Foreign Relations of the United States, 1950, The United Nations; The Western Hemisphere, Volume II

611.22/10–250

Department of State Policy Statement

secret

[Washington, October 2, 1950.]

Ecuador

a. objectives

The primary objectives of the United States with respect to Ecuador are to maintain and to strengthen the cooperation of the Republic of Ecuador towards hemisphere security; to continue Ecuadorian support for United States regional and world policies; to encourage the establishment of more stable, democratic and responsible government in that country; and to further Ecuadoran economic development along lines compatible with United States economic and commercial policies.

b. policies

Hemisphere Security. In view of Ecuador’s extremely weak military potential it does not appear that she is in a position to take any direct military action herself toward hemisphere security. It is possible, however, for Ecuador to contribute toward the security of the western hemisphere by furnishing military bases for use in the collective defense of the hemisphere in the event of an emergency; maintaining a military establishment sufficient to keep internal order and to prevent sabotage; and through participation in regional defense arrangements and organizations to maintain peace and friendly relations with other states.

During World War II the Government of Ecuador permitted the establishment of United States Naval and air bases in the Galapagos Islands and on the mainland at Salinas. These bases were important to United States military plans since Ecuador is within five hundred miles of the Panama Canal. The bases were evacuated by the US after the termination of the war and returned to the Ecuadoran Government. We believe we can rely upon the friendly cooperation of Ecuador’s present Government if renewed base arrangements for United States armed forces are required in the future, particularly in view of the fact that we complied with our commitment to withdraw our forces after the last war.

Ecuador furnished to the United States during the second world war modest quantities of strategic materials, principally natural rubber, balsa wood and cinchona. There is little doubt that these commodities as well as other products which Ecuador is in a position to supply would be made available to the United States in the event of a future conflict. The Ecuadoran Government offered economic assistance in the form of raw materials to the UN Command to aid in repelling the invasion of the Republic of Korea.

In order to assist Ecuador to build a military establishment sufficiently strong to maintain internal order and to prevent sabotage, the United States has in the past extended moderate amounts of military assistance through lend-lease and interim programs. There are also currently assigned to Ecuador US naval, air and ground missions to assist in the training and organization of that country’s armed forces and we have arranged from time to time for the assignment of individual Ecuadoran officers to US military schools and establishments for orientation and training. High Ecuadoran military officials are periodically invited to the US for good-will visits, while ranking officers of the US armed forces make occasional trips to Ecuador for the same purpose.

Ecuador has not yet ratified the Inter-American Treaty of Reciprocal Assistance¹ but became a signatory in November, 1949. Originally the Ecuadoran Government had signified its intention to sign the Treaty with certain reservations. These were subsequently dropped after this Government and some other American states made it clear that Ecuador’s acceptance of the Treaty with reservations would be undesirable. The US continues to press through diplomatic channels for early ratification by Ecuador of the Treaty and it now appears likely that Ecuador will take this step when its congress next meets.²

[Here follows a section describing in general terms the alignment of Ecuador with the United States on most regional and world issues.]

Encouragement of Stable Democratic Government. The Republic of Ecuador is one of the most politically unstable countries of South America. It is governed under a constitutional system very similar to our own which guarantees the rights of the individual which we consider to be basic. While it is too early to detect a trend, it is encouraging that the present chief executive, Galo Plaza Lasso, was elected President in an unusually free election (June, 1948). He was educated in the United States and is considered to be capable and enlightened. A cardinal point of President Plaza’s policy has been scrupulously to follow constitutional procedures in governmental administration and to permit the utmost freedom of discussion and opinion on all public issues. In short, he has been making sincere efforts to guide Ecuador toward more democratic government.

It is our policy to foster these tendencies by aiding the Ecuadoran Government to raise educational standards and broaden the educational base; to improve governmental administration; to institute modern health and sanitation practices and facilities; and to raise the living standards of the people.

In pursuance of this policy the United States, through the IIAA and the SCC, has entered into cooperative arrangements with the Ecuadoran Government whereby American experts are actively assisting Ecuador in such fields as teacher training, vocational education, disease control, nutrition, maternity and child care, census, transportation, agricultural practices, nurse training, etc. Under these joint programs hospitals, schools, sanitation facilities and the like have been constructed. Other efforts to point the way for Ecuador toward more democratic government are made through cultural centers and US information and exchange of persons programs.

