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

CO–8. Memorandum of Conversation, by the Director of the Office of Inter-American Regional Economic Affairs (Turkel)¹

Washington, April 11, 1958

SUBJECT

• Meeting of Colombian Delegation with Secretary

PARTICIPANTS

• The Secretary
• ARA – Mr. Rubottom
• E – Mr. Mann
• REA – Mr. Turkel
• Dr. Carlos Sanz de Santamaria, Minister of Foreign Relations
• Alfonso Lopez Pumarejo, ex-President
• Mariano Ospina Peres, ex-President
• Rafael Delgado Barrenechea, ex-Minister of Finance
• Antonio Alvarez Restrope, ex-Minister of Finance
• Ignacio Copete Lizarralde, Director, Bank of the Republic

The Secretary apologized for being late since he had to confer with the President with respect to the latest Soviet note on a summit meeting and on Tunisia.

Foreign Minister Santamaria stated that Colombia had made tremendous efforts to restore a democratic regime and to restore financial stability. It had ran into grave difficulties because of the fall in coffee prices, and although it had followed the advice of the International Monetary Fund and the International Bank for Reconstruction and Development, it needed help. To underscore that need, the Colombian Government had sent two ex-Presidents, two ex-Ministers of Finance and the Director of the Bank of Colombia. He said that President Lopez would make the main statement.

President Lopez stated that Colombia faced a three-fold problem: (1) political, (2) economic and (3) social. All were related and all had to be dealt with at the same time. He said that in the political field they have been very successful and had settled historic political difficulties in less than 10 months. A reorganization of the Government had taken place and there was agreement to have presidential elections in May and a new President installed in August.

In the meantime economic developments were fast overtaking Colombia. Last June a settlement of the commercial arrears was made, but the settlement was thrown out of gear by the fall of 10 cents a pound in the price of coffee. Since there were some 6 million bags to be exported the loss was close to $100 million. The arrears settlement covered $448 million of which 1/2 had been paid off in a single year and $220 million was left to be dealt with.

In the domestic situation, the Military Junta had done everything possible to restrain inflation, to restrict credit and currency issues. It had imposed heavy new taxes. The Junta had first placed a tax of 15 per cent on the sale of foreign exchange plus an additional 10 per cent on importers. To this they had recently added a 10 per cent tax in kind on coffee exports. All these were inadequate to make up the loss of $90 to $100 million per annum in the fall of coffee prices.

The social consequences of the foregoing were serious. With the cut in the imports and the rise in the rate of exchange there was a corresponding increase in the cost of living. Although production was going fairly well there has been increasing unemployment. The situation has now reached the point where Colombia is unable to pay for the importation of the raw materials necessary to keep its industrial plant going. Columbia was short of imports by about $7 million per month. It is the purpose of the present Mission to refinance prior debt to keep things going. The Colombians now thought they were too hasty in trying to pay off $440 million in debt in a mere 30 months. This over-eagerness and the loss of $100 million in coffee earnings had led to the failure of their hopes.

In the political field the Liberals and Conservatives now share the responsibility of Government. In response to the Secretary’s question whether they had agreed upon a candidate for the President, ex-President Lopez stated they had not done so, but they expected to do so in a couple of days, at the initiative of the Conservative Party. They will, however, propose a Liberal, Lleras Camargo, as President with a Conservative Vice President.

The Secretary then stated that we had known Senor Lleras very favorably as Secretary General of the Organization of American States. President Lopez concluded the discussion of the political situation by noting how markedly the situation had improved as compared to the troubled times of preceding years. The present problems were mainly social.

From this President Lopez went on to discuss coffee. He said that all of the coffee-producing countries of Latin America faced the problem of stabilizing coffee. There had been a violent decline in prices from 90 cents per pound to the present 55 cents per pound. Colombia was having difficulty in financing the coffee crop. The immediate problem was whether they could hope for cooperation from the United States. What they wanted above all was assurance of some procedures to prevent the coming heavy Brazilian crop from being a catastrophic crisis. We assured the Secretary that all Latin Americans thought alike on this subject and asked what the Secretary thought about price stabilization.

Mr. Rubottom here stated that while he was in Brazil 3 weeks ago he had heard the same analysis of the coffee problem and had stated that we were studying the coffee matter on a day-to-day basis. We then had and still have a hope of organizing an international coffee study group, but if this study were to lead to quotas and price stabilization it would be very difficult for the United States and it is still unclear whether or not we can participate to that extent.

