Docs 49-72
No. 23
Washington, undated.
/1/Source: Department of State, Central Files, 720.5/11-1462. Confidential. Attached to covering memoranda from Graham Martin to the President dated November 9 and from Brubeck to Bundy dated November 13. This report covers the 2-week period ending November 9.
MAJOR COUNTRY AND PROGRAM DEVELOPMENTS
1. Results of Mexico City Conference Encouraging
The Alliance for Progress was considerably strengthened by the first annual review conducted by the Inter-American Economic and Social Council in Mexico City during the month of October. This milestone in the conduct of the AFP was greatly facilitated by the careful advance work of all U.S. executives. Not only were the usual Latin American denouncements of the U.S. absent but the Latin American delegates took the initiative in sponsoring action which demonstrated positive adherence to the principal U.S. objectives.
The experience of the first year of the Alliance had, it seemed, convinced each of the member nations that the Charter of Punta del Este was fundamentally valid. The Conference reflected a growing realization on the part of the Latin American delegations that the success of the Alliance, under the Charter, depends in large part on the efforts of their own countries, and is not merely another US aid effort. As a result, the country presentations and the final reports of both the experts and ministerial level meetings subscribed to the vital need for an increased tempo of self-help and reform. The special problems in each of the reform fields--tax, agrarian, institutional--were studied and analyzed with a candor which reached new highs for Inter-American conferences. The Conference concluded that the Central American integration movement was making real progress, though major actions under LAFTA need to be greatly accelerated. In the area of divergent US and Latin American interests--commodity price problems--the final results were at least satisfactory for our purposes, even if temporary.
The Conference came up with some important procedural innovations. First, a committee of two statesmen is to be appointed, to review and make recommendations with respect to the entire Inter-American system in the light of Alliance developments. While this effort is desirable, our primary goal was to provide a platform permitting Lleras Camargo to mount an intensive effort to enlist the younger political leaders in Latin America in more active efforts to implement the principles of the Charter. Secondly, reflecting the strengthened consensus that Latin American efforts were crucial, the Conference established six special groups of responsible government officials, from nine countries each, to review developments in the fields of: planning and project implementation; agricultural development and agrarian reform; fiscal and financial policies and administration; industrial development and financing the private sector; education and training; and health, housing and community development. These groups are to meet at least twice before the next Annual IA-ECOSOC meeting, and will provide real continuity to the review process.
The success of the conference would have received more prominent press coverage both in the U.S. and Latin America had it not been overshadowed by the Cuban crisis. While initially the crisis threatened to sidetrack the Conference, it had a tangible unifying effect on the ministerial delegates.
[Here follow sections 2-9, which discuss miscellaneous Latin American developments during October 26-November 9, 1962.]
50. Airgram From the Department of State to All Posts in the American Republics/1/
CA-5226
Washington, November 10, 1962, 3:24 p.m.
/1/Source: Department of State, Central Files, 371.8/11-1062. Official Use Only. Drafted by Schmukler on November 9.
SUBJECT
IA-ECOSOC Meetings--Mexico City, October 1962
REF
Mexico City's 1221/2/
/2/Dated October 18. (Ibid., 371.8/10-1862)
I. Summary Evaluation
The first Annual Meetings of the Inter-American Economic and Social Council (IA-ECOSOC) conducted a successful review of economic and social progress in Latin America. Meeting for three weeks (October 1-21) at the Experts level and subsequently (October 22-27) at the Ministerial level, frank discussions were held on accomplishments and problems in the first year of the Alliance and future prospects. The fundamental validity of the Charter of Punta del Este was reaffirmed and there was common agreement that the Alliance was primarily a Latin responsibility.
After initial hesitation, a process of self-appraisal and cross-questioning was starting among countries in meetings at the Experts level. For the most part, representatives of Latin governments presented reasonably full accounts of progress and shortcomings in their countries' performances. It is hoped that such confrontation will become a regular feature in the IA-ECOSOC and an important mechanism toward this end was adopted at the meetings. (See Special Committees below.) There was also agreement on the need for high level review of the Inter-American system, to be undertaken by two Latin statesmen.
While the Ministers were of course highly sensitive to developments in the Cuban crisis, the meetings themselves considered only the economic and social aspects of the Alliance, sustaining the non-political tone of the discussions at the Experts level.
II. Major Substantive Issues
There was general recognition that accelerated growth in Latin America will require: 1) well-developed plans which carefully identify investment projects and important structural reforms to be undertaken, 2) greater progress in land reform, taxation and financial discipline, expanded educational programs and other self-help measures, 3) improved opportunities for exports and 4) continued high levels of external assistance with more flexible procedures (see reftel for the extensive experts-level discussion on U.S. aid). On the other hand, the role of private enterprise (domestic and foreign) was not fully discussed.
Of the three major areas of substantive discussion (progress under the Alliance, integration and trade) trade problems raised by the Latins were the most difficult to reconcile with U.S. positions. The Latins continued to press for concerted action to negotiate elimination of European Economic Community restrictions on meat, a sugar study group directed in part toward recommending changes in U.S. sugar policies and prompt consideration of a regional mechanism to compensate for fluctuations in export receipts. The U.S. abstained on the meat and sugar resolutions and was able to appropriately modify the regional approach to compensatory financing.
The discussion of integration in Latin America was less incisive in highlighting important issues or eliciting proposals for further progress. The substantial steps already taken in Central America were noted but broader and speedier actions appeared necessary among the countries in the Latin American Free Trade Area.
III. Major Actions Taken
Some 40 resolutions were approved by the Council, of which particular attention is called to the following:
Agreement was reached on two important structural innovations to help move the Alliance forward. First, a Committee of two statesmen is to be appointed by the OAS Council to review the Inter-American system in the light of Alliance requirements and to make recommendations for adjustments. Second, the Council established six Special Committees which would meet at least twice a year to discuss their respective subjects, in order to promote self-help and reform. The six committees and their memberships follow:
I. Special Committee of Planning and Project Formulation: Argentina, Costa Rica, Ecuador, Haiti, Honduras, Panama, Peru, United States and Uruguay.
II. Special Committee on Agricultural Development and Agrarian Reform: Chile, Costa Rica, Dominican Republic, Ecuador, Mexico, Paraguay, Peru, United States and Venezuela.
III. Special Committee on Fiscal and Financial Policies and Administration: Brazil, Chile, Colombia, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, and Venezuela.
IV. Special Committee on Industrial Development and Financing of the Private Sector: Argentina, Brazil, Colombia, El Salvador, Guatemala, Mexico, Nicaragua, United States, and Venezuela.
V. Special Committee on Education and Training: Argentina, Brazil, Chile, Colombia, Ecuador, Haiti, Panama, Paraguay and Uruguay.
VI. Special Committee on Health, Housing, and Community Development: Dominican Republic, El Salvador, Guatemala, Haiti, Nicaragua, Paraguay, Peru, Uruguay, and Venezuela.
The United States is a member of three of these committees and expects to cover the other committees as an observer. In order to contribute most effectively to the work of each committee it is necessary that our representatives have available a growing volume of information relevant to the work of each committee. We expect the OAS Secretariat to prepare a list of questions for use by the committees (which will be soon sent to the field), answers to these questions should facilitate the discussions of the committees.
In the field of trade, a resolution was approved which specified the characteristics and rules for the establishment of OAS "Action Groups". The basic US objection to these Groups was the interpretation of their powers, including powers of speaking on behalf of, or negotiating for, the United States. The rules state that these Groups may be created by IA-ECOSOC or the Council of the OAS, that the resolutions creating them must specifically state their powers and that the Groups may represent only those countries which approve their establishment. Thus the Group on Meat, for example, does not represent the United States.
Other resolutions were approved setting up special or "pre-action" Groups, whose functions will be to analyze various problems connected with trade in bananas, coffee and cocoa, follow efforts being made in other international forums to arrive at solutions to these problems and, if appropriate, to present to IA-ECOSOC a plan of action to facilitate solutions which may include recommendation for the establishment of Action Groups. The US will decide at the time these plans are presented whether or not it wishes to approve them. The US will participate in the work of the groups on bananas and cocoa. Resolutions calling for support for the creation of international study groups on bananas and copper under UN auspices were also approved.
IV. The Next Annual Meeting of IA-ECOSOC
It was agreed to recommend to the Council of the OAS that the next regular Annual Meeting be held in either July or August 1963 in Brazil.
[Here follows section V., "Main Documents."]
Rusk
51. Memorandum From the Director of the Office of Inter-American Regional Economic Affairs (Turnage) to the Assistant Secretary of State for Inter-American Affairs (Martin)/1/
Washington, November 29, 1962.
/1/Source: Department of State, Central Files, 811.0020/11-2962. No classification marking. A copy was sent to May.
SUBJECT
Certain Concrete Achievements During First Year of Alliance for Progress
1. Improved Tax Administration
Tax collections in 1961 in Bolivia were 17% greater than in the previous year; in Venezuela tax revenues in 1961 were about 15% greater than in the previous year and tax declarations increased 22%. In Chile, as of mid 1962, 100 officials had completed training courses in the newly established school for tax administrators. In 1962 in Chile the first tax fraud indictment was made. Panama estimates that tax collections in 1962, by doubling its auditing staff, will be increased by $5 million (mainly from income taxes). In Paraguay customs and sales levies increased about 50% during the first 5 months of 1962 as compared with the same period of the previous year.
2. Expanded Education Programs
In Chile 14% of the national budget in 1961 was allocated to education as compared with 9% in 1959 ($129 million compared with $69 million). In Ecuador 17% of the national budget in 1962 was allocated to education as compared with about 10% in previous years. In Peru 21% of the national budget in 1962 was allocated to education as compared to about 17% in previous years. In Mexico education accounted for 21% of the national budget in 1962 as compared with 16% in 1959. During 1961 in Mexico, 8,000 new rural schools were opened. In Guatemala, as of June 1962 in a joint program with AID, 971 class rooms had been completed and 467 were under construction. The National Literacy Campaign in Venezuela resulted during a 3 year period in 675,000 persons under age 10 learning to read and write.
3. Agrarian Reform
In a substantial acceleration of the land reform program begun some years ago 71,000 land titles were issued to farmers during the period August 1960 through December 1961. In Venezuela since 1960 some 2 million hectares of land have been distributed among 55,000 families. In Mexico, between September 1960 (Act of Bogota) and July 1962, almost 7 million hectares of land had been turned over to approximately 60,000 families in a continuation of the land reform program started several decades ago. In Salvador a decree was issued by the government requiring a day of rest with pay each week for farm workers.
4. Development Planning
All countries have taken appreciable steps toward the preparation of national development plans. Chile and Colombia have completed plans which have already been evaluated by the Panel of Nine. The Panel is now considering plans submitted by Mexico and Venezuela.
5. Other
The Social Progress Trust Fund has extended loans of more than $100 million in 10 countries in support of expanded low cost housing programs. The Trust Fund has also extended more than $100 million in loans in 11 countries in support of improved water supply and sanitation systems.
52. Memorandum of Conversation/1/
Washington, December 13, 1962.
/1/Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, October-December 1962. Secret. No drafting information appears on the source text, but it was approved in the White House on January 9, 1963. The meeting took place at the White House.
PARTICIPANTS
United States:
President Kennedy
Assistant Secretary Martin
Assistant Administrator Moscoso
Deputy Assistant Secretary May
Mr. A. Jose De Seabra (Interpreter)
Mr. Ralph Dungan
Organization of American States:
Senator and former President J. Kubitschek of Brazil
Former President A. Lleras Camargo of Colombia
President Kennedy welcomed the two former presidents and expressed his gratification over the important task that they were going to undertake./2/ He felt that the general situation in Latin America had become worse over the last two years, and that it called for a common and concentrated effort on the part of all the governments. One problem that was a cause of major concern was the drop in the prices of many commodities. At present the U.S. could not give aid to Latin American countries in the same way that it had helped to rebuild Europe with the Marshall Plan. For one thing, U.S. aid at that time was concentrated in one area. Also the United States' current balance of payments deficit amounts to more than three billion dollars a year, and aid programs represent a loss of 1.3 billion dollars a year in balance of payments. The aid given is spread throughout the world, with countries like India receiving very substantial amounts. With regard to Latin America, U.S. aid is not meeting all the needs, and an effort will be made to provide more next year. It is important to consider the limitations on U.S. aid, although it is recognized that aid under the Alliance for Progress is a matter of primary concern and of the highest priority for the U.S.
/2/In accord with a resolution passed at the First Annual Review Meeting of the Inter-American Economic and Social Council in October 1962, former Presidents Kubitschek and Lleras were appointed by the Council of the Organization of American States to conduct a study of the Alliance for Progress and ways in which its programs could be expedited. See Document 50.
President Kubitschek agreed that the situation in Latin America had deteriorated in the past two years and that it was particularly serious in Brazil. He stressed the need for a joint concentrated effort so that the Alliance might become an efficient instrument for the rapid economic development of the Latin American countries. He realized that even with present limited resources there was a great deal more that could and should be done. At the time of the talks with Eisenhower and Dulles about Operation Pan America, no one thought in terms of 20 billion and it was felt that a great deal could be accomplished with 10 billion. Since then costs had increased. Nevertheless, if the funds now available and committed were used efficiently, the situation could be improved substantially. In talking with many U.S. government officials, President Lleras and himself had discussed a vital aspect of their mission: that of making the Alliance popularly accepted, thus dispelling the present misgivings and lack of confidence that exist in Latin America. When the Alliance was first announced, there arose a widespread belief that aid would be forthcoming with the utmost speed and efficiency. The many delays in the implementation of aid programs have caused a state of despair, even distrust. To offset such impressions it would be necessary to implement programs in the most urgent manner.