Economic Issues. A country of very limited human and material resources with an estimated national income of $150 million ($43 per capita), Ecuador looks to the US for leadership and support in the solution of its economic problems. The immaturity of its political and economic development, the exceedingly low standards of living of the great bulk of the population, and the wide disparity of income between the educated and wealthy groups, and the poor, uncultured classes, provide an opportunity for the growth of Communism or other totalitarian ideology. This situation, by no means new, presents a challenge to Ecuador’s current democratic leadership and is of concern to the United States. The extent to which the United States can assist Ecuador to meet this condition is dependent upon the availability of our resources as balanced against the needs of other areas of the world.

It is our policy to aid in solving these problems by furnishing technical and financial assistance to Ecuador in the fields of education, health and sanitation through the Institute of Inter-American Affairs. Other agencies of this Government are providing technical assistance in the development and improvement of agriculture, cattle raising, highway construction, and in various phases of governmental administration. Financial aid is also being rendered the Ecuadoran Government in the construction of highways, waterworks, and other public services by means of long term United States loans at reasonable rates of interest. We have also proposed an FCED Treaty to Ecuador in order to establish a sound basis for the attraction of private United States capital for local economic development. While Ecuador has shown some interest in this treaty, the Ecuadoran Government has as yet been slow to begin definitive negotiations. While it is our policy to encourage Ecuador to negotiate this treaty since we believe that its effects will be mutually beneficial, we have not vigorously pressed for action because we wish to avoid the impression that its advantages would largely accrue to the United States.

Unfortunately, cooperative programs in education, health, sanitation and agriculture have sometimes been hampered by Ecuador’s inability to furnish funds to supplement those supplied by the US to operate programs in those fields. This difficulty can be met principally through progress of Ecuador itself toward a more prosperous economy. For the present, it is apparent that the US should follow a policy of making a maximum financial contribution in the early stages of the programs. Our contributions should then be slowly diminished as these activities bear fruit. It is important, however, that the United States should always insist that the Ecuadoran Government contribute to a reasonable degree to these programs, even in their initial stages, in order to retain the interest of the Government and, of course, to enable it to maintain its self respect.

The lack of important natural resources in Ecuador contributes a serious deterrent to foreign private investment capital. It is questionable whether even under optimum conditions there would flow to Ecuador any large volume of foreign private investment funds. Consequently, Ecuador will doubtless continue to require United States Government financial assistance in the form of loans in order to create conditions favorable to internal economic development. Ecuador’s ability to service such loans is very limited. To meet this problem in so far as possible, it is our policy to make loans for economic development in Ecuador on a project basis under liberal terms for developments which will improve that country’s foreign exchange position either directly or indirectly. In order to ensure maximum utilization of such loans we try to assure, where possible, that they are coupled with the investment of Ecuadoran Government or private funds and provide for the project to be supervised by competent United States technicians.

Our commercial and trade relations with Ecuador are largely governed by the Trade Agreement of August 6, 1938³ as modified by an exchange of notes of March 2, 1942.⁴ Under the exchange of notes the United States waived its rights under the Trade Agreement to protest projected increases in customs duties by Ecuador on certain products included in Schedule I of the Trade Agreement designed to meet a financial emergency arising from curtailed exports due to the war. While the waiver had no specific time limitation, Ecuador agreed to reduce and finally to eliminate the duty increases as improvement in its fiscal situation might permit. Such an improvement has not taken place and the waiver is still in operation.

In 1947 Ecuador instituted taxation upon foreign exchange transactions. This system was modified to provide for import quotas and compensation transactions in 1949, but the exchange taxes were retained. While it is our policy to oppose restraints of this type upon international trade, we decided not to protest the 1947 measures reserving our position with regard to future action. This policy was adopted because the exchange taxes were not onerous and formed part of an Ecuadoran program to increase revenues for economic development and protect foreign exchange reserves.

