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

HA–10. Draft Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State for Economic Affairs (Dillon)¹

Washington, February 2, 1959

SUBJECT

• Request for Grant Assistance for Haiti from President’s Contingency Funds

Recommendation

Owing to the failure of the coffee crop and declining coffee prices, Haiti has exhausted its U.S. dollar reserves and is running a very substantial budgetary deficit despite severe reductions in fiscal expenditure. Economic paralysis and social and political chaos are likely to result unless Haiti immediately obtains financial assistance from abroad. In view of this temporary situation which is important to the security of the U.S., I recommend:

1) The allocation and commitment as grant aid of $5.5 million from the FY 1959 funds available under the President’s Contingency Fund under Chapter III of the Mutual Security Act of 1954,² as amended; or

2) The allocation and commitment as grant aid of $4 million from the FY 1959 funds available under the President’s Contingency Fund and the allocation of $1.5 million from Special Assistance funds to be available for FY 1960 of the $4.5 million being requested for Haiti.

In view of the extreme urgency of the case, the possibility that Congress may delay in voting the FY 1960 Mutual Security Program appropriations, and the probability that all the $4.5 million of Special Assistance will be requested in FY 1960, it is believed that the first recommendation should be followed.

Discussion

Haiti has the lowest per capita income and the heaviest population density in Latin America. The margin between subsistence and hunger is not very great. Haiti does not produce enough food for its population and meets the gap in its requirements through imports. Since 1955 Haiti has been receiving grant assistance under the Mutual Security Program. In FY 1958 Special Assistance of $2 million was granted and for the current fiscal year an equal amount is programmed of which $500,000 has already been deposited with the Haitian National Bank. U.S. Special Assistance has been used to give balance of payments support in order to assure an adequate flow of essential imports to the Haitian economy.

With the fall of General Magloire in December 1956 and the resultant political disorder which saw six governments in one year, there was an intensification of capital flight and economic uncertainty. To the above problems, there was added an abnormally low coffee crop for the year of October 1956–September 1957. As a consequence U.S. dollar reserves were virtually depleted and a stabilization program was arranged under which the IMF maintains a resident representative in Port-au-Prince. Since 1957 Haiti has drawn $3.5 million from the IMF of a quota of $7.5 million none of which has yet been repurchased.

In FY 1957–58 there was a slight improvement in the Haitian economic situation as a result of an excellent coffee crop and a decrease in political instability under the Duvalier Government which was elected in September 1957. Dollar reserves, however, failed to increase to former levels and by the beginning of the current fiscal year in October were only about $3 million compared with an average of over $9 million at the same date over the period 1950 through 1955.

Thus Haiti was in a very vulnerable position when the present coffee crop in 1958–59 fell to less than 50 per cent of last year’s as a result of adverse climatic conditions in addition to the crop cycle in which small crops normally follow large crops. The decline in coffee production from about 600,000 bags to between 250,000 and 300,000 bags was made even more disastrous by the 20 per cent decline in international coffee prices between the crop years. For Haiti, which normally relies on coffee for 70 per cent of its export earnings, the consequences were critical. In effect a country with a national income of only slightly above $250 million for 4 million people was faced with a loss of almost $20 million of that income. This would signify a drop in the standard of living by 8 per cent in one year. Moreover, the Government’s budget, which ordinarily obtains about 25 per cent of its revenues directly from coffee export and other taxes, immediately ran heavy deficits which violated the terms of Haiti’s Standby Agreement with the IMF and so made Haiti ineligible to make any further use of IMF resources.

In January the Government revised its budget and reduced the anticipated expenditure level by about 18 per cent for the reminder of the fiscal year by cutting salaries by 10 to 20 per cent, by curtailing investment projects and operational costs, and by reductions in defense expenditure. Even then expenditures are expected to exceed revenue by about $6 million and there appears very little chance that this deficit can be reduced. The Government has no financial resources at its disposal. So far this fiscal year it has borrowed over $2 million from the National Bank, which is already heavily loaded with Government debt, and further loans from the Bank will only aggravate the crucial dollar payments problem by an inflationary expansion of import demand. As Haiti is one of the few countries with a freely convertible currency and since the foreign sector is relatively large, it is estimated that any given expansion of credit usually creates a proportional 25 per cent demand for foreign exchange. To solve that budgetary problem by recourse to the National Bank, therefore, is not feasible in view of the inadequate level of dollar reserves. In addition, IMF resources would continue to be unavailable to Haiti if there was resort to deficit financing.

