511. Letter From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Assistant Secretary of Defense for International Security Affairs (Hensel)1

Dear Struve : I refer to our conversation of March 21, 19552 relating to the financing by this Government of the construction of two submarines proposed to be purchased in this country by the Government of Peru. While the Department of State has not received a formal request from the Government of Peru for credit assistance in the purchase of these submarines, it is understood that information has reached the Department of Defense that the Peruvian Government contemplates the purchase of two submarines from [Page 1030] the Electric Boat Company if it can obtain long-term credits from this Government to finance the transaction.

The issues posed by this suggested financing of the purchase of military equipment on credit terms are of such importance that this Department will not be able to determine its position in the absence of specific information regarding the nature of the transaction, the amount involved, and particularly the credit terms contemplated and the legal authority under which such credit would be granted.

The important considerations bearing upon this case are the following:

The granting of credit for the purchase of military equipment on any basis other than that of three year short-term credit as authorized under Section 106(b) of the Mutual Security Act of 19543 would constitute a departure from policy long established and maintained by this Government.
The granting of credit to Peru would immediately raise the question of whether credit would be available to other Latin American countries in amounts adequate to meet needs and desires as worthy of consideration as those of Peru.4

The Department will appreciate receiving the information referred to above and the views of the Department of Defense regarding5 the importance that should be accorded the two considerations last stated.

Sincerely yours,

Henry F. Holland 6
  1. Source: Department of State, Central Files, 723.5621/3–2255. Confidential. Drafted by McGinnis and Jamison. Cleared in the Office of the Special Assistant for Mutual Security Affairs, the Office of Regional American Affairs, and the Investment and Economic Development Staff.
  2. No record of this conversation has been found in Department of State files.
  3. For text, see 68 Stat. 832.
  4. In an earlier draft of the letter an additional paragraph appeared here that was deleted in the final version. It reads: “(3) This Government is seriously concerned over the situation created by Peruvian claims to sovereignty over wide areas of the high seas, and particularly the seizure and fining of American flag fishing vessels within the zone claimed by Peru.”
  5. This sentence originally ended with the words “regarding this matter.” The last two words were struck out and the words as printed here were added.
  6. Printed from a copy which bears this typed signature.