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

611.31/1–1453

Memorandum by Bainbridge C. Davis of the Office of South American Affairs to the Director of That Office (Atwood)

top secret

Washington, January 14, 1953.

Subject:

• Balance Sheet—Venezuela.

1—Political structure and orientation of government.

From the coup d’etat of November 1948, which overthrew the Acción Democrática government and dissolved Congress, until December 1952, a three-man Junta governed Venezuela by decree in the name of the Armed Forces. On December 2 the Junta submitted its resignation to the Armed Forces which then appointed Col. Pérez Jiménez, previously the strongest member of the Junta, as Provisional President. A Constituent Assembly elected on November 30, 1952 (with results which indicated a rigged election) met January 9, ratified the appointment of Pérez Jiménez as Provisional President, and approved all existing Government decrees. While the Constituent Assembly is in session, it is empowered to pass on all basic problems confronting the Government. While there is an atmosphere of instability, nevertheless, so long as the Armed Forces remain united, they constitute the final governmental authority. It is expected that Col. Pérez Jiménez, who speaks for the Armed Forces, will continue the policies of the Junta. It is a government of the moderate right which has encouraged continuance of free enterprise and co-operation with the U.S. Government and U.S. private interests in Venezuela.

2—Economy.

The economy of Venezuela is overwhelmingly dependent upon petroleum, over 90% of its foreign exchange, and directly or indirectly, over 65% of its government revenue coming from that industry. It is the world’s largest exporter of oil, two-thirds of which is produced by American companies and one-third by British. Large deposits of very high-grade iron ore, which Bethlehem and U.S. Steel are just beginning to exploit, promise to broaden the base of its economy as well as contribute substantially to diminishing U.S. reserves. Venezuela has encouraged private enterprise and foreign investments, and U.S. private investments now total over $2 billion. Due to the oil industry, Venezuela has substantial dollar exchange, no foreign exchange control, and a high credit rating—and it provides one of our largest cash markets in the world today. On the other hand, rising economic nationalism presents a long range threat to our interests.

3—Strategic military importance.

The principal factor in Venezuela’s strategic military importance to the U.S. is the fact that it produces over 1,800,000 b/d of oil, 40% of it going to the U.S. and the remainder to other parts of the free world, principally Europe and Latin America. U.S. production is insufficient for domestic peace-time needs, and during a war, Venezuelan oil would be vital to our military operations, while its proximity would facilitate its defense. Venezuelan iron ore is of lesser, though considerable strategic importance.

The geographic location of Venezuela at the entrance to the Caribbean is likewise of military importance. It is assumed that Venezuela’s military role would be restricted to the protection of its oil industry and, presumably, as in World War II, the availability of its ports and air fields for transit of U.S. military vessels and planes.

4—Major problems dealt with in 1952 which furthered U.S. objectives.

(a) U.S. Initiative.

Aviation—Substantial progress was made toward the conclusion of a bilateral air transport agreement. Its signature and ratification by Venezuela awaits the conclusion of a new contract between the Venezuelan Government and Pan American Airways and approval of the agreement and contract by the Constituent Assembly. This agreement is of particular importance as it will terminate the unilateral aspect of non-stop service between Caracas and New York now enjoyed by the Venezuelan airline, LAV, but denied to PAA.¹

Freight Rates—Through the good offices of this Government, an agreement was reached between the Conference shipping lines serving Venezuela and the Venezuelan government-owned line, CAVN, to increase freight rates. Due to the Venezuelan Government’s desire to hold freight rates down and the insistence of the Conference lines on the need for an increase, there was danger of a rate war which in turn would have damaged our political and economic relations. As a result of our efforts, a friendly settlement was brought about.

Point IV—A Point IV general agreement was signed in September 1952.² While Point IV operations in Venezuela are presently limited to the continuance of a health and sanitation mission (begun in 1942) and certain training grants, this agreement provides the basis on which any additional Point IV programs may be undertaken. The Venezuelan Government has shown a commendable desire to study its own development needs, and then to seek inter-governmental assistance only when private sources proved insufficient. When technical aid has been desired, the Venezuelan Government has been willing to bear a substantial part of the cost.

U. S. Steel Operations—The signature on January 14, 1952 of a contract between the Orinoco Mining Company (U.S. Steel subsidiary) and the Venezuelan Minister of Development³ covering operating details⁴ ended a long period of delay, and made possible the activation of U.S. Steel’s preparations for large scale mining of iron ore. This represented the achievement of one of our major objectives in Venezuela bearing in mind not only the large American investment involved but also the strategic value of expediting the availability of this ore.

(b) Other Country’s Initiative.

Trade Agreement—The conclusion of Supplementary Trade Agreement with Venezuela in August 1952 was an outstanding achievement in our relations with that country. The Venezuelans had sought the revision in order to obtain more favorable U.S. customs treatment on their principal export, petroleum, and at the same time to eliminate from the agreement certain Venezuelan tariff items to permit the development of local industry. They stated that failing to obtain their minimum demands on the oil item, they would conclude no agreement and renounce the existing one. In view of the importance to U.S. economic and strategic interests of maintaining favorable trade relations as well as friendly political relations, we took the unusual step (with the concurrence of the National Security Council) of reducing our tariff on oil below the peril point established by the U.S. Tariff Commission.

