PA–12. Memorandum of Conservation, Department of State1
SUBJECT
- U.S.-Paraguayan Relations
PARTICIPANTS
- Thomas C. Mann, Assistant Secretary for Inter-American Affairs
- Ambassador Harry F. Stimpson, Jr.2
- C. A. Boonstra, Director, Office of East Coast Affairs, ARA
- Charles C. Carson, O-in-C, Paraguayan Affairs, ARA/EST
- William T. Pryos, Staff Aide, ARA
Ambassador Stimpson reviewed his conversations regarding Paraguay’s political-economic situation over the past two weeks with officials of the Department and other U.S. agencies and of certain international agencies. He stated that, out of those talks and out of his experiences in Asunción during the last twelve months, he had come to the conclusion that, the troublesome stigma of dictatorship of the Stroessner government notwithstanding, the U.S. should pursue a policy of working with the regime. [text not declassified] Meanwhile, he continued, we should encourage Paraguay to move forward with the nationwide municipal council elections slated for October 16 and, subsequently, with other steps toward more representative government. We should, for example, try discreetly to foster an agreement between the GOP and the opposition—including the Liberal Party, the Febrerista Party and dissident elements of the ruling Colorrdo Party—so that the latter, with guarantees of a free press and other civil liberties, could be persuaded to take part in the next congressional and presidential elections.
[Facsimile Page 2]The Ambassador noted that, the Paraguayans have amply demonstrated their friendship for the U.S. Surely it is in our best interests to try to preserve that reservoir of good will in the area. One of our primary political objectives in Paraguay should be to make certain that it continues to cooperate with U.S. policies in the OAS and in the UK. By diplomatic efforts we should do everything possible to maintain political stability in Paraguay—and in the River Plate region generally—and help to prevent any further communist and leftist infiltrations into the country from neighboring states. Our next step, once the threat to internal security is eliminated, should be to try to convince Paraguay of the wisdom of reducing the size of its armed forces and of using its now [Typeset Page 1020] largely wasted military manpower on constructive economic projects much on road building and maintenance. With modern equipment and better training a much smaller military establishment could in ordinary circumstances fulfill Paraguay’s internal security requirements.
Paraguay is desperately in need of developmental capital for increasing its primary production and export trade; and the Ambassador suggested that action by the U.S. to assist the Paraguayan economy should be along the following broad lines:
- 1.
- Encourage the GOP to cooperate to the fullout extent with the DLF and continue with the monetary stabilization program.
- 2.
- Urge the GOP to work closely with the Inter-American Development Bank and other international agencies both for the purpose of obataing credits and for guidance into the fiscal and administration reforms needed to enhance Paraguay’s qualification for credits.
The merits of self-help should be particularly stressed in dealing with the Paraguayans.
- 3.
- Hold to a policy of not granting U.S. funds for direct budgetary
assistance, but make available for economic development substantial
amounts from the international lending agencies. The U.S. should
consider early loans for the following purposes:
- a.
- To assist in the creation of a privately-operated Paraguayan Development Bank to provide substantial medium and long-term credit for the country’s leading cattle raisers and industrialists.
- b.
- To Support the National Development Institute ([illegible in the original] to National de Fernanto) which is being set up to replace the moribund Bank of Paraguay and to provide credit mainly for the smaller farmers and business men. U.S. aid to this organization should be conditioned, however, on the realization of the GOP’s announced policy of [illegible in the original] capital inverstment (approximately $1 million) each year in the institute.
- c.
- To provide additional help in the GOP’s road construction program—preferably under a coordinated plan prepared by the IADB.
- d.
- To support the GOP in the construction of a hydroelectric project on the [illegible in the original] river system on the Brazilian border near Foz do Iguaszu. The total cost, including dam, power station and transmission lines to Asunción, could reach some $20 million. A project in Paraguay of this magnitude would have to be undertaken with the aid of several of the Washington lending agencies on a group basis. The present line of thinking is for the GOP to build and own the works but to lease it to private enterprise under a long-term management contract. The IADB should be the prime mover for this undertaking. It could be tied in readily with the IADB’s subsequent operations in Paraguay, to [Typeset Page 1021] include feeder roads off the Brazil hold and other developments aiding the exploitation of the newly-opened fertile area of eastern Paraguay.
- 4.
- Special emphasis of the ICA should be on increasing production in the fields of stockraising and agriculture, with education and health being given second and third priorities respectively. (The Ambassador noted that in the field of education he favors more scholarships for Paraguayans to study in the U. S. and financial assistance for the construction of some normal schools in the interior of the country. He also noted that he favors the proposed ICA aid to a new public health center in Asunción but not at the expense of the more important priority of increased agricultural and pastoral production.)
- 5.
- If an expanded economic aid program becomes a reality in Paraguay, [illegible in the original] activities should be closely coordinated with the aim of making an appropriate impact on the population.
The Ambassador said that in his talks with officials of the IADB he had found great sympathy for the current economic plight of Paraguay. He noted that Mr. Roger Williams, loan officer for the region, is planning a trip to Asunción about mid-November and that the Paraguayan Ambassador in Washington is returning home for consultations about the same time. He was hopeful that these consultations will result in some definite priorities and planning for Paraguay. The Ambassador said it is his impression that IADB officials are thinking of assistance to Paraguay during the first year of operations to the extent of some $5 million—with perhaps about $1 million for the National Development Institute and rest of the remainder for the hydroelectric project. It might also be necessary for the Bank to expend something on feasibility studios.
[text not declassified]
[Facsimile Page 4]The Ambassador notes that save for the continuity of regular ICA technical assistance and a small food distribution program under Title III of P.L.-480 the U.S. has not given new help to Paraguay over the past twelve months. Meanwhile, most serious deterioration of the economy had occurred. He said he felt that the time is long over due for getting U.S.-Paraguayan relationships out of the doldrums. The Ambassador reiterated that he feels very strongly we ought to proceed without delay to assist the GOP with the two banks, the hydroelectric project, further road construction and with other credits as may seem appropriate to increase national production and exports. He concluded by saying that he wished to receive guidance from the Department before returning to his post since he did not wish to be placed in the position of having definite recommendations by the Embassy along the above lines repeated in Washington on grounds of the dictorship issue.
[Typeset Page 1022]Mr. Mann said he was inclined to question the need of Paraguay, with its primitive and limited economy, for the two banking institutions. The Ambassador replied that he agrees with the findings of U. S. and international financial agencies which have [gone?] thoroughly into the problem and which believe that there is room for both. At present, he noted, credit has become practically nonexistent except on extremely short terms and high interest rates. The proponents of the private development bank represent the Paraguayan community’s most successful ranchers and business men. They are the only elements of private enterprise know-how and success in the country and they can be expected to make effective use of a bank that would be free of governmental interference and political pressures. At the same time, there is need of a state banking instrument to play the traditional role of the Bank of Paraguay for the smaller borrowers.
Having had that point clarified, Mr. Mann stated that he could see no objection to U.S. action the general lines which the Ambassador had set forth. He said that when the time comes to get down to specifics he felt confident that he would be able to support the recommendations on which the Embassy and the Office of East Coast Affairs are in mutual accord. He added that in his opinion we should not be inhibited by fear of strictures for [going?] in underdeveloped areas such as Paraguay that which we honestly think is best for all concerned. When we meet with unfavorable criticism for having tried to improve the economy of Paraguay, we will simply have to stand up to it.