Foreign Relations of the United States, 1950, National Security Affairs; Foreign Economic Policy, Volume I

710.5/9–2650

Memorandum by the Assistant Secretary of State for Inter-American Affairs (Miller) to the Director of the Policy Planning Staff (Nitze)

top secret

[Washington,] September 26, 1950.

In connection with memorandum of September 25¹ from Mr. McWilliams transmitting copy 118 of NSC 68/1 “U.S. Objectives and Programs for National Security” and annexes thereto,² there is submitted herewith my personal comments on these documents in so far as they relate to ARA’s responsibilities.

[I.] Introduction

The otherwise excellent report fails to take adequate account of the role of Latin America in relation to U.S. national security objectives and consequently fails to give sufficient importance to Latin America’s requirements and potential contributions in connection with the security programs discussed.

The outbreak of the Korean crisis and subsequent developments indicate the urgent need of reassessing Latin America’s position in regard to U.S. security objectives and the state of our relations to these countries. Latin America presents problems which are unlike those encountered in relation to Europe or Asia which are admirably discussed in the report. Nevertheless, what we do in either of these other areas, the way in which we go about doing it—including our information activities in respect thereof, has a vital impact on our relations with Latin America. For example, while the European Recovery Program³ was soundly conceived and soundly executed in relation to Europe, the fact that the impact of this program on Latin America was not taken into account when the program was announced has constituted the most detrimental single fact in our relations with Latin America. More recently the extension of direct military and economic assistance to the Far Eastern area and ECA development and technical activities in Africa have had a cumulative adverse effect on Latin America. The prospective announcement of a substantial grant in aid program to South Asia will seriously add to our difficulties in regard to Latin America. It is therefore essential to take a new look at our relations with Latin America and within the limits of the possibilities to work out a more positive and dynamic program in this area.

Our relations with Latin America are in many respects closer than those of other areas not only geographically but because we have been working on them longer. The framework of cooperation based on the Rio and Bogotá⁴ Treaties and the Organization of American States is fundamentally sound. Our principal instruments of economic and cultural cooperation with Latin America constitute generally an adequate basis for carrying out the greater part of the cooperative programs which are needed. Our principal problem is not, therefore, one of devising new instruments of cooperation but of expanding and administering more vigorously the programs which we have been operating for several years in this area. More than anything we need to pull together our various programs on a country by country basis into a coordinated positive and appealing whole.

The response of Latin America to the Korean crisis has been satisfactory in so far as concerns moral solidarity but distinctly disappointing as regards positive military and economic cooperation. There has been more lip service than accomplishment in regard to UN commitments. The most obvious reason for this is the fact that the conflict is remote to the average individual Latin American, but at least equally important—certainly in determining the action of governments—has been the apathy and sullenness resulting from the feeling that the United States has abandoned Latin America in the post-war era and is giving priority to new friends in other parts of the world.

As much as one may feel that friendships should not be measured by gifts and loans and as much as one may inveigh against the lack of responsibility on the part of Latin America in fulfilling its commitments, we must face the facts of the present situation and of the increasingly deteriorating situation which will result upon the announcement of additional aid programs in other areas. ARA has steadfastly pursued the Department of State line that the ERP is an emergency program; that what is done in one area is not necessarily suitable for another area; and that U.S. economic assistance is subordinate to self-help measures. We have also gone as far if not farther than we should in urging the Export-Import Bank and the International Bank to take a more positive approach to lending operations in Latin America and especially to take more initiative in helping the Latin Americans to get up projects. However, it has not been possible to make much progress in the face of the feeling of dissatisfaction on the part of the Latin Americans referred to above. This is particularly true of Brazil, our leading ally in Latin America, whose apathetic position today in the Korean crisis must be contrasted with its spontaneous and enthusiastic support of the allied cause in 1942. This is particularly significant in view of the fact that communists have virtually no economic strength in Brazil whereas all three of our enemies in World War II had important cultural and economic ties with Brazil. The same is also true of Mexico, and since the outbreak of the Korean crisis there has been considerable newspaper comment in Mexico to the effect that the United States cannot look to its Latin American neighbors for military and other essential cooperation when it has not been helping them economically. Nowhere in the world is “the revolution of rising expectations” more in evidence than in Latin America and our own actions are directly responsible for this.

