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

Eisenhower Library, Eisenhower papers, Whitman file, NSC records

Memorandum of Discussion at the 224th Meeting of the National Security Council on Monday, November 15, 1954¹

top secret
eyes only

November 15, 1954

Present at the 224th Council meeting were the President of the United States, presiding; Under Secretary Hoover for the Secretary of State; the Secretary of Defense; the Director, Foreign Operations Administration; the Director, Office of Defense Mobilization. Also present were the Secretary of the Treasury; the Director, Bureau of the Budget; the Director, Selective Service System; General McLain for the Chairman, National Security Training Commission; the Director, U.S. Information Agency; the Deputy Secretary of Defense; the Secretary of the Army; Assistant Secretary Pratt for the Secretary of the Navy; the Secretary of the Air Force; Assistant Secretaries of Defense McNeil, Burgess, Seaton and Floete; Assistant Secretary of the Army Milton; the Deputy Assistant Secretary of Defense (Manpower & Personnel, Military); the Military Assistant to the Secretary of Defense; Capt. John R. Leeds, USN, and Col. James A. Norell, Department of Defense; James H. Taylor, Assistant Director for Manpower, FOA; the Acting Chairman, Joint Chiefs of Staff; Admiral Duncan for the Chief of Naval Operations; the Vice Chief of Staff, U.S. Air Force; the Commandant, U.S. Marine Corps; the Director of Central Intelligence; the Assistant to the President; Robert Cutler, Special Assistant to the President; the Deputy Assistant to the President; the White House Staff Secretary; Bryce Harlow, Administrative Assistant to the President; the Executive Secretary, NSC; the Deputy Executive Secretary, NSC; and George Weber, NSC Special Staff.

There follows a summary of the discussion at the meeting and the main points taken.

[Here follows discussion concerning reserve mobilization requirements.]

2. Position of the U.S. at the Rio Conference (NSC 5432/1)

Mr. Cutler briefed the Council, pointing out that the U.S. position to be taken at the Rio Conference had been based on NSC 5432/1, the policy report on Latin America, approved September 3, 1954. However, Mr. Cutler said he had been informed that questions of interpretation of this policy paper had arisen in the course of preparing the position for the Rio Conference. This was especially true of paragraphs 9–b, 9–c and 9–g of NSC 5432/1. Mr. Cutler then called on Secretary Humphrey, as head of the U.S. delegation to the Rio Conference, to outline the U.S. position.

Before reading his report, Secretary Humphrey said that he would be leaving this week for the Rio Conference, which would last, he expected, about two weeks. He would be in charge of the U.S. delegation for the first week, and Under Secretary of State Hoover would be in charge the remainder of the session. Secretary Humphrey then observed that Assistant Secretary Holland had been busily engaged throughout Latin America in doing the ground work for the forthcoming conference. In the course of this preparatory work Mr. Holland had encountered both criticism and approval—criticism for our failure to agree to unsound projects; approval for our agreement to go along with sound projects.

It would be the general purpose of the U.S. delegation to present the Rio Conference in the first instance with an outline of what the United States had already done—by way of sound enterprises—on behalf of the various Latin American countries. Secondly, we would indicate our intention to resist other projects which had been proposed, because such projects were deemed by us to be unsound. At the conclusion of these opening comments, Secretary Humphrey said that the entire U.S. delegation would meet the next afternoon,² Tuesday, to go over the draft of the final U.S. position.

Thereafter, Secretary Humphrey outlined the following five points as indicating the positive content of the U.S. position at the Rio Conference:

1. The United States would undertake to maintain, as absolutely basic, a high level of economic activity in America, because this was not only vital for the welfare of Latin America but for all the rest of the free world.

2. The United States would take further sound steps toward convertibility and the removal of restrictions and restraints on commerce and trade.

3. The United States would do its utmost to encourage increased private investment as being of the essence of economic progress in the hemisphere.

4. The United States would show particular concern for increased local investment because it believed that investment of local capital in the various republics was far more significant than investment in them of foreign capital.

5. The United States would press for the extension of technical assistance programs and developmental programs.

Commenting on the above positive U.S. positions, Secretary Humphrey characterized them all as “constructive”. They would include ways and means for the investment of public funds in sound projects, on the basis that this kind of investment would ultimately lead to the desirable increase in private investment. The United States would also undertake to negotiate new treaties with the Latin American republics dealing with taxation issues.

After thus summarizing the positive aspect of the U.S. position, Secretary Humphrey indicated various proposals and suggestions that the U.S.delegation had decided to oppose at Rio:

1. The UN proposal, which set up a goal of $1 billion which would have to be spent each year on some project or other. This proposal, complained Secretary Humphrey, was just like the Marshall Plan in philosophy, only not so big.

