The Ambassador in Argentina (Armour) to the Secretary of State
[Received June 21.]
Sir: Referring to the Embassy’s telegram no. 219 of June 14, 4 p.m.1 and other communications* stressing the vital importance of economic considerations in connection with questions of continental solidarity and defense, with particular reference to Argentina, I have the honor to report that I am forced to conclude that a crisis is at hand and that a choice may have to be made in the very near future between taking decisive and perhaps unprecedented steps to provide these countries with an economic alternative to what the totalitarian states have in prospect to offer, or seeing this and possibly other South American countries take the first steps preparatory to falling within the German economic orbit with a probable end to American solidarity and an opening of the way to the establishment of German economic, if not political, hegemony in this part of the Western Hemisphere.
Special reference is made to despatch no. 772 of June 11, 19401 reporting statements made by Dr. Federico Pinedo, former Minister of Finance under President Justo and long an outstanding authority on Argentine economic and political matters. It is impressive that he considers Argentina’s economic situation critical and that he accepts as a matter of course that his country’s ultimate alignment will depend primarily upon markets for its exports. He is fully aware, because of his close association with persons highly placed in governmental and financial circles, that German and Italian influences are already actively at work in an endeavor to convince the Argentines that it is in their best interests to do nothing that might close to them their European markets in the event of a German victory. Taking into account the widespread belief in this country that a German victory is to be expected, together with the strength of pro-totalitarian sentiment and [Page 461]the predisposition of the ruling class to safeguard at all costs the European market, it will be seen that an attack is being made on Argentina’s most vulnerable point and that it may succeed if prompt and adequate measures are not taken.
Dr. Pinedo considers the issue of the greatest importance, since he believes that if Germany can be excluded from South America and the British possessions, that country can and will be defeated ultimately, but that if it should succeed in becoming entrenched in South America its position might easily be invulnerable. It is believed that there is much truth in what he says both with respect to the immediate danger and the consequences of failure to combat it in time.
Whereas the present Government and the majority of the public are inclined to favor a continental policy of cooperation and, other factors being equal, would prefer to be associated with the United States rather than Germany in the present crisis, there is no blinking the fact that many doubt the desirability of cooperating with the United States in continental defense, some because of national vanity, some because of pro-totalitarian sympathy or a feeling that there is no danger or both, but most because they really doubt the ability of the United States to afford adequate protection to the whole Western Hemisphere in the first place and particularly have little hope of any American solution of their economic problem in the second. Although as previously reported the danger of any serious attempt to replace the present Government by one more friendly to the Germans appears to have passed for the time being, this does not mean that the situation is not rather finely balanced. Even now there are many evidences of extreme sensitivity to the European situation and the policies of other Latin American countries toward the conflict. Sentiment in the cabinet is divided, and it is believed that however much agreement there may be with democratic principles, consideration for her markets will play a most important part on determining Argentina’s attitude on such questions as neutrality, the status of submarines, and cooperation in plans for the common defense of the American countries, etc.
In other words if the United States can convince the Argentine Government with respect to defense and can do something constructive regarding markets, it is believed that the Government as now constituted would be very responsive, but if doubt is permitted to persist on the first point and particularly if no concrete proposition is forthcoming on the second, then we may expect this Government or its successor to make terms with the dominant European Governments. The striking opinions expressed by an authority such as Dr. Pinedo on the one hand and the disturbing phraseology of [Page 462]President Vargas’ recent speech3 on the other indicate that a new and strong initiative should be taken by the United States forthwith if a disintegration of American solidarity is not to take place in the face of totalitarian victories on the field and economic offensives in this part of the world.
It is believed accordingly that the whole problem should be approached as one of primary importance to American security and that such sacrifices as necessary should be made. Something in the nature of a Pan-American customs union would probably offer the best solution if it were feasible but it is realized that our domestic political situation and the need for prompt action probably make any such plan impractical. It is believed moreover that financing alone would be ineffective, and therefore undesirable except as a part of a comprehensive coordinated plan.
With a view to meeting this situation, it is recommended (1) that occasion be taken as soon as possible to remove any doubt in the minds of those inclined to believe that the United States is unable or unwilling to afford the Western Hemisphere adequate protection from military attack, and (2) that broad emergency powers be requested from Congress to enable the United States to bring its economic strength to bear in a manner that will counteract the forceful methods of the totalitarian states and prevent serious defections from American solidarity. Authority to suspend or augment imports to the extent necessary in the public interest would constitute such a powerful weapon that it would probably never be necessary to invoke it. Facilities for buying and selling foreign commodities might also prove most useful in enabling the United States to counteract German moves.
Since early action in Argentina is believed necessary, it is suggested that a beginning be made by extending to this country the program to build up war stocks of essential supplies, such as vegetable seeds for war purposes, wool for uniforms and blankets, hides and quebracho for shoes and harness, preserved meats for the army and animal by-products for industry. Such a plan would not necessarily involve any tariff concessions, although a trade agreement might eventuate as the result of increased and stabilized trade. What Argentina needs is a minimum of economic security and an opportunity to sell more in the Western Hemisphere. If the United States in carrying out the increased purchases suggested could by strictly unilateral action give Argentina reasonable assurance of American purchases over a period of several years removing her fears with regard to lack of dollar exchange, her present uncertainty with regard [Page 463]to the immediate future of her American trade would be eliminated. There would be no reason to retain artificial restrictions on American goods, and the volume of the interchange would inevitably increase purchases. It is believed that the investment in Argentine products to the extent necessary to achieve this result would be sound because of the benefits flowing from the increased exports and the intrinsic value of the stocks of raw materials acquired. It is thought that this would check effectively the trend toward defeatism, and although admittedly drastic it would appear justified by the issues at stake.
The greater problem that will have to be faced eventually is the question of markets for wheat, fresh meat, and the other products the United States cannot absorb. If some practicable way could be found, after the initiation of some such plan as that just outlined, to deal with the export of cereals and meat on a continental instead of a domestic basis, including the establishment of the necessary shipping services, it would remove existing irritation over Government sales by the United States and might prove of great strategical value in the case of a prolonged economic and military struggle. Conversations on this subject should be inaugurated if the project is considered feasible.