811.20 Defense (M) Chile/9–1145

The Assistant Secretary of State ( Clayton ) to the Foreign Economic Administrator ( Crowley )

Dear Leo: The public purchase contract between the USCC and the Chilean Nitrate Sales Corporation expired on July 31. On August 1 the FEA formally notified the Corporation to that effect.

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At about that time, however, there were on the way 110,000 tons of nitrate. This was the first consignment under a contract, somewhat similar to the preceding, which Chile, in view of the then still serious world situation, supposed would be signed. The fact that WPB had in May issued a directive to FEA to obtain 1,000,000 tons of nitrate had strengthened Chile’s belief that such would be the case. It should be noted that some, if not all, of this particular shipment had been extracted and processed during the emergency and that loading of a part of it actually began last July 14.

The Chilean Government is interested in having this consignment of 110,000 tons of nitrate bought by the United States Government under terms of the now expired nitrate purchase contract (the subsidy would amount to about $550,000). In view of the circumstances described in the preceding paragraph, the Department of State considers that this request of the Chileans would be entirely reasonable. Additionally, I wish to bring the following points, bearing strongly on the subject, to your consideration:

1.
The importance of the Chilean nitrate industry in the over-all economy of Chile, as well as this Government’s particular interest in it, can be judged by the following two facts: (a) In 1942 the industry contributed about 19% of the total national income of Chile. (b) A portion of the exchange accruing to the Chilean Nitrate Sales Corporation is by law allocated to the service of the external debt (interest primarily).48 Of the tax revenues earmarked for service of the funded foreign debt, roughly 30% during the war years has come from the nitrate industry, although it is true that only a little less than half of the receipts from these taxes have actually been used for this debt service.
2.
United States purchase of Chilean copper definitely ends September 30. As stated above, public purchase of Chilean nitrates expired July 31. This coincidence in time, while clearly foreseen and provided against beforehand, is still highly prejudicial to the stability of Chilean economy, and consequently to Chile’s political well-being.
3.
Article XXI of the Final Act of Mexico City states this Government’s adherence to a program of cushioning the effects of procurement cutbacks in those Latin American countries where it should seem necessary. Chile is very definitely in this category. The expenditure of a final sum of roughly $550,000 would be consonant with this Government’s adherence to this Resolution, and at the same time, should serve to silence any possible future recriminations by Chile in this respect.
4.
President Ríos is visiting this country in the first part of October with the undoubted intention of securing financial aid from this Government. It would be politically most expedient if, by that time, all of our commitments in regard to Chile’s transition period were complied with, thus placing this Government in the favorable position of a person who owes nothing.

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On the basis of all of the above facts, I would like to recommend that FEA consider purchasing under the terms of the late contract the 110,000 tons of Chilean nitrate now in the process of being shipped. This recommendation is made on the understanding that the FEA has no intention of continuing public purchase of Chilean nitrates involving loss (as stated in Mr. Gardiner’s letter of August 1 to Señor Pedro Alvarez49). I hope you can give this your immediate consideration.

Sincerely yours,

W. L. Clayton
  1. For documentation on the Chilean debt situation, see pp. 809 ff.
  2. Quoted in telegram 662, August 15, 3 p.m., to Santiago, not printed.