154. Memorandum From Secretary of the Treasury Connally to President Nixon 1
- Expropriations in Latin America
We are facing a situation of snowballing expropriations of the property of American investors in Latin America and the Caribbean. We are facing a serious situation in Bolivia, Chile, Guyana and Jamaica. If we allow these actions to go forward without showing our serious concern by imposing financial penalties, we can expect other countries to take similar expropriatory action. Loss of international credit standing will be an important deterrent to future expropriations.[Page 395]
We must act to
- —protect American business overseas;
- —eliminate the very substantial risk that the Overseas Private Investment Corporation (OPIC) has on expropriation insurance issued to American businessmen in Latin America by assuring full compensation where expropriations take place. OPIC potential expropriation risk in Bolivia and Chile amounts to about $350 million and for Latin America as a whole to about $1.5 billion;
- —support the moderate political elements in Latin America and the Caribbean against the demands of the radical Left for further expropriations.
- In Bolivia, Gulf Oil was expropriated in October 1969 and a compensation settlement has been worked out satisfactory to Gulf. However, in January the International Metals Processing Company (IMPC) was expropriated, and at the end of April, on the day after we made a P.L. 480 agreement with Bolivia, another American company was expropriated. Although compensation has been promised, no meaningful discussions have taken place in either of these two cases.
- In Chile, the Allende Government has engaged in a broad program of nationalization of foreign investment. Allende is accomplishing his objective through a gradual step-by-step process utilizing technically legal means, but with the ultimate objective of communizing the whole country. While some companies have been compensated satisfactorily, the negotiations for compensation of the copper companies are just beginning. OPIC has undisputed expropriation coverage of $300 million to American companies and a further $200 million of such coverage which is in dispute. OPIC President Mills, and I am told Ambassador Korry, feel strongly that we should use financial pressure to assure satisfactory settlements in the copper compensation negotiations. I agree with them.
- In Guyana, legislation has been enacted to take over the bauxite facilities of ALCAN. The problem in Guyana has ramifications for the whole Caribbean area. Jamaica is carefully watching the situation in Guyana and if Guyana succeeds against ALCAN and eventually against Reynolds, an American company, they will be under great pressure from their radical Left to move against American bauxite operations there. The United States has large investments in the Caribbean with $732 million of OPIC expropriation coverage, of which $465 million relates to bauxite.
I would propose that bilateral assistance to expropriating countries be halted. For example, our bilateral aid program has gone forward in Guyana.
We should follow a similar policy in the multilateral lending institutions. I am seriously considering an instruction to our representatives [Page 396]in the World Bank and Inter-American Bank to vote against loans to Bolivia and Guyana.
These two Banks will shortly be considering loans to Bolivia, the proceeds of which will be used to finance a gas pipeline to Argentina. Part of the profits from the pipeline will be used to compensate Gulf. Our negative vote against the pipeline could upset the Gulf expropriation settlement. But we cannot let the interests of one company affect our whole posture in Latin America.
The World Bank will also be considering a loan to Guyana of $5.4 million for anti-flood works. Even though the company is nominally Canadian (approximately 50% U.S. owned) and Canada is not opposed to the loan, I would again draw the line in this case. A loan to Guyana would be a signal that they can nationalize American property without penalty. It would similarly be a signal to the radical Left in Jamaica, which the moderates would find hard to resist, for further nationalizations there.
This situation can no longer be handled in a piecemeal fashion. It requires a decision on your part to set a strong policy of both bilateral and multilateral financial pressure on expropriating governments to both assure compensation and deter future expropriation actions.
- Source: Washington National Records Center, Department of the Treasury, Secretary’s Memos: FRC 56 74 A 17, Memo to the President 5-8/71. No classification marking. The date is handwritten. A handwritten note reads: “Mr. Petty’s secy says the Secretary discussed this with the President on 6/11 but did not give him the original memo.” Connally and Kissinger met with the President from 2:05 to 2:38 p.m. on June 11. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary)↩