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

PA–8. Despatch from the Ambassador in Paraguay (Ploeser) to the Department of State¹

No. 100.

Asunción, September 9, 1959

SUBJECT

• Ambassador’s Report on the Objectives, Progress and Projections of the American Mission in Paraguay²

CONTENTS

• 1. Objectives in Paraguay
• 2. Economic
• 3. Political
• 4. United States Information Service
• 5. Army Attaché
• 6. United States Air Force Mission
• 7. United States Army Mission

1. Objectives in Paraguay

The objectives of the United States Embassy, as pursued during the past two years in Paraguay, have been:

• to stabilize the economy and to lay a sound base for development;
• to establish a mutuality of understanding and confidence so that economic assistance could be programmed with the common purpose of supporting both U.S. policy and Paraguay’s national self-interest;
• to educate the political thinking of the Government to cooperate with United States objectives in regional and world organizations;
• to nurture in the people of Paraguay an attitude of friendship and respect for the people of the United States and for our Government;
• to avoid all appearances of condoning the dictatorship of General Alfredo Stroessner and letting it be clearly known that similar cooperation would be extended to any other non-Communist regime which might come to power in Paraguay; and
• to initiate and foster steps toward democracy in a way that would give no honest pretext for charges of interference.

Measure of Achievement

We believe that:

• the measures taken to bring about monetary and fiscal stability have been uniquely successful;
• technical assistance and loan assistance have been applied in a manner that has supported U.S. policy objectives and has been in accord with a reasoned appraisal of Paraguay’s national self-interest;
• the political thinking of the Government of Paraguay has been educated to express itself in undeviating accord with that of the United States in all regional and international assemblies;
• the people of Paraguay do radiate and demonstrate a genuine friendliness and respect for North Americans, and being genuine, it has made our tasks here easier and more rewarding;
• not only have we avoided the pretensions of condoning dictatorship, but on the contrary, we have openly and avowedly advocated the immediate necessity to initiate democratic processes in Paraguay; but
• the pressures applied to the present government to move it toward greater political liberalism have not been measurably fruitful.

2. Economic

Program Appraisal—In an effort to evaluate the Country Program for the past two years, we would say:

1. Country Team

All components have been brought together into a harmonious and “hard-hitting” unit. Early in the period, there were discernible sectional weaknesses in the Air Force Mission and in the United States Operations Mission. These debilities were promptly eliminated. For the past year there has not only been the closest cooperation based upon a mutuality of respect, but complete and effective support has been given to all sections of the Embassy. Today, the Country Team is an operational fact rather than only a semantic concept.

2. The Stabilization Program

In December of 1957, the Economic Section of the U.S. Embassy cast a statement of Paraguay’s external indebtedness and her annual service requirements, and then carefully estimated Paraguay’s ability to meet those requirements together with her further absorptive capacity for modest and feasible development. (See Exhibit I—appended³.)

It is our belief that this was the first time any of the lending agencies of the United States, or the International Bank, or the IMF, had a factual photograph of Paraguay’s external debt obligations or of her potential ability to service them. It is certain that it came as a surprise to the Government of Paraguay.

Based on that study, the Team was able to recommend credits for selected public works and for private enterprise. The former were directed toward those that would be essential to provide a basis for private investment. Every recommendation was predicated upon the conviction that monetary and fiscal stability had to be reinforced, that inflationary pressures had to be resisted, and that a sound foundation for development had to be laid down.

This Embassy has [text not declassified] supported the contract for continuing monetary stability between the GOP and the IMF.⁴ Our dealings with the Government have been a synthesis of respect and firmness, and we believe that it is not egotistical to suggest that this relationship has been one of the fundamental reasons for the unique success of the stabilization program in Paraguay since its inception in late 1957.

At the risk of interrupting the narrative here, we want to make a point of the fact that the Resident Representative of the IMF in Paraguay, Kemal Kurdas, has cooperated with the Embassy so effectively and continuously [text not declassified]

What has been said of Kemal Kurdas can also be said of Ing. Gustavo Storm, until a few days ago, President of the Central Bank. Ing. Storm has been a strong rampart of support for the stabilization program. His policies were formed in constant consultation with the Embassy, with the USOM/P and with the IMF.

