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

OAS files, lot 60 D 665, “Rio Economic Conference—general”

Memorandum by the Acting Deputy Director of the Office of Economic Defense and Trade Policy (Frank) to the Assistant Secretary of State for Economic Affairs (Waugh)¹

secret

[Washington,] June 14, 1954.

Subject:

• Comments on FOA Report² for Rio Conference

General Comments

1. The heart of the FOA Report is the section on the programming and financing of development and technical cooperation (pages 7–27). Most of the specific recommendations fall within this field and are commented on below under “Economic Development.”

2. The Report also includes some general recommendations on our economic relations with Latin America and a section on trade and commodity problems. These sections are weak and contribute little to our preparations for Rio, probably because FOA does not in these fields have the familiarity that comes with operating responsibility. We will have to look to other papers to serve as a basis for Committee discussions of such subjects as stockpiling, terms of trade, commodity agreements, agricultural surpluses, etc.

3. I believe you should say some words of praise for the enthusiasm with which FOA has approached the problem of preparing a program for Rio in the economic development field. While a number of the proposals in the paper are open to serious question, FOA has obviously given good deal of thought to the problem.

4. FOA talks about “an urgent need for dramatic new lines of action”. I would question whether dramatic new approaches are necessary or desirable. The dramatic quality can seldom be sustained over a period of time, and frustration often sets in when the initial enthusiasm wears away. What we need are programs which are solid, steady and constructive over the long-term.

5. Although our programs should be developed for the long pull, I would question whether we should decide now that “the main punch should be an announcement that the United States intends to get behind Latin American economic development for the ‘long haul’”. Regardless of how we qualify such an announcement, it will be construed in Latin America as a financial commitment. If we are willing to make a long-term financial commitment, such an announcement would have a salutary effect, but this cannot be determined until we have discussed the substance of our policy and know what we have with which to back the announcement up.

6. The last 15 pages of the FOA Report consist of an Appendix containing recommendations on individual resolutions adopted at Caracas.³ This is not a particularly useful exercise. Those few Caracas resolutions which call for specific action on our part are already being followed up. The balance of the Caracas resolutions are expressions of general policy. They are not likely to come up in precisely the same form at Rio. What we will need are general position papers on the subjects which came up at Caracas and are likely to come up at Rio, rather than positions on specific resolutions that have already been adopted. The purpose of the meetings of the Sub-Cabinet Committee is precisely to develop such general positions.

Economic Development

Ten of the eleven main lines of action proposed in the FOA paper deal with problems of economic development. These ten proposals are listed and commented on below under the three headings, Programming, Financing and Technical Cooperation.

I. Programming

1. Urge Latin American governments to devote greater attention to development planning.

Comment:

This proposal was in effect made at the Caracas conference which adopted a resolution recommending that the Latin American countries consider the establishment of development planning.

2. Urge that the Latin American governments and the United States make joint effort in finding ways to increase Latin American production at a rate faster than population growth.

Comment:

Increasing production in Latin America is a generally desirable objective. The objective of this proposal, however, has already been attained, and indeed exceeded considerably. For the past decade or so output has increased faster than population, a fact reflected in the 3 per cent annual increase in per capita production in Latin America, which is somewhat higher than the long time United States average.

3. Urge Latin American governments to seek a more equitable distribution of income.

Comment:

A positive statement on more equitable distribution of income would probably be desirable at Rio. FOA, however, has in mind increasing emphasis on production of consumer goods, housing, minimum wage legislation, etc. There is a serious question as to whether we could appropriately push the Latin American governments to take such specific measures while urging them to mobilize more of their capital resources for economic development. Instead of specifying the measures they should take toward this objective, we should limit ourselves to a general statement somewhat along the following lines: In order to increase the standard of living of the population, it is essential that the benefits of increased production be shared equitably.

4. (a) Latin American countries should be fully responsible for their own development planning; recommended that they set up planning agencies as resolved at Caracas (Resolution No. 72).

Comment:

Agree that the countries themselves should be responsible for their development planning. As there is already a resolution (Caracas) recommending the setting up of planning agencies, no further action along these lines seems to be called for.

(b) Recommend establishment of Joint Development Commissions to coordinate United States financing and United States technical cooperation with Latin American development goals.

