825.6352/7–2044

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

No. 10273

Sir: I have the honor to refer to the Department’s confidential instructions nos. 4182 and 4236 of June 14 and July 5, 1944,49 respectively, and to two strictly confidential telegrams sent subsequently to this office, all relating to recent demands of the Government of Chile for financial assistance from American copper companies.

There are attached, for the Department’s information and records, a copy of a letter, based on the Department’s telegram of July 8, which I handed to the Foreign Minister on July 12; a copy of a memorandum by Mr. J. F. Franki50 describing an unexpected but very interesting interview with the Finance Minister on July 14; and a copy of a memorandum describing a subsequent conversation between Dr. Herman Max of the Central Bank of Chile and one of the Embassy’s officers concerning the Government’s plans for selling the copper companies’ “cost of production” dollars to the Chilean public in an endeavor to combat further monetary inflation in this country.51

In a conversation on July 19 with Mr. Frank May, Acting General Manager of the Chile Exploration Company, Mr. Brooks was informed [Page 734] that the American copper firms had not yet received a written reply from the Government to the note which they jointly handed to the Finance Minister, but that the Minister had agreed verbally to accept the companies’ terms, including the stipulation that the cash payment of $500,000, which the companies made jointly in return for the privilege of being permitted to buy pesos during the next six months to cover their costs of production in Chile, be a deductible item on their income tax returns for the current year. If this is actually allowed, the cost to the companies of this unusual operation will be substantially reduced.

The copper interests apparently also feel some hope that their cooperation with the Government in this case may give them additional grounds on which to base future opposition to the provisions of numerous bills now pending in the Chilean legislature which, if passed in their present form, would result in substantial increases in their labor and other costs.

As the matter stands, both the copper companies and the Chilean Government appear to be reasonably satisfied at having arrived at a temporary solution which enables them to defer further active consideration of the problem for six months at least. By the first of next year there may, possibly, be a greater demand for dollars in the local exchange markets. By that time, too, the Government will have a much better idea than it has now as to the actual quantity of dollars which it can expect to sell under the plan tentatively described in the attached memorandum.

Respectfully,

Claude G. Bowers
  1. Neither printed.
  2. Julius F. Franki, Special Assistant in the Embassy in Chile.
  3. None printed.