Memorandum by the Director of the Office of Regional American Affairs (White) to the Assistant Secretary of State for Inter-American Affairs (Miller)


With reference to your appearance before the Bureau of the Budget in justification of the Foreign Aid Program for Latin America, I present the following suggestions:

1) At the meetings of the Inter-departmental Committee on International Security Affairs, which I attended while you were in Latin America, it became abundantly clear that other government agencies, and to an extent, Cabot himself, were not so much concerned about the worth whileness of aid to Latin America as they were about the two following problems:

Taking into account the tremendous magnitude of the funds to be requested of Congress and the growing urgency of “shoring up” the countries on the periphery of the Iron Curtain, was the administration justified in asking for grant funds for Latin America?
With the foreign exchange position in the Latin American countries improving rapidly as a result of favorable prices, should not military aid be on a reimbursable rather than grant basis?

2) With reference to (a) above, I believe it would be valid to point out that, while Communism in Latin America has not reached the critical point, we may very well be engaged in a marathon contest with the Soviet Union. If this is the case, one dollar invested wisely and now in Point IV programs answering to the aspirations of the people may prove to be an important and more effective instrument than ten dollars invested at a later date when the political situation my have deteriorted due to the conditions of poverty and hopelessness.

3) With reference to (b) above, I think it should be pointed out that with the dollar and gold reserves of Latin America still a billion dollars below the level prevailing at the end of 1945 and with much greater deterioration reflected in the purchasing power of those reserves, the Latin American countries are not going to be disposed to spend any [Page 1054] sizable funds on equipment needed for them to assume military roles which we desire in our own interests.

4) It seems to me that in connection with both economic aid and military aid, both the Budget Bureau and, at a later date, Congressional committees should be brought to face squarely the extremely low level of national income and the inherent financial limitations which act as a definite ceiling on what the Latin Americans can do to help themselves. In my judgment, this has been clearly and concisely set forth by DRA in the following briefing memorandum:

“The population of the twenty Latin American republics in 1949 is estimated at about 150 million, approximately equal to that of the U.S. The national income of the Latin American countries for the same year is estimated at about $24 billion as compared with the national income of the United States of $217 billion.

“The budgeted federal expenditures of these republics during 1949 totalled over $4.4 billion, compared to expenditures of the United States Government of over $40 billion in the same period. In the case of Latin America, as a whole, and that of the United States, budgeted expenditures comprised 18.5 percent of national income.

“The burden of federal expenditures in relation to national income varies greatly, however, among the individual Latin American countries. In five republics, Argentina, Dominican Republic, Panama, Peru and Venezuela, the cost of administration absorbs between 30 and 32 percent of their national incomes. In El Salvador and Paraguay, on the other hand, these costs amount to less than 10 percent of national income.

“In 1949, the budgets of the Defense Ministries of the Latin American nations called for expenditures approximating $1.0 billion, roughly equivalent to one-twelfth of defense expenditures in the United States. These military disbursements by the other American republics comprised 4.2 percent of the total national income of Latin America. In the United States, the cost of national defense represented 5.5 percent of the country’s national income.

“Costa Rica and Panama have no true military establishments or separate defense ministries; their security forces consist entirely of armed policy and civilian reserves. Only Argentina, Brazil, Mexico and Chile have military establishments adequate for maintenance of internal security.

“Any significant increase in the size of the Latin American defense establishments would require the allocation of a substantially higher proportion of their national incomes to military expenditures”.