Comment:

In the minds of Latin American governments and peoples, plans prepared by a joint body including official United States participation imply a United States commitment to provide for the necessary financing of such plans. We have had experience with two Joint Commissions in Latin America, in Brazil and Paraguay. Our activities in Paraguay have not been of sufficient scope to make effective use of such an organization, and after a period of rather innocuous performance, several months ago it was terminated. In Brazil we made an aggressive effort to carry on joint planning, but after about two years we felt it advisable to terminate it⁴ following some strained moments in our relations with that country as a result of her disappointment in not getting the necessary financing for the plans formulated by this Commission. We should not, however, exclude the possibly that with improvement in this device, and under more favorable conditions, it could become a useful tool for guiding and stimulating economic development in some countries.

(c) Assign full-time FOA industrial or economic advisers to appraise each country’s potential for development

Comment:

It seems to us that this is a matter to be resolved by the United States and the countries individually, depending on the nature of the program we carry on in a particular country. It is doubtful that any useful purpose would be served by a United States pronouncement on this matter at Rio.

5. Recommend setting up a mechanism for regional review of country plans.

Comment:

This proposal envisages the possible application of the Colombo Plan⁵ to Latin America, assigning the review and coordinating functions involved, however, to IA–ECOSOC rather than to an ad hoc group. (In the Colombo Plan, review and coordination, if any, are performed at the annual meeting of the Consultative Committee, which has no permanent secretariat. It is essentially an occasion for the representatives of the member countries to exchange ideas regarding their development programs.) While on its face, regional review of country programs might seem useful, it would require a stronger case than there is in the FOA paper to merit its inclusion in our program for Rio.

II. Financing.

6. (a) Emphasize that private investment, whether domestic or foreign, must be the main source of development capital in Latin America and that Latin America take appropriate measures to encourage this investment.

(b) Recommended establishment of bilateral and multilateral banks to help finance domestic investment in Latin America, or

Alternatively that FOA foster the establishment of national development financing agencies. These should be domestically capitalized, but supplemented by IBRD, Export–Import Bank loans, private investment, grants and local currency counter-part funds.

Comments:

(a) We are in wholehearted accord with the substance of this proposal. It should be implicit in our discussions with the Latin American countries that we look primarily to American private investment to assist them in pursuing their economic development goals. It would appear advisable, however, to soft-pedal our public statements in this regard, as we have made the point time and time again and it leaves the impression that the United States must invest abroad for its own benefit.

(b) We also agree with the objective of this proposal. We should encourage devices to stimulate local savings and channel such savings into more productive kinds of investment. At the time we cannot help having some doubt about the advisability of our entering into the ownership and administration of bilateral development banks. Our participation in such activities might have unfortunate public relations repercussions. Our experience with such institutions in Bolivia, Ecuador and Haiti during the last war and the immediate post-war years should make us wary of such ventures.

We also have doubts about the advisability of our participating in a multilateral bank for Latin America. It may be assumed that all of the Latin American countries would wish to employ at home such resources as they have available for economic development. There is no indication that an Inter-American Bank would be able to attract the necessary capital from private sources in the United States, and in the absence of private United States capital the financing of this institution would fall almost entirely on the United States Government.

Our efforts might better be directed toward the other suggested alternative of encouraging national development banks organized primarily with domestic capital to be supplemented, where desirable, by IBRD, Export–Import Bank and other loans. There are institutions of this nature in Latin America, and in many cases the need is primarily to improve existing institutions. United States participation in the management of such banks, to the extent necessary, could be achieved, as IBRD has done, through a technical advisor or his equivalent.

7. Encourage United States private foreign investment by improved investment climate, more favorable United States tax laws and greater use of investment guaranties.

Comment:

The FOA paper proposes calling the Latin American governments’ attention to Contact Clearing House Service in FOA’s Office of Small Business. This seems to be a desirable adjunct to encouraging private investment abroad, but its importance seems to be over-emphasized. It would be helpful if we could have an appraisal of the effectiveness of this Service to date. In this connection, recognition should be given to the older, more far-reaching (and probably, more effective) services of the Department of Commerce.

Tax Laws. We have always rejected, as the paper rightly recommends, the contention that the United States has no right to tax income earned abroad by its citizens and corporations.

Since the Administration’s tax proposals are now in the legislative mill, the Committee’s consideration of tax measures would seem to be more appropriate at a future date. It would be more appropriate to discuss the subject of taxes on the basis of a Treasury paper.