It can be added that there has been an atmosphere of complete integrity maintained between the Ambassador and President Alfredo Stroessner. It has been this pattern of honest and open dealing with the President that has made it possible for the Ambassador to obtain his cooperation with the stabilization program in the face of violent attacks—and there have been many violent attacks—by certain members of the Paraguayan cabinet.

The credits extended in the public sector, e. g., the $2,500,000 for the Brasil Road in 1958 and the $1,000,000 for telecommunications in 1959,⁵ were timed so as to influence the renewal of the stabilization agreements of those years.

[text not declassified]

This avoided a crisis at the time the stabilization agreement was up for renewal and this action appears to have successfully forestalled the devious efforts of the communist organization to unleash a general strike. The Embassy received praise from the IMF representatives, praise to which the Embassy is probably not entitled because we did no more than fulfill our clear responsibilities.

Summarizing, we would conclude that the Embassy policy has not been one of unreasoned liberality with loans to the Paraguayan Government. Every loan has been timed and sequenced to have the optimum effect politically, on fiscal stability, and to prepare the way for economic development. In this, our liaison has always been tight with the International Bank and its special mission of 1956, and with all other lending agencies.

[text not declassified]

3. The United States Operations Mission to Paraguay

In a manner that would avoid the possibility of creating an impression that the Embassy was trying to direct its affairs, the Embassy has made an evaluation of the past and present programs of the USOM/P. In the process of so doing, the Embassy has received the fullest cooperation of USOM/P’s Director and Assistant Director.

[text not declassified]

Under the firm belief that the United States cannot forever pamper so many nations of the world, or subsidize their legitimate budgetary charges, we have established termination dates for USOM/P’s services and projects. We are convinced that if we are to attain the objectives of ICA, projects must have final date goals as well as goals of accomplishment. The built-in habit of U.S. bureaucracy—as is true of all bureaucracies—to perpetuate itself is an understandable, a human, but a vicious tendency. We can understand why each servicio and each special project has a hundred excuses for its own expansion and perpetuation. At the same time, I want to put it clearly on the record that the Director of USOM/P and his Assistant Director are cognizant of this tendency and are fully with me in putting this practice to the guillotine.

Appended as Exhibit II⁶ is a list of the projects that are in being, as well as those which are contemplated in the Paraguayan technical aid program, and we have indicated the projected dates of termination.

It is the firm recommendation of the Embassy, concurred in by USOM/P’s Office of the Director, that these dates be strictly observed.

4. Private Enterprise

The Embassy has placed great emphasis on private enterprise, and as a matter of policy and basic experience, we believe that representative freedom can never be enjoyed unless enterprise is free.

[text not declassified]

5. American Business Group

The Ambassador believes that a U.S. Embassy represents not alone the Government of the U.S., but also the people and that it is the responsibility of the Embassy to have helpful contact with Americans abroad. It has been his policy to receive visiting Americans and to emphasize to those having business in Paraguay that it is the duty and pleasure of the American Mission to serve them. It is suggested that we hope their interest is to develop, not to exploit, and to make friends for the U.S. business generally.

Twenty-two months ago the Ambassador organized on an invitation basis occasional group meetings of Americans doing business in Paraguay. These meetings were held approximately once monthly in the office of the Ambassador. The current economic conditions were discussed as well as the current American program and policy. On September 4, 1959, the group gave the Ambassador a farewell asado and a silver tray as a memento of appreciation. The group has an excellent spirit. To qualify for attendance the guest must be a citizen of the United States. It has been mutually beneficial. In September 1956, while the State Department inspectors were working in Paraguay, the Ambassador held a meeting so as to permit them to attend and observe for themselves. This practice should be continued.

6. Private Development Bank⁷

Second only to monetary stability, it has been recognized that the most important economic fact in Paraguay is the unavailability of equity and loan capital for private enterprise. As is true of the Latin American complex of nations, Paraguay has a few people of sizeable wealth and many who live just above the subsistence margin. A history of revolutions and inflations has always carried in its train a sequence of uneconomic investment, hoarding and capital flight.

In May 1956, the U.S. Ambassador proposed to a representative group of businessmen that a privately-owned development bank be established. The idea was enthusiastically received. But being Paraguayans, they conceived of a bank in which Paraguayans would not have to invest any money—it would be totally financed by capital pledged from the United States and/or international sources.

