Foreign Relations of the United States, 1964–1968, Volume XXXI, South and Central America; Mexico

286. Telegram From the Embassy in Chile to the Department of State¹

Santiago, November 16, 1965, 0001Z.

629: Ref: Embtel 626.² For President from Harriman. Pass Ball, McNamara, Mann, Califano, Bundy.

1. At 3 p.m. Ambassador Dungan, Solomon and I met with President Frei alone at his private residence. I stressed President Johnson had personally sent mission to share with Frei some of his problems as U.S. President:

A. Inflation. Underlined serious concern that unless great care exercised inflation could jeopardize continued success of full employment economy policies beneficial not only U.S. but world economy. If we can hold prices, success possible without serious reduction overseas expenditures.

B. Balance of Payments. Though situation somewhat improved, we have come to limits requiring great care be exercised.

C. Copper Prices. Reviewed steel and aluminum cases. Said President Johnson feels Chile the bellwether: If Chile brings price back to 36 cents price rise can be prevented. Said President Johnson asks Frei’s cooperation to reverse this recent price increase knowing he is equally concerned with the health of the world’s economy. Pointed to gain for Chile in discouraging substitution for copper. Noted that President Johnson feels that Frei and he have same material as well as political interest in this.

2. I then said we realize there are serious political difficulties for President Frei in considering this, and that we are prepared to discuss ways and means of helping him cooperate in bringing copper price back to 36 cents. We authorized to discuss ways of compensating Chile for short-term loss involved. Moreover, we would welcome any ideas on ways in which we can help Frei with political problems his cooperation would pose.

3. President Frei responded that “naturally” he must consider the question because President Johnson had sent a personal mission asking him to do so. “My disposition is to help, because the United States helps us. But the problem is not easy,” he said, giving the following reasons:

A. It is not just a problem of the U.S. market, but also the London market which indirectly affects prices on more than one million tons of copper in the world market.

B. All political elements in Chile have attacked the GOC for not setting even higher copper prices. The conservatives, radicals and liberals have even been more strongly critical than the Communists. The most reasonable of congressmen have spoken of 45 cents, the radicals of 50 cents, and others even more.

C. Substitution problem very serious, Frei convinced, when London market goes over 60 to 62 cents. (Yesterday it was 67 cents.)

D. Some producers (not American companies) are purchasing copper at 38 cents, processing it, and selling in Europe at 67 cents. In view of this Frei has been criticized here for discouraging further price increase.

E. GOC cabinet members are unanimously in favor of increasing the Chilean selling price still further. Frei has stood alone in cabinet arguing for “rational” pricing policy. GOC has advised European consumers of intention (but not formal decision) to raise Chilean price to 40 cents in early January if the present conditions of the London market continue. All members of cabinet feel price should be over 40 cents.

4. President Frei then described his difficult struggle to reverse the serious inflation which existed when he came into office, and emphasized the “tremendous importance” to Chile for balance of payments and other reasons for a one cent change in the copper price. “For us copper is not just one problem; it is the problem,” Frei said. He recognized he must have good will for President Johnson whom he described as extremely open and generous toward Chile.

5. Frei asked if U.S. could not keep U.S. price at 36 cents by removing 1.7 cent import duty. Solomon replied that though that should be part of the considerations, the price stability of the world copper market which we both desire requires the cooperation of our two countries. Unilateral U.S. action on tariff without GOC roll-back would promote undesirable multiplicity of price markets in various parts of the world.

6. Frei said he would consult with his advisers, and arranged for Solomon and Dungan to meet at 6 p.m. this evening with Saez, Lagarrigue and Tomic to explore in depth ramifications and possibilities. He agreed that this evening’s meeting might be first of several. He has agreed to see us again possibly 10 o’clock this evening if other meeting makes sufficient progress.³

Comment: Difficult as yet to judge whether Frei’s willingness to explore possibilities represents simply courtesy to President Johnson or a degree of substantive flexibility. Obviously he will be influenced by the advice of his experts as well as his political pressures. Strike still unsettled and copper bill must be returned to Congress shortly with both item vetoes and essential additional provisions requiring majority approval of both Houses.

Dungan

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL 7 US/HARRIMAN. Confidential; Immediate; Exdis. Passed to the White House.
2. Telegram 626 from Santiago, November 15, reported that Harriman had arrived in Santiago without publicity. (Ibid., INCO COPPER 17)
3. An account of the meeting among Solomon, Sáez, and others is in telegram 630 from Santiago, November 16. The Embassy also reported that Frei had decided against meeting at 10 p.m. in order to confer with his advisers. (Ibid., POL 7 US/HARRIMAN)