We have made no protest regarding these later (1949) violations of the Trade Agreement and it is questionable whether such action by us would be advisable or effective. If we formally protested, it is possible that Ecuador, which is faced with numerous financial difficulties and exchange shortages, would prefer to let the Trade Agreement lapse. Ecuador intends again to revise foreign exchange controls later in 1950 in consultation with the IMF and a course of US action is now being considered.⁵

Ecuador is a signatory to the Charter of the ITO,⁶ but is not a contracting party to the GATT.⁷

The Government of Ecuador is a partner with Colombia and Venezuela in a joint shipping enterprise, the Flota Mercante Gran Colombiana. Ecuador discriminates in favor of this line by granting a 50% reduction in consular invoice fees to shippers using Gran Colombian vessels. We have repeatedly protested this discrimination since it acts to divert shipments from competing United States shipping lines. While Ecuador has taken no action as yet in response to these representations, President Plaza has promised to take up the matter with Congress this year. The Ecuadoran administration is considering a plan to substitute a direct shipping subsidy for the current discriminatory practice. While this method would appear to offer a solution satisfactory to the United States, it is somewhat doubtful whether the Ecuadoran Congress will approve it in view of widespread Ecuadoran sentiment for a national merchant marine.⁸

c. relations with other states

A long standing boundary dispute with Peru, which resulted in open military conflict in 1941, is in the process of solution under terms of settlement outlined in the Rio Protocol of 1942.⁹ The execution of this Protocol, which sets forth the main features of the new boundary, is under the guaranty of Brazil, Argentina, Chile and the United States. Demarcation of the boundary has proceeded slowly but satisfactorily except for differences of opinion respecting two sectors of the border. One involves the Santiago–Zamora area and is currently the subject of negotiations between Peru and Ecuador. The second is the Lagartococha dispute which involves a jungle area of about seventy square kilometers. This latter dispute was the subject of an Arbitral Award in 1945 to which Ecuador and Peru gave differing interpretations. We have encouraged Brazil (chairman of the guarantors) to call the guarantors together to assist the disputants to reach a settlement. We have proposed that the question of law involved be submitted to an international judicial body for adjudication. Brazil is expected to call a meeting of the guarantors in the near future to recommend means for settling the dispute.¹⁰

Relations with Peru have been cool owing to these boundary differences. The sentiment is general in Ecuador that the Rio Protocol of 1942 accorded Peru a disproportionately large share of the territory in dispute. Furthermore, the existence until recently of a military government in Peru created some apprehension in Ecuador where the memory of the 1941 Peruvian invasion is still fresh.

The uncertain political situation in Colombia has caused anxiety within the Ecuadoran Government. Despite the fact that relations have been particularly friendly with Colombia, it is probable that some imported arms and ammunition have found their way across the Ecuadoran border to supply Colombian dissidents. This situation has given rise to fears that Ecuador may become involved in the internecine dispute in Colombia. In accord with our policy we have refused to license the shipment of certain types of ammunition for shipment to Ecuador to aid that Government to control the illicit traffic.

A special relationship exists among the four former Gran Colombian countries: Ecuador, Colombia, Venezuela and Panama. In 1948 this feeling of kinship, perhaps stronger in Ecuador than in the other three nations, took concrete form in the Quito Charter. This Charter, as yet unratified by Venezuela and Panama, provides for the creation of close economic and cultural ties between the signatories. It envisages the establishment of a Gran Colombian Economic Council, an eventual customs union, cultural exchanges and close cooperation in the fields of science, industry, communications and finance. While a provisional economic council was established in Caracas in 1950, no action has as yet been taken along the lines laid down in the Charter and it is doubtful at this stage whether this “paper” organization will produce any concrete results. Our policy is not to object to closer economic integration of this group of countries provided it does not result in commercial discrimination against the United States.

[Here follows the remainder of the section “Relations With Other States”.]

d. policy evaluation

Our policies have in general produced favorable results. There is little doubt that the Ecuadoran Government and people are basically friendly and cooperative. Ecuador supported the cause of the United Nations during the war, providing important military bases to the United States and scarce materials for the war economy. It is believed that Ecuador would do so again in the event of the involvement of the United States in war. The Government of Ecuador has consistently supported the United States in its fight against the Communist threat.

Technical assistance furnished by the United States through the IIAA and other US Government agencies has been well received by the Ecuadoran Government and people alike and has demonstrated its practical value in a number of fields. The principal obstacle to continued progress in this direction is the inability of Ecuador to make more than very modest outlays for this type of assistance and to finance construction projects developed through these programs.

It is apparent that all but the most extreme nationalist and Communist elements are convinced that our policy of non-intervention and helpful friendship is genuine. However, there does exist among some elements of the population a latent feeling of envy and suspicion of the United States apparently based partly upon specific acts of United States intervention in Latin America in past years and partly upon the growing disparity between the economic power of the United States and the poverty of Ecuador. This feeling is being countered with some success by our cultural and information programs. The continuance of these programs is believed to be important to interpret and support United States policies and the democratic way of life.

