Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

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

Washington, July 11, 1956.

SUBJECT

• Importance of Present United States Relations With Argentina, Brazil and Chile

Current Importance

This is an exceedingly important period in our relations with the three countries named. The course of our relations during the next few months will considerably shape our future relations not only with these three countries but with all of Latin America.

The factors which cause this are:

1. First, the current Soviet campaign for closer economic and diplomatic relations with Latin America.² That campaign is in its early stages. I believe that today the Soviets are assembling information, testing contacts and public opinion, preparatory to embarking on a coordinated program.

2. Each of these three countries is emerging from a long period of political and economic confusion and weakness. Factors which are fluid today, but which are rapidly hardening will determine whether the next several years will be like the past or whether they will be years of stabilization and progress.

3. As you know, these three countries are larger territorially than the rest of Latin America combined. They include over a third of the population of the area, and that third includes the most advanced peoples of the Latin American community.

If Argentina, Brazil and Chile follow an anti-communist, pro-United States, pro-private enterprise road, then the course of the balance of Latin America is assured. On the other hand, if any one of these three countries deviates from that path, then we may have calamitous problems in the area. The Russians know this and will include these three countries in the prime targets of the campaign for which they are now tooling up. They have excellent opportunities to create difficulties for us in each country. One of the best lies in offering really important financing for the Government oil monopolies in Brazil and Argentina. Our own refusal to do so (in which we must remain firm) would lend great public appeal to a communist offer. I hope earnestly that the Russians dissipate in other parts of the world whatever capital they have available for such adventures.

The foregoing does not mean that the communists are idle at this time. The USSR and all the Eastern European satellites except Albania have diplomatic missions in Argentina. They are very active. Attached as (Tab C) is a copy of a memorandum which I submitted to you March 6 outlining communist activities in Argentina.³

Present State of Relations With A–B–C Countries

Attached (Tab A) is a two-and-one-half-page memorandum dated January 26, 1956, and in which I undertook to outline for you the present situation in Argentina.⁴ It is still valid. Since its dictation the new Government has weathered several strong attempts by Peronist elements to overthrow it. As foreseen in the memorandum, it has adhered to the Anti-Communist Resolution of Caracas. It has joined the International Monetary Fund and the International Bank. It has established a close and effective liaison arrangement with us to combat communism.

You are familiar with the situation in Brazil. The Vargas regime which ended with his suicide in August of 1954 was one of inflation, corruption and demagogic economic measures which cruelly weakened the national economy. The Communist Party gained substantially in numbers and influence, becoming the largest and most important Communist Party in the hemisphere. During the succeeding sixteen months, a caretaker administration was in power. It achieved nothing and left office in an embarrassing and undignified series of quick shifts of power. The new administration headed by Kubitschek and Goulart was awaited with considerable foreboding. A number of factors, including visits by both men to the United States, the Vice President’s attendance at the inauguration, plus timely announcements of loans and other types of aid have all contributed to making the picture very different from that which we had feared.

Attached hereto (Tab B) is a copy of a cable sent by Ambassador Dunn on the day before his departure from Rio and just after his last interview with President Kubitschek.⁵ In my judgment it is an entirely valid summary of the present situation in Brazil and I urge that you read it.

The situation in Chile is less crucial, but exceedingly important. Chile’s history during recent years has been one of rapidly spiraling inflation, of increasing communist infiltration, growing anti-United States sentiment and weakening national economy. Last year we persuaded the government to contract for a Klein–Saks Mission to assist in ordering its economy. One after one a number of the Mission’s recommendations have been adopted. With each decision the opposing influences were almost evenly balanced and the outcome was unpredictable. The Government and responsible public sectors of Chile are moving with some uncertainty down a road toward economic stability. Inflation has been checked. Important loan applications in the Exim and IBRD are receiving favorable consideration. Substantial new private investments seem assured. There is a chance that Chile may become the kind of example of successful self-discipline and private enterprise afforded by Venezuela and Peru in the past.

In summary, United States relations with the A–B–C countries and the chances for real economic stability are better today than they have been in many years.