Military Equipment—In view of the predominant role of the Armed Forces, the Venezuelan Government has been particularly anxious to obtain military equipment from the U.S. It has shown no interest in the military grant aid program, prefering as a matter of pride and in view of its excellent financial position to purchase arms on a reimbursable basis. We have made a real effort to meet Venezuela’s request for arms more promptly and to grant favorable treatment in the matter of priorities. In 1951 Col. Pérez Jiménez was dissatisfied with our response, but as a result of the special attention which has been given to requests in 1952, he has indicated his appreciation for our co-operation.

5—Major problems which did not develop successfully in 1952.

(a) U.S. Initiative.

Oil Concessions—Throughout 1952 we awaited the granting of new oil concessions to American oil companies to include both present operators and other companies not now operating in Venezuela. In view of the vital importance of Venezuelan oil to the U.S. in time of war, the fact that present concession areas have nearly reached their maximum efficient return and the considerable period needed to develop new areas, the U.S. Government has a direct interest in this problem. No new concessions have been granted since 1945, but in the fall of 1951, the Government indicated that it was about to do so. While no official reason was given for the failure to act during 1952, it is believed that the major factors were a hesitancy to grant concessions prior to legalization of the Government by means of a Constituent Assembly (a point which had been stressed by the opposition) and perhaps the realization that anticipation of such concessions might influence our bargaining position in negotiation of the bilateral trade agreement. The Venezuelan Government has been aware of this Government’s desire that concessions be granted, but has always met the issue somewhat evasively.

Military Problem—(See Annex).

(b) Other Country’s Initiative. None.

6–Status of pending problems. (Urgent when marked with an asterisk.)

* Aviation Agreement—In view of the fact that an Aviation Agreement was signed in 1948 but never ratified and that the current agreement has been under negotiation for nearly two years during which time LAV has unjustly benefited from non-stop privileges denied to PAA, the prompt signature and ratification by Venezuela of this agreement is of special importance. Unfortunately, the Constituent Assembly must now examine and approve both the new Venezuelan contract with PAA and the bilateral agreement, which introduces another element of delay. LAV’s permit to operate its present service expires February 20, and there is a strong likelihood that CAB will not permit unilateral continuation of non-stop service by LAV unless the agreement has been ratified.

Oil Concessions—It is hoped that now that the Constituent Assembly has given an appearance of legality to the present Government, it will act to grant oil concessions.

Oil Cartel Case—The publicity given to oil cartel charges brought by the U.S. Government against several of the largest American oil companies (including Standard Oil of New Jersey whose subsidiary, Creole Petroleum Corporation, produces nearly 45% of Venezuela’s total production) has played into the hands of the Venezuelan opposition parties to the disadvantage of American oil company operations there. The opposition has used this to attack the oil companies and the administration of oil laws by the present Government which in turn has felt that a Venezuelan investigation may be necessary in order to protect the Government from further attack. This may also delay Venezuelan action in granting new oil concessions.

Military Equipment—The Venezuelan Government continues to seek armaments of various types, and places importance on our willingness to give them preferred treatment. One aspect of this problem, which will require study in 1953, is the extent to which we can continue to grant this special treatment as a means of winning Venezuelan cooperation without, however, studying the relationship of this equipment to actual defense of the hemisphere. (It is obvious, of course, that most of the equipment now going to Venezuela is intended for strengthening the hand of the Armed Forces in its internal control of the country, and that some of the equipment has no value from the point of view of hemispheric defense even within the limited scope of defense of the oil industry.)

Military Problem—(See Annex).

[Annex]

Additional problem under 5a.

Military Problem—In March 1951 staff conversations were held in Panama between the Venezuelan and U.S. military representatives. An agreement document⁵ was drawn up setting forth the results of the planning talks with respect to co-operation of the two countries in providing for the internal and external security of Venezuelan territory with particular reference to the oil industry. These conversations also dealt with the need for military equipment. Further talks were to have taken place in November 1951, but were cancelled on rather short notice by Col. Pérez Jiménez because of his dissatisfaction with the delay in delivery of U.S. military equipment. Despite the fact that he now appears to be satisfied with our co-operation in this matter, it did not seem possible to complete arrangements for the continuance of staff talks.

Additional problem under 6.

Military Problem—Taking into account the foregoing comments under 5a—“Military Problem”—and under 6—“Military Equipment”—consideration must be given during 1953 to the desirability of completing the staff talks and formalizing an agreement to indicate the necessity for Venezuelan acceptance of responsibility for specific tasks in hemispheric defense, and Venezuelan understanding that U.S. assistance in obtaining military equipment should be related to this responsibility.

1. Documents pertaining to the negotiation of a bilateral air transport agreement are in file 611.3194.
2. For text of the exchange of notes signed at Caracas, Sept. 29, 1952, constituting a General Agreement on Technical Cooperation, which entered into force on the same date, see TIAS No. 2700, or 3 UST (pt. 4) 5096.
3. Pedro Emilio Herrera.
4. A copy of the contract was transmitted to the Department of State under cover of despatch 1128, from Caracas, dated Jan. 25, 1952, not printed (931.5301/1–2552).
5. For text, see Foreign Relations, 1951, vol. ii, p. 1627.