Assistance granted Ecuador in the form of Export-Import Bank loans to encourage economic development and political stability has been reasonably successful, but many Ecuadorans feel that such assistance has been niggardly, particularly in comparison with what are considered to be our munificient outlays in Europe.¹¹ Moreover, there has been some disillusionment in the Plaza administration that greater financial aid has not been accorded their … Government. This is more keenly felt because the present Government has staked its popularity upon economic progress. Many of the members of the business and financial community realize, however, that United States economic aid must necessarily be tailored to Ecuador’s capacity not only to repay, but to absorb the loans. The continuance and expansion of this type of assistance is recommended having regard to Ecuador’s limited ability to make repayment. To date, Ecuador has scrupulously complied with repayment terms on all its obligations to the Export-Import Bank.

There has been much resentment in Ecuador, “particularly within the Government, over the unwillingness of the International Bank for construction and Development to consider Ecuadoran loan applications while the Government-guaranteed foreign railway loan remains in default. Despite assurances to the contrary, the Government believes that the IBRD is an instrument of United States policy and hence that this country is responsible for Ecuador’s inability to obtain loans. Since it appears unlikely that Ecuador will consider itself financially able to resume payments upon its foreign-held railway bonds for some time to come, the loan facilities of the IBRD will remain unavailable to Ecuadoran applicants. So long as the United States plays a predominant role in the IBRD, the Ecuadoran Government will continue to feel that we are principally responsible for this policy.

There is some belief within the Government of Ecuador that United States commercial policy does not fully recognize the problems faced by an underdeveloped economy. Ecuador believes that the reduction of tariffs and other trade barriers is correct in principle, but should be modified to permit of tariff and other protection for small industries in under-developed countries. Moreover, the feeling is held that a lower tariff policy must take cognizance of the fact that Ecuador depends to a considerable extent upon import duties for government revenues.

Ecuador has had to resort periodically to exchange controls to preserve her monetary reserves. We have endeavored to assist Ecuador to meet this difficulty by modifications or waivers of the Trade Agreement to permit temporary deviations to meet special conditions. It is probable that we shall have to continue to follow this policy for some time to come.

Since Ecuador is spending the maximum amount of dollar exchange consistent with what it considers a safe monetary reserve, it would not appear that the US would gain any worthwhile trade advantages through insisting upon the elimination of such controls.

1. Opened for signature at Rio de Janeiro, September 2, 1947. For text, see Department of State Treaties and Other International Acts Series (TIAS) No. 1838, or 62 Stat. (pt. 2) 1681.
2. Ecuador ratified the Treaty October 30, 1950, and deposited its ratification November 7.
3. Signed at Quito. For text, see Department of State Executive Agreement Series (EAS) No. 133, or 53 Stat (pt. 3) 1951. For pertinent documentation, see Foreign Relations, 1938, vol. v, pp. 509–535.
4. Signed at Quito. For text, see EAS No. 248, or 56 Stat. (pt. 2) 1472.
5. On December 1, 1950, Ecuador promulgated new foreign exchange regulations, most of which had the prior approval of the IMF. Documents in the relevant file, 822.131 for 1950, do not reveal a clear United States policy line regarding the new regulations.
6. The Havana Charter of the ITO was signed March 24, 1948. It was not ratified by the United States, nor did it go into effect among other powers. Text is printed in Department of State, Havana Charter for an International Trade Organization and Final Act and Related Documents (Washington: Government Printing Ofiice, 1948).
7. Concluded at Geneva, October 30, 1947; for text, see TIAS No. 1700, or 61 Stat. (pts. 5 and 6).
8. For documentation regarding U.S. policy on certain practices of the Colombian and Venezuelan sections of the Flota Mercante Grancolombiana, see pp. 802 ff. and pp. 1019 ff., respectively.
9. For the text of the Rio Protocol between Ecuador and Peru, signed January 29, 1942, see EAS No. 288, or 56 Stat (pt. 2) 1818.
10. Settlement of Ecuador–Peru boundary disputes did not occur during 1950. Documents on policy of the United States regarding these questions, including its actions as a guarantor of the Rio Protocol, are in file 622.23 for 1950.
11. As of the end of 1950, the Export-Import Bank had authorized a total of $27,311,900 in credits to Ecuador. Of the total, the Bank had authorized $9,220,000 since the end of World War II. During 1950 one new credit of $250,000 for the mechanization of rice production was authorized.