American Development Bank Act. In this connection, last August this Council approved a formal Action (66-262) reaffirming the policy of the U.S. to oppose assistance, by any international financial institution, to any country, during a period when that country is ineligible for bilateral assistance because of its expropriation of American-owned private property.

No funds provided to the FSO will benefit members of the Communist bloc. As noted above, the use of loans from the proposed increase in FSO resources is limited exclusively to purchases in the U.S. and Latin American members of the Bank. Procurement under Bank loans made out of Ordinary Capital resources is limited to countries of the free world.

The Council regards the proposed increase of the resources of the Fund for Special Operations and the operating principles of the expanded FSO as fully consistent with the meaning and spirit of the policy provisions which the Congress has deemed it advisable to apply to U.S. bilateral programs.

C. Modification of the provision for the election of executive directors

The United States appoints its Executive Director of the Bank. The six other Executive Directors of the Bank are elected without U.S. participation by the Latin American members, four under a weighted voting system and the remaining two, by the countries which have not cast votes for the first four Directors, under a unitary voting procedure.

The regulations currently governing the procedures for the election of the Latin American Directors were originally drawn up assuming that Cuba would be a member of the Bank. Because Cuba did not become a member, the number of votes actually cast in elections is less than originally envisaged. This fact, in combination with the minimum vote requirements which apply to the four Directors elected under the weighted procedure, has led to a situation in which one of the four has had to gain the support of six or seven countries in order to meet the minimum vote requirement. Thus, after the first four Directors are elected, only four or five countries have been left to participate in the election of the remaining two Directors.

The proposed modification (Annex E) would, by reducing the required vote which the fourth Director must obtain, resolve the difficulty to the satisfaction of the Latin American members. U.S. participation and voting power in the Bank would not be changed in any way by the proposed modification of the election procedure.

IV. LEGISLATIVE ACTION REQUIRED

Under Section 5 of the Inter-American Development Bank Act, Congressional authorization is required to enable the U.S. Governor of the Bank to agree to any increase in either the capital stock of the Bank or the resources of the Fund for Special Operations, and to accept any amendment to the Bank's Articles of Agreement.

Two resolutions approved by the Board of Governors at their Eighth Annual Meeting in Washington recommend that members "take such action as may be necessary and appropriate to give effect to" the proposals of the Board of Directors relating to the increase of the Bank's resources and the modification of the provisions for the election of Executive Directors in Annex C of the Agreement Establishing the Bank. The Resolution thus took account of the need for legislative approval in various countries, including the United States, before final action can be taken by the Board of Governors.

The National Advisory Council recommends enactment, this year, of legislation which would:

(1) authorize the United States Governor of the Inter-American Development Bank (The Secretary of the Treasury) to:

(a) vote in favor of the Resolution (Annex B) to increase the resources of the Fund for Special Operations by the equivalent of $1,200 million, and upon adoption of such resolution, to agree on behalf of the United States to pay to the Fund for Special Operations the sum of $900,000,000; and

(b) vote in favor of the Resolution (Annex E) to amend Annex C of the Agreement Establishing the Inter-American Development Bank to modify the procedure employed in the election of Executive Directors. (2) authorize the appropriation of the $900,000,000 United States share of the increase of the resources of the Fund for Special Operations, without fiscal year limitation.

Appropriate legislation to accomplish these recommendations has been submitted by the Administration.

Because of the early requirement for additional resources for the FSO, as described above, it would be necessary for the United States, in order to meet the December 31, 1967 payment date specified in the proposed Resolution of the Governors of the Bank, to obtain an appropriation covering the first installment of $300 million during the present session of Congress. Two similar requests for appropriations of $300 million each would be made in subsequent sessions of Congress for the payments due by December 31, 1968, and December 31, 1969.

V. CONCLUSION

The Inter-American Development Bank is performing a vital role in stimulating Latin American economic and social development within the framework of the Alliance for Progress. The Declaration of the Presidents of America, and challenging responsibilities in the fields of multinational integration projects, issued at Punta del Este on April 14, 1967, has entrusted the Bank with new and challenging responsibilities in the fields of multinational integration projects, the modernization of rural life and increase of agricultural productivity, educational, technological and scientific development, and the intensification of health programs.

It is therefore of the utmost importance to the United States and to the Latin American members of the Alliance that resources adequate for the Bank to meet its growing responsibilities be made available.

Funds available to the Fund for Special Operation of the Bank will be exhausted in the early months of 1968 at the present level of lending. The proposed United States contribution of $300 million per year during the three-year period 1968-1970 is necessary if the Bank is to maintain present FSO activity and carry out its new initiatives in the field of multinational project financing. The National Advisory Council considers the proposed level of activity of the Fund for Special Operations to be essential to the furtherance of objectives to which the United States and its Latin American partners in the Alliance for Progress have subscribed.

