825.51/10–1146

Memorandum by the Assistant Secretary of State for American Republic Affairs (Braden)2

I should like to bring to your attention the attached memorandum, “Ability of Chile to Service Additional $40,000,000 Foreign Debt—Report of NAC Staff Committee Working Group”,3 and to add the following comments and questions:

1.
The approach to this problem seems to be premised on a belief that there exists some sort of implied obligation on us to make a loan to Chile and that we are seeking justification for such action.
2.
President Rios’ statement of a year ago to President Truman and Secretary Byrnes in the White House meeting that Chile neither desired nor would seek further governmental loans but did wish private capital is entirely ignored. This was practically the sole issue [Page 599] raised by Rios; his expression of policy coincided with our own best interests and policy, and it seems to me that we should not lose sight of it. It would appear that the Chileans have become so used to turning to the Eximbank for foreign financing that no effort is made to seek private investments. The interests of the Chileans in making the opportunities more attractive for foreign private capital of course decreases with each new governmental credit Therefore, how can we justify the proposed further Eximbank credit without a serious attempt having been made first to enlist private enterprise and capital? I understand that a large project is now under way for private American and Chilean wine interests to get together in a new large organization to enlarge and stabilize the production of Chilean wine for marketing in this country. If true, this shows that this sort of thing can be done.
3.
The foregoing becomes all the more important when one views the purposes for which the proposed credits are to be issued, most of which are entirely suitable for private enterprises. In particular, as has already been discussed, we should under no circumstances extend a credit for petroleum exploration. Similarly, the wood project, copper manufacturing, cement, and fish would seem to be better for private enterprise. (Incidentally, on the wood project, I cannot help but feel some doubt as to the validity of the cruise of the Chilean timber lands which was apparently undertaken by the United States Forest Service mission because, so far as I know, there has been no scientific planting of the Chilean forests, and I know for a fact that some years ago good and bad timber was too mixed to constitute a practical operation.)
4.
My concern on this whole matter is not the use of Eximbank funds for financing American exports for the various projects, but that the money would be advanced to Fomento rather than to private enterprises for such undertakings.
5.
I note that point 1 of section 7 of Document No. 101 on “Prerequisites of Loan” that “the representative of the Securities and Exchange Commission recommends that a prerequisite to this proposed loan should be the reaching of an agreed settlement with the American bondholders.” I agree entirely and believe that this should include satisfactory settlement regarding the $24,000,000 which has been siphoned away for purposes other than debt amortization.
6.
Certainly Chile’s performance under UNRRA and Lend-Lease4 do not justify the opening of this new line of credit.

Spruille Braden
  1. Addressed to OFD; Mr. Ness and U–E: Mr. Clayton.
  2. Supra.
  3. For the status of the lend-lease account, see instruction 5654, August 16, 1946, to Santiago, p. 572.