Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
1521370
label
Deltec International Limited - Seizure of Assets
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
1521370
sourceUrl
contentType
document
title
Deltec International Limited - Seizure of Assets
citationUrl
collections
Edward C. Schmults Files (Ford Administration)
Edward Schmults' General Subject Files
subjects
Argentina
Bankruptcy
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
1521370
coverageEndDate
logicalDate
1976-10-31
month
10
year
1976
coverageStartDate
logicalDate
1975-12-01
month
12
year
1975
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
71c3d6b21f51a8a9
ocrText
The original documents are located in Box 12, folder "Deltec International Limited -
Seizure of Assets" of the Edward Schmults Files, 1974-77 at the Gerald R. Ford
Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 12 of the Edward Schmults Files, 1974-77 at the Gerald R. Ford Presidential Library
Howson A, Ryan Day Ass't Soc, Inter-American
Affors
D
Cammorco- Informational Investment
Steve Lowe
THE WHITE HOUSE
WASHINGTON
Ed:
Please see
EU
mc about the
t ttached matter.
FORD i LIBRARY GERALD
FORD i LIBRARY GERALD
THE CASE OF
COMPANIA SWIFT DE LA PLATA, S.A.F.
March 11, 1969
Deltec International Limited is created as a result of the merger of
Deltec Panamerica, S. A., transnationally owned investment and merchant
bankers for Latin America, and IPL inc., the Chicago based successor of
Swift Internacional, S.A., an Argentine-incorporated holding company for
the international operations of Swift & Company which was spun off from
Swift in 1918. Following the merger, work was begun immediately to
develop plans for obtaining local participation in the industrial subsidiaries
acquired from IPL inc. By September 1973, the meat processing facilities
in Australia, New Zealand, Brazil and the United Kingdom had been sold
for cash to local groups.
Cía. Swift de La Plata (CSLP) in Argentina was the largest unit of the IPL
group of companies. It was one of Argentina's largest industrial companies
and employers of labor; its largest meatpacker, increasingly specialized in
the export of sophisticated, highly industrialized products many of them
developed in its own unique research laboratory; and the country's biggest
single earner of foreign exchange. However, the company had been
unprofitable for many years, a perpetual victim of Argentina's fluctuating
policies with respect to the cattle industry, to meat exports and to exchange
rates. CSLP had paid no dividends since 1962 and no interest on its debt to
the parent company since 1967.
March 12, 1969
Deltec International begins advancing a further $4,000,000 to CSLP, used
principally for re-equipment to comply with various importing countries'
sanitary standards and for working capital.
November 12, 1969
Dr. Adalbert Krieger Vasena, former Minister of Economy of Argentina,
joins the Board of Deltec International and is assigned the specific mission
of developing a program to "Argentinize" the management and ownership
of CSLP. This association between Dr. Krieger Vasena and Deltec is later
used by Argentine nationalists as a pretext to slander and harass both.
January 1970
Cattle prices begin a precipitous rise (they reached 0.82 pesos per kilo
in March, up from 0.69 pesos in December). The then Minister of Econ-
omy Dr. Dagnino Pastore calls into his office the chief executives of the
principal meat packers, including CSLP, and requests them to reduce their
1
FORD LIBRAR
purchases of cattle to stabilize prices. CSLP complies as to purchases in the
June 9, 1970
The military junta under the leadership of General Lanusse removes from
Liniers auction market; nevertheless, CSLP's total kill during this period
the presidency of the Argentine Republic General Onganía, under whose
was only moderately reduced. On the basis of their purchasing restraint at
three-year rule the country had enjoyed political stability and rapid eco-
the Minister's request, CSLP, its president and other meatpackers and some
nomic recovery, and replaces him initially with another general and even-
of their directors were subsequently indicted for violation of the Argentine
tually with General Lanusse himself. There followed a succession of finance
anti-trust laws and placed in preventive detention (released on bail).
and economy ministers hostile to the stabilization philosophy of Dr. Krieger
Vasena and increasingly nationalistic. Inflation soon reached galloping
proportions.
