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

VE–12. Memorandum from the Under Secretary of State for Economic Affairs (Dillon) to the Assistant Secretary of Defense for International Security Affairs (Sprague)¹

Washington, August 4, 1958

SUBJECT

• Defense Request for Eximbank to Administer Venezuelan Military Credit

Mr. Waugh has called my attention to Mr. Shuff’s letter to him of May 29, 1958, (I–3910/8),² in which the Department of Defense requested the Eximbank to service a military credit being extended to Venezuela under section 103(c) of the Mutual Security Act.

For your information, I am enclosing a copy of a memorandum to Mr. Waugh, dated today, in which I state the view that it appears to be desirable for the Department of Defense to administer this type of transaction.³ You will recall that on a previous occasion the Eximbank handled a similar case, that of servicing an MAP loan to Peru in 1955 to cover the construction of two submarines in the U.S. under the terms of Section 505 of the Act. Section 505 at that time specifically required the involvement of the Eximbank, but its use to cover the Peruvian transaction actually led to the request for the authority the Executive branch now has by the terms of Section 103(c), under which MAP credits are almost exclusively extended and which does not require Eximbank participation.

The very nature of military credits is such that they immediately conflict with the Bank’s central purpose of encouraging and assisting in the development of national economies. For the Bank to engage, even to the limited extent of acting as agent for the Department of Defense, in the administration of military credits would tend to compromise its essential character and serve to make more difficult the Bank’s policy of not rendering loans for other than purely economic purposes. Moreover, to a greater or lesser degree, military transactions inherently carry political overtones and may even be caught up in international crises and incidents. It would be unwise to involve the Eximbank unnecessarily in a field of considerable political sensitivity.

In view of these considerations, as I have also set forth in the attached memorandum, I am inclined to conclude that it would be more desirable for the Department of Defense to administer all military credits, including the type represented by the Venezuelan transaction.

Douglas Dillon

1. Source: Department of State, Central Files, 103-XMB/6–1658. Confidential. Drafted by Athol H. Ellis of the Office of the Special Assistant for Mutual Security Coordination on July 7, and rewritten by Malcolm R. Barnebey on July 29 and 31.
2. Not found in Department of State files.
3. The referenced memorandum was not found with the source text.