825.51/5–2946

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

secret

Dear Claude: The attitude of Chilean public opinion, misled by the AP story referred to in your letter of May 29, seems most unfortunate. We believe that the Chileans should be told straight from the shoulder that in the discussion of this matter no agency of the United States Government has been or will be influenced by Standard or any other private petroleum interest. Roberto Vergara of Fomento has been told this by the Department. The Chilean government which over a period of years has irrefutable evidence of our good-will and sympathetic friendliness, should not permit to pass without comment public statements which are untrue, without a single factual basis and which, if unrefuted, may jeopardize the excellent relations existing between Chile and the United States.

Efforts of the Chileans to persuade us to grant this loan because of unfavorable publicity arising out of the Standard Oil Company story impress me as pretty close to blackmail. Should we yield to this type of pressure, a precedent which would plague us everywhere might be established.

Consideration among the interested agencies of the Chilean request revolves about the following factors:

1. Preference for Private Investment: It is the policy of the United States to look to private investment insofar as possible to provide such outflow of capital as is in the interests of the United States and other countries, and not to engage in government lending when private funds are available on reasonable terms. The burden is on Fomento to demonstrate that they have exhausted sources of private capital and have been unable to reach an agreement on reasonable terms.

2. Ability to Repay: Additional loans will not be granted before Chile’s overall debt position has been reviewed and a determination made with respect to her ability to meet increased debt services.

3. The International Bank: The International Bank is regarded by the United States as the principal governmental agency to make foreign loans for development.

4. Priority of Competing Chilean Demands: As Chile’s ability to service additional credits, and Exim Bank available funds are both limited, it is necessary that Chile establish a priority for competing demands, i.e., Petroleum, Railroads, Agriculture.

5. The National Character of the Petroleum Industry: Our petroleum policy must be designed to serve our interests not only in numerous other American Republics but also in Europe, the Near East and the Far East. The critical importance of petroleum to our military security, combined with increasing Soviet activity in producing regions in both the Western Hemisphere and the Near East compel us to exert [Page 634] every practicable influence towards maintaining stability in all producing countries.

Since 1942 this Government has repeatedly refused to grant a loan to Mexico for petroleum exploration and development. Pemex, the operating agency of the Mexican Government in the petroleum industry has been a failure, operating on a deficit basis since it came into existence. It is not unlikely that within 18 months the Mexican Government will be forced to permit foreign capital to reenter the production field on the basis that sub-soil rights remain the property of the Mexican government. Should we grant the Chilean request the Mexicans would respond immediately and may be dissuaded from permitting the reintroduction of private capital.

In Colombia and Peru revision of Petroleum laws on a basis similar to the Venezuelan legislation is nearing completion. The Venezuelan situation itself is far from stable even now.55 I am particularly reluctant at this time to approve a line of action for Chile incurring the risk of upsetting developments in Colombia and Peru which have thus far been favorable, and thereby perhaps endangering the stability of the vital Venezuelan industry. The War and Navy Departments consider the possibility of nationalization of Venezuelan resources a critically serious problem.

I believe it important that the Chileans understand that this Government is not endeavoring to use this request for a petroleum loan as a means of applying pressure to secure in Chile economic policies in conformity with our own philosophy of permitting the utmost freedom for private capital. It is the policy of this Government not to refuse to extend credits to countries merely on the ground that they are conducting state enterprises or on the ground that the enterprises to be assisted are in greater or lesser degree controlled by the foreign government. Consideration of the Chilean request will center about the other factors discussed in the five numbered paragraphs of this letter, including our particular interests in the world petroleum situation.

In our relations with Chile in recent years Chile has had ample proof—financial, economic and otherwise—of the genuineness of our friendship. I hope you will agree that it is up to Chile, as well as to the United States, to recognize the sincerity of that friendship.

The Exim Bank has not as yet ruled on the Chilean request. We will inform you when a decision has been made.

Sincerely yours,

Spruille Braden
  1. For documentation on this situation, see pp. 1330 ff.