314. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Vaughn) to Secretary of State Rusk1
- Situation in Colombia
- As indicated in recent previous memoranda from Mr. Read to Mr. Bundy on this subject,2 a serious political and economic situation is developing in Colombia and the United States has been trying to [Page 685]obtain action which would shore up the National Front Government of President Valencia.3
The immediate situation is that President Valencia has been unable yet to follow through on his earlier decision to institute an economic program (including a de facto devaluation of the peso) which, together with substantial aid from the U.S. and international lending institutions, would tend to stabilize the economic and political situation. The economic program and de facto devaluation were worked out over the last few weeks in outline between the World Bank and the Minister of Finance, with the approval of President Valencia.
The United States made a positive response to these negotiations by indicating to the Government of Colombia through the Bank its readiness to support such a program with immediate release of $10 million from the 1964 program loan and, subject to negotiation, with $60 million in FY 1966 AID program funds, and additional support from PL 480, Export-Import Bank and Treasury for a total of about $100 million over the next twelve months if the devaluation was the 50 per cent believed by the Bank, the IMF and our economists to be the appropriate level for effectiveness. (This would have been effected by imposing a 4.5 peso “payments tax” on top of the import exchange rate of 9 pesos to the dollar; President Valencia approved first a 3 peso tax and then a 3.5 peso tax as negotiations continued.)
President Valencia’s approval of effective devaluation was a major change in his previous position. His Government devalued just after he came to office in 1962, but the devaluation was a failure through mishandling. He did not want to try again and overruled a recommendation for a new devaluation from his previous Minister of Finance last December. The persuasion of circumstances over the last months, including the need to cut back imports sharply, changed his mind.
In addition, the U.S. readied a negotiating team and developed its negotiating position to be ready to go to Colombia instantly when the Colombian program was approved by the Cabinet and made arrangements for funds to be made immediately available to support the Colombian effort. The IMF also indicated to the Colombian Government its readiness to roll over Colombian indebtedness and provide [Page 686]an additional standby of $20 million, and the IBRD was prepared to provide large project assistance. This outside official support, together with the return of normal private foreign credit lines which would have accompanied adequate monetary, fiscal and exchange rate measures, would have permitted higher imports. Higher imports, together with appropriate internal financial policies, would have led to increased production and employment rather than a stagnant economy.
The Colombian Minister of Finance first indicated that he expected to get the required unanimous Cabinet approval under the existing state of siege and take action by Presidential decree at the 3.5 if not 4.5 peso tax level over or just after the week end of May 30–31. This did not come about. In the intervening week, serious difficulties have arisen. Unanimous Cabinet approval has not been obtained. Leadership elements in the Liberal Party, which forms part of Valencia’s coalition, have opposed the devaluation.
News of the proposed devaluation leaked to the Colombian press and set off a strong adverse reaction. In Congress, opposition elements were joined by some Liberals in denouncing the devaluation. President Valencia, today reported in Bogota’s press as himself opposed to devaluation, has apparently done little to get the Cabinet, the national leadership, or public opinion behind the proposed program. Carlos Lleras Restrepo, the leading Liberal, has tried to stay in the background for political reasons, disassociating himself from the proposed devaluation. The Finance Minister indicated that he expected action by today, Friday, June 4, but there are no indications that he has yet enough votes for the needed unanimous Cabinet decision.
- Indecisive leadership and the difficulties of acting through the coalition National Front system lie at the root of the present mishandled situation. Alberto Lleras, who was President prior to Valencia, governed through much of his administration with a state of siege for public order reasons. The state of siege also permitted him to act by decree when Congress did not act because it was hampered by the rule that unless otherwise decided by a two-thirds majority, all action must be by two-thirds majority. Lleras did not use his decree authority extensively. Valencia has attempted until now to govern without the state of siege. But the political base of the National Front has tended to fragment as time has passed. Consequently, Congressional action is continually more difficult to achieve. Therefore Valencia has turned to the state of siege device. But even with the state of siege he needs a political base of support because there are now mechanics for reversing his decree rulings. Thus leadership is needed and he has been lacking in this quality especially on economic issues.
Should the Colombians not approve an adequate economic program, including exchange reforms, the economic and political situation [Page 687]may be expected to erode further. Economically, intensified exchange controls would be tried, together with tight credit to the private sector. But imports, production and employment would be down and inflationary pressures high.
Politically, the prospects would be for impaired stability of the government rather than sudden or violent action to depose it, but this could change. At the least the National Front would lose ground at the March 1966 Congressional elections, probably primarily to the forces of former dictator Rojas Pinilla, and would have uncertain prospects in the May 1966 Presidential elections. Economic deterioration could lead to a decision by Valencia to resign or by the military, persuaded by the business elite, to take over.
