GOOD NEIGHBORS PREPARE THE GROUND
It is widely recognized that Franklin Delano Roosevelt ushered in a new chapter in US–Latin American relations when he renounced military intervention in the region soon after coming into office in 1933. Less well known is the fact that his Good Neighbor policy expanded in the late 1930s and early 1940s to include a more active idea of an inter-American financial partnership designed to promote economic development across Latin America, which in turn pioneered new policies and ideas that prepared the ground for the construction of the international development foundations of Bretton Woods.
The new US interest in promoting Latin American development stemmed from a complex mix of economic interests, strategic goals, and New Deal values. Latin American policymakers welcomed US support for increasingly their ambitious development aspirations, particularly since the support came from US officials who publicly rejected past imperialist practices. Working together, US and Latin American officials generated creative financial initiatives, some bilateral and others regionwide. However, the Good Neighbor financial partnership encountered powerful critics—particularly within the United States—whose opposition undermined the ambitions of the partnership and also foreshadowed criticism of the Bretton Woods plans a few years later.
Political Origins of the Partnership
To understand the origins of the Good Neighbor financial partnership, it is necessary first to recognize the impact of the Great Depression on Latin American economic policymaking. The global economic crisis of 1929–33 severely affected Latin American countries, most of which had been heavily dependent during the 1920s on commodity exports as well as on private capital inflows. The collapse of export markets, commodity prices, and foreign investment dealt these economies a serious blow and undermined existing liberal economic policy regimes.
1
During the crisis and in its immediate wake, many Latin American governments abandoned the gold standard, defaulted on external debts, imposed exchange controls, and increased state involvement in the domestic economy by offering public assistance to distressed businesses and societal groups.
During the lead-up to World War II, domestic criticism of the laissez-faire, export-oriented economic policies of the past intensified. Latin American critics of economic liberalism—on both the left and the right of the political spectrum—argued that those policies had left their countries unprotected from global economic instability and locked into dependence on their raw material exports. They called for statist and nationalist economic policies that would focus more squarely on the goal of national economic development via greater public ownership, import-substitution industrialization (which had already been accelerating in some Latin American countries with the collapse of the world economy), and the promotion of larger domestic markets as well as improved social conditions and living standards. As the international security situation became more uncertain in the late 1930s, these interventionist policies were also backed for the strategic reason that they could enhance national power and autonomy. The outbreak of World War II in September 1939 intensified this trend and also challenged liberal economic regimes in new ways as trade with Europe collapsed. With unsold agricultural surpluses, import shortages, and general economic upheavals, even quite liberal Latin American governments were prompted to intervene in their domestic economies to a much greater degree than they had done in the past.
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Scholars emphasize how the new support for state-led development and industrialization objectives emerged more as a practical response to changing material circumstances facing Latin America at the time than out of the influence of a coherent new theoretical or ideological paradigm.
3
But in calling for greater state intervention in the economy, some Latin American analysts and policymakers drew broad inspiration from Roosevelt’s New Deal and the Keynesian revolution in economics. The heightened criticism of Latin America’s dependence on commodity exporting was also reminiscent of the ideas of nineteenth-century critics of economic liberalism such as Friedrich List. Some Latin Americans on the left were also attracted by the example of the Soviet Union’s policies that appeared to be transforming a largely poor and agricultural country into a major industrial power in a very short period of time. As Michael Grow points out, the emergence of fascist governments in Europe also offered to some Latin Americans on the right a “supremely developmentalist ideology” in which the international economic system was depicted as “a ruthless and dangerously unstable arena, crowded with nations competing for wealth and status.”
4
United States Strategic and Economic Interests
It was in fact the fear of growing Nazi influence in Latin America that provided the crucial catalyst for US officials to begin to develop the idea of the Good Neighbor financial partnership. In addition to exporting fascist ideology, the German government began in 1934 an aggressive economic campaign to expand trade with Latin America via exclusive trade agreements, export subsidies, barter, and promises of high prices for Latin American exports. The campaign produced a large increase in German–Latin American trade, often at the expense of US exports to the region. This concerned many Roosevelt administration officials who saw US exports to Latin America as an important component of their efforts to promote a US economic recovery.
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United States policymakers also became increasingly concerned about challenges to US security interests as Germany intensified diplomatic efforts to build stronger political and military ties with the region in the late 1930s. Latin America was an important source of various strategic raw materials for US defense production, a source whose importance was growing as Japan expanded its influence across Asia in the late 1930s and early 1940s. United States officials also worried that support for the Nazis and fascist ideology might be substantial in a number of Latin American countries. After the outbreak of World War II, US policymakers even became concerned about possible German military incursions into Latin America.
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From the late 1930s onward, American officials increasingly saw a new financial partnership with Latin America as an important tool for meeting the German challenge. They hoped US encouragement for Latin American development goals would cultivate alliances in the region as well as offset the appeal of Nazi ideology. It would also secure and expand export markets for US firms, particularly those producing the capital goods that could assist Latin American efforts to build up local industrial production of consumer goods. After the outbreak of World War II, many US policymakers came to see the creation of a more integrated economic bloc with Latin America as a mechanism to exclude Germany, secure US economic interests in the region, reorient Latin American economies after the loss of European markets, and build closer inter-American political cooperation.
In addition to serving these goals, the new partnership with Latin America helped to address US concerns about how increasingly unorthodox economic policies in Latin America—coming from both left- and right-wing governments—could threaten American economic interests more generally. Latin America was not just an export market and a source of important commodities but also a profitable investment location for many US businesses. As Latin American economic policies moved in increasingly statist and nationalist directions, some of these US economic interests were threatened directly, a point brought home clearly by the 1937 Bolivian and 1938 Mexican confiscations of US oil companies’ property. By offering help for more moderate development goals of Latin American governments, US policymakers hoped to promote political and economic stability and offset the appeal of more radical economic ideologies.
7
New Deal Values
Historians argue that the Roosevelt administration’s interest in the Good Neighbor financial partnership stemmed not just from US strategic or economic interests but also from the values of the New Deal.
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Many New Dealers saw Latin American experiments in state-regulated capitalism as similar to their own initiatives within the United States, and thus deserving of support. During his 1936 visit to Brazil, Roosevelt described the Vargas regime as having introduced a “South American New Deal.”