2. The United States would resist a variety of commodity price stabilization schemes which had been proposed by Latin American countries.

3. The United States would oppose such regional preferential arrangements among the Latin American nations as would require U.S. financial support for their operation.

4. The United States would oppose the project for a new Inter-American Bank. There were already three banks in a position to extend loans to Latin American countries, and there was no need for another.

At the conclusion of this list of negative positions, Secretary Humphrey reverted to Mr. Cutler’s earlier point that differences of interpretation had arisen regarding paragraphs 9–b, 9–c and 9–g of NSC 5432/1. He confirmed Mr. Cutler’s statement, and requested the National Security Council to provide clarification of the points at issue respecting the meaning of these paragraphs.

Secretary Humphrey turned first to paragraph 9–b, which read as follows:

“b. Be prepared to assure the financing of all sound economic development projects, for which private capital or IBRD financing is not available, through Export–Import Bank loans; subject to each loan being:

• “(1) in the interest of both the United States and the borrowing country.
• “(2) within the borrower’s capacity to repay,
• “(3) within the Bank’s lending capacity and charter powers.”

Secretary Humphrey said that it was his conviction that this language was too broad and the course of action too open-ended. He therefore recommended that the word “assure” in the first line be replaced by the word “assist”, and that the word “all” in the first line be deleted.

Secretary Humphrey then read paragraph 9–c, as follows:

“c. Only if a and b above prove to be inadequate, finance through development assistance loans the initiation or acceleration of projects or activities which are in the basic U.S. interest and which, in the absence of such additional assistance, would not be undertaken or, if undertaken, would not be carried forward at the rate required by U.S. foreign policy objectives.”

Secretary Humphrey observed that in effect this course of action called on the United States to make “fuzzy” loans to Latin American countries, not on economic grounds but because such fuzzy loans were in the interests of furthering our national security. In order to qualify somewhat the approval of fuzzy loans, Secretary Humphrey suggested the addition of the following phrase between the words “inadequate” and “finance” in the first line: “and only after further review of the particular case by the National Security Council”.

The President said he thought this was the right idea, and inquired who would make such loans. Secretary Humphrey replied that he did not know, but supposed that it would be some Government agency or else one of the International Banks. The President then suggested that it might be a good idea to create a group of individuals who would be in a position to make recommendations for Council action when the Council did review particular cases, as called for by Secretary Humphrey’s proposed addition to paragraph 9–c.

Mr. Cutler indicated concern over the apparent intention of Secretary Humphrey to amend NSC 5432/1. He recalled the discussion of paragraph 9–b at the Council meeting when the report was approved.³ The deliberation had been lengthy and detailed, and Mr. Cutler warned against hasty changes in paragraph 9 without adequate staffing by the Planning Board and the interested departments. With respect to the proposals for a change in paragraph 9–c, Mr. Cutler insisted that the National Security Council had never intended paragraph 9–c to countenance resort to fuzzy loans and the like until the failure of the courses of action set forth in paragraph 9–b had been clearly demonstrated. Accordingly, if it was proposed to revise paragraph 9–c, Mr. Cutler suggested that it would be in clear consonance with the prior Council discussion and action if language were inserted to provide perhaps a year’s time to see how the courses of action in a and b actually worked out. This would be preferable to the proposal for having a Council review on a case-by-case basis. Secretary Humphrey said that he would be delighted to go along with this suggestion, since that was all he wanted to achieve. The President suggested adding also that the courses of action in 9–c should not be carried out except with the express approval of the President. He turned to the Secretary of the Treasury, however, and asked him to remember that all these things we were doing or proposing to do in Latin America, we were doing in our own self-interest. This being the case, and if we were careful and cautious, he believed that perhaps the word “assure” rather than the proposed word “assist” was the right word for paragraph 9–b.

Secretary Humphrey continued to argue strongly against any course of action which would assure Latin Americans that we would agree to finance every project which they asked us to finance. Mr. Cutler observed that he thought this was somewhat unfair, since the paragraph as written contained three clearly stated qualifications on the freedom of the United States to finance all such proposals. Secretary Humphrey argued that the gist of the course of action in 9–b had been advertised throughout the length and breadth of Latin America, and there was very great danger that, as a result of such advertising by U.S. Government agencies, the Latin Americans would come to us and ask for assistance which we would be in no position to give them. Refusal to accord loans and other things they wanted would be bound to affect adversely our relationships with these countries.

