John W. Snyder Oral History Interview, May 29, 1968

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

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This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened September, 1970
Harry S. Truman Library
Independence, Missouri

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Seventeenth Oral History Interview with John W. Snyder, Washington, D.C., May 29, 1968. By Jerry N. Hess, Harry S. Truman Library.

HESS: Secretary Snyder, could you tell me about the background, the development and the subsequent history of the International Bank for Reconstruction and Development and the International Monetary Fund, which were launched at the Bretton Woods International Monetary and Financial Conference which was held in 1944?

SNYDER: Yes, Mr. Hess, I can give you some of that background because I took a great interest in those procedures.

Early in World War II, the economic and financial experts of the allied nations began to consider what plans could be made to meet the economic problems of the peace. They recognized that if the peace were to be won, attention would have to be given not only to the immediate relief and physical reconstruction of the

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economies disrupted by the war, but also to the expansion by appropriate international and domestic measures of production, employment and the exchange and consumption of goods.

Discussions were held on a variety of proposals that were intended to help realize these economic goals of the allies. Among the proposals, post-war monetary and financial plans had begun to be considered as early as 1941, long before it was even certain that the allies were going to win. From deliberations on these plans over the ensuing years the outlines of two complimentary financial institutions emerged: the first, the International Bank for Reconstruction and Development was, as the name implies, to help finance the reconstruction and development of its member countries. This later became generally known as the World Bank. The other institution was the International Monetary Fund and the purpose of that organization was to promote international currency stability

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by helping to finance its members' temporary balance of payment deficits and by providing for the progressive elimination of exchange restrictions and the observance of accepted rules of international financial conduct. Now, by the spring of 1944, after prolonged and intensive discussions between the Treasury representatives of the United States and of the United Kingdom and consultations with representatives of other countries, the proposals for these two organizations had reached a rather advanced stage. The United Nations Monetary and Financial Conference was accordingly convened in Atlantic City, the representatives of forty-four nations assembled at Bretton Woods, New Hampshire on July 1, 1944 and after three weeks of deliberation, discussion and exchange of idea, they came up with completed drafts of an agreement -- the articles of agreement -- for the

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two institutions, and these were submitted to the various participating governments for study and acceptance. All of the nations which participated in the Bretton Woods Conference -- I can give you a full list of those if you'd like to have them for the record, of the original countries that entered the Fund and the Bank -- all of the original ones who participated, except the USSR, Liberia and New Zealand, very shortly approved the charters of both the Fund and the Bank. The articles of agreement of the Bank was formally accepted by a majority of the participants on December 27, 1945. Six months later on June 25, 1946 the Bank opened for business and proceeded to call up capital from its member countries. The participants at Bretton Woods realized that at the end of the war there would be a pressing need for international capital to finance both the reconstruction of productive

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facilities and an increase in productivity and living standards especially in the undeveloped areas of the world. The requirements were recognized as being so great and the risk so large that private capital would be unable to fulfill them without some form of governmental guarantee. The Bretton Woods Conference felt that the problem could best be solved by the creaton of a new type of international investment institution which would be authorized to make or guarantee loans for productive reconstruction and development projects, both with its own capital and through the mobilization of private capital, and which would be provided with the financial structure under which the risk of such investment would be shared by all member governments roughly in accordance to their economic strength. This solution was embodied in the Bank's articles of agreement.

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The articles of agreement established the Bank as an inter-governmental institution, corporate in form, all of its capital stock being owned by the member governments. The Bank's authorized capital is the equivalent of twenty-one billion dollars of which approximately two billion seven hundred million dollars had been subscribed at that time. Only one tenth of this, however, was to be paid in in gold; the remaining nine tenths of the Bank's capital remained subject to call by the Bank, only if required to meet its obligations arising out of the borrowings or guarantees. This capital structure provides the Bank both with substantial loan resources from its own paid in capital, and with even more sizable guarantee resources; the latter, consisting of the uncalled portion of all capital subscriptions, enables the Bank to mobilize private capital for international investment,

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mainly through the sale of Bank obligations to private investors. As the records of the Bretton Woods deliberations indicate, the emphasis from the beginning was not so much on what the Bank could lend directly out of its paid in capital as on the concept of the Bank as providing a safe bridge over which private capital could move into the international field. Indeed it was one of the unique features of the Bank that although it is an intergovernmental operation, it must rely on the private investment community for most of its financial resources. The provision of guarantees for international members borrowings was not new, however, because in the early inter-war period several loans to European governments carried the guarantee of other European governments. The new feature written into the Bank's articles was the sharing of the risk on an international basis with each of the Bank's members responsible up to

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the amount of the unpaid balance of its capital subscription for the Bank's outstanding borrowings and guarantees. The amount of the risk thus guaranteed was limited by the requirements that the total outstanding amount of the loans made or guaranteed by the Bank was not to exceed 100 percent of its total, unimpaired, subscribed capital reserves and surpluses.

