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

199. Memorandum Prepared by the Ambassador in Argentina (Beaulac)¹

Buenos Aires, August 26, 1959.

THE SITUATION IN ARGENTINA

Economic

In the economic field Argentina is making striking progress. After some thirty years of increasing statism the Frondizi Government has followed the lead of the earlier Provisional Government in the direction of economic freedom, with the difference that it has moved much more rapidly and much more courageously than the Provisional Government did.

To cite a well-known illustration, after Argentina had spent up to $300 million a year for petroleum imports, because of the failure of the Government monopoly, YPF, to produce enough petroleum to supply the country’s needs, the Frondizi administration called in the foreign oil companies and, at the same time, stepped up YPF’s efficiency with the result that it seems likely now that the country will be self-sufficient in petroleum by 1962 or even 1961.

Of course, the petroleum program is only a part of the Government’s overall stabilization program, aimed at halting the steady deterioration in the country’s economic position and bringing about the development which the country is capable of achieving.

After the Argentine Government had presented to the International Monetary Fund a stabilization plan which the latter was able to improve, the Fund, together with the Export-Import Bank, the United States Treasury, the Development Loan Fund, and United States private banks, in December 1958, provided credits to Argentina of $329 million. The Argentine Government is carefully carrying out the terms of its plan with the result that living costs during the last recorded thirty days increased only 3 percent, whereas earlier monthly increases had been much greater, while the peso, for the time being at least, has achieved relative stability.

The principal device for achieving monetary stability and laying the basis for economic development has been the progressive freeing of the Argentine economy from Government intervention and interference. A single, free exchange rate was established. Government subsidies on such consumption products as meat and other foodstuffs were removed. The Government substantially withdrew its controls over the important meat industry. These steps have resulted in a substantial increase in the price of meat to the Argentine consumer and, of course, a substantial increase in the return to the Argentine producer from the sale of cattle. A result of this last phenomenon has been the withholding of cattle from the domestic market in an effort by the producer to build up herds. This effort was stimulated by the expectation of being able to sell greatly increased numbers of steers at higher prices to the packing houses for export abroad. Increase of meat exports, in turn, constitutes Argentina’s greatest and quickest means of increasing its foreign exchange income.

The elimination of petroleum imports, on the one hand, and the increase in meat exports, on the other hand (together with other similar measures), are calculated to bring about a reversal in the unfavorable balance of trade which was an important part of the deteriorating economic situation that President Frondizi was faced with when he assumed office on May 1, 1958.

It is encouraging to note that representatives of the Export-Import Bank and of the International Monetary Fund have visited Argentina recently and expressed themselves as well pleased with the efforts of the Argentine Government in the economic field.

It is worth noting, also, that the present Minister of Economy, Ing. Alvaro Alsogaray, who is also Acting Secretary of Labor, and who personally selected the other members of his economic “team”, is the person who as a private citizen was most responsible for the change in public and official attitude toward petroleum and other economic matters which helped make it possible for President Frondizi successfully to reverse the Government’s earlier attitude toward petroleum and toward many other important matters in the economic field. Although Minister Alsogaray founded and headed a small political party which has been in opposition to the Frondizi Government, Frondizi did not hesitate to bring him into the Government as Minister of Economy when pressures from various sources and the President’s own inclination pointed toward such a step.

The new economic freedom which is characteristic of Argentina today has led to a revival of foreign investment. For example, the American and British meatpackers are adding to their investments in order to permit them to take advantage of the new opportunities resulting from the lifting of Government control of the meat industry. Chrysler, Ford and General Motors are building or have agreed to build plants for the manufacture of trucks. John Deere is building a tractor plant. Koppers is building a petro-chemical plant. Two United States interests are competing for authorization to build a synthetic rubber and carbon black plant. A number of European companies have increased their investments or made new investments. One large American group expects to bid for the construction and operation of a gasline from Comodoro Rivadavia to Buenos Aires. This would cost some $200 million. An oil and gasline from the northern producing area at Salta to San Lorenzo and Buenos Aires (started for the account of YPF under the Provisional Government) is nearing completion. This will cost an estimated $200 million. The Government is considering the possibility of turning this line over to private interests. Meanwhile, investments by foreign petroleum companies are expected to reach an estimated one-half billion to $1 billion within the next few years.