We have changed that idea!

Through several open meetings and through the establishment of a voluntary businessmen’s committee, the Ambassador made it clear that help would be given only provided Paraguayans put up a substantial equity investment. It took more than one year to effect an organization, to draw up a charter which was approved by the Central Bank, and to obtain a pledge of equity capital.

The draft charter has been sent to the World Bank (IBRD) for general comments, and recommendations for the selection of a foreign manager. It is before the DLF for the same purpose and, additionally, to obtain DLF funds to augment the equity capital pledged by the Paraguayans.

The response of World Bank has been slow. In the case of the DLF, the Embassy has had a written commitment for credits at the ratio of 2 to 1 of loans to paid-in capital, with the added expression that this ratio might be expanded once the bank has demonstrated a competent and creditable use of the original loan.

It is the strong and immediate hope of the Embassy that the DLF move quickly to assist Paraguay in the selection of a foreign manager and that it will play a maximum and an effective part in the establishment of this bank without waiting further upon the World Bank. While the Embassy has been insistent upon a foreign manager for the bank, it now makes one Paraguayan exception, which has been approved by the DLF: Gustavo Storm, former president of the Central Bank.

It is the Embassy’s conviction that this private enterprise development bank for Paraguay is of the highest priority; it is an essential and basic step to activate the productive forces of the private sector of this economy. Moreover, it is a basic step to support a continuance of stabilization program.

7. Projection

Based on the assumption it is unlikely that there will be a large inflow of private capital during the next two years, and that a steady and progressive improvement in Paraguay’s economic position will continue to be a difficult task, we believe that our assistance program must have continuity. The fundamental reason for this is that we must give Paraguayan entrepreneurs the assurance that they can count on continued development loan assistance so that planning can take place in a way that will make possible the optimum utilization of manpower and financial resources.

When it comes to a projection for the next two years, we offer it with a humility that rests upon an awareness that this forecast must ride in the teeth of the hurricane of change that is sweeping over the planet. Nevertheless, our recommendations for loans over the next two years would follow roughly in this sequence and in these priorities:

a. To the Private Sector

(1) That every effort be made to assist in the establishment of a local private enterprise development bank under the direction and control of competent and experienced foreign technicians. This bank could accommodate intermediate—and long-term development loans of a modest size, and it could serve as a vehicle through which future loans could be channeled and most effectively applied in Paraguay;

(2) Premised upon the elimination of the existing restrictive controls in cattle raising and meat processing, that a line of credit be extended to the larger cattle raisers whose needs would outrun the near-term loan capabilities of a development bank;

(3) That an objective but generous attitude be applied to loan applications to assist in feasible industrialization of forest products, milk processing, fruit packing, sugar-mill renovation, cement plant and fiber development and utilization, and electric power facilities;

(4) In the event the Government’s electric generation and distribution facility (Administración Nacional de Electricidad) is sold to an outside capable and experienced utility operator, that a loan for its renovation and expansion be seriously considered, if needed.

b. To the Public Sector

Géneral:

(1) A basic need of any economy is transportation and communications. In this we must, of course, deal directly with the government. Under the present telecommunications program of Paraguay, completion will give the adequate communications facilities for the foreseeable future, but Paraguay needs roads and more roads to open up the country. This need, which is natural, is made all the more acute with the breakdown of the present antiquated railway system. In this regard we have been negotiating an engineering unit arrangement between the Paraguayan government, ICA and the United States Army, which will be most helpful but not enough. Paraguay will need loans for new roads and for the improvement of old roads.

(2) The airport, because of its 9,000 ft. runway, is a suitable “Jet” station and Asunción is coming in for more and more air travel. Within two years a new hotel in down-town Asunción should be completed. Then Asunción will definitely become a tourist attraction as the original “colonial city” (still colonial) and a most suitable location from which to visit Falls Iguazú.

Apron and parking facilities at the airport should be given attention.

