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

289. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, December 10, 1966.

SUBJECT

• Loans for Chile

AID requests (Tab B),² under the new commitments procedure, your approval of a $65 million assistance package for Chile divided as follows:

• —$35 million program loan;
• —$20 million sector loan for agriculture;
• —$10 million sector loan for education.

The request is $25 million under what you approved for 1966, and $40 million less if the PL 480 reduction is included.

Joe Fowler concurs in the proposed program (Tab C).³ AID knows about the understandings mentioned by Fowler in his note. Charlie Schultze recommends your approval (Tab A).⁴

One aspect in which you will be particularly interested is the relationship of continued high copper prices and the level of our assistance. Bill Gaud foresees the possibility that copper prices in 1967 may stay close to the present high level. Against this possibility, he plans to release the $35 million program loan in three tranches, the final $15 million subject to need in the light of copper prices and exchange reserve trends. From the windfall copper earnings this year, the Chilean Government has agreed to use, as the situation permits, $40 million for advance repayment of short term US debt: $7 million to the US Treasury and $33 million to US private banks.

Tony Solomon and Linc Gordon strongly recommend that we not try to get the type of copper arrangement with Chile that we had this year. Their reasons and alternative suggestion for handling—which they have discussed with Joe Califano and Gardner Ackley—are explained in the memorandum at Tab D.⁵ They propose securing a Chilean commitment that Anaconda will supply the United States with 125,000 tons or more at market price during 1967 instead of extending this year’s deal which would cost AID $25 million for the difference between 36 cents and present market price.

I join Gaud, Fowler and Schultze in recommending that you approve the Chilean aid package.⁶

Approve

Disapprove

Speak to me

Solomon– Gordon formula for meeting our copper requirements from Chile for 1967.

Approve⁷

Disapprove

Speak to me

Walt

1. Source: Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67. Confidential.
2. Tab B was a memorandum from Gaud to the President, November 16; attached but not printed.
3. Tab C was a memorandum from Fowler to the President, undated; attached but not printed.
4. Tab A was a memorandum from Schultze to the President, November 30; attached but not printed.
5. Tab D was a memorandum from Gordon to the President, November 23; attached but not printed.
6. None of the options below is checked. On December 20 the Embassy reported that Frei had decided to forego the program loan due to increased revenues from the high price of copper. (Telegram 2119 from Santiago, December 20; Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67) In a December 21 memorandum to Rostow, Bowdler called the report a “bombshell,” although he noted that Frei still wanted $30 million of sector assistance. Bowdler also commented: “This demonstration of Chilean self-help is welcome, even if it makes AID’s estimates of Chilean requirements look a little sick.” (Ibid.)
7. The President checked this option.