Foreign Relations of the United States, 1961–1963, Volume XII, American Republics

47. Memorandum From the President’s Special Assistant (Schlesinger) to the President’s Special Assistant (Dungan)¹

Washington, October 15, 1962.

SUBJECT

• Alliance for Progress

I have lost track of the Alliance in recent weeks, but I am a little disturbed by some stray items which have recently crossed my path.

Obviously the Alliance is in the throes of a much needed effort to build the contribution of private capital to Latin American development. This is plainly a necessity: public effort by itself cannot come near doing the job; and, as the need for social overhead capital is met, the private sector must more and more become the main engine of economic expansion. It is also a healthy redressment of what seemed in the first months of the Alliance an excessive commitment to public investment and planning. And it is a natural response to the frustrations of dealing with indolent, inefficient and uninterested governments.

Nonetheless there is surely danger in going overboard in this direction and reverting to the Eisenhower Latin American policy.

The answer of the United States Government to the problem of hemisphere development in the fifties was to stake everything on bringing about the private investment climate deemed essential to an adequate rate of economic growth. This climate was to be achieved in two ways: (1) in the economic field, through insistence on policies of monetary stabilization; (2) in the political field, through insistence on government committed to the protection of private foreign investment (including, if necessary, military dictatorships).

The Eisenhower policy was a failure. Nonetheless it has its attractions for those (still) in the bureaucracy who shaped the policy and have never been enthusiastic about the public-sector aspects of the Alliance; moreover, it is a policy which wins cheap and unthinking applause and a reputation for “realism” in North American business circles. But the policy is as wrong today as it was in the fifties—more so, because of the churning up of political sentiment in the intervening years. Adolf Berle discusses this point effectively in his new book. If we return to the Eisenhower policy and make the creation of a “proper” climate for foreign private investment our main objective in Latin America, we might as well kiss the Alliance—and the hemisphere—goodbye.

These reflections are stimulated by a number of things which, I trust, are not straws in the wind:

1. I attach No. 1120 from Mexico City.² Here, at a meeting of experts to discuss the Alliance, a Brazilian cited Argentina as an example of the political pitfalls of rigorous conformity to IMF standards. In response, the representative of the Kennedy Administration “suggested that Frondizi’s failure resulted not from following IMF but from failure to do so.”

I do not argue that we should applaud 30 percent inflation. But the statement of the U.S. representative is exceedingly questionable so far as facts are concerned; and, if our new hemisphere line is to be the infallibility of the IMF, then we are right back with Eisenhower.

2. I call your attention to Embassy Airgram A-437 from Mexico City³ entitled “Mexican Discrimination Against United States Investment Threatens Alliance for Progress (An Analysis of Causes, Tactics, Consequences and Remedies).” Obviously Mexican policies which drive away foreign capital are, in the main, bad for Mexico; and obviously an analysis of the techniques of discrimination is well worth having. But the basic presuppositions of this memorandum are (a) that there are no legitimate motives for economic nationalism—its proponents are either demagogues trying to keep in power, crooks seeking to pick up equity ownership in the confusion of Mexicanization and forced industrialization, or Marxists; (b) that the big failure of the United States in Latin America has been “the failure of both the United States Government and U.S. private business enterprise over a long period of years to protect United States investments” and (c) that the urgent necessity is “to mobilize United States economic power in both the private and public sectors, so that our economic power, like our military power, will be a threat in being, enabling us in a fair and flexible way to further the objectives of our foreign policy by using it to require of Mexico and other governments cooperation on their part,” especially “to improve the investment climate essential to an adequate rate of economic growth.”

Some of the specific suggestions in this memorandum sound useful; but the philosophy of the memorandum is completely the philosophy of the Eisenhower Administration and at war, as Berle’s book emphasizes, with the realities of life in Latin America.

3. There is the appointment of General William Draper as head of the country team inspection mission to Brazil.⁴ I have known Bill Draper for years, and he is a man of certain qualities. Nothing would be more appropriate for the Eisenhower Administration than to send to Latin America a Republican investment banker whose most recent big assignment was as chairman of the Mexican Light and Power Company. It seems to me wholly incongruous, however, for Bill Draper to go as a representative of the New Frontier to a country where even American businessmen are coming to feel that foreign ownership of public utilities is a blind alley.

4. There is the decision to resume military aid to the Peruvian military junta—a decision in terms which allowed the junta to announce on October 11: “The situation will permit us to continue, from now on, the close collaboration of our armed forces with those of the United States in the execution of the plans of continental defense and those of economic and social development of Peru.” This announcement, even though qualified from Washington, weakens the argument for withholding economic assistance from Peru and suggests that we are quite prepared now to accept military dictatorship in Latin America—even a military dictatorship which is currently working with Communists in the trade union movement in an effort to destroy APRA leadership of organized labor in Peru.

5. There is an apparent shift in the kind of men we are sending as Ambassadors to Latin America. A good deal of the purchase the Alliance has been able to get has been due to the first wave of ambassadorial appointments—Gordon, Moscoso, Loeb, Stephansky, J.B. Martin. But the recent tendency has been to send to Latin America men who have no particular sense of identification with the Kennedy Administration and who could live (and in some cases did live) quite as happily with the Eisenhower Latin American policy.

No doubt I am unduly apprehensive. But this apparent recrystallization of elements of the Eisenhower policy within the framework of the Alliance for Progress is troubling and, I believe, will get us nowhere.

Arthur Schlesinger, jr.⁵

1. Source: Kennedy Library, Schlesinger Papers, Chron File, 1962. Confidential. Copies were sent to Kaysen, Hansen, and Goodwin.
2. Not found.
3. Dated September 28. (Department of State, Central Files, 812.00/9-2862)
4. Reference is to the team composed of Lincoln Gordon, Ambassador to Brazil; Teodoro Moscoso; James Loeb, Ambassador to Peru; and Ben Solomon Stephansky, Ambassador to Bolivia.
5. Printed from a copy that bears this typed signature.