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

433. Memorandum of a Conversation, Department of State, Washington, July 1, 1955¹

Washington, July 1, 1955

SUBJECT

• Colombian Economic Situation

PARTICIPANTS

• Robert L. Garner, IBRD
• Albert Waterston, IBRD
• Burke Knapp, IBRD
• Jack DeBeers, Treasury
• Assistant Secretary Holland
• Mr. Blankinship, OSA

Mr. Garner stated that the IBRD had always regarded the Colombian Government as one of its best clients. He said that the Bank had loaned Colombia $90 million for carefully considered projects and that it had sent several missions to Colombia to study and advise the Colombian Government on various problems. He said that the Bank had been impressed with the sound financial and economic policies of the Colombian Government. Recently, however, the Bank had taken a serious view of Colombia’s situation which it found steadily deteriorating. The Bank had concluded that this was the result of poor administration, faulty policies and mistakes of the present Colombian Government. He said that the Government was recklessly seeking credits in France, from U.S. banking circles and elsewhere totalling around $190 million and that much of this credit was to be used for projects of doubtful economic value. Mr. Knapp said that the Government was administering its financial affairs inefficiently, particularly in certain areas where the Army had placed military officers with inadequate economic background in positions of management. He cited specifically the Anchicagá project in Cauca² where the garrison commander in Cali and another Colombian Army officer, both inexperienced in economic affairs, now constitute two of five men on the Board of Directors of the project. Mr. Garner stated that a large amount was being spent on the military budget and that some of the projects, such as roads, were being built essentially for strategic reasons and were uneconomic. He said that there was evidence that the Government was losing confidence in itself and that the IBRD concluded that if the present trend continued at its present pace Colombia would be as badly off in six months as Brazil, that is little short of bankruptcy.

Mr. Garner concluded that Colombia was by no means lost and that the situation could be saved. He said that he was proceeding to Colombia to talk to President Rojas and that he hoped to have some influence in reversing the trend.³ In answer to Mr. Holland’s question he stated that he would not go so far as to state that the Bank would grant Colombia no more loans. He said that with some modifications in the Government’s policy and administration the IBRD was prepared to complete the road program, the Magdalena railroad project and certain others which would be of full utility only when completed.

Mr. Garner said that he disliked to comment upon the Paz de Rio steel mill project because of his well-known opposition to the project from the beginning. However, he said that the project was little short of a disaster as it was being badly managed and was in dire need of a foreign management firm to pull it together. Mr. Knapp said that the steel mill was now actually attempting to obtain the equivalent of $100 million more to place in the project as follows: $28 million from the Eximbank, $40 million from French banks plus the equivalent of $20 or $25 million in Colombian currency. The Bank officials agreed that they did not see how the steel mill could ever be made an economic project.

Finally, Mr. Garner referred to President Rojas’ personal conduct. He said that he was guilty of accepting excessive gifts such as 2,000 head of cattle and a ranch or two and that there were stories of his complete lack of understanding of the Colombian financial problem and of his countenancing extensive corruption among Colombian officials. He said that Villaveces,⁴ the Minister of Finance, was forever selling the President on questionable projects on the promise that he would take care of the finances and be able to raise the money. Mr. Holland commented that he was gravely concerned about the excessive sums being spent by several Latin American countries on their military budgets.

Mr. Garner and Mr. Knapp explained that the extension of numerous very “soft” loans and unsound loans by French banks with the guarantee of the French Government was one of the worst elements with which the IBRD had to contend and that it proposed to take this question up with the French to the end of encouraging a more reasonable French loan policy.

1. Source: Department of State, Central Files, 821.10/7–155. Confidential. Drafted by Blankinship.
2. This was an electric power facility which supplied the departments of Valle and Cauca.
3. Garner, Vice President of IBRD, visited Colombia in July. When he returned to Washington, he spoke on July 7 to Holland, and told him that he had received from President Rojas an agreement to make no future credit commitments until the completion of an IBRD field study of Colombia’s financial situation. (Memorandum of telephone conversation by Holland; Department of State, Central Files, 821.10/7–755)
4. Carlos Villaveces.