399. Memorandum of a Conversation, Manila, March 12, 1958, 8 a.m.1

US/Del/MC–1

PARTICIPANTS

  • U.S.
    • Secretary Dulles
    • Assistant Secretary Robertson
    • Ambassador Bohlen
  • Philippines
    • President Garcia
    • Secretary Serrano

SUBJECT

  • Philippine Financial Problems

After breakfast, the President brought up with the Secretary certain of his desires concerning the possibility of increased economic assistance from the United States. He did not mention, however, the Omnibus Claims Bill2 or any revision of the existing ICA programs, but concentrated all his remarks on his plan for the creation in the Philippines of a Development Loan Fund to finance the importation of machinery and raw materials for existing and new industrial enterprise in the Philippines. In less detail he covered very much the same grounds he had previously with Ambassador Bohlen (Embtel 3482).3 [Page 833] President Garcia said he felt that the creation of this Development Loan Fund would be of material assistance in strengthening the foreign exchange reserve position of the Philippines, and he inquired what the Secretary’s reaction had been to the preliminary discussion he had had with Ambassador Bohlen in this respect.

The Secretary said that he thought there might be some possibilities in the existing lending mechanism in the United States, namely, the Ex-Im Bank and possibly the Development Loan Fund. He pointed out, however, that this would be a very bad year with Congress, and he anticipated that foreign aid in general would have a difficult time before the Congress. He gave a brief outline of the economic situation in the United States and the current recession, emphasizing that a cycle of wage increases followed by high prices plus easy credit and installment buying had tended to force prices up. But it was possible that the current recession might bring about a reduction in prices. He mentioned this point particularly since he had understood that one of the Philippine objections to the utilization of Ex-Im Bank credits was because of the high price of United States equipment (under the Charter of the Ex-Im Bank credits can only be used for purchases in the United States). He felt therefore that it was possible that in the future with a reduction of United States prices this objection might be reduced.

Turning to the Development Loan Fund, the Secretary outlined the general situation in regard to this Fund, mentioning that the Administration was asking for an additional $625 million, but that for the reasons he had mentioned earlier they would be lucky if they obtained $500 million. He also pointed out that while the Development Loan Fund did not exclude purchases in countries other than the United States, it was also on a project basis and not an open line of credit.

Then followed a discussion concerning the mechanisms for the handling of United States aid for industrial development in the Philippines and particularly the fact that the Philippine Industrial Development Center worked on a project-by-project basis which required in each case the concurrence of the ICA Mission here. President Garcia said what he had in mind was a government-to-government credit or loan which would be applicable not only to government projects, such as irrigation which could not be handled privately, but would be used for privately owned new industrial enterprises. In concluding this part of the conversation the Secretary emphasized that it would not be possible to discuss any amounts of loans or credits which might be available to the Philippines until they knew the general amounts that had been authorized by Congress, which would probably be at the very end of the present Congressional session. A jocular exchange between the Secretary and the President then ensued as to the help [Page 834] Garcia might render with Congress during his visit to the United States in order to increase the money generally available to lending mechanisms in the United States.

There was a brief exchange on the subject of devaluation, during which the Secretary pointed out that an overvalued currency always favored corruption and evasion of the exchange controls, but that devaluation, if it were to be of benefit to the country concerned, should be carefully planned and the necessary accompanying measures adopted to cushion the shock. He mentioned the experience in Korea with devaluation which had on the whole worked out very well. The President agreed and said that if he could get his Development Fund started, there might be no need to devalue the peso but, if there were, with this Fund they would be in a position to do so in such a manner as to cushion the shock. The President did not explain exactly how this Development Fund, which, by his own statement, was to be distinct from the foreign exchange reserves of the Central Bank, could be used for this purpose. At this point, Ambassador Bohlen brought up the question of private investment in the Philippines, pointing out that the uncertainty as to remittance of profits and repatriation of capital seemed to be the chief deterrent from the point of view of United States business. The President mentioned that no administration could bind a future one, but he felt that something for a four-year period might be done to stabilize the Central Bank formulas on these questions.

The conversation then turned to the urgent need of the Philippines for additional rice from the United States which is covered in a separate memorandum.4

  1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Secret. Drafted by Bohlen and approved by Joseph N. Greene, Jr., Special Assistant to the Secretary. The source text indicates that the conversation took place in President Garcia’s Manila Residence, “The Hideout.”
  2. The “Omnibus Claims” was the collective name given to a variety of claims, most of which arose from World War II, made by the Philippine Government. These claims, totaling $1 billion, were officially presented to the U.S. Congress in 1955. For a list of the claims, see American Foreign Policy: Current Documents, 1959, pp. 1246–1247.
  3. As reported in telegram 3482 from Manila, March 7, Bohlen had a one and one-half hour talk with Garcia. Garcia not only raised the issue of economic assistance but expressed his hope to visit the United States while Congress was in session. He also mentioned that he had received frequent questions as to when base negotiations would be resumed. (Department of State, Central Files, 796.11/3–758)
  4. The substance of the conversation on the Philippine request for rice is contained in Secto 20, infra. On the same day, March 12, Dulles also extended an invitation to Garcia, in President Eisenhower’s name, to visit the United States. (Dulte 5 from Manila, March 12; Department of State, Central Files, 796.11/3–1258) The dates subsequently agreed upon were June 17–19.