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He also saw Mexican President Cárdenas as a kindred spirit.
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More generally, historian Frederick Pike writes of “the common ground that American and Latin American intellectuals found in condemning business civilization” at this time, and argues that “without that convergence, there could have been no Good Neighbor policy.”
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The belief of New Dealers in greater government intervention in the economy also encouraged them to explore how the public sector could take on the role of promoting international development. They had already experimented with government initiatives aimed at generating rising standards of living in poor regions within the United States. The best-known was the Tennessee Valley Authority (TVA), an ambitious regional development program overseen by a government-sponsored public corporation involved in activities ranging from public health and education to hydroelectric power development and agricultural improvement. Its apparent success encouraged US policymakers to consider “international TVA” initiatives to raise living standards abroad through a more liberal form of planning that was different from the communist and fascist variety.
12
Many initiatives examined here reflect the willingness of New Dealers to turn to the public sector in promoting Latin America’s development in other ways as well.
The New Deal economists involved in the Good Neighbor financial partnership (and Bretton Woods planning) also often favored the Keynesian revolution that was under way in the economic discipline at the time. Although Keynes wrote relatively little about development issues, Albert Hirschman and others have highlighted how he indirectly encouraged new interest in development economics by asserting that neoclassical ideas applied only in certain contexts. Through his rejection of the “monoeconomic” claim of neoclassical economics to universal validity, Keynes legitimized inquiries into the distinctive problems of Southern countries.
13
This openness to, and indeed enthusiasm for, the study of the distinctive economic difficulties facing Latin American economies characterized many of the New Deal economists involved in the Good Neighbor policy.
In addition, some New Dealers saw the project of extending financial assistance to Latin America as an opportunity to transfer their humanitarian concern for the poor onto the international stage. For example, historian Darlene Rivas has called attention to the role of “humanitarian and moral impulses” in driving US policy toward Latin America in this period.
14
As Roosevelt told a group of skeptical business reporters in early 1940, the new US support for Latin American development was designed to “give them a share.” Historian David Green notes how Roosevelt made clear that this “share” was to include “both a share of decision-making authority in inter-American economic concerns and a share of the wealth being developed from Latin America’s vast resources by private and public capital.”
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For many New Dealers, the sense of solidarity with Latin America was reinforced by their antipathy toward the New York financial community. Before the 1930s, US officials had commonly attributed Latin America’s economic problems to Latin Americans themselves. As James Park puts it, “this collective wisdom held that Latin Americans were a racially inferior people handicapped by an authoritarian, medieval cultural legacy and by a tropical setting inimical to progress.”
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The depression, however, led many New Dealers to see Latin Americans in a new light, as victims of the same New York financial elite that they blamed for America’s economic troubles.
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Senate hearings in 1933–34 that investigated the lending practices of New York financiers during the 1920s only reinforced this perspective.
18
The committee’s counsel, Ferdinand Pecora, attracted widespread and sympathetic attention across the country with his analysis of the corruption and greed associated with Wall Street loans to Latin America, reinforcing growing criticisms of militarism and exploitation associated with the pre-1930s dollar diplomacy of the US government toward the region. As antibanker discourses mixed with anti-imperialist ones, many Americans saw support for Latin America as an opportunity to correct past wrongs in US economic relations with the region.
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The extent to which US popular perceptions of Latin America shifted during this period was apparent in the late 1930s when “a craze for things Latin American swept the country” and Hollywood films “displayed an almost reverential attitude towards things Latin American.”
20
As we shall see, many of the US officials involved in the Good Neighbor financial partnership were also keenly interested in learning from Latin American experience rather than seeing themselves as experts bringing superior knowledge. In this period, American expert analyses of Latin American poverty also increasingly emphasized the role of external factors—rather than domestic ones—such as foreign exploitation and the region’s dependence on one or two export commodities. Analyses of the latter sometimes even drew links to the US farming experience during the depression. For example, in a 1940 Congressional debate on US loans to Latin America, one analyst pointed out that “these are commodity countries. Many of them are in the kind of trouble Kansas would have been in if it were an independent nation and dependent wholly on its wheat crop.”
21
Finally, interest in international development policies was encouraged by the New Deal’s emphasis on individual economic security. Borgwardt notes that a “dominant motif” of the New Deal was its focus on “security for individuals” and the “connection between individual security and the stability and security of the wider polity.”
22
As the Nazi threat in Latin America grew, Roosevelt began to internationalize this idea, arguing that the promotion of rising living standards in the region could help promote political stability and peace in the Americas in a high-profile speech to an important inter-American conference in Buenos Aires in December 1936. The conference had been conceived by influential foreign policy adviser Sumner Welles to encourage inter-American solidarity against fascism, and it “amounted to his [Roosevelt’s] debut on the international stage.”
23
Here is the rationale that Roosevelt provided at the conference for promoting rising living standards abroad: “Through democratic processes we can strive to achieve for the Americas the highest possible standard of living conditions for all our people. Men and women blessed with political freedom, willing to work and able to find work, rich enough to maintain their families and to educate their children, contented with their lot in life and on terms of friendship with their neighbors will defend themselves to the utmost but will never consent to take up arms for a war of conquest.”
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This link between rising living standards and international peace was one that would become even more prominent in New Deal plans for the postwar world during the early 1940s.
Opposition within the United States
Not everyone in the United States agreed with the new US economic policy toward Latin America.
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New York financial interests—often led by W. Randolph Burgess of National City Bank, as we shall see—were particularly critical. Many conservative bankers saw the new policy as an extension into foreign economic policy of misguided New Deal interventionist economics in ways that dangerously “politicized” international economic relations and encouraged departures from free-market policies abroad. United States financiers were also concerned that new public-sector lending to Latin America would cut into their own business in the region, and that the US government should not assist countries that had defaulted on their payments until these countries had reached settlements with creditors.
The politics of Latin American debt settlements had in fact become increasingly intractable by the late 1930s, with approximately half of Latin American countries still in default in 1938. When the Roosevelt administration had come to power in 1933, it had taken the position that the US government would not be directly involved in any efforts to collect the Latin American debts of private US citizens. To avoid any appearance of dollar diplomacy, it had created the Foreign Bondholders Protective Council in late 1933 to act as an independent body to negotiate debt settlements with Latin American governments in a “disinterested” manner independent from Wall Street influence.
