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 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Johnson Administration > Volume XXXI
Foreign Relations, 1964-1968, Volume XXXI, South and Central America; Mexico
Released by the Office of the Historian
Documents 310-325

Colombia

 

310.  Letter From the Ambassador to Colombia (Oliver) to the Assistant Secretary of State for Inter-American Affairs (Mann)/1/

 

Bogotá, November 18, 1964.

 

/1/ Source: National Archives and Records Administration, RG 59, ARA/LA Files: Lot 66 D 65, Colombia 1964. Secret; Official–Informal. A copy was sent to ARA/CV.

 

Dear Tom:

 

We are not yet reporting officially what I am going to sketch for you here, because we want to check on the principal source of information, Dr. Harold Dunkerly of the Harvard Advisory Group to the Ministry of Finance.

 

On Monday last/2/ Dr. Dunkerly had a meeting with Fowler and got a general picture of the thinking that developed in Washington regarding the future of the AID program for Colombia. In generalized terms, Fowler left Dunkerly with the impression that the program for the future would be based on the success of the fiscal and budgetary program that at the time of our departure for Washington seemed well on its way through Congress as a result of the political consensus that Lleras Restrepo was supposed to have achieved.

 

/2/ November 16.

 

Yesterday Dunkerly asked to see me (with Fowler). He said that he had had a long conversation Monday afternoon with Calle. Without linking his visit to any request from Calle, Dunkerly nonetheless managed to communicate the impression that he was speaking Calle’s mind. Dunkerly said that the Government’s program was "in jeopardy" and that the situation for the future was "highly dangerous." He explained that Carlos Lleras Restrepo had turned out, so far, to be a "damp squib" ("wet firecracker" in American English). The expected consensus had not been achieved. Calle, who has no political power of his own and had staked everything on Lleras’ effectiveness, now foresaw not only a net loss of a half billion pesos in expected increased revenues but the fearful prospect of heavy political demands from the Coffee Federation on the present fisc. At maximum, the Federation could pressure for drain of another half billion from the Central Bank and have already asked for drawing rights for 150 billion for the current month. We are getting together a complete analysis on the details of the immediately foregoing. The details will come later and officially.

 

The big point is that the economists on the GOC side, including Calle, foresee that, if an effective political turnaround does not take place, this country will be in galloping inflation by next March. This will present not only a severe economic setback but have very grave political repercussions.

 

What Dunkerly wants me to do is to get in touch with Lleras Restrepo and seek to induce him to take an active leadership role on the economic front. Dunkerly’s idea is that I should use the lever of possible loss of program aid, which is running about one-fourth of the Colombian budget on present projections. My own feeling is that Lleras is too sophisticated for this gambit to be credible. My inclination is simply to go over with him the very serious consequences for Colombia and for the Alianza as a whole if this situation is not corrected. We have much more reflection to do here before the Country Team makes recommendations through official channels.

 

I have had a request in to see the President ever since my return from Washington, and I would like to get to talk to him before I see Lleras Restrepo. If the President does not give me an interview today, I cannot see him until next Monday, at the earliest, because of my official visit to Operations UNITAS at Barranquilla–Cartagena./3/

 

/3/ In a meeting with Valencia on November 25 Oliver outlined the difficulties involved in completing the 1964 program loan, including marine insurance and forward procurement. Valencia suggested that Oliver discuss the details with Calle. (Telegram 530 from Bogotá, November 27; National Archives and Records Administration, RG 59, Central Files 1964–66, AID(US) 9 COL)

 

I am very sorry to have to report this situation. Dunkerly is true to his profession, that is, he is somewhat of a crepe hanger, and that is one of the reasons we are checking out his conclusions before reporting officially.

 

Henry Dearborn tells me that in his whole time here he has never heard so many rumors about golpes and the like as during the three days I was in Cali on my official visit there. The Minister of Labor told me at lunch yesterday that he thought there was "a clear and present danger" of a golpe. Time is not helping. The Chinese Ambassador told me he thought the piece in the issue of November 13 was absolutely outrageous./4/ There has, to my way of thinking, been a continuous Time line building up Ruiz and turning down the legitimate Government of Colombia. I noticed the Ruiz build-up even before you rang me up about this assignment. It seems to go on steadily.

 

/4/ Reference is to a brief report on the anti-guerrilla campaign in Colombia, which, according to Time magazine did not progress "until two years ago when Major General Alberto Ruiz Novoa became War Minister." (Time, November 13, 1964, p. 61)

 

Ambassador Stewart’s telegram quoting the views of President Leoni is also very much in my mind./5/

 

/5/ Leoni suggested that the United States "move cautiously" before recognizing the new regime in Bolivia. Any precipitate action by the United States, he argued, "might have direct bearing on Colombia and the political ambitions" of General Ruiz. (Telegram 712 from Caracas, November 16; National Archives and Records Administration, RG 59, Central Files 1964–66, POL 16 BOL)

 

I am convinced that we have got to do everything we can to uphold constitutional government in Colombia. This may even require us to consider AID assistance on a bail-out basis, although I certainly hope it never comes to that. Be assured that I will do everything I can to help Colombia remain a country of law and a worth-while model of economic development./6/

 

/6/ In his reply Mann instructed Oliver to disabuse anyone with "doubts about our full support constitutional government and fact that American public and official opinion would react adversely to a military movement in Colombia." (Telegram 356 to Bogotá, November 27; ibid., AID(US) 9 COL)

 

Sincerely yours,

 

Covey

 

 

311.  Telegram From the Embassy in Peru to the Department of State/1/

 

Lima, December 9, 1964, 5:05 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, FN 1 COL. Confidential; Immediate. Repeated to Bogotá. Passed to the White House. Mann was in Lima to attend the third annual meeting of the Inter-American Economic and Social Council (ECOSOC).

 

695. From Mann. Following are my first reactions to latest Colombian exchange crisis. Would appreciate views of Ambassador Oliver and Department. Costanzo/2/ leaves tonight for Washington after first meeting with Minister Calle scheduled to take place this afternoon. He will bring to Department details our discussion here.

 

/2/ Henry J. Costanzo, director of the Office of Latin America, Department of the Treasury.

 

First, it seems to me first question we must ask ourselves is whether, if GOC makes no change in its exchange policy, disbursement of $45 million would stabilize the situation. On basis of info available to me I doubt very much that it would. It was, I am told, recognized in 1963 that the maintenance of two exchange rate system was difficult at best and would require a high level of confidence in the peso to maintain. I understand that the then Minister of Finance, Carlos Sanz de Santamaria, refused at that time to move to a single rate, or some other more adequate system, but agreed to reconsider if exchange loss should exceed $30 million in 1964. It seems clear that the weak political position of President Valencia, the recent capital flights, and the relatively heavy recent foreign exchange losses present us with a very different situation from the one we faced in 1963 and when we signed the 1964 aid program.

 

Instead of confidence, there is an obvious lack of confidence in the ability of the government to avoid devaluation. Purchase and sales of exchange this week should tell us more. But I understand that outstanding import licenses total about $500 million which can be presented for payment at the nine-to-one rate at any time. All of this suggests that unless effective corrective action is taken first, the disbursements would be quickly wasted in a futile effort to maintain a nine-to-one import rate while price rises over past two years suggest it should be at least closer to thirteen-to-one. This kind of a futile exercise would presumably not promote either political stability or economic progress.

