825.2542/6–454
Memorandum by the Director of the Office of South American Affairs (Atwood) to the Assistant Secretary of State for Inter-American Affairs (Holland)1
Subject:
- Chile’s Request that the U.S. buy more Copper.
Despite Chile’s claims to the contrary, its copper difficulties are due almost entirely to government control over the industry, including the establishment of a rigid minimum price which led to the eventual accumulation of half a year’s unsold production. Ambassador Jara’s first request to the U.S. to buy copper was made in July 1953, as part of a plan to solve the overall copper problem and establish a new relationship with the companies. By August, the original amount of 25,000 tons had grown to 100,000 and a representative of the Central Bank was sent to the U.S. to help the Ambassador negotiate. They informed Mr. Cabot on August 4 that the stockpile purchase would be part of an overall settlement of the copper problem, including a “mutually satisfactory” new law improving operating conditions for the American companies and making Chile’s copper competitive again. This talk was followed by a Chilean note, August 6,2 which claimed “Chile has placed in operation a complete plan for unification of the exchange system and for economic stabilization, destined fundamentally to establish a sound economy and to combat inflation, which has reached alarming proportions. The government is determined to deal with the inflationary process by attacking its most pernicious causes, i.e., an unbalanced budget, monetary and credit expansion, inadequate orientation of public and private investments”. The note then argued that the success of this plan was contingent on the purchase by the U.S. of 100,000 tons of copper. (Note: None of this has taken place. Instead, the rate of inflation has increased, and for the period April 1953–April 1954 reached 78.9%.)
The U.S. took the Chilean promises at face value and agreed, after a difficult decision by the DMB, to negotiate for the copper. The U.S. desired only that Chile implement its promises with respect to its own economy and the copper industry, and that it adopt the IC/DV system to prevent sales to the Soviet bloc. During the course of the negotiations, the Chilean position changed and our efforts to secure positive action by the Chilean Government prior to the stockpile purchase were labeled intervention in internal affairs. Chile also tried to extract a higher-than-market price or a line of credit of $100,000,000 as compensation for not selling to Communist countries. As you recall, the [Page 754] negotiations were deadlocked for several months and the U.S. Cabinet finally agreed to the purchase on the strength of Chile’s promises not to sell to the Soviets and to pass new legislation for the copper industry. The only promise kept by Chile so far concerns sales to the Soviets and we can never be sure that it will not be broken if Chile receives an attractive offer.
The lesson to be derived from the above seems to be that we should not agree to consider any proposal until Chile has first implemented its previous promises—in Chile’s own interest. The $100,000,000 Chile earned on the copper “overprice”, at a time when its entire economy was booming and its balance of payments was favorable, did not enable the country to balance its budget, stop inflation, or spur economic development. The $60,000,000 stockpile purchase now under way (first payment of almost $19,000,000 was made to Anaconda June 3) has not helped Chile solve any of its problems. In his annual message to Congress on May 21,3 President Ibanez tried to blame the falling copper price and the paralyzation of sales for the country’s failure to balance the budget. He argued that external conditions were responsible for Chile’s economic difficulties and nowhere did he suggest an anti-inflationary economic program. Under these conditions, if we bail Chile out once again, it would appear that we are aiding neither Chile nor the U.S., but just postponing and making more difficult the eventual day of reckoning.
As a practical matter, I am certain the ODM would not take under consideration the purchase of a substantial amount of copper over an extended period of time. Nor do I believe we could have the Cabinet again consider a copper purchase while Chile’s recent promises are still unfulfilled and when President Eisenhower is facing difficult decisions on the subject of imported versus domestically-produced metals.