Present Financial Negotiations with Argentina and Brazil

We shall see the A–B–C presidents in Panama.⁶ We have today in Washington negotiating missions from both Argentina and Brazil. They are discussing financing for the economic programs of the two countries. Some months ago each indicated that it would seek fantastic amounts exceeding a billion dollars. Their approach seems now to be considerably more moderate.

We are going to have to decide soon on what financing we shall offer. The factors which should clearly control our decision seem to me to be:

1. We should authorize that amount of loans which conforms to our stated policies, i.e., that the loans be sound and repayable, that the projects be in the interest of the two countries, that the loans be to acquire United States goods or services, and that capital not be available from private sources.

2. At the same time, we should condition loans upon reasonable assurances that the two governments will, in turn, follow certain policies which we feel are essential to real economic recovery.

In Argentina this means a commitment to allow the electric and meat packing industries to expand under reasonable regulation and without increased Government competition. The Argentine negotiating mission has indicated that, for political reasons, the government hopes to expropriate one of the two principal electrical companies (Belgian owned) and get Exim financing to expand the company’s existing plant. The plan contemplates payment through allowing the former owners a minority interest in the new government-controlled company. This is not effective compensation. I explained to the head of the mission that any such move would make it hard for us to help the new Government. We should make the same point clear to President Aramburu at Panama.

We cannot exact commitments from either government regarding the petroleum industry at this time. Neither is strong enough to fulfill them. We can, however, require reasonable assurances regarding control of inflation and basic sound monetary policies.

These are rather modest conditions. However, we shall have to be rather firm to attain them. We are entirely justified in doing so because these are the kind of commitments that will weld the countries more firmly to us. Further, unless they are made, the prospects for stable economies are not good.

3. Finally, in deciding on the amount of our loans to these two countries we must consider realistically the amount of credit that in our best judgment represents the minimum necessary to keep each country sturdy in its new close relations with the United States. We may well find that this will exceed the volume of loans which can be justified by purely banking and economic considerations. Where this is true we must be prepared, within reason, to lend the larger sum. The alternative could well be to drive either country into a relationship with the Soviet bloc which would impair our present strong situation in Latin America.

Elsewhere in the world we have huge grant aid programs. This cannot be justified on fiscal and banking grounds, but they are necessary in order to produce the kind of attitude that we want in the countries benefitted. Fortunately, in this hemisphere our aid programs cost little, less than 1% of the global cost. Thus far we have succeeded in persuading the states that, as for government aid, they should be largely satisfied with generous loans. As our negotiations with Argentina and Brazil continue we shall be able to discern the amount of such credit which is the minimum necessary to assure favorable policies in those countries. The margin, if any, by which this sum may exceed that which can be justified on sound banking principles may well be a reasonable price for the security in this hemisphere that is sure only if Argentina, Brazil and Chile are firm in their ties with the United States.⁷

1. Source: Department of State, Central Files, 611.35/7–1156. Secret. A handwritten note on the source text indicates that both Dulles and Hoover saw this memorandum.
2. On January 16, Nikolay A. Bulganin, Chairman of the Council of Ministers of the Soviet Union, offered to expand diplomatic, economic, and cultural relations with Latin America.
3. In this memorandum Holland summarized Soviet bloc relations with Argentina. “The international communist front propagandizing for East-West trade,” he noted in part, “has its most active Latin American branch in Argentina.”
4. See the enclosure to Document 206.
5. See Document 333.
6. Reference is to the Meeting of the Presidents of the American Republics; see vol. vi, Documents 109 ff.
7. In a memorandum to Holland, July 18, W. Park Armstrong commented on Holland’s memorandum to Dulles of July 11. He stated that he was “in full agreement with the conclusion that ‘this is an exceedingly important period in our relations with the three countries named’ and that the course of our relations with these countries in the immediate future will considerably shape our relations with Latin America over the long run.” “I believe,” he added, “that assistance of the sort visualized in your memorandum would serve to reduce the effects of social pressures and economic problems foreseen, to raise the level of Latin American cooperation with the United States, and to counter the Soviet campaign in the area.” (Department of State, Central Files, 611.35/7–1156)