578. Letter From the Director of the International Cooperation Administration (Hollister) to the Assistant Secretary of Defense for International Security Affairs (Gray)1

Dear Gordon : In your letter of October 9, 1956 (I–16,421/6),2 you set forth certain proposals with regard to providing reimbursable military assistance to Venezuela and requested my reactions and concurrence to certain of the details involved in those proposals. You also indicated that we might discuss this matter further and I believe that this would be desirable.

Because the proposals are highly complicated I feel that these discussions, in which I think Deputy Under Secretary Murphy should participate, would be greatly facilitated if they were based on explicitly stated, common assumptions and focussed on a selective list of previously identified, precisely stated issues. I am therefore taking the opportunity provided by this letter to set forth (a) certain understandings, and certain assumptions deriving therefrom, which, from the material available to me, seem to underlie the proposed Venezuelan program, and (b) those specific questions which I believe must be answered if we are to reach a sound Executive Branch position with regard to these proposals. Moreover, in order to bring the whole problem together, I am including in this letter those assumptions and questions which are of primary concern to the Department of Defense but also those on which the Department of State should provide the guidance. By separate memorandum, copy of which I enclose,3 I am asking Deputy Under Secretary Murphy to consider these latter assumptions and questions prior to our proposed meeting.

I am assuming at the outset that the Joint Chiefs of Staff and the Department of Defense have determined that, from a military standpoint, the designated strategic areas and installations in Venezuela are essential to the security of the United States and that attainment of the force goals negotiated with Venezuela is essential to the accomplishment of the U.S. objectives in that regard. These assumptions appear warranted by statements in the exchange of correspondence between the Departments of State and Defense on [Page 1142] this subject. In view of these assumptions I have also assumed that, barring some unforeseen turn in world events, the following two conclusions are correct; first, that the achievement of these objectives is of such importance that the Department of Defense is prepared to make available, and at dates reasonably coinciding with Venezuelan expectations, the kinds and quantity of equipment required to outfit the proposed Venezuelan forces; and, second, that both Departments of State and Defense believe that this importance would justify the provision over a period of ten years of a minimum of $180 million in military assistance, and even though, because of the limited availability of total military assistance funds relative to the total of high priority military aid requirements, fulfillment of the Venezuelan commitment might have to be at the expense of, or cause a delay in, meeting these other high priority requirements. These several assumptions are so central to the task of arriving at definitive answers to the proposals that their validity should be established and any doubts concerning them raised and dealt with now.

My first group of questions has to do with the possible consequences to the Mutual Security Program which might grow out of the precedent-setting nature of these proposals. In this connection I note that Mr. Murphy, in his letter to you of April 2, 1956, alluded to the concern of the Department of State over the possible adverse effects of instituting a large military aid program for Venezuela. Specifically, I believe the following questions with regard thereto should be considered by Mr. Murphy and you:

1.
To what extent could the Venezuelan program be expected to generate requests from other Latin American countries for aid, either on a grant or reimbursable basis, which is substantially above the levels currently being provided or which calls for types of equipment different from those now being supplied?
2.
Would the Department of State, from a political viewpoint, and the Department of Defense, from a military viewpoint, consider it important for the U.S. Government to meet such future requests? In this regard, I do not believe that we can fail to consider the total magnitude which such requests might reach and the consequences flowing therefrom. (Are we prepared to significantly increase our requests to Congress for funds for providing military assistance to Latin America even if on a reimbursable basis; can we assume that all such requirements which might be stimulated by the Venezuelan proposal could be met on a reimbursable basis; would Defense face any special problems in allocating military matériel to meet this requirement if it reached significant proportions without concurrently limiting equipment availability to other MDAP recipients, etc.)
3.
What would be the political and economic effects within Latin America of meeting such additional requests if made?
4.
Irrespective of the answers to 1, 2 and 3 above, have we already passed the point of no return in negotiations with Venezuela so that it would be undesirable from a political point of view not to [Page 1143] proceed with a program despite the precedent which it may represent and the disadvantages that will accrue therefrom? If so, does the Defense proposal represent the best compromise between meeting Venezuelan expectations and U.S. policy objectives both of short-range as well as a long-range nature?

My second group of questions has to do with a further definition of the nature, and a consideration of the adequacy, of the Venezuelan proposal as such. They are:

1.
Assuming that the cost of the matériel requested may be as high as $400 million while the proposed Defense offer would cover only $180 million of the total, it would appear important to arrive at some understanding as to the U.S. position if the Venezuelan Government, upon being advised of the actual value of the equipment, should insist on financing arrangements over and above the $180 million before agreeing to proceed with the program. Is it clear that the Venezuelans would find the offer acceptable even though it represents such a significant reduction from their original request?
2.
Is it proposed that the U.S. accept at this time what amounts to a 10-year commitment which could require as much as $180 million of U.S. appropriations, explicitly informing the Venezuelans of this fact? Precisely what form would it take and how, if at all, would it be qualified?
3.
Do we have a clear concept of the terms of repayment to be required; whether interest is to be charged; how large a down-payment would be required and other such details connected with the implementation of the proposed programs? If not, can we assume these details, however intrinsically important in and of themselves, do not necessarily have an impact upon the acceptability of the proposal to the Venezuelans, and so do not need to be considered by the U.S. in advance of making the basic proposal to the Venezuelans?

I recognize that the foregoing questions are related in many respects to the recommendation embodied in the Defense proposal for the future establishment of a revolving fund which would have as one, but presumably not its sole, objective, the meeting of these Venezuelan requirements. I should like to discuss this recommendation separately for the moment.

The idea of a special fund to finance military purchases has been discussed in a general way from time to time in the past. However, no firm proposal has ever materialized, and I think we should now discuss such a proposal in concrete and detailed, rather than in abstract, forms. We need, and I understand that your staff has been working on, a specific practical plan, thoroughly developed, which would form the basis for recommendations to the Congress, and until this has been done I would question the advisability of basing a proposal to another government solely on the assumption that such a fund will be sought. Because the development of such a plan is obviously the kind of complex and unwieldy problem that [Page 1144] does not readily lend itself to solution through exchanges of correspondence and will undoubtedly require detailed staff level work, I suggest that a State–Defense–ICA working group be established to consider the problem of such a special fund. If you agree that such a working group is advisable, I would appreciate your designating a Defense member at your earliest convenience.

If, as postulated above, a decision concerning a revolving fund cannot be quickly reached, there is the question of whether this need delay consideration of the proposals for a Venezuelan program. I gather from your letter you do not believe that this would be the case but that, on the contrary, you would propose to proceed on the assumption that, even if it should finally be decided not to establish a revolving fund, the Venezuelan program is of sufficient importance to warrant inclusion of funds for its financing in the FY 1958 appropriations request, making it clear to the Congress that such funds were intended simply as a device for financing the Venezuelan requirement and not to fund grant aid.

As soon as you and Mr. Murphy have had a chance to study the foregoing questions, I suggest that we meet to discuss them.

Yours very sincerely,

John B. Hollister 4
  1. Source: Department of State, Central Files, 731.5–MSP/10–2956. Top Secret.
  2. Gray’s letter proposed a fiscal year 1957 Military Assistance Program for Venezuela to finance sales of equipment to that country and proposed that the Executive branch request Congressional consideration, as part of the fiscal year 1958 Mutual Security presentation, of a revolving fund to finance such programs in the future. (Ibid., 731.5–MSP/10–956)
  3. Not printed.
  4. Printed from a copy which bears this typed signature.