122. Action Memorandum From the Assistant Secretary of State for Inter-American Affairs (Mann) to Acting Secretary of State Harriman 1

SUBJECT

  • Oil Contract Problem in Argentina

I bring the oil situation in Argentina to your attention at this time because we cannot foresee a satisfactory settlement in the near future and because of the following two factors: 1) The failure to reach an agreement on the oil contract problem would probably bring the Hickenlooper Amendment into the picture again when our Congress reconvenes. As you know, we have dealt with this matter so far by slowing down or stopping our aid without the formal invocation of the Hickenlooper Amendment;2 we continue to believe that this is the most effective way to handle this problem. 2) Argentina may soon seek large-scale financial assistance from us, as well as from the Europeans and from the international financial institutions for an Economic Development Plan which the GOA hopes to present after the first of the year. Argentina has tried to separate the oil situation and its probable request for international financial assistance. Obviously, this cannot be done. The oil contract problem bears not only on our ability to be of any assistance (Hickenlooper Amendment) but also on Argentina’s balance of payments and budget situation and on its ability to inspire confidence in both foreign and domestic investors.

Although there has been little progress during the last three months toward a settlement of the oil contract problem in Argentina, [Page 289]it is possible that developments during the next months may again bring this question into prominence. During the past few days, there have been reports that a settlement is about to be reached with one of the Argentine companies whose contract was annulled (ASTRA) and that the GOA would then attempt to use the formula adopted in this case as a basis for settlement with some of the foreign companies. We will not know the opinion of the companies until they have actually been presented with a concrete proposal. Much would probably depend upon the amounts offered and whether the interest rate covers potential or real profits.

While an attempt may be made to reach a settlement at this time with some of the companies, we are inclined to doubt that any satisfactory solution will be reached prior to the Argentine congressional elections in March of next year and maybe not even then. We believe the GOA continues to consider this question largely on the basis of its political rather than its economic aspects and is not convinced as yet that a settlement with the foreign companies will gain any votes in the March elections. There seems to be some growing realization within the GOA that the oil question will have a direct bearing on an Argentine request for external financial assistance which the GOA is likely to request early next year. But, there is not sufficient evidence to indicate that these realists have effectively gained the upper hand within the Argentine Government over the more nationalistic group which is opposed to a settlement of the oil question.

Several of the oil companies seem to be prepared to wait for a settlement until after the March elections, feeling that time is on their side. They believe the Argentine Government needs the foreign companies in order to produce sufficient oil to maintain self-sufficiency and that pressures will grow on the GOA to reach a settlement and thus avoid the loss of foreign exchange through the importation of oil. However, the case of each company differs as does the extent of their optimism and some will find it very difficult to convince their stockholders that they should continue discussions after the end of this year.

The U.S. oil companies have become concerned over some recent indications that the Argentine Government may be counting on a more favorable attitude within the U.S. Government toward the oil contract annulments now that our own elections are over. We have informed the companies as well as some Argentines that any such fallacious reasoning is entirely unwarranted and that we continue to be just as much concerned over a settlement of this problem as we were before. Nevertheless, we can expect there will be some continued Argentine thinking along this line and perhaps some attempts to try and convince us that now we should not be concerned with the fate of the oil companies.

[Page 290]

Recommendation

That we continue our present “slow-down” policy with respect to aid for Argentina and try through this device to avoid the formal application of the Hickenlooper Amendment while at the same time achieving its objectives.

Also, that we avoid further comment to the Argentines on the oil question. We have made clear many times our concern and the fact that failure to settle this problem affects our ability to cooperate as fully as we would like with Argentina. In my opinion, a more effective policy is to now let the Argentines learn through experience that our cooperation will be limited if the oil problem is not settled.3

  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 15–2 ARG. Confidential. Drafted by Hoyt on November 23 and concurred in by Ensor and Lowenfeld.
  2. In late July, Mann drafted an action memorandum for AID Administrator Bell, justifying the “slow down” policy and outlining a plan for its execution. (Ibid., ARA/APU/A Files: Lot 69 D 87, PET 15–2, Airgrams, etc., 1964) In a July 31 letter Mann asked Martin for comment. (Ibid., ARA/LA Files: Lot 66 D 65, Argentina 1964) In response on August 15, Martin agreed questioning only certain “points of emphasis and marginal issues of pace.” (Ibid., Central Files 1964–66, AID(US) ARG) After a meeting with Senator Hickenlooper on August 12, Mann expedited implementation of the policy. Congress clearly felt, he reported, that the “time has come for United States to stand up for validity of contracts and of treaties of all kinds.” (Telegram 194 from Buenos Aires, August 19; ibid., AID(US) 8 ARG) In an October 5 letter to Martin, Hoyt explained that the memorandum to Bell was no longer necessary: “Tom’s telegram 194 of August 19 gave you the answer that we were going to continue with the slowdown program.” (Ibid., ARA/APU/A Files: Lot 66 D 243, Correspondence—Hoyt Letters)
  3. Harriman approved this recommendation.