(3) Loans to the public sector should be extended in harmony with the general philosophy, conditions and cautions set out in the Report of the Survey Team of the IBRD dated March 17, 1959,⁸ which lays particular stress on the need for increased agricultural production and reorganization of the present agricultural credit facilities; and

(4) In harmony with that Report, that the loans be those needed for transportation—especially feeder roads—and communications facilities; and

(5) If a foreign and experienced private utility enterprise cannot be found to take over the Administración National de Electricidad (ANDE) on reasonable terms, and a public loan becomes a necessary final resort, then such a loan be considered, but it should be granted only on the condition that foreign technical and administrative management be clearly stipulated in said loan. Within ANDE there has been much waste and payroll padding through political patronage and the Government can, by cleaning its own house here and in other places, make room for needed improvements through its own revenues.

8. Conclusion

All loans that may be hereinafter extended should be constructed with a knowledge of Paraguay’s annual debt load and service requirements. A reference to Exhibit I indicates that Paraguay has additional debt servicing capabilities from, and including, 1962 and thereafter. The current Central Bank reserve position and the improvement that has occurred in the Bank’s liquidity during 1959 give some basis for confidence that Paraguay can pay any loans which may be granted in the categories listed above—as long as the service payments are extensively limited to 1962 and thereafter.

Finally, it is the considered opinion of this Embassy that, as long as the Government of Paraguay rigidly; adheres to the stabilization program, she should be generausly treated—in accordance with her ability to pay—in the private sector, and that further loans in the public sector should be in accord with the thinking expressed above.

Appended as Exhibit I is a schedule of Paraguay’s external debt and annual service requirements as they exist at the time of this Report.

Appended as Exhibit II is a list of projects of USOM/P and their scheduled termination dates.

Appended as Exhibit III is a schedule of loans made to Paraguay during the past two years by the DLF, the Ex-Im Bank and the World Bank.⁹

POLITICAL

Embassy’s Past Action

Paraguay has a long history of political instability and a “state of siege” has existed almost continually since 1940. President Stroessner came to power in 1954 by a coup and was elected in a plebiscite and was re-elected without opposition in 1958, for a five-year term to expire on August 15, 1963.

The GOP’s political weaknesses and instability in the inter-American system are of vital concern. All U.S. economic assistance and counseling has the basic objective of promoting its economic development and thereby political stability which will provide a favorable climate for the establishment of a more democratic government so that it may be a greater force for strength in the Western hemisphere.

Stroessner, a so-called “strong man” governing under the 1940 constitution has indicated that he would like to move towards democracy. The Ambassador in various speeches has encouraged Paraguay to take steps towards democratic reforms particularly in his April 13, 1959 speech in which he forcefully stated the U.S. position concerning democracy in the Western hemisphere and made clear that the U.S. position towards Paraguay is not in support of dictatorship as against democracy. In many private conversations the Ambassador has urged Stroessner to move toward democracy and has even made suggestions as to laws for free elections, free press, etc. In early 1958 President Stroessner promised Municipal elections and allowed the two opposition parties, Liberal and Febrerista, to hold conventions. Due to a political disturbance, these were nullified. Later, on May 29, 1959, the uni-cameral Congress was dissolved due to a serious open split in the Colorado Party. The Colorado Party and the Army have been the base of Stroessner’s political strength. However, Stroessner’s waxing and waning of democratic moves now include the convocation of congressional elections in February 1960 in which the two opposition parties may participate.

[text not declassified] The Embassy has concentrated on “the people of the U.S. to the people of Paraguay” theme in order not to appear that the U.S. is supporting “dictatorship” in Paraguay as against democracy and also to continue to lay a basis of friendship and cooperation between the two peoples in case of future changes in governments which may occur. In this regard, Embassy officials have kept contact not only with the Colorado Party and government officials but also with opposition party leaders whose members have been received and welcomed in the Embassy.

The Embassy has continued to encourage free labor movement in labor circles in its personal contacts [text not declassified]

The Communist Party (PCP) is small, disorganized, and illegal. Its principal threat lies in its penetrations into the various political parties, including the ruling Colorado Party, through which it contributes to political instability. The PCP has been active in the student and labor movements but has not gained a dominant position. Most of the PCP leadership is presently in exile where they play an important role in the subversive planning of the political exiles.

