825.6374/1514

Memorandum of Conversation, by the Adviser on Political Relations (Duggan)

The Ambassador28 took up the conversation on the nitrate negotiations where it had been left off on August 30. He said that the decision [Page 855] to purchase only 700,000 tons would come as a heavy blow to the Chilean Government and Chilean people. It would mean the shutting down of one of the large oficinas on the nitrate pampa, with consequent social and political distress. This would be a shock to the Chilean people, who had cooperated so well with the United States in the war. They would conclude that the United States was really only interested in buying those goods that it needed from Chile and not in helping Chile to adjust the internal dislocations caused by the war. The Government would have to take measures to help the nitrate and other workers thrown out of employment. It had no funds for this purpose in its present budget. Additional funds would have to be secured, and the only place that these could be obtained was through new taxation on the copper industry.29

At this point I interrupted to ask the Ambassador to be kind enough to let me explain once again what the position of the Department was. From the outset the Department’s desire had been to work in cooperation with the Chilean Government with respect to the status of the nitrate industry in the present fiscal year. It was not easy for the various agencies of this Government involved to decide the final attitude to be taken with respect to that industry. There was an undoubted need for nitrate to expand agricultural production in the United States. The synthetic producers were maintaining that that need could be filled with the synthetic product. The Food Administration did not support this contention; in fact, the Food Administration was urging a very substantial purchase of Chilean nitrate. On the other hand, other agencies of the Government were arguing that shipping was not available to carry this large amount but only a fraction of it. In this flux of contending interests there was one element of stability, namely, the directive issued by WPB30 to OEW31 to purchase 700,000 tons of nitrate. This element of stability nevertheless was under constant review and attack. The only way to make it fixed and certain was by the signature of a contract between this Government and the Chilean industry.

Our recommendation was that the industry proceed as rapidly as possible to negotiate the contract and thereby nail down the 700,000–ton purchase and remove it from the field of discussion. The two Governments could then continue their study to determine whether in fact the maintenance of the nitrate industry required a greater purchase by the United States than 700,000 tons. The objective of this Government was identical with that of the Chilean Government, namely, [Page 856] to maintain the economic, social, and political stability of the so-called nitrate provinces through the continued operation of that industry at whatever level was necessary to attain the objective. It was my belief that within sixty days there would be a final outcome of the consideration now being given by the various agencies in Washington to the amount of Chilean nitrate that should be purchased and transported to the United States. There were reasons to be both optimistic and pessimistic. On the optimistic side was the real need of agriculture for Chilean nitrate. On the pessimistic side was the possibility of contraction in shipping facilities owing to military operations. I was inclined to believe that more than 700,000 tons would be purchased, because of the decision of agencies of Government here that this was the wise thing to do, all factors considered. If the decision was in the negative, however, I could assure the Ambassador that it was this Government’s intention to purchase whatever additional amount was necessary as an aid to Chile in the extension of employment, et cetera, in the nitrate provinces.

The Ambassador asked whether this would mean that the Department would request, for political reasons, the purchase of an additional 300,000 tons, I replied that it might or might not, depending upon the outcome of studies now in process. He then asked whether it would mean that we would buy whatever amount was necessary to keep up production at existing levels. To this I replied that I thought we must be flexible about these matters. I referred to the contraction in sugar production in Cuba, which was accomplished without producing internal disequilibrium. The Ambassador then reiterated several times that it was his understanding that if the various Government agencies here decided not to purchase any nitrate over and above 700,000 tons the Department would then determine what amount should be purchased purely as an assistance to Chile to permit it to mantain stability in Chile. I each time replied that this understanding was correct but that he should not take this to mean that the Department had any figure in mind at this time.

The Ambassador then said that he thought that this approach to the problem was a satisfactory one. He would see Garcia32 and Álvarez33 this evening and urge their procedure on this basis. He would cable his Government tomorrow and ask for his Government’s approval. To both his Government and Garcia and Alvarez he would recommend that no publicity be given to the purchase of the 700,000 tons but that this operation be kept confidential between the parties concerned.

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I thanked the Ambassador for his understanding attitude, adding that with confidence and good faith on all sides even the most difficult problem could be surmounted.

  1. Rodolfo Michels, Chilean Ambassador.
  2. The Second Secretary of Embassy, Sheldon T. Mills, made a study of the possible effects of this reduction in the purchase of nitrate and concluded that the nitrate industry with help from the Chilean Government could adjust itself to the cut.
  3. War Production Board.
  4. Office of Economic Warfare.
  5. Desiderio Garcia, official of the governmental Corporacion de Fomento de la Produceion.
  6. Pedro Alvarez, Executive Vice President of the Chilean Nitrate Sales Corporation.