Foreign Relations of the United States, 1955–1957, American Republics: Multilateral; Mexico; Caribbean, Volume VI

104. Letter From the Under Secretary of the Treasury (Burgess) to Milton S. Eisenhower¹

Washington, June 4, 1957.

Dear Dr. Eisenhower: Your letter of the 9th of May² encourages me to further reflections on the vital question of encouraging continued investment in Latin America. Your emphasis on the need of relying strongly on private investment, and on creating a favorable atmosphere for such investment are of course in accord with my own line of approach.

There are some basic economic considerations which, I believe, we must keep in mind. Investment in many countries of Latin America is already proceeding at an almost unprecedented rate. While mindful of the cautions on the use of such statistics, it is interesting to note that the average annual increase in the real Gross National Product of Latin America, as a whole, is estimated by ECLA at 4.3 percent for the four years 1953–1956. The comparable figure for the United States is 3.1 percent. In several of the Latin American countries, such as Brazil, Mexico and Venezuela, growth rates have, of course, been considerably higher than the regional average.

In countries where investment is already proceeding rapidly, it is difficult to increase the rate of investment without either encouraging inflation or placing an undue burden on foreign exchange resources, loan repayment capacity, and management. This is especially true of investments requiring a large local component of labor or materials, such as housing, which do not produce exports or save imports. If such investments are financed locally in an economy already strained by other development activity, inflation is likely to occur. Inflation and inadequate management are Latin America’s greatest economic enemies.

Alternatively, if financing is supplied from abroad, an unduly heavy charge may be placed on the country’s foreign exchange availabilities in future years, which interferes with borrowing for higher priority needs.

We are all on the receiving end of the comparison between U.S. Government assistance and lending activities in Latin America and other parts of the world that many Latin Americans are fond of making. It seems to me that one of the effective counter-arguments to this—often overlooked—is the fact that the contribution of United States private foreign investment has been much greater in Latin America than in the underdeveloped regions of the Eastern Hemisphere.

In this connection, I believe you will find of interest the attached tables comparing United States private and public capital flows and the American private investment position in Latin America with the rest of the world, outside of Europe and Canada. Particularly noteworthy is last year’s trend showing an increase over 1955 in net private capital investment to Latin America exceeding the increase in U.S. Government grants and loans to the other underdeveloped regions.

The role of U.S. foreign capital has been invaluable to Latin American development. The analysis of recent American investment in Latin America, given in the January 1957 issue of the Survey of Current Business, give some impressive facts. Among other things, it reports that in 1935, U.S. companies operating in Latin America produced almost $5 billion of goods and services, provided a net direct foreign exchange return of over $1 billion and accounted for 30 percent of all Latin American exports.

I believe Latin American countries should be proud of their record of financing economic development by private foreign investment and dollar loans rather than through grants or loans repayable in local currency. The shift in emphasis from grants to loans in the proposed foreign aid legislation on the whole suggests a tendency to move U.S. foreign assistance to other underdeveloped areas in the future somewhat closer to the approach which has been used toward Latin America.

Rapid amortization as an incentive for stimulating new investment abroad is bound to have its advocates, just as there are some who support it to promote investment in this country. As you know, we have opposed the continued use of this device in the defense program, except in the case of very restricted types of construction and equipment occupying the highest military priority. Among the basic difficulties with accelerated amortization is that it tends to distort the investment pattern from one governed by the economic marketplace to one governed largely by the tax benefits involved, and it tends to destroy the balance of competitive relationships. Opposing it for domestic investment, we would find it difficult to support it for foreign investment. I don’t think the Congress could approve it.

A more useful device, it seems to us, is to give recognition to such foreign tax incentives as exemption or reduction for new investment, by allowing a credit against U.S. tax liability for the amount of taxes given up by a foreign country. This we propose to do by entering into conventions with other countries which will at the same time remove various tax and related obstacles to the flow of trade and investment.

We have been negotiating treaties with three countries containing such a credit for “taxes spared,” and it is our hope that one will be signed in the next few weeks and sent to the Senate for consent to ratification.

I submit these additional thoughts for your consideration.

Sincerely yours,

W. Randolph Burgess

[Enclosure]

Table I

Net United States Capital Outflow and Government Economic Grants in 1956^p

(millions of dollars)

	Latin America	Rest of the World, Except Canada and Europe4
Private Capital5	718	342
Government Loan Capital	92	438
Government Economic Grants	75	1,0246
TOTAL	885	1,804
Source: U.S. Balance of Payments for 1956

Table II

Increase in Net United States Capital Outflow and Government Economic Grants in 1956 over 1955^p

(millions of dollars)

	Latin America	Rest of the World, Except Canada and Europe4
Private Capital4	389	39
Government Loan Capital	39	217
Government Economic Grants	7	1156
TOTAL	435	371
Source: U.S. Balance of Payments for 1956

Table III

Value of Total U.S. Public and Private Investments Abroad in 1955^p

(millions of dollars)

	Latin America	Rest of the World, Except Canada and Western Europe4
Private	8,224	3,590
Public	1,013	1,499
TOTAL	9,237	5,089
Source: Department of Commerce

1. Source: Department of State, Rubottom Files: Lot 59 D 573, Eisenhower, Dr. Milton.
2. Not found in Department of State or Department of the Treasury files.
3. Preliminary. [Footnote in the source text.]
4. Excluding dependencies of Western Europe. [Footnote in the source text.]
5. Exclusive of reinvested earnings. [Footnote in the source text.]
6. Including large amounts of “Defense Support” aid to South Korea, Formosa and Viet Nam. [Footnote in the source text.]
7. Preliminary. [Footnote in the source text.]
4. Excluding dependencies of Western Europe. [Footnote in the source text.]
4. Excluding dependencies of Western Europe. [Footnote in the source text.]
6. Including large amounts of “Defense Support” aid to South Korea, Formosa and Viet Nam. [Footnote in the source text.]
7. Preliminary. [Note in the source text.]
4. Excluding dependencies of Western Europe. [Footnote in the source text.]