The Ambassador in Paraguay (Tewksbury) to the Department of State

No. 745

Subject: Proposed Credit for Paraguay.

In the latter part of 1950 a plan was developed in Paraguay directed particularly toward the increase of agricultural production in the country. Various Government offices contributed to the project, and officials of the Food Supply Division (STICA) of the Institute of Inter-American Affairs1 also cooperated. As it developed, the plan contemplated seeking a credit for approximately $10,000,000, which was to be devoted primarily to the purchase of agricultural machinery and equipment. Part of the funds (approximately $654,000) was to be used for the purchase of road making and road maintenance equipment together with trucks and spare parts, and some other funds were to be used for the purchase of insecticides, veterinary supplies, et cetera. It was expected that the importation of this equipment and the utilization of the credit would cover a three year period.

While there was some discussion of the plan by Government officials during the succeeding months, it was not actively discussed and given general consideration by the Cabinet until early in April of the current year. At that time it was decided by the Government that a formal application for a credit of $10,000,000 would be made. It was also decided that Mr. Persio da Silva, formerly Sub-Secretary of Finance and recently named as Secretary to the Paraguayan Embassy in Washington, [Page 1570] and Mr. Victor A. Pane, a member of the Administrative Council of the Bank of Paraguay, should present the project to banking authorities in Washington. No decision was reached as to whether the loan application should be made to the International Bank for Reconstruction and Development or to the Export-Import Bank.

The fact that Paraguay has been in arrears in the payment of interest and amortization on the Export–Import Bank loans may have been a determining factor in delaying specific action on the new credit. Since the first of this year monthly payments averaging slightly over $200,000 have been made through April. The arrearage, which ran to something over $800,000, has thus been reduced as of April 1 to something in the neighborhood of $350,000. There has been some indication that an effort will be made on or before May 1 to bring this account up to date. Officials of the Government and the Bank of Paraguay realize the importance of clearing up existing arrearages if any new loan is to be obtained. The past difficulties have been due almost entirely to shortages of exchange, but the drastic restrictions imposed on imports during the last half of 1950 and during the current year have materially improved this situation.

The subject of the loan was not officially brought to the attention of Embassy officials until the meeting of the Joint Commission for Technical Assistance held on April 17. At that time the Minister of Finance (a member of the Joint Commission) stated that he desired to inform the Commission of the decision of the Government regarding the loan project. (The only members of the Joint Commission present at the meeting were the Minister of Finance2 and his alternate, Mr. Victor A. Pane, and the American Ambassador and his alternate, Mr. John C. Shillock, Jr. Others attending this meeting included the Minister of Agriculture3 and Acting Minister of Foreign Affairs, the Minister of Public Works,4 Mr. Persio da Silva, and Mr. Antonio Saldivar, General Accountant of the Ministry of Finance.) The Minister of Finance explained that the purpose of the credit was to permit an expansion of agricultural production through a modernization and mechanization of agricultural methods in Paraguay. He also explained that part of the loan would be devoted to road making equipment for the maintenance of existing roads and for the construction of approximately one hundred kilometers per year of new roads to facilitate the transportation of products to market.

The Minister explained that Messrs. da Silva and Pane would visit Washington for the purpose of initiating the negotiations, and explained that they would be prepared to supply all information required to the banking entities with which the discussion will be held.

[Page 1571]

A general discussion of the project then ensued, and it developed that the proposed loan covered exclusively the importation of equipment and materials for agriculture and highway use, and made no provision whatever for financing the farmers, for providing new storage facilities, for marketing the increased production nor for processing this. The Paraguayan Government expects to be able to undertake the guaraní financing of the farmers through agricultural credits or supervised credits, and Mr. da Silva estimated that there would be a thirty to fifty per cent increase in agricultural production under the proposed plan during the first year, and that there would be a gradual increase thereafter.

The Minister of Finance explained that Paraguay hoped to obtain generous terms in any loan arrangement, with repayments extending over a period of fifteen years and interest to commence in the third year. He suggested that the appointment of a joint United States-Paraguay commission to supervise the administration of the loan might make the project more acceptable to banking interests, and indicated that this would be agreeable to Paraguay.

President Federico Chaves, in an address on April 18 before the opening session of the First Congress of Commercial Entities, stressed the importance of improving agricultural methods in Paraguay in order to expand production. He said, “Without mechanization the increase in our production will never be in accordance with the requirements of our progress”. He continued, “… the Government will be able to announce within a few weeks negotiations leading to the carrying out of a three year plan which will include the procurement of substantial quantities of implements and tools to supplement the individual efforts of the agriculturist for immediate returns and to further the training of rural workers through the preparation of an adequate Professional Institute, and the creation of ten experimental stations where they will receive practical instruction in the use of agricultural implements and better utilization of the land”.

While specific reference was not made to loan negotiations, it is clear that the Government is definitely and publicly committed to some program for agricultural development. When the details of the project become public, as they inevitably will, the progress and results of the negotiations will be closely watched and will most certainly have an important influence in the local political situation.

