Memorandum of Conversation, by the Deputy Director of the Office of American Republic Affairs (Woodward)62


At lunch today, Señor Enrique López-Herrarte (former Counselor of the Guatemalan Embassy who is now employed by the World [Page 532] Bank) informed me that it is his primary responsibility to make recommendations concerning such loans as the $40,000,000 loan for which the Chileans have applied. He said that the Chilean negotiations may prove to be a very important test case for the Bank, to decide whether security and probability of repayment of the loans, in accordance with conventional banking traditions, will be a principal criterion in issuing the loans, or whether the emergency needs of weak or unbalanced economies will take definite priority over the question of risk.

López-Herrarte said that the present inclination of Mr. John McCloy and other principal officers whose background is identified with commercial banking, is to place primary emphasis upon the question of financial risk.63 López-Herrarte favors the other point of view, and he believes that failure to make some response to the Chilean application might be a denial of one of the most fundamental reasons for the existence of the Bank. Moreover, he is afraid that the Chileans, if completely rebuffed, would probably withdraw from the Bank and that this would be a serious reflection upon the Bank in the present state of its development.

López-Herrarte confided that the result of the deliberations within the Bank would probably be a counterproposal to the Chileans that they be given a preliminary loan of $10,000,000, and he thought this might be raised, by compromise, to as much as $15,000,000. He has recommended that, if this is done, the credits be released piecemeal in amounts of not more than $250,000 and that the Chileans be required to present satisfactory information to show that they have not paid exhorbitant prices for materials and services. (As is probably well known, none of the credits of the World Bank may be converted into the currency of the country receiving a loan for expenditure within that country; the entire loan must be spent outside of the country receiving the loan). Likewise, López-Herrarte said that he is insisting on a provision that the Bank may inspect freely and at any time the results being produced by the loan within the country receiving the loan.

López-Herrarte believes that Chile will probably have a fairly permanent market for as much as 800,000 tons of nitrate per annum, as compared with present production of about 1,300,000 tons. He bases his hopes for Chilean copper upon the desire of the United States Government not to deplete copper reserves within the United States. With these bases for Chilean exports, López-Herrarte thinks Chile can maintain a fairly stable economy, upon a somewhat lower level than at present, provided the Chileans can develop a substantial additional [Page 533] local manufacture of staple products (with the loan money) that will enable Chile to reduce its imports to the level of its exports.

In order to stimulate a greater interest in the American Republics and their problems on the part of Mr. McCloy, the President of the Bank, López-Herrarte is urging him to make a trip through the American Republics. Of more immediate importance with respect to the views of Bank officers concerning loans to the American Republics, Emilio Collado64 has now been re-employed by the Bank as a consultant (being paid on a day-to-day basis for the memoranda of recommendations and other advice he provides). López-Herrarte said that Collado was a very active exponent of the thesis that the Bank should make loans to assist sagging economies in the American Republics as well as in war-torn areas.

From time to time during the conversation with López-Herrarte, I lamented the situation in Chile which made it a poor “bankable risk” and implied that the Bank might express its concern to the Chileans about the political factors that reduce confidence in the Chilean economy.

Robert F. Woodward
  1. Addressed to Milton K. Wells, Chief, and Burr C. Brundage, of the Division of North and West Coast Affairs; Ellis O. Briggs, Director, Office of American Republic Affairs; Spruille Braden, Assistant Secretary of State for American Republic Affairs, and James H. Wright, Special Assistant to Mr. Braden.
  2. In the margin appears the following: “Checks with first impression gained by Chilean mission.”
  3. Formerly Deputy to the Assistant Secretary of State for Economic Affairs, and one-time member of the Board of Trustees of the Export-Import Bank.