The military under its present leadership is opposed to taking over civilian political power, but it might be persuaded to later if the situation deteriorated sufficiently. Lower level military leaders have not been active politically either, but they also might become restive later if the general situation deteriorated badly. They might then become responsive to former Minister of War Ruiz, who is presently quiet but has had political ambitions.4 A united military takeover led from the top would probably be peaceful. A takeover incited from the lower ranks could be bloody. There is no indication that Communists would play a significant part in a takeover under either circumstance, but the situation could change.
- De facto devaluation also entails political risks, especially if badly handled, but the benefits in terms of a sense of a positive forward movement of the economy and corresponding political gains would be high if well handled.
President Valencia may appeal for sizeable U.S. loans without a satisfactory economic program or devaluation but granting such aid would offer no solution.
One hundred million dollars from the United States, which is the extent to which we are prepared to support a good program, would not greatly change the economic situation without such a program because private bank and commercial credits would not be available for lack of confidence in financial policies, and the international financial institutions would not provide complementary support.
As much as three to four hundred million dollars from the United States Government would be needed for one year to provide the same amount of push to the economy without a good Colombian program as would be achieved with $100 million with a good program. And [Page 688]even then the Colombian Government would have to undertake a larger devaluation and greater financial adjustments in 1966 after the next President came to office.
The U.S. is continuing actively to take steps to help stabilize the situation and shore up constitutional government in Colombia. In addition to readiness to quickly support an acceptable program with large scale loans (see paragraph 2), the following actions are now under way:
- Ambassador Oliver is being instructed to see President Valencia and certain other Colombian political leaders, after checking with the Minister of Finance, if the Colombian Government still seems to be wavering on undertaking a positive economic program.
- I have arranged to consult with Colombian Ambassador to the United States Uribe and Dr. Carlos Sanz de Santamaria, Chairman of the CIAP and a former Colombian Minister of Finance.
- Ambassador Bernbaum is returning to Venezuela to convey our assessment and position to the Venezuelans and obtain their thinking and possible assistance. President Leoni has previously conveyed to us his great concern about Colombia; many Venezuelan leaders believe that an overthrow of constitutional government in Colombia would sooner or later encourage one in Venezuela.
- The Ambassador of Brazil is likewise being called in to convey our position to Brazil.
We have considered sending someone to Bogota to reinforce Ambassador Oliver in his conversations with President Valencia and others there but have decided against it because Ambassador Oliver has close and effective relations with President Valencia, our doing so at this juncture might open us up too much for special appeals for assistance without a program, and to do so might also imply too much United States involvement in the delicate issue of devaluation.5
- Source: Johnson Library, National Security File, Country File, Colombia, Vol. I, 12/63–7/65. Secret. Drafted by Hill and Eaton. Read forwarded this memorandum to Bundy on June 4.↩
- Memoranda from Read to Bundy, May 7, May 22, and May 24, are ibid.↩
- Mann reviewed the Colombia crisis with President Johnson earlier that morning and told the President he was holding a meeting on Colombia and that the situation is very bad. Mann reported the “World Bank thing becoming unglued. The President said it looked as if we ought to pour all the money we can in—try to save the President [Valencia]. He said he thought this was better then trying to remake the government. Mr. Mann explained how difficult it would be to pour enough money in. He said they were going to kick around several alternatives and then planned to go over and talk with Mc-George Bundy so the President’s staff would be clued in.” (Ibid., Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)↩
- Ruiz, who was forced to resign the War Ministry in January, announced on May 9 that he would also discontinue his recent attempt to found a political movement.↩
- On June 5 Mann told the President that his June 4 meeting on Colombia (see footnote 3 above) had included Sanz de Santamaría and Uribe, in addition to those in the administration who were either “concerned with” or “knew about” Colombia. After the meeting, Mann asked that Vaughn prepare a memorandum on the situation in Colombia for the Secretary, which is the source text. Mann also gave Johnson the following assessment: “If the government does not take the necessary steps then in the next two or three days we think there will be a change but we do not see any danger of a commie takeover if the Army stays united. We have no evidence of a split.” The President asked Mann to set up a task force to develop plans for Colombia, as well as Guatemala and Bolivia. “We should have a special task force on top of it with the best names,” Johnson said, “and be prepared in advance instead of waiting until they are shooting at us.” (Memorandum of conversation, June 5, 12:10 p.m.; Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)↩