Messrs. da Silva and Pane visited the Embassy on April 19, at which time there was a further discussion of the project. It was explained to them that whether the project was discussed with the International Bank for Reconstruction and Development or with the Export-Import Bank, full particulars would be desired regarding such subjects as ways and means of financing the farmers in Paraguay for the full utilization of the agricultural equipment, its distribution, and the [Page 1572] plans for servicing the loan and full particulars regarding the handling (transportation, storage, processing, marketing, et cetera) of the increased agricultural production. It was also explained that considerable time would be required to conclude any negotiations of this character, and that it might be desirable for the foreign banking institutions to assign a group of experts to study the entire needs of the country and determine whether the proposed loan met the essential requirements of the country for a sound economic development. Messrs. Pane and da Silva felt that they had adequate material at least to start discussions, and stated that they expected to arrive in Washington on or about May 5.

Messrs. Pane and da Silva offered to supply the Embassy with full details and supporting data for the project, but up to the present time this has not been received. The only information which the Embassy has regarding the project is contained in the “Plan of Expansion of the National Agricultural Production—1951–1953”, which contains a general statement regarding the purposes of the credit and a number of tables indicating types of equipment, et cetera, to be obtained under the loan. It is believed that a copy of this report is available in the Department, and that it was prepared almost entirely by officials of STICA.

Preliminary Appraisal of Project

In my opinion it is unfortunate that the Paraguayan Government should decide to propose the negotiation of a credit of $10,000,000 on the basis of the present project. The project comprises only the estimated requirements of the country for the mechanization of its agricultural production with minor attention to highway development, plant disease control, et cetera. Agriculture and livestock combined comprise by far the most important factor in Paraguyan economy, but increased production in itself will not provide a balanced economic development for the country.

The failure of the project to consider and provide for other phases of agricultural development makes the project incomplete and possibly unsound. There are a number of vital problems in the distribution field which should be at least simultaneously considered and provided for. Facilities for storage and processing of agricultural products are entirely inadequate, and before any large scale project for increased agricultural production is undertaken, the over-all requirements of the country should be considered.

The Government proposes that the distribution and financing of equipment for the farmers would be handled through the agricultural credit (crop financing) and the Supervised Agricultural Credit Organization, both of which are departments in the Bank of Paraguay. The administration of the Supervised Agricultural Credit Organization is notoriously bad, and representatives of the Federal Reserve Bank now [Page 1573] in Paraguay have recommended that this Department be withdrawn from the Bank of Paraguay since it is not strictly a banking function. The Supervised Agricultural Credit Organization is a combination of agricultural extension work and financing for farmers and homesteaders. According to Messrs. Pane and da Silva, the distribution of agricultural implements and machinery obtained through the credit would be through the Bank of Paraguay. There would be many objections to a provision of this sort. The past record of the Bank of Paraguay in handling the distribution of machinery and parts has been extremely bad.

There is no question but that Paraguay needs outside financial assistance in order to carry out any type of economic development program. Some progress is being made in the solution of internal financial problems, which should provide a sounder basis for the extension of development credits. Although there are certain features of the present project which appear unsound, it is felt that after a full study of Paraguay’s needs and capacity there might well be justification for acceptance of a modified plan. It is hoped that sympathetic consideration will be given to the proposals of Messrs. da Silva and Pane in order to assist Paraguay to adopt a sound program for economic development.5

Howard H. Tewksbury
  1. The Institute of Inter-American Affairs (IIAA) was established in 1942 and it became a United States Government corporation in 1947. Its purpose was to aid governments in the Western Hemisphere by promoting technical programs and projects for health, sanitation, and food supply; as of mid-1950 the IIAA operated in conjunction with the Technical Cooperation Administration (TCA) in Latin America. For background information on the IIAA, see the statement made by Assistant Secretary of State for Economic Affairs Willard L. Thorp before the Senate Foreign Relations Committee on June 10, 1949, printed in the Department of State Bulletin, June 19, 1949, pp. 795–797. For information on the activities of the IIAA and its relationship with TCA in 1950, see the editorial note in Foreign Relations, 1950, vol. ii, p. 679. For additional documentation on the subject, see pp. 1038 ff.
  2. Ramón Mendez Paiva.
  3. Angel Florentin Peña.
  4. Tomás Romero Pereira.
  5. Representatives of the Paraguayan Government arrived in Washington in May to initiate discussions with officials of the International Bank for Reconstruction and Development (IBRD) concerning a loan for agricultural development. A note dated May 28, 1951, by the Assistant Secretary of State for Inter-American Affairs, Edward G. Miller, Jr., to the Director of the Office of South American Affairs, Fletcher Warren, reads as follows:

    “As agreed upon at the staff meeting this morning, I telephoned Mr. Black, President of the International Bank, and asked him to give prompt attention to the Paraguayan mission and to inform the mission promptly if it should develop that the Bank is not interested in working with Paraguay.” (834.10/5–2851)