The balance of payments situation is desperate. At the present time Haiti has reserve of less than $1 million, slightly more than one week’s imports. With the failure of the coffee crop, the usual seasonal increase in reserves is not taking place and there is actually a continued drain. Only one week ago, the ICA had to disburse $500,000 of the $2 million available from FY 59 Special Assistance funds to assure convertibility of the gourde, the continued flow of essential imports, and the payment of international obligations. It is estimated that Haiti will require $1 million monthly or a total of $8 million of external financial assistance from February through September 1959 to maintain international solvency and to import foodstuffs, petroleum, medicines, machinery, and other essentials. Part of this $8 million requirement can be met from the $1.5 million of remaining Special Assistance funds from this fiscal year. It is hoped that $1 million can come from the IMF under the terms of a revised standby agreement which recognizes the changed situation because of the small coffee crop. The IMF money, however, will most probably not be available unless Haiti meets the internal financial criterion of a balanced budget. There remains $5.5 million, assuming the utilization of the IMF million, that Haiti must obtain if we are not to have the imposition of exchange controls and devaluation and resultant economic, political and social chaos as the import flow is sharply reduced. In the face of such a critical situation, which I believe to be a temporary emergency affecting U.S. interests and security, it is recommended that immediate action be taken to assure Haiti a minimum essential level of imports to September 30, 1959 by either of the following measures:

1) The allocation and commitment as grant aid of $5.5 million from the FY 59 funds available under the President’s Contingency Fund under Chapter III of the Mutual Security Act of 1954, as amended, or

2) The allocation and commitment as grant aid of $4 million from the FY 59 funds available under the President’s Contingency Fund and the allocation of $1.5 million from Special Assistance funds to be available for FY 60 of the $4.5 million being requested for Haiti.

In view of the extreme urgency of the case, the possibility that Congress may delay in voting the FY 60 Mutual Security Program appropriations, and the probability that all the $4.5 million of Special Assistance will be required in FY 60, it is believed that the first recommendation should be followed.

In closing I would like to point out some political consequence of a collapse in Haiti. This country is the only Negro republic in Latin America. The rising nationalities of Africa are well aware of the close relationship which has existed between Haiti and the U.S. Failure on our part to give effective assistance at this critical time is likely to be regarded most unfavorably among those countries in Africa which are now independent and those which will soon become so. The maintenance of political stability in the Caribbean is important to our security, and we should try to alleviate the causes of unrest in that area. Since the Duvalier Government was duly elected by Haitians in elections as free as could be expected by Haitian standards and President Duvalier has taken steps to reconcile the political opposition, including a promise to give up his emergency decree powers, our financial assistance would also appear to be working in favor of a greater degree of responsible government in Haiti. We expect to reach agreement with the Haitian Government on procedures which will assure that U.S. financial aid will be utilized efficiently and effectively.³

1. Source: Department of State, Rubottom Files, Lot 61 D 279, “Haiti 1959.” Confidential. Drafted by Post. The source text is an uninitialed carbon copy that was not sent. It lists the concurrences of Assistant Security of State for Economic Affairs Thomas Mann, Special Assistant for Mutual Security Coordination John O. Bell, and Regional Director of the International Cooperation Administration’s Office of Latin American Operations Rollin S. Atwood. According to a memorandum from Snow to Dillon, undated but apparently drafted CIRCA February 12, the International Cooperation Administration had refused to concur in Rubottom’s memorandum of February 2 and had indicated instead that a “substantial revision” was needed. An uninitialed carbon copy of the ICA memorandum is attached to the source text.
2. For the text see 68 Stat. 832.
3. On February 13, Atwood submitted to Acting ICA Director Leonard J. Saccio a separate memorandum addressed to Under Secretary of State for Economic Affairs Douglas Dillon, that recommended, among other points, that up to $6,000,000 of special assistance funds be made available to the Haitian Government as emergency foreign exchange and budget assistance. Atwood’s memorandum emphasized that the Haitian Government had “proved itself unable or unwilling to resolve its own administrative and budgetary problems” and that as prerequisite to receiving the special assistance, Haiti must accept a system of strict controls and supervision. On February 17, Saccio forwarded Atwood’s memorandum to Under Secretary Dillon with a covering memorandum indicating approval of Atwood’s memorandum with the provision that the proposed controls described in the memorandum be amended to obtain the approval of Haitian Finance Minister André Theard who was then in Washington. (Carbon copies of Atwood’s memorandum of February 13 and Saccio’s covering memorandum of February 17 are in ARA Special Assistant’s Files, Lot 60 D 371, “Haiti”) The Department of State’s Bureau of Inert-American Affairs, in a memorandum from Snow to Dillon of February 18, agreed to the $6,000,000 level of financial assistance but objected to ICA’s characterization of Haiti’s inability to manage its own affairs and found several of ICA’s proposed controls an undue interference in internal Haitian affairs. (ARA Special Assistant’s Files, Lot 60 D 371, “Haiti”) On February 24, Finance Minister Theard and ICA Acting Director Saccio exchanged letters providing for a United States pledge of $6,000,000 in special assistance funds and a Haitian agreement to a revised list of controls and supervision. The Department of State transmitted the text of the notes to Embassy Port-au-Prince in telegram 309 on February 21. (738.5–MSP/2–2159)
   For the text of the announcement contained in press release 138 of February 24, see the Department of State Bulletin, March 16, 1959, p. 380.