The Ambassador in Chile (Bowers) to the Secretary of State
The Ambassador has the honor to report that following a recent visit to Chile of officials of the International Bank for Reconstruction and Development, there has been submitted to the Chilean Congress a project of law which would authorize the President to give the guarantee of the Chilean Government to foreign loans and credits [Page 434]up to an amount of US$ 100 million or equivalent. Copies of the Spanish text1 as reported by the local press, and an English translation2 are enclosed.
The primary purpose of the proposed law is to enable the Government of Chile to comply with the conditions laid down by the International Bank for Reconstruction and Development in connection with the US$ 16 million credit conceded last spring. Hitherto, the Chileans had been reluctant to give the Bank the requisite assurances that the latter will enjoy equal status with other creditors in the event a specific lien on revenues were granted in favor of other future loans, or to guarantee that Chilean municipalities or other governmental subdivisions or agencies will not contract foreign loans independently. These points are taken care of in Articles 2, 4 and 6. Article 5 specifically covers obligations which may be incurred with the Export-Import Bank, Washington, in connection with the steel mill.
The representatives of the International Bank who recently visited Santiago, Messrs. Iliff and Luxford, found Chilean Government ofcials and particularly the Minister of Finance, very cooperative; the most difficult point was the question of preventing municipalities, et cetera, from incurring independently obligations which might require foreign exchange for servicing, at the expense of the general Government obligations. This question presented a constitutional problem which it is proposed to solve by obliging the municipalities, et cetera, to secure clearance from the Minister of Finance.
Some adverse comment has appeared in the local press concerning the proposed law. Thus, the weekly Estanquero of November 27 points out that the prerogative of giving a state guarantee to external loans properly belongs to the Congress and that the concession of such an important power to Government officials is dangerous. There has also been some criticism of Article 3 which removes the restriction established in Article 29 of the constituent law of the Fomento Corporation. The clause in question provides that “the Corporation may make loans to Chilean nationals or juridic Chilean persons provided that . . . . . 60% of the members (of the firm) be Chilean and 60% of the stock be owned by Chileans or juridic Chilean persons in the case of a corporation.” The critics state that removal of this restriction would open the door to turning over Chilean enterprise to foreigners.
The Embassy will advise the Department in due course of the further progress of this legislation.