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By the late 1930s, however, the council’s own financial difficulties led it to come under the influence of bondholders who were reluctant to discuss with debtors any reduction in the principal of outstanding debts.
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In the aftermath of the Bolivian and Mexican confiscations of US properties, many US corporations with direct investments in the region also joined the bondholders in opposing economic assistance for countries that had not settled with investors, a position that found some support in Congress and among more conservative members of the Roosevelt administration.
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Corporate opposition to the new US–Latin American financial partnership should not be overstated. As we shall see, Nelson Rockefeller assembled a group of reform-minded business leaders who were very much in favor of partnership.
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By the late 1930s, some large US industrial firms backed import-substitution industrialization in Latin America because it created new export markets for their machinery and new opportunities for foreign investment via the establishment of manufacturing subsidiaries behind local tariff walls to produce for local markets.
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United States officials were well aware of these divisions within the business community.
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Another source of opposition to the Good Neighbor financial partnership consisted of isolationists in Congress such as Republicans Arthur Vandenberg and Robert Taft.
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They objected to the spending of public money abroad, and their critiques were often wrapped up with broader opposition to the interventionist economic policies of the New Deal that was similar to that of many US bankers. Concerns about the statist nature of US overtures to Latin America were also expressed by other Republicans and by conservative Democrats in Congress. Even within the Roosevelt administration itself, more conservative figures such as Jesse Jones (who headed the Reconstruction Finance Corporation from 1932 and then served as commerce secretary between 1940 and 1945) were skeptical of the role of the public sector in international lending.
33
Many officials in the State Department were also often viewed at this time as sympathetic to Wall Street interests and, more generally, as “still largely in thrall to its tradition of interventionism and instinctive disdain for Latin Americans.”
34
Frederick Pike observes that, in a kind of “anticipatory McCarthyism,” J. Edgar Hoover also worried that US policy toward Latin America had been, in Pike’s words, “taken over by un-American radicals,” and that “the Good Neighbor policy had become hopelessly ‘soft’ on, hopelessly accommodating to, Latin American statism that was tantamount to disguised communism.”
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In addition, specific initiatives associated with the Good Neighbor policy were sometimes thwarted by bureaucratic rivalries within the Roosevelt administration. The administration was notorious for its internal turf battles, and policy coherence toward Latin America in the late 1930s and early 1940s was often undermined by struggles between Secretary of State Cordell Hull and Treasury Secretary Henry Morgenthau, as well as rivalries within the State Department itself between Hull and Welles.
36
As a result of New Deal reforms, US foreign financial policy in this period was also frequently characterized by three-way tensions between the Treasury Department, the board of governors of the Federal Reserve system, and the Federal Reserve Bank of New York.
The Latin American Side
How was the idea of the Good Neighbor financial partnership received in Latin America? As we shall see, some of the specific international and domestic initiatives that US policymakers supported in the late 1930s and early 1940s were ones that Latin American policymakers had sought for some time, and they welcomed the new willingness of US policymakers to support these initiatives. They were also pleased that US officials appeared to recognize the new “development” priorities of governments across the region. As Cuban professor Herminio Portell Villa told a US audience in July 1941, “we [Latin Americans] don’t want to continue with the colonial economy that we have. We think we are as worthy as the United States to round out our economic structure and to have a higher standard of living in our countries, as you have here.” United States help with Latin American industrialization was particularly welcomed. As the director of Mexico’s Universidad Obrera, Alejandro Carrillo, told the same audience: “If you believe that Latin-Americans wish to continue producing only raw materials for United States manufacturing industries and remain in that condition forever, you are certainly mistaken. No such opinion prevails in any Latin-American center.”
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At the official level, US backing for Latin American industrialization objectives played an important role in securing support in the region for the Good Neighbor financial partnership. One of highest-profile examples came in 1940 when the United States offered to assist the building of Brazil’s huge steel plant at Volta Redonda with a loan and technical assistance. Since the authoritarian turn of Brazil’s president Getúlio Vargas in 1937 and especially since the outbreak of war, he had committed to more nationalist and interventionist economic policies, including state-directed industrialization. In its foreign economic policy, his government played the United States and Germany off against each other. For example, the US offer of help with the Volta Redonda project came at a time when Brazil was also negotiating for assistance from Germany, and it was designed to signal broadly the seriousness of the US commitment to Latin American development.
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When Brazil accepted the offer and moved firmly into an alliance with the United States, the US support for Latin America’s first steel mill became “a symbol of inter-American cooperation, US accommodation of economic nationalism.” The architect of Brazil’s alliance with the United States at this time was foreign minister Osvaldo Aranha, who had been one of the strongest advocates of economic nationalism and industrialization throughout the 1930s, and who came to see Roosevelt’s Good Neighbor policy as furthering those goals.
39
Mexico provides another interesting example of a major Latin American power endorsing the Good Neighbor financial partnership. Since President Lázaro Cárdenas came to power in 1934, Mexican economic policy had turned in an increasingly nationalist direction, culminating in the expropriation of foreign oil and land holdings in 1938. By mid-1940, however, the long-standing and powerful finance minister Eduardo Suárez (who oversaw the expropriation) had become a strong advocate of closer ties with the United States. Within the Cárdenas administration, he was a leading critic of orthodox economic thinking who favored more activist and nationalist development policies often inspired by Keynesian and New Deal thinking. Suárez played an important role in convincing his government colleagues that closer ties with the United States could be used to strengthen Mexican development and industrialization.
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Those economic ties grew much closer in 1941 after the signing of an agreement that included compensation for the petroleum and land expropriation. Suárez was later selected for the high-profile role of chairing of one of the three “commissions” at the Bretton Woods conference.
Not everyone in Latin America was as supportive of new US policies toward the region. Many Argentine officials distrusted the intentions of the US government and were suspicious that American officials favored Brazil.
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After the United States joined World War II in December 1941, its relations with Argentina deteriorated further when the latter refused to break off diplomatic relations with the Axis powers—a decision that left it as the only Latin American country not invited to Bretton Woods.
