Title Page
 Table of Contents
 Part I: Monetary relations
 Part II: Business relations
 Part III: Trade relations
 Part IV: Cultural relations
 Part V: Diplomatic relations
 Part VI: Bibliography and...


The Caribbean : current United States relations
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00100623/00001
 Material Information
Title: The Caribbean : current United States relations
Series Title: The Caribbean conference series
Physical Description: xx, 243 p. : map. ; 25 cm.
Language: English
Creator: Wilgus, A. Curtis ( Alva Curtis ), 1897-1981
Conference: Conference on the Caribbean, 1965
Publisher: University of Florida Press
Place of Publication: Gainesville, FL
Publication Date: 1966
Copyright Date: 1966
Subjects / Keywords: Relations -- United States -- Caribbean Area   ( lcsh )
Relations -- Caribbean Area -- United States   ( lcsh )
Congresses -- Caribbean area
Relations -- Congrès -- États-Unis -- Antilles   ( rvm )
Relations -- Congrès -- Antilles -- États-Unis   ( rvm )
America, Central
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
conference publication   ( marcgt )
Bibliography: Includes bibliographical references.
General Note: A Publication of the Center for Latin American studies.
Statement of Responsibility: Edited by A. Curtis Wilgus.
 Record Information
Source Institution: University Press of Florida
Holding Location: University Press of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 00431864
lccn - 68003349
Classification: lcc - F2175 .C55 vol. 16 1965
ddc - 301.29/729/073
System ID: UF00100623:00001

Table of Contents
        Page i
        Page ii
    Title Page
        Page iii
        Page iv
        Page v
        Page vi
        Page vii
        Page viii
    Table of Contents
        Page ix
        Page x
        Page xi
        Page xii
        Page xiii
        Page xiv
        Page xv
        Page xvi
        Page xvii
        Page xviii
        Page xix
        Page xx
    Part I: Monetary relations
        Page 1
        Page 2
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    Part II: Business relations
        Page 49
        Page 50
        Page 51
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        Page 79
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        Page 81
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    Part III: Trade relations
        Page 83
        Page 84
        Page 85
        Page 86
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        Page 89
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    Part IV: Cultural relations
        Page 115
        Page 116
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        Page 118
        Page 119
        Page 120
        Page 121
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    Part V: Diplomatic relations
        Page 167
        Page 168
        Page 169
        Page 170
        Page 171
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    Part VI: Bibliography and reference
        Page 227
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Full Text






A publication of the
which contains the papers delivered at the sixteenth conference on the Carib-
bean held at the University of Florida, December 1, 2, 3, and 4, 1965

1 s 110 t10 100 95 v0 sS o 75 70 63 60



I"" G ULF of

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0 200 4;0 600 000 KILOMETERS S & 1

110 105 too 95 90 so 80 73 70 6 5 1way a


edited by A. Curtis Wilgus


i .^:.= \. ? a u: i; l .- .:

A University of Florida Press Book





ROSE ABELLA, Librarian, University of Miami, Miami
HENRY W. BALGOOYEN, Executive Vice President, American and Foreign
Power Company, Inc., New York City
GLENN C. BASSETT, JR., Vice President, The Chase Manhattan Bank,
New York City
ADOLF A. BERLE, JR., Professor of Law, Columbia University, New York
RALF BRENT, President, Radio New York Worldwide, New York City
S ROBERT COULSON, Executive Vice President, American Arbitration Asso-
ciation, New York City
S CHARLES FENWICK, Consultant, Department of Legal Affairs, Pan Ameri-
S can Union, Washington, D.C.
CHARLES FRANKEL, Assistant Secretary of State for Educational and Cul-
tural Affairs, U.S. Department of State, Washington, D.C.
ROBERT B. GOLDMANN, Senior Editor, Vision, New York
HORACE C. HOLMES, Specialist, the Agricultural Development Council,
Inc., New York City
MAURICE J. MOUNTAIN, Deputy Director, Western Hemisphere Region,
Office of Assistant Secretary of Defense (International Security Affairs),
Washington, D.C.
JOSE A. MESTRE, JR., Director, Latin American Operations, Business In-
ternational, New York City
PORTER NORRIS, District Traffic/Sales Manager, Pan American World
Airways, Miami
JOHN M. PORGES, Vice President, Morgan Guaranty Trust Company, New
York City
VIRGINIA PREWETT, Editorial Director, The Latin American Times, New
r York City
J. WAYNE REITZ, President, University of Florida, Gainesville
WILLIAM SANDERS, Assistant Secretary General, Pan American Union,
Washington, D.C.


vi The Caribbean: Current United States Relations

JOHN T. SMITHIES, Vice President, Council for Latin America Inc., New
York City
RAFAEL SQUIRRU, Director, Department of Cultural Affairs, Pan Ameri-
can Union, Washington, D.C.
JOHN M. STALNAKER, President, National Merit Scholarship Corporation,
Evanston, Illinois
NORVAL E. SURBAUGH, Assistant to Vice President, International Opera-
tions, Sears, Roebuck and Company, Oak Brook, Illinois
T. GRAYDON UPTON, Executive Vice President, Inter-American Bank,
Washington, D.C.
A. CURTIS WILGUS, Director, Caribbean Conferences, University of Flor-
ida, Gainesville


on the University of Florida campus in December, 1965, examined con-
temporary United States relations with the Caribbean area chiefly from
the standpoint of business. United States businessmen were invited to
take part in the Conference by examining their past relations with the
Caribbean countries as well as their present plans and their future hopes.
Since many United States firms have a growing interest in the cultural
development of the areas in which they have investments, the Conference
also considered this topic. Diplomatic relations were also explored since
there is an increasing tendency for our government, under the Alliance
for Progress, to cooperate even more closely with the countries to the
south. Logic supports this necessity, as several of these papers emphasize.
The University of Florida Press has again printed an attractive volume
of proceedings which is distributed throughout the world. We are proud
that this series has such wide use as a reference in many courses dealing
not only with a limited area but with Latin America as a whole. The
University is pleased that it can make this contribution to a better under-
standing of a critically important portion of the Hemisphere.
J. WAYNE REITZ, President
University of Florida


The Caribbean Conference Series

Volume I (1951): The Caribbean at Mid-Century

Volume II (1952): The Caribbean: Peoples, Problems, and Prospects

Volume III (1953): The Caribbean: Contemporary Trends

Volume IV (1954): The Caribbean.: Its Economy

Volume V (1955): The Caribbean: Its Culture

Volume VI (1956): The Caribbean: Its Political Problems

Volume VII (1957): The Caribbean: Contemporary International

Volume VIII (1958): The Caribbean: British, Dutch, French,
United States

SVolume IV (1959) The Caribbean: Natural Resources

SVolume X (1960): The Caribbean: Contemporary Education

Volume XI (1961): The Caribbean: The Central American Area

Volume XII (1962): The Caribbean: Contemporary Colombia

Volume XIII (1963): The Caribbean: Venezuelan Development,
A Case History

Volume XIV (1964): The Caribbean: Mexico Today

Volume XV (1965): The Caribbean: Its Health Problems

Volume XVI (1966): The Caribbean: Current United States Relations


Map of Caribbean Area.. . . Frontispiece
List of Contributors . . . . . . . v
Foreword-J. WAYNE REITZ .. . . ....... vii
A. CURTIS WILGUS . . ... xi

1. Jose A. Mestre: INVESTMENTS . . . 3
2. Glenn C. Bassett: CURRENCIES .. . .. 27
3. H. W. Balgooyen: INFLATION .. . .. 33

EXPERIENCE OF SEARS . . . . . . 60
THE CARIBBEAN .. . .. 75

10. Robert Coulson: COMMERCIAL ARBITRATION . . .. 106

12. R. B. Goldmann: EXCHANGE OF INFORMATION . .. 130
13. Rafael Squirm: EXCHANGE IN THE ARTS . . .. 137
AND ABROAD . . . . . . . 153
CARIBBEAN . . ... . 160


x The Caribbean: Current United States Relations

CARIBBEAN ..... ......... 193
19. Adolf A. Berle: THE COLD WAR IN THE CARIBBEAN .. 208

PROBLEM . . . . ... . .229
Index . . .... . ....... 233



survey and evaluate current United States relations with the Caribbean
area. In doing this we examined our monetary relations, our business
relations, our trade relations, our cultural relations, and our diplomatic
relations. Most people will readily recognize that our cultural relations
with the Caribbean area are of the utmost significance and importance.
Indeed, at no other time in our history have they been of greater im-
portance. Obviously, it was not possible or feasible to deal in great detail
with all of the ramifications of cultural relationships between the United
States and the various political units south of us; and it was not neces-
sary, especially since at our Fifth Conference in 1954, we discussed
many of the varied aspects of cultural relations by devoting the entire
Conference to this subject.
One of the topics which unfortunately we had very little time for in
our Sixteenth Conference is related to the activities of the United States
Information Agency (USIA). Because of this neglect and because this
Agency plays a very important and continuing part in our relations with
the Caribbean area as well as with the rest of Latin America, it seems
relevant to devote this brief introduction to a discussion of some of the
objectives and plans which this Agency has developed during the past
several years. Such a discussion, of necessity, must be brief, but there
are a few highlights which may be emphasized.

In 1953 the United States government created a separate Information
Agency to strengthen its binational center program. Since then, the
Agency has become an integral part of our government's coordinated
overseas programs.

xii The Caribbean: Current United States Relations
On March 10, 1965, Hewson A. Ryan, Associate Director (Policy and
Plans), USIA, prepared a statement which he presented before the Inter-
American Affairs Subcommittee of the House Foreign Affairs Commit-
tee. A brief resume of his statements will help to understand the scope
and significance of the varied programs sponsored and prepared by this
significant Agency of our State Department.
The Agency attempts to counteract international Communist machina-
tions in Latin America wherever and whenever it can. During the past
decade, it has attempted to develop effective, efficient techniques to get
across its anti-Communist message to Latin American audiences. These
techniques involve the use of mass media, cultural exchanges, exhibits
of various types, seminars, publications, radio and television programs,
and other related activities. Today the Agency is represented in 44
major posts in every Latin American country except Cuba, but including
British Guiana, the French West Indies, and Jamaica and Trinidad. The
Agency also provides personnel assistance to 113 binational centers in
19 Latin American countries. There are 205 American employees, 101
binational center grantees, and 790 local employees in Latin America
connected with the Agency.
The Agency has developed three over-all policies. One, it is committed
to furthering the objectives of the Alliance for Progress by all possible
means. Two, it presents to Latin American audiences descriptions of the
democratic process and the essential related ingredients of economic and
social change. Three, it alerts the people of Latin America to the dangers
of Communist penetration and subversion and it points out the weak-
nesses and failures of the Communist system. In doing this, it makes
regular use of the Cuban experience.
At Agency posts in Latin America the public affairs officer of the
embassy suggests ways and means of telling the democratic story of the
United States. Each of these officers gears his activities to those of the
ambassador so that there is a complete integration of all operations in
each country developed on the part of the United States Department of
The Agency attempts to reach three types of people. First, there are
the Latin American students who are generally impressionable and fre-
quently impatient with contemporary conditions, being especially con-
cerned with the intellectual and political climate. To accomplish this
objective the Agency tries to reach students through seminars, travel
grants to the United States, informal discussions, books, and cultural
activities at binational centers. A second audience consists of laborers
and their unions. Increased personal contact with labor leaders is carried
out in Latin America chiefly through the activities of nine information
officers in the embassies specializing in Latin American labor matters.



Some of these contacts are effected through the use of cartoon books,
motion pictures, radio programs, and various other facilities. These
officers hold seminars and discussion groups with important leaders in
the labor movement. They show films in union halls and establish labor
libraries where they can be easily patronized by union members. A labor
magazine for labor leaders is also edited. A third group which the
Agency tries to reach is the campesino, or the peasant. To this end, the
Agency's representatives in each country are in contact with the persons
managing newspapers, radio stations, and other media, who can carry
the Agency's message to all parts of the country.


It will be worthwhile to describe very briefly some of the specific
activities of the USIA which cover the Caribbean area. One of the most
interesting and effective relates to radio. The Voice of America broad-
casts at the present time 13 hours daily to Latin America, of which 91/2
are in Spanish and the remainder in Portuguese for Brazil. Besides
short-wave programs, there are standard-band programs broadcast from
stations all over Latin America. Some 1,500 Latin American radio sta-
tions are at the present time broadcasting Agency programs which in-
clude almost 10,000 hours per week. Some of this is feature material
provided on tape by the Voice of America. A special propaganda broad-
cast has been prepared for Cuba and is sent over short-wave frequencies
and medium-wave transmitters with the object of keeping the Cuban
people informed of our policies and what is going on in the rest of the
world. The Agency also informs the other Latin American peoples about
conditions in Cuba under the Communist regime and points out various
weaknesses in Castro's economic, political, and social structures. In its
press activities, the Agency provides daily wireless information via radio
and teletype, averaging some 50,000 words per week in Spanish, which
goes to all major posts. This material includes important texts, govern-
ment documents, foreign policy pronouncements by people in our gov-
ernment, interviews, features, and news stories of significance in our
foreign relations. Some of this material is adapted for use in Latin
American newspapers. From Washington, the Agency sends by mail an
average of 15,000 words of feature material and some 2,000 photographs
weekly to the various posts in the field. This consists of special packets,
illustrated press features, picture stories, and other items of special in-
terest to the student and labor audiences relating to the Alliance for
Progress and how to combat Communist propaganda.
Besides the Latin American book program, discussed below, the
Agency issues cartoon books in Spanish and Portuguese. These have

xiv The Caribbean: Current United States Relations

been printed in excess of 40 million copies over the past several years,
and are read chiefly by mass audiences. It is interesting to note that the
first cartoon book in this series was devoted to an anti-Castro theme and
dealt with Castro's land reform program, his take-over of Cuban labor
unions, his news media, and the Cuban universities. It also described
graphically his war on the Church, his brainwashing of Cuban children,
and his economic failures. A second cartoon book has just been com-
pleted which deals with Castro's schools to train youth of other Latin
American countries in guerrilla tactics and subversion. Most of the car-
toon books, however, have dealt with positive themes relating to the
Alliance for Progress and the democratic process. A number of the books
also deal with anti-Communist subjects.
Motion pictures in the form of 20 documentary films are produced
each year on global themes. For Latin America, especially, the Agency
has a regular monthly filmed news digest which is offered primarily to
commercial theatres. This reel is positive in tone and deals with eco-
nomic, social, and political progress in Latin America, and various sig-
nificant developments in the United States of interest to Latin American
audiences. A number of the films are of a documentary nature; for ex-
ample, there is one dealing with an impoverished Colombian rural com-
munity in which the people banded together to build a schoolhouse. The
animated cartoon also is used effectively, especially in the series on
self-help. The history, goals, and accomplishments of the Alliance for
Progress are also treated in this way. All films for Latin America have
dubbed in Spanish or Portuguese which helps to carry the message to a
wide audience.
The use of television by the Agency has grown tremendously in the
past two years. Not only are the upper and middle classes reached, but
now hundreds of antennas also appear in workers' areas in most of the
large cities. One television program called "Panorama Panamericano"
is a weekly show presented regularly on 114 Latin American TV sta-
tions. This carries considerable favorable propaganda concerning the
United States and is anti-Communist in nature. However, the main ob-
jective of this series in 26 episodes attempts to promote self-help among
the urban classes to improve health, education, and other facilities in
their communities. From time to time, special films are prepared show-
ing, for example, a Cuban arms cache in Venezuela, an hour-long docu-
mentary, and other topics of a subversive nature of which Latin Amer-
icans are sometimes unaware.
A further activity of the USIA is concerned with research. This in-
volves a selective use of research in order to be sure that the activities
of the Agency are accomplishing their objectives. A continuing study
of the programs of the Agency is made with the object of sharpening the



techniques used. Another phase of research is related to the nature of the
audiences reached by the Agency. These groups quite often change and
it is important to know how they change. Misconceptions about the
United States on the part of Latin Americans are continually being in-
vestigated with an attempt to remedy them through Agency activities.
Especially is this true in relation to Latin American students. Research
is also applied to publications of the Agency, not only as concerns the
content, but also to determine whether or not the content is reaching the
proper people in the proper way. Misconceptions on the part of Latin
Americans are continually appearing and these have to be combatted by
determining the best ways and means to counteract them. It is here that
the individuals who administer the program can determine its success
or failure.

One of the most significant activities of the USIA is the translation from
English into Spanish and Portuguese and the publication of books for
use in Latin America. Because of the great importance of this activity, a
rather detailed presentation may be made here. The purpose of the Latin
American book program, as stated in a mimeographed Agency document
(dated October 27, 1965), is "to promote broad Agency objectives, with
priority emphasis on those which advance United States government
policies in Latin America. Support of all aspects of the Alliance for
Progress and exposure of Castro Communism are prime examples of
such objectives."
In April, 1962, President Kennedy suggested an expansion of the
book publishing program. This was undertaken in the fiscal year 1963.
It is interesting to note that in the previous fiscal year, 1962, the Agency
supported the translation and publication into Spanish and English of
92 volumes numbering 856,000 copies. In the 1965 fiscal year the
Agency supported the translation and publication of 492 new titles,
translated from English into Spanish and Portuguese, numbering over
6 million volumes.
From the beginning the emphasis has been on low-cost paperbacks-
the retail price of which is under 50 cents in United States currency
-which are easily obtainable by the masses of people in Latin America.
The spread of the subject matter of these books ranges from United
States literary classics to books having strong political and economic
impact. A problem related to printing is that of distribution. This has
not yet been completely solved but continuing efforts are being made to
build up distribution outlets in Latin American countries so that all
people can be reached. For this and other reasons, offices staffed by a
regional book officer and a deputy regional book officer have been set up

xvi The Caribbean: Current United States Relations
in Mexico City, in Buenos Aires, and in Rio de Janeiro. These officers
are also concerned with making contracts for and overseeing translation,
publication, and distribution of the books.
Book selection is controlled by and is the responsibility of the central
office in Washington. Suggestions for books to be translated come from
a variety of sources, including ambassadors, USIA posts, exchange profes-
sors, Latin American publishers, members of the United States Congress,
librarians, and other interested persons. Book titles are incorporated into
a master list and sent to the three regional offices, where persons with a
requisite knowledge make a final selection. The next step is to assign
priorities to all of the titles to be used as a guide in the translation and
publication of the books.
It is abundantly clear that a substantial and growing market exists in
Latin America for United States books in translation. Most of the edi-
tions are eventually sold out, with some 60 per cent of the titles in the
active market at any given time. Since most of the books are sold within
three years of printing an increasing number of United States publish-
ing companies have become interested in taking on more responsibilities
in relation to the program than they originally felt they could do. When
the Agency prints the books, it usually purchases rights from the United
States publisher. Occasionally the Agency directly subsidizes a title origi-
nally printed by a United States firm. Also, if a United States firm pub-
lishes a book in Spanish or Portuguese, the Agency may buy a certain
number of copies outright for distribution throughout Latin America.
Not only have these books been distributed widely to masses of people,
but many of them have also been used as effective teaching tools in a
variety of courses in Latin American colleges and universities. In Guate-
mala, for example, several of the books have been used in seminars. In
most cases the books are being used increasingly to complement a variety
of agency activities. All indications now are that the book program will
continue to expand and develop and become increasingly effective in all
Latin American countries.

