Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

213. Memorandum of a Conversation, Washington, July 6, 1956¹

Washington, July 6, 1956

SUBJECT

• Argentine Policy Toward Private Investment

PARTICIPANTS

• Dr. Carlos Coll Benegas, Chief of the Argentine Financial Mission
• Henry F. Holland, Assistant Secretary for Inter-American Affairs
• Rollin S. Atwood, Director for Latin American Operations, ICA
• Maurice M. Bernbaum, Director for South American Affairs

The conversation took place during luncheon at the Metropolitan Club. Mr. Holland stated that he welcomed the opportunity to speak with Dr. Coll Benegas at the outset of his discussions with representatives of the various U.S. Government agencies regarding the Argentine economy and its requirements. He stated that without attempting to speak for the State Department or the Export-Import Bank, he thought it would be useful for Dr. Coll Benegas to have the benefit of his personal observations based on experience regarding the economic policies of our Government. He went on to say that these policies were largely based on the concept that the primary burden for the economic development of any country was on that country’s private investors, the efforts of its own private investors could be supplemented by the very important contributions of foreign private investors, and that Government financing could play a most important but nevertheless relatively minor role. Our experience has demonstrated to our satisfaction the soundness of these policies.

Mr. Holland stated that he was accordingly somewhat disturbed over indications that the Argentine Government was planning to expropriate CADE and to apply for Government loans to expand its operations. He realized that it was the privilege of the Argentine Government to act in accordance with what it considered to be its own best interests, but he did feel that Dr. Coll Benegas should, as the head of the Argentine mission, have a clear understanding of the reactions which might be expected to such action. Firstly, Mr. Holland estimated that the Export-Import Bank would find itself confronted with a decision as to whether its frequently stated policy would permit the extension of a loan to a government for an expropriated property for which private capital was readily available. Secondly, Mr. Holland was reasonably certain that the reaction in investment circles would be one of apprehension regarding the future of private investments in Argentina. Given the caution of most investors, the net result would be the drying-up of investment interest in Argentina. Mr. Holland recognized that the Argentine Government would treat the CADE shareholders equitably and that it would be ready to give assurances to private investors that they would be treated fairly and equitably in the event that their own holdings might be taken over by the government in the future. He pointed out, however, that this would represent only cold comfort to an investor who would be putting his money into a new enterprise with the idea of making profits, and not of merely getting his money back at sometime in the future.

Dr. Coll Benegas stated that he understood Mr. Holland’s observations perfectly and was personally very sympathetic to the philosophy and the good intentions underlying them. He observed, however, that the Argentine Government was not entirely a free agent to the extent that it was necessary to yield to public opinion. In this case CADE had an extremely bad reputation in Argentina owing to fraudulent practices in the past, with the result that most sectors of public opinion in Argentina felt that CADE would have to go. Government intervention in this case would be only an intermediate step in the eventual taking over of the firm by private Argentine capital. Such capital was not now available in sufficient amount to handle the job, with the result that the Government proposed to step in on an interim basis and to unload its holdings as the opportunity presented itself. CADE shareholders would have their interests protected through the allocation to them of shares in the new company based on evaluation of existing holdings, less the considerable amounts of money owed the Government.

Dr. Coll then pointed out the situation was entirely different with respect to the American and Foreign Power problem with which the Government and public opinion were entirely sympathetic. Their plans for this organization involved full restitution on an equitable basis to be worked out jointly for the previously-expropriated properties and for the establishment of conditions which would permit the company to operate profitably and to expand its operations in the future.

Mr. Holland stated that he was most grateful for that kind of news regarding American and Foreign Power. He was also happy that CADE was Belgian and not American owned, since that would permit him to emphasize the importance he attributed to private capital regardless of its national origins. He recognized that there might exist special circumstances regarding the background of CADE which might call for special solutions. He suggested, however, the desirability, from the viewpoint of investor reaction, of basing the ultimate solution on private capital rather than on government expropriation, since that was, in any case, the Argentine Government’s ultimate objective. When asked by Dr. Coll how this could be done, Mr. Holland offered as an illustration the possibility of having a group of prominent Argentine businessmen get together a sufficient amount of money to cover the peso costs of the necessary expansion in CADE facilities and then to negotiate with CADE the formation of a new company in which CADE shareholders would have an interest based on the value of their properties. The Government might, if necessary, underwrite peso deficiencies. The new company would then be in a position to apply to the Export-Import Bank for a loan covering the dollar costs of the material and equipment required for the expansion of facilities. Mr. Holland pointed out that this was a frequently used device in the United States and was only one of a large number of possible alternatives. He emphasized again that he was speaking personally and was in no way qualified to speak for or commit the Export-Import Bank.

Dr. Coll Benegas smilingly remarked that this would be a very ingenious solution which merited serious consideration by his Government. He appeared to think that something might be worked out. He expressed his appreciation to Mr. Holland for the interest displayed in Argentine problems and for the valuable advice given. It was suggested that he get in touch with Mr. Holland from time to time during his stay in Washington.

The conversation then turned to the interest of the Argentine Government in securing Point 4 assistance (see separate memorandum).²

1. Source: Department of State, Central Files, 835.00/7–656. Confidential. Drafted by Bernbaum on July 9.
2. Not printed. (Ibid., 835.00–TA/7–1156) The “Point 4” program, so-called after President Truman’s fourth point during his inaugural address of January 1949, refers to the U.S. program of overseas technical assistance.