This is an important problem. We would welcome Mr. Dodge’s study and would be happy to be
of any possible assistance to him.
In the event that our views would be useful, I am attaching a memorandum,
setting forth some of the main facts, as we know them, and outlining
some suggestions.
We believe that an earnest effort should be made to reverse, if possible,
the distinctly unfavorable trend in our military relations with Latin
America.
United States military grants and sales to Latin America contribute to
good political relations and are highly important to some of our
country’s military requirements, namely bases and the safeguarding of
lines of communications and strategic raw material sources. Deserting
the military field in Latin America and leaving it to the Europeans
would undoubtedly have most undesirable repercussions
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on both the military and political
interests of the United States in the area.
At the same time we, too, are concerned over the effect which Latin
American military purchases, both in the United States and in Europe,
have on economic development in the Hemisphere. The question is whether
our refusing to sell military equipment would actually enhance the
prospects for the area’s economic growth.
On the basis of the evidence available, we believe that the President’s
military policy objectives in Latin America are sound and that our total
interests, as well as those of the Latin Americans, are best served by
our continuing a reimbursable assistance program, including a modest
amount of credit. But we do believe that the operation of the program
should be improved. The program should be redesigned so that equipment
sales, especially those on credit, would be more closely related to
actual Latin American requirements for internal security and Hemisphere
defense. This would link reimbursable assistance with the objective of
military grant aid and should improve the possibility of our influencing
the Latin Americans to minimize expenditures and eliminate waste in
their limited financial resources.
[Enclosure]
MEMORANDUM6
SUBJECT
- Latin America: United States Military Assistance and
Economic
- Development
The basic problem in Latin America is economic development in the
broad sense of that term: the development of Latin American material
and human resources along socially desirable lines to raise
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living standards and to
promote political and economic stability. Reducing non-essential
Latin American military expenditures, just as eliminating any other
waste of resources, and diverting the savings into economic
development is desirable.
Latin American Arms
Expenditures
The statistics available do not suggest that aggregate military
expenditures in Latin America, as related to economic development,
are high as compared with similar areas of the world. Average Latin
American expenditures for military purposes during the period
1949–1955 were apparently about 2.9 percent of the region’s gross
national product. Only one other major area, South Asia, devoted a
lower percentage of gross national product to the military (2.5
percent). During the same period military equipment was some 2
percent of total Latin American commodity imports. In the six year
period military expenditures in Latin America have been fairly
constant at an average of about 20 percent of total government
budgets in the region.
Generalizations about Latin America as a whole are not, however,
always valid in individual countries because of the varying country
levels of military outlays. The most exaggerated expenditures in
individual cases are usually associated with rivalries within the
Hemisphere. The most significant case of this kind is Ecuador, due
to tension between that country and its neighbor, Peru. Military
outlays in Ecuador, as a percentage of total government
expenditures, rose from 16.7 percent in 1949 to 29.4 percent in
1955.
The total of all accomplished and pending United States cash and
credit sales of military equipment to Latin America from 1950 to the
present is about $115.2 million, according to the available
statistics.
During 1950–1955 total United States reimbursable military assistance
to Latin America was approximately $88.4 million, including $53.1
million in cash sales and $35.3 million in credit transactions
(first authorized by the Mutual Security Act of 1954).
Pending requests for cash purchases are approximately $19.4 million
(principally Venezuela, $8.5 million; and Argentina, $6.3 million).
Of 17 Latin American countries making cash purchases, the principal
buyers by far have been Peru, Brazil, Venezuela, Chile, Colombia,
and Argentina.
In addition to the credit actually extended by the United States,
$7.1 million in credit has been approved by the United States but
not yet finally accepted by the Latin American countries concerned.
There is pending in the United States Government one credit request
(Paraguay, $300,000). Of the total of all credit ($42.7 million:
$35.3
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plus $7.1 million
plus $.3 million), about half is for Peru ($21.5 million), and most
of the rest is for Venezuela ($18 million).
It is difficult for a variety of reasons to assign a realistic dollar
value to Latin American purchases of European military equipment
(cash, credit, and barter), but it appears that the total of those
purchases during 1950–1955 was about $275 million, as compared with
$88.4 million in purchases and $112 million in grants from the
United States. Venezuela alone accounted for about half of the total
of purchases from Europe. Of the European matériel purchased, 66
percent was naval vessels, and 20 percent was aircraft. The result,
for example, has been that some 88 percent of the jet aircraft in
Latin America is British.
Accurate data are not available, but Latin America is apparently
turning increasingly to Europe for military equipment.
The Objectives of United States
Policy
The central objective of United States policy should be the
minimization of Latin America’s military expenditures and the
channeling of those expenditures into the development of effective
military units that are actually required for Hemisphere defense and
internal security.
This is largely a problem of educating the Latin Americans, and for
this purpose the grant assistance program, providing both matériel
and training, and the training afforded by our military missions in
Latin America should play a key role in the accomplishment of the
objective.
The United States has 35 separate service training missions in Latin
America, as compared with 4 missions at the beginning of the Second
World War. One measure of the importance of the successful operation
of the present missions is the difficulties caused to the United
States by the predominance of German, Italian, and other European
missions in Latin America at the time of the last war.
