825.51/1055
The Ambassador in Chile (Armour) to the Secretary of State
[Received March 3.]
Sir: I have the honor to inform the Department that I arrived in Santiago by plane returning from the United States on Tuesday, February 21st last. This morning, having had an appointment to visit the Minister of Foreign Affairs44 for the purpose of signing and exchanging notes prolonging the modus vivendi,45 he raised the question of my visit to Washington and I took the occasion to explain to him briefly the situation at the time I left: which was to the effect that the charter of the Export-Import Bank having been due to expire [Page 440] in June next the question of its extension was then before Congress and until this had been decided and the exact terms of the new or revised charter were known, it would be impossible to give any definite reply to the Chilean Government on the proposals submitted by the Minister of Finance. I explained to the Minister, however, that I felt sure that once the question of the Bank’s charter had been settled our Government would be disposed to give every consideration to the Chilean proposals. I ventured to suggest, however, that the amounts involved were very high and that it would probably be advisable to take up first the most urgent and necessary measures which I presumed would be those involving supplies and materials to be used in reconstruction arising out of the earthquake disaster. I also explained to the Minister that the 3 percent rate of interest mentioned in the Chilean Government’s memorandum was, I felt, too low, and that I thought that the Bank would probably not be able to consider a figure below 4½ to 5 percent. Subject to these qualifications, however, I felt sure that if the charter of the Bank were renewed, our Government would do what it could in the matter of extending credit to Chile for the purchasing in the United States of needed materials.
Following my interview with Señor Ortega I received word that the Minister of Hacienda would like to see me later in the afternoon, and I have just returned from a conversation of more than an hour with Señor Wachholtz. I was accompanied by the Counselor of the Embassy,46 but the Minister himself was alone.
I outlined to Mr. Wachholtz the situation as I had given it to the Minister of Foreign Affairs, only in more detail as of course Señor Wachholtz is more familiar with the various proposals and is the one bearing the brunt of trying to secure favorable consideration by Congress of the Government’s proposed tax bill. Señor Wachholtz appeared tired and worn and showed plainly the effect of the arduous two weeks he had been through in his negotiations with Congress since my departure.
After expressing appreciation of the sympathetic reception which I told him his proposals had received in Washington, he asked me whether I could give him any assurances as to the possibility of loans from the United States either from the Government or bank loans of some nature or other. I told him quite frankly that all that I could do was to assure him that once the charter of the Bank had been renewed I felt sure our Government would be willing to receive him or any delegate he might decide to send with a view to examining the various proposals, but reiterated that I thought it would be a wise move on his part to reduce the amounts for the present, at any rate to essentials and to materials for projects most urgently required. [Page 441] I said that of course anything having to do with necessary earthquake reconstruction would naturally commend itself to the particular sympathy of the Government and the people of the United States, and that I wondered whether it would not be a wise move to begin with certain of these measures, then later perhaps presenting the more urgent aspects of his general economic (fomento) plan. At the same time I explained to the Minister as I had already done in my talks with him prior to my departure that a determination by the Chilean Government to continue with the maintenance of the present debt plan and a moderate attitude toward American companies and investments in Chile would do more in my opinion to secure favorable consideration of the various projects he had in mind than any other factor. Not unnaturally, perhaps, I said New York and even Washington were looking with some apprehension as to what the new Government’s attitude might be in these directions, and I felt it my duty to state quite frankly that drastic action against the American companies would make it very difficult, if not impossible, for our Government or for one of its agencies, e. g. the Export-Import Bank, to consider favorably or with the same sympathetic approach the plans the Minister was putting forward.
The Minister said that he understood the situation clearly but that on the other hand he was in a very difficult position as the Government must have money and must get it somewhere. We suggested that possibly the abandonment for the present at least of the proposed construction of two cruisers might help out. The Minister admitted that this would yield a saving of $4,000,000 a year which over his proposed 5 year period would certainly amount to a very considerable sum. However, he refused to commit himself on this subject and both Mr. Frost and I received the distinct impression that the Government’s decision on this point, which both parties have avoided publicly discussing, has not yet been taken.
