Foreign Relations of the United States, 1961–1963, American Republics; Cuba 1961–1962; Cuban Missile Crisis and Aftermath, Volumes X/XI/XII, Microfiche Supplement

102. Memorandum of conversation, July 23, between President Kennedy and President Arosemena and other U.S. and Ecuadorean officials¹

July 23, 1962, 4:30 p.m.

SUBJECT

• Meeting between President Kennedy and President Arosemena

PARTICIPANTS

• U.S. SIDE

  • President John F. Kennedy
  • Acting Secretary George Ball
  • U.S. Coordinator, Alliance for Progress, Teodoro Moscoso
  • Ambassador Maurice M. Bernbaum
  • Director of WST, Taylor G. Belcher
  • Interpreter, F. von Reigersberg

• ECUADOREAN SIDE

  • President Carlos Julio Arosemena
  • Foreign Minister Benjamin Peralta Paez
  • Ambassador Neftali Ponce-Miranda
  • Treasury Minister Manuel Naranjo Toro
  • Former Minister of Economy Federico Intriago
  • Guillermo Arosemena Coronel, Manager of Guayaquil Branch, Central Bank of Ecuador

The President started the meeting by welcoming President Arosemena. He pointed out that this visit was an additional proof of American interest and concern for Hemispheric problems. The President also pointed out, however, that the U.S. has many problems these days and that it is important to realize that its resources are not unlimited.

President Arosemena thanked the President and stated that he wished to bring up several economic problems affecting his Country. He prefaced his remarks by noting the expressions of great concern on the part of the U.S. Government and of President Kennedy himself with regard to all of Latin America. Ecuador realizes that American assistance is not unlimited, and that it is subject to a number of internal political factors. President Arosemena said that there is one difficulty which all the assistance programs have in common; namely, paternalism. It is impossible to try to regulate or legislate on a number of subjects when you are miles away from the countries that will be affected by such actions. As an example, President Arosemena referred to an Inter-American Development Bank loan for the cultivation of African palms, in which the Ecuadoreans have been compelled to utilize the funds in an area believed to be unsuitable to such crops.

The President continued by stating that certain necessary reforms have already been initiated in Ecuador. A new inheritance tax law has just been approved and a number of bills have been drafted and submitted for Congressional approval, covering income taxes, tariffs and fiscal and monetary reforms. During the first two or three years following these reforms, fiscal revenues will undoubtedly decrease and if no immediate external assistance is forthcoming these measures would be self-defeating, and agricultural and industrial productivity could not be given the needed impulse. The worst thing that can happen in Latin America is the disillusionment of the masses who hope the Alliance for Progress will help them increase their standards of living. Ecuador has submitted a request for assistance to finance its 1962 capital budget. During the last ten months Government revenue has been decreasing considerably and most public works projects have come to a complete standstill. The number of unemployed has increased by leaps and bounds and these masses constitute a dangerous and explosive time bomb. Therefore, President Arosemena specifically requested a $14 million loan from President Kennedy for his country’s capital budget. He stated that Ecuador committed herself to undertake additional legal reforms and President Kennedy would be given a memorandum on these reforms tomorrow, July 24. A second memorandum would deal with another very important problem; namely, that of the development of educational facilities of the country. Three hundred million sucres will be necessary to implement a five-year educational program, which will have as its main purpose the eradication of illiteracy and a much greater attendance rate at schools for all Ecuadorean children. A third memorandum dealing with the problems of the municipality of Guayaquil will also be delivered tomorrow. The city has had several budgetary deficits because of misuse of municipal funds and at the present time funds aren’t even available to pay for the collection of garbage.

President Kennedy stated that these were indeed difficult problems and he realized that sometimes countries dislike foreign officials who give advice on sensitive, internal matters—outsiders may be wrong. He spoke of our legislative and regulatory problems in rendering assistance and of the serious problem of the dollar drain problem resulting from our tremendous foreign assistance program over the last fifteen years. Furthermore, the Congress believes that Europe should share a greater part of the foreign aid burden. Because budgetary support is largely a dollar loss to the U.S. which can easily become a gold loss, it is this type of funds that are extremely difficult to obtain. On the other hand, funds are available for constructive, carefully planned development projects of a more lasting nature.

