MANAGING CLIENTS: THE U.S. AND THE BIRTH OF THE
CENTRAL AMERICAN COMMON MARKET
BY Charles Carreras
Ramapo College
The story of the many attempts to form a unified Central America after the
collapse of the Central American Confederation in 1838 is well known. The purpose of
my paper is to present the details of how the U.S. first blocked the formation of a
common market in the region in the 1950's and later in a reversal, embraced this effort.
Historically, Central Americans have accused Great Britain in the nineteenth
century and later the U.S. in the twentieth century of preventing unity. They charged
that diplomats and foreign investors preferred to deal with five weaker nations rather
than one strong one. There is evidence to support this position. However, as Ralph
Woodward has written, there were always “substantial causes of disunity for foreigners
to exploit.”1
Similar conditions continued to exist in the ten years following the end of World
War II. There were ongoing cross border incursions in the region. These were most
serious between Costa Rica, Nicaragua, and Honduras. In addition, there were
prejudices and fears especially concerning the reform government in Guatemala.
Although there was an era of railroad building in the intervening years, and work began
on the Inter-American Highway, transportation among the five nations was still very
difficult and continued to hamper intraregional trade. 2 Thus, one would not think of
1
Central America as a place for a successful common market in the decade and a half
after 1945. Although many factors impeded regional cooperation, some factors worked
in favor of such an arrangement. One such factor was the desire to end the five states
feeling like “clients,” as John Coatsworth wrote in his recent account of the U.S. in
Central America; and to break the “chains of interdependence” to use the term coined
by Michael Krenn also concerning their relations with the U.S.3
With the victory over Spain in 1898, the U.S. became a colonial power in the
Caribbean. Five years later, with the acquisition of the right to sovereign territory and
the right to build a canal in Panama, hemispheric interests expanded and Central
America became a primary strategic concern of the U.S. In the first half of the twentieth
century, the northern power used various means to exert its influence in the region:
persuasion, dollars, and when all else failed, the marines. Building democracy U.S.
style was the stated goal. The assumption was that progress, stability and friendship
would follow. The emergence of the Soviet threat after World War II added a new
dimension to these strategic concerns.
U.S. AND CENTRAL AMERICA IN THE 1940'S
Central Americans, like all of Latin America, expected Franklin Roosevelt's Good
Neighbor Policy, which began in 1933, would continue after 1945 when World War II
ended. The U.S. had cultivated those nations to support the allied cause against
fascism, and was successful in enlisting many more of them than they had in World
War I. With the end of the war, Uncle Sam's neighbors expected many favors for their
sacrifices to the allied victory. In particular, they expected special economic rewards
2
promised during the war. Specifically, Under Secretary of State Sumner Wells, two
months after Pearl Harbor, promised that the U.S. would support economic
development in Latin America. The assumption was that the U.S. would accomplish
this through aid, loans, and commodity agreements. 4
As the war ended, the Latin Americans expected an Inter-American meeting to
address their economic problems which included inflation, severe shortages of
consumer goods, and various other economic dislocations. The shortages spurred the
growth of local consumer industries, some of which had their origins in the 1930's
because of the worldwide depression. As the war was ending, some nations wanted to
use public policy, like tariffs and import controls, to enable these industries to survive.
This policy was contrary to what the U.S. wanted, as the latter insisted on free trade.
Secretary of State Dean Acheson argued that restrictions on trade and investments
after World War I had led to the Second World War. Free trade would lead to peace
and prosperity.5
When he became Assistant Secretary of State in December 1944, Nelson
Rockefeller was aware of the interest of those nations. One of his first acts was to
arrange an inter-American meeting in Mexico City in February 1945 to discuss
differences and complaints. Arriving in Mexico Rockefeller had a document entitled
"Economic Charter for the Americas." The Latin Americans heard a partial acceptance
by the U.S. of their goal of industrialization. Nothing specific was endorsed, however,
only a resolution calling for an economic conference in the future. Neither the InterAmerican system nor the U.S. government provided the theory to make this goal
legitimate.6 Some Latin Americans were confident that the U.S. finally heard their
3
petitions, but others clearly sought fresh alternatives to their relying on the largesse of
the U.S.
In 1947 there was an Inter-American meeting in Rio de Janeiro. While
this meeting was going on, the newly organized UN convened the Economic and Social
Council. There the Chilean delegate recommended the establishment of a special
commission, The Economic Commission for Latin America (ECLA), within the UN to
study proposals for economic development in Latin America. Latin America supported
this proposal, but the U.S. opposed it, reasoning that it would duplicate the work of the
newly established Inter-American Economic and Social Council (IA_ECOSOC) of the
OAS.7 This was the usual reply of the U.S. diplomats who knew that historically the
U.S. had managed and controlled all agencies in this hemisphere. They were not sure
about this new UN commission.
The final act of the Rio meeting said only that plans would be made for a future
conference devoted to economic problems in the hemisphere. The IA-ECOSOC was to
establish an agenda for such a meeting and present it the following year in Bogotá. In
a memo to the Department of State, the U.S. ambassador to Colombia reported that
the U.S. was withholding its support for the draft economic agreement until ECLA and
IA-ECOSOC resolved the question of duplication and the specific function of each. 8
Meanwhile, Latin America organized ECLA despite U.S. objections in February
1948. The original membership consisted of the twenty nations of Latin America plus
the U.S., Great Britain, France and the Netherlands.9 A leading Salvadoran economist
and supporter of modernization for Central America, Jorge Sol, recalled years later that
ECLA became a catalyst for new ideas for progressives in Central America, particularly
his nation.10 ECLA gave answers to the question: why was Latin America
4
underdeveloped?11
THE U.S. AND ECLA's RAUL PREBISCH
As the U.S. opposed the desires of Latin America for an economic meeting, the
region found a new outlet for attaining its goals. Following the proposal by Chile in
1947, the UN approved an Economic Commission for Latin America (ECLA) that met
for the first time in Santiago, Chile, in June 1948. The ideas of Raul Prebisch, a
prominent economist from Argentina, dominated the work of ECLA from the start.
Invited to head ECLA, he refused because he worried that ECLA would not have a free
hand to examine issues from a regional perspective.12
After the first meeting, Prebisch agreed to prepare a study of Latin America that
he completed in 1949. Here, he elaborated his conclusions as to the major causes for
underdevelopment in the region: the deterioration of terms of trade. His solution was
for Latin America to industrialize.13 Soon after completing this work, he changed his
mind and became the head of ECLA. Under his leadership this organization played a
key role in the successful integration efforts in Central and South America in the next
two decades. He concluded that integration was necessary to enlarge the market so
that industrialization would have a chance to succeed. 14
From the beginning of the Inter-American System in 1889, the U.S. successfully
dominated it. Now, in 1948, for the first time, an independent body was being created in
the hemisphere that was beyond the easy reach of Washington. 15 ECLA was at least a
nuisance for the U.S., if not dangerous. U.S. diplomats described ECLA's personnel
and objectives as excessively statist and tending toward socialism. 16 The Truman, and
5
later the Eisenhower Administrations, saw ECLA as promoting economic nationalism,
which they saw as a "dangerous doctrine."17
Jorge Sol, the Salvadoran who worked with ECLA in the 1950's to integrate
Central America as the minister of economy, reported that the U.S. never gave up its
determination to eliminate its rival in the Americas.18 Sol described what he saw as the
real reason for U.S. opposition. ECLA had new ideas about how the state might
promote economic development. For the first time, economic analysis of the region
was being done from Latin America's point of view. This analysis produced a body of
literature detailing problems with suggested solutions that made it an anathema to the
U.S. On the other hand, Bryce Wood, a historian of Inter-American relations,
concluded that the IA-ECOSOC had no technical people, and no one with new
economic training. In the 1950's, Wood saw a vacuum as the U.S. allowed no role for
the OAS in the economic area and ECLA filled the vacuum. Able men wanted to work
with Prebisch as he gained wide respect. The U.S. wanted all economic matters to rest
with the IA-ECOSOC so that it could control any initiatives.19
By mid-1950, it appeared that the U.S. Department of State canvassed its
ambassadors to gauge the support for a determined effort to abolish ECLA. In May, the
U.S. representative in Havana wrote a confidential memo stating that, since the U.S.
dominated the alternative organization, there would be no support in Cuba to abolish
ECLA.20
A few days after the memo arrived in Washington, a senior Latin American
diplomat, Hernán Santa Cruz, the Chilean Ambassador to the UN and chair of the UN
Economic and Social Commission, had a frank discussion with John Dreier, the U.S.
6
Ambassador to the OAS. Dreier repeated the old charge that his government opposed
ECLA because it duplicated the work of IA-ECOSOC. The Chilean responded bluntly
that the latter organization was inactive and therefore "how can something duplicate
nothing." He asserted that his government would fight any effort to abolish ECLA since
it was "the only effective multilateral mechanism . . . to deal with Latin America’s
economic problems."21
Edward Miller, Assistant Secretary of State for Inter-American Affairs, in a
February 1950, speech before the Chicago Council on Foreign Relations, recognized
that Latin Americans needed "to do something positive for the achievement of their
economic development." This was a "preoccupation" there, and perhaps indulging in
unrealistic thinking, he concluded that these nations were aware of the "heavy
disadvantage of a narrow economic nationalism."22 A few weeks later, in a speech in
Philadelphia, Miller lamented that many were under the delusion that the U.S. had a
"continuing obligation to help other nations." He advised leaders in the hemisphere to
look to Luis Muñoz Marín's Puerto Rico as a model to follow: attract private capital as
the starting point for economic development.23 The message was clear; Washington
frowned upon any nation that followed ECLA’s path of economic nationalism. The
correct path was open markets and unfettered capitalism.
In June 1950, ECLA met in Montevideo, Uruguay. A conclusion reached at that
meeting was that Latin America needed to industrialize to increase employment. To
industrialize, markets had to increase and reciprocal trade agreements had to be
promoted as a way to achieve this goal.24 Prebisch prepared studies on economic
integration in Latin America. Central America was not the focal point at this time as the
7
only study completed by the 1951 meeting was on trade between Argentina and
Brazil.25
That month, the Korean War began. On 28 June, the OAS met to establish
hemispheric unity behind the UN effort in Korea. As the first year of the Korean War
was ending, the foreign ministers of the Americas met in Washington to consult, at the
request of the U.S., about sacrifices required for the war effort. The Salvadoran, Jorge
Sol, was at the meeting and recalled that the U.S. requested agreements on price
controls on primary goods -- similar to those requested in World War II. Remembering
the outcome of unfulfilled promises after the previous war, the Latin Americans did not
agree to this request. The U.S., Sol complained, achieved its goal with private
agreements with the other industrialized powers. While preaching free markets, the
U.S. was controlling markets in the hemisphere when convenient or when deemed
necessary from her perspective.
Sol returned to El Salvador, even more convinced that his nation's future
prosperity depended on its ability to industrialize. He reported to the Osorio
Administration that El Salvador needed to negotiate bilateral treaties with the three
Central American nations with which she did not have a treaty. The government gave
him carte blanche to accomplish this goal. From this beginning came a "'spontaneous
integration movement.'"26 Sol remembered that there were four things that operated as
of 1950 that were early influences on his and others thinking concerning Central
American economic integration: the ideology of ECLA, the conference on Korea,
various actions by wealthy nations, which impacted negatively on Latin America and the
move for bilateral treaties.27
8
THE ECLA MEETING IN MEXICO CITY
Raul Prebisch, head of ECLA, knew of the U.S. government's anxiety about his
organization and knew that the U.S. would try to eliminate it at the fourth annual
meeting in Mexico City in June 1951. When the UN established ECLA in 1948, it
agreed to an evaluation in three years to decide whether or not it would continue. To
defeat the U.S. effort, Prebisch made sure that Latin America had strong
representatives at the meeting who supported ECLA. Sol had the task of recruiting
friends of ECLA in Central America and making sure they attended. These same
delegates who helped to defeat the U.S. initiative also supported Central American
integration.28
Not having been consulted on this proposal, it surprised the U.S. The
Department of State probably expected ECLA to disappear and, therefore, had no
alternative to offer.
After the vote to save ECLA, Prebisch convened the Central American delegates
and informed them that he was ready to move forward on integration. He wanted to
test his ideas in this small region that had a history of some cooperative efforts to show
the rest of Latin America that economic cooperation could work.29
The resolution on integration called for the establishment of a Central American
Committee on Economic Cooperation (CCEC). It also stated that Central America
wanted "to coordinate their development programs, and to establish enterprises in
which all or some . . . have an interest."30 The committee, made up of the five
ministers of economy, was to work to establish economic stability and to cooperate on
9
infrastructure projects.31
In the years following World War II, Central America experienced some
fundamental political changes. In four of the five nations, the exception being
Nicaragua, an expanded electorate brought to power leaders who were more
concerned with economic growth than in the past. To some extent, they saw the role of
government "to better the living conditions of the masses." 32 To carry out their goals,
they established central banks, development commissions and expanded public works
projects.33
ECLA based its strategy for Central America on: 1. keeping economics out of
politics - which the Central Americans had concluded on their own; 2. gradual
integration, to be less disruptive to the economy; and 3. designing an integration plan
that would be of minimal cost to each state. To promote and support the Central
American integration, ECLA established a regional office in Mexico City in October
1951 and named to the staff was the Mexican economist, Victor Urquidi. 34
El Salvador was clearly the leader in promoting trade, taking the initiative in
forming an economic union. This was a practical solution to a national problem and not
an idealized historical commitment.35 As early as 1918, El Salvador agreed on bilateral
trade with its neighbor Honduras, which was still in place in the 1950's. By then, El
Salvador had a trade agreement with each of its neighbors and was the only one to
have such arrangements.36 Those trade agreements completed after June 1951,
contained a clause that anticipated the creation of a regional economic organization. 37
By the mid-1950's, it was clear to local leaders that these bilateral treaties were not a
sound foundation for economic development. There were different provisions in each
10
and they had to be renewed every two years, making it difficult to attract needed long
term investment.38
CCEC MEETING IN TEGUCIGALPA, 1952
Prebisch targeted August 1952, in Tegucigalpa, Honduras, as the next formal
meeting of the Central American Economics Ministers. The leaders chose that capital,
according to Sol, because Honduras was the most reluctant to join a regional economic
arrangement.39 This work of ECLA and the Central Americans was a way, according to
Sol, of finding Central American solutions to Central American problems free of "tío
Sam." This was, in his words, the product of a "genuine, nationalistic, Central American
movement."40
Minutes of a meeting between the traveling ECLA team and Costa Rican
industrialists showed that the visitors began with the idea that industrialization was the
way to promote economic development. The way to industrialize was to expand the
regional market through economic cooperation among the five nations. 41 Not only
ECLA, but also groups in the U.S. such as the Council on Foreign Relations (CFR),
The National Planning Association and the Rockefeller Panel in the 1950's repeated
this theme.42
At the meeting in Tegucigalpa from 23 to 27 August, Prebisch reported on his
studies of the region. He reported on programs for road building, agricultural
development, and banking reforms. He concluded that complete integration was not
feasible rapidly and that there should be a policy of industrial reciprocity. ECLA
recommended a regional industrialization strategy to achieve optimum size for a
11
regional market. This would lead to the best use of capital and lower costs of
production.43
Central American technocrats headed their economics ministers and were
committed to avoiding politics as they designed their program. Toward the end of 1952
and the beginning of 1953, it became harder to separate economic planning from
political considerations. One problem was the mounting pressure that the new
Eisenhower Administration placed on President Jacobo Arbenz in Guatemala. In
addition, the most active supporter of economic cooperation, Jorge Sol, saw his
position undercut in El Salvador. Years later, he recalled that President Osorio,
because of pressure resulting from his progressive policies, moved to the right
politically and became more repressive. Sol felt the need to resign and did so in early
1953.44
The CCEC lost momentum with the departure of Sol from the cabinet plus the
changes resulting from the U.S.-sponsored overthrow of Arbenz in Guatemala the
following year. These two nations had been the biggest promoters of regional
integration. In addition, the anticipated trade crisis did not occur as Central America
enjoyed high prices for its exports.45 Work on integration, though slowed, did not cease
altogether.
