734.5 MSP/1–253

The Ambassador in Paraguay (Shaw) to the Department of State 1

confidential
No. 387

Ref:

  • Department’s Circular Airgram of November 24, 1952.2

Subject:

  • Operation and Status of Program under Mutual Security Act—Quarter Ending December 31, 1952.

As this is the first quarterly report on the subject, discussion will not be confined solely to events of the fourth quarter of 1952 but will include certain background information providing a framework for subsequent reports.

A small land-locked country with a simple agricultural and pastoral economy, Paraguay’s economic development has not progressed in relation to that of other countries of this area. The standard of living is [Page 1469] low and conditions of poverty prevalent. Until three years ago it was notably politically unstable and the fact that no coups d’etat have occurred since then should not be taken to mean that underlying tensions do not persist. While of a remarkably homogeneous character, the population does not appear to possess the native intelligence and capacity, the educational background, and the drive which lead to progress in the economic sphere. Some prosperity was achieved during the war because of high prices for export commodities, and relatively large foreign exchange balances were accumulated. These have been dissipated and for a number of reasons, external and internal, Paraguay is now passing through a period of severe economic and financial stress.

Point Four type operations were begun in Paraguay in 1942 and from that date to July 1952 a total of 6.1 million dollars have been expended by the United States to carry out the program in Paraguay, operations considerably expanding since 1950. Leaving apart our wartime objectives, the purpose of our contributions is to achieve a stable and developing economy so that a vacuum does not arise which would have unfortunate economic as well as political repercussions on our long and short term interests in the River Plate area endangering the security of the hemisphere, and at the same time to combat any Communist penetration or extension of influence.

Paraguay is a truly under-developed country and provides a fertile ground for almost all types of Point Four assistance. The need for aid in the fields of education and public health, for instance, is virtually limitless. The execution of our program with limited funds and doubtless higher priorities in other areas must, however, necessarily be related to the degree of economic development which exists at present and which the country can reasonably be expected to achieve in the foreseeable future.

It must be said that progress in meeting our policy objectives in this country through the medium of Point Four is gradual but slow as it must necessarily be in a country of its degree of social and economic development. Paraguay is pathetically eager to escape from the economic morass into which it has fallen, but is in some doubt as to the measures to be taken to so do. In 1950, 1951, and 1952 it called upon the International Monetary Fund and the Federal Reserve Board for technical missions to advise it in the financial and monetary fields. In 1951 it made application for a loan from the IBRD and subsequently obtained $5 million3 for the purchase of agricultural and road building equipment; high officials of the Bank state that this loan [Page 1470] which is speculative in character would not have been granted had it not been that Point Four technicians were intimately working with the Paraguayans in the agricultural servicio and could render advice in carrying out the purposes of the loan. Thus far no purchases have actually been made; at the close of December bids were let for a considerable quantity of equipment. Subsequently in April 1952 there was established a National Planning Commission for Economic Development to formulate and integrate economic policies. The effectiveness of this Commission has yet to be proved. It has drawn up an “Economic Stabilization and Development Plan” approved this month for execution in calendar 1953. Its present plans envisage greater encouragement to investment of private capital, foreign and domestic, which is so greatly needed, and an amelioration of governmental controls on business and industry which have hampered the business community and facilitated as well graft and corruption by governmental officials in charge of these controls. In addition to these measures of self-aid, Paraguay has had recourse to other UN agencies for technical advice and assistance of a Point Four character.

The present Point Four program comprises major assistance in the field of agriculture and animal husbandry, the basis of Paraguayan economy, and to a lesser extent aid in public health and education. These are long-standing projects designed to supplement and support governmental measures in these fields. That such measures are often ineffective and imperfectly executed reduces the effect of our programs on the economy. The country’s capacity to utilize the assistance being provided is influenced by factors inherent in the Paraguayan psychology: the inexperience and incapacity of many of those in positions of authority, the low state of public ethics and morality, the often over-riding influence of political considerations, et cetera. Given this condition, progress is not always rapid and certain specific projects have failed to have the successful results that were perhaps initially contemplated. A re-evaluation of the program in the light of ten years’ experience is now being undertaken by the Point Four organization to bring it more into line with current objectives.

In addition to the three major fields of agriculture, education, and public health, assistance is also being given in the field of public administration (civil service, budget, taxation, land management, et cetera) and in more direct development programs such as hydroelectric power, mineral resources, transportation, et cetera. In the case of the former, the inertia that is encountered is formidable but there is evidence that our help is appreciated and is gradually being made effective. In the case of the latter, important studies have been made which indicate the possibilities and the lines of such public development schemes. The question of financing is important here if such projects are to be brought to fruition. The point has been reached when serious [Page 1471] consideration must be given by the Paraguayan authorities to the possibilities of obtaining adequate financial support, either from domestic or external sources, for soundly conceived projects.

A factor in this situation to which the Point Four program has been attentive is the trend of the Government towards a degree of socialization. As the economy weakened in recent years the inclination was to seek alleviation by the extension of State controls. It has been one of the objectives of Point Four in the fields in which it is working to endeavor to arrest and discourage this trend so that free enterprise may have the greatest possible exercise.