Expressing surprise, the President inquired whether all the policies discussed in the National Security Council were thus advertised all over the world. It was pointed out that this was not the case, either in this or other areas.

Secretary Hoover then suggested that perhaps Secretary Humphrey’s point regarding paragraph 9–c could be met if the sentence were recast so that it would begin rather than end with the three qualifications on our loan policy. This, at any rate, would give greater emphasis to these qualifications on our freedom of action. Secretary Humphrey professed that this would be very satisfactory to him.

Secretary Humphrey then turned to paragraph 9–g, which read as follows:

“g. Consider sympathetically, but only on individual merit, any proposal by Latin American initiative to create regional economic actions and groupings to promote increased trade, technical cooperation and investment, and to concert sound development plans.”

He then suggested that he would like to revise this paragraph by omitting the word “sympathetically” in the first line. The President interrupted to say that he was in agreement with this proposal, and Secretary Humphrey went on to suggest further amendment by adding a caveat against any United States financial commitment to assist Latin American regional economic groupings which had as an objective any discrimination against U.S. trade and commerce.

Mr. Cutler explained the legislative history of this proposal, including the reasons why the Council had been inclined to accept regional groupings in Latin American countries, even though with some misgivings. Governor Stassen said that while he would not oppose Secretary Humphrey’s proposed revision of paragraph 9–g, since Secretary Humphrey was chairman of the U.S. delegation, he nevertheless felt obliged to state, on behalf of the Foreign Operations Administration staff, that FOA regarded this and other aspects of our policy toward Latin America as very seriously inadequate to meet our needs. He also predicted that the proposed U.S. position at the Rio Conference would evoke a very negative reaction. It did not meet the obvious needs of Latin America from a number of points of view. In the first place, the Latin American countries plainly want to join together in some kind of regional economic grouping. Equally plainly, in the second place the Latin American republics want to sit down and talk over the serious problem of raw materials. We have opposed becoming involved in agencies to control prices of raw materials, but it would be at least useful to agree to discuss these commodities with the Latin Americans, even if we rightly refuse to join in any agreements on the subject. Thirdly, the level of investment in the Latin American republics had long been too low and still was. In conclusion, Governor Stassen reiterated that he was not proposing to argue in favor of his beliefs, but that “we in FOA want to flag” the serious inadequacy of this policy, even though it is the responsibility of others to make the decisions.

After Mr. Cutler had summarized the prior Council discussion of paragraph 9–g, the President stated his belief that the United States should certainly not use its funds to encourage regional economic groupings which would adversely affect the trade and commerce of the United States.

Secretary Humphrey noted the very considerable difference between regional groupings in Europe and in Latin America. In Europe a very high percentage of trade and commerce took place between the various European countries; whereas only about 10% of the total Latin American commerce was conducted among the Latin American countries themselves. If we could make them clearly understand that they must not expect us to finance their regional economic groupings or for us to support actions by such groupings which discriminate against the United States, that was all that he, Secretary Humphrey, would ask for.

The President pointed out to Secretary Humphrey that it was much more important for the United States to achieve a good climate of opinion in Latin America than to agree to the various specific items on this program for the U.S. position at Rio. You must think, said the President, of our policy in Latin America as chiefly designed to play a part in the cold war against our enemies. Russia, he warned, would shortly step into any vacuum if we allowed one to develop in Latin America. Apropos of the President’s remarks, Mr. Allen Dulles noted the rapid increase in trade between the Soviet bloc and Latin America in the last year and a half. Much of this trade, said Mr. Dulles, was “political” rather than “natural” trade.

The President continued by pointing out to the Council that the United States was not merely “doing business” in Latin America, but was fighting a war there against Communism. Second, said the President, the Spanish-settled countries of Latin America have a simply incalculable pride. They still feel that we do not treat them equally with Europe and Asia, and our policies toward Latin America must be sure to meet this point of their great pride. Pay attention to this idea of equality and to the importance Latin Americans attach to personalities.

Secretary Humphrey said that he merely wanted to emphasize how important it was, prior to the Conference, that the interested Government agencies—State, Treasury and FOA—all go there with the same interpretation of paragraph 9–g. The President suggested that the pragmatic approach to 9–g might be the best. If any of the 9–g proposals or programs turn out to involve United States financial support, indicate that we cannot agree at once, but that the case must be taken up with the “head of the nation”.