The binational centers mentioned above play an active role in mak-
ing effective the aims and objectives of the USIA. These centers were once
considered primarily as cultural institutions for the teaching of English,
but they now have become engaged in promoting the Alliance for Prog-
ress and democratic processes in Latin American areas. They offer par-
ticularly effective contacts with university students in Latin America,
many of whom come to the centers to learn English and to use the li-
braries. At present, there are 21 student specialists attached to the
binational centers in Latin America. By 1960, 99 centers were receiving



United States assistance, and in 1965 there were 113 in Latin America.
The binational center program dates back to 1927 when an organiza-
tion was created by Argentines who had lived and studied in the United
States. Their purpose was to form an organization which would foster
friendships and maintain contacts made during years they were in the
United States. World War II and the decade which followed saw the
creation of friendship societies sponsored by various nationalities. These
groups early acted as screening agencies and clearinghouses for the
United States scholarship program. While Nelson Rockefeller was Co-
ordinator of Inter-American Affairs during the war he realized the
significance of this movement and first planned the encouragement and
support of these cultural centers. By 1945 some 28 centers were receiv-
ing help from the United States government. This assistance consisted of
providing books and long-playing records for libraries, occasional grants
of funds for special purposes, and the supplying of English teaching spe-
cialists and textbook materials. For several years, little further progress
was made in strengthening the cultural centers until finally in 1953 the
USIA program was established. Now, though binational centers are dis-
tributed world-wide, the most active and probably the most effective are
in Latin American countries, where they have strengthened all phases of
the USIA program.
By definition a "binational center" is a cultural institution founded
on the local initiative of a group of nationals in any given foreign com-
munity with the cooperation of resident Americans, for the purpose of
stimulating in an apolitical atmosphere the teaching of English and the
interchange of cultural accomplishments of mutual interest to both coun-
tries. Upon the request of such a cooperating group to the USIA, and
upon the determination that the organization has a viable program that
can operate in an area with sufficient potential support, the United States
government will accord it a binational center status and assign to it
varying degrees of financial and program support depending upon its
size, need, and capacity for programmed operation. Support ranges
from the assignment of professionally trained and experienced American
directors, linguistic experts for the direction of language programs, and
in large operations specialists in youth and student affairs, to the pro-
viding of English teaching materials, library books, basic furnishings,
and initial modest installations. Sizes of the centers range from those in
the capital cities where English teaching enrollment may reach 15,000
(as in the case of Mexico City) to smaller cultural entities in provincial
areas with English language enrollments of only several hundreds, but
with an attractive peripheral cultural program involving both national
and United States representatives and activities.
Besides providing English teaching, the centers supervise broad, all-

xviii The Caribbean: Current United States Relations
embracing cultural programs offering the best description of the cultural
heritage and contemporary efforts being made in the fine arts. The cen-
ter activities are directed by a professional man or woman with an
academic background who has the requisite language qualifications.
The following quotation is from a paper presented to the- Second
Southern Regional Conference on International Education, November
18, 1965. The information it contains is of importance regarding various
changes and refinements that have taken place in the binational centers
the last few years.
"Establishment of these cultural organizations is not necessarily stim-
ulated or coordinated by United States interests; they evolve by free and
open desires and decisions of Latin Americans whose affections, bonds
and interests with the United States are framed not only from some per-
sonal experience in our country but from a deep knowledge and appre-
ciation for the principles of such famous Americans as Franklin, Jeffer-
son, Lincoln (witness the names given to so many of our libraries and
institutes), and from the inter-American solidarity concepts developed
by Roosevelt, Eisenhower, Kennedy, and prominent figures in their and
the present administrations. . This knowledge, often spiced with a
firsthand experience in the United States through an educational inter-
lude or tourist visit, engenders the kind of kinship that transcends politi-
cal strife, ideological debate, and intense nationalistic idiosyncracies.
This kinship bridge then allows for free interplay of cultural exchange
and to a more subtle achievement of legitimate program objectives
sought by our country." A unique feature of these centers is their de-
tachment from official, bureaucratic operations of the United States mis-
sions in any one country. Hence they enjoy an autonomy and a political
existence of authentic national origin continuously maintained.
This same document also describes in great detail the organization of
a typical center in a capital city such as Mexico. "The typical center in
a large, capital city will be governed by the Board of Directors. Mem-
bers of the Boards are selected from citizens of the host country and
United States citizens resident in the country. Leadership status is usu-
ally a prerequisite for board membership, and there can usually be
found on Boards such persons as ex-rectors of universities, nationally
known scientists, economists, lawyers, and financiers; ex-Ambassadors
and Ministers, and active educators. On the American side, members are
usually leaders in the American community representing for the most
part business and industrial leadership.
"The centers are non-political, non-sectarian, and non-profit cultural
institutions. As such they are incorporated under the laws of the host
country and operate under a set of bylaws and statutes acceptable to the
host government as well as to the United States sponsoring Agency. They



are thus a national entity that enjoys binational characteristics and
operational latitude.
"An Executive Director implements the policies of the Board. The
Executive Director is furnished by the United States government through
the USIA by term contracts in 58 centers. Executive directors are non-
voting members of the Board and develop and direct a program of Eng-
lish teaching and cultural and representational activities in which the
host country and the United States are properly and appropriately
identified. Directors must be astute business managers; they must have
the feel for Latin-American relations; they must be fluent in Spanish
(or the language of the country) ; they must have an adequate academic
background in American culture, educational methods in teaching Eng-
lish as a second language, and American history and political thought;
they must be able in public relations realms and a father confessor to all
the publics that participate in the activities of the center. Aside from the
traditional English teaching curriculum, there will be, in addition:
dance classes-modern and classical; art classes and continuing exhibi-
tions; dramatic arts presentations; American civilization courses;
courses in the culture of the host country; jazz clubs; motion picture
clubs; alumni associations; snack shops and restaurants; libraries;
music listening salons, and so on. Coordinating these myriad activities
to the satisfaction of participants and the Board, and directing a suc-
cessful business enterprise in fiscal matters is a Herculean task.
"A Director's staff usually consists of a Director of Courses and a
Director of Activities. Sometimes too these are American grantees fur-
nished on a contract basis by the United States government. Other times
they are competent nationals who have had specialized training in lin-
guistics and teaching methods and organizational activities. The Director
of Courses takes charge of the academic program of English teaching,
and the Director of Activities organizes and schedules the many periph-
eral cultural activities that point up the cultures of the two countries.
In some centers there is a Student Affairs Grantee whose special duties
are to engage university students and arrange programs involving them.
The student seminar is an extremely effective example of the work of
Student Affairs Grantees within the binational centers.
"Teaching staffs are recruited from the local English-speaking com-
munity-be they Americans, nationals, or whatever nationality. Service
personnel and concessionaires are contracted and hired locally. The Di-
rector prepares an annual budget and justifies his program to the Board.
He receives his salary (including any allowances) from the United
States government and looks to the usis office in his country for guidance
and additional support. It is evident that given the prestige of a bina-
tional board of directors representing respected leaders in the commu-

xx The Caribbean: Current United States Relations
nity, a dynamic director considered simpdtico by center patrons, a
competent staff, a successful English teaching program, and a program
of broad cultural offerings, then the impact of such an establishment
will be substantial and will redound to the best interests of Latin Ameri-
can relations transferable to other areas of United States objectives that
are active in a country."
It is thus apparent that the binational centers constitute a strong right
arm of the USIA which controls their operations. In September, 1965,
President Johnson gave forceful impetus to the overseas activities of the
USIA and especially of the binational centers. This was at the bicenten-
nial celebration of the Smithsonian Institution in Washington in which
he recommended that a special task force undertake a broad and long-
range plan of world-wide endeavor. His five-point program includes the
activities of the USIA as already practiced in Latin American countries.
The President indicated his intention to present a program to the next
session of Congress which would implement these objectives. Certainly
any future activities in Latin America by the USIA will include the
Caribbean region, for as long as Castro's Cuba constitutes a political,
economic, and cultural thorn in the side of the United States, it seems
clear that whatever objectives the USIA has will help to counteract not
only Castro Communism but also Russian and Chinese Communism in
the area.
One cannot overemphasize the importance of a friendly and mean-
ingful contact between the peoples of Latin America and the personnel
from the United States connected with the USIA. Working in harmony
with local situations and attitudes the Agency is promoting effectively a
fuller and wider support of the policy and objectives of the United

Caribbean Conferences

Note on sources of information: This account is based on personal ob-
servations in Latin America, on discussions and correspondence with
officials of the USIA, on articles in Review of Operations, numbers 20, 21,
and 22 (January, 1963, to June, 1964), and on the following mimeo-
graphed statements: "Address Prepared for the Second Southern Re-
gional Conference on International Education," November 18, 1965;
"Statement by Hewson A. Ryan, Associate Director (Policy and Plans),
USIA, before the Inter-American Affairs Subcommittee of the House For-
eign Affairs Committee," March 10, 1965; and the "USIA Latin Ameri-
can Book Program," October 27, 1965.

Part I




ABOUT THE ONLY GENERALIZATION that can be made about
foreign private investments in the Caribbean is that this area offers the
widest range of rules, conditions, and business environments in the
world. From the most favorable receptivity for United States investors
found in Puerto Rico, to the most hostile stance against private foreign
capital in Cuba, the Caribbean area presents the widest spectrum of
both possibilities and difficulties for the imaginative corporate planner.
Some of the countries of the Caribbean (e.g., Mexico and Colombia)
provide excellent bases to manufacture for the broad market of the
Latin American Free Trade Association (LAFTA), others constitute the
Central American Common Market (CACM), the French and Dutch
islands provide an entree to the European Economic Community (EEC),
and still others form part of the United States and British markets.

I. Defining the Geography and the Investments
In determining what is meant by "the Caribbean" for investment pur-
poses, it is first necessary to define the types of investment. The most
conspicuous investment has been in hotels and real estate. The balmy
sunny climate, lush natural beaches, proximity to the United States and
exotic atmosphere have made the Caribbean a tourist paradise. The
limited surface of the islands, coupled with the rapid development of the
area and building race have brought about an unprecedented real-estate
But this very lucrative use of foreign funds will not be considered in
this study. Instead, only investments to develop marketing or production

4 The Caribbean: Current United States Relations
facilities which lead to a more progressive and steady economic develop-
ment in the countries of the Caribbean will be examined.

For Marketing
Most United States firms operating in the Caribbean define this area
differently for marketing and for manufacturing purposes. For the mar-
keting executive, the Grand Caribbean is generally considered to include
all the bordering countries: Mexico, CACM (Puerto Rico, El Salvador,
Guatemala, Honduras, and Nicaragua), Panama, Colombia, Venezuela,
the Guianas, and all the islands with a market potential. Some compan-
ies even extend the Caribbean area for marketing purposes to include
Ecuador and Peru, while others lump in the Bahamas and Bermudas.

For Manufacturing
For production purposes, however, the area of potential is usually
much reduced, and limited at present to the string of isles arching from
Jamaica to Aruba. The manufacturing plants in the major markets of
Mexico, CACM, Colombia, and Venezuela are usually autonomous and
fall under a different regional division. For instance, one glass manufac-
turer has centralized its marketing efforts for the expanded or Grand
Caribbean area from Puerto Rico, while its manufacturing plant in
Mexico is directly controlled by the parent in the United States. Simi-
larly, a manufacturer of office machines directs all its sales efforts for
most of Latin America from Puerto Rico, but the Mexican plant is
supervised by the home office. Others control the northern half of Latin
American comprising the Grand Caribbean from Mexico, Panama, or
Venezuela, as far as sales are concerned. But plant responsibilities are
usually restricted to smaller areas, usually limiting the Caribbean to
plants located in the West Indies.

II. The Market Size

United States investments in the Grand Caribbean were estimated at
$6.44 billion in 1964. The total market of this area was approximately
100 million people with a gross national product (GNP) of $47.24 billion
(see Table 1). In the Caribbean proper, investments for producing fa-
cilities are almost nonexistent, except for the recent bootstrap industries
in Puerto Rico and the oil facilities in Curacao and Aruba, plus a few
scattered industries.
The size of the markets in each of these small islands is obviously
too small to justify any viable industry. As long as these markets remain
isolated there is little hope that much venture capital will flow to indus-
trialize and develop this part of the world.

III. The Outlook for Economic Integration

As the modern world shrinks in size under rapidly improving trans-
portation and communications facilities, and as industrial plants grow in
size to increase efficiency and cut costs in competing for mass markets,
economic integration is swiftly transforming unviable and isolated mar-
kets. Foreseeing the necessity of creating vast markets of the United
States type, Western Europe developed the European Economic Commu-
nity (EEC) and the European Free Trade Area (EFTA). Latin America
also recognized and understood this phenomenon, and the two economic
groups-CACM and LAFTA-have achieved unprecedented success in pro-
viding the broad markets necessary to attract modern and economically
feasible industries.
The Caribbean can no longer live in accordance with its geography
and past history if it is to develop faster. Added together, the area pro-
vides a market of 23 million people importing $4.6 billion yearly, enough
to justify a substantial investment flow to industrialize the area. In order
to do so, free trade must be possible. It is conceivable that in the final
analysis, the entire area should become part of a totally integrated Latin
American Common Market, but this is still too far in the future for any
type of realistic planning. Meanwhile many possibilities have been sug-
gested. Joining either CACM or LAFTA would seem the most likely, but
with the amount of difficulties faced by both of these economic groups,
the possibility of adding new members from among the Caribbean
islands also seems quite remote. At present there seems to be, rather, a
trend to group the islands into different existing blocs: the Netherlands
and French Antilles, seeking closer ties with EEC; Puerto Rico and the
Virgin Islands with the United States mainland; the British colonies with
the Commonwealth; while the independent islands continue to drag their
feet under present political conditions.
Cuba is at present tied to the Soviet economy, but the hardships
brought about by this uneconomical situation, and the negative results
thus far experienced, should discourage these ties in the future, when a
new government can restore some degree of economic common sense.
Off-the-record exploratory contacts indicate that a future democratic
government in Cuba would seek some type of close association with
LAFTA, and that the latter would reconsider its refusal to accept Cuba's
request for membership under the present dictatorship imposing unsound
economic policies.
The Dominican Republic will have to straighten its political mess and
then consider ties with other nations. Ex-President Juan Bosch has ex-
pressed his inclination toward the creation of a Caribbean Federation,
and the possibility of seeking some type of association with CACM when


1964 GDP $ Total US
Population % Annual 1964 GNP % 5-yr Real Per Capita Investment
(in millions) Increase ($ billion) Increase Income 1963 ($ million)

Puerto Rico 2.58 1.9 2.70 51 839 820
US Virgins .04 3.1 na na
TOTAL US 2.62 1.9 2.70 839
Jamaica 1.70 1.8 .82 201 397
Trinidad/Tobago .95 3.1 .61** 612 504
Subtotal (Brit. Indep.) 2.65 2.1 1.43 435e
British Guiana .63 2.8 .19* 220
Barbados .24 na .97* 364
Bahamas .13 2.1 na
Other Possessions .15 3.1 na
Subtotal (Brit. Depend.) 1.15 2.7 1.16 300 190
TOTAL BRITISH 3.80 2.2 2.59 400e
Surinam .32 5.2 .12** 3493
Neth. Antilles .21 1.5 .24* 877
TOTAL DUTCH .53 3.2 .36 600e
Martinique .31 2.5
Guadaloupe .31 2.5
French Guiana na na
TOTAL FRENCH .62 2.5 na na
Dominican Republic 3.50 3.6 .85** 222 189

TABLE 1 (Continued)

1964 GDP $ Total US
Population % Annual 1964 GNP % 5-yr Real Per Capita Investment
(in millions) Increase ($ billion) Increase Income 1963 ($ million)

Haiti 4.60 2.3 .33** 65
Cuba 7.43 1.8 na na
AND POSSESSIONS 23.10 2.2e 6.83 250e/4 1,010
Mexico 39.64 3.2 17.89 38 411 1,035
CACM 12.20 3.2 3.59 27 270e 400
Guatemala 4.30 2.9 1.31 24 268*
Honduras 2.09 3.2 .47 19 190
Nicaragua 1.60 2.9 .49 47 260*
Costa Rica 1.39 4.5 .56 24 336
El Salvador 2.82 3.1 .76 385 240*
Panama 1.19 3.2 .53* 33 3883 663
Colombia 17.48 2.2 4.50 27 235 520
Venezuela 8.43 3.4 7.07 23 781 2,808
PERIMETER 78.94 40.41 380e 5,426
CARIBBEAN 102.04 47.24 360e 6,436

Source: UN Statistical Yearbook, Monthly Bulletin of Statistics, Department of Commerce, BI Market Indicators.
Notes: e-BI estimate. *-UN estimate. **-AID estimate. 1. Current terms. 2. 4-year increase. 3. 1962. 4. About $600 for Puerto Rico
and European possessions.


1964 1964 1964 1964 1965 1964
Imports Exports Imports from U.S. Telephones Automobiles TVs in Use
($ million) ($ million) ($ million) in Use in Use

Puerto Rico 1,354 918 1,234 172,009 222,300 300,000
US Virgins 96 25 69 6,415 8,300
TOTAL US 1,450 943 1,303 178,424 230,600 300,000
Jamaica 282 218 79 43,041 51,000 20,000
Trinidad/Tobago 426 405 53 35,060 47,000 19,700
Sub-total (Brit. Indep.) 708 623 132 78,101 98,000 39,700
British Guiana 87 95 14 10,100 12,000 n.a.
Barbados 64 36 8 12,412 8,800 2,500
Bahamas 81 16 96 16,325 15,600 n.a.
Other Possessions n.a. n.a. 18 7,228 12,000 n.a.
Sub-total (Brit. Depend.) 232 147 136 46,065 48,400 2,500
TOTAL BRITISH 940 770 268 124,166 146,000 42,200
Surinam 81 47 33 6,576 6,800 0
Neth. Antilles 784 630 85 17,120 21,500 22,000
TOTAL DUTCH 865 677 118 23,696 28,300 22,000
Martinique 79 29 17,703 10,0002000
Guadeloupe 79 35 5,330 9,700
French Guiana n.a. n.a. 1 1,234 1,500 n.a.
TOTAL FRENCH 158 64 13 14,267 21,900 2,000

TABLE 2 (Continued)

1964 1964 1964 1964 1965 1964
Imports Exports Imports from U.S. Telephones Automobiles TVs in Use
($ million) ($ million) ($ million) in Use in Use

Dominican Republic 220 180 114 27,514 19,000 50,000
Haiti 41 40 24 4,400 7,800 5,000
Cuba 1,015 714 0 223,745 n.a. 500,000
AND POSSESSIONS 4,689 3,388 1,840 596,212 454,000 921,200
Mexico 1,493 1,054 1,076 659,785 680,000 1,071,000
CACM 771 662 316 84,166 94,200 116,400
Guatamala 202 158 83 20,000 30,000 45,200
Honduras 102 95 49 9,266 8,000 8,000
Nicaragua 137 118 57 13,900 12,500 6,200
Costa Rica 139 113 60 20,400 20,700 30,000
El Salvador 191 178 66 20,600 23,000 27,000
Panama 198 68 110 39,086 27,000 100,000
Colombia 586 537 246 372,217 123,000 350,000
Venezuela 1,272 2,742 600 242,264 320,900 401,100
TOTAL CARIBBEAN PERIMETER 4,320 5,063 2,348 1,397,518 1,245,100 2,038,500
TOTAL GRAND CARIBBEAN 9,009 8,451 4,188 1,993,730 1,699,100 2,959,700

Source: UN Statistical Yearbook, Monthly Bulletin of Statistics, Department of Commerce, BI Market Indicators.

10 The Caribbean: Current United States Relations
the Federation can stand on its feet. As CACM moves closer to LAFTA, this
might provide the route over the next 20-50 years for the integration of
all Latin America into a massive economic unit.
So far, however, the fact seems to disprove this trend toward greater
economic unity. In June, 1965, the Caribbean Organization, headed by
its Secretary-General, Clovis Beauregard, was disbanded, dealing a fatal
blow to the fledgling efforts toward the establishment of an economic
bloc. This has meant a premature death to the hopes of bringing all the
islands that constitute the Caribbean, plus the three Guianas, into the
Caribbean Organization (it had established its office in Puerto Rico).
A new attempt is now under way, with the Secretary of State of
Puerto Rico, Dr. Carlos J. Lastra, spearheading the movement through
the creation in mid-1965 of the Caribbean Industrial Development Cor-
poration. This new entity will seek to fill the vacuum left by the dis-
bandment of the Caribbean Organization. It seeks to accomplish its goals
in a business-like way, starting with a capital of $600,000 and calling
on commercial banks and government funds to finance Caribbean-wide
The new Caribbean Industrial Development Corporation includes in
its integration efforts all of the smaller Antilles (Cuba, Haiti, and the
Dominican Republic are excluded), which had a combined population
of 6.6 million on January 1, 1963, an average yearly growth of 2.8 per
cent and will have a projected total population of 7.8 million by 1970.
This is an area of very high population density, which will rise from
516 persons per square mile in 1963 to 605 persons by 1973.
Industrialization in this area is currently concentrated in six major
fields: aluminum, petroleum, salt, sugar-rum, processed foods, and tour-
ism. Ancillary industries and labor-intensive, light industries are follow-
ing, but investment in heavy industries will be limited to very special
cases, such as the petrochemical complex building up in Puerto Rico, de-
signed to tap the United States market.
How the Caribbean Industrial Development Corporation is going to
achieve its goals of opening the markets of the islands stretching from
Jamaica to Trinidad is not yet clear. It seems very much like a minia-
ture AID program with Puerto Rico playing the role of Uncle Sam. Pri-
vate firms have been asked to lend a helping hand, and already some
are prepared to cooperate, but only time will determine the course of
this new effort at uniting the isolated islands of the Caribbean.

IV. Investment Difficulties and Solutions for the Integrated Market
Because economic integration creates so many investment opportuni-
ties, numerous studies have also been made in Latin America to avoid
foreign capital completely taking over all the new opportunities that

open up. Notably, the special Economic Commission for Latin America
of the United Nations ( ECLA) has stated that foreign capital should flow
into the area under conditions that would not necessarily take complete
control of the basic industrial sectors of the area.
Under the Punta del Este Charter, which created the Alliance for
Progress, it was also stated that mobilization of foreign investments for
the development of Latin America should be coupled with the self-help
measures in order to make the foreign inflow just a complementary fac-
tor to speed progress. This has led to the basic statement of a policy
requiring joint ventures whenever possible in the cases where foreign
capital is to develop regional industries.
Foreign investors attracted by the vast potentials of economic integra-
tion (and afraid of losing the entire market if they stay out) are going
to be under pressure to accept local investors, and manufacture in Latin
America through mixed or joint ventures. Even foreign investments in
the form of joint ventures might be restricted to the areas which are
most difficult for local investors and which are needed to speed the
process of economic development.
Three specific fields have been earmarked for foreign capital under
joint ventures into LAFTA:
(1) Industries that require a broader market;
(2) Industries that are developed under complementation agree-
ments; and
(3) Specific projects created to help the lesser developed countries
(Ecuador and Paraguay).

