The Ambassador in Uruguay (Dawson) to the Secretary of State

No. 6490

Sir: I have the honor to refer to the Department’s secret instruction of September 11, 1945 (file no. 800.24/9–1145), entitled “Future Military Cooperation with the other American Republics”,58 and in particular to the penultimate paragraph concerning the implementation of staff conversations and the Department’s wish to receive from our Embassies studies touching the probable effect upon financial structure and political conditions of carrying out the recommendations of the conversations.

Political Conditions.

As respects first the political angle, the experience of the past few years indicates that it will not be easy for the Government to obtain from the Uruguayan Congress approval of projects providing for any very substantial increases in the country’s armed forces and in expenditures therefor. Uruguay has never adopted compulsory military service and the Administration’s recent and current efforts to obtain legislation which would make military instruction effective have found little support and aroused vigorous and fairly widespread opposition. Now that the war is over, it will probably prove harder than ever to convince public opinion that it is the duty of the country and of its citizens to make necessary sacrifices for defense. Aside from the fact that the democratic and liberty-loving Uruguayans distrust and dislike strong military establishments, many of them feel that given its position between two powerful neighbors Uruguay could never maintain armed forces capable of insuring its defense and that, irrespective of anything it can do, it must look to other countries—and particularly the United States—for security and protection.

It is believed, however, that from the political standpoint the Department’s inquiry contemplates rather the effect which eventual increases in the armed forces recommended as a result of the staff conversations might have on political conditions. More specifically, the Department is presumably interested in knowing whether such increases might tend to constitute a threat to democratic processes. In [Page 1382] the opinion of the Embassy, it is quite unlikely that any increase in the numerical strength or military potential of the armed forces which the Uruguayan Congress and Uruguayan opinion would approve would endanger the country’s well established democratic institutions. These institutions are firmly rooted in a democratic tradition and a love of liberty characteristic of the Uruguayan people and they are supported—to a much greater extent than in most Latin American countries—by the existence in Uruguay of a strong middle class and an enlightened public opinion. Uruguayan military men are not only fully, aware of the strength of this democratic tradition; they are influenced by it; and to a very considerable extent they sympathize with it. In the circumstances, the Embassy believes that, as respects Uruguay, there is little danger of the development of militaristic tendencies to the detriment of democracy.

Financial Structure.

It is difficult to comment satisfactorily upon the probable effect upon Uruguay’s financial structure of carrying out in whole or in part the recommendations of the recent staff conversations.

The Military and Naval Attachés, whose assistance was requested and who desired to cooperate, point out that any accurate estimate of the cost involved is impossible for several reasons. In the first place, we do not know what increases in personnel and equipment will be approved in Washington; and in the second place no reliable information is available as to the cost of eventual personnel increases or as to the prices which our Government expects to charge for equipment.

The Naval Attaché and the Military Attaché for Air have prepared statements concerning the navy and air forces respectively from which it will be apparent that any substantial implementation of the staff conversations would entail substantial budget increases. As respects the army proper, the Military Attaché has been unable to prepare any figures. Obviously, however, in view of the number of men and quantities of equipment involved, the financial charges which implementation would require would be proportionately heavy.

The matter has been discussed also with the Embassy’s Commercial Attaché, Mr. Franklin W. Wolf, who is its officer best informed as to Uruguayan finances. His comments and views may be summarized as follows: For the past few years the Government’s expenditures have consistently exceeded its receipts, the result being mounting deficits which have been financed by the sale of internal bonds. Up to recently the market has absorbed these bonds with relative ease. However present indications are that the Government is meeting and will continue to meet with growing difficulty in disposing of additional internal debt obligations. It is expected that 1945 will show an increase in revenues and that the gradual return to normal trade conditions will [Page 1383] lead to a perhaps considerable increase particularly in customs receipts, However as respects 1945 there is every indication that increases in disbursements will more than equal increases in revenues and it is Mr. Wolf opinion—based on careful study and considerable familiarity with Uruguayan finances and fiscal practices—that it is unlikely that the Government will succeed in balancing its budget at any time within the near future. Among other unfavorable factors may be mentioned the unsound situation of the principal pension reserve funds which may sooner or later precipitate a financial crisis and also the circumstance that there seems to exist little hope that the Government and Congress will undertake the general overhauling of the tax structure which the country needs in order to place its finances on a really sound basis. (For more detailed information concerning the whole subject reference is made to the following reports submitted by Mr. Wolf: No. 267, “Uruguay—The General Budget for 1944”, June 12, 1944; and No. 383, “Uruguay—A Study of the Government’s Revenues”, August 28, 1944.)59

In the circumstances Mr. Wolf points out that if Uruguay’s appropriations for national defense are to be increased without adversely affecting the financial structure this can be accomplished only by Corresponding reductions in disbursements for other items. Substantial reductions in expenditures under other headings are always difficult and will be particularly difficult in Uruguay. This will be apparent from the fact that, as Mr. Wolf points out, of total disbursements included in the budget for 1944, approximately 75% is accounted for by the following four principal categories: public debt service, 23%; social security (including public health and pensions), 20%; national defense and police, 18%; and education, 14%. It is obvious that expenditures for such purposes as public debt service and pensions cannot be reduced and that any reduction in appropriations for education would be inconceivable in a country such as Uruguay.

In conclusion it is Mr. Wolf’s opinion, in which the other officers of the Embassy concur, that there is small likelihood that it will prove possible to make any substantial increase in outlays for national defense without some adverse effect upon Uruguay’s financial structure.

It is the Embassy’s understanding that the Uruguayan Government is not only up to date in its payments under Lend-Lease but has paid an amount which exceeds that which it is called upon to pay (under the terms of its agreement) for the quantities of matériel actually received. Not possessing full information concerning either the figures or the manner in which the matter will be handled, the Embassy has not considered this factor in the present despatch. It is a factor which will no doubt receive due consideration in Washington [Page 1384] and which may serve to facilitate the solution of the financial problems involved in the implementation of our staff conversations with Uruguay.

Respectfully yours,

William Dawson
  1. Ante, p. 249.
  2. Neither printed.