55. Memorandum From the President’s Deputy Assistant for National Security Affairs (Haig) to President Nixon1 2
SUBJECT:
- South American Portion of Secretary Connally’s Trip
Secretary Connally visited six countries in South America between June 6 and June 14. The South American portion of the trip fell roughly into two parts. With the first three countries visited, Venezuela, Colombia and Brazil, we may have fairly serious bilateral problems from time to time, but they are friends whose outlook on most major international issues is similar to our own. The other three countries—Argentina, Bolivia and Peru—constitute serious problems for us in one way, or another. It was hoped Secretary Connally’s visit could perhaps make a contribution to the resolution of these problems.
From almost every viewpoint, Secretary Connally’s trip was an outstanding success for U.S. policy in the area. He was warmly received by Chiefs of State, Government officials, and wherever he had contact with them, the public. With the exceptions of criticism from the left, the press was also surprisingly friendly to him. All our Ambassadors have reported that Secretary Connally’s visit was a psychological plus of major proportions. A trip to South America by one of your closest advisors refuted the charges that the U.S. has lost interest in Latin America or is indifferent to its problems. Since most of those problems are economic, a visit from one of Secretary Connally’s stature and expertise was regarded as especially useful.
It is significant that Secretary Connally could make such a trip at all. As little as a year ago, it might not have been possible without causing major upheavals. In fact, Secretary Connally’s visit was almost free from incidents apart from a few minor demonstrations. The cordial atmosphere encountered by Secretary Connally is evidence of the gradual improvements we have noted over the past year in Latin American attitudes towards the U.S. And the trip contributed to further improvement in those attitudes.
[Page 2]In each country Secretary Connally met with the Chiefs of State, and also with the Government’s top level economic team. With the Chiefs of State, he described your visits to Peking and Moscow, as you had directed.
With the economic teams, Secretary Connally covered the developing international monetary and economic situation in considerable detail. He stressed our view that discussions in the international community on these subjects should go considerably beyond the narrow monetary framework favored by some countries to embrace international trade and capital movements. He said that the U.S. is keeping the special problems of the less-developed countries very much in mind and that we had fought for their adequate representation in the new financial structure which will emerge.
Generalized trade preferences came up in almost every conversation during the trip. He indicated your continuing commitment to this concept, and said you would send legislation to the Congress at the appropriate time. Except where he had specific points to make, Secretary Connally avoided detailed bilateral issues, but dealt with them frankly when raised by the other side.
In Venezuela the discussion revolved around our petroleum relationships and especially the Venezuelan desire for preferences for access to the U.S. market. Secretary Connally, stressing the growing energy crisis, said there is a coincidence of interests between the U.S. and Venezuela that should provide a foundation for productive negotiation. He asked what the Venezuelans might be prepared to give us in return. They had no ready reply.
In Colombia President Pastrana indicated concern with developing monetary and economic arrangements and communicated a sense of frustration felt by less-developed countries which are affected by these arrangements over which they have no control. Specifically, he said that Colombia had suffered serious damage as a result of recent exchange rate realignments which had lowered real earnings from coffee exports. Secretary Connally responded that the U.S. decision to devalue the dollar arose from our own problems and was not directed at any country. He pointed out that Colombia had also benefited in some ways from the currency realignment and warned against efforts by coffee producing countries to raise the price of coffee by holding supplies off the market. He said that such actions might jeopardize the International Coffee Agreement. (The coffee problem also came up in Brazil and was dealt with similarly.)
In Brazil Secretary Connally stopped in Brasilia and Sao Paulo. He had a long and particularly warm meeting with President Médici who recalled with pleasure his conversations with you last December. Medici reaffirmed Brazil’s policies with respect to Cuba, indicated his enthusiastic support for your initiatives in [Page 3] the international arena, and promised Brazil’s support for the U.S. efforts to restructure the international monetary and trading system. Secretary Connally communicated the sense of partnership we feel with Brazil, expressed our satisfaction at our ability to solve problems by negotiations, as in the recent fisheries negotiations, and asked for President Medici’s views on the developing situation in South America.
