Memorandum of Conversation, by the Acting Chief of the Division of North and West Coast Affairs (Espy)

Participants: Señor Don Felix Nieto del Rio, Chilean Ambassador
Señor Don Roberto Vergara, Head of Fomento Corporation New York Office
Mr. Norman Armour, Assistant Secretary of State
Mr. Paul C. Daniels, Director of ARA
American Ambassador William D. Pawley1
Mr. James Espy, Acting Chief of NWC

The Chilean Ambassador, accompanied by Señor Vergara of the Fomento Corporation, called on Mr. Armour this morning and a number of subjects were discussed at this meeting. Señor Vergara said he was very happy to inform Mr. Armour that he had had most successful conversations with Mr. Rogers, Chairman of the Foreign Bondholders’ Protective Council, and that there had been worked out the final details of the Chilean debt settlement plan. The proposed plan is being submitted to the British and Swiss as well and as soon as their approval is received it will be made public. Señor Vergara said he had hoped this could be done on Monday of next week but there may be some delay in order to give time for word to be received from the British and Swiss.

Señor Vergara and the Chilean Ambassador then both brought up the subject of discussions which were proceeding with the World Bank concerning a loan, and with the International Monetary Fund on the subject of exchange control. They expressed their distress over the impasse that had arrived in these negotiations which came from what they considered impossible demands by the two organizations. Señor Vergara stated that several weeks ago the World Bank had made the demand that Chile deposit in an American bank in dollars all the revenue obtained from the sale of Chilean copper and nitrates which would be pledged to service of the requested loan from the World Bank. Moreover, this demand further included a provision that Chile could make no future loans without the consent of the Bank. Señor Vergara said that he informed the Bank that this demand was absolutely impossible and if the Bank persisted in it the negotiations would have to be terminated.

Señor Vergara said that there was another difficulty in the insistence of the Monetary Fund that Chile’s exchange rate be set at once and [Page 420]the present complexities in Chile’s foreign exchange operations be terminated. Señor Vergara said Chile had no such plan as that of France which provides different exchange rates but that it would take time to eliminate the present free market rate and have only one rate for the country. Señor Vergara understood that possibly the Fund might allow Chile a six-month period of time to effect the desired action, but that Chile needed a whole year to do so. The Chilean Ambassador and Señor Vergara sought the good offices of the Department to intercede with the American members of the Fund and the Bank in these matters.

Both the Chilean Ambassador and Señor Vergara next took up the great need of Chile for a loan from the World Bank. They said that the plan for the settlement for the foreign debt, the stabilization of Chile’s currency and the setting in order of Chile’s economic affairs were all tied up together and unless they could get everything done at once, including the obtaining of a loan from the World Bank, their difficult problems could not be resolved and they would be left in the same mess in which they have been for the last seven or eight years. Señor Vergara pointed out that for the first time Chile was making a determined effort to put its economic house in order and he was confident that if this opportunity could be fully grasped the job would be well done. He believed that others had confidence in Chile’s efforts and he mentioned, as an example, the fact that yesterday the Anaconda Copper Company and the Kennecott Copper Company agreed each to invest a million dollars in the new Chilean steel mill. Señor Vergara said that the steel mill would be operated privately rather than as a national industry. Señor Vergara also pointed out that the Anaconda Copper Company would soon have to invest a sum between $30 and $50 million in the Chuquicamata mines to change over its smelting process there. Also the nitrate interests were endeavoring to obtain large loans in this country partly from private sources and partly from the Export-Import Bank to increase their production of nitrates.

As a further subject, Señor Vergara brought up the desire of the Chilean Fomento Corporation to obtain loans from the Export-Import Bank for pipe and a refinery for the Springhill Petroleum Fields in Tierra del Fuego. Besides this, the Corporation wished to buy from the United States Maritime Commission a T–2 tanker. With respect to the latter request, Mr. Armour mentioned that this was a very difficult matter since tankers were so scarce at the present time.

The meeting was concluded with remarks by Ambassador Pawley on the desirability from every practical angle of petroleum resources being developed by private capital and enterprise rather than by government monopolies.

  1. Ambassador to Brazil.