This problem must be examined not only from the standpoint of the welfare of these countries but in regard to what we can expect from them. ARA has recently been placed under a directive from the National Military Establishment to obtain offers of ground troops for Korea. There is no difference of view that one of the main reasons why no offers have been forthcoming is that Latin America has been excluded from all military assistance programs since the war. At the present time the military assistance legislation precludes transfers of equipment to Latin America except on a reimbursable basis, an unrealistic approach in view of the dollar and other financial limitations in those countries and one which contrasts with the flexible and universal authority under Lend Lease. The failure of the Munitions Board and the NSRB prior to and since the outbreak of the Korean crisis to develop any positive and concerted program for strategic materials precludes any effective action on our part in this field.

ARA has been unable to justify proposing any substantial grant program for Latin America. Rising dollar availabilities in itself would preclude any such proposal and the mere fact that such a program is proposed for South Asia does not justify an equivalent program for Latin America. However, we should at least expect that, in regard to financial development, equivalent criteria will be applied in different parts of the world and that there be some top level coordination and policy determination given to the relationship between the different aid programs. Within the framework of such a coordinated policy a new approach for Latin America is necessary in a broadly conceived and positive program taking into account the maximum utilization of all of our present instruments of development. Also since the new wartime situation in Korea presents new problems, a few supplementary instruments of cooperation are needed as discussed below.

Finally it is essential to our relations with Latin America that public opinion in that area be taken into consideration in connection with the announcement of any new major developments in the conduct of our foreign relations throughout the world including the announcement of proposed new aid programs. At the same time consideration should be given to giving a new and more positive aspect to any program of cooperation with Latin America as discussed in this memorandum. A convenient method of doing that, and at the same time giving more life to our regional system would be to convene early in 1951 a consultative meeting of Foreign Ministers of the American Republics to discuss economic and military cooperation in this hemisphere in the light of the present situation and of the instruments at hand for carrying out such cooperation. A prerequisite to such a conference is the clear determination in Washington of the basic principles of our participation in such a cooperative effort.

II. Recommendations for Modifications in NSC 68/1 and Annexes

1. The military programs—the position of Latin America in the military assistance program (Annex No. 1).⁵

In view of the fact that the staff work of the Inter-American Defense Board has been projected on the assumption of effective cooperation among military elements of all American republics in the defense of the western hemisphere, the military assistance program should be re-assessed in the light of these defense requirements, with particular reference to the question of whether modification of the reimbursable principle is not a requirement to an effective defense program. The experience of the past war indicated that in order to secure shipping lanes, provide the necessary communications, the necessary transportation of strategic materials to the United States and the protection of air and naval bases it was necessary for the United States to station in the Caribbean and South Atlantic 300,000 military personnel. In the event of a new outbreak of war such a drain on the military personnel resources of the United States would be a severe one. The possibility of shifting a large portion of this responsibility to the Latin American military establishments is a real one, but such a shift requires effective assistance in equipment and materiel. In view of the limited financial resources of the Latin American countries, it is most unlikely that their military establishments can or will be adequately strengthened in the absence of at least a modest program of MDAP assistance on a nonreimbursable basis.

The broader question regarding Latin American military participation is whether steps should be taken at this time or in the near future looking towards overseas military participation by certain Latin American countries on other than a token basis in the event of widespread hostilities. In my judgment there are certain basic considerations which should be studied by the NSC in the near future with a view to arriving at a definitive policy and program. The degree of military assistance available from Latin America in case of emergency, in, say, 1952–53, depends on decisions taken in 1950 and an active beginning in the implementation of such decisions. Important considerations include the following:

a) The degree to which military forces in being in Latin America would create an additional element of strength in the free world which would contribute a tangible deterrent to Soviet aggression.

b) The degree to which trained and equipped military forces available in Latin America would contribute to the solution of the “manpower gap” in the United States in case of all-out hostilities.

c) The financial savings to the United States which might result from using a certain number of Latin American divisions in the allied war effort; such savings resulting from the participation by the Latin American countries in meeting the troop aid, subsistence and allowance requirements of their own troops.

d) The global psychological gains which might derive from active participation of the large number of UN members located in Latin America.

If the decision on this basic question is in the affirmative, then two things are necessary:

a) Availability of MDAP assistance on a grant rather than reimbursable basis and on a scale substantially larger than would be required for a limited program based solely on hemispheric defense.⁶

b) Active implementation of such a decision through the regional framework of the Inter-American Defense Board operating under adequate directives from the OAS.

