41. Editorial Note

Documentation concerning U.S. regional economic policies with relation to Latin America is being printed in an accompanying microform publication. A narrative summary, based on that documentation, is provided below, along with a purport list of the documents published in the microform supplement. The document numbers cited in the summary correspond to the document numbers in the purport list and the microform supplement.

The concern of U.S. policymakers with political and economic developments in Latin America in 1958–1960 led to some shifts in U.S. economic policies toward the region, foreshadowing the Kennedy administration’s Alliance for Progress, although less extensive and dramatic.

Reexamination of U.S. Policies

Early in 1958, the Department of State undertook a reexamination of U.S. policies in the light of economic trends in the area. Secretary of State John Foster Dulles initiated the study. He was concerned by declining Latin American exports to the United States, falling prices of some important commodities produced in Latin America, and efforts by the Soviet Union to expand its trade and influence in the area. Dulles stated in a January 19 memorandum to Under Secretary of State Christian A. Herter and other officials that he thought U.S. economic policies in relation to Latin America were “too negative”, that U.S. policy concerning trade between Latin America and the Soviet bloc was too restrictive, and that there should be a reexamination of the U.S. policy of opposing quota arrangements on commodities. He continued: “I doubt that we are in a good position to withstand in that part of the world a Soviet economic offensive at a time when the demand for raw materials is down and prices are very low.” (ETA–1)

In response to Dulles’ request, an interbureau task force examined a range of problems and possible policy changes. (ETA–4) Assistant Secretary for Economic Affairs Thomas C. Mann and Assistant Secretary for Inter-American Affairs Roy R. Rubottom summarized the task force’s conclusions in an April 10 memorandum to Dulles. They called [Page 220] for policy adjustments but no major initiatives. Noting that trade was the cornerstone of U.S. economic relations with Latin America, they urged efforts to prevent restrictions on U.S. imports from the region and recommended U.S. participation in multilateral study groups on coffee and on lead and zinc, leaving open the question of possible price stabilization agreements for these commodities. (For related documentation, see the compilation on strategic materials and international commodities in volume IV.) They did not think Soviet bloc efforts to expand trade with Latin America posed a major threat, but they recommended continued U.S. warnings against the risks of economic dependence and political penetration. They recommended efforts to respond to Latin American needs for financial assistance through existing institutions, but they also observed that there was strong Latin American sentiment for the creation of an inter-American development bank and recommended U.S. participation in a multilateral study of this possibility. (ETA–6)

Creation of the Inter-American Development Bank

After a visit to Brazil in early August 1958, Secretary Dulles became convinced that it was necessary for political reasons to take a regional approach to the problem of providing financial support for Latin American development. On August 12, Under Secretary of State for Economic Affairs Douglas Dillon announced that the United States was prepared to consider the establishment of an inter-American development institution. (ETA–8) After several months of discussions, a U.S. proposal was put forward for an inter-American bank. To ensure that the bank would be financially sound but at the same time fulfill the function of providing funds for economic development, it was determined that the bank would make both hard and soft loans but keep the two operations entirely separate. (ETA–8 through 15) Formal negotiations began in January 1959. At the outset, the United States proposed total initial resources of $850 million for the bank, while Brazil called for $5 billion, but a compromise was reached on $1 billion with provision for a future increase to $1.5 billion. (ETA–20, 21) An agreement establishing the Inter-American Development Bank was signed on April 8, 1959. (ETA–24)

Special Fund for Inter-American Social Development

By mid-1960, however, before the bank could begin operations, U.S. policymakers were concluding that more must be done to increase the flow of development capital to Latin America. (ETA–31, 32) The leftward trend of Fidel Castro’s government in Cuba reinforced this conclusion. At an NSC meeting on June 30, President Eisenhower expressed concern about social unrest and instability in Latin America [Page 221] and urged consideration of possible policy changes. Assistant Secretary of State for Policy Planning Gerard C. Smith responded with a July 5 memorandum to Dillon proposing an initiative to provide funds for social programs in the region in order to support moderate political leaders and lessen adverse reaction “if we are forced to move against Castro.” (ETA–33) In a July 11 statement, Eisenhower affirmed U.S. sympathy with Latin American aspirations for social and economic progress and declared his intention to seek funds from Congress to assist the countries of Latin America to develop their nations and achieve better lives. (ETA–38)

In an August 1 memorandum to the President, Dillon urged that the United States should “press forward with a broad program for Latin America”. Adequate funds were available for sound economic development projects, he stated, but there was an immediate need for funds for social development projects, such as land settlement, improved land use, pilot and self-help housing, basic community facilities, and vocational training, and if such programs were not initiated promptly, “unrest with violent political consequences is likely in a number of Latin American countries.” He proposed a Special Fund of $600 million (including $100 million in disaster assistance for Chile) to be used exclusively in Latin America to provide grants or loans, primarily through the Inter-American Development Bank. (ETA–44)

In spite of some opposition to the proposal within the administration on budgetary grounds, Eisenhower approved it. In an August 8 message to Congress, he requested an authorization for $600 million, and Congress authorized the money in legislation signed into law on September 8. (ETA–45, 46, 47) Dillon presented a U.S. proposal for an inter-American program for social development at the September meeting in Bogotá of the OAS Special Committee to Study the Formulation of New Measures for Economic Cooperation, or the Committee of 21. The Committee approved the major features of the U.S. proposal with some additions and modifications; it was approved as the Act of Bogotá on September 13, with only Cuba voting against it; the OAS Council approved it on October 11. (ETA–49, 55)