Foreign Relations of the United States: Diplomatic Papers, 1944, The American Republics, Volume VII

825.6352/6–1444

Memorandum of Conversation, by the Chief of the Division of Financial and Monetary Affairs (Collado)

[ Washington ,] June 9, 1944.

Participants:

Ambassador Michels, Messrs. Acheson,42 Wright43 and Collado

The Ambassador called at Mr. Acheson’s request. Mr. Acheson indicated that the copper companies had brought to the Department’s attention the proposal of the Chilean Minister of Finance⁴⁴ that the companies bear the interest expenses of Chilean dollar bonds to be issued in an attempt to counter-act inflationary tendencies. The proposal is that for each dollar deposited by the copper companies in the purchase of their peso requirements the Chilean Treasury issue eighteen months obligations bearing 6% interest. The obligations would be sold for pesos but would be redeemable in dollar at the rate of 25 pesos to the dollar. The copper companies are being asked to pay the interest charges on a total issue not to exceed 30 million dollars.

Mr. Acheson stated that the Department was sympathetic to the basic inflation problem but felt that the proposal was unfortunate from two points of view:

1. It applied a discriminatory burden on the American copper companies in order to settle a general Chilean problem.

2. It was a measure intending to increase the cost of production of copper which might have unfortunate consequences when Chilean copper had to compete in world markets against copper produced in other areas. The Ambassador after discussion agreed that the increase in dollar balances in Chile and the accompanying increase in the pesos in circulation in Chile were phenomena attributable to the entire balance of payments in Chile and not specifically to copper exports, and that consequently the problem was one affecting the entire Chilean economy.

With respect to the competitive position of Chilean copper he repeated the familiar argument that the best thing we could do about that would be to remove the four cent excise tax. It was pointed out that this would influence the Chilean copper in the United States market but that the general competitive situation existed anywhere in other world markets.

There followed a rather lengthy discussion of the Chilean inflationary situation and a number of measures were suggested for consideration in connection with the general problem. These include:

1. The issuance of Chilean Treasury obligations, interest charges being borne by the general funds of the Chilean Treasury.

2. Granting permission to Chilean citizens to acquire dollar balances for investment in the United States or to be held for future purchases.

3. Sale of physical gold in Chile.

4. Increasing the reserve requirements of member banks in Chile.

5. Any measures to purchase foreign obligations of Chile held by foreigners, or to purchase other foreign assets in any country.

6. Direct price control.

It was indicated that the United States would be prepared to furnish any technical assistance which the Chilean Government might request in connection with price control.

The Chilean Ambassador raised the question of whether it would be possible to devise some system whereby exports of capital goods to Chile might be increased either immediately or in the future. This would absorb dollars or at least might result in dollars being sterilized for future purchases of capital goods. There was some discussion of possible deferred rating systems in this connection and it was agreed that Mr. Mario Illanes of the Chilean Embassy would discuss the matter in more detail with Mr. Knox, Chief of RAR.⁴⁶

The Ambassador stated that he would inform his government of these developments and would request a further meeting subsequently.

42. Dean Acheson, Assistant Secretary of State.
43. James H. Wright, Assistant to the Director, Office of American Republic Affairs.
44. Arturo Matte Lorrain.
46. Charles F. Knox, Chief of the American Republics Requirements Division.