2. The economic assistance programs, including both grants-in-aid and loans (Annex No. 2).

The following recommendations for a United States economic cooperation program with Latin America are based on the following objectives:

a) An offset to the progressive deterioration in our relations with Latin America growing out of the fact that the United States has or plans to have large-scale programs in all other major areas of the world.

b) Improvement of political relations of the United States with Latin America through concrete demonstration of our willingness toassist in the economic development which answers to the aspirations of the Latin American leaders and their people.

c) The concentration of economic development in Latin America in those basic fields which will contribute the maximum to:

(1) The development of production which will minimize Latin America’s dependence on the United State as a source of supply in the case of emergency.

(2) To maximize the output in Latin America of strategic and other essential materials required to meet expanded consumption requirements in the United States, plus the attainment of stockpile objectives.

d) To hold the drain on United States financial resources to the minimum compatible to the attainment of the foregoing objectives.

3. Financial requirements of an economic program for Latin America.

A reappraisal of financial requirements for Latin America has been made necessary by the situation set forth in NSC 68/1 itself; particularly in view of the disclosure that the gross national output projected requires a much greater consumption of Latin American products and, therefore, a rapid expansion in production of those items in Latin America. In view of the foregoing, the summary of Latin American requirements set forth in pages 2, 3 and 4 of Annex No. 2 have been amended as follows:

a) The projection on page 2 of Annex No. 2 should be amended to read as follows:⁷

	1951	1952	1953	1954	1955
Latin America	40(40)	105	115	104	70

b) Note 3 “Latin America,”⁸ page 4 of Annex No. 2, should be amended to include the following additional sentences:

“An additional grant-in-aid sum in the total of $164 million for the 1951–55 period is required. Of this total, $64 million will finance the expeditious completion of the upper section of the Inter-American Highway, and the balance of $100 million will meet emergency transport requirements related to an expanded production effort in Latin America.”

It will be noted from the foregoing that the adjustments required are two. Firstly, an expansion in the over-all sum to be expended in Latin America over the five-year period of $164 million. Secondly, the recommendation that $40 million be made available immediately through incorporation in the emergency budget to be presented to Congress in the latter part of this year. The expansion of this program derives from the following considerations:

a) In defining the objectives for the collective defense of the continent, the Inter-American Defense Board has stipulated in its document, T–03 of June 20, 1950, that one of the principal undertakings must be:

“The development, maintenance and protection of an efficient inter-American communications system”.

With respect to the Inter-American Highway the recommendation of the Board in the same document is:

“The Pan American Highway is not yet an effective means of inter-American communications. Completed, it would be of particular value in the collective defense of the Continent.”⁹

ARA’s objective is to see to the completion of the Inter-American Highway. And instead of 8 years as proposed in legislation earlier this year,¹⁰ ARA considers it a matter of considerable urgency to finish it in not more than half that time. Our estimate of funds required remain unchanged, $64 million of which we propose $20 million should be made available in this fiscal year (including contract authorization) with the remainder $44 million to be invested over the following three years.

b) In addition to the through highway ARA considers it necessary to promote, in the interest of defense production, the development of other inland transport facilities to facilitate access to sources of production of strategic and critical materials. The completion of better transport facilities as rapidly as possible in the Amapa region of Brazil and in improving access to the Urucum deposits will be a major factor in speeding up production of manganese. In Peru, the lack of highway communication can seriously impede developments designed to increase the production of zinc. In Mexico a 30 Km. road will open up another source of iron ore. The Kama road in Nicaragua should be finished without any further delay. In view of the importance attached to better highway transportation by the Inter-American Defense Board, ARA proposes that the sum of $100 million be made available to be used mainly to defray the dollar costs on a grant basis over a four-year period to provide for transport required for defense production. We can also foresee the necessity to close some of the gaps in the Inter-American Highway south of Panama, for example, the difficult stretch south of Turbo in Colombia which when finished will connect the upper and lower parts of the system.

c) It is estimated that the $64 million for the upper section of the Inter-American Highway down to the Canal Zone and $100 million for other highway purposes will be invested during four fiscal years as follows:¹¹

1951—$40 million

1952—$45 million

1953—$45 million

1954—$34 million.