Another instance of the way investments are being considered in Latin
America is the basic study made by ECLA of the investment needs in
three basic industries. In the case of the steel industry, ECLA indicates
that demand for steel ingots in Latin America by 1975 will be 17.3 mil-
lion tons, and in order to achieve this production a total investment of
$5.9 billion will be required for the type of plants that are at present
being established for the national markets. But if in the future plants
were established for the broader regional market, the total investment
required would be $2.15 billion, thus permitting the area a new saving
of $3.75 billion.
Similarly, ECLA has studied the situation in aluminum and has found
that for 1975 the total consumption will be about 270,000 tons, requir-
ing about $178 million on a regional scale, but $235 million if national
plants are considered.
In the case of paper and pulp, ECLA estimates an annual deficit of
about 1.9 million tons of pulp and 2.1 million tons of different types of
paper, requiring a total investment of about $2.18 billion in order to

12 The Caribbean: Current United States Relations
provide for the additional plant capacity. However, if regional plants
were designed, a saving of about $838 million could be realized. The
greatest difficulty posed by this type of investment under joint ventures
for foreign firms is the inflexibility that it will establish for future re-
arrangements of production schemes throughout the area.
Suppose that a firm had five or six plants in various Latin American
countries and the interest of the foreign investor was only 50 per cent,
with local investors as partners for the other 50 per cent in each plant.
This company would find itself virtually hamstrung if ever it decided
that a plant was uneconomical and should be closed to allow more effi-
cient production of another plant to supply the market. Obviously the
local partner would raise all kinds of difficulties because his interest
would, of course, be to keep the plant in his country, regardless of the
over-all economics involved.
To solve this difficulty some companies have devised the idea of a
Latin American holding company where the foreign investor would have
50 per cent interest and local capital would comprise the remaining 50
per cent. Under this scheme, the 50 per cent allotted to local capital
would not be subscribed by nationals of only one country, but rather
split among the nationals of the various countries where the plants would
be established. Of this 50 per cent, a portion of the equity could be
given out to the major partners in each one of the countries and another
portion sold on the open market to the public of all the countries. This
would not only provide for public ownership and participation in the
enterprise, but would also unite all the local partners in a common ven-
ture, making it unnecessary to assure anyone of them that the plant
would be in his particular country. They would join in the over-all effort
since their interests would be enhanced when production was directed to
the place where economically it would be most advisable.

V. Foreign Investments in the Major Markets

By far the most important market in the area is Mexico. Its political
and economic stability, plus its rapid growth, has made it one of the
most attractive sites for foreign investors. Many major United States
manufacturers are engaged in Mexico with investments totalling $1.04
billion in 1964.
The major obstacle to foreign investments is the "Mexicanization"
drive, which is generally used in a loose sense to characterize Mexico's
desire to increase the role of Mexican nationals in the country's ac-
tivities. The most significant aspect of the Mexicanization policy is the
desire to have at least 51 per cent Mexican capital in all industrial enter-

prises. This policy is legally applicable to very few industries; but any
new firm proposing to engage in any industrial activity will most prob-
ably have to yield to this requirement, especially if the company will
need any government help, such as import licenses, visa permits for
experts or managers, tax incentives, and other aids. Older firms already
established in the country usually come under some degree of pressure
to give up part of the equity and "Mexicanize," although usually this
pressure is subtle and flexible enough to preclude any major problem.
Still, several firms have succeeded in entering the Mexican market re-
cently with wholly-owned subsidiaries, when they have offered some new
technique, or opened an export avenue, or otherwise introduced a favor-
able element to the Mexican economy, in the opinion of its leaders.
One instance is Pet Milk, which entered a year ago to raise and freeze
strawberries for export to the United States, introducing new agricul-
tural techniques in depressed areas and opening new export possibilities.
Heinz and Campbell met with similar success.
To solve the ownership problem and the Mexican desire to have their
nationals participate in the industrial development, most firms have
entered joint ventures with local partners. Mexico boasts a large number
of rich and sophisticated industrialists ready to join forces with most
foreign firms. Prominent among these are the Cuahtemoc group of the
Garza Sada, and the Zambrana family in Monterrey, the financial
groups behind the two main banks of the country, Banco Nacional de
Mexico and Banco del Comercio, plus a myriad of private enterprises
which include Bruno Pagliai, Carlos Trouyet, and Ruiz Galindo.
In some sensitive industries, particularly in the oil, petrochemicals,
and mining fields, the laws are considerably tougher and usually require
a participation of the government through one of the agencies in charge
of the activity. Outstanding among these is the country's largest indus-
trial enterprise, Petrl6eos de Mexico S.A. (PEMEX), which is a state
monopoly for the drilling and refining of oil. Further chemical processes
are open to foreign investors, but the intermediate stages are 60 per
cent reserved for Mexican capital. Some foreign firms have formed joint-
ventures with PEMEX, e.g., Du Pont, with a 49 per cent interest in the
$8 million petrochemical plant, and Tetraetilo de Mexico S.A. (produc-
ing tetraethyl lead).
Still other foreign firms have solved the Mexicanization requirements
by going public and selling a substantial portion of the equity of a local
subsidiary on the stock market. A most successful public launching was
that of Kimberly-Clark in 1962. Other firms that have gone public in
Mexico include Union Carbide, Du Pont (Pigmentos y Productos Qui-
micos S.A.), and Celanese.
But the Mexicanization drive is not limited to the ownership of the

14 The Caribbean: Current United States Relations

firms' equity. It also extends to requiring an ever-increasing participa-
tion of Mexicans in the work force (both in top management and tech-
nical levels) and a fast industrial integration process by demanding a
greater amount of national content in the final product.
The integration process has been most significant in the automobile
business. Automobile makers were forced by decree to achieve 60 per
cent local content by value no later than September, 1964. This require-
ment forced major foreign companies, including Chrysler, Ford, and
General Motors, and leading parts manufacturers to make substantial
investments in order to produce the engines locally, and to develop locally
many more parts and components to meet the deadline, which seems to
have been met by all major manufacturers. Typewriters, refrigerators,
and many other products have gradually come under similar content
regulations which have spurred the industrialization process. However,
prices have also risen, because the forced industrialization process for a
relatively limited market tends to make manufacturing an inefficient
process at uncompetitive prices, artificially maintained by the govern-
On the other hand, the excessive restrictions placed by the Mexican
government on foreign personnel coming to work in Mexico, designed
to give more employment to the nationals, has deprived the country of
an important source of income in the way of corporate sites for regional
headquarters. Mexico's proximity to the United States, good communica-
tions, excellent facilities, and amenities have made most firms think of
it as the ideal location to establish regional offices to manage and direct
the firm's businesses in all or most of Latin America. However, the
difficulty in securing permanent residence visas for a rather large num-
ber of officers who must be traveling almost constantly has made many
firms give up Mexico as the site of their headquarters. Indeed, the Mexi-
can law requires persons entering Mexico for business purposes to secure
an Immigrant visa, which must be renewed every year for 5 years (then
the immigrant becomes an inmigrado and has many more rights), and
such persons cannot remain out of the country for more than 90 days in
any year. Still, many firms have been able to establish their head-
quarters in Mexico, either because many of their executives in the Latin
American area are Mexicans or inmigrados, or simply by hoping some
solution would always be forthcoming and new permits or visas issued
whenever the old ones expired. Firms that have set up their head-
quarters in Mexico include Schering, Prestolite, and Parker Pen;
Kimberly-Clark is planning to do so, and others have established in
Mexico subregional offices to manage the northern half of their Latin
American operations (e.g., International Business Machines).
Mexican Investment Prospects.-In order to attract private investment



to a number of industries which the government considered important
to the development of the country, the government of Mexico issued in
June, 1962, a list of industrial products in about 450 different industrial
fields in which they would like to see private capital engaged. Total in-
vestment budgeted to take care of the list of proposed industrial invest-
ments would have been something like $1.28 billion. By the end of 1964,
391 projects with a total investment of slightly more than $1 billion had
been carried out, thus having achieved 82 per cent of the original goal
and created 86,000 new jobs.
When President Gustavo Diaz Ordaz took office in 1964, he announced
his purpose to undertake a new development program and again invited
private investors to join the effort. Now the government has issued a
new list of industrial possibilities of some 370 industrial groups in which
he would like to see private enterprise develop new productive facilities.
Of the 370 industrial products, 18 are in the steel and iron industry,
90 in the mechanical industries, 5 in electric machinery and equipment,
23 in the automotive industry, 31 in the electrical appliance, electronic,
and telecommunications field, 6 in the instrumentation field, 83 in the
chemicals and petrochemicals, 65 in pharmaceuticals, 12 in cellulose, 24
in farm products, and 9 in mineral products.

Central America

South of Mexico, 5 countries (Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua) combine a population of 12.2 million inhab-
itants and a gross national product of about $3.2 billion in one of the
world's most successful attempts at economic integration, CACM. Mone-
tary stability has always been a feature of this area, but the political
picture has never been entirely satisfactory, although Costa Rica has one
of the longest established democracies in Latin America. Even today
Honduras and Guatemala are under military rule.
While each one of these countries individually considered offers little
opportunity for substantial industrial investments, their combined mar-
ket does provide for some viable projects. In just 5 years of existence,
the move toward a common market under the Managua Treaty of 1960
has already eliminated internal tariffs on practically all products, and
the external outer tariff against third-country imports is practically com-
pleted. A mechanism to clear payments is operating successfully and
plans are well advanced to establish the Central American peso as a
monetary unit for the entire region. Similarly, considerable efforts are
under way to unify company, labor, tax, and patent laws.
Total foreign investments in Central America are estimated at over
$400 million in 1964. Among these are Allied Chemical and Standard

16 The Caribbean: Current United States Relations
Oil Company of New Jersey in Costa Rica; Kimberly-Clark, Crown
Zellerbach, Phillips of Eindhoven, Eberhard Faber, and Phelps Dodge
in El Salvador; General Tire, Ray-O-Vac, Warner Lambert, Ralston
Purina, American Cyanamid, and Genesco in Guatemala; Westinghouse,
Atlas Chemical, Nestle, and General Mills in Nicaragua. All the coun-
tries are interested in attracting foreign investments and have consider-
able tax incentives to sweeten the way. Under the CACM harmonization
efforts, a common tax incentive program has been established.
CACM's principal organ is the Central American Council formed by
the Ministers of Economy of all five member countries. There is also a
permanent Executive Committee with a representative from all five mem-
bers and a Secretarist (SIECA) which conducts all the administrative
work and most of the day-to-day business, both of which are located in
Guatemala City. The degree of success of CACM is well exemplified by
the increase of internal trade from $36.8 million in 1961 to $66.2 mil-
lion in 1963 and $105.5 million in 1964, which was already greater than
the $100 million goal established for 1965 when the CACM agreements
were signed.
Because every group of nations attempting to achieve economic in-
tegration offers bright opportunities for investors in general, and espe-
cially to foreign investors, CACM has been attracting considerable foreign
capital. The Central American Bank for Economic Integration (CABEI)
released in 1965 a list of some 36 industrial investment opportunities
whose total investment value is well over $53 million. Not only has CABEI
listed the industries which offer the greatest opportunities in the area,
but it also offers, as an additional inducement, to take the initiative in
these industrial areas, to finance up to 60 per cent of every project (with
8 per cent interest over a ten-year term), plus an offer to take equity
participation in some of the ventures.
But in order to avoid foreign investors taking over completely the
industrial potentials that are being opened in Central America, CABEI
has set a policy of marrying foreign investors with local partners in
50-50 joint ventures. Among the products selected for investment by
CABEI are 8 processed foods opportunities, 15 in metal products, 1 for
domestic tableware, 6 in the chemical field, and 2 in pharmaceuticals.
Realizing the difficulty of raising enough local capital in Central Amer-
ica and the need to have the local investors benefit by the general indus-
trial development, the ministers of economy of the five CABEI countries
had a meeting during June 19-21, 1965, to consider the problem and set
out the basic policy for this problem. The main points of the policy are
as follows:
1. It is essential for the economic development of the region that local
capital be developed and engaged in the investment opportunities that



the common market is opening. At the same time, it is also essential that
foreign capital be guided to the productive sectors, especially where
there are none in existence and there are no legal restrictions.
2. It is desirable that joint ventures with local and foreign capital be
established to develop the industries whose complex technology, size of
the investment, and marketing requirements are such that local capital
by itself cannot profitably develop.
3. In those sectors where local capital has enough experience and the
possibilities to develop the industries by themselves, all incentives should
be given to Central American firms and as little as possible to those with
foreign capital.
4. Foreign investments will be required to provide the necessary tech-
nology, organization, and marketing know-how for the success of the
enterprise. In order to help develop the management capabilities in Cen-
tral America, foreign investors would be required to join local people
and help train them on all levels.
5. It is also essential that foreign investors give local Central Ameri-
can investors the opportunity to buy an equity position in the firms.
6. Considering the above, it is now in the cards that the various Cen-
tral American countries will draw up the rules, laws, and regulations to
implement these broad policies. In substance, this would mean that the
joint venture would be greatly favored for this area. A notable advantage
would be that in any case foreign investors should look at the possibility
of having partners not only of the country where they locate their plant,
but from all five members, thus avoiding the strict nationalistic problem
that is created in other areas.

Once a favorite site for controlling operations and marketing activi-
ties through much of northern Latin America, or the Grand Caribbean,
Panama has been losing ground as CACM has gained importance. Pana-
ma is expected to join CACM eventually, as the current hostility from
local businessmen subsides. Its excellent trading location, between the
North and the South, with the key to join the Atlantic and the Pacific,
will continue to make Panama a leading candidate for foreign inves-
tors establishing marketing facilities, if not for developing industrial

Very much unlike Mexico, this second LAFTA base on the Caribbean
has little to offer foreign investors in the way of political and monetary
stability. Colombia's main trouble is political. The unwieldy National
Front, a coalition of the two leading parties (Conservative and Liberal)

18 The Caribbean: Current United States Relations

that alternates the presidency of the republic every four years (from
1958 to 1974) is facing a major crisis under the weak leadership of the
incumbent Conservative government and the snares of leftist subversive
moves to upset the country's institutions. Next year's election might re-
store bright prospects for renewed investment activity. It is expected that
Dr. Carlos Lleras Restrepo will reconsider the withdrawal of his candi-
dacy and accept to run. He will probably be elected as the country's next
Liberal president, and through his strong leadership lead Colombia out
of the economic tangles of the fast inflation it suffered during most of
1964 and 1965.
With a total of $2.8 billion, Venezuela ranks first among the Latin
American countries in United States investment, and third (after Canada
and United Kingdom) in the whole world. The rich petroleum deposits
are responsible for the vast majority ($2.2 billion) of these investments,
with Creole Petroleum, a subsidiary of Standard of New Jersey, lead-
ing the way. More than 300 United States firms have important invest-
ments in Venezuela, including United States Steel and Bethlehem Steel,
in developing the rich iron deposits of the country. The most important
non-United States investor is the Royal Dutch-Shell Group with vast
investments in oil and real estate.
Besides the country's immense natural wealth in oil, iron, bauxite,
and hydroelectric power, Venezuela has traditionally catered to foreign
capital, with favorable official attitude, fast economic development, low
taxes, and numerous incentives. The sketchy development plan of Vene-
zuela calls for a growth rate of 8 per cent in 1965 and an estimated $860
million investment in public work before 1968. President Rauil Leoni has
committed the country to joint LAFTA, which it did during the meeting
of Foreign Ministers (November 3-6, 1965), thus providing an addi-
tional inducement to foreign investors.
Puerto Rico
Puerto Rico is by far the largest single market among the islands of
the Caribbean and, by virtue of its unique relationship with the United
States mainland, boasts the largest amount of investment in manufactur-
ing. The political and economic environment for direct investment is
similar to that of the United States (i.e., the currency is the dollar, goods
made in Puerto Rico are considered made in the United States, expro-
priation and other political risks are virtually non-existent, the banking
system is the same as that in the United States, and so forth). But in some
respects, investment here is more favorable as a result of special fiscal
and monetary concessions that form part of the Commonwealth's indus-
trial development program.

Under the stimulus of "Operation Bootstrap," as the development pro-
gram was dubbed, and a benevolent attitude by the United States federal
government, Puerto Rico has made rapid economic gains recently, albeit
from a low base. GNP is estimated to have risen 238 per cent in the 15-
year period ending in 1965. The five-year increase to 1964 was 51 per
cent, when GNP reached $2.5 billion. In terms of buyers, however, the
expansion has been somewhat slower-the population grows at a rate of
about 1.6 per cent per year, well under that of Latin America. Per capital
income for the Commonwealth's 2.6 million people is about $839, rough-
ly 60 per cent of that of the state of Mississippi, the poorest in the
United States.
The earnings of Puerto Ricans working on the mainland, which are
remitted or brought back by the workers themselves, are a significant
contribution to the purchasing power in the market. There is increasing
evidence, however, of a reversal of this structure-Puerto Ricans are
returning to the island, with their families, at a faster rate than they are
leaving. This phenomenon has two important economic results: first, the
already strained Commonwealth budget will have to find funds for an
increase in public service, welfare, and education expenditures. Second-
ly, the newcomers will need jobs in a labor market that already has
some 13 per cent of the labor force on the unemployment lists.
The economy of Puerto Rico has passed through two stages in its
development process. The pre-Operation Bootstrap period was marked
by limited manufacturing and industrial activity. The second stage, dur-
ing the early part of Operation Bootstrap, saw an influx of mainland
investors in plants requiring low capital to produce labor-intensive goods
in an attempt to escape unions and high wages in the United States and
to take advantage of the Commonwealth's rather generous tax conces-
sions, which will be discussed later. These produced primarily for the
mainland. Understandably, many of the new companies were marginal
operations when they moved, and recently have folded quietly. By the
same token, as the differential between island and mainland wages has
narrowed, firms find this appeal of Puerto Rico diminished. Finally,
some companies have found that the tax concessions, all things consid-
ered, were not as beneficial as was first thought.
Puerto Rico is now in the third stage, characterized by gradual re-
duction in the importance of the low-capital-to-labor manufacturers and
an increase in industrial operations that requires relatively larger capital
inputs and more highly skilled labor. This change is welcomed by both
the mainland and Puerto Rican authorities. (The latter were never very
happy with the unions' charge that investment incentives were designed
to help "run-away" industry.)
Ford's decision to build a $15 million ball-bearing plant was one of

20 The Caribbean: Current United States Relations
the first indications that the industrial base was markedly broadening.
The big push, however, is apparent in the field of petrochemicals. Du
Pont and Puerto Rico Chemical were among the first with plants to
come on stream. The much advertised Phillips Petroleum refining proj-
ect involves an investment of $40 million, plus something on the order
of $10 million in satellite industries that would utilize the refinery's out-
put of raw materials. In addition to investment opportunities in such
satellite operations, there is substantial interest on the part of other
major oil companies to copy the Phillips program. However, it and the
other proposals are predicated on access to the United States mainland
for goods produced from foreign petroleum, a concession not appre-
ciated by United States producers.
It is interesting and important to note, however, that few companies
not native to Puerto Rico have invested there to serve the island market.
Virtually all have had their sights set on the mainland market. European
and Canadian firms, for example, can penetrate the otherwise tariff-
barricaded United States market, and receive tax and other concessions,
by basing operations in Puerto Rico. Because of the distance to the prime
market (the mainland United States) and because in many instances
raw materials must also be transported to the Commonwealth, invest-
ments tend to concentrate in sectors in which a relatively high propor-
tion of value is added in Puerto Rico. This may be expected to continue.
One of the greatest attractions that Puerto Rico offers manufacturing
firms is its generous Industrial Incentive Act of 1963, which extended
the original benefits of Operation Bootstrap. Eligible for the tax exemp-
tions under this Act are all individuals, partnerships, or corporations
engaged in: (1) manufacturing a product that was not produced in
Puerto Rico before January 2, 1947; (2) manufacturing any of a list
of consumer goods ranging from cigarettes and hosiery to motor vehicle
bodies and paperboard and paper pulp; and (3) ownership or operation
of hotels.
Expansion of tax-exempt firms also qualifies for tax exemptions if
they constitute a separate industrial unit, or if the expansion involves at
least $1 million and the original investment was at least $2.5 million and
the expansion provides more jobs and contributes to the island's eco-
nomic development. A firm seeking the exemption must file an applica-
tion with the Industrial Tax Exemption Office in Puerto Rico and later
attend a public hearing to support its application. Considerable assis-
tance is usually given by EDA, and the entire procedure runs smoothly
and rapidly.
Corporate tax incentives for qualifying firms are a tax holiday of 10,
12, or 17 years, depending on the location, and including 100 per cent
exemption of income, real, and personal property taxes, license fees, and



excise and other municipal taxes. The 10-year waiver is granted if the
plant is located in any of the following "high industrial development
zones": San Juan, Bayam6n, Caguas, Carolina, Catano, Guaynabo, and
Trujillo Alto. The 17-years wavier is granted to firms locating in mu-
nicipalities that are designated as "underdeveloped industrial zones":
Aguadilla, Humacao, San Lorenzo, Aguada, Culebra, Jayuya, Las Mar-
ias, Barceloneta, Vieques, and Yabucoa. All others receive 12 years.
Firms may choose to have the tax holiday start 2 years after commence-
ment of operations.
The law also gives qualifying firms the irrevocable choice of reducing
the benefits to 50 per cent of the tax exemption during twice the period
of exemption, that is during 20, 26, or 34 years.
Dividends paid by a tax-exempt corporation are tax-exempt if paid to
bona fide residents or to persons who are not taxed on such dividends
outside of Puerto Rico. To non-Puerto Rican investors they are subject
to a 15 per cent withholding tax instead of the normal 29 per cent tax.
Capital gains from stock sales are made prior to the expiration of the
tax exemption period. However, upon liquidation, any distributions of a
Puerto Rican corporation to United States shareholders are subject to
United States tax. After expiration of the tax exemption, a business may
carry forward any net loss for 5 years.
Capital incentives are also available. The chief source is the Govern-
ment Development Bank (GDB). It makes loans to new firms without a
parent company guarantee, but secured by a mortgage on the industrial
building or a chattel mortgage on equipment, or both. The rate of inter-
est on these loans is 5 per cent when the industry is located in a 17-year
tax-exempt zone, 5.5 per cent when located in a 12-year zone, and 6 per
cent when in a 10-year zone. It will make 3 types of loans: improvement
loans and building loans for 15-30 years in amounts up to 70 per cent
of the appraised value of the buildings constructed or under construc-
tion; loans for machinery and equipment for up to 5 years in amounts
up to 50 per cent of the appraised value of the machinery and equip-
ment; and mixed loans whose terms and conditions are fixed case by
case (frequently for 8 years in amounts up to 70 per cent of the ap-
praised value of buildings and up to 50 per cent of the appraised value
of the machinery).
The Puerto Rican Industrial Development Co. (PRIDCO), EDA'S real-
estate and financial arm, provides capital for firms that cannot meet
standard banking requirements, making minority capital investments. It
also makes long-term loans to joint ventures of foreign and local inves-
tors. The latter must have at least 50 per cent of equity, and must locate
in underdeveloped areas. Terms go up to 90 per cent of assessed land
and buildings, 75 per cent of equipment, and 50 per cent of working