President Kennedy recognized that operations should be speeded up. Yet, one could not overlook the rules laid down by the U.S. Congress regarding the feasibility of each project, the need for engineering studies, the precise accounting of expenditures, etc. Even in an experienced organization such as the World Bank, which operated at a high level of efficiency, there usually elapsed about two years between the time the application was made and that when the funds were actually used. Of course there were projects for certain purposes of a special nature such as budgetary support and assistance to balance of payments. In the case of Brazil, there had been difficulties on the U.S. side in connection with the recruitment of personnel and although during his administration sizable funds had been committed, there was not yet much to show. In addition there were conflicting pressures within Brazil. The issue was not one of shifting responsibilities, and the U.S. hoped that the desired speeding-up could be achieved. Often delays were caused by the absence of plans, programs or organizational structure, and even hostility as has been the case in the Brazilian Northeast.
President Kubitschek made some remarks on the specific situation in Brazil. The last time he had visited the U.S. in March of this year he had noticed a feeling of distrust of Brazil and a fear that the country would turn communist. Now, he was running into the same attitudes, only stronger. This feeling of fear on the part of the U.S. was a very serious matter indeed, because it might be translated into a holding back of aid. In the present situation the U.S. should be willing to run the risk of giving effective aid to Brazil, keeping in mind the fact that in Brazil there is a strong and widespread anti-communist feeling. In those circumstances quick and effective aid to Brazil would be of vital importance. President Kennedy, in his latest press conference, had mentioned the grave situation existing in Brazil./3/ The Government of Brazil was well aware of the gravity of the situation and was contemplating measures to combat inflation. Its efforts would be all the more successful if it could count on quick and effective cooperation on the part of the U.S. With regard to the prices of basic commodities in Latin America, it could be said that practically all the aid received from the U.S. was bleeding away through the continuing drop in prices. That matter deserved the most careful study.
/3/In a December 12 press conference, President Kennedy noted the high rate of inflation in Brazil, the failure of the Brazilian Government to implement anti-inflationary economic reforms, and the negative impact this had on Alliance for Progress aid from the United States. (Public Papers of the Presidents of the United States: John F. Kennedy, 1962, pp. 866-874)
President Kennedy pointed out that during the same press conference he had commented on the drop in prices over the last three years, also that he hoped that the Coffee Agreement would bring about some measure of stability in the marketing of that commodity. With regard to the Brazilian situation, he said that the U.S. was no longer in a surplus position on balance of payments. Finance Minister Moreira Salles had visited Secretary Dillon during the Quadros administration and had obtained relatively large commitments, which, although not commensurate to the needs were substantial in the light of the resources available. There are two items which have caused much concern to the U.S. One is the fact that no matter how much money was put into Brazil, that money made no impression because of the continued inflation and flight of capital. The other is the strong radical, Marxist or communist influence on labor and other key areas of Brazilian society, which has been a contributing factor to the over-all worsening of the situation.
President Kubitschek said that he shared the same concerns. He explained that left-wing elements, although they did not seem to carry significant weight, were nevertheless sufficiently active and vocal to help make unpopular the Alliance and any form of relationship with the U.S. He added that any Brazilian official coming to this country to discuss better relations between the two countries would invariably be subjected to a great deal of abuse not only in some newspapers but also on the part of certain members of Congress. At the same time the overwhelming majority of the population was firmly attached to Christian and democratic principles, and a strong reaction against radical ideas was inspired and led by the highly influential clergy together with the business and industrialist community. In that context it was essential that the U.S. be willing to give help and support to those who systematically resisted communism. In spite of the 300 million dollars obtained by Moreira Salles, Brazil found itself in serious difficulties with regard to balance of payments. And there was an ever stronger pressure of public opinion on the Government to the effect that positive measures be taken to curb inflation. It should be pointed out in this connection that there had been five changes of government in Brazil during the past year. It was hoped, however, that with the likely return to presidentialism after the plebiscite of January 6,/4/ the President would again have full powers and could therefore take the necessary measures to correct a situation which caused him the greatest concern. The fact that the situation was definitely going to improve after January 6 should be one more reason for the U.S. to cooperate fully with Brazil and without delay. He then said that it had not been his intention to delve at such length on the Brazilian situation, but since Brazil played such a key role in Hemisphere affairs it was absolutely essential that Brazil be fully integrated in the solutions envisaged for the common problems.
/4/On January 6, 1963, a government-sponsored plebiscite, which restored full presidential powers to Brazilian President Joao Goulart, was approved. The constitutional power of the presidency had been reduced before the Brazilian military allowed Goulart to assume office on September 7, 1962.
President Kennedy made four important points:
--It should be emphasized that the Alliance is not a U.S. run or inspired undertaking, but rather a true cooperative effort that had had its inception with Operation Pan America and earlier aid programs. As far as the U.S. is concerned, the Alliance provides a method whereby U.S. aid can be effectively channeled and increased on a long term commitment basis. This is in contrast to previous programs that were intermittent and not well coordinated. The countries of Latin America should make a decided effort, singly and collectively, to improve their lot with the assistance of the U.S., but never losing sight of the fact that the Alliance is basically a Latin American concept and reality, instead of being some abstract scheme imposed from the U.S. by remote control.
--The problem of falling commodity prices is being seriously studied by the U.S. and Western Europe with a view to preventing the "hemorrhage" previously referred to.
--The flow of private capital to Latin America should be encouraged. There are investment problems in Brazil and Chile for instance.
--There is a need for the U.S. to improve its own procedures so as to attain more speed and to increase aid whenever possible.
President Kubitschek expressed his appreciation for the excellent definition of the Alliance as given by President Kennedy, the best in fact he had ever heard. He was going to include the four points above in the presentation that President Lleras and himself were to make to the O.A.S. He hoped that President Kennedy would use his prestige with the leaders of Western Europe to obtain assurances of a wider European participation in the Alliance, so that industrialized nations would share the aid burden with the U.S. He himself had had an encouraging talk with de Gaulle on the prospects of increased French participation. He was hopeful that deeds would follow the words. In Western Germany he had also found encouraging signs of an increasing interest in the economic development of Latin America. Japan should also be looked upon as an additional source of aid. As a matter of fact Japan had a long and substantial record of constructive investment in Brazil. His own attitude toward private investment in Brazil was best summed up in the fact that during his administration over 2.5 billion dollars from foreign countries were invested in Brazil, at an average of 500 million dollars per year. That was in marked contrast to the sharp drop in foreign investment in Brazil experienced after he had left office. This last year for instance, a mere 10 million dollars had been invested. He was calling particular attention to that difficult situation in order to emphasize the crucial need for effective cooperation.
President Kennedy mentioned the concern caused by radical policies that pushed strongly in favor of the nationalization of capital and the expropriation of foreign investments, with the result that less and less foreign capital was going into countries where such policies were in force or contemplated.
President Kubitschek referred to the situation in Brazil where a handful of politicians with support from the left was waging a campaign that was scaring away foreign capital. In the Brazilian Congress, where there is absolutely no leadership at present, about ten left-wing congressmen of which two or three are avowed communists, had succeeded in pushing through two items of legislation that were a true calamity: namely, the laws on the remittance of profits and on tax reform. There were certain aspects of the situation that were not too unfavorable, however. The automobile industry, for instance, which many thought was doomed to failure, was facing such a demand for vehicles that buyers had to wait for six months after placing their orders. Also, a great deal was being done to improve the lot of rural populations through the construction of key highways and other facilities. And Brasilia continued to play a major role in getting people to settle the interior of Brazil, with the result that additional employment opportunities were being created.
President Kubitschek added that with regard to the all important task of building confidence in the Alliance, such a task was particularly difficult in Brazil, where the friends of the U.S. remained silent, whereas its enemies and detractors were consistently vocal and active. A case in point was that of the Brazilian Northeast, where there had been made a U.S. commitment amounting to 130 million dollars, which had produced favorable reactions. Subsequently, due to administrative deficiencies and shortcomings on the part of Brazil the money had never been used. Unfortunately, those deficiencies and shortcomings were never presented to public opinion in Brazil; the only known fact was that the promised funds had not come, with understandably adverse effects. That again showed the absolute necessity of prompt and effective implementation of aid programs. In summary, speaking with the complete frankness that exists between friends, President Kubitschek said that he wanted to make a confession, namely, that during the last two years many serious mistakes had been made by Brazil in the area of effective cooperation with the U.S. Then he said that he was looking forward to a statement from President Kennedy showing support for Brazil based on a true understanding of that country's problems. With reference to the proposed visit to Brazil by President Kennedy, he said that Mr. Kennedy would receive a most enthusiastic welcome. It was important for President Kennedy to see with his own eyes what Brazil was like, to realize how much friendly feeling there was toward the U.S., and to discover that Brazil was not as presented in the news. There was no denying, of course, that under the present parliamentary system the country had been without an effective government for the past two years. Miraculously enough the country had managed to survive.
President Lleras commented that he was following very closely the Brazilian situation, as he felt that anything constructive that was going to be done in Latin America had to get off to a good start in Brazil. He was also deeply aware of the fact that Brazil presented a most dangerous situation, which had been a cause of major concern for President Kennedy, even more than the Cuban crisis at its worst.
President Kennedy stated that he recognized the key position and nature of Brazil in Hemisphere affairs. He then voiced the concern of the U.S. and his own over the situation in Brazil, which worried him more than that in Cuba. Cuba after all is a small country which has been contained and where the situation can only improve. Brazil presents a great potential for constructive achievement, but the really effective steps must be taken by Brazil. He would very much like to visit Brazil when the situation shows signs of moving toward greater stability, and when the U.S. would be able to play its proper role in relation to Brazil. He hoped that there would be evidence of greater stability and that the visit could take place in 1963.
President Kubitschek expressed his appreciation for the significant words of President Lleras that reflected his great statesmanship and vision. Talking now more than ever in the tone used by close friends he wanted to urge President Kennedy to display his political acumen to the fullest and talk earnestly like a Dutch uncle to Brazil in the same way that he talked so successfully to the voters of Massachusetts when he was running for the Senate. There was no doubt that the Alliance was destined to be an unforgettable page in the annals of world history, but this page now being written by President Kennedy was not completely written. It should show to future generations that in the same way that the Marshall Plan built a wall that halted the inroads of communism, the Alliance should prevent the downtrodden populations of Latin America from plunging into chaos. He stressed the fact that President Goulart had a genuine liking for President Kennedy and considered the latter as a friend. Kubitschek had been shown by Goulart the last letter that Brazil's Chief Executive had received from Kennedy. Kubitschek felt that such exchanges of letters between the two Presidents are a very good thing. Even telephone conversations could be considered as a further means of gaining and keeping the confidence of the President of Brazil. He described Goulart as a man of sound principles with good political understanding, but added that Goulart needs to feel supported, so as to counteract the many adverse influences such as that of his violently anti-American brother-in-law (Brizola)./5/ He felt that this endeavor of bringing the two Presidents closer together in order to enable President Kennedy to win over President Goulart is of paramount importance, even of the utmost urgency, considering the serious situation. The Alliance could not be permitted to fail, for such failure would be catastrophic. He then brought up the matter of the many questions he would be asked about his meeting with President Kennedy: particularly what was Kennedy's position with regard to the Alliance and especially Brazil. Kubitschek asked Kennedy whether he (Kubitschek) could reply that Kennedy had good-will toward Brazil and was willing to cooperate with and assist Brazil.
/5/Governor Leonel Brizola of the state of Rio Grande do Sol in northeastern Brazil had begun nationalizing American-owned property and businesses in his jurisdiction on February 16, 1962.
President Kennedy replied that the U.S. was anxious to help, that he was concerned about Brazil, that country being a matter of constant concern even more than Cuba, and therefore of the highest priority. However, the fact remained that no matter what the U.S. did, the situation might deteriorate.
Assistant Secretary Martin pointed out that President Kennedy had a favorable attitude toward the Alliance as well as toward Brazil. But did Brazil have a favorable attitude toward the Alliance and the U.S.?
President Kubitschek said that there were an overwhelming majority of people in Brazil who were well disposed toward the U.S. At the same time, he granted that there were people in the Brazilian Government who were openly hostile to the U.S. For that reason, it was absolutely essential that the U.S. give strong support to its friends. But if the U.S. were to withhold such support just because of the few in the Government who were unfriendly, then the U.S. would certainly lose the friendship of both the Government and the people of Brazil, and that would be a very grave turn of events.
President Kennedy said that President Kubitschek, when asked about the meeting at the White House, could reply that the U.S. was a very good friend of Brazil and also that the U.S. was giving strong support to the Alliance. He was sure that President Kubitschek had been aware of the deep concern in the U.S. for the problems of Brazil as well as of the sincere desire on the part of the U.S. to assist in working out solutions to those problems. The final solutions, however, rested with Brazil. He pointed out that the U.S. still wished to play the role that Brazil hoped and expected the U.S. would play. But the role of the U.S. was and would be a secondary role, just as it had been at the time of the Marshall Plan. Brazil was the sole master of its own destiny.
President Kubitschek said that he had never intended to ask the U.S. to play the decisive role in the final solutions of Brazil's problems. He pointed out to President Kennedy that during his term of office, he had waged a determined fight for development, having achieved a good deal of success even though he had received almost no assistance from the U.S. Government. There were certain areas of the economy where prompt U.S. cooperation could do much good, such as the balance of payments situation. He wanted to make it emphatically clear that he would never expect the U.S. to come into Brazil and create that country's progress and wealth.
