Evening star., 1939-06-24

their govern David Lawrence.
ments are in default to the Ameri-
can Government. However, Latin
American countries did not borrow
from the Government here, but
from investors generally.
The question of whether the ad-
ministration here should apply the
principle of the johnson Act AND
forbid loans to South American
governments which have defaulted
on their private debt to investors
now has been resolved in favor OF
the foreign governments as a matter
of policy.
Many reasons have prompted the
change. First of all, there was no
Securities and Exchange law when
the loans were made and hence If
the loans were made with high
pressure" methods. as is now stated
by the administration, there was no
way by which protection could have
been afforded the investors.
The government here is, of course
interested that investors in the de-
faulted foreign loans of Latin
America shall recover as much as
possible, but this sort of effort
concerns the diplomatic skill of the
Department of State and it is
reasoned that the chances of get
ting a higher number Of cents on
the dollars are enhanced if economic
recovery is stimulated among the
debtor governments.
Increases U. S. Trade.
One of the prime conditions of
the new loans is that the money is
to be spent in the United States.
thus increasing our own trade and
giving an advantage to firms and
companies of this country rather
than to those of Europe. So long
as governments in Europe. work.
ing in close relationship with their
industrial companies, are willing to
extend long-term credit in Latin
America the United States finds it
necessary to have similar machin-
cry.
The Export Import Bank was set
up to finance loans to foreign coun-
tries, and the Presidents new plan
for recovery which involves lend
Ing, and no increase in the public
debt. contemplates that funds shall
be obtained by public fotations
and that these shall be guaranteed
by the Government of the United
States. In practical effect, it will
be- the equivalent of Government
loan but the chances of some fu-
ture administration in Latin
American country regarding the
loan as less of an obligation are
somewhat decreased by the direct
flotation of the securities among
| investors in the United States.
This is because ter-governmental
transactions have in recent years
been banded about among govern
ments as political" whereas loans
directly obtained from the public
have been regarded, when in de-
| fault, as bad mark in the financial
world.
To start the flow of money to
Latin America and to induce larger
! foreign trade transactions is the
object of the relatively small
amount. possibly S2O0,O00.OOO, which
will be used for this purpose next
year, but if trade is materially i'm
proved and it looks as if arrange
ments for payment of interest
charges and installments can be
looked for out of the increased
prosperity of the borrowing coun-
tries, it would not be surprising
If much larger sums were used.
Faces Senate Prejudices.
The idea of extending credit again
to foreign governments will run up
against severe prejudices in the
Senate, where there is a tendency
to insist on an embargo on all cred
its. This has not been the policy of
the rest of the world toward the
United States in the last $50 years.
Again and again, American borrow
ers, including State and municipal
governments, defaulted on loans OBJ
tanned from European investors.
Again and again Europeans de-
SPARED that Americans would honor
tliCll OUllSdllOllS. oCOItS VI COl pOI d le
reorganizations, especially of rail-
road properties, in the last so years,
wiped out the European investors.
American citizens today enjoy the
benefits of water system. electric
light facilities, railroads and other
enterprises because Europeans put
their savings into these businesses.
If Europe had adopted an intransi-
geant attitude, the United States
might have had hard time building
up to its position of tremendous
wealth of today.
The history of finance shows that
when governments, like private busi-
nesess, default because of worldwide
economic conditions or other cir
cumstances beyond their control, it
is considered good business for capi-
tai owners to lend again, because,
in the long run, idle money not only
means idle men, but also a loss in
possible interest earnings.