825.51/10–247
The Assistant Secretary of State for Political Affairs ( Armour ) to the Ambassador in Chile ( Bowers )
Dear Claude: I have your letter of October 2, 1947, regarding Chile’s desire to buy dollars from the International Monetary Fund to the extent of her contribution to the Fund which amounted to about $8,900,000. I have noted that Chile desires to employ the dollars thus obtained for the purpose of moving essential merchandise from Customs, which have accumulated there owing to the dearth of dollar exchange.
It is my understanding that Mr. Maschke presented Chile’s request to the International Monetary Fund during its recent meeting in London, and that officials of the Fund were reluctant to authorize Chile to purchase dollars equivalent to Chile’s full contribution to the Fund unless she took radical steps to control inflation. I am told that the Fund was desirous of authorizing Chile to purchase a lesser amount of dollars and that Chile was finally authorized to buy $2,500,000 for pesos for the purpose above mentioned. Later the Chileans again brought up this matter and the Fund authorized the purchase of an additional $2,500,000 for pesos to be effective October 24. In making this latter authorization the Fund indicated that they would give full consideration to later applications from the Chileans for additional amounts of dollars, but that they hoped that the $5,000,000 already authorized would be sufficient to meet Chilean needs. Inasmuch as the Fund is, as you well know, an international organization, and is apparently fully cognizant of Chile’s difficult financial situation, I do not feel that it is desirable at this point for the Department to request the United States member to support Chile’s request for dollars. However, I should be glad to go into this matter at a later date if the Chileans encounter difficulties with the Fund.
In view of the Fund’s position in this matter, I trust that the Chileans will utilize the dollars already obtained for the release from Customs of essential imports which will help increase the output of Chilean industries, and that none of these funds will be employed for the importation of unessential merchandise. Although it may be somewhat trite, it is apparent that the principal solution to Chile’s financial difficulties lies in the direction of greater production.
I am thankful for your comments on general economic conditions [Page 549] in Chile and am completely sympathetic with the efforts of the Chilean Government to stabilize its economy. However, I agree with you that the Government’s efforts to reduce the cost of living through prosecution of speculators will not alone solve the problem of high prices unless its plan to increase production, reduce unessential Government expenditures, and to curtail the money supply through increased taxation is carried out.
Sincerely yours,