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

SUBJECT

  • Military Assistance Program for Latin America, FY 1960

I refer to the latest Defense revision of the FY 1960 military assistance program for Latin America as set forth in a letter of September 19, 1959, addressed by Mr. Irwin to Mr. Dillon.2 It is our understanding that this program totals $55.5 million: $33.5 million for straight grant assistance for 11 countries; and $22 million for credit assistance (Argentina, $5 million; Mexico, $3 million; Venezuela, $14 million).

It is our understanding that the $33.5 million straight grant program contains no funds for spare parts or for packing, crating, handling and transportation, but that as such requirements arise they will be financed with additional funds not now included in the $33.5 million Defense total. If expenditures for spares and PCH&T during FY 1960 should equal FY 1959 expenditures for that purpose ($5.1 million), the straight grant program proposed by Defense for FY 1960 [Page 166]would in the end total about $38.6, a figure well within the Congressional ceiling of $45.7 imposed by the Congress on straight grant expenditures.

We have the following comments and recommendations regarding this program.

Straight Grant Assistance

1.
ASW Planes for Brazil. We understand that the greater part of the substantial reduction which Defense has made in the Brazilian program results from the deletion of about $9.2 million previously included in the Brazilian FY 1960 program for ASW aircraft. It is our understanding that this deficiency will be met by providing Brazil, in FY 1960, with ASW planes which have been procured for several other Latin American countries with FY 1959 funds and by deferring procurement of substitute planes for the latter countries until FY 1961 or a later date.
2.

Ship Rehabilitation. The Defense program provides funds for the rehabilitation of one submarine for loan to Chile, one destroyer for loan to Peru, two PCE’s for loan to Ecuador in lieu of one destroyer escort Ecuador is eligible to receive by the terms of U.S. ship loan legislation, and funds for the rehabilitation of one Ecuadoran patrol vessel and one Uruguayan destroyer. In addition to this program, we understand that about $.850 million in the FY 1959 program is now earmarked for the rehabilitation of two MSF’s for loan to Peru.

The Defense program provides no funds for the rehabilitation of a destroyer for loan to Colombia or a destroyer escort for loan to Uruguay. In order not to discriminate against these countries, which are named in U.S. legislation as eligible to receive U.S. naval vessels, it will be necessary to finance, in FY 1960, the rehabilitation of one vessel for loan to each country. The rehabilitation of one destroyer for Colombia will require about $2.5 million. We believe that Uruguay should be offered the choice of accepting rehabilitation of one of its own destroyers, for which $1.5 million has been provided in the Defense program, or of accepting one U.S. destroyer escort rehabilitated at U.S. expense at a cost of about $2 million. If Uruguay should choose the latter, a total of about $3 million would need to be added to the Colombia–Uruguay ship program. To help meet this expense, we recommend that there be deleted from the Ecuadoran program the $.850 million proposed for the rehabilitation of an Ecuadoran patrol vessel, leaving a total deficit in the Colombia–Uruguay ship program of $2, 150 million. (Since we have virtually concluded negotiations with Peru for the rehabilitation of two MSF’s at U.S. expense, it will not be possible to reduce the deficit of $2, 150 million by utilizing for that purpose the $.850 now reserved in the FY 1959 program for the rehabilitation of MSF’s for Peru.)

[Page 167]

We have carefully reviewed, in consultation with Defense, each of the Latin American country programs to determine whether there are any additional items that could be deleted and the savings utilized to reduce the deficit of $2, 150 million. In view of the very small quantities of equipment and other types of assistance programmed for Latin American countries, we find no additional items, except possibly in the Brazilian program, which could be deleted without reducing the programs below the minimum levels required to promote minimum U.S. military and political objectives during FY 1960. With regard to the Brazilian program, we consider it politically undesirable to delete any Army items, in view of the important position occupied by the Brazilian Army within the Brazilian Government and the Army’s dissatisfaction with its small share of the equipment we are providing Brazil in connection with our missiles tracking facility in that country. However, we believe that it may be possible for the Defense Department to reduce non-Army items totalling perhaps $1 million from the Brazilian program, and we recommend that Defense be asked to make such deductions and apply the savings to the Colombia–Uruguay ship program. This would leave about $1.150 [million] needed to complete the latter program. We recommend that this deficit be met by increasing, by that amount, the total funds recommended by Defense for the total Latin American program.

