Memorandum by the Assistant Chief of the Division of Caribbean and Central American Affairs (Cochran)7

I have already discussed briefly with Ambassador Johnson the suggestion that we extend further financial assistance to Costa Rica in order to prevent instability.

[Page 886]

I am opposed to this proposal for the following reasons:

It would be throwing good money after bad. Costa Rica has not been paying anything on its foreign loan for years. The Administration which preceded the present one8 … ran the country’s total indebtedness to unheard-of heights. Costa Rica has no credit and it would be a complete misnomer to term any such advance a loan.
It would encourage improvidence. During the preceding administration, Costa Rica lived far beyond its income, and when Picado took office in May of 1944, the country was in … bad financial shape. For some time the President was unable to find anyone to even accept the job of Finance Minister. Picado and his financial advisor, Julio Peña,9 planned certain reforms to reduce governmental expenditures. A few were placed into effect, but they have been unwilling to grasp the nettle firmly and to reorganize the situation basically as must be done sooner or later. I think it would be a bad precedent to have the Costa Ricans feel that they did not need to keep their financial house in order, that all they had to do if they were improvident was to call upon the United States for another loan which will in fact be only a gift and which could be justified only on political grounds.
The influx of further large sums of money in dollar exchange would add to the already excess inflation.
There is no certainty that Costa Rica would adopt the necessary financial reforms even were the loan granted on the basis that it should do so. This comment is based upon the recent experience of the Export-Import Bank (see below).
The Export-Import Bank would, in my opinion, be both unable and unwilling to make such a loan, and I do not know from what other source it might be obtained. I doubt that the Export-Import Bank is permitted under its statutes to make a purely political loan. Furthermore, when Picado visited the United States after his inauguration, [election]10 he asked for a one-year extension in the beginning of amortization payments on the present Export-Import Bank loan11 scheduled to begin in February, 1945 (money was to be put aside for this purpose beginning in August, 1944). His Financial Advisor assured the Export-Import Bank that appropriate financial reforms would be instituted immediately. On this basis, the Bank said that it would consider the matter when the occasion arose. Sometime later Costa Rica requested this extension. The Export-Import Bank had no information to indicate that the promised financial reforms had been made and wrote a letter rejecting the request. Before this letter could reach our Embassy in San José and be delivered, the Bank received a [Page 887] communication from Julio Peña stating that financial reforms had been effected and that Costa Rica’s finances were in good shape, On the basis of this latter communication, the Bank cancelled its first letter and indicated its willingness to grant a one-year postponement of amortization payments. Legislation to effect this was introduced in the Costa Rican Congress which, allegedly upon the assurance of the Costa Rican Ambassador in Washington12 that he could obtain better terms, approved postponement of the payment until one year after the termination of the war. This was entirely unacceptable to the Export-Import Bank, which so informed the Costa Rican Ambassador in Washington,13 adding that it withdrew its offer to accede to a one-vear postponement. However, the Ambassador telephoned his Government before any formal notification in this sense would be sent to Costa Rica, and the Assembly rushed through a bill approving the original proposal for a one-year postponement. The Bank, after consulting the Department, felt that it had to accept this fait accompli, but it does not like the Costa Rican method of doing business. Furthermore, the Bank considers that Julio Pena misled them when he stated that appropriate financial reforms had been made and that Costa Rican finances were in satisfactory condition. The Export-Import Bank is in no mood to extend any further credit to Costa Rica.
I question whether the move would be effective. If the object is to maintain a democratic government in power, this is intervention. I have no reason to believe that another government which might come into power would be any less liberal and democratic than the present government.…

I hate to take a purely negative attitude on a proposal intended to benefit one of our neighbors but feel I must question both the practicability of the proposal and the effectiveness of the intended benefit. I do not believe that we have been unfeeling in our attitude toward Costa Rica. At the request of that Government, we have sent two separate Treasury experts to study their financial set-up.14 Both have made extensive recommendations. In neither case have the recommendations been implemented by the Costa Rican Government. Recognizing the precarious nature of Costa Rica’s governmental finances, the Department has for a year avoided proposing any cooperative project which might involve the use of Costa Rican funds—in order to avoid placing further strain upon the Costa Rican treasury. The Foreign Economic Administration has been billing all the countries of the hemisphere for their proportional payment for material [Page 888] supplied under Lend Lease.15 The Department has insisted that instructions transmitting these statements to Costa Rica differ from those sent to the other American Republics. In the case of the other countries, the flat request is made that payment be transmitted by check. This statement is deleted in the case of Costa Rica, which has merely been informed of the amount owed without being dunned for payment. Through these and other measures, including the action of the Export-Import Bank in postponing amortization for one year, the Department has attempted to assist Costa Rica. There does not appear to have been during this period any equivalent determination on the part of the Costa Ricans to help themselves. It is with all of these considerations in mind that I express my opposition to Ambassador Johnson’s suggestion.

  1. Addressed to Hallett Johnson, Ambassador-designate to Costa Rica (who presented credentials February 14, 1945), and to Avra Warren, Director of the Office of American Republic Affairs.
  2. Rafael Angel Calderón Guardia preceded Teodoro Picado who took office on May 8, 1944.
  3. Julio Peña Morua, General Manager of the Banco Nacional de Costa Rica since 1934.
  4. Teodoro Picado was elected President of Costa Rica on February 13, 1944, and visited the United States in late April, prior to his inauguration on May 8.
  5. Reference is to a so-called Stabilization Loan of $2,000,000 made to the Costa Rican Government by an agreement of July 9, 1942. The agreement, not printed, was drafted in accordance with instructions in telegram No. 264 to Costa Rica, June 27, 1942, Foreign Relations, 1942, vol. vii, p. 251.
  6. Francisco de P. Gutierrez.
  7. Letter signed by Warren Pierson, President of the Export-Import Bank of Washington, December 5, 1944, addressed to the Costa Rican Ambassador, who refused to accept it when it was handed to him on December 5 by Eugene Le Baron of the Bank. For letter and account of the manner in which it was received, see Foreign Relations, 1944, vol. vii, p. 887.
  8. Financial studies were conducted by Norman T. Ness and Thomas Kekich between December 1942 and September 1943.
  9. For information concerning lend-lease payments in Latin America, see pp. 231 ff.