The attached memorandum setting forth the proposed U.S. general approach
to debt renegotiation with Chile is submitted for the consideration of
the Senior Review Group. It is the result of many weeks consultation
among the U.S. Government agencies concerned. As noted in it, various
specific financial issues relating to the pursuit of our general
objectives in the negotiations have been referred to the National
Advisory Council on International Monetary and Financial Policies for
continued study and recommendations.
Attachment
Memorandum for the Senior Review Group2
SUBJECT
- Proposed U.S. Approach to Debt Renegotiation With Chile
The forthcoming debt renegotiation with Chile requires us to balance
several complicated and important issues affecting our interests.
While the Chilean request for debt relief is a measure of the
serious economic deterioration which has occurred under Allende, it also gives the
Government of Chile opportunities to try to make some significant
political and economic gains at our expense. We can assume that the
Chilean Government would effectively exploit any confrontation which
it could lay at our door, rallying domestic and foreign support to
consolidate itself in power and shifting the burden of
responsibility for [Page 755] Chilean
economic failures from itself to us. We can further assume that the
Chileans will seize on the first justification which they deem is
available to them to separate us from their other creditors and
continue in default on their heavy debt to us. The Chilean debt
relief issue is also highly sensitive domestically because of
uncompensated copper expropriations.
The Chilean purpose thus will be to obtain the most generous possible
debt relief from its creditors, among whom the United States is
predominant, owning 57% of the total Chilean external public debt;
to reestablish a greater degree of creditworthiness in the Western
financial community; and at the same time to seek to turn to its
advantage any move by the United States which could lead to our
isolation from other creditors and our election to the role of
Chile’s “foreign devil.”
Our purpose will be to see that Chile receives the least possible
debt relief; that its creditworthiness be an accurate reflection of
its own seriously deteriorated economy; and that the Allende regime continue to bear
the full responsibility for its own failures without shifting it to
us.
Inter-agency consultations carried on since early December have
achieved substantial agreement on the recommended general approach
to the negotiations. The first issues—whether to enter into
negotiations and whether to do so multilaterally—have already been
decided in the affirmative, and with the authorization of the
Chairman of the Senior Review Group we notified the Chileans and the
French on January 5 of our willingness to participate in the Paris
Club creditors’ meeting expected to take place in early February.
(We expect this first meeting will be limited to collecting
information and exchanging preliminary viewpoints.)
The agencies agree that we should take a strong position in the
negotiations that Chile must acknowledge official debt to U.S.
private as well as official creditors, some of which the Government
of Chile has put in question. This debt may be divided into four
categories:
a) Debt unconnected with copper, which will probably offer little
difficulty;
b) Copper debt to third parties, which may be more problematical;
c) Debt to Kennecott (OPIC-insured
and GOC-guaranteed), which has been
suspended pending a presidential determination of the usefulness of
the investment; and
d) Copper debt consisting of notes given to Anaconda by the
government copper corporation in 1969 in payment for the 51%
ownership transferred to the government at that time, which may be
most problematical because of its virtual nullification under the
constitutional amendment on copper.
We would make known early in our discussions with other creditors and
with the Chileans our expectation that Chile would assume all [Page 756] its debt without
distinction, and would vigorously press our position at every
suitable opportunity, stopping short of producing a confrontation
with Chile (or damaging isolation from the other creditors) which
would enhance the ability of Chile to reap benefits at our
expense.
The agencies agree that while there is a reasonable chance that we
can use our leverage in the negotiations to obtain Chilean
assurances regarding much of the debt, there is no real possibility
that the talks can be successfully exploited to obtain compensation
for expropriated U.S. companies. They agree that the question of
compensation should be raised at the discretion of our negotiators
when they see suitable opportunities for injecting the issue into
the talks, but that it would be futile and disrupting to attempt to
make adequate compensation a condition for agreement on debt
rescheduling and would simply lead to a breakdown.
An analysis of the Chilean request for debt rescheduling is
attached.3
The agencies have referred to the National Advisory Council on
International Monetary and Financial Policies a series of questions
on which our delegation will require additional advice as we get
into the negotiations. These include the following:
a) Whether the international financial institutions (IBRD and IDB in this case) should participate in rescheduling of
debt. The institutions have customarily not participated in
rescheduling, and Chile has not requested them to do so.
b) The manner of handling the problems of assumption of debt,
Eximbank debt payment acceleration clauses, and the subordination of
various other copper debts to debts owed to Eximbank.
c) The manner in which we should press for strong substantive
participation of the IMF in the
debt rescheduling operation, possibly through a standby agreement or
similar form of discipline.
d) The ranges of debt rescheduling terms, including interest rates,
for which our delegation should strive.
The negotiations would proceed in two phases, the first multilateral
and then, assuming a memorandum of understanding were reached
between the creditors and Chile, bilaterally with Chile to reach
agreement putting the new debt schedules into effect on loans due to
the United States Government. The question of assurances by Chile on
paying its debt to private parties, and that relating to
compensation for expropriated property, can be put on the table
during the multilateral phase, but will be most relevant before any
bilateral agreement is reached. The United States will thus have the
option during each of these two phases to make decisions on signing
agreements, depending on all circumstances then affecting our
relations with Chile.
[Page 757]
In accordance with established practice and with the memorandum to
the Secretary of State from Dr. Kissinger dated January 8, 1970,4 the Secretary has designated
the chairman of the U.S. delegation. This is Sidney Weintraub, Deputy Assistant
Secretary for Economic Affairs. The Treasury Department, Eximbank,
AID, OPIC and other agencies as needed will provide
representatives on the delegation. The Treasury representative will
be expected to play a major role in the financial aspects of the
negotiations.
Recommendation
That the Senior Review Group approve the approach to the Chilean debt
renegotiation as set forth above.