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As we shall see, there were also domestic groups in other countries across Latin America who expressed concerns about the Good Neighbor financial partnership. Criticism sometimes came from economic interests that benefited from older patterns of US–Latin American relations or from opponents on ideological grounds of initiatives to expand state intervention in their domestic economies. At the same time, those attracted to fascist or communist ideas felt that the partnership did not go far enough in assisting interventionist policies. Even among supporters, there was some lingering skepticism about US goals in light of past American policy toward the region.
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As one US official involved in the Good Neighbor financial partnership later acknowledged, “Latin America continually questioned the permanence of our interest, suspecting that the co-operative activity was designed to meet specific short-term requirements of our foreign policy and would shortly be abandoned.”
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But many in the region also held out hope that a new era in US–Latin American relations was possible, given that New Deal officials themselves offered trenchant critiques of past US behavior in the region. If US officials were now willing to assist more beneficial “development” with public funds, many Latin Americans welcomed the change. As Professor Carrillo put it in 1941,
we in Mexico are very much opposed to free-lance capitalists coming into the country and investing money in any way they think best, because we believe that that type of investment would tend to disrupt Mexican economic life instead of helping to develop it…. [But] if American capital investment is to be a government affair between the United States and the respective governments of Latin-America, I am sure that Mexico, for one, will be more than willing to go into a venture like this.
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What Initiatives?
Early efforts to create the Good Neighbor financial partnership appeared between late 1938 and mid-1939 when the Roosevelt administration began to extend financial assistance to the region in the form of short-term loans to support currency stabilization and longer-term loans to assist specific Latin American state-sponsored development projects. Within the State Department, Sumner Welles was the major supporter of this public lending program largely because of his concerns about growing Axis influence in the region. His appointment as Under Secretary of State in 1937 was part of an effort by Roosevelt—whose friend Welles had been for decades—to bring the State Department more into line with New Deal priorities.
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Another close colleague of Roosevelt, Treasury Secretary Morgenthau, was also very keen on US public assistance for Latin America. In late 1938, he had argued that the United States needed a “financial Monroe Doctrine” to counter Axis influence in the region.
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Another enthusiast in the Treasury was Harry Dexter White who was serving at this time as the influential director of the department’s Division of Monetary Research, a position he had assumed in March 1938.
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White’s background and views deserve more detailed attention because of his lead role in this period and in the Bretton Woods negotiations. Born to Russian immigrants, White had earned a Ph.D. from Harvard in 1930 at the age of thirty-eight, and he had then taught briefly at a Wisconsin college before joining the Treasury in 1934. Like Morgenthau, White was an “ardent New Dealer” who had shown an early willingness to challenge orthodox economic thinking.
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For example, in his Ph.D. (which had won the prestigious Wells Prize at Harvard and was published in 1933), White had questioned neoclassical arguments favoring free capital movements.
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At the height of the Great Depression in 1932, he had also advocated countercyclical fiscal policies to boost employment, several years before Keynes published his
General Theory
.
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The unorthodox nature of his thinking should not be overstated; he placed a high value on price stability and monetary discipline. Indeed, one of his colleagues in the US government later commented that “he was probably the most conservative monetary force in the world during his period in the Treasury Department.”
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After joining the Treasury, White quickly gained the trust of Morgenthau and he proved to be effective bureaucratic operator. He also made many enemies because of his strong personality and often very gruff style. Even Morgenthau acknowledged years later that White “could be disagreeable…quick tempered, overly ambitious, and power went to his head.”
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His role in US policymaking became even more controversial after the war because of accusations that he was a Soviet spy. There is no doubt that White—like many other New Dealers—saw the Soviet Union as an important ally for the United States in the antifascist wartime struggle and the postwar world. In a 2004 book analyzing the issue of White’s possible espionage role, Bruce Craig discusses how some of White’s subordinates in the Treasury, as well as individuals with whom he had close friendships, were involved in spying for the USSR.
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Craig argues that accusations that White himself actively subverted US foreign policy in various episodes are exaggerated, but he concludes that there is “little doubt that White was involved in ‘a species of espionage’” which involved sharing of information.
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Several recent analysts have drawn stronger conclusions about White’s involvement in Soviet espionage, while others question whether the evidence is fully conclusive.
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Whatever the truth may be, it seems unlikely that any involvement of White in Soviet espionage influenced the outcomes being analyzed here. According to Craig, there is no evidence that White had any association with Soviet intelligence between April 1938 and August 1941, the very period during which he pioneered international development policies in Latin America that are at the core of this book’s analysis. Indeed, it is interesting to read a memo he wrote in mid-June 1940 in which he highlights Soviet “ideological aggression,” and argues that it “becomes more dangerous in a politically unsettled world and in countries where the standard of living is low or declining.”
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Pointing out that the United States was suddenly being forced to deal with Germany, Japan, and the USSR as major world powers, White also argued in the memo that America could not have the same identity of interest with any of them as it had with France and Britain.
During the subsequent Bretton Woods negotiations, there is also little evidence that Soviet officials made any effort to support or shape the international development content that White was promoting. They contributed little to United States–led postwar planning discussions throughout 1942–43 and, when they became a little more engaged in the months leading up to the conference and during the conference itself, Mikesell points out that they displayed “an almost complete lack of interest in the broad purposes which the Fund and Bank were designed to accomplish.”
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Instead, they focused only on issues that affected them directly, such as the size of their quotas in the institutions (which helped determine voting power and access to borrowing) or their access to reconstruction loans from the Bank.
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As Steil puts it more generally, “the broad ‘White Plan’ for postwar monetary reform certainly bore no imprint of Soviet monetary thinking, as there was none to speak of.”
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Finally and most importantly, there was very wide support within US official circles for the kinds of international development policies that White advocated. President Roosevelt himself was a very strong supporter, as were many officials across various branches of the US government as well as influential business leaders and analysts associated with groups such as the Council on Foreign Relations. In other words, this innovation in US foreign policy cannot be explained simply by White’s views and action. It grew out of larger trends in US policymaking that would have driven US policy in this direction even if White had not been involved.
What prompted White’s initial interest in promoting Latin American development loans? As in the cases of Welles and Morgenthau, security concerns appear to have acted as the initial catalyst. In a late March 1939 memo to Morgenthau, White argued that, without major US financial support, “Latin America will gradually succumb to the organized economic and ideological campaign now being waged by aggressor nations.”