One factor tending to limit new investments is the shortage of pesos which, of course, is a by-product of the Government’s determination to limit credits as part of its stabilization program.

In summary, Argentina is setting an example for the rest of the Continent in the sense that it is courageously carrying out, as rapidly as it can in the circumstances, those measures in the economic field best calculated to reverse the downward trend in Argentina’s economy and to establish the basis for new healthy development. In undertaking the measures described, Argentina has counted on the support of the Government of the United States and of the International Monetary Fund as well as on the good will of other Governments. However, Argentina earned this support and good will by its willingness to take the steps which would make cooperation from abroad really helpful. It was willing to do its part, in other words. In the economic field, Argentina can accurately be described as a cooperative country.

Political

Argentina still faces grave problems, particularly in the political field, and those problems are, of course, associated with the still difficult economic situation, and particularly with the austerity program which is a necessary part of the stabilization effort.

As already noted, prices of many basic commodities, including foodstuffs, have sharply risen as subsidies and controls have been removed. Meanwhile, the Government is making great effort to keep wages from rising. Labor, therefore, has been caught in a kind of squeeze between rising prices and less rapidly rising wages. This has created a problem for the Argentine Government and the problem is made more difficult by the political heritage of the Frondizi regime, particularly the legacy of Peronism and anti-Peronism which still persists in the country.

The Peronists, who constitute an estimated 20 to 25 percent of the Argentine population (as against more than 50 percent in Perón’s time), are particularly strong in the labor field. Peronist labor leaders have, therefore, not only been able to appeal to their followers on the basis that labor is being asked to make a disproportional contribution to economic stabilization, but also on the basis of political loyalty.

The Government is caught in a kind of squeeze between Peronism and anti-Peronism. President Frondizi is known as an “integrationist”. In other words, he would like to take steps that would result in “integrating” the Peronist masses into the normal political life of the community. However, the professional anti-Peronists, including many of the military and most of the country’s traditional political leaders (at least outside the President’s party, the UCRI) will have nothing to do with integration and charge the President with pro-Peronism (as well as pro-Communism) when he makes tentative moves in the direction of integration.

As a result, the Peronists remain an unintegrated group who are, moreover, powerful in the important labor field, as already noted. Since labor peace is important to both economic rehabilitation and to political rehabilitation in the country, it will be seen that the failure so far to integrate the Peronists constitutes a serious obstacle to rehabilitation in both those fields.

Some progress, nevertheless, is being achieved. The mere fact that the Peronists now constitute only 20 to 25 percent of the population rather than more than 50 percent of the population as before, in itself represents progress. Further passage of time may be expected to add to that progress. Also, there is a growing realization that some kind of integration is desirable in the common interest. The tendency manifested during the provincial elections in Santa Fé for Peronists to vote for Communist candidates, and the recent decision of Peronist and Communist-led unions to establish a united front have stimulated thought along those lines.

Basic to Frondizi’s political troubles, and related to the explosive issue of Peronism, is the manner in which Frondizi won election as President of Argentina. It will be recalled that Frondizi was the candidate of one of the factions of the Radical Party (the URCI). He early realized that no party in Argentina could achieve a substantial plurality unless it could attract the Peronist vote. He was able to do that. His political opponents claim that he signed an agreement with Perón under which he offered Perón and the Peronists certain concessions if he were elected. He has denied this and it seems improbable that he would ever have exposed himself by signing such a document. However, there can be little doubt that some one (Rogelio Frigerio is commonly believed to have been the man) made overtures to Perón and to the Peronists on Frondizi’s behalf or in his interest. Certainly, Perón made it clear that he wanted his followers to vote for Frondizi and they did so, with the result that he was elected President and his party won all the seats in the Senate and two-thirds of the seats in the Chamber of Deputies. (At the same time, it seems improbable that Perón would have ordered his followers to vote for Frondizi’s chief opponents, the Balbinista Radicals, who were supported by the tough-line anti-Peronists Provisional Government, or for the hated Conservatives, and he could not order them to vote for Peronists since the Peronist political groups were substantially outlawed.)

