825.2542/8–453

Memorandum of Conversation by Milton Barall of the Office of South American Affairs

secret

Subject:

  • Chile Requests United States Purchase Accumulated Copper for Stockpile
  • Participants: Ambassador Jara, Chilean Embassy
  • Luis MacKenna, Representative of Central Bank of Chile
  • Mario Rodriguez, Minister Plenipotentiary, Chilean Embassy
  • ARA—Mr. Cabot
  • OSA—Mr. Atwood, Mr. Barall

The Ambassador and his party called on Mr. Cabot to discuss Chile’s grave copper situation. After the introduction of Sr. MacKenna, and Mr. Cabot’s expression of thanks to the Ambassador for the courteous treatment extended to him and to Dr. Eisenhower’s Mission1 during their recent visit to Chile, the Ambassador said he wished to continue the discussions previously begun with Mr. Atwood, prior to Mr. Cabot’s return to the United States.

Mr. Cabot reviewed the general copper problem, mentioning Chile’s inability to dispose of its full production at the 36½ cent price and said [Page 700]he was aware of Chile’s desire to sell its accumulated stocks of some 60,000 tons to the US stockpile at market price. Jara said this was correct but that the copper was accumulating rapidly and, while there were only 65,000 tons now on hand, Chile would like to arrange for the sale of 100,000 tons, the estimated amount which would have to be disposed of before normal sales and deliveries could be resumed. Mr. Cabot said the United States was prepared to give serious consideration to the Chilean proposal but that, naturally, he could not now predict the outcome. He expressed some dismay at the increase in tonnage and explained that, under any circumstances, it would be very hard to obtain agreement from the interested US government officials to make such a purchase. Mr. Cabot referred to the precarious fiscal position of the United States and to President Eisenhower’s recent efforts to have the debt limit extended. Since Congress had not acted favorably on the President’s request, all public funds would have to be very carefully watched. Mr. Cabot reminded Ambassador Jara of the difficulties experienced in reopening negotiations for the purchase of Bolivian tin, although Bolivia was in even greater need of assistance than Chile and the amount of money involved was much smaller.

Sr. MacKenna stated that Chile’s need for this stockpile sale was urgent. He said his government recognized that it had to sell copper competitively at the world price. The American producing companies could not continue to finance current production indefinitely and had already stated they might have to curtail production. The resulting unemployment would add political problems to the already acute economic difficulties and increase public agitation. Chile is afraid to place its accumulated copper on the normal market because this would have a disastrous effect on the price. MacKenna indicated that there might be other suitable sales arrangements for the 100,000 tons, such as partial purchase by the stockpile, with the American companies buying the balance for their own plants at about 30 cents. When Mr. Atwood mentioned a report received today that American Smelting and Refining was reducing the price of primary copper to 28½ cents, effective immediately, MacKenna revealed indirectly that his government was not yet adjusted to a freely fluctuating market price, but now identified “market price” with the 29¾–30 cent range which has prevailed for some time. (The Chilean Government is probably recalculating its estimated revenues at this rate.)

Sr. MacKenna made it clear that the stockpile purchase would be part of an overall settlement of the copper problem. He said Chile had under active consideration plans for a new tax and exchange law and for better operating conditions for the American producers. He said he had been authorized to begin these discussions with the companies and/or the US Government at once. He stated it was his government’s [Page 701]intention, in line with the economic reforms now under way, to move copper to the 110 exchange rate as soon as possible, as had been done for the nitrate industry on July 31.

Mr. Cabot said better treatment for the copper companies would be in the best interests of Chile and the United States inasmuch as the present system, which taxed away 80–90% of the companies’ profits, was not conducive to additional investment nor was it encouraging to any private investor. MacKenna said his government recognized the difficulties under which the American companies had been operating in Chile and hoped the new arrangements to be worked out would lead to increased production and spur additional investment. Ambassador Jara broke in to add that President Ibañez, who understood the situation better than anyone, was especially interested in establishing a climate favorable for private investment, and that it is the desire of the Chilean Government to cooperate with the United States. The Ambassador said he would send a formal note2 covering Chile’s proposal tomorrow and asked if he could expect an answer within a week. Mr. Cabot replied that the Department would start working on the problem immediately but reiterated that all he could say at the present time was that the US would give it serious consideration.

