68. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Acting Secretary of State1
SUBJECT
- ICA Loan Programs in Latin America
On August 30 I wrote the Secretary recording my strong opposition to the proposal that ICA make an attempt to lend $10 million of the $38 million now appropriated as grant aid to Latin America.2
I am advised that at an inter-agency meeting on September 1 the Department of State approved this proposal and Treasury recorded its opposition to any program of soft loans in Latin America.
I should like to renew my opposition and respectfully urge that the decision be reviewed and reversed. My reasons are set out below.
At the Caracas Conference in March of 1954 the Latin American countries led by the United Nations Economic Committee for Latin America demanded that the U.S. undertake programs of grant aid and soft loans in Latin America. The issue was postponed to the Rio Conference in November of 1954. U.S. policy on these questions was hammered out during the five months from April through August of 1954. FOA and several other agencies strongly believed that we should engage in these types of aid. State, Treasury, Eximbank and a number of other agencies opposed. FOA wanted to get into the lending field itself or, in the alternative, to create new lending agencies in the area.
The policy finally adopted after long debate was that there would be no general grant aid programs, no soft loan programs, no new lending agencies; that FOA would not get into the credit field. To make this program acceptable to Latin America we emphasized our determination to expand Latin America’s trade opportunities, to afford the area generous sources of credit through the Export-Import Bank and to intensify our technical assistance programs. One exception was admitted. It was conceded that in cases of real and [Page 332] temporary emergency grant aid would be extended on a short term basis for the period of the emergency. Haiti qualified under this after the hurricane; Guatemala did after her revolution and Bolivia did after falling tin prices produced near starvation conditions.
The debate on these policies was so intense that the matter went twice before the NSC.
Beginning in September of 1954 we undertook an intense program to persuade the other Latin American countries to accept these policies in lieu of those demanded by them at Caracas. At the Rio Conference the ECLA adherents “swung their Sunday punch”. We maintained our position—no general grant aid programs, no soft loans, no new lending agencies.
The fight is not over. ECLA is now having its annual meeting in Bogota. A number of the speakers have strongly renewed all of the original proposals. We have another economic conference at Buenos Aires in 1956, and the same issues will have to be fought out there.
Against this background, the proposal that ICA try to negotiate soft loans (40-year term, no payments for the first three to five years) of $10 million in Guatemala and Bolivia causes me deep concern. This proposal seems quite innocent from a domestic point of view. We have appropriated $38 million of grant aid in Latin America. It would be an improvement if ten of it could be extended on a loan basis.
From the Latin American point of view, the decision will look very different. Those whose appetites for soft loans are still keen will seize upon this decision and try to blow it up into a major change of policy. We will be very hard put to deny it. This is a new kind of aid not presently available in Latin America. This is a new lending agency in the area. This is a departure from our battle-scarred policy of only good sound bankable loans through the IBRD and the Eximbank.
If these loans are made in Guatemala and Bolivia we shall very shortly receive applications for similar loans from a number of countries where we presently have no grant aid programs. The Mexican Government has for six months been trying to negotiate a loan from the FOA–ICA. The people in our own government who took that position in 1954 will try to reopen the issue and demand that ICA consider applications from other countries.
We have two roads we can follow. One is to close out by orderly steps grant aid and soft loans in this hemisphere—leaving the development of the hemisphere up to private capital supplemented by the kind of loans that Eximbank and IBRD extend. The other road is to slip back into the kind of aid programs that we still find it necessary to establish in other parts of the world. We have made enormous progress in the last year and a half along the first [Page 333] road. We had no soft loan programs. I hope that next year we can drop the grant aid in Haiti. Within two years we should be able to stop grant aid in Guatemala. Within a short additional time we should be able to stop it in Bolivia. When that time comes the policies that we now follow in seventeen of the twenty Latin American countries will be followed in all twenty.
I can understand ICA’s desire to use Latin America to place some of the money that they must lend. However, the $10 million they hope to lend in LA will not make much difference in their world-wide objective of $330 million. Balanced against this small advantage is the very grave risk that the decision will cost us much of the progress that we have so painfully achieved over the past year and a half. I strongly urge that we not run that risk.
- Source: Washington National Records Center, ICA Director’s File, FRC 61 A 32, Box 309, Latin America. Confidential. Routed through the Executive Secretariat, under a covering memorandum by Holland to the Acting Secretary which reads: “I am sending you a longer memorandum opposing the extension by ICA of soft loans in Guatemala and Bolivia. Bearing on the same subject, however, I have just been advised by Eximbank and IBRD standards Bolivia is ‘all loaned up’, and they have been told so.” Copies of the memorandum, which is unsigned, were sent to Hollister, Waugh, and Nolting.↩
- Not found in Department of State files.↩