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

No. 246

Subject: IBRD Loan for Agricultural Development in Paraguay.

A number of changes have occurred in Paraguay in the six month interval since submitting the Embassy’s despatch No. 745 of April 26.1 Some of these changes substantially alter the comments contained in the despatch referred to, and it is believed that the following may be of [Page 1574] value to the Department in any discussions which there may be of the proposed loan.2

At the time the despatch was submitted, the loan project was for $10,000,000 and the comments referred particularly to a loan of that magnitude. It is understood that after a detailed survey of the situation by experts of the IBRD 3 the proposed loan was reduced to $5,000,000. I believe that a program of this size, part of the funds being utilized for highway equipment, would provide a sound program for agricultural development. The expansion thereby provided in agricultural production would represent a more normal growth, and would present fewer problems in the way of transportation, processing, et cetera.

In despatch No. 745 reference was made to the very unsatisfactory situation existing with respect to the Supervised Agricultural Credit Organization. It is understood that this matter was discussed by Mr. Burland and his associates with officials of the Paraguayan Government. The Government has now a decree-law drafted which completely reorganizes the Supervised Agricultural Credit Organization and sets it up as a separate entity, completely dissociated from the Bank of Paraguay. The decree is understood to have the President’s approval, and awaits only the necessary approval of the Council of State.

As mentioned in the despatch, it was suggested to the Minister of Finance that a study of the economic situation in Paraguay by a group of banking experts might be desirable. This was undertaken by Mr. Burland and his associates. We do not have available in the Embassy information regarding the findings of the IBRD Commission, but it is our understanding that all phases of the economic and financial situation were carefully studied and the IBRD group undoubtedly had access to much data which is not available to the Embassy.

While the project in its present size appears to be sound, the Embassy is of the opinion that there should be reasonably close supervision of the loan program. It is believed that the Paraguayan Government would be agreeable to control provisions in the loan agreement, and it is believed that this would provide a valuable safeguard for the future. As pointed out in despatch No. 745, the record of the Bank of Paraguay and the Supervised Agricultural Credit Organization, since the Civil War of 1947, has not been good in matters relating to the distribution of agricultural machinery, et cetera. If controls were established, provision could be made that the funds [Page 1575] would be utilized only as fast as implements and equipment are being efficiently distributed and utilized by agriculturists. If there is no control there would be the danger that equipment might be received in amounts greater than could be efficiently distributed. There have also been reports that Paraguayan imports of small agricultural implements have been clandestinely shipped to Argentina. A control on the part of the lending institution would assist in preventing this type of traffic. I believe that Mr. Burland and his associates are fully aware of the need for adequate controls in order to obtain the maximum benefits from a credit and to safeguard the interests of the IBRD.

It is believed that with reasonable safeguards a loan of $5,000,000 would be justified and would be sound. If there is to be any sound economic development in Paraguay, priority should be given to the development of agriculture.

Howard H. Tewksbury
  1. Supra.
  2. In telegram 63, October 23, 1951, the Secretary had requested from Ambassador Tewksbury “current comments” concerning the loan proposal in part because “NAC agencies” were questioning the credit-worthiness of the Paraguayan Government (834.20/9–651).
  3. The Bank had sent a four-man mission headed by Mr. Elmer G. Burland, Financial Advisor to the Bank’s Loan Director, to Paraguay in August, for the purpose of studying the country’s economic position and reviewing the agricultural development program (398.14/8–1051).