825.2311/12–254
Memorandum of Conversation, by the Assistant Secretary of State for Inter-American Affairs (Holland)1
Subject:
- Discussion of Chilean Problems
- Participants: Under Secretary Herbert Hoover, Jr.
- Chilean Finance Minister Jorge Prat
- Assistant Secretary Henry F. Holland
The Minister said that he had just talked to Santiago. It is urgent that Chile have 10,000 tons of wheat in order to cover the period elapsing until their harvest season gets under way in January and February.
Chile has just received a shipment of 11,000 tons of vegetable oil. It was paid for with a dollar promissory note falling due in 180 days. This arrangement for payment was made because of the fact that the regulations permitting payment in local currency had not yet been adopted. At the time the dollar obligation was issued it was understood that it would be converted to Chilean pesos before maturity. He hoped that this could be worked out.
[Page 756]Mr. Hoover said that the United States could be helpful on the wheat problem and that he would look into the vegetable oil problem.
The Minister said that Chile would like to receive 20,000 tons of vegetable oil, 50,000 tons of wheat and 12,000 tons of cotton. He said that the latter was an exceedingly important item, because the Chilean textile mills were working at less than capacity because of the country’s inability to import cotton. Cotton is one of their dollar imports. A sale of cotton under the agricultural excess program would not only help the local mills but would also lighten the burden on their dollar exchange.
The Minister said that several problems had been encountered as to the use that we would make of Chilean pesos generated through sales of agricultural excesses. The Government wants the pesos lent to it for use in constructing roads. The Ambassador is reported to want the pesos to be used for loans to private enterprise.
Mr. Hoover said that we had held preliminary conferences with other interested United States agencies and that we were prepared to negotiate with respect to the total amounts to be sold of products sought by the Minister, the rate of exchange to apply in those sales, the reconversion rate to apply to Chilean pesos, the uses to be made of Chilean pesos, and with respect to any conversations that should be held with alternative suppliers of these products.
The Minister said that as regards cotton some problem might be encountered with Peru and Egypt which were traditional suppliers.
The Minister said that in the field of financing his government was planning to attempt to achieve convertibility. He felt that if the Export-Import Bank could lend Chile $50 million and if the International Monetary Fund could establish a $25 million exchange guarantee fund, Chile could be successful in its attempt to achieve convertibility. The Minister said that he hoped the Department could help Chile in these purposes. Mr. Hoover said the Department would want to be helpful.
The Minister said that an alternative course would be for the United States to contract to buy 100,000 tons more of copper. Mr. Hoover said that he felt this would be impossible. Mr. Hoover then pointed out that Chile has a refinery that is worth $25 million. It might sell this asset if the political problems were not too great an obstacle. Mr. Hoover went on to explain that Chile has spent many millions of dollars in exploring for oil, achieving its production, constructing the refinery and other installations necessary for the oil industry. The real profit in the oil industry lies in the sale of production after you discover it. If Chile could find some politically acceptable means for selling its oil production in the southern field, it would recoup all of the investment in them and a profit as well. Thus, instead of waiting for slow recovery of its investment and profits over a period of many [Page 757] years, Chile would immediately have available very large sums of money for its road programs and other government projects.
The Minister said that the political obstacles to any such course would be well nigh insuperable.
Mr. Hoover pointed out that in the case of established production such as that in the southern fields this might not be true. The political obstacle to a sale of an oil concession lies in the argument that the asset sold might have been proven to be worth more than the price obtained. In the case of established production, the recoverable reserves of the structure sold can be computed with great accuracy. Thus, the sale is not of an asset whose value cannot be determined, but is of an asset whose extent and value can be determined with great precision. Chile instead of selling the contents of the field slowly and over a long period of years would be in the position of selling these same reserves in one operation and receiving the full price in one payment. Mr. Hoover pointed out that under these circumstances the price per barrel would be reduced on account of the long-term over which the purchaser would receive the benefits of his purchase.
The Minister was intensely interested, and said that when he returned to Chile he would investigate the possibility of making this kind of a sale.
Mr. Hoover said that if the Minister so wished the Department might be willing to send an expert to Chile who could look into the possibilities of effecting this type of sale.