22 The Caribbean: Current United States Relations
capital at an interest rate of 5.5 to 6.5 per cent. PRIDCO also constructs
factory buildings according to specifications or in standard sizes of
11,500 and 23,000 sq. ft. of floor space. The standard-sized factories are
built for leasing at rentals varying according to geographical location
and type of buildings, from 500 to 95 per sq. ft., but, recently, the cost
has been slightly increased and 100 per sq. ft. is added to standard rates
for buildings under 11,500 sq. ft. Those built according to specifications
are sold outright or in annual installments, but usually over a 10-year
period, or plus the going rate of interest. Firms that want a building
erected according to their own specifications put up a deposit of 5 per
cent of the total estimated cost of the building before construction be-
gins. In fiscal 1963 PRIDCO built 31 factory buildings and expanded 17
others at a cost of $4.3 million, covering a total area of 635,163 sq. ft.
A list of available standard-sized factories is published weekly and may
be obtained from the EDA offices.
Tax and, up to a point, capital incentives are a shaky base on which
to predicate an investment, as certain United States companies have
recently found; this has resulted in plants closing for Sunbeam, Proctor
Electric and Remington Rand. The usual manner in which business has
been conducted is for the Puerto Rican subsidiary to manufacture a
product and then sell it in the United States to the parent, which in turn
markets it. To take full advantage of the lower Commonwealth taxes, it
has been general practice to keep the price charged the parent as high
as possible, thus generating profits in Puerto Rico. The United States
Internal Revenue Service has challenged this, and is demanding that the
price be set by reference to an "arms-length" transaction. It is believed
that the Service will strive to have only 10-20 per cent of the total profit
allocated to the Puerto Rican operations (and tax jurisdiction) and 80-90
per cent to the mainland operation (and tax jurisdiction). The Service
bases its demands on the premise that it is, in most cases, the parent's
name and marketing system that is responsible for the sale, and that the
Puerto Rican subsidiary is entitled to only a small manufacturing profit.
Finally, Puerto Rico is the site of several corporate regional head-
quarters (HQ). The Puerto Rican HQ's domain may cover all of Latin
America or just the islands of the Caribbean. General Telephone and
Electronics maintains a Commonwealth HQ to oversee not only Carib-
bean insular operations but also those of Central America. A major
office-machine company services all of Latin America from Puerto Rico.
The Commonwealth also serves as a base for the operations of Corning
Glass, Frieden, Crown Zellerbach, Westinghouse Electric Co., SA, and
a number of other Western Hemisphere trade corporations that are sub-
sidiaries of United States companies. Among the advantages of a Puerto
Rican HQ are no taxes on earnings from outside the island, only a 35



per cent on local income, and relatively good communications, although
some firms find communications worsening rather than improving. And
living costs are higher than in the United States.

The West Indies
Discounting the unique market offered by Puerto Rico, investment in
the Caribbean West Indies is limited very much to Jamaica and the
Minor Antilles, since the political conditions in the major countries of
Cuba, the Dominican Republic, and Haiti rule out almost any new direct
investment at this writing. All the Minor Antilles offer generous incen-
tives to attract investors both for hotels and for manufacturing. In most
of the British isles the tax rates are very similar: corporate income is
taxed almost in every instance at a flat 40 per cent, while personal in-
come tax faces a graduated scale rising from about 2.5 per cent to 70
per cent (see Table 3).
Incentives for pioneer industries usually include a 5-10 year tax holi-
day, duty-free imports of machinery and building materials, plus some
assistance in establishing and occasionally in providing plant sites. In-
vestors in the hotel business can get even better deals. In many cases,
firms making their entree into the area to perform major contracts have
found as a by-product a viable market and convenient conditions to
operate locally. Thus General Telephone and Electronics, while installing
a large intercommunications system in Trinidad and Tobago was at-
tracted to the local market by its potential and incentives and has estab-
lished a successful assembly operation for the Sylvania television sets.

Jamaica has a market of some 1.7 million people with a 1964 per
capital income just short of $400. This market is enlarged by preferential
access for Jamaican products to Commonwealth countries. Sugar, tour-
ism, petroleum, and bauxite are the primary sectors of the economy. The
political environment is relatively receptive to foreign investment, al-
though there have been racial conflict and sporadic labor troubles. The
labor force, with a significant portion presently unemployed, is reported
easily trained and relatively well educated.
The island's industrial development program has taken the route of
the light industry stage (the program was dubbed "Operation Shoulder
Strap" because of the mushrooming brassiere industry). Major com-
panies in the traditional industries are Alcoa and Kaiser (bauxite), and
Jersey Standard and Texaco (oil). Jersey Standard has branched into
the wallboard business, utilizing bagasse from the sugar fields. Other
manufacturing investors include Sterling Drug, Glidden Paints, United
Dye and Chemical, Colgate Palmolive International, and Ludlow Corpo-

24 The Caribbean: Current United States Relations


Corporate Personal
Income (%) Dividends (%) Income (%)
Antigua 40 (1) 2-5- 65.0
Barbados 40 .... 3 -75
Dominica 37.5 .... 4 -50
Grenada 40 .... 5 -65
Montserrat 33.3 .... 2.5-75
St. Kitts 40 .... 2.5-75
St. Lucia 33.3 .... 2.5-65
St. Vincent 40 .... 3 -65
Trinidad & Tobago 42.5 .... 5 -90
Jamaica 40 (2) 12.5 (2) 12.5- 37.5
Martinique & Guadeloupe 37.5 (3) 16 10 -70
Netherland Antilles 27.6 34.5 (4) .... 2.6 43.7 (5)
Dominican Republic 10- 38 (6) 8 3 -40
Haiti 5-40 .... 5 -40
Virgin Islands (U. S.) 12 .... 2.5-67.5

Exemption on
Income Tax Imports of
Exemption Machinery Others
(in years) (in years)

Antigua 5 (7) 5 Assistance (8)
Barbados 10 10 (10)
Dominica 5 (11) 5
Grenada 5 (11) 5
Montserrat 5 5
St. Kitts 5-10 5-10
St. Lucia 5 5
St. Vincent 5(11) 5
Trinidad & Tobago 5 (11) 5 (12) Tariff protection
Virgin Islands (Br.) 5 5
Jamaica 7(13) 5
Martinique & Guadeloupe 8 .... (14)
Netherland Antilles 10 10 Free zone 25-year
Dominican Republic 8 10 (16) .... exclusively (15)
Haiti 10(17) ....

(1) The corporate income tax is passed on to the shareholder so that taxable
corporate income and dividends are taxed only once for a total 40%.
(2) Dividends, interest, royalties, and other income received by non-residents
are taxed at 12.5%. Since the withholding dividend tax is 37.5% non-residents
can claim refund for excess tax withheld.
(3) There is also a 14% sales tax on value added, plus 8.5% turnover tax.
(4) Income up to $53,000 is taxed at 27.6%, the excess at 34.5%.
(5) Rate for married person, decreasing as size of family increases. The rate
for a single taxpayer rises from 2.7% to 45.9%.
(6) In addition there is a complementary (tax 3-70%).
(7) A 20% allowance of any capital expenditure (on building, acquisition, ex-
pansion, or machinery) is allowed during the first 5 years following such expendi-



ration. The government expects by the end of this year to have obtained
firm investment commitments by 80 companies totaling $30 million.
British firms have successfully used Jamaica as a regional headquarters
for Caribbean operations.

Trinidad and Tobago
This two-island country at the southern end of the Caribbean boasts a
population of about 1 million with per capital income of an estimated
$525 in 1964. Its products enjoy preferential treatment in Common-
wealth trade. Petroleum is the mainstay of the economy, accounting for
some 80 per cent of foreign exchange earnings. Oil reserves are running
out, and the success of Venezuela and Colombia in developing their own
petrochemical industries suggests that the islands' petrochemical estab-
lishment will be hard put to sustain further growth based on imports.
Trinidad and Tobago's literate and easily trained labor force has
aided the country's Industrial Development Corporation (IDc) in attract-
ing industry. In the 6 years that IDc has been operating, almost $100
million in new investment has been brought to the islands by 63 com-
panies. Among these are Johnson & Johnson, Lever Bros., Genesco, Cen-
tral Soya, Sterling Drug International, British Batteries Ltd., W. R.
Grace, and Sylvania. The largest portion, by value, have received con-
cessions under the Pioneer Industries Ordinance, which extends tax
holidays generally of 5 years but in some cases 10, duty-free imports,
and accelerated depreciation.

ture; and any loss suffered can be offset against profits of up to 6 following years.
(8) The Industrial Development Board gives limited help to private investors.
(9) Qualified firms may opt instead of the 10-year tax holiday for a 7-year tax
holiday after relevant date which can be up to 3 years after the start of operations
and enjoy a 67% exemption on the 8th year and a 33% exemption on the 9th
year. Companies manufacturing for exports will pay only 12.5% income tax after
the holiday expires.
(10) The Barbados Development Board offers consulting assistance plus gener-
ous facilities in plant sites.
(11) Hotels qualify for a 10-year tax holiday.
(12) Raw materials for local manufacturing may be imported duty-free by
specific exemption from the Legislative Council.
(13) Various laws offer different incentives; the industrial incentives laws offer
an option, the simplest alternative being a 7-year tax holiday, while the pioneer
industries are permitted to set off the expenditures against profits.
(14) The 8.5% turnover tax is exempted for 15 years and some relief is given
on the value-added tax.
(15) Firms locating in free zones enjoy duty-free benefits of free zones, pay
only one-third of normal profit tax (until 1981) and may also qualify for incen-
tives to pioneer industries. Large plants manufacturing a new product can obtain
exclusive manufacturing rights for 25 years.
(16) This import duty exemption is only granted for 98% of the total tax, but
is extended to imports of raw materials, and to the local consumption or sales tax.
(17) Total exemption is limited to 5 years, and thereafter a part of the income
is taxed, rising from 15% on the 6th years to 80% on the 10th year.

26 The Caribbean: Current United States Relations
The Netherlands Antilles
These comprise a market of some 207,000 persons with an annual in-
come-the highest in the area-approaching $900, all within 393 square
land miles, making it an interesting market, yet one that cannot support
much more than minor industry. The authorities are fully aware of this
fact and have attempted to make the islands a haven for export manu-
At the base of the islands' economy and princely per capital income
is the petroleum industry, led by Standard Oil Company (New Jersey)
in Aruba and Royal Dutch Shell Group in Curagao. The Jersey Standard
investment now extends to calcium ammonia nitrate fertilizers that are
exported throughout most of Latin America.
Income from petroleum plus contributions from the Netherlands in
cash and culture are responsible for much of the islands' investment at-
tractiveness. The labor force is highly educated. Despite an affinity for
home rule, the people of the Antilles are relatively content with their
"commonwealth" status under the Dutch Crown, and the political en-
vironment for private foreign investment is among the best in the area.
Association with the EEC, which grants privileged status for all the
Netherlands Antilles products but petroleum, effectively extends the
market for the islands' output to the European continent while main-
taining the advantage of neighboring raw material supplies in Latin
To date, and despite the substantial investment incentives available
(including a 10-11 year tax holiday), most foreign non-petroleum in-
vestment has been concentrated in the tourist field. While there is sub-
stantial room for expansion in that field, profit opportunities should
draw manufacturing investment in high-capital, high-skilled-labor indus-
trial sectors seeking a politically secure base from which to operate.
Curacao and Aruba are also attractive sites for sales service head-
quarters for northern South America (only 10 per cent of earnings
abroad are taxable) in view of their political and monetary stability and
improved port facilities, free zones, and expanded jet air service.


Glenn C. Bassett: CURRENCIES

OF ALL THE AREAS IN THE WORLD, both developed and under-
developed, the Caribbean area stands out for its consistent adherence to
economic policies which have ensured monetary stability and stable ex-
change rates. While countries in other areas have had to debase their
currencies because of inept or inappropriate government policies, the
Caribbean area has enjoyed relative currency stability and solid eco-
nomic progress. Indeed the area is currently experiencing one of the
fastest economic growth rates in the world-and this is a direct by-
product of its monetary stability.
Let us briefly look at the record and examine the extent of currency
stability in the area, the reasons behind this stability, the actual results
already achieved, and then consider the new currency arrangements that
are on the horizon.

During the past 15 years, the following Caribbean countries have not
had to make any significant change in the dollar value of their curren-
cies: Guatemala, El Salvador, Nicaragua, Honduras, Panama, Haiti, and
the Dominican Republic. In the case of western dependencies of Euro-
pean countries, the value of their currencies has been dependent on the
value of the European country's currency, rather than on local conditions
Of the three major countries which did experience devaluations, the
change in Costa Rica was relatively small, that in Mexico was in 1954 and
stable conditions have since prevailed, and that in Venezuela was due
more to political and external factors than to internal economic policies.

28 The Caribbean: Current United States Relations
In any event, the Mexican peso has recently been declared hard cur-
rency by the International Monetary Fund and has been made available
for other countries to borrow, together with the United States dollar and
many European currencies. And the Venezuelan bolivar is now backed
by sizable foreign exchange reserves, the largest in Latin America.
In addition to stable rates, the Caribbean area has few multiple rate
structures. The only country at present with multiple exchange rates is
Venezuela, but the rate spread is much less than previously as the coun-
try is gradually attempting to establish a unified exchange rate.
It must be emphasized that the reason for general currency stability
and unity in the Caribbean area is not exchange controls. The area is
almost completely free of obstacles to the free flow of money to and from
other countries. This free convertibility is one of its strong attractions
for foreign traders and investors. Indeed almost all countries in the area
have formally committed themselves not to adopt restrictions on pay-
ments for foreign goods and services.
The basic reason for the stable currencies is, of course, the stable in-
ternal monetary conditions of the Caribbean countries. Looking only at
the Latin American republics, we find during the past 15 years annual
price increases of under 2/2 per cent for almost all the countries. The
only exceptions were Nicaragua and El Salvador, both of which have
had little price rise since 1955, and Mexico, where prices have increased
under 4 per cent during the last five years-still much less than in most
other Latin American countries.
Absence of domestic inflationary pressures has also helped strengthen
the area's imports and attract foreign capital, and this in turn has helped
bolster the exchange rate of the currencies in the area. Since 1949, the
area's foreign reserve holdings have jumped from $690 million to $1,650
million in 1964. While much of this increase is accounted for by Mexico
and Venezuela, there was a sizable expansion for almost every country
in the area, with record levels achieved in Nicaragua and El Salvador.
These large reserves mean that the countries in the area will be able to
maintain the value of their currencies in the face of periods of tem-
porary difficulties.
The net result of all these factors-stable currencies, low inflation,
minimum exchange controls, stable and unified exchange rates, inflow
of foreign investments-has been to accelerate the area's over-all rate
of economic growth. Caribbean-wide growth figures are not available,
but data on individual countries indicate the good growth record: last
year, Mexican economy grew by 10 per cent in real terms; Venezuela by
71/ per cent; and the member countries of the Central American Com-
mon Market by between 6 and 9 per cent. These substantial growth rates
are a tribute to the area's sound economic policies.



In terms of the future, there is a good possibility for the creation of a
common currency in Central America-a Central American peso. This
could result from the current efforts towards regional economic integra-
tion of the area, which have already borne fruit in the establishment in
1960 of CACM, with five member countries so far. Panama's membership
in the CACM is being discussed. A common currency would facilitate
trade for a variety of reasons. Just consider that businessmen now oper-
ating in Central America have to cope with the problems of marketing,
pricing, and extending credit in various currencies in addition to assum-
ing the costs and risks involved in currency conversions. A single cur-
rency would eliminate all these difficulties and facilitate the movement
of goods and capital within the area.


Provisions tending to promote monetary and exchange stability have
already been incorporated in the multilateral treaty on free trade and
Central American economic integration signed in Tegucigalpa on June
10, 1958. Basically, the treaty provided for cooperation between the five
Central banks in the region, as regards balance of payments problems
which might affect free trade between the contracting parties.
This declaration of intent has already been implemented by an agree-
ment for the establishment of a Central American Monetary Union,
which was signed in San Salvador on February 24, 1964, by the heads
of the five Central banks. A Central American Monetary Council has
been created along with a committee for consultation and action and an
executive secretariat. Although so far the work has not progressed from
the study phase, all the Central banks have assigned staffers to this
work, thus evidencing the seriousness of the effort.
Parallel to all these steps towards an effective monetary union is the
functioning of the Central American Clearing House, which commenced
operations as of October 1, 1961. The main purpose of the Clearing
House is to promote Central American trade by facilitating the settlement
of balance among the countries. It thus encourages the use of Central
American currencies and eliminates exchange commissions. Operations
of the Clearing House are conducted in terms of a Central American
peso, a unit which is equivalent to one United States dollar. According
to the regulations of the Clearing House, the parties agree to use this
unit of account for the conversion of national currencies into pesos at a
stated local currency parity. In addition, the Central Banks guarantee
the convertibility of their Clearing House balances into United States
dollars. The banks have also agreed to allow debit balances to reach a
total to all the members of up to $500,000. These credits are utilized to

30 The Caribbean: Current United States Relations

settle balances resulting from current account transactions, which fluctu-
ate over a period of time. However, member banks require reimburse-
The system has worked remarkably well, and in August, 1963, the
Bank of Mexico entered into a special arrangement with the Central
American Clearing House for the clearing of transactions between the
Bank of Mexico and the Central American Banks. Currently, the Clear-
ing House is compensating around 85 per cent of visible Central Ameri-
can trade.
As a matter of interest, the Clearing House has also facilitated the
entry into the market of an interbank instrument known as the Central
American Check, which is similar to a cashier's check in that it is drawn
by a Central Bank in terms of its own currency and sold without an ex-
change commission. The Banking Commission is standardized at 1/4 of
1 per cent with a maximum of Central American pesos ($25). This
check has simplified payments among Central American countries by
providing the public with an instrument which is readily acceptable at
all banks and can be cashed at face value without any deductions.


Now we might round off our discussion by taking a look at what may
develop at a later stage. Conceivably there are two ways of obtaining a
meaningful monetary union in Central America. The first would be the
issuance by each country's central bank of monies of identical value and
appearance. This money would constitute an obligation of the individual
central banks. The other approach would be to create a common Central
Bank of Issue which would assume the monetary functions of the central
banks by gradually issuing new currency or through immediate conver-
sion of all existing money into the new money.
There are pros and cons to each method, as well as many technical
details involved. If the first course of action is followed, the new coins
and paper money would all have to bear identifying marks of the bank
of issue. This requirement would act as a check against over issuance of
money by any one country as all monies received by the Central Bank
other than that of its own issue would be set aside and returned to the
issuing bank for credit. The latter, in turn, would be the only bank au-
thorized to return this money to circulation. Such a system would thus
prevent any country from taking undue advantage of the monetary
union by purchasing goods and services from the other members through
the expedient method of printing money, simply because such actions
would place the country in an ever increasing debtor position within the



This approach presupposes several conditions. First, it assumes identi-
cal foreign exchange regulations as otherwise the money would flow
from the countries with stringent regulations to those with no controls.
Secondly, it requires very close coordination of fiscal and monetary poli-
cies because the currency of a country experiencing inflation or balance
of payment difficulties might not be accepted at par by the public and
bought or sold at a discount, thereby undermining the effectiveness of
the union.
Third, it necessitates some system by which financial support will be
available to a country whose currency is under strain due to economic
difficulties. This can be provided through the creation of some sort of a
stabilization fund, but the problem is complicated by the fact that in
many cases such difficulties arise from export problems which tend to
affect the region as a whole due to the similarity of the agricultural ex-
ports of the countries involved. In any case, the creation of a fund would
also be helpful as a tool to force a recalcitrant country to adopt the
necessary fiscal and monetary policies, as otherwise it may well find the
fund's doors closed. The issuance of Central American money by the
various central banks may be feasible from a practical point of view
because it does not involve the relinquishing of the power of issue to a
supranational entity. It is not perfect in form as there would still exist
different kinds of "peso," i.e., those issued by a strong central bank and
those issued by a weak one, but still it could provide for an orderly
transition into a real common currency.
The second approach involves the issuance of pesos by a Central
American institution which would assume the corresponding liabilities
and would have resources to back up these liabilities. Such resources
would have to come from a pooling of reserves of the various central
banks. These reserves may be payable in any agreed proportion of gold,
foreign exchange, and local currency, the Central bank to receive in re-
turn an equivalent amount of Central American pesos. The size of the
subscription would, of course, have to be related to such factors as
available foreign exchange, gold, existing money supply, population,
and others.
Presently, the ratio of gold and foreign exchange of the five Central
American republics to the total available money supply is of about 50
per cent and this, if maintained, would provide for a strong Central
American peso. A 100 per cent backing of gold and foreign exchange
would certainly tie the whole monetary system to the availability of gold
and foreign exchange leaving the Central Bank little or no flexibility to
conduct its monetary policy. In such a situation the balance of payments
position would then dictate whether monetary expansion or contraction
would take place, not to mention the fact that a sizable portion of for-

32 The Caribbean: Current United States Relations
eign exchange, much needed for the importation of capital goods, would
then be sterilized. Later on when the impact of the new currency has
been gauged and the level of confidence tested new subscriptions con-
taining a lesser proportion of gold and foreign exchange could be au-
Naturally, ceilings would have to be placed on the amount of pesos
that each country could buy from the Central Bank and regulations
would be needed in order to fix the interest rates that the various banks
would pay on their own currency notes. This second method presupposes
that the system will be implemented in stages and that a transitory
period would take place where both Central American pesos and local
currencies will be available. This incidentally might be the best way to
put the system to work as it could provide an automatic control against
overissuance of local currencies by any of the central banks, since this
would increase the demand for Central American pesos and the local
currency would depreciate in terms of the Central one.
All of this, however, is only a glimpse of the future. It appears evident
that even in developing economies where protected industries and vested
interests are not of the size that are found in some of the more developed
countries, it is still a very difficult task to obtain monetary policy co-
ordination. However, if there is one area in the world where this aspira-
tion has a good chance of success it is in Central America. Public
awareness of this problem exists and competent central bankers are
willing to work in order to obtain a reasonable solution.
I sincerely expect to see them succeed in their efforts and believe that
this effort will bear fruit and will result in Central America becoming
one of the fastest developing regions in this hemisphere. And a success-
ful monetary economic union in Central America might be an example
of what is possible in other Caribbean areas.