Now, in drafting the provisions of the articles of agreement governing the use to which the Bank was to put its funds, the Bank's founders were acutely aware of the need to avoid the errors which had characterized much of the international lending of the past and particularly of the inter-war period. Capital raised through sales of securities in foreign capital markets had frequently made little or no contribution to the productive capacity of the borrowers. Many of the loans had also been made

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without reference to the ability of the borrowers to service new or even existing foreign debts. These lending practices undoubtedly contributed to the widespread defaults in the 1930s. To avoid these errors, the Bank's articles contained a number of protective provisions: the Bank's loans must be for productive purposes and except for special circumstances must be to finance the foreign exchange requirements of specific projects of reconstruction or development; the merit of all projects must be carefully studied and arrangements made designed to assure that the most useful and urgent projects are dealt with first. The borrower may be a member government, a political subdivision, or a business, industrial, or agricultural enterprise, or if the borrower is other than a government, the loan must be guaranteed by a member government in whose territory the project is located or by its

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central bank or by some comparable agency. Now in practice the Bank has always obtained the guarantee of a government as distinct from a central bank. That's been the practice and they followed it very carefully. The articles of agreement direct the Bank to act prudently in making loans, paying due regard to the prospects that the borrower, and if the borrower is not a member, that the guarantor will be in position to meet its obligations under the loan when due. The Bank is also specifically required to make arrangements to insure that the proceeds of each loan are used only for the purpose for which the loans are granted with due attention to considerations of economy and efficiency and without regard to political or other non-economic considerations. And I might add that the borrower must be in position to repay -- that is one of the most important items of the

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requirements, that the borrower must be in a position to repay. I think that's what's given the Bank one of its great, strong backing positions, the backing of the private lending sector, is the fact that they make prudent loans; they make solvent loans. Now, further, the Bank is required to, give equitable consideration to projects for development and projects for reconstruction alike but it was contemplated at Bretton Woods that the initial emphasis of Bank activity would necessarily at first be on the urgent problems of reconstruction. By 1947, however, it had become pretty clear that the physical devastation, disruption of trade and industrial and governmental dislocations caused by the war were far greater than had been envisioned at Bretton Woods. Unforeseen political conflicts accentuated the economic difficulties and as a result the requirements for European

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recovery at the end of the UNRRA involved much more than the reconstruction or modernization of specific productive facilities. There was also urgent need for financial aid to continue imports for food, fuel and raw materials which for the time being could come only from the dollar areas. Despite substantial credits from the United States and Canada, European resources of dollar exchange had fallen to dangerously low levels by the end of 1946. When it made its reconstruction loans in 1947, therefore, the Bank recognized that important as this financing was to fill urgent, immediate needs, the long term requirements for European recovery were far too large for the Bank to meet from the resources at its command, and in fact were far greater than the amount which the countries of Western Europe could afford to borrow with any reasonable prospect of being able to repay.

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At that time the Marshall plan proposals which resulted in the European Recovery Program were already under consideration by the United States Government and the Bank gave them its full cooperation by making its records, plans and staff available for consultation and appropriate assistance. When the Marshall plan came into operation in 1948, the Bank turned its attention to its other major responsibility, the financing of development. Most of the Bank's development loans had been for basic facilities such as power, transportation, heavy industry and irrigation and land reclamation, which are the foundation of economic growth. Abroad market for the Bank's obligation had been created in the United States and by June 30, 1966, two billion eight hundred and six million dollars of United States dollar bonds and notes were outstanding, of which about 25 percent were held by investors outside the United States. The Bank has been

