Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

233. Memorandum From the Director of the Office of South American Affairs (Bernbaum) to the Acting Assistant Secretary of State for Inter-American Affairs (Rubottom)¹

Washington, April 16, 1957.

SUBJECT

• Economic Policy toward Argentina

The Gainza Paz visit and your last conversation with Vicchi indicate the imminence of a showdown on whether we will adhere strictly to our present economic policy toward Argentina, or modify it. The problems involved and the policy being followed to cope with them are summarized as follows:

(1) The Argentine economy is in great need of financial assistance. The Government has turned to the U.S. as the only practical source of the considerable long-term financing required.

(2) The negotiations conducted a year ago satisfied the Export-Import Bank that Argentine prospects of economic recovery and the feasibility of converting sterling balances into dollars for debt servicing purposes made it a reasonably good credit risk. A $100 million line of credit was granted for transportation.

(3) There are, however, three obstacles impeding the extension to Argentina of additional credits. These are:

(a) The Argentine Government’s failure thus far to honor its moral commitment, when negotiating the $100 million line of credit last year, to satisfy the admittedly legitimate claims of American & Foreign Power, the meatpackers, and the U.S. firms on the “interdicted list”,² as well as to move to return the deposits of US banks.

(b) With respect to loans in electric power, its insistence on Government ownership of electric power in the Greater Buenos Aires area despite the availability of private capital; and

(c) with respect to loans for petroleum development, its refusal to allow private capital to participate with YPF in the petroleum industry, as well as the Eximbank’s general policy not to make loans to anyone in this field.

(4) Problems faced by the Eximbank in coping with the foregoing include:

(a) Should the Argentines be allowed to draw the $44 million remaining in the $100 million line of credit? The Bank has been dragging its feet on this issue as a means of pressuring the Argentine Government into complying with its promise to settle the outstanding claims of United States interests.

(b) Should the Bank consider additional loans to the Government, in the absence of satisfactory progress on the claims of U.S. companies, for

(i) activities not involving competition with private enterprise. Transportation and industrial equipment were mentioned by Gainza Paz. Although there may still be some doubt in the minds of the Argentines regarding the balance of the line of credit, it has been made clear by the Bank, by the Department and by Ambassador Beaulac that it would be very difficult to make additional loans without progress on U.S. investors’ problems.

(ii) electric power and petroleum. All U.S. agencies concerned have made the point that Eximbank loans to the Government for power and petroleum are out of the question in view of the availability of private enterprise. This would apply regardless of Argentine action on the claims of U.S. companies, but it is not clear that Argentine officials understand this distinction, as indicated by Vicchi’s last conversation with you. The point has also been made that the Bank would be willing to finance electric power development by the A&FP and presumably by CADE. The question has not arisen in the case of petroleum because of the ability of most petroleum companies to finance themselves.

It is reasonable to assume that the Gainza Paz mission represents an appeal to President Eisenhower against the above-described policy of the Eximbank. Judging by what we have been told repeatedly by Vicchi, the appeal is based on the political advantages to the United States of a friendly Argentina, the desirability of demonstrating to the Argentine people through a generous policy toward the present pro-American Government that it pays to collaborate with the United States and the political dangers to both that Government and future Argentine-U.S. relations of attempting to resolve outstanding problems and power policy before the elections to take place on July 28 (Constituent Assembly) and February 23 (Presidential).

We are all agreed on the advantages of close working relations with Argentina and on the desirability of demonstrating that it pays to collaborate with the United States. It is also generally agreed that the present Government and what it stands for are about as favorable to U.S. interests as any that may come to power. We do not agree that solution of the claims of U.S. firms and policy on power should have involved unacceptable political risks during the earlier part of the present Government. Because of the role of petroleum in the downfall of Perón, it is probable that petroleum policy has involved real political risks.

We will have to admit, however, that recent governmental crises, the imminence of elections and the establishment by the Frondizi Radicals of economic policy as a main issue make it unrealistic to expect any decisions on power and petroleum before the returns are in. This could be after July 28 if the right kind of Constituent Assembly is elected—otherwise the Presidential elections of February 23, 1958 will have to be the key. The best we can practically expect before then is further progress on, perhaps solution of, the meatpackers problem, clarification of the status of U.S. firms on the interdicted list and possibly the nailing down of a satisfactory formula or commitment for eventual compensation to the A&FP. This last point, however, is a controversial one with political implications having been attached by the Argentines to the role of the Courts in settling the claims. It might well turn out that political turmoil may be such that even a formula to settle these claims may prove unattainable before some clarification of policy by either the Constituent Assembly or the election of a new government. Another factor which will in the long run exert influence on this problem will be the availability or non-availability of other financing for the superusina, a matter which will be known in a few weeks. If no suitable financing is available elsewhere, this could give the authorities second thoughts as to what will happen to whatever indemnity payments are made to A&FP.

