154. Memorandum From Viron P. Vaky of the Office of South American Affairs to the Director of the Office of South American Affairs (Bernbaum)1
SUBJECT
- Exim Bank Mission to Argentina
Attached is a report prepared by Mr. Vance Brand for the Board of Directors of the Exim Bank.2 Below is a summary of the report to the Board.
I. Conclusions
Brand recommended the following to the Board: 1) There appears to be no basis for a balance-of-payments credit at this time; 2) The Somisa steel mill does not appear to require additional dollar financing at this time; 3) Bank assistance to other large steel mill projects currently under discussion in Argentina does not appear advisable. This does not preclude consideration of relatively small credits to existing private enterprises; 4) A solution of real substance to the problem of supplying increasingly substantial portions of Argentine oil requirements out of domestic production would produce a major improvement in Argentina’s capacity to service additional external debt and could be the occasion for a substantial expansion of the Bank’s activities in Argentina; 6) [sic] The Bank should continue to accept applications for credits in the private sector. Priority should be given to the Swift application when it has been properly developed, because of the industry’s importance as a major dollar earner for Argentina; and 7) The Bank should continue to consider a credit for the Rio Turbio project developed along the lines of the Woomer report.
II. General Impressions
A general impression of pessimism was noted by the mission when it arrived in Buenos Aires. A gloomy picture of the economic situation had been painted in a public address by the Minister of Economy, but Brand felt that perhaps this was done deliberately to prepare the country for basic changes in economic policy.
[Page 498]The new policy apparently includes (1) a substantial revision of the multiple exchange rate system involving a significant element of devaluation, (2) far more rigorous import controls, (3) domestic price controls, (4) trimming the government budget, and (5) attracting foreign capital. The general impression of pessimism also was reinforced in the mission’s early contacts with the IMF mission which indicated that the government’s proposed new economic policies were not regarded as adequate to meet the current problems, and in addition were generally not of the type that would be pleasing to the Fund.
However, some correction of this gloomy appraisal was made when the mission observed that many Argentine economic officials appeared sincere and competent. Conversations with the officials indicated that they appreciated the importance of the development of private enterprise generally and of foreign private investment in particular.
Argentine private businessmen said that they were encouraged in some respects by recent governmental actions. They indicated that there were men in the new government sympathetic to the business point of view.
III. Current Economic Conditions
Argentina’s imports of $1.3 billion in 1957 exceeded exports by $340 million, which underlines the need for a substantial exchange adjustment. This was recognized by the Argentine officials, including Dr. Lopez, Secretary of Finance. He expressed the belief that imports could be cut to balance exports without damage to the economy.
The central government’s budget estimate is 85 billion pesos, and the deficit 37 billion. Official entities, including railroads, the Buenos Aires transport system, and YPF account for 10.5 billion of the deficit. No mention was made of general tax increases. While public finance figures are reportedly inaccurate, it seems abundantly clear that the government operations are now substantially inflationary. Another inflationary element is the recent wage increase. Prices, stable in late 1957, have risen. By the middle of June the cost of living was up 30% from the preceding year. Prices will probably continue to rise.
The balance-of-payments problem would be helped by greatly increased domestic oil production and expanded exporting of meat. A Swift representative gave an optimistic forecast of the future of the meat industry. Discussions with members of the Krieger Vasena group confirmed the fact that Argentina has undertaken to use excess earnings in trade with Paris Club countries to prepay obligations there. This information, together with the prospect that the free market will probably become much less important in the immediate future, confirms [Page 499] the existence of a serious impediment to the long-term financing of increased dollar debts by means of a surplus in the trade with the Paris Club countries.
IV. Other Topics
- A.
-
Loans to Small Businesses
Argentine officials were told that the Exim Bank makes small loans to private industries. Dr. Gallarce of the Banco Industrial indicated that he might seek such loans by appearing personally before the Board in the U.S.
- B.
-
Meatpackers
Because of the major importance of the meatpackers, special attention was paid to them by the mission. Current dollar earnings of the industry are now about $50 million a year. In a meeting with Dr. Lopez, Brand was promised that the meatpackers’ problems would be settled soon.
- C.
-
Priorities for Industrial Development
A list of priorities for industrial development was submitted by the Argentine government. Items on the list were not numbered. They included steel, petrochemicals, soda ash, Hessian and jute fiber industries, cellulose and paper, machine tools, intermediate chemical products, “especially those deriving from organic synthesis,” aluminum and its alloys, special steel, and cement.
- D.
-
Implementing Existing Credit
An interagency committee has been set up by the Argentine government to implement use of existing Exim Bank credit. While the mission was in Argentina, reports were received indicating that in a number of cases action on import permits and exchange assurances had already been taken.
- E.
-
Loan Requests
The John Deere Argentina proposal for tractor imports to build a capital reserve to finance tractor manufacture was wholeheartedly endorsed by Argentine government officials. They indicated they would do all they could to consummate the arrangements, including the provision of exchange assurances satisfactory to the Exim Bank.
A study of Exim Bank loan 826–A to the Argentine railroads was also made. The mission’s feeling is that the railroad officials are capable, but that they need more governmental cooperation. Brand notes that “to summarize the railroad situation briefly we might say that the organization, while being essentially made up of the same people, has [Page 500] suffered severely in morale because of the Government’s failure to cope with the serious labor problem. Although the new Secretary of Transport is optimistic, with respect to his ability to bring about substantial improvements, his optimism is not reflected in the morale of his administrative organization. The future of the Argentine State Railways seems to lie principally in Argentina’s ability to re-establish a disciplined organization.” Brand also suggests that in any future consideration of Argentine transport problems the Bank’s studies should include a more thorough investigation of the possibilities of river transportation.
The mission did not attempt to investigate the current status of negotiations with A&FP General inquiries were met with predictions that a satisfactory solution would be reached shortly.