Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 2

FOA telegram files, lot W–130, “Madrid Tousfo”: Telegram

No. 912
The Director of the United States Operations Mission in Spain (Williams) to the Foreign Operations Administration

confidential
priority

Madrid, March 23, 1954—6 p.m.

Tousfo 167. Reference: Usfoto 169.¹ Paradoxically first year US aid Spain, i.e., fiscal year 1954, likely witness deterioration Spain’s economic position. Some extent situation grows out of timing and character forces adversely affecting Spanish economy. Some precluded preventative or immediate counter-action via aid program.

Dominant forces were:

(a) Unusually severe drought in spring and summer 1953 with disastrous effect on wheat crop and electric power supply, latter which still persists in sufficient severity to necessitate power cutoffs throughout country; and

(b) Loss substantial portion of citrus fruit crop (Spain’s most important non-dollar foreign exchange earner) as result of unusually severe frosts this winter in south and southwestern Spain; and

(c) Olive trees likewise suffered frost damage which, while not seriously affecting exports this fiscal year, will reduce exports of olives and olive oil in fiscal year 1955. These un-anticipated and dominant factors aggravated by chronic weaknesses in Spanish economy marked by shortages in almost all categories raw materials, equipment and facilities.

Event (a) above has or will necessitate foreign exchange outlays for wheat imports in following approximate amounts expressed in dollars: $52 million, in dollars; $14 million in other foreign exchange; and $20 million in pesetas.² Thus emergency expenditures wheat alone during present fiscal year will exceed, in terms of financial resources, total economic US aid for same period. Reduced exports resulting from (b) above seem likely to result in foreign exchange losses of a minimum of $30 million. Latest Spanish Government estimate approximately $50 million.

Such inherent weaknesses in economy as are reflected in: Low level of monetary reserves; chronic shortages of industrial raw materials; equipment and facilities; persisting electric power shortages (even in years of good rainfall); continued heavy absorption available investment funds in Government sector; and low per capita real income and savings, have not provided much of a cushion against adversity. These weaknesses added to by cumbersome and restrictive trade controls, which to considerable degree occasioned by necessity to balance trade in each and every currency (Spain not being member of EPU). Actually somewhat remarkable that Spain has managed to maintain at least appearance of slow but continuing economic development.

Inflationary pressures steadily increasing in advance of other pressures which will result from base construction program. Recent substantial wage increases across board, increases in coal, cement and steel prices and electricity and railway freight rates can be expected to be reflected in increased prices generally, since there has been no comparative increase in productivity to offset these added costs.

Spanish Government’s earlier hope that economic aid this year would provide prerequisites essential to introduction of some flexibility and resilience in economy seriously dashed by necessity to use large part aid ($30 million in raw materials) not to increasing production but rather to maintaining production rates of last year.

Washington has been kept fully informed of discussions with Spanish Government re programming fiscal year 1954 economic aid. Process has not been rapid. This stems from (a) fact that FOA Madrid has felt this should be done on soundest analysis and surveys with due weight to all pertinent factors, and (b) lack of familiarity of Spanish of our required procedures and regulations, lack in Spanish of essential data, and their long ingrained approach quite foreign to that in US generally.

Spanish thoroughly familiar nature and amounts US aid to European and other nations in past and efforts US to dispose of surpluses. Also thoroughly familiar provisions in past for use of counterpart as contrasted restricted provisions US/S panish agreements. As already indicated by FOA/Madrid to FOA/Washington, Spanish officials frequently refer to foregoing and also to their seeming relative importance to US of direct attainment of military objectives rather than building Spanish economy and thus support military objectives.

Convinced of existing good will of Spanish and their high regard for US, its peoples and worldwide objectives. Nevertheless many political, economic, and social segments and factors present serious problems to Spanish interministerial committee and not all such segments and factors wholly in accord recent US/S panish agreements.

Can feel some restiveness, doubts and disappointments in Spanish. Fact that unwarranted is not complete answer. This points to fact continuing efficacy US military objectives in Spain inextricably interwoven with maintenance existing good will and appreciation by Spanish of US efforts which in part will be measured by attitude US as expressed in aid toward building Spanish economy.

In light foregoing Department’s Cotel 715³ poses very real and urgent problems. It is recalled the $30 million figure for fiscal year 1955 first suggested Embtel 331 October 22, 1953⁴ dispatched before Williams’ arrival Madrid. This stated “whether or not it will be possible with the $85 million economic aid provided this year together with the $30 million proposed above for fiscal year 1955 to provide adequate defense support for US objectives, including the preservation of economic stability, it is not now possible to say. Certainly, however, it can be said that this amount should be regarded as an absolute minimum”. Same telegram further stated “an amount in excess of that proposed above could readily be justified on purely economic grounds but we believe that $30 million proposed might suffice to maintain the friendly cooperation necessary to the construction and operation of the joint military facilities”.

Now, six months later, we might still be persuaded that $30 million might suffice to maintain the economic stability and friendly cooperation necessary to the construction of the bases, but we are firmly persuaded that this minimum will greatly disappoint Spanish even though they have not been led to feel more was to be expected. We are firmly persuaded of Spanish reaction adverse to US interests if such minimum amount earmarks (1) any part for surplus commodities or (2) counterpart generated be used for purposes other than direct support of economy. Feel that relaxation of present counterpart provisions would ease adverse Spanish reaction and also offer surest way of bringing aid program home to peoples of Spain. Small loans to individual farmers and to privately-owned smaller industries enabling them to put up 100 percent counterpart for such dollar aid as we might provide them seems best way of providing direct assistance to those groups which experience in other countries has proved most telling. As things now stand we can entertain little hope that either the Spanish Government which in some quarters inclines toward public control and ownership or the private banks which in one way or other control most large private companies, will provide the kind of interim local financing which most worthy firms or individuals would, even in our own country, require.

Airgram follows today setting forth accomplishments FOA/Madrid fiscal year 1954.⁵ Without detailing feel major accomplishment establishment such relationship between FOA/Madrid and Spanish officials influential businessman as to convince latter of our integrity, intentions, interest in Spain and in use available economic aid funds for purposes which will best strengthen Spanish economy and improve conditions of mass Spanish people. Inculcation of such feeling in Spanish makes reasonably possible securing essential data and we sense increasing willingness of Spanish to seek advice and to respect methods of FOA/Madrid.

Have discussed foregoing with Ambassador and he concurs.

Williams

1. Dated Mar. 12, this telegram requested that the Mission chief send by cable “outstanding examples of achievements” made by the Mission during fiscal year 1954 for use in Congressional hearings for fiscal year 1955 budget appropriations. (FOA telegram files, lot W–131, “Madrid Usfoto”)
2. In response to urgent appeals by Williams and Dunn in February and early March, the President approved on Mar. 12 the allocation of $20 million under the terms of Section 550 of the Mutual Security Act of 1953 for the emergency purchase with pesetas by Spain of surplus American wheat. The $52 million and $14 million figures pertained to Spanish purchases made from other sources. Documentation on the Spanish–American wheat deal can be found in FOA telegram files, lots W–130, “Madrid Tousfo”, and W–131, “Madrid Usfoto”, in DMS files, lot W–1444, “Spain”, and in Department of State files 852.2311 and 752.2311.
3. Supra.
4. Document 908.
5. Not further identified.