CH–10. Telegram from the Ambassador in Chile (Howe) to the Department of State1
169. IMF cabled Central Bank October 22 to effect further drawings under stand-by arrangement contingent upon “adequate action” to bring Chile into compliance with its undertakings.
Mackenna Central Bank advised Embassy that funds decision placed Chile in serious foreign exchange situation. He has obtained executive approval raise Central Bank’s selling rate immediately by 20 points to 828 (maximum possible without causing price increases, especially of gasoline). Central Bank is so advising fund and calling their attention compliance on agreed issue limit. Proposed depreciation would narrow spread between bankers and brokers market to around 150 pesos, compared with spread of around 300 pesos in September.
Without scheduled fourth quarter drawings from IMF, private banks, EXIM Bank and ICA totaling 13 million dollars, Central Bank faces estimated exchange deficit of 11.1 million dollars at end of year. Without further drawings bank estimates its foreign exchange reserves (other than gold) will be exhausted by around November 8 due in part necessity meeting 2.5 million dollar payment EXIM Bank October 31.
Timing IMF cut-off most unfortunate. Ibanez administration will take no steps alter situation beyond what Central Bank proposing to IMF. Embassy believes it neither fair nor wise to force new administration within its first days of office to meet critical exchange situation due irresponsibilities old administration.
There is great optimism in Chile over Alessandri government. Believe one of his first acts will be endeavor bring order Chilean finances. Embassy urges Department encourage IMF take account political implications suspension at this time and permit [Facsimile Page 2] October drawing in order give Alessandri opportunity work out new arrangements with IMF mission early November.
- Source: Department of State, Central Files, 398.13/10–2853. Confidential.↩