415. Memorandum of a Conversation, Department of State, Washington, June 18, 1958, 4 p.m.1

SUBJECT

  • Philippines General—Outline of Philippine Request for United States Assistance

PARTICIPANTS

  • United States
    • Secretary Dulles
    • Deputy Secretary of Defense Donald Quarles
    • Mr. Samuel Waugh, President, Ex-Im Bank
    • Deputy Under Secretary of State R. Murphy
    • Deputy Under Secretary of State D. Dillon
    • Assistant Secretary W. S. Robertson
    • Ambassador Charles E. Bohlen
    • Assistant Secretary of Treasury T.B. Coughran
    • Dr. Raymond T. Moyer, Regional Director, ICA
    • Deputy Assistant Secretary Gardner Palmer
    • Mr. J. G. Mein, Director, Office of Southwest Pacific Affairs
  • Philippines
    • President Carlos P. Garcia
    • Ambassador Carlos P. Romulo
    • Mr. Florencio Moreno, Secretary of Public Works & Communications
    • Mr. Jesus Vargas, Secretary of National Defense
    • Mr. Dominador Aytona, Commissioner of the Budget
    • Mr. Miguel Cuaderno, Sr., Governor, Central Bank of Philippines
    • Mr. Eduardo Romualdez, Chairman, Rehabilitation Finance Corporation
    • Lt. Col. Emilio O. Borromeo, Senior Aide to President Garcia
[Page 874]

The Secretary opened the meeting by referring to the survey of the Philippine situation which President Garcia gave President Eisenhower at the meeting this morning. He invited President Garcia to discuss the details of that survey.

President Garcia stated that the main purpose of his trip to Washington was to ask the United States Government for development loans to carry out a program of industrialization in the Philippines and to diversify the present agricultural economy. He stated that the present agricultural economy cannot support a growing population which has already reached 22 million people. Since the war and Independence, the resources of the Philippines have gone principally to reconstruction and rehabilitation of war damage. At the same time it has been necessary to divert strained resources to putting down the Communist-led rebellion of the Huks. President Magsaysay’s greatest accomplishment was the quelling of the Huk Rebellion so that only a few leaders remained in a few pockets of resistance in the mountains. However, in order to put down the rebellion, Magsaysay initiated a program of social reform to show the people that a democratic society could solve their problems. This reform program has been a further burden on the limited resources of the Philippines.

At the present time the Philippines has a 4-Point program for which it needs assistance.

1.
Self-sufficiency in Food, Shelter, and Clothing: The Philippine Congress has appropriated 20 million pesos for a food production campaign. These funds will be spent for a) fertilizers, b) experimental farms, c) selected seeds, and d) insecticides. However this program does not go far enough and any significant increase in production will require extensive irrigation systems. For these the Philippines does not have sufficient funds and is therefore submitting several irrigation project studies for United States assistance.
2.
Social Amelioration: The health of the people must be improved by the installation of good water works to provide drinking water. United States assistance in building these is being requested.
3.
The Purchase of Raw Materials for Industry: From 1953 to 1958 over 800 industries were established in the Philippines. The country’s dollar reserves have been depleted to buy spare parts and raw materials for these industries. United States assistance is being requested to finance imports of machinery, spare parts and raw materials to maintain these industries.
4.
Improvement of the Port of Manila: Ships drawing over 35 feet cannot now be berthed at piers in Manila harbor. As a result this export and import center has very high costs and unless it is improved these will be reflected in the stagnation of Philippine trade. Reclamation projects in the south harbor are planned to reclaim 1,000 hectares. In the north harbor congestion of inter-island shipping will be lessened by reclaiming another 600 hectares. Only equipment would have [Page 875] to be financed by the United States; actual construction costs would be paid off by allowing the United States dredging firms to take over a certain percentage of the reclaimed land for re-sale.

Financing

President Garcia stated that the United States investment in the Philippines totals $250 million dollars. However, from 1950 through 1957 United States firms in the Philippines sent profits and repatriated capital to the United States totaling $197 million. It is obvious that this is a very high percentage of the total invested. If the Philippine economy declines, United States investors will suffer most because it will then be impossible for them to continue repatriating dollar funds to the United States.

For a three-year program the Philippines requests a total of $229 million of which only $100 million would be spent in the first year, slightly less in the second and third years. These funds would be used to buy imports, mostly from the United States. Only $100 million would be required in cash. The rest could be covered in Export-Import guarantees. The loans could be repaid after 4 years since after the industrialization program begins no steel nor rubber will have to be imported and these dollar savings on imports could be used to pay off the loans. It is also hoped that exports will continue their recent increase.

Loans on capital goods under these programs would be repaid in 20 years time. Those used to buy raw materials for industry would be repaid in 5 years’ time. A certain increase in the national debt would also be permissible since in the Philippines the national debt represents only 8.1% of the total national income. For comparison, in Pakistan the national debt is 17% of the national income. President Garcia believes that a figure of 10% would not be too reckless given the situation of the Philippine economy. He has confidence that the Philippine Congress at its session next year will pass new tax legislation since at this session it approved appointment of a tax study commission.

