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

ETA–41. Memorandum of Conversation, by Rudy V. Fimbres of the Bureau of Inter-American Affairs¹

Washington, July 26, 1960

SUBJECT

• Visit of Felipe Herrera, President, Inter-American Development Bank, to South America

PARTICIPANTS

• Felipe Herrera, President, Inter-American Development Bunk
• Robert Cutler, U.S. Executive Director, Inter-American Development Bank
• Douglas Dillon, Under Secretary of State
• Roy R. Rubottom, Assistant Secretary of State
• Thomas E. Mann, Assistant Secretary of State
• Theodore Achilles, Counselor
• Henry Ramsey, S/P
• Dixon Donnelley, U
• Ambassador Harry R. Turkel, REA
• Alex Rosenson, REA
• Wymberly Coerr, WST
• Alton Hemba, EST
• Rudy Fimbres, ARA/P

(The meeting was arranged at the request of General Cutler to give Department officers an opportunity to hear Mr. Herrera’s impressions of his South American tour.)

Mr. Herrera commenced the discussion by mentioning that the purpose of his trip was to discuss quota payments with member countries of the Bank, and also to recruit technicians for his organization. He said that he had been impressed by the great interest in the Bank, and the emotional attachment which people in South America have for it despite the fact that few know the details concerning its structure and proposed method of operation. Latin Americans fought for it for many years and are particularly gratified that it will be a cooperative and multilateral undertaking from which the United States—which holds 40 percent of the quota—asks no benefit.

He stated that the countries he visited presented a variety of institutions through which the Bank could work. He, however, had emphasized cooperation with private capital. There were complaints everywhere of a shortage of capital, especially for local financing, which some people blamed on IMF stabilization programs. Attacks on the IMF have shifted, however, to national leaders, apparently because they have made IMF policies their own. There was, particularly in Brazil, disappointment that the Bank would not help increase the export of capital goods through export financing.

On a country basis, he reported the following: Venezuela appeared very unstable, the reduced money supply adding to this difficulty. President Betancourt worriedly stressed the bad social conditions in Caracas, the problem of unemployment, inflation, and the danger from the Fidelistas and other leftist elements. There is a dire need for housing and adequate water supply, according to Betancourt.

In reply to Under Secretary Dillon’s inquiry as to what Venezuela had done to reduce its debt, Mr. Herrera replied that it had cleared its short-term debt, balanced its budget, and had kept its exports high. Venezuela’s problems, he reiterated, remained inflation, unemployment, and pressure from the communists and the Fidelistas.

Peru and Colombia have strong leadership, and there is much sentiment for an agrarian reform and housing program. Everyone is puzzled concerning Ecuador, but agree that agrarian reform and housing are also the two most pressing needs.

In Chile the people are of the opinion that the stabilization policy should be relaxed but, despite this, the government is maintaining a strong anti-inflation stand. There has been a strong emotional response to United States generosity, the recent earthquake disaster relief resulting in great U.S. popularity in the area.

Mr. Herrera then mentioned that 75 percent of the Bank’s quotas had been paid, with Bolivia and Paraguay presenting the greatest problems in this respect because of their inability to pay their first instalments on their small subscriptions. Mr. Dillon mentioned that the U.S. should assist these two countries to meet their participation in the Bank.

Mr. Rubottom inquired whether Mr. Herrera was of the opinion that Uruguay would come into accord with the IMF. Mr. Herrera said that that was his impression, despite the slim chamber majority (one vote) held by the Government. He added that the Government had already instituted some reforms.

Mr. Dillon inquired when the Bank would become operative, and Mr. Herrera replied that by October 1 the Bank would be in operation and by the end of the year should commence making loans.

The Undersecretary asked whether the IDB would reasonably be in position to administer monies entrusted to it by the U.S. Government under the Latin American economic cooperation program contemplated by President Eisenhower.

Messrs, Herrera and Cutler replied in effect that by next June or July—presumably after the Congress had its first opportunity in the spring to appropriate funds for the accelerated economic program—the Bank would be in a good position to administer any trust fund transferred to it by the U.S. Government. They also foresaw that this program would require the administrative cooperation of agencies located in Latin America such as ICA, and the existent national organizations charged with economic planning in the different countries.

Mr. Rubottom asked Sr. Herrera if the new lending agency intended to develop a special relation to one or two countries (he cited Honduras as an example) with the intention of turning them into “show-cases.” The Bank President replied that he was in favor of this approach, and in that regard had in mind Paraguay and Bolivia. He added that the IDB should not be concerned with the political side of the Paraguayan problem, and that $10 million in Paraguay, because of its purely agricultural structure, could do wonders. Mr. Dillon agreed, commenting that the new institution could ignore political factors whereas the U.S. Government has no similar freedom of action.

Bolivia, said Sr. Herrera, should also receive special attention aimed at diversifying its economy.

Mr. Mann discussed the subject of the pressures being put upon the U.S. Government to finance budget and balance-of-payments deficits. He was of the opinion that any funds transferred to the IDB should be used wisely and that any local government costs financed by the Bank should result in an easing of deficits in other areas. In line with Assistant Secretary Mann’s misgivings on U.S. financing of budget deficits, the Under Secretary said that the Bank should require recipient countries to make the proper commitments to it so that any assistance given them will not encourage continued budget and balance-of-payments deficits.

1. Source: Department of State, Central Files, 371.314/7–2660. Limited Official Use.