EISENHOWER'S FIRST ADMINISTRATION
The 1952 election of Dwight Eisenhower as president brought a Republican to
the White House for the first time in twenty years. A key issue in the campaign
championed by the Republicans was reduced government spending, and the new
12
Secretary of Treasury, George Humphrey, insisted that this commitment be honored.
Foreign aid was an easy target. The Secretary of State, John Foster Dulles, was more
interested in politics; he did not challenge his colleague on aid to Latin America until he
concluded that the region was “targeted by the Soviet bloc.”46 In fact, in the first
Eisenhower budget there was a big decline in development loans: from $147 million to
$7.6 million. There was also a freeze on long term lending and loans were limited to
short-term credits for trade expansion.47
As a result of the elections, the Republicans not only controlled the White House
but also congress. This meant that Senator Joseph McCarthy had a larger forum from
which to seek out so-called enemies of the U.S. He was an outspoken critic of the U.S.
Department of State and what he saw as the Communist influence. In Inter-American
relations, this meant that the nationalist challenge in Central America which seemed to
be promoted by ECLA was now an even greater concern.
A NEW LATIN AMERICAN POLICY
In the first months of Eisenhower's administration, the Department of State and
National Security Council worked on a design to guide its future actions. To this end,
Edward Cale, Director of the Office of Middle American Affairs, drafted a document
entitled “United States Policy Toward Latin America.” Cale wrote: “90 per cent [sic.] of
our Latin American problems are economic in content or the result of attitudes which
grew out of economic conditions.” He continued: “We should actively encourage the
Latin American governments to form customs unions or free trade areas.” His rationale
for this position was that the region needed to industrialize and, therefore, needed
13
expanded markets for its products. Since the U.S., the largest market for Latin
American products, was not going to open its markets, the way to expand was
economic integration.48
The outcome of these discussions was a National Security Council (NSC)
Resolution (NSC 144/1) adopted on 18 March 1953. This directive had two
components: anti-Communism and the creation of a welcoming climate for U.S. direct
investment which some saw as necessary for economic development. 49 At least one
member of the National Security Council noted a few weeks later that for him a greater
danger than Communism was “rampant nationalism” promoted by ECLA.50
To prepare a Latin American plan, Eisenhower sent his brother, Milton, on a factfinding trip in 1953. For five weeks beginning on 23 June, he traveled the region
seeking ways to strengthen the bonds between north and south. Latin America, he
wrote in his report in November, was an “area of tremendous social ferment.” He
advised that “private capital was the key to development but public loans must be
available when private funds were not.” The key to good relations was understanding
and mutual respect. Also important was cooperation with mutual goals, like raising the
standards of living in particular, through industrialization. One biographer noted that he
got enthusiastic support from the president and the Department of State. However, led
by the opposition of Humphrey, nothing changed. 51
While the U.S. was designing its plan for Latin America and ECLA was working
on economic integration, the issue of Communism in Central America came to a head.
On 16 April 1953, in San José, Costa Rica, El Salvador, proposed a resolution for the
next meeting of the Organization of Central American States (ODECA), opposing
14
communist infiltration in the region.52 The Arbenz Administration, correctly assuming
the intent of the motion, withdrew from ODECA. Washington, if it did not originate the
idea, applauded it.53 This split in Central America proved to those working on
economic unity that their desire to form an independent organization and not work
under the direction of ODECA was crucial. Originally, the foreign ministers who formed
ODECA assumed that the economic ministers would submit their decisions to them for
approval, an effort that the latter strongly resisted. In part, the economic ministers saw
that the affiliation with ECLA gave them legitimacy and a separate identity for those
working on economic matters.54 Perhaps, to highlight the difference in organizations,
two days after Guatemala announced it was leaving ODECA, the five governments
announced they would continue their joint work in the economic area.55
At the end of April 1953, ECLA held its Fifth Annual Meeting in Rio de Janeiro
and continued discussing common markets. The Department of State was surely
pleased to get the following telegram from one of its delegates: there was “fairly general
sympathy for so-called regional economic integration in Central and Southern Latin
America; without violating GATT and other commitments.”56 This was the position of
the Eisenhower Administration on Central American attempts at economic union: keep
track of developments and make sure that the outcome was not detrimental to U.S.
policy concerning GATT and U.S. private interests in the hemisphere. GATT had its
origins in U.S. efforts following World War II to promote free and nondiscriminatory
trade among nations.
George Humphrey, Secretary of Treasury, saw as priority of Ike in the first
administration
15
the balancing the national budget. Philosophically, he was opposed to U.S. aid to other
countries. Henry Holland, a businessman like Humphrey, with no diplomatic experience
was in charge of Latin American policy in the Department of State. It was not until the
second administration of Eisenhower when Humphrey and Holland had left there
respective positions that there was a possibility for change.
U.S. aid was to be an important topic of discussion at an Organization of
American States meeting in Caracas in March, 1954. Milton was to be one of the U.S.
delegates but was reluctant to go without a positive position on aid from his
government. He knew from his travels in the region for his brother and understood
what a staff member in the Department of State wrote that after years of vague
promises there was a "restlessness and disquiet in Latin America in the face of what
they saw as neglect, in their efforts to improve conditions for the masses." 57 This topic
once again was pushed aside. Secretary of State John Foster Dulles was focused on
winning a resolution condemning Communism in the hemisphere. This was
clearly aimed at Guatemala. It took longer than expected to achieve and Dulles
abruptly left after this vote. The only agreement on aid was to discuss it at a meeting by
the end of the year. Pressure and expectations continued to mount.
At the end of 1954, the promised Inter-American meeting on economic aid was
held in Rio de Janeiro. Because this was a meeting of treasury and finance ministers,
George Humphrey headed the U.S. delegation. Milton was fearful of what this would
mean in terms of progress and told his brother that he not could represent his
government because of his fundamental differences with Humphrey.
In an attempt to resolve their differences, the president convened a White House
16
meeting on the topic in March, 1955. Henry Holland presented the view of maintaining
the status quo which emphasized trade, not aid. Nelson Rockefeller, a special advisor
to the president, promoted an ambitious plan of aid for economic development through
industrialization and raising standards of living, particularly by forming economic unions
to create larger markets. As this ensued, Latin Americans would become better
consumers of U.S. products. There was no change which came out of these
discussions directly; however, they were probably one of many steps taken which
eventually led to changes in the second Eisenhower administration.
When Eisenhower was re-elected in 1956, the world was changing. Up to that
point, conservatives in the administration argued that Latin America did not need U.S.
aid and trade would lead to economic growth and development. Other areas of the
world, the Middle East and Asia, were on the front-line of the Communist fight and
therefore, needed U.S. aid. With the defeat of the Jacobo Arbenz regime in Guatemala
the U.S. thought there no further problem of Communism in the hemisphere.
There were various meetings of Central Americans working on economic
integration in 1956. Out of these emerged a draft treaty. Nicaragua secretly provided a
copy to the U.S. After careful analysis, the Department of State concluded it could not
publicity support the treaty as it was not trade promoting under GATT guidelines. This
was a requirement for U.S. support. In November, 1956, the Council on Foreign
Economic Policy, an inter-departmental advisory body, issued more specific guidelines:
lowering tariffs inside the market and not raising tariffs outside the market.
The Central American Economic Ministers (CCEC) met in February, 1957, and
approved the Multilateral Treaty of Free Commerce. The design was to form a free
17
trade area in certain products over a ten-year period. A second treaty was debated
which involved guidelines for establishing integration industries. These would be
companies which would be granted a monopoly of the regional market for a product for
a specific period of time. One such product was tires produced by a Guatemalan
company which was eventually approved.
By 1957, all five nations had bilateral treaties with each other, which some
thought would be a foundation on which to build a regional market. Jorge Sol, the
Salvadoren Economic Minister in the early 1950's and a pioneer in pushing for
economic integration, realized by 1957 that these treaties had severe limitations, chief
of which was having to renew them every two years. The continued drop in coffee
prices, which had started months before, helped give more incentive to seeking
alternative engines for growth.
In 1957, the Council on Foreign Relations held a series of discussions on U.S.Latin American relations. A key topic of debate was Central American economic
integration. A question posed at the meeting was why the U.S. would support
economic unity in Europe and not in Latin America. Roy Rubottom, Assistant
Secretary of State for Latin America and a participant, reported that U.S. policy was one
of reacting. The U.S. neither pushed, he reported, nor opposed these efforts, but was
awaiting specific results to measure and evaluate.
The next opportunity for the administration to examine its policy on economic
development in general and economic integration specifically was in preparation for the
IA-ECOSOC meeting in Buenos Aires in August 1957. Roy Rubottom, the chair of a
committee charged with writing a position paper for the U.S. delegation concluded that
18
"when specific proposals are made, the U.S. will examine each on its own merits." 58
C. Douglas Dillon, Under Secretary of State, and Robert Anderson, Secretary of
Treasury, headed the U.S. delegation. Before leaving for the conference, Dillon met
with Raul Prebisch. He told Prebisch that he was pleased to note "the stress which had
been placed upon private enterprise and competition" in a recent report by his
organization. Prebisch "stated emphatically that ideas of the secretariat ... were
strongly opposed to arrangements which lead to monopoly."59
By the end of the year, an internal memo noted that the U.S. still had no official
policy on the
proposed Central
American market.60
However, in a
speech given to
U.S. diplomats in
January 1958,
Thomas Mann
stated clearly that
the U.S. "should
constantly search
for new ways to
help strengthen
weak economies"
by possibly
19
supporting such
proposals as the
creation of the
Central American
Common Market
(CACM).61 He
spoke similarly that
same month before
the CFR in New
York.62 In this
closed meeting,
Mann pointed the
way to a new policy
position. Six
months later, Roy
Rubottom spoke
publicly in a TV
interview in support
of regional
integration.63 The
change agents in
the administration
were preparing the
20
ground. A key part
of the strategy was
a trip trough Central
America led by
Milton Eisenhower.
In May 1958, Vice President Richard Nixon represented the U.S. at the
inauguration of a newly elected civilian president in Argentina. After this event, he and
his advisors continued on a good will tour through most of South America. Nixon,
wanting to establish himself as a foreign policy expert as a presidential candidate,
confronted those who opposed U.S. policy in the region. On his last stop in Caracas,
Venezuela, anti-U.S. demonstrations turned violent. A mob attacked his motorcade as
it tried to make its way from the airport to his hotel threatening Nixon’s and the lives of
his entourage. The reasons for the attack were many. Some were angry that the U.S.
cultivated such hated dictators as the recently overthrown Marcos Pérez Jeménez of
Venezuela and others were frustrated at being taken for granted by the wealthy
northern neighbor. On his return to Washington, Nixon led a campaign to examine
policy to see where appropriate changes could be made and were appropriate.
In a commentary on Nixon’s treatment a few weeks later, President Juscelino
Kubitschek of Brazil wrote to President Eisenhower outlining an ambitious plan for
economic development in Latin America. This letter helped build momentum for
change.
In early June 1958, the CCEC gathered in Tegucigalpa, Honduras to sign two
treaties: one on free trade and the other on integration industries. Now the U.S. had
21
something specific to which to react.
As part of the ongoing review, the president asked his brother Milton to travel to
Central America to gather information so he could make recommendations for the
region. On his return in August 1958 he spent the next four months circulating his
report among various agencies building a consensus for this recommendations which
included support for a common market in Central America.
VISITS PROMOTING THE RIGHT INTEGRATION
The year 1959 began with an event that had profound repercussions for the U.S.
and Latin America. Fidel Castro and his revolutionary army ousted the discredited
Cuban dictator, Fulgencio Batista, a longtime friend of the U.S., on New Years Day. As
we have seen, U.S. diplomats were reexamining policy with Latin America and
reconsidering it even before Batista's flight on January 1. Castro's ascent to power
moved Latin America higher on the White House's foreign policy agenda, thus allowing
those in the administration who sought change to have a larger voice and greater
success.64
Likewise, changes were taking place in Central America. The falling price of
coffee on the world market in 1958, which continued in 1959, contributed to a climate
of ferment as different actors sought a larger role in politics. Castro's success gave
hope to those who wanted to emulate his radical approach. Traditional conservative
elites, on the other hand, attempted with a sense of urgency, to find initiatives that they
could adopt to defeat those seeking revolutionary change. 65
One commentator, political scientist Philippe Schmitter, explained that perhaps
22
more important than the changes that Castro and his revolution produced in the
dominant power in the hemisphere were those produced in Central America. The elites
in that region were ready “to experiment with policy innovations, especially ones that
seemed to promise popular returns at no cost to established privileges and
prerequisites.”66
The U.S. wanted to change its policy in a more positive direction. The common
market proposal provided the U.S. an opportunity to respond in a constructive way to
promote change and to defeat those advocating revolution. Although signed in June
1958, and already ratified by Guatemala, El Salvador and Nicaragua, 67 it was clear that
the signing of this treaty was only a small first step in the establishment of a ‘true’
common market as defined by the U.S. The treaty
called for the five nations to trade only a few items freely with additional items to be
added through negotiation on a case by case basis. It would be years if not decades
before a real common market would be in place.
CULTIVATING EL SALVADOR
Given this perceived problem, Thomas Mann conceived and spearheaded a
strategy to move things along more rapidly.68 Within a month of the signing in June
1958, Mann proposed his scheme to his Salvadoran friends whom he knew from his
days as U.S. ambassador in San Salvador. Probably the key person was Minister of
Economy Alfonso Rochac.69 The plan to move things along was to work with El
Salvador and Honduras initially with the intention of forcing a positive response from the
other three countries.70
23
El Salvador was a convenient selection, not only because of Mann's contacts but
for other reasons as well. Washington had already given more than $100 million in aid
to Guatemala after the CIA helped overthrow the suspected Communist government of
Jacobo Arbenz. However the northern power was not thrilled with either Carlos Castillo
Armas or Miguel Ydígoras Fuentes, presidents who followed the 1954 coup. So by
1958, President José María Lemus was chosen as the model for the rest of the region.
He was a military leader and was elected president in 1956, albeit in a tainted
process.71 Thomas Mann described him as a “good president,” the New York Times
as “simpatico” to the U.S., and the Houston Post, a “man of letters.”72 The Eisenhower
Administration sought a president who was democratically elected to whom to give an
“abrazo,” in keeping with criticism that it had been too openly friendly with brutal
dictators. Lemus and his nation served both agendas: promoting economic unity and
democracy.
