Announcement that Bank Approves Two Loans to Chile on March 25, 1948

.' • INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT J FOR THE FRESS FOR IMMEDIATE RELEASE Press Release No. S6 Rarch 25, 1~48 The International Bank for Reeonstruet!on and Development arinounced that the Board or Executive Direct~rs approved today two loans to Chile totaling $16 million. The first is a loan ef $13.5 million for hydro-eleotrie development in Chile to Corporaeion de Fomento de la Producoion {Fomento), an instrumentality ~£ tha Chilean Govermnent. created to promote Chilean economic development, and Empresa Naeional de Electrieidad, S.A. (Endesa), a subsidiary of the Fomento • organization. The second ia a loan of $2.5 million to the Fomento organization f'or the purchase of agricultural ma.Qbine:cy. Both loans are to be guaNntaed b7 the Gove:rnment of' Chile. The loans are the first which the Bank has approved in the development field and are in accord with one of the main objectives of the Bank's polieies.-- namely, t~ assist in the developmeat of territories of members by facilitating ' the investment of capital for productive purposes, including the encouragement 0£ development of productive facilities and resources in less develcped. countri.es. The $13.5 million loan to Fomento and Endeaa is for a term of twenty years; amortization payments will begin in the sixth year and are cale~lated to retire the loan by maturity. this loan carries an interest rate of 3t%. The $2t5 million loan to Fomento is for a term ~f six and one~half y~ars; amoTtiza• tion paJlllents will begin in the thi:rd year and are calculated to retire the loan • ' ~ ma,t,urity. This loan ea.rriet;t an interest :rate of 2 3/4%. In acer,rdance with its Articles nf A~eement, the Bank will also charge a commission t!)f 1% armua.lly  , • ,_'~• \ • I • , • l . QQ CJ - 2 - o~ both loans to be set aside in the Bank's special reserve fund. The purpose of the $13.5 million loan is to provide foreign exchange for th@ purchase and importation into Chile of equipment and supplies which are ~®quired for the development of electrical power and water facilities and re- sources in Chile. The purpose of the $2. 5 million loan is t<"b provide foreign exchange for th® purchase of agricultural machinery in order to increase the productivity 0£ Chilean agricultureo In accordance with Bank policy, the loan agreements provide that the Bank sh~ll be furnished with full information showing that the funds to be disbursed trill be used for the purposes specified in the agreement$, and that representatives ©f the Bank shall have full opportunity to check the end use ~o which all pur- chase~ are put. The two loan contracts were signed on March 25, 1948 by R.L. Garner, Vic® President~ on behalf of the International Bank for Reconstruction and Dev,=llopment; and by Roberto Vergara, New York representatbre of the Corporacion d® Fomento de la Produccion on behalf of the borrowers, •• ., . • - 3 - Supplemental Stute1.1ent on the Chilean Loan.§_ Need for a Changed Econo!3ic Structure The Chilean economy has in the past been heavily depandcnt upon exports of copper and nitrate for its well-being. During the world depression of the 1930,,sc, Chile was affected more drastically than most other nations. At that tir.ie, eoppcr and nitrate were abo;J.t 80% of total exports and their foreign JT1.arlmts were very considerably narrowed down, with a consequent fall j_n prices. Copper exports foll from (:197 :utillion in 1929 to ~28.9 million in 1932; nitrate exports decreased from $199.1 r.rl.llion in 1929 to 'Jl2 ni.llion in 1932. Total ox.ports of Chile dirrl.11ishod in 1932 to 11% of their 1929 values. Although the recovcrJ of foreign trade after the • crisis was satisfactory, tho love-ls a tto.ined co;uld not raoot the dcnands of a growing population, and the inhfJront instabilit,;r of Chile·, s econol:'.ic struc- ture had not been eorrected. This co~bination of circ1..instancos lod Chil0 to foster domestic agricultural and industrial production in order to reduce dGpend0nce upon exports of r:1inerals. A cot1prehe11sivo oconor.rl.e recovery movement was undertaken with the aid of foreign exchange end trade controls, tariff protection and direct encouragm:10nt to s1:1.'1.ll industries. By 1939, considerable progress had been nchievod. In tha,t year, however, Chile was sho.kon by an oarthqur.ike which dostroyod several cities and occasioned