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

488. Memorandum of a Conversation, Department of State, Washington, May 7, 1957¹

Washington , May 7, 1957

SUBJECT

• 1. Economic and Political Situation in Ecuador.
• 2. Ecuadoran Relations With Czechoslovakia.

PARTICIPANTS

• Ambassador Chiriboga of Ecuador
• Mr. R. R. Rubottom, Acting Assistant Secretary for Inter-American Affairs
• Mr. William P. Snow, Deputy Assistant Secretary for Inter-Amer. Affairs
• Mr. M. M. Bernbaum, OSA
• Mr. B. C. Davis, OSA

Ambassador Chiriboga called at his request and stated that he had a matter to discuss which was important because Mr. Bernbaum was about to visit Quito and was also extremely important in itself. The Ambassador stated that President Ponce had performed miracles in improving the economic situation in Ecuador.² He pointed out that last October the exchange rate had been 19 sucres to the dollar whereas it is now about 17.40, The President had taken various measures which were highly commendable but, nevertheless, unpopular and the success which he had achieved in improving the economic and fiscal situation in Ecuador had also exposed him to political dangers. He said that the Communists are in a strong position in Ecuador today and particularly so because the CFP under Guevara Moreno, while claiming to be non-Communist, has actually established close relations with the Communists and is striving to overthrow the Ponce Government.

President Ponce is, of course, aware of this situation and of the efforts being made by the Czechoslovakian Legation to stimulate Communist activity in Ecuador. He has written to Ambassador Chiriboga indicating that he wishes to declare the Czechoslovakian representatives persona non grata and close this Legation, but he recognizes that in view of the economic relations with Czechoslovakia and the offers of financial assistance received from that country such a move would be politically dangerous for him at this time. He did not feel able to take such a step unless he could be sure of U.S. support. Ecuador has recently sought U.S. aid in various ways and particularly in the form of a 3-year PL 480 agreement, which request was, however, turned down for reasons which were entirely understandable. Financial aid is of the utmost importance just now and the President had sent Dr. Chiriboga a list of projects in which financial assistance might be granted, possibly through the Export-Import Bank. The Ambassador stated that the total list amounted to some $16 million but he would suggest particularly the items covering a packing house for Guayaquil, agricultural machinery, silos and irrigation, amounting to $3 or $4 million. The Guayaquil project is particularly important he said, as people are starving and this is an area where it is necessary to strengthen the President’s hand against Guevara Moreno. Aid of the sort requested by the President was very essential, particularly if he were to take such a politically dangerous step as the elimination of Czech influence. Mr. Rubottom replied that he would like to refer to these two problems separately. He realized that the step of breaking relations with Czechoslovakia was a delicate one and that any such decision must be made by the Ecuadoran Government and he hoped strongly that it would be made as a matter of principle. He recognized that from the point of view of Ecuador’s own welfare such financial or economic benefits as Czechoslovakia might offer would not be of real value to Ecuador.

Turning to the economic problem, Mr. Rubottom said that during the past six months or so he had given more thought to Ecuador’s economic and financial situation than to that of any other country. This might not be evident from the ways in which we had been able to aid Ecuador, but he did feel that the $2 million Smathers amendment loan³ was of importance to that country. We would be very glad to give the most careful study to this list of projects in the hope that there might be some way in which we could be of assistance. At this point Mr. Rubottom said he wondered whether the Ambassador felt that Ecuadoran relations with the Export-Import Bank were good at the present time. The Ambassador replied that within the past few days he had had a conversation with Mr. Waugh and he felt that relations were very satisfactory. Dr. Chiriboga referred to the Jones Construction Company problem and said that he had suggested arbitration as the most effective way to settle the difference of opinion with respect to the quality of highway construction performed by this company in Ecuador.⁴ Mr. Rubottom expressed pleasure at the Ambassador’s statement that relations appeared to be good and said that he was sure that the only problem had been one of administrative difficulties. He asked whether the Ambassador had discussed these new proposals with the Bank and as Dr. Chiriboga stated that he had not, it was suggested that they be presented in detail as projects for the Bank to study.