With the public commitment of the administration to support Central American
integration in the Milton Eisenhower report, Mann continued his campaign to achieve
the U.S. version of Central American economic unity. Prebisch met with him on 6
January 1959, to discuss topics of mutual concern. Mann told Prebisch of the U.S.
interest in a Central American common market and suggested that perhaps the best
way to advance the process was to start with a joint effort by Honduras and El
Salvador. Prebisch reportedly approved of Mann's suggestion. 73 Mann had previously
discussed this proposal in July 1958, with high-ranking Salvadorans, such as Minister of
Economics Alfonso Rochac and El Salvador's Ambassador to the U.S., Hector D.
Castro, whom he knew well when he was the U.S. ambassador in San Salvador. 74 This
24
discussion obviously was the Eisenhower administration's reaction to the treaties
signed in June 1958. With the consensus established in the administration, and the
acquiescence of Prebisch, the Department of State scheduled a special trip to the
region for February 1959, by two trade experts, Isaiah Frank and Harry Turkel. The goal
of the trip was to explain and promote the new policy.
Honduras and El Salvador were chosen because these two neighbors had the
oldest bilateral trade arrangement in the area, dating from 1918. Coincidentally, the
Salvadoran Rochac, met with the U.S. Ambassador to El Salvador, Thorsten Kalijarvi,
the same day that Prebisch talked to Mann in Washington. The conversations were
similar. As Rochac discussed the ongoing negotiations on a protocol updating the 1918
Treaty with Honduras, he told the American that he approved of Mann's scheme. He
saw this effort as step one for regional economic integration. The neighbors were
complementary in that his nation had a surplus of people and capital that could be
productively used in Honduras.75 His region needed Washington's aid to further this
cause, Rochac concluded.
Hector Dada Hirezi in his study of this period concluded that the Salvadoran
bourgeoisie favored a free market design for the region rather than the controlled
equalization market of ECLA. El Salvador, as documented above, already had the
foundation for industrialization, and expected to benefit by selling in weaker markets like
neighboring Honduras.76 What the U.S. proposed was clearly more to its liking.
Douglas Dillon went before the OAS in February 1959, to outline conditions
under which the Eisenhower administration would support regional common markets.
Delineating six conditions, Dillon made a public endorsement that represented the
25
outcome of internal debates within the administration. He said that his government
would favor endeavors that contributed to competitive trade in convertible currencies
over a reasonable period that did not violate GATT principles and also the free
movement of capital and labor within the region.77 Fuentes Mohr critiqued this speech
saying that Dillon had adopted El Salvador’s position on the free movement of people
and capital as the policy of the region.78 Perhaps he sensed that the United States was
closely coordinating her policy with that of El Salvador through which it operated to
achieve the desired outcome.79
TRADE EXPERTS VISIT CENTRAL AMERICA
After many years of only talk, the U.S. decided to act by sending the two trade
experts to Central America to “explore ways in which the United States can encourage
Central American economic integration.”80 Specifically, the stated purpose was to:
explore the possibilities of accelerating economic integration in Central America,
with specific reference to El Salvador and Honduras, which because of their
complementarity appeared to offer the best prospects as a nucleus for a
common market in the region.
Isaiah Frank, an expert on the European Common Market, and Harry Turkel, were to
find out how to accelerate regional unification on terms agreeable to their government.
They were to accomplish this by offering financial aid in return for the commitment to a
'true' common market.81
Fuentes Mohr wrote that one way to reach the goal sooner was to have U.S.
economic assistance. Funds thus provided could best be used by a regional
development center. Turkel told the Guatemalans about his government's plans to
advance integration by starting with two of the five nations. Guatemala, assuming that
26
it would be one of the two, thought this was a good idea. Turkel never volunteered that
the plans were not as they assumed.82
Rochac, the Salvadoran Minister of the Economy, notified Washington that his
nation had accepted the visit of the U.S. technicians to promote the talks under three
specific conditions which included consulting Honduras first and officially and advising
Guatemala and Nicaragua of the proposals with the purpose of avoiding a
misinterpretation. Rochac knew of the proposal to begin with his nation and Honduras
since it was presented to him in late July 1958. Mann, a friend to both Lemus and
Rochac and other members of the Salvadoran oligarchy, had been the U.S.
ambassador in San Salvador the previous year. In 1958, as Assistant Secretary of
State for Economic Affairs, he was the one who informed Rochac. 83 Mann anticipated
that El Salvador was facing serious social and economic difficulties because of
population growth and therefore, was in need of financial aid for economic
development. This aid would be easier to obtain for both El Salvador and neighboring
Honduras if the two served as a pilot project for a regional common market. In fact, the
visit by Frank and Turkel to promote integration had been promised the previous year.
Frank was identified as an expert on the European Common Market and therefore was
particularly valuable to the integration effort.
When Lemus met with Frank and Turkel, he asked them if they were aware of
the Multilateral Treaty signed the previous year. The two responded affirmatively
adding that they had studied it very carefully. They praised the document but noted
that its weakness was the length of time until it became fully operational. Not wanting
to offend anyone, they assured their hosts that their initiative would not supersede the
27
Multilateral Treaty but would supplement it, just as the Multilateral Treaty supplemented
the bilateral agreements.
The outcome of discussions held in February 1959, with Frank and Turkel
produced the following summary of what Rochac heard from his guests. He expected
integration to: abolish boundaries to the free circulation of persons, goods and capital;
adopt a common tariff for third world countries and establish tariffs by some
mathematical formula, not item by item; establish a common fund to promote
investment and assist workers and companies in their adjustment to the new
arrangement. Rochac correctly understood that the United States wanted Honduras
and El Salvador to make a declaration of their intentions to provoke consideration by
the other three nations “without delay.” He also understood Frank and Turkel to say
that the United States thought of El Salvador “as the leader” in Central America, and
that she was like a “compadre” to Honduras. A Salvadoran at the meeting asserted
that the moral backing of Washington was important for the final success of this
enterprise. Ambassador Kalijarvi concluded similarly. It might be necessary for us “to
continue to play the leading role” as it was difficult for one of the five to lead because
there were so many regional views of what economic integration should be. 84
Salvadoran businessmen and the oligarchy, according to Jorge Sol, grew to like
the idea of a common market because of a decline in sugar, cotton, and particularly
coffee prices. This decline was part of a worldwide recession. Agriculturalists had
already begun to invest in industry and the U.S. plan would favor their interests as
opposed to the ECLA plan. The latter favored promoting equalization among the five
by favoring industrialization in weaker market such as Honduras, where Salvadorans
28
wanted to sell their industrial goods.85
These Salvadorans concluded that Honduras and Nicaragua impeded the
expansion of the list of free trade items in the 1958 treaty. Dissatisfied, they sought the
help of the U.S. to speed up the process; the visit of President Lemus to Washington in
March was part of a scheme to accomplish this goal.86
President José María Lemus of El Salvador expressed his hope that no matter
the outcome, trust should not be violated. Turkel explained that he would consult all
five nations and not announce anything without official consultation with El Salvador.87
This was additional evidence that Washington treated El Salvador as the leader, at
least on this issue.
From El Salvador, the traveling Americans went to Honduras. As noted above,
Frank and Turkel met with businessmen in El Salvador who endorsed their
recommendations. They met with similar groups in Honduras but did not have the
same enthusiastic support. The Honduran Minister of Finance and Economy, Jorge
Bueso, told the visitors that he was aware of opposition but assured the Americans that
there was sufficient support to continue.88 There was no evidence that the two met with
similar groups in the other three nations on the tour. Undoubtedly, they were lobbying
for their 'pilot project.'
The reservations about the second major treaty on Integration Industries signed
in 1958 did not only come from the United States; Frank and Turkel reported that they
heard misgivings specifically from business groups that did not like their government’s
involvement in the marketplace. These governments were seem as politically unstable
and often corrupt.
29
The next stop on the tour was Nicaragua where the two reported “wholehearted
support” for the U.S. design seen as “preferable to the 1958 agreement.” A hitch in the
plan was Somoza who strongly promoted the inclusion of his nation from the beginning.
It was only at the final stop, Costa Rica, that the proposal received a more
reserved response. Seeing themselves as unique in Central America, the Costa Ricans
were sympathetic but feared that a regional plan would compromise their higher
standard of living. The president, Mario Echandi Jiménez, summarized his country's
position when he said that his nation was “dispuesto pero no listo” - disposed but not
ready. Another official conceded that his country would have to join a common market
if it was in place and functioning. The United States was counting on this reaction.
President Echandi explained that he needed more specifics from Frank and Turkel
concerning the scheme but did promise support.89
The two certainly spent more time and shared more details in the two nations
they had targeted. The records did not show the amount of aid they suggested. Some
remembered years later that they mentioned $100 million. There is no written
documentation to confirm this figure; most likely the number was only referred to
verbally and was not committed in writing.90
THE IMPACT OF PROMISED FUNDS
Some Central American leaders expected U.S. aid and commitment to move to
the next level. They felt this way particularly in the late 1950's rather than earlier, as
ECLA told the Central Americans that they would have to pick up more of the costs of
the integration efforts themselves. The best statement of the impact of the offer of aid
30
came from the Secretary General of the Central American Economic Cooperating
Committee, Carlos Castillo. In 1965, he wrote that it broke down the “financial
bottleneck” the regional movement faced.91
Frank and Turkel, on their return to Washington, concluded that “the time was
ripe for a decisive effort to achieve a true Central American common market.” They
were convinced that “the United States will have to take the initiative in elaborating in
some detail a plan for economic integration.”91 The 1958 pact was not something
United States officials could support, so they completely ignored it.
So what had changed to cause Washington to offer its support so
enthusiastically? Always willing to support a 'true' common market, the policy of the
United States was to wait until there was something specific to which it could react,
offer aid and mold it in the way it desired. Certainly, the Eisenhower Administration
redesigned its Central American policy in the larger hemispheric context of the
disastrous Nixon tour, the ongoing demands for increased economic aid and the
success of Castro. Mann offered another reason for the support at a Cabinet Meeting
in late February 1959. He reported that supporting regional common markets was an
acceptable alternative to creating area preference systems among themselves, which
would put our exporters at a disadvantage.92
Reflecting a decade and a half after he met with Frank and Turkel in Guatemala,
Fuentes Mohr wrote that their mission was “exploratory.” The U.S. was critical of the
ECLA plan and the two planted different ideas. The understanding was that if the U.S.
plan was accepted, an estimated $100 million in financial aid would be forthcoming.
Fuentes Mohr concluded that perhaps the U.S. designed the visit to justify and promote
31
the U.S. scheme of the Honduras-El Salvador special arrangement.93
This key period when the U.S. charted a new direction was one of transition in
leadership in the Department of State as John Foster Dulles took a leave of absence at
the end of February 1959 to have surgery; he never returned. Herter was acting
Secretary of State until Eisenhower gave him the job permanently on 21 April. Dillon,
who moved up to the number two spot, commented on the impact of this change years
later. He observed that Herter took a more longer range view than Dulles, and that he
used the Foreign Service better than his predecessor.94 This gave veterans of the
Central American scene such as Thomas Mann and Roy Rubottom a larger role.95
VISIT OF PRESIDENT LEMUS
In early March, the State Department made final preparations for the official visit
of President Lemus of El Salvador to the U.S. The previous September, President
Eisenhower stratergized with Rubottom and Herter how they would receive Lemus. At
first, Herter thought the visit should be short. He changed his mind, however, agreeing
with Rubottom, and recommended an “upgrade” to a full state visit. This was justified
because of inevitable comparisons made to other visitors and according to a New York
Herald editorial, to show that small nations were important to the U.S. Therefore,
Lemus got the red carpet treatment, not only in the capital, but in five other cities as
well.96 The visit of Central American presidents became difficult to manage as two of
the five had not been invited by March 1959. A private organization invited the
Honduran president to visit New Orleans and the question arose whether to invite him
to Washington also. He was not invited as that would mean more pressure to invite
Luis Somoza, president of Nicaragua, for an official visit, which he wanted. This was
32
not desirable, as the Eisenhower administration was under pressure not to entertain
dictators. The Somoza family was closely identified with the recently overthrown Batista
in Cuba and Pérez Jiménez in Venezuela, both of whom critics saw as friends of the
U.S., although they were hated by many in their own nations. 97
When Lemus and his delegation, including members of the Salvadoran
oligarchy, arrived in Washington on 11 March, Ike welcomed them with a ticker tape
parade.98 The visitors had a document entitled: “Economic Situation and Prospects of
El Salvador.” Referring to development projects, it stated that El Salvador would make
a special effort to accelerate the program of economic integration of Central
America, in order to create a common market. . . . To facilitate the process a
common market could be started between two or three countries to serve as a
nucleus that would attract the remaining countries.99
Jorge Sol, an advisor to Lemus traveled to the U.S. with him. He recalled that
the purpose of the trip was to discover what support could be expected to take the
common market to the next level.100
Herter discussed the meeting of the two presidents by telephone with President
Eisenhower soon after it ended. He commented that the topic of the common market
“seemed to be the biggest issue on their minds.”101
The Salvadorans must have been disappointed upon learning that the joint
closing statement called for “continued study” and a vague promise to “take appropriate
action to carry on those sound plans already contemplated.” The visitors had
attempted to make clear that the time was ripe for moving beyond study to
implementation “on an urgent basis.” They probably assumed that the U.S. position
was close to theirs because that was the message of Frank and Turkel, Ambassador
33
Kalijarvi and others at the Department of State. Clearly, Treasury had won the battle
with the diplomats.102
In retrospect, the strategy of the Department of State was probably for the
meeting of Eisenhower and Lemus to have a clear policy statement ready on the U.S.
position on the proposed regional economic arrangement and the promised aid. Mann
had prepared the way the previous July in his conversations with the Salvadorans.
Besides Frank and Turkel, Milton Eisenhower toured the area, returned home, held
many discussions on policy in the area and had wrote a report for his brother endorsing
a common market for Central America. The State Department was ready; however, the
Treasury Department was not.
The diplomats wanted to prepare a draft of a joint communiqué, which reflected
the message that Frank and Turkel took to Central America. Acting Secretary of State
Christian Herter wrote on 4 March that Lemus had a strong interest in encouraging
closer ties to the United States. He believed “that steps toward closer economic
relations should be encouraged as a means of promoting the development of the
area.”103 The Treasury Department wanted to “soften” the joint statement “until details
were better known.”104 One person who voiced frustration on the record around this
time was Milton Eisenhower. In a memo to his brother, he complained that unless the
president supported the Department of State, other branches would frustrate the
diplomatic branch trying to make changes.105
The U.S. was not only concerned about the timetable to establish a true common
market but also with creating a regional arrangement responsive to market forces. It
understood ECLA's design to be a state-managed arrangement. The U.S. found in the
34
Salvadoran oligarchy a group that agreed with its policy. With the downturn in coffee
prices, the goal of industrialization was even more imperative for this small densely
populated republic.106 In fact, one Central American observer wrote that the
Salvadorans sought help from the U.S. to deal with what they perceived to be a lack of
interest from their four neighbors.107
While the two presidents were meeting, some visiting Salvadorans met with
State Department advisors in a strategy session. Francisco De Sola, President of the
Federation of Farm Credit Banks stated that he saw the “possibility of accelerating
integration with Honduras... using a common fund.” Sol volunteered that El Salvador
had in mind the points made by Frank and Turkel the previous month.