The attitude of the Government toward our aid program is one of great enthusiasm. The informed members of the Government deeply appreciate our assistance, recognize the benefits it might bring to the country, and would be greatly offended if it were restricted or withdrawn. Notable among these are President Chaves, Foreign Minister Ocampos, and the Ministers of Agriculture,4 Education,5 and Public Health.6 In the carrying out of the program, relations with these officials have generally been harmonious and they are receptive to guidance and suggestions and eager within the limited abilities and capacities of the country to give it necessary support. In the public mind, Point Four and the three servicio operations have come to be accepted as among the facts of life and as integral parts of the Government. While criticism of specific projects may occasionally be voiced, the program as a whole receives approbation and no responsible, important sector of public opinion would be in favor of withdrawal. The Communist Party continues to subject it to violent bitter attack as might be expected, but its influence is certainly not great. The Liberal Party in exile derides the program as tending to give support to and maintain in office a minority party controlling an anti-democratic government, but its attacks are so obviously for the purpose of making political capital that, while they cannot be ignored, they can largely be discounted. The Embassy is confident that any party in control of the Government (other than the Communist) would strongly oppose any diminution in our Point Four program, particularly as it is recognized that if Paraguay is to be in a position to resist pressures from Argentina and to maintain its position it must endeavor to make itself economically strong by seeking assistance from the United States, the United Nations, or other sources.

With reference to the general provisions of Subsection 511 of the Mutual Security Act of 1951, the Embassy is of the firm opinion that the supplying of assistance to Paraguay strengthens the security of the [Page 1472] United States and promotes world peace. Paraguay has definitely aligned herself on the side of the democratic nations and avows every intention and desire to cooperate with us in achieving the objectives of a free world. In his Christmas message this year President Chaves expressed this attitude explicitly, declaring “The Government of the Republic interpreting the deepest sentiments of its citizens has concretely defined its position in this struggle which keeps men and people divided. Without hesitation and with decided democratic leanings Paraguay has expressed on every occasion it could its adherence to the principles of democracy and liberty and its tenacious opposition to all that bears relation to international communism”. Its record in support of the position of the United States in international conferences and undertakings compares favorably with those of other Latin American countries. That it does not do more to give concrete material support to the sentiments it expresses is due to a number of factors, the principal of which is the backward state of its economy and people. Instances have been noted above of the decisive steps taken toward self-aid in the economic sphere: the plan to foment agricultural production through the medium of the IBRD loan, the establishment of the National Planning Commission; the embarking upon an ambitious colonization scheme designed to bring immigrants from Europe to settle upon and develop the land, among others. There is no question of its desire to help itself. The fact remains, however, that its efforts in this direction are in some cases mis-directed, improperly implemented, or badly administered so that their full effect is at times either lost or dissipated. To this extent, therefore, our Point Four program is vitiated and to have greatest validity must be viewed over the long term.

During the quarter under review some very effective work was done in meetings of the Joint United States-Paraguayan Commission for Economic Development in discussing current problems and coming to common agreement on them. The Paraguayan members, the Ministers of Foreign Affairs and Finance, regard the Commission as of great importance, and it is, as the meetings demonstrated, a useful instrument in reaching policy determinations. The Commission enjoys great prestige locally and it is a forum in which we can wield considerable influence. I believe it has further potentialities, and it is my desire to make of it a really effective body, serving as a clearing house on a ministerial level for Point Four problems of mutual concern. Likewise during this period, extension agreements covering the three servicio operations were negotiated and signed. While the United States contribution was increased only slightly, the Paraguayan Government substantially augmented its share (the devaluation of the guarani, of course, being a factor here) and it now contributes approximately 6.3 [Page 1473] percent of its total annual budget to these operations in contrast to 4.3 percent in the previous fiscal year. In addition to these developments during the quarter, it may be reported that with the new incumbent in the Ministry of Finance, Dr. Guillermo Enciso,7 who also sits on the Joint Commission, our several technicians working in the Ministry are finding a more cooperative attitude and feel that their recommendations and studies are being more effectively utilized.

The Point Four budget for Paraguay in fiscal 1953 is $1.5 million. The Embassy has come to the conclusion that under the present circumstances we have reached the maximum contribution we should make to the program in this country considering Paraguay’s capacity to absorb our assistance and make effective use of it. With the expanded program now in effect for two years involving a substantial additional contribution over that of former years, we should carefully examine and are examining the program as it is developing with a view not to further expansion but to achieving the most effective utilization of our resources in the best interests of the United States and Paraguay. On the whole, the Embassy is not dissatisfied with the results obtained thus far considered in the light of the objectives and qualifications of the Mutual Security Act of 1951, believes that a certain tightening and reorganization of the program can profitably be made, and unless higher priorities exist in other areas would urge that there be no major diminution in funds for our program in Paraguay.

Geo. P. Shaw
  1. Drafted by First Secretary of the Embassy John C. Shillock, Jr., with the assistance of Ambassador Shaw.
  2. Not printed; it requested reports from Mission Chiefs concerning the operation and status of programs under the Mutual Security Act of 1951 (700.5 MSP/11–2452).

    For text of the Mutual Security Act of 1951 (Public Law 165), approved Oct. 10, 1951, see 65 Stat. 373.

  3. The referenced loan was approved on Dec. 7, 1951; for additional information, see International Bank for Reconstruction and Development, Seventh Annual Report to the Board of Governors 1951–1952 (Washington, 1952), p. 34.
  4. Angel Florentin Peña.
  5. Juan R. Cháves.
  6. Pedro Hugo Peña.
  7. Guillermo Enciso Velloso.