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In another memo in early June, he pressed for a “bold program” of financial assistance to Latin America that could be an “important part of our international political program of peace, security and encouragement of democracy.” In addition, he complemented the strategic rationale for support for Latin America with the economic argument that US exports to the region could be an important part of a domestic economic recovery program. He argued: “Latin America presents a remarkable opportunity for economic development. Only capital and technical skill are needed to develop the area so that it could provide for a much larger population, for a higher standard of living and a greatly expanded foreign trade.”
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White strongly supported Latin American industrialization. For example, when Aranha and other Brazilian officials visited the United States in early 1939 seeking assistance, White urged in an internal memo that the United States extend “long-term productive loans” to promote “the industrial development of Brazil,” noting that “the standard of living of the Brazilian people cannot, in our opinion, be raised until and unless Brazil embarks upon these productive investments.”
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Like many other New Dealers, White was also critical of how private foreign capital in Latin America had been in the past “directed toward exploiting those countries without adequate attention to their fundamental capacity and long-run interests.”
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Because of past problems with private investment, White became an advocate of ambitious US public lending to promote Latin American development, as we shall see in the next chapter.
First Steps
To extend financial assistance to Latin America, US policymakers turned initially to the Export-Import Bank which had been created by the Roosevelt administration in 1934 to supply credit to support US exporters. After only very limited activity in its initial years, the bank’s lending expanded considerably in 1938–39 to further US foreign policy goals in Latin America (and elsewhere such as in China). Loans were made to various governments to support development projects (including industrial projects) as well as currency stability.
65
These new loans immediately attracted controversy. When the Export-Import Bank’s charter came up for renewal in February 1939 in Congress, Taft and other Republicans made clear their opposition to its new Latin American lending program. While their efforts to liquidate the bank failed, these opponents did convince Congress to cap its lending at $100 million, rejecting Roosevelt’s effort to increase its loans to $500 million.
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Some officials in the State Department also sought to block lending to countries that had not settled with US bondholders, efforts that severely frustrated Morgenthau and White, particularly after Roosevelt had explicitly argued in June 1939 that “ancient frauds of the 1920’s should not interfere with new sound loans under consideration.”
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The outbreak of World War II strengthened the case for US cooperation with Latin America both because the new urgency of preventing Axis influence and because of the economic dislocations in the region caused by the war. On September 18, Assistant Secretary of State Adolf Berle wrote to Roosevelt that “we shall have to intensify our South American policy to the limit.”
68
Fluent in Spanish and a member of Roosevelt’s early Brains Trust, Berle had emerged as an important architect of the Good Neighbor policy in an advisory capacity earlier in the decade. Along with Hull and Welles, he had helped write Roosevelt’s 1936 speech in Buenos Aires and he was proud of the New Deal’s anticolonial stance, having witnessed atrocities by US troops in the Dominican Republic in 1918. At Welles’s insistence, he had become assistant secretary of state in early 1938 and he now became a strong supporter of Latin American development initiatives, seeing them as an extension of the reformed capitalism he favored at home.
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At this time, the Roosevelt administration approved larger-scale lending to Latin America by the Export–Import Bank and asked Congress to approve an expansion in the bank’s size; an increase of $100 million was finally approved in March 1940.
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At a September 1939 summit of foreign ministers of American republics in Panama, the United States also backed a Latin American proposal to create a Washington-based Inter-American Financial and Economic Advisory Committee (IFEAC) whose members included financial experts from each country in the region.
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Chaired by Welles, the committee had a mandate to build “close and sincere cooperation” among the American republics, and it quickly set to work to develop a proposal for an Inter-American Bank.
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In January 1940, it also recommended the creation of an Inter-American Development Commission to encourage US–Latin American joint ventures that would “undertake the development of new lines of Latin-American production for which a new or complementary market can be found in the United States or in other Republics of the Western Hemisphere.”
73
When W. Randolph Burgess’s name was initially suggested as a possible US business representative on the commission, Roosevelt explicitly ruled out any New York bankers from serving and chose instead a representative from the industrial firm Westinghouse Electric Company.
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Ambitious US Proposals
United States financial policy toward Latin America became more ambitious in the wake of the dramatic German military victories across continental Europe in mid-1940. The victories heightened US concerns about the defense of the hemisphere as well as about economic and political turmoil in Latin America. The need for a coherent US response was only compounded when the Nazis publicized a plan for a postwar international economic order in Europe. If Latin American countries remained friendly to the Axis cause, the German government stressed, these countries might benefit from this “New Order.”
75
It is frequently noted that the New Order propaganda provoked Keynes into developing his first thinking about British postwar plans in late 1940 and early 1941.
76
Less well known is the fact that the German plans also encouraged US officials to develop proposals for a more integrated economic bloc within the Americas in late May and early June of 1940.
Many of these US proposals were summarized in a June 10 memo by the State Department’s Emilio Collado. Cuban-born and raised in the United States, Collado had a Harvard Ph.D. in economics and had worked with White at the Treasury in 1934–36 and then at the Federal Reserve Bank of New York before joining the State Department in 1938. He was seen there as one of the “reform-oriented” officials, along with Welles, and he had quickly become involved with the new Latin American development lending program of the Export-Import Bank, of which he was very much in favor.
77
After noting the German proposals, Collado’s memo outlined “An Economic Program for the Americas” involving much closer inter-American trade and financial relations. In the trade realm, Collado suggested that the United States assist Latin American countries to adjust to the collapse of their export markets in Europe by offering tariff concessions, encouraging inter-American trade, purchasing surplus commodities, coordinating trade policy vis-à-vis outsiders, and supporting international commodity agreements that could stabilize the prices of key Latin American exports. In the monetary and financial realm, Collado called for greater US public lending for short-term balance of payments assistance and long-term development projects. He also noted that the views of Morgenthau, White, and other Treasury officials “in general coincide with those expressed in this memorandum.”
78
Indeed, in a March 1940 memo to Morgenthau, White had advocated once again a large increase in lending to Latin America as well as “the establishment of the Americas as a tight economic unit.”
