811.20 Defense (M) Chile/610: Telegram
The Secretary of State to the Ambassador in Chile ( Bowers )
35. Most careful consideration has been given to your Telegram No. 21 of January 4, 6 p.m., and to your supplementary message No. 26 of January 5, 2 p.m.,21 in reply to the Department’s No. 4, January 1, 10 p.m., which communicated to the Foreign Economic Administration’s representative in Santiago instructions from his principals concerning the purchase of metals in Chile. Also particular reference is made to the Department’s Telegram No. 6 of January 3, 4 p.m., which was sent to communicate personally to you the Department’s conviction that unless prompt steps are taken to avoid the rapid accumulation of stockpiles both in the United States and abroad, there will ensue more radical reduction of production on short notice than would be the case if we now face the problem of discouraging uneconomic marginal production in a Way Which will enable the orderly reduction of high cost subsidy production which would never have come into being had it not been for the war. This telegram indicated that the same problem exists in other of the American republics and in the United States.
The Department laments the unwarranted and alarmist reports which have appeared in the Chilean press and which are most misleading. These have undoubtedly been seized upon by interests which seek thus to create a diversion of excited public and governmental opinion to preserve for them a further period of high income which in the long run would react against the broad cross-section of mineral [Page 716] production as well as against the interest of the Chilean Government and people. It is to be emphasized that in so far as Chile is concerned the outlook for the next 12 months is that curtailment in production will be slight. The quantity affected by the proposed reduction is only a part of the insignificant marginal Chilean ore and concentrate output which was stimulated to obtain for war needs every possible ounce of copper. To meet this drastic peak need we were willing to pay prices which were inflated and exaggerated. The copper stock position is not so comfortable that sweeping cuts will be made in the near future. It is, however, now clear that the peak has been reached and that stocks will tend to accumulate. As the war progresses this tempo will become more and more rapid. Unless plans are laid now to get these marginal producers out of the market in an orderly way before large stocks of copper accumulate, the problem of re-adjusting the Chilean copper industry to normal peacetime operations will be greatly accentuated. If, however, by a planned gradual reduction in prices paid for subsidy ores and concentrates this production can be forced out of the market naturally, Chile will not be confronted with a sharp curtailment and the small amount of labor displaced at this time can gradually and normally be absorbed in other pursuits.
As has been indicated, this is not a problem which is peculiar to Chile. In fact, owing to the importance to Chile of the copper industry, we are moving forward with great caution and reserve. The course which has already been taken in several other countries and which will progressively be taken to a great extent in the United States (in the face of strong domestic political pressure during 1944) is out and out cancellation of contracts which have closed or will close marginal mines. The formula of gradual price reductions on subsidy output was elected for Chile precisely to avoid the necessity now of any such sweeping action. There is much marginal production in the United States which will be curtailed and our position domestically would be untenable were we in the face of resolute but orderly reduction at home to take no coincidental steps looking to orderly reduction abroad. The action which is proposed in Chile is indeed a mild one and is in the interest of Chile and its Government. We would do them a disfavor were we not to endeavor to work this matter out in a spirit of mutual respect and confidence.
The best evidence which Chile can have of our good faith is the fact that the Department’s Telegram No. 4 of January 1, 10 p.m., authorized the purchase on purely cooperative grounds of 40,000 long tons of manganese. There devolved on this Government no obligation to purchase this manganese. Nevertheless the Department and the Foreign Economic Administration respect your recommendation [Page 717] and in an effort to meet your sense of need in the situation have authorized the purchase which will enable orderly liquidation. It is just such orderly liquidation that is sought in the case of the marginal copper ores and concentrates.
You will recall that the Department has informed you both by telegrams and in copies of memoranda of conversation that this matter has been discussed fully with the Chilean Ambassador.22 The Ambassador has been most understanding; has promptly agreed to the necessity of our facing the problem squarely at this time, and has so telegraphed his Government. In the Ambassador’s absence the Counselor23 was called to the Department on January 7 and was informed fully of the situation as I have outlined it to you. The Ambassador has now returned, has again spoken with the Department and says that he is again telegraphing his Government.
It is most regrettable that the February 1 deadline for semiannual revision of prices under the Chilean purchase agreement projected this situation into the foreground at a time when political conditions in Argentina and Bolivia are so critical. This is a factor beyond our control. If the Government of Chile and the private interests concerned face the issue squarely they cannot but agree with the wisdom of a far-sighted program characterized by an ounce of prevention to save many pounds of cure later.
I have given you this extensive background so that you may use it to place the problem before the appropriate people in its proper light and perspective and to abate the ill effects of the alarmist stories which have appeared in the press and to dispel the hysteria which has arisen. I do not want to hold out to you undue hope that action can be delayed but I will welcome your further thoughts on the subject once you have had an opportunity to study this message. It is to be borne in mind that if we were to make an exception in the case of Chile, it would place us in an untenable position in other countries where out and out cancellations have already been made and accepted (albeit reluctantly) and that there would be severe repercussions in the United States.
I have every confidence that you will accommodate the situation in a way which will be satisfactory to both Chile and the United States and am relying completely on you.
Your Telegram No. 39, January 7, 4 p.m., from the Foreign Economic Administration representatives to the Foreign Economic Administration here has been carefully considered in connection with the foregoing and a reply on the specific points made therein is now under preparation and will be forwarded as soon as possible.