239. Memorandum From the Director of the Office of South American Affairs (Bernbaum) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)1
SUBJECT
- Possible Financial Aid to Argentina
During the time the US Delegation is in Buenos Aires for the Economic Conference2 it seems inevitable that it will be approached by the Argentines on the subject of further US loans. In point of fact, Coll Benegas has lately been pressing hard for an invitation to come to Washington to talk about new loans (Embtel 167).3 He has been basing his argument on the alleged fact that the meatpackers question has been settled in “principle”, and that the Argentines have submitted a “proposal” in the ANSEC case. Ambassador Beaulac has quite correctly pointed out that the meatpackers problem cannot be considered settled until the pertinent decree is published,4 and that there has been no serious proposal in the ANSEC case since the Government failed to carry out its out-of-court settlement idea.
Be that as it may, our position has always been that we could not consider further loans until some progress had been made on these problems, although we have been careful not to define the amount of progress necessary. Now, however, it appears that either some progress will have been made or the Argentines will take the position that it has, and I suggest we should begin to consider what our position should be in several situations. These thoughts may be [Page 475] of use to you in discussions with either Mr. Waugh or the Argentines.
No real progress in either meatpackers or ANSEC. In this situation, I can see no alternative to holding firm to our stand of no loans. We would be under pressure not to adopt a “banker’s mentality”, to consider political factors, etc., but I think it would be a mistake to yield to these arguments.
Progress, or settlement, of meatpackers’ case; no progress in ANSEC. This situation would be more difficult, for the Argentines could maintain that they had gone as far as a Provisional Government could go in coming to grips with our problems. Nor have we ever told them that a complete settlement of all the problems was a sine qua non of additional assistance.
Logic would indicate, it seems to me, that if the Argentines have come part way in meeting our conditions we might then well go part way in meeting their requests. This would imply limited financial aid in carefully selected fields, with again the clear understanding that large-scale assistance would not be forthcoming in the absence of an ANSEC settlement. Further attentions to transportation and industrial equipment suggest themselves. The field in which financing is vitally needed—electric power—could not, of course, be touched in this situation.
Settlement of both meatpackers and ANSEC problems. In a way this happy situation would present us the most difficulties, for the Argentines would unquestionably expect aid on a scale beyond anything we could contemplate. We would, however, be morally committed, I think, to providing as much assistance as we could. Here two problems arise. The first is the amount of foreign debt Argentina can assume in the next few years. (The IBRD is particularly apprehensive on this score, and feels that Argentina may not be able to service much more in the way of foreign debt. A study on this subject is in process in the IBRD.)
Secondly, we come face-to-face with the question of electric power, which is, excluding petroleum, admittedly Argentina’s prime need. In this field, we have taken the position that until the situation of A&FP was regularized, and until Argentina’s power policy was clarified, we could offer no help; even in this case we would presumably maintain the line that we could not intervene should private capital be available. But the recent Argentine action in regard to CADE and ITALO very definitely raises some questions as to Argentina’s future power policy. Even should A&FP’s problems be settled and ANSEC allowed reasonable operating conditions, it would be difficult for us to consider a power loan unless we knew the shape of things to come in the rest of the industry. At present it appears that the CADE and ITALO cases will be in the courts for [Page 476] some years to come; it is also possible that the forthcoming Constitutional Convention will write nationalization of all public utilities into the reformed Constitution. Under circumstances such as these it would be extremely difficult for the Eximbank to supply financing for the power industry. (The analogy of Petrobras5 is perhaps pertinent.) This question, however, should be gone into thoroughly, as the question would arise: Is private capital available?
Intermediate situations, such as Argentina’s buying out CADE and turning it over to Argentine capital or to a mixed company, are also possible. Under these circumstances it is conceivable that A&FP might be interested in further investment in Argentina; in any case, we should seek clarification of A&FP’s position before determining ours.
Cutting across these questions is the problem of what fields could be benefited by US loans. Here we must face the fact that if petroleum and power are excluded, the field is narrowed sharply. Transportation can absorb a further amount, after which the field appears limited to equipment for industry and agriculture.
In this connection, two points should be emphasized to the Argentines in any discussion of loans. First, it is obvious that their problems are of such magnitude that they cannot under any circumstances be solved solely by Government loans. Stimulating the inflow of private capital should be their first concern; an attitude of confidence would certainly be created by settlement of our outstanding problems, while actions like that in the CADE case can hardly do other than harm in the long run.
Secondly, the Argentines seem reluctant to channel loan funds into the private sector, while, I believe, it is our policy to encourage this. Apparently, Argentine reluctance has been based largely on ignorance of techniques in this regard; some salesmanship in this field might well be productive.
- Source: Department of State, Central Files, 835.311/7–2457. Confidential. Drafted by Watrous.↩
- Reference is to the Economic Conference of the Organization of American States, which met at Buenos Aires, August 15–September 4. For documentation, see vol. vi, Documents 135 ff.↩
- Dated July 24. (Department of State, Central Files, 835.311/7–2457)↩
- In telegram 304 from Buenos Aires, August 16, the Embassy reported that an Argentine governmental decree settling the problem of past accounts of meatpacking firms operating in Argentina was officially published on August 14. (Ibid., 835.311/8–1657)↩
- Reference is to Brazil’s government-owned oil company.↩