The Atlantic Report on the World Today: Washington and Rio

SINCE the war years, the relationship between tIre United States and the Latin republics of the Western Hemisphere has been troubled, not to say chronically irritated, by a practical question.: How much development aid can the Latin countries set from the “colossus of the North,”and on what terms? “Aid,” as the Latins see it, means loans, investments, grants of money and credit, commodities and machines, special trade, tariff, and price-support concessions, and technical and cultural services which could in any way further in Latin America a civilization equivalent to ours.

Rightly or wrongly, the bulk of Latin-American political and economic leaders have persuaded themselves that a flow of Yankee dollars in sufficient billions would produce industrialization, improve farm systems, and promote the development of power, transport, natural resources, and publiceducation facilities comparable to those of the United States.

Furthermore, the spokesmen and negotiators for republics, citing pronouncements of our Good Neighbor Policy makers, maintain that the United States has promised them all this. Hence, when aid has not been forthcoming in sufficient volume to achieve these miracles smoothly, or has been extended only under hard-boiled credit restrictions, the Latinos have described themselves as the orphans of the cold war.” On several occasions they have behaved a good deal like people who consider themselves bilked by rich fair-weather friends.

Naturally, in such circumstances, the vastly greater aid programs accomplished in Europe and projected in Asia during the first post-war decade have not eased the misunderstanding. On the contrary, the discrepancy has cut deeper into the Hemisphere relationship because the central problem of how much aid and on what terms has never been faced by either side with frankness.

Diffuse intentions to do something in this direction at. the general Inter-American Conference of Bogotá in 1948 were frustrated by the Bogotá riots. A more specific effort to come to grips with the question was planned at a follow-up economic conference scheduled to be held at Buenos Aires on various dates in 1948 and after. But because of a prolonged Argentine depression and the “little cold war” between Washington and the Peróu regime, the Buenos Aires meeting was postponed to death.

At both the 1951 consultation of American Foreign Ministers in Washington, and the March, 1954, general Inter-American Conference at Caracas, the United States was so occupied with the Communist problem in the Hemisphere and elsewhere that the showdown on economic matters was neglected except for a few generalized resolutions in favor of collaboration.

What Latin America will get from us

The conference of American Finance and Economy Ministers last November at Petropolis was more realistic. It made possible a relatively clear official exposition of what the Latin Americans want from the United States. They would like larger loans for development, from both public funds and private investment. They would like legal and financial support in stabilizing prices on their exports of raw materials and on imports, especially machinery, essential to development. They would like abatement of income and other taxes which discourage investments, on profits of United States investors in Latin America. Phey would like the collaboration of the United States in the establishment of an in ter-American bank.

The United States delegation, beaded by Secretary of the Treasury George Humphrey and Under Secretary of State Herbert Hoover, Jr., as his deputy, made plain its position on these requests. A more generous loan policy was agreed to so far as the Export-Import Bank and the newly proposed International Finance Corporation are concerned. Reduction of United States double taxes on incomes earned through Latin-American investments will be recommended to engross. The United States will not participate in the founding of an inter-American bank; but if the Latin Americans want to found one on their own, Washington will regard it benevolently and will keep an open mind on possible future collaboration. On price stabilization projects, nothing doing.

The meeting provided for biennial Finance Ministers’ conferences from now on—the first at Buenos Aires in 1956. The stage is thus set for dealing with the issues of aid and collaboration on a regular basis.

What Latin America needs

The basic obstacles to building a firm economic front for the Hemisphere in the world-wide struggle against Communism still remain. To bring about this front, Latin America requires over a long period a flow of capital and credit which will enable its republics to adjust their economies to some of the most prodigious changes taking place anywhere on this planet. And the flow must be, not necessarily on orthodox terms of United States business investment, but on terms which the Latin Americans can utilize.

Three essential factors are producing the changes:

1.A vast population growth — a “procreative explosion.”The number of Latin Americans hiss increased from slightly more than 100 million a generation ago to 170 million in 1955. In the opinion of most population experts, the number of people will increase to 275 million by 1980, and to half a billion by early in the next century.

2. Urbanization. A rush of new population to the cities has transformed Buenos Aires, São Paulo, and Mexico City into metropolises; it has pushed smaller capitals — Bogotá, Caracas, Santiago, and Montevideo — close to the million mark; and it has proportionately upped the population. of scores of rural and agrarian centers from around 5000 to 50,000.

3. Industrialization. New money, made through rising land values — especially city values — in the population and urbanization waves, has flowed into huge factory investments. The result has been industrial employment for millions and the stimulating of a new demand for modern living standards that makes itself felt from jungle huts to swank suburban palaces.

These revolutionary increases and transformations have converted Latin America into a plant much more expensive to operate profitably than it was toward the close of its relatively pastoral era two decades ago when the Roosevelt Good Neighbor Policy was initiated.

The swelling populations require jobs and immensely enlarged markets, domestic and foreign, for their products. Latin America’s spreading cities require sanitation, public health, and public transport facilities sealed to their size. They need highway and rail connections with the hinterland so that abundant, food supplies can be made available to their people at reasonable cost. Latin industries require selective adaptation of factories to their markets so that they can produce consumers’ goods in the quantities and qualities demanded by their hordes of customers, as well as heavy goods and machinery in countries where demand justifies their manufacture.

The people, urban or rural, industrial or agrarian, require adequate education to enable them to work effectively on the production lines. Both Latin America’s masses and her industrialists require from their governments currency and credit management stable enough to provide a reasonably secure value to wages and profits.

