121. Telegram From the Department of State to the Embassy in Argentina 1

1259. Following are Department’s current views on oil problem.2 Would appreciate your comments:

1.
About eight months have gone by since the contracts were annulled. While we have received during this time vague generalized assurances from Illia about fair solutions Argentine Government has in fact made no concrete proposals about how companies’ contractual rights are to be restored or respected or, in the alternative, for prompt adequate and effective compensation. The alleged decision to intervene some or all of the properties on an interim or permanent basis prior to some kind of mutually satisfactory arrangement may not be decisive but it further complicates situation.
2.

We have asked that Legal Adviser’s latest opinion re Hickenlooper Amendment3 be sent to you by separate telegram (Deptel 1257).4 Question remains in both legal and political terms of how much longer we will be justified in saying that the GOA has not failed for a reasonable period of time to take appropriate steps to discharge its obligations under international law, and that the GOA is in fact operating in good faith in the oil problem.

We would assume that the answer to this question will depend on what happens hereafter and particularly on our estimate of Illia’s will and ability to overrule extremists in his government.

The fact that legal rights to claim eventual compensation have not been impaired will have little effect in preventing application of Hickenlooper Amendment if steps taken by GOA from here on out are not “appropriate”.

3.
Mann’s conversation with MOD 5 gave us no ground for optimism although he was described as one of the “moderates”. Suarez said in effect that annulment of the contracts was final, that “renegotiation” was a word which could not be used, and that a process of “open bidding” would be necessary.
4.
Suarez talked about returning the investments with interest as if this would be a satisfactory formula. Mann tried to disabuse him but is not sure he succeeded. The essence of our position must be, it seems to us, that if the contracts are to remain annulled then either a new arrangement must be made or the companies should be compensated for the fair value of the contractual rights which they had. Those companies which risked their capital and found little or no oil and gas might be pleased to pick up a windfall by having their money returned but we fail to see why they are entitled to it. On the other hand, those which found substantial quantities of oil are entitled to more than the mere return of investment. Without trying to decide what is fair value in a particular case, it seems to us that it is essential that we have this general principle clearly in mind because on it rests very large oil investments in Venezuela, the Near East and elsewhere.
5.
This raises the question of whether there is not a danger that Argentina will settle with one or more of the unsuccessful investors on the basis of return of investment and then become politically frozen on this formula which we assume we could not accept here. Would appreciate your comments on this point.
6.
This is one of the reasons we thought it would be prudent for the U.S. Government to have a general review of the situation with the Argentine Government. You could best decide with which officials the matter should be raised. But if there are no talks USG runs the risk of becoming prisoner of developments which could seriously affect our relations with Argentina and in which we did not play a role. We worry, in a word, about leaving relations entirely to discussions between private oil companies and the Argentine Government. This does not mean that we would assume authority to speak for the companies about details of particular settlements. It does mean we should be free to influence the companies to accept what we consider to be a fair settlement if one can be arrived at.
7.
On the question of the application of the Hickenlooper Amendment, if worst comes to worst we are giving thought here to quietly cutting back on aid, including military aid, without a formal invocation of the Amendment. We could leave a token program or programs going as proof that we have not applied sanctions and if pushed by press justify [Page 287]in an off-the-record way the cut-back on the ground of failure of Argentina to take self-help measures or some other line. There would seem to be ample ground for this in current Argentine budgetary deficit, inflationary pressures, etc. Would appreciate your opinion on this assuming we can obtain support for this procedure in Congress as we think we have chance of doing. The companies Mann has talked to here seem to be fully aware of the disadvantages to them of formally applying the Amendment and the importance of keeping doors open and playing for time.
8.
We are of course conscious of the political pressures on Illia and of the risk of a golpe regardless of what is done about the oil problem. Our concern is heightened by the apparent failure of the GOA to realize there is any connection between a settlement of oil problems and its avowed need for further private investment and outside financial and economic assistance. Interview with Illia appearing N.Y. Times today would seem further emphasize Illia’s lack of reality.6 We also have in mind the possible effect on the Chilean elections of applying the Amendment to Argentina.

Since time would appear to be of the essence you should therefore promptly convey to the Argentine Government in the way you deem most appropriate that while the USG has hoped that the Argentine Government and the companies would be able to arrive at a satisfactory agreement oil problem is not one simply between companies and Argentine Government. It involves very basic inter-governmental relations between Argentina and US. Therefore, before any final decision and action by Argentine Government on oil question USG would wish to review whole question with Argentine Government with view to working out solution under which either new agreements are negotiated or just compensation provided. In this connection, you should make very clear that any formula for returning to companies merely their investment costs plus interest could not constitute proper compensation.7

Rusk
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 15 ARG. Confidential; Immediate. Drafted by Mann; cleared by Harriman, Ensor, and Meeker; and approved by Rusk.
  2. On November 15, 1963, the Illia administration issued a decree annulling the contracts of foreign oil companies operating in Argentina. For documentation on the decree, and the response of the U.S. Government, see Foreign Relations, 1961–1963, vol. XII, Documents 199 202.
  3. The amendment stipulated that the President suspend assistance to any country that expropriated the property of U.S. citizens or corporations without proper compensation. (76 Stat. 260)
  4. Dated June 19. (National Archives and Records Administration, RG 59, Central Files 1964–66, PET 15 ARG)
  5. Mann met Suárez on June 4 at a dinner hosted by Secretary of Defense McNamara. (Telegram 1208 to Buenos Aires, June 5; ibid.) The principal points made by the Argentine Minister of Defense are summarized in telegram 1267 to Buenos Aires, June 23. (Ibid.)
  6. Reference is apparently to Illia’s comment that “the door is open to foreign investments,” even though Argentina was preparing to “move into American oil field operations.” (New York Times, June 20, 1964, p. 29)
  7. In its reply the Embassy commented that the “adverse impact of oil actions on foreign public and private investment is not now [an] important factor in Argentine thinking.” “What it comes to is US public funds.” (Telegram 2064 from Buenos Aires, June 22; National Archives and Records Administration, RG 59, Central Files 1964–66, PET 15 ARG) The Department subsequently decided to withhold such public funds by refusing to sign an amendment to the Silo loan, an AID agreement to assist grain storage in Argentina. Mann initially explained that this action was taken “pending further study of questions of self-help and effect of annulment of oil contracts, particularly the former.” (Telegram 1288 to Buenos Aires, June 26; ibid.) Three weeks later, however, Mann gave Rusk a different explanation: “we are delaying signature because of the oil question.” (Memorandum from Mann to Rusk, July 20; ibid., POL 15–1 ARG)