groat naterial dar.ago and loss of life over an extensive rogio~ in the central and southern part of tho country, whore nost of the population ~nd u~riculturnl o.l1d industrial nctivitios wore concen- trated. T}1e consequent di-sruption o:f econor.rl.c life had serious ropercussio11s ~- on the internal and external fin~ncinl situntijn, end tho Governncnt was obliged to arfopt f~r-roaching remedial measures. One of tho steps tnkon was to establish a dovolop:r.:.ont organization (Gorperacion clo For.:ento de la Produccion) with the • 0 - 4 .. <!I• purpose of fvrtheri;;.ig industrialization and modernization, decrr~a8ing tho need • f"or imports and diversifying expoI·ts., in ori1or to raise tho standard of living and reduce Chile's dopendGnco on world m.'lrkots. Wartime Dovolop:r10nts :md Postw'l.r Trends After a period o-J: preparatory w:>rk during 1-:}1ich fine:.ncial assistance was gi VGn to established industries and n w5.do variety 0f sr.1all 011.t·Jrprisos was pronotod, Fomonto undertook the first stops of a la:cgor i.adus Gr:Lalization progran providing, anJng other things, for tho C:)nstru!Jti?n of hydrocloctric power plants, ce1:;.:311t plants, a steel rtlll, petroloun oxp1c:i:-rt tion and dov01opnont, stops tow[';.rd tho mecho.nizr~t~_on of r~griculturc, o, cc;:ppcr n'l11Vfltct..1ring pb.nt, o.nd inprove~l:;nts i~ r:1mi::.d"9nl ·~ro..11sp.Jrto.ti.Jn. Ini ti·tl fcr.-~ign financing wc..s provided by tho Exp0rt-..I!1port Br:.nk of Wnshi~gtrin t'.nd cr:::cli t fror.1 pr:i.vo.to U.S. suppliers-. Foncnto in tvrn rolp~d fj_nanco lo0a.l construction costs c.nd oxpa:1sion • in textil0s Qnd othor orrtorpriJos • All this devolopnont was fnciJ.ito.tGd b~r t},0 rocovo~y of foreign trc.dc under the wartino rJtir~ulus, whi<:h grcmt1~,. improvod CLiL:.:' s fr;:teign exchange position. But, on thG othor k:.nd, shortn.e~.Js Di' in::bstrictl e1,uipncnt and uvon of raw :r.:ntorio.ls slowod cio".m tho progr2L1. The n.ot result is tho.t bGtwocn 19/~0 and 1945, on the be.sis of :i.vniln.blo data, Chilo wn.s a.blo to no.kc only sr.nll progress in inprovin~ tho o.vor[~go standard of li-ring of it.s popnlo..tion. Sinc0 the ond of tho war tr-ere has bc0n St')r.10 i~.1pr0Yor.:Gnt ecs m1pp1ies of equipnent havo boon noro plentiful nnd sc.,no of tho pro,i acts undorto.b:m during the war he:.vo oone into operation. Both ngriculturnJ. D-nd indust:dal production havo Df}·(·i::-. Jncr0asod s.igni.ficaritly. IJinir..g i::mtput fr.s beon mintainod at high levels '"'..nd oxiJort prices havo boon fr:.vor:-:;.bl0 • Chile rs f')roign trade during tho -wnr undorwont substa.ntfo.1 chnng,.'ls. Before tho wo.r, t!10 U.S. took about 16% of Chilo' s oxpcrt..s, Europco.n countries took over 50%, and tho rost was distributud anong Lo.tin Anoricn r:.nd other area.Se In 1944, a. typical wartir:o yoo.r, over 70% of tho OXj_;orts i.roro taken by t!10 u.s. In the first postwar year, 1946, the u.s. shuro of Chilonn exports ha.d fcLllon to  .. • J • 39%~ On the import side, the U.S. supplied 28% of Chile's imports in 19J8, While ~ope supplie~ nearly so%.. During the wa:r and at J)l'esent the E11ro!_)ean countries• share in Ohile 1 s imports has been less than 20% and that of the u. S, has been over 40%, while an increasing proportion of imports bas been provided by Latin American countries, especially Peru and Argentina. Due to the wartime backlog of iP1ports, Chile• s foreie;n exchange re~ources declined in 1946 and 1947. and the Government und~rtook a readjust~ent t' in its import ·control policy in order to conserve its forPign exchange, This, and. the increases in domestic productbn nentioned before and certain develop:rnents in copper ar..d nitrate prodt1-ction should enable Chile to continue having, as up to now, a favorable trade bala.nce, although not as large as during the war. During the war the total money supply (currency and sig~t deposits) • increased about 2! times - partly as a result of the wartime foreig11 trad.e surplus, but also aa a consequence of budget deficits financed through borrowings from the banks. These deficits persisted through 194. at an increasing rate. In 19471 however, a change in monetary and financial policy brought about the adoption of measures whereby the budget was almost balanced by the end of the year. The 1948 budget which, among other things. consolidRtes and improves the sources of revenue and the lines of eX;:)enditure, is ~xpect~d to be covered by ta.xes. The