April 9, 1970
The management of CSLP is replaced by an all-Argentine team headed by
Mr. Enrique A. D. Holmberg (previously managing director of Ingenio
La Esperanza, a highly successful Argentine sugar plantation and mill
September 30, 1970
Substantially the entire meat export industry in Argentina, including CSLP,
in which Deltec Panamerica had had an investment since 1957). Under
closes down in the face of the increase of the cattle price to 1.30 pesos per
Mr. Holmberg's leadership, CSLP made a dramatic recovery. Through
kilo while the peso-dollar exchange rate remained unchanged, so that meat
April, 1970, CSLP production of frozen cooked beef (the highest return
exports became totally uneconomic. Thereafter, the Argentine Government
Argentine export meat product) averaged about 2,000,000 pounds per
took a number of measures to improve the situation, including making credit
month. The new management succeeded in increasing this production to
available through official banking institutions. However, such credit was
3,100,000 pounds in May, 3,900,000 pounds in June and 4,800,000 pounds
limited to companies more than 51% Argentine owned. The Government
in July. At the same time costs were reduced by the equivalent of some $12
was at all times aware of Deltec's efforts to place the control of CSLP in
million per year, principally through the reduction of the work force, with
Argentine hands, and indeed one reason these efforts were unsuccessful was
the full cooperation of the labor union leadership, from over 18,000 to just
the fact that the potential investors were never able to ascertain that, upon
over 10,000. Breakeven was reached in May and profits were generated in
their purchase of control, CSLP would be treated as an "Argentine com-
June, July and August, despite the continued rise in cattle prices which
pany" for all purposes. In this situation, the owners of a number of foreign
reached 1.16 pesos per kilo in September and 1.34 per kilo in October, 1970.
owned plants settled their liabilities and one of them simply withdrew from
the scene. For CSLP, the largest unit in the industry, this course of action
April 9, 1970
Deltec International arranges another $4,000,000 credit from abroad
was not possible and the only alternative that presented itself was insol-
to finance the new management's increased volume of production. Other
vency proceedings.
Deltec subsidiaries prefinanced shipments and financed importation of tin
plate to the extent of nearly $2,000,000. Between March 1969 and November
December 18, 1970
CSLP applies to the competent court of the Argentine Republic for "convo-
1970, the net exposure of Deltec International in CSLP increased by nearly
catoria", a proceeding which contemplates (1) an immediate cessation of
$10,000,000.
payment on all non-secured and non-preferential debts; (2) the continuation
of the business under the company's own management; (3) the appointment
May 10, 1970
As part of its continuing effort to "Argentinize" CSLP, Deltec International
by the court of a Referee to report on the business and the nature and
executes and delivers to Mr. Holmberg an option to form a group of
amount of the assets and liabilities; (4) the proposal by the management of
Argentine investors to purchase control of CSLP. When Mr. Holmberg
a "concordato", that is, a creditors agreement for the orderly repayment of
proved unable to form a group, Deltec International gave options success-
the debts; (5) a meeting of creditors to accept or reject the proposal; and
ively to a prominent industrialist on October 8, 1970; to the company's
finally (6) the approval or disapproval of the agreement by the court.
executives on February 9, 1971; and to another outside group on May 22,
Rejection of the agreement by the creditors or the disapproval by the court
1971. Finally, Deltec International made a firm agreement to turn over
results automatically in bankruptcy. The case was in due course assigned
100% of the equity to CSLP's executives on October 14, 1971, subject only
to Judge Salvador María Lozada of the National Commercial Court of
to court approval of the creditors agreement that had been adopted on
Buenos Aires.
October 5 (see below).
