811.516 Export-Import Bank/5–2548

Memorandum by the Assistant Chief of the Division of Investment and Economic Development (Stenger) to the Director of the Office of Financial and Development Policy (Knapp)

Subject: Agenda for Meeting of Board of Directors Eximbank May 26, 1948.

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4. Chile—Fomento Corporation. On October 16, 1946 the Board authorized a credit of $5,350,000 for the Chile Fomento Corporation to [Page 428]assist in financing the purchase of U.S. equipment, materials and services for the following programs and in the amounts as indicated:

Power Program $800,000
Copper Wire Plant 800,000
Cement Plant 550,000
Agricultural Machinery 3,200,000

Fomento has requested the transfer of $400,000 from the Copper Wire Plant for allocation to the Power Program. Fomento claims that it will need only about one-half of the credit allocated to finance purchases for the Copper Wire Plant, because the plant is operating at a profit and its own funds have been used to purchase a considerable amount of equipment. They wish to increase the amount of the credit for the Power Program, because of increased prices and the need for additional equipment to complete the power projects.

Fomento has also requested that the expiry date of the credit be extended from June 20, 1948 to December 31, 1949, because of the delays in delivery of equipment.

The staff of the Bank recommends favorably; that the allocation of the Copper Wire Plant be reduced $400,000 and the Power Program be increased by a like amount; and that the expiry date be extended to December 31, 1949.

Recommendation: The Department concurs with the staff in the approval of the request.

5. Chile—Fomento Corporation. On June 13, 1940 an agreement was signed between the Fomento Corporation of Chile and the Bank establishing a credit of $12 million to finance the purchase of U.S. industrial products.1 This agreement and several amendatory agreements stipulated that the credit should be serviced “prior to the servicing of any other obligations of Fomento heretofore and hereafter incurred”, and that the dollar revenues resulting from the extraordinary taxes levied pursuant to Chilean Law No. 6334 should be set aside and utilized to the extent necessary to cover the payment of the obligations of Fomento issued under this agreement. Chilean Law No. 6334, and two subsequent laws which established the Fomento Corporation, imposed certain income taxes (including taxes on income of mining operations) for the purpose of financing the Fomento operations. Certain of these taxes have expired by law with the result that the lien created in favor of the Bank now applies principally to the tax on mining operations.

Fomento has now entered into an agreement with the International [Page 429]Bank for a credit of $16 million and the agreement stipulates among other conditions that before becoming effective—

“The Borrowers and the Guarantor shall have obtained a waiver and release of any and all liens, charges, priorities, and preferences that have been created on any property, assets, revenues, or receipts of any of them in favor of the Export-Import Bank of Washington. Such waiver and release shall be in form and substance satisfactory to the Bank.”

In light of the above, Fomento has asked the Eximbank to waive its rights to a prior lien on the obligations of Fomento.

The staff of the Bank recommends favorable action on the grounds that the obligations of Fomento are unconditionally guaranteed by the Republic of Chile; that the granting of the credit by the International Bank will strengthen the economy of Chile and will increase the possible repayment of the Eximbank’s obligations; and that the waiver will not materially prejudice the Eximbank’s security position.

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  1. For a note on this agreement, see Foreign Relations, 1940, vol. v, p. 684.