57. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Secretary of State1

SUBJECT

  • White House Dinner on March 29 to Discuss Export-Import Bank Lending

About March 4 Senator Capehart talked to the President about the desirability of intensifying Export-Import Bank lending in Latin America. As a result, the President has scheduled a dinner for the evening of March 29 at which he proposes to discuss the whole problem of U.S. Governmental financing of economic development in Latin America.

The guest list includes:

  • The President
  • Sam Anderson
  • Randolph Burgess
  • Arthur F. Burns
  • Homer E. Capehart
  • Joe Dodge
  • Glen Edgerton
  • Peter Grace
  • Gabriel Hauge
  • Henry F. Holland
  • Herbert Hoover, Jr.
  • George M. Humphrey
  • Nelson Rockefeller
  • Harold E. Stassen
  • Samuel C. Waugh
  • Sinclair Weeks

Nelson Rockefeller has sent me an outline of material that he is preparing for the conference. It pursues the following pattern:

1.
Comparison of gross national production and rate of investment in Latin America with that in Canada, U.S.A. and Western Europe. This apparently would indicate extent to which situation in Latin America must be improved.
2.
Estimate of the desired future investment flow in Latin America with statement of five and ten year goals for investment. These goals appear to be the amounts of investment necessary to increase per capita production in Latin America by two percent a year.
3.
Estimate of existing rate of investment from public and private sources.
4.
Definition of the gap between the rate of investment indicated by the “goals” indicated under (2) above and existing public and private investment flow shown in (3).
5.
Analysis of measures appropriate to ensure that the Export-Import Bank can meet this gap.

The foregoing outline condensed from that handed me by Mr. Rockefeller troubles me because:

1.

It resembles somewhat the philosophy of the United Nations Economic Commission for Latin America and of those in our own Government who have fought for large grant aid programs and “soft loan” programs.

This philosophy begins by defining the rate of capital investment needed in Latin America. That apparently is the purpose of the comparison between Latin America and Canada, U.S.A. and Western Europe in the above outline. The ECLA approach next determines the amount by which the existing flow of investment capital in Latin America must be increased to achieve the pre-established goal. The final step is to call upon the United States to make that amount of capital available.

Under the ECLA presentation the United States is to make that amount of capital available through grant aid and soft loans. Under this presentation we would apparently accomplish the results through modification in the policies of the Export-Import Bank.

The ECLA philosophy and those resembling it have certain clear defects, it seems to me. One is that no goal determined by the method suggested can be achieved without resort to grants and soft loans. We were successful in overcoming this approach to United States Government financing when it was broached at the Caracas Conference, when it was advanced by certain U.S. agencies in the course of our preparations for the Rio Conference2 and when it was presented at the Rio Conference by the ECLA group. It appears that it may now come up in connection with the Export-Import Bank.

2.
This ECLA approach seems to me to reflect a fundamental, basic defect in reasoning which has pervaded much of our thinking on financial aid and technical assistance, a defect which hurts our foreign relations, creating for us unnecessary problems in the hemisphere. I shall undertake to outline briefly my thoughts on this subject.

This defect arises from the natural tendency of some planners to measure how far Latin America falls short of the economic advantages of more fortunate areas, and then elaborate plans to eliminate that gap. In my judgement, such an approach in our foreign relations [Page 306]ignores the best interests of the United States, inevitably creates resentments against the United States, implies expense wholly unnecessary to achieve the purposes of our foreign policy and, if it serves anybody’s interest, serves those of Communism.

The basic purpose of our economic aid in Latin America is not to eliminate its lag behind other areas of the world. Instead it is to use economic aid along with other tools available to us to establish those attitudes in the minds of peoples and governments which will logically produce trust in the United States, voluntary adherence to our world-wide policies and an active desire to cooperate with us.

We should extend financial and technical aid to improve the economic or social well-being of the countries in the area, only when and to the extent that it furthers the basic purposes defined in the preceding paragraph. Regardless of praiseworthy humanitarian considerations, the mere fact that our aid improves economic or social conditions can never justify its extension save in cases of disaster relief. Some good and Christian men in our Government do not share this view and would extend United States aid in many instances where it does not achieve the basic purposes outlined above and even where it hinders them. The considerations which, it seems to me, should determine when we extend aid are these.

