Memorandum of Conversation, by the Director of the Office of American Republic Affairs (Daniels)


Yesterday Ambassador Vallarino said he wished to talk to me confidentially. Accordingly, I dropped by his Embassy residence late yesterday afternoon. Among other matters he broached the question of the defense sites in Panama. He said it would be fine if he and I could work out a new formula permitting a “settlement” of this problem. He suggested as a possible formula a five-year lease on the bases, including Rio Hato, with five-year renewals to be agreed by both parties; and a United States credit to finance the construction of a military highway from the Canal Zone, to, I think, Rio Hato, David and the Costa Rican border. He seemed to think that through some sort of “gentleman’s agreement” that credit might subsequently be diminished or cancelled, although without direct reference to the defense sites arrangement.

I thanked Ambassador Vallarino for his frankness and manifestation of confidence in talking to me on this important matter. I said I shared his hope that there would always be full agreement between Panama and the United States in regard to their joint responsibilities for the defense of the Canal. I furthermore expressed the following views:

That Panama, as well as the United States, shared responsibilities for maintaining adequate defense of the Canal, including cooperation in military matters, adequate bases, etc.
That I did not consider these matters a subject for bargaining [Page 674] in return for credits or other economic or commercial benefits to Panama.
That I was afraid Panamanian public opinion had been misled in regard to the foregoing, and I would welcome the time when public men in Panama might clarify and explain the joint responsibilities of the two countries in line with the provisions of the 1936 treaty.
That the United States was naturally desirous of cooperating with Panama in economic matters the same as it desires to do with other American republics; and that I believe adequate evidence had been given of this policy. In this connection I referred to the recent Export-Import Bank credit for a hotel in Panama.1 I pointed out that I had for a short time hesitated to express my own approval of this credit because of the still unsettled El Encanto claim,2 but that at no time had it occurred to us to associate it with our broad responsibilities and those of Panama under the 1936 treaty. (Ambassador Vallarino indicated in passing that he favored a settlement of the El Encanto claim and understood that it was about to be provided for by including a corresponding appropriation in their budget.)
I said that the five-year limit on a major investment in Rio Hato had been considered by our responsible officials as too short a time to justify a major expenditure which might run into millions of dollars. I said it seemed logical to me that in such a case it would be reasonable to provide unquestioned security of tenure for a longer period of time, as had been agreed by the two Governments before the Panamanian Legislature took a different view. I said I was not aware that opinion in the State Department or the Service Departments had changed in this regard. I said I failed to understand why questions of sovereignty or dignity, etc., should arise because of a few years difference in the lease due to purely practical considerations, involving grave responsibilities on the part of officers responsible for expenditure of official funds.
With reference to Ambassador Vallarino’s suggestion that he and I discuss the matter further in an effort to reach a new formula, I said I would be very glad to consult with a few people and have a further conversation with him. I said that it would afford me great pleasure to reach an understanding with Panama within the limits of the policy set forth above. I suggested that our conversations be maintained secret and not divulged to very many at this time, in order to avoid premature and unwise speculation and possibly agitation. Ambassador Vallarino agreed.

Before leaving I told the Ambassador that I planned to discuss his initiative with Mr. Barber and Mr. Bennett3 of my office, and General [Page 675] Crittenberger. This was quite satisfactory to Ambassador Vallarino.

Comment: Ambassador Vallarino said that he had no instructions to initiate this discussion of defense sites. Whether or not this is true, I formed the impression that he would consider it useful to him to work out some sort of a deal here in Washington, as contrasted with the usual procedure of handling such matters between our Embassy in Panama and the Panamanian Government. This view was substantiated by his expressed willingness to make a quick trip to Panama with any mutually agreed formula, I see no reason for refraining from discussing this matter with Ambassador Vallarino, but believe that Ambassador Davis at Panama should be kept fully and currently informed to avoid the slightest possibility of confusion or crossed wires.

  1. On July 21, 1948 a credit of $2,000,000.00 was authorized by the Export-Import Bank for construction material, equipment, and services for Hoteles Interamericanos (Republic of Panama).
  2. See memorandum by the Assistant Chief, Division of Central America and Panama Affairs (Wise), January 20, 1948, p. 647.
  3. Willard F. Barber, Chief, Division of Central America and Panama Affairs; William Tapley Bennett, Jr., Area Specialist, Division of Central America and Panama Affairs.