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

DMS files, lot W–1444, “Spain”

No. 924
Memorandum of Conversations, by the Director of the Foreign Operations Administration (Stassen)¹

confidential

Madrid, November 12, 1954.

Summary of Discussions Between Governor Stassen and Minister of Commerce Arburua

First Visit on October 28

During the protocolary exchange of greetings, Governor Stassen mentioned that he was responding to the visit to the United States by the Minister;² that he brought warm greetings to the Minister from President Eisenhower and Secretary Dulles; that he was aware of the importance of his visit, since it was the first for a member of the Cabinet and the National Security Council; and that the visit took on added significance because of the successful outcome of the recent negotiations in Paris.

Sr. Arburua stated in the beginning that he would withhold no information from Governor Stassen bearing on Spain’s economic situation since he considered it vital that all of the facts be made known. He first delineated Spain’s critical foreign exchange shortage, not only with respect to the dollar area, but in the case of virtually all other currencies. He showed Governor Stassen a balance sheet with Spain’s foreign exchange holdings all over the world listed. With respect to foreign exchange requirements, the Minister stressed the urgent need for additional electric power-producing equipment over the next few years. He pointed out that, after taking into account funds from fiscal ’54 aid allotted for electric power, plus the maximum amount available out of Spain’s free dollar and other currency holdings, its earnings from tourism, plus the credits available through the New York banks and other sources open to Spain, there would still be approximately 40–50 million dollars lacking to meet Spain’s necessities in the power field. He apparently felt that the above figure, representing the gap between Spain’s visible dollar availabilities for new electric power equipment, constituted the strongest argument for additional dollar aid to Spain, notwithstanding her great needs in the field of transportation, etc.

Turning to peseta requirements of the Spanish economy, the Minister said that there were overwhelming demands being placed on the Treasury from all directions. For example, the various defense ministries are calling for pesetas greatly in excess of their appropriated funds in order to acquire land needed for the U.S. air and naval bases, as well as to service the new equipment which is being brought in. He said that one entire Cabinet meeting had been devoted to discussion of the division of the pesetas under the counterpart and McCarran Amendment proceeds, without any final decision having been reached. However, the Minister stated that the priority would probably be given to four large irrigation and reclamation projects, two in Western Spain near Cáceres, one near Sevilla on the Guadalquivir, and one in Aragón where there is very rich soil if water can be made available.

In the discussion about Spain’s peseta needs, the Minister also went into some detail to explain the country’s multiple exchange system, pointing out that the National Foreign Exchange Institute made dollars and other foreign currencies available to the Spanish diplomatic corps and certain industries like the fishing industry for the acquisition of coal and the petroleum monopoly for Spain’s petroleum requirements, to cite only a few examples, at a great loss in order to keep the cost of living down for the people and, in the case of the diplomatic corps, to enable the Ministry of Foreign Affairs to subsist on its meager appropriations. These subsidies, he said, were possible because of the high peseta prices charged the textile manufacturers for cotton imports and for certain other classes of imports where the users could afford to pay a premium, and for luxury imports such as automobiles. He seemed to take pride in the fact that the National Foreign Exchange Institute had been able to maintain a precarious balance without drawing on the Treasury for its support.

Governor Stassen’s first substantive statement was as follows: the United States has serious world-wide problems with which to contend and situations sometimes change very quickly, thus requiring great flexibility with respect to funds; the Congress has directed that greater emphasis should be placed on loans rather than grants; the needs of other countries must be consolidated with those of the United States which, unless it remains strong, cannot continue with its efforts to assist its free neighbors; within the United States, economic changes occur which require adjustment and study. The Governor then directed his remarks specifically to the United States-Spanish relationship: we should see where our problems coincide and how they can be met; with Spain there is a continuing partnership and it is evident that some need will be required for fiscal ’56; the McCarran Amendment had the concurrence of FOA and the President in recognition of the fact that $30 million was not sufficient for Spain in fiscal ’55; the McCarran Amendment added no new funds to the appropriation and, indeed, the Senate reduced the recommended total amounts later; the Congress directed that a substantial part of the fiscal ’55 aid be on a loan basis; the Treasury has approved liberal terms for the loans over a 40-year period with no payment until the third year and interest set at 4% where repayment is made in local currency; once repayments have commenced, it is at the discretion of the United States that some of the funds again be made available for mutually agreed-on purposes by agreement; the United States has a serious coal problem due to the dieselization of railroads and other factors; the United States is aware of the terms of the letter of September 24, 1953 and believes that it is preparing to move beyond the terms therein expressed in this, the second year following the agreements.

Governor Stassen then inquired directly of the Minister whether, in the United States’ effort to consider the Spanish problem, Spain could take a portion of the fiscal ’55 aid in the form of a loan; could Spain take some coal this year; could Spain take whatever aid is available and deemed necessary for fiscal ’56 in the form of a loan rather than a grant. Treating the above questions as exploratory, the Governor went on to more specific matters, some of which were in reply to Minister Arburua’s remarks—the United States would favor irrigation projects if they were sound and well-engineered; we would hope to help Spain to minimize the sharp fluctuations in its economy from year to year, and would consider this all the more important in view of the danger from inflation as a result of heavy military spending; respecting Spain’s commercial dealings with other countries, she should seek as long term credits as possible for the purchase of capital goods since United States aid is not as advantageous as intended if other countries begin to demand quicker payment as our aid program takes effect; we sometimes speak to third countries concerning this matter and have at times been successful in obtaining easier terms for the recipients of their credit, reminding them as to what our assistance has contributed to their economy in the past and that our long-term objective is general economic improvement of the free nations, to which they can make a concrete contribution in this way [Minister Arburua turned to one of his colleagues to say that this point was “very important”].³

