200. Letter From the Ambassador in Spain (Lodge) to Foreign Minister Martin Artajo1

My Dear Mr. Minister: I have the honor to refer to your letter of June 21, 1956,2 in which you request modification of the existing percentages for the distribution of counterpart funds deriving from the economic aid programs.

[Page 576]

Your request was made known to my Government, which has advised me that it would be extremely reluctant to consider any change in the counterpart formula at this time. The completion and utilization of the joint military bases, which are in our mutual interest, will continue to require expenditures of 60 percent counterpart for some time to come.

I am delighted, however, to inform you that, in response to the representations you have made through me, the Washington authorities have agreed to increase to 70 percent the portion of the proceeds from Public Law 480 sales which will be loaned to Spain under the program now under discussion for Fiscal Year 1957. As compared with the present arrangement, the change will mean an increase of about 16 percent in peseta resources available for strengthening the Spanish economy. I am sure that the excellent Spanish cooperation in the financial arrangements relating to our joint programs has contributed to this increase in the loan component.

The concern over inflationary pressures in the Spanish civilian economy expressed in your letter is shared by us. I suggest, however, that the amount of expenditures on base construction to date makes it difficult to conclude that it has been of major importance in the creation of these inflationary pressures. My staff informs me that the amount of resources imported into Spain under the various economic programs, including Public Law 480, are six or seven times greater than the amount of resources which have been consumed in construction of the bases.

As Your Excellency may well surmise, I am in daily touch with Mr. Richard S. Aldrich, Director of the United States Operations Mission in Spain, on this critical problem. Mr. Aldrich in turn is constantly in contact with the Minister of Commerce, and I am sure Your Excellency will be pleased to know that negotiations which we are now about to undertake will, we confidently believe, play an important alleviating role in helping to counteract inflationary potential.

I take occasion, Mr. Minister, to repeat to Your Excellency the assurances of my highest consideration.

Sincerely yours,

John Davis Lodge3
  1. Source: Department of State, Madrid Embassy Files: Lot 64 F 64, 500, ICA 1956–1958.
  2. Supra.
  3. Printed from a copy that bears this typed signature.