Frank noted that Nicaragua was a problem because she wanted to be included
from the beginning and wanted some guarantee of industry so as not to be only a
producer of raw material. He volunteered that he told Somoza and Delgado that there
could be no such guarantees, and they accepted.
Turkel asked the visitors if there were constitutional problems in moving toward
integration. Sol responded that Guatemala, El Salvador, Honduras and Nicaragua had
a constitutional clause authorizing integration. No mention was made of Costa Rica,
which again stood apart from the rest.
Rochac suggested and the group agreed that for the time being publicity should
be avoided. El Salvador would attend the next scheduled meeting of the CCEC in San
José later in the year and would discuss the ECLA design. The goal was to keep the
two plans separate.108
While in DC, President Lemus addressed the National Press Club and discussed
35
the formation of a common market in Central America. At the OAS, the visitor referred
to the public communiqué from the president of Brazil, Jescelino Kubitschek, to
Eisenhower and agreed with Kubitschek's call for aid to Latin America to defeat
totalitarian governments. When he addressed congress, he called for U.S. direct
investment to defeat the potential growth of communism. He added that the solution to
current economic difficulties was economic integration that would allow for
industrialization.109 Perhaps, it was only a coincidence that the day Lemus left
Washington for New York, Eisenhower sounded a similar theme in a foreign policy
address. He announced that the major threat to the U.S. from Russia was an economic
threat.110
Before the visitors left, there was a closing banquet. Jorge Sol remembered that
he was so upset at what had occurred, he could not go to the banquet. He was angry
that the U.S. was orchestrating El Salvador's policy and worried that the other nations in
Central America were going to compromise eight years of hard work once they found
out about the scheme.111
When Lemus left Washington for New York to continue his official visit, the
minister of economics, Alfonso Rochac, departed for Tegucigalpa to brief Honduran
president Ramón Villeda Morales on the new developments. His task was to build on
the ground work laid by Frank and Turkel.112 The strategy, as designed by Mann, was
unfolding as planned. El Salvador and Honduras were ready. However, Guatemala
would not sit by and be excluded as she would be cut off from her southern neighbors
and she had an industrial base and large population like El Salvador and needed
markets and jobs as well. If these three reached an arrangement, then Nicaragua
36
would be drawn in, and finally, Costa Rica would sign a pact already in place.
While Rochac traveled to Honduras, Sol's assignment was to inform Victor
Urquidi, head of the ECLA Central American office based in Mexico City. Sol
remembered that Urquidi did not oppose the initiative.113 What Sol probably did not
know was that Frank and Turkel had already briefed Urquidi. A reason for not opposing
this initiative was that ECLA agreed that adding one item at a time would mean that a
common market would be a long time coming. In addition, ECLA informed the Central
Americans that it would no longer be able to aid the region as much as it had in the past
so U.S. funds were needed.114
Sol returned to San Salvador from Mexico City and contacted his Guatemalan
friend, Fuentes Mohr, with whom he had worked to design a regional market. When
told of the strategy, Fuentes Mohr responded that this was the greatest betrayal by El
Salvador. Sol had mellowed his position and told his friend that although they were
angry and disappointed, they had to work for the good of the region and save the best
of what was left. Later, Fuentes Mohr informed Sol that when his president Ydígoras
Fuentes heard of the scheme, he was angry and vowed not to accept the changes.
According to Sol, some Salvadoran businessmen, hearing of Guatemala's anger, went
to Rochac, and persuaded him to include Guatemala. Upon reflection decades later,
Sol concluded that these three were ready to move ahead and the other two were
not.115
Obviously, Lemus’s trip, which continued to Illinois, Texas, and Louisiana, was
well planned. The object was to present El Salvador and the issue of regional
integration in a favorable light before investors and political leaders.
37
On his return, Lemus stated that the number one item covered in his many
speeches and conversations was the creation of a common market. 116 The assumption
was that integration would come with foreign investment leading to industrialization that
would offset the decline in the economy.
The trip had other benefits as well. As El Diario de Hoy commented editorially,
the visitors received positive press coverage unlike the usual news from Latin America
about revolts, earthquakes and other tragedies. Of key significance was putting the
issue of the common 38market before a wide audience.117 Also, including
representatives of the Salvadoran oligarchy on the trip allowed for conversations
between them and potential U.S. investors. This group of visitors was already
convinced of the need to diversify the local economy and they were working to achieve
a common market, sooner rather than later.118
Panama 3
By mid-March 1959, momentum was building not only in Washington but in
some official Central American circles in favor of regional integration. In his annual
message that month, President Ydígoras of Guatemala revealed that he strongly
favored unity. His nation was ready to move forward. President Somoza sent letters to
the other presidents calling for economic unity. Nicaragua, however, compromised her
inclusion in a regional arrangement because of problems she had with all of her
neighbors except Guatemala.119
Turkel suggested in a memo to Roy Rubottom at the end of March, to
accomplish the goal of advancing the integration process, the United States should
provide an advisor to the governments. This was in addition to the funds that Turkel
38
had led the various governments to believe might be available. Specifically, he called
for $20-25 million to aid infrastructure projects to facilitate and integrate the first two
nations. An additional $20-25 million should be available later to the other three
nations. Realistically, he admitted that he was aware that no funds were available then
to support this project and the outlook was not good in the next funding round. What he
wanted was a decision made in principle whether to support a common market.
By 27 March, the administration decided. Acting Secretary of State Herter sent a
telegram to the U.S. ambassadors in all five Central American capitals. The plan was
still to go forward with Honduras and El Salvador. Herter volunteered that the three
nations left out would be offered observer status. If all agreed, the State Department
would send a diplomat to the region about 10 April to prepare a time table for future
negotiations and to investigate what advisors they might need. 120 Uncle Sam was
clearly taking charge.
The reasons for change in U.S. policy have been explored but there was interest
in a new approach in Central America as well. According to Jorge Sol, he and other
economists from the northern states were distressed with the slow rate of adding to the
list of freely traded goods under the 1958 Treaty. This group, presumably including
Fuentes Mohr, petitioned their respective presidents to support a new approach: a
tripartite agreement.121 As documented above, Frank and Turkel traveled the area with
a similar message from Washington in February.
The United States was misinformed about Guatemala being patient as her two
neighbors united. Fuentes Mohr recalled that at the 15 April signing of a second
protocol to the bilateral treaty between Guatemala and El Salvador, which he
36
witnessed, the two nations discussed regional unity. El Salvador, according to Fuentes
Mohr, called attention to the special relationship she had with Honduras. Guatemala
responded that she would not accept an agreement in which she did not participate, as
this would isolate her from the rest of Central America. The preferred approach was to
continue with all five nations. El Salvador replied that Honduras was not ready to sign a
treaty that included Nicaragua. The Guatemalans retorted: then transform the El
Salvador-Honduras arrangement to include Guatemala. The Salvadoran Minister of
Economy Rochac said that he would discuss this possibility with Honduras. 122
The Guatemalans obviously convinced their neighbors that they should be
included as talks advanced. Ambassador Kalijarvi reported in the middle of May, that
the Salvadoran Foreign Minister told him confidentially that the three northern neighbors
held the greatest promise for moving forward.123
The United States was interested in moving forward on Central American
economic union, but it did not want to alienate ECLA. Raul Prebisch, perhaps realizing
that discussions were moving too slowly in Central America and that they may never
come to fruition, wanted to coordinate his efforts with those of the United States. He
requested that the Department of State send someone to ECLA headquarters in
Santiago to share views on Central American integration. Many in the Department of
State continued to be suspicious of this UN agency, and Prebisch, aware of this,
wanted to eliminate any misunderstanding.124
MEETINGS IN LA PALMA AND ESQUIPULAS
On 30 June, Fuentes Mohr and other Guatemalans met with their counterparts
37
from Honduras and El Salvador in La Palma, El Salvador. Rochac, the Salvadoran
representative, reported on separate conversations he had over the last two months
with his two neighbors and the U.S. with the goal of finding a formula for arriving at a
common market for Central America in a progressive fashion. 125 After two months of
discussions, the Central Americans accepted the U.S. position on integration. 126
After the meeting, Rochac told Kalijarvi that the three had discussed U.S. aid
and the Salvadoran wanted to know what kind of aid the U.S. contemplated. Rochac
stated clearly to the U.S. ambassador that those who attended the meeting expected
this aid, since the three had changed the design to reflect the wishes of his government
as put forward by Frank and Turkel, especially if integration was to occur rapidly.
Rochac noted that the two had announced that funds would be forthcoming. Kalijarvi
closed his communication to Washington with the urging that his government give
careful consideration to this complaint.127
A few days after these conversations summarizing what was going on in Central
America, Mann wrote to Chuck Adair, the head of development affairs office of the
Department of State:
There is an uncertainty now as to whether a union, if one comes about, will
consist of one, two or three or more countries and it is also still more uncertain
whether they will follow the pattern of a true common market, to say nothing of
what provisions they will make for financing themselves.128
Mann reported that he had talked with Dillon months ago about aid or a loan to promote
a common market and Dillon responded, that in principle, the Development Loan Fund
(DLF) was prepared to lend. Mann, not knowing the details of what had already
happened in Central America, commented that he wanted to wait until he could
38
recommend a specific figure before continuing.129 Mann expressed this view four
months after Frank and Turkel made what the Central Americans thought was a
generous and specific commitment.
Even as the three northern states held their meetings to go beyond the
Multilateral Treaty of the previous year, that treaty went into effect with the ratification
by Guatemala, El
Salvador and Nicaragua announced in mid-July.130 Obviously, the first two agreed with
the U.S. position that this treaty offered little hope of establishing the desired common
market in a reasonable period. It is not clear whether they arrived at that view on their
own or their wealthy neighbor urged them to think that way with the promise of dollars.
On 25 July, the three impatient states met in Esquipulas, Guatemala. American
aid was again a topic. The three agreed that they would use these funds to develop
transportation and communication and to create a regional development fund. If funds
were not forthcoming, the three would continue to move ahead anyway.
Fuentes Mohr explained that the Plan of Esquipulas agreed to at this meeting
had its origin in the original ECLA design and the Salvadoran-Honduran talks with the
United States over the previous months. Contrary to later accounts, the Guatemalan
argued that only a few of ECLA’s ideas were laid aside. The obvious item not included
here or later was the integration industries scheme that the United States always
opposed and Fuentes Mohr asserted was considered dead at birth. 131 After years of
trying, it proved impossible to allocate industries as the treaty specified. Besides using
development funds for infrastructure projects, they were to be committed on a
preferential basis to help the regions less developed areas. With these three nations,
39
the latter clearly referred to Honduras.
The main decision reached at this meeting, according to Fuentes Mohr, was the
Central American Equalization of Import Assessments. By 1 January 1963, the three
states were to agree on tariffs on goods imported from outside the region. 132
THE QUESTION OF U.S. AID
While the Central Americans were discussing the possibility of U.S. aid, there
was an intense debate in Washington about how to deliver on the promises made in
February by Frank and Turkel. Rubottom reminded Mann on 29 July that when those
two traveled to Central America, they were authorized to promise U.S. material as well
as moral support for a real common market. They also promised an outline of the U.S.
government's suggestions as to the form it should take. 133
Representatives from the departments of State, Treasury, Commerce and
Agriculture met to prepare such an outline. Just as the diplomats were ready to
transmit this to the five U.S. Embassies in Central America, Treasury made known its
disagreement again with the commitment of funds. Rubottom saw this as reneging on
the message of Frank and Turkel. It was not only these two but Milton Eisenhower in
his January report, and the president himself, had personally endorsed U.S. support
when President Lemus was in Washington in March.
Rubottom reported that he and his staff concluded that the five nations would
require approximately fifty million dollars for minimal infrastructure projects. The future
stability of the region hung in the balance and the breaking of these archaic economic
barriers was one of growing urgency. Without financial help, the U.S. expressing its
40
support would not be meaningful. Unless there was a definitive response on this issue,
after hopes were raised, Central American governments will conclude that U.S. support
will only consist of advice and best wishes.134
Treasury's response to this situation was to offer a vague promise of aid.
Rubottom, obviously frustrated, wrote:
If the current movement toward economic integration were to collapse as a result
of disillusionment over an apparent reversal of our policy, the result would be a
serious blow to the whole range of our relationships with the countries
concerned. Hence, it is urgently essential that our position be clarified. 135
The following day, obviously agreeing with Rubottom on the urgency of the
matter, Mann joined him in a memo to Acting Assistant Secretary of State Dillon. The
memo stated that there was an agreement on the outline of the steps needed to form a
common market. The departments involved had agreed to support a community fund
whose job it would be to facilitate the adjustment of the economies of the member
states to the new common market conditions. The two concluded their memo with the
following question: Are we authorized to speak orally to the governments along these
lines?136
Obviously, Dillon did not feel this memo was adequate since a more detailed
one, complete with rationale, and a call for specific action, was prepared on 4 August.
The new material referred to the work of ECLA and the fear that if the U.S. did not
produce the expected funds, the Latins might find other means of proceeding, but in a
way which would be detrimental to United States interests as well as to the long-term
interests of the countries themselves.
It also included a summary of U.S. public statements of support for a Central
41
American common market, specifically one by Dillon himself on 13 November 1958
before a meeting of the OAS. Mann and Rubottom stated clearly that the United States
was on record as favoring a real common market and of being willing to contribute
material plus moral support. The two advised Dillon that it would be unfortunate if the
Eisenhower Administration reversed itself and reneged on the expected funds at this
late date. As previously noted, earlier in the year the Treasury Department had
opposed a commitment to a community fund and in August, it still held this view.
Specifically, what Rubottom and Mann wanted from Dillon was to get Treasury to agree
to a commitment of funds for sound development projects, which related to integration
totaling $15 million per nation. They also wanted a note sent to Central America stating
this position.137
The following day, Mann changed his position in a memo to Dillon.
He wrote that if he could not put this in writing at least permit him to say this orally to
Guatemala, Honduras and El Salvador, which currently had the best possibilities of
initiating a common market.138
In a key memo sent on 12 August, Mann wrote to Ambassador Kalijarvi in San
Salvador that he had prepared a technical paper that could serve as a basis for
discussion. Mann stated that his government had given this topic considerable
attention and he was authorized to declare that there was no doubt that sound
development projects related to the integration effort would receive sympathetic and
even priority consideration by the DLF. If he, Kalijarvi, and the Ambassador in
Tegucigalpa accepted it as presented, they were to deliver it to Finance Ministers
Rochac and Bueso respectively. After these two had a chance to react, and if Mann did
not hear anything by 18 August, he would forward it to the other three nations. 139 The
42
outcome of the discussions ten days prior with Dillon was to make a commitment but
with no dollar amount. It was no coincidence that 18 August was the date chosen since
the five nations planned to meet eight days later in San José, Costa Rica.
