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

ETA–54. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Mann) to the Under Secretary of State (Dillon)¹

Washington, October 17, 1960

SUBJECT

• Central American Bank for Economic Integration - Request for Contingency Fund Financing

Discussion:

During the past several weeks discussions concerning the establishment of and United States financial assistance to a Central American Bank for Economic Integration have been carried on by United States Government officials and representatives of the Governments of Guatemala, Honduras, Salvador and Nicaragua. This memorandum requests the commitment of $2 million from the FY 1961 Contingency Fund, as part of United States assistance of $10 million to the Central American Bank for Economic Integration, as soon as the institution is established. This memorandum also requests your approval for an additional $3 Billion ICA contribution to the Bank from FY 1962 funds and for a determination that it is in the national interest for DLF, pursuant to Section 202(c) of the Mutual Security Act,² to allocate $5 million of its funds to the Bank. Each of the four member countries of the Bank—El Salvador, Honduras, Guatemala and Nicaragua—will make an initial contribution equivalent to $2 million to be paid in three installments over 14 months. The bank will be set up as an international legal entity with its own charter, in accordance with Article XIX of the Treaty of Economic Association, of February 6, 1960, establishing a common market in the region (Tab C).³ The purpose of this Bank is to promote the integration and balanced economic development of the member countries.

The action recommended is in pursuance to your discussion with the Representatives of the Central American countries during the Bogotá Conference, in September 1960,⁴ to the effect that, “we are warm supporters of Central American integration and recognize the need for a Bank.” You further suggested that “at the time of the Bank/Fund meeting in Washington at the end of September . . . that we can’t tell how much the United States is ready to do until we sit down and discuss it. The figure of $30 million mentioned . . . is much more than we had hereto discussed. The important thing, however, is to get started.” I therefore arranged for United States Government technicians at the close of the Bank/fund meeting to discuss the proposed bank. Participants in meetings included the Ministers of Economy and other high officials of Guatemala, El Salvador, Honduras and Nicaragua.

After consulting with ICA and DLF, I stated at the September 29 meeting with Central American high officials that, our present thinking is to make available funds up to $10 million to the bank as described above. However, when the $10 million referred to above is exhausted, United States agencies will be prepared to consider further assistance as appropriate to augment the Bank’s resources, taking into account the degree of progress achieved in the economic integration program and the contribution which has been made by the regional Bank to such program, and member Government support for the institution.

The representatives of the four Central American Governments have formally applied to the ICA for the funds to be contributed to the resources of the Central American Bank for Economic Integration.

In order to inform the participating Governments that $5 million of the $10 million of assistance would be provided by DLF, we propose an allocation of a credit, under the terms of section 202(e) of the Mutual Security Act (Tab C),⁵ of $5 million to be extended upon the satisfactory establishment of the Bank. A formal application for such a loan has been filled with the DLF and several discussions have been held with DLF officials, including a nesting with the Managing Director. The draft charter (Tab E)⁶ of the Bank provides for paid-in capital subscriptions, in three installments over a 14 month period, of $2 million by each member country. These contributions to the capital of the Bank would be available for use on a multilateral basis within the region (with the national currencies subscribed being convertible). It is deemed necessary to allocate $5 million of DLF funds for the purpose of a loan to the Bank at this time in order to further the establishment of the Bank which requires contributions by the member countries as well as the United States which contribution it is hoped will be authorized by the member countries in the near future.

With respect to the $3 million from ICA, we believe that it would be possible to meet this part of the $10 million in a timely manner from FY 1962 ICA funds and thereby make minimum demands on the contingency Fund in 1961. We are therefore preparing papers for a 1550 determination (Tab A).⁷

The draft charter establishing the Bank (Tab E) which was discussed in retail with United States Government techniques, is subject to ratification by each of the national legislative bodies of the member countries before it can become operative. It is contemplated that ratification by the respective national legislatures be completed by January 1961. Under the terms of the Charter, one half of the paid-in capital subscribed by each member country (the equivalent of $1 million dollars) shall be payable within sixty days from the date this Agreement enters into force. This would indicate that the Bank would begin operations no later than April 1961.

