Office of the Historian

825.10/12–2154

Memorandum by the Director of the Office of South American Affairs (Atwood) to the Deputy Assistant Secretary of State for Inter-American Affairs (Sparks)

secret
[Washington,] December 21, 1954.

Subject:

  • Proposed Program of Economic Assistance to Chile

The following tentative program has been prepared as an alternative to granting a balance-of-payments loan to Chile for $50 million.

1)
The sale under Public Law 480 of 9,000 tons of cottonseed oil and approximately 34,000 tons of wheat having a total market value of $5 million (ccc. value $8 million). This program has been approved and instructions have been sent to the American Embassy in Santiago to proceed with negotiations.
2)
The Chilean drawing of $12.5 million from the International Monetary Fund. Chile previously requested a stand-by credit from the Monetary Fund of $25 million on the basis that this would be necessary in order for Chile to go forward with her proposed changes in exchange rates. The Monetary Fund has determined that it is not [Page 758] willing to grant the stand-by credit and has sent Fund representatives to Chile to discuss certain steps which Chile must take in order to be eligible for Fund assistance. It is believed that the Fund representatives will return with the facts which would enable the Fund to grant a $12.5 million drawing if and when Chile requests it.
3)
Export-Import Bank assistance: (a) A loan of approximately $10 million for the purchase of cotton; (b) A loan or export guarantees totalling approximatley $10 million to cover capital equipment (road building, power, agricultural, and railroad) which Chile has budgeted and considers essential to import during 1955.
These Export-Import Bank transactions should be dependent on Chile’s providing us with a satisfactory program for handling her backlog problem and a list of essential capital equipment that must be imported during 1955 and will be of direct assistance to Chile’s economic development program.
4)
Increase of Chile’s lines of credit with U.S. banks: Chile has $36 million of gold on deposit and could without much trouble increase her lines of credit by $18 million with a gold pledge. This could probably be done on the basis of five years the same way that Brazil handled her problem.

Recommendation: I suggest that ARA and E, after consultation with Treasury and the Export-Import Bank, prepare a telegram to our Embassy in Santiago, outlining the above program and instructing the Embassy to discuss it with top Chilean officials. I feel that the conditions which are a prerequisite to Export-Import Bank action, plus the fact that Chile itself is taking part in this program as well as the International Monetary Fund, make it unnecessary to tie up our assistance to specific performance on the part of the Chilean Government.