Foreign Relations of the United States, 1947, The American Republics, Volume VIII

825.51/5–2347: Airgram

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

Santiago , May 23, 1947.

A–219. The President’s annual speech at the opening of Congress on May 21, 1947, laid special emphasis on the precarious state of government finances at the end of 1946 and at the present. Most of the ten points in the legislative program which he requested concerned revenue and tax measures. Some of these had already been drafted and sent to Congress. The source of new revenues was not stated.

While the 1946 budgetary deficit was 528.6 million pesos, as shown by the Comptroller General’s report, he pointed out that the effective deficit was 979.1 millions, arrived at as follows:

	(Pesos, millions)
Budgetary Deficit 1946 (as carried by Treasury)	528.6
Sugar Subsidy funded by Central Bank purchase of internal debt bonds	225.0
Salary advances made to Armed Forces	221.1
Loss on collections from various debtors	4.4
Total	979.1

He stated that this sum, added to the cumulative deficit of previous years in the amount of 575.2 million pesos, less 96.2 million pesos which represented unspent funds from special law bonds financing, resulted in an effective, cumulative Treasury overdraft of 1,458.1 million pesos. Because of this situation, he stated that normal expenditures of the administration since January 1, 1947 had required cash overdrafts of 549.9 million pesos; that the government could only meet its current bills promptly if the total Treasury overdraft were reduced to a maximum of 700 millions. Point (1) of his legislative program was the partial financing of this cumulative deficit that apparently would require approximately 750 million pesos to reduce it to the workable sum mentioned. He pointed out that, despite savings which had been effected in public expenditures, it was impossible to cover the deficit plus 1947 cash overdrafts without providing special revenues to normalize the situation.

In addition to the Treasury, similar financial problems faced most of the semi-fiscal institutions, according to the President. He specifically mentioned the Fomento Corporation’s budget of 1,000 million pesos for investments already approved, with no funds available in its treasury as of December 31, 1946; the Low-Cost Housing Bank whose overdraft as of the same date financed by the commercial banks was 191 million pesos, with its needs for this year estimated at 204 million pesos; the Reconstruction and Aid Corporation to which the government owed 57 million pesos, which it had been unable to pay; the Workers’ Social Security Fund (Caja de Seguro Obligatorio) which carried an old actuarial deficit of 4,800 million pesos.

He called attention to the fact that most appropriation measures which had been enacted by the Congress in the past has specified financing by the sale of government internal debt bonds, authorization for the sale of which had been far in excess of the market potential.

The ten points of his legislative program were as follows:

1. Financing of the cumulative legislatory deficit.

2. The enlargement and improvement of the Department of Internal Revenue.

3. A capital gains tax.

4. Re-appraisal of the capital assets for tax purposes.

5. A change in the basic law of the government-sponsored National Savings Bank to permit greater credit facilities.

6. Modification of the basic Banking Law.

7. A tax on obsolete buildings in the business center of Santiago.

8. Increase financial resources for the Agricultural Credit Bank and the Low-Cost Housing Bank (both semi-fiscal agencies).

9. Further financing for the Fomento Corporation, the State Railroads, and the government’s Transit Company.

10. A law to strengthen the enforcement of the government’s economic laws and regulations.

Bowers