H. W. Balgooyen: INFLATION

I AM SURE you will agree that inflation is the arch enemy of the de-
veloping countries, including many of our Latin American neighbors;
and I shall try to suggest some answers to these three questions: what it
is; where it is going; and what it is all about. And, finally, I shall give
you the best answers I have been able to find to the most difficult ques-
tion of all: what can be done about it ?


Inflation is an archdevil. Most everyone claims to be against it these
days-officially, at least; but most everyone welcomes it in its early
stages; and he doesn't like to be reminded that, sooner or later, he will
have to pay for it. Conceding that inflation has many faces and many
definitions, and that it isn't always recognized for what it is, I still like
the definition which I learned in my first elementary course in eco-
nomics: "Inflation is an economic phenomenon which occurs when the
supply of money-or the means of payment-increases faster than the
supply of goods."
We hear a great deal these days about "structural inflation," "cost-
push inflation," or "wage-pull inflation," or simply "price inflation." But
when we come right down to it, these are all a function of the supply
and demand for goods and the means to acquire them. They all assume
that rising prices are conclusive evidence of, or are synonymous with,
inflation; and, conversely, that stable prices are conclusive evidence of
the absence of inflation. But, according to Professor Haberler, "stable
prices are not sufficient criteria for the absence of inflation"; and Dr.

34 The Caribbean: Current United States Relations

Bernstein, after referring to the contention of Thomas Tooke that any
rise in prices constitutes inflation, points out that when production in-
creases sufficiently, a moderate rise in prices is only functional; but
when prices rise considerably, without much increase in production, the
rise is inflationary.
We also hear such expressions as "credit inflation" and "monetary
inflation," which, of course, are only descriptions of the manner in which
the means of payment are expanded.
As for "structural inflation"-a phrase quite popular among econo-
mists influenced by the Economic Commission for Latin America (ECLA)
-I am inclined to agree with Professor Machlup when he says that
this is "a phrase and a theory serving as an excuse for the politicians
responsible for the inflations in certain developing countries. It is true,
of course, that conditions in some countries make it difficult to finance
large-scale investments in any other way but through inflation, and im-
possible . to get elected except on programs too ambitious to be
financed without using the printing press." But, Machlup points out,
"these inflations do not grow out of the soil nor do they fall from heaven.
They are decided upon and arranged for by men in charge of fiscal
and monetary policies-and they can be avoided if these men have the
courage to resist pressures and temptations."
Perhaps, before leaving this discussion of definitions and varieties of
inflation, I should also comment on such expressions as "imported in-
flation" and "exported inflation," which are especially popular these
days with European critics of Uncle Sam and his economic policies.
These critics contend that, because of the deficit in our balance of pay-
ments, European Central Banks acquire additional gold and dollar re-
serves which, in turn, lead to expansion of the money supply which
cannot be counteracted by the Central Banks, with the result that their
inflation bears the label "Made in USA." At the Tokyo meeting of the
International Monetary Fund, Douglas Dillon answered this charge by
stating that, since the United States had had practically no inflation in
recent years, he didn't see how it could have exported what it didn't
Of course, the answer is not quite that simple. It cannot be denied that
the United States deficit in recent years has had some inflationary effects
abroad. Furthermore, the United States has urged foreign countries to
reduce interest rates-an inflationary policy from their viewpoint; but
this has been suggested as a means for avoiding the attraction of too
much United States capital. Furthermore, as Haberler has pointed out,
the majority of the people in the countries concerned have not strenu-
ously objected to the inflationary boom, whether or not we were respon-
sible for inflicting it upon them. At any rate, as I shall show later on,



the ultimate responsibility for creating and tolerating a continuing in-
flation lies at the door of government policy as implemented by the
monetary authorities. Inflation, however it is packaged, is a homemade
product and is not imported from other countries.


So much for what it is; now for where it is going.
In some countries, it has seemed to be going through the roof. How-
ever, I am not going to recite all the dreary details of the history of
inflation in Latin America. Suffice to say that, among the countries
suffering from hyperinflation, the cost of living-one of the best meas-
ures we have of the impact of price inflation-has risen since 1954 by
1,200 per cent in Argentina; 1,300 per cent in Bolivia; 3,800 in Brazil;
1,700 per cent in Chile; and 800 per cent in Uruguay. When we con-
sider these figures alongside the average rise of 1.4 per cent in the cost
of living index in the United States during the past five years, Douglas
Dillon's contention that we have had no inflation in recent years falls
into perspective.
Now let us look at the other side of the coin, since continuous in-
creases in the cost of living-in the absence of compensating increases
in production-tend to be reflected in depreciation in the international
value of the currency or increase in the cost of dollar exchange (Table
1). Since 1954, the cost of dollar exchange, as measured in local cur-
rency units, has increased about 1,100 per cent in Argentina, 500 per
cent in Bolivia; 2,300 per cent in Brazil; 1,000 per cent in Chile, and
1,700 per cent in Uruguay.
I am sure that none of you needs to be convinced that such an ex-
treme and continuous rise in price levels and such a spectacular erosion
in currency values is bad from almost any viewpoint-except, perhaps,
that of speculators and smugglers and other types whose good fortune
depends upon the misfortune of others.
Inflation, of course, was not always in bad odor, particularly in Latin
America, where there was an economic school-particularly vocal in
Brazil-that held that inflation-even a rampant inflation-was not only
good, but was essential for an underdeveloped country aspiring to rapid
economic growth. I have a Brazilian friend of long standing, an econo-
mist by profession, with whom I used to argue this point far into the
night. For many years, the burden of proof was on me, for Brazil seemed
to be defying every economic law and precept and, apparently, was get-
ting away with it.
From 1954 to 1961, for example, Brazil's gross national product (GNP)
increased more than 50 per cent. Even on a per capital basis, gross

36 The Caribbean: Current United States Relations
domestic product (GDP) increased at an average rate of 2.9 per cent. In
1962, inflation really took off, with the cost of living rising by over 60
per cent but the GDP still recorded a 2.4 per cent increase per capital.
Early in 1963, I saw my Brazilian friend again. He was not his usual
ebullient self. In fact, I had never seen him more depressed.
"The combination of bad government and inflation," he said, "is ruin-
ing my country. I don't think we can stand another year of it without a
complete economic breakdown which, I believe, would lead to a Com-
munist take-over."
"But," I asked. "what happened to your theory that inflation is good
for a developing country?"
"That was while I still thought that it could be kept within reasonable
bounds," he replied.
"And how about your rate of economic growth which you are always
citing to me?"
At that, he shook his head and said, "Just wait until you see the
figures for this year-and for next year if we last that long." The figures
for both 1963 and 1964 showed, of course, a negative growth rate of 11/2
per cent per capital.
Today, the ranks of true believers in the theory that rapid inflation is
essential for rapid economic growth are thin, indeed. Studies published
by the International Monetary Fund, the Federal Reserve Bank, various
committees of the United States Congress, the Inter-American Commit-
tee of the Alliance for Progress, and many independent economists have
demonstrated the fallaciousness of this assumption.
One of the strongest and most concise indictments against inflation as
a way of life appeared in the May, 1964, report of the Joint Economic
Committee of the United States Congress, and I quote:
The most insidious and destructive of all forms of expropriation is
monetary inflation in the extreme forms which have characterized some
of the Latin American republics. It is insidious, because it overtakes a
nation so easily; steals-or "taxes9"-so quietly; and produces a tem-
porary glow that suggests prosperity. It is destructive, because it... hits
indiscriminately without recourse or appeal, sparing the unjust at the
expense of the just while driving scarce resources along unsound paths
and in wrong directions.
Private investment presupposes two things: first, an act of saving by
someone, either local or foreign . ; and, second, faith on the part of
the investor. Inflation and the threat of chronic inflation are enemies of
growth by striking at both of these preconditions. When it becomes a
way of life, inflation discourages savings; erodes the value of invest-
ments; drives capital in search of inflation shelters rather than in search
of productivity; makes unused land a "good investment"; encourages
flight of savings and capital into more stable currencies; diverts the



energies of enterprises into trying to outguess the whimseys of those in
charge of monetary printing presses; accentuates political instability by
its inequalities and injustices; fosters economic inefficiencies; feeds on
itself by nullifying attempts at sound government budgeting; and finally,
inhibits sound growth in one or all of these ways.
All of these points are made in the policy statement of CIAP on "The
Situation of the Alliance for Progress and Prospects for 1965," which
discusses the role of inflation in inhibiting sound economic growth. "In-
flation," it says, "is restricting and distorting the use of resources in
Latin America and endangering the objectives of the Punta del Este
Charter." The case against inflation, as seen by CIAP, not only includes
the various charges leveled by the Joint Economic Committee but adds a
few additional or related ones. For example: "Inflation discourages ex-
ports by leading to over-valued exchange rates. It restricts and increases
the cost of borrowing from abroad. It leads to unsound industrial pricing
policies, since businessmen are obsessed with the need to hedge against
the next round of inflation. It hits hardest at the poorest sections of the
population which have the least ability to protect themselves by hedging
against price increases."

This all adds up to such a devastating indictment of inflation as to
lead one to wonder why anyone should ever have seen any merit in the
inflationary theory of development, and whether the experts may not
now be overstating the case against it. In an effort to find an acceptable
answer, some figures appear in the tables at the end of this chapter.
I always feel like apologizing when I resort to statistics in support of
any thesis concerning Latin America. The compilation and dissemination
of statistics in Latin America is anything but an exact science, and I
must concede that, in quoting statistics on the per capital GNP of Bolivia,
for example, neither I nor anybody else knows for sure how many
people there are in Bolivia or what half of them are doing. Nevertheless,
the figures from Latin American sources as compiled by such agencies
as the International Monetary Fund (IMF), ECLA, and the United States
Department of Commerce, are all that we have to go by.
My figures, covering the past ten years, and taken, in the main, from
IMF publications, tend to support the following general conclusions.
1. Countries which had the highest rates of growth-Mexico, El Sal-
vador, Guatemala, Venezuela, Peru, and Panama-had the least in-
2. Countries which had the most inflation tended to have the lowest
growth rates-Argentina, Bolivia, Uruguay and, Paraguay; or unsatis-
factory growth rates-Colombia and Chile.

38 The Caribbean: Current United States Relations

3. Some countries which, for a time, had satisfactory rates of eco-
nomic growth, despite inflation, suffered declines as inflation accelerated
-Argentina, Brazil, and Uruguay. The fact that this was not true of all
countries, at all times, indicates that it is the persistence of inflation,
rather than the incidence of inflation, which does the most damage.
4. In all countries suffering from hyperinflation, with the exception
of Argentina and Uruguay, the supply of money increased faster than
the cost of living-apparently because there was a partially compensat-
ing increase in production. (Both Argentina and Uruguay, of course,
are conspicuous among the countries where production has stagnated
during most of the past decade.)
5. All countries, without exception, which suffered from hyperinfla-
tion had chronic budgetary deficits, ranging to over 50 per cent of
revenues in the case of Argentina.
On the other hand, I would have to concede that some of the countries
that experienced little inflation also had several years of large budgetary
deficits, notably Mexico, Peru, and Venezuela; but these deficits did not
persist for a long period of years; and these same countries did have
compensating increases in production, as indicated by the fact that they
were among the leaders in growth of GNP.
So, statistically, and making due allowance for deficiencies in the
data, the figures for the past ten years do support the conclusions of the
experts I have quoted as to the adverse effects of prolonged inflation on
economic growth.
As to short periods of inflation, brought on by abrupt shifts in inter-
national payments balances or temporary imbalances in the economy,
the case against inflation is not at all clear; and the same can be said of
creeping inflation-the kind we have had for many years in the United
States. So far as Latin America is concerned, however, I am inclined to
go along with Leon Henderson who, I believe, was the originator of the
cliche that "a little inflation is like a little pregnancy."
To sum up the story told by the figures:
1. There is, in general, an inverse relationship between inflation and
economic growth.
2. While inflation, in the early stages, may stimulate economic
growth, as the inflationary spiral persists, economic growth slows down
or goes into reverse.
3. In nearly every case, high rates of inflation are accompanied by,
or are preceded by, sharp increases in the money supply and large gov-
ernment deficits.
So much for what it is; where it is going; and what it is all about.
Now, what can be done about it?
First of all, let me say that the problems of combatting inflation rest



largely with governments, since government policy is the prime engine
of inflation. The problems that governments have in dealing with infla-
tion are complicated by the fact that, as pointed out by Professor Lutz,
nations, these days, are bound to follow several aims at once. They are
concerned not only with maintaining a measure of price stability but
also balance of payments equilibrium, full employment and-most im-
portantly for the developing countries-with attaining and maintaining
an "appropriately" high rate of growth; and successful action toward
one objective can well jeopardize one or another of the policy aims.
Since government policy in Latin America must accord highest pri-
ority to promotion of rapid economic growth, these governments are
inevitably and immediately concerned with the inadequacy of local sav-
ings. An understanding of how and why this results in inflation is
essential to the development and implementation of any disinflationary
program. I have pointed out that inflation can be a cause of inadequate
savings but, particularly in Latin America, it can also be a result of the
inadequacy of local savings to meet the investment requirements of rapid
economic growth.
As Dr. Bernstein points out in an excellent treatise on "Inflation in
Under-Developed Countries" published some years ago, because savings
in these countries are limited, there is a strong temptation to inflate by
expanding bank credit, borrowing from the Central Bank or running the
printing presses. Pressure on the monetary authorities to expand the
means of payment comes from various sources-from businessmen, from
labor, and, of course, from the government itself. As Bernstein shows,
inflation is initiated when any sector of the economy attempts to secure
a larger share of the national output than the normal functioning of the
economy will provide for it.
Businessmen, of course, seek bank credit for many purposes, including
the financing of business expansion and new investment which are essen-
tial in a growing economy; however not only business but also govern-
ment and labor may try to secure a larger portion of the output of the
economy, and the basic framework is provided for the inflationary pro-
cess: aggregate demand, for all purposes-consumption, private invest-
ment, and government spending-exceeds the supply of goods at current
prices. Consequently, prices rise, wages rise, demand for goods increases,
and credit again is expanded to provide for still more investment. Thus,
we have the classic inflationary spiral.
Obviously, the inflationary spiral could not continue to operate unless
the monetary authorities permit or cause the supply of money to increase
rapidly enough to finance production at the rising level of cost and
prices. The government budget, accordingly, is increased, with expendi-
tures exceeding revenues; and the resulting deficit is covered by bor-

40 The Caribbean: Current United States Relations
rowings-mostly from the banking system, since the public is unable or
unwilling to buy government securities or otherwise provide sufficient
funds to meet the deficit. Demands then are made upon the Central Bank
to lend directly to the government and to increase the reserves of the
banking system through rediscounts, advances to the banks, or by pur-
chase of their holdings of government obligations. Thus, the Central
Bank becomes a partner in the inflationary process. The monetary au-
thorities, of course, can further expand the supply of money by lowering
reserve requirements or by tinkering with exchange rates. Maintenance
or roll back of the inflationary spiral, therefore, becomes largely a matter
of government policy.
This also is true if business demand for credit seems to be the villain
in the piece. Businessmen borrow from the banks; the banks borrow
from the Central Bank by discounting commercial paper; and the Cen-
tral Bank issues additional currency, thus supplying the fuel to feed the
fires of inflation.
When either business, or government, or both, make excessive de-
mands on the monetary supply to finance investment or to increase their
share of the total output, it hardly can be expected that labor will will-
ingly refrain from making its own demands; but labor seldom succeeds
in increasing its proportionate share of the national product, since real
wages can rise only if there is a more-than-compensating rise in produc-
tion of consumers' goods. If price controls are imposed in such a situa-
tion, they only accentuate the problem, since they lead to decreased
production and less demand for labor.
This is the reason that some economists hold to the belief that rapid
economic development, dependent, as it is, upon the diversion of re-
sources into investment and production, requires labor acquiescence or
the imposition of wage controls; and this is why some experts believe
that the first step in halting the inflationary spiral-to which business,
labor, and government all have contributed-is to restrict the demands
of labor. This was the thesis of the Klein and Saks mission to Chile
whose recommendations were successful, for a time, in slowing down the
inflationary spiral following the disastrous inflation which resulted in an
84 per cent increase in the cost of living in 1955. In this particular case,
it was contended that Chilean labor, through union pressures, actually
had overcompensated in wages and fringe benefits for the previous rise
in prices.
Brazil now is engaged in a many-sided attack on its inflationary
spiral, in which reduced government spending, exchange stabilization,
credit restrictions, reduction of subsidies, abolition of price controls,
restriction of wage increases, and inducements to businessmen to hold
the line on prices or actually reduce them, all play a part. This cam-



paign, which had the immediate effect of raising prices for many neces-
sities of life besides triggering the business recession has not enhanced
the popularity of the government. Consequently, the Administration re-
cently found it necessary to take additional steps to tighten its control
over Congress, the Judiciary, and the electoral process to assure conti-
nuity in its economic program which is beginning to show some con-
structive results. Not only has the rate of inflation been reduced, but
also business activity again is on the upswing, thanks partly to the
resiliency of the Brazilian economy and, importantly, to some very in-
genious measures instituted by Brazil's very able Minister of Planning,
Roberto Campos.
Dr. Campos has an excellent article in the latest issue of Progreso in
which he explains his choice of gradualismm" rather than "shock treat-
ment" in waging Brazil's battle against inflation. Gradualism, he says,
consists of three stages: the corrective stage, the disinflationary stage,
and the stage of return to equilibrium. Brazil, he says, is only in the
beginning of the second stage. He goes on to describe the economic,
social, and political pressures that must be resisted by the government,
and points out, significantly, that only a strong government, able and
willing to withstand the inevitable unpopularity and resist the political
pressures, can succeed in this struggle.
Actually, despite all that has been written about the requisites for a
successful fight against inflation, there is little to go by in the way of
empirical evidence, so far as Latin America is concerned. Chile's anti-
inflationary program of the mid-1950's was only temporarily effective;
the returns are just beginning to come in from Brazil's effort; the
present governments of Argentina and Chile are committed to economic
recuperation programs which include a rollback of inflation but their
struggle with inflation has scarcely begun; the Bolivian stabilization
program of 1957 succeeded in stabilizing the exchange rate, but not the
price level, which has since increased some 70 per cent. So all that we
can prove by the statistical evidence of the past decade is that countries
which had inflation at the beginning of the period still have it; some
countries, which started out well, have fallen into evil ways; and such
countries as Ecuador, Venezuela, and the Central American republics
have consistently maintained a stable price level.
At any rate, to quote Dr. Bernstein again, "Stabilization is a very
difficult, painful and politically obnoxious process." Government officials,
businessmen, and labor become conditioned to inflation and to the dis-
tortions which inflation produces. Both Campos and Bernstein emphasize
the importance of eliminating these distortions. As stabilization policies
begin to take hold, money and credit are more difficult to come by. Some
industries and investments have to be deflated and other industries,

(1954 = 100)
1961 1962 1963 1964 196

1) Cost of living*
2) Money supply
3) GNP (real terms)
4) Rate of exchange
1) Cost of living
2) Money supply
3) GNP (real terms)
4) Rate of exchange
1) Cost of living
2) Money supply
3) GNP (real terms)
4) Rate of exchange
1) Cost of living
2) Money supply
3) GNP (real terms)
4) Rate of exchange
1) Cost of living
2) Money supply
3) GNP (real terms)
4) Rate of exchange
1) Cost of living
2) Money supply
3) GNP (real terms)
4) Rate of exchange
El Salvador
1) Cost of living
2) Money supply
3) GNP (real terms) (1)
4) Rate of exchange










(1954 -- 100)



















1957 1958 1959

158 237 479
160 229 328
115 121 115
265 501 595

828 985 1,084
1,063 1,097 1,407
101 102 102
453 631 629

171 210 298
193 234 332
116 125 134
119 182 268

295 389 517
289 389 516
112 116 120
245 356

135 144 151
146 177 197
110 112 121
178 235 200

95 95 95
111 110 124
111 115 120
95 96 97

98 101 100
117 110 112

100 100 100

















1962 1963 1964 1965

842 1,069 1,261 1,347 (May)
482 621 885 967
125 118 127
959 948 1,079 1,227

1,326 1,299 1,416 1,408 (June)
2,029 2,427 2,931 2,922
112 119 126
629 629 629 629