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increasingly called upon to supplement its investment activities by providing technical assistance of various kinds of its less developed member countries. This function was not stressed at Bretton Woods but over the years has taken on increasing importance. Increasingly also, the Bank is called upon to lend its good offices in seeking the settlement of economic disputes between its member countries. The best known example is the successful role the Bank played from 1952 to 1960 in the settlement of the dispute between India and Pakistan over the sharing of the waters of the Indus basin. Other cases resulted in the settlement of two disputes arising from nationalization of the Suez Canal and the subsequent military action in the area: The first to settle the compensation to be paid the Suez Canal Company, and the second found a solution in the financial difficulties between the governments of the United Kingdom

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and the United Arab Republic. Mutually working relations have been established by the Bank with other specialized international organizations, particularly the International Monetary Fund, which was the sister financial institution set up by Bretton Woods, with the Food and Agricultural Organization of the United Nations, the World Health Organization, the U.N. Educational, Scientific and Cultural Organizations and the U.N. technical Assistance Board. There is frequent, informal consultations between the staff of the Bank and of IMF, and the members of IMF's staff have on occasion participated in the Bank's missions to the member countries.

Now, the articles of agreement contain provisions which accord to the Bank in the territories of each of its members' legal status and certain privileges and immunities. Each member government is required to take

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whatever action is necessary in its territories to make these provisions effective under its own law. The archives of the Bank are inviolable, confidential, secret and highly classified. The assets of the Bank are immune from seizure, attachment or execution prior to delivery of final judgment against it. The official communications of the Bank are to be accorded by each member the same treatment accorded to official communications of other members. The Bank, its assets, property, income and its authorized operations and transactions are immune from all taxation and from all customs duties. The Bank is also immune from liability for the collection or payment of any tax or duty. As of now the Bank employs about 900 persons who are natives of fifty-five different countries. The staff includes bankers, economists, accountants, engineers and other experts. As I've

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said the Bank's first emphasis was on the urgent problems of reconstructing some of the war-damaged economies of Europe for which it made loans totaling two billion two hundred million dollars. It was from this beginning that attention was turned by degrees to what has become the main area of activity -- the financing of economic development. Since 1948 when it really began making loans in any volume, the Bank has made loans totaling nine billion five hundred eighty-three million dollars for development projects and programs of eighty of its member countries and territories. Today there are 105 member countries that are part of the World Bank.

HESS: Mr. Secretary, I believe that you attended most or all of the annual meetings, is that correct?

SNYDER: Yes, I was the joint chairman of the boards

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of both the World Bank and the Monetary Fund at their first meeting in 1946 -- in September, 1946 -- at the Wardman Park Hotel, Washington, D.C. For the next six years I was the U.S. Governor of both the Bank and the Fund and after I left Government, the Treasury, in 1953, I have served as a U.S. adviser or as a direct invitee from the Bank or the Fund every year since. I have never missed an annual meeting of the World Bank and Fund either here in Washington or when it met abroad. The pattern for these annual meetings, Mr. Hess, was set up at the time that I was active in the Bank and Fund as U.S. Governor, and that pattern has never been changed since. The insitutions hold two annual meetings in Washington and the third in some other member country. This is to keep the international scheme paramount. Frankly, I think that the member countries would prefer meeting in Washington each year because this

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is the headquarters of both the Bank and the Fund. All the technical staff and the directors who operate those two institutions are located here, and it gives the member country representatives a better chance to discuss either active loans or prospective loans, but to keep the international flavor we decided back in the early days to meet twice in Washington and the third meeting in some other member country. Now this last year -- last September -- we met in Rio de Janeiro. The next two meetings this year and 1969 will be held here in Washington. The next foreign country has not yet been selected, but will probably be Copenhagen.

HESS: Would you tell me something further of your involvement with the organizations during the time that you were Secretary of the Treasury -- perhaps some of the day to day operations in which you would be called upon to provide

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assistance to them?

SNYDER: Well, each one of the institutions has its own board of directors. The top five countries have a direct director from that country. The remainder of the twenty directors, fifteen of them, divide their representation over several countries that have mutually agreed on having a single director represent them, so the operation, the making of loans, the collecting of loans, the examination for loans, the missions for studying loans is all conducted by the board of directors. The Bank has a president and the Fund has a managing director, who heads those organizations. As Secretary of the Treasury, whatever assistance, advice or help I rendered was usually done through our representative on the Bank or Fund's board of directors. In the early days the Bank and the Fund had great difficulty in actually getting started. The

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Bank's first president was Eugene Meyer, and Mr. Meyer was rather hesitant about making loans until he got the feel of it. He wasn't too certain as to how to set up the organization, and as a result it didn't move along with any great speed.

