315. Memorandum From the President’s Special Assistant for National Security Affairs (Bundy) to President Johnson 1

SUBJECT

  • Colombia

Since one of the stickiest areas in Latin America these days is Colombia, I thought you might be interested in having a brief report on the more immediate and major problems in that country as well as U.S. efforts and plans to cope with them.

1.
The most serious immediate problems appear to be economic. Lack of political and economic confidence has caused the free rate of exchange to depreciate from 10 pesos to the dollar in October 1964 to 19 pesos to the dollar now. The official import rate is over-valued at 9 pesos to the dollar and is increasingly under pressure. Liquid reserves are dangerously low and business activity threatens to be curtailed by the lack of essential imports and of credit. There is a substantial inflationary potential because of the gap between budget expenditures planned for 1965 and anticipated revenues.
2.

There is a difference of view on how to meet these problems. On the one hand, the Monetary Fund, the World Bank and the U.S., along with a number of high-level Colombians (e.g. the recently resigned Finance Minister), believe that Colombia must institute a comprehensive economic program, which should probably include such measures as budget balancing, wage-price restraint, an increase in imports and a de facto devaluation of about 50%; we would be prepared to support such a program with up to $90 million of new commitments.

On the other hand, President Valencia holds a different view. While, in May, he appeared ready to go along with the above comprehensive economic program, he has more recently said that such a program would be politically too risky, particularly the de facto devaluation (we don’t agree).

What Valencia seems to prefer is that we provide substantial assistance (estimates vary from $200 million to $400 million), without taking the necessary self-help measures, on the grounds that this would enable him to avoid a revolution or at least an electoral defeat for the [Page 690]National Front in Colombia. We are not anxious to meet Valencia’s desire, among other things, because it will cost us a lot more money and because we believe that a large loan to Colombia without adequate self-help measures, would severely undercut the credibility of an important Alliance for Progress dimension.

3.
The situation, however, is not without hope. Largely as a result of our Embassy’s efforts, there are indications that a number of influential Colombians are becoming more and more convinced of the need for a positive economic program. State’s present estimate is that the odds are slightly in favor of Colombia attempting a comprehensive economic program of the type outlined above, although probably with some changes. State also estimates that the odds are somewhat better than even that the program, if attempted, will be reasonably successful.
4.
If, in the last analysis, President Valencia refuses to undertake a comprehensive economic program a number of contingencies could develop. These are analyzed in the attached contingency plan,2 which notes that the most likely contingency is continued drift and deterioration under the National Front and that the next most likely contingencies are (a) the withdrawal of Valencia, (b) a military takeover, and (c) a general uprising. State does not foresee the danger of a Communist take-over in Colombia in the short term, in view of the fact that the extreme left in Colombia is badly fractured, poorly led and not very popular.3
McG. B.
  1. Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 11. Secret. A notation on the memorandum indicates that the President saw it. According to another copy, the memorandum was drafted by Bundy and Gordon Chase. (Ibid., Country File, Colombia, Memos, Vol. II, 6/65–9/66)
  2. Attached but not printed. The contingency plan was prepared in response to the President’s request for a “task force” on Colombia. (Memorandum from Vaughn to Rusk, June 22; National Archives and Records Administration, RG 59, Central Files 1964–66, POL 23 GUAT) The Latin American Policy Committee drafted the plan, which was then forwarded to the White House on June 24. (Memorandum from Read to Bundy, June 24; ibid., ARA Country Files: Lot 68 D 385, LAPC—Colombia)
  3. Bundy wrote the following note at the end of the memorandum: “You may have seen Charles Bartlett’s praise of this policy yesterday.” Bartlett was a columnist with the Chicago Sun Times.