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

Dear Mr. Gray: In your letter of September 23, 19552 (1–14786/5) to Mr. Hoover you suggest that we leave open the question of additional credit for equipment for the two submarines being constructed by the Electric Boat Company for the Peruvian Government. I understand from the reasons given in your letter that the Department of Defense considers that it would be desirable to provide additional credit for the construction of these two submarines in order to assure that they are purchased in the United States in furtherance of our policy on arms standardization in Latin America.

It has been my understanding that the Department of Defense originally urged a loan of MDAP funds for the construction of these [Page 1055] two submarines, not on the basis of standardization, but because the Department of Defense determined that these submarines could make an important contribution to the defense of the Western Hemisphere. I also understand that since the loan was made with MDAP funds transferred to the grant military assistance program for Peru it could only be extended in accordance with the provisions of section 105 (b) (4) of the Mutual Security Act of 1954. If this understanding is correct, and the Department of Defense continues to consider that these two submarines are required for hemisphere defense, the Department of State would concur in the additional credit, which I understand is less than $1,000,000.

The penultimate paragraph of your letter refers to the general policy that the Department of Defense believes should be applied in granting credit for the purchase of military equipment. We are now considering the procedures and criteria which the Department of State believes should govern the granting of credit for the purchase of military equipment and this will be the subject of a subsequent letter.

Sincerely yours,

Henry F. Holland3
  1. Source: Department of State, Central Files, 723.56/9–2355. Secret. Originially drafted by Sayre on October 14. At that time it consisted of four paragraphs. The third paragraph, omitted in the final text, reads: “While I recognize the importance of having Latin American governments procure their military equipment from the United States, I believe you would agree that our arms standardization policy must be considered along with other policies. You are probably aware of the political difficulties that the credit already granted Peru has created in our relations with other Latin American countries, especially Ecuador, and with Peru itself because we have been unable to provide comparable credit to the Army and Air Force of Peru. It is partly because of these political difficulties that the Department of State considered it inadvisable to grant further credit to Peru. I would not consider furtherance of the standardization policy alone as sufficient justification for modifying that view.”

    The original draft was cleared in AR, OSA, and U/MSA; and transmitted to Holland with a memorandum, dated October 18, from Robert Folsom. Folsom’s memorandum suggested that since Hoover had participated in previous discussions on the submarines, Holland might want to discuss the proposed reply with him before signing it. A memorandum to Holland from Cecil Lyon, dated October 19, recommended the omission of the original third paragraph. Lyon said he thought that civilians rendered themselves vulnerable when, after the principle of standardization had been adopted, they tried to evaluate when standardization was or was not desirable. A handwritten note at the end of Lyon’s memorandum, presumably by Holland, directed it to Folsom with the following comment, “I would omit 3rd ¶, sign & clear across Hoover’s desk.”

    A memorandum from Folsom to Holland, also dated October 19, informed him that the letter to Gray had been redrafted on that day by Sayre, as Holland had suggested, and was attached. It had been cleared in AR, OSA, U/MSA, G, and U. Folsom stated that the third paragraph had been inserted in the first place because Defense had originally justified the submarines on the basis of hemisphere defense, and it was felt that the letter from Defense “provided an opportunity to point up our desire that military assistance to Latin America be based on a consistent policy and something sounder than standardization. While the second paragraph touches on this point, it was thought it might be useful at this time to make our position clear.” (Ibid.)

  2. Supra.
  3. Printed from a copy which bears this stamped signature.