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

498. Telegram From the First Secretary of the Embassy in Paraguay (Wardlaw) to the Department of State ¹

Asunción , February 9, 1956—4 p.m.

165. Reference Embassy despatch 284, January 27;² Embtel 162, February 8.³ IMF mission before departure February 8 presented preliminary recommendations to Bank which were subsequently approved by Councils of State and Economic Coordination. Storm advises recommended program will be announced February 28 and made effective March 1.⁴ Full mission report not yet available and must be approved by Fund in Washington. Summary recommendations follow:

(1) Severe credit restrictions all fronts to lessen inflationary pressures is heart of program. Public works program and investment government pension and social security funds to be limited.

(2) Export and import exchange rates structure completely overhauled. Basic imports 60 guaranies to dollar, all other 86. No imports without official exchange. No preferential treatment wheat. All exports 60 with Aforo system revised to bring prices in line world market. This major shift from former policy using exports to subsidize imports should encourage exports and those invisible moving through official market to be at rate of 60 buying and selling (others including capital transfers to be at free market rate). Preferential rates trade agreements countries abolished.

(3) Free exchange market to operate basis supply and demand.

(4) Imports to be licensed quantitatively as to categories and luxury items pared to minimum.

(5) Price and wage policy envisages retention controls but internal price structure to reflect full impact new export import rates. Minimum wage increases delayed six months but then will offset increased costs basic items.

(6) New revenue sources to be sought probably new taxes and strict collection on present taxes.

(7) Par value guarani with IMF to be changed to 60.

Comment: Program tough but realistic. Everything depends administration which if orderly and firm should increase production and slow inflation. Results stabilization probably not to be apparent for six months and first 60 days will be critical. Criticism expected from all quarters except government and exporters.

Wardlaw

1. Source: Department of State, Central Files, 411.3441/2–956. Confidential; Limited Distribution.
2. Despatch 284 from Asuncion, January 27, reported that if the proposed IMF recommendation on exchange control revisions were accepted by the Paraguayan Government, it would “make it rough going for at least several months and it remains to be seen whether the government has the courage to take such a forward step.” (Ibid., 411.3441/1–2756)
3. Telegram 162 from Asunción reported that the Embassy discounted the rumors that Gustavo F. Storm, President of the Central Bank, was to be replaced. (Ibid., 834.14/2–856)
4. The mission was to study a proposed broad monetary stabilization program, to suggest changes in the par value of the guarani, and to make recommendations to simplify Paraguay’s complex multiple rate system for imports and exports. Additional documentation on the subject is ibid., 398.13 and 834.10. For further information, see International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1956 (Washington, 1956), p. 84.