255. Memorandum From the Deputy Assistant Secretary of State for Inter-American Affairs (Snow) to the Under Secretary of State for Economic Affairs (Dillon)1
SUBJECT
- Desirability of assisting the Cuban Government to maintain the stability of the Cuban peso
Background:
A mission from the National Bank of Cuba is presently in Washington to discuss with the IMF and the U.S. Government the serious threat to the stability of the Cuban peso which results from the fact that following the departure of the Batista administration it was determined that the currency reserve of the country is depleted and $60 million below the legal requirement. The Cuban Government has introduced certain temporary emergency controls on dollar payments and other measures designed to conserve dollar exchange, but considers that assistance from the IMF and from the U.S. is required to restore confidence and to maintain the parity and free convertibility of the peso.
The mission has placed its total need at $100 million. It has requested the maximum standby credit possible from the IMF which is $50 million ($25 million new money, and $25 million renewal) and hopes also to obtain a Treasury stabilization credit. In addition it has indicated its intent to try to borrow from the commercial banks in New York and reschedule short maturities. It is the opinion of the mission that the financial help, if received, will largely serve a psychological purpose and not be drawn upon and that exchange earnings from the current sugar crop will enable the reserves to be replenished.
The possibility that the ExImBank might assist with the reconstruction of the transportation system in eastern Cuba has been raised by the Cuban representatives and an inquiry was made regarding the possibility of obtaining surplus agricultural commodities for food needs. The mission has now had several discussions with the IMF, Treasury, ExImBank, Agriculture, and State, and expects to return to Cuba in a few days.
The members of this Cuban mission are well known to various U.S. officials and are regarded as men of integrity and competency, friendly to the U.S. and moderate in their political and economic viewpoints. They are representative of a group of technicians who have been given many posts of responsibility in the new Cuban Government and who are genuinely concerned that anti-American feeling in Cuba might grow. They frankly deplore many of the statements made by certain of the revolutionary leaders and ask for patience and help in order to strengthen the position of the moderates in the present administration.
Considerations of U.S. Interest:
U.S. private investment in Cuba totals over $800 million and a devaluation of the Cuban peso or the necessity of rigid control measures such as the establishment of exchange restrictions, multiple exchange [Page 408] rates and surrender of dollar exchange could seriously affect its operations including the remittance of earnings plans for further investment.
Historically the Cuban peso has been a free currency at parity with the U.S. dollar since Cuban independence. A devaluation at this time would therefore have an unusual negative psychological impact on the people of Cuba aside from any economic considerations. Furthermore in the present revolutionary-nationalistic atmosphere a devaluation or the fear of it would bring with it real danger of increased social unrest, capital flight and lack of confidence of investors. In such circumstances the position of anti-US elements would be reinforced.
There are many sound and influential elements in Cuba whose hands would be strengthened if the present Cuban mission can return with an indication that the assistance needed will be forthcoming. Conversely there are prominent demagogical elements who will find support for their charges that the U.S. supports dictatorships and is the enemy of the revolution if the mission returns empty-handed and the peso must be devalued.
Recommendation:
The Treasury Department has requested the Department of State to indicate its views with respect to the advisability on political terms of according balance of payments assistance to Cuba at this time.
I recommend that you authorize me to communicate to the Treasury Department on behalf of the Department of State the foregoing considerations which led us to endorse prompt and effective action looking towards an exchange standby agreement between the Treasury Department and the Cuban Government in an amount appropriate to Cuba’s current requirements. Subject to your approval I would also propose to urge the U.S. Executive Director of the IMF to support efforts of the Cuban Financial Mission promptly to obtain from the IMF $25 million of new money and a renewal for one year of the $25 million standby agreement which otherwise expires in March 1959.
With regard to the longer range projects of economic development and the desire for surplus food commodities, we are making further studies, considering both the need for detailed planning and economic data and the trend of political developments in the country.
Our recommended course of action with regard to the IMF and Treasury is based on the assumption that the Cuban Government meets the requirements of these bodies for such transactions.2