On 15 August, at Agua Azul, the three northern nations met again and, according
to Fuentes Mohr, a participant, they were surprised that the recent U.S. position paper
reflected knowledge of the Esquipulas talks. Only the nations that participated were
supposed to know the details of the meeting. Perhaps the Guatemalan was not aware
of the close relationship that the Salvadorans had with the Eisenhower Administration
overall, and with Mann in particular, as they exchanged views on economic integration
regularly. Fuentes Mohr was disappointed that even at this late date, the United States
was not making a specific commitment of financial support. The Central Americans
concluded that they needed specifics as to the amount of financial resources they could
expect. 140
THE CCEC IN SAN JOSÉ, AUGUST 1959
All five nations of the region met in San José, Costa Rica from 26 August to 2
September for the Sixth Meeting of the CCEC. El Salvador and Guatemala wanted to
pass a resolution to accelerate the process; however, this was not done out of
deference to Honduras. There was hope that the tension between Honduras and
Nicaragua would have subsided before the meeting began. Obviously, this did not
happen.141
Enrique Delgado, the Nicaraguan Finance Minister, knowing that three of his
neighbors had been meeting, proposed that all agree that if one Central American state
43
entered into an agreement with another, the other three had to be informed. He also
proposed that the basis of future agreements be the two treaties of the previous year.
The three-nonconforming nations wanted the freedom to operate and did not want to
create an awkward situation for Honduras. Costa Rica wanted to go slow in any event.
Therefore, seeing no support, Delgado dropped his idea. Some of the representatives
had worked with him for a long time and might have been sympathetic to him
personally, but they were not sympathetic to his government.
Some friction and slow progress were perhaps inevitable. From the early 1950's,
only a handful of regional technocrats, most of whom had studied in the United States,
were very involved or committed to this process. Strong political leaders, such as the
Somozas, tolerated meetings and the talk because it cost them very little. By 1959,
ECLA and some of the technocrats were saying that decisions had to be made. Not
everyone, however. was ready.142
Sol observed in 1959, that the treaties of the previous year were tiny, in the
sense that, as instruments of integration they fell short of the goal. 143 Another wrote
that the progress made in 1958 and 1959 was mostly signing treaties, which called for
further treaties.144
After the close of the San José meeting, a member of the U.S. embassy staff in
Guatemala reported a conversation he had with Fuentes Mohr. The Guatemalan stated
that the U.S. position was largely in line with the thinking of the Central American
Governments. He continued optimistically noting that he did not see adjustment
problems in integrating the region.145
In July and August, Central Americans continued making requests to clarify the
44
question of aid. By September, some key decision makers in the area were still not
satisfied with the answers they were getting. For example, the Salvadoran Foreign
Minister told the U.S. ambassador in El Salvador that he had met with Rubottom at the
ECLA meeting in Santiago, Chile, in early September. There he learned that
Washington was committed to assist each of the five nations with a $15 million fund.
He could not find out, however, if this was going to be a loan or a grant, or whether this
was a suggestion or a firm position. Ambassador Kalijarvi suggested that Mann was
available to visit by the end of the month to clarify these matters.146 Given the on going
disagreements in Washington, it was understandable that there were confusion and
frustration on the part of the Salvadoran.
In the middle of October, the Department of State met with the International
Bank for Reconstruction and Development (IBRD) to discuss plans for organizing a
Central American financial institution. All agreed that the IBRD should make a study as
a first step. This multilateral agency suggested that it needed an invitation into the
region, and Mann volunteered to arrange this with El Salvador. Again, this nation was
seen as our closest friend and ally in Central America - not only because of Mann's
contacts but also because of the orientation of the government and business
community.
THE FAILURE OF REGIONAL INDUSTRIALIZATION
Soon after this Washington meeting, a regional investment conference was held
in San Salvador where the need for a regional bank was established. Heated debates
followed over allocating industries for the regional market. All five nations wanted an oil
45
refinery, for example, and none was willing to trade that interest in exchange for
something else.147
The ideal from a development point of view was to allocate industries for a
specific period to a nation. The ECLA plan envisioned that each would have a
monopoly for ten years with prices regulated by the government during that time. The
paint industry illustrated some of the difficulties, if not the impossibility, of the attempt to
distribute industries. Kativo of Costa Rica established the first paint factory in the
region in 1949. As talks of integration industries evolved, in 1955 the company was
promised to be designated as the regional supplier.148 Talks dragged on and others
moved in to compete for the regional market. By October 1959, there were already
three plants in Central America and four more scheduled to open. At a meeting of paint
suppliers, Kativo reported that probably only two were needed even assuming complete
integration. This company then proposed a producers cartel of the seven companies to
control prices and keep other producers out.149
An observer at the investor's conference reported on regional friction. One
speaker commented that Guatemala did not want integration but rather a bigger
Guatemala. In response, a Guatemalan countered, the real danger lay in the
Salvadorans, who were 'the Japanese of Central America.' 150
At the end of October, the question of U.S. aid was discussed by Fuentes Mohr
and Perry Ellis of the American Embassy in Guatemala. Fuentes Mohr volunteered that
Guatemala, along with El Salvador and Honduras, could form a common market at any
time. A problem was Honduras' fear of being the poor stepsister existing on the charity
of the other two. If a common market with the three countries was possible, he
46
concluded, Honduras had to get financial aid.151
As the year 1959 ended, two reports from Central America showed why El
Salvador was working toward economic integration and Costa Rica was not. In the
former, a meeting of businessmen lobbied the government to work harder for
integration. While in the latter, a newspaper account discussing the bilateral treaty
between Costa Rica and Guatemala concluded that the benefits to Costa Rica are few.
One reason for this position was that recently Costa Rica had a large unfavorable
balance of trade with Guatemala.152
THE TRIPARTITE TREATY OF ECONOMIC ASSOCIATION
As 1960 began, the three northern nations were poised to sign an integration
treaty. According to Joseph Nye who interviewed the principles involved, the ministers
of economy were distressed at the slow speed with which items were to be added to the
1958 treaty. They, therefore, persuaded their presidents, Lemus, Ydígoras, and Villada
to meet at El Poy on 9 January and sign a Tripartite Treaty.153 El Salvador continued to
take the lead to break the impasse. Hector Dada claims that within El Salvador, it was
the bourgeoisie that pushed the government in this direction. 154
Dada explains that 1958 was a difficult year for El Salvador's economy and 1959
was worse. A growing supply of coffee in relation to demand hurt prices of that
commodity. In fact, in the 1950's, coffee production worldwide expanded by 75%. 155
Prices for cotton, another important Salvadoran export, declined because of the
appearance of new synthetic fibers. In addition, 1958 saw a drastic drop in the
manufacturing sector. From 1950-57, growth in that sector averaged 6%. In 1958, the
47
manufacturing sector contracted, and by 1959, it was almost static. Fearing the longrange implications of this pattern, the Salvadoran bourgeoisie pressured their
government to move ahead.156
The Guatemalan bourgeoisie joined their neighbor in this initiative. This nation
already had the largest domestic market for manufactured goods and the largest
industrial work force. It stood to benefit from regional integration. 157 In fact, all five
suffered a 20% decline in terms of trade between 1957 and 1960. 158 Clearly something
needed to be done.
Honduras had strong support for economic integration in the San Pedro Sula
area. This represented a break from the more conservative traditional elite in the
capital of Tegucigalpa. Therefore, with interest high in El Salvador and Guatemala,
these two prodded Honduras to join them. Their effort succeeded. A Honduran active
in these negotiations saw the hand of the U.S. in the prodding. He even reported that
the text presented to the three was only available in English. 159 What he did not realize
was that the Salvadorans were willing accomplices in this plot.
As we have seen, the U.S. was active in pushing for a conclusion to regional
integration efforts. Eisenhower’s administration had consistently lobbied for favorable
conditions for foreign direct investment in Latin America. Uncertainty of integration
efforts over the 1950's surely made it difficult for some multinational corporations to
plan for long term investing in Central America.
The three Central American economics ministers signed the Tripartite Treaty of
Economic Association in February 1960. This document established immediate free
trade of all goods manufactured or originating in any of the three except a specific
48
itemized list. There was to be a gradual tariff reduction, and within five years it would
be a full-fledged customs union with a common external tariff.160 There was a joint fund
established to finance needed adjustments of productive activities and to promote
economic growth.161 Again, Nicaragua and Costa Rica were left out.
The Tripartite Treaty was different from the 1958 treaty in that the former omitted
the principle of reciprocity and equal development. Also, the integration industries idea
put forward by ECLA and opposed by the U.S. was not included. 162 While not the only
nation opposing this proposal, Victor Urquidi and others gave the U.S. credit for
torpedoing it.163 El Salvador and Guatemala, already having an industrial base, could
take advantage of regional market growth without a treaty on integration industries.
Unlike past treaties agreed to by the Central Americans, the three ratified the
one they signed within two months. Prior treaties sat on the shelf for many months,
sometime years, and some they never ratified.164 Momentum was building because of
the convergence of interest of the U.S., Guatemala, and El Salvador.
Stephen Rabe concluded that the U.S. adjusted its Latin American Policy in early
1960 because, under Castro, Cuba was clearly no longer going to be the dependable
client she had been since 1898. A more progressive policy was promoted including
extensive economic aid.165 Of course, this change was happening as Vice President
Nixon was challenging Senator John Kennedy for the presidency. Part of the campaign
involved the debates in the fall where the question of Cuba and what to do about Castro
was a key topic. As the expedition that led to the Bay of Pigs was being organized, the
U.S. was also designing a more positive policy with Latin America that resulted in the
Alliance for Progress.166
49
When ECLA and Nicaragua became aware of the February treaty, they decided
this should be discussed at the CCEC meeting in San José in April. Royce Shaw
concluded in his study on this topic that ECLA took the initiative and convinced Costa
Rica and Nicaragua that the best response was to join the three in accelerating the
process. There was evidence that the two nations left out protested what had been
done secretly in their absence.167 Some of this anger was personal and did not
represent national policy because Costa Rica made it clear that it needed more time to
study the impact of integration and did not oppose its neighbors moving forward. A
Costa Rican politician wrote in 1962 that his government wanted to iron out differences
between the various countries and thus give each of them equal conditions for
attracting foreign capital.168 Perhaps this was a rationalization for his nation to distance
itself from the other four and problems that might result, a position historically taken by
Costa Rica. The Nicaraguan who had worked the most on regional economic
integration, Enrique Delgado, concluded that this was one of the most serious setbacks
for those who had worked for a decade on this project. 169
Just before the San José meeting, the three northern nations met in El Salvador
and signed the Protocol on the Development and Assistant Fund. The goal was a
regional bank, and June was the target date for the three to ratify. Rochac, clearly
following a suggestion of Mann, recommended that the three go to Washington to
pursue the financial support promised by Frank and Turkel. At the San José meeting,
all five nations passed a resolution to establish a regional bank by January 1961. 170
The parallel meetings and discussions continued.
50
SAN JOSÉ MEETING OF CCEC
The CCEC, the regional economic ministers, met in San José in April 1960. The
host nation, Costa Rica, did not meet with the other four as she had not finalized her
position on integration. Enrique Delgado, the Nicaragua delegate, attempted to make
changes in the Tripartite Treaty presented at the meeting. The three who had written
that treaty opposed these changes. One change involved giving a nation the power to
temporarily suspend imports if they were a threat to domestic products. The other was
to be able to raise tariffs unilaterally if serious balance of payments problems resulted.
The three, voting as a bloc, as they had agreed earlier to do, rejected both. They
supported the latter proposal if all the other signers of the treaty agreed. A decade
later, Delgado wrote that the problems of reciprocity and balanced development were
not discussed again after this meeting.171
The outcome of the meeting was a resolution directing the ECLA office in Mexico
City to prepare a draft agreement along the general lines of the one signed by the
Tripartite group. ECLA completed this mission and the staff took it from country to
country to build support for its approval. This was particularly important for Nicaragua
and Costa Rica, as they were not a party to the prior arrangement. Nicaragua's
Somoza must have been the most angry that the U.S. promoted an agreement without
his nation, as he thought he was the Colossus of the North's best friend and most loyal
ally in the region. To assuage wounded pride, the meeting to review the work of ECLA
was scheduled for December in Managua.172 To promote integration, the U.S.
announced that no Central American nation would have access to loans from the yet to
be established regional bank unless it had signed the new integration treaty.173
51
The Regime on Integration Industries disappeared from discussions after this
meeting. It was not just the opposition of Guatemala and El Salvador that doomed it,
but also the difficulty of practical application. There was not a sufficient number of
specific projects ready for implementation for equitable distribution. In fact, the five only
ratified and established one new industry, a caustic soda plant in Nicaragua. An
existing tire plant was granted integration plant status and a pulp and paper plant was
granted to Honduras but never opened.174
On 8 June, the Tripartite group met and signed the Protocol to establish a
development fund. Fuentes Mohr, a representative at the meeting, remembered that
this was done even though in April the three had signed a treaty that included
Nicaragua. His explanation was that this was a hedge in case Somoza's government
backed out. Costa Rica continued to be, by choice, the odd man out. 175
CHANGES IN U.S. POLICY
While this debate was going on in Central America, a related one was taking
place in the White House. A letter to President Eisenhower from Robert Stevens of JP
Stevens complaining of the administration's policy of promoting manufacturing in low
wage countries to supply the U.S. market, provoked the debate. Reacting to the letter,
Secretary of Commerce Frederick Mueller asked Clarence Randall of the CFEP to
study the issue. In defense of the policy, Randall wrote to Major General Wilton
Persons, Assistant to the President, that this goes right to the heart of Eisenhower's
foreign economic policy. Randall pleaded for the President to recognize that there were
two sides to this issue. If he adopted Stevens position, there would not only be an
52
explosion in underdeveloped countries but in some U.S. corporations as well.
Specifically, companies like Chuck Percy's Polaroid were cited for being on the opposite
side of this issue.176 This was the thesis of Ronald Cox's work: Power and Profits. Cox
wrote in the 1950's that there were corporations that favored a nationalist economic
policy and wanted to export their products to developing nations. Others wanted to
invest in low-wage developing nations to supply those markets and to ship to the U.S.
as well. By the late 1950's, the latter group led by the Rockefellers and the Council on
Foreign Relations (CFR) got the upper hand. Cox explained this as the internationalist
group had more access to the president, and during times of crisis, the executive
branch had more leverage over the congressional branch. Nixon's stoning and Castro's
take over produced the crisis in U.S.-Latin American relations. Sputnik and the
shooting down of the U-2 spy plane caused anxiety on the world stage. Gaining the
upper hand, the internationalist lobbied for Latin American economic integration and
expanded U.S. aid to the region.
Some business international leaders met at the CFR in New York in December
1960, to hear a report prepared by Walter Sedwitz. A research fellow at the CFR on
loan from the New York Federal Reserve Bank, Sedwitz had been an advisor to the
Central Bank of El Salvador from 1957-58 and therefore, knew first hand of the
integration efforts in the region.
Sedwitz summarized the issue of Central American integration for a study group
on Economic Integration in Latin America. He began by writing that the work was their
own initiative and progress had been beyond expectations. He saw that the challenge
for the U.S. was to harness the momentum for its own foreign policy interests. The
53
U.S. had been cool to integration. Sedwitz declared, however, that it must accept that
regionalism in Latin America was advancing, and that it would move forward both in
Central America and South America with or without the U.S. He added an ominous
warning. If economic development that was supposed to be promoted by integration
failed, perhaps Castro’s Cuba would be the model to follow.