Should the above be true, the only logical reason for strict adherence to our present policy of no concessions without conclusive action on the claims of U.S. firms would be: the belief that it promises results after the elections, regardless of the outcome; that it could not unduly harm the electoral prospects of those who support the present Government’s objectives of close political and economic relations with the United States; and that it would not otherwise jeopardize the future of US-Argentine relations.

I think it valid to assume that the continued application of pressure on behalf of the U.S. interests concerned would improve prospects for settlement either before or after the elections. While by no means helpful to the electoral prospects of pro-U.S. elements, this could be done without special jeopardy to the future of U.S.-Argentine relations if applied to power, petroleum and additional other loans not involving competition with private enterprise. The Argentines would not be happy about this but would have no legitimate basis for grievance—they prefer to do things their way and we ours.

We could, however, expect an adverse reaction with dangerous potentialities for the future of our relations from continued refusal to complete the balance of the line of credit. Regardless of the factor of broken promises, this would be looked upon as going back on a commitment and as an unwarranted kind of pressure. It could in an electoral campaign be built up into a serious impediment to the kind of relations we would like to develop with Argentina. It could conceivably delay a final settlement of U.S. interests and kill whatever prospects there may be of a turn toward private enterprise in power and petroleum.

It must be remembered that in the minds of the Argentine public and the political leaders settlement of U.S. investors’ problems and the Eximbank credit are not conditioned on each other. The U.S., in their minds, is committed. Therefore, any refusal to carry out the allocation or any unusual delay can only be misinterpreted and perhaps be used to the detriment of our position in the Argentine.

It should also be pointed out that dragging our feet on allocation of the remaining credit may not only be politically risky but might also not be effective in forcing a solution to the claims of U.S. firms. There is no reason to believe that the failure of the Argentine Government to settle the problems involved is due to bad faith on the part of those who made the earlier promises. Rather it seems due to a felt inability to get those solutions across in the face of political difficulties and opposition. It might be true that the present leadership is too timid, too ready to give up, but the fact remains that the political difficulties seem as real to them as they may seem exaggerated to us. Under these circumstances it could seem to them, justifiedly or not, that we were in effect asking them to risk their political lives for the remaining loan. As the need to scrupulously avoid appearing to be subservient to U.S. interests is still a practical political necessity in Argentina and as the Government has shown no particular political courage in the past, it might well decide to refuse to accept these conditions and publicly explain failure to obtain the remainder of the credit on the basis that the U.S. required too much. This is a real possibility and could seriously hurt our position.³

Even if it is assumed that the pressure is effective and the Provisional Government bows to it, it would unavoidably become known that we exerted it. There is nothing that the nationalists and anti-U.S. elements would like better than such an issue during the coming elections. Ingrained suspicion of the U.S. and imbedded nationalism would respond, and we will have ended up by strengthening the very elements we want to weaken, while hurting our friends.⁴

The argument for delaying allocation as a bargaining weapon would be stronger if it were the only lever we had. However, in the circumstances we would not sacrifice much leverage in going ahead with the previously established credit, since the continuing need for help from us will continue to give us a bargaining position of being able to insist upon action first if that appears appropriate. The Argentines will in fact be much less able to trade in promises as distinct from actions.

In view of these risks and the likelihood that the prospect of additional loans would represent a potent lever to get U.S. claims settled, it would make good sense for us to go ahead with the $44 million balance in the line of credit.

1. Source: Department of State, Central Files, 835.00/4–1657. Confidential.
2. In December 1955, the Argentine Government had announced that it was placing under interdiction several foreign-owned firms for presumed illicit dealings with the Perón regime. Two American-owned firms, Industrias Kaiser Argentina and Williams Química, were placed on the interdicted list. Documentation on this subject is ibid., 811.05135.
3. A handwritten notation on the source text, apparently by Rubottom, reads: “Where else does Arg. turn?”
4. A second handwritten notation on the source text, apparently by Rubottom, reads: “This will happen no matter what happens.”