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

219. Memorandum of a Conversation, American Embassy, Panama City, July 23, 1956¹

Panama City, July 23, 1956

SUBJECT

• Argentine Matters

PARTICIPANTS

• United States
  • The Secretary of State
  • Assistant Secretary Holland
  • Mr. Bernbaum (OSA)
• Argentina
  • The [Acting] Foreign Minister, Rear Adm. Rial
  • Ambassador Vicchi

The [Acting] Foreign Minister of Argentina opened the discussion by saying that he was very interested in the economic conferences going on in Washington between representatives of Argentina and of the United States and that he would like for Ambassador Vicchi to discuss them.

Ambassador Vicchi then made more or less the following statement:

The Argentine representatives in Washington have conducted extensive conferences with a group representing various interested United States agencies. They have come to a conclusion on those discussions. It is their understanding that the United States government is sympathetically and favorably disposed to helping Argentina. At the conclusion of the conferences Mr. Holland stated that, while he could not speak either for the Export-Import Bank or the International Bank, it was his opinion that neither institution would view favorably the financing proposed by the Argentines in connection with a contemplated reorganization of the Belgian-owned electrical company serving Buenos Aires and known as CADE.

Mr. Holland made more or less the following remarks:

In December of 1955 he and Mr. Waugh had been in Buenos Aires where they met with Dr. Prebisch who is counseling the Argentine Government on various economic matters as well as with a number of members of the Argentine cabinet. Mr. Holland and Mr. Waugh were deeply impressed by the scope and thoroughness of their knowledge of the Argentine situation, particularly of the obstacles to reconstruction of the Argentine economy. They recognized that there might be two limitations on the kind of assistance that the United States could extend. The first of these being the capacity of the Argentine economy to sustain dollar debts since much of its earnings of foreign exchange are in sterling rather than in dollars. On this point Dr. Prebisch stated that the Argentine government had no desire to incur any debts in excess of their capacity to service them. At this point Ambassador Vicchi interrupted to say that this was indeed the policy of the Argentine government.

Mr. Holland said that the next possible limitation on our capacity to be helpful arose from our stated policies regarding the extension of loans to foreign borrowers. On this score, Mr. Holland and Mr. Waugh had stated in Buenos Aires, that, in general, it was the policy of the Export-Import Bank not to finance projects for which capital was available on reasonable terms from private sources.

At the conclusion of the conferences in Buenos Aires, Mr. Holland and Mr. Waugh invited the Argentine government to send a group of representatives to Washington to outline their economic program and to discuss possible United States assistance. The Argentine group now in Washington came as the result of that invitation.

Mr. Holland stated that we had concluded extensive conferences in the course of which the Argentine representatives have made available to us the economic data that we wanted and facts regarding the assistance that they hoped to receive from the United States. This amounts to about $500,000,000 in loans of which about $100,000,000 would be for the expansion of the facilities now owned by CADE and by an Italian electrical company known as ITALO. Other loans would be in the field of transportation and of agricultural and industrial equipment.

Mr. Holland added that it was his understanding that, this phase of our discussions having been concluded, the Argentine representatives were now going on to New York City for conferences with private financing institutions and that they would return to Washington about August 9 to establish direct contact with the International Bank and with the Export-Import Bank.

As regards the first limitation mentioned above, i.e., the dollar debt carrying capacity of the Argentine economy, Mr. Holland said that we had recommended to the Argentines that they undertake, if possible, to arrange with the banks for a coordinated and joint consideration of financing for the Argentine program. This would take into consideration the fact that the International Bank can lend foreign exchange of the kind that the Argentines earn in quantities.

As regards the other limitation mentioned above, i.e., the policy of the two banks not to finance projects for which private capital was available, Mr. Holland said that in his opinion the banks would not view favorably the proposal of the Argentine government regarding CADE. He understood this to be a proposal that a new corporation would be created. CADE would contribute to that new corporation its existing physical assets and would receive stock in return. ITALO would do the same thing. The Argentine government would then borrow the amount of dollars required for an expansion of these physical facilities and would contribute those dollars to the new corporation in return for stock. It would be expected that this operation would give the government control of the new corporation. Mr. Holland said that he recognized that the Argentine representatives had assured us that no such reorganization would be undertaken save by agreement with the two existing companies and also that no such proposition as this had, to his knowledge, been proposed to the banks. He did not believe that it would be favorably received, because it was our understanding that the two existing private companies are able and willing to finance expansion programs without intervention of the government. Nevertheless, he had recommended that the Argentines make their approach directly to the two banks. They could do this on a confidential basis without any publicity as regards the outcome of their proposal. If they found that the banks were unwilling to finance this particular type of operation, it might be possible to change it in some way to make it acceptable to the banks.

The Secretary of State then made more or less the following statements:

The United States is keenly and sympathetically interested in the efforts of the present Argentine government to reconstruct its economy. We are aware of the fact that they have the problem that many governments encounter under the same circumstances. As a rule, he said, a dictator does not fall until the economic resources of the country are exhausted, or to put it another way, he usually manages to exhaust the economic resources of the country before he falls.

The Secretary said that he had been very favorably impressed by the measures adopted by the new government of Argentina and that he particularly had in mind its adherence to the Caracas anti-communist resolution. He assured the Foreign Minister that he and others in the United States Government could see ahead a vista of close cooperative relations between the two governments that was better than anything that has existed between them for many years.

The Secretary added that he also realized that there were, in fact, two problems relating to the financing sought by the Argentine Government: one was the matter of capacity to pay dollars; and the other, the limitations imposed by the policies followed by the two lending institutions.

As regards the first problem, the capacity of the Argentine government to pay in foreign exchange, the Secretary said that he was aware of the long tradition of Argentine earnings in sterling and added that the IBRD is particularly well prepared to handle this kind of financing.

As regards the limitations imposed by our lending policies, he stated that each bank would make its own economic decisions but that each bank would also consider political considerations which occasionally produce different decisions than those which would be dictated exclusively by economic considerations. In fact, he said he had discussed this matter in general terms with Secretary Humphrey before leaving Washington and added that he was confident that neither bank would be controlled exclusively by political considerations. He concluded by assuring the Foreign Minister that the Department of State would oppose no political obstacles to financing and that, in advising on the political aspects of the loan, it would advise favorably.

1. Source: Department of State, Central Files, 835.00/7–2356. Secret. Drafted by Holland on August 21. This conversation took place during the Meeting of the Presidents of the American Republics.