President Lleras said that together with President Kubitschek he was undertaking a thorough study of the Alliance's structure, procedures and operations. A study would also be made of the part played in the Alliance by the U.S. Government./6/ He then asked President Kennedy if someone from outside the Alliance could be made available for liaison and consultation purposes. He hoped that such a person could be of the stature of Acheson or Harriman, as evidence of the interest shown by President Kennedy.
/6/Kubitschek and Lleras submitted their report to the OAS Council on June 15, 1963 (OAS Document OEA/Ser. G/C-d-1102 and 1103). Their principal recommendation was that the OAS create a Committee for Inter-American Development, an executive body for the Alliance for Progress to oversee its programs.
President Kennedy said that he contemplated calling on Acheson, whom he felt to be highly qualified, although most of his experience was with Europe. He also praised the work of Mr. Moscoso as Coordinator of the Alliance. Among certain things to be done he cited the need to determine whether aid procedures under the Alliance could be speeded up. He was aware of the delays in the disbursement of Alliance funds for Brazil and mentioned in that connection the report of the Draper committee./7/ He also invited the two former Presidents to voice any criticism and to formulate any constructive suggestion that would always be welcome. He then pointed out the need to emphasize the positive aspects of the Alliance, such as the efforts made by many countries in carrying out necessary reforms, rather than always to publicize the vast amounts of unfinished business. He recalled that at his press conference the previous day, when asked whether Latin American countries were actually making reforms, he replied that those countries were by and large trying to make reforms, in the face of staggering difficulties that were much greater than anything that a war-ravaged Europe had ever had to experience. He felt that Latin America should organize itself in order to present effectively its views to the European Common Market. He thought that Latin America should speak directly to Europe and with its own voice, so as to dispel the belief often held in Europe that Latin America lies exclusively within the area of interest of the United States. There existed several organizations that could be used effectively to that end, such as the Latin America Free Trade Association and the Central American Common Market. The two former Presidents could also speak very effectively to the European Common Market on behalf of the Latin American community.
/7/See Document 228.
53. Memorandum From the Director of the Bureau of Intelligence and Research (Hilsman) to the Assistant Secretary of State for Inter-American Affairs (Martin)/1/
Washington, December 19, 1962.
/1/Source: Department of State, Central Files, 720.00/12-1962. Secret.
SUBJECT
Trouble Spots in Latin America
As of possible interest in connection with your briefing of the Special Group (CI) on December 20, our Latin American office has prepared a rundown on probable trouble spots in the area during 1963.
We expect a number of the many potential trouble spots in Latin America to flare up during 1963. Communists may instigate or benefit from violence in several countries. Violence or developments unfavorable to the US can occur in connection with scheduled elections or changes of government in nine countries. Abrupt change can also bring trouble in almost any one of these countries and in several others as well. Without attempting to predict the exact form these crises will take, we would identify the likely focus of trouble in each country as follows:
The Caribbean
In the Dominican Republic there is a strong possibility that the transition to representative government will break down, even if the regime emerging from the upcoming elections is installed. The Duvalier dictatorship in Haiti could go during the next year, and give way to political chaos.
Central America
Guatemala will be extremely sensitive throughout 1963. The prospect of Arevalo's victory in the December presidential election may cause new coup attempts and one could prove successful. In Nicaragua a non-violent termination of the Somoza political dynasty through "free" elections will be hard to achieve. As the lid is loosened, a real explosion may develop.
East Coast
The problem of communist-inspired violence is still more significant in Venezuela than in any other country and will continue to threaten serious political instability.
Brazil's problems will be difficult at best. A continuation of leftward slippage under Goulart could lead some elements to seek his ouster. The prospect for a successful coup of the classic Brazilian bloodless pattern is remote, and widespread civil strife would probably accompany the overthrow of the Goulart regime. Although there is still a good chance that Brazil will follow a relatively moderate political course, the potential for internal violence is at a new high.
Even if Argentina returns to representative civilian government, the country will probably still have to deal with recurrent crises, such as those which have marked its political life in recent years. Assimilation of the Peronists could prove too tough a nut to crack and lead to another military solution.
West Coast
In Chile there is little danger of violence, but the municipal elections and opening stages of the 1964 presidential campaign will make the political pot boil. The procommunist Popular Action Front in Chile stands a fair chance of coming out ahead.
The deepening divisions within the ruling MNR in chronically troubled Bolivia will be aggravated as the question of presidential succession comes to the fore; the possibility of fairly widespread violence is enhanced in the short run.
Communists have made alarming progress in labor during the tenure of the military junta in Peru, and the junta's failure to permit APRA to take power if it proves victorious in the promised elections could lead to violence.
Opposition to the Arosamena regime in Ecuador is likely to increase, and its overthrow may come during the year.
Summing up, we find that serious threats to domestic social order or to good relations with the US may appear in perhaps eight countries (Bolivia, Venezuela, Chile, Brazil, Ecuador, Guatemala, Dominican Republic, Haiti) in the coming year. In another three (Argentina, Peru, Nicaragua), the problems of government succession may bring a violent or at least unconstitutional response from the security forces of the country.
54. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Martin) to Secretary of State Rusk/1/
Washington, February 4, 1963.
/1/Source: Department of State, Central Files, POL LA. Confidential. The memorandum and the attached report are companion pieces to a February 1 study entitled "Latin America--Political Progress." (Ibid.) Both bear marginal notations indicating that the Secretary read them.
SUBJECT
Latin America in 1962--Institutional Changes
As an effort to stimulate more qualitative thinking on the part of all of us, I asked the Desk Officers, in cooperation with the Office Directors and the Embassies, to come up, as part of the 1962 review exercise, with a list of the three most important institutional changes which took place in their countries in 1962, and the three that we should most seek to accomplish in 1963.
The results, which are attached,/2/ are not wholly satisfactory, despite several attempts. It is not easy to define what is an institutional change, nor what is one institutional change as distinct from a bundle of meas-ures with a similar objective, nor am I sure that we have really gone deep enough in picking what are the most important things to seek in 1963. A year from now we should know more and be able to do better.
/2/Not printed. The 23-page report discusses institutional changes in each Latin American nation.
A rough summary of the attached papers indicates that we have been, and will be, concentrating on agrarian and fiscal measures, those which have received the most publicity as objectives of the Alliance for Progress. In 1962 there were a dozen items each in these fields. In 1963 there is a step-up in the fiscal reform field with 16 listed, but still only a dozen for agriculture. I should emphasize that these cover a wide range of measures in these fields and do not refer only to higher taxes and break-up of landed estates.
There has been also a commendable emphasis on better planning for the use of scarce resources with 8 major achievements listed for 1962 and 9 projected as desirable for 1963.
While it has not been quite clear that non-governmental changes should be listed as "institutional" changes, it is significant that despite this limitation there were 4 achievements in 1962 and 5 projected for 1963, which deal directly with expanding the role of private enterprise, largely in the industrial field. Agricultural credit and technical assistance for farmers, as well as promotion of home ownership are also, of course, efforts in the direction of expanding the private stake in the community.
In view of the fact that the shortage of trained personnel for private and public enterprise is a crucial bottleneck in the program of the Alliance, and that educating leadership is necessarily a relatively long term job, it is disappointing that in this first full calendar year of the Alliance for Progress only one is reported in the educational field. However, six are projected for 1963. I am still not sure we are giving adequate emphasis to this area, though it may be that the need is for many small steps, rather than big ones which could be listed as one of 3 major targets.
55. Memorandum of Conversation/1/
Washington, February 7, 1963.
/1/Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, Jan-Mar 63. Secret. Drafted by Collins and approved by the White House on February 12.
SUBJECT
Conference of Central American Presidents, the President of Panama and President Kennedy in San Jose, March 18-20
PARTICIPANTS
United States Government:
The President
Mr. Ralph A. Dungan, Special Assistant to the President
Ambassador Angier Biddle Duke, Chief of Protocol
Mr. V. Lansing Collins, Director, Office of Central American and Panamanian Affairs
Costa Rican Government:
His Excellency Daniel Oduber, Foreign Minister
His Excellency Gonzalo Facio, Ambassador to the United States
President Kennedy opened the meeting by asking Foreign Minister Oduber what arrangements are being made for the meeting in San Jose./2/ Mr. Oduber said that a schedule was being worked out which he reviewed in brief with the President. He stressed that it was his hope to avoid bilateral talks in which demands would be made of the United States. He said that the substantive topics would be the economic integration of Central America and the threat posed to the economic and social development of Central America by the "reactionary" Soviet dominated Castro regime. Mr. Oduber described in some detail the eventual hope of the Central Americans that in the next few years a customs union and a monetary unit in Central America could be established and that in ten years a Central American and Caribbean customs union could include the Dominican Republic, Jamaica, Trinidad, and even eventually Colombia and Venezuela. The Central American and Caribbean customs union would have a population of nearly 40 million people and would afford an opportunity for a vast economic and social program. Mr. Oduber described this 10 year plan as the dream of the liberal group in the Caribbean, of which he and his friends in Costa Rica were a part, as were Presidents Betancourt, Villeda and President-Elect Bosch with Governor Munoz-Marin as senior statesman. Mr. Oduber, in reply to a question from the President, said that the six Central American Presidents would meet in San Jose the day before President Kennedy arrived and that, furthermore, the Central American Foreign Ministers and Ministers of Economy planned to meet in Tegucigalpa, Honduras, February 12 and 13. He indicated that out of the Tegucigalpa meeting should come a report of Central American integration so far, a statement of the intention to achieve customs union and a monetary unit within a few years, and an assertion that this indicated that the Central American countries were faithfully and promptly carrying out the directives of Punta del Este and were thus deserving of special treatment. The Tegucigalpa paper would conclude with a request to the President of his opinion of this program and of his support for the program and further social and economic development in the area. The position in the document will be taken that the Castro regime in its present form under Soviet domination with Soviet troops, etc., in Cuba represented a reactionary threat to the Alliance for Progress and the social and economic development of Central America.
/2/Reference is to President Kennedy's meeting with the Presidents of the Central American Republics and Panama in San Jose, Costa Rica, March 18-20; see Document 58.
Mr. Oduber indicated that he felt the Cuban situation could become dangerous. The President replied saying that though Mr. Khrushchev had promised to remove Soviet forces in Cuba only a relatively small number had been taken out so far. The President said that we might see a diminution of these forces in the next month or so but that it was equally possible that a new Cuban crisis might involve an even greater confrontation than had the last. The President said that in any event the support of the Latin American countries in the OAS, as in October,/3/ was vital. President Kennedy then asked Mr. Oduber what the Central Americans thought should be done about Cuba. Mr. Oduber said that there were a number of views. Presidents Yd#goras of Guatemala and Somoza of Nicaragua favor an outright invasion while Oduber and his friends favor the strengthening and increasing of present non-military pressures and the training and equipping of guerrillas and saboteurs in the hope of bringing down Castro within the year. The President injected a word of caution at this point saying that the Soviets had helped Castro establish a police state which was highly efficient and that we had not had too much good fortune with guerrillas and saboteurs. The President also expressed the hope that the Central American nations could make some kind of declaration about Cuba prior to his arrival in San Jose so that it could not be alleged that the Central Americans were being drawn by the United States into an attack on Cuba. Mr. Oduber agreed to try to get something like this out of the Foreign Ministers' meeting in Tegucigalpa which might be issued by the Presidents in Central America the day before President Kennedy arrives there or might be issued by the Foreign Ministers after Tegucigalpa. In any event it was agreed that the theme would be recaptured in the Declaration of San Jose but in the sense of Soviet-Castroism impeding the social and economic revolution in Central America under the Alliance for Progress.
/3/Reference is to Latin American support for the United States during the Cuban missile crisis of October 1962.
Mr. Oduber also expressed the hope to the President that he would address the students of the University of Costa Rica.
The President expressed the hope that we could discover some new themes to emphasize in the Declaration of San Jose, falling back on the re-emphasis of old themes if necessary. It was generally agreed that a number of new themes could be found.
In discussing the question of the association of other areas to the Central American Common Market President Kennedy asked Mr. Oduber whether President Bosch of the Dominican Republic was going to attend the San Jose Conference. Oduber said that it had been his intention to invite him but that Guatemala had refused to consider this as there were no diplomatic relations between Guatemala and the Dominican Republic. Mr. Oduber went on to say, however, that there was a little bit more to it than that. Guatemala is opposed to Jamaica and Trinidad joining the OAS because of its fear that this will prejudice its rights to British Honduras and consequently Guatemala is at the moment opposed to any further extension of the Central American Common Market system. Mr. Oduber hoped to be able to change this position soon.
56. Summary Record of the 509th Meeting of the National Security Council/1/
Washington, March 13, 1963, 4:30 p.m.
/1/Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, No. 509. Top Secret. Drafted by Bromley Smith.
SUBJECT
Latin American Policy
[Here follows discussion of Cuba and Haiti; see Document 377 and Foreign Relations, 1961-1963, volume XI, Document 292.]
Turning to the economic side, the President asked whether there was anything we could do to halt the flight of capital out of Latin America.
Secretary Dillon responded at length and made these points: All of Latin America, minus Cuba, is one problem. We are not making as good use of the Alliance resources as we should for political purposes. We must always move in an overall framework and help the countries that are friendly to us more than we now do. Putting one country against another in solving an immediate problem hurts us; i.e. Brazil, which we have to help economically, does little to help us politically. We must tie aid programs and politics closer together. One way to do so would be to give AID Administrator Bell a larger political role in addition to making him Alternate Governor of the Inter-American Development Bank. We are trying to arrange tax rebates in order to increase the profitability of U.S. investments in Latin America. Such rebates will not do the job alone and we should continue the investment guaranty program in those countries where it is acceptable.
Director McCone asked why the Latin American countries could not do more to protect private investments. Mr. Martin said investments were affected by inflation, by political instability, and by plain bureaucratic harassment.
