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

ETA–2. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Acting Secretary of State¹

Washington, January 31, 1958

SUBJECT

• United States Policy Toward Latin America

Problem

To analyze United States policy toward Latin America in the light of present-day economic trends.

Discussion

1. Trade is the cornerstone of our relations with Latin America. When high-level trade is sustained with resulting good prices, most facets of our relations with the area are good. In 1955 and 1956 total trade between the United States and Latin America reached an approximately 7½ billion dollar annual figure, almost balanced in each direction.

2. In the last quarter of 1957 Latin American total exports to the United States began to slump, with prospect of a decline in 1958 of at least seven percent. The problem has been especially critical in lead, zinc, tin and copper. Coffee, the most vital commodity of all, started to decline but this was stopped by the main producers holding coffee off the market; most experts are predicting serious trouble ahead for the coffee market. Although we assisted financially Mexico, Bolivia, Chile and Peru, which were affected by the metals decline, this was offset by the profoundly negative impression created by the Administration-sponsored Bill last year for increased tariffs on lead and zinc.

The one country where we have had a serious trade problem for generations—Argentina—because our products are not complementary, may very likely slip back into its traditionally anti-United States position unless we are able, through large loans and other means, to overcome this fact-of-life situation.

3. While in the past we have opposed vigorously any trade between Latin America and the Soviet bloc in strategic materials, we have not opposed other trade. Although Latin American trade with the Soviet bloc, about one percent of the area’s total trade, decreased about 12 percent in 1957 as compared with 1956, it is inevitable that Latin America will attempt to sell more to the Communists if the present decline in exports to the United States continues. We should not and do not oppose such trade in non-strategic items, except with Red China, although we would expect Latin American Governments to be wary and to avoid political pitfalls. Brazil is now considering whether to resume diplomatic relations with the USSR, undoubtedly as a part of the price for increased commercial relations, with the outcome uncertain. The resumption of relations with the USSR by Brazil would certainly be a political setback for the United States but it may be unavoidable.

4. In addition to trade, our economic policy toward Latin America has been based on private investment and loans, with grant aid only for emergencies. This policy, while never wholly palatable to Latin America, was sound and the results paid off to Latin America’s benefit while times were good. With trade slipping and prices of some commodities sharply down, this policy, while still valid as far as it goes, will require some strengthening in order to improve both its real and its public relations impact. Latin American Governments and peoples tend to judge our policies as much on a comparative basis as on an absolute basis. Thus, we shall have to be especially vigilant in weighing the impact of decisions in other areas on Latin America.

Recommendations

1. We should administratively earmark a portion, not less than 15%, of the Development Loan Fund² for Latin America.

2. We should take a more positive and flexible position in the Eximbank toward loan applications from Latin America, with emphasis on longer-term loans.

3. We should review our policy of opposing the establishment of an Inner-American Bank. It may be feasible to use the funds for our contribution, say one-third, to such a fund; we would thus have a controlling role in the bank; probably no step by the United States in the financial field would have as much propaganda impact as this one.

4. We should emphasize to Latin America the necessity of avoiding political penetration by the Soviet Bloc as they undertake to expand their commercial dealings with the Communists.

5. The Administration should be prepared to withstand domestic pressures to restrict imports, either by tariffs or quotas, of Latin American products for in so doing it can offset to a degree the bad effects of such measures, if voted by Congress; if the Administration cannot do this, the Department should be prepared to face the consequences of worsening relations with its closest friends and neighbors in Latin America.

1. Source: Department of State, Central Files, 611.20/1–3158. Secret. Drafted by Assistant Secretary Rubottom. Secret.
2. The development Loan Fund (DLF) was originally established within the International Cooperation Administration by the Mutual Security Act of 1957 (71 State 355), and it became an independent corporate agency of the United States under the provisions of the Mutual Security Act of 1958 (72 State 261). The Fund carried out its responsibilities subject to the foreign policy guidance of the Secretary of State. Its functions involved, inter alia, provision of investment capital for specific development projects in developing areas through loans or certain types of credits directly to private enterprises or governments. For documentation on the activities of the Fund during the period 1958–1960, see Foreign Relations, 1958–1960, vol. IV, Foreign Economic Policy.