752.5 MSP/4–2452

No. 851
The Chief of the Mutual Security Agency Economic Group in Spain (Train) to the Spanish Economic Aid Negotiating Delegation1



To provide a framework for discussions between the Spanish Government and the Government of the United States, the following description of the legal authority under which United States assistance can be made available, and exposition of the views of the United States Government concerning the use of that assistance, may be helpful.


Assistance to Spain was provided for in the Mutual Security Appropriations Act, 1952 in the following language:

“For expenses necessary to enable the President to carry out the provisions of the Mutual Security Act of 1951 …2

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“For economic, technical, and military assistance, in the discretion of the President under the general objectives set forth in the declaration of policy contained in the titles of the Economic Cooperation Act of 1948 and the Mutual Security Act of 1951, for Spain, $100,000,000.”

The Mutual Security Act of 1951 provides:

“The Congress declares it to be the purpose of this Act to maintain the security and to promote the foreign policy of the United States by authorizing military, economic and technical assistance to friendly countries to strengthen the mutual security and individual and collective defenses of the free world, to develop their resources in the interest of their security and independence and the national interest of the United States and to facilitate the effective participation of those countries in the United Nations system for collective security.”

It is important to note that assistance to Spain is provided to carry out the provisions of the Mutual Security Act. It is therefore part of the Mutual Security Program for the building of a strong defense against aggression through both military and economic assistance to friendly nations. This economic aid is furnished to all countries participating in the Mutual Security Program in support of defense objectives. It is not furnished for the same primary objectives as was the economic aid made available under the European Recovery Program.

The legislation cited above will serve to explain why the Government of the United States desires that the current discussion of economic aid to Spain be directly related to, and progress in pace with, discussions with respect to military cooperation.

Since it is unlikely that any significant amount of the $100 million appropriation for economic, technical and military aid to Spain can be used during the remainder of the fiscal year 1951/52, Mutual Security legislation now before Congress contains the request that all unexpended balances be made available for assistance to Spain for the fiscal year 1952/53 under the same conditions as those quoted above from the Mutual Security Appropriations Act, 1952.
The $100 million appropriation for Spain has been divided into two categories:
$12 million for military assistance in the form of items of military equipment for the Spanish Military Services, largely for training purposes, the selection of which can be worked out with the U.S. Military Group;
$88 million for economic and technical assistance to be used in part for financing the purchase of imported equipment for the development of industries which are closely related to the support of defense objectives, e.g., the Spanish munitions industry and the [Page 1839] rehabilitation of the Spanish transportation system so as to enable it to support military operations.

Allocation of $12 million for military training equipment and furnishing of this equipment to Spain will require a Mutual Defense Assistance Agreement between the Government of the United States and the Government of Spain. This Mutual Defense Assistance Agreement will be separate and distinct from any agreement regarding construction and use of military facilities in Spain which the U.S. Military Group is discussing with the Spanish Military Services.

The furnishing of economic and technical assistance will require a separate agreement between the two Governments.


The funds for military assistance to the Spanish Military Services will be made available on a grant basis.

The funds for economic assistance to Spain will be made available largely on a grant basis. However, the Mutual Security Act of 1951 requires that a minimum of 10% of all economic aid for the fiscal year 1951/52 be in the form of loans. Aid to most European countries this year has been approximately 16% loans and 84% grants, since all countries were not required to participate equally in the distribution of the loans. It is not known at this time what percentage of funds appropriated for 1952/53 Congress will require to be made available as loans. Any mandatory loan requirement which the Congress of the United States may make will probably be applied to economic aid to Spain, as well as to other European nations.

The Government of the United States hopes to achieve the closest collaboration with the Government of Spain in working out a plan for the utilization of the $88,000,000 available for economic and technical assistance. The Government of Spain is invited to present its own plan as to how this assistance can best be used to achieve our mutual objectives. While the views of the United States Government on this subject will be developed further in joint discussion, it may be mutually advantageous to set forth certain of them now. They include the following:
Because of its concern about the problem of internal financial stability in all countries receiving United States assistance and its conviction that inflation in Spain would be highly prejudicial to the establishment of a sound economy, the United States Government is anxious that the Spanish Government’s plan for the utilization of economic assistance include an appropriate division of total economic aid between financing of items of equipment for investment projects and financing the import of commodities, which either directly or indirectly, will result in an increase, within a reasonably short time, in availability of consumer goods in Spain commensurate [Page 1840] with the increased purchasing power of individuals which will result from combined military and civilian investment spending.