 

Second, there is the question of whether we are obligated by the loan agreement to make the disbursement, having in mind that Colombian performance has been relatively good on the self-help measures specified in the agreements and that there is no agreement on exchange rate. It would seem to me that marine insurance issue gives us an out. Perhaps the attitude of Congress re taxes gives us another peg but I assume this would be more relevant to 1965 performance. Do our program loan agreements contain a general escape clause which can be used where conditions have changed to such an extent to make it impossible to achieve its purpose? If not, it seems to me they should in the future.

 

Third, is the question of whether the U.S. should seek to avoid the political onus for the urgently needed exchange reforms. This is a luxury I don’t think we can afford. However, I understand the IMF is willing to return a team to make suggestions about corrective action. The IMF rather than the U.S. should suggest the precise corrective action needed. I understand there are a number of possibilities, some of which might be more acceptable to Valencia than others. In this connection, is it correct that one of principal political problems is public promise of Valencia not to devalue plus belief that movement from nine-to-one rate would not only be a partial devaluation but would raise food costs as well? Would it be feasible to use PL 480 to help in food cost front?

 

Finally, it seems to me both Colombian and U.S. interests would be best served by urging that corrective action in exchange rate be taken forthwith and that disbursements of our aid be used to support GOC effort. For this we could stick on marine insurance issue as Ambassador Oliver suggests, perhaps with whatever adjustments are necessary on issue of forward procurement.

 

Will report on conversations with Calle today./3/ Would appreciate Ambassador and Department reactions this line of thought./4/

 

/3/ In the meeting with Mann on December 9, Calle acknowledged that resolute action was necessary not only to address the exchange rate but also to adjust much of the government’s economic program. In return, Mann agreed to expedite the 1964 program loan by resolving the outstanding issues of marine insurance and forward procurement. Mann believed there was no alternative and step was "essential part of measures needed to keep Colombian economy viable." (Telegram 698 from Lima, December 10; National Archives and Records Administration, RG 59, Central Files 1964–66, FN 10 PERU/IMF) Although Valencia continued to resist devaluation, the two sides eventually agreed on a formula to resolve their legal differences, thereby freeing $35 million of the program loan by December 31. (Memorandum from Sayre to Bundy, December 21; Johnson Library, National Security File, Country File, Colombia, Vol. I, 12/63–7/65)

 

/4/ No response has been found.

 

Jones

 

 

312.  Paper Prepared in the Bureau of Intelligence and Research/1/

 

Washington, May 5, 1965.

 

/1/ Source: National Archives and Records Administration, RG 59, ARA/CV Files, 1965: Lot 67 D 622, POL 2 Sitreps. Secret. Drafted in INR/CA by Robert R. Hendon, Thomas C. Colwell, and Mary K. Manzoli. Forwarded to Mann as an attachment to a May 5 memorandum from Wolfe who noted that Sayre had requested the paper on Mann’s behalf earlier in the day, thereby precluding its coordination within either the Department or the intelligence community. (Ibid.) Sayre forwarded the paper to Bundy on May 12. (Memorandum from Sayre to Bundy, May 12; Johnson Library, National Security File, Country File, Colombia, Vol. I, 12/63–7/65)

 

COLOMBIA: SITUATION AND PROSPECTS

 

The Basic Judgment

 

Political tensions in Colombia have once again built up to crisis point. There is, as on the many other occasions when the National Front government has been torn by deep partisan conflict, a chance that some fundamental change in the governing authority will be made. That change could come by military coup or through some basic political rearrangement in the form and composition of the government. Colombian politicians of all stripes and the military establishment, however, have a way of coming together for mutual advantage in time of crisis and thereby averting a break up of the National Front and a return to civil strife or military dictatorship. We believe that the danger of a military coup or a breakdown in the Front is greater today than a year ago, or even several months ago, but we are still inclined to feel that the end is not at hand yet.

 

The Current Situation

 

The recently announced alliance of the majority Laureanista–Alzatista (L/A’s) faction of the Conservative Party and two smaller opposition parties, the Liberal Revolutionary Movement (MRL) and the Popular National Alliance (ANP), has created the latest, serious problem for the Front government of Conservative President Valencia. The alliance formalizes the L/A’s de facto opposition to the National Front government, which along with absenteeism in the Congress and lack of party discipline, has served to block passage of important legislation since mid-1964. The Liberal Party that shares the responsibility of government with the Conservative Party in the National Front and the Ospinista minority faction of the Conservative Party (still loyal to the National Front) are pressuring Valencia to remove the L/A’s from the government or to exact a pledge of legislative support from them. Valencia is extremely reluctant to make any move that would further undermine his already shaky government.

 

What May Happen

 

Valencia probably will respond to the present crisis—as he has to other crisis situations in the past—by temporizing, in hopes that it will go away. If the Liberals force the issue and the L/A’s remain intransigent, Valencia may be forced to remove the latter from their government posts. This measure would probably kill any chance for congressional action on a major fiscal package now under consideration and all but end hopes for any meaningful legislation before elections in March 1966 when a new congress is to be chosen. An outcome to the present crisis of this sort would probably not topple the Valencia government.

 

The National Front’s problems are growing, however, and its political base for dealing with these problems is shrinking. The greatest danger that may emerge from the latest crisis is that it may lead Liberal Party leaders to believe that the National Front cannot survive the electoral test in 1966 when it is their turn to put a member of their party in the presidency. As a result, the Liberals may decide to conspire with the military with the idea of bringing about an extra-legal change of government through which they would gain the upper hand. The military, faced with a growing problem of subversive violence, may be receptive to the Liberals’ overtures, thinking perhaps that the Liberal leaders might be able to help them establish effective government.

 

At this time there is little indication that the Liberals are seriously considering an extra-legal change or, for that matter, that they have the military support they would need for such a move.

 

Economic Problems as a Factor

 

Colombia’s financial condition is deteriorating and the economic frustrations of the masses contribute to political tensions. Inflationary pressures are not great at the moment but a push against prices is expected in coming months. A Special Session of the Congress, called to consider a package of revenue proposals, may reject some of the measures proposed by the Valencia government that could at least limit the size of a prospective large 1965 budget deficit. The spread between the official and the free rate of exchange is increasing and the government lacks the international reserves to protect the official rate against speculative raids and the rising demand for imports. Valencia’s heavy commitment to avoid devaluation has prevented his administration from taking the remedial measures that are necessary to rectify the monetary and exchange situation.

 

The prospect is that Colombia will try during the balance of 1965 to obtain short-term commercial financing to relieve pressures on the exchange rate and impose additional indirect taxes on imports. With government attention devoted primarily to maneuvering its way through the country’s political and financial difficulties, it does not seem likely that Colombia will make much headway on basic long-term social and economic reform in the near future./2/

 

/2/ Mann briefed President Johnson on Colombia during a telephone conversation the afternoon of May 5. He told the President "we have a problem in Colombia." Mann explained that Colombian President Valencia is very pro-U.S., but "does not know beans from bull about economics" and wants $60–100 million a year to maintain rates of exchange that are unrealistic. Valencia does not want to devalue or stop inflation because it will cost him popularity, but if he doesn’t do something "it will cost us billions without giving us anything." Mann told Johnson that "we have this type of problem all over the world, but in Colombia it is a matter of leadership. He said if it blows it won’t necessarily go Communist but he did not think this guy would last. He said he has been very anti-Communist and a good friend but does not know anything about running a country." (Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)

 

 

313.  Telegram From the Department of State to the Embassy in Colombia/1/

 

Washington, May 22, 1965, 2:18 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL COL. Secret; Immediate; Limdis. Drafted by Sayre, cleared by Palmer and Eaton, and approved by Sayre.

