825.2542/8–1353

Memorandum by the Assistant Secretary of State for Inter-American Affairs (Cabot) to the Secretary of State 1

confidential

Subject:

  • Chile Requests United States Purchase 100,000 Tons of Copper for Stockpile

Chile is facing perhaps the most serious financial crisis in its history. Under special powers granted President Ibañez, he has issued some 400 decrees, at the risk of political agitation, taking steps to meet Chile’s inflationary problem, eliminate artificial exchange rates and stabilize the economy. Because of its arbitrary price of 36½ cents per pound as compared with the market price of 28½–30 cents, Chile has accumulated about 70,000 tons of copper, its principal export, which cannot now be marketed except at the risk of weakening an already unstable market and further adding to Chile’s financial difficulties. The Chilean Government has formally proposed that the United States purchase the accumulated stocks which it says will soon approach 100,000 tons, for our strategic stockpile. This measure would stabilize Chile’s chief industry and provide the new administration an opportunity to work out a more realistic budget for 1954.

The advantages and disadvantages of a purchase are listed below:

Advantages

1.
Chile will conclude arrangements for a satisfactory tax and exchange law with the American producers and halt a trend toward [Page 706]the gradual nationalization of an investment by these companies of over 500 million dollars.
2.
United States consumers would have access to Chile’s copper production at prevailing market prices whereas they now pay premium prices.
3.
Chile would establish adequate safeguards to prevent sale or diversion of copper to Soviet bloc countries. Without this purchase, such sales are a distinct possibility.
4.
This would be an unquestionably sound alternative to loans.

Disadvantages

1.
This purchase would involve delivery of copper not now needed in our stockpile program and might lead to charges of discrimination if a similar opportunity for stockpile sales were not given to other sellers.
2.
The purchase would involve an expenditure upward of 40 million dollars.

This problem is an example of conflict between sound US objectives in the field of foreign policy and equally sound domestic policies. I am afraid that if the US cannot help Chile, there will be enormous pressure for radical measures affecting our interests, including attempts to make large-scale sales to iron curtain countries and possible nationalization of the Anaconda and Kennecott mines which produce 95% of Chile’s copper.

  1. Drafted by Mr. Barall; a handwritten notation on the source text indicates that the Secretary saw this memorandum.