Foreign Relations of the United States, 1961–1963, Volume XIII, Western Europe and Canada

313. Memorandum of Conversation⁰

Washington, January 17, 1963, 10 a.m.

SUBJECT

• Europe’s and America’s Role in Aid to Less Developed Areas

PARTICIPANTS

• Italy
  • Amintore Fanfani, Prime Minister of the Italian Republic
  • Sergio Fenoaltea, Ambassador of Italy
  • Edoardo Martino, Under Secretary of Foreign Affairs
  • Giovanni Fornari, Director General of Political Affairs
  • Carlo Marchiori, Foreign Policy Advisor to the Prime Minister
  • Umberto La Rocca, Chief of Secretariat to the Under Secretary
  • Giuseppe Bartelomei, Chief of Secretariat to the Prime Minister
  • Gian Luigi Milesi Ferretti, Italian Minister
• United States
  • The President
  • Secretary Rusk
  • Under Secretary Ball
  • Ambassador Reinhardt
  • Mr. McGeorge Bundy, The White House
  • Mr. Arthur Schlesinger, Jr., The White House
  • Mr. Pierre Salinger, The White House
  • Assistant Secretary Tyler
  • Mr. Francis E. Meloy, Jr., Director, WE
  • Mr. Samuel R. Gammon, WK, Italian Desk
  • Mr. Neil Seidenman, Interpreter
  • Mr. Jose De Seabra, Interpreter

The President remarked that in 1961 he and the Prime Minister had discussed assistance to Somalia.¹ The US has been limited in what it could do there by its special relations with Ethiopia. However, he had recently told the Somalia Prime Minister that the US was prepared to give some arms aid. The President hoped that Italy would continue to help exclude the Soviets from Somalia by helping that country, particularly in its desire for an effective air line. The President noted that the West is currently doing well in Africa; the Congo was improving and France was making a vigorous effort in African development.

Prime Minister Fanfani thanked the President for America’s efforts with Somalia. He had seen the Somali Prime Minister both before and after his recent visit to the US. The Prime Minister had made clear to him Italy would welcome all of his requests including any for aid in economic development. In fact Italy, had granted all of the requests made during his initial stop in Rome. Action was now in train regarding them. Prime Minister Fanfani believed that the Somali tendency to turn toward the East was now partially halted. He pointed out that all of the new countries really want aid from the West without renouncing the prospect of aid from the Soviets. He warned that the West needed to act rapidly in playing this game, which all the new countries engage in, and that we were sometimes too slow in responding. He noted, however, that the West must be careful how it acts in this competitive game.

Under Secretary Martino then brought up the subject of training for Somali pilots. He said that the Somali were very sensitive to their need for an airline which would permit them to connect their communications net more effectively with the outside world. Pilot training had both civil and military implications, since military pilots were ultimately available for civilian purposes. Germany had offered to train Somali pilots, and Italy had offered to train a small number also. This training was to have begun at the end of this month and had at first been accepted by the Somalis, but they had recently reversed their position. This was the current status on this matter.

The President stated that he wished to raise another matter—IDA (the International Development Association).² The US supports IDA strongly and believes that other countries should also do so. However, he pointed out, with our balance of payments problem (even though it was alleviated by Italian military offset purchases), we hope that Europe will be more forthcoming in the aid field notwithstanding European countries internal development problems with their own South. The President stated that we could not continue to help on our present scale too long. Our gold reserve is flowing out to Europe. Although it was natural for Europe to be slow to react to this relatively new phenomenon and natural for the US to be slow, perhaps too slow, in responding to its gold reserve losses, action needed to be taken by both sides.

The President pointed out that our aid effort in Greece and Turkey and, to a certain degree, in Spain, made no sense. They are European countries.

The President commented that Latin America is the most dangerous region of the world. Argentina, Brazil and all the other countries were in difficulties. France’s special tie with Africa has drawn EEC assistance to that continent, but we hope that Italy will help secure a helpful European attitude toward Latin America, where the situation is growing worse. The President pointed out that the capital flight from Latin America had exceeded our own very substantial aid. There was a real danger that we might confront a Communist Latin America in the future.

Prime Minister Fanfani reminded the President that Italy in general works in the aid field through the use of export credits. This device had been criticized as being an excessively commercial attitude, but the criticism was not valid. In the first place the recipient countries liked this device, and secondly, there were many recipients which never paid their bills anyway! Argentina has had much Italian export credit assistance and now has a half billion dollar debt which is not paid. Brazil also has a large unpaid bill.

The President interjected that we would be happy to exchange a few unpaid debts with Italy! Prime Minister Fanfani wondered if it were really better to tell the recipients these were not outright gifts. He noted that the Italian aid effort thus far has cost 240 billion lire and might rise to 300 billion lire this year. The Director of the Bank of Italy was highly critical of this increase and of Italy’s system of aid.

Prime Minister Fanfani also pointed out that Italy made a substantial contribution through enabling borrowers to obtain loans at a rate of interest below four per cent as in the case of Argentina and Yugoslavia. In addition, Italy made some outright grants as in Somalia, where it provided budgetary assistance and both development and military aid. The Prime Minister said Somalia cost Italy more independent than it had as a colony. Nevertheless, Italy did not grudge this assistance, since Somalia was a responsible and cautious country unlike some of the more reckless new ones such as Morocco.

With respect to Greece, Italy had undertaken a defense subsidy of $2.4 million there and had removed its right to have .8 billion lire of the Italian war indemnity to Greece spent exclusively within Italy.

