Memorandum by the Chief of the Division of Foreign Economic Development (Phelps)67
A recent report prepared by Mr. Burns68 of CD69 covered a memorandum70 from Mr. Kennedy71 to Messrs. Clayton, Thorp and Wilcox suggesting the earmarking of Eximbank funds for a possible loan to Chile. This report reviews the prospects of Chile for post-war exports [Page 819] of copper and nitrates and concludes that Chile may find such exports appreciably reduced in early post-war years and that financial assistance will therefore be required from the United States. It is then assumed, perhaps correctly, that the Eximbank is the only likely source of such assistance and suggests that funds be earmarked for further loans to Chile in order to assure that funds will be available when the need arises.
The fact that Chile is largely dependent on copper and nitrates and therefore in all probability will suffer through a substantial diminution in the export of these commodities in the early post-war years is widely recognized. Nevertheless, it may not be desirable to make further loans to Chile, nor is it necessary to earmark a portion of Eximbank funds for such purpose. At present there is outstanding to Chile $13 million of Eximbank funds and $7 million is available under unexpired credits. In addition the Board of Trustees has recently approved the Chilean Steel Mill credit of $28 million and a further credit of $5 million for hydroelectric development. There is a total credit availability to Chile from the Bank of $53 million, most of which is for the use of the Fomento Corporation for economic development. With these funds and others available from national resources the Fomento Corporation has been attempting in every way possible further to diversify Chilean economic activities by a program of industrialization and other economic development, thereby lessening dependency upon copper and nitrates. This is the only reasonable procedure for improving Chile’s unfortunate economic position. The Fomento Corporation has made substantial progress both through studies of various possibilities for economic diversification and through the establishment of particular industries. Everything considered, it is believed that the Fomento Corporation has operated effectively and will continue to do so.
The copper companies may be induced to support production through accumulation of copper stocks in the period of reduced demand immediately ahead to the extent that it is reasonable to do so. It is not considered probable that output will be reduced much below the level of pre-war exports for any considerable length of time. Nor would it be desirable through artificial measures to hold production and export at the levels attained during the war years. While it may eventually be considered advisable to aid Chile during the early postwar years through additional financial assistance no direct measures, such as the ones suggested in the report under reference, are necessary at this time. In this connection it should be observed that President Bios will visit Washington early in October and that the question of further financial assistance will probably be raised at that time.