Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

405. Telegram From the Secretary of State to the Embassy in Chile¹

Washington, April 5, 1957—7:33 p.m.

489. Embtel 546.² Dept sympathetic Chilean problems and cognizant US stake in stabilization program. Has instituted studies evaluate current political-economic situation. For this purpose would be useful have soonest Embassy’s appraisal nature Chilean problems and possible need for additional outside help. Does Embassy believe such help substantively or psychologically essential to continuance stabilization program (and likely make effective contribution toward solution or relief Chile’s problems)?

Specifically require, in addition to what already reported, Embassy’s appraisal (1) cost of living increases since January 1, 1956 and prospects for balance of 1957, (2) extent decline real consumption of working classes, (3) groups wage earners and producers most adversely affected, (4) Government’s current fiscal situation in some detail and prospects balance calendar 1957, (5) programs which might be undertaken by GoC meet specific political, economic and social stresses if additional (a) peso resources or (b) foreign exchange resources were available.

What are latest estimates gold and foreign exchange holdings and prospective earnings for balance of 1957? What expenditures anticipated against these earnings for public and private sectors? Under what circumstances does GoC contemplate drawings on stabilization credit?

In light recent disturbances request Embassy’s appraisal pressures to be expected break or revise present wage ceilings.

While you may inform GoC that US studying Chilean situation sympathetically, should avoid giving impression US has reached any decision re ability or willingness extend additional aid. Also might indicate outside aid for financing peso needs normally impracticable, extremely difficult and least likely be arranged. Dept commends your caution with Acting Foreign Minister.³

Dulles

1. Source: Department of State, Central Files, 825.10/4–557. Confidential. Drafted by Silberstein and John Q. Blodgett of ED, cleared with ED and REA, and approved by Bernbaum.
2. In telegram 546, April 4, Lyon reported a discussion he had that afternoon with Admiral Juan Francisco O’Ryan, Chilean Minister of Defense and Acting Foreign Minister. O’Ryan referred to the desperate fiscal situation of his government and asked if it would be possible for the Chilean Government to obtain a loan of about $50 million from the United States. Lyon replied that it would be extremely difficult, but promised to refer the matter to Washington. Lyon observed to the Department that this request was vague. He pointed out, however, that he believed it was the first in a campaign of appeals which Chile would initiate and suggested that the Department consider what action it was prepared to take. He concluded:

   “May I therefore ask Department explore problem together with banks, Klein-Saks, other Washington officials, bearing in mind that banks stimulated Chile to undertake anti-inflation battle and that it is common knowledge that we have backed Klein-Saks mission. Consequently reputations United States and banks as well as that of the mission would suffer should anti-inflation fight fail.” (Ibid., 725.00/4–457)

3. In telegram 561 from Santiago, April 8, Lyon informed the Department that the specific information requested in telegram 489 was in preparation and would be forwarded as soon as possible. (Ibid., 825.10/4–857)