79
Another proposal that attracted Roosevelt’s attention at this time came from a group of businessmen, economists, and lawyers outside the government who were led by thirty-two-year old Nelson Rockefeller. Long interested in the region, Rockefeller had become an advocate of US efforts to encourage a reformed “capitalism with social objectives” in Latin America.
80
On June 14, 1940 (the day that German troops entered Paris), he presented a plan for “Hemispheric Economic Defense” that was similar to Collado’s, but put even more emphasis on the need to promote economic development in Latin America through technical and financial assistance, including initiatives to convert outstanding debts into local currency that could be used for investment, and to allow repayment of future debt in local currency.
81
Roosevelt liked the basic outlines of this plan as well as the possibility that Congressional opposition might be lessened by the fact that Rockefeller was a Republican. He hastily organized a committee of the secretaries of state, commerce, treasury, and agriculture, chaired by Berle, that backed its basic elements. The plan was then announced to the public by Roosevelt on June 21.
Opposition at home and across Latin America quickly shot down some of the more ambitious proposals in the plan, most notably the creation of an “Inter-American Trading Corporation” that would have been empowered to market surplus commodities of the region and coordinate countries’ trade relations with the outside world.
82
But Welles told a July 11 meeting of the IFEAC that the United States would still support the “temporary financing and storage of export products until they can be marketed in an orderly fashion” and the “development of commodity agreements with a view to assuring the nations of this hemisphere equitable terms of trade with the rest of the world.”
83
The United States subsequently empowered its Reconstruction Finance Corporation (RFC) to create new corporations that could buy strategic materials such as rubber and metals, with bilateral purchasing programs for each country. In the coffee sector, which was so important to a number of Latin American countries, the United States also worked through the IFEAC to draw up an Inter-American Coffee Agreement that was endorsed by fifteen countries in November 1940, establishing export quotas for coffee producers and guaranteeing each of them a share of the US market.
84
Roosevelt’s plan also called for “vigorous action” to be “undertaken as rapidly as possible in the broad field of development in some American Republics of new industries and production.” At the July 11 IFEAC meeting, Welles told Latin American representatives that “the productive capacity of the area and the standard of living of its populations must be increased,” and he asked countries to tell the IFEAC “their pressing needs and the plans which they have prepared for economic development.”
85
Hull then reinforced this message at a meeting of foreign ministers of the American republics in Havana in late July, using language that highlighted his wider global vision (and that foreshadowed comments of Morgenthau at the Bretton Woods conference):
If the standards of living of the American peoples are to be maintained at levels already achieved, and particularly if they are to be raised in accordance with the legitimate aspirations of these peoples, production and distribution must expand, not only in this hemisphere but throughout the world. This same condition is essential to the well-being of all other areas. For no nation or group of nations can hope to become or to remain prosperous when growing poverty stalks the rest of the earth.
86
To work toward this goal, Roosevelt appointed Rockefeller to head a new body that was subsequently named the Office of the Coordinator of Inter-American Affairs, and whose mandate was to help coordinate US policies toward Latin America in the commercial and cultural areas.
87
Roosevelt also requested a large expansion of the Export–Import Bank’s lending capacity from $200 to $700 million just as the Havana meeting was starting. Congress approved the increase in late September (although not without some opposition) and the bank expanded its loans immediately, with the Brazilian steel mill loan being one of the most prominent.
88
At the Havana meeting, Hull also invited Latin American governments to approach the US Treasury for currency stabilization loans. White (who attended the Havana conference) then discussed details of the many requests that were forthcoming with Latin American finance ministries, and many of the Export-Import Bank’s loans served this purpose.
89
White was also interested in how the US Exchange Stabilization Fund could support Latin American currency stabilization. Between 1936 and 1938, he had already begun to pioneer the use of the ESF for short-term bilateral lines of credit for balance of payments purposes to some Latin American countries.
90
New agreements were now reached, beginning with a November 1941 line of credit to Mexico and followed soon after by agreements with Ecuador, Cuba, and Brazil.
91
United States policy toward Latin American debt also shifted around this time. In a June 15, 1940 memo, Roosevelt had instructed the interdepartmental committee studying Rockefeller’s plan that the problem of “external debts should be faced realistically and these debts should not stand in the way of constructive financial and trade assistance. Study should be given to the refunding of these debts.”
92
By the end of the year, many of the outstanding disagreements between debtors and US bondholders had been resolved.
93
In cases where agreements had not been reached, the State Department increasingly overrode the concerns of US bondholders when considering financial assistance packages.
94
Indeed, by the spring of 1941, US government officials were discussing how the activities of the Foreign Bondholders Protective Council could be brought more in line with broader official US policy toward Latin America through personnel changes and by moving its headquarters from New York to Washington.
95
As the US government increasingly overrode the Bondholder Council’s views, its activities rapidly diminished and Wall Street firms stopped supporting it.
96
One final US policy initiative at this time will be discussed in more detail later on. In his June 21, 1940 announcement, Roosevelt had called upon US government agencies to give further attention to extension “of cooperation, when desired by other American Republics, in the strengthening of their monetary systems.”
97
The extension of financial assistance was one such mechanism of cooperation, but a second one soon emerged in the fall of 1941 when the United States initiated the first of a series of ambitious financial advisory missions—responding to requests from Latin American governments—that were designed to “strengthen” Latin American monetary systems. These missions were reminiscent of US money-doctoring missions to Latin America in the 1920s, but the advice offered was now very different and in keeping with the goal of promoting “development” along the Good Neighbor lines.
These various initiatives highlighted the extent to which US policymakers were now committed to a new kind of financial (and broader economic) partnership with Latin America. The promotion of Latin American economic development was a core goal of this partnership. Latin American policymakers were not always pleased with the details of the US development initiatives. For example, they were frustrated when the Export-Import Bank wanted to finance projects that served US economic or security interests rather than their priorities. They also did not appreciate the bank’s requirement that all schemes be government-guaranteed.
98
But at a more general level, the new US commitment to Latin American development goals was applauded by many in the region. The US enthusiasm for this objective was well expressed by the Treasury’s Frank Southard in July 1941: “…if one goes around Washington now I think he will hear more often than any other one word in the vocabulary of the Good Neighbor enthusiasts with which that city abounds the word ‘developmental’ or ‘development.’”