The Minister asked if I could give him any indication as to up to what amounts the Export-Import Bank would be willing to give credits to Chile. I replied that I felt that discussion of amounts was futile at this time, certainly until we had some further word as to the terms under which the charter of the Bank would be renewed.
The Minister went on to say that credits for the purchase of needed materials in the United States would not be enough, that actual cash would also be required, and that this they would have to secure from outside Chile. Pressed on this point he explained that using as a basis of argument a total of $80,000,000 over a five-year period this would be $16,000,000 a year, of which he thought 70 percent could be in materials furnished, but the remaining 30 percent would have to be cash.
[Page 442]The Minister asked me whether I could give him definite information as to our Government’s proposals with regard to the charter of the Bank. I explained that the hearings were in progress when I left and that various changes had been suggested, among them being one to restrict to $100,000,000 the total amount which the Bank could have outstanding at any one time in the form of credits. I understood that the bill renewing the charter of the Bank had been favorably acted upon by the Senate with this proviso and returned to the House, where I thought it possible that further changes might be made, perhaps even in the direction of increasing the amount mentioned above. The Minister seemed to be somewhat concerned over the limitation suggested, adding that he thought it probable that Brazil alone would be able to use up the $52,000,000 remaining,—$48,000,000 being the sum which he understood was already outstanding. I told the Minister that I felt sure that every consideration would be given to Chile’s needs and that frankly for the present more than that I could not say. The Minister seemed to be most anxious to know whether, under the new or revised powers of the Bank, it would not be possible to have a cash loan in some form made available. I told him that this was a question which I could not answer: that up to the present I understood that the Bank’s powers had not included loans of that type and from the tenor of Congress when I left it seemed unlikely that the powers of the Bank would be enlarged in this direction: that the general inclination seemed on the contrary to be to restrict the powers of the Bank.
I told Señor Wachholtz, who appeared to be very discouraged at the prospects before him, that I expected within the next few days that we would have more definite word with regard to the renewal of the Bank’s charter and that then I hoped to be in a position to discuss the whole question with him in more definite form. He said that his main difficulty was that in his sessions with the Congressional Committee he was being pressed as to the possibility of an external loan being accorded Chile, and until he was able to give some definite reply on this point the situation was going to remain difficult if not critical for the Government. I told him that naturally the question of loans by private banks, or agencies not connected with the Government, was outside of my jurisdiction and was a question which he and his Government would have to take up with the banks themselves. I said that much as I should like to give him some encouragement I could not properly do so at this time: that it would only create misunderstanding later if we were to give him the impression now that something along these lines might be forthcoming or he on his part should give the impression to the Congress here that a loan or loans of some nature from the United States would be forthcoming later. I did say, however, that I felt that if he would be willing to proceed for the present [Page 443] on the basis of continuing under the present foreign debt arrangement and to show a moderate attitude in dealing with American companies and others having investments in Chile and content himself with securing consideration of the immediate needs of the Government through credits extended by the Export-Import Bank, I felt that such procedure would create a most favorable impression abroad and very possibly increase Chile’s credit to the extent of later enabling them to secure loans or credits of some sort along the lines which he had envisioned.
The Minister admitted that perhaps what I said might well be true, but frankly the Government was faced with a difficult problem and that he feared that more immediate assistance would be required and that for this purpose the Government might find it necessary to have recourse to the American companies for financial assistance as well as possibly revising their stand on the foreign debt. In any case he said he would proceed very carefully, particularly bearing in mind what I had said about the necessity of doing nothing to upset the favorable impression which the Chilean Government had already created and the good will with which he knew the government at Washington would approach the proposals he had placed before them in his memoranda47 which I had taken with me on my visit to Washington.
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Respectfully yours,