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

414. Letter From the Ambassador in Chile (Lyon) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)¹

Santiago, July 11, 1957.

Dear Dick: Harry leaves this afternoon and I think his visit has been useful.² He arrived with some very definite ideas and has now left, realizing that the situation is extremely serious and getting daily worse with the continual fall in the price of copper, and that if a loan is not forthcoming the anti-inflation program is likely to fail. Harry, when he arrived, indicated to us that he had a very definite frame of reference from the banks, Monetary Fund, Treasury, etc. I think he is now convinced that this frame of reference was inadequate. As he has made clear to us, he, as a tough negotiator, enjoys the confidence of the banks and government offices. I, therefore, believe that when he tells the facts of the case, these organizations will be prepared to listen to his arguments, which should be helpful.

As I have said time and again, I believe that to let this anti-inflation campaign go by the board now would be tragic. I think it is of supreme importance to Chile, and think it is of certain importance to all the American Republics, and I think it is of considerable importance to the United States.

After all, in addition to the political importance of the campaign, there is American capital of toward $1 billion invested in this country. Certainly, if things go badly one of the first sources for revenue to which the local Government will turn will be, as in the past, the copper companies.

We shall be sending the Embassy’s view on Harry’s conclusions shortly. I think we are all (save possibly Klein–Saks and perhaps they are coming along) in fair agreement that $25 million before the end of the year is about the rough figure necessary. There are, of course, as you know, various schools of thought as to details. Harry, like certain people in Washington, wants to have the Monetary Fund stand-by credit used. I believe Sam Waugh urged that this be done. The Klein–Saks Mission is very opposed to this, and I know that that stand-by credit over the past years has attained a certain aura of untouchability, and it might have certain bad psychological effects if Chile were to draw on it at this late date. This is also the feeling of Maschke, head of the Central Bank here. These are details which the experts will have to work out, but at the present time I am inclined to think that it would be wise to enter into any loan agreement with the Chileans with more flexibility, and not make the terms so rigid that the Chileans commit themselves to impossible conditions, nor should the loan be insufficient to do the job. This would only be building up difficulty for ourselves in the future.

As you know, with the presidential elections looming on the horizon here, the Government may be subjected to such severe pressures that it would be impossible to resist. The situation, at best, is a most difficult one.

Dick, I cannot sufficiently emphasize how important I think it is that we aid Chile at this point. Psychologically, if we don’t, I think the consequences would be very grave, and certainly our own investments here will be the ones to suffer. Moreover, I am Scotch enough to hate to risk the possibility of all the progress that has been made during the last two years being wasted. Already many improvements have been built into the Chilean economy that did not exist before this plan was initiated. I refer to the free exchange, the removal of subsidies, greater appreciation of the need to balance the budget, etc.—all of which we have wanted to see and which are concrete accomplishments.

The risk of reversion to the former policies if the inflation element again takes control would be a tragedy I do not care to contemplate.

Bill Belton mentioned to Maurie³ on the telephone yesterday the possibility of my returning to Washington in this connection. Maurie said that you did not want me to come back unless I could return with something. I feel that is not the point. My only purpose in coming back would be if you thought my presence there would be helpful in effectuating the necessary aid. If this can be done without my coming, all to the good. I am not seeking any glory. However, I do not want, and I’m sure you don’t either, to leave any stone unturned in obtaining this necessary aid, for I feel it is very essential. At this point we have much to gain and much to lose in Chile. I want to be sure that this anti-inflation program is saved.

As I have written you before, this situation reminds me of when I was in Egypt⁴ and the Egyptians looked to us for guidance and assistance. I’m afraid we failed them. The Chileans are turning to us just this way today. I do not want to fail them, and I know you don’t either.

In summary, I think it absolutely essential to the future relations of our two countries that some aid be forthcoming at this juncture. I am prepared to put every ounce of support I have into it. I know you and the others in the Department will do likewise.

With best wishes to Billie, in which Elsie joins, I am

Yours as ever,

Cecil

1. Source: Department of State, ARA Files: Lot 59 D 573, Chile 1957. Confidential; Official–Informal.
2. Telegram 26 from Santiago, July 7, reported on several of Turkel’s substantive meetings with Chilean officials, the first of which was held on July 5. (Ibid., Central Files, 825.10/7–757)
3. Maurice Bernbaum.
4. Lyon had been Counselor and First Secretary of the Embassy in Egypt, 1944–1945.