917 1,660 3,088 3,934 (July)
1,127 1,849 3,438 4,523
161 164 167
625 816 2,434 2,434

764 1,108 1,540 1,793 (May)
975 1,311 2,154 2,268
136 138 144
768 965 1,035 1,162

179 261 269 282 (May)
326 364 438 440 "
139 143 149
317 285 365 492 "

106 110 113 118 (June)
157 176 196 184 "
136 142 148
127 106 106 108 "

98 100 100 100 (July)
101 121 127 125
118 124 136
100 100 100 100

(1954 = 100)

1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965
1) Cost of living 100 117 115 131 141 141 152 149 152 152 158 164 (May)
2) Money supply 100 120 133 142 152 176 192 205 232 270 317 298
3) GNP (real terms) 100 109 116 125 132 135 146 151 159 169 185
4) Rate of exchange 100 100 100 100 100 100 100 100 100 100 100 100 "
1) Cost of living 100 125 148 170 175 191 218 .... ...
2) Money supply 100 133 181 187 223 244 250 317 309 344 418 451 (June)
3) GNP (real terms) 100 107 106 113 119 119 121 128 129 134 138
4) Rate of exchange 100 108 179 176 176 193 199 199 199 199 199 199 "
1) Cost of living 100 104 110 118 129 155 169 181 190 209 234 258 (April)
2) Money supply 100 106 125 130 139 173 195 231 239 267 312 319 "
3) GNP (real erms) 100 103 106 110 111 116 130 142 153 158 166
4) Rate of exchange 100 100 100 100 129 146 141 141 141 141 141 141
1) Cost of living 100 109 116 137 164 239 325 358 397 572 772 967 (June)
2) Money supply 100 105 119 125 164 235 307 374 378 487 759 ....
3) GNP (real terms) (2) .... 100 102 104 101 100 101 104 101 100 102
4) Rate of exchange 100 115 119 147 321 352 347 345 345 546 770 1,855
1) Cost of living 100 98 99 100 102 106 108 109 107 108 106 109 (June)
2) Money supply 100 111 127 168 185 176 165 170 166 179 204 312
3) GNP (real terms) 100 109 120 134 136 147 149 151 161 168 180
4) Rate of exchange 100 100 100 100 100 100 100 137 136 136 134 100

Sources: International Financial Statistics, International Monetary Fund; Statistical Bulletin for Latin America, Economic Commission for Latin America; Fortnightly Review, Bank of
London & South America.
*Cost of living-end of period data.
tRate of exchange-units of local currency per US$
(1) 1960 = 100
(2) 1955 = 100


1956 1957 1958 1959 1960 1961

1962 1963 1964

Argentina (billions of pesos)
Bolivia (millions of pesos)
Brazil (billions of cruzeiros)
Chile (millions of escudos)
Colombia (millions of pesos)
Ecuador (millions of sucres)
El Salvador (millions of colones)
Net Lending
Mexico (millions of pesos)

85.2 109.3 101.8 128.4 131.3
105.3 131.8 150.6 189.6 286.6
20.1 -22.5 -48.8 -61.2 -155.3

285.8 303.9 383.0 434.1
452.8 454.1 520.3 551.5
-167.0 -150.2 -137.3 -117.4

49.1 57.1 67.3 76.4 102.0 157.8 219.8 317.5 497.9 930.3 1,889
50.3 64.7 92.0 114.8 130.4 198.3 296.4 455.0 778.8 1,435.0 2,617
-1.2 -7.6 -24.7 -38.4 -28.4 -40.5 -76.6 -137.5 -280.9 -504.7 -728

63.5 122.8 202.9 307.9 376.2 570.0 707.5 784.6 957.5 1,353.8 2,039.3
68.6 128.6 224.5 340.3 420.4 638.4 839.4 930.7 1,186.4 1,589.9 2,415.4
-5.1 -5.8 -21.6 -32.4 -44.2 -68.4 -131.9 -146.1 -228.9 -236.1 -376.1

906 1,250 1,190 1,312 1,616 1,833 1,982 2,022 2,306 3,069 3,847
1,015 1,390 1,385 1,142 1,481 1,724 2,092 2,619 3,181 3,433 4,241
-109 -140 -195 170 135 109 -110 -597 --875 -364 -394

998 1,092 1,050 1,254 1,288 1,256 1,363 1,565 1,623 1,844 2,556
1,072 1,237 1,240 1,237 1,217 1,333 1,740 2,081 1,878 2,110 2,917
-74 -145 -190 17 71 -77 -377 -516 -255 -226 -361

186.8 173.6 183.7 211.2 182.4 169.9 182.4 174.7 185.9 192.2
164.5 156.8 183.4 196.7 198.3 185.8 176.4 192.7 261.9 195.9
3.6 1.7 6.5 11.2 6.7 6.5 3.7 -14.7 .2 .6
18.7 15.1 -6.2 3.3 -22.6 -22.4 2.4 -3.4 -16.2 -4.3

5,573 7,644 8,409 9,493 8,814 9,588
6,020 6,967 8,022 8,849 9,770 10,073
-449 677 387 -410 -956 --485

1954 1955


1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964

Paraguay (millions of guaranis)
Peru (millions of soles)
Uruguay (millions of pesos)

2,831 2,692 3,319 3,632 4,328 4,368
3,127 2,759 3,352 3,792 4,338 4,678
-296 -67 -33 -160 -10 -310

3,726 4,800 5,418 5,355 5,527 6,532 8,669 10,339 11,278 14,265
3,819 4,770 5,773 6,027 6,226 6,858 8,124 10,013 12,795 16,878
-93 30 -355 -672 -699 -326 545 326 -1,517 -2,613 -2,440


Balance -110 -210 -975 -1,155 -1,250
Venezuela (millions of bolivares)
Revenue 2,660 2,829 3,201 5,521 4,870 5,306 4,674 4,995
Expenditure 2,434 2,798 3,055 3,798 5,428 6,241 6,177 5,900
Balance 226 31 146 1,723 -558 -935 -1,503 -905

Source: International Financial Statistics, International Monetary Fund.

46 The Caribbean: Current United States Relations
such as agriculture, consumers' goods, and export industries, have to be
stimulated. There has to be a redistribution of income from sectors
which have profited from inflation to those which have been injured by
it. This includes wage adjustments, which are most difficult to achieve
in these days of strong and active labor organizations.
Therefore, it is not just a matter of slowing down the printing presses
and the credit pump. There is no point in exchanging inflation for severe
deflation. The brakes have to be applied and then released from time to
time to keep the economy from skidding into the ditch of depression.
This process of adjustment, of course, must extend to all areas included
in the previous inflation-budget, credit, investment, wages, and inter-
national transactions.
As summarized in last year's CIAP report, effective government meas-
ures to bring inflation to a halt in Latin America comprise a three-sided
attack: reduction of government deficits; provision of increased supplies,
particularly of consumers' goods; and income policies which do not
have built into them self-fulfilling inflationary consequences.
This three-pronged attack on inflation was strongly supported by Walt
Rostow in a recent address at the Brookings Institution when he said:
"The task of cutting down the government deficit, along with private
credit restraint, requires the cutting back of subsidies to public corpora-
tions which, in Latin America, account for a high proportion of the
government deficits." It also requires increased tax collections, credit
ceilings, and other devices of monetary restraint. The task of providing
increased supplies of goods and, thereby, mounting a systematic attack
on the cost of living, he suggested, can be done by moving large supplies
of agricultural products into urban markets and by inducing appropriate
industrial pricing policies. As to income policies, he pointed out that, if
such policies are to be successful, "an understanding must be developed
about real wages, productivity, and price policy that is consistent with
real wages being equal to productivity in a non-inflationary environ-
When all this has been done, says Rostow, "the final engine of infla-
tion turns out to be the expectation of inflation itself; and it is the
behavior of the government which is the largest single determinant of
these expectations."'
This might be a good note to close on; but I would rather wind up
this rather rambling discussion by emphasizing that control of inflation is
not a one-shot operation. It requires continual vigilance, pursuance of a
realistic and sweeping anti-inflationary program embracing education,
training, increased agricultural productivity (perhaps the weakest point
in the Latin American development picture), provision of adequate
credit for farmers and small businessmen, the development of capital

markets, broadened ownership of the means of production, better tax
administration and improved tax collections (rather than just higher
taxes), and, finally-a subject which deserves more attention than I
have been able to give it in this paper-the provision of a total economic
and political environment which will be conducive to foreign, as well
as to domestic, investment.
As suggested earlier, the belief that underdeveloped countries will be
able to raise themselves by their own economic bootstraps is a delusion.
Foreign assistance is not only helpful-it is essential-and the more for-
eign assistance the developing countries of Latin America receive and
use productively, the less reason or excuse there will be for resorting to
that "ole debbil," inflation.

Part II





FOOD FOR THE PEOPLE in cities, fibers for clothing, many of the
raw materials for industry, and, in most of the Caribbean countries, a
good share of the products for export come from the farms. If farmers
do not produce the food, fibers, and other raw materials the trucks and
railways cannot haul it, the processors cannot process it, merchants can-
not sell it, bankers cannot finance it, and the townspeople cannot eat it
or wear it. The farmer is a primary producer. It is on the farms that
new and more productive varieties of plants are grown: disease resistant
cacao, hybrid corn, high-yielding varieties of sugar cane, improved
varieties of coffee that can be either used or exported, to name a few.
It is on the farms that improved livestock is kept and cared for-dairy
cows, beef cattle, hogs, poultry, and sheep. And it is from these activi-
ties carried out on the farms that we get our meats, milk, eggs, wool,
hides, and all the by-products that come from these raw materials. If
these things are not produced on the farms in a country, they must be
imported from farms in other countries.
Too often the farmer and the vital role that he plays in the total de-
velopment of a country are forgotten or ignored. Almost every activity
of non-farm people is dependent, in some way, upon the efforts and
achievements of the farmer. Even in a group such as this, where impor-
tant problems of development are discussed and analyzed, we are apt to
overlook the many, many ways in which the efforts of the farmers affect
our daily lives.
Without the farmer, our menu at dinner tonight would be very thin
indeed; we could have boiled or dried fish, but little else. His cotton

52 The Caribbean: Current United States Relations

provides the stuffing for the mattresses upon which we sleep and the
fibers for the sheets that cover us. Our shoes are made of leather for
which he produced the hides, and much of our clothing is made of wool,
for which he is responsible. We start each new day with coffee from his
coffee trees, sugar from his cane field, and cream from his dairy cows.
The farmer is important. We should know more about him, what he can
do, what he needs help to do, and what must be done if there is to be
progress, progress not just on the farms but in the cities as well. A pro-
ductive agriculture is essential for progress.
Too many urban people look upon the farm merely as a supplier of
cheap food and raw materials. Some even look down upon the farmer as
a person and look down upon farming as a menial occupation. There is
a widespread idea that the farmer has always been on the farm and will
continue to stay there and feed the people in town. But many farmers
are not staying on the farms. Many rural people in this and other areas
are moving into the cities. In some areas entire villages have been aban-
doned. The whole population has moved to the city where many of them
congregate in slum areas in or around the city. It is not that they left
the farm because they have opportunities in the city; unemployment is
a real problem. They have left because they see no opportunity on the
land. Crowded into makeshift huts and filth and hopelessness in the city,
such people become prime targets for every demagogue who comes along
and offers bread with revolution. On the farms low productivity, low
earnings, and the resulting inability of farmers to purchase the many
things that they need and want are forcing many people off the land
where they could and should be stable, responsible, and productive citi-
zens. But the causes of this migration are obvious. Correcting the prob-
lem is more difficult but necessary if there is to be stability in a country.
Stability is essential if we are to live in peace and if we are to prosper.

I. Farmers Can Provide an Important Market for Manufactured
Goods and Urban Services

Many farmers manage to live but buy little from non-farm people.
The few things that they do buy are primarily for consumption, not for
productive purposes; these include salt, tobacco, cloth, kerosene, pottery,
utensils, sandals, blankets, nails, a few medicines, and trinkets. The
farming tools such as mattocks, shovels, and plows are usually made by
the nearby blacksmiths and carpenters. Farmers save their seed from
their own crops or obtain them from their neighbors. They select their
better livestock for breeding purposes or get what they think is a supe-
rior animal from their neighbors. The hatching eggs come from nearby
farmers who they think have better chickens. The fertilizer comes from



the animals or is made from other waste on the farm. The farmer's skill
is learned from his forebears. Insect and disease control is left largely to
fate. He produces for his own needs. He sells what he can of the little
that he has. The surplus that is available for sale is irregular, usually
is of highly varying quality, and always is in small lots. His market, if
he has one at all, is through traders or collectors who assemble, trans-
port, and sell the products as best they can. This marketing service is
usually expensive; the trader often earns more just by handling the
produce than the farmer does for producing it. There is little incentive
for such farmers to produce more. They lack a reasonable market; they
lack most of the things that they must have to greatly increase produc-
tion-fertilizer, seeds, insecticides, implements, and such-and they lack
the technical skills to use effectively these things even if they could get
them. Such farmers are largely excluded from the market economy.
They produce little beyond their own needs and buy little in the market.
But there are other farmers who are producing for the market-
coffee, sugar, bananas, meats, dairy products, and such. Some of these
farmers are high producers. They obtain rates of production unthought
of a few decades ago. Some of these produce high-quality products, sala-
ble in the local market or suitable for export. It is on such farms that
more and better fertilizers are applied to crops-nitrates, phosphates,
potash, urea and the like. Fertilizers along with improved varieties, bet-
ter cultural methods, insect and pest control, result in greatly increased
production of sugar, coffee, citrus, and such. On such farms improved
implements are used and more equipment is needed. Better methods of
soil erosion control, reforesting of lands unsuitable for crops, the use of
cover crops, and many other such things are what modern agriculture
demands. It is on such farms that there exists an important market for
all the non-farm items that farmers must have to be really productive.
There is a tremendous potential market for improved housing and all
the things that go with it-roofing, builders' hardware, furnishings,
equipment, and such things as manufactured clothing, shoes, medicines,
and medical care. Needed is transport of all kinds, for distances are
great and goods are bulky. There is need for education of rural chil-
dren, a need for teachers, for school buildings, for books-the list is
endless. The farmers are willing to pay for these things and they can do
so if only given a chance.
Little beyond a trading-post economy can be expected unless the rural
consumer market is developed. In many countries the most important
barriers to developing such a rural market for urban goods and services
are excessive marketing costs in getting the farmers' products to the
market place, and in getting the necessary production supplies to the

54 The Caribbean: Current United States Relations
There are no easy solutions to these problems, but their importance
justifies the attention of some of the best minds in the respective coun-
In a forthcoming book, soon to be published by the Agricultural
Development Council, entitled Getting Agriculture Moving, the essen-
tials for agricultural development are listed as follows:
1. Markets for farm products.
2. Constantly changing technology.
3. Local availability of supplies and equipment.
4. Production incentives for farmers.
5. Transportation.
Let's examine briefly each of these essentials.

II. Markets

No practical farmer will spend money for labor, feed, fertilizer, spray
materials, and other needs to produce crops or livestock unless he has
some reasonable assurance that he can sell his product at a price that
will cover his costs and leave him something for his efforts. All too fre-
quently the market that he has does not do this. Sometimes he is even
unable to find anyone who will buy his products at all. Once this hap-
pens, the farmer is reluctant to try again; he has already learned his
lesson. Many efforts have been made, some very successful, to insure a
marketing system that gives the farmer a fair return for his products.
Contracts with canneries, or processors to produce fruits, vegetables,
and broilers are examples. Many of these efforts have resulted in large
increases in productivity. Farmers are relieved of some of the risk of
disastrous prices at the time their products are ready for market.
There are many successful cooperative efforts that have, over a period
of years, provided the farmer members with a fair market. Some of
these operate on a seasonal average price basis, so that the farmer has
some protection against a highly fluctuating market. The Blue Mountain
Coffee Cooperative in Jamaica is a good example of a successful, small
farmers' cooperative that has served its members well. There are many
Farmers close to other markets may frequently sell their products at
retail in the farmers' market. But distance, lack of transport facilities,
and small volume definitely limit these opportunities to very small num-
bers. Sometimes the market is rigidly controlled by a few large buyers
and the farmers do not have a chance.
Farmers farther from market, without an established market, such as
a cannery or processing plant with which they can contract, are often
completely at the mercy of the buyers, truckers, and shippers. Often



such buyers control the transport as well as the market. The farmer gets
what is left after all other charges such as cost of assembling, hauling,
and profit are met. Examples of this are too numerous to need listing.
In Jamaica again, a country that has been importing many things that
could be produced locally, efforts are being made to stimulate produc-
tion by contracting with farmers to produce some 16 to 18 needed com-
modities. Assembly points are being established where the produce is
graded and farmers are paid according to grade. It is too early yet to
tell how well this system will work, but results to date are quite encour-
aging. It is certainly a step in the right direction.
Farmers must be able to sell what they produce, and obtain the essen-
tials for production at a reasonable price or they cannot be expected to
increase their output. We have much to learn about marketing at the
grass-roots level. Some of the smaller countries with as yet uncomplicated
systems may well provide some practical answers to these problems that
will be of benefit to all of us. It is a challenge well worth serious thought
and action.
There are many excellent scientists and technicians in the Caribbean
area. They know about how to increase productivity, stop losses from
insects and disease, how to extend the information to practical farmers,
but their knowledge and skill cannot be fully utilized until the farmers
can sell what they produce at a profit.

III. Constantly Changing Technology

The increase in agricultural productivity that has occurred during the
past 25 years is truly revolutionary. Per acre yields of such crops as
corn, wheat, sugar cane, coffee, cacao, and the production of milk per
cow, eggs per hen, rates of gain of hogs and cattle that were thought to
be impossible a few decades ago are now being obtained by some
farmers. In the United States nearly four centuries were required to
increase a yield from approximately 15 to 30 bushels per acre. Corn
yields have been doubled again since 1940, averaging now about 60
bushels. Some farmers now get as much as 150 bushels of corn per acre.
Hybrid corn, new and better varieties of most crops, more efficient ani-
mals, better feeds, feed supplements, new and improved methods of
insect and disease control, more efficient tools, improved fertilizer, and
the knowledge to utilize these things have been responsible for these
changes. New and improved methods of doing things, new varieties, new
feeds, new chemicals, new implements that permit increased production
and lower costs are constantly being developed. These new developments
are not confined to the experiment stations, important as they are.
Chemical companies that manufacture fertilizers, insecticides, and anti-

56 The Caribbean: Current United States Relations
biotics; machinery manufacturers who make tools and equipment; feed
manufacturers who make and test feedstuffs and feed additives are all
potential sources of new technology. These new materials and techniques
need to be tested and adapted to local conditions, and the economics of
farmers using them must be determined. There is a constantly changing
technology in a developing agriculture. Farmers must be kept informed
of these changes.

IV. Local Availability of Supplies and Equipment

Farmers must be able to obtain the essential things for modern and
efficient farming when they need them. Improved seed, regardless of its
quality, is of no use to the farmer if it is available too late for him to
plant it. Chlorodane or aldrin to control aphids, or green bugs in coffee,
bordeaux mixture for banana leaf spot, or whatever spray materials are
needed should be available to the farmers so that they can spray before
the disease or insects destroy the crop. These materials should be of the
right kind that have been tested and proven, in suitably sized packages
and at a reasonable price.
Feed supplements to hasten growth, increase production, and lower
the cost of producing hogs, chickens, beef, eggs, or milk must be readily
available to the farmer when he needs them. Antibiotics are needed
before the animals die, tractor or other machinery parts are needed im-
mediately-not six months or a year later. Merchants are reluctant to
stock supplies that they think may not be readily sold. Farmers are un-
willing to depend upon supplies that they may not be able to get. Some
system to insure that farmers can get what they need when they need it
is essential for high rates of agricultural productivity.

V. Incentives to Produce

The farmer, like other people, wants respect. He wants to care for his
family. He wants an opportunity for his children to progress, and he
wants many of the goods and services that can be provided only from
non-farm people. To obtain these things he knows that he must produce
something to sell. But he also knows that production alone is not the
answer. He must make a profit and he cannot do this if the prices of
the things that he has to buy are abnormally high in proportion to the
prices of the things that he has to sell. Nor can the farmer who works
other peoples' land be expected to spend money for fertilizer or insecti-
cides or other items to increase production, unless the system of rental
encourages him to do so. It must be profitable.
Lack of roads, lack of transport facilities, lack of competition at the



market place, excessive losses due to damage in storage and transport,
an excessive number of middlemen handling products each with costs
and each taking a profit are all factors making for high marketing costs.
These same factors, in addition to high taxes on essential inputs such
as fertilizers, insecticides, and equipment are disincentives to the farmer
and prevent him from producing to the maximum.

VI. Transportation
Farm products must be moved efficiently from the farm to the con-
sumer, and essential agricultural inputs must be moved efficiently from
the urban centers to the farms. This involves costs, but it also involves
more than cost. Some goods are perishable and must be moved quickly.
Some products require special equipment for transport-refrigeration,
storage, or special handling. Lacking these facilities and services at rea-
sonable cost, farmers remote from market may be effectively excluded
from it.
The lack of secondary roads leading from the back country to the
highways, the railheads, or the river ports can be, and usually is, an
effective barrier to increasing productivity in outlying areas. Needed are
such roads as will permit the use of some more efficient means of trans-
port than head loads or pack animals. Fortunately, such secondary roads
can often be built largely with local labor and with local materials. Per-
haps no other single investment can pay higher dividends than roads to
areas of good land in the back country.