2
3
FORD LIBRARY
March 15, 1971
The CSLP management enters into a contract directly with Deltec's largest
its application to export the 477 tons at $3.234 per pound, the JNC author-
customer in the United States, pursuant to which the latter finances cattle
ized another firm, Somaschini Abrante & Cia., to export 5,080 kilos of first
purchases in exchange for the entire output of one of CSLP's plants. The
quality meat extract to Genoa at a price of $3.00 per pound, or $.234 per
resulting cash flow permits opening of the other plant with the result that by
pound lower than CSLP's sale. The $3.234 price negotiated by CSLP was
April operations are back to normal. During the period May through
also higher than the $3.21 per pound overall average price of all Argentine
August 1971, CSLP exports about $30,000,000 of product and earns an
meat extract exports effected in the first half of 1971 and substantially higher
operating profit of 17,000,000 pesos, with the result that the loss for the
than the $2.49 per pound price at which exports were made during this
eleven months ended August 31, 1971 amounts to only 1,170,000 pesos
period by CAP, the officially sponsored Argentine cattle growers cooperative.
despite the six month shut-down of most operations, the absence of local
In his opinion rejecting the "concordato" (see November 8, 1971 below)
credit and the continuing rise in cattle prices, which reached over 2.00 pesos
Judge Lozada cited this incident as evidence of a "tendency to sell product
per kilo in August.
to other Deltec companies at lower prices than to other buyers." The facts
are clear, however, that the sales were not to Deltec and in any event were
June 23, 1971
Judge Lozada orders preparation of an evaluation of the assets and business
not at a price lower than the prevailing price range.
of CSLP by the Universidad Tecnológica Nacional (the Argentine national
institute of technology).
August 31, 1971
The Universidad Tecnológica Nacional presents its reports in which it
August 6, 1971
Drs. Carlos R. S. Alconada Aramburu and Federico Gabriel Polak, Buenos
values the fixed assets of CSLP at $96,698,000 in presently equivalent U.S.
dollars.
Aires attorneys acting in the name of José Raul Zurdo, a small general cred-
itor of CSLP, files with the Judge a pleading requesting the disallowance of
all claims of other Deltec group companies, alleging acts of fraud and deceit,
September 15, 1971
The Judge denies the Alconada-Polak demand for a protective order against
seeking extension of liability to other Deltec group companies, and calling
the transfer of Deltec's other assets in Argentina, but, in a separate order,
for a protective order against the transfer of Deltec's other investments in
issues precisely the protective order called for by Alconada and Polak
Argentina.
ostensibly on the basis of the report of the Referee related to the capitaliza-
tion of reserves.
August 26, 1971
CSLP presents a routine request to the Junta Nacional de Carne (JNC-
National Meat Board, the regulatory agency for the meat industry which
September 19, 1971
CSLP submits its "concordato" proposal. The proposed "concordato" pro-
must approve all export sales as to price and otherwise) to sell 477 tons of
vides for the repayment of 100% of the debts over four years (10% in the
meat extract at a net price of $3.234 per pound.
first, 20% in the second, 30% in the third and 40% in the fourth year), with
During the early part of 1971 the Argentine industry had made a con-
interest on outstanding balances of 12% per annum on local currency and
tract with the European buying group to sell specified quantities of meat
4% per annum on foreign currency debts to be paid in the fifth and sixth
extract at a price between U.S. $3.60 and $3.80 per pound. By June, CSLP
years; and offers to submit the company's management to the supervision of
a creditors committee.