It would be helpful if the Spanish Government’s plan for the use of economic assistance would include provision for the selection of investment projects on the basis of sound criteria which are related to the needs of the Spanish economy and which provide a means for judging relative priorities of various projects. Such criteria should include emphasis upon the selection of those projects which promise the greatest return, in terms of increased production, in the shortest possible time. It is hoped that further discussions can be held for the development of such criteria by mutual agreement.

Economic requirements for financing by the Mutual Security Agency in the first year of the assistance program should bear a logical relationship to Spain’s total investment plan and total import program for that year. They should also bear a logical relationship to the longer term investment plan and import program.

A reasonable amount of technical assistance should be provided for in the plan. Experience indicates that technical assistance, properly used, can produce results in terms of increased production far beyond its cost. It is important to note in this connection that the funds available for this type of assistance can provide only the foreign exchange costs and that local currency requirements, which are of vital importance to the success of any technical assistance program, must be provided from other sources within Spain.
The United States considers that at least $15,000,000 of economic aid should be allocated to meet the foreign exchange costs of necessary improvement and repairs for the Spanish railroad system. This amount is considered to be necessary to insure adequate transportation facilities for the proposed plan for construction of military installations in Spain. Such use of economic assistance would thus support defense objectives as well as serve the civilian economy.
If it appears feasible and desirable after further study, some economic assistance could be allocated to the financing of the development of Spain’s munitions industry. This is a question for further discussion with the U.S. Military Group.

All economic assistance made available to Spain on a grant basis, as distinct from any aid which may be made available on a loan basis, and including economic assistance which may be allocated to military supporting projects, e.g., development of Spain’s munitions industry, will require the deposit of equivalent value in Spanish pesetas at a rate of exchange to be mutually agreed upon. These deposits are known as “counterpart” and are required to be made in a Special Account in the name of the Government of Spain on the basis of actual dollar disbursements by the United States Treasury to suppliers of commodities and equipment to Spain. They are made in accordance with advices to the Government of Spain at regular intervals submitted by United States representatives in Spain.

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It is recognized that the problem of determining a rate of exchange for converting dollar expenditures into equivalent peseta value for the purpose of counterpart deposits will be particularly complex in view of Spain’s system of multiple rates of exchange. Further discussions on this question will undoubtedly be required.


The United States expects that the program for the expenditure of counterpart funds will include provision for financing of all peseta costs of the fiscal year 1952/53 military construction program which is currently being discussed with the U.S. Military Group. Present estimates indicate that such costs will require a very substantial portion of the total counterpart deposit arising from the economic assistance component of the $100 million appropriation. The Economic Cooperation Agreement will contain a provision for the transfer of such counterpart funds out of the Special Account in the name of the Government of Spain to meet such costs and provides that such transfers will be made at the request of the United States on the basis of the requirements of the military construction program. The Agreement will also provide for advance deposits of counterpart funds should such advances be necessary to provide pesetas for the requirements of the military construction program before the actual delivery of equipment and commodities furnished under the economic assistance program, which would give rise to the deposit of counterpart.

The use of counterpart funds to defray the peseta costs of the military construction program is regarded by the United States as a contribution by the Government of Spain to its own military potential.

It is impossible to state at this time what arrangements for such cooperative financing of military requirements will be made in future years.

It is important to note that while it is contemplated that the peseta costs of the military construction program will be covered by transfers from the counterpart fund, the dollar and other foreign exchange costs of this program will be covered by funds available to the United States Department of Defense which are separate and distinct from the $100 million appropriation for assistance to Spain.
  1. This aide-mémoire, handed to the Spanish negotiating team on Apr. 19, was transmitted as Enclosure 1 to despatch 1079 from Madrid, Apr. 24. Based on the official U.S. negotiating position (Document 846), its drafting and presentation were agreed upon during discussions in Madrid between Train, MacVeagh, Jones, and White on Apr. 15. An outline for the aide-mémoire, dated Apr. 16, is in Madrid Embassy files, lot 58 F 57, “440—U.S. Negotiations”.
  2. Ellipsis in the source text.