99
In an article published a few months earlier, in March, Berle pointed out how public international lending for development contrasted with past US private investment practices in the region: “It should be the beginning of a system in which finance is the servant of exchange and development, and is adjusted to that commerce and that building which serves the various countries—in direct contrast to the older system, which insisted that the development and the commerce must serve finance, or it could not go forward.”
100
In a June 1941 speech, Berle developed this theme further. Arguing that “nineteenth century economic imperialism is dead as the brontosaur,” he suggested that the Export-Import Bank and the RFC “are vividly interested in whether the development is a good thing in itself.” He continued: “In other words we have shifted our entire point of view. Instead of being anxious to find a place where a group of people who have privately saved money can secure a private stream of profits, we are anxious rather to find opportunities for sound development which may add to the general safety, security, and well-being of the Western Hemisphere.” Because modern production techniques had created such abundance, he argued that larger markets and “a general rise in standards of living everywhere” were necessary.
101
Indeed, he argued that the ultimate goal for the Western hemisphere was that “standards of living shall approximate the highest standards in the area.” And finally: “Carried to its logical conclusion, all this must require a higher degree of economic planning and, at the same time, a higher degree of open trade between the American nations…. In the combination of the new conceptions with the new mechanisms we have already gone a long way toward establishing the foundation of what will be the cooperative international economics of the future.”
102
Berle’s final line was prophetic. As shall see, the commitment to international development being pioneered in the Good Neighbor financial partnership would find a central place in plans for the postwar international financial system. Even more intriguing was his suggestion that the “cooperative international economics of the future” would need to rest on a combination of greater planning and freer trade. This combination was one that foreshadowed the embedded liberal ideology of the Bretton Woods agreements. As we shall see, Berle was deeply involved in the early US postwar planning discussions. Before then, he was also a central figure in pioneering a concrete mechanism—the Inter-American Bank—for operationalizing this ideology, a mechanism that served as an important precursor to the Bretton Woods institutions. In both this speech and the IAB initiative, the centrality of the commitment to international development within this conception of embedded liberalism is striking.
Several historians of the Good Neighbor policy have remarked on how US policies toward Latin America in the late 1930s and early 1940s foreshadowed US international development policies in the post-1945 world.
103
This important observation has been overlooked by those who have traced the origins of international development to the Truman speech of 1949 or even to the Bretton Woods negotiations of 1942–44. As we have seen, US policymakers in the late 1930s and early 1940s period were keenly interested in promoting Latin American economic development and they developed various important mechanisms to serve this goal: long-term loans for international development projects, short-term loans for balance of payments assistance, commodity market stabilization, and debt restructuring.
The new Good Neighbor financial partnership was born out of a unique intersection of Latin American and US political developments in this period. On the Latin American side, the Great Depression encouraged greater interest in state-led development and industrialization as a priority of economic policy. Many Latin American governments welcomed US backing for their development goals, particularly when the content and rhetoric of US support seemed to reject past practices from the era of dollar diplomacy. On the US side, a complex combination of strategic goals, economic interests, and New Deal values prompted policymakers by the late 1930s to back many of the new Latin American development aspirations. The partnership proved to be a crucial incubator for some core aspects of the Bretton Woods proposals, especially in two of its manifestations: the Inter-American Bank of 1939–40 and the Cuban financial advisory mission of 1941–42.
2.
See for example, Gilderhus 2000, 104–7; Rock 1994.
3.
Love 1996, 120; Sikkink 1991, 53.
5.
Gardner 1964; Gellman 1979; Green 1971; Grow 1981; Pike 1995.
6.
Green 1971, chap. 4; Friedman 2003; Haglund 1984.
7.
For the various US motivations, see Gardner 1964, Gellman 1979, Green 1971, Grow 1981, Pike 1995.
8.
See especially Gellman 1979, Pike 1995, Wood 1961, Rivas 2002.
9.
Quoted in Weis 2000, 138.
10.
Stiller 1987, 96. For the affinity perceived between Cardenas’ regime and the New Deal by US officials, see also Cullather 2010, 50–1.
12.
Ekbladh 2010, chap. 2.
13.
Hirschman 1981. See also Singer 1984, 277; Toye 1987, 39–40; Babb 2001, 7.
20.
Park 1995, 132, 143. Park notes that the US government also actively encouraged this interest in Latin America as part of the Good Neighbor policy.
21.
Quoted in Park 1995, 148.
23.
O’Sullivan 2008, 23. See also Schwartz 1987, 122.
24.
Quoted in Gantenbein 1950, 176.
25.
See especially Green 1971, chap. 3; Pike 1995.
26.
Quote from White House statement of October 20, 1933 announcing the creation of the council, quoted in Corbett to Knoke, December 9, 1939, p. 8, ISF, box 152. See Adamson 2002.
27.
Wallich to Sproul, March 6, 1942, ISF, box 152; Bemis 1943, 339–40; Green 1971, 21, 40–41; Pike 1995, 246; Blum 1965, 52–58; Gellman 1979, 41.
28.
Langer and Gleason 1970, 207; Gellman 1979, 156.
30.
Maxfield and Nolt 1990, 55–56.
31.
See for example Schmidt, Spiegel, and Hanson, “Protection and Promotion by the United Government of American and Financial Interests in Foreign Countries,” April 18, 1939, p. 5, CFHDW, box 2, file 13.
32.
See for example Pike 1995, 36–38; Green 1971, 67–68; Gellman 1979, 2, 12; Blum 1965, 50; Patterson 1972, 190, 192, 196.
34.
Quote from Friedman 2003, 79. For Wall Street sympathies, see Adamson 2002, 2005.
36.
Kimball 1991, Gellman 1979.
37.
Norman Wait Harris Memorial Foundation 1941, 133, 138.
38.
Hilton 1979, 219; Skidmore 1967, 44–45; McCann 1974, chap. 7.
39.
Quote from Weis 2000, 141. See also p. 134.
40.
Schuler 1998, 18, 22. For Suárez’s biography, see Dávila 1977.
42.
Argentina finally broke off relations in January 1944 and declared war in March 1945. See Woods 1979.
43.
See for example Inman 1944, 3–4.
45.
Norman Wait Harris Memorial Foundation 1941, 112–13.
46.
