825.51/10–247
The Ambassador in Chile (Bowers) to the Assistant Secretary of State for Political Affairs (Armour)
Dear Norman: The other day the finance expert of the Nitrate Company, a Chilean greatly respected by the Americans, was brought to me by the head of the Company, to convey an unofficial, very confidential message, from Jorge Alessandri, Minister of Finance. It is to the effect that the Central Bank of Chile had notified the International Monetary Fund74 on September 13, 1947, that, in accordance with the privileges granted in Article V, Section 3, Letter a) of the Final Act of the Fund, it wishes to purchase $8,900,000 with the equivalent in gold which Chile has deposited with the Fund. Chile then proposes to use these dollars to get goods, practically all American, now backed up in the Chilean customhouses for lack of dollars to take them out. As you know, most of the goods are seriously needed since they include machinery for farms and factories and railroads, and are productive.
It is the stated purpose of the Finance Minister to sell these dollars to Chilean importers in order that the supply of articles, which the country urgently needs and which are in the customhouses because of the lack of dollars, can be secured. It will require 275.5 million paper pesos to purchase these dollars, at the official rate of exchange, and it is the purpose and pledge to retire these pesos from circulation, and credit them to the account of the International Monetary Fund. The retirement of these pesos would have a deflationary effect on the economy of Chile and would serve to offset partially the inflationary effect of the revaluation of the old gold reserve, which is also proposed.
I understand that Mr. Maschke, Manager of the Central Bank of Chile and Chile’s representative as a Governor of the International Monetary Fund, now in London, has reported by cable that the administrative authorities of the Fund may be doubtful as to the Fund’s acceding to the request unless serious efforts are made to restrain any [Page 545] inflationary processes. Alessandri believes this is taken care of in his plan. The necessary data and information have been sent by air mail to Maschke to enable him to explain in London that this measure is part of the Government program to strengthen and stabilize finances, and that the Government believes that the proposed dollar purchase will be deflationary rather than inflationary. I am enclosing a memorandum75 on the plan and purpose submitted at my request by the Nitrate man.
In view of the energetic steps which are being taken by the present Cabinet and the apparent sincerity of the Minister of Finance, in whom the country clearly has confidence, I hope that our representative on the International Monetary Fund may be able to support Chile’s request.
Another matter: Very earnest efforts are being made by the Government to reduce the cost of living by ending speculation and the criminal arbitrary raising of prices in the stores to fantastic heights. Many merchants, an average of 25 a week, are being convicted and sent into exile to small villages in the north of Chile. The President’s wife has gone on the radio, urging housewives to report immediately to a designated person and place any exorbitant price asked in the stores, and the women are responding.
I was shocked by the death of Wright.
Warmest regards.
Sincerely,