Foreign Relations of the United States, 1969–1976, Volume E–10, Documents on American Republics, 1969–1972

300. Memorandum From Viron P. Vaky of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹ ²

Washington, December 3, 1969

SUBJECT:

• Governor Rockefeller’s Recommendations Re Ecuador

Governor Rockefeller has sent you a copy of a telegram he received from the President of Ecuador, which asks the Governor “to assist Ecuador in its serious financial need through American businessmen and men of wealth” (Tab B). The Governor notes that:

• —Ecuador is in very bad financial shape, pending receipt of revenues which are expected from a major oil development and pipeline contract recently signed with Texaco-Gulf.
• —President Velasco Ibarra has shown great courage in taking strong measures against increasingly active Communist and subversive elements.

In light of the above, the Governor urgently recommends that Ecuador be considered the first country with which the US might work out debt renegotiations under the Woods plan. He feels this would be an ideal situation for application of the Woods proposal and would be a well-regarded move on President Nixon’s part.

Background

The Ecuadorean government has a serious fiscal problem. The Government reportedly has been two months in arrears in salary payments to the military, teachers and other government employees. Without further measures, the government will face an unfinanced deficit of about $40 million at the end of the year. The previous Finance Minister who just resigned, tried unsuccessfully to sell GOE bonds in Europe and other financial centers. Texaco-Gulf provided $11 million to the GOE last June as an immediate consequence of the pipeline contract, but significant revenues from new oil production are not expected until 1972.

The GOE requested a large budget support loan when Governor Rockefeller visited Ecuador last June. At one point, the GOE intended to submit a request for a loan directly to President Nixon, but was persuaded to discuss the problem instead with the international lending institutions and AID. An IMF team just concluded a visit to Quito and has recommended a program to ease the immediate problem. As a result, President Velasco replaced his ineffectual Finance Minister, called a special session of the legislature to enact new fiscal measures, and has announced that the Government will make payments to catch up on teachers’ salaries. Velasco reportedly feels it is politically necessary for him to cut arrearages and will be able to do so quickly by borrowing from the Central Bank. The IMF has indicated it will provide a new standby agreement in April if the GOE carries out the program it has recommended.

Although the immediate fiscal problem will probably be eased, Ecuador will face a continuing problem until oil revenues begin to flow in 1972. I agree with the Governor that it would be desirable for the US to help Ecuador during this interim period. His suggestion for debt renegotiation is one option; reallocation of PL 480 local currency for budget support is another; new PL 480 agreements or dollar loans are others. Any one or combination of these options might provide adequate assistance. State is now in the process of reviewing the situation. I, therefore, suggest that we refer the Governor’s suggestion to the State Department for appropriate consideration and action, and ask them to report by January 15, on the economic situation and actions taken or planned to assist Ecuador. Attached at Tab A for your approval is a suggested Watts-Eliot memorandum.

RECOMMENDATION

That you approve the Watts-Eliot memorandum at Tab A.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 784, Country Files, Latin America, Ecuador, Vol. I, 1969–1970. Confidential. Sent for action. Kissinger approved the recommendation. Attached but not published are Tabs A and B. Tab A is a December 11 memorandum from Watts to Eliot; Tab B is a November 13 letter from Rockefeller to Kissinger, with an attached message from Velasco to Rockefeller dated October 29. The Woods plan for debt reduction is discussed in Foreign Relations, 1969–1976, vol. IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 12. The report by the Department of State, dated January 16, is Tab D in Document 301, footnote 1.
2. Vaky reported that Governor Rockefeller relayed a request from President Velasco for economic assistance. Rockefeller stated that Ecuador was in bad economic shape and noted Velasco’s strong measures against Communist and subversive elements. He recommended the U.S. Government consider debt reduction, increased PL 480 assistance, and loans.