CH–26. Memorandum of Conversation, by the Ambassador in Chile (Howe)1
PARTICIPANTS
After formal introductions the Ambassador explained briefly to the President the purpose of Senator Morse’s trip to Chile and [Typeset Page 272] other countries of South America, mentioning especially his desire as Chairman of the Sub-committee on Latin America of the Senate Foreign Relations Committee to learn for himself of the situation and problems in the area. The President expressed his pleasure at having Senator Morse in Chile and at having the opportunity to talk with him. Senator Morse then said that he came primarily to observe and to study, that party politics did not enter into the consideration of policy by the Foreign Relations Committee of the Senate, and that he and the rest of his Committee hoped to develop information for an objective appraisal of conditions in Latin America. The President replied that he was glad that the Senator had come to observe but was sure that he did not need to study as he knew how much attention he had already given to Latin America. Senator Morse than said he wished to congratulate President Alessandri on the views expressed in his recent interview for the New York Times on the subject of the burden of armaments.
President Alessandri thanked the Senator and then went on at some length to reiterate his views with relation to this whole question of armaments. To a considerable degree the President repeated what he had said in the press interview but spelled out certain points in more detail. He said that Chile, by restraining its military expenditures and attempting to devote its resources to economic development, was, he felt, following a sound course and setting a good example in the hemisphere, but that unfortunately with certain of the neighboring countries purchasing arms over and beyond those provided under the MAP program, Chile was finding herself in a very difficult situation internationally. He continued that it did not seem fair that a country which attempted to follow a sound policy should thus, in effect, be penalized for such policy. The President suggested that new thought should be given to the MAP program as a whole as it referred to Latin America, to consider whether the same treatment should be given to countries which tied in their own defense expenditures with the MAP program as to those which made additional and often unnecessary purchases outside of the program. Similarly he felt that the lending agencies, both [Facsimile Page 2] international and U.S., such as the IBRD, the IMF and the Eximbank, should take into account the nations’ military policies as well as their economic and fiscal management. He mentioned the demands made by these agencies for sound fiscal management, which he recognized as necessary, but then said that the same nations which directly or indirectly provided the foreign credits through the international or national lending agencies appeared to permit or even encourage receiving nations to undertake military expenditures which in reality could have just as unfavorable effects on both fiscal policy and economic development as unsound financial policies. The President said he hoped very much that Senator Morse, both directly [Typeset Page 273] as Chairman of the Sub-committee on Latin American Affairs and as an influential member of the Senate, would do what he could to press this point of view and to assist in giving leadership to a movement towards a sensible approach to the whole arms question.
Senator Morse replied that as he had already indicated in congratulating the President on his remarks to the press, he shared to a very large extent the views expressed by the President and that he knew also that among his colleagues there were many who were seeking ways to lessen the burden of armaments. Senator Morse then said that he would be very happy to have any views that might be helpful to him and to the Committee relating to economic problems or the economic development of Chile.