HESS: What had been his background?

SNYDER: He had been a banker and was the owner of the Washington Post, and he had been on the Federal Reserve Board, and was quite a reputed financier. He was followed by a Standard Oil vice president, a gentleman by the name of [Emilio G.] Collado, and then he was followed by John McCloy of Chase National Bank and McCloy was subsequently made the High Commissioner of Germany. He was succeeded by Eugene Black, also from the Chase National Bank. Mr. Black began to really put life into the organization,

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to shape it up and establish it in the role for which it was created. Up until that time there had been many problems with both the Bank and the Fund. Over in the Fund, of course, Mr. Camille Gutt had been the longtime head of the Monetary Fund. The Fund didn't get off to too early a start because of the unsettled conditions in the central banks' finances in the member countries. They were all in deficit positions nearly, and to attempt to try to work out elimination of the multiple exchange rates was quite a problem because it was almost a country by country negotiating situation. Under the multiple rate system whatever commodity you were dealing in you negotiated for whatever exchange rates you could get. This had been particularly bad prior to World War I. It had become worse immediately following World War I. To cure this unmanagable situation was the

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purpose of the Fund. It was set up to try to iron out those problems but there wasn't enough money to do it initially until the countries got back on their feet and, got their finances in better order, and got their fiscal plans, and their fiscal policies better established. So there was considerable agitation on the part of many of our Senators and our Congressmen who were opposed to the Fund conception and many of them desired to merge the Fund into the Bank and let it all be a Bank operation. It took a great deal of patience and diplomacy to keep those two organizations alive during those formative days, and the Treasury, of which I was the head, took a most active part in that. I think that we have been given credit for being the preserver of the two institutions in the form that they were originally conceived without weakening their position by liberalizing their

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requirements, or by misdirecting the use of either of the institutions' funds.

HESS: What were some of the actions that the Treasury Department took at this time to help those organizations?

SNYDER: Well, it was largely a matter of persuading the various governments to be patient, particularly our own, our own Congress, and consulting with them as to their working with the Marshall plan. It was a matter of consultation and working with them in that way in an advisory capacity, that helped them keep their identities alive.

HESS: Do you recall just why the various men who were chosen to head the organizations were selected for those positions?

SNYDER: It was generally agreed initially that the

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head of the Bank would come from the United States, and that the managing director of the Monetary Fund would come from some European banking institution that had been accustomed to dealing in exchange rates. In selecting Mr. Meyer it was a matter frankly of finding someone who would undertake it. Mr. Meyer had been reputed to have some international financing experience and he had been a member of the Federal Reserve Board, he was a member of the RFC board, and so he was well known and he was willing to undertake it.

Mr. Collado, of course, was a vice president of the Standard Oil Company of New Jersey, which was quite a large international operation and he was knowledgeable in international finance and he stepped in when Mr. Meyer got out, but not for long. Then M. McCloy, of course, who had been in the Chase National Bank, and the Chase

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Bank had been an international banking institution, and then Eugene Black, had the same background.

HESS: How would you evaluate the success of those institutions at this moment?

SNYDER: At this moment I think they've both been outstanding successes and have fulfilled a most urgently needed function in their two fields, up to date.

HESS: How would you evaluate their success up until January 20, 1953, the date that you left office?

SNYDER: Both of them were getting into their stride at that time. The Bank was moving along in a splendid fashion, making proper loans and being very instrumental in establishing in the member countries sound economic positions. The Fund

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was just beginning about that time to really get to operating as it should. Its successes came a few years later but they were already, at the time that I left the Treasury, well on the road to a successful operation. They had overcome their growing pains and the doubts of the member countries and confidence was being established that they could do a good job by that time.

HESS: Was the Bank and the Fund used instrumentally in the work going on in connection with the Marshall plan?

SNYDER: The Bank, as I mentioned just a while ago, cooperated to a full extent with the setting up of the Marshall plan, and the Marshall plan undertook to do many of the reconstruction loans which relieved the Bank of that requirement and the Bank then turned its attention largely to the development loans.