35. Summary Minutes of Meeting1
INTERDEPARTMENTAL COMMITTEE OF UNDER SECRETARIES ON FOREIGN ECONOMIC POLICY
[Here follows a list of participants 1-1/2 pages long.]
Alliance for Progress
Under Secretary Bowles presided at the meeting and made the presentation on the Alliance for Progress.
Reviewing the history of US relations with Latin America, he said that one of our difficulties has been that we have continued to think in European terms. We considered that world stability depended on European stability. When we finally realized that Europe was no longer the place where all policy decisions were made, we adapted ourselves to the new look in Asia and Africa, but we continued to take Latin America for granted. We can no longer do that, for a real revolution has come to this area.
The Act of Bogota was a historic document of great importance. It makes clear that Latin American development puts responsibilities on the Latin Americans as well as on us. We will put in money only if those countries have development plans and only if they will take action in such fields as taxes, land reform, prevention of capital flight. Congress [Page 71] has made it clear that it is authorizing us to carry the program forward under the conditions and framework outlined at Bogota.
Mr. Bowles doubts that we have considered in depth the requirements and the implications of the Alliance for Progress. Revolution in depth does not take place just by swapping one set of masters for another. What we are asking is that the philosophy of Jefferson and the social reforms of F.D.R. be telescoped into a few years in Latin America. And these steps will have to be taken against the wills of the rich and influential Latin Americans and the people in power. If the tremendous difference between the rich and poor is allowed to continue, Castro-like movements will rise to power. There will be explosions unless we can help create a liberal centrist dynamism that can operate free of the Left and the Right.
The reforms we want them to make appear very radical to them. We take progressive income tax for granted, but this is shockingly radical to those countries. We also take it for granted that there will be governmental interference in our economy whenever there is a clear need for it such as in time of war. We expect the government to stop capital outflow if it is leaving the country at such a rate as to jeopardize our economy. Those countries allow capital flight until their financial resources are all gone and then they ask us to replace them. Our whole system of land ownership is radical by their standards.
The Under Secretary wondered if we realize the full implications of what we are doing when we ask for these reforms. If this program works out, we will have really independent thinkers on the part of Latin American countries. They will not do whatever we want them to do. We will not always be able to rely on their votes in the UN. What will the US reaction be then? Will we say the whole thing was a mistake? Or will we realize that these are the growing pains of independence?
Mr. Bowles mentioned the cable he sent back from Mexico City2 (distributed). In it he pointed out some of the problems we will face and said that our Ambassadors would face a hard test as the programs they espouse run afoul of the best families in the countries to which they are assigned. It is very important that our Ambassadors know they can depend on the Department to back them up. “We have a real bear by the tail,” Mr. Bowles said, “and I hope we realize it.”
The Under Secretary emphasized that this is not a job for any one agency but involves almost every one in Washington. There must be close coordination. We need to develop standard criteria, otherwise the Latin Americans will play off one agency against another. These criteria must be worked out from the Act of Bogota, the Punta del Este conference, [Page 72] and from our Congressional mandate. Mr. Bowles touched briefly on the roles of some of the agencies—State, USIA, Labor, Commerce, Defense and Treasury.
General Discussion
The major points which emerged in the discussion that followed Mr. Bowles’ remarks are summarized below:
Tax Reform. A good deal of the discussion centered on tax reform. Income taxes will be particularly difficult to establish. Tax collections must be improved. Career services should be established to make tax collections. It was pointed out that Argentina has almost doubled its tax revenue without raising taxes one cent—merely by tightening up on collections. We need a good rationale for tax reform which will help sell it to the wealthy and powerful Latin Americans.
The Time Element. The program cannot be implemented and reforms cannot happen overnight, but lots of the Latin Americans expect this.
Preventing Capital Flight. Latin Americans should be given tax privileges for productive investment at home, but it should be made difficult for investment capital to go abroad. This means tighter exchange controls.
