516. Memorandum of a Conversation, Department of State, Washington, May 13, 19551


  • Long-Term Credit for Purchase of Submarines by Peru


  • U—Acting Secretary of State Herbert Hoover, Jr.
  • G—Mr. Murphy
  • E—Mr. Waugh
  • ARA—Mr. Holland
  • S/MSA—Mr. Nolting
  • S/P—Mr. Schwartz
  • AR—Mr. Jamison

The meeting was called to consider further the question of State Department concurrence in the sale to Peru of two submarines to be constructed by the Electric Boat Company on terms involving U.S. Government credit over a period of approximately seven years. Mr. Hoover referred to a memorandum from Deputy Secretary of Defense Anderson giving the background of consideration of the proposed sale,2 and said that he was impressed with the degree to which this transaction was part of a planned arrangement worked out over a period of years for helping Peru to provide itself with modern submarines. In addition to points made in previous meetings [Page 1039] on this subject, it was stated that the amount of dollars which Peru would devote to this purpose each year would not be great, and that the Defense Department attached considerable importance to maintaining the productive capacity of the Electric Boat Company facilities.

Mr. Holland gave his basic reasons for opposing long-term credit for this sale: that long-term credit to Latin American countries for the procurement of military equipment would inevitably decrease the dollar borrowing capacity of these countries for constructive economic development purposes; that because of the Latin American preference for U.S. arms, increasing U.S. sales through long-term credit would bring more arms into the area than would result if long-term credit purchases were made from other than U.S. sources; and that the sale to Peru, which might be more justifiable on economic grounds than similar sales to other governments, would create extremely difficult continuous political and economic problems with other Latin American countries desiring that similar arrangements be made for them.

Mr. Hoover indicated that he believed it would be necessary to concur in the Peruvian transaction. He felt that limitations and conditions could be worked out for handling future requests from other governments which would reduce the disadvantages to which Mr. Holland referred. Mr. Hoover mentioned the interest of European producers in selling military equipment to Latin American countries, perhaps on liberal credit terms, and the interest of the Department of Defense in having Latin American countries supplied with U.S. standard equipment. Conditions to be established should include (1) a limitation on the total amount of dollar credit to be made available to Latin America in any one year, (2) an agreed determination that equipment sold under long-term credit arrangements would be committed by the recipient government to hemisphere defense and (3) a clear-cut definition of procedures to be followed in receiving and acting upon requests for such credit. He requested that a memorandum be prepared covering these points for him to send to Deputy Secretary of Defense Anderson as a basis for dealing with future credit requests.2

Mr. Holland stated that he believed it would be desirable for points (1) and (2) to be specified in the legislation and in national security policy. Mr. Nolting pointed out that existing legislation and the drafts forwarded to Congress containing new provisions on long-term [Page 1040] credit do not include these limitations. Mr. Hoover said that in the present world situation it seemed better for the legislation to be as flexible as possible, but that policy in implementing the program for Latin America should contain the above limitations.

Mr. Murphy said that he believed the record should be clear that Peru had not directly approached the Department with its request. It was pointed out that the letter from Mr. Hensel to Mr. Holland, raising the question, indicated that the Electric Boat Company had requested that it be authorized to inform the Peruvians that they might request sale of the submarines through diplomatic channels. Mr. Hoover indicated that a letter from Mr. Holland to Mr. Hensel concurring in this request should therefore be sent.3

  1. Source: Department of State, Central Files, 723.5621/5–1355. Confidential. Drafted by Jamison.
  2. No such memorandum has been found in Department of State files; but see Anderson’s letter of May 10, supra.
  3. A memorandum covering the points mentioned by Acting Secretary Hoover was prepared in ARA and forwarded to Secretary Anderson under cover of a letter from Hoover, dated June 9, 1955; for text of the letter and the attached memorandum, see vol. VI, Document 25.
  4. Infra.