 

954. Our first objective in Colombia is to prevent overthrow of constitutional government especially if there is a chance that golpe may result which would bring to top undesirable extremist elements on either side./2/

 

/2/ On May 21 Valencia declared a state of siege in response to violent student demonstrations against U.S. intervention in the Dominican Republic. In a May 21 memorandum to Mann, Vaughn reported: "This action should place the GOC in a stronger position for taking effective action in maintaining public security and resolving its continuing economic problems." (Ibid., ARA Files, 1965–67: Lot 70 D 295, Colombia, 1965)

 

Our second objective is to get government to institute necessary reforms and adopt such other measures as necessary to assure its longer term stability.

 

As between these two objectives it is obvious we must choose the first if the situation requires it. We understand from all of your reports however that the situation in Colombia does not require us to make such a choice at this time. On the contrary we understand that GOC has taken advantage of current demonstrations for the purpose of imposing a state of siege which will permit it to institute the measures necessary to achieve economic and political stability. We also understand from your messages that government is now in firm control of situation with support of police and military and that government is moving as swiftly as it can to adopt needed reform measures. We on our side are also prepared to move swiftly to complement Colombian action.

 

If there are any moves which the United States Government can make to assist the GOC in present political crisis, you should not hesitate to recommend them./3/ Moreover if for any reason you do not believe our position outlined Deptel 949 is adequate, you should not hesitate to say so./4/

 

/3/ Oliver forwarded a preliminary reply in which he reported that the Colombian Government was, in fact, reluctant to use the state of siege as a means to institute fiscal reforms. (Telegram 1473 from Bogotá, May 24; ibid., Central Files 1964–66, DEF 6 IA)

 

/4/ Telegram 949 to Bogotá, May 21, reported on international efforts to stabilize Colombia’s finances, particularly as a result of the recent mission of Gerald M. Alter, director of the Western Hemisphere Department, World Bank. After two meetings with World Bank, International Monetary Fund, and Department of State officials, Alter was instructed to return to Bogotá with joint conditions for extending emergency financial assistance to Colombia. The conditions stipulated that the Valencia administration impose a 4.5 peso per dollar payment tax for the remainder of its term. (Ibid., FN 16 COL) The Embassy considered the overall strategy "excellent," although it advised against authorizing Alter to speak on behalf of the U.S. Government. (Telegram 1463 from Bogotá, May 22; ibid., E 1 BRAZ)

 

If pressure for furnishing military contribution to IAF in Dominican Republic substantially contributes to present political crisis, you may indicate to GOC US would hope contribution can be made but we will not press if this the case.

 

Rusk

 

 

314.  Memorandum From the Assistant Secretary of State for Inter-American Affairs (Vaughn) to Secretary of State Rusk/1/

 

Washington, June 4, 1965.

 

/1/ Source: Johnson Library, National Security File, Country File, Colombia, Vol. I, 12/63–7/65. Secret. Drafted by Hill and Eaton. Read forwarded this memorandum to Bundy on June 4.

 

SUBJECT
Situation in Colombia

 

1. As indicated in recent previous memoranda from Mr. Read to Mr. Bundy on this subject,/2/ a serious political and economic situation is developing in Colombia and the United States has been trying to obtain action which would shore up the National Front Government of President Valencia./3/

 

/2/ Memoranda from Read to Bundy, May 7, May 22, and May 24, are ibid.

 

/3/ Mann reviewed the Colombia crisis with President Johnson earlier that morning and told the President he was holding a meeting on Colombia and that the situation is very bad. Mann reported the "World Bank thing becoming unglued. The President said it looked as if we ought to pour all the money we can in—try to save the President [Valencia]. He said he thought this was better then trying to remake the government. Mr. Mann explained how difficult it would be to pour enough money in. He said they were going to kick around several alternatives and then planned to go over and talk with McGeorge Bundy so the President’s staff would be clued in." (Ibid., Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)

 

2. The immediate situation is that President Valencia has been unable yet to follow through on his earlier decision to institute an economic program (including a de facto devaluation of the peso) which, together with substantial aid from the U.S. and international lending institutions, would tend to stabilize the economic and political situation. The economic program and de facto devaluation were worked out over the last few weeks in outline between the World Bank and the Minister of Finance, with the approval of President Valencia.

 

The United States made a positive response to these negotiations by indicating to the Government of Colombia through the Bank its readiness to support such a program with immediate release of $10 million from the 1964 program loan and, subject to negotiation, with $60 million in FY 1966 AID program funds, and additional support from PL 480, Export-Import Bank and Treasury for a total of about $100 million over the next twelve months if the devaluation was the 50 per cent believed by the Bank, the IMF and our economists to be the appropriate level for effectiveness. (This would have been effected by imposing a 4.5 peso "payments tax" on top of the import exchange rate of 9 pesos to the dollar; President Valencia approved first a 3 peso tax and then a 3.5 peso tax as negotiations continued.)

 

President Valencia’s approval of effective devaluation was a major change in his previous position. His Government devalued just after he came to office in 1962, but the devaluation was a failure through mishandling. He did not want to try again and overruled a recommendation for a new devaluation from his previous Minister of Finance last December. The persuasion of circumstances over the last months, including the need to cut back imports sharply, changed his mind.

 

In addition, the U.S. readied a negotiating team and developed its negotiating position to be ready to go to Colombia instantly when the Colombian program was approved by the Cabinet and made arrangements for funds to be made immediately available to support the Colombian effort. The IMF also indicated to the Colombian Government its readiness to roll over Colombian indebtedness and provide an additional standby of $20 million, and the IBRD was prepared to provide large project assistance. This outside official support, together with the return of normal private foreign credit lines which would have accompanied adequate monetary, fiscal and exchange rate measures, would have permitted higher imports. Higher imports, together with appropriate internal financial policies, would have led to increased production and employment rather than a stagnant economy.

 

3. The Colombian Minister of Finance first indicated that he expected to get the required unanimous Cabinet approval under the existing state of siege and take action by Presidential decree at the 3.5 if not 4.5 peso tax level over or just after the week end of May 30–31. This did not come about. In the intervening week, serious difficulties have arisen. Unanimous Cabinet approval has not been obtained. Leadership elements in the Liberal Party, which forms part of Valencia’s coalition, have opposed the devaluation.

 

News of the proposed devaluation leaked to the Colombian press and set off a strong adverse reaction. In Congress, opposition elements were joined by some Liberals in denouncing the devaluation. President Valencia, today reported in Bogota’s press as himself opposed to devaluation, has apparently done little to get the Cabinet, the national leadership, or public opinion behind the proposed program. Carlos Lleras Restrepo, the leading Liberal, has tried to stay in the background for political reasons, disassociating himself from the proposed devaluation. The Finance Minister indicated that he expected action by today, Friday, June 4, but there are no indications that he has yet enough votes for the needed unanimous Cabinet decision.

 

4. Indecisive leadership and the difficulties of acting through the coalition National Front system lie at the root of the present mishandled situation. Alberto Lleras, who was President prior to Valencia, governed through much of his administration with a state of siege for public order reasons. The state of siege also permitted him to act by decree when Congress did not act because it was hampered by the rule that unless otherwise decided by a two-thirds majority, all action must be by two-thirds majority. Lleras did not use his decree authority extensively. Valencia has attempted until now to govern without the state of siege. But the political base of the National Front has tended to fragment as time has passed. Consequently, Congressional action is continually more difficult to achieve. Therefore Valencia has turned to the state of siege device. But even with the state of siege he needs a political base of support because there are now mechanics for reversing his decree rulings. Thus leadership is needed and he has been lacking in this quality especially on economic issues.