4. Other essential elements to an adequate approach to United States economic cooperation with Latin America.

As I have already stated, it is essential that in view of the existence of concrete United States aid programs to other areas we present a concrete program to the other American republics as one designed to meet their specific requirements. The fact that the financial requirements for Latin America are on a more modest scale and that the major part of our participation is in the form of loans rather than grants does not modify the requirement that we have a definite program for that area. In order to present effectively such a program and to make its implementation possible, both congressional and administrative decisions are required. In addition to a decision by the Administration to present the aid requirements to Congress, other decisions by the Administration which should be taken include the following:

(a) The determination by the National Advisory Council of five-year loan absorption figures for each Latin American country. This has already been done in the case of Mexico, a precedent thus having been established.¹² This determination is necessary to provide concrete evidence to the individual Latin American country of our willingness to assist them provided meritorious projects are presented. Secondly, it is necessary to provide such a basis for the joint programming of economic development for our participation in assisting in the preparation of specific projects. Finally, such a determination will serve as an incentive to the Latin American countries to take the necessary internal, fiscal and credit measures required for local currency participation and necessary fiscal reforms and for us directly or through international agencies to have the leverage to suggest actions in these fields.

(b) It will also be necessary for the effective implementation of this program for the two lending institutions, the ExImBank and the International Bank, to work out an agreed formula of categories for their respective loan operations so that the current confusion in this matter may be eliminated.

(c) Finally, in view of the current and prospective supply situation in the United States, it is most important that a materials program be formulated parallel to the financial program so that the latter may be made effective. This means a basic policy determination:

(i) That the civilian requirements of the Latin American countries will receive parity treatment with the civilian requirements of the United States in allocations; and

(ii) That materials required to expand essential production and transportation in Latin America will receive priorities treatment similar to that in the United States for comparative projects.

If the foregoing decisions are made it will be possible, in conjunction with the authority referred to in the stockpiling section below, to present a package program to the Latin Americas at an OAS meeting and thus give new life to our program of economic cooperation in this hemisphere. While this may not eliminate all criticism based upon Latin American exclusion from heavy grants-in-aid, it will be the best approach which we can honestly present.

5. Stockpiling program (Annex No. 4).

This section appears to be inadequately presented and sets forth, no criteria for developing a positive program of strategic materials procurement in Latin America.¹³ Neither is it related to the increased current consumption requirements for strategic materials as set forth in Section D of Annex No. 10.¹⁴ Neither Annex No. 4 nor No. 10 proposes a concrete program for the expansion of strategic materials production and transportation in Latin America. As stated on page 19 of NSC 68/1 “. . . almost no start has been made on the basic production and expansion programs which are so essential …”. ARA has on several occasions volunteered its whole-hearted cooperation to the representatives of the Munitions Board and the Federal Supply Service in giving full diplomatic support in the Latin American countries to a program designed to expand the production of strategic materials in the other American republics. To date no such program has been forthcoming and little or no evidence of the establishment of production goals in Latin America designed to meet both the requirements of current consumption and of stockpiling in the United States. On the contrary, it appears that we are pursuing a day-to-day policy of trying to deal with the problems as crises arise. This was acutely evidenced by the directive recently received by ARA to approach Argentina and Uruguay on a program for allocations and price controls with respect to wool without any regard for other aspects of our economic relations with those countries and particularly in total disregard of the refusal of the Department of Agriculture only a few months ago to grant Argentina’s request to remove wool from the CCC surplus list so as to make it available for purchase by ECA countries.

It is important that as soon as possible a comprehensive program be developed with respect to the increased production of strategic materials in Latin America. It is also important that this program be related to all other aspects of our economic relations with these countries. It may be anticipated that extreme reluctance will be encountered on the part of Latin American governments to go in for wartime production programs except in the context of an integrated economic program which takes account of their essential wartime requirements and also of the adverse effect on their economies of an eventual termination of these programs.

Furthermore, it is important that programs which we stimulate in this field should not be required to be financed through loans. ARA advocates the financing of wartime strategic materials programs through the use of funds available under the Defense Production Act.¹⁵ Although the financial program outlined above takes account of the basic development requirements in the field of transportation, power and food production essential to an expansion of the production of strategic materials in Latin America, it has been assumed that the expansion of the productive facilities themselves will be financed under the Defense Production Act or other special defense funds.

ARA has no suggestions as to other sections of the report.

