The Ambassador in Chile (Bowers) to the Secretary of State

No. 4194

Sir: I have the honor to refer to my telegram No. 1266 of August 7, 6 p.m. and to the Department’s telegraphic reply No. 884 of August 8, 6 p.m., following the receipt of which I wrote a personal letter to the Foreign Minister. On August 5, 1942, Señor Barros Jarpa advised me orally that any idea of forcing American companies to loan their pesos to the Chilean Government had been abandoned following his opposition to the proposal in a cabinet meeting.

I now have received a letter from the Foreign Minister dated August 10, 1942, with which he enclosed a copy of a letter dated August 7, 1942, he received on the subject from the Finance Minister. Copies in translation of both letters are enclosed.1 The letter of the Finance Minister gives assurance that the operation in question will not be forced on any American company. He appears to believe, however, that they would find it in their interest to accept since they would then be guaranteed the transfer of accumulated funds over a five year period. This conclusion might have been valid two or three years ago when Chile was having a hard time finding enough exchange to pay for the imports it considered essential. Now, due to greatly increased United States purchases of Chilean products, and reduced Chilean imports from the United States as a result of rationing, it is probable that Chile will find its current surplus of dollar exchange growing and from the exchange standpoint Americans with blocked funds should have every reason to hope that they will be able to transfer them over a relatively short period.

Although nothing was said about it in my interview with the Foreign Minister or in the letter of the Finance Minister, it is not unlikely that the whole scheme was prompted by a need to borrow peso funds, and not by any actual or anticipated shortage of foreign exchange. While one must have great sympathy for the difficulties of a Finance Minister in a period of rising prices and an expanding budget while some normal revenues are shrinking, the Chilean Government could, of course, apply the yield of the extraordinary copper tax to fill the gap if it so desired.

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I shall take no further action regarding the matter unless I learn of direct pressure on American firms. By refusing to permit the release of exchange to firms not accepting his proposal the Minister of Finance can, of course, bring indirect pressure. Cabinet changes are not infrequent in Chile, however, and if some firms find that their refusal to accept the offer of the Minister prejudices their requests for exchange, it is not unlikely that in the normal course of events a new Finance Minister will assume office who lacks the incumbent’s partiality for this particular scheme.

Respectfully yours,

Claude G. Bowers
  1. Neither printed.