Government Guaranties for Foreign Investments

May 11, 1949

Report Outline
Point IV and Foreign Economic Development
Guaranties to Spur Private Investments
American Investments in Foreign Countries

Point IV and Foreign Economic Development

Possible Role of Guaranties in “Bold New Program”

When President Truman enunciated the now celebrated Point Four of his inaugural address, it was assumed in some quarters that the “bold new program … for the improvement and growth of underdeveloped areas” would bring forth a fresh outpouring of American government grants and loans to other nations. To dispel such illusions, Secretary of State Acheson pointed out at a press conference, Jan. 26, that the President had not said that the capital which it was hoped would flow into development projects in foreign countries was to be government capital. Since then, other spokesmen have sought to make it doubly clear that the administration will look mainly to private capital to meet the financial requirements of the program.

At the same time, consideration of Point Four has led to general recognition that private capital cannot be counted upon to do the job unless it sees opportunities for reasonable profits and unless it is assured of fair treatment in the countries where investments are made. It has been suggested, moreover, that under present unsettled monetary and political conditions, it may be impossible to induce any large increase in foreign investments unless the capital so invested is insured against non-business risks by some form of government guaranty against losses that might result from inconvertibility of currencies or from actions of a political nature.

A limited government guaranty has been provided, under the Economic Cooperation Act, for American private investment projects in countries participating in the European Recovery Program. Business response in that case has been meager, but the circumstances appear to have been such as to prevent a fair trial of the guaranty principle. In any event, attention is being directed to the potentialities of investment guaranties as aids to the implementation of Point Four. Although a special assistant to the Assistant Secretary of State for Economic Affairs wrote in February that President Truman's reference to guaranties in his inaugural address “meant assurances by foreign governments,” others did not so interpret it. In fact, the chief of the State Department's Division of Investment and Economic Development said subsequently that “The subject of U. S. guaranties to private investment abroad is now receiving careful and thorough study in Washington.” And Secretary of Commerce Sawyer said, Apr. 24, that “It seems probable that some kind of guaranty will be worked out,” although “the precise form it will take is not easy to predict.”

ISSUE TRACKER for Related Reports
American Investment Abroad
Jan. 26, 1968  American Investments in European Industry
Jul. 11, 1962  Protection of Investments in Backward Countries
Feb. 21, 1962  Foreign Competition for American Producers
Jun. 24, 1959  American Manufacturing in Foreign Countries
Feb. 25, 1953  American Private Investment Abroad
May 11, 1949  Government Guaranties for Foreign Investments
Apr. 26, 1932  American Manufacturing in Foreign Countries
Feb. 03, 1932  Defaulted Foreign Bonds
May 14, 1931  Protection of American Lives and Property Abroad
Apr. 01, 1929  American Investments in European Industry
May 17, 1926  American Investments in the Western Hemisphere
May 14, 1925  American Investments in Foreign Countries 1919–1924
International Finance
Investment and the Stock Market