 

5. Should the Colombians not approve an adequate economic program, including exchange reforms, the economic and political situation may be expected to erode further. Economically, intensified exchange controls would be tried, together with tight credit to the private sector. But imports, production and employment would be down and inflationary pressures high.

 

Politically, the prospects would be for impaired stability of the government rather than sudden or violent action to depose it, but this could change. At the least the National Front would lose ground at the March 1966 Congressional elections, probably primarily to the forces of former dictator Rojas Pinilla, and would have uncertain prospects in the May 1966 Presidential elections. Economic deterioration could lead to a decision by Valencia to resign or by the military, persuaded by the business elite, to take over.

 

The military under its present leadership is opposed to taking over civilian political power, but it might be persuaded to later if the situation deteriorated sufficiently. Lower level military leaders have not been active politically either, but they also might become restive later if the general situation deteriorated badly. They might then become responsive to former Minister of War Ruiz, who is presently quiet but has had political ambitions./4/ A united military takeover led from the top would probably be peaceful. A takeover incited from the lower ranks could be bloody. There is no indication that Communists would play a significant part in a takeover under either circumstance, but the situation could change.

 

/4/ Ruiz, who was forced to resign the War Ministry in January, announced on May 9 that he would also discontinue his recent attempt to found a political movement.

 

6. De facto devaluation also entails political risks, especially if badly handled, but the benefits in terms of a sense of a positive forward movement of the economy and corresponding political gains would be high if well handled.

 

7. President Valencia may appeal for sizeable U.S. loans without a satisfactory economic program or devaluation but granting such aid would offer no solution.

 

One hundred million dollars from the United States, which is the extent to which we are prepared to support a good program, would not greatly change the economic situation without such a program because private bank and commercial credits would not be available for lack of confidence in financial policies, and the international financial institutions would not provide complementary support.

 

As much as three to four hundred million dollars from the United States Government would be needed for one year to provide the same amount of push to the economy without a good Colombian program as would be achieved with $100 million with a good program. And even then the Colombian Government would have to undertake a larger devaluation and greater financial adjustments in 1966 after the next President came to office.

 

8. The U.S. is continuing actively to take steps to help stabilize the situation and shore up constitutional government in Colombia. In addition to readiness to quickly support an acceptable program with large scale loans (see paragraph 2), the following actions are now under way:

 

(a) Ambassador Oliver is being instructed to see President Valencia and certain other Colombian political leaders, after checking with the Minister of Finance, if the Colombian Government still seems to be wavering on undertaking a positive economic program.

 

(b) I have arranged to consult with Colombian Ambassador to the United States Uribe and Dr. Carlos Sanz de Santamaria, Chairman of the CIAP and a former Colombian Minister of Finance.

 

(c) Ambassador Bernbaum is returning to Venezuela to convey our assessment and position to the Venezuelans and obtain their thinking and possible assistance. President Leoni has previously conveyed to us his great concern about Colombia; many Venezuelan leaders believe that an overthrow of constitutional government in Colombia would sooner or later encourage one in Venezuela.

 

(d) The Ambassador of Brazil is likewise being called in to convey our position to Brazil.

 

We have considered sending someone to Bogota to reinforce Ambassador Oliver in his conversations with President Valencia and others there but have decided against it because Ambassador Oliver has close and effective relations with President Valencia, our doing so at this juncture might open us up too much for special appeals for assistance without a program, and to do so might also imply too much United States involvement in the delicate issue of devaluation./5/

 

/5/ On June 5 Mann told the President that his June 4 meeting on Colombia (see footnote 3 above) had included Sanz de Santamaría and Uribe, in addition to those in the administration who were either "concerned with" or "knew about" Colombia. After the meeting, Mann asked that Vaughn prepare a memorandum on the situation in Colombia for the Secretary, which is the source text. Mann also gave Johnson the following assessment: "If the government does not take the necessary steps then in the next two or three days we think there will be a change but we do not see any danger of a commie takeover if the Army stays united. We have no evidence of a split." The President asked Mann to set up a task force to develop plans for Colombia, as well as Guatemala and Bolivia. "We should have a special task force on top of it with the best names," Johnson said, "and be prepared in advance instead of waiting until they are shooting at us." (Memorandum of conversation, June 5, 12:10 p.m.; Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)

 

 

315.  Memorandum From the President’s Special Assistant for National Security Affairs (Bundy) to President Johnson/1/

 

Washington, June 30, 1965, 6:25 p.m.

 

/1/ Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 11. Secret. A notation on the memorandum indicates that the President saw it. According to another copy, the memorandum was drafted by Bundy and Gordon Chase. (Ibid., Country File, Colombia, Memos, Vol. II, 6/65–9/66)

 

SUBJECT
Colombia

 

Since one of the stickiest areas in Latin America these days is Colombia, I thought you might be interested in having a brief report on the more immediate and major problems in that country as well as U.S. efforts and plans to cope with them.

 

1. The most serious immediate problems appear to be economic. Lack of political and economic confidence has caused the free rate of exchange to depreciate from 10 pesos to the dollar in October 1964 to 19 pesos to the dollar now. The official import rate is over-valued at 9 pesos to the dollar and is increasingly under pressure. Liquid reserves are dangerously low and business activity threatens to be curtailed by the lack of essential imports and of credit. There is a substantial inflationary potential because of the gap between budget expenditures planned for 1965 and anticipated revenues.

 

2. There is a difference of view on how to meet these problems. On the one hand, the Monetary Fund, the World Bank and the U.S., along with a number of high-level Colombians (e.g. the recently resigned Finance Minister), believe that Colombia must institute a comprehensive economic program, which should probably include such measures as budget balancing, wage-price restraint, an increase in imports and a de facto devaluation of about 50%; we would be prepared to support such a program with up to $90 million of new commitments.

 

On the other hand, President Valencia holds a different view. While, in May, he appeared ready to go along with the above comprehensive economic program, he has more recently said that such a program would be politically too risky, particularly the de facto devaluation (we don’t agree).

 

What Valencia seems to prefer is that we provide substantial assistance (estimates vary from $200 million to $400 million), without taking the necessary self-help measures, on the grounds that this would enable him to avoid a revolution or at least an electoral defeat for the National Front in Colombia. We are not anxious to meet Valencia’s desire, among other things, because it will cost us a lot more money and because we believe that a large loan to Colombia without adequate self-help measures, would severely undercut the credibility of an important Alliance for Progress dimension.

 

3. The situation, however, is not without hope. Largely as a result of our Embassy’s efforts, there are indications that a number of influential Colombians are becoming more and more convinced of the need for a positive economic program. State’s present estimate is that the odds are slightly in favor of Colombia attempting a comprehensive economic program of the type outlined above, although probably with some changes. State also estimates that the odds are somewhat better than even that the program, if attempted, will be reasonably successful.

