485. Memorandum of a Conversation, Department of State, Washington, February 7, 19571

SUBJECT

  • Financial Aid to Ecuador

PARTICIPANTS

  • Mr. Maurice M. Bernbaum, OSA
  • Mr. John Duval, Export-Import Bank
  • Mr. George Galloway, Export-Import Bank
  • Mr. John Cady, Export-Import Bank
  • Mr. John Blodgett, E
  • Mr. John Hopkins, REA
  • Mr. Bainbridge C. Davis, OSA
  • Mr. Glenn R. Ruihley, OSA

Mr. Bernbaum opened the meeting by saying that the Department is obliged to consider financial aid to Ecuador in view of many indications that the position of President Ponce is rapidly deteriorating. [Page 979] It is a government of which we approve, and one which we should support in our own interest. The present threat to the President stems from the sound, conservative policies he has adopted, which are measures we would like to encourage in Ecuador, Mr. Bernbaum remarked. These policies follow on a period of extravagant spending and irresponsibility under previous administrations, a fact which has magnified the financial and political difficulties of the present government. To cope with his budgetary deficit, President Ponce has inaugurated an austerity program with reduced government expenditures. Credit has been tightened and import taxes increased. Public reaction to these measures has been extremely unfavorable, Ambassador Ravndal has received appeals for help, and it appears that the government is steadily losing support. Mr. Bernbaum pointed out that one of the chief obstacles to extending aid to Ecuador has been the fact that the government needs funds in sucres for current expenses, which assistance would not be available under Eximbank practices, while the Ecuadorans have preferred to reserve their International Monetary Fund stand-by credits for a foreign exchange emergency. Because of these facts, it had been suggested that the government might be aided through the extension of exporters’ credits. However, it was understood that the Eximbank would be reluctant to come to the rescue of Ecuador.

Mr. Bernbaum then read a letter from Ambassador Ravndal 2 which suggests that the Eximbank extend a fifteen to twenty year loan to Ecuador, the repayments to be in sucres for the first year or two. Mr. Hopkins read his reply3 to the Ambassador’s letter which gave encouragement to the idea of aid through export credits, but asked the Embassy to furnish a specific list of such exports so that the proposal could be given serious study.

At this point Mr. Cady related the background for the ill feeling which exists for the Ecuadorans at the Eximbank. He said that the Ecuadorans are “troublesome”. They repay the sums borrowed, but there has always been a series of problems, one following the other. So much misunderstanding and bad feeling had been generated last year, that the Bank had dispatched a special mission to study the problem. Mr. Cady also pointed out that the Ecuadoran fiscal crisis arising from the budgetary deficit is not new and that reports had been made on it last fall at the time of the mission to Quito. The question of help from the Bank had been raised, but when the mission arrived on the scene, the idea was not mentioned at all. Ecuador is a “dirty word” at the bank, Mr. Cady said. The idea of direct help for the government budget must be considered completely [Page 980] “out of bounds”. Mr. John Fishburne of the U.S. Embassy, Quito, had accompanied the Eximbank mission on its travels in Ecuador as a means to tune in the Embassy. For this reason, the U.S. Ambassador and Mr. Fishburne must have understood the position of the Bank from the beginning.

In regard to the proposal of aid through export credits which had been raised earlier in the discussion, Mr. Galloway expressed the opinion that it is not a bad idea and asked what might be covered by them. Two possibilities were mentioned: (1) credit lines for commercial importers which might be used to provide more dollars, (2) a line of credit either to U.S. exporters or the Ecuadoran Government to purchase capital goods which the government has included in its 1957 budget. The second of the two possibilities would be the more effective since it would put dollars directly into the hands of the government for conversion into the sucres that it needs. It was remarked that what is intended is to cover only goods entered on the budget and not materials for new projects.

On the other hand, Mr. Galloway stated that the “climate” at the Bank is unfavorable for requests from Ecuador. He mentioned the case of an Ecuadoran contractor who was “always raising issues and these issues were carried to high levels”. When the Intriago Mission was in Washington, it was given the “cold shoulder,” Mr. Galloway said. To hope to succeed at the Bank we must have a project of indisputable merit, Mr. Cady remarked. It was decided that our first step should be to sound out feeling at the directors’ level at the Bank.

  1. Source: Department of State, Central Files, 822.10/2–757. Confidential. Drafted by Glenn R. Ruihley and initialed by Bernbaum.
  2. Document 482.
  3. Apparent reference to Rubottom’s letter, supra .