Governor Stassen then launched into a strong statement in support of the value of an Inter-American Bank. Secretary Humphrey opposed this proposal with equal vehemence. Secretary Hoover at least agreed with Secretary Humphrey’s view of the necessity of agreement on the meaning of paragraph 9–g. With regard to it, to all other paragraphs, and indeed to all NSC papers of this type, the Council should remember that these papers become the Bible of U.S. officials both here and abroad. Accordingly, if any misunderstanding exists, such misunderstanding should promptly be removed.

Mr. Cutler reminded the Council that the President had approved the proposal for dropping the adverb “sympathetically” and of adding a caveat against U.S. support for Latin American economic regional groupings. Governor Stassen, however, argued for paragraph 9–g as it had originally been written, and indeed went on to suggest an even more sympathetic approach to such regional groupings. Mr. Cutler indicated his strong hostility to any proposal which amounted to revising rather than interpreting existing policy. If NSC 5432/1 needed to be revised, the revision should occur only after proper staffing.

The President again expressed the view that our policy ought to emphasize the objective of making the several Latin American republics more interdependent economically and less dependent on the Soviet Union. He reiterated his point that this was primarily a cold war problem. However, said the President, he was wholly on Governor Stassen’s side in not desiring to see our delegation put in the position of having to refuse flatly to consider any request from a Latin American republic for something we turned down simply because it wasn’t noted approvingly in our policy. There should be no such flat turn-downs, and on such cases the U.S. delegation should consult with Washington before reaching a decision.

Mr. Cutler returned to his position against hasty last-minute changes in agreed policy papers, and suggested that if Governor Stassen desired to propose amendments to NSC 5432/1 he should wait to do so until after the end of the Rio Conference.

The President said that he did not take kindly to the apparent ideas of Mr. Cutler that if any of these policies involved U.S. money it was at once kaput. Secretary Hoover suggested leaving in the adverb “sympathetically” in paragraph 9–g but adding the proposed financial caveat Governor Stassen said he preferred language to the effect that “if it costs money you have to come back to Washington”.

The President said he had come to hate these long drawn-out papers which lay down hard and fast rules for carrying out every detail of a program. He would much prefer to trust to our negotiator (looking at Secretary Humphrey) to meet any new conditions which might arise on the spot. He can always relay doubtful cases back to Washington.

Secretary Humphrey, however, still professed to be strongly opposed both to the regional groupings proposed in paragraph 9–g and, particularly, to the proposed new Inter-American Bank. Turning to Governor Stassen, he said, “Let’s be specific. Are you going down there and advocate the Bank as you have been doing all over the place up to now?” Governor Stassen denied that he had advocated any Inter-American Bank outside the circles of the United States Government. While, said Governor Stassen, he would of course abide by the authority of the Secretary of the Treasury as head of the U.S. delegation, he nevertheless believed in the idea of a new Inter-American Bank.

The National Security Council:

a. Noted and discussed the oral presentation on the subject by the Secretary of the Treasury, the U.S. Delegate to the Conference.

b. Adopted⁴ the following amendments to NSC 5432/1:

(1) Paragraph 9–b: Revise to read as follows:

“b. Through Export–Import Bank loans—provided each such loan is (1) in the interests of both the United States and the borrowing country, (2) within the borrower’s capacity to repay, and (3) within the Bank’s lending capacity and charter powers—be prepared to assure such financing of all sound economic development projects, for which private capital or IBRD financing is not available.”

(2) Paragraph 9-c: Revise the first line to read as follows:

“c. Only if action under a and b above over a period of time demonstrates that these courses of action are inadequate, and then only with Presidential approval in each case, finance”.

(3) Paragraph 9–g: Add at the end:

“; with the understanding that any such proposal would not involve discrimination against U.S. trade and that no additional U.S. financial commitments would be involved hereunder without further consideration by the National Security Council.”

Note: The amendments to NSC 5432/1, as adopted in b above and approved by the President, subsequently circulated to all holders of NSC 5432/1⁵ and referred to the Operations Coordinating Board as the coordinating agency.

[Here follows discussion of a Soviet attack on a United States reconnaissance plane off Hokkaido Island.]

1. This memorandum was drawn up by S. Everett Gleason, Deputy Executive Secretary of the NSC, on Nov. 16.
2. No record of the referenced meeting was found in Department of State files.
3. For discussion of proposed changes to NSC 5432/1 at the 212th meeting of the NSC on Sept. 2, 1954, see the memorandum of discussion, p. 67.
4. NSC Action No. 1270–b.
5. President Eisenhower approved the Council’s action on Nov. 16; the amendments were incorporated into revised pages for NSC 5432/1, transmitted to all holders of that document on Nov. 16. (Memorandum by Mr. Lay, dated Nov. 16, 1954, S/P–NSC files, lot 62 D 1)