United States Government technicians also discussed the draft press statement (Tab F)⁸ proposal to be issued when the determination recommended herein is approved.

Attached is a historical discussion of the actions taken which led to the formation of the Control American common market and the Central American Bank for Economic Integration (Tab B).⁹

Recommendations:

1. That you sign the attached 1550 determination¹⁰ (Tab A).

2. That you set aside $2 million from the Contingency fund on a grant basis, upon the establishment of the Bank.

Approved____________________¹¹

Disapproved__________________

3. That in accordance with the provisions of Section 202(c) of the Mutual Security Act and pursuant to the authority which has been delegated to you by Executive Orders Nos. 10575¹² and 10610¹³ and Department Delegation of Authority No. 85,¹⁴ you confirm that you have determined that it is in the national interest for DLF to use the funds proposed to be lent by it to the Central American Bank for Economic Integration pursuant to multilateral plans being developed for the financing of that institution.

Approved_______________¹⁵

Disapproved_____________

1. Source: Department of State, ARA/OAP Files, Lot 64 D 16, “Economic-Central American Integration: El Salvador, 1960.” Confidential. Drafted by Carwell on October 11, 12 and 17; concurred in by E, U/MSC, ICA, DLF, and Treasury.
2. Section 202(c) of the Mutual Security Act of 1960 (Public Law 36–472), approved May 14, 1960, required a Presidential determination to permit the DLF to allocate funds in excess of $50,000 for use in any single country. For text of the Act, see 74 State 134.
3. The attachment designated Tab C is not printed here. For text of the Treaty of Economic Association (with Annexes), signed by El Salvador, Honduras, and Guatemala at Guatemala City, February 6, and entered into force, April 27, 1960, see United Nations Treaty Series (UNTS), vol. 383, p. 3. The Embassy in San Salvador transmitted an extensive analysis of the treaty’s provisions to the Department of State in dispatch 337, February 19, 1960, not printed. (371.42/2–1960)
4. For the memorandum of conversation containing Under Secretary Dillon’s statements, dated September 12, see Document ETA–51.
5. Not printed here.
6. Not printed.
7. Not printed. NSC Action 1550, as approved by the President on May 8, 1956, established a procedure for making commitments to foreign governments on behalf of the United States, subject to the availability of funds. It stipulated that no promises or commitments involving future performance or expenditures of U.S. funds for foreign assistance should be made or implied, except upon specific determination by the Executive Branch covering the following four points: 1) the commitment was in accord with approved policy, 2) the funds had been approved by Congress or there was an Executive decision to request additional appropriations, 3) a judgment had been made indicating that the funds would be used effectively, and 4) the probable time span during which the assistance might have to be granted had been determined. (S/S–NSC (Miscellaneous) Files, Lot 66 D 95, Records of Action)
8. Not printed here. The referenced press release was issued as a joint statement by the United States, Guatemala, El Salvador, Honduras, and Nicaragua on November 3; for text, see Department of State Bulletin, November 21, 1960, pp. 782–783.
9. Not printed.
10. Not printed. The required 1550 determination regarding the U.S. commitment of funds to the Central American Bank for Economic Integration (CABEI), was signed by Dillon on October 20 and Stans on October 31, 1960. The signed copy is filed separately under decimal number 813.14/10–3160.
11. Dillon initialed approval on October 20, 1960.
12. Executive Order 10575, November 6, 1954, concerns the administration of the mutual security program; for text, see 19 Federal Register 7249.
13. Executive Order 10610, May 9, 1955, contains provisions abolishing the Foreign Operations Administration and transferring many of its functions to the new International Cooperation Administration; for text, see 20 Federal Register 3179.
14. The referenced Delegation of Authority, dated June 30, 1955, implements Executive Order 10610; for text, see 20 Federal Register 4825.
15. Dillon initialed approval on October 20, 1960.