811.20 Defense (M) Chile/1–2245

The Foreign Economic Administrator (Crowley) to the Assistant Secretaries of State ( Clayton and Rockefeller)

Gentlemen: In connection with your letter of January 19, I have referred your request to the Executive Committee of the U.S. Commercial Company, who will consider it at their meeting tomorrow, but I want to mention a few of the facts which have influenced our feeling toward the present recommendations from Chile.

Before February 1, 1944, when we were discussing the elimination of gold purchasing, the reduction in the price of copper, and the discontinuance [Page 790] of the purchase of manganese, the Ambassador advised the State Department and our people as follows:

“We all feel there must be a six months’ interval to permit readjustments necessary to prevent serious economic effects against us.”

At that time, the FEA and the Department were agreed upon a gradual reduction in the price of copper ores and concentrates, but we compromised on the rate of reduction as a result of this interchange. Also, at the request of the Department, we purchased 40,000 tons more manganese than was called for by the contract, though this manganese was not needed for the war effort and a very large stockpile in Chile belonging to us had not been lifted. In August 1944, again at the insistence of the Ambassador, we agreed to an extension of our purchases of gold ores and concentrates to January 31, 1945.

The situation now is that, though three-fourths of the former copper price increases have been eliminated, the price is still three or four cents above the ceiling. Gold ore purchases are about to cease six months later than originally agreed upon and eighteen months later than our first proposal to eliminate them. It is obvious that the warning which the Ambassador felt the Chileans were entitled to receive was given to them.

I need not mention the enormous income which the Chilean Government has received by reason of our expanded and extended copper operations and other programs. The present Chilean income tax represents 33% of the net income of the three largest producers, who have also been paying an additional “extraordinary” tax of 1½ȼ per pound on all copper shipped. This “extraordinary” tax is yielding the Chilean government about $18,000,000 a year. In addition, the Chilean government obtains an estimated $7,000,000 a year profit on the sale of exchange to the three major copper companies. The Chilean government obtains a large tax from the sale of nitrates, and the U.S. government’s subsidization of Chilean nitrate importation involves approximately $5,000,000 per year. These facts are pertinent because they have a direct bearing upon the ability of the Chilean government to subsidize the higher cost small producers, if such subsidization is necessary.

At the end of August 1944, Chile’s gold and foreign exchange holdings had reached $107,000,000. This was a rise from $40,000,000 at the end of 1941 and $80,000,000 in November 1943.

The activities of the U.S. government in Chile have given that country the largest inflow of dollars in many years. In 1945 our public purchases alone are expected to approximate $167,000,000. Lend-Lease shipments up to November 31, 1944 were $18,488,000. Thus far, none of this has been repaid. The Export-Import Bank has granted credits to the extent of some $28,000,000; total disbursements [Page 791] to last November approximated $19,000,000. The activities of the CIAA21 involve an expenditure of $1,347,000 for the fiscal year 1945. When allowance is made for Chile’s private exports to the U.S. and exports to other countries, the totals for 1945 would probably be well over $200,000,000.

This agency has been most generous in assisting Chile in approving projects for industrialization. Thus far, we have cleared 38 projects amounting to $30,194,289. We understand that Chile has in contemplation projects totaling about $150,000,000 in the post-war period.

I recite these facts at this time because they may not be fully known to you and to insure that they have been given due consideration in making the recommendation contained in your letter. However, I am suggesting to the Executive Committee that they base their action on the political determinations which your letter so strongly conveys and that we base our purchase program on the recommendations in your letter or on some variation agreed to between our people and the Department.

Sincerely yours,

Leo T. Crowley
  1. Coordinator of Inter-American Affairs.