Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

720.5 MSP/10–253

Memorandum of Conversation, by the Director of the Office of Regional American Affairs (Cale)

confidential

[Washington,] October 2, 1953.

Subject:

• Foreign Aid for Latin America for Fiscal Year 1955

• Participants: The Secretary
• S/MSA—Mr. Nolting
• ARA—Mr. Cabot
• E—Mr. Kalijarvi
• AR—Mr. Cale

Mr. Cabot expressed the view that we should not extend grant aid to Latin America except under very exceptional circumstances. He said that he considered that assuring an adequate flow of governmental funds into sound economic development projects in Latin America to be perhaps our biggest problem in Latin America at the present time.

The Secretary indicated that a memorandum¹ of his recent conversation with Secretary of the Treasury Humphrey on the future role of the Export–Import Bank is on the way to ARA and E. He said that in this conversation Mr. Humphrey took the line that if the Latin American countries behaved properly they could obtain adequate amounts of capital from private sources for their development. Mr. Dulles said that he had dissented from this view and had pointed out to Secretary Humphrey that in the absence of adequate assistance from us the Latin American countries might well go Communist. Secretary Humphrey took the view, however, that the Export–Import Bank should limit itself to making relatively short-term loans to be used for financing United States foreign trade.

The Secretary also indicated that in his conversation with Mr. Humphrey consideration was given to the possibility of asking Congressional approval for establishing a lending institution to make “soft” loans.² Mr. Cabot pointed out that there have been very few defaults on loans made by the Export–Import Bank and that the record of the Bank, as a lending institution, is therefore good. He referred in this connection to a memorandum which he recently addressed to the Secretary on this subject. (Copy attached)³

Mr. Cabot also said that he believes that it would be possible for the Export–Import Bank to expand its operations in Latin America without necessarily having an adverse effect on the national debt. He mentioned in this connection the possibility that the Export–Import Bank might guarantee loans, might rediscount its paper or that the Export–Import Bank might utilize various means of obtaining private funds as a basis for additional loans. He said that in the Latin American area he would recommend “soft” loans only as a last resort.

Mr. Kalijarvi inquired whether the suggestion was that the institution to make “soft” loans would be a substitute for the Export–Import Bank or a supplement to the Export–Import Bank. The Secretary said the “soft” loan institution would be in addition to the Export–Import Bank, the Export–Import Bank being limited to short-term loans (5 years or under) which would be used for financing United States exports. The Secretary went on to point out that one of the problems in the loan field is the fact that while a project may be sound from the domestic viewpoint of the would-be borrowing country, the country might not be able to earn the dollar exchange required for servicing the loan.

Mr. Cabot expressed the view that loans for basic utilities in Latin America would actually help rather than harm private investment. In this connection he pointed out that the absence of transportation and power facilities may often prevent the development of private industry which would utilize such facilities. The Secretary expressed the view that lending in Latin America might at times not be a sound proposition. Mr. Cabot repeated his earlier statement that all he was recommending was adequate loan authority to handle sound economic development loans. The Secretary said that in Mr. Humphrey’s view, if the loan were sound, there would be adequate lending facilities in the International Bank. Mr. Cabot pointed out that a Latin American country might not be able to obtain a loan from the International Bank if any member country with influence in the Bank opposed it, even though the loan might be perfectly sound and desirable from the viewpoint of the United States. Mr. Kalijarvi said that members of his staff were of the view that there was a justifiable need for economic development funds over and above the lending capacity of the International Bank.

The Secretary then asked Mr. Cabot to summarize the economic aid program for Latin America that he would recommend for Fiscal Year 1955. Mr. Cabot said that in addition to an increased level of lending, he would recommend the following:

1. Continuation of the technical assistance program at a level no lower than at present ($24.3 million) and if possible at a slightly higher rate.

2. Continuation of the present $1 million United States contribution to the OAS technical assistance program.

3. $15 million for the military aid program.

The Secretary inquired concerning the importance of the military aid program in Latin America and asked whether it would be possible to eliminate it or to get the Defense Department to include the program in its own budget. Mr. Cabot replied that from a political viewpoint it would be desirable to avoid anything that would involve falling down on commitments that we have made to the Latin American countries.

Mr. Kalijarvi indicated that he felt that we ought to examine the military aid program for Latin America from the viewpoint of whether or not we have effectively utilized the funds that we have already requested. He said that if the funds have not been effectively utilized, we might consider not asking for additional money for the program.

