Office of the Historian

CH–12. Telegram from the Secretary of State to the Embassy in Chile1

Washington, October 31, 1958, 11:27 a.m.

PRIORITY

167. Embtel 169.2

FYI. Department appreciates serious implications if Alessandri forced face crisis immediately on taking office. However, impression here is crisis not so imminent as Mackenna alleges. IMF stand-by and related credits are not rpt not only recourse. In pinch modest amount involved in Oct. drawings could be borrowed from commercial banks or obtained as tax advances copper companies. Even before such measures might become necessary and certainly before heavy December seasonal requirements must be faced, Dept. hopes Alessandri will reach new understanding with IMF which would make Chile eligible utilize all fourth quarter drawings. We understand IMF willing send mission about Nov. 8–10 if requested. Also our impression IMF aware awkward timing drawing cutoff and disposed be reasonable with Alessandri if he indicates willingness move in right direction.

Mackenna’s observations on rate movement which suggest GOC planning hold indefinitely to unrealistically appreciated rates and not contemplating free rate responsive market forces arouse considerable concern. Rate depreciation reflecting inflation which has already occurred believed [Facsimile Page 2] inevitable. Sooner this occurs more obvious will be that action made necessary by policies old administration.

Important discourage Mackenna idea U.S. can be used to pressure IMF or that Eximbank will make releases independently of IMF. End FYI.

Suggest tell Mackenna (1) Dept. understands from U.S. Executive Director that IMF has not rpt not received request for October drawing (2) in order avoid crisis Mackenna fears, strongly urge GOC request IMF mission come soonest discuss circumstances under which drawing eligibility could be restored (3) proposal move bank rate only 20 points [Typeset Page 244] probably unsatisfactory to IMF, particularly in light earlier assurances more rapid depreciation.3

  1. Source: Department of State, Central Files, 398.13/10–2858. Confidential; Priority. Drafted by Phillips on October 3, and signed by Ernest V. Siracusa, Director of the Office of West Coast Affairs. This telegram was cleared in draft with Samuel D. Eaten, CFD/FR; Alexander H. Rosenson, ARA/REA; Frank A. Southard, Jr., U.S. Representative to the IMF; Charles Harley, Treasury Department, and Seymour Pollock of the Export-Import Bank.↩
  2. See Document CH–10.↩
  3. In telegram 176 from Santiago, October 31, Ambassador Howe reported his discussion of the day with Chilean Finance Minister Vergara, and Vergara’s opposition to the idea that the IMF would continue to support the Ibáñez Government in spite of its violation of commitments and then present the new Government with unfriendly demands. Howe stated that the Embassy recognized possibilities for short-term financing, but “feels it both unfair and unwise force new government resort to makeshift interim measures first two weeks in office,” and was “especially reluctant see new government start meeting financial crises through demand advance copper tax payments.” He advised that the United States should demonstrate its confidence in the new government, and renewed the Embassy’s recommendation that the Department “urge IMF permit Chile make October drawings and send mission Chile for consultations new government.” (393.13/10-3158)
    The Department responded to Howe in telegram 174 to Santiago, November 3, stating that it appreciated and concurred in the Ambassador’s view of the importance of demonstrating confidence in the new government, but could not and did not wish to attempt to dictate IMF decisions. The Department advised Howe that it was “best you limit observations to Vergara and McKenna to stressing importance Chile communicate directly with Fund with view to solving problem.” (393.13/11-358)    ↩