Sedwitz also addressed two areas of reservation that the Eisenhower
Administration had about integration, promoting trade based on GATT principles and
opposing protectionism, in his paper. Concerning GATT, he suggested that the
Department of State could be flexible in Latin America as it had been elsewhere. As to
protectionism, Sedwitz reminded the group that the region had a long history of
protectionism, and again the U.S. should not be too rigid.
Finally, Sedwitz reviewed Central America’s failed attempts at integration in the
past. Among the topics discussed were the lack of effective leadership and technical
and intellectual guidance. In the 1950's, those Central Americans trained in the U.S.,
such as Jorge Sol, and the ECLA staff provided this leadership and training. Another
reason for past failures was U.S. opposition. Sedwitz wrote that the Central Americans
were moving forward with or without the U.S. The goal was economic development and
political stability that they would achieve more quickly with the chances of success
greatly enhanced, if the U.S. endorsed the concept. 177
At the 7 December meeting when Sedwitz's study was first presented, Henry
Holland was present. He had been Assistant Secretary of State in charge of Latin
America in Eisenhower's first Administration. He announced in the CFR meeting that
the U.S. should support regionalism to enlarge markets as the future of economic
54
development depended on this course of action. 178
These discussions continued into January 1961 when Victor Urquidi joined them.
He told the group that the common market treaty was designed to get Central
American nations to talk about trade problems and to make concessions where
possible. No one should see it as a substitute for a national development policy, he
added. When asked about the CACM that he had worked on for eight years as head of
ECLA's office in Mexico City, he volunteered that the structure was not fully crystallized
because of unstable politics.179
A briefing paper prepared years later for the U.S. Congress on aid to Central
America noted that the U.S. changed its position on the CACM for two reasons. One
was because of the opportunity to promote economic development in the region. The
other was to promote political stability.180
CENTRAL AMERICAN BANK FOR ECONOMIC INTEGRATION
Central America had expectations of aid in the past and had been disappointed.
Things looked promising in 1960, however, because a combination of factors led to a
new aid program.
Until the end of the 1950's, the Eisenhower administration had opposed the aspiration
dating from the 1930's of Latin America for a regional bank to promote economic
development. As part of the reevaluation following Nixon's disastrous trip, the U.S.
finally endorsed a bank in September 1958. To prove that this was not lip service as in
the past, the president requested and congress approved a $500 million socialdevelopment fund.181 After articles of operation were drawn up and signed on 8 April
55
1959, the bank went into operation in October 1960. 182 Fuentes Mohr wrote that the
timing was perfect for this new agency to assist the Central Americans in establishing
their own development bank that was part of the original integration scheme in 1952. 183
In September 1960, there was an Inter-American economic meeting in Bogotá,
Colombia. At this meeting, the four nations who had signed the 1958 General Treaty,
the Tripartite group plus Nicaragua, presented a memo to Douglas Dillon petitioning for
aid to establish a financial institution in Central America to support economic
integration. The petition included a specific dollar request of $30 million. The response
was an invitation to meet again in Washington after the Bogotá conference.
The four did go to Washington at the end of September and met first with
representatives of the newly formed Inter-American Development Bank (IADB) specifically: Alfonso Rochac and Hernandez Viola, staff from Central America who had
worked on economic integration. In fact, Hernandez Viola was working on a project in
Peru, but returned to Washington to help in the negotiations that led to a loan for a new
Central American bank.184
Next, they drew up a draft request that they presented to Mann on 29
September. What they presented had been endorsed in San José the previous April. 185
The visitors told Mann that they needed capital to lend to regional industries, for
infrastructure projects and for administrating the bank. They calculated that they
needed $100 million and only 10% of that was available in local currency. They
requested a commitment of $30 million from the U.S. Mann responded, according to
Fuentes Mohr who was at the meetings, that the U.S. was disposed to help, and the
memo would serve as a basis for further discussions. He estimated that two U.S.
56
development agencies, the International Cooperation Administration and the DLF would
make an initial loan of $10 million with the understanding that more could follow,
depending on the progress made.
In the next two weeks, there were various meetings and exchange of memos,
out of which emerged conditions to which the Central Americans objected. One was
that they could not use U.S. dollars for industrial development. The U.S. diplomats told
the Central Americans to go to the World Bank for these funds. This condition,
according to Fuentes Mohr, was eventually dropped. Another dispute was prior
approval by the DLF for any project worth more than $50,000. The Central Americans
insisted on the threshold of $200,000, and this issue was left unresolved until a later
date. A third problem was repayment. The U.S. wanted repayment in U.S. dollars, and
the Central Americans proposed that they be able to pay at least part in local
currency.186
While concluding that the meetings were not completely successful, Fuentes
Mohr wrote that they made progress. The participants held a press conference to
announce that the U.S. was providing $10 million to a new Central American Bank.
Seven million dollars were available when the bank was functioning, and $3 million
more would be available pending congressional approval in 1961. The IADB promised
an initial line of credit of $5 million.187 These negotiations took place just before the
November election of John Kennedy and the new administration, as we will see,
delivered more aid then the outgoing one.
The press conference referred to above was held two days after Kennedy
defeated Nixon. Perhaps, those in the Department of State who had been working on
57
this issue for eight years, wanted to see economic integration to completion lest the
Democrats decide not to support it. Jorge Sol, reflecting on this pledge two decades
later, concluded that this was the first time Central American leaders could be confident
of U.S. support for integration.188 This gave the effort technical, financial and political
support according to Joseph Pincus, and created a new environment for advancing and
encouraging economic unification. Pincus, a member of the staff of ICA, who had been
a U.S. regional representative in Central America from 1958-60, saw this as the
necessary, missing piece.189
TREATY OF ECONOMIC INTEGRATION AND THE DEVELOPMENT BANK
The five nations opened their meeting in Managua on 13 December. On the
16th, all except Costa Rica signed the General Treaty of Economic Integration. In
addition, they signed a treaty to establish a Central American Bank on Economic
Integration (CABEI). The role of the bank was to maintain balanced development in the
region.190
In the first days of January, a preparatory commission met to put a bank in
place. This group continued to negotiate both with the U.S. government and the IADB.
After concluding again that funds promised by the two entities were not adequate, they
petitioned for more. The new Kennedy administration responded positively to the
request and suggested the $2 million promised the previous year might go up to $6
million in July, the beginning of the next fiscal year. In addition, the interest rates on
loans, and conditions for use of funds were restructured to be more favorable to the
Central Americans.191 Although the president and party were different, two of the key
58
players were still involved: Mann, Assistant Secretary of State, and Dillon, the new
Secretary of Treasury. These two could provide continuity from one administration to
the next.
In their negotiations with the IADB, the Central Americans were also successful.
They got double the amount expected: $10 million plus $100,000 in technical aid to
begin operations.192
After the preparatory commission finished its work in mid-May, 1961, and the
four nations had signed and deposited the document, the Governing Assembly of the
Bank met for the first time on 30 May in Tegucigalpa. On 1 June, the bank began
operations with an initial capitalization of $200 million. The goal of the bank was to
mobilize foreign and domestic capital to finance projects that would further regional
integration and to promote equitably sharing of the benefits of integration. 193
By this time, three of the nations had signed the General Treaty and it was,
therefore, in effect. Honduras joined the following year 1962, and Costa Rica
completed the original design begun in 1951 when it joined in 1963. 194
This treaty was similar to the Tripartite Treaty but different from the ECLA design
that all five signed in June 1958. How was it different? 195
The approach taken in the final treaty was the opposite of the one taken in 1958.
The final one emphasized rapid progress in free trade rather than balanced growth in
the region. Instead of a list of freely traded goods: All goods produced in Central
America are granted immediate free trade, except those included in a list subject to
'temporary exceptions to free trade.' One staff person from ECLA's Mexico City office
wrote years later that this latter treaty was more efficient.196
59
In the decade of the 1960's, the Central American economies grew at a rapid
rate. In fact, an evaluation of the CACM published in 1978 judged it to be one of the
most successful of all integration efforts attempted in developing countries. Regional
integration did promote rapid growth in trade among the five. For example,
intraregional trade was only 2.9% of total exports in 1950 and by 1960, it had only
grown to 6.9%. However, by 1970 it had reached 26.1% of total exports of the five.
Over the same twenty-year period, the value of intraregional trade increased even more
impressively from $8 million to $286 million.197 Of course, the beginning of the Alliance
for Progress in 1961 was a factor in the overall economic expansion as well.
There were negative outcomes as well, however. For example, to compete to
attract new industry the five lowered their external tariffs. As this was a major source of
revenue, fewer funds were available to the governments. 198
One reason why Central American industries did not grow even more after
regional integration had to do with the historical preference for foreign goods on the part
of the area elites. This thinking originated in the colonial period and was still a factor in
the 1960's. The products most desired were those from the U.S. 199
CONCLUSION
On 30 June the three met in La Palma, El Salvador and began a process whereby they
eventually accepted the U.S. changes: everything traded freely with a list of specific
exceptions. In addition, there was no Integration Industries Treaty.
Rubottom and Mann took the lead to persuade Secretary of State Christian
Herter and the other branches of the administration that unless there was a
60
commitment of funds there could be negative consequences. Fifty million dollars was
targeted for infrastructure projects. The Treasury Department was still vague on its
commitment. Rubottom and Mann reminded Assistant Secretary of State Dillon that
beginning in late 1958, the U.S. had gone on public record as supporting a common
market with U.S. funds.
Even as the three northern neighbors met, the larger CCEC continued to meet.
Nicaraguan delegates, aware of what their neighbors had done, attempted to get all five
to agree to continue to support the 1958 treaty. The motion did not carry.
As the price of coffee and the important Central American exports declined in the
late 1950's, the pressure to form a common market increased. El Salvador,
Guatemala, and Honduras signed the Tripartite Treaty of Economic Association in
February 1960. This document established free trade in all goods manufactured or
originating in any of the three except for a specific itemized list. There was to be a
gradual tariff reduction, and within five years a full-fledged customs union. In addition,
there was a joint fund to finance needed adjustments in productive activity and to
promote economic growth.
In April 1960, the CCEC met once again. The outcome of this meeting was a
directive to ECLA to prepare a draft agreement along the lines of the Tripartite Treaty
for the consideration of all five.
At the end of 1960, the Central Americans entered into negotiations with the U.S.
over financial support for economic integration. There were meetings in Latin America
and Washington which eventually led to Mann committing to $10 million with more to
follow, depending on progress. This money was used to establish a new Central
61
American Bank. When John Kennedy took office as president in January 1961, more
dollars were promised in the next fiscal year beginning in July 1961. In addition, the
Central Americans got double the amount expected from the IADB, $10 million. On 1
June, the Central American Bank began operations.
By mid-1961, Guatemala, El Salvador, Nicaragua, signed a new General Treaty.
It reflected the interest of the U.S. and the work of Guatemala, El Salvador, and
Honduras in the previous year and a half. It made trade free in all items expect for a
specific list of exceptions. There was no Integration Industries Treaty.
Three permanent bodies were created to administer economic integration. One
was the Central American Economic Council made up of the five ministers of economy.
There was a Executive Committee made up of a delegate from each. The Permanent
Secretariat of the General Treaty was also created.
Honduras was slow to ratify this treaty. There was a split between the old
political base in Tegucigalpa and the new economic interest of the North Coast. Costa
Rica had intense debates in 1961and 1962 over ratification. A more receptive political
climate and an already operating common market led Costa Rica’s National Assembly
to ratify the treaty in July 1963, thus completing the work begun in 1951 in Mexico City.
CONCLUSION
Regional integration was a dream of many leaders in Central America after the
breakup of the Central American Confederation in 1839. Various attempts at regional
unity failed over the next century. In the late 1940’s and early 1950’s, Central
Americans, led by men like Jorge Sol, saw economic integration as a way to promote
62
needed economic development.
During World War II, the U.S. promised aid to promote development in the
hemisphere in exchange for support of the allied war effort. Since most of the nations
did support the allies, they expected that the close ties fostered by the Good Neighbor
Policy would not only continue, but that they also would expand. Hemispheric nations
were to make development plans at an inter-American conference.
An excuse for not holding the expected conference was that there were too
many conferences to attend. In 1944, leaders of the allied cause met to plan for peace.
Part of the plan was a new world organization. The smaller nations were not involved
in these plans and in Latin America there was concern about the future of the Pan
American Union. The question was how would this fifty-year-old organization fit into
this new arrangement. Many felt that the U.S. was turning its back on them.
As the UN was established and the U.S. neglected to work with Latin America on
regional economic matters, the Latin Americans looked to others for aid. Help came
from a new agency formed under the auspices of the UN: the Economic Commission
for Latin America. Soon after its founding in 1948, Raul Prebisch became its leader.
He concluded that industrialization was the key for economic development in Latin
America. For industrialization to succeed, the region needed larger markets than most
nations had and therefore, Prebisch and other leaders promoted economic integration.
The original focus was southern South America. However, when the Central
American economic ministers arrived for the ECLA meeting in Mexico City in 1951, they
persuaded Prebisch to support their efforts. Conditions were ripe for this initiative in the
five nations as each, to varying degree, had presidents and political leaders who
63
wanted to promote economic development. This was a necessity as population was
growing and new jobs were needed for the new entrants into the market. This was
particularly true of El Salvador as it had the highest population density. Agriculture was
not able to absorb the growing numbers as it had in the past.
Some economic ministers in the region had studied in the U.S. during and after
the recent war and were exposed to new economic development theory which
promoted industrialization. The theory would succeed as nations could expand markets
for industrial goods. A way to achieve this was through economic integration. Thus,
when the Central Americans proposed that ECLA support their effort at economic
integration in 1951, they received support. Some thought that Central America might
serve as a model for the rest of the nations.
ECLA established a regional office in Mexico City to work with the Central
Americans. The Mexican economist, Victor Urquidi, led this office for most of the
1950’s. With ECLA support, the Central Americans designed a treaty of economic
integration in 1957 and in June 1958, the five nations signed the treaty.
Until this point, the U.S. position had been one of watchful waiting. With a treaty
in place, the U.S. decided to act. This 1957-58 period was one in which the Second
Administration of Dwight Eisenhower was attempting to redesign its Latin American
policy. New personnel arrived in essential positions and responded positively to new
ideas. The leaving of Treasury Secretary George Humphrey, who opposed all foreign
aid spending, facilitated the work of those wanting change.
An important leader in this effort was Milton Eisenhower, brother of the
president. He worked with new arrivals such as Douglas Dillon, Roy Rubuttom, and
64
Thomas Mann to construct a new policy on Latin America. What made this effort more
urgent was the stoning of Vice-President Richard Nixon in Caracas, Venezuela in May
1958. Even more serious was the threat posed by Fidel Castro with his take-over of
Cuba in January 1959.
Thomas Mann had been U.S. Ambassador in El Salvador and had many friends
there. In mid-1958, he proposed to these Salvadorans that they work with Honduras to
move integration forward. Unhappy with the 1958 treaty because it stipulated that only
a few goods traded freely with others added by negotiation, the U.S. wanted the
reverse: many goods traded freely and a short list of those not freely traded. The U.S.
also wanted to eliminate the treaty on Integration Industries.