(Ambassador Stevenson arrived at this point.)
Under Secretary Ball pointed out that the OECD was drawing up an investment code for use in underdeveloped countries.
Secretary Dillon acknowledged that private businessmen in Latin America had been very remiss and had thought only of their selfish interest rather than the national interest. He cited instances in which local Latin American businessmen were now getting into politics to the extent of persuading their governments to act so as to increase internal stability. Mr. McCone said that private businessmen were very helpful in Vene-zuela and Nicaragua and that we should do all we can to promote similar interest by businessmen in other Latin American countries.
In response to Mr. Rusk's comment that we could not permit Brazil to get away with violating all our economic criteria, Secretary Dillon agreed. He pointed out that the better a country performs economically, the harder our policy toward that country becomes. He thought that we should be easier with those countries which followed economic policies which made sense to us.
Mr. Martin responded to a comment of the President's which referred to earlier complaints of Ambassador Mann about coordination by citing the close cooperation which now exists between AID and the State Department on Ex-Im Bank matters. As regards the IDB, we do not have a complete veto. Private banks which had been lending heavily to Mexico, responded to our suggestions that they hold down further lending.
Under Secretary Ball called attention to the fact that AID Administrator Bell was now being brought into the main stream of policy as Under Secretary, and that he, in fact, was serving as head negotiator for the Brazilian and Argentine deals.
Secretary Dillon commented that Bell should become a full political officer and it should be understood by Latin America that he is such, not merely an aid dispenser.
[Here follows discussion of independence for British Guiana and Cuba.]
Bromley Smith/2/
/2/Printed from a copy that bears this typed signature.
57. Memorandum From the Attorney General's Administrative Assistant (Symington) to the President's Special Assistant (Schlesinger)/1/
Washington, March 15, 1963.
/1/Source: Kennedy Library, Schlesinger Papers, Writings, Alliance for Progress--General Memoranda. No classification marking.
RE
Alliance for Progress--Promotion
I remember in the early organizational days that there was a consensus among the representatives of State, USIA, and other Inter-Agency spokesmen that action should precede words, and that promotion features should take a back seat to accomplishment. This philosophy has been carried out too successfully. Among the intelligentsia attitudes range from whimsy to cynicism as a new form of U.S. imperialism. Among the masses there is hardly any attitude at all.
It seems the Latin governments feel they can benefit from the Alliance without promoting its concepts--perhaps because some of them are revolutionary. But, I think the story could be told in each country in a way appropriate to the times and tides.
Even in the worse barriadas people have a number of transistor radios. I think it would be useful to stimulate a hemisphere conference of leaders in the Broadcasting Industry on the subject of the Alliance and the need to explain its purposes, its direction, and its results to-date. It should be held not here but in Latin America and perhaps Leroy Collins and some colleagues could attend it on our part, with USIA observing but not participating.
I have heard many Latin announcers selling soap, and beer, and reporting soccer games; they do this with gusto and excitement. I think it was time the Alianza receive this kind of treatment across the board.
I read the much edited yet very interesting report on the Inter-American Symposium you attended. I think we need much more of this kind of effort in the private sector.
Jim
58. Editorial Note
President Kennedy attended a summit of the Presidents of Central America and Panama in San Jose, Costa Rica, March 18-20, 1963. The meeting had been suggested by President Miguel Ydigoras Fuentes of Guatemala the previous July. The Kennedy administration viewed the meeting as an opportunity to promote the Alliance for Progress, stimulate Central American economic integration, and consolidate support for the diplomatic isolation of Cuba.
President Kennedy opened the summit on March 18. The following day he flew to El Bosque, outside San Jose, to visit a housing project being built with Alliance for Progress funds. On March 20 he addressed students at the University of San Jose before returning to Washington. Under the terms of the Declaration of Central America, signed by the Presidents on March 19 and released publicly on March 20, President Kennedy pledged $6 million for a survey to determine the quality and timing of U.S. aid to Central America. The text of President Kennedy's remarks during the summit as well as the text of the Declaration of Central America are in Department of State Bulletin, April 8, 1963, pages 511-520, and American Foreign Policy: Current Documents, 1963, pages 231-238. Documentation on the San Jose Conference is in Department of State, Conference Files: Lot 66 D 110, CF 2228-2233.
59. Telegram From Secretary of State Rusk to the Department of State/1/
San Jose, March 19, 1963, 11 p.m.
/1/Source: Department of State, Conference Files: Lot 66 D 110, CF 2229. Official Use Only; Priority.
Secto 3. Highlights First Plenary Session (public). Rivera (El Salvador) Chairman.
Rivera. Emphasized economic integration, political unification. Integration a form of self help under Alliance for Progress. Asked CA Presidents commit selves to: (1) customs union; (2) free movement labor; (3) mobilization available capital; (4) regional coordination national policies, plans; (5) stable higher prices for primary commodities; (6) self help and reform, including good private investment climate, more public investment. Asked more foreign assistance. Noted Cuban subversive impedes accomplishment Alliance goals.
Orlich (Costa Rica). Must improve political, social conditions. Called for: (1) greater civic conscience; (2) better living conditions; (3) ample employment opportunity; (4) equality of opportunity; (5) elimination economic inequities between nations as well as between classes of people; (6) willingness to accept results of democratic processes. Noted US power shields Latins from Soviets, enabling Latins devote selves to economic and social progress, asked reduced Latin military budgets. Hoped for early international disarmament, reallocation funds to help under-developed areas. Asked early completion Inter-American highway.
Ydigoras (Guatemala). Seeks: (1) a Republic of Central America; (2) solution of some economic and social problems; (3) control of Belize (British Honduras). Expects US help, especially on Belize.
Villeda (Honduras). Emphasized harmful effects on CA politics, society, economy of filibusterers, old foreign investors such as fruit companies. Conceded foreign businesses not now as bad as once were. Said major CA problems are: (1) need for political unity; (2) population pressures; (3) precarious economy--poor terms trade with industrial areas, lack development capital (said free enterprise socially and politically most desirable, but lack of resources demands large government role in development); (4) lack of civic conscience which leads to Caudilloism; (5) Cuba and Castroite subversion; (6) need for rapid CA economic integration (requires external help); (7) advance under Alliance for Progress, better living standards, sacrifices by all (especially CA elites), perhaps some radical solutions.
Somoza (Nicaragua). Called for CA unity, better security arrangements against Cuba, support for Guatemalan claim to Belize, CA economic integration. Under economic integration asked: (1) industrialization, foreign investment, currency stabilization; (2) more import substitution; (3) better living conditions for all; (4) flexible foreign financing which helps pay local currency costs of development; (5) uniform regional foreign trade policy; (6) Panamanian association with CA common market. Deteriorating terms of trade, lack of education and housing, poor land distribution, poor health impede economic integration movement.
Chiari (Panama). Panama expects from meeting (1) more aid under Alliance for Progress, (2) better control of subversion. Economic development requires (a) greater mass market, (b) correction inequitable terms trade, (c) success of Alliance for Progress. Re Alliance he feared failure because U.S. and Latins dissatisfied with contributions of each other, lack of spectacular progress gives Latins sense of hopeless impotence. Noted Panama's special trade and economic relationships, nevertheless supported full economic integration of five CA countries, asked associate membership.
Schick (President-elect Nicaragua) spoke, covered same ground as others in general way.
President Kennedy cited (1) common American heritage, brotherhood; (2) Inter-American system and past joint actions keeping extra-continental powers out of hemisphere; (3) non-intervention; (4) joint hemispheric effort in Alliance for Progress, CA accomplishments and needs, need for equality of opportunity for all; (5) hindrances created by Castro-Communist subversion. Reference to defeat of William Walker and pledge of U.S. support for CA economic integration brought ovations.
Rusk
60. Summary of Meeting/1/
Washington, March 20, 1963.
/1/Source: Department of State, Bureau of Economic Affairs, Policy Reporting Staff Files: Lot 65 D 68, Interdepartmental Committee of Under Secretaries on Economic Policy, Private Participation in the Alliance for Progress. Official Use Only. Prepared by Ruth Donahue, Chief, Policy Reporting Staff, Bureau of Economic Affairs, on March 25.
INTERDEPARTMENTAL COMMITTEE OF UNDER SECRETARIES
ON FOREIGN ECONOMIC POLICY
Problems Related to Private Participation in the Alliance for Progress
I. Attendance
[Here follows a list of participants. Under Secretary of State McGhee chaired the meeting.]
II. Problems Related to Private Participation in the Alliance for Progress
A paper on this subject had been prepared by Commerce and circulated prior to the meeting. Mr. Behrman made the initial presentation, discussing specific problems, issues and questions which had been raised by the report of the Commerce Committee for the Alliance for Progress (COMAP) to Secretary Hodges. Comments were then made by most of the agencies represented.
The COMAP Report./2/ COMAP is an advisory group of about 25 businessmen which Commerce asked to look into the matter of private participation in the Alliance for Progress last spring. The original idea was to have task forces do feasibility studies of industries in specific countries in Latin America. As the Committee got under way, it concluded that the problem was not so much that of identifying specific investment opportunities but rather of getting the obstacles cleared away and, if that could not be done, to find ways of meeting the situation so as to generate more private investment.
/2/Not found.
The COMAP report does not represent a consensus of the Committee but is almost wholly that of Peter Grace, who contributed some fifteen people from his firm to work on it. It might be added that Mr. Grace is addicted to statistics and the report is full of them. There have been a good many comments on the report from other members of the Committee. Most of them have been in favor of its conclusions, although some exceptions were taken to certain points. Only one was clearly opposed to the tax credit idea. Messrs. Rockefeller, Collado and Wriston/3/ wrote a long letter commenting on and concurring in the report. Unfortunately, this letter became public and has raised some serious objections in relatively conservative circles in Latin America.
/3/Reference is to David Rockefeller, Chairman of the Chase International Investment Corporation, Emilio Collado, Director of the Standard Oil Company, and Walter Wriston, Executive Vice President of City Bank of New York.
The report concludes that the decline in American private investment in Latin America has become so serious that the situation cannot be remedied by our trying to persuade the Latin Americans to alter their investment climate themselves but that the United States Government should take unilateral action to neutralize or offset the risks to investment there. The report speaks of four main categories of risks: low profit rate, foreign exchange losses suffered by American subsidiaries that are not suffered by local companies, no earnings at all, and loss of the investment capital itself. The report has about twenty-five recommendations which can be grouped under the following headings: 1) tax recommendations; 2) local currency recommendations; 3) investment guaranty recommendations; and 4) general recommendations.
Tax Proposals. Treasury studied the COMAP tax proposals and found most of them not very helpful. Treasury sent a reply to Mr. Grace on most of the proposals, but has not yet had a comment from him. We already have a pretty liberal system of taxation for investments in Latin America and all developing countries, but COMAP is asking for something more than we have now as an incentive to investment in Latin America.
The report asks for tax sparing, but that would pull money out of the countries as it operates only when the money comes back to the United States. We have generally gone on the assumption that any incentive that operates to induce profits to come out of Latin America is not the best kind but that incentives should encourage money to go to Latin America. So the United States Government has decided against action in this regard.
In the United States there is a 5% credit against U.S. taxes for investment. Treasury has thought that could be extended to investment in Latin America. Mr. Grace and others think that is not enough, and have suggested a 25% credit for new investments in Latin America. This is the proposal that is being considered by the Executive Branch. If something like this is necessary to make the Alliance work, Treasury believes it could be added appropriately to the tax system. Whether the Congressional Committees will agree is another question.
We have not been able to come up with any estimates as to just how much investment would flow to Latin America as a result of such action but it may be that this device will transform what might have been a marginal investment proposal into something viable. It may, of course, give a windfall to investors who would be going down anyway.
Treasury has worked out a mechanism with the other agencies which, while complex, should work. The tax credit would not apply to investment in the extractive industries, both because such industries do not seem to need it as an inducement to go in and because politically it would be unwise to do so. This is about ready to be submitted to the President with a recommendation that he submit it to Congress. Responding in this way with something concrete should enhance the Government's relationship with the public committee and may create a psychological effect that will lead to a broader economic effect.
Local Currency Proposals. COMAP did not seem to understand that under the PL-480 agreements where we have counterpart funds, we must negotiate with the countries on their use. Where we have a shortage of PL-480 funds, which is chronic in Latin America, we have an allocation of 25% and it would not help to raise it to 50%.
COMAP's chief interest was to find other sources for local currency which could be loaned to investors so they could use it as a hedge against devaluation.
It was suggested that counterpart from balance-of-payments loans be considered for this purpose. On that suggestion we can point to Colombia as a response. A portion of the local currency from the $60 million balance-of-payments loan is being lent through the Central Bank down there to international firms that want to borrow. (COMAP recognizes that such funds must be available to other investors as well as American.)
Investment Guaranty. The recommendations of the COMAP report in the investment guaranty field are not too helpful. AID is already working on this and is making progress. Within AID, it is being recommended that in the next few months diplomatic pressures be used wherever feasible to get the agreements signed. AID is updating the ground rules for investment guaranties and is asking for increases in the ceiling on investment guaranties along the lines of the COMAP recommendation. It will streamline and simplify contracts. We are considering a multilateral risk guarantee but think that we should get other things settled first before pursuing this.
Criticism at the Meeting of the COMAP Report. AID felt that the COMAP report didn't take cognizance of the difference between two things: a) efforts to improve the climate, which is a very gradual process on which more progress is being made than either the COMAP report or the Rockefeller-Collado-Wriston letter indicate; and b) the impossibility of waiting until we have reached the optimum climate before we become operative.