VII. Education, Health, and Other Services
Even though we have stressed the five essentials for increasing pro-
ductivity and opening the rural market, this in no way is intended to
minimize the importance of education, health services, continuing agri-
cultural research, an effective agricultural extension system, or a system
of credit to enable farmers to become more efficient. But it seems to me
that we know a lot more about training teachers and opening schools,
training doctors and nurses and health workers, and putting them in
places where they can be effective than we do about how to provide
these five essentials. There are a number of excellent institutions carry-
ing out important research and testing in the various fields of agricul-
ture and there are many dedicated men and women working with farm
people on improved agriculture, problems of making their homes more
livable, their families healthier, and improving rural communities and
generally strengthening the country. But to make maximum use of these
services, to support them, to expand them, and to continually improve
them, the barriers that limit agricultural productivity must be removed.

58 The Caribbean: Current United States Relations
VIII. New Markets

The Instituto Centro Americano de Investigaci6n Technol6gico e In-
dustrial in Guatemala is working on the problem of new uses for tropical
agricultural products, such as paper from coffee hulls which are now
wasted and the preservation of various tropical fruits. These are impor-
tant possibilities. There is a future for many of the tropical fruits.
Bananas were once thought to be only "monkey food," and tomatoes
were once only used as ornaments-they were known as "love apples."
High-quality vegetables such as green peppers, lettuce, cocktail tomatoes,
and greens of various kinds are now being shipped by air more than
3,000 miles from Uganda to European markets. Increasingly, off-season
vegetables and fruits and those requiring much hand labor are finding a
market in the United States.
Here are fertile fields for development in many of the Caribbean
countries. There are natural advantages of climate, and just next door
there is a tremendous consuming market.
The Common Market in Central America is making tremendous prog-
ress. Trade among the five members has tripled since 1960.1 Many new
plants are being established. These new industries are producing many
of the things needed in the countries or processing raw materials for
both domestic use and export. New jobs, new supplies available, new
investment opportunities, and new markets for agricultural products
provide a very encouraging picture.

IX. Highly Productive Countries Trade More with Each Other

During the 25 years between 1938 and 1963, total exports from the
developed countries rose by 180 per cent. During this same period total
exports from the underdeveloped areas increased by only 81 per cent.
Imports by the developed and underdeveloped areas were increased by
120 per cent and 132 per cent, respectively.2 When one takes into ac-
count the increases in population of the two areas during this period,
the contrast is even more striking.
I have dwelt at some length on the need for an effective consuming
market in the rural areas for the products of the towns, for a market for
the farmers' products that provides incentives and opportunities, and for
a dependable source of essential farm supplies of a quality and at a
price that will permit the farmers to produce. These things are essential
if the rural areas are to contribute most effectively to the economic
growth and political stability of the country. Prosperous neighbors make
good neighbors, good customers, and good friends. The same self-
interests that make it necessary for the people of each nation to open

the back country to the market place so that the rural people can pro-
duce and consume are the same interests that operate among nations.
Just as developing the capacity of the farms within a country is essential
for the well-being of a country, developing those same capacities within
the nations of this area and the world at large is essential for peace and
Some of the imports may change, and well they might as the people
within the country become able to produce, process, or manufacture
more of the things that they need. But if these changes mean more job
opportunities for the people on the land and in the cities, if they mean
more of the good things of life can be attained by those people who will
try; if they mean a brighter future for this and coming generations;
then they lead to peace, friendship, and understanding with our neigh-
bors. There can be no more worthwhile goal for which to strive.

1. "Why Central America Moves to a Faster Beat," Business Week, September
11, 1965.
2. United Nations, Statistical Yearbook, 1964, pp. 483-84.




IT SEEMS TO ME that perhaps your interest in the development off
manufacturing in the merchandising areas in which we operate would
be greater if we would consider for a moment the very real problems
faced by Sears-some of which never were anticipated-and then the
solutions in full or in part to these same obstacles. And I should state to
you quite frankly that we still are searching for ways to solve some of
It may be that you are wondering just what manufacturing in the
Caribbean countries has to do with the theme of this Conference. The
answer to that is, "not much," if you refer only to the end use of the
products; but the relationship does exist in the areas of machinery and
equipment, raw materials, and technical know-how, although even here
the connecting link is weakening due to the sad fact that the United
States no longer is competitive in many lines-electronic parts and sheet
steel, to mention two. And, of course, ocean shipping by United States
carriers is out of the question when our Latin suppliers have a choice.


Although we enter into each investment within each country with the
intent of helping to establish sources for goods which would be of the
types and qualities we could sell with mutual confidence to our cus-
tomers, we were not prepared in several instances (and I refer to all
Latin America here) to change from 57 per cent import to 1.28 per
cent, to quote a specific example, and to do it practically overnight. This

is what happened to us in Colombia when the dictator was overthrown
and the country had to tighten its belt to survive. This is not the only
case, nor is it the severest, but it still wasn't easy. What I am implying
is simply that in any underdeveloped economy the rules of the game can
be rewritten at any time merely by the assumption of power by a new
cabinet minister, and you are well aware of the frequent cabinet changes
in most Latin American governments. These things affect the abilities of
your sources to furnish the goods you need.
You might ask just what a new minister would have to do with manu-
facturing, and my answer to that is considerable. Each nation's economy
either progresses, stands still, or backs up, depending upon the attitudes
of the various cabinet ministers on imports of raw materials, labor laws,
labor contracts, social benefits, etc. If you think that social benefits or
labor contracts cannot be costly, let me cite a friend of mine who was
president of a major Caribbean investment, and whose social benefits
were 65 per cent of his total payroll (some are even higher).
However, let us list some of the particular problems which we may
discuss later in more detail. These were:
1. Outside of textile mills, very few large manufacturers.
2. Nearly all items were custom-made. I have known it to take over
six months to refinish one chair.
3. No production lines of any kind. What little production that existed
was accomplished in a family-operated shop.
4. Odd-size ranges in wearing apparel. Men's shirts, for example, in
only size-32 sleeve length.
5. Poor transportation system, or none at all. Countries divided by
high mountain ranges. People could not communicate with each other,
let alone trade.
6. Gross errors in estimating local markets.
7. Populations split into four groupings: large landowners, the em-
bryonic middle class, the laborers, and the small farmers. Of these four,
the last two could not be considered potential customers for any great
variety of products.
8. No lines of credit for small manufacturers.
9. No distribution system at all, and this is separated from transpor-
tation since I am referring to a central collection point for distribution
of goods.
10. Mass production and mass merchandising completely unknown-
no modern retailing systems.
11. Countries relying on one crop or one product, such as coffee, oil,
bananas, etc.; therefore, no skilled labor pool, which, also, is a result of
limited educational facilities.

62 The Caribbean: Current United States Relations
These are just a few of the stones in our path. The methods used to
get around them were not always ingenious, but the fact that we sur-
vived and prospered proves that they were at least effective.
In many items of merchandise it was simply a matter of finding some-
one who might be interested in becoming a manufacturer. At one time
we took a little dressmaker with three sewing machines and two em-
ployees, taught her how to set up a small production line, and she grew
up to ten workers using eight machines in a matter of a few months.
Of course, we had to teach her also how to overlay fabrics so that she
could produce a dozen identical pieces with a single cutting.
On the other hand, when we needed mass-produced furniture there
were no sources at all. To get reasonable production and fair prices, we
had to help a number of small shops enlarge by advancing the money
for land, buildings, machinery, and lumber. As late as 1959, in Colombia
alone, we had $1 million out on such loans. Risky? For the most part,
no. Nearly every penny was paid back, and very few tried to take ad-
vantage of us.
However, there were those who did. One such fellow, a fine cabinet-
maker, went into business as a factory operator under the foregoing
conditions. As soon as he had a little money in his pocket, he opened his
own store as our competitor. Instead of filling our orders, we found that
we had to wait until his sales floor was well stocked, and what was left
over, we could have. Of course, he extended credit to his retail customers
in a rather reckless fashion. The result was a foregone conclusion-he
went bankrupt, and we lost a supplier.
Another fellow, whom we had helped, gave us a different education.
He made bedding. But in 1959 we became suspicious, cut open a few
of his mattresses at random, and found them stuffed with shoddy
(ground-up old rags), We separated him from our invoice-paying de-
partment. However, this past September he asked a friend to intercede
for him. We were told by his pal that he had repented his sins and had
reformed, and so we agreed to let him submit new samples from his
regular production line. I hardly need to tell you-we cut them open,
and, as you might surmise, they were full of shoddy.
But such trickery is rare. Our greatest drawback toward building up
a source has been the inherent desire to become a millionaire overnight.
The philosophy of United States business is based upon fast turnover of
inventory at a reasonable, or even small, profit. The big money is made
on low percentages geared to high volume. But such a merchandising
theory was unheard of in a society that until recent years has been prin-
cipally agrarian. The idea has been since the days of the conquistadores
to sell one item at 100 per cent, 200 per cent, or 300 per cent profit, and
it hasn't been an easy job trying to convince our Latin American friends

(and partners in a few cases) that it is better to follow our system and
be around for a long time. Fortunately in the past few years the idea
has been catching on.

It is easy to talk of setting up a factory, any factory, but it is quite
another matter to keep it operating, and especially to keep it operating
at a profit. First of all, we were as guilty as any other company of over-
estimating the potential market, and everything we know today we
learned the hard way. There was no handbook to show us the guidelines.
Our original sales plans and subsequent factory production schedules
were geared to population figures. Census statistics, we found later, were
approximations at best. But the principal error was in assuming that
"X" number of bodies equaled "Y" in purchasing power, which isn't
true even in the United States. Our own purchasing abilities vary greatly
from one city to another.
After five years in Latin America, I came up with my own formula
for estimating sales potential which, while not scientific, is somewhat
nearer reality. A city of a million inhabitants will have the purchasing
power of perhaps 100,000 to 150,000 persons here in the States, depend-
ing upon the amount of industrialization. Rural areas in Latin America
have not yet reached the plateau of income to participate fully in the
economy, and, in fact, in some of the remote farming lands any kind of
participation is difficult.
The purpose of mentioning these things to you is to point out the
costly mistakes made not only by us, but by many who came later. As
I do not like to speak in generalities, let me cite some specific examples:
1. In Veneuzela a fellow with money to invest decided to construct a
250,000-square-foot factory. He had no idea of what it could be used
to manufacture, nor did he know what company (or companies) might
lease it. But he did build it, and he did find an occupant. Well, a factory
of that size, properly laid out, can produce for a tremendous market.
Needless to say, the market didn't exist, and we have been instrumental
in interesting knowledgeable people to correct a horrible mistake.
2. In Colombia there are eight refrigerator manufacturers. The Gen-
eral Electric factory alone could make every refrigerator needed in Co-
lombia, and have capacity to export to half of Latin America. Of course,
the factory in which we have an interest could almost do the same thing,
as could another. Our only excuse is that we were there first.
3. In the same country are several tire manufacturers. Just one, B. F.
Goodrich, may never in the foreseeable future have the need to use its
entire capacity. Were it to do so, undoubtedly it could supply every

64 The Caribbean: Current United States Relations

country on South America's west coast. And, to make matters worse,
tire prices are controlled by the government. The last I heard, only 11
per cent gross profit was allowed on a nationally advertised tire and,
believe me, on 11 per cent there will be a well-worn path beaten very
quickly to the poorhouse. I mention this for the benefit of anyone here
who harbors an ambition to manufacture tires.
4. Let's look at another problem in the making, and Peru offers a
prime example. When I was in Lima recently, I visited the construction
site of a major automobile assembly plant. Another already is operating,
others have been granted licenses and are scrambling madly to get into
the very limited market, which I was told, can't possibly exceed a few
thousand cars if every vehicle in Peru were to be replaced. Maybe the
prestige is worth it, but I hope they won't mind the losses.

My whole point is simply that if you intend to manufacture for the
Caribbean market, then you had better adjust your sights to realistic
goals, and you should be prepared for the unexpected. Keep in mind at
all times that the rules are subject to change without notice. An almost
perfect job is not enough. In 1963 in Bogota we found ourselves in a
real quandary. It seems that a clerk in the government licensing depart-
ment had refused to grant an import license to one of our subcontractors
for raw materials. The result was several hundred refrigerators, each
complete in every detail, except one-no handle.
This is not unusual. In one country during another of the austerity
programs on imports, a major oil company asked for a license to bring
in $7,000 worth of chemical used to separate the salt water from the
crude oil. Again, the licensing department rejected the application, and
it wasn't until the Minister of Mines learned that the oil field would have
to be shut down that pressure was brought to bear to issue the license.
Then the shipment had to be brought in by air at great and unnecessary
We are so streamlined in this country for rapid action, big produc-
tion, mass sales, etc., that we tend to overlook most important essentials
which we need and use in our daily routines, and which we take for
granted. One of these is cost accounting. We didn't always operate too
efficiently either, so over the years we have developed patterns, norms,
prorated costs, and other methods, which now are integral parts of our
businesses. In the Caribbean, some of these standards also are applied,
but not generally cost accounting. In fact, for five years in Colombia, I
tried to find a cost accountant-any cost accountant-and I was un-
successful. Finally, we sent one of our United States factory accountants
to Bogota to train a man on the job.



Another area that causes us to scream with pain here at home is the
progression of social benefits. Yet we are reactionary and backward
compared to the social benefits that have been legislated in the Carib-
bean countries, and all of which seriously affect our operating pro-
cedures to the point of hindrance and, therefore, our profits. Again, let's
not talk in generalities-here is a specific example.
We owned a garment factory which we set up in a grand manner.
When I inherited the operation we had 125 employees. After analyzing
the situation, we calculated that 85 people were all we possibly could
use, so we petitioned the Minister of Labor for permission to reduce the
force (you may not at any time control your own payroll unless you
haven't hired workers in the first place). Permission was granted-10
per cent of the employees per month until we had reached the desired
number. The fact that a manufacturer is losing money, that he may not
be able to meet the payroll, never enters into the discussion.
Another such occurrence took place in 1962 when our applications for
licenses to import sheet steel were held up. When we ran low on steel we
asked the same ministry for permission to lay off some men temporarily.
At that time we had 465 men in our shop. Permission was granted for
a 1 per cent monthly reduction in force-4.65 bodies the first month,
4.6035 the second month, and so on.
To avoid such problems, I would make two suggestions: the first would
be to keep away from all grandiose and elaborate production plans,
thereby keeping your numbers of employees to a basic work force; and
second, to set up a factory that will use only indigenous raw materials
if it is at all possible.


Earlier I mentioned the lack of a skilled labor pool. Because of the
centuries of an agrarian society in which only the landowners' children
attended school, in most countries there is not only a deplorable drop-
out situation, but there exists a never-went group that poses a very real
problem politically as well as economically. Also, a person who can
barely read and write is considered, for all practical purposes, literate.
But this is not going to benefit your labor force, if you decide to open a
factory, except in the manual labor category. Added to this is the fact
that manual labor is a small portion of any factory's needs. Skilled labor
is in greater supply today than when we initiated our merchandising
programs, but there still exists no great amount, and any of you who
decide to invest should be prepared to train your own people.
Another labor cost not planned or expected by the neophyte United
States investor is a special benefit legislated for the female worker. I

66 The Caribbean: Current United States Relations
am not trying to be facetious when I tell you that her labor pains in
most countries are, quite literally, your labor costs. She may take up to
two months off prior to her delivery date, at full salary, and you had
better save her job for her return. This has happened to us countless
times. Sears is the corporate godfather to hundreds upon hundreds of
young Latin Americans. But I think the most interesting case occurred
in Bogota in 1960. As a sales promotion event we had developed a highly
successful carnival in our two stores in that city which tied in with the
South American custom of a carnival just prior to Lent. Our Barran-
quilla store had been in the midst of a pre-Lenten carnival for years, so
we merely moved it up the hill.
The Latin American is a most enthusiastic fellow-and emotional-
who loves music, dancing, and life itself. He puts his heart and soul into
living every minute. This is wonderful up to a point, but after our
creative sales efforts of February had passed on to the record books, the
creative efforts of two of our employees began to be apparent along
about June. The fact that our female department manager was not mar-
ried made no difference in the eyes of the law. We paid the bill, and
when she returned to work we had no choice except to put her back at
her same level of responsibility. Frankly, this sort of thing is expensive.
On the other hand, many labor union contracts contain a reverse
clause which gives a most interesting license to male employees, and
which really runs up factory payroll costs. An almost literal translation
from one of our factory contracts is, "that medical and educational
benefits will apply equally to legal wives and to common-law wives, and
to legal children and to natural children." This struck me as very comi-
cal when I first read it, but after I reflected upon it a bit more I came to
the conclusion that our friends were being more honest than we. They
were recognizing quite openly a problem that was, and is, very real. We,
for reasons unexplainable, pretend the problem doesn't exist, and hope
that it will go away. Or we just leave such things up to the social worker
and the welfare people, and perhaps the difference is not actually in cost
at all, but in the method of payment. In South America it shows as a
part of the factory payroll, here it is a part of your taxes.
In closing, all of our Latin American investments have been interest-
ing to develop, most all of our projects have been profitable, and all
have been good for the host countries. Along this vein, let me cite some
figures to prove a point. When we entered Colombia very few manu-
facturers of any type existed. When I left there in April of 1964, we
were buying from exactly 1,409 factories and 5,600 cottage industries,
most of which we had developed ourselves. This sort of investment has
not, of course, been either easy or smooth. But it has been a boon to
Colombia, and the same is true in Venezuela, Mexico, Peru, and Brazil.




THE GENERAL THEME of this meeting is "The Caribbean; United
States Relations," a most appropriate selection of subject matter for the
time we are living in, characterized by United States involvement in
different parts of the globe, and by the fact that our very future is closely
intertwined with that of people of different races, creeds, philosophies,
and habitat in a planet which is constantly shrinking, as the result of
the impact of modern technology in the fields of transportation and
The idea of an isolated American continent, which was the basis of
the original concept of Pan-Americanism, is no longer valid in today's
world. Mr. Felipe Herrera, the President of the Inter-American Develop-
ment Bank, once said: "In the light of modern geopolitics, Latin Amer-
ica is no longer the exclusive neighbor of the United States. Advanced
means of transportation and communication have brought the world
together and an ideological conflict has banded the nations of the earth
in groups that do not follow orthodox geographical divisions. The Amer-
icas find themselves with neighbors in the five continents of the earth."
Looking back in history we find that the Caribbean Sea was to the
Americas what the Mediterranean Sea was to the Roman Empire. "Mare
Nostrum" they called it, which can be translated as "Our Sea." The
Caribbean Sea has been our sea since the Americas were discovered
almost half a millennium ago. It was through the Caribbean that the
early Spanish conquerors arrived in this hemisphere spreading then
both northward and southward. The whole Caribbean area was but one

68 The Caribbean: Current United States Relations
geopolitical unit comprising the islands as well as Florida and the Louis-
iana territory, Mexico and the Central American countries, and the
northern countries of South America. Considering the problem of trans-
portation at that moment, it is obvious that the facility of movement
afforded by maritime vessels permitted a closer unity than would have
been possible had all that geographical area been a land mass. Coloniza-
tion followed the discovery of sea routes and practically stopped at the
periphery of the shores.
Florida itself presents a very interesting example of this factor, as the
city of St. Augustine holds the honor of being the oldest city in the
United States. Three centuries of Spanish culture are evident in multiple
ways there and in many other parts of the peninsula of Florida.