 

4. If, in the last analysis, President Valencia refuses to undertake a comprehensive economic program a number of contingencies could develop. These are analyzed in the attached contingency plan,/2/ which notes that the most likely contingency is continued drift and deterioration under the National Front and that the next most likely contingencies are (a) the withdrawal of Valencia, (b) a military takeover, and (c) a general uprising. State does not foresee the danger of a Communist take-over in Colombia in the short term, in view of the fact that the extreme left in Colombia is badly fractured, poorly led and not very popular./3/

 

/2/ Attached but not printed. The contingency plan was prepared in response to the President’s request for a "task force" on Colombia. (Memorandum from Vaughn to Rusk, June 22; National Archives and Records Administration, RG 59, Central Files 1964–66, POL 23 GUAT) The Latin American Policy Committee drafted the plan, which was then forwarded to the White House on June 24. (Memorandum from Read to Bundy, June 24; ibid., ARA Country Files: Lot 68 D 385, LAPC—Colombia)

 

/3/ Bundy wrote the following note at the end of the memorandum: "You may have seen Charles Bartlett’s praise of this policy yesterday." Bartlett was a columnist with the Chicago Sun Times.

 

McG. B.

 

 

316.  National Intelligence Estimate/1/

 

NIE 88–65 

 

Washington, July 9, 1965.

 

/1/ Source: Central Intelligence Agency, Job 79–R01012A, O/DDI Registry. Secret; Controlled Dissem. According to a note on the cover sheet this estimate was prepared in the Central Intelligence Agency with the participation of the intelligence organizations of the Departments of State and Defense and the National Security Agency. The United States Intelligence Board concurred in this estimate on July 9.

 

PROSPECTS FOR COLOMBIA

 

The Problem

 

To estimate Colombia’s prospects over the next year, with particular reference to the viability of the National Front system of government.

 

Conclusions

 

A. The National Front system of government has not functioned effectively, particularly under the presidency of Valencia (since 1962). The recurrent crises of the past year have aggravated the country’s basic economic problems and political tensions. (Paras. 4–17)

 

B. The Valencia administration is under strong pressure from organized labor, business interests, and military leaders to cope more effectively with the deteriorating situation, but so far has proved incapable of developing and carrying out a sustained program of remedial action. The National Front system contains so many built-in checks and balances that it allows the multiplicity of political factions embraced within it to prevent decisive political action. Moreover, the measures which we believe to be most urgent—e.g., a further devaluation, more effective price and wage controls, and increased taxes—would be unpopular and difficult for any government to carry out. (Paras. 10–17, 28, 30)

 

C. Despite widespread and rising dissatisfaction with its performance, the Valencia government may be able to continue in office, at least until the close approach of the congressional election scheduled for March 1966. But even if it should be able to bring itself to adopt and carry out a program likely to prove beneficial over the longer term, it is unlikely that such a program could produce sufficient improvements before the election to reverse the growing popular dissatisfaction. The Opposition will probably gain enough seats in Congress to deprive the Front of the two-thirds majority required to do business under the present system. (Paras. 28, 30–31)

 

D. There is likely to be rising demand for a basic change in the system. This would be extremely difficult to accomplish by constitutional means and may therefore lead to a military coup with respectable civilian support. Such a move would entail considerable risk of precipitating various sorts of violence; it is unlikely that the military would undertake it unless they were convinced that a national crisis was inevitable in any case. But if there were to be a coup during the period of this estimate, the military would probably be able to control the situation. (Paras. 19–27, 29, 32–33)

 

E. A military coup would not in itself solve any of Colombia’s basic problems. It might open the way to the establishment of a new system of civil government more capable of dealing with them, or it might lead to a period of unpopular authoritarian rule. On the other hand, the prolongation of the present ineffectual system of government tends to increase the severity of Colombia’s problems and to enhance the appeal of those who favor radical social revolution, including the present relatively ineffective groups who advocate violence. (Para. 34)

 

F. The residual rural banditry is criminal rather than political in character. The Communists and other extremist groups are not now capable of overthrowing the government or even of sustaining insurgency in any considerable area. (Para. 21–26)

 

[Omitted here is the Discussion section of the estimate.]

 

 

317.  Memorandum From the Director of the Bureau of the Budget (Schultze) to President Johnson/1/

 

Washington, October 29, 1965.

 

/1/ Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 16. Confidential. Forwarded to the President as an attachment to a memorandum from Bundy, October 30, who commented: "Charlie Schultze’s memorandum seems to me first-rate and I fully concur with it." (Ibid.)

 

SUBJECT
Loan for the Government of Colombia

 

In the attached memorandum/2/ the AID Administrator has requested your approval to sign a loan of $65 million for the Government of Colombia by November 1, or as soon thereafter as negotiations are completed.

 

/2/ Attached but not printed.

 

This is the first such aid commitment submitted on an individual basis for your approval. We will shortly recommend to you procedures to provide for your review of the AID program at three critical points:

 

(a) The approval of a country program in the budget process;

 

(b) Approval of specific commitments ready for execution; and

 

(c) Regular reporting of progress on the country’s self-help efforts and actions taken by AID in this process.

 

AID has spent almost a year convincing the Colombians that we are serious about self help:

 

• we have entered into no loan agreements with them so far this year,

 

• we even withheld a payment last January of $10 million under the previously approved 1964 loan,

 

• negotiating together with the IMF and the World Bank, AID now is getting written commitments from Colombia that promise some real progress.

 

Actions already taken

 

In fact, some of the toughest measures have already been executed. 1. In September, Colombia devalued its currency by a substantial percentage. The IMF, World Bank, and AID all think this devaluation will be successful in eliminating the biggest single drain on the Colombian economy, particularly in the private sector. All three agencies will be watching the results closely. 2. The Colombians have imposed a 20 percent surcharge on income tax, and 3. They have effectively more than doubled the export tax on coffee, to change a heavy government subsidy into a self-sustaining operation.

 

Commitments and controls on future action

 

The loan agreement won’t be simply for measures already taken. AID will only disburse the $65 million in quarterly segments, $20 million on signing and $15 million each in February, May, and August. And each release will be made only if a review of performance indicates that Colombia is making good progress in a number of important areas, including:

 

—a flexible exchange rate policy and a liberalized trade policy

 

—a non-inflationary fiscal, monetary, and wage policy

 

—tax improvement measures which should help support a 10 percent increase in public investment

 

—new program for agricultural development and reform

 

—an expanded program of primary education financed at the local level.

 

The funds will be used to finance imports from the U.S. Secretary Fowler is satisfied with the provisions of the loan from a U.S. balance of payments point of view. Special conditions will be attached which have the effect of neutralizing the balance of payments impact in 1965.

 

Other contributors

 

In addition to AID, the World Bank and the IMF are contributing $130 million. Their commitments will also be tied to the same self-help efforts that the U.S. is insisting upon. The three agencies (AID, IMF, IBRD) have worked out a common approach and joint arrangements to make this work.

 

I recommend that you approve this loan request./3/

 

/3/ Before approving the loan the President asked for further comment from Oliver and Mann. Oliver replied: "A democratic, confident Colombia is of the greatest importance to our strategic and political national interests; and a new program, sound on development merits, is also the best guarantee we can supply that Colombia will achieve orderly, constitutional transfer of power in the 1966 elections." (Telegram 630 from Bogotá, November 2; Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 16) Mann wrote: "If we fail to come through in a timely way with our end of the bargain, the progress which has been made could begin to come unraveled because of political pressures in Colombia." (Memorandum from Mann to the President, November 2; ibid.) Both reports were forwarded as enclosures to a memorandum from Bundy to the President, November 2. Johnson approved the loan "with reluctance, reservations and considerable misgivings—but with the understanding that it results in no loss in bal of pay this yr & that Oliver, Vaughn & Mann, Schultze, follow this day to day adm. & keep us informed." (Memorandum from Bundy to the President, November 2; ibid.)