Stiller 1987, 96. For Welles’s influence and views more generally, see O’Sullivan 2008; Friedman 2003, 78–79; Pike 1995, 202–4; Woods 1979, 23–24.
47.
Quoted in Rees 1973, 75. See also Blum 1965, 50.
48.
Rees 1973, 74–75, 100; Green 1971, 46.
49.
Quote from Van Dormael 1978, 42.
50.
White 1933, 301, 311–12.
51.
Laidler and Sandilands 2002.
52.
Emilio Collado quoted in Wilson and McKinzie (1971, 39). For White’s monetary conservatism, see also Boughton 2002.
53.
Quoted in Rees 1973, 425. For other recollections of his personality from contemporaries, see McKinzie 1972, 85; Fuchs 1974b, 10, 19–20; Oliver 1961a, 21–22; Craig 2004, 292 n. 9; Acheson 1969, 81–82; Mikesell 1994, 55, Keynes 1980b, 356.
54.
The Treasury officials that Craig (2004) identifies as involved with Soviet espionage include: Solomon Adler, Frank Coe, Harold Glasser, Sonya Gold, Victor Perlo, George Silverman, Nathan Gregory Silvermaster, and William Ullman. Of these individuals, only Glasser and Coe appear in this book, and in insignificant ways. A number of these individuals were at the Bretton Woods conference itself, but I have seen no evidence that they influenced outcomes vis-à-vis the issues I am analyzing. Coe was the conference’s technical secretary general while Ullman was an assistant secretary to one of the four committees of Commission II. White had also asked Silvermaster to be one of seven “technical secretaries” to the US delegation, but he left after a day or two because of his health (Rees 1973, 217, 413). Although Adler does not appear on the official list of conference attendees, he turned up at Bretton Woods (recently returned from China) to help with bilateral financial negotiations between US and Chinese officials that took place on the sidelines of the conference (MD, book 752, p. 3). One other figure involved in Soviet espionage, Laurence Duggan from the State Department, appears briefly in connection with White’s 1941–42 Cuban mission (see chapter 3).
56.
For the former, see for example Haynes, Klehr, and Vassiliev 2009, 258–62; Weinstein and Vassiliev 1999, 158, 163–64, 168–69; Steil 2013. For the latter, see Boughton 2001a, 2013; Boughton and Sandilands 2003; Sandilands 2009, 131 n. 18. See also the perspectives of Mikesell (1994, 56; 2000, 55–57), who worked closely with White, as well as Rauchway 2013; Skidelsky 2000, 256–63.
57.
White, untitled memo, pp.4–5, June 15, 1940, HDWP, box 9, folder 3.
59.
Acsay 2000, chap. 8, 9; Black 1991, 43; Bernstein 1993; Van Dormael 1978, 191–97; Mikesell 1951.
61.
White to Morgenthau, March 31, 1939, p. 2, CFHDW, box 2, file 12. He was also advocating loans to China and Russia at this time.
62.
“Loans to Latin America for the Industrial Development of Latin America,” pp. 1, 2, June 6, 1939, HDWP, box 5, folder 6. This document is unsigned but White’s biographer Rees (1973, 103) asserts that White was the author.
63.
White to Taylor, February 6, 1939, p. 4, CFHDW, box 2, file 12.
64.
“Loans to Latin America,” p. 5.
65.
Adams 1976, Adamson 2005.
67.
Quoted in Roorda 1998, 201. See also Gellman 1979, 43–44, 159–61; Adams 1976, 195–98; Blum 1965, 52–58.
68.
Quoted in Langer and Gleason 1970, 206.
69.
Schwartz 1987, 122,127; O’Sullivan 2008, 22; Friedman 2003, 81.
70.
US State Department 1957, 508–11; Adams 1976, 198–204, 215–20, 250–52.
71.
For the Latin American push for this body, see Gellman 1979, 156–57.
72.
US State Department 1957, 765.
73.
Quoted in Green 1971, 75.
74.
US State Department 1961, 374–75; Green 1971, 315.
75.
Langer and Gleason 1970, 637.
76.
Van Dormael 1978, chap. 1; Skidelsky 2000, 194–99.
77.
Woods 1979, 23–24. See also Wilson and McKinzie 1971; Adams 1976, 219–20.
78.
US State Department 1961, 363.
79.
Quoted in Rees 1973, 103.
81.
Langer and Gleason 1970, 632–33; Green 1971, 48; Rivas 2002, 39–41.
82.
Gellman 1979, 93–94; Green 1971, chap. 4; Pike 1995, 214–16.
83.
US State Department 1961, 372.
84.
Green 1973, 94–95; Gilderhus 2000, 105. The signatories were Brazil, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Peru, the United States, and Venezuela. The agreement was ratified by the United States in April 1941.
85.
US State Department 1961, 370, 371, 373.
86.
Quoted in Gantenbein 1950, 208.
87.
Cramer and Prutsch 2006; Rivas 2002, 61.
88.
Becker and McClenahan, 2003, 45–59; Gellman 1979, 99, 162.
89.
White to Morgenthau, August 2, 1940, CFHDW, box 3, file 17; Blum 1965, 321; Rees 1973, 104; US Senate 1941, 41.
90.
Boughton 2004, 188–89; 2009, 14–15; Bordo and Schwartz 2001.
91.
Earlier lines of credit had been extended to Mexico (in 1936 and 1938) and Brazil (1937) (Henning 1999, 14, 21–22).
92.
Quoted in Guerrant 1950, 161.
93.
Robert Triffin, “Notes on an Investment Program for Latin America,” September 25, 1942, ISF, box 152, file: Latin America, Finance (1936–1954).
94.
Gellman 1979, 161; US State Department 1962, 58, 72; Adamson 2002.
95.
Green 1971, 316 n. 40. See also the growing frustration with the council’s strict policies among some bondholders themselves (e.g. Norman Wait Harris Memorial Foundation 1941, 121) as well as in the Federal Reserve Bank of New York (e.g. Wallich to Sproul, March 6, 1942, p. 12, ISF, box 152.
97.
US State Department 1961, 370.
99.
Norman Waits Memorial Foundation 1941, 49.
101.
Berle 1941a, 758–59.
102.
Berle 1941a, 760–61.
103.
Grow 1981, 36; Gellman 1979, 2; Cobbs 1992, 2–3.