Foreign Relations of the United States, 1958–1960, American Republics, Volume V

138. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Assistant Secretary of State for Economic Affairs (Mann)¹

Washington, February 5, 1958.

SUBJECT

• Modification of Argentine PL 480 Loan Agreement

Background:

We negotiated two PL 480 sales agreements with Argentina for edible oils, one in April and the other in December 1955.² The first of these contemplated a 10-year loan of $2.3 million repayable in dollars. The second a 30-year loan repayable in dollars or pesos. In loan agreement negotiations now being carried on by our Embassy the Argentine representatives have requested that both loans be for 30 years and repayable in pesos or dollars. The Embassy has recommended that maximum effort be made to meet the Argentine request.

Discussion:

There are compelling reasons why we should accede to this request both from an over-all political viewpoint and in connection with the actual negotiation itself.

There are considerations involved which go beyond the loan agreement matter itself. Our posture during these negotiations will be viewed by the Argentines together with our position on the several other things we have discussed and are discussing with them. For that reason our approach here will influence the Argentines’ judgment of the value of cooperating with us generally. While the benefits derived from acceding to the present request or the consequences resulting from refusing it will not be directly discernible, we may be sure that there will be an important cumulative impact.

Argentina is in a very difficult financial position and needs our help. She has turned to us for such aid in numerous ways.

The United States has a unique opportunity at the present time to strengthen cooperation with Argentina, because the Argentine Government now in power wants to be friendly to the United States. The political necessity of cultivating and strengthening the position of pro-US elements—and specifically not appearing to rebuff them—is particularly important since Argentina is moving to a cross-roads with a new government, not yet elected, coming to power in a few months.

At the same time there appears to be increasingly little we can do for Argentina to help those in power to demonstrate the benefit of cooperating with us. The competitive nature of our two agricultural economies restricts our possibilities of importing Argentine goods, and this affects Argentina’s capacity to service debts which in turn limits the amount of loans we can lend to Argentina.

If in addition to not doing things for Argentina because we lack the capabilities, we fail to do something which it is within our power to do, our sincerity will become suspect and our general relations with Argentina will suffer.

Argentina has been a strong critic of our agricultural policy but will be inclined to criticize it less to the extent that she benefits from the program.

I attach great importance to the political and psychological effect on our general relations which our position in this particular negotiation will have.

In addition to the broad considerations, if we fail to accede to the Argentine request for an alteration of the loan terms we will weaken our chances of obtaining Argentine acceptance of our position on other agreement provisions now under negotiation, and will also lessen the possibility that Argentina will accede to our views regarding use of the loan funds. These provisions relate to such matters as maintenance of value, reduction of the amount of the loan from $20 million to about $18.2 million because of a shortfall in sales—although this is not specifically provided for in the sales agreements—and freedom on our part to decide on the use of peso funds which we will receive when the loans are repaid.

We also hope to obtain Argentine agreement to use at least 25% of the funds for loans to private enterprise, although this was not contemplated in the sales agreement. We also hope to induce them to use some of the funds to finance migration projects in which the ICEM and members of our Congress are interested. Our chances of persuading them to do these things are of course very directly related to the treatment we accord their request for changes in the currency and duration provisions of the first loan agreement.

An appendix is attached³ which describes the various issues involved in the negotiation in more detail.

In considering this problem the matter of undesirable precedent has been mentioned, e.g. in February 1956 we signed a 10-year loan agreement with Chile with repayment in dollars,⁴ and it has been argued that Chile might also press for a renegotiation. On the other hand, there are relatively few cases of this kind, which means a minimal precedent of danger. Moreover, there is some logic in requests to bring early agreements into line with what is now our current and standard practice and which applies to the majority of sales agreements negotiated to date. In any case, there are strong reasons for favoring Argentina in such a matter vis-à-vis other Latin American nations such as Chile. ARA would not hesitate to justify this exception for Argentina to the Chileans themselves if they are inclined to claim discrimination. Chile has been one of the most favored recipients of PL 480 assistance whereas Argentina is among the countries which stand to lose most by the PL 480 program. Furthermore the Chilean loan agreement was signed some time ago and the loan component was 80%; the corresponding Argentine loan agreement is of course now under negotiation and its loan component is only 40%.

I should stress the fact that the April 1955 sales agreement with Argentina was negotiated with the Peron government, and we were not disposed to be particularly lenient with the result that the terms of that agreement were tougher than many being negotiated at the same time.

The amount of money involved is small, $2.3 million. Converting to local currency repayment, would not, it seems to me, constitute a waiver of any significant right nor create a dangerous precedent. Local currency repayment is already current practice. We would in waiving the dollar repayment requirement receive consideration through increased interest rates.

Recommendation:

I recommend that the Department press other agencies to accede to the Argentine request for alteration of currency and duration provisions of the first loan agreement, especially since the concessions involved are in line with the policy we now follow in negotiating the provisions in question.

If you concur that this should be the Department’s position, I recommend an early approach to Agriculture which is to my knowledge the only agency which has so far exhibited any real opposition to conceding the request. Because timing is important, the matter should be placed before the IFC February 13.⁵

1. Source: Department of State, Central Files, 411.3541/2–558. Confidential. Drafted by Vaky and Edward G. Cale of the Office of South American Affairs.
2. For text of these agreements, see, respectively, 6 UST 1085, 6077.
3. Not printed.
4. For documentation relating to the loan agreement, see Foreign Relations, 1955–1957, vol. VII, pp. 795 ff.
5. The agreement amending the agricultural commodities agreement of April 25, 1955, was effected by an exchange of notes at Buenos Aires, April 11 and 22, 1958; for text, see 9 UST 543–545.