The Acting Secretary of State to the Embassy in Paraguay
Sir: The Acting Secretary of State refers to the Embassy’s telegram no. 423 of September 28, 1948 reporting a conversation with President González in which the President offered Paraguayan civil and economic cooperation with the United States in the event of war which the President thought might be imminent. As indicated in the Department’s telegram no. 153 of October 1,1 the Department appreciates this expression by President Gonzalez. The following observations concerning the specific points raised by the President in the conversation under reference are not intended to constitute a definitive [Page 712] expression of the Department’s views on these matters, but are set forth merely for the Embassy’s information as to current thinking in the Department.
The extent to which Paraguay is of strategic importance to the United States currently is being reconsidered by the Department. To some degree this problem is covered in the recently revised statement of United States policy toward Paraguay,2 a copy of which is being sent the Embassy under separate cover. From a military standpoint the question is touched upon in a memorandum of June 8, 1948 from the Chief of Staff of the Army Air Forces3 which stated, in part, “Consideration of hemispheric defense plans from an Air Force point of view does not appear to warrant the expenditure of US funds in the establishment of an air base in Paraguay.” This, however, does not evaluate further strategic considerations such as that raised by President González and reported in the Embassy’s telegram under reference, suggesting that “We might help Paraguay complete road to Iguazu as defense measure view Paraguay’s strategic position South America.” This aspect is now being discussed with the National Military Establishment and the Embassy will be advised of the conclusions reached.
The Department would appreciate the Embassy’s views on possible ways in which Paraguay might cooperate with the United States in the event of an international emergency or war. It might be well particularly to examine the situation with regard to the Communist-infiltrated Slav groups, especially those in the southeastern part of Paraguay.
The Department understands President Gonzalez’s suggestion that the United States purchase all of Paraguay’s quebracho extract production, “instead of buying Argentina’s”, to be related to his stated opinion that Argentina “would be against USA in event war.” The Department interprets the President’s remarks to mean that Argentina would not be aligned with the United States, rather than that Argentina would be an enemy state. (In the latter case the United States would have no opportunity to purchase Argentine products.) With this understanding, the question arises as to how Paraguayan exporters could terminate their present agreement with Argentine exporters dividing the export market on a quota basis and at an agreed price. In view of Paraguay’s economic dependence on Argentina this might be a difficult matter. Furthermore, the question of the export of quebracho extract via the River Parana, where transport facilities are virtually monopolized by an Argentine company, might present an additional problem. Presumably this is one place where a road to [Page 713] Iguazu, and thence to a Brazilian port, would be of strategic importance. However that may be, such contingencies can hardly be discussed with the Paraguayan Government at this time, although the Department and the National Military Establishment naturally must take them into account in considering the proposed road to Iguazu.
In connection with this highway proposal, the Embassy’s attention is invited to a memorandum from Mr. Clark to Mr. Oakley, within the Department, dated November 12, 1948, a copy of which has been furnished the Embassy.
In an effort constructively to consider means of improving Paraguay’s current economic situation, the Department has discussed informally with the Bureau of Federal Supply and the Munitions Board, possible additional purchases of Paraguayan quebracho extract. It has been learned that the present United States stockpile of this strategic material is relatively ample and that purchases were discontinued approximately six months ago when the price was raised from eight and one-half cents per pound to thirteen cents per pound. The Department understands that neither the Bureau of Federal Supply nor industrial users of this commodity intends to resume purchases until prices fall below ten cents per pound. However, industrial users may be forced to resume limited purchases when present stocks have been exhausted.
If quebracho extract prices should be quoted at more reasonable levels, it is believed that the Paraguayan production of this commodity could be disposed of in the United States. However, United States purchasers would buy on the basis of best available price. Therefore, the problem again seems to be one for the Paraguayan and Argentine exporters who have price and quota agreements for the export trade. The Embassy’s further comments on this matter would be appreciated by the Department.
The Department notes that, according to President Gonzalez, Paraguay is “ready increase her production along lines we might indicate. …” The Department has carefully considered this proposal but is not now in a position to encourage the increased production by Paraguay of any specific commodity. It does, however, emphasize the important desirability of Paraguay’s cooperation with oil exploration activities and, eventually, with the exploitation of any petroleum deposits discovered.
Nevertheless, the Department will appreciate a report from the Embassy discussing the possibility of increasing Paraguayan exports, especially to the United States.
The Department appreciates Paraguayan willingness to assist Great Britain with its economic difficulties by selling increased amounts of Paraguayan products to that country. However, the Department cannot now consider the possibility of purchasing sterling from Paraguay [Page 714] even with dollar credits. The Embassy will understand that Paraguay’s problem in this respect is almost identical with that of many other countries where the amounts involved are tremendously greater. The United States could not embark lightly on a program to purchase large amounts of British sterling.
Several weeks ago the Paraguayan Embassy in Washington informally inquired at the Department concerning how Paraguayan sales might be increased under the European Recovery Program.4 The Embassy has not renewed these inquiries since it was told that the Economic Cooperation Administration does not make purchases but merely authorizes the use of dollar allotments for purchases of specified commodities from given countries. The following additional information might be useful to the Embassy in its discussions with the Paraguayan Government on this matter.
ECA, in authorizing the use of dollars for offshore purchases, must give primary consideration to the recovery of OEEC countries rather than to any benefit which might accrue to countries receiving the dollar exchange. Thus ECA cannot authorize dollar purchases from Paraguay on the basis of assisting that country. Furthermore, ECA cannot authorize purchases of commodities officially declared to be surplus in the United States. Cotton, for example, is a surplus commodity in that sense. Under separate cover the Embassy is being furnished information concerning ECA authorizations to date for purchases from Paraguay. It is also perhaps worthy of mention that ECA generally is more ready to authorize purchases from a given country to the extent that that country will accept OEEC products in payment for its exports.
In short, the tentative proposals of President González do not seem to offer great possibilities. The Department would find greater hope in any improvement in political conditions and stability in Paraguay, and from rational, basic development projects.
Very truly yours,
Director for American Republic Affairs