The Under Secretary of State (Welles) to the Secretary of the Treasury (Morgenthau)

My Dear Mr. Secretary: I refer to conversations which took place some time ago between you and officers of the Treasury Department and the representatives of the Government of Chile regarding the exchange outlook of Chile. At that time, as I recall, you deferred further consideration of the Chilean situation pending action by the Export-Import [Page 690] Bank and determination of the policy of this Government with respect to the purchase of Chilean nitrates and copper.

The Export-Import Bank has now agreed to extend a credit of $5,000,000 to the Central Bank of Chile, while the Defense Supplies Corporation is prepared to purchase for stockpile 300,000 tons of nitrates. This purchase will eventually return to Chile about $3,500,000, of which perhaps a little over $2,000,000 will be available to Chile within three to five months. In addition, arrangements are being worked out for the purchase in South America of monthly quotas of copper for use in the filling of defense requirements.33 It is not certain at this juncture just what exchange will accrue to Chile each month as a result of these purchases. At any rate, the proceeds of the Export-Import Bank credit and of the nitrate transaction will be utilized to liquidate the present exchange arrears due to United States exporters, leaving only the copper sales to contribute to a net improvement in the future situation.

Useful as all of these operations will be, they fall short of relieving the exchange deficits independently predicted for 1941 by the Chilean representatives, by officers of this Department, and, I believe, by experts of the Treasury. In view of this situation and of the importance to our broad hemisphere defense policy of maintaining the level of economic activity in the other American republics, I wish to suggest the desirability of your resuming consideration of the possibility of broader cooperation with Chile in the matter of monetary and exchange relationships.

Sincerely yours,

Sumner Welles