In 1959, working with the U.S., El Salvador invited Honduras, a nation with which
it had a bilateral trade treaty since 1918, to join it. The goal was to move things along
more rapidly with the promise of U.S. funds for the right common market. When
Guatemala learned of the plan, its leaders insisted on being including. The result was a
tripartite treaty signed in early 1960. The idea was to force Nicaragua and Costa Rica
to join the operating group. Nicaragua did join by the end of 1960. However, Honduras
and Costa Rica did not ratify the agreement until 1961 and 1963 respectively. The
Central American Common Market was the most successful in the developing world
until it broke apart in 1969. By that time, many in Honduras felt that they were not
getting much benefit from the arrangement. Long standing tensions between El
Salvador and Honduras over treatment of the former’s citizens by the latter, spilled over
at a soccer match between the two in 1969.This led to war and the withdrawal of
Honduras from the common market. The story of this next phase is the focus of
65
another study.
ENDNOTES
1.Central America: A Nation Divided (New York: Oxford University Press, 1999), pp. 172, 29091. Quote is on p. 291.
2.Isaac Cohen Orantes, Regional Integration in Central America (Lexington, MA.: D.C. Heath,
1972), ch. 1 (hereafter cited as Cohen Orantes, Regional Integration).
3. See Michael L. Krenn, The Chains of Interdependence: U.S. Policy Toward Central America,
1945-1954 (Armonk, NY: M. E. Sharpe, 1996) (hereafter cited as Krenn, Chains of
Interdependence) and John H. Coatsworth, Central America and the United States: The Clients
and the Colossus (NY: Twayne, 1994) (hereafter cited as Coatsworth, Central America).
4.U.S. Department of State, "Third Meeting of the Ministers of Foreign Affairs of the American
Republics: Final Act," Department of State, Bulletin, 7 February, 1942, p. 134; Stephen G. Rabe,
"The Elusive Conference: United States Economic Relations with Latin America, 1945-1952,"
Diplomatic History (Summer, 1978), p. 279 (hereafter cited as Rabe, "The Elusive Conference").
Rabe explains that the Latin Americans had supplied strategically vital material and food during
the war.
5.Rabe, “The Elusive Conference,” p. 282; Victor Bulmer-Thomas, The Economic History of
Latin America Since Independence (New York: Cambridge University Press, 1994), p. 239
(hereafter cited as Bulmer-Thomas, Economic History of Latin America); James William Park,
Latin American Underdevelopment (Baton Rouge: Louisiana State University Press, 1995), pp.
168-9 (hereafter cited as Park, Latin American Underdevelopment).
6.Memo: Objectives of the Economic Charter of the Americas, n.d., folder 136, box 19,
Coordinator of Inter-American Affairs, Nelson A. Rockefeller Papers, Rockefeller Archive
Center, Pocantico Hills, N.Y.; Joseph Love, "Economic Ideas and Ideologies in Latin America
since 1930," in Cambridge History of Latin America ed. Leslie Bethell (New York: Cambridge
University Press, 1994), VI, pt. 1, 402 (hereafter cited as Love, "Economic Ideas and
Ideologies"); Charles Carreras, "The Death of the Good Neighbor Policy," paper presented at The
Third Inter-American Relations Conference, February 1999, Phoenix, AZ.
7.Connell-Smith, The Interamerican System (London: Oxford University Press, 1966), p. 151-5.
8.Ibid., p. 152; Willard L.Beaulac, 8 April 1948, Papers Relating to the Foreign Relations of the
United States, 1948 (Washington, 1972), 9:34 (hereafter cited as FRUS).
9. Connell-Smith, The Inter-American System, p. 152.
66
10. Interview in Jeannette Cecilia Noltenius-Minbiole, "Le Reformisme au Salvador" (Ph.D.
diss., Universite de Paris I - Pantheon - Sorbonne, 1987), p. 47 (hereafter cited as NolteniusMinbiole, "Salvador").
11.Connell-Smith, The Inter-American System. p. 152.
12. An indication of differences over development issues was the fate of the International Trade
Organization. Developing nations wanted language which recognized their particular issues on
trade in general and primary commodities in particular. The U.S. refused to sign the resolution
which developing countries wrote. See Bulmer-Thomas, Economic History of Latin America, p.
268; Joseph H. Love, "Raul Prebisch and the Origin of the Doctrine of Unequal Exchange," Latin
American Research Review, XV (1980), #3, 56-7 (hereafter cited as Love, "Raul Prebisch").
13. Love, "Raul Prebisch," 54; Cohn Orantes, Regional Integration, p. 14.
14. Cohn Orantes, Regional Integration, p. 14; Hirschman, "Ideologies of Economic
Development," pp. 13ff.
15. Robert Gregg, "The UN Regional Economic Commission and Integration in the
Underdeveloped Regions," in International Regionalism: Readings, ed. Joseph Nye (Boston:
Little Brown, 1968), p. 318 (hereafter cited as Nye, International Regionalism).
16. Susanne Jonas and David Tobis, Guatemala (NY: NACLA, 1974), p. 88 (hereafter cited as
Jonas and Tobis, Guatemala); Philippe Schmitter, Autonomy or Dependence as Regional
Integration Outcomes: Central America (Berkeley: University of California Press, 1972), p. 24
(hereafter cited as Schmitter, Autonomy or Dependence).
17. Miguel S. Wionczek, "La altitude de EE.UU. frente al problema de la integración económica
de América Latina," Revista de Economia y Estadistica, Universidad Nacional de Córdoba,
5:1/2, 1 y 2, trimestre (1962), 10.
18. Noltenius-Minbiole, "Salvador," p. 47.
19. Ibid.; Bryce Wood, “The Policy of the United States Toward Central and South America,"
November 1956, folder 47, Box 4, Special Studies Project, Rockefeller Brothers Fund,
Rockefeller Archive Center, North Tarrytown, NY (hereafter cited as RAC). Victor Urquidi, a
Mexican economist who worked with ECLA and Prebisch, concluded that he was "seen as
unfriendly to the U.S." and the U.S. did not like him. Interview with author, 31 March, 2000,
Mexico City.
20.H.S. Tewell to DS, 23 May 1950, CDF 340.210, Department of State Records, RG 59,
National Archives, Washington (hereafter cited as DSR).
67
21."Future of ECLA," Memo of Conversation, Santa Cruz and Dreier, 26 May 1950, CDF
340.210, DSR.
22."A Favorable Climate for Private Investment," Department of State, Bulletin, 13 February
1950, p. 234.
23."Inter-American Relations in Perspective," Department of State, Bulletin, 3 April 1950, p.
521.
24.UN. Economic and Social Council. Economic Commission for Latin America. Report, Third
Session. Montevideo, Uruguay, Commission 1, "Draft Resolutions on Economic Development
and Anti-Cyclical Policy," 20 June 1950.
25.E. Kellogg, "Report on Fourth Session of ECLA," 17 July 1951, Records of Deputy Assistant
Secretary of State for Interamerican Affairs, 1945-56, Subfile, "ECLA," Box 2, DSR.
26.Quote in Noltenius-Minbiole, "Salvador," pp. 49-50; see also Bulmer-Thomas, Economic
History of Latin America, p. 263.
27.Noltenius-Minbiole, “Salvador,” p. 55.
28. Noltenius-Minbiole, "Salvador," p.56; interview with Victor Urquidi, 31 March 2000.
29. Noltenius-Minbiole, “Salvador,” pp. 58-9.
30.Joseph Moscarella, "Economic Integration in Central America," in Miguel S. Wionczek, ed.,
Latin American Integration (NY: Praeger, 1966), p.267 (hereafter cited as Moscarella,
“Economic Integration”).
31.Congress, Senate, Committee on Foreign Affairs, Subcommittee on Inter-American Affairs,
Central America: Some Observations on its Common Market, report prepared by Roy H.
McVickers, 89thCong.,2nd.sess., 1966 (Washington: GPO, 1966), p. 15 (hereafter cited as
McVickers, Central America); Poitevin, El proceso, p.56.
32.Cohen Orantes, Regional Integration, p. 14.
33.Carlos M. Castillo, Growth and Integration in Central America (NY: Praeger, 1966) p.69
(hereafter cited as Castillo, Growth and Integration); Cohen Orantes, Regional Integration, p. 15.
34.Victor Urquidi, Interview with author, 29 July 1993, and 30 March 2000, Mexico City;
"Victor Urquidi," video tape, Living History Program (Durham, NC: Duke University, 1989);
Cohen Orantes, Regional Integration, p. 15.
35.Cohen Orantes, Regional Integration, p.10.
68
36. USDC, Investment in Central America, p. 26.
37.Walter J. Sedwitz, "A Common Market for Latin America," Current History, vol. 43 (July,
1962), p.9.
38.Jorge Sol, “El Proceso de Nuestra Integración Económica,” in Eduardo Lizano F., La
Integración Economic Centroamericana (Mexico: Fundo de Cultura Económica, 1975), p. 75
(hereafter cited as Sol, “El Proceso”).
39.Noltenius-Minbiole, "Salvador," p. 57.
40.Noltenius-Minbiole, "Salvador," p. 57.
41. CICR, Actas, #420, 24 Marzo 1952, p. 445.
42.Ronald W. Cox, Power and Profits: United States Policy in Central America (Lexington, KY:
University Press of Kentucky, 1994), p. 20(hereafter cited as Cox, Power and Profits).
43.UN, Economic and Social Council, Economic Commission for Latin America, Commission
on Economic Co-operation of the Ministers of Economy of the Central American Isthmus,
Tegucigalpa, Honduras, August 23, 1952, Preliminary Report of the Executive Secretary of
ECLA on Economic Integration and Reciprocity in Central America, pp.7-9, 35.
44.Noltenius-Minbiole, "Salvador," p.62-3.
45.Joseph Pincus, The Central American Common Market (Mexico: Regional Technology and
Aid Center, Agency for International Development, 1962), Table XXII, p. 58 (hereafter cited as
Pincus, Central American Common Market).
46.Quote in Thomas Zoumaris, “Eisenhower's Foreign Economic Policy: The Case of Latin
America,” in Richard Melanson and David Meyers, eds., Reevaluating Eisenhower: American
Foreign Policy in the Fifties (Urbana, IL: University of Illinois Press, 1987), pp. 163-4 (hereafter
cited as Zoumaris, “Eisenhower's Foreign Economic Policy”); Stephen G. Rabe, Eisenhower and
Latin America: The Foreign Policy of Anticommunism (Chapel Hill: The University of North
Carolina Press, 1988), pp. 67-8 (hereafter cited as Rabe, Eisenhower and Latin America); Burton
I. Kaufman, Trade and Aid: Eisenhower's Foreign Economic Policy, 1953-61 (Baltimore: Johns
Hopkins University Press, 1982), p. 162 (hereafter cited as Kaufman, Trade and Aid); Willard L.
Thorpe, The Reality of Foreign Aid (New York: Praeger, 1971), p. 50.
47.Rabe, Eisenhower and Latin America, p.66.
48.Cale to Cabot, 13 May 1953, Middle American Affairs, 1947-56, Subject File, “Central
American Foreign Ministers,” Box 3, DSR.
69
49.FRUS,1952-1954, 4:6-10.
50.Comment by Holman, Special National Security Council Meeting, 31 March 1953, National
Security Council Series, Box 4, Whitman File, Dwight D. Eisenhower Library, Abilene, KN
(hereafter cited as EL).
51.Milton Eisenhower, “United States-Latin American Relations: Report to the President,”
Department of State Bulletin, 23 November 1953, quote on p. 701; 696, 716 (hereafter cited as
M. Eisenhower, “Report,” 1953); H. W. Brands, Jr., Cold Warriors: Eisenhower and American
Foreign Policy (New York: Columbia, University Press, 1988), pp. 31, 36-8 (hereafter cited as
Brands, Cold Warriors); C. Douglas Dillon, 28 June 1972, Columbia University Oral History
Collection, New York, NY (hereafter cited as CUOH).
52.Hispanic American Report, VI, 4, 15.
53.Memo to Cabot, 28 July 1953, Records of the Assistant Secretary of State for Interamerican
Affairs, 1945-56, Subject File, “Cabot,” Box 4, DSR.
54.Alberto Fuentes Mohr, “Surgimiento y Orientación del Programa Multilateral, 1951-52,” in
Eduardo Lizano F., ed., La integración economica centroamericana (Mexico City: Fondo de
Cultura Económica, 1975), p.86; Noltenius-Minbiole, “Salvador,” pp.61-2.
55.Johnson to DS, telegram, 18 April 1953, San José, CDF 340.210/4-1852, DSR.
56.Johnson to DS, 28 April 1953, CDF 340.210, DSR.
57."Status of U.S. Relations with other Free World Nations," 1 August 1953, pp. 40-1, secret,
Miss. Series, Box 2, Whitman File, EL.
58."CFEP," Office of the Chairman, Paper Series, Box 3, Council on Foreign Economic Policy,
EL.
59.Memo of Conversation, FRUS, 1955-1957, 6:521.
60.Dr. Eisenhower Briefing, 7 July 1958, Subject File, 1957-59, Record of Assistant Secretary of
State Roy Rubottom, "1958 Milton Eisenhower Trip," DSR (hereafter cited as RR).
61.27 January 1958, Speeches, Box 3, Mann Papers, EL.
62.19 January 1958, ibid.
63.5 July 1958, "1958 Speeches," 1957-'59, Box 10, RR, DSR.
63Clarence Boonstra telephone interview with author 30 March 1993.
70
65.Noltenius-Minbiole, “Salvador,” p. 77; Jonas and Tobias, Guatemala, p. 86; Schmitter,
Autonomy and Dependence, p. 15; James Dunkerky, The Long War: Dictatorship and
Revolution in El Salvador (London: Verso, 1982), p. 41.
66.Autonomy or Dependence, p. 15.
67.Hispanic American Report (January, 1959), XXII, 15.
68.Royce Q. Shaw, Central American Regional Integration and National Political Development
(Boulder, CO: Westview Press, 1978), p. 22 (hereafter cited as Shaw, Central American Regional
Integration).
69.Thomas C. Mann, "Be There Yesterday: The Adventures of a Career Foreign Service Officer,"
TMs (photocopy), provided to author, p. 30; Fuentes Mohr, La creacíon, pp. 180-1. J. Sol
recalled when he was with Lemus and Rochac in DC he first heard of Manns's scheme prepared
“months before... possibly between Rochac and Mann.” Noltenius-Minbiole, “Salvador,” pp. 68,
71.
70.Kalijarvi to DS, San Salvador, 6 January 1959, secret telegram, CDF 415.1641, DSR.
71.Stephen Webre, José Napoleón Duarte and the Christian Democratic Party in Salvadoran
Politics ( Baton Rouge: Louisiana State University Press, 1979), p. 23.
72.Mann, TM, p. 34; El Diario de Hoy (San Salvador), 19 March 1959, n.p.
73.Harold Randall to Rubottom, “1959 Economy,” Subject File, 1957-59, Box 12, RR, DSR.
74.Alfonso Rochac to Mann, 25 February 1959, enclosed in Thorsten Kalijarvi to DS, 3 March
1959, 813.00/2-1356, DSR.
75.Kalijarvi to DS, secret telegram, 6 January 1959, 415.1614 DSR.
