GT–30. Memorandum of Conversation, by the Officer in Charge of Guatemalan Affairs (Godfrey)1
SUBJECT
- Guatemala: Visit of the Minister of Finance
PARTICIPANTS
- Manuel Bendfeldt, Minister of Finance of Guatemala
- Franciso Fernandes, Manager of the Bank of Guatemala
- Carlos Alejos, Ambassador of Guatemala
- REA – Ambassador Turkel
- OAP – Mr. Higdon
- OAP – Mr. Godfrey
The Minister of Finance explained that it had been necessary for him to call today instead of on August 22, as had been scheduled, due to the necessity of his immediate return to Guatemala. He stated that he and Mr. Fernandes had just completed negotiation of a $10 million loan from the Bank of America in association with the Chase Manhattan Bank and other unspecified banks. Terms for repayment were five years at 5 percent annual interest. The loan agreement included a provision for the deposit of certain Bank of Guatemala dollar reserves in the loaning banks on a 6-months call basis. The Minister explained that funds from this loan would be used to liquidate outstanding fiscal obligations, i.e. deuda flotante.
The Minister stated that the Guatemala Government had recently completed its plan of Economic Development for the period 1960–64.2 He promised to provide copies of this plan through the United States Embassy in Guatemala. Ambassador Turkel observed that if external financing would be sought for any part of this plan, then the loan projects should be divided into three different categories: (1) self-liquidating projects; (2) long term, non-self-liquidating (“social”) type loan projects; and (3) mixed type, which would only be partially self-liquidating. Ambassador Turkel said that we placed particular emphasis on private initiative and participation of private investment capital in plans for economic development. The Minister replied that his government agreed with this emphasis and for this reason President Ydígoras has not approved the Petem project since it provided for too much government participation and control.
[Facsimile Page 2]In reply to an inquiry by Ambassador Turkel, the Minister stated that service on the public debt now averages about 10 percent of the total annual budget. Service on the foreign debt now amounts to only a little more than $1 million annually with the major service costs going towards the internal debt. He again emphasized that the loan just concluded with the Bank of America would be used toward liquidating the floating debt of approximately Q$12 million, which included overdue salaries and other various unpaid accounts.
Ambassador Turkel inquired if the development plan included plans for housing, and observed that while such projects were commendable, all our available loan resources could easily be employed in just housing projects. Of course, this was not possible but we did look with favor on self-help housing projects. Ambassador Turkel stated that we also look favorably on projects providing agricultural credit to small farmers. He cited the examples of Costa Rica and Colombia in promoting successful agricultural credit programs. The [Typeset Page 718] Minister stated that some housing projects were a social and political necessity even though economically they did not deserve the same priority as projects designed to increase the general economic income. With regard to agricultural credit, he said the situation in Guatemala could not be compared to that of Costa Rica or Colombia, since such programs of supervised credit would likely prove too expensive to operate in Guatemala. He quoted as an example the loan program for rubber development, where money had been borrowed at 5 3/4 percent and had to be loaned at a maximum of 8 percent. The banks had shown little interest in promoting rubber development loans, since after deducting costs, the banks received only a small return of approximately ½ percent. Ambassador Turkel observed, with reference to the rubber development loan, some consideration might be given by Guatemala to renegotiating this loan on more favorable terms.
Ambassador Alejos pointed out that President Ydígoras faced special problems, both financial and fiscal, at this time and he hoped for assistance from the United States. The Ambassador stated that a primary objective was a loan for the Rio Hondo highway project but it appeared that there were still certain problems to be resolved before the loan project could receive further consideration. He pointed out that the Rio Hondo project was of much more significance than the Rio Molino highway project since, in comparison, the Rio Hondo project would give local employment on a much larger scale.
Ambassador Turkel assured the Guatemalan visitors that we were ready to give all possible help to the government of President Ydígoras. He emphasized that the Guatemalans should present well-developed projects and that the presentation should show the relation of the specific project to the overall balance of payments situation, both present and future. He also stated we are interested in the Central American plans for economic integration and are prepared to give sympathetic consideration to projects related to this plan. He said he wished to make a special point, however, that we cannot help with budget deficit financing.
The Minister thanked Ambassador Turkel for his remarks and stated that he clearly understood our inability to finance budget deficits. With regard to the current fiscal difficulties in Guatemala, the Minister stated he was particularly interested in revising the revenue code and that he hoped we would be able to [Facsimile Page 3] provide expert technical advice for such revision. While he was not interested in technical assistance with regards to fiscal administration, he indicated that he was interested in advice on administration and organization of the Ministry of Finance and Public Credit.