The Under Secretary of State (Welles) to President Roosevelt

My Dear Mr. President: Recent world events have created apprehensions among the other American republics regarding their ability [Page 7]to resist overseas aggression. The desire of our southern neighbors to obtain arms and munitions in this country for defense purposes and their inability, generally speaking, to purchase them for cash raises a question of major policy in our relations with them. The nature of the problem will be apparent from the following considerations of law, policy, and experience.

For a number of years our private arms manufacturers have sold arms, under license, to foreign governments. Experience indicates that neither manufacturers nor private banks have been willing to extend credits for the purchase of such commodities.

Recently certain surplus War Department stocks have been made available, for cash. Joint Resolution no. 36712 which permits us to sell coast defense and anti-aircraft matériel and to construct naval vessels, has just gone to you for signature; this measure does not however authorize the extension of any credits.

Under existing legislation, the Export-Import Bank is definitely prohibited from making loans “for the purchase of any articles, except aircraft exclusively for commercial purposes, listed as arms, ammunition, or implements of war by the President of the United States in accordance with the Neutrality Act of 1939” (Public 420, 76th Congress13). Information obtained from the Reconstruction Finance Corporation indicates that while no comparable legal prohibition exists, Mr. Jones14 has repeatedly informed members of Congressional committees that the powers of the Corporation would not be utilized to finance the sale of arms.

Thus the Export-Import Bank is prohibited by law and the Reconstruction Finance Corporation feels constrained by public declarations of policy, from extending credits to the other American republics, at a time when chaotic world conditions have rendered them—and us—acutely conscious of their relative vulnerability.

As you know, I approach this problem with a heavy reluctance. It has been the policy of our Government over a period of years not to facilitate the sale of arms in the New World or to take any action which might be misinterpreted as encouraging their purchase. Our legislation and our procedure reflect this policy, which was adopted after careful consideration of all the factors then involved. I believe however that the time has come when this policy should be examined in the light of the world situation and a decision reached whether to maintain with respect to the other American republics our policy of selling arms only for cash (under which few sales will be made), or to adopt a new policy with adequate authorization in law or otherwise [Page 8]permitting the extension to those republics of modest credits to permit their acquisition of limited amounts of defensive armament.

In the foregoing connection I enclose a copy of a memorandum received on May 25 last from the Government of Uruguay concerning its desire to purchase defensive armament to the value of $6,500,000 and inquiring whether the credit facilities of the Export-Import Bank would be available for such a transaction.

Faithfully yours,

Sumner Welles

Memorandum From the Uruguayan Minister of Finance (Charlone) to the American Minister15

Whether the Government of the United States is in these moments considering the possibility that long term credits might be granted to the American countries to acquire material destined for national defense?
If in the affirmative: (a) Within what period of time is it believed that such credits could be placed at the disposition of the interested countries? (b) If Uruguay should immediately acquire such material, making use of a short term credit granted by the Export-Import Bank, could Uruguay later close out this operation making use of a long term credit, in order not to diminish its dollar resources needed for the purchase of general merchandise imports from the United States?
  1. Approved June 15, 1940; 54 Stat. 396.
  2. Approved March 2, 1940; 54 Stat. 38.
  3. Jesse H. Jones, Federal Loan Administrator.
  4. Quoted in telegram No. 83, May 26, 6 p.m., from the Minister in Uruguay, p. 1166.