The purpose of military grant assistance, which is provided to the 12
Latin American countries with which the United States has Mutual
Defense Assistance Agreements, is to develop modest Latin American
forces for Hemisphere defense missions. These agreements supplement
a Resolution of the Foreign Ministers (1951), urging the American
Republics to orient their military preparation toward the common
defense of the Hemisphere, rather than to confine such preparation
to the defense of their individual countries. The agreements also
supplement and help to enhance the successful implementation of the
Inter-American Treaty of Reciprocal Assistance (1947), which
embodies the proposition that an attack on one American state is an
attack on all.
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A workable but small reimbursable assistance program, properly
administered, should also play an important, perhaps the most
important, role in the achievement of minimum Latin American
military expenditures and channeling them into useful purposes.
The Deterioration of United
States–Latin American Military Relations
Military relations between the United States and Latin America are
deteriorating, and for this reason United States influence on the
extent and direction of Latin American military development is being
undermined.
The dissatisfaction of some Latin American countries with the size of
grant military assistance (1/3 of 1 percent of U.S. total FY 1957 budget request for foreign
military grants) and with the form of that aid (most notably,
propeller fighter planes for which spare parts are no longer
manufactured) accounts in part for the deterioration of military
relations.
A more important reason, however, is the failure of the United States
in reimbursable military assistance. Despite policy requirements
that such assistance be provided to promote standardization of
equipment, doctrine, and training and to keep foreign military
missions out of Latin America, United States reimbursable assistance
operations are haphazard and, for the most part, ineffective.
The unsolved problems in reimbursable assistance are: (a) the lack of
a reliable source of modest funds (perhaps as little as $20–$30
million per year) to finance credit, including credit for new
procurement, (b) the lack of agreed United States criteria to govern
credit and cash sales, (c) the non-availability of or the long
“lead-time” for delivery of equipment, and (d) high United States
prices.
The Executive Branch is currently requesting an amendment to the
Mutual Security Act to provide for more realistic pricing. The
Department of Defense is also reviewing Latin America’s priority in
the light of the small requirements for equipment in the area.
In one case MDAP funds were used to
finance credit (Peru, $15 million). All of the rest of credit
transactions have been financed by the Air Force, except in minor
cases by the Army and Navy. No solution to the problem of funds to
finance credit is yet in sight.
There is no criterion for cash and credit sales other than general
compliance with the requirements of Section 106 of the Mutual
Security Act (mainly by virtue of the Latin American countries
having adhered to the Rio Treaty).
The more favorable prices, credit, and other terms offered by
European suppliers are resulting in an apparent increase in
non-United States equipment in Latin America. This problem is
further complicated by the recent offers of a low cost Soviet bloc
military equipment. While the Latin American countries (except
Guatemala)
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thus far have
not acquired any communist matériel, Argentina has recently
purchased 60 non-military planes from Czechoslovakia. No European
military missions have yet been established, but in some cases
European technicians have been imported along with the equipment to
perform functions similar to those of a mission. European equipment
in Latin America impairs the effectiveness of our missions, subverts
the United States standardization objective, vitiates the orderly
military development of Latin America, and militates against the
general pro-United States orientation which we seek in Latin
America.
Conclusion: Suggestions
Actual military requirements for Hemisphere defense should continue
to be the determining factor in the military grant program.
Implementation of United States undertakings should be thoroughly
creditable. If, for example, there should be no further military
requirement for the 10 fighter squadrons which we have equipped with
planes that are obsolete and can no longer be supplied with spare
parts, we should tell the Latin Americans so and gradually terminate
the portions of the military agreements calling for the squadrons as
Hemisphere defense units. If, on the other hand, there is a genuine
military requirement for the squadrons, the United States should
either make every effort to modernize them with serviceable aircraft
or should encourage the Latin Americans to re-equip them through
United States reimbursable assistance.
Cash and credit sales of equipment are more important in our military
relations with Latin America than is the matériel provided on a
grant basis. The Latin Americans buy far more equipment than we have
given them in the past, or are likely to give them in the future.
Also, it is presumably contemplated that the maintenance of
Hemisphere defense units, which we have helped to equip, will
eventually be taken over entirely by the Latin American countries,
and for this to be accomplished reimbursable United States
assistance is essential.
The adverse effect that European sales of military equipment to Latin
America have on United States interests can ultimately be countered
only through effective United States reimbursable assistance. There
is no known reason to believe that more competitive United States
prices and availabilities of equipment would generate a net increase
in total Latin American expenditures for military procurement. On
the contrary, the reduction of those expenditures might result. In
general, the Latin Americans prefer United States equipment, and if
it were more readily available, they would, in all likelihood, buy
less in Europe. There have been repeated cases in which Latin
American countries have first sought equipment in the
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United States and have
turned to Europe only as a last resort, buying more equipment and
sometimes spending more in Europe than they would have spent if
United States equipment had been available. Furthermore, while the
initial per unit cost of European equipment is generally lower than
similar United States equipment, the maintenance of European
matériel is higher, so that in the long run the dependence on
European suppliers is more costly to the Latin Americans. It goes
without saying that if the United States sells the equipment, the
United States is in a much better position to influence the amount
and type of equipment the Latin Americans purchase and, by virtue of
being the supplier of spare parts, to exercise some control over the
use of the equipment.
For the rational implementation of reimbursable assistance it is
first necessary to know what military units each country in Latin
America in fact needs for internal security and for its
contribution, if any, to Hemisphere defense. This information is not
available. Once it were compiled by the Department of Defense,
reimbursable assistance could supply the necessary equipment for the
designated units. In brief, reimbursable assistance would then have
a yardstick as well as a specific objective and would be an
extension of the principle of our grant military aid to Latin
America.
