825.6374/10–1948

Memorandum of Conversation, by Mr. Henry M. Pauley of the International Resources Division With Mr. Pedro Alvarez of the Chilean Embassy

confidential

At the close of this morning’s meeting of the Executive Committee, IEFC, I asked Mr. Alvarez of the Chilean Embassy how they had arrived at the figure of 89¢ per ton rental for the Cactus plant, given in their latest note to the Department, dated September 30, 1948. I explained to him that my reason for asking was that it appeared to us on the U.S. side that the correct figure was $8.90 per ton rather than 89¢ and that, accordingly, the Chileans may have made an error in a decimal point in their calculations. Mr. Alvarez was not familiar with the method of their computation, but said he would check it and let us know in a day or so how they arrived at the 89¢ figure.

He then launched into a polite, but firm, attack upon the handling of the commitment of March 5, 19451 by the United States. He said that the Chilean Government sincerely felt that when they had obtained this commitment they “had something”, and they consequently were disappointed over the last few years when the actual handling [Page 431]of the disposals gave them an opportunity to do not much more than engage with us in an exchange of formal notes, most of which were on technical points. I asked him specifically what had been wrong in our handling of the commitment, and he said there was nothing he could put his finger on as being wrong, but that somehow, in a vague sort of way, he sensed that there was a “gap” or a “missing link”, as he put it, in our way of handling the commitment. He said further that Under Secretary Welles and Secretary Hull had promised the Chilean Ambassador, in meetings at which he (Alvarez) was present, “effective protection for the Chilean industry against the postwar utilization of the wartime munitions plants.” When I asked him specifically what form the “effective protection” for the Chilean industry was to take, he could give no answer.

A point which Mr. Alvarez emphasized was that the Communists down in Chile could say now and in the near future that the U.S. had promised protection for the Chilean nitrate industry in disposing of wartime ammonia plants, but that in the actual disposals we had failed to live up to our promises. He said he would like to see the record of the American-Chilean relations cleared of this blemish, and that we could erase this blemish, or fill in the gap, he hinted very broadly, possibly by granting Chile a loan through the Ex-Im Bank for the expansion of their nitrate industry using the Solar Evaporation Process.

I told Mr. Alvarez that I felt that there was no gap in our handling of the commitment, and, further, that I understood that the expansion of the Chilean nitrate industry was being financed with private capital. He agreed to the latter point, saying that about a year ago they had considered applying to the Ex-Im Bank for a loan, but had finally decided instead to use their own money. I expressed no view as to the prospect of their getting a loan, except to say that Ex-Im and the Department would undoubtedly be glad to consider such a loan on its own merits.

It was exceedingly difficult to get from Mr. Alvarez what the “missing link” was, or where the “gap” existed in our handling of the March 1945 commitment. After considerable prodding and suggesting on my part, he finally admitted that what Chile really had wanted under this commitment was to have a voice in the determination of the sales or rental figures on each wartime ammonia plant when it was put up for disposal. I told him that under the conditions laid down by Congress regarding disposals of wartime surpluses, such an arrangement between our two Governments would have been impossible.

Mr. Alvarez emphasized that all the foregoing was presented by him strictly in an unofficial capacity, and that there was nothing formal or official about what he was saying. While he was very outspoken in [Page 432]expressing his views about our handling of the commitment, I believe he realized that his request for a voice in determining rentals or sales prices was not at all practical. Undoubtedly, he was groping for information on the prospects of a loan.