There is a fallacy in using the statistics and averages in the COMAP report--low return, no return, etc. A businessman does not make an investment in Latin America--he makes an investment in a specific business in a particular town in a selected country because he thinks he will make a profit. Use of the term "Latin America" is misleading, because there are so many differences among the countries and within the countries. Also it is fallacious to speak of the business community as a single entity. There are all kinds of differences of opinion within the community, and the twenty business committees concerning themselves with Latin America do not speak with one voice.
There were comments to the effect that the COMAP report exaggerated the problem--that the investment climate is not as unattractive as the report made out; that some investment is taking place; and that the rate of return is not as low as the report indicated. The major problem is in the Latin American countries themselves and is something we cannot influence in a major way either by agreements, exhortation, or U.S. legislation. The real problem is doubt on the part of the investor deriving from Latin American revolutions, expropriation in Cuba, inflationary conditions, and mismanagement. It is largely psychological, and the only way to offset it is to have it become generally realized that people are doing business in Latin America and doing well there.
Agriculture had a strong reaction against the COMAP report's desire to back away from land reform. Agriculture agreed with the comments in the Commerce paper that the basic objectives of the Alliance, including land reform, health and educational programs, must go on if the Alliance is to have widespread support in Latin America itself.
Some of the statistics in the COMAP report were criticized as not presenting the true picture. For example, the report shows that in the first nine months of last year there was a net outflow of U.S. capital from Latin America. The other months of that year show a different trend. Also, no account is taken of the Japanese and European investment in Latin America which is considerable.
How to Use the Private Sector in the Alliance. The report, which one official characterized as the worst blow yet to the Alliance, raises a question as to how to use the private sector in approaching a problem that involves the private sector. The COMAP experience is one which would lead a good many to be wary of participating in this kind of an effort. It is a serious problem to bring a group in on an advisory basis. Now we have quite a problem in getting Mr. Grace squared away in testimony.
The longer-range issue is how to mobilize the private sector for the Alliance in Latin America as well as in the United States. This is one of the most difficult problems in the Alliance. The private sector is very disaffected and doesn't feel it has been adequately consulted. In this regard, one of the problems discussed in Committee IV at Buenos Aires was the place of industrial promotion centers and getting the private sector to take responsibility for doing basic industry feasibility studies to find opportunities for investment which should be pursued and then finding the financing for the investment, through the IDB or elsewhere.
Mr. Rostow said that we should be thinking not merely how to encourage private investment but how our leadership in private enterprise can make a contribution to the structural problems of Latin American countries. Private enterprise activities in the fabrication sector tend to be confined to cities and the middle class urban market. Behind lays the hinterland and the vast slums. A central problem is to break the private enterprise activities out of their limited urban markets and offer on a mass basis the means for increasing productivity in the form of agricultural tools, equipment, fertilizer as well as the incentives in the form of consumer goods. A major contribution of American private enterprise would be to make common cause with those Latin American businessmen who have the energy and potential to break out of the present situation and think in terms of a mass market.
The Problem of Relating Stability and Development. Mr. Rostow spoke of the difficulty of marrying fiscal and banking measures designed to produce stability which have a deflationary effect with development projects which involve government-to-government investment for social overhead projects. There is danger of throttling the private sector. He hoped that problem could be discussed sometime, in this forum.
Need to Improve the Image of American Investment. It was suggested at the meeting that there needed to be a real campaign to remove the bad and unfair image that has been created with respect to American investment. People should be made aware that American private investment has put into less developed countries good housing, schools, hospitals, roads, and other things which improve the standard of living. The Latin Governments should give credit for the benefits, and the American companies themselves should do something about improving their image. Officials of American subsidiaries should take part in the community, for example, participating in the local Chambers of Commerce as well as in the American Chambers of Commerce.
It was noted that enough material was available to make an effective reply to criticisms of the Alliance and misconceptions concerning business; someone high in the Administration should make a speech on this subject.
Summation. Mr. McGhee noted that the discussion had brought out several very important points. The Latin American countries themselves have much to do. We have limited means to induce them.
It is important that we should not be talked out of our basic philosophy on the Alliance for Progress by Mr. Grace. The San Jose meeting of Presidents made clear that we are going forward with social measures at the same time as with the private sector, and that we haven't changed our philosophy. In individual cases, we have to consider how far to press, but the general basis and objectives are the same as outlined at Punta del Este.
III. Next Meeting
The next meeting is scheduled for April 4, and Governor Harriman will preside. The subject will be "Problems of Foreign Aid: Alternative Means of Helping Nations to Achieve Self-reliance". AID is preparing a paper which will be circulated.
C. W. Nichols/4/
Executive Secretary
/4/Printed from a copy that bears this typed signature.
61. Memorandum From the Executive Secretary of the Department of State (Brubeck) to the President's Special Assistant for National Security Affairs (Bundy)/1/
Washington, March 25, 1963.
/1/Source: Department of State, Conference Files: Lot 66 D 110, CF 2233. Confidential.
SUBJECT
Implementation of Agreements Reached at San Jose
In response to the President's written inquiry of March 22/2/ to Assist-ant Secretary Martin, there is enclosed an initial report on measures being taken to implement agreements reached at San Jose.
/2/Not found.
D. Rowe/3/
/3/Rowe signed for Brubeck above Brubeck's typed signature.
Enclosure
Memorandum Prepared in the Department of State
SUBJECT
Implementation of Agreements Reached at San Jose
A. Security Measures Against Subversion in the Isthmian Countries:
1. We have notified Nicaragua we will be represented at a meeting of Ministers of Interior at Managua on April 3.
2. We circulated to our Embassies in the Central American Isthmus on March 23 a telegram outlining the range of measures we might wish to take up at Managua on April 3, and requested comments and suggestions from the field./4/
/4/Reference is to Department of State Circular 1641; Department of State, Central Files, POL 7 NIC/FM.
3. Major General Krulak has been assigned responsibility for substantive preparations for the Managua meeting. He is preparing for the consideration of the Department an outline of our objectives for the conference, suggested agenda, and delegation membership, all of which will be cleared with Mr. Ralph Dungan.
The head of our delegation has not yet been named; Deputy Attorney General Katzenbach or Deputy Assistant Secretary of State Cottrell are under consideration./5/
/5/The Meeting of the Ministers of Government, Interior, and Security of Central America and the United States met in Managua, Nicaragua, April 3-4. The U.S. delegation was led by Deputy Attorney General Nicholas Katzenbach. The Final Act of the meeting is printed in American Foreign Policy: Current Documents, 1963, pp. 239-242.
B. Alliance for Progress:
1. Managua Conference
a. Mr. Moscoso will lead a delegation of State and AID officials from Washington and US AID Directors in the Isthmian countries to a conference with Isthmian Ministers of Economy, Finance, Public Works, etc., at Managua April 4-6.
b. State/AID circulated to our Embassies in the Isthmus on March 23 a suggested agenda for the meeting, and solicited comments and suggestions.
c. The proposed agenda is designed to give maximum acceleration to formulation and execution of development projects in the Isthmus, both regional and national, and will be the major follow-up operation.
d. After the Managua conference an AID/W team will visit each capital to complete action on loan projects and applications which may not have been concluded at Managua.
2. Other
a. AID on March 21 obligated $75,000 to the Disabled Persons Institute at Tegucigalpa. President Villeda Morales received notification on arrival at Tegucigalpa airport from San Jose.
b. AID is prepared to grant $130,000 in support of the Children's Hospital in San Jose as soon as the Ambassador notifies us as to the appropriate timing.
c. We are examining the record of the bilateral talks at San Jose to identify other commitments made so that we may follow up on them without delay.
62. Circular Telegram From the Department of State to All Posts in the American Republics/1/
Washington, March 27, 1963, 11:36 a.m.
/1/Source: Department of State, Conference Files: Lot 66 D 110, CF 2229. Confidential. Drafted by King; cleared by Phillips, Martin, and Goldmann; and approved by King.
1667. During San Jose conference Secretary met various US newsmen regularly stationed Latin capitals. He impressed by their ignorance Alliance for Progress. Some these same correspondents in recent stories explained at great length why Alliance is failing. In aggregate, they have contributed significantly to negative image of program being formed by US public and Congress.
With concern over problem increasing at highest level administration, Department feels ARA country teams from Ambassador on down have special, urgent responsibility provide maximum positive guidance to resident US correspondents as well as casuals passing through. Without gilding facts or minimizing problems, Department feels there are enough Alliance accomplishments which, if pointed up, would moderate reporters' preoccupation with program failures and shortcomings.
Evidence of this was seen during San Jose meeting when stories began appear in US press sounding gee-whiz note that in fact there has been considerable and even surprising progress under Alliance.
In laying on guidance, posts should (1) emphasize fact Alliance not US aid program but rather US pledge aid these countries willing make sacrifices and provide great bulk of total investment required in economic, social development programs, (2) deal with self-help projects undertaken without reference to Alliance or without US funding as Alliance projects as long as they are within spirit of Punta del Este and (3) based on materials provided from Washington keep newsmen informed on Alliance as whole and not just your country.
It would be most helpful intensify Latin American identity with Alliance and its goals. Most convincing display of success in Alliance is active participation and involvement in it by Latin leadership.
Rusk
63. Memorandum From the Secretary General of the International Peace Corps Secretariat (Goodwin) to President Kennedy/1/
Washington, September 10, 1963.
/1/Source: Kennedy Library, President's Office Files, Staff Memoranda, Goodwin. No classification marking.
In the last couple of weeks (while on vacation) I have given considerable thought to the Alliance for Progress in my recent capacity as disinterested observer.
I believe this is the most important on-going program of your Administration (as distinct from critical decisions such as Cuba, test ban etc.). Moreover it is a new and significant initiative in U.S. policy toward an area of the world which has been of historic and intimate concern to us; an area which is second in importance only to Europe. Its success would be viewed as one of the great achievements of U.S. policy ranking with the Marshall Plan, the Good Neighbor policy etc.; policies which now have the gloss of past triumphs but which were intrinsically no more path-breaking or significant than the Alianza.
It is increasingly disappointing that a program which is sound in conception and historically right is operating at about one-half effectiveness. (And that may be a generous estimate.) I have continual self doubts about this estimate since Washington is a city filled with reassurances and self-justification; but every time I get involved or go to the field (I was recently in Bolivia) my dismay and alarm keep crowding back. As an example: about a year ago we suggested the state-to-country program using California and Chile as a pilot. Everyone concurred in this idea. Several times you indicated your personal interest in it. Yet one year later a person is being placed on the staff to implement the project. This, I submit, is inexcusable and, as a result, we have lost not only time in the Alianza but all hope of political benefit in time for Congressional actions on the AID request. Another example: The AID Director in Bolivia has been waiting six months for a qualified loan officer despite the fact that he has one of the largest, if not the largest, loan program in Latin America. Individual instances of this sort can always be explained and justified; but they are part of a pattern of lack of imagination, daring, administrative efficiency etc. which is critically damaging the program.
Much of the delay etc. is explained on the grounds of the necessity to be careful about what Congress thinks. But all the cautions in the world have not only failed to win over those hostile to the Alianza; but the consequent failures and delays and inefficiencies have helped to alienate our friends. A dynamic, successful program--well-publicized--is the way to win congressional support rather than the building of an intricate network of safeguards which protect the individuals running the program, but not the program itself. The fact that obvious failures cannot be blamed on anyone is itself a bad sign. For people unwilling to take chances of personal failure will never run the risk of success.
Probably the most serious single problem is personnel. The Alianza has the same trouble as the Washington Nats--they don't have the ballplayers. There are, of course, some very good people, but there is also a tremendous amount of mediocrity in high places. No program is better than the people who run it. The reasons for this are many and too detailed to go into here, but they include: complete lack of a good recruiting effort, impossible personnel procedures, a structure which discourages individual initiative and responsibility, a careerist mentality, and inability to recognize mediocrity when it is seen. There are good people available, and they can be recruited. I know this for several reasons: (1) I know enough people to know there are good people available; (2) Shriver's success at recruiting people, some of them formerly among the best of AID. The Alianza is intrinsically more exciting, bigger and more glamorous than the Peace Corps and there is no reason why it should not attract as good or better people; (3) A year and a half ago I proposed to Moscoso that we should try and recruit the brightest young men from Wall Street law firms etc. to come to Washington to work in the Alianza. We would give them a six months' training program to prepare them to become development desk officers for various countries. He thought this was fine. I organized a cocktail party in New York (our intention was to follow it up with similar gatherings in other cities). About thirty-five young lawyers and businessmen attended. They were nearly all men with outstanding scholastic records at major law or business schools; of high caliber personally and rising in their firms. I talked with them about the Alianza and asked those who were interested in joining the training program to send a letter with a resume. Twenty-two sent letters. Their quality can be judged by the fact that Bicks (the antitrust chief under Ike) told an acquaintance of mine that the Alianza was getting all the bright young lawyers in New York. I sent the names and letters to the Alianza. No action was taken to my considerable personal discomfort. But it did prove the people are there.
I can think of only one answer to all of this: to tell Shriver he must run the Alianza for at least a year, get it on its feet and recruit a successor. This does not mean that he is the only one who can do it. But he is the only one I know; especially since to put a new man, no matter how good, into the existing situation who lacks the personal muscle and experience to destroy the bureaucratic obstacles will not do the job. Shriver must also get what he thinks he needs to do the job. This will mean radical organizational and personnel changes. Many people, including some of your best and most trusted people, will object. It will run afoul of all sorts of theoretical administrative objections, and some serious practical difficulties. All I can say to this is: (a) We have had two and one-half years trying to do the job the other way; (b) If you expect a good man to try a difficult job you must give him the tools he thinks he needs to do it, not what others think he needs; (c) For whatever it's worth it is my judgment that this is the only way to do the job, and I disagree with those who think it is not; (d) It is a good idea to break up a losing ball club.