Investment Guaranty. The extension of the FOA Investment Guaranty Program⁶ to Latin America has been unsuccessful for several reasons, among which are:

(a) The feeling among Latin American countries that guaranties have little incentive effect and

(b) the reaction that the proposed guaranty agreements, particularly as regards expropriation, are a reflection both on the country’s good faith and its sovereignty. There is some feeling that if the guaranty program were limited in Latin America to the transfer risk, it might be more palatable.

Export Credit Facilities. There is some feeling that additional export credit facilities are needed (1) to equalize the position of United States exporters in Latin American markets with that of foreign exporters who are able to offer better credit terms and (2) to enable Latin American importers to purchase goods on the basis of price rather than credit terms. A study of the possibilities of an export credit guaranty would be desirable.

8. Public Lending. Expand IBRD and Eximbank development loans, announce the general magnitude of such possible expansion, and coordinate these loans with the objectives of country plans through Bank representation on proposed joint Commissions.

Comment:

The IBRD should certainly be encouraged to increase activity in Latin America, but the most useful effort toward this end would be for the Latin American countries to prepare sound development projects and submit them to that Bank. With regard to expansion by the Export–Import Bank, the new Administration proposal is a move in that direction. In regard to the recommendation on announcing the general magnitude of possible loan expansion, it may be recalled that some months ago in preparing for Caracas the Department was in favor of some general 5-year target along these lines, and that due to Treasury’s objection, the idea was dropped. Any application of this proposal would, of course, be feasible only in terms of regional and not country magnitude.

9. Increase United States grant and soft loan assistance.

Comment:

We should be prepared to meet unusual situations, such as exist in Bolivia, where temporarily grant financing may be appropriate. No case has, however, been made for a general use of economic aid either in the form of soft loans or grants.

III. Technical Cooperation.

10. Expand technical cooperation programs, and reorientate these programs to focus more directly on economic development objectives.

Comment:

The proposal is that instead of concentrating on agriculture, health and education, as FOA and its predecessors have done in Latin America, the future emphasis should be on activities more directly contributing to economic development such as industrial technology and public administration. We assume that the new program would still include agriculture.

Actually, FOA has provided some technical assistance in industry and public administration in Latin America on a modest scale. The stepping up of activity in these fields would, it seems to us, be a valuable contribution to development effort in Latin America. Serious consideration should, however, be given to the question as to whether we should really capitalize on this proposal in Rio without having some assurance beforehand that the United States will actually be in a position to make good on this offer to Latin America. Under existing agreements we have undertaken to staff a number of projects for which we have been unable to provide the necessary technicians.

Some caution will be required in our activities in the public administration field. This is a sensitive area, and many countries prefer to receive such assistance through the UN—even though the technicians employed may be United States nationals.

1. Drafted by Isaiah Frank and Joseph Rosa of the Economic Development Staff.
2. Reference is to a report titled “Program Recommended by FOA Staff for Adoption at the Rio Conference,” prepared at the staff level in the Foreign Operations Administration and dated June 8, 1954; a copy is in MSA–FOA Director’s files, FRC 55 A 374, “Rio Economic Conference”.
3. Reference is to the Tenth Inter-American Conference, held at Caracas, Mar. 1–28, 1954. For text of the resolutions adopted by the conference, see Tenth Inter-American Conference: Report of the Delegation of the United States of America With Related Documents (Department of State Publication 5692, Washington, 1955), pp. 81–175. For documentation concerning the conference, see pp. 264 ff.
4. For documentation relating to the termination of the Joint Brazil–United States Economic Development Commission, see pp. 609 ff.
5. Reference is to the Colombo Plan for Economic Development in South and Southeast Asia, which comprised a number of related long-term national development plans officially initiated in 1951 by the nations of the British Commonwealth; for documentation concerning U.S. interest in the plan, see volume xii .
6. Under the investment guaranty program, initiated in 1948, the U.S. Government provided, for a fee, insurance protection for American investors abroad against the risks of loss through confiscation or expropriation and currency inconvertibility. For documentation concerning the initiation of the program, see Foreign Relations, 1949, vol. i, pp. 631 ff. For additional information, see Staff Papers Presented to the Commission on Foreign Economic Policy (Washington, 1954), pp. 126–134.