Medici said that he felt things were improving slightly in Uruguay under its new President, but he expressed deep concern with the direction of events in Argentina. He recalled his conversation with you about Bolivia and said that he remained deeply concerned about the future of the Banzer Government. To a question from Secretary Connally, he said there was no doubt that subversives in Bolivia were being supported from Chile. On Chile itself, Medici said the tide has turned against Allende and the best course is for us to simply let the situation deteriorate without becoming involved in any way.
Secretary Connally was able to spend a day in Sao Paulo, the industrial colossos of South America and the heart of the “Brazilian miracle”. It is the economic nerve center of South America, and also the hometown and political base of Delfim Neto, Brazil’s Minister of Economy, the guiding hand of the country’s industrialization program and Connally’s opposite number and host. Secretary Connally met with both Brazilian and American financial and business leaders, briefing them on the international financial and economic situation.
Secretary Connally’s stay in Argentina extended over a weekend and working contacts were, therefore, confined to a single day. However, he met with both President Lanusse and the economic team. Given the steady deterioration of Argentina’s economy, he placed great emphasis on the damaging effects of uncontrolled inflation in terms of discouraging investment and encouraging capital flight. He promised our support to the extent we are able and mentioned the $100 million Ex-Im credit we have offered to Argentina.
A key part of Secretary Connally’s South American trip was his visit to Bolivia where President Banzer continues to be on extremely shaky ground both politically and economically. There is no question of our desire to support President Banzer, but a major argument had developed in our own bureaucracy on the degree to which we should offer financial assistance without commitments from Banzer to put his own economic house in order, including devaluation. We had asked Secretary Connally to make a personal assessment and make recommendations. Although we do not have complete records yet, Secretary Connally apparently had a very frank conversation with President Banzer. He indicated your personal interest in Bolivia and our firm commitment to be helpful, but also the need to take measures to stimulate the economy and restore investor confidence. On balance, however, Secretary Connally concluded we should not [Page 4] press for devaluation and should immediately make available a $20 million program loan which had been scheduled for FY 1973. Last week a team from AID went to La Paz to work out the details. It is due to return and report shortly. Aside from speeding up our financial assistance, Ambassador Siracusa reports Secretary Connally’s visit to La Paz was a major psychological lift to Banzer and his Government and made an important contribution to their own self-confidence and self-esteem.
We also have extremely delicate problems with Peru. As you know, secret negotiations on the International Petroleum Company (IPC) expropriation case ground to a halt several months ago. Unless good faith negotiations are resumed, the Gonzalez Amendment and perhaps also the Hickenlooper Amendment may be triggered with potentially disastrous results for our relations with Peru, which have been extremely satisfactory since Mrs. Nixon’s trip there and our disaster relief assistance program, have begun to deteriorate in the past several months, perhaps because the Peruvian leaders may have concluded their policy of moderation had failed to remove the irritant of the IPC case from our relations. They have been increasingly bitter, for example, about the denial of credit from international financial institutions.
We had asked Secretary Connally’s assessment of the situation in Peru and, pending his advice, were delaying action on three disaster relief and reconstruction loans totalling $27.5 million. Secretary Connally’s meeting with President Velasco apparently included a frank exchange on outstanding issues including the IPC case. Secretary Connally indicated our understanding of the political problem IPC constitutes for Velasco and his Government, but explained the legal provisions which hem us in. He urged that some way be found to resume discussions on IPC and other outstanding cases, and indicated that we would play a more active role in this country with respect to the U.S. companies involved. President Velasco apparently reacted favorably to Secretary Connally’s presentation, though he has since made a rather tough speech on the general subject of foreign domination of Peru’s economy. As a result of his assessment, Secretary Connally recommended that we release the pending relief and reconstruction loans. This has now been done. We hope he will have other recommendations when he returns on ways to improve relations with Peru.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 954, VIP Visits, Connally Trip 6–7/72. Secret. Sent for information. A handwritten notation on the first page indicates the President saw it.↩
- Haig reviewed the South American portion of Secretary Connally’s trip and concluded that it was a success for U.S. policy. According to Haig, while generally avoiding detailed discussions over bilateral issues, Connally informed the Latin American leaders that President Nixon was committed to generalized trade preferences.↩