230. Memorandum From the Acting Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State (Herter)1
SUBJECT
- Argentine Cabinet Crisis
The Argentine Provisional Government is passing through one of its most critical periods. The following is a summary of the present situation.
The Government is facing its second cabinet crisis in as many weeks. Two weeks ago the coalition of armed forces, which is the core of the present regime’s support, threatened to break up with the disciplinary arrest and resignation of the Undersecretary of the Navy, Admiral Rial, one of the heroes of the revolution that overthrew Peron. This arrest was prompted by Rial’s criticism of Government officials and economic policies which was leaked to the opposition press. The military leadership coalesced around President Aramburu, however, even though a rift between the Navy and Army seemed imminent at one time.
Now the Government faces a more basic and far-reaching problem in connection with economic policy. Argentina is in serious economic straits. Its balance of payments deficit in 1956 was $200 million. Its gold and dollar reserves were reduced in 1956 by almost $100 million and are now approximately $234 million. With about $60 million in expected 1957 export earnings lost by severe drought damage to the corn crop, and the cost of petroleum imports increased by almost $100 million, a balance of payments deficit of $200 million is expected again this year. The deficit with the dollar area is expected to be about $250 million. At this rate reserves will be virtually exhausted by the end of 1957. The internal budget has a deficit of $700 million (14 billion pesos), and the cost of living increased 17% last year.
The Minister of Finance, Dr. Verrier, has proposed an austerity program to regain a viable position. He has proposed the elimination of subsidies on transport, fuel and electric power; reduction in official expenses by dismissing personnel and eliminating some services; postponing half of pay increases for all ministries; heavier taxation; abolition of a fixed exchange rate; free importation of [Page 455] capital goods and machinery; removal of price controls but freezing of wages; adoption of a definite policy of free enterprise.
This program is backed by President Aramburu and apparently by the armed service ministers. Five civilian members of the cabinet, however, have threatened to resign if the plan is adopted, and Dr. Verrier has said he will resign if it is not. Last week the President called in the leaders of twelve major political parties to listen to the Finance Minister’s appraisal of the situation, apparently hoping to win their support or some constructive counterproposals. These leaders, however, showed no sympathy for any belt-tightening program with general elections scheduled for the end of this year.
The President is now faced with the dilemma of abandoning the austerity program and risking continued economic deterioration, or reforming the cabinet to carry it out and risking political unrest and possible attempted coups. He himself has made public his support for an austerity program. At any rate, this crisis, which has split the cabinet, may well provoke basic changes in the composition and nature of this Government, if it does not provoke its fall. The present leadership is as pro-US as any regime in recent history, with the small likelihood of any probable alternative regime being as friendly. Consequently, the ability of the present leaders to ride out this crisis, hold together and come out of the economic crisis, is of concern to the US.2
- Source: Department of State, Central Files, 735.13/3–2557. Confidential. Drafted by Vaky. A copy was sent to Murphy.↩
In a memorandum to Herter, March 26, Rubottom summarized the latest developments in the Argentine cabinet crisis. He reported that the Argentine Government had announced its acceptance of Roberto Verrier’s resignation as Minister of Finance and his replacement by Adalberto Krieger Vasena, who had been a member of the Argentine Financial Mission to the United States. The memorandum reads in part as follows:
“The appointment of Dr. Krieger indicates no particular change in economic philosophy by the Provisional Government. However, the acceptance of Dr. Verrier’s resignation indicates that President Aramburu has decided opposition is too severe to the austerity program drawn up by Dr. Verrier. The Government will apparently not attempt to put this plan into effect, but will probably try some modified program. This in turn indicates that economically desirable solutions are being subordinated to a politically volatile climate. It remains to be seen whether in this political environment the Government can halt further economic deterioration.” (Ibid.)
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