In the economic field every Latin American government has certain aspirations. Those aspirations may or may not be those which we would have chosen for them. Nevertheless, they can be recognized and defined, and are very important to the governments who harbor them.

Every Latin American government looks to the United States for assistance in achieving its economic aspirations. Our task is, therefore, to pursue those policies and programs which will convince each Latin American government and people that the United States is loyally and generously helping in the achievement of their aspirations and not those which we in our superior wisdom have ordained for them. Our policies should, however, be guided by the following principles:

1.
Within limits of prudence we should discourage aspirations whose achievement would prejudice United States interests.
2.
We should limit United States expenditures to the minimum necessary to convince each government and people that we are in fact assisting them to achieve their aspirations. This level is at times considerably lower than our present aid program.
3.
Encourage adherence to a free enterprise rather than a collectivist philosophy.
4.
Achieve maximum protection for the legitimate interests of United States business communities at home and abroad.

[Page 307]

Pursuit of this policy will generally cost considerably less than if we determine ourselves the level of progress which Latin America should attain and then undertake to achieve it for her.

The natural inclination of a people and of a government is to be pleased and satisfied with reasonably consistent and readily visible economic progress. If these conditions exist, and if they can be attributed in part to aid from the United States, then the attitudes of mind are apt to be those sought by our foreign policy in the area.

On the other hand, if we:

(1)
measure how far short Latin America is of achieving the state of development of Canada, U.S.A. and Western Europe and then
(2)
indicate that Latin America should not be satisfied unless she achieves those levels, and then
(3)
indicate that we are going to share with her the responsibility of achieving those levels.

we create the following very difficult and unnecessary problems for ourselves:

1.
Latin America becomes dissatisfied with any rate of development no matter how gratifying in comparison with past performance, that falls short of the rate represented by the indicated goals.
2.
Since the attainment of any such goal would inevitably be a long and slow process, the result is automatically to create a state of discontent and resentment for indeterminate period in the future.
3.
Since no conceivable programs for aid or financing from the United States will be effective to achieve these goals save over a period of a number of years, resentment is created against the United States for its failure to discharge a responsibility which we have unnecessarily led Latin America to conclude that we will assume.
4.
Where the programs are those which we have induced the country to adopt despite its lack of interest or its reluctance, as occasionally happens in the technical aid field, our efforts may generate resentment rather than the mental attitudes we seek.
5.
No announced program or financial or technical aid will satisfy Latin America so long as we have assumed publicly the responsibility of raising her to target levels of progress and development. The pressure will always be for programs which will achieve those targets even more quickly.
6.
By emphasizing the gap between existing levels of progress and the goal to be achieved rather than emphasizing the really vast progress achieved in recent years in Latin America, we encourage governments to invade the field of private enterprise in an effort to bring about more rapid progress toward goals.

The foregoing considerations explain, I believe, the painful fact that our massive aid programs around the world have often reaped for us a harvest of animosity and suspicion.

[Page 308]

Our lending and our technical aid policies in Latin America should, it seems to me, have the following characteristics:

(1)
We should avoid committing ourselves to assist in achieving goals which can be represented by trends rather than measurable amounts of progress. We should support economic progress, stabilization of economies, wholesale industrialization, encouragement of increased rates of investment. We should avoid identifying ourselves with specific targets in any of these fields.
(2)

We should publicize favorably amounts of progress achieved. We should not emphasize the amount of progress still to be achieved.

Latin America has experienced a rate of economic progress perhaps never exceeded by any comparable area. Yet the average citizen feels that his is an “underdeveloped”, “backward”, “poverty-stricken,” “semi-literate” country. Far from feeling proud of the incredible progress achieved in the area he suffers from a feeling of frustration born of the conviction that his country somehow has not achieved the level of progress which it should.

We, with our frequent emphasis, upon future goals rather then past progress, upon invidious comparisons with more developed areas of the world, have contributed to creating this situation. I have found that many Latin American officials who are actually amazed at the economic progress achieved by their countries are reluctant to comment on it publicly. The principal reason, I believe, is that such admissions weaken their governments’ claims for ever greater aid from the United States and (in the case of men unfriendly to us) weakens claims that United States blocks progress in Latin America.