The Embassy’s plan of action for the present and future is to continue to encourage the GOP to take steps towards democratic reforms, short of interference. [text not declassified] Possibly one might hope that the dissident clique of the Colorado Party, which has made its break based upon an insistence of democracy within the government, might be the most liberal group. This is more a political promise than a hope, based upon experience. [text not declassified] Then too, there is always the private enterprise motive in South American governments, which is certainly not absent in Paraguay. An overturn opens the door for two possibilities which are harmful to U.S. purposes:

1. Communist infiltration;

2. A blow to economic stability.

Because of the fact that the pledged stockholders of the Paraguayan Development Bank project are of all political shades, it is believed that the establishment of this bank will lend a measure of political stability guarding the economy.

Embassy’s Plan of Action for the Present and Future

1. Continue to encourage the GOP to take steps towards democratic reforms, short of interference.

2. Continue contacts with dissident political groups.

3. Continue to encourage the GOP’s support in the United Nations Organization and the Organization of American States and elsewhere.

4. Continue to encourage free labor movement in its contacts.

5. On every possible occasion reiterate our anti-communist position and our support to the free world in public statement as well as private. This should be the political theme of all personnel in the American Embassy.

6. Continue to encourage the GOP to improve its control of Communism.

7. Continue to expose international communist penetration into Latin America.

4. United States Information Service

Accomplishments and Goals

The American School has been chartered as a bi-national institution. Kindergarden will open with 20 pupils (19 Paraguayans) September 1. In March 1960 it is hoped enrollment will be 70 Americans and 40 Paraguayans. Goal: Funds for “model” American school building.

Two American students are in National University under the Inter-American Cultural Convention. Paraguayan student will be in University of Texas in September. First time Paraguay has complied with IACC obligation.

Two American professors are in National University, one lecturing in Economics, one advising on complete administrative and curricula revision to “Americanize” higher education in Paraguay. American professor budgeted for 1960 FY to aid Engineering faculty.

On the darker side: PL–480 funds of Fullbright Commission will be spent in FY 1960; need more sales of excess agricultural products to finance long-range educational program launched in 1958–59.

Commentary

The Embassy believes that the Bi-National Center in Paraguay is very important undertaking and that every effort should be made to expand its activities and coordinate them more in the public-relations sense than in the purely academic sense, and we have really not begun to realize the full potential of this Center. Every effort will be made with the changing of the Director to set up a program which will comply with this goal.

The Embassy believes that public relations, including the facet of publicity, is a two-way street. A constant flow through the two main channels available in Paraguay’s controlled radio and controlled press of American information and propaganda has been extremely helpful here. It is in good hands, and we are enjoying good, voluminous copy. In the past two years we have also tried to pump into the U.S. press accurate information regarding Paraguay, its opportunities, and its relations with the U.S. While Paraguay is a small nation and does not deserve much space, we feel quite satisfied that it has had its amount proportionately for the first time in history. This channel should be kept open. It benefits our economic opportunities here for American enterprise and benefits Paraguay and certainly benefits relations between the two countries and U.S. objectives abroad.

[5 pages text not declassified]

Walter C. Ploeser

1. Source: Department of State, Central Files, 734.00/9–959. Confidential.
2. A handwritten marginal notation reads: “Document read by Asst. Sec. Rubottom and Amb designate Harry F. Stimpson.” Stimpson presented his credentials to the President of Paraguay on October 23, 1959.
3. Not printed.
4. On August 13, 1959, the Government of Paraguay and the International Monetary Fund entered into a $2.75 million stand-by agreement to facilitate continuation of its fiscal stabilization program. Pertinent documentation is contained in ARA/EST Files, Lot 62 D 354, “IMF,” and in Department of State decimal file 834.10. See also, International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1961 (Washington, 1961), pp. 28–32.
5. On August 3, 1959, the Development Loan Fund announced approval of a $1 million loan to the Government of Paraguay to help provide improved telephone, telegraph, and teletypewriter service between Paraguay and other countries. Documentation on the subject is located in ARA/EST Files, Lot 62 D 354, “DLF.”
6. Not printed.
7. Pertinent documentation is located in decimal files 834.10 and 834.14.
8. A summary of the report is contained in a memorandum from Carson to Rubottom, March 25, 1959, not printed; ARA/EST Files, Lot 62 D 354, “IBRD.”
9. Not printed.