548. Papers Prepared in the Department of State1
SUBJECT
- Loan Requests from the IBRD or Eximbank2
Discussion:
Uruguay has had requests for three different loans in the IBRD for three years. These total $125 million. The IBRD is acting on these requests by giving partial loans against each request. A loan for $5 million has been signed and ratified this month for the Montevideo Electric Power System. A loan for $5 or $6 million for livestock and pasture improvement is under active negotiation. A loan for a hydroelectric power station at Baygorria, for $25 million, is also under active consideration.
Since March 1, when President Batlle was inaugurated, he has been very interested in obtaining loans for the Montevideo port improvement and for land reclamation (600,000 hectares) in the department of Rocha. The preliminary engineering studies have been completed. The land reclamation estimate is 80 million pesos and the [Page 1097] port improvement 75 million pesos. Foreign exchange costs are roughly estimated at $7.5 million each.
Uruguay’s balance of payments and internal revenue receipts are unfavorable. It is believed that the projects will assist in easing the serious unemployment and relieve the balance of payments and internal revenue difficulties.
Uruguayan Position:
Uruguay has dealt solely with the IBRD since its inception. Uruguay has been slow in its negotiation for loans in the Bank. Uruguay appears satisfied with its relations with the IBRD. If the IBRD does not wish to seriously consider the land reclamation and Montevideo port improvement loans, it is expected that Uruguay will request these loans from the Eximbank.
United States Position:
Because of falling prices for wool and small availabilities of the export of meat from Uruguay, Uruguay’s credit rating has decreased in the past five years. Uruguay’s potential credit rating is presently far from saturated, as it has done a good job in attempting to keep the balance of payments in balance. As soon as Uruguay has determined which loans it wishes to push and assuming that they are bankable in one of the two Washington institutions, the Department should support them.
Special Problems3
1. Uruguayan Attacks on the US. Agricultural Disposal Program.4
Discussion:
Officials and the press of Uruguay are continually complaining about the U.S. agricultural disposal program as they believe that this program is preempting Uruguayan markets and lowering world prices. The major Uruguayan products affected by the U.S. disposal program are wheat and linseed oil.
Until five years ago, Uruguay was a wheat importing nation. Because of subsidies for the increase of local production, there are approximately 600,000 metric tons available for export each year. Brazil is the major customer and Paraguay a small second. There are 120,000 tons left from the 1954 crop which remained unsold and [Page 1098] Uruguay is endeavoring to sell them to Paraguay and Poland. There are now 600,000 more exportable tons being harvested.
Linseed oil, because of high U.S. tariff, is not imported into the U.S. The large U.S. surpluses of this item which have been sold under the surplus program have tended to deflate world prices.
Uruguay’s Position:
Despite U.S. assurances that it will not displace Uruguay’s normal markets, Uruguayans attack the program on a general basis and not on specific cases. They allege that U.S. action causes a reduction in the value of their exports and backs up exportable supplies within Uruguay. An officer of the Foreign Office recently stated “Uruguay had completed its normal trade in wheat with Brazil and was not at the time negotiating for further sales to Brazil.” He did indicate, however, that Uruguay would have furnished additional wheat to Brazil to fill this need had the U.S. not offered its surplus wheat in exchange for cruzeiros.5
The problem appears to be one which the President uses for internal political reasons as there have been no government-to-government complaints for over a year.
U.S. Position:
The U.S. has consulted with Uruguay with respect to negotiations under the surplus disposal act at various times. The most recent case is the proposed sale of 500,000 tons of wheat to Brazil. The Uruguayan reply is quoted above. The Uruguayan Government has been assured that the U.S. is not displacing its normal markets.
SUBJECT
United States Countervailing Duty on Uruguayan Wool Tops6
Discussion:
In June 1953 the Treasury found that because of the differentials in the foreign exchange export rates for wool vis-à-vis wool tops, a bounty existed in the export of Uruguayan wool tops. The countervailing duty of 18 percent, which is in addition to regular duties, was lowered to 6 percent in February 1954.
Uruguay’s Position:
The Uruguayan Government is constantly changing its complex multiple exchange rate system. At present, if the Uruguayan Government [Page 1099] does not put on an additional premium for wool tops, Treasury could consider the suppression of this countervailing duty. It remains for the Uruguayans to provide an effective exchange rate system under which Treasury might remove the duty.
United States Position:
The Treasury Department was prepared in October to remove the countervailing duty but the American Embassy, Montevideo, provided information that a new premium was definitely going to be given to the Uruguayan wool top exporters.7 For this reason the Treasury Department has not taken any action on the contemplated removal of the duty. If Treasury can obtain a firm commitment from the Uruguayan Government that the differential between the rates provided for raw wool and for wool tops will not be changed in the foreseeable future, Treasury will again be able to consider the removal of the countervailing duty.
- Source: Department of State, Holland Files: Lot 57 D 295, State Visit President Batlle. Limited Official Use. Drafted by Havemeyer and approved by Lyon, Holland, and Dulles.↩
- Attached as Tab G to a memorandum for the Vice President, dated December 6, regarding the State visit of President Batlle.↩
- Attached as Tab H to the memorandum for the Vice President.↩
- Reference is to agreements made with many countries under the provisions of P.L. 480, the Agricultural Trade Development and Assistance Act of 1954. For text of the Act, see 68 Stat. 454. Uruguay was not party to such an agreement.↩
- Documentation relating to the wheat controversy is in Department of State, Central File 411.3241 for November 1955.↩
- Attached as Tab I to the memorandum for the Vice President.↩
- Documentation concerning this subject is in Department of State, Central File 411.3341/11–355.↩