The United States contribution will be accompanied by a doubled contribution by the Latin American members of the Bank to the proposed increase of the resources of the Fund for Special Operations. The proposal emphasizes other measures of self-help and mutual help among the Latin American members of the Bank. The proposed increase of resources and the operating principles of the Fund for Special Operations are fully consistent with policy provisions which the Congress has deemed it advisable to apply to U.S. bilateral assistance programs. The proposal is consistent with the position and needs of the United States balance of payments.

The National Advisory Council, having considered all aspects of the present proposals, supported the favorable votes of the United States Governor on the Resolutions adopted by the Board of Governors of the Bank at their Eighth Annual Meeting in Washington in April 1967, which recommended that the member countries take appropriate measures to make effective the proposed increase of the resources of the Fund for Special Operations and the proposed modification of the provisions for the election of Executive Directors. The Council now strongly recommends prompt and favorable Congressional action.

ANNEX A
RESOLUTION AG-5/67

APPROVAL OF RECOMMENDATIONS IN THE REPORT OF THE BOARD OF EXECUTIVE DIRECTORS ON INCREASES IN THE RESOURCES OF THE BANK

The Board of Governors,

Having considered the report approved by the Board of Executive Directors on April 18, 1967 proposing increases in the authorized resources of the Bank, Recommends:

That the member countries take such action as may be necessary and appropriate to give effect to the resolutions proposed in said report.

(Approved at the Third Plenary Session, April 26, 1967)

ANNEX B

PROPOSED RESOLUTION

INCREASE OF $1,200,000,000 IN RESOURCES OF FUND FOR SPECIAL OPERATIONS Whereas, at the Seventh Annual Meeting of the Board of Governors it was resolved that the Board of Executive Directors study the possibility of enlarging the resources of the Bank by means of an increase in the authorized capital stock and an increase in the resources of the Fund for Special Operations and present a report and recommendations to the Board of Governors;

Whereas the Board of Executive Directors of the Bank, having considered said question, has concluded that action to increase the resources of the Fund for Special Operations would be desirable;

Whereas Article IV, Section 3(g), of the Agreement Establishing the Bank provides for increases in the resources of the Fund through additional contributions by the members, and

Whereas the Board of Executive Directors has submitted an appropriate proposal therefore to the Board of Governors,

The Board of Governors

Resolves that:

(a) Subject to the provisions of this resolution, the resources of the Fund for Special Operations shall be increased in the equivalent of U.S.$1,200 million through additional contributions by the members as follows:

In the event any new member is admitted to the Bank prior to the effective date of this resolution, such new member shall contribute to the total established in this paragraph in proportion to the contribution required as a condition of its admission, and the contribution of the other members, except the United States. shall be reduced accordingly.

(b) Each member shall make its additional contributions in its own currency and the entire amount of each contribution shall constitute national currency to which the provision of Article V, Sections 1(c) and 4, of the Agreement Establishing the Bank, shall be applicable.

(c) The additional contributions shall be made in three equal installments. payable, respectively, on or before December 31, 1967, December 31, 1968, and December 31, 1969, or such later dates as the Board of Executive Directors may determine.

(d) None of the additional contributions shall become payable unless at least 14 members whose increased contributions total not less than the equivalent of

US$1,125 million shall each have deposited with the Bank, on or before December 31, 1967, or such later date as the Board of Executive Directors may determine, an appropriate instrument setting forth their agreement to their making the contributions to the increase in the Fund for Special Operations in accordance with the terms of this resolution.

ANNEX C

INTER-AMERICAN DEVELOPMent Bank-RESOLUTION DE-51/67

REPORT OF THE BOARD OF EXECUTIVE DIRECTORS ON THE PROPOSED
INCREASE OF RESOURCES OF THE BANK

The Board of Executive Directors:

Resolves:

1. That the report on the proposed increase in the resources of the Bank (Document GN-275-10), which is to be presented to the Board of Governors in accordance with Resolution AG-5/66, be approved.

2. That the President be authorized to transmit this report to the Board of Governors of the Bank.

(Approved April 18, 1967)

PROPOSAL FOR AN INCREASE IN THE CAPITAL RESOURCES OF THE
INTER-AMERICAN DEVELOPMENT BANK

I. Introduction and major conclusions

1.01 At its Annual Meeting held in Mexico City in April 1966, the Board of Governors of the Bank approved the following resolution:

"1. That the Board of Executive Directors is requested to study the possibility of enlarging the resources of the Bank by means of an increase in the authorized capital and an increase in the resources of the Fund for Special Operations.

