20. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Special Assistant for Mutual Security Coordination (Barnes)1

SUBJECT

  • Loan of U.S. Naval Vessels to Latin American Countries

Pursuant to authority contained in Public Law 85–532, of July 18, 1958 and the recommendations of the Defense Department, we have offered U.S. naval vessels, on a five-year renewable loan basis, to the following Latin American countries on terms requiring them to make full cash payment in dollars for costs of rehabilitation: Argentina (1 destroyer; 2 submarines); Chile (2 destroyers; 2 submarines); Colombia (2 destroyers); Ecuador (1 destroyer escort); Peru (2 destroyers); Uruguay (1 destroyer escort). An offer of one destroyer escort to Cuba, the only other Latin American country, except Brazil, named in the legislation, has been withheld pending stabilization of the political situation in that country. For reasons related to the U.S. military requirement for a missile tracking facility on Brazilian territory, Brazil has been offered four destroyers, the cost of rehabilitation to be borne by the U.S.

Although existing legislation does not require that Latin American countries bear the expense of rehabilitation, the State and Defense Departments agreed, prior to the introduction of authorizing legislation into the Congress two years ago, that Latin American countries would be required to bear such costs. When approached at that time, Latin American countries expressed a desire to acquire ships on those terms, and the Navy Department subsequently advised the concerned Congressional Committees that the ships would be transferred to Latin American countries on that basis.

It is clear from Latin American responses to our recent offers that every one of the countries offered ships, with the possible exception of Uruguay, desires to acquire them. It is also clear that none can afford to make full cash payment in dollars for the substantial rehabilitation costs, estimated by the Navy Department to be as indicated below (cost of rehabilitating ships of same type varies, depending on type of equipment recipient country desires on ships; patrol craft are shown for Ecuador, which has requested them in lieu of a destroyer escort): [Page 155]

Totals (in millions)
Argentina 2 submarines ($2.315 each)
1 destroyer ($2.500) $ 7.130
Chile 2 destroyers ($2.776 each)
2 submarines ($2.256 and $2.384) 10.192
Colombia 2 destroyers ($2.485 each) 4.970
Ecuador 4 pat. craft ($0.545 each) 2.180
Peru 2 destroyers ($2.795 each) 5.590
Uruguay 1 dest. escort ($1.700) 1.700
Cuba 1 dest. escort ($1.700) 1.700
$33.462

After carefully assessing the Latin American reaction to our recent offers, I am of the opinion that it is politically necessary for us to offer Latin American countries more favorable terms of payment. The present program was developed and discussed with Latin American countries two years ago, on our initiative, in order to: (a) induce Latin American countries, in furtherance of our arms standardization policy, to purchase U.S., rather than non-standard European vessels, in replacement of their obsolete ships; (2) to increase their capability to perform a modest but significant naval patrol mission in hemispheric defense; and (3) to try to reduce Latin American naval expenditures by offering less costly and more militarily desirable vessels than those being offered by European countries. Experience had demonstrated that Latin American countries would turn to such sources of supply if denied the opportunity to procure U.S. equipment.

Since the U.S. initiative of two years ago, Latin American countries have shown a lively interest in the ship loan program and have carefully followed the progress of the authorizing legislation through the U.S. Congress. With the enactment of that legislation this year, they are anxious to acquire the ships. However, they expect us to accommodate our terms to the acute dollar shortages which worsening economic conditions during the past two years have created in most countries.

In view of the very poor financial status of most of the other countries, I have given careful consideration to arguments that may be made in favor of our assuming part or all of the cost of rehabilitation through our grant military assistance program. I have reached the conclusion that an offer of ships on terms of three-year credit, as authorized by the Mutual Security Act, would steer us through the political difficulties created by our recent cash offers. Furthermore, I would hope that the indebtedness incurred by Latin American countries for rehabilitation of the ships might have the salubrious result of causing them to forego, for at least a three-year period, purchases of [Page 156]unnecessary and more costly naval vessels, such as aircraft carriers, from European sources. Finally, neither the Defense nor Navy Department has recommended that the U.S. bear the cost of rehabilitation. I am therefore inclined to believe that while U.S. military interests will be served by transferring the ships to Latin American countries, such interests are not of sufficiently high priority to warrant our requesting the next Congress to approve for FY 1960 a grant military assistance program for Latin America substantially greater in cost than that authorized by the Congress for FY 1959.

Recommendations:

1.
That you obtain the Executive Branch approval necessary for an offer of ships to each Latin American country named in the legislation on terms which would permit it to pay for rehabilitation over a three-year period, as authorized by the Mutual Security Act. Although an offer would not be made to Cuba at present, we would like to be in a position to make such an offer in the event that changed political conditions in Cuba should cause such an offer to be in our interest.
2.
That the above approval be obtained expeditiously in view of a recent Swedish offer to Peru of destroyers on terms permitting payment in Peruvian minerals over a ten-year period.2
  1. Source: Department of State, ARA/RPA Files: Lot 61 D 374, Military Assistance Program—FY 1960. Confidential. Drafted by Spencer.
  2. There is no indication on the source text of the action taken on these recommendations.