Frondizi’s political opponents have never forgiven him for this “trick” of attracting Peronist votes. They say that his “deal” with Perón unfits him morally to be President of Argentina and that he cannot be “trusted”. Although Frondizi has carried out an orthodox and courageous economic program the success of which will be a great blow to Communism and its purposes in Argentina and throughout the Continent, his opponents refer to Frondizi as a Marxist and even as a Communist. They refer to “Communists” in the Government (very few of these alleged Communists had ever been named although it must be recognized that Frondizi has exposed himself to criticism by retaining a very few former extremists in the Government longer than prudence indicated. Also, extremists have penetrated some of the UCRI-controlled provincial governments).

Furthermore, the Armed Forces, or large groups within the Armed Forces, likewise have taken up the cry of Peronism and Communism against Frondizi. The military government headed by Provisional President Aramburu carefully planned that the elections should go to the UCRP candidate, Balbín. The fact that Frondizi frustrated this plan by attracting the Peronist vote not only disappointed these military groups, but enraged them.

The fact that Frondizi sponsored and obtained legislation aimed at setting up a single labor confederation which, in the circumstances, might be expected to be led by Peronist or ex-Peronist leaders (and which might constitute a source of political power equal to that of the Armed Forces) also enraged many of the military. Advocacy of such a single confederation doubtless was a mistake on Frondizi’s part. He appears now to be backing away from it. His Minister of Economy, Alsogaray, is following a policy aimed at fragmenting the labor movement.

Resistance to Frondizi by the “gorillas” and other political-minded groups and persons in the military has been evident from the beginning and it has been freely predicted from the beginning that the military would get rid of Frondizi in short order. However, this has not occurred and one result of anti-Frondizi maneuvering, particularly in the Army and Navy, is that those two Armed Services are, themselves, split and President Frondizi, although his austerity program has alienated many voters and although the Peronists as well as a part of the military have turned against him, is not considered to be as vulnerable to military plots as he was at the commencement of his term.

With regard to plots, there is no evidence that any but a minority of military leaders have ever seriously considered ousting the President by force and thereby inheriting not only an impoverished government, but even more problems than those now facing Frondizi. The latter’s determination not to back out gracefully in the event of a military take-over (i.e., the coup d’état would not be bloodless), the absence of a person of stature willing to head another revolutionary government, and the inevitable national as well as international opprobrium that would fall on a group guilty of having overridden the Constitution, are added deterrents to a move against Frondizi by any except the foolhardy. Frondizi’s main problem with the military has been, and continues to be, the latter’s effort to place him under a form of tutelage, to subject him to pressures from time to time, and to weaken his position by “constitutional means” (such as pressuring for the election of a Vice President who could replace Frondizi “constitutionally” if it should be considered desirable and feasible to ease Frondizi out). Frondizi has responded to these pressures, often (it would seem) when it has served his purpose to do so, and has maintained his efforts to make those pressures less effective, the whole process having given rise to a series of highly publicized crises over the past fourteen months.

Linked to the military are the (Balbinista) UCRP which the Provisional Government favored in the last elections, and a considerable group of “oligarchs” typified by persons like Dr. Alberto Gainza Paz, publisher of La Prensa. These “oligarchs”, with the support of some military elements, are carefully grooming former Provisional President Aramburu as presidential candidate of the Center forces during the next elections. (It may be stated, in passing, that General Aramburu, unlike the Provisional Vice President, Admiral Isaac Rojas, has had a stabilizing influence on the military. He apparently continues to be devoted to constitutionalism and to letting President Frondizi complete his six years of office.)

The “oligarchs” control the traditional press in Argentina and influence some of the new and important opposition papers, such as Correo de la Tarde, which is run by retired Navy Captain Francisco Manrique, former Chief of Provisional President Aramburu’s Military Household, and which has as one of its principal objectives laying the groundwork for General Aramburu’s presidential candidacy in 1964. One characteristic of the traditional press is that whereas it systematically refrained from publishing news unfavorable to the provisional (military) regime, it systematically refrains from publishing, or at least plays down news favorable to the Frondizi regime. On the other hand, it publishes a large quantity of material unfavorable to the regime, including rumors which are known to be untrue.

