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

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

Washington, March 12, 1958

SUBJECT

• Uruguay; Proposed Approach to Economic Cooperation.

It is paradoxical but true that with no country in the Hemisphere do we have more difficulty in our relations than with Uruguay – traditionally the most stable and democratically-oriented nation in Latin America. For a variety of reasons, detailed below, the adverse drift in our relations in the past few years has now reached a critical stage, and the time has come when Uruguay, politically in a state of near-paralysis (Tab A)², and economically in a state of increasing deterioration (Tab B)³, needs help from us. Help, which can most fruitfully be accorded in the economic sphere, will have a resultingly beneficent effort in the political sphere. If, on the other hand, no tangible form of assistance is forthcoming, we can look forward with assurance to worsened economic conditions and correspondingly more difficult political relations. Already the Uruguayan Government – tolerant of native Communism to the point where infiltration is a serious problem – is looking to the Soviet bloc for markets, and no one can say with certainty that, in the event of further economic deterioration, Uruguay could withstand more serious economic and financial penetration. The purpose of this paper is to set forth some of our salient problems in connection with Uruguay and to suggest certain steps which I believe must be taken.

Among these problems the following specific irritants have rendered our relations most difficult.

Our countervailing duty on Uruguayan wool tops, imposed in 1953, when it was determined that Uruguayan exchange afforded a subsidy to tops exporters, has still to be removed, not necessarily because the subsidy still exists, but because the Uruguayans have failed to maintain a relatively stationary set of rates under which they could establish statistically that the duty is no longer justified.

Another source of irritation to Uruguay has been our P.L. 480 Program, which, whether in actual practice it has harmed Uruguay’s experts or not, has provided a convenient whipping boy. Uruguayan leaders have thus been reluctant to accept a program for their country, but in the past year somewhat hesitantly sought Congressional authority to enter an agreement. The bill remains in Congress, with prospects for immediate passage poor.

What the Uruguayan economy clearly needs is a series of domestic reforms coupled with a regime of austerity internationally, the whole to be accompanied by a stabilization program. Recognizing the economic need for these steps, but unwilling to face the political price, Uruguayan officials have several times expressed their guarded desire for a sizable United States loan, and have not hidden their pique that one has somehow not been forthcoming. They have never, however, defined their desires in terms of specific projects. The fact that Uruguay has been unable to unwilling to complete its membership in the IMF, and that, even if it did, Congressional ratification of a Government-to-Government loan would be most difficult to obtain, seem insufficient to relieve us, in some Uruguayan eyes, of our imagined responsibility in this field.

Uruguayans have also been critical of our failure to implement three tariff concessions (canned meat, pickled meat, and meat extract) negotiated under GATT in 1949. While Uruguay delayed several years in ratifying these negotiations, and while Uruguay has subsequently violated some of its own commitments, the fact nevertheless remains that Uruguayans believe that we have legal and moral obligations either to proclaim the items or to proceed to re-negotiation.

To counteract this unhappy combination of circumstances, ARA has recently been holding discussions with Uruguayan Ambassador Lacarte with the object of exploring what could be done to increase economic cooperation between the two countries. The Ambassador has followed up these talks with full discussions of potential assistance at the Eximbank, the IBRD, the DLF, and ICA. He now has an excellent idea of just what, from the point of view not only of legal restrictions but also of policy, these institutions can and cannot do in relation to the present Uruguayan situation. This he is reporting to his Government. Equally important, perhaps, will be his report to the effect that not only the Department but also the other organizations involved are desirous of helping Uruguay at this time in those fields in which help is possible. This impression I should hope to have reinforced in Montevideo upon the forthcoming arrival of newly-appointed Ambassador Woodward.

Having gone this far, then, and having for the first time in recent years arrived at a point where we can actually come to grips with the Uruguayans over their problems, I believe it to be of the utmost importance that we be in a position to move ahead on one or more specific projects, as noted below, upon receiving some evidence of receptivity from the Uruguayan Government.

Wool Tops.

When the Uruguayan Embassy presents its figures justifying statistically the removal of the countervailing duty, and when it appears that the Uruguayan exchange is reasonably stable, I would propose preliminary talks between officers of AFA and appropriate Treasury officials. These would pave the way for me to approach Treasury on a higher level to emphasize the utmost importance we attach to the duty’s removal, not only on economic grounds, but as a major factor in the totality of our relations. I would hope for your approval and support in this approach.

P.L. 480 Program.

A P.L. 480 Program with Uruguay would have the doubly beneficial effect of bolstering the Uruguayan economy and dampening the ardor with which the Uruguayans are accustomed to attack our surplus disposal program. Given the slowness with which the Uruguayan Government moves, however, it may be necessary to do some actual encouraging to move the required legislation through the Uruguayan Congress. If such an effort is successful, I would hope that [illegible in the original] would support my request for a prompt and ample program in Uruguay.

Eximbank Credits.

In his conversations with Mr. Waugh, Ambassador Lacarte was given some reason to believe that the Bank would look sympathetically upon an arrangement whereby the Bank would announce a line of credit, to be used for exporter credits, with a specific ceiling and for specified purposes. The Ambassador has reported this to his Government, and ARA has alerted the Bank to this, with the request that it be prepared to consider a scheme of this nature. The Bank is disturbed at the present size of Uruguay’s commercial debt, but it is probable that this can be cut sharply when the present Uruguayan wool clip moves to market. If, as seems likely, the Uruguayans follow up the line of credit idea, I should appreciate your support in a recommendation to the Bank that it look expeditiously and with favor on the plan.

GATT Meat Items.

Our failure to put into effect the concessions granted Uruguay during the 1949 GATT negotiations is clearly a breach of faith. Whether or not the Department will be able to overcome the opposition of the Department of Agriculture to honoring our commitment I do not know, but I believe we are morally obligated to try. I am, therefore, preparing a letter for your signature to the appropriate official of Agriculture which will set forth our case as forcefully as possible.

D.L.F.

Ambassador Lacarte has talked informally at the D.L.F. about two possible projects, one to expand the port of Montevideo and one to drain a section of coastal swamps. Technicians of the IBRD and the ICA, who are familiar with these projects, feel that these projects are not of first priority. The IBRD, however, is preparing to move ahead with a loan of $8–10 million for livestock and pasturage improvement, and Bank officers have indicated informally to ARA that, since the Bank loan would be largely for imported equipment, it might be possible for the D.L.F. to participate in the operation by making a loan to cover local currency costs. In the negotiations for this loan it was contemplated that the Government of Uruguay would meet the local currency costs of this project, and at the moment it is not established that the Government itself cannot do so. We are continuing to look into this, and if it appears to be a practical possibility I would appreciate your support of it in the D.L.F.

1. Source: Department of State, Rubottom Files, Lot 60 D 553, “Uruguay 1958.” Confidential. Drafted by Livingston S. Watrous, Officer in Charge of River [illegible in the original] Affairs in the Office of South American Affairs, and concurred in by Alexander M. [illegible in the original], Officer in Charge of Economic Development in the Office of Inter-American Regional Economic Affairs. The source text is an unsigned carbon copy.
2. Not printed.
3. Not printed.