had completed its contract and found itself in the unique position of having
produced additional quantities while other producers were still delivering
The Referee files his report in which he places a value on the assets of CSLP
against their original contracts. After several months of negotiations, of
(based on the Universidad Tecnológica Nacional valuation) of 556,223,360
which the JNC was kept currently informed, CSLP succeeded in concluding
new Argentine pesos and lists liabilities, including contingent liabilities, of
a new contract with the buying group (not to or through Deltec) for 477
only 143,480,787.75 new Argentine pesos. The report also, among other
tons at a price of U.S. $3.234 per pound. When the JNC refused to approve
things, criticizes certain transactions of CSLP, characterizes the conduct of
this price, the National Government, recognizing that CSLP did not have
CSLP's management as "culpable" (as distinct from fraudulent on the one
the financial capacity to carry the extract inventory, expropriated the first
hand and innocent on the other) on a number of technical statutory grounds,
100 tons which had been produced. On the same day that CSLP presented
and recommends the non-recognition of the "Deltec group claims" (including
4
5
FORD
GERALD
LIBRARY
current commercial receivables based on product advances and tin plate
November 8, 1971
The Judge issues his opinion in which he refuses to approve the concordato,
shipments) on the theory of "penetration of the corporate personality."
decrees the bankruptcy of CSLP and designates the Federal Government as
receiver-liquidator.
September 22, 1971
Based on a complaint by a marketing cooperative in the interior alleging
Within hours, the Federal Government designates Dr. Miguel Busquet Serra,
improper solicitations of proxies for the creditors meeting by CSLP, the
an experienced meat industry executive, as receiver-liquidator and orders
Judge summarily removes the Board of CSLP and replaces the Directors
official banks to make credit available to CSLP.
by a committee of his own appointees.
CSLP, Deltec International, Deltec Argentina and Argentaria file appeals
CSLP files appeal against declaration of bankruptcy.
against the protective orders.
November 16, 1971
The Judge rules that the other Deltec group companies are contingently
October 4-5, 1971
Creditors meeting in the Teatro San Martín in Buenos Aires. Creditors
liable for the debts of CSLP that remain unpaid upon the latter's eventual
holding admitted claims appear in person (including about 500 workers
liquidation.
some of whose proxies had been impounded as allegedly improperly ob-
The Judge awards attorneys fees to Alconada Aramburu and Polak equiva-
tained) or by proxy. Creditors who had not previously filed their claims,
lent to $150,000 and $25,000 respectively against the Deltec group companies.
including the foreign bank holders of CSLP notes issued to the order of
Deltec Banking in 1967-68, submit their proofs of claim.
December 20, 1971
The Judge permits the JNC to place in the record, without service of copies
The Judge makes certain rulings related to the meeting. Among other
to CSLP's attorneys, a report (supplementing earlier reports dated October
things, he (1) confirms the disallowance of the "Deltec group claims"; (2)
20, 24 and 28, 1973) in which the JNC accuses CSLP of among other things
admits about half and, on the basis of technical questions, disallows the
selling products to Deltec owned distribution companies at lower prices
other half, of the noteholders' claims; and (3) converts all foreign currency
than to others and making preferential payments to Deltec. These accusa-
claims into pesos at the day's rate of exchange, not only for the purpose of
tions, which are demonstrably false but which neither CSLP nor Deltec
voting at the meeting (which is normal procedure) but also definitively for
ever had an opportunity to controvert, are subsequently referred to in the
purpose of collection.
Court of Appeals opinion.
CSLP formally submits its "concordato" proposal and, after debate, consents
June 6, 1972
The Court of Appeals (Panel C) confirms the bankruptcy of CSLP on
to certain modifications to the composition of the creditors supervisory
the grounds that the Judge has the statutory authority to deny approval of
committee.
a concordato as contrary to the "general interest", and that there were in
Deltec International's capitalization offer is read at the meeting.
the record sufficient "facts" (facts, including those alleged in the secret
report of the JNC, that had never been proved and that none of the
The meeting proceeds to a vote on the concordato proposal, which is ap-
parties had ever had an opportunity to contest) to preclude a finding that
proved by an 86% majority, as a proportion both of the number of admitted
the Judge had abused his discretion. The Panel specifically ruled that there
creditors and of admitted claims. Voting in favor were all of the banks,
was no evidence of impropriety in the solicitation of proxies.
including the official banks; all of the workers; most of the cattle suppliers;
and most of the commercial creditors. The "Deltec group claims" were not
The Court of Appeals also reversed the extension of liability to the other
counted in the total of admitted claims and were excluded from voting.