Meanwhile, however, every day that passes brings closer the day when Frondizi’s economic program will show results that the people can see. In Argentina nothing succeeds like success and it is Frondizi’s hope, as well as the hope of the UCRI Party and of many persons who believe that Argentina sorely needs political tranquility, that increasing prosperity and increasing opportunities for labor and business to work remuneratively, will in fact add to political stability and, in turn, provide the opportunity for continued economic development.

Position of the United States

Political relations between the United States and Argentina continue to be excellent. They were, in general, excellent during the Provisional Government except that toward the end of that regime there was a tendency within the Government to criticize the United States for not lending more money (we extended to the Provisional Government some $160 millions in credits, not all of which have yet been utilized) and for insisting stubbornly that the Argentine Government make itself more creditworthy by solving such long-pending problems as the American & Foreign Power Company problem resulting from earlier expropriations and interventions of company-owned power plants.

An index of the generally good relations with the Provisional Government was the signature of the agreement for “Operation Crow–flight” under which some 150 United States Air Force personnel conducted a high altitude air sampling program based at the Buenos Aires civilian airport at Ezeiza. The signature of this agreement and the presence in Argentina of this uniformed United States group marked a sharp break in Argentina’s unwillingness to allow foreign soldiers to operate on her territory. It was a major shock to Argentine politicians. However, the Frondizi Government which came into office shortly after the project was signed gave it its support; the United States Air Force personnel deported themselves in an exemplary manner, and the project has now been completed with the result that the Operation not only ceased to be sensational but made a positive contribution to United States-Argentine relations.

Political relations between the United States and Argentina, good during the term of office of the Provisional Government, have still further improved under the Frondizi regime.

President Frondizi’s visit to the United States impressed him deeply and bolstered his prestige locally. As already noted, his Government’s excellent attitude in the economic field made it eligible to loans and credits from the United States and international agencies and from private banks. These loans and credits are helping to establish the basis for solid development in the future.

It may safely be said that relations between Argentina and the United States have never been as good as they are today.

One of the instruments which our Government has for influencing the economic and perhaps the political situation in Argentina is our Point IV Program. In agreement with President Frondizi, and in support of the Argentine Government’s own ideas, we are setting up a modern, agile Technical Assistance Program aimed at helping to bring about basic and rapid improvement in Argentina’s economy. Just as our Banks have helped to supply the monetary deficit in Argentina, our Point IV Program is helping to fill the critical technological deficit. One part of the program is “Operation Beef” which, by helping to improve the meat industry, strikes at the heart of Argentina’s agricultural and foreign exchange problems. Programs in industry and management are being worked up, and the possibility of setting up an Argentine research institute with the help of Stanford Research is now under study.

A principal device for carrying out the various projects will be contracts between United States and Argentine universities. Through this device Point IV hopes, also, to influence the Argentine universities and the system under which they operate. As is well known, these universities, especially the large University of Buenos Aires, are strongly influenced by Leftist and Nationalist groups. Those groups (and the system they imposed) have been responsible for much of the political and economic deterioration which has characterized Argentina’s recent history. Progress in the field of education is basic to steady social, economic and political progress in Argentina. (In this connection, a major achievement of the Frondizi regime has been the freeing of higher education. For the first time in Argentina’s history private universities are now authorized to grant degrees. The timing of our effort along educational lines is, therefore, excellent.)

One of the greatest contributions our Government can make at the present time is to give firm and prompt support to our excellent Point IV Program, which has the capability of strongly influencing economic and political development in Argentina along lines favorable to Argentina and its relations with the United States.

Another contribution, of course, is to continue to extend credits to Argentina, particularly in the field of private enterprise, so long as Argentina continues to make itself eligible for them. Such credits can make an important contribution to economic progress in Argentina and, by example, in other American Republics. They can also make a not unimportant contribution to our own economy.

1. Source: Department of State, Central Files, 735.00/8–2659. Confidential. Drafted by Beaulac and Julian L. Nugent, Jr., Counselor for Political Affairs. Transmitted in despatch 338 from Buenos Aires, August 26. In the covering despatch, Ambassador Beaulac noted, among other things, the following: “I can think of nothing more likely to stimulate real and lasting economic development in Latin America than the continued success of President Frondizi’s stabilization program in Argentina. To the extent that we can continue to contribute to the success of that program, we will be helping ourselves and the whole effort in which we are engaged to stimulate and support economic development in the other American Republics.”