If You Ask Me: A Global Banker Reflects on Our Times
Wriston, Walter B.
The Gray Areas of Lending
What political factors do you take into consideration when making a financial decision in a developing country like Chile or Peru versus a developed country like the United States or Japan?
There are different kinds of loans that you make to a country. It's important to differentiate them because some have political implications and some don't. Newspapers say Citibank, or Chase, or Morgan or whoever has fifty million dollars of loans to Italy. That's like saying Bank of America has fifty million dollars of loans in New York City. It means absolutely nothing. When you pull the figures apart, you may find that fifty million has been loaned to Fiat. That's an automaker with enough exports to earn the foreign exchange to repay the loan. It has zero to do with either Italy or its government. It's a private company.
The second kind of a loan is an infrastructure loan. You might lend to a government agency that's building a power plant. They have projections of usage and payments and pay-back schedules just like any commercial company. Again, it has nothing to do with whether the government is good, bad or indifferent.
The third kind of loan is to a U.S. subsidiary where the loan is guaranteed by the Export-Import Bank. It has zero risk, even though it shows up in the Italy total.
The fourth kind of a loan is one to a Volkswagen subsidiary in Rome. It's guaranteed by the parent company in Germany, so it has no Italian risk in it whatsoever.
And the last kind is the so-called balance-of-payments loan to the government itself. In that case, you evaluate the government's financial track record. You don't judge the government per se, only its record. The Soviet Union has the most repressive government in the world, but on its financial record, people have been encouraged to lend it money.
In the case of Chile, when our people told us that, in their opinion, a Communist would be elected--Mr. Allende--we wound down our exposure. That's the next thing about foreign loans to bear in mind. They are very short term. About 80 percent of them are less than a year.
When Mr. Allende came in, he did, indeed, almost destroy the country and its credit. But if you look at the map of freedom in the world, about 75 percent of the world has authoritarian governments. I don't like 'em. I grew up in this democracy, and I believe in it. But the U.S. Government has diplomatic relations with most of those governments. If we, as a private institution, let political judgments influence our lending, then we are "meddling in the internal affairs of other countries." If not, we are accused of aiding and abetting societies we do not believe in. It's a very tough nut.