ETA–28. Memorandum from the Director of the Office of Inter-American Regional Economic Affairs (Turkel) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)1
SUBJECT
- Our Economic Analyses in a Nutshell.2
Argentina. An intense financial stabilization effort has improved the balance of payments situation but led to large increase in cost of living and fall in industrial production. Outlook for 1960 is for some economic improvement over 1959 with greater price stability and some revival in industrial and agricultural output.
Bolivia. A higher tin quota and prospects for increased output of oil and other minerals (including gold) give grounds for expecting further modest improvement in economic conditions. This is subject, however, to the continuation of a relatively stable political situation. On the assumption of the continuation of present trends it should be possible to make a further gradual reduction in U.S. aid.
Brazil. Although 1939 saw largest inflation since war, balance of payments improved owing to excellent coffee export volume and some curtailment imports. Economic expansion appears to have continued. Expect international payments problem will again become urgent about April–May 1960 as reserves are modest.
Chile. Owing to good copper prices and strikes abroad, has accumulated sizeable dollar reserves. For first time in number of years, 1939 was period of economic growth. Government politics, however, have tended aggravate inflation and failed take advantage of favorable economic climate. As long as copper price is good, Chile will go through 1960 in payments balance but the problem of unbalanced budgets and weak monetary policies will continue inflation.
Colombia. In 1959 economic growth was resumed after declines since 1956. Cautious fiscal and monetary policies and good coffee exports led to payments surplus of $45 million. For 1960 it is expected that payments situation will not be so bright as imports are increased to continue expansion in production. However, adequate financial reserves are available to meet Colombian external needs.
[Typeset Page 81]Costa Rica. Despite weak coffee prices, managed to maintain adequate reserve position because of large coffee crop. Government has conservative financial policies. In 1960 lower export income likely to require continued caution, if payments equilibrium is to be obtained.
Cuba. Deterioration in 1959 was general with between 5 and 10 percent decline in national income and foreign payments deficit of over $50 million. For 1960, outlook is unfavorable as Government increases controls over economy and resultant uncertainties. National income is expected to stagnate and by next August—September an external payments crisis may shape up.
[Facsimile Page 2]Dominican Republic. 1960 was the poorest economic year since the end of the war on top of which Government faced heavy defense burdens. If GCDR follow IMF stabilization program some improvement may be expected since outlook for export crops is better. Heavy foreign debt limits flexibility of Government and public works expenditures cannot be too sharply curtailed.
Ecuador. Overall improvement noticeable in economy in 1959 with production, exports, and foreign reserves up. Important in 1960 for GOE to resist pressures from businessmen for expansionary monetary policies which would threaten steady expansion of economy over past decade.
El Salvador. During 1959 large increases in production compensated for coffee price weakness. The economy is stable and well managed and no problems on that score envisaged for 1960.
Guatemala. Continued lax monetary policies and budgetary deficits with declining experts, led to a $15 million payments deficit in 1959 and a fall in dollar reserves from $74 million in 1956 to $30 million in 1959. The GOG has already imposed import restrictions and limited bank credit so that in 1960 the payments deficit is expected to be reduced to $5 million. Continued effort, however, will be needed to achieve this objective.
Haiti. 1959 was one of the most disastrous years in the economic history of Haiti. A coffee crop of 50 percent of normal and government overspending in face of low tax revenues, led to an intensified stabilization program backed by $6 million of U.S. special grant aid. For 1960 a great improvement is expected, with a record high coffee crop and Haiti should actually accumulate dollar reserves and have a 5% increase in national income.
Honduras. Economic stagnation, marked by declining banana production, was a basic problem in 1959. An IMF program was worked out which has achieved budgetary balance and stopped the decline in dollar reserves. However, the picture is gloomy for 1960; further retrenchment may be necessary and the GOH will have to reduce its [Typeset Page 82] fiscal budget for the year. New investment for electric power from the IBRD may be helpful.
Mexico. While there was a general economic improvement in 1959 over the bad year of 1958, it has been very limited. Economic growth has been slowed down or even stopped and imports sharply reduced as export markets for cotton and Mexican, non-ferrous metals have been weak. The GOM faces the problem of resuming economic expansion in 1960 in face of failure to increase foreign income. Although foreign exchange reserves have grown, they are inadequate to support a large increase in investment without improvement in demand for Mexican exports.
Nicaragua. With somewhat improved exports and production; balance of [Facsimile Page 3] payments showed modest improvement in 1959. Expected that 1960 may be difficult year with cotton export availabilities down so that may have to turn to IMF for financial assistance. U.S. loan to Central Bark should alleviate situation.
Panama. Economic deterioration and unemployment are important problems. Large fiscal deficits and inadequate taxes have caused some loss in dollar reserves. Outlook for 1960 is for no significant change with GOP being pressed for funds and structural problems continuing.
Paraguay. Modest improvement in balance of payments occurred during 1959 but national income not increasing. Government controls still hampering production, stabilization program has achieved financial objectives but without elimination state controls and additional investment, expected that 1960 will see continuation 1959 conditions.
Peru. As result of drastic reduction imports obtained balance of payments surplus of about $15 million in 1959 compared with deficits for two previous years. Global output probably declined in 1959. Major problem for 1960 will be budgetary equilibrium. With exports likely to expand owing to new copper production facilities balance of payments situation should continue to improve in 1960.
Uruguay. A record payments deficit ($50 million) is expected in 1959 because of lack of export products and unwise state intervention in the economy. Very likely national income shows a sizeable decline in year. No significant improvement may be anticipated in 1960 as the GOU has not yet shown desire to cope with its difficult economic problems or invite IMF advice.
Venezuela. Owing to economic and political uncertainties there was a sharp run on the bolivar, and dollar reserves fell by $400 million in 1959. Official announcements unfriendly to the private oil industry have dried up capital inflows, while budgetary and monetary policies have had adverse impacts. The drain on dollar reserves should slow down [Typeset Page 83] to manageable proportions in 1960 as long as the GOV follows sound policies and makes a real effort to deal with its internal problems. The outlook, however, is not too good for any revival of economic growth.