money supply has rema:i.ned practically stable during the last six months and prices have increased to a very small extent. All these are increasing indications that an adequate policy is being pursued and tbat stable economic conditions will be achieved. Such conditions might strengthen the foreign exchange positi.on and Chile has e:x-pressed the hope that private c~pital be directed towards investment in industrial and agr~cultural development, • As regards Chile•s eAisting foreign indebtedness, in the depression of the l930's, Chile. along with many other countries was unable to continue ir·m , r, I • •• '..: • - 6- service payments on. its outstanding foreign oonds. Over a pPriod of years, various unilateral stsps were taken: looki~g to a r0storation of its former internatioTh..9.l credit standing. For the past sever-':3.J. months, Chile has been conducting negotiations with fo:r;eign bondl1olders t;roups in th6 U. So II C·rea.t Britain, and SwitzE:rlando These negotiations culminated fn the public announce- ment on Ma1:ch 24, 1948~, by the Chilean gov0rnr..1ent of ·t;.1e oasis of an offer of a 1 new debt readjustment plan. The ::B oreign 3ondholders Protective Council• Inc. of the United States have st::1ted that this ple.nl) when approved by the Chilean congress, wil:}. be reco.'.Ilmcnded to "bondholders~ It is umlers tood. that similar arrangements have been nade with the Council of Foreign :Bordholders of Great Britain a.n . .l the Association Suisse des Banq_uiers. Pro.jects J:i.nanced by the Inter1:at:.onc.l 3ank • As its first step in nssisttng Chile's '.levelopment program, the International Bank 1.dlJ. finance t,:ro T'rojects m.1omi ttei b;l the Corporacion de Fomento, namely 9 an electric 'DOWer pro,je::t and. an aericn.l t:-iral nachinery project. Their importance is brought out by the fact tl1at these projects are essential elemf,;nts in the furthEr dovElo'T)mer..t of industry and agriculture and the improvement of the domestic r.iarkets. The greater part of the hydroelectric development to be financed is in the central part of Chile. T}:e supply of por,rer today is insufficient to cover prE.sent and prospective needs. Total in.stalled capncity in 19L~6 was about 450,000 Kilowatts, of which 1/J ,ms water-generated. :Production in that year was 986,000 ,ooo Kilowatt-.ho,.1rs, Chile posseRses potent ia.l hydroelectric resources estimated at 6,000,000 KWt a large pro~r~tion of which it will • eventually be profitable to develop in view of the high cost and relative insufficiency of coal and liquid fuels 1 The program undertak:en by Fomento through its s1.l,bsidiary Endesa has already added 128,000 KW to the installed capacity :n the last five years. By • 1955 clos~ to 200,000 '¥:If more are expected to be added. the International 3ank will finance about 81,200 KW--na~ely, a Of ~he~e, the loan from 54.ooo YJl ,1ant to serve the r.1ajor area. of pop~ation, industry and agriculture in and arc 1.~nd Santiago; a 16,000 KW pl&nt to serve the north central part of Chile; a 10,SOC l{W unit in the south oentra.1 part of the country; and a smallE-:r unit i::1 t'-1.e :·,f:,r tl ,A.11 this development is connected with mecbanioal irrigation rrojects, a:: 1 tl-1e secondary.distribution of electricity. Under the agricul tura.1 machinei,y program to be financed by the Internat.io:na.1 Bank, the main achievements will be a decrease in cost of production resulting from the replacement of oxen by tractors, an incrE;ase in the surface under cul ti vat ion through the 011ening....up of new Et;reas (1,t present covered by forests and the turning of pasture land into crop land, and a saving in the time required for harvesting in certain areas • • Fomento will import necessary agricultural oachinery-,-such as thresh8rs, harvesters, trucks, tractors, seeding machines, land-clearing and ir=igntion equipment._and distribute it through two of its branches, the Service of Mechanized Agricultural Equipment and the Ar~icultural Hachh:.ery- 86ctioZL. The latter puts n,t the disposal of owners of large pr•'!)erties a s~rstem of cash installment sales of appropriate eq,.1ipment. SMall holders are a"tle to rent equipment .fl"om the first of the above.,me11tfoned: braneh erganizatior..s, Both nrgq,nizations pay special attentiom to the irnprovefflent of technique and to thJ necressary education which enable full advantage- to 'b~ taken of modern equipment • • i ·'tc e ~g @fit ' Mitt '@'