Mr. Rubottom asked whether the Department had received any word with respect to these new proposals and Mr. Davis replied that we had just received a report from Ambassador Ravndal transmitting a list which was evidently similar to the one Dr. Chiriboga was discussing and which had been handed to Ambassador Ravndal by the Foreign Minister.⁵ Mr. Davis added that this was merely a list without details. At Mr. Rubottom’s suggestion Ambassador Chiriboga said that he would discuss the proposals directly with the Eximbank and if the Bank is willing to consider these projects, he will obtain detailed information. Mr. Rubottom stated that he would be glad to take a sounding with the Eximbank and let Ambassador Chiriboga know of the results. He assured the Ambassador that he would be glad to give appropriate support to the projects if they turned out to be sound and feasible. Chiriboga expressed his appreciation and said he was certain the result would be favorable with the Department’s support.

Returning to the matter of breaking relations with Czechoslovakia, the Ambassador said that while there was no question as to what President Ponce would wish to do, it is also clear that with the backing of the U.S. he could do so safely, whereas without that backing it would be extremely dangerous. Mr. Rubottom again emphasized that although he appreciated this problem, he felt that it was extremely important to act on principle in a matter of this sort.⁶

Ambassador Chiriboga stated that he was considering making a visit to Ecuador within the next few weeks to discuss these problems with the President, but that probably Mr. Bernbaum would arrive in Quito before the Ambassador and he hoped that he would take this opportunity to discuss them with him.

1. Source: Department of State, Central Files, 722.00/5–757. Secret. Drafted by Davis; initialed by Rubottom, indicating his approval.
2. In despatch 602 from Quito, April 30, the Embassy stated the following about Ecuador’s economic situation: “The Ponce Administration has been more successful than anyone thought possible in meeting, or deferring, the fiscal problem. This success is due partly to improved tax collection procedures, partly to austerity in Government expenditures, and partly to the Government’s failure or refusal to make prompt payment on its due and past due bills. This program has naturally put a strain on the economy of the country and on the Government’s popularity, and President Ponce and his advisers have felt for some time that a program of essential public works is advisable in order to counteract the adverse effects of the austerity program. Since Ecuador is in no position to finance a public works program, outside financial assistance must be obtained if the work is to be done; outside assistance is also desired because of the possibility it offers for some fiscal relief, through the possible shifting of certain budget items to the new public works program.” (Ibid., 822.10/4–3057)
3. Senator George A. Smathers (D–Fla.) offered an amendment to the Mutual Security Act of 1955 which authorized an increase in development assistance funds for several Latin American countries. For text of the Mutual Security Act of 1955, see 69 Stat. 283.
4. In a memorandum to Bernbaum, dated April 10, George A. Blowers, a director of the Export-Import Bank, stated that the Bank believed that the J.A. Jones Construction Company was not responsible for rainy season damage sustained by the Quevedo–Manta Highway which it had completed in Ecuador. Blowers stated that the Bank had offered to increase its loan to Ecuador by $250,000, “to permit the final payment to the contractor when a mutually satisfactory acceptance and release had been concluded.” (Department of State, Central Files, 822.2612/10–457) According to a memorandum of conversation, June 4, by John M. Perry, Officer in Charge of Ecuadoran Affairs, Chiriboga stated in part that, “The roads constructed by Jones were faulty and his Government had, therefore, proposed that Jones should pay 75 of the bill and Ecuador would pay the balance.” (Ibid., 822.311/6–457)
5. Despatch 600 of April 26, 1957 from Quito transmits this list given to Ambassador Ravndal on April 26 by the Foreign Minister as an Aide-Mémoire. Ambassador Ravndal notes that the Foreign Minister, in handing him this document “did not even mention the Ponce Administration’s projected actions against the Czech nationals here”, which made the Ambassador feel that this action would be taken without any strings attached. [Footnote in the source text. Despatch 600 is Ibid., 822.10/4–2657.]
6. In a letter to Ravndal dated May 13, Rubottom wrote: “The memorandum of my conversation on May 7 with Ambassador Chiriboga scarcely reflects the tone which I used in replying to his somewhat preposterous suggestion that Ecuador would be willing to consider breaking relations with Czechoslovakia provided the United States would make some additional Export-Import Bank loans to his country.” (Ibid., Rubottom Files: Lot 59 D 573, Ecuador) In a letter dated May 17, Ravndal replied: “I have the definite impression that the Ponce Administration will move against the Czechs as soon as it feels politically strong enough to do so, regardless of whether or not the United States gives Ecuador further financial help.” Ravndal suggested further that Chiriboga was acting on his own in this matter. (Ibid.) In a letter to Ravndal, June 3, Rubottom wrote that it appeared that the Ecuadoran Ambassador enjoyed the confidence of his government and was not acting on his own. (Ibid.)