The Acting Secretary of State to the Minister in Paraguay (Frost)

Dear Mr. Minister: I acknowledge the receipt of your letter of July 5, 194127 regarding economic aid to Paraguay. You state that Morínigo28 believes that the United States is withholding such assistance for fear of offending Argentina and Brazil.

This is of course not in any sense true. Our aid is in no way conditioned on the reactions of the neighboring republics. Moreover, I do not see the justification for the statement that we are withholding economic cooperation from Paraguay. Within the last week you have been informed of three decisions regarding our lend-lease arrangements for transferring military matériel, the financing of port works, and the continued extension of the line of credit to the Banco de la República. At the present time the United States is offering the following assistance:

The $3,000,000 highway project, construction of which is proceeding rapidly, with Colonel Durham replaced.
The $500,000 line of credit to the Banco de la República, now extended to December 31, 1941.
The $400,000 credit for agricultural purposes. The mandioca plan was carefully worked out as affording a possible method of increasing exports and thus producing foreign exchange. The cold storage plant for domestic consumption goods only would probably not produce any net foreign exchange, although it may be a desirable project. In any case it would not be feasible for the Export-Import Bank to finance the purchase of the equipment in Argentina. The Bank, however, stands prepared to consider any reasonable proposals, and I am surprised that none have been made.
The new $400,000 for port works recommended by Engineer West. The Bank took this action within two days after receiving Mr. West’s report.
The two airports to be improved by Panagra.
The $11,000,000 lend-lease military program29 against which Paraguay is expected to repay only $50,000 a year for six years in complete liquidation of the obligation.

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Mr. West has reported on other projects, and the Department is studying his recommendations. He points out that Paraguay’s existing dredge has been undergoing complete repairs and that no additional dredge is required. He estimates the cost of installing a waterworks and distribution system, a sewer system, and repaying the street disturbed in laying pipes, at not less than $10,000,000, in contrast to the $3,000,000 mentioned by the Paraguayan Government. He suggests that an inexpensive highway from Concepción to the Brazilian frontier via Pedro Juan Caballero could readily be constructed with the good clay and other materials available in that area. He believes that other roads, especially feeder roads, can more economically be built after further progress has been made on the Villarrica highway, releasing some of the present machinery and equipment.

I am sure that you will agree that the financial assistance listed above is of real importance, and that it is desirable to undertake further projects one at a time rather than to announce a large program all at once and then shortly later have much of the favorable reaction dissipated as has apparently and unfortunately been the case with the cooperative work entered into with General Estigarribia. I am certain that you will find it possible to derive the maximum advantage from the several new items of cooperation recently decided upon, and the Department will await with interest your reports of the Paraguayan reaction thereto.

With respect to your comment regarding your staff, the Department’s emergency program for increasing the personnel of the missions in the other American republics is progressing rapidly, and your situation should be alleviated.

With best regards,

Sincerely yours,

Sumner Welles
  1. Not printed.
  2. Higinio Morínigo, President of Paraguay.
  3. See pp. 473 ff.