825.51/1057: Telegram

The Acting Secretary of State to the Ambassador in Chile (Armour)

41. Reference Department’s telegram no. 40, March 9, 7 p.m. and Embassy’s telegrams nos. 49, March 10, 3 p.m. and 50, March 10, 7 p.m.48

[Page 444]

The Department continues to be greatly interested in the development of events in Chile, especially as bearing upon American investment and trade. The position in Washington at the moment appears to be as follows:

(1) It is believed that it is essential to keep before the Chilean Government the necessity of avoiding all action vis-à-vis American interests of a confiscatory or discriminatory character. It is expected that the Chilean Government will deal with them according to the established rules of international law. American enterprise of course must make an equitable contribution to the needs of the country and government.

We hope of course that the Chilean Government will not suspend payments on its dollar external loans. The maintenance of such payments would make any action by this Government easier to carry through and complete suspension would make American governmental assistance difficult. However, the Department is not prepared to take a rigid stand in this matter and if, as part of its general program, the Chilean Government should reduce debt payments for a limited period, it might be that we would not assume a critical position.

(2) The Chilean economy appears to be in real difficulty. Neither the Chilean Government nor the American enterprises operating within the Chilean economy can expect to overcome the necessity for adjustments or sacrifices by securing large scale financial assistance from the American Government. Nor would such a policy, involving as it might the creation of substantial new debt without proper adjustment of underlying conditions, be mutually beneficial in the long run.

(3) Keeping clearly in mind these observations, the American Government would like to be helpful in the circumstances. It is therefore fully prepared to give consideration to such proposals for financial assistance or cooperation as the Chilean Government may wish to present. However, before any action could be taken on such proposals this Government, and the Treasury and the Export-Import Bank in particular, would have to be convinced that the whole program contemplated by the Chilean Government promised to establish a sound working basis for Chile, and that the assistance requested of the United States would be a fair contribution to the general adjustment undertaken by the Chilean authorities and the private economic interests involved. Furthermore, such assistance could probably only be carried through with the consent of Congress as it would likely involve the necessity of raising the present limit upon the operations of the Export-Import Bank or other congressional authority.

If the Chilean authorities formulate any requests or you wish to formulate any, the Department will discuss them promptly with the Treasury and Export-Import Bank. For your own guidance: [Page 445]

(a)
The Chilean plans for expenditures amounting to 25 hundred million pesos seem over-ambitious if they are contingent upon raising four-fifths of the amount by foreign loans. We doubt whether an appreciable amount, if any, could be raised abroad. It would seem that the program should be started on a small enough scale to give reasonable assurance that it can be financed internally and externally and that any credits granted may be repaid within a reasonable period of time.
(b)
The housing project might be deferred except possibly that part within the earthquake area.
(c)
Funds for all domestic labor and materials should be raised in Chile. Your despatch no. 537, March 1,49 would indicate that this is feasible, particularly if the funds for the cruiser purchase plan should be diverted, at least temporarily, for this purpose. However, the Government of the United States cannot of course undertake to advise the Chilean Government with respect to the diversion of these funds.
(d)
The Export-Import Bank might consider the extension of short-term acceptance credits to enable Chile to liquidate the present exchange arrears for imports of American products. (It would be desirable to have information indicating the composition of exchange arrears by countries and by type, that is, imports, remittances of earnings, etcetera.)
(e)
The Export-Import Bank might consider specific proposals for the longer term financing of exports of American products necessary in the furtherance of the Chilean program.

The Department believes that no useful purpose would be served by having a Chilean representative come to Washington at this moment to discuss solely the exchange situation, and that decision on this matter should be deferred until the Department has conferred with the other Government agencies upon the entire plan.

Welles
  1. Telegrams Nos. 49 and 50 not printed.
  2. Not printed.