The overall need of Latin America, as the fastest-growing continental region on earth, is for a functioning economy. One of the outstanding investment opportunities of history lies in our being a “good partner" in the task of providing it. An outstandingly dangerous calamity of our times could be provoked if we permitted Latin America’s vast population growth to produce a collapse of its economy, inviting Communist solutions and violence.

Too many restrictions

The efforts of the Latin-American governments to finance their own developments have led to a vast manufacture of paper money for investments and pay rolls. Thus a chronic inflation has afflicted all but one or two of the republics; it is cataclysmic in key countries like Brazil and Chile.

Manifestly, a more generous United States loan and aid policy could not do much good if the flow of credits were used merely to stoke further inflation and to provide tidbits of graft in the Latin republics. But loans conditioned upon their direct practical use for necessary industries and for the huge public works which Latin America requires for its development, if they were properly administered, would supply employment for new workers at steady wages in an economy of stabilized prices.

There can be no question of the capacity of the United States to scale its aid to the scope of the problem. Realistic enthusiasts for aid programs on both sides of the border consider half a billion dollars a year sufficient for Latin America’s current emergencies. And half a billion a year would compare favorably with the $4 billion extended to Europe in the first year of the Marshall Plan. It emphasizes the relatively sparse flow of Hemisphere aid to point out that, out of the $80 billion provided by us in foreign assistance since 1940, the Latin republics have received less than 2 per cent.

Secretary Humphrey’s proposed International Einance Corporation is designed to solve the problems of a few grade-A applicants ineligible for World and Export-Import Bank credits. But it is doubtful if, with the world-wide scope of its prospective operations and its relatively meager capital of $100 million, it can provide much more than negligible help to Latin America.

Why U. S. investors are skihish

The Humphrey delegation’s recommendations for more favorable treatment of U.S. private investors in Latin America, while hardly received with universal enthusiasm, nevertheless did highlight a major factor in the Hemisphere’s aid problem. A large number of Latin governments, particularly below ihe Caribbean in South America, have consistently refused to recognize during the postwar years that this outstanding method of furthering economic development can operate at full effectiveness only as a two-way street.

At present, flow of private capital into the republics is blocked by a number of things: fear of expropriation; prohibition of foreign exploitation of natural resources, as in the case of Brazilian oil deposits; picky government restrictions on a number of business activities, including labor policies in many countries; complicated and often impractical exchange and import regulations; and limitation of the right of profit repatriation.

Such investment-hampering trends arc, to be sure, by no means universal. They exist not at all, or only in minor degree, in Mexico and Cuba and the boom republics of Venezuela and Colombia. Bolivia, which expropriated United States tin holdings a few years ago, and American oil properties during the 1930s, has recently granted oil development rights to the Glenn McCarthy interests. The Argentine government currently is relaxing profit repatriation regulations for new capital.

Peru opens her doors

Peru is a notably instructive example of the advantages of a complete breakaway from the anti-foreign investment trend. Since President Odría’s regime took over in 1948, Peru has allowed its currency to settle in a free exchange market with the result that the sol is now steady at 19 without the country’s having had to draw on a $30 million stabilization loan extended by the Chase National Bank. All trade and exchange restrictions have been removed except a few minor import regulations. Foreign corporations operate in the republic substantially on the same basis as native business.

In consequence, Peru has been relatively flooded with U.S. prospectors for investment openings. One of its major development projects is reflected in a new Export-Import loan to the southern Peru subsidiary of the American Smelting and Refining Company. The loan, which will be drawn upon when $105 million of privately raised capital is available, is to be used for the development of new copper mines at Toquepala in the Arequipa region of t he Andes, the building of a railroad from Toquepala to Mollendo, and the complete modernization of the Mollendo seaport.

The Celaneses Corporation of America and the Container Corporation of America have relatively new plants at. Cali in Colombia. Internalional General Eleclric, in spite of being squeezed by the collapse of the Mexican peso, is operating a big lamp factory at Monterrey and sweating out restrictions with reasonable suecess in an electrical appliance factory , in Brazil. Westinghouse on the whole has made a success of a program which mainly relies on licensing nationals in the Latin republics to manufacture and distribute the company’s products.

The vast new iron ore workings of United States Steel and Bethlehem Steel in Venezuela, which are already shipping 2 million tons of ore to the United States, are indications of the development to be achieved through American capital in the restrictionless republics. So is the continued success of American oil operations in Venezuela.

The Rockefeller brothers’ operations, aimed at the exploration of business activities of direct economic and social benefit to Venezuela and Brazil, have now plowed through their experimental stages and come out with large profitable investments in big supermarkets in Maracaibo, Caracas, and Rio de Janeiro, and with a stake in a powdered milk industry in those republics.

Even in the republics where restrictions are onerous, United States corporations with sufficient resources and gifts for adaptation to their difficulties are operating both their own and their Latin-American interests. Sterling Drug Company, like International General Electric and many other corporations, has met the restrictions on profit repatriations mainly by plowing back profits as new capital.

In pleading for an end to restrictions on foreign investments, the Humphrey delegation to Ectropolis was merely filing a protest against what it regards as undue frustration of North American capacities to assist Latin America’s development.

There was left over, however, the feeling in certain sectors of the State Department and of Congress that for diplomatic and political purposes the protests may have been excessively blunt. The tone perhaps more than the content of the Humphrey advice apparently did strengthen Latin American suspicions that the United States may be taking advantage of the republics’ adjustment to growth to infiltrate Yankee business management into their economies even more extensively than before.