3.
Security Program for Ecuador. We understand that about $.803 million required to implement the military part of the security program approved for Ecuador in connection with the Quito Conference3 is not included in the Defense program. As in the case of the ship loan deficit, we recommend that this requirement be met with additional funds made available for the Latin American program.
3.
[sic] Total Additional Funds Required for Grant Program. To finance the Colombia–Uruguay ship program and the military part of the Ecuadoran security program will require a total of $1.953 million in additional funds for the Latin American program. This increase would raise the straight grant program recommended by Defense from $33.5 million to $35.453 million, not including spare parts and PCH&T. On the assumption that expenditures on the latter items during FY 1960 would approximate FY 1959 expenditures ($5.1 million), the total straight grant program would then stand at about $40.553 million, a figure within the ceiling of $45.7 imposed by the Congress on FY 1960 expenditures.
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Credit Financing for Military Sales

Argentina. We originally informed Argentina that we would finance a program totalling $13 million (Navy $1.3; AF $6.5; Army $5.2). The Argentines subseqently indicated their willingness to reduce the proposed Navy credit program to $.650 million, by making a cash payment of $.650. The USAF has indicated that it is prepared to utilize its own funds, rather than MSP funds, for financing the air portion of the program. If the Air Force is able to finance its program on down-payment terms which the Argentines can meet, then the additional $5 million in MSP money recommended by Defense for the total program during FY 1960 should be sufficient. It is assumed that any money needed to complete the total approved program would be made available in FY 1961.

Venezuela. In a note of November 28, 1956 to the Venezuelan Government,4 the U.S. stated: (a) that the U.S. approved a military agreement, entitled, “Results of the Planning Talks”, which had been drafted and approved by U.S. and Venezuelan military authorities;5 (b) that in accordance with the Planning Talks, the U.S. would “assist in financing a planned total credit program of approximately $180 million during the ensuing ten years . . .6 dependent upon annual appropriations of the United States Government.”; and (c) that in order to initiate the credit program, the U.S. “has set aside $10 million to finance credit purchases by your Government during the remainder of the current fiscal year ending June 30, 1957.”

The U.S. credit commitments contained in the note were at that time considered necessary in order to obtain Venezuelan agreement to the bilateral military planning document. Venezuela subsequently utilized the $10 million credit offered in FY 1957; utilized $19.9 of a $20 million credit offered in FY 1958; and utilized $5.5 million of a $20 million credit offered in FY 1959.

We are advised by the Defense Department that the Venezuelan Navy has expressed some interest in procuring items totalling about $25.5 million during FY 1960 but has not placed firm orders for most of the items. We are prepared to authorize Defense to initiate an approach to Venezuelan military authorities for the purpose of inducing and assisting them to develop a total Venezuelan credit program for FY 1960 not exceeding the $14 million recommended by Defense. [Page 169]We will be glad to cooperate with U/MSC in the preparation of guidance that will be needed by Defense in connection with such an approach.

We must anticipate that the Venezuelans may react unfavorably to the prospect of receiving only $14 million in credit this year, on the ground that they have a legitimate claim during any given year for a pro-rata share of $180 million, or $18 million per annum, plus any amount of credit unused during previous years. In this context, they may consider the $25.6 in naval items, mentioned above, as a reasonable amount of credit to expect from the U.S. during FY 1960.

In the event of a strongly negative Venezuelan reaction, it may be necessary, in order to avoid Venezuelan revision or nullification of the bilateral Planning Talks and/or protect other important U.S. interests, to increase the $14 million recommended by Defense for this program.

Contingencies

It may become necessary during the course of FY 1960 to provide Latin American countries grant or credit assistance additional to that provided for in the program now being reviewed, when contingencies arise that require the provision of such assistance in the U.S. interest. We assume that it will be possible, if the need should arise, to obtain additional funds for this purpose.

Conclusion

ARA approves the program submitted by Defense on September 19, 1959, subject to the recommendations set forth herein.7

  1. Source: Department of State, ARA/IAS Files: Lot 67 D 9, Defense Affairs, 1959–1963. Secret. Drafted by Spencer.
  2. Not found in Department of State files.
  3. Reference is to the proposed Eleventh Inter-American Conference, scheduled to meet in Quito, but which never convened.
  4. Not printed.
  5. For text of this agreement, which resulted from military staff talks held at Quarry Heights, Canal Zone, March 19–23, 1951, see Foreign Relations, 1951, vol. II, pp. 16261633.
  6. Ellipsis in the source text.
  7. The substance of Bottom’s recommendations was conveyed to the Department of Defense as part of a letter from Dillon to John N. Irwin, II, October 13, approving, with certain exceptions, the overall FY 1960 military assistance program. (Department of State, Rubottom Files: Lot 61 D 279, Mutual Security Program 1959)