CH–19. Memorandum from the Director of the Office of West Coast Affairs, Bureau of Inter-American Affairs (Siracusa) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)1
SUBJECT
- Chilean Request for Financial Assistance
Although Sr. Eduardo Figueroa’s discussions with the IMF and with the Eximbank-Treasury-State team2 are still continuing, we thought you might like to have an interim report. The IMF and U.S. representatives engaged in these discussions seem to be generally in agreement that Figueroa has presented Chile’s case in a frank and persuasive manner. He will probably be able to go back with a reasonably attractive package.
We understand that the IMF and Figueroa, with the approval of Finance Minster Vergara, have reached agreement in principle on all points involved in a proposed new stand-by agreement. The agreement has been drafted by the IMF in the form of a letter to IMF Managing Director Jacobsson to be signed by Vergara and Central Bank Chairman Maschke, and the draft letter will be handed to Figueroa today for forwarding to Santiago. Assuming that the agreement is signed (Maschke may find it hard to swallow), it should be possible to develop a stand-by package totaling $53.8 million. Practically none of this would be new money; $6 million would come from the still unutilized first-quarter 1959 drawings (DLF, Eximbank/ICA and private banks), $20 million from Treasury, IMF and private bank credits available but not scheduled for drawing under the stand-by expiring this month, $2.5 million as the remaining balance of Chile’s IMF quota (the only new money), and $25.3 as a roll-over of previous private bank stand-by credits already utilized and due to be repaid in 1959 (if Figueroa can negotiate this with the banks concerned). Under the proposed stand-by with the IMF, Chile would not make regular monthly drawings as in the past but would draw only as needed by the Central Bank to prevent excessive fluctuations in the exchange rate.
The IMF has informed Figueroa that it sees no objection to the proposed negotiation of a $50 million loan from the New York banks. The IMF has also informed Figueroa that it would have no objection to Chile’s acceptance of additional foreign financial assistance for [Typeset Page 259] economic development purposes provided this can be utilized in a non-inflationary manner. This is where the U.S. agencies come in.
[Facsimile Page 2]The U. S. team has had four three-hour meetings with Figueroa, and at least one more meeting will take place. Besides the $50 million loan Chile will seek from the New York banks (in addition to the $25.3 million roll-over for the new stand-by fund), Chile wants $50 million from us to cover the balance of an anticipated unfinanced budget deficit of $100 million. We believe that the Chileans have not been entirely realistic in assessing their financial prospects, particularly in respect of their balance of payments position and the inflationary impact the budget deficit would have even if it is financed by borrowing from abroad. We believe, however, that our analysis of the financial situation has been useful to the Chileans and may help to persuade them that a somewhat smaller amount of aid in 1959 will meet their immediate needs and ease the transition to 1960, when they propose to balance their budget without foreign aid.
Nevertheless, both IMF and U.S. representatives recognize the desirability of helping President Alessandri to cope with his delicate internal political situation. We realize that the extension of the aid they are seeking involves the calculated risk that it may not cure the inflationary problem, but this appears to be less than the risk involved in doing nothing for Alessandri.
The U.S. team is awaiting additional data promised by Figueroa which should enable us to determine just how much assistance we might feasibly give and for which purposes. Between the regular and supplementary budgets, we might be able to pick up about $25–26 million representing proposed imports of capital goods which could be eligible for Eximbank financing. It seems likely that Mr. Waugh’s high opinion of Figueroa will be translated into practical terms.
| Summary of Possible Package3 | (in $ millions) |
| 1. Stand-by assistance | $ 53.8 |
| 2. Private bank loan | 50.0 |
| 3. Eximbank project loans, about | 26.04 |
| Grand total, about | $130.0 |
- Source: Department of State, Central Files, 398.13/3–659. Confidential. Drafted by Phillips.↩
- The team consisted of Ralph Korp of the Treasury Department; Silberstein, Phillips, Post, and Eaton representing the Department of State; and Pollack, Williams, and R. Henry Rowntree from the Export-Import Bank. Memoranda of their conversations are filed under 825.10/2–2759 and 825.10/3–359.↩
- Negotiations on the financial assistance package were completed by May 23, 1959. When the Fund agreed to a renewal of its stand-by arrangement with Chile on March 25, the balance available was increased by $2.5 million, to $8.1 million, in support of new policy measures adopted in order to terminate inflation in Chile. This program was also supported by loans of $28.9 million to be administered by the Export-Import Bank and $53 million from U.S. commercial banks granted in May 1959. In addition, the U.S. Treasury increased the amount in its exchange agreement with Chile from $10 million to $15 million. The Export-Import Bank also stated that it was preparing to complete studies involving prospective credits of about $25 million to private companies in Chile. International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1959 (Washington: 1959), p. 21.↩
- Chile seeking about $50.0 from U.S. [Footnote in the source text.]↩