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

VE–52. Letter from the Deputy Assistant Secretary of State for Inter-American Affairs (Coerr) to the Deputy Assistant Secretary of Defense for International Security Affairs (Knight)¹

Washington, December 7, 1960

Dear Mr. Knight:

As you aware the United States Government agreed by an exchange of notes signed December 8, 1956 and February 5, 1957 to furnish the Government of Venezuela credit totaling approximately $180 million dollars over a period of ten years for the purchase of military equipment and material. The terms specified in this agreement are: “A suitable down payment followed by semi-annual installments over a three-year period at three percent per annum interest on the unpaid balances”.

In view of a difficult budget situation which arose and the need to reduce military expenditures, a representative of the Venezuelan Ministry of Defense visited Washington on November 25, 1959 to inquire about the possibility of modifying the credit agreement to provide more favorable credit terms. This representative was advised at a joint State-Defense meeting that a reconsideration of the interest rate in light of the prevailing rates would most likely result in a higher, not a lower interest rate, and that it was virtually impossible to extend the repayment terms beyond three years because of the accounting limitations and the inflexibility of the three year limit on revolving fund financing.

Nevertheless, it was indicated that some adjustment of repayment terms might be worked out, without exceeding the three-year limit, in order to afford some relief to the Venezuelan Government. It was suggested that a formal request for adjustment be submitted through diplomatic channels and the representative was informed that the United States [illegible in the original] concerned would expeditiously consider the request.

By a letter dated December [illegible in the original], 1959 to the Chief of the United States Army Training Mission in Venezuela, the Venezuelan Ministry of Defense requested extension of the credit repayment terms from three to ten years.² Since the extension of credit beyond three years meant that repayments revert to the United States Treasury and no longer become available for credit financing, there were logical objections at the time to accommodating the Venezuelan request in full. The Defense Department, therefore, proposed that the two Governments modify the credit arrangement in order to provide the Venezuelan Government relief by permitting annual payments in lieu of semi-annual installments for all transactions not consummated in FY 1960, and by implementing the FY 1961 and 1962 Venezuelan credit program on the basis of ten percent down and payment of the balance at the end of the three year period.³

This modification was offered to the Venezuelan Government in the Department’s note of June 17, 1960.⁴ However, due to an increasingly grave political and economic situation which has arisen since the Department’s proposal, the Venezuelan Government responded to the note by sending another special representative to Washington this month to plead on its behalf that the United States Government reconsider its request for longer credit terms, and, as a measure of immediate relief, to request the United States Government to grant a moratorium on payments now due and which will become due on most purchases. This request was confirmed by the Venezuelan Embassy note no. 1180 dated November 14, 1960, a copy of which is enclosed for your information and reference.⁵

Since the original request of the Venezuelan Government for modification of the credit terms was received, the economic situation of Venezuela has deteriorated rapidly. The Venezuelan Treasury is seriously depleted and the Government faces a deficit of about 220 million dollars this fiscal year. The present Government has already pared its budget down about as far as is politically prudent. In fact, the political disturbances that have taken place recently even in part from that Government’s rigid [illegible in the original] and such disturbances and riots are likely to recur, at least sporadically in the foreseeable future. [illegible in the original], the present Venezuelan Government feels that it is in no economic position to make payments on past purchases and will require an extension of repayment terms.

The Department of State considers it to be in the interests of United States Government to support on an urgent basis this request from the Venezuelan Government for relief upon its present overburdened budget.

The Department of State strongly recommends that both our Departments give immediate consideration to granting relief to the Venezuelan Government by providing a moratorium on payments due and that will come due on past purchases, and to extend the credit terms to a ten-year period in lieu of three.

Sincerely yours,

Wymberley D.R. Coerr

1. Source: Department of State, ARA/IAS Files, Lot 65 D 285, “Defense Affairs: Mansfield Amendment.” Secret. Co-drafted by John J. Intersoll and Allan F. McLean of the Office of Inter-American Regional Political Affairs on November 29. The source text is a carbon copy bearing Coerr’s typed signature.
2. The reference letter was not found Department of State files.
3. Secretary Herter approved the new credit arrangements on June 11, 1960. (Memorandum from Rubottom to Herter, June 3, 1960; ARA/IAS Files, Lot 65 D 280. “Defense Affairs: Mansfield Amendment”)
4. Not printed;
5. Not found with source text; a copy is separately filed under