814.00/9–3054
The Acting Secretary of State to the Director of the Foreign Operations Administration (Stassen)1
Dear Mr. Stassen: Since the overthrow of the pro-Communist Arbenz Government in Guatemala approximately three months ago, the Department of State and the Foreign Operations Administration have both given urgent and careful study to the problem of the economic rebuilding of that country, and the specific part which can be played by aid from our Government. A marked decline in economic activity consequent upon the disturbances of May and June of this year has been reflected in increasing unemployment, reduced levels of income particularly among the lower classes of the population, and a retarding or total cessation, in some cases, in normal expansion and growth. The Government of Guatemala, suffering extraordinary expenses at a time when the national treasury was found to be looted by the departing regime, has not been able to count fully on even normal sources of revenue to cope with the new burdens of reconstruction. Emergency loans to the Government may be obtained, on a limited basis, from internal banking sources; but as the Government is unwilling (for domestic political reasons of considerable importance) to look for private foreign loans through usual banking channels, it has become apparent that some form of foreign aid is indispensable to meet the pressing need for renewed economic activity and restoration of confidence.
The interest of our Government in a favorable solution of this problem has been expressed publicly by the Secretary of State on June 30, 1954,2 and reiterated by President Eisenhower on August 16, 1954. The rebuilding of the Guatemalan economy, as a bulwark against the return of Communist domination of that country, is a very important objective of our foreign policy.
Within the last two weeks, a representative3 of the International Bank for Reconstruction and Development visited Guatemala for the purpose of estimating present needs on which that institution can assist. On his return earlier this week, we were informed by President [Page 1229] Black4 that this representative recommended against any loans to Guatemala at this time.5 Likewise, during the present week, it has been indicated to this Department that the policy of the Export Import Bank is not in favor of the kind of loan which is now needed by Guatemala. Accordingly, it would appear that neither the International Bank nor the Export Import Bank can now be looked to as sources for emergency economic or financial assistance to Guatemala at this time.
Meanwhile, our Embassy at Guatemala City has reported that the Guatemalan economy stands in urgent need of strengthening through the initiation of public works programs which will absorb a large portion of the many thousands now unemployed, and restore confidence by demonstrating the willingness of the United States to support the regime. The Embassy has pointed out that time is a precious commodity in the present urgent need, and has specifically recommended that a loan of ten million dollars be obtained from the Export Import Bank for purposes of road construction and other public works. Your attention is drawn to Embassy cable No. 247, dated September 7, 1954,6 copy of which was distributed to the Foreign Operations Administration. In Washington, the Embassy of Guatemala has on September 20, 1954, submitted a formal note7 to this Department requesting that the sum of ten million dollars be made available to the Government of Guatemala, in order to pull the country’s economy out of the state of partial paralysis which has developed as a result of Communist depredations and mismanagement.
In the present circumstances, it is the considered judgment of the Department of State that our policy objectives in Guatemala require a rapid injection of new funds into the Guatemalan economy, and that this could best be accomplished by a specific grant for public works in the fields of housing, road construction and sanitation and other development purposes. These projects will, in the main, fall within the purview of the Foreign Operations Administration, and could properly receive its supervision and guidance. The amount deemed necessary, during the present fiscal year, is estimated at five million dollars. The [Page 1230] allocation and distribution of such funds should remain under control of representatives of the United States Government by requiring that release be made solely on the joint signature of the Country Director of FOA and the American Ambassador.
Such aid to the Government of Guatemala should not encourage other Latin American Governments to feel they should receive similar assistance. The special needs of Guatemala are generally recognized by other Governments as well as our own, and the public assurance of aid to Guatemala, given by the President and the Secretary of State, has been generally accepted by other governments in Latin America as a recognition on our part of the peculiar and dangerous conditions which followed upon the overthrow of the pro-Communist regime. It is not anticipated that the action recommended will cause ill feeling among other Latin American Governments or precipitate requests by them for equal treatment.
May I therefore request that you give urgent consideration to the feasibility of making available to Guatemala the sum of five million dollars for public works in the fields of housing, road construction, and sanitation and other development purposes and that designated officers of your Agency confer with officers of the Department at the earliest possible moment to achieve this purpose.8
Sincerely,
- Drafted by Mr. Leddy.↩
- Reference is to the Secretary’s address over radio and television on June 30, 1954; for text, see Department of State Bulletin, July 12, 1954, pp. 43–45.↩
- Enrique Lopez Herrarte.↩
- Eugene R. Black, President, International Bank for Reconstruction and Development.↩
- In a memorandum of conversation which took place at the Department of State between Assistant Secretary of State for Economic Affairs Waugh, Acting Assistant Secretary of State for Inter-American Affairs Woodward, Special Assistant in the Office of Financial and Development Policy Robinson, Mr. Black, Burke Knapp, and Mr. Lopez Herrarte of the IBRD, drafted by Director of the Office of Middle American Affairs Newbegin, dated Sept. 20, 1954, not printed, Mr. Lopez Herrarte is recorded as having stated that there was no present need for commercial loans in Guatemala, that the financial plans of the government were insufficiently definite and too far removed from any operation that would result in a bankable loan, and that loans would be unjustified from the standpoint of the unstable political and constitutional situation in the country (814.10/9–2054).↩
- Not printed (814.10/9–754).↩
- Reference is to Guatemalan Embassy note no. 1302, dated Sept. 17, 1954, not printed (814.10/9–1754).↩
- On Oct. 5, 1954, Mr. Stassen, Ambassador Armour, who was in Washington for consultations at the Department of State, and Mr. Fisher discussed the subject of emergency FOA aid for Guatemala at the Department of State. In a memorandum of that conversation, by Mr. Fisher, dated Oct. 6, Mr. Stassen is reported to have stated his agreement that in general Latin America had been “sadly neglected” by the United States, that in the specific case of Guatemala “he would do what he could to resolve the problem”, and that “one of the factors involved was that the President’s emergency fund, contrary to what many believed, was not a separate unallocated sum, but merely an authority to transfer funds among existing allocations.” (814.00 TA/10–554)↩