Foreign Relations of the United States, 1946, The American Republics, Volume XI

825.51/8–1646

Memorandum of Conversation, by the Acting Deputy Director of the Office of American Republic Affairs (Trueblood) and by Mr. Alexander Schnee of the Division of North and West Coast Affairs

secret

[[Washington,] August 16, 1946.

Participants:	ARA—Mr. Trueblood
	NWC—Mr. Schnee
	OFD—Mr. Ness
	FN—Mr. Corliss
	ED—Mr. Sumner
	ED—Mr. Scanlan
	ED—Mr. Stenger

Mr. Ness, as you will recall, was formerly with the Treasury Department and later went over to the Eximbank, hence is familiar with bank matters and policy. In April of this year, he visited Chile and has a keen interest in Chilean affairs as well as first-hand knowledge gained from his recent visit.

The OFD participants in the meeting were most interested in discussing the considerations other than purely economic on which the political divisions based their objections to the subject loan. Mr. Schnee and I put forth ARA’s position, and then the OFD representatives took the part of the Devil’s advocate (as they described it) in attempting to bring out inconsistencies or difficulties in the ARA position which, as stated in the meeting, may be summarized as follows:

(1) Reservations as to the ability of Chile to assume additional foreign obligations;

(2) Strong doubt as to the propriety of using public funds for purposes as tenuous as petroleum exploration;

(3) The impact which the granting of such a loan would have on our petroleum interests in Mexico, Venez., Peru, Col.. and other petroleum areas.

The facts as set forth were similar to those included in Mr. Braden’s letter to Ambassador Bowers on the subject; and, as we are all familiar with them, they need not be repeated here.

The discussion of the main points raised by officers of OFD was as follows:

(1) Petroleum Development as a Solution to Chile’s Critical Exchange Position. So far as the officials who had studied the matter could ascertain, petroleum offered almost the only prospect of being an economic lifeline to Chile in the near future. If oil could be developed on a commercial scale in Chile, it would be possible for Chile to save an amount estimated at some ten million dollars a year in foreign exchange. Mr. Ness, while admitting that it was not yet established that oil was present in Chile in commercially exploitable quantities, seemed to attach great significance to this factor. He was very frank to admit that unless this comes to pass, Chile’s economic future is dim, to say the least. There was thus a general tendency on the part of those present to regard the petroleum credit as of paramount importance in determining Chile’s economic future and welfare. This seemed to weigh strongly with those of OFD in their views on the Eximbank credit to Chile since they felt this offered the only avenue for bolstering up Chile’s economy and making it possible for that country to restore its credit and bring its balance of payments into equilibrium.

In reply we stated that it had not been demonstrated that the refusal of a public United States loan would mean the end of petroleum exploration in Chile. To the contrary, the Chileans have assured us that they would go ahead with the program, with or without our assistance. Furthermore, until the precise extent of Chile’s petroleum resources is determined, their potential bearing on the Chilean exchange position cannot be determined.

(2) Strategic Importance of the Chilean Petroleum Industry. The argument was advanced that these reserves are strategically important due to (a) their physical location and (b) the dwindling supplies of domestic petroleum. The strategic importance of these reserves appears to be a matter on which only the Army and Navy could give a definitive answer. In setting forth ARA’s viewpoints, the importance of maintaining stability in the strategically important Venezuelan reserves was stressed.

(3) Alternate Sources of Financing which Might Be Made Available to the Chilean Government. The economic officers stressed the fact that the Chilean petroleum industry had been nationalized for a considerable length of time and they are inclined to take seriously the view that it is politically inexpedient for the Chilean Government to attempt to reverse this policy. They therefore foresee the possibility that Chile will resort to financing by other governments, as, for example, Argentina or Switzerland. ARA representatives took the view that the Chileans were perhaps more fully aware than are we of the implications of an Argentine petroleum loan. With respect to financing from any other nation, or, for that matter, from private capital sources in the United States or elsewhere, the United States would have no basis for opposing such a transaction. There is a difference between a loan from private sources for the nationalized petroleum industry and an official loan from the United States Government. The economic officers appear to be concerned with the fact that the opposition to this loan, because of the nationalized character of the industry, represents a departure from the general policy, which is not to withhold loans on this ground.

(4) The question of consistency was raised in view of the fact that we had already granted five hundred thousand dollars for exploration of Chilean petroleum resources and much larger sums to Bolivia for petroleum exploration and development.

(5) The question was raised whether, if we refuse this loan, consistency would not prevent us from granting any loans to Foreign governments for oil exploration. Mr. Schnee took the position that, while refusal of this loan would tend to dissuade us from making loans to foreign governments for exploration in a completely nationalized petroleum industry, such action would not necessarily prevent us from making a loan for the development of national oil fields when the government was not exercising a monopoly but merely operating its fields in competition with private interests. A request for a loan of this type would have to be considered on its own merits.