76.La economía de El Salvador y la integración Centro Americano, 1945-1960 (San Salvador:
UCA Editores, 1978), p. 97.
77.Cohen Orantes, Regional Integration, pp. 29-31.
78.Alberto Fuentes Mohr, La creación de un mercado común (Buenos Aires: Banco
Interamericano de desarrollo, 1973), p. 178 (hereafter cited as Fuentes Mohr, La creación).
79.Although it is not clear when Fuentes Mohr knew, he at least knew by mid-February because
Victor Urquidi remembered that he called him to tell him of the U.S. plan after hearing of it from
Frank and Turkel. See discussion below. Urquidi interview with author, March, 2000. Jorge
Sol also recalled telling the Guatemalan after the Lemus visit to DC in March. See Noltenius71
Minbiole, “Salvador,” p. 74.
80. C. Allen Stewart to Robert Newbegin, 24 December 1958, Subject File 1957-58, Box 1,
Records of Central America and Panamá Affairs, Records Relating to Honduras, DSR.
81.Harry Turkel and Isaiah Frank, “Central American Integration: Report on Trip”, Box 3,
Agency Subseries, Randall Series, Office of the Chairman, Council on Foreign Economic Policy,
Eisenhower Library, Abilene, KS (hereafter cited as Turkel, Frank Report, EL).
82.Ibid.
83. On close ties to Salvadorans see: Mann, “Memoirs,” p. 34; Noltenius-Minbiole, “Salvador,”
p. 70; Cohen Orantes, Regional Integration, p. 31.
84.Rochac to Mann, 25 February 1959, enclosed in Kalijarvi to DS, 3 March 1959, CDF 813.00,
DSR.
85.Noltenius-Minbiole, “Salvador,” p. 67; Dada Hirezi, La economía de El Salvador, p. 97.
86.Noltenius-Minbiole, “Salvador,” p. 67; Cohen Orantes, Regional Integration, p. 27.)
87.Turkel, Frank Report, EL.
88.Ibid.
89.Ibid.
90.Ibid. The $100 million figure is found in Fuentes Mohr, La creación, p. 182; and Jonas and
Tobis, Guatemala, p. 88.
91.Growth and Integration, p. 86; Cohen Orantes, Regional Integration, pp. 24-5.
91.Turkel, Frank Report, EL.
92.27 February 1959, Cabinet Series, Box 13, Whitman File, EL; Gray to Richard Nixon, 2
March 1959, ibid.
93.La creación, p.182.
94.CUOH.
95.Ralph N. Hoffman, “Latin American Diplomacy: The Role of the Assistant Secretary of
State” (Ph.D. diss., Syracuse University, 1969), p. 17.
72
96. N.d., Herter to Ike, “JFD 5/58,” Dulles-CH, box 10, Whitman File, EL; Rubottom to Herter,
24 September 1958, Chronological File, September, 1958, Box 5, Herter Papers, EL; Herter to
Eisenhower, 25 September 1958, International Series, Box 9, Whitman File, Dwight D.
Eisenhower Papers, EL; New York Herald, 13 March 1959, p. 14.
97. 26 March 1959, Herbert Leggett to Rubuttom, “1959 H,” Sub. File 1957-59, Box 13, RR,
DSR.
98. 11 March 1959, Washington Post, p. 1.
99. Enclosed in March 1959, Subject File Relating to Regional Economic Affairs, 1951-61, Box
4, Record of Bureau of International Affairs, DSR.
100.Noltenius-Minbiole, "Salvador," pp. 69-70.
101.Memo of telephone conversation, 11 March 1959, Herter Papers, Box 12, DSR.
102.”1959-El,” Sub. File 1957-59, Box 13, RR, DSR.
103.”El Salvador Briefing”, 4 March 1959, International Series, Box 9, Whitman File, EL.
104.R. Leggett to Rubottom, 13 March 1959, “1959 Economy”, Subject File, 1957-59, Box 12,
RR, DSR.
105.N.d. “Milton Eisenhower, 1958", Name Series, Box 13, Whitman File, Dwight D.
Eisenhower Papers, EL.
106.Dada Hirezi, La economía de El Salvador, p. 95; Noltenius-Minbiole, “Salvador,” pp. 71-2;
David Reynolds, Rapid Development in Small Economies (NY: Praeger, 1967), pp. 55-6; Cohen
Orantes, Regional Integration, p. 2.
107.Cohen Orantes, Regional Integration, p. 27.
108. 11 March 1959, Memo of conversation, Ortiz Mancia et al and Roy Rubottom et al, CDF
415.162, DSR.
109.El Diario de Hoy (El Salvador), 13 March 1959, n.p.; ibid, 11 March 1959, n.p.; 12 March
1959, n.p.
110.”President calls for increased foreign aid,” New York Herald, 14 March 1959, p. 1.
111. Noltenius-Minbiole, “Salvador,” p. 74.
112.El Diario de Hoy (San Salvador), 13 March 1959, pp. 2,14.
73
113.Noltenius-Minbiole, “Salvador,” p. 74.
114.UN, Economic Commission for Latin America, Report of the Central American Economic
Cooperation Committee. 25 February 1957 to 10 June 1958 (1959), p. 6.
115.Noltenius-Minbiole, “Salvador,” p. 74.
116.El Diario de Hoy (San Salvador), 23 March 1959, p. 13.
117. 24 March 1959, p. 7.
118.Noltenius-Minbiole, “Salvador,” pp. 66, 69.
119.Fuentes Mohr, La creación, p 181; various dispatches from Central America in 1959 report
trouble with Nicaragua. For example: Whiting Willauer to Rubottom, 1959-Costa Rica, Subject
File, 1957-59, Box 12, RR,DSR; minutes of National Security Council, #396, 12 February 1959,
box 11, NSC Series, Ann Whitman File, EL.
120.Herter to San Salvador and Tegucigalpa and reported to Managua, San José and Guatemala
City, 27 March 1959, 813.00/TA/11-595, DSR.
121.In Ney, International Regionalism, p. 396.
122.Fuentes Mohr, La creación, pp. 182-3. Guatemala would be isolated from Nicaragua and
Costa Rica as she only had a common border with Honduras and El Salvador.
123.Kalijarvi to Rubottom, 14 May 1959, 1959 El Salvador, Subject File 1957-59, Box 13,
RR,DSR.
124.Memo of conversation, Clarence Randall and Prebisch, 24 June 1959, 1959 Economy,
Subject File 1957-59, Box 12, RR,DSR.
125.Fuentes Mohr, La creación, p. 183.
126.Kalijarvi to DS, 29 June 1959, confidential, 813.00, DSR.
127.Kalijarvi to DS, 6 July 1959, 813.00, DSR.
128.Memo,2 July 1959, Chronological File, Box 2, Mann Papers, EL.
129.Ibid.
130.Edward Clark to DS, 14 July 1959, 816.00/1-958, DSR.
74
131.Fuentes Mohr, La creación, pp. 186-7.
132.Ibid., pp. 185-6.
133.813.10, DSR.
134.Ibid.
135.Ibid.
136.Memo, Box 2,Mann Papers, EL.
137.Literally they wanted him to check a yes or no statement. 1959 Common Market, Subject
File 1957-59, Box 12, RR,DSR.
138.Box 2, Mann Papers, EL.
139.Ibid.
140.Fuentes Mohr, La creación, p. 189.
141.Ibid.; Kalijarvi to DS, 17 September 1959, 1959 El Salvador, Subject File 1957-59, Box 13,
RR,DSR; Costa Rica, Hispanic American Report, 12 (August 1959), p. 428.
142.Joseph Nye, "Central American Integration,"in Nye, International Regionalism, p. 387.
143.La Integración económica de Centroamérica y los programas nacionales de desarrollo
económico, in Jorge Luis Arriola (ed.), Intergración Económica de Centroamérica (San Salvador,
1959), p. 70.
144.Cohn Orantes, Regional Integration, p.24.
145.Perry Ellis to DS, 16 September 1959, 813.00, DSR.
146.Memo of conversation, Kalijarvi and Ortiz Mancia, enclosed in Kalijarvi to DS, 17
September 1959, 1959 El Salvador, Subject File 1957-59, Box 13, RR,DSR.
147.David Reynolds to DS, 10 November 1959, 813.051, DSR.
148.Reynolds to DS, 2 November 1959, 813.3974, DSR; Ralph Z. Sorenson, Kativo Chemical
Industries, Cambridge, MA,1965.
149.Reynolds to DS, 2 November 1959, 813.974, DSR.
75
150.Ibid., 10 Nov. 1959, CDF 813.051, DSR.
151.Perry Ellis to DS, 26 Oct. 1959, 813.00/10-2659, DSR.
152.James Johnson to DS, 2 Nov. 1959, 414.1841, DSR.
153.Nye, Central American Regional Integration, p. 29; Thorsten V. Kalijarvi, Central America:
Land of Lords and Lizards (New York: D. Van Nostrand Co., 1962), p.64.
154.Sol, "El Proceso," p. 61; Dada Hirezi, La economía de El Salvador, p. 61.
155.Major Commodities of Latin America, in South America, Central America and the
Caribbean, 1986 (London: Europa Publications, 1985), p. 30.
156.Fuentes Mohr, La creación, p. 176; Dada Hirezi, La economía de El Salvador, pp. 61-2.
157. Robert Gregory Williams, "The Central American Common Market: Unequal Benefits and
Uneven Development," (Ph.D. diss., Stanford University, 1978), 215-21 (hereafter cited as
Williams, "The Central American Common Market").
158.Pincus, Central American Common Market, Table XXII, p. 58.
159.Williams, "The Central American Common Market," p.300; Darío A. Euraque,
Reinterpreting the Banana Republic: Region and State in Honduras, 1870-1972 (Chapel Hill:
University of North Carolina Press, 1996), p. 77-9; Meldon E. Levine, El Sector Privado y el
Mercado Común (Guatemala: Instituto Nacional de Administration para el desarrollo, 1968), p.
12.
160.Cohen Orantes, Regional Integration, p. 32; Moscarella, "Economic Integration," p. 269.
161.Castillo, Growth and Integration, p. 86.
162.Eduardo Lizano, “El proceso de integración economica,” in Edelberto Torres-Rivas, et al.,
Centroamerica Hoy (Mexico: Siglo XXI, 1975), p. 199; John F. McCamant, Development
Assistance In Central American (NY: Praeger, 1968), p. 253.
163."Incidentes de integración en Centroamérica y Panamá," 1952-1958, Revista de la CEPAL,
Numero extraordinario (Octubre, 1998), p. 265. In an interview with the author in March, 2000,
Dr. Urquidi agreed that even if the U.S. had not opposed this treaty, it would have been difficult
to put into place successfully.
164.Ibid., p. 33.
165.Stephen G. Rabe, “Dulles, Latin America and Cold War Anti-Communism,” in John Foster
76
Dulles and the Diplomacy of the Cold War, ed. Richard H. Immerman (Princeton: Princeton
University Press, 1990), p. 187.
166.Milton Eisenhower, Wine is Bitter: The U.S. and Latin America (Garden City,
NY:Doubleday and Co., 1963), ch 8.
167.Shaw, Central American Regional Integration, p, 29; Cohn Orantes, Regional Integration, p.
34; Sol, "El Proceso," p. 80.
168.Eduardo Mora Valverde, Some Problems of the Economic Integration of Central America,
World Marxist Review 5 (June, 1962): 45.
169.Enrique Delgado, “Institutional Evolution of the Central American Common Market and the
Principle of Balanced Development,” in Economic Integration in Central America, eds. Enrique
Delgado and William R. Cline, Washington: The Brookings Institution, p. 29 (hereafter cited as
Delgado, "Institutional Evolution of the Central American Common Market").
170.Fuentes Mohr, La creacíon, pp. 236-8.
171.Ibid., p. 185; Delgado, “Institutional Evolution of the Central American Common Market,”
p. 30.
172.Noltenius-Minbiole, Salvador, p. 77.
173.Shaw, Central American Regional Integration, p. 29.
174.Delgado, “Institutional Evolution of the Central American Common Market,” pp. 28, 56,
fn.11.
175.Fuentes Mohr, La creacíon, p. 236.
176.21 March 1960, Stevens to Eisenhower; 29 March 1960, Muller to Randall; 30 March 1960,
Randall to Persons, in CFER, Rec, Policy Papers Series, # 590, Box 1, EL. The U.S. effort to
promote the right kind of common market in Central America was part of a larger plan dating
from 1953 to create a positive environment to attract foreign direct investment. This was to
promote development and make foreign aid unnecessary.
177.Sedwitz, 7 November 1960, passim, CFR.
178.Ibid., 7 November 1960, p. 12, CFR.
179.Summary of 16 November meeting found in report of CFR, 23 February 1961, p. 2, CFR.
180.Congress, House, Committee on Foreign Affairs, Subcommittee on Inter-American Affairs,
77
U.S. Assistance To Central American Regional Organizations (Washington: GPO, 1969), pp. 12.
181.J. Lloyd Mecham, A Survey of United States-Latin American Relations (New York:
Houghton Mifflin Company, 1965P, pp. 198-99.
182.Ibid., pp. 199-200.
183.Fuentes Mohr, La creacíon, p. 235.
184.Interview with author, 27 July 1996, San José, Costa Rica.
185.Fuentes Mohr, La creacíon, p 236.
186.Ibid., pp. 239-43.
187.Ibid., p 245; Department of State, Bulletin, 21 November 1960, pp. 782-3.
188.Noltenius-Minbiole, “Salvador,” p. 65.
189.Pincus, Central American Common Market, p. 120. Clarence Boonstra agreed with this
conclusion; interview with author, 30 March 1993.
190.Jonas and Tobias, Guatemala, p. 89; Fuentes Mohr, La creacíon, p. 245; Delgado,
“Institutional Evolution of the Central American Common Market,” p. 31.
191.Fuentes Mohr, La creacíon, p. 249.
192.They also got a line of credit of $1 million from both Bank of America and Bank of Mexico.
See Ibid., pp. 250-2.
193.Ibid., pp. 248-51; Frank L. Keller, "ODECA: Common Market Experiment in an
Underdeveloped Area, Journal of Inter-American Studies 5 (April, 1963): 271; Castillo, Growth
and Integration, p. 88.
194.US. GAO, Progress and Problems In US Aid to the Economic Unification of Central
America (Washington, 1970), pp. 7-8.
195.Jonas and Tobias, Guatemala, p. 89.
196.Castillo, Growth and Integration, quote on p. 87, pp. 88-90. For a list of exceptions to
regional free trade see: Moscarella, Economic Integration, p. 270.
197.William R. Cline and Enrique Delgado, “Introduction,” in William R. Cline and Enrique
78
Delgado, eds. Economic Integration in Central America (Washington: The Brookings Institution,
1978), p. 2; Edelberto Torres-Rivas, “Crisis and Conflict, 1930 to the present,” in Central
America Since Independence, ed. Leslie Bethell (New York: Cambridge University Press, 1991),
pp. 96-8 (hereafter cited as Torres-Rivas, “Crisis and Conflict”).
198., Delgado “Institutional Evolution of the Central American Common Market,” p. 29.
199.Torres-Rivas, “Crisis and Conflict,” p. 108.
79