The President asked what could be done to increase the number of such projects. Ambassador Moscoso indicated that a $1 million project for school construction had already been approved and that studies were being made with regard to airport improvements and other public works projects. The main problem was the presentation of loan applications. The U.S. now hoped to assist Ecuador in the preparation of projects and loan applications in accordance with the requirements of existing assistance legislation.

Mr. Arosemena, the Manager of the Guayaquil Branch of the Central Bank, stated that the present Ecuadorean Administration had made tremendous efforts to put the country’s economy back in order. An austerity policy has been in force and the Government is avoiding Central Bank financing so as to maintain a stable currency. However, if no assistance from the U.S. is forthcoming, the Government will have to turn to the Central Bank and the repercussions of such a move would be disastrous. The country has had very little inflation and a stable currency and Government. Many sacrifices have been made. Many public works have been curtailed and the number of unemployed people has risen drastically. Ecuador therefore needs the $14 million which might be a gold loss to the U.S., but it would help the country purchase American products in the future.

President Kennedy stated that it is important for the U.S. to counteract the dollar drain and to maintain world confidence in the dollar. The U.S., of course, realizes what the difficulties of Ecuador are and the only way to avoid disappointing people who have staked their hopes on the Alliance for Progress is by convincing the Congress that this Alliance is truly a joint effort. The President reemphasized that it was much easier to obtain funds for development projects than for budgetary financing.

President Arosemena said that Ecuador had believed that it would obtain $14 million and had been making plans on the basis of such assistance. However, a few days before his departure several American experts had visited Ecuador and asked him what the plans were for 1963 and 1964. He stated that he had hardly been able to make plans for 1962 and that plans for 1963 and 1964 and maybe 1970 were completely out of the question.

President Kennedy stated that $8 million had been granted to Ecuador and that the $14 million loan to which President Arosemena referred was to have been given “sympathetic consideration”. This, however, did not mean that the loan had been approved. The Minister of the Treasury of Ecuador briefly outlined the history of the loan discussions and reemphasized that according to his Government’s interpretation $8 million would have been approved for the year 1961 and $14 million would have been approved for 1962 for projects in the capital budget. The Government of Ecuador had made a number of plans on the basis of such an understanding. However, a few days ago, American technicians had visited Ecuador and had asked for specific long-term development projects. The Minister stated that only partial projects had been completed since the budget of 1962 was still in doubt. Now the capital budget is completely paralyzed. The Government has been taking measures and will take additional measures in the future. A technical body has been set up to carry out tax and administrative reforms. Civil servants are being trained. All these efforts would be fruitless without external financial support. The Country does not wish to devalue its currency again and it does not wish to ask for assistance, which might be inflationary, from its own Central Bank.

President Arosemena stated that he would bring up these problems again during these discussions tomorrow with other U.S. officials and that before leaving he would like to bring up another problem; namely, that of the old border dispute with Peru. When a military government has ruled Peru, it has always been very aggressive in its relations with Ecuador. Recent events have convinced President Arosemena that the highly unpopular military junta of Peru might try to “distract” public opinion by creating a serious border incident. The repercussions of such a move are very hard to foresee. The military are a curse in most of Latin America and even though Peru’s elections are a purely internal affair the possibility of military aggression should definitely not be overlooked. Ecuador supports Venezuela’s request for the establishment of some machinery to avoid militaristic coups in other Latin American countries.

President Kennedy strongly emphasized that the U.S. favors the resumption of normal constitutional processes in Peru and he hopes to know more about the Peruvian Government’s future in the next few days. He added that President Arosemena would have a chance to meet with Ambassador Moscoso again and discuss his country’s problems in more detail. Some of the other sister republics of South America, such as Argentina, Brazil, Chile and Peru also had considerable economic difficulties. If we look outside this Hemisphere, Vietnam, Korea and many other countries are also facing similar problems and the important thing is to try to obtain additional funds from the Congress to solve all of these needs.

President Arosemena ended the meeting thanking President Kennedy for his kind invitation and formally invited him to visit Ecuador “with or without a loan”.

1. U.S. assistance to Ecuador; situation in Ecuador; situation in Peru. Confidential. 4 pp. Kennedy Library, NSF, Country Series, Ecuador, April–August, 1962.