Memorandum of Conversation, by Mr. Andrew E. Donovan II of the Division of the American Republics

Participants: Dr. Fernandez, Minister of Paraguay;
Mr. Warren Lee Pierson, President, the Export-Import Bank;
Mr. Donovan.

Dr. Fernandez, the new Paraguayan Minister, called on Mr. Pierson of the Export-Import Bank on December 6, 1939. I accompanied him to interpret if necessary.

The Minister explained that he had communicated to this Department the desire of his Government to have an additional credit of $500,000, necessitated by the large increase in imports from the United States, a diversion of trade which he thought would be permanent.

Mr. Pierson said that he viewed the Paraguayan request with the greatest sympathy and fully understood the economic difficulties facing that country. He said, however, that the first difficulty was a lack of funds, at least at this time, adding that it would be possible to reconsider the matter when and if the funds of the Bank were increased. He said that before proceeding with further credit arrangements it would be well to see how the present arrangement is working, pointing out that in addition to the $500,000 credit, the Banco de la República should soon feel the effect of the additional foreign exchange which will be brought into the country through dollar expenditures on the road building project. The Minister interposed that these two matters were entirely separate, the $500,000 credit having been made to the Bank while the road funds were an obligation of the Government. He said that he feared, as did General Estigarribia, that with the rapid increase in imports from the United States this credit would be exhausted and merchants clamoring for exchange in the free market would have an unfortunate effect on the exchange rate. Mr. Pierson then said that with the additional funds coming in from the road construction program he thought this danger limited.

Mr. Pierson continued that while the moment was not ripe for an additional credit, he would continue his careful consideration of the matter but before proceeding further wanted more detailed information from Mr. Lamb and from the Banco de la República regarding its actual position, explaining that as it is now prepared, its balance sheet leaves much to be desired. He said that Lamb was working [Page 768] with the Banco and that undoubtedly the information would be available. He also spoke of additional data on imports and exports and the foreign exchange reserves of the Banco, explaining that he would have to have this detailed information in order to base his actions on a sound banking basis. He handed the Minister a short informal memorandum outlining the foregoing points and reiterated that he would gladly reconsider the matter at a later date, suggesting that at the end of three months the situation would be much clearer and that perhaps at that time, when the full effect of the credit operation and road program could be seen, Paraguay might find that it did not need an additional credit.

While the Minister apparently understood Mr. Pierson’s remarks, he was obviously disappointed but went away somewhat cheered by the prospect of renewing his request later.