Here the Secretary observed that the problem of curing an international commodity surplus was very difficult. Sometimes the cure makes the disease worse rather than better. The United States has had (and still has) the problem of stabilizing the prices of our own agricultural production. It has cost us fabulous sums and has not done much good. For example, our cotton policy has resulted in many other countries beginning to grow cotton. Now we sell only a small percentage of the world’s imports and the plight of our cotton families is worse than ever. The Secretary invited the Colombian Delegation to meet with Secretary Benson, if they had the time, to review this matter. The Secretary remembered the Brazilian stabilization scheme of several years ago and how Brazil went practically broke on that scheme. An agricultural scheme that does not cut production is no good. Efforts to limit acreage cannot do the job since farmers use fertilizer to increase the productivity per acre. In cotton they are putting 50 per cent more per acre.

The Secretary said there was no question at all as to our objectives; we are agreed that a greater measure of stability is desirable at reasonable price levels. The only question is how to achieve that. Our experience has been disastrous. This is not to say that the job is impossible. All we can now say is that our own economic people will work closely and sympathetically with you, although we have a certain skepiticizm. He asked the Colombians to remember that there were certain legal restrictions on Americans against restraining trade but this does not apply to foreigners.

President Lopez summarized the Colombian situation by saying that they had two problems: (1) an exchange problem, and (2) what could be done in cooperation with other coffee-producing countries for price stabilization.

The Secretary said that with respect to the dollar gap, the Colombians should see the Eximbank, which is a separate department of Government here. He could ensure the Colombians that they will get sympathetic consideration there, although they could expect no bail-out loan. At this point, Mr. Mann said that we had granted Colombia $60 million in Eximbank funds last year for a bail-out loan.

President Lopez said that the Colombians wanted an extension of time from the Eximbank on pending payments plus additional facilities. They also had need for additional agricultural machinery in order to increase agricultural production. In response to the Secretary’s inquiry, he said that the increase in agricultural production would not, of course, apply to coffee.

Mr. Mann and Mr. Rubottom here observed that they had been much impressed by what Colombia had been doing day by day in the field of expanding its agricultural production.

The Secretary asked how much of a military program they had and Senor Alvarez stated that it was about $280 million pesos or some 20 per cent of the budget.

Santamaria then stated that the Military Junta had cut the military budget by about 100 million pesos and further cuts were prevented only because so much was owing on prior debt. The Provisional Government had dismissed 10,000 soldiers or 1/3 of its army. It has stopped all military construction; it has bought no armaments, only maintenance items. Finally, much of the 280 million pesos went for salaries.

Mr. Rubottom summarized by saying that there had been in Colombia a remarkable de-emphasis on military activity. The Secretary said this was a happy development for in the Middle East the reverse had taken place.

President Lopez stated that they had very serious transportation problems. The dollar shortage had forced them to cut down drastically on imports of cars and trucks and now the absence of replacements had put the transportation situation in a highly critical position.

Mr. Mann highlighted the decline on imports by stating that under Rojas Pinilla it had been $670 million and had been cut in a single year to $450 million. (President Lopez here said that the present rate of imports was only $25 million per month).

The Foreign Minister then asked what the Colombian Delegation should do.

The Secretary summarized as follows:

The Delegation had three aspects to its problems:

1. First was its need to finance essential imports. For this they should turn to the Eximbank.

2. They had to deal with the backlog of commercial arrears. For this they should turn to the Eximbank.

3. Finally, they had a coffee stabilization problem. For this they would have to turn to Mr. Mann and Mr. Dillon.

About all the Secretary felt the Colombians could expect from the United States on coffee is an attitude of benevolent neutralism. The United States does not have enough money to embark upon coffee stabilization schemes.

Here the Colombians almost unanimously burst forth that they want no money for coffee stabilization. The Foreign Minister summarized their position by saying that coffee is the backing for the Colombian currency. It means everything in Colombia and yet it is beyond their power to control. The Colombians did not want to direct prices they merely want to avoid a fall and to seek stability.

Here the meeting ended.

1. Source: Department of State, ARA/RSA Files, Lot 63 D 211, “Colombian Financial Situation.” Official Use Only. The source text is an unsigned carbon copy.