Hydroelectric Power Development

President Garcia said that in order to raise the standard of living in the rural areas, the hydroelectric potential of the country would have to be developed. Rural electrification will mean development of home and cottage industries from cheap power. The projects submitted for United States assistance fall into three geographical groups. The first in Mindanao will develop the Maria Cristina Falls from its present 100,000 kilowatts to its full potential of 750,000 kilowatts. This power will largely be used for the development of an industrial complex in Iligan and the surrounding area of Mindanao. The second [Page 876] group will be on the Angat River in Central Luzon. This project is only 50 kilometers from Manila and will serve the new industrial complex being built in the metropolis. The Angat River development will generate 230,000 kilowatts and will supplement the facilities of the present Manila Electric Company. The total cost of the project will be $20 million in dollar assistance. The third complex of hydroelectric stations is being constructed on the Agno River in Northern Luzon. These dams can serve to electrify the rural areas in Northern and Central Luzon. Hydroelectric power developments in the Visayan Islands will be relatively smaller and can be financed out of Philippine funds.

Steel Mill

President Garcia said that the Philippines has tremendous iron ore deposits, mostly on Mindanao. Since Mindanao is very sparsely settled, the large power potential of the Maria Cristina Falls can be used almost wholly for an industrial complex. Iron and nickel in very large amounts are at Surigao and iron ore exists in large amounts at Sibuguey, both on Mindanao. The Philippines now exports iron ore to Japan and imports steel in return. They have enough coal and plenty of iron and want to make steel locally. They foresee construction of three centers by the National Steel and Shipbuilding Company (NASSCO); the very large complex at Maria Cristina Falls and two smaller centers at the Angat River and at Panganiban.

Settlement of Omnibus Claims

The Secretary asked whether there were any other matters to be discussed. President Garcia replied that he had not had time to discuss matters other than economic assistance at the morning meeting in view of President Eisenhower’s interest in that subject. He stated that, however, he would like some commitment as to when the United States Government could reach a decision of the question of Omnibus Claims.2 He stressed that he was not pressing for settlement now but that he would like an estimate of when these could be worked out. The Secretary pointed out that this was not a propitious time for settlement. He stated, however, that we do not feel that there is a legal or equitable basis for the great bulk of the Omnibus Claims although a few items might have some merit. President Garcia asked whether the dollar devaluation claim had been resolved within the United States Government. The Secretary replied that we believed this was one of the claims which had more basis than most of the others. He added that the United States Government would have to give more thought to the gold devaluation claim and that we would try to be in a position tomorrow to discuss further the dollar devaluation claim.

[Page 877]

Secretary’s Comments

In conclusion President Garcia introduced Mr. Romualdez, Chairman of the Philippine Rehabilitation Finance Corporation, who has been acting as head of the National Economic Council; Budget Commissioner Aytona; Secretary of Public Works Moreno, whose field includes the National Power Corporation, the NASSCO and the irrigation project; and Governor of the Central Bank Cuaderno. He suggested that these gentlemen would provide detailed information.

The Secretary thanked President Garcia for his presentation which elaborated on his outline to President Eisenhower and which would enable United States officials to come to grips in a more conclusive way with the problem. He pointed out that President Garcia had outlined a three-year program but that, except for the Export-Import Bank, the United States Government depends on annual appropriation of funds by Congress. Although the United States Government had tried to get funds for a period of several years in advance for the Development Loan Fund, Congress had appropriated money only on an annual basis. Therefore, the DLF’s initial capital of $300 million was far over-subscribed in applications. Applications amounted to $1.5 billion. Congress has been asked for $625 million more for the coming year and it is hoped that a substantial sum will be forthcoming, if not the full amount. We quite understand that the Philippine program requires several years and that the money cannot all be spent at once. We will have in some respects to limit our own participation to a shorter term but this would not preclude consideration in later years of individual financing.

The Secretary recalled the President’s statement at the morning meeting that we are sympathetic to Philippine needs and are disposed to approach Philippine problems in a helpful manner, subject, of course, to our own limitations. He pointed out that as the President is aware, there are many claimants for the funds Congress gives us and that the strain of the Cold War in many parts of the world forces us to spend money in areas not of our own choosing. He reiterated United States awareness of a special relationship to the Philippines and added that we would take that into account.

The Secretary suggested that it would be useful if Mr. Dillon and Mr. Waugh could study overnight any memos which the Filipinos had brought with them and discuss various problems with the gentlemen whom President Garcia had introduced. He did not know whether the time of the visit was enough to allow the full study necessary for the projects. He pointed out that we had tried to give advance thinking to these problems and that we were not entirely unprepared since we had received through Ambassador Bohlen some indications of Filipino thinking. The Secretary stated that the United States might move in [Page 878] the direction the Filipinos had indicated but that how far and how fast we moved would be dependent on factors beyond our control. He suggested that the meeting recess to allow Mr. Dillon and Mr. Waugh time to study and discuss the proposals and proposed that the full group meet again with President Garcia at 3:00 p.m., Thursday.3 He felt that it might be possible at that time to give the President a more definitive response. The President agreed with the Secretary’s suggestion.

  1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Secret. Drafted by Brand, who is not listed among the participants.
  2. See footnote 2, Document 399.
  3. June 19.