The Prime Minister stated that with respect to aid we would have to see what the future holds. Italy is studying the problem to see what it can do. He noted that aid also had political implications. Prime Minister Fanfani continued by saying that Italy’s real economic miracle is its transition from an alms beggar to an alms giver. Italy hopes to double its national income per unit of population in the coming years, which will enable it to do better in the aid field. He assured the President that Italy would do its best to help others.

The Prime Minister mentioned that India had recently solicited military aid in the form of mountain howitzers. Italy’s problem there was in transferring to India the patent rights for producing these guns.

The Prime Minister recalled his long talk with President Kennedy in June 1961 concerning Latin America.³ There the situation was still bad notwithstanding US assistance. Italy had tried to help the Latin American countries, the Christian Democratic parties, and their labor movements to develop middle level leadership to fill the gap between the top and bottom strata of society.

The Prime Minister noted the accuracy of his 1961 forecast, in which he still believes, that the Soviet Union is making Latin America and not Africa its prime target. The Soviets’ shift of emphasis from Berlin to Cuba recently proved this. The Prime Minister believed the Soviets would leave Africa alone. He considered that the Soviets believe Africa is not ripe for the class struggle and therefore, though the USSR remained interested in African developments, it would wait for an opportunity for intervention to mature. He noted that both in Italy and in the world in general the Communists always placed their emphasis on areas other than the most depressed. They sought to pit the have-nots against the haves in areas where the former had something but not enough. Therefore, he felt the Soviet Union was concentrating on Cuba and Latin America in general. He reminded the President that in 1961 he said the front between the West and the Soviet Bloc was not Berlin but Latin America. It remained the front line today.

Under Secretary Martino noted that Italy has had many requests to lend assistance not only in backward areas but in NATO countries which were more developed. He cited military assistance given by Italy to Greece of $1.2 million this year with the promise of the same next year. He pointed out that Italy was also giving $10 million in aid to Turkey. Both countries were, of course, near neighbors of Italy.

The President interjected that these figures did not correspond to Italy’s $3–5 billion gold reserve. The US has lost $1 billion from its reserves in the last year. Italy was in a stronger position than the US. The US was pouring out its reserve and Italy was building its up. He urged Martino to think in bigger terms.

Prime Minister Fanfani hailed the President as his ally on this point in the internal argument within Italy over what to do with its surplus. He noted Italy was fighting increases in the cost of living. Some of the surplus was also being spent abroad. Italy’s 1962 reduction by 10 per cent of its customs duties would also affect Italy’s balance of trade. Last year Italy’s trade deficit increased from 500 billion lire to 800 billion lire.

The Prime Minister explained that the Italian reserve was built up from three sources; by tourism from the US and especially from the Nordic countries of Europe, which he characterized as the sale of sunshine; by ship chartering, which was a highly competitive business; and by remittances from Italian emigrants, particularly Italian workers in Northern Europe. This last source would diminish as Italian workers returned home to the expending Italian economy. Therefore, the Italian balance of payments would have a smaller margin, and Italian reserves would tend to fall. The Prime Minister admitted that most any outflow would go to the common market countries and Northern Europe, from which Italy buys a great deal. He noted that within the last few months Italy also had reduced its duties on meat and on petroleum and that it would have to take further similar steps in the future.

The President pointed out that the annual addition to the world gold supply is only $700 million. There is not enough gold to go around. Therefore any countries accumulating a surplus are basing their gains on the deficits of others. The President stressed that gold flow must be reciprocal. He characterized the accumulation of a gold reserve by countries which then hoarded it as the path to the panic of 1929. The world gold supply was inadequate for trade requirements if countries hoarded reserves. He drew on the analogy of the plight of the Roman Empire when its silver mines were exhausted. The President noted that we have attained a certain stability in our handling of the atom in the modern world but that we have not yet learned to manage our economy. He emphasized that the US cannot continue to bear the burden of a billion dollars a year loss to its gold reserve, nor could Latin America continue to build up Europe’s reserves by a flight of capital. This was a most important subject he concluded and noted emphatically that Spain had a $1.2 billion gold reserve.

The Prime Minister agreed with the President’s concluding remarks. He pointed out that Italy was moving toward a new agreement between ENI, its national petroleum authority, and US oil companies, which would be of help to the United States. He noted a new trend toward Italian purchases in America which would also help. He recalled that he had told Ambassador Reinhardt that Italy’s $124 million arms purchase in America was made under an arrangement which helped both the US balance of payments situation and also helped Italy. He recalled also that he had told Secretary Dillon last June that the defense of the dollar was the defense of the West. He pointed out that Italy had last summer repaid in advance some US loans. Italy planned to continue its efforts and its work to help our bilateral trade relations and would welcome American initiatives.

The President in conclusion acknowledged Italy’s helpfulness in this problem.

0. Source: Department of State, Central Files, 611.65/1–2363. Secret; Limit Distribution. Drafted by Gammon and cleared in S on January 25 and at the White House on January 28. The meeting was held at the White House. The President and Prime Minister also discussed the Common Market, conventional arms build up, the Berlin situation, and French nuclear policy. (Ibid.)
1. Document 285.
2. Telegram 1338 to Rome, January 18, reported that in Secretary Dillon’s meeting with Fanfani Dillon expressed U.S. interest in bringing IDA negotiations to a successful conclusion and noted that Ambassador Leddy would be going to Rome to discuss this with Carli next week. (Department of State, Conference Files: Lot 66 D 110, CF 2222)
3. A memorandum of this conversation is in Department of State, Conference Files: Lot 65 D 366, CF 1912.