This approach will conflict with many ambitions, desires and the considered views of thoughtful and dedicated people. It will hurt Moscoso, whom I admire and like deeply. But I feel so strongly about the importance of this program to the country and to your Administration, that I am confident everything must be tried. We will be judged on whether we won or lost, and not how we played the game.
There will also be some feeling that things are not going so badly. I submit that much of this is because we have lived so long with existing shortcomings, lack of imagination etc., that we regard them as part of the nature of things and lower our sights accordingly. The Peace Corps has helped show what an overseas program can be when approached with great imagination and skill. I think we could do as much for the Alianza, although I recognize the great difficulties involved.
I also believe action of this sort should be taken quickly. Latin America will probably be a foreign policy issue in the campaign; and the Alianza is likely to be a principal target both in Congress and outside unless it can be raised above too much reproach rather quickly. Otherwise we will be in a weaker position on it, to say nothing of the very real danger of losing much of it in the Congress. This year is really the "year of truth"--to paraphrase a Latin phrase.
I do not want to sound as if I have all the answers, or that I am sure that this approach is the right one. But I have felt this with increasing strength for a long period of time, and would be remiss toward you if I did not relay my thought.
It would be helpful if you did not circulate this memorandum since I have to deal with many of the people affected; but I leave that entirely to your judgment as to the best approach.
Dick
Frankfurter always told me that I would only be of use as an assist-ant as long as I was willing to say unpleasant things.
P.S. Of course, I have told Sarge about this memo./2/
/2/The last two sentences are handwritten by Goodwin on the source text. Reference is to Supreme Court Justice Felix Frankfurter, for whom Goodwin clerked in 1958-1959, and to Sargent Shriver, Director of the Peace Corps.
64. Editorial Note
On Sunday, October 6, 1963, the New York Herald Tribune published an article by Assistant Secretary of State for Inter-American Affairs Edwin Martin that outlined U.S. policy toward military governments in Latin America. In the piece, Martin emphasized U.S. support for constitutional civilian governments in the region. He stated that the military in Latin America must play an active and constructive role in support of these governments. Martin noted further that the militaries of some Latin American nations had played critical roles in dislodging dictators from power, instituting progressive reforms, and returning their countries to more democratic civilian control. Still, Martin continued, military governments established by coups d'etat must be condemned as anti-democratic. Martin cautioned that the United States could not be expected to intervene militarily or economically against any military government in the region established by coup d'etat. Rather, it was the responsibility of the Latin Americans to create conditions in which such regimes could not survive and in which democracy could prosper. The text of the article is in Department of State Bulletin, November 4, 1963, pages 698-700. It was repeated to all Latin American diplomatic posts in Department of State Circular 637, which described it as having been cleared "at highest levels" of the U.S. Government. (Kennedy Library, National Security Files, Regional Security Series, Latin America, July-November 1963)
A July 14 article in The New York Times quoted Department of State officials as lauding the "sense of mission" displayed by the Ecuadorean military on July 11 when it overthrew the Arosemena government, which had opposed many Alliance for Progress reforms. The article caused consternation in Latin America and prompted a concerned letter from Venezuelan President Romulo Betancourt to President Kennedy, which was delivered personally by the Venezuelan Ambassador on August 2. (Department of State, Central Files, POL 26 LAT AM) President Kennedy, in his reply of August 16 assured the Venezuelan President that the Department of State officials had been misquoted and that it was the "unalterable position of the Government of the United States to support representative, constitutional processes" in Latin America. (Ibid.)
The New York Times incident prompted administration thinking about the proper posture of the United States in relation to military governments in Latin America and led directly to the drafting of the Martin article.
65. Memorandum From the President's Special Assistant (Schlesinger) to President Kennedy/1/
Washington, October 8, 1963.
/1/Source: Kennedy Library, National Security Files, Regional Security Series, Latin America, July-November 1963. Confidential.
SUBJECT
The Martin Doctrine
I hope very much that at your press conference tomorrow you will be able to clear up some of the fears aroused by the Martin statement in the Herald Tribune Sunday/2/ and the Martin backgrounder as reported in today's Post. The Venezuelan Ambassador called me this morning and said that the "Martin Doctrine" was causing "consternation," that it was being interpreted as a "very serious reversal of policy," that he feared it would "trigger all sorts of bad reactions though the hemisphere," and that the Venezuelan Foreign Minister had returned to Caracas yesterday "very apprehensive and gloomy." I assured him that there was no change in policy, that the Martin statement was to be read in the context of our total Latin American policy, that it dealt with only one aspect of that policy, that it did not repeal the Secretary's statement of Friday, etc. I think, however, that a more authoritative declaration to this effect is required if the Martin statement is not going to begin to cause damage. The points, I think, which should be made are:
/2/October 6; see Document 64.
a) there has been no change in Administration policy
b) our main reliance in Latin America continues to be on the forces of progressive democracy, and our essential hope lies in the establishment and extension of civilian, democratic regimes
c) the Martin statement does not constitute a "doctrine"; it was wrongly and misleadingly headlined by the Herald Tribune as "Official U.S. Policy for Latin America"; it is simply a sober and realistic description of certain conditions and problems which the struggle for democracy is bound to encounter along the way.
Since I have had some involvement in Latin American affairs, I hope you will not mind if I add a few words about the Martin statement. I think Ed Martin had done a first-class job in running ARA; and I recognize the need for cooling down those in the press and Congress who suppose that military coups constitute definitive evidence of the failure of the Alliance. I do think, however, that the Martin statement needlessly laid itself open to misinterpretation. The notion that the statement means a reversal of U.S. policy is only partly to be explained by the Herald Tribune headline. It is also to be explained by the way the Martin statement said some things and by the way it omitted other things.
The signal contribution of your Administration to Latin American policy has been to make an implicit alliance with the forces of progressive democracy in Latin America. You have become a rallying-point for these forces, which in past years have been disorganized, dispersed and discouraged. Your coming to Washington has meant a new voice, a new position, a new opportunity. It has altered the relationship of the United States to the rest of the hemisphere by identifying Washington with moral and progressive leadership. The Alliance for Progress is really based on this implicit alliance.
Now obviously we have been disappointed by the weakness of progressive democracy in many countries, but only what Ed Martin calls "impatient idealists" would have expected these forces to triumph overnight. The trouble with the Martin statement is that it gives the impression that, since they have failed to triumph overnight, we have lost interest in them and are now looking to military rule to produce progressive regimes. This impression is conveyed especially by what seems to me a gross exaggeration of the merits of military rule in Latin America and of its "contribution to political freedom and stability in many countries." Thus the Martin statement says of Ecuador and Guatemala that "military regimes have announced reform programs of substantial importance." What is the advantage of going on the record in praise of regimes which we know are not much good? Everyone knows that the Guatemalan regime has been quite regressive and repressive, and that the Ecuador regime is falling apart, and our praise must therefore convey to many the implication that, if military regimes "announce" nice programs, they will be forgiven everything else. Similarly the Martin statement says that military government in Argentina has produced "one of the most progressive regimes" that Argentina has ever had--a striking feat of clairvoyance, since the new regime in Argentina has not yet taken office. I see no gain in committing ourselves to so glowing a description of a government which has not even been inaugurated.
Everyone in Latin America accepts the necessity of dealing with military regimes for tactical purposes, so long as there is fundamental faith in our democratic purpose. The Martin statement has alarmed some about the constancy of that purpose by appearing to transform a pragmatic necessity into a new policy departure--or rather into a reversion to old and familiar U.S. policies which for a moment Washington seemed to have abandoned. Because the statement does not reaffirm in any vivid way our preference for the forces of progressive democracy, and because it detects so many notable virtues in military rule, it seemed to be signaling, say, to the Venezuelan military that, if Leone turns out to be weak, it is OK to throw him out so long as the military regime "announces" reform programs and observes the proper etiquette. The Martin statement even calls for "military participation in the formation of some national policies." A Chilean diplomat says sadly, "We have struggled for years to keep our military out of politics. You are weakening the democratic structure in Chile by inviting them in."
I don't want to prolong this memorandum, but I should add that the tone of the statement also seems unduly cold and condescending and to suggest a lack of sympathy with the problems of Latin American democracy and with the dignity of the Latin American people. The suggestion that "the traditional method of transferring political power has been by revolution or coup d'etat" is offensive to countries like Chile, Uruguay, Mexico, Costa Rica, Brazil, Argentina, etc., where this has not been the traditional method. The suggestion that the goal of the Alliance is to "strengthen in each society the power of the educated middle class" suggests that we have forgotten all our fine words about helping the campesinos, and the workers and that our basic concern is with the business community. And there is altogether too much flourish of the word "we"--"we must strengthen in each society . . ."; "we cannot aim to reduce them to impotence in the national life . . ."; "our efforts to train the military in their most valuable role . . ."--all this suggesting to sensitive Latinos an unconscious paternalism and contempt in American policy.
For all these reasons, I think it would be most important for you to strike a note of reassurance in tomorrow's press conference./3/
/3/At his October 9 press conference, President Kennedy was asked whether he had cleared the Martin article and whether it represented a reversal of U.S. policy in Latin America. He replied that he had not personally cleared the article but was generally aware of its content and that the United States remained opposed to governments in the region imposed by coups d'etat. Assistant Secretary Martin, he said, was "merely attempting to explain some of the problems in Latin America, why coups take place, and what problems they present [the United States] with." (Public Papers of the Presidents of the United States: John F. Kennedy, 1963, pp. 767-775)
Arthur Schlesinger, jr./4/
/4/Printed from a copy that bears this typed signature.
66. Scope Paper/1/
Sao Paulo, October 24, 1963.
/1/Source: Department of State, ARA/IPA Files: Lot 69 D 211, IA-ECOSOC (Ministerial Level), Position Papers and Background Papers. Limited Official Use. Drafted by Elac and cleared by Rogers, Turnage, Tragen, Luzzatto, Weintraub, Wilson (RPA), Barcroft (USIA), Rendall (Treasury), and Monyihan (Labor).
UNITED STATES DELEGATION TO THE ANNUAL MEETING
OF THE INTER-AMERICAN ECONOMIC AND SOCIAL COUNCIL
AT THE MINISTERIAL LEVEL
Sao Paulo, October-November 1963
Main U.S. Objectives at Sao Paulo Meetings
1. Since the Alliance is a long-term effort, and this is only the second annual meeting of the IA-ECOSOC, the character of the conference itself is of great importance. USDel will strive to make this annual assembly of the Alliance the forum where all problems are discussed honestly, and constructively. The resolutions which are adopted should be few, and meaningful.
The evaluation by IA-ECOSOC of the progress of the Alliance is contained in a brief report issued by the ministers; a longer report (La Marcha de la Alianza) is prepared by the experts. USDel will seek to make these reports of the highest quality.
2. The USDel should support a meaningful Latin American initiative to establish CID along the lines approved by the President.
The establishment of the new committee will provide an entity with a wider coordinating function than heretofore exercised by any agency within the Alliance.
The committee's activities, as well as those of the Panel of Nine, should not be limited to review and recommendations relating to national development plans but should also include studies and recommendations concerning foreign trade and integration policies and programs both with respect to their effectiveness and their consistency with national development plans as well as to their consistency with the plans and programs of other countries in the region. The creation of such a committee offers perhaps the best means of strengthening the multilateral character of the Alliance and of increasing pressures on member countries to adopt sounder and more constructive policies.
3. Explain or clarify U.S. assistance data and operations under the Alliance, including major problems which have affected these operations. USDel will express willingness to review possibilities of streamlining procedures, and will point out the improvements made since the Mexico City Meetings.
4. USDel will support, or co-sponsor, a resolution on a study leading to the establishment of methods and institutions for promoting the trade of OAS members (including the U.S.), e.g., undertaking market research, promoting knowledge of trade opportunities, providing a variety of services to exporters, etc. A major new effort toward export promotion is sorely needed.
5. The U.S. will press for approval of a plan to secure Latin American financial support, starting in January, 1965, for the expenses of the expanded Pan American Union activities in support of the Alliance now financed by a U.S. grant.
Background
The purpose of these meetings is to conduct the Second Annual Review of the Alliance for Progress. The First Annual Review was held in Mexico City during October 1962./2/ The Mexico City meetings are considered to have been highly successful, since the debates were quite frank--in contrast to traditional Inter-American gatherings which have been characterized by florid oratory, avoidance of the difficult issues, and too much formality. It is in the interest of the United States that in the Sao Paulo meetings there be a thorough discussion of all the problems confronting the Alliance, a realistic evaluation of the progress made in its first two years, and that resolutions be adopted which will lead to constructive action to further the aims of the Alliance.
/2/See Documents 48 and 50.
It is anticipated that during the two weeks of the meeting at the expert level the agenda will be covered completely. As a result, the ministerial meeting will receive from the expert meeting a general analysis of the Alliance, plus an analysis of those important issues which the experts either have not been able to resolve, or simply prefer to leave to the discretion of the ministers.
The usual focus on the alliance relates to its basic approach as expressed in the Charter of Punta del Este. Since the United States was the only "external" source of support signatory to the Charter of Punta del Este, much of the discussion at IA-ECOSOC inevitably centers around what the countries of Latin America have done for themselves, and what the U.S. has or has not done to support them. Thus, we can expect that our Latin partners will tend to emphasize U.S. shortcomings. The U.S. delegation will be prepared to clarify and explain our operations over the past two years. The report prepared by the U.S. Government for the IA-ECOSOC will perhaps reduce considerably the amount of time spent by the conference in determining what in fact was done by the U.S. over the past year under the Alliance, and permit more attention to be given to the problems encountered by the Latin American countries, individually and collectively, in meeting their own responsibilities under the Charter of Punta del Este.
