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

417. Memorandum of a Conversation, Washington, July 31, 1957¹

Washington, July 31, 1957

SUBJECT

• Ambassador Puga’s Views on Contemplated Financial Assistance to Chile

PARTICIPANTS

• Señor Mariano Puga Vega—Ambassador of Chile
• Mr. Rubottom—ARA
• Mr. Devine—OSA/W

Following a conversation upon another subject, Ambassador Puga brought up the contemplated financial assistance to Chile.² He said that he feared this had been considered wholly on the economic and perhaps even the financial plane. He said that the political problem involved had been resolved badly and seemed to him to have been afforded little or no consideration.

Ambassador Puga pointed out that in response to Chile’s urgent request for $40 million, only $12.5 millions were being made available by the United States. He recognized that another $12.5 million drawing upon the IMF was contemplated but said that this had always been available anyway. He said that the Chilean public does not distinguish between the Eximbank and the United States Government and that it will think only in terms of a request to the United States which has gone largely unanswered.

The Ambassador said that Chile was making a real effort under the stabilization program. He recounted having heard only recently from relatives in Santiago who were appalled at the increase in the price of sugar which had just been necessitated by the elimination of the corresponding subsidy. The Ambassador said that Chile had a very real need for substantial assistance and that $12.5 million was inadequate to the task at hand.

Ambassador Puga noted that the Government of Chile had wished to preserve the $75 million stabilization fund untouched as a symbol of stability which would engender public confidence. Now it was being asked to draw down $12.5 million thereof. The Ambassador said that this would inevitably be only the first of several drawings. To demonstrate this he recounted Chile’s dollar availabilities. He said that normally, as the basic pillar of its economic stability, Chile has a gold reserve of approximately $42 million. Now it was preparing to pledge $15 million of this all-too-slight reserve as a means of securing a loan from the Federal Reserve. He pointed out that the $10 million borrowed from First National City Bank of New York would run out in 90 days and would have to be repaid then, or at best after an extension of another 90 days. Similarly, the Federal Reserve loan would have to be repaid after 90 days—or if it could be renewed one or more times—within a year at best. The Ambassador pointed out that these repayments would almost necessarily have to be met by drawing the money from the stabilization fund. He noted that this totalled up to drawings of $37.5 million on the fund within the course of a year. Even the Eximbank and IMF amounts of $12.5 million each, he said would be coming due sooner than convenient. Ambassador Puga said that Chile had come to the United States asking for $40 million on long term and would now come away with only $12.5 million on short term. He expressed a personal feeling of considerable disappointment.

Mr. Rubottom said that he was very sorry to see Ambassador Puga take this attitude and express so strong a feeling of disillusionment. He said that the Ambassador was wrong in thinking that the political aspects of the question had been ignored. Mr. Rubottom said that these had been very much taken into account. He recalled that ever since this matter first came under discussion, the Department of State had been reluctant to consider the $40 million figure as a magical or unquestionable one. He said that very careful studies had led this and other agencies of the United States Government to the considered conclusion that $25 million would cover Chile’s most pressing needs and enable it to press ahead with the stabilization program under which so much progress had been achieved. He noted Ambassador Puga’s contention that only $12.5 million assistance was being extended but said that he felt the more accurate figure was $25 million. The Ambassador interrupted to say that he wished Mr. Rubottom could convince him of this.

Mr. Rubottom said that this was only one chapter in a book that was still unfolding. He said that when Chile initiated its stabilization program and a $75 million fund was provided to assist it, this was in effect the first of various chapters. He noted that although Ambassador Puga and many Chilean Government officials appeared to consider the fund untouchable, this had never been the understanding of most people here in Washington. Mr. Rubottom went on to say that when Chile got into difficulties in March of this year and began to foresee a need for external assistance, this might be considered as the second chapter. Now, said Mr. Rubottom, as a further demonstration of its support, the United States had just indicated it was prepared to make available an additional amount of dollar assistance. This was the third chapter. Regarding the future, Mr. Rubottom said that there were certainly additional chapters in the story but said that neither he nor anyone else could accurately foretell what they would bring.

Ambassador Puga agreed with Mr. Rubottom’s general approach. At the same time he reiterated his concern for the public reaction of the moment in Chile. He said that within the past 24 hours he had been phoned from Santiago by Mr. Rene Silva of El Mercurio. Mr. Silva had told him that the rumor was circulating that loan assistance to Chile would be only in the amount of $15 million. In reply to Mr. Silva’s inquiry, Ambassador Puga said that he had only given him general assurances that Chile’s case was receiving favorable consideration. The Ambassador quoted Mr. Silva as having been ready to interpret any such small amount as practically a demonstration of disagreement and lack of cordiality.

Ambassador Puga said that what he was expressing to Mr. Rubottom was of course only his own personal feeling and not what he had transmitted to his Government. He said that in relaying to Chile for consideration of the Minister of Finance the proposal recently received from the Eximbank, he had acted correctly and impartially and had merely stated that as a result of their studies, Washington agencies considered that $25 million was sufficient to meet Chile’s needs. At the same time, the Ambassador said he earnestly hoped that if there were any way to bring about a reconsideration and increase in the amount of the loan on the basis of the important political factors involved, that Mr. Rubottom would endeavor to do this.

Mr. Rubottom repeated his earlier statement that ample consideration had already been afforded all aspects of Chile’s case—including the political—but said that Ambassador Puga should rest assured that Chile’s problem continued to receive careful and sympathetic attention.

During the course of the meeting, Mr. Rubottom referred to the problems which inevitably ensue when negotiations are held under the glare of publicity and, especially, when specific amounts for possible loans are mentioned. He said that it is much better for both sides to avoid mentioning amounts until the negotiations have been completed. The Ambassador at first dodged Mr. Rubottom’s statement but before leaving carefully pointed out that he had not mentioned any exact figures in spite of the constant pressure which the press had put on him.³

1. Source: Department of State, Central Files, 825.10/7–3157. Confidential. Drafted by Devine.
2. On July 24, the Export-Import Bank informed Puga of its willingness to extend $12.5 million in exchange credit for the purchase of essential U.S. capital goods. The Department reported this decision to the Embassy in Santiago on July 25 in telegram 63. (Ibid., 825.10/7–2557)
3. On November 4, Ambassador Puga and officials of the Export-Import Bank signed the $12.5 million loan agreement. The Department reported this development to the Embassy in Santiago in telegram 284, November 7. (Ibid., 825.10/11–757)