Evening star. [volume] (Washington, D.C.) 1854-1972, 1940-09-08
No More Foreign
Loans
By Frederic J. Hnskin.

to conquer England and the Nad regime
finally weaken and~the conquered coun-
tries regain their independence, they
could rehabilitate themselves only by
borrowing. In this event, the United
States would be looked upon by some Of
these countries as potential money
lender. While the sympathies of the
United States are with the invaded
countries, the unpaid debts of the first
World War would make such financial
assistance unlikely.
review of foreign loans made by the
United States, and the friction that has
followed these transactions, would seem
to make 1t impossible for this country to
advance money to any nation. OF course,
the johnson Act is now in the way, but
since laws can be and often are repealed
by Congress, there is always the posi-
bllity that the unexpected will happen.
While international investments have
extended throughout history, the inter-
national loan is a comparatively new in
stitution between governments. Finan-
cial assistance by one country to another
has, with few exceptions, been for the
purpose OF aiding in times of war. Loans
with fixed interest charges developed
only after credit operations were de-
vised. Until then debts between states
or countries were usually tributes.
While several classifications of inter-
national loans might be made, political
loans and loans with economic detectives
play the most important role between
nations in their financial relationships. =,
Political loans, while made for the
purpose of aiding nation in financing
the cost of war, are sometimes used to
obtain trade or other advantage. Elk.
perience with these debts has been what
might have been expected. They were
really subsidies and not expected to
meet business tests of security and yield
The economic history OF the United
States from 1880 to 1850 offers excellent
examples of economic loans. Railroads
of this country sought financial assist
ance in England. and English capitalists
acquired natural resources and estab-
lished business enterprises In the United
States. In the case of railroad interests
stocks or bonds.
Great Britain, the Netherlands, France,
and in recent years the United States,
have been the principal lenders. BY
means of international loans made by
these countries also by investments Of
foreigners, resources of the world have
developed much more rapidly than other
wise would have been possible, but in
recent years sentiment in the United
States has been against international
loans.
Creditor and debtor countries rarely
escape the political and economic effects
of foreign loans and investments. Since
loans and investments in foreign coun-
tries frequently take the form Of imports
from the lending country, manufacturing
in the lending country is stimulated.
This is one inducement to make loans
to another country The borrowing ma
ton usually uses the money to develop
important banking, shipping, insurance
and commercial institutions, thus slim
ulating business within its borders.
The economic aspect is never so dim
cult to handle as the political. for this
may involve intervention 70 protect for
eign interests. Intervention has often
led to permanent political organization
and actual establishment Of sovereignty
by the lending nation over the borrow.
ing nation India affords the outstand-
ing example Of the far-reaching political
effects which sometimes derive from for
eign financial operations having a pre-
ponderant economic origin.
The effects on the borrowing nation
are more far-reaching than on the lend
ing nation. If the loan is procured TO
develop some industrial enterprise, the
outlay will increase the demand for
labor and material, stimulate shipping
and finally create demand for larger
volume of imports. This will increase
customs receipts. and thus the govern
ment has more money to spend.
But international financing has often
been costly to both borrower and lender.
Foreign loans are not serviced with local
currency, but in foreign exchange. For
example, street Improvements In some
Latin American city might be highly
profitable in that revenue from addi-
tional taxes would exceed expenditures
and contribute to the convenience Of the
population, but would not create foreign
exchange.
Cuba serves as a good example where
the use of foreign money in developing
local enterprises has brought unfavorable
results Much of the land and many
enterprises in Cuba are controlled by
foreign capital This has directed the
economic life Of that country into chan
nels which have the major objective OF
servicing foreign loans or paying divi-
dends outside of the country, rather thap
of promoting the welfare of Cuba. This
is one of the reasons why Cuba, although
having soil and climate admirably adapt
ed to the production of variety of crops,
looks to foreign countries for its main
food supply.
While the extending Of loans by one
nation to another was first considered as
token of good will, unfortunately many
instances are parallel to experiences OF
individuals in loaning money to friends.
More often friendship is lost than made
stronger. The case Of the United States
with European countries is q good ex-
ample. These countries have contended
for a reduction or cancellation Of the
money loaned them during and after the
first World War. They have not relished