 

Charles L. Schultze

 

 

318.  Memorandum From William G. Bowdler of the National Security Council Staff to President Johnson/1/

 

Washington, March 24, 1966, 5:30 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Colombia, Vol. II 6/65–9/66. Confidential. A copy was sent to Bill Moyers.

 

SUBJECT
Colombian Congressional Elections

 

Last Sunday/2/ Colombia held congressional elections. Going into the elections, the National Front Government (FTN)—a coalition of the Liberal and Conservative parties which have alternated in power since 1958—appeared to be in deep trouble./3/ An FTN defeat could have produced a fragmentation of the political party structure with very serious consequences for our interests in Colombia.

 

/2/ March 20.

 

/3/ In a March 18 memorandum to Rusk, Gordon concluded: "Although the final results could go either way, it appears that the opposition coalition will probably win about 51% of the votes cast, as well as a majority of the seats in the congress. Under these circumstances, a post-election coup by the military against the opposition is a possibility, although not a probability. Should the opposition win more than 55% of the votes cast, a military coup would become somewhat more likely." (National Archives and Records Administration, RG 59, ARA/CV/C Files: Lot 69 D 407, POL 14 Elections)

 

With 90% of the vote tabulated, the FTN—to everyone’s surprise—has scored an impressive victory:

 

—It increased its margin of the popular vote to 57% and gained an equally large edge in congressional seats.

 

—It has left the opposition in disarray, with the non-communist left badly beaten and the far right under former dictator Rojas Pinilla, although somewhat strengthened, still far short of being able to challenge the FTN.

 

—It virtually assures the FTN candidate—Liberal Carlos Lleras—clear sailing in the May 1 presidential elections.

 

—It substantially improves the FTN chances of being able to get a 2/3 working majority in the Congress so that it can govern within the terms of the FTN agreement rather than under a state of siege decree, as it has so often had to do in past years.

 

The FTN victory for us means:

 

—improved prospects for more stable, efficient and progressive government in Colombia over the next four years.

 

—continued good performance on our Program Loan agreement.

 

—continued cooperation with us on major international issues./4/

 

/4/ Two handwritten notes on the memorandum by Komer and the President read: "Good news, contrary to early press reports. RWK" and "Congratulate Covey Oliver. L."

 

WGB

 

 

319.  Letter From the Director of the Office of Colombian-Venezuelan Affairs (Hill) to the Ambassador to Colombia (Oliver)/1/

 

Washington, April 1, 1966.

 

/1/ Source: National Archives and Records Administration, RG 59, ARA/NC Files: Lot 72 D 235, Eyes Only. Secret; Official–Informal; Eyes Only.

 

Dear Covey:

 

1. The primary reason for our decision against your proposal [1 line of source text not declassified] was the general premise that we should not run the potential risks of such action unless U.S. national security is directly involved. This does not seem to be the case in Colombia at the present time.

 

2. Your proposal was discussed thoroughly in ARA/CV and with Bob Sayre, who also discussed it with Tom Mann. The general consensus, including the concurrence of CIA, was to decide against your proposal, although Tom would have liked to have discussed it with Mr. Gordon. This was not practical within the time frame because of Mr. Gordon’s absence until next Monday./2/ Even so, Mr. Gordon’s general views are known to coincide with what was decided.

 

/2/ April 4.

 

3. I think that the purpose of your proposal was well taken, [4 lines of source text not declassified]. I agree entirely with the line of thought in this regard as expressed in paragraph 3 of your proposal message./3/ A poor showing by the opposition and a small vote for the Lleras candidacy might well put the Lleras administration at a psychological disadvantage subsequently and give opposition elements an advantage in their efforts to undermine his government. Nevertheless, the congressional elections of March 20 constitute in themselves a genuine mandate for the FTN and should provide an answer to any future criticism that Lleras was not the majority choice. Such a position could certainly be justified with the press and with the other countries in the Hemisphere. In view of the mandate provided by the congressional elections and in view of the fact that we have no assurance now that the present political system or U.S. interests in Colombia will be jeopardized, [5 lines of source text not declassified].

 

/3/ In paragraph 3 Oliver argued: "As I see it, a determined, vigorous, plausible candidate of opposition within constitution would be a good thing for Colombia. It would mark beginnings of a new party alignment related to twentieth century issues. It would call attention to specific alternative lines of development-related action that could be asserted and debated on their merits. It would canalize protest into proposals for democratic action; and these would (1) help Lleras with less open-minded power groups in his entourage and (2) keep masses from buying dialectical shibboleths out of ignorance and dissatisfaction with their alternation from government processes." (National Archives and Records Administration, RG 59, ARA/NC Files: Lot 72 D 235, Eyes Only)

 

4. In analyzing further your proposal, I think it needs to be broken down into two parts: (1) Ruiz as an effective opposition presidential candidate during the next month, and (2) the related possibility of the development of a new opposition party with middle and lower class support within the democratic left. (I think Ruiz’ insight that the failure of the MRL has left a vacuum on the democratic left in Colombia, as mentioned in paragraph 2 of Embtel 1258,/4/ is certainly correct.)

 

/4/ In telegram 1258 from Bogotá, March 25, the Embassy described a meeting between Ruiz and an Embassy officer, March 24; paragraph 2 concluded that Ruiz was "still undecided but seemed inclined run," while paragraph 3 reported that Ruiz had "discussed great vacuum extant on Colombian democratic left owing failure MRL." (Ibid., Central Files 1964–66, POL 14 COL)

 

5. With regard to part 1, I think the surest advantage of your proposal lies in the short range context. The advantage of providing legitimacy for the Lleras administration probably outweighs the disadvantage of possible troubles stirred up for the FTN in the short and perhaps the long range by a more effective opposition. Apart from the general premise mentioned in paragraph 1 above, your proposal would probably be a good idea simply in the short range context.

 

6. Part 2 of your proposal raises the question of whether a new opposition party is really desirable. In this regard, we are not yet prepared to accept fully the possible argument that the two traditional parties have lost their usefulness and must necessarily be replaced by a new party or parties in order that Colombia may have a democratic system capable of stability and progress. If the National Front system were discarded and if real competition between the Conservative and Liberal parties were once again possible, it is our hope that one or both of these parties (but more likely the Liberal party) might assume the role of a progressive reform party sufficiently to meet popular aspirations, keep the support of labor, and win new support from the middle and lower classes.

 

7. Consequently, it would seem that a major goal which we should try to pursue during the coming Lleras administration should be modification of the National Front to permit such competition, preferably a modification permitting the free participation and competition in the political system of all parties. Such a development should benefit the traditional parties more than the opposition, we think, if the traditional parties concentrate on reform and if the modification of the system were undertaken soon. Basically, traditional parties would have an advantage over the opposition because of tradition, existing organization, capable leadership, and an apparent continuing appeal to a significant segment of the Colombian people. As long as the restrictive ground rules of the National Front prevail, the traditional parties will suffer from the lack of competition and the lack of meaningful alternatives.

 

8. Nevertheless, the idea of a new opposition party such as you suggest has several positive aspects. First, it would fill the void in the democratic left, if the traditional parties can’t. Second, it would channel the existing opposition, particularly ANAPO, along more responsible lines and prevent a default to extremism. Third, it might help to pressure a modification of the National Front.