Governor Stassen commented that he was aware of Spain’s urgent need for cotton and that shipments could begin almost immediately even though other program details had not been settled. He took special note of the Minister’s comments respecting Spain’s peseta problems and expressed the hope that the United States could help meet these problems in spite of the tighter rules imposed by the Congress. He underlined the importance of trying to control military expenditures and avoid the dangers of inflation which, if it should occur, would weaken our joint military effort. In closing this session, the Governor expressed his appreciation for the Minister’s frank revelation of Spain’s fiscal and economic problems, and complimented him on the manner in which he had set out to solve them and on the planning in connection with the utilization of the Aid Program. He commented that he was especially pleased at Spain’s alertness to the value of tourism as a source of additional foreign exchange, and hoped that United States travelers would come to Spain in even greater numbers in the next few years as a result of the continued U.S. prosperity following the successful readjustment period through which the country has just passed.

Second Visit on October 29

The Minister commenced the session by pointing out that both Germany and France were trying to put the “squeeze” on Spain through such measures as (1) insisting on short-term credit and (2) charging interest on the “swing” debit above and beyond the interest paid by the Spanish buyers to the German suppliers of machinery. With respect to France, he said that Spain normally purchases fertilizer from French North Africa and that she now needed one million tons, but that France was demanding dollar payments. He denounced these tactics and said that Spain would buy phosphates from the United States, using her limited dollars there, rather than accede to the French demands.

The Minister next turned to Governor Stassen’s remarks of the previous day pertaining to the restrictions on aid for fiscal ’55 and expressed the hope that Spain could have the full $30 million defense support aid this fiscal year, in addition to the McCarran Amendment commodities, and as much as possible in the form of a grant rather than a loan. He asserted that Spain would undertake the acquisition of some 400–500,000 tons of coal, and perhaps more, depending on developments. Responding to the Governor’s question as to whether Spain could accept a program in which part of the remaining $30 million of aid could be made available in fiscal ’56 instead of all of it this year, the Minister urged him to draw his own conclusions since he did not want to say “no” to the question if it could possibly be avoided.

Governor Stassen expressed appreciation for the additional information provided by the Minister, acknowledged that Spain would find it difficult to handle loans instead of grants, and then outlined certain alternatives which Spain might consider: (1) programming $20 million defense support aid for fiscal ’55 and $10 million for fiscal ’56; (2) making the full $30 million available in fiscal ’55 with a substantial part of the McCarran Amendment funds taken as a loan; (3) using as much United States coal as possible, taking into account Spain’s commitment to buy British coal, in consideration for giving the full $30 million defense support aid in fiscal ’55, with the coal to be financed out of aid funds or with free dollars; (4) repaying whatever portion of the $55 million McCarran Amendment funds as might be agreed to on a loan basis with pesetas instead of dollars and with United States approval for making advances out of existing counterpart funds against Spain’s local currency needs to be repaid out of the proceeds of the sales of the McCarran Amendment commodities; and (5) recognition by both parties that the loan of a substantial portion of the McCarran Amendment funds would mean consultation between the two governments rather than “joint control”, which is implicit where grants are involved.

Governor Stassen reiterated his desire to cooperate in meeting Spain’s problems but recalled that a final “package” could not be proposed now since the approval of other United States agencies would have to be obtained. The prompt shipment of $10 million cotton and $3 million vegetable oils could be arranged, however, and he would so recommend to Washington. Sr. Arburua replied immediately that Spain urgently needed more than those amounts, and suggested $20 million cotton and $6 million oils. The Governor expressed the thought that these quantities could be arranged and proposed that the exchange rate be 42.50.

The Minister reacted more strongly at this point than at any other time during his meetings with Governor Stassen. He went into another long explanation of Spain’s multiple exchange rates, this having been covered in the first meeting, and stated that 42.50 was the external tourist rate and had no applicability within Spain itself. He recalled the negotiations prior to the 1953 agreements when Spain had urged a rate lower than 35, stating that the average of all the rates was no higher than 33 or 34. He also mentioned the negotiations leading to the wheat purchase from the United States last year at the 42.50 rate and reminded his listeners that he had insisted that this should not be taken as a precedent. He urged that Spain be given a lower rate of exchange and said that the only reason he had acceded to the 42.50 rate last year for the wheat was that the United States had “demanded” that rate and that at that time Spain had no alternative but to accept, since she needed the wheat. The Governor replied that he would consult with the other interested parties in the United States, commenting that the Department of the Treasury was especially interested in the exchange rate.

In his concluding remarks, Governor Stassen told the Minister that he would send a cable immediately recommending that $20 million of cotton and $6 million of vegetable oils be authorized for Spanish purchase under the McCarran Amendment funds, and that $20 million of the remaining $30 million of defense support aid be made available as soon as possible for Spain. He stated that the United States would carefully examine its position on the total amount of aid for Spain; what part would be a long-term loan and what part grant; what position it could take on the exchange rate, bearing in mind Spain’s problem in this respect; what would be a reasonable solution to the coal problem; and that he felt that, in all of these matters, a reasonable solution could be found since both governments were approaching them on a friendly, cooperative basis.

1. Transmitted as enclosure 1 of airgram Tousfo A–280 from the U.S. Operations Mission in Madrid, Nov. 12.
2. Regarding the visit of Arburua in the spring of 1954, see footnote 2, Document 913, and Documents 915 and 916.
3. Brackets in the source text.