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

DMS files, lot W–1444, “Spain”

No. 915
Record of Meetings Between the Spanish Minister of Commerce and Certain United States Representatives, Washington, April 1954¹

Washington, April 1954

Discussions of Spanish Minister of Commerce with U.S. Officials

1. This report summarizes the main points made by the Spanish, and reactions thereto of U.S. officials, during the meetings which I attended. These included meetings with the following U.S. officials:

Under Secretary Smith and Assistant Secretaries Merchant and Waugh of the Department of State;²

Secretary of Defense Wilson;

Under Secretary Burgess of the Treasury Department;

Deputy Assistant Secretary Smith of the Commerce Department;

Assistant Secretary Davis of the Department of Agriculture;

Director of Foreign Operations Stassen and Deputy Director for Operations FitzGerald of FOA; and

Managing Director Edgerton of the Export-Import Bank of Washington.

2. The Spanish Minister of Commerce and the Under Secretaries of Foreign Economy and Industry were present at each session, except that the Minister was not present at the meeting with the Deputy Director for Operations of FOA. The Spanish group also had meetings with the President of the United States³ and the Secretary of Commerce, at which I was not present.

3. The remarks made by the Minister of Commerce at each of these sessions were substantially the same. He invariably began by expressing appreciation at the opportunity to meet with U.S. officials, and referred to the pleasure of the Spanish Government and of General Franco at his having received this invitation. He then stated that it was not his desire to create problems and difficulties for us, but that he was anxious to explain to us the economic facts and difficulties which confront Spain. He then proceeded to review Spain’s economic situation and recent developments and problems. The detail varied considerably from session to session, but the general points made were always approximately the same.

4. The main facts and conditions which he mentioned at one or more of the sessions were as follows:

a. He laid great stress upon the achievement during the two plus years that he has been Minister in restoring financial stability, arresting inflation and reducing internal controls and rationing.

b. He stated that liberalization of foreign transactions was not yet possible, however, because Spain has a structural balance of payments deficit which can only be controlled by controls on foreign trade.

c. Spain has largely been able to suppress the black market in pesetas, e.g., in Tangier, by mobilizing tourist and remittance earnings through giving an especially favorable exchange rate for such earnings, and eliminating the practice of licensing cotton imports sin divisas.

d. The priority import requirements which Spain must meet with its available foreign exchange earnings are, first, necessary food for its people; second, necessary raw materials for industry; third, industrial expansion, particularly in the field of utilities and services for industry generally, such as electricity and transport, and, finally, military production.

e. The disruption of production and depletion of reserves during the Civil War and subsequent economic dislocation have prevented Spain from making any substantial progress since then because of the inability to do more than provide the necessary food for the people and raw materials to some extent for industry.

f. During the current year Spain had hoped to be able, having achieved financial stability and eliminated internal controls, to proceed with its very urgently needed development programs and liberalize foreign trade controls.

g. However, the adverse effect of the drought and consequent abnormal grain import requirements, and the freeze and consequent diminution of normal exchange earnings, has more than offset the availability of FOA aid and greatly limited Spain’s ability to proceed with its development programs. Spain has had to purchase 1.4 million metric tons of grain this year (including the 300,000 tons to be purchased from CCC with pesetas⁴) representing an exchange drain of about $90 million equivalent, a large portion of which is in dollars. The loss of oranges from the freeze is estimated at 500,000–600,000 tons, compared to the 1.2 million which had been expected, and 400,000 from the one million tons which was achieved in 1953. It is estimated that the loss of exchange earnings involved will be approximately $50–$60 million equivalent. These losses have already resulted in reductions in Spanish imports from France, Germany and other countries to which oranges are Spain’s main export.

h. The average peseta exchange rate for exports over the past year had been about 33–35 to the dollar. This represents in fact a substantial strengthening compared to 1949, when much of Spain’s trade was carried on under compensation accounts. The implicit rate reflected in these compensation transactions was often as high as 120 pesetas to the dollar. Arburua ended compensation accounts because of the demoralizing effect of transactions at indefinite exchange rates upon the internal price structure and foreign trade generally.