Special Note--The discussion of any agenda item which has program or budget implications should be brought to the attention of USDel spokesmen on budget committee.
Agenda
The provisional Agenda will probably be adopted without major changes.
Under Topic I-A (Planning, Reforms and Financing) there will be general presentations made by the heads of delegations--at the expert level--followed by a discussion of results obtained in the countries and in the region in 1962 and the first half of 1963. There will probably be much interest shown by the Latin American delegations in the adequacy of external financial and technical assistance, both in terms of quantity and quality. The data will show that the total availability of external resources was smaller in 1962 than in 1961, even though the amounts provided by the U.S. Government were roughly at the same level.
A more detailed debate on sectorial and functional development problems will be conducted under Topic I-B of the Agenda. Here most of the emphasis will be on internal measures taken by the Latin American countries. The U.S. Delegation will be in a position to show that our support has been substantial in most of these areas. Special attention will be given to agrarian and tax reforms.
Topic I-C might receive the greatest attention by newsmen in the United States and in Latin America, as well as by the delegations to IA-ECOSOC. It is important, however, that action on the Lleras-Kubitschek proposals not be made the sine-qua-non for the success of the S#o Paulo meetings. There is a well documented story to tell about substantial achievements under the Alliance for Progress in the member countries and several other proposals for future action have potentially great merit. The establishment of CID must not be allowed to appear as a second beginning of the Alliance; rather, it should be considered a further, if dramatic, step in the evolution of an ongoing program which was already judged in Mexico City to be intrinsically sound.
Topic II (Latin American Foreign Trade and its Significance for the UNCTAD) may well turn out to be as important to many delegations as I-C. Indeed, the title of the topic was officially proposed by the governments of Argentina, Brazil and Chile. The S#o Paulo meetings present an opportunity to begin a dialogue between the U.S. Government and the Latin American governments on the many issues that may be debated at the UNCTAD. It is probable that Latin American delegations will be anxious to get U.S. assurances of support for some of their projects. While sympathetic interest can be shown the Delegation will doubtless be unable to support all proposals fully at this time.
Topic III (Regional Integration) may provide a more substantive debate than there was in Mexico City. There is increasing concern in the various countries with the limited opportunities for national development. The S#o Paulo meetings may turn out to be place and time for regional integration to be given a real push forward. Some general principles for an acceleration of the integration movement--which is at the heart of the Alliance--may be discussed. USDel should seize the opportunity to make clear its support of genuine steps for economic integration and the fundamental importance of promoting competitive forces to maintain and sustain economic growth.
Topic IV (Programs and Budgets) may be the most troublesome of the Agenda items, in that perhaps an insufficient number of delegations will assign a member, and those who are assigned may not be competent to the task. The regular budget of the Pan American Union for those activities within the sphere of competence of IA-ECOSOC must be given a preliminary analysis as a basis for recommendations to the Council of the Organization of American States. The activities and budget of the Program of Technical Cooperation will receive final approval by the IA-ECOSOC, and the pledges of financial support will be requested at a designated session at the ministerial level. Other delegations should be prodded into giving these OAS programs and budgets the attention they deserve. At the Mexico City meetings, the analysis was only cursory. The experience should not be repeated in Sao Paulo. Finally, consideration will be given to the establishment of a new OAS fund for the Alliance for Progress, in which a special U.S. contribution would be matched, in an agreed proportion, by Latin American contributions.
67. USIA News Policy Note/1/
40-63
Washington, October 25, 1963.
/1/Source: Kennedy Library, Schlesinger Papers, Writings--Alliance for Progress, 1963 Memoranda. Limited Official Use. Drafted by Needham. Sent by Pauker to Clarke, Sayles, Vogel, LeClair, and Ehrman.
IA-ECOSOC Meeting in Sao Paulo
The Inter-American Economic and Social Council's conference at Sao Paulo, Brazil, October 29-November 15, will be the second Annual Review Meeting of Alliance for Progress members. Expert-level sessions are scheduled October 29-November 10; ministerial sessions, November 11-15.
Treatment
We want coverage to show that Alliance for Progress has made a good beginning--but only a beginning--toward its long-range goals of economic progress and social reform. As evidence, cite AFP achievements and firm AFP plans and projects which member countries report. Points for emphasis:
(1) The Alliance for Progress is a multilateral effort of twenty American nations. Its success depends primarily on the nineteen Latin American members. It is not a U.S. aid program.
(2) The Alliance's Charter (of Punta del Este) calls for the processes of national growth, governmental evolution and social reform to move forward together, simultaneously.
(3) The United States welcomes Latin American initiative in proposing a Committee for International Development (CID) which would function as a full-time IA-ECOSOC sub-committee to strengthen AFP programs.
(4) The United States is meeting its obligations under the Charter of Punta del Este. In 1961-62, U.S. economic assistance commitments to Latin America amounted to $1,038,000,000--$4.82 for each Latin American. In the same period Latin America's share of the total U.S. foreign assistance budget was twenty-five per cent--as compared with seven per cent for the period 1946-60. (See U.S. Report to the Inter-American Economic and Social Council, 1963.)
Caution: The Latin American countries are seeking a common position on control of commodity prices, specifically for coffee, cocoa and tin. They may attempt at Sao Paulo to enlist U.S. support. The U.S. attitude is one of sympathy and cooperation in the problems of trade and commodity prices, but it is unlikely that the U.S. delegation will be drawn into a definite position at this conference. Official U.S. statements should guide us in whatever minimal treatment of the subject credibility may require.
Background
This year's IA-ECOSOC meeting is expected to develop a modest amount of evidence indicating effective beginnings of the Alliance for Progress--more signs of progress than were available at last year's sessions in Mexico City. However, the U.S. wants to keep these in the perspective of "a good beginning."
In evidence of that "good beginning" will be such steps as institutional, agricultural and industrial development, economic stabilization, and integration, private enterprise development (domestic and foreign), fiscal reform, commodity markets and expanded trade opportunities, and improvements in AFP planning and administration.
Ex-President Lleras Camargo of Colombia and Ex-President Kubitschek of Brazil have recommended establishment of a Committee for Inter-American Development. The U.S. will support the recommendation if the Latin American countries on their own initiative evince a strong majority desire for CID. The committee would operate full-time to provide a continuing review and coordination of Alliance activities. It would include representatives from all AFP member countries of the Alliance, with a seven-man executive committee on which the United States would be represented at all times. The other six memberships would rotate among the Latin American countries.
68. Memorandum From President Kennedy to Secretary of State Rusk/1/
Washington, October 29, 1963.
/1/Source: Department of State, Rusk Files: Lot 72 D 192, White House Correspondence. Confidential.
I would like to create the position of Under Secretary of State for Inter-American Affairs./2/ This would be the fourth ranking position in the Department. Its occupant would have responsibility for the Alliance for Progress as well as for the Bureau of Inter-American Affairs (each of which would continue under officers at the level of Assistant Secretary). In addition, he would have general concern with all government activities relating to Latin America. Obviously he would have no supervision over Assistant Secretaries of State outside Latin America.
/2/This recommendation dates to the Report from the Task Force on Immediate Latin American Problems to the President-elect of January 4, 1961; see Document 2.
I am familiar with the argument that, if we do this for Latin America, other geographical areas must receive equal treatment. But I have come increasingly to feel that this argument, however plausible in the abstract, overlooks the practicalities of the situation.
1) The top officers of the Department, for good and sufficient reason, are absorbed in the problems of Europe, Asia, and East-West relations. It seems to me inevitable that this should be so, but the consequence is that Latin American policy does not get the day-to-day, high-level attention which our national interest demands.
2) There are, moreover, strong reasons for distinguishing Latin America from the other regions of the world. Historically Latin America has been the area of primary U.S. interest. Currently it is the area of the greatest danger to us. It is the area where the U.S. is most intimately involved in day-to-day operations, and where it is held most accountable for the results. All these considerations would seem amply to justify a special place for Latin American affairs.
Since I am familiar with the arguments against the establishment of the Under Secretaryship, I would like this time to have a positive exploration of its possibilities. If we decide to move quickly on this, it would be advantageous for the new post to be announced in Washington during the period of the IA-ECOSOC meetings at Sao Paulo. Such an announcement at such a time would drive home the seriousness of our commitment to Latin American affairs.
John Kennedy
69. Editorial Note
The Second Annual Meeting of the Inter-American Economic and Social Council of the Organization of American States convened in Sao Paulo, Brazil, October 29-November 16, 1963, to review the accomplishments of the Alliance for Progress. The Council met at the expert level October 29-November 10. Under Secretary of State W. Averell Harriman represented the United States at Ministerial-level sessions of the conference November 11-16. Addressing the Council on November 13, Harriman said that the United States had dispensed $2.3 billion in development assistance to Latin America since the establishment of the Alliance for Progress in August 1961. He urged the Latin American governments to develop well-conceived and technically sound projects within the framework of the Alliance. Before adjourning, the Council created an Inter-American Committee on the Alliance for Progress (CIAP) to police the operations of the Alliance and make financial recommendations within it. For text of the resolution establishing CIAP, see American Foreign Policy: Current Documents, 1963, pages 342-347. Documentation is in Department of State, ARA/IPA Files: Lot 69 D 211, IA-ECOSOC: USDel to Annual Mtg. of the IA Econ. and Social Council at the Ministerial Level; Sao Paulo, Oct.-Nov. 1963, and ibid., ARA/USOAS Files: Lot 76 D 381, Second Annual Meeting Economic and Social Council, Sao Paulo, Brazil, 1963.
70. Memorandum From the Executive Secretary of the Department of State (Read) to the President's Special Assistant for National Security Affairs (Bundy)/1/
Washington, November 14, 1963.
/1/Source: Department of State, ARA/IPA Files: Lot 69 D 211, IA-ECOSOC, General, 1962-1963. Confidential. Drafted by Gonzalez and cleared by Cottrell, Chapin, and Woolf.
SUBJECT
Political Atmosphere at Inter-American Economic and Social Council Meeting
Perhaps the most significant fact which detaches itself from the IA-ECOSOC meeting to date is the tendency manifested by Brazil to pursue an independent course possibly involving a re-evaluation of its relationship to the United States. This was reflected, in particular, in President Goulart's speech on the opening day. Governor Harriman characterized it as "essentially a bid for Brazilian leadership of the 'Latin American continent' which would, by implication, exclude a major U.S. role." There was a single passing reference in Goulart's speech to the Alliance for Progress and none whatsoever to the United States, the President, economic assistance, investment, or inter-American cooperation. On the other hand, our delegation has reported that the Goulart speech has not been well received by a majority of other delegations and that other country presentations have been generally quite favorable to the United States and to the Alliance. In addition, Governor Harriman reports that his own speech in which he was rather blunt on some points was warmly received. The U.S. delegation further reports that a friendly atmosphere has prevailed in its contacts at all levels with other delegations noting, however, that there has been some concern expressed over recent Senate amendments to the Foreign Aid Bill.
A major issue before the conference is the examination of the Alliance machinery in the form of the proposal to create an Inter-American Committee for the Alliance for Progress (CIAP). The terms of reference for this multi-national body and its authority over AFP programming and utilization of funds will be decided by the Ministers. Brazil initially opposed this proposal and wished instead to submit an alternative which would create a multilateral fund in which a major U.S. contribution would be matched by Latin American contributions. Appropriations would be approved by the national legislatures and disbursement would be made through the Inter-American Bank for Development in such a way as to preclude present U.S. control. Brazil found little support for its alternative and has now withdrawn it with the explanation it wished only to give the Alliance greater long-term continuity and truer multilateralization. At the same time, Brazil also informed us that it would not obstruct the CIAP proposal, which they recognize as a step forward although more modest than they would have wished.
Another major Latin American concern evidenced during the meeting has been the problem of deteriorating terms of trade. The failure of world prices for primary products to keep pace with prices for finished goods coupled with increased import requirements for developmental purposes was singled out by Goulart as a main cause for balance of payment difficulties which have resulted in the need for underdeveloped countries to negotiate loans and re-finance debts under unfavorable conditions. The Latin American countries have shown a keen interest in coordinating their positions at the forthcoming United Nations Conference on Trade and Development (UNCTAD). Brazil is seeking support for a proposal to establish a Latin American Coordinating Committee for Trade which would be headquartered in Rio and serve as a focal point for Latin American trade positions at UNCTAD and thereafter as a coordinating point for Latin American trade matters. Some of the more extreme positions on matters to be discussed at UNCTAD have been propounded by Brazil and the U.S. delegation has been instructed to oppose the creation of a permanent Latin American coordinating committee. At the experts meeting, Argentina proposed an interim coordinating committee to prepare for UNCTAD. The United States is prepared to participate as an observer in such a group. Furthermore, Governor Harriman stated in his speech that the United States shares the concern for the trade problems of developing countries and pledged the "constructive role" of the United States at the UNCTAD meeting in Geneva. He also pointed to the efforts made by the United States to have Western Europe do away with tariffs, quotas and excise taxes which tend to limit consumption of tropical products.
H. Gordon/2/
/2/Gordon signed above Read's typewritten signature.
71. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Martin) to Secretary of State Rusk/1/
Washington, November 27, 1963.
/1/Source: Department of State, Central Files, POL LAT AM. Confidential. Drafted by Cottrell.
SUBJECT
Important Problems in Latin America
Attached are brief outlines of the following important problems faced by the Bureau of Inter-American Affairs:
1. Inter-American Committee for the Alliance for Progress.
2. Foreign Ministers Meeting of the OAS.
3. Principal Problems of U.S. Private Investment.
4. Brazil.
5. Recognition of Dominican Republic and Honduras.
6. Cuba
a) Arms cache in Venezuela
b) NSAM 220 (shipping).