 

9. Possible negative aspects of such a party might include the following. First, such an opposition party led by Ruiz might be more likely to heighten discontent than to clarify issues and might well make it more difficult for Lleras to govern. This would be particularly unfortunate if there is a good chance that Lleras’ economic and social program will be good. Second, it is not clear that Ruiz’ ideas and programs would be all that good. Certainly it is highly doubtful that they are as good as those of Lleras at this stage. Third, there is some room for doubt whether an effective opposition party such as you envisage could really get very far at this time. It is quite likely that even with Ruiz such a party might not remain cohesive and effective for very long. A struggle for control between Ruiz and Rojas/5/ might well take place. A presidential campaign of one month duration might be insufficient to strengthen Ruiz’ position enough to effectively challenge Rojas. In addition, there is some question whether Colombia is really ready or much interested in a new party. The congressional elections seemed to support this argument to a certain extent. It would probably take a strong charismatic figure, like a Betancourt or a Frei or even a Gaitan,/6/ to generate such a movement. At this point, there is not much on which to base such a party in Colombia except for ANAPO and possibly the UTC.

 

/5/ General Gustavo Rojas Pinilla, former President of Colombia (1953–1957), was the founder and leader of ANAPO.

 

/6/ Jorge Eliécer Gaitán, leader of the Liberal Party until his assassination in Bogotá on April 9, 1948.

 

10. In sum, while your proposal has much merit [21⁄2 lines of source text not declassified], the case is just not strong enough [11⁄2 lines of source text not declassified]. I should add that my own view was influenced by knowledge of operations of this sort in the past which, despite being advertised as secure and effective, proved to be neither. Nevertheless, all agree that it is to your credit to have made such a proposal and shows your alertness to the situation as it is developing.

 

11. Actually, it would be more appropriate for the FTN to finance Ruiz as an opposition candidate. If the FTN recognizes this as advantageous, and if the FTN is astute and Machiavellian enough, it may do so. I was glad to see from paragraph 6 of Embtel 1285/7/ that this may be the case.

 

/7/ According to paragraph 6 of telegram 1285 from Bogotá, March 30, there was speculation that the National Front was "asking for further contributions from followers in order finance opposition candidate if money proves only obstacle." (National Archives and Records Administration, RG 59, Central Files 1964–66, POL 14 COL)

 

If you have any comment with regard to any of the above, please let us know.

 

With best regards,

 

John Calvin Hill, Jr./8/

 

/8/ Printed from a copy that bears this typed signature.

 

 

320.  Information Memorandum From the Assistant Secretary of State for Inter-American Affairs (Gordon) to Secretary of State Rusk/1/

 

Washington, April 30, 1966.

 

/1/ Source: National Archives and Records Administration, RG 59, ARA/CV/C Files, 1966: Lot 69 D 407, POL 14, Elections. Confidential. Drafted by Lord. A notation on the memorandum indicates that Rusk saw it.

 

SUBJECT
Colombian Presidential Elections

 

Colombian presidential elections are scheduled for Sunday, May 1 (today). The candidate of the National Front, Carlos Lleras Restrepo, a Liberal, is expected to win handily with as much as 70% of the vote. The opposition candidate, Jose Jaramillo Giraldo, a political lightweight, is supported actively only by the followers of ex-dictator Gustavo Rojas Pinilla, and has no real chance of challenging Lleras.

 

The elections may be plagued by abstention and by public order disturbances. Because of the National Front’s victory in the congressional elections on March 20 and the poor prospects of Jaramillo, voter apathy is likely to be widespread, with the result that Lleras may win with less than 2 million of 7 million possible votes. Dissident Liberal and Conservative leadership has called for abstention by its adherents. Both Lleras and Rojas stand to be somewhat embarrassed by a small voter turn out. Voting could also be affected by the current student strike over university issues, if the students try to interfere with orderly elections.

 

If elected, Lleras is scheduled to take office on August 7 for a four-year team. Lleras is a combination of politician, economist, and businessman, who is expected to provide capable administration and improved economic policies. He may be hampered in implementing his development and other legislative programs by the lack of the required two-thirds congressional majority. If so, he may have to either seek to amend the constitution or else continue to govern by decree under a state of siege, as the present Conservative administration of President Valencia has done since May 1965./2/

 

/2/ In telegram 1423 from Bogotá, May 2, the Embassy reported that Lleras won the election, and that voter turnout had been higher than expected. (Ibid., Central Files 1964–66, POL 14 COL)

 

 

321.  Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, September 19, 1966.

 

/1/ Source: Johnson Library, National Security File, Country File, Colombia, Vol. II, 8/65–9/66. Confidential. A notation on the memorandum indicates that the President saw it. A copy was sent to Bill Moyers.

 

SUBJECT
Colombia: What We Achieved With Our Program Loan

 

A year ago when Colombia faced a severe political-economic crisis, you authorized a $65 million program loan to Colombia on the basis of meaningful self-help measures. Today the situation in Colombia contrasts most favorably with that of last fall, thanks in considerable part to that loan.

 

The outlook then was grim:

 

—The budget was seriously in deficit.
—The inflationary threat was grave.
—Disposable foreign exchange reserves were badly depleted
—Substantial payment arrears had accumulated.
—An over-valued exchange rate resulted in stifling controls.
—Public confidence was at a low ebb.
—The spring general elections and survival of the National Front were in doubt.

 

In September, 1965, the Consultative Group (IBRD, IMF, AID) helped the Colombians draw up a stabilization program buttressed by external financial support. After a year the program has removed the main causes of instability. This is the picture today:

 

—The current budgetary surplus has reached levels permitting an acceleration of investment expenditures.
—The inflationary spiral has been brought under control.
—Net exchange reserves have increased by some $41 million, with payments arrears eliminated.
—Trade liberalization has exceeded the IMF target.
—There has been a resurgence of confidence inside and outside Colombia.
—The elections were orderly and the democratic, progressive forces of the National Front emerged strengthened.

 

Much remains to be done, of course, but our investment in this important Latin American country during the past 12 months has paid off.

 

Walt

 

 

322.  Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, November 15, 1966.

 

/1/ Source: Johnson Library, National Security File, Country File, Colombia, Vol. III, 10/66–11/68. Confidential. Forwarded to the President under cover of a November 15 note in which Rostow reported: "Because of the urgency in getting on with loan negotiations with Colombia, Secretary Rusk will raise at the luncheon meeting today the attached authorization request."

 

SUBJECT
Program Loan for Colombia for 1967

 

AID and BOB request, under the new commitment procedures, your authorization to negotiate a $100 million program loan for Colombia for the balance of CY 1966 and CY 1967. Joe Fowler raises no objections on balance of payments grounds although he maintains his reservations on program as against project lending./2/

 

/2/ Attached, but not printed, are memoranda to the President from Schultze (November 5), Fowler (undated), and Gaud (October 31).

 

The amount is $35 million more than you approved for 1966:

 

—$20 million to support Lleras and his vigorous development program.
—$15 million to cover the balance of 1966 (our loan went only to October).

 

As last year, we will coordinate our loan negotiations with the IMF and the IBRD-led Consultative Group for maximum leverage on self-help commitments. They are expected to furnish $65 and $100 million respectively.

 

A loan of this magnitude is justified because:

 

—Lleras needs this amount to launch his development program while continuing stabilization measures.
—Colombia’s self-help performance this year has for the most part been highly satisfactory, and should be better under Lleras, a sophisticated economist and more able political leader than his predecessor.
—The self-help requirements and tying procedures are well conceived to maximize our interests.
—Lleras belongs to the new generation of democratic, progressive Latin American leaders whom we wish to see succeed.
—Lleras has already taken the leadership in promoting accelerated Latin American economic integration—the cornerstone of our summit package.

 

I am satisfied with the soundness of the proposed loan and join in the recommendation that you approve it.