MacKenna them moved on to the second point he wished to discuss, Communist propaganda in Chile for sales to iron-curtain countries, and the belief of the man in the street that a good market for 35½ cent copper (FAS Chilean ports) exists in Western Europe but that Chile is prevented from making these sales because of Chilean loyalty to the United States or because of threats of US economic pressure. He said he wished to destroy this “fantasma” (phantom idea) that Chile would be forced to sell at the market price out of deference to the US, instead of profiting from higher-priced sales in Europe. [Note: He failed to acknowledge that repeated public statements by Chilean officials had led to widespread acceptance of this erroneous belief by a large segment of the Chilean public. An editorial in El Mercurio April 23, 1953, took the government to task for lack of understanding of the copper market which had led to repeated denials of a price drop.]3

MacKenna expressed his personal belief that there was no such market for Chile’s copper in Europe, supporting his position by citing the numerous inquiries and offers addressed to the Central Bank by European forwarders, only one of which had been effectively backed up [Page 702]by the opening of a dollar credit on a London bank. MacKenna said he stopped this shipment and that he had provided full cooperation to the Embassy in controlling East–West trade in copper but pointed out the political difficulties involved in explaining to the public that Chile accepted a lower price in order to cooperate with the United States. This led to Communist claims that the government was a tool of the United States.

MacKenna proposed offering a token sale of perhaps 500–1000 tons to a Western European country, at 35½ cents, without requiring the non-re-export certificate which Chile demands for all sales outside the Western Hemisphere. He feels sure there will be no buyer to put up dollars at this price and that the government would then be able to use this case to destroy the “fantasma” and defeat Communist propaganda. MacKenna asked if there weren’t some US organization abroad which could follow the shipment and prevent its diversion to the iron-curtain if the sale should actually be completed. The Department officers explained that this proposal might backfire even if there was only a small but effective demand in Europe, and that it was difficult to follow all shipments to prevent diversion. After further discussion of this proposal, it was decided that it would be studied on its merits, apart from the major proposal for the stockpile sale.

Sr. MacKenna then introduced the third item on his agenda. He said he had brought with him a letter4 from President Ibañez to President Eisenhower seeking general support for the stockpile purchase. However, he had been instructed to discuss this letter first with Mr. Cabot and to deliver it only when and if the Department felt it would be helpful in securing approval. Mr. Cabot said he thought it would be best to delay on the letter, to allow time for discussions within the US government and with the companies, and for the formulation of an inter-agency opinion.

In the course of the discussion Ambassador Jara had remarked that the American companies, as was natural under the circumstances, were selfishly taking advantage of the present difficulties to try to force the maximum in concessions from the Chilean government. At an appropriate time Mr. Atwood picked up this remark and said he thought the Ambassador was mistaken in his opinion of the companies. He assured the Ambassador that, on the contrary, the companies were very much concerned with Chile’s economic welfare, that they were aware of the acute financial difficulties being faced, and that they wished to cooperate in finding a mutually satisfactory and beneficial solution which would bring stability to the copper industry.

MacKenna said he was under instructions to reply frankly and fully to any questions raised by the United States. He and the Ambassador [Page 703]said the purpose of their visit was to obtain the Department’s support for the proposed sale, which was so important in Chile’s efforts to strengthen its economy. Mr. Cabot replied that he had been aware of Chile’s economic difficulties ever since he first assumed his present office but that, until now, there had been no opportunity to deal effectively with the problem. This was the first proposal Chile had made for a cooperative effort to improve the situation. He said he would see if it is possible for the United States to assist Chile in this matter.

  1. Dr. Milton Eisenhower visited Chile July 13–15, 1953, as part of a factfinding mission to the countries of South America undertaken during the summer of 1953 at the request of President Eisenhower, see the editorial note, p. 196. Mr. Cabot accompanied Dr. Eisenhower.
  2. Chilean Embassy note no. 1164–150, dated Aug. 6, 1953, requesting the United States to purchase for its stockpile 100,000 tons of Chilean copper, and the Department of State’s reply, drafted by Mr. Barall, dated Sept. 3, 1953, indicating that the United States was prepared to discuss with Chilean representatives the conditions under which copper might be purchased, are in file 825.2542/8–653.
  3. Brackets in the source text.
  4. Not found with source text.