67. Backchannel Message From the Ambassador to Argentina (Lodge) to the Assistant Secretary of State for Inter-American Affairs (Meyer)1 2
1. To the surprise of the Embassy, there appears to be a swelling rumor that the United States is preparing massive aid for Argentina, something like the Marshall Plan. Buenos Aires Mayor Montero Ruiz at lunch June 28 suggested to Ambassador that perhaps a program of five billion dollars over a five-year period would solve Argentina’s problems. Other officers of Embassy also approached by GOA officials or by total outsiders and asked whether rumors are true that massive aid under consideration. Not at all clear what source of rumors might be. Ambassador and Embassy personnel have answered that no request has been made and no specific plans under consideration.
2. No one here has set forth a program which external assistance would be expected to support. Obviously, it would be nonsensical to provide foreign exchange in support of an artificial exchange rate. It would flow out of the country as fast as we could put it in. However, problems on both economic and political side are severe and there exists at this time an outside chance that the entire country might go in the wrong direction and fall into inimical hands. Therefore, it would be in the U.S. interest to do whatever it can to shore up a well-oriented Argentine Government as is the case with Lanusse administration and to help it in a time of difficulty; especially in support of policies which may have a chance of turning the country around and reestablishing confidence.
[Page 2]3. Unfortunately, Argentina is talking about sums well beyond the capability of the U.S. Government even if it were to tap all AID funds currently available for Latin America. Accordingly, if any assistance is provided, it seems it would have to take place in the following sequence:
- a.
- The GOA invites an IMF mission to work out a standby based on a firm agreement on a workable exchange-rate policy; for example, a crawling peg but beginning from a base which would keep the Argentine peso slightly under-valued thereby leading to some inflow of the funds which have been hemorrhaging to the exterior. This would also take care of the question of swaps which tie up some 360 million dollars. Other measures would of course be included for tax policies, government expenditures, interest rates, and the like.
- b.
- In support of such a program, a consultative group or a consortium is organized which includes not only the United States but European countries and the international lending agencies. This could take place in DAC framework in OECD or at CIAP. Former seems preferable.
- c.
- Presumably, corrective program and sizeable assistance can be worked out based on 1) inclusion in package of all loans under consideration, 2) some balance of payments help which can be part of a stand-by arrangement, possibly including U.S. Treasury swaps or other commitment. It might not be necessary to support these measures intended to inspire rebirth of confidence by an actual flow of funds.
- d.
- Public announcement to be made simultaneously by GOA and important participants in consortium or consultative group with a view to reestablishing faith in a fully convertible Argentine peso (for example, to where it was two years ago) including foreign investment and the return of flight capital, and assisting the GOA over a truly difficult critical period.
- e.
- It would make sense to come forward with U.S. offer to participate in negotiations provided Lanusse is willing exhibit political courage to do what is necessary at this end. We recommend that we be authorized to convey this thought to Lanusse directly and discreetly.
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