 

Later this month we will seek your approval of CY 1967 program loans to Brazil and Chile, both in considerably lesser amounts than you approved for this year.

 

Walt

 

Approve
Disapprove
Speak to Me/3/

 

/3/ Although none of the options is checked, the issue was decided at the Tuesday luncheon on November 15. According to a record of the meeting Johnson cleared the negotiations, but asked "if we really want to blow that much on Colombia." (Johnson Library, National Security File, Files of Walt W. Rostow, Meetings with the President, April–December 1966) Rostow answered this question in telegram CAP 661074 to the President, November 27: "The Colombia loan was calculated within a plan to live with the FY 1967 appropriation for Latin America. The object was to give Colombia the kind of lift we have given at a critical stage to Brazil and Chile in the past two years. Now Brazil and Chile are moving, aid is on the way down." (Ibid., Country File, Colombia, Vol. III, 10/66–11/68) President Johnson subsequently approved signing the loan as negotiated. (Memorandum from Rostow to the President, April 26, 1967; ibid.)

 

 

323.  Telegram From the Embassy in Colombia to the Department of State/1/

 

Bogotá, April 27, 1967, 2325Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 23 COL. Secret; Limdis.

 

4414. 1. At President Lleras’ invitation [less than 1 line of source text not declassified] I went to his private residence last night to brief him on security developments as we see them, especially related to recent upsurge guerrilla activities. [21⁄2 lines of source text not declassified]/2/

 

/2/ Not found.

 

2. President conceded that memo confirmed his own fears for the immediate situation but appeared visibly sobered and perturbed by its implications, including the role of Cuba in professionally training and supplying guerrilla needs. He then reviewed need for new tactics by GOC armed forces. He feels present situation under control however precarious but apprehensive lest another three or four successful forays by guerrillas against the military will undermine army morale and perhaps cause loss of confidence in ability his government maintain law and order.

 

3. President cited military and police reports that rural populace attitude toward security forces has worsened in recent months while guerrilla bands woo tacit support local peasants by ample use of funds, paying generously for food and local supplies.

 

4. President has called meeting for April 28 his top military commanders for discussion new tactics to cope with deteriorating situation./3/

 

/3/ On May 9 Lleras met Ambassador Carlson [text not declassified] for a "second round of discussions on insurgency activities." Lleras stated his belief that the counter-insurgency campaign must be waged as "a concerted coordinated effort," employing civic action programs as well as unconventional military tactics. The efforts of the previous administration, he maintained, had been hampered by deficiencies in such factors as funding, imagination, and coordination among the intelligence services. Lleras also asked the Americans for "suggestions on specific and concrete tactical measure that might be used." (Telegram 4580 from Bogotá, May 11; National Archives and Records Administration, RG 59, Central Files 1967–69, POL 23 COL)

 

Carlson

 

 

324.  Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to the Deputy Under Secretary of State for Political Affairs (Kohler)

 

Washington, August 16, 1967.

 

[Source: Department of State, INR/IL Historical Files, 303 Committee Files, c. 57, August 22, 1967. Secret; Eyes Only. 2 pages of source text not declassified.]

 

 

325.  Memorandum From William G. Bowdler of the National Security Council Staff to the President’s Special Assistant (Rostow)/1/

 

Washington, April 19, 1968.

 

/1/ Source: Johnson Library, National Security File, Country File, Colombia, Vol. III, 10/66–12/68. Confidential.

 

SUBJECT
Colombia

 

You asked for a memorandum covering Colombia’s economic performance and the difficulties arising from current loan negotiations for 1968.

 

Colombia’s Economic Performance

 

With a $100 million program loan from us and sound exchange, fiscal and budgetary policies laid down by President Lleras, Colombia had a good year in 1967:

 

—despite the sizeable drop in coffee revenues, 4.5% growth in GNP was achieved;

 

—careful budget management and improved tax collections (up 20% over 1966) made possible a 42% increase in public investment, primarily in agriculture and education;

 

—wise monetary measures held the cost of living increase to 8% compared with 13% in 1966;

 

—minor exports were up 20% over 1966;

 

—sound management of the exchange rate permitted a gradual depreciation of 16% without the usual strains;

 

—commercial arrears were eliminated by July 1967, although substantial arrears in the capital market remain;

 

—planning at the national level, especially in education and agriculture, greatly improved.

 

To the economic gains must be added Lleras’ success on the political-security front. He achieved a good working majority in both houses to achieve passage of reform measures. Guerrilla activity fell to a new low under a two-pronged offensive of increased military pressure and economic assistance to heretofore neglected rural areas.

 

The Loan Negotiations

 

The principal components of the aid package for 1968 are a $58 million program loan and a $15 million agricultural sector loan. PL 480 sales of $14.5 million are also involved./2/

 

/2/ President Johnson approved negotiation of the aid package to Colombia in late February. (Memorandum from Rostow to the President, February 24; ibid.)

 

When Lleras was over the economic barrel last year, he agreed to specific performance targets in writing, although it grated on him. This year, with a clear record of significant accomplishments, he dug in his heels and asked that the assistance package for 1968 be given on faith that he will maintain sound economic policies.

 

When negotiations began last month, AID was edgy about certain backsliding indicators:

 

—in January Lleras had stopped further adjustments in the certificate exchange rate;

 

—a promised additional 20% liberalization of imports had not materialized;

 

—the desired additionality had not been achieved and Treasury was pressing for sterner action.

 

This prompted AID to serve up the 1968 package with another set of conditions involving specific performance targets. Lleras balked. When he failed to liberalize imports 20% by March 31, as he had promised, AID withheld payments of the last $20 million tranche of the 1967 loan.

 

At the height of the impasse, Lleras broke off talks with World Bank representatives, the leaders of the negotiating group. And he let it be known to AID that he would not accept fixed targets on the key issues of devaluation, import liberalization and additionality.

 

Since then, both sides have maneuvered away from their rigid positions:

 

—Lleras wrote Schweitzer/3/ that the dual exchange rates will be unified soon and, subsequently, the unified rate will be flexible "along the lines observed during 1967." AID now finds this satisfactory;

 

/3/ Pierre-Paul Schweitzer, managing director of the International Monetary Fund.

 

—The Colombians recently started strong efforts to safeguard the US share of the commercial market within its completely controlled import system;

 

—AID is willing to drop prior commitments on import liberalization during 1968 in favor of performance review in October which could affect the amount of the second tranche. AID would link the level of coffee receipts, aid disbursements and import targets so that greater than expected coffee receipts or failure to increase imports could result in reduced loan disbursements. Lleras says this is agreeable;

 

—AID will not insist on a 20% liberalization of imports before releasing the last tranche of the 1967 loan and will release the money as soon as the 1968 loan agreement is initialled. Lleras says once he has the money in hand, he will liberalize in the amount agreed.

 

So negotiations are back on the tracks and should be completed in the next two or three weeks./4/

 

/4/ The United States and Colombia signed two agreements, the $58 million program loan and the $15 million agricultural sector loan, on July 15. The PL–480 agreement was signed on May 31.

 

Lessons to be Learned

 

At the outset, AID was too demanding on specific written commitments. They should have known from last year’s experience that Lleras, with a good record behind him, would not agree to terms which rubbed him the wrong way in 1967. AID should have been willing to settle for more general assurances.

 

Lleras was too swift in taking umbrage—but this is his nature.

 

With more firm direction from the top, this kind of thing could be avoided, but you are familiar with that situation.

 

WGB

 


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