7. Venezuela--Elections and Violence.
8. Panama--Treaty Problems.
Attachment No. 1
THE INTER-AMERICAN COMMITTEE ON THE
ALLIANCE FOR PROGRESS (CIAP)
The committee created by the Inter-American Economic and Social Council (IA-ECOSOC) in Sao Paulo, Brazil, is a major step forward for the Alliance for Progress.
1. The committee will consist of a chairman--hopefully ex-President Lleras--and seven representatives of OAS member countries (one of which will permanently be the United States). It will meet at periodic intervals yet to be agreed, with the chairman acting for the committee in the interim. The meetings will be held for the most part in Latin America although the seat of the committee will be Washington.
2. It is designed to implement the Alliance as a cooperative development, and destroy its image as just another U.S. AID program. The committee is empowered to make a continuing review of Latin American country development efforts such as tax reform, land reform, modernization of government, budgeting for growth and to make recommendations to the member countries with respect to improvements. Then, always within the limits of what is available, it is to make proposals on the distribution of the totals of the external resources which each country can use effectively and meaningfully in support of its own development efforts. Thus, foreign assistance will come more and more to depend on Latin American evaluation of Latin American efforts. At the same time assistance will be tied even more directly to development.
3. Present thinking is that the committee will begin in March. Representatives will be chosen by their respective governments and a chairman will be elected by the Council of the OAS in January.
Attachment No. 2
FOREIGN MINISTERS MEETING OF THE OAS
Following the Council of the OAS decision of November 12 to convoke a Meeting of Foreign Ministers (MFM) on strengthening representative democracy, a Committee was appointed to recommend the date, site and agenda. The Committee, which includes the United States, decided to postpone fixing the time and place until more of a consensus on the agenda is reached. A working document, based on an informal United States draft declaration, is under informal discussion as are other suggestions which the MFM might consider regarding affirmative actions to promote democracy, human rights, and preventive measures against coups.
Little progress has been achieved in reaching a consensus as to what resolution should come out of an MFM meeting. As a practical matter, it does not seem likely an MFM can be called before mid-January. As the time for the MFM extends into the new year, it is quite possible that there will be increasing sentiment not to hold the MFM at all, but to consider the matter at the Eleventh Inter-American Conference, scheduled to meet in Quito, Ecuador April 1.
Attachment No. 3
PRINCIPAL PROBLEMS OF UNITED STATES PRIVATEINVESTMENT
It is impossible to generalize about the climate for U.S. investment in Latin America. The rising tide of nationalism has created antiforeign sentiment which is often directed against foreign investment, particularly when it dominates the economic life of the country as copper does in Chile and oil in Venezuela. The political leadership of the left combines its own antagonism to the private enterprise system and the U.S., as the main representative of it, with a synthetic nationalism to belabor this issue unceasingly. In some countries these elements are joined by certain parts of the local business community who resent foreign competition as disturbing their comfortable high profit, low volume enterprise. There are, however, increasing elements in every country that recognize the value of the capital and the technical skills which foreign enterprise brings.
In practical terms both through the Alliance for Progress commitment and the continuing public statements every country welcomes private enterprise and foreign investment. Several of them have taken new initiatives recently to encourage it, including opening offices in New York to make contact with potential investors.
On the other hand several governments have taken action with respect to a few specific kinds of foreign investment which, despite their disclaimers of any intent to discourage investment, generally have in fact been discouraging to the world investment community. These involve oil contracts or concessions in Argentina or Peru, public utility and mining investments in Brazil and Chile and drug operations in Colombia and Brazil. Public utilities are, of course, a border line issue everywhere as are extractive industries like petroleum and mining which demagogues can allege are taking national wealth away without adequate reinvestment. The drug problems are similar to, and in part stem from, the activities of Senator Kefauver in this country.
In addition to these specific actions there are, of course, a wide variety of irritating difficulties faced by foreign firms in dealing with most Latin American governments which reflect in part a negative attitude toward such investments and in part the inefficiency of the bureaucracy. There is no evidence, however, that this problem has worsened in recent years.
As a result of anti-investment publicity, of the actions in the limited number of situations referred and of a general concern about the political stability of Latin America in the face of Castro communism and of both political and economic instability in Argentina and Brazil, where U.S. investments had been moving in large volume, new funds have not been directed to Latin America by U.S. firms in the past two years in the amounts hoped for. However, new investment in manufacturing alone has been substantial and reinvestment of earnings of firms already operating in Latin America has been large and is increasing.
There is considerable evidence that European and Japanese capital have been less timid about investing in Latin America in recent years than U.S. business.
There follows a thumbnail sketch on each of the major problems referred to above.
Oil
Argentina Cancels Oil Contracts. Argentina's new Government announced the annulment of all oil exploration and production contracts on November 15. The oil companies involved (six of which are American) are discussing compensation and possible new working arrangements with Argentine officials. We warned the Argentine Government repeatedly before it acted that annulment of the contracts would have serious repercussions in the United States and we are currently seeking to promote a settlement of this problem which would protect the United States interests involved.
International Petroleum Company of Peru. Following failure of negotiations with the company, the Peruvian Government has submitted to the Congress a bill to establish an entirely new operating regime for the IPC, a subsidiary of Standard Oil of New Jersey with an investment of about $190 million in Peru. The Bill provides that, if the regime is not acceptable to the company, it would be taken over by the Government. The company maintains that the proposed regime would be confiscatory. Thus the question of the applicability of the Hickenlooper Amendment could arise. The Government insists it wishes the company to continue operating, and there are some hopeful signs that it would not be averse to a modification of the Bill in the Congress, although this may be difficult. IPC officials are at present talking to Congressional leaders.
Utilities
The American and Foreign Power Company (AMFORP) Case. On April 22, 1963, AMFORP reached an agreement with the Brazilian Government on the terms to be incorporated into a subsequent contract, details of which are still under negotiation, although very recently the Minister of Mines announced that negotiations would be postponed until such time as the company inventories are completed which, he said, may take up to as much as twelve months. The April agreement provided for the purchase of all AMFORP interest in all of its utility subsidiaries in Brazil for $135 million, 75 per cent of which would be reinvested by AMFORP in Brazil in nonutility enterprises.
The AMFORP agreement has become the target for political demagoguery and it is obvious that the Brazilian Government is reluctant to move ahead with it. A new problem has arisen in connection with a recent request of the Brazilian Government to AMFORP to install $30 million worth of new generators at AMFORP's Peixoto power plant. The company is unwilling to proceed in view of its present uncertain situation.
Mining
The Hanna Mining Company Case (Brazil). In September 1963, the Hanna company lost its appeal to a Federal Appeals Court for an injunction against cancellation of several of its iron ore mining concessions in Minas Gerais. The company has appealed this decision to the Supreme Court of Brazil. The Minister of Mines recently announced that the Brazilian Government would not authorize cancellation of Hanna concessions pending a final decision by that Court. The outcome of this case is an important precedent for the future development of mineral resources and foreign private investment in Brazil.
The Copper Problem in Chile. American copper mines in Chile are currently being taxed at high and discriminatory rates, but there is no immediate prospect of nationalization. The taxes coupled with general unease regarding the Chilean political situation have made the American companies extremely reluctant to increase investment. Anaconda owns two large mines, and Kennecott owns another; the total investment is around $500 million. A law passed in 1955 gave these companies assurances of lower taxes as they increased investment and production. Part of that law was reversed when extraordinary taxes were imposed in late 1961. Both companies (but particularly Anaconda) have negotiated with the Chilean Government for a reduction of taxes and a bill for that purpose is soon to go to the Chilean Congress. However, we doubt that the bill can be passed since the Presidential election is only 10 months away. Speeches by Senator Morse critical of Chile have irritated Chilean public opinion and alarmed Government officials. We believe the current tax problem is just one aspect of the unfavorable situation confronting these wholly-owned United States companies as nationalism rises in Chile. We are submitting the entire "copper company problem" to the Randall Committee, probably in early December, asking the Committee for suggestions as to how we can help the companies and what the companies might do to improve their political position.
Drugs
Drugs in Colombia. The Colombian Government has issued permissive decrees providing for the marketing of drugs under their generic names at low prices. Most of the United States and Colombian drug industry have strongly opposed this program. The Government of Colombia's reaction has been to introduce legislation requiring compulsory licensing of drug patents and reducing the duration of drug patent protection. Neither the draft bill nor the previous decree appear to infringe on rights of the United States companies. The draft law is similar to legislation introduced by Senator Kefauver in the United States Congress. Senator Hart's sub-committee is considering whether to continue investigations which may involve Colombian operations of United States companies. With the help of the Randall Committee, we hope to work out with the United States drug industry some positive response to the growing Latin American demand for cheaper drugs and better public health programs.
Discrimination Against Foreign Drug and Pharmaceutical Companies in Brazil. There is a definite discriminatory trend against foreign drug and pharmaceutical companies in Brazil. Recently, an executive government body called GEIFAR was created to oversee the prices of drugs and pharmaceuticals, promote national production of essential drug products and supervise a research fund for nationally-owned laboratories. The foreign companies believe that GEIFAR will be used against them. The Minister of Health, Wilson Fadul, recently charged certain foreign laboratories with over-invoicing imports in order to remit profits abroad clandestinely, a charge which the foreign companies have vigorously denied. Recent legislative measures have been introduced into the Brazilian Congress which would increase discrimination against foreign drug firms. One such measure would create FARMACOBRAS, which would be a monopoly on all drug and pharmaceutical imports. Another measure would freeze pharmaceutical prices for one year.
[Here follow attachments 4-8.]
72. Airgram From the Department of State to All Posts in the American Republics/1/
CA-6009
Washington, December 10, 1963.
/1/Source: Department of State, ARA/IPA Files: Lot 69 D 211, IA-ECOSOC, General, 1962-1963. Limited Official Use. Drafted by Elac.
SUBJECT
IA-ECOSOC Meetings in Sao Paulo
The Second Annual Meetings of the Inter-American Economic and Social Council were held in Sao Paulo, Brazil between October 29 and November 16, 1963. The meeting at the Expert Level was from October 29 through November 9; the meeting at the Ministerial Level was from November 11 through November 16.
At the Expert Level meeting 34 resolutions were approved in final form in addition to 14 draft resolutions for submission to the Ministerial Meeting, as well as a draft agenda for the Ministerial meeting. The IA-ECOSOC meeting at the Ministerial Level adopted 28 resolutions including those transmitted by the Experts.
A summary of the substantive analysis and conclusions of the IA-ECOSOC at the Expert Level is contained in a 225 page report on the Alliance for Progress. The Ministers issued a very brief report entitled "The Alliance for Progress and its Outlook".
The final reports of the IA-ECOSOC meetings at the Expert and Ministerial Levels, as well as the two substantive reports--The Alliance for Progress: its Second Year (225 p.), and The Alliance for Progress and its Outlook (10 p., included in final report of the Ministerial meeting), will be sent to all Missions ASAP./2/ Secretariat expects them to be reproduced in about two weeks.
/2/Texts of these documents are ibid., ARA/USOAS Files: Lot 76 D 381, Second Annual Meeting of the Economic and Social Council, Sao Paulo, 1963.
The Sao Paulo meetings can be considered to have been most successful, not just because of the specific actions taken, but more importantly, because after two years of existence the Alliance for Progress has enlisted the support and the open commitment of responsible Latin American governments.
The U.S. press (though, significantly, not the Brazilian press) foresaw dire consequences from the implied downgrading of the Alliance by Goulart, in his speech, and from the inadequate performance of the Brazilian delegation. The major point was missed: the rest of Latin American delegations stood solidly behind the Alliance, thus forcing Brazil to go along or face isolation.
On the specifics:
1. We went to Sao Paulo expecting a strong Latin American initiative for the creation of a Committee to provide a more multilateral character to the Alliance for Progress. The expectations were fully verified. The Inter-American Committee on the Alliance for Progress (CIAP) is to be constituted at a special meeting of IA-ECOSOC which is scheduled to convene in Washington January 15, 1964, to designate the chairman and the seven members of CIAP. Separate Airgram on CIAP has been sent to all posts./3/
/3/Not further identified.
2. The ministers approved in principle the establishment of an OAS fund to support special Alliance programs undertaken by the Pan American Union. Thus by January 1, 1965, the U.S. unilateral grant to the OAS will be multilateralized through voluntary contributions from the member governments.
3. Much emphasis was given to the participation of private groups in the preparation of development plans and their implementation. A special committee of IA-ECOSOC was created to deal with labor matters. Also, a resolution was adopted calling for the establishment of National Trade Union Advisory Committees for the Alliance for Progress.
4. The Latin Americans showed their usual concern with trade problems, and expressed great interest in the UNCTAD. We demonstrated our sympathy for their problems, and sponsored a resolution creating a special committee of IA-ECOSOC which will recommend new or improved methods or institutions to promote exports, especially of manufactured and semi-manufactured products. Also in reference to trade, a temporary special committee of IA-ECOSOC will hold a meeting in Buenos Aires, February 24-March 14, 1964, to coordinate, so far as feasible, the positions of the Latin American countries at the UNCTAD; the U.S. will be an observer. Brazil had apparently wanted instead a gathering of Latin Americans outside of IA-ECOSOC.
The consensus of the U.S. delegation is that the cause of the Alliance has been much further advanced because of the meetings in Sao Paulo.
IA-ECOSOC decided to accept the offer of Peru, so that the Third Annual Meetings of IA-ECOSOC will be held in Lima in late 1964.
Rusk
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