(3)
We should constantly emphasize that the overwhelming credit for past progress as well as the responsibility for future progress lies with the Latin American people and governments and not with ourselves. We have been so eager to receive credit for our performances in the past that we have created in the minds of people the conviction that the United States has assumed responsibility for their future progress. When to this situation we add encouragement in the establishment of unachievable goals we guarantee ill will and resentment against us.
(4)

We should emphasize constantly that the quickest and surest way toward realization of economic aspirations is through aid to private enterprise.

Our own economic aid should, whenever possible, be to private enterprise rather than to governments. It is as a rule easier to grant loans to governments than it is to private entities. Yet every time we grant a credit to permit some government agency to invade the field of private enterprise we are financing state socialism. The accumulated effect of such credits over the past years has been to give impetus to a basic trend toward collectivist economies which has developed throughout Latin America. Other factors have contributed to this trend but our own policies have been one of those factors.

(5)
We should concentrate our technical aid on those programs that satisfy genuine aspirations in the area and place less emphasis on those programs which, while sound and desirable in our own opinion, contribute little toward attitudes of mind which are the goals of our foreign policy.
(6)
With respect to the Export-Import Bank in this hemisphere, I would suggest the following course:
(a)
Adhere to our presently announced policy which is generous and is consistent with all of the considerations outlined above.
(b)
Without ever changing our announced policy, do not hesitate to deviate from it when to do so will achieve our political purposes. I have in mind the making occasionally of loans which could not be defended as basically sound or which enable governments to invade the field of private enterprise, as in the case of the Argentine steel mill loan.
(c)
Within prudent limits constantly publicize favorably the activities of the bank.
(d)
Reduce the interest rate of the bank to one that is more comparable with rates applicable for similar loans in the United States. The suggestion of a six percent interest rate on a 100 million loan to A.S. & R. for a copper project in Peru was, in my judgment, unrealistic.
(e)
Adhere to present periods of repayment because it appears that substantial amounts can be lent on these terms. However, be prepared to renew and extend loans generously. An extension of term in the future may well serve our foreign policy almost as much as a new loan.
(f)
Encourage the directors of the bank to travel frequently to Latin America, ostensibly to retain contact with existing loans, but actually to look constantly for new loans consistent with the bank’s policy.
(g)
Have our embassies be constantly on the alert for possibilities of good loans to governments, but particularly to private enterprise which can be reported confidentially to the bank.
(h)
Try to encourage private investors to ask for Export-Import loans for sound industrial projects which we learn would otherwise be undertaken by government entities.
(i)
Give the Export-Import Bank preference over the International Bank in making certain loans, particularly those which can be made to private enterprise without governmental guarantee.
(j)
Actively encourage governments to utilize their borrowing capacity for such projects as roads, irrigation projects, etc in which private enterprise is not reasonably interested.

At and before the Rio Conference we forestalled determined and well planned campaigns to commit us to participation in an inter-American bank. Our best argument was the commitment to “intensify substantially” the lending activities of the Export-Import Bank in Latin America. Our next economic conference is scheduled to be held in Buenos Aires some 18 months hence.3 The proponents of an inter-American bank, of grant aid programs and soft loan programs [Page 310]will be working assiduously during the interim. If we expect to defeat them again in Buenos Aires, we must during this period build up a record of lending for the Export-Import Bank which will answer accusations that the United States is not affording sufficient financial help to the economic development of Latin America. To accomplish this, we must give immediate, urgent attention to policies and measures which will increase sound lending by the bank.

  1. Source: Department of State, Central Files, 103–XMB/3–1355. Confidential. Addressed also to Under Secretary Hoover. Attached to the source text is a note from Overby to Hoover, dated March 31, which reads: “Returned per your request. Thanks very much.”
  2. Reference is to the meeting of Ministers of Finance or Economy of the American Republics as the Fourth Extraordinary Meeting of the Inter-American Economic and Social Council (commonly called the Rio Economic Conference), held at Quitandinha, Brazil, November 22–December 2, 1954; for documentation, see Foreign Relations, 1952–1954, vol. iv, pp. 313 ff.
  3. Reference is to the Economic Conference of the Organization of American States (commonly called the Buenos Aires Economic Conference); see Documents 135 ff.