How to Bring About Reform. Persuasion—with finesse—will be needed as Latin Americans do not like to be told how to run their economies. Such persuasion can be exerted by utilizing forces other than the US Government, such as the OAS, the Inter-American Development Bank, and the Harvard group which will be having another tax conference in Latin America this year.
Reforms have to be built into the country programs and it must be clear that the financing of the plan is dependent on the reforms being carried out. The panel of nine experts will be most important in this regard. In the course of their review, the experts can say if a plan is inadequate with respect to tax or land reform. If it is, we can then say that the panel’s recommendation is not favorable, so we can’t finance the plan. This is an important new instrument.
The idea that external financing will be in some ratio to internal resource contribution could be an incentive for the governments to collect taxes and encourage local investment. As plans are developed and the Latin Americans realize what has to be done, they will start thinking of the means for generating the money to accomplish the objectives. The Bell report on the Philippines was cited as an example of how to get reforms. We offered the Philippines $50 million a year for five years, but we conditioned our aid on a minimum wage law, land reform, tighter control over foreign exchange, and a progressive income tax. President Magsaysay told US officials later that if the US hadn’t put those conditions on its aid, he couldn’t have built a reform program.
[Page 73]Use of ECLA. The UN Economic Commission for Latin America should have an important role in the Alliance for Progress. It will take some time for the US to live down its previous negative attitude toward ECLA, but the Latin Americans have great respect for it. Strengthening ECLA is one way of bringing about some of the changes without the onus being on the US. Also, ECLA is a promising place to build up a supply of technicians.
US Private Investment. US private investment is important in the Alliance for Progress. The type of an operation Americans run in a foreign country is one of the most important factors in that country’s attitude toward the US. Bringing in know-how is an important contribution. But Latin Americans are worried for fear the repatriation of earnings will be too large.
An excellent example of investment was cited in the Sears operation in El Salvador. Five years ago Sears opened a store there. When it opened, zero percent of the products sold were made in El Salvador. Today 42 per cent are made there. As a consequence of this investment, a furniture factory and a plastics factory have been established, with Sears lending part of the money for those operations. All the employees in the Sears store are locals except the manager, and the pride in the operation is something to behold. Every clerk operates a cash register, and the loss due to theft is no greater than in Sears stores here. Local art is exhibited in the store and is sold without profit to the store so that it serves as an art gallery as well.
The Commerce Department indicated that it is thinking of having a hemisphere conference in one of the countries which has led in social reform. Private investors could show their products and demonstrate what they are doing for the countries in which they are operating.
Need for Point in US Government for Private Investors to Come. Under Secretary of Treasury Fowler said there should be one place in the US Government where private intrepreneurs can come and get an answer to their questions—whether they should make a joint-company approach; whether there should be a veering away from raw material to consumer goods local manufacturing, etc. He thought State the logical place.
Need for a Political Base. A political base must be established which allows reforms to go ahead. The labor unions can be a force for good or a force for the other side. It is not easy to get the labor movements in these countries to move in the right direction, but the Labor Department is giving a lot of thought to this. Social Security and other benefits of a welfare state cannot precede economic development. The question is what kind of priorities are to be established—and what political support can be mustered for them.
Task Force to Formulate Agreed Concepts. It was agreed that there should be uniform standards and criteria for use by AID, the Eximbank, and US representatives on international bodies such as the Inter-American [Page 74] Development Bank, the panel of nine experts, etc. There was concurrence that an inter-agency task force should be established immediately to concern itself with formulating agreed concepts which our agencies and representatives could follow with conformity. AID was asked to take the leadership in this matter.
- Source: Department of State, Interdepartmental Committee on Foreign Economic Policy Files: Lot 65 D 68, Interdepartmental Committee of Under Secretaries on Foreign Economic Policy, Alliance for Progress. Confidential.↩
- Document 34.↩
- Printed from a copy that bears this typed signature.↩