1. Not printed.
2. NSC 68/1 and its annexes not printed. (S/S–NSC Files: Lot 63D351: NSC 68 Series)
3. For documentation regarding the inception of the European Recovery Program, see Foreign Relations, 1947, vol. iii, pp. 197 ff.
4. For text of the Charter of the Organization of American States, which entered into force for the United States on December 15, 1951, see TIAS No. 2361 in United States Treaties and Other International Agreements (UST), vol. 2 (pt. 2), p. 2394.
5. No provision had been made in this Annex for grant military aid to the other American republics. (S/S–NSC Files: Lot 63D351: NSC 68 Series)
6. For further information on involvement of the Bureau of Inter-American Affairs in formulation of military grant aid estimates for the NSC 68 project, see the memorandum of December 4, 1950, from Fletcher Warren, Director of the Office of South American Affairs, to Mr. Miller, p. 677.
7. Reference is to projections of economic grant aid, including Point IV funds but excluding all military aid. In the mentioned table, other American republics were allotted no grant aid for fiscal 1951, $60 million for fiscal 1952, and $70 million for each of the fiscal years 1953 through 1955. (S/S–NSC Files: Lot 63D351: NSC 68 Series)

8. The mentioned passage reads as follows:

   “Latin America. It is estimated that the expansion and new development of critical materials supply and associated transport and power facilities will require an investment of about $350 million per annum. It is further estimated that the IBRD will be able to invest in Latin America at the rate of about $125[m.] per annum, leaving about $225 m. for U.S. Government loans. Grant aid for Latin America is scheduled to cover expanded IIAA assistance in increasing indigenous food production ($20 M. for 1952 and $30 M. thereafter), increased Point IV activities in other fields ($20 million a year), and an additional $20 million a year as a contingency fund to cover unpredictable events such as earthquakes, floods, riots, etc. It is expected that Latin America will earn enough dollars to take care of ‘normal’ development activities not embraced above.” (S/S–NSC Files: Lot 63D351: NSC 68 Series)

9. In a letter to the Secretary of State of November 17, 1950, Frank Pace, Jr., Secretary of the Army, stated in part that he believed the opinion of the Army Department that there was little or no justification from the military point of view for completion of the Inter-American Highway had been given the State Department “. . . some time ago.” Mr. Pace added, however, that the Army wished to open up healthful recreational areas for its personnel stationed in the Canal Zone and for that reason desired completion as early as practicable of that section of the highway which would link the Zone with the Panamanian province of Chiriqui. (819.2612/11–1750)
10. Public Law 769, approved September 7, 1950, authorized $4 million for fiscal year 1951 and an equal amount for FY 1952 towards completion of the Inter-American Highway; as enacted it set no time limit for completion. For text, see 64 Stat. 785. By P.L. 911, approved January 6, 1951, $4 million was appropriated for the highway; for text, see 64 Stat. 1223.

11. Annex 2 to NSC 68/3, December 8, 1950, contains this projected allocation for nonmilitary grant aid: fiscal 1951, $44 million; fiscal 1952, $28 million; fiscal years 1953 and 1954, $44 million each; and fiscal 1955, $28 million. Loans remained at $225 million per year as in Annex 2 to NSC 68/1. The program was explained as follows:

    “Latin America: The program of economic assistance which is projected for Latin America is primarily one of production for defense purposes. The objectives are to increase the availability of critical materials which the U.S. will need for industrial and defense output, to maintain production of food and other items at a level adequate to meet the essential requirements of western Europe from this traditional source of supply, and to develop production which will minimize the dependence of Latin American States on imported food and other essential supplies in case of emergency. In addition, it will be necessary to speed up the construction of the Inter-American Highway. This Highway is of strategic value in itself and the goodwill which will result from its completion will be of great political value and of indirect military value to the U.S.

    Increased U.S. procurement and higher raw material prices will increase Latin America’s dollar receipts and her capacity to service further dollar debt. Consequently the major part of U.S. assistance to Latin America is scheduled in the form of loan aid (largely for transportation, fuel and power facilities). It is estimated that Latin America will require foreign capital for investment at a rate of about $350 million a year, of which the International Bank may be able to finance about $125 million a year, leaving about $225 million a year for U.S. Government loans.

    Grant aid for Latin America includes $64 million over four years for completion of the Inter-American Highway, and about $28, million a year for an expanded technical-assistance program, with particular stress on aid to increase indigenous food production.”(S/S–NSC Files: Lot 63D361: NSC 68 Series)

    For the full text of Annex 2 to NSC 68/3, see p. 433.

12. For pertinent documentation, see vol. ii, pp. 936 ff.
13. Annex 4 to NSC 68/1 does not have estimates of strategic materials procurement from any region.
14. Annex 10 to NSC 68/1 contains an overview of economic requirements for implementation of the NSC 68 program.
15. Approved September 8, 1950. For text, see 64 Stat. 798.