834.51/10–748

Memorandum of Conversation, by Mr. R. Kenneth Oakley, of the Division of River Plate Affairs

Participants: Dr. Juan Morales, Paraguayan Ambassador
Sr. Atilio Montania,
First Secretary of the Paraguayan Embassy
RPA—R. Kenneth Oakley, Narrator

Summary

Paraguayan Ambassador Morales informally requested Mr. Oakley’s advice and assistance in obtaining technical help in the preparation of [Page 707]a loan request. He has given up hope that his Government can reconcile varying opinions and can prepare a study technically adequate. Mr. Oakley suggested the possibility of obtaining the services of two US Treasury officials under Public Law 63, to study taxation and fiscal matters and to formulate recommendations. He also suggested that the International Bank be requested to send technical experts to prepare the plan, to cover agricultural development and increased immigration. The Ambassador indicated he would make these recommendations to his Government and expected a favorable reply.

. . . . . . . . . . . . . .

Narrative

I learned that Ambassador Morales had not yet made any effort to obtain the loans from private sources which, even before reaching the United States, he had told me he would seek. Apparently, this was due to lack of detailed information from Asunción. He stated, however, that he was about to initiate vigorous efforts in this direction. He explained that he would seek an International Bank or Export-Import Bank loan only for basic development. He thought that industrialization loans could easily be obtained from private sources. By basic development he referred especially to agriculture and the encouragement of limited and selected immigration for agricultural development. I indicated that the Department probably would approve of this approach since Paraguay is hardly in a position to become an industrialized nation and because it prefers to see private rather than government initiative in this field.

At this point the Ambassador waxed somewhat eloquent on the question of industrialization. He stated that Paraguay has no ambition to become an industrialized nation, at least for some time. However, it does hope for the establishment of industries for the first processing of materials produced in the country. For example: for the tanning of hides and skins, for making thread from Paraguayan cotton, for converting timber into lumber for export, etc. I agreed, of course, that this development would be salutary if accomplished by private capital.

The Ambassador then launched into an explanation of the considerations involved in the establishment of the Administración de Empresas Fiscales. He stated that, unlike the United States and other more developed countries, Paraguay has insufficient private capital and, furthermore, that existing capitalists are not interested in new enterprises. Therefore, the State is obliged to enter into such fields. As a consequence, and also to accomplish the better administration of existing State enterprises such as the Concepcion-Horqueta railway, the Administración was set up. The Ambassador himself was one of the architects of that piece of legislation which, on his advice, was [Page 708]modelled on a Chilean state organization which he had previously studied.

I stated that I could understand this decision of the government but felt that the provisions of the law were a detriment to new private investment and were widely interpreted as a step toward state participation in private industry. Again, the Ambassador was eloquent. He stated that he had been Minister of Industry for three years, a term of service probably longer than that of any other Minister, and that he had been a long-time friend and colleague of President Gonzalez. Therefore he thought he could speak for his Government in saying that the aforementioned law in no sense is designed to interfere with private business. He mentioned a phrase in the “Considerandos” of the law, to that effect. He also stated that the fields of action of the Administración are limited to those specifically mentioned in the creating law. I stated, however, that some, of the language of the law, particularly the use of the word monopoly, intentionally or not, has given the impression mentioned above, to most observers. The Ambassador admitted that this is probably the case and stated that the law probably could be modified.

I mentioned, then, the current case of the West India Oil Company as an example. Under the aforementioned law the government proposes to undertake a monopoly of the distribution of petroleum products. Although the government monopoly then would grant a distribution concession to the West India, the Company would lose its freedom of operation to such an extent that it insists it is not interested in staying in Paraguay under those conditions. The Ambassador stated that his Government had no purpose other than to assure an adequate supply of petroleum products at all times. He specifically mentioned the fact that during the 1947 Civil War the Government almost lost the struggle because of West India’s failure to maintain adequate supplies. He added that the Government questions the good faith of the Company in this instance.

I stated that I had some contact with this problem while in Buenos Aires and thought that the Company had acted in good faith. The Ambassador stated that, even admitting good faith, the facts stood as testimony to the inadequacy of present arrangements. I stated that West India was now postponing the plans for increased storage space designed to meet that need, the postponement being caused by the threatened application of the new State monopoly, under which the Company does not wish to have an augmented investment. The Ambassador dismissed this summarily on the grounds that West India has been talking of this increased storage for years, and that he questions whether it amounts to anything more than talk.

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I stated that there must be other ways of achieving security of supplies, rather than by creating a government monopoly. The Ambassador said probably this is the case but, if so, West India should propose another solution to the government. My reply was to the effect that the government had proposed to initiate the monopoly, and that conversations with West India officials, therefore, had necessarily been limited to whether the Company would accept, or if it preferred to leave Paraguay. I stated that, in my personal opinion, the government should state its aims and purposes to the West India Company and should ask the Company to propose a means of achieving those aims. I reiterated that my purpose in mentioning this case was simply that of pointing out in a friendly, informal way, some of the deterrents to prospective investors and lending banks.

The Ambassador seemed very pleased with the entire conversation. He assured me that he was going to take up all these matters with his Government at once, and that he expected quick action on the matter of contracting technicians. I told him that, with his permission, I proposed to bring his comments to the attention of Mr. Daniels and Mr. Tewksbury and other interested officials of the Department. I assured him that all offices of the Department are entirely sympathetic with Paraguay’s basic needs, and that I was sure the approach envisaged by the Ambassador would receive every possible assistance.