i. As to the danger of inflation, particularly with respect to the recently granted wage increases of 30–35 per cent, the Minister was confident that only limited price readjustments would result. In particular, he was certain that it would be possible to avoid increases in the prices of bread, oil, footwear and cotton textile clothing, which are the main items in the basic cost of living of the working population.

j. Spain is most anxious to stabilize its currency, liberalize trade and in particular to serve foreign investment in the country in order to encourage further investment along the lines accepted in the Economic Aid Agreement. However, its ability to do these things depends upon its foreign exchange position, which continues extremely tight. Until Spain is in a better position on foreign exchange, it would not be practical for it to take substantial steps to liberalize further.

k. Spain’s ability to proceed with the economic development, which is desperately needed by its people and which its people expect to flow from the recent agreements, depends upon its financial resources, both foreign exchange and internal. Spain’s ability to finance internal expenditures is severely limited because of its unwillingness to disturb the financial stability, recently achieved, by further inflationary credit expansion.

l. Spain’s foreign exchange commitments at short term (3–6 months credits) amount to $100–$120 million, and its longer term commitments (6 months to 3 or 4 years) total $130 million. Over the last year the long term commitments have somewhat increased and the short term ones are relatively unchanged.

5. When it came to requested action by us, the Spanish were extremely cautious and modest in their demands. The Minister invariably repeated that Spain had no desire to be a burden and that they were well aware of the many commitments of the U.S. He stated that the Government of Spain would continue to cooperate fully in our joint programs, regardless of what might be done with respect to U.S. aid to Spain, and that the government would continue to push ahead with its development programs as fast as it could, whatever was provided in the way of aid. They made it clear, however, that they very much hoped that the U.S. would be able to see its way, particularly in view of the economic misfortunes which have befallen Spain during the past year, to increase the amount of aid furnished, particularly economic aid, and to make available additional counterpart, specifically the counterpart of FY 1955 economic aid, for general economic development purposes. The Minister also emphasized that Spain would like to continue to procure surplus agricultural commodities against peseta payment, mentioning specifically corn, soybean oil, perhaps more wheat and cotton. In talking to the Assistant Secretary of Agriculture, however, he stated quite positively that the exchange rate arranged on the $20 million wheat purchase was accepted only as an exceptional matter in this case because of the urgency of the situation and the Spanish recognition of the difficulty of working out the transaction. The Minister made clear on a number of occasions that the rate of exchange which he would hope increasingly to point toward for a unified Spanish rate with respect to imports and exports would lie in the 33–35 pesetas to the dollar range.

6. The U.S. officials talking to the Spanish named the following important points:

a. Dollar aid grants are generally declining, and it will be difficult to increase such aid above the illustrative figure of which the Spanish have been informed. The Deputy Director for Operations of FOA said explicitly that his own opinion was that it would be undesirable to attempt to modify the illustrative figure during the course of Congressional consideration of the program. Several officials stated that some flexibility might be expected in the foreign aid program after Congressional action, and that the Spanish situation would be closely considered along with those of all other appropriate countries before final aid allocations were made. Both the Director for Foreign Operations and the Deputy Director for Operations of FOA urged the Spanish to present additional factual information with respect to Spain’s economic situation, prospects and plans, particularly as to foreign exchange availabilities and requirements.

b. With respect to possible availabilities of surplus U.S. agricultural commodities, everyone made clear to the Spanish that much depended upon the form which any legislation which may emerge would take. On the whole, however, they were given considerable encouragement that some program of this character would be available during FY 1955.

c. The possibility of guarantees of private credit or of direct Export-Import Bank credit to Spanish concerns or U.S. suppliers was mentioned by the Under Secretary of State and the Managing Director of the Export-Import Bank, and discussed at some length.

1. Copies of this paper, which was drafted by Gulick on Apr. 12, were transmitted to Stassen and to Ambassador Dunn in Madrid.
2. A record of the conversation under reference, dated Apr. 6 and drafted by Jones, is in file 752.13/4–654.
3. No record of this conversation has been found in Department of State files. According to a memorandum by Gulick to Coleman, Mar. 31, the interview with the President was intended to be “a matter of courtesy only.” The meeting took place on Apr. 7 at 11 a.m. (DMS files, lot W–1444, “Spain”)
4. For additional information on this purchase, see footnote 2, Document 912.