2. That, in the light of its conclusions concerning an increase in resources, it is recommended that the Board of Executive Directors also examine the desirability of modifying the provisions for the election of Executive Directors set forth in the Agreement Establishing the Bank.

"3. It is requested that, if feasible, the Board of Executive Directors present a report and its recommendations on the foregoing matters to the Board of Governors not later than October 1, 1966.

"4. The Board of Executive Directors is also requested to study new means to increase multilateral economic assistance to Latin America and to submit a report to the Board of Governors as soon as practicable."

1.02 In order to have the necessary information for complying with the terms of this resolution, the Board of Executive Directors has made an analysis of the external financing requirements of Latin America and the role of the InterAmerican Bank in this field. This analysis shows that:

(a) an increasing amount of external financial resources is necessary, as an essential complement to internal savings, in order to achieve the rate of growth established for the Alliance for Progress;

(b) it is also necessary, because of the present inadequate structure of Latin America's external indebtedness and the trend in recent years toward rising interest rates in the international capital markets, that the external assistance be provided on terms and conditions compatible with the development needs and payment capacity of the countries in the region;

(c) the IDB has become one of the most important sources of external financing for Latin America and has made effective use of the resources placed at its disposal;

(d) it is necessary for the Bank to have sufficient resources available to not only maintain but, actually, to increase substantially its contribution to regional development, particularly if the general expectation that it will increase its

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activity in the fields of economic integration and agricultural development is taken into account.

1.03 In the light of the views expressed by the Governors at their Annual Meeting in Mexico City, the Board of Executive Directors carefully considered the Bank's operations authorized to date; the programs foreseen for the balance of 1967; the availability of existing ordinary resources and the Bank's borrowing capacity based on the callable capital; the available resources of the Fund for Special Operations; the minimum resources needed by the Bank to finance its future activities and the mechanics for raising such resources, and the practical possibilities of obtaining new contributions from the member countries in view of prevailing conditions in the national and international spheres.

1.04 As a result of the above analysis the Board of Executive Directors considers it advisable that the necessary measures be taken to increase both the callable capital of the Bank and the rosurces of the Fund for Special Operations. For this purpose, it hereby submits for consideration by the Board of Governors the proposed resolutions appended to this report, whose essential content is summarized below:

A. With respect to the Ordinary Capital stock:

(i) there is a need for an increase in the authorized capital of the Bank: (ii) the increase should be in the Bank's callable capital and should amount to one billion dollars;

(iii) the additional subscription of each member should be in accordance with the table on page 2 of Annex B ;

(iv) the authorization for the increase in the callable capital should become effective when member countries have indicated that they agree to subscribe to a minimum of US$750 million.

(v) one half of the increase should enter into effect in 1968 and the other half in 1970.

B. With respect to the Fund for Special Operations:

(i) there is need for an increase in the resources of the Fund for Special Operations;

(ii) the amount of the increase should be US$1,200 million;

(iii) the additional contributions to the Fund for Special Operations should be made by each country in its national currency;

(iv) the additional contributions of each member should be in accordance with the table on pages 1 and 2 of Annex A;

(v) the additional contributions to the Fund should be made in three equal annual installments in 1967, 1968 and 1969, respectively;

(vi) the increase in the resources of the Fund should become effective when subscriptions have been received from at least 14 member countries whose increased contributions total not less than the equivalent of US$1,125 million.

1.05 The Board of Executive Directors regards the proposed increases as required to enable the Bank to maintain an appropriate rate of expansion of its activities.

1.06 The points referred to in paragraph 2 and 4 of Resolution AG-5/66 are examined in separate reports.

II. Capital structure and operations of the bank

2.01 The basic capital available to the Bank consists of its own ordinary capital resources and the Fund for Special Operations. In addition, the Bank administers the Social Progress Trust Fund, established by the United States (see paragraph 2.04) and certain relatively small funds provided by non-member countries. (Paragraph 2.18)

2.02 The ordinary capital consists of paid-in capital and callable capital. It is used to make loans repayable in the currency loaned, on normal banking terms comparable to those of similar international financial institutions. The callable portion of each member's subscription is not available to the Bank for lending but is subject to call only if required to meet the Bank's obligations on borrowings or on loans guaranteed by it. In practice the callable capital is used as a guarantee of the obligations issued by the Bank to borrow funds in the capital markets. While the Bank has legal authority to guarantee loans of third persons it has not found it appropriate thus far to do so.