Mr. Cale pointed out that the military program has been set up to do a specific job, that the Congress has already appropriated enough money substantially to complete supplying the equipment required of us under the program and that discontinuance of the program would mean giving up benefits which the money we have already invested would enable us to obtain, if we were prepared to continue to appropriate the small amount of funds that would be required to assure that the equipment is effectively utilized. He also pointed out that he regards the military aid program as a small step in the direction of increased military cooperation between the United States and the Latin American countries.

Mr. Nolting said that it was his view, on the basis of conversations which he has had with Defense Department personnel, that the Defense Department would support continuation of the military aid program in Latin America.

The Secretary indicated that, in general, he hopes to throw to the Defense Department the responsibility for justifying funds for foreign military aid. He expressed the view that it would be easier to obtain the necessary appropriations from Congress, if the Defense Department is prepared to justify the expenditure of military aid funds for foreign countries on the same basis that it justifies expenditures for our own national defense.

Mr. Cabot referred to problems with which we are now faced in several countries in Latin America, mentioning particularly Bolivia, Brazil and Chile. The Secretary stated that Mr. Dodge has just raised an objection to the proposal of supplying aid to Bolivia.⁴ Mr. Kalijarvi inquired whether Mr. Dodge is objecting to supplying of aid per se or to the way in which it should be supplied. The Secretary answered that Mr. Dodge objected to justifying the aid on the basis of famine or other urgent need. The Secretary stated that he had urged that Mr. Dodge go ahead and approve the proposals made by Mr. Stassen for Bolivia. Mr. Kalijarvi indicated that he thought that Mr. Dodge should do this as an expediency but that he should indicate that this case does not set a precedent.

Mr. Cabot said that he hoped that the aid contemplated for Bolivia this year might considerably reduce Bolivian dependence on imported food. Mr. Cale expressed the view that with the present price of tin, Bolivia, even with the best management, is not likely during the course of one year to be able to make sufficient progress in lessening its dependence on imported food to permit us to get by on any smaller aid program next year than that contemplated for the present year.

Mr. Cabot remarked that economic conditions in Chile seem to be getting constantly worse and that our negotiations looking toward the purchase of their copper are getting stickier because the Chileans are indicating reluctance to do the domestic housecleaning which we think is necessary as a condition to the purchase.

Mr. Cabot pointed out that in addition to the various types of aid mentioned earlier there are certain miscellaneous items that should be taken into account. In this connection he referred to hoof and mouth disease control, saying that we were thinking in terms of $1 million for this but that if the disease spreads the figure may rise to $10 to $15 million.

Mr. Cabot also indicated that he considered it highly important that we make substantially greater progress than we are now making in completing the Inter-American Highway and the Rama Road. He said that the appropriation of $1 million for the Inter-American Highway this year is so small in relation to the work to be done that it raises the question whether the money can be used economically. Mr. Cabot expressed the view that we should request at least $4 million for the Inter-American Highway for Fiscal Year 1955 and $2 million for the Rama Road. The items for hoof and mouth disease control and for construction of the two highways have in the past been carried, respectively, in the budgets of the Department of Agriculture and the Department of Commerce.

In summary, the economic assistance program for Latin America for Fiscal Year 1955 recommended by ARA is as follows:

1. An expansion of Export–Import Bank and International Bank lending.

2. The following mutual security program:⁵

a. Bilateral technical assistance—$24.3 million.

b. OAS technical assistance—$1 million.

c. Military aid—$15 million.

3. Miscellaneous aid items:

a. Hoof and mouth disease control (previously in the Department of Agriculture budget)—$1 million.

b. Inter-American Highway (previously in the Department of Commerce budget)—$4 million.

c. Rama Road (previously in the Department of Commerce budget)—$2 million.

d. Food aid for Bolivia—$15 million.

1. Not found in Department of State files.
2. Not found in Department of State files.
3. Reference is to Mr. Cabot’s memorandum, dated Sept. 29, 1953, not printed, in which he discussed the repayment record on Export–Import Bank loans.
4. For documentation relating to the subject of U.S. emergency assistance to Bolivia, see pp. 535 ff.
5. Definitive appropriations under the mutual security program for FY 1955 are contained in the Mutual Security Appropriation Act of 1955 (Public Law 778), approved Sept. 3, 1954; for text, see 68 Stat. 1219.