The common heritage binding the Caribbean nations together is,
however, by no means exclusive. It is also shared by a very great part
of Latin America. At a time when economic cooperation and political
unification appear to be key ideas for the future, the concept of sub-
regions starts fading in importance, and an integrated approach en-
compassing all the countries of the Americas gains ever increasing
acceptance. A manifestation of this tendency is to be found in the Alli-
ance for Progress, that great cooperative effort launched by the United
States and the Latin American republics in order to achieve social and
economic progress in the hemisphere. The economic and social identifi-
cation of common interests of countries in different stages of develop-
ment, recognized for the first time, in such vital form, in the Alliance of
Progress, introduced a new and extremely important principle in the
realm of international cooperation.
Without a doubt, the Alliance for Progress represents a milestone in
Inter-American relations. In order to be viewed in the proper perspec-
tive, it should prove useful, however, to review some of the main issues
of the relations between the United States and Latin America since the
era of the "Good Neighbor Policy." During World War II, Latin Amer-
ica helped willingly in the war effort by accepting fixed prices for its
principal export products; the armed conflict, however, prevented it
from acquiring both the capital and the consumer goods which were
demanded, and as a consequence foreign exchange reserves piled up
rapidly. When the war ended, and price controls in the United States
economy were loosened, Latin America was faced with an accumulated
demand for imports and simultaneously increasing import prices. Under
those conditions no accumulation of foreign exchange reserves could be
sufficient, and the ensuing dollar shortage affected just about every Latin

American nation until the Korean War, which only ameliorated the
situation but did not cure the basic malady.
In the meantime, the United States was deeply involved in the post-
war reconstruction effort through, first, the Marshall Plan and then the
Aid Programs to the underdeveloped areas on the periphery of the
Soviet Union. Political as well as economic considerations set the guide-
lines for United States aid policies at the time, and Latin Americans
felt neglected as there appeared no political need for the United States
to grant aid to the countries in this hemisphere, who had not directly
suffered the physical ravages of war.
That was the time also that the first multinational financing institu-
tions came into being. Both the International Monetary Fund and the
International Bank for Reconstruction and Development were born at
the Bretton Woods Conference held in 1944 and to many Americans it
seemed that there was no need to create specialized agencies to deal with
Latin America when there was already a world-wide agency like the
World Bank. Furthermore, it was the United States' position that private
capital could and would supply the development needs of Latin America
if only the investment climate were improved through tax incentives and
sympathetic consideration of dividend remittances, and the like.
Latin Americans, on their side, maintained at virtually every inter-
American conference of the postwar period the so-called "Unfavorable
Terms of Trade" argument, saying that whereas the prices of their ex-
port products were going down, prices of imported items were going up
and that no possible inflow of private investment capital alone would be
able to correct the gap.
The situation grew more tense with the years, and in 1958 two signifi-
cant events took place, precisely in the Caribbean area, which finally
convinced the United States that all was not well in Latin America. The
first incident was the trip of the then Vice President of the United
States, Richard Nixon, to Caracas and then on to Lima, in which he
was subjected in both cities to stoning and vituperation. Furthermore,
drastic changes in economic policies adopted by the Revolutionary Gov-
ernment of Fidel Castro in Cuba, and its final embrace of the cause of
Communism in a country scarcely 90 miles away from the United States,
could not be dismissed as just the result of Latin American temper or


These events served to strengthen the hand of those in the administra-
tion of the United States government who believed that a substantial
change was needed in the position of the United States vis-d-vis Latin

70 The Caribbean: Current United States Relations
America. In August, 1958, the then Under Secretary of State, Douglas
Dillon, announced that the United States was prepared to consider the
establishment of an inter-American financial institution to be dedicated
exclusively to helping finance the development needs of the Latin Amer-
ican nations, an objective sought for over half a century by Latin
America. Between January and April of 1959, a committee, in which
the 21 American republics were represented, met in Washington, D.C.
to draw up the Agreement establishing the Inter-American Development
Bank. By December 30, 1959, the IDB (or BID, as it is commonly called)
was legally born.
While the necessary steps were being taken in order to make this
fledgling institution operational, another pillar in United States policy
towards Latin America took place when President Eisenhower issued
his Newport declaration in July, 1960, foreshadowing a program for
social projects in Latin America. Two months later, in September, 1960,
came the Act of Bogota, in which the United States pledged to establish
an initial fund of $500 million to aid Latin America's social progress in
the fields of land settlement and use, housing for low-income groups,
community water and sanitation facilities, and improved health and
The IDB opened its door for business in October, 1960, and authorized
its first loan to a member country (Peru) in February, 1961. On June
19, 1961, the United States government and the IDB executed the Social
Progress Trust Fund Agreement, whereby the IDB received in adminis-
tration the amount of $394 million as partial fulfillment of the United
States pledge in the Bogota inter-American meeting to aid social projects
in Latin America at the same time that Latin America was committing
itself to various social reforms.
Membership in the IDB is open to present and future members of the
Organization of American States. Of all the American republics, only
Cuba failed to ratify the Agreement, and as long as it remains outside
of the Organization of the American States, it is not eligible to become
a member. On the other hand, whenever countries like Canada, or in
this area, Jamaica and Trinidad/Tobago finally integrate themselves in
the inter-American system through membership in the Organization of
American States, they may also, if they so wish, become full-fledged
members of the IDB.
The capital structure of the IDB provides precisely for this eventuality.
With a word of warning that our institution is three banks within one
bank, or if you prefer, a bank with three different windows, let me de-
scribe briefly the capital structure of the Bank.
The IDB has a hard loan window in the form of its Ordinary Capital.
The original authorized amount of the Ordinary Capital was $850 mil-



lion, out of which $400 million were to be paid-in and $450 million
were to remain as callable capital to serve as a guarantee for borrowings
of the Bank in the capital markets of the world; of the paid-in capital,
50 per cent was to be paid in dollars or gold and 50 per cent in the
member countries local currency. It is obvious that in the case of the
United States, the whole 100 per cent of the capital to be paid-in was to
be in dollars.
As a result of Cuba's failure to ratify the Agreement, the Ordinary
Capital actually paid-in amounted to $382 million. In 1964, the author-
ized Ordinary Capital was increased by $1.3 billion-$0.3 billion to be
available for possible new members (precisely for such possible cases as
Canada, Jamaica, and Trinidad/Tobago, which I have just mentioned)
and $1 billion to expand the callable capital.
The Fund for Special Operations constitutes the economic soft loan
window of the Bank and it is administered and accounted for completely
separately from the Ordinary Capital of the institution. The initial au-
thorized resources to be paid-in amounted to $150 million, once again
each member country paying one-half of its contribution in dollars and
one-half in its own currency. A 50 per cent increase was authorized and
subscribed in 1963, and in April, 1964, the Board of Governors of the
IDB in its regular annual meeting which was held in Panama City,
adopted a resolution recommending an additional $900 million increase
payable over a three-year period, this time in the currency of each sub-
scribing country. The share allocated to the United States of this in-
crease was $750 million.
I have already mentioned in passing the third window of the Bank,
that is, the Social Progress Trust Fund which represented funds admin-
istered by the Bank, rather than its own resources. The initial resources
of $394 million were expanded in 1964 by an additional $131 million,
making a total of $525 million. The operations to be financed with the
resources from the Social Progress Trust Fund were restricted to four
specific fields of action, namely: Improved Land Use, Low-Income Hous-
ing, Water Supply and Sanitation Facilities, and Advanced Education.
The Social Progress Trust Fund has now all been committed and it is
not to receive any additional resources. On the other hand, the 1965
Resolution calling for a $900 million increase in the resources of the
Fund for Special Operations specifies that the expanded Fund for Spe-
cial Operations would include in its operations the financing of activi-
ties heretofore financed by the Social Progress Trust Fund. In short,
there has been a conceptual merger of the Bank's two soft windows.
The IDB may properly be referred to today, therefore, as a bank with
authorized resources-both its own and in administration-totalling
close to $3.5 billion. The emergence in the financial scene of a regional

72 The Caribbean: Current United States Relations
institution of this size has caused the Bank to become a natural spokes-
man for Latin American interests in international economic forums,
particularly in connection with problems of external financing and ex-
ternal public debt, and matters of integration. Furthermore, the joint
membership in the Bank of all the Latin American countries has in-
creased their creditworthiness in the eyes of non-member countries.
Indeed the commitment of funds to the IDB by non-member countries
like Spain, Canada, and the Netherlands, is truly indicative of the con-
fidence merited by our institution outside the region.
There is another good indicator of the acceptance bestowed on a
financial institution, and that is the rating accorded to its borrowings.
We are quite proud to say that our bonds have been received equally as
well as the borrowings of the World Bank, an institution four times as
old as our own. We have borrowed in the New York Market three times
-where our bonds are rated AAA-and once each in Italy, Germany,
and the United Kingdom, for a total amount of $273 million. These
borrowings, made against the guarantee of our callable capital, present
a clear-cut example of how our institution helps to mobilize additional
hard-currency resources towards the Latin American countries.


But let us take a look at the opposite side of the ledger and see the
types of operations in which the IDB is engaged. As of September 30,
1965, after five years of operations, the IDB had made loans for a grand
total of $1,360 million and in addition had granted non-reimbursable
technical assistance for $12.5 million. Just about 50 per cent of all loans
have gone to the fields of agriculture and industry; the other half to
finance water supply and sanitation projects, infrastructure works, hous-
ing projects, and educational projects.
Some specific examples, in the geographical area of your particular
interest, of the type of operations financed out of the three windows of
the Bank are the following.
From the Ordinary Capital: global loans to domestic financing insti-
tutions for relending to small- and medium-sized borrowers which on
account of their size do not have direct access to international financ-
ing; such loans have been made in every one of the Latin American
member countries of the Bank. Loans to private industrial enterprises
like a pulp plant in Colombia, a cement plant in Costa Rica, a heavy
machinery complex in Mexico, and others; water supply and sewerage
projects in Colombia, El Salvador, Guatemala, and Venezuela; direct
loans to governments or autonomous governmental enterprises for sun-
dry purposes in each one of the Caribbean countries members of the



Bank. Mexico, additionally, has received a loan under the recently initi-
ated program of financing of intraregional exports of capital goods.
Parenthetically, it should be said that this program constitutes an elo-
quent demonstration of how the IDB contributes, at a practical level, to
the integration movement in Latin America.
With resources from the Fund for Special Operations, the IDB has
helped finance water supply and sewerage systems in Colombia, agricul-
tural development and development of cooperatives in Costa Rica, elec-
tric power in El Salvador and in Guatemala, highways and agricultural
development in Honduras, irrigation works in Mexico, highways, live-
stock as well as industrial development in Nicaragua, agricultural and
industrial development in Panama, farm settlement in Venezuela, indus-
trial and agricultural development projects in Haiti, and a water supply
project as well as a global loan for industrial development in the Domini-
can Republic. Special mention should be made of the technical assistance
operations of the Bank which are financed with the Fund for Special
Operations. As mentioned previously, $12.5 million have already been
granted so far by the Bank in the form of non-reimbursable technical
Two loans with resources from the Fund for Special Operations have
particular importance from an integration viewpoint, and they are the
ones granted to the Central American Bank for Economic Integration
(CABEI). A total of over $14 million has been approved for industrial
and infrastructure projects of regional interest through this institution.
As already mentioned, the resources of the Social Progress Trust
Fund can be dedicated to finance projects in only four specific fields.
In this academic environment, let me single out as examples our loans
for higher educational programs, mentioning the loans granted to the
Universidad Nacional and the Universidad del Valle in Colombia, to the
Universidad Aut6noma of Santo Domingo, to the Instituto Mexicano de
Investigaciones Technol6gicas, to the Universidad de Oriente in Vene-
zuela, and to the Central American universities which, following the
pattern set by other Central American institutions, grouped themselves
in order to receive a global loan from the IDB.


It was not long from the moment the Alliance for Progress was
launched that the IDB received the name of "The Bank of the Alliance."
The emphasis that we lend to activities directed towards the acceleration
of the integration process, as well as the importance we attach to the
whole process of upgrading the human resources in the region, has
caused the Bank to earn additionally the names of the "Bank of Latin

74 The Caribbean: Current United States Relations
American Integration," as well as the "Bank of the Latin American
University." It is in this triple capacity that I ask you to think of the
IDB as a regional bank created by the inter-American countries for the
cause of inter-American development, a bank which is truly representa-
tive of the community of interests and efforts which characterize hemi-
spheric relations today.
Finally, I should mention that the President of the Bank, Mr. Felipe
Herrera, has put the Bank in the forefront of promoting Latin Amer-
ican integration. The Bank has not only financed a number of specific
integration projects of roads, hydroelectric plants, and frontier studies,
but it has also organized an institution for integration studies and train-
ing, and Mr. Herrera has been a prime mover in the development of
the Latin American parliament.



bee has stated: "The preoccupation for social well-being is one of the
outstanding movements which characterizes our time. Almost univer-
sally the privileged minority is now expending its force and making
sacrifices towards diminishing the traditional gulf between the rich and
the poor. If we are able to abstain from liquidating the human race,
perhaps our era will be known, not as that which produced annihilating
atomic arms, but as the era which saw the awakening of social con-
While many of us have disagreed with some of Dr. Toynbee's views,
it is refreshing that he has recognized an encouraging change of attitude
which has become increasingly apparent in Latin America. Unfortu-
nately, little realization of the constructive work of the business commu-
nity of the hemisphere has reached the North American audience. With
few exceptions, our visiting reporters of all the media are still in the
rut of lambasting the so-called oligarchs, filming the favelas, and raising
the alarm about exaggerated flight of capital. Their stereotyped view of
the hemisphere makes one believe that they traveled to our neighboring
countries with preconceived ideas and then industriously sought out
scenes, conditions, and interviews to substantiate their conceptions. Ob-
servers have often overlooked in the main the existence of a "new
breed" of men (and women) in Latin American business, who are active
in righting the wrongs which have existed for centuries.

76 The Caribbean: Current United States Relations

Who makes up this "new breed"? It consists generally of men be-
tween thirty and fifty who understand the workings, responsibilities, and
benefits of enlightened private enterprise for all the people of their
nation. These men may be the sons of the industrial and agricultural
pioneers who have come to realize that their duties lie beyond their im-
mediate family holdings. These men may be self-made entrepreneurs
who have risen from humble surroundings. These men may be intellec-
tuals who have found that theories for the common good must be carried
out in practical deeds. These men may be churchmen, army officers,
labor leaders, professors. And the new breed includes women as well-
the women who are becoming leaders in the battle against poverty, hun-
ger, and misery. Also pertaining to the new breed are those foreigners
residing in Latin America who well understand the need for peaceful
economic, political, and social change, realizing that their role in the
host country must include not only the economic but also the social im-
provement of its citizens.
All of those who make up this new elite have concepts and ideas in
common. They understand that the fundamental happiness of man rests
on the freedom and dignity of the individual. They know that the great-
est spark for progress lies in personal initiative and not in controlled
drudgery. They recognize that honest men savor the satisfaction of just
remuneration for their efforts in contrast to the degradation of the dole.
These people have read correctly the lesson of Cuba and are determined
that such a failure will not happen in their countries. They have noted
well that walls and barriers have been erected to prevent the exodus of
men from the regimented states, not to halt the inflow to the curtained
countries. They see that private initiative has built in the industrialized
democratic countries the most productive economies and the highest liv-
ing standards in all history.


While some few individuals and individual companies have long real-
ized a need for a positive stand accepting social and civic responsibili-
ties, the real awakening of this new spirit began some ten years ago and
has gathered momentum through the 1960's. At the end of 1960 a hand-
ful of business leaders from several Latin American countries met in
New York with some of their North American counterparts to analyze
the conditions of their countries. Though these men were known to each
other only by reputation, they found that their concerns and concepts
were the same. All were fully aware of what the late Adlai Stevenson



labeled "the revolution of rising expectations" and that, largely, the
demagogic politicians, while promising a pie in the sky, were doing little
constructively to solve the problems of national stability and develop-
ment. Furthermore, and perhaps more important, discussions revealed
that the businessmen themselves were too inclined to just "mind the
store" without acknowledging and accepting their responsibilities in
building a stronger society in which every member could have an oppor-
tunity to better his lot. These men saw that the totalitarian states were
stepping into this gap, preying on the discontent of the campesinos and
the dwellers of the overcrowded slums, preaching bloody revolution and
annihilation of all the Christian ethics and democratic virtues that had
been proclaimed in the original declarations of independence of the
Latin American nations themselves.
As a result of these meetings, our friends from the south began estab-
lishing groups in their countries designed to gather together the for-
ward-looking businessmen and to promote an active interest in the
improvement of social conditions. Simultaneously, North American com-
panies with interests in Latin America joined in the endeavor. This led
to the formation of the Latin American Information Committee, the
revitalization of the United States Inter-American Council, and later the
establishment of the Business Group for Latin America. These three
groups were consolidated into a unified voice for North American busi-
ness in early 1965 by the establishment of the Council for Latin Amer-
ica. Likewise, the hemispherewide Inter-American Council of Commerce
and Production (CICYP)-(of which the council for Latin America is
the North American chapter)-has grown in size and scope under the
able leadership of Mr. George S. Moore, its current president. All of the
above are clear indications that the business leaders of the Western
Hemisphere are responding to the enormous responsibility which the
modern world has placed on their shoulders.
Perhaps the most important meetings in which the social responsibility
of the private sector was defined took place in Maracay, Venezuela, in
February and December of 1963. Attended principally by Venezuelan
and North American business leaders, together with their counterparts
from Latin America, action programs were outlined to strengthen demo-
cratic institutions, diminish the influence of Marxism, stop nationaliza-
tion, and mobilize every capable business and professional man for
community effort.
The progress of the Venezuelan private sector in these directions
stands as a good example of intelligent application of these ideals. The
Creole Investment Corporation, in which $10 million have been ear-
marked for development of new industries which are not connected with
the oil business, has led to the establishment of some 51 new enterprises

78 The Caribbean: Current United States Relations
with the corollary increase in employment. The justly famous Dividendos
Voluntarios para la Comunidad, in which both local and foreign firms
pledge 2 to 5 per cent of their profits before taxes to a common pool,
has now a membership of better than 400 companies and the fund for
1965 should exceed $13 million. This fund is administered by a private
research organization which studies the most pressing social needs in
Venezuela and allocates the receipts. Support is given to private educa-
tion, vocational schools, the Venezuelan Institute for Community Action,
low-cost housing, and other causes which will most effectively aid in
the broadening of the democratic base and provide social development
in freedom.
Similarly, local Colombian businessmen, backed by their United States
counterparts, started the Federaci6n Nacional del Sector Privado para
la Acci6n Comunal (FEPRANAL), a program designed for community
development in areas formerly dominated by extremists and guerrillas.
In three short years, the outstanding success of this organization in
establishing self-help projects and in promoting democratic understand-
ing in the villages of the Sumapaz and Tolima regions has prompted
the private sectors in Panama and Nicaragua to initiate comparable
The North American Committee for Peru (CONAPROPE), the North
American Association of Venezuela, and the Inter-American Action
Committee of Colombia have been instrumental in a myriad of projects
ranging from university student cooperative boardinghouses, active sup-
port of 4-H Clubs and other rural programs for children, to support of
education by radio in the Andes altoplano, nurseries which teach and
feed the children of working mothers during the day, and vocational
schools for slum dewellers.
In Brazil, the Inter-American University Foundation each year brings
a group of 100 top students to the United States for a month. This pri-
vate, non-profit group is doing an excellent job of student selection,
orientation, and programming in an effort to introduce future Brazilian
leaders to the realities of democracy, private enterprise, and inter-
American cooperation.
The Chilean businessmen have formed the Instituto Privado de In-
vestigaciones Econ6micas y Sociales (IPIES), which is active in educa-
tion. They have started and financed a national literacy campaign which
has earned international recognition. They have promoted the construc-
tion of schools by and for the private sector resulting in six technical
institutions in different industrial zones in Santiago which are managed
by business groups. Further, they have established the Institute of Pub-
licity, Sales and Marketing (IPEVE), which conducts solid, professional
courses in corporate relations.



The list of these endeavors covers every country in Central and South
America, but, laudable as the efforts may be, they are not enough.
Many, many more companies and individuals of the private sector must
enter into the battle; and we must recognize that this is a battle to
determine whether totalitarianism or the democratic ideals of Western
culture will prevail in Latin America. A good portion of the Latin Amer-
ican businessmen do not see or else do not want to recognize the
danger. Even more disturbing is the blindness on the part of a larger
sector of United States companies, especially when the thrust of our
enemies is principally directed towards them.


Let us examine some cliches which have been long propagated by our
opponents and which have been receiving rising acceptance.
"United States companies make unscrupulous profits-triple those
which they make at home-and repatriate all the money." The truth is
that in 1962 the net profits to United States investors in Europe were
10.7 per cent, in the United States 9.1 per cent, and in Latin America
only 3.6 per cent. Furthermore, it is hard to find a United States com-
pany which has not reinvested a goodly portion of its profits in Latin
"They discriminate against Latin Americans limiting them to the
inferior positions and inequality in pay." Contrary to this assertion,
United States companies in Latin America are constantly seeking and
training talented nationals for higher positions, and in many companies
the top man is a Latin. The trend has been towards more and more na-
tional personnel. For example, Sears Roebuck started in Colombia with
one store with some 25 North Americans and 200 Colombians. Today
Sears has 10 stores employing 11 North Americans and more than 1,400
"The United States is not interested in an industrialized Latin Amer-
ica, but rather looks upon it as a source of raw materials with cheap
labor and a market for American-made goods." Facts show that United
States activity supports Latin American industrialization. During the
1960's, the percentage of United States direct investment in manufactur-
ing in Latin America has risen while the percentage of investment in
the extractive and agricultural fields has diminished. Also the experience
of the United States with other parts of the world demonstrates that it
can best trade with highly industrialized areas. United States exports
to Western Europe have increased at an annual rate of 5.7 per cent since
1952. Highly industrialized countries are each other's best customers
because they have the purchasing power and the need for each other's

80 The Caribbean: Current United States Relations
specialties. Thus, it follows that the United States in its own interest, as
well as Latin America's, looks favorably on Latin American industriali-
These distortions, misunderstandings, and misconceptions are preva-
lent because a majority of the Latin American people think of capital-
ism as the nineteenth century version of laissez-faire and because United
States business, while spending millions at home on enlightened corpo-
rate relations, has done relatively little in the important Latin American
area to present the true picture of modern free enterprise.
Many businessmen are apt to become indignant when they hear of
extreme left-wing students winning in university elections. They are
perturbed when intellectuals and artists, while enjoying the freedoms of
Western civilization, advocate systems of government which demon-
strably shackle these very freedoms. They are alarmed to see large
sections of the Latin American public following leaders who preach
socialist, communist, or simply statist doctrines, in view of the social
and economic failures and human bondage which such governments
have exhibited in other countries.
Our businessman says to himself:
I produce goods and services and thus fulfill my basic obligation to
the community.
I have good labor relations and my workers earn enough to provide
a healthy and dignified life for their families.
I increasingly am affording more jobs and opportunities to the young
and old and thus have a vital role in the community.
I make a profit and this proves that the community acknowledges my

All this he knows, but has he gone out and told the community in a
loud clear voice what private enterprise is contributing? Has he taken
the skeptical students and intellectuals through his plant and had them
see the conditions and benefits his labor enjoys and the extent to which
Latin Americans are given opportunity to improve themselves and reach
high positions in the company? Has he made publicly available the
figures on the company's growth, tax payments, profits reinvested, tech-
nical and research facilities? In other words, what has he done to pro-
mote the broad understanding of the concept of the free enterprise
system; to explain in ways that everyone can see and understand what
it represents to human dignity, personal freedom, and to a stable and
progressive society? Has he convinced all those near him-his workers,
suppliers, customers, labor leaders, the clergy-that they who benefit
from the system must defend and explain the system to their families
and acquaintances?