which are not guaranteed by US government agencies or by US corporations.
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6
UNCTAD IV, “International Financial Cooperation for Development,” Nairobi, May 1976. (TD/188), p. 4.
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7
“Manila Declaration,” Third Ministerial Meeting of the Group of 77, February 12, 1976 (distributed by UNCTAD, TD/195); “Progress Report,” Preparatory Committee for the Ministerial Meeting at Manila, December 22, 1975.
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8
Robert A. Shaffer of Bank of America, quoted in Business Week, March 1, 1976.
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9
Henry Kissinger, “Expanding Cooperation for Global Economic Development,” May 6, 1976, Nairobi. In his speech, Kissinger proposes a new “International Resources Bank” to increase investment in developing countries. But in his comments on “debt problems,” he stays fairly close to what seems to be the US Treasury brief.
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10
US Treasury, “Report on Developing Countries’ External Debt and Debt Relief Provided by the United States,” January 1976. Also reprinted by US House of Representatives, Committee on International Relations, April 5, 1976 (Executive Communication 2433, US Government Printing Office).
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11
US Treasury, op. cit., p. 86.
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12
UNCTAD, “Present Institutional Arrangements for Debt Renegotiation,” February 26, 1975 (TD/B/C.3/AC.8/ 13).
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13
UNCTAD, “Present Institutional Arrangements,” p. 5.
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14
The IMF did not provide Chile with its own “stand-by” credit in 1972. But it did participate in the Paris Club meetings, and Chile agreed, for example, to make statistical information available through the IMF.
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15
US Treasury, op. cit. US/Chilean Bilateral Agreement dated July 3, 1975, pp. 90-102.
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16
International Monetary Fund, International Financial Statistics, April 1976; estimate of Peru’s 1976 deficit from Morgan Guaranty’s World Financial Markets, January 1976.
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17
The US Treasury Report concedes that the IMF’s present emergency procedures, which are at the heart of the Club convention, “are not appropriate to handle the problems associated with [oil price] increases,” at least. US Treasury, op. cit., p. 9.
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18
US Senate, op. cit. The Federal Reserve Board gathered the statistics on bank assets and liabilities for the Senate Subcommittee.
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19
World Bank Annual Report, 1975. “External Public Debt Outstanding of 86 Developing Countries.”
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20
The New York Times, March 23, 1976.
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21
US Treasury, op. cit., p. 46.
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22
Aid “consortia,” or groups of aid-giving countries convened by the World Bank, fulfill most of the same functions that the Paris Club has performed for Chile and Argentina when poor countries such as India or Pakistan need to reschedule their debts.
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23
US Treasury, op. cit., p. 39.
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24
International Finance, summary of major US government net foreign assistance, 1945-1974, pp. 214-217.
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25
US Department of Agriculture, Economic Research Service, Foreign Agricultural Trade of the United States, December 1975.
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26
The amounts involved appear as $342 million and $230 million in the Treasury study (p. 43 in the report as distributed by the Treasury, and p. 38 in the version published by the House committee). Someone I talked to in the Treasury explained that the statistics came from the Department of Agriculture; an official there provided the revised figures, adding pleasantly that “that word million is really a bad one.”
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27
US Senate, “Security Supporting Assistance for Zaire,” October 24, 1975. The hearing was held in the last days before New York City was expected to default on its debts, and was noted at the time mainly for the appearance of Senator Hubert Humphrey (D-Minn.), who pronounced that “We had better change New York City’s name to Kinshasa, and let Abe Beame be Mobutu.”
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28
The Equator Bank is one of the more exotic products of the bank lending boom. Approved by the Federal Reserve Board in April 1975, it is owned in part by the Hartford National Bank. It is a “merchant bank” which specializes in “making and arranging loans in various African countries.” Its recent activities, through a Nassau office, include joining such colleagues as the Wells Fargo Bank in a $20 million Eurodollar loan to the Republic of Gabon.
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29
Henry Kissinger described a sort of spiritual domino theory in a “briefing” on September 16, 1970: “I don’t think we should delude ourselves that an Allende takeover in Chile would not present massive problems for us, and for democratic forces and for pro-US forces in Latin America and indeed to the whole Western Hemisphere.” US Senate, “Covert Action in Chile,” p. 27.
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30
International Finance, summary of major US Government net foreign assistance, 1945-1974, pp. 214-217. Since 1969, too, 48 percent of net US foreign assistance has been in the form of military assistance, as compared to 35 percent in the preceding twenty-three and a half years.
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31
Estimated on the basis of the Senate Multinationals Subcommittee’s statistics on US banks’ claims. US Senate, Committee on Foreign Relations, Subcommittee on Multinational Corporations, op. cit. The study does not cover banks’ claims on Chile.
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32
International Finance, Export-Import Bank authorizations, pp. 293-295.
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33
The Senate Committee’s “Interim Report” shows President Nixon, Henry Kissinger, CIA Director Richard Helms, and Attorney General John Mitchell meeting at the White House on September 15, 1970 to consider Chile. Helms recorded in his “handwritten notes”: “game plan make the economy scream.” The report also notes that “economic leverage was the primary topic of a September 18 White House meeting involving. Kissinger, Helms and [CIA Deputy Director] Karamessines.” US Senate, Select Committee to Study Government Operations with respect to Intelligence Activities, “Alleged Assassination Plots Involving Foreign Leaders,” November 20, 1975 (US Government Printing Office), pp. 227 and 231.
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34
From a report by US Ambassador to Chile Edward Korry, describing a message he sent in September 1970 to Chilean President Frei. US Senate, Select Committee, “Alleged Assassination Plots,” p. 231.
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35
Ann Crittenden’s estimate, in one of several excellent articles; The New York Times, February 20, 1976.
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36
UNCTAD, “Report of the Ad Hoc Group of Governmental Experts on the Debt Problems of Developing Countries on its Third Session,” March 11, 1975 (TD/B/545).
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37
Le Monde, May 8, 1976. The Wall Street Journal, May 7, 1976.
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38
The NAC has been charged since the 1940s with “coordinating US participation in the international financial institutions as well as the policies and practices of all agencies of the US government which make, or participate in making, foreign loans .” It consists of the secretaries of the Treasury, of State, of Commerce, the chairman of the Federal Reserve Board, the president’s chief economic assistant, and the chairman of the Export-Import Bank. The officials are “served by a Committee of Alternates” and a “Staff Committee.”
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39
The Foreign Disaster Assistance Act of 1974.
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40
From a letter to the chairman of the Senate Foreign Relations Committee about the 1975 meetings of the Paris Club to consider Chile’s debts. US Treasury, op. cit., p. 83.
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41
US House of Representatives, Committee on Banking, Currency and Housing, “Financial Institutions and the Nation’s Economy: Discussion Principles.” Hearings, Parts 1-3 (US Government Printing Office, 1975 and 1976). Testimony, December 5, 1975.
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42
Charles P. Kindleberger, The World in Depression 1929-1939 (University of California, 1973), p. 308.
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43
Economic Report of the President, 1976 (US Government Printing Office, 1976). US Balance of Payments, p. 274. The US “net balance” on “military transactions”—sales less direct expenditures—was positive in the third quarter of 1975.
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44
See my “The Boom in the Death Business,” The New York Review, October 2, 1975.
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45
International Economic Report of the President, 1975 (US Government Printing Office, 1975). US Basic Balance by Area, 1973, p. 140. International Economic Report of the President, 1976 (US Government Printing Office, 1976). US International Transactions by Area, 1974, 1975, pp. 158-159.
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46
Earl L. Butz, speech at the State Department, Washington DC, September 4, 1974.
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