The President replied at some length by retracing the pattern of foreign credits over the past forty years. In doing this he emphasized points that he has frequently made in the past, that up until the depression of the early 1930s Chile, along with other Latin American countries, was able to go into the foreign financial market, first in England, later in the United States, and borrow money on long term for public works and other necessary development projects. He said that it was important to remember that in this earlier period such funds had not only been available to defray the cost of imported equipment but had also been available for conversion into local currency which could be applied against local costs of development projects. With the depression this private foreign financing had largely dried up. In its place various forms of financing had arisen, first through such agencies as the Export Import Bank and later the IMF or IBRD. While such agencies had made many useful loans, those credits did not provide the same flexibility, particularly for public works and the development of the economic infrastructure of an underdeveloped country. In certain cases they were limited to covering the foreign currency costs of a project, making no provision for local currency expenses. In other cases they were directed towards or limited to specific objectives, again leaving the recipient governments without the needed degree of flexibility. The President continued that he admitted frankly that in [Facsimile Page 3] Chile, as well as in certain other countries, what he regarded as faulty domestic policy had also limited the necessary growth of the fundamental economic infra-structure. Specifically he said that the mistaken policy of proceeding governments in going into fields which could better have been left to development of private enterprise and private capital had had a doubly unfortunate effort. First, frequently foreign credits had been obtained for such projects and had been in effect mortgaging an important part of the financial resources of the government. Thus the servicing of these credits had limited the potential foreign credits available for development in other fields; and second, the same policies had forced [Typeset Page 274] the diversion of the government’s own revenues towards meeting the local costs of such projects, thus subtracting from the total funds which could have otherwise been available for such fields of development as highways, ports, schools and public health. The President continued that in certain fields such as public power it would be very difficult, if not impossible, to reverse what had already been done, but that his government was determined to limit the use of government funds for projects which should properly be developed by private capital to an absolute minimum, using the government’s resources in those fields which could only be developed with public funds. He said therefore he and his government obviously were in favor of the investment of private capital both domestic and foreign, and of giving every possible encouragement to private initiative to do what in reality he felt it could do better than the government in any case. In return he did hope that there could be somewhat more flexibility in credits made available to the government and necessary projects in the public sector, particularly in giving consideration to the needs for the local currency costs of such projects. He closed these remarks by emphasizing that Chile was most grateful for the help given by the United States to his government and that he was not complaining but only pleading for a broad and flexible approach to this old problem of economic development. He mentioned specifically a lack of flexibility in the use of local currency accruing under PL-480.
The Senator replied that he was very grateful for having the President’s views, which to a large extent corresponded to his own. Senator Morse continued that the President might think it odd coming from him as a Liberal, but that he had long felt that the most important export the United States could make, particularly to the underdeveloped countries of the world, was its faith and belief in economic freedom. He emphasized his conviction that political freedom of choice could not long exist without economic freedom of choice, and that a strong and vigorous system of private enterprise was the best guarantee of such economic freedom. Hence he was delighted to know at first hand that the President shared his views on the respective roles that should be played by private enterprise and by the government in the economic development of the country. He also [Facsimile Page 4] was happy to have the President’s assurances of his receptivity to foreign investment as an aid in achieving such development. He added that he had long felt that in addition to the direct investment which could be made by foreign capital, further ways should be sought by which the foreign credit agencies, both national and international, could assist through loans in providing the capital to make possible a healthy growth of domestic free enterprise within these countries. [Typeset Page 275] Hence he felt it important that in addition to making credit available directly to the governments, such lending agencies should be sympathetic to the sound needs and requirements of private individuals or companies for assistance.
The President replied immediately that he did, of course, fully agree and actually in the case of Chile there had been just such experience. He mentioned specifically the $20,000,000 credit provided by the IBRD to his own former company, Papeles y Catones, for the construction of a newsprint and celulose plant. He said that during the preceding administrations there had been much pressure from the government to have this credit granted to CORFO, the government development agency, but that the World Bank had insisted on making the loan directly to the private company. The President added that the Eximbank also had made a number of useful loans to private companies in Chile, both foreign and local.
Senator Morse then said that in his own behalf and in behalf of Mr. Holt he wished to express his gratitude for the time the President had been kind enough to give to this interview; that he felt he had learned much and was happy to find that the President’s views coincided to such a marked decree with his own. In closing he said he also wished to tell the President how very helpful the Chilean Embassy in Washington had been to the Senate Foreign Relations Committee, and to assure the President of the high opinion which he and his colleagues on the Committee had of Chile.
The President thanked Senator Morse; that he was glad to have his expression of appreciation for the helpfulness of the Chilean Embassy in Washington which he assured him had the full confidence of the government here. He also expressed his appreciation for the understanding and helpfulness of the United States Embassy in Chile with relation to the problems of his government.
In departing Senator Morse said that, as a former professor, he had been privileged to attend as a student a most useful seminar, and congratulated the President on his helpful presentation of some of the problems facing his government.