Deltec group companies on the grounds that such liability had not been
adjudicated in a proper proceeding and that the affected parties had not
October 18, 1971
The cooperative files a challenge to the concordato, based principally on
been properly brought before the court.
the alleged improper solicitation of proxies.
On the same grounds, the Panel reversed the imposition on the Deltec group
companies of costs and attorneys fees. Alconada Aramburu and Polak
October 22, 1971
CSLP answers the challenge to the concordato.
appeal this ruling.
FORD
6
7
LIBRARY
June 13, 1972
The full Court of Appeals censures and imposes the maximum statutory
September 21, 1972
Judge Lozada, temporarily assigned to the case of Editora Codex, an
fine (about $40) on Judge Lozada for improper conduct in publicly com-
Argentine company whose "concordata", which included provisions for the
menting on the case in press interviews, on television and at banquets in
payment of external claims in external currency, had been approved one
his honor.
year earlier by another judge, orders Codex to pay its first "concordata"
installment in pesos at the previous year's rate of exchange, citing as prece-
June 13, 1972
Frigoríficos Argentinos S.A. (FASA - the Wilson plant purchased several
dent his own ruling in the CSLP case. This Codex order is subsequently
years previously by an Argentine group) files a petition for "convocatoria",
reversed and the original agreement reinstated by another judge definitively
after having been kept alive for over a year through massive injections of
assigned to the Codex case.
official credit.
September 27, 1972
A criminal lawyer acting on behalf of Mr. Zurdo files a complaint in the
criminal court against the directors of CSLP and of "all other Deltec group
June 30, 1972
CSLP submits to the Court of Appeals a petition for a hearing en banc
companies", alleging deceit and fraudulent bankruptcy. The Judge assigned
based on a conflict in the construction by Panel C of the statutory phrase
to the case orders an audit of the Deltec group companies in Argentina and
"general interest" with the construction placed on the phrase by other
impounds the workpapers of Price Waterhouse & Co.
Panels in other cases.
CSLP also files for leave to appeal to the Supreme Court on constitutional
March 8, 1973
Two lawyers, one a candidate for the Senate and the other for the Chamber
grounds.
of Deputies representing a minority nationalist party, acting on behalf of a
purchaser who had just recently acquired a small claim from a general
August 31, 1972
Deltec Argentina, having arranged a sale of Argentaria, its investment
creditor, bring before Judge Lozada a petition to extend the bankruptcy of
banking affiliate, to an Argentine group at a price substantially in excess
CSLP to Deltec International, Deltec Banking and each company in
of book value, applies to the Central Bank for approval to carry out the
Argentina in which Deltec or CSLP has any substantial interest, based on
sale. Under Argentine law, Central Bank approval is required for the
the theory that all these corporations form part of a single company.
transfer of control of any financial institution. It had been Deltec's inten-
March 13, 1973
The FASA concordato, providing for the payment of debts over four years,
tion, after receiving Central Bank approval, to apply to the court for per-
including foreign currency debts in foreign currencies, is approved by
mission to effect the transfer against a deposit in court of the proceeds of
another judge.
the sale. While the application was pending before the Central Bank, Judge
Lozada on his own motion wrote to this regulatory agency a letter pointing
March 20, 1973
The Judge purports to serve process on Deltec International and Deltec
out that the shares of Argentaria were not transferable in the light of his
Banking in Nassau by telegram.
protective order, whereupon the Central Bank delayed consideration of the
matter.
April 6, 1973
By order of Judge Lozada, on this Friday afternoon the offices of La
Esperanza, Argentaria and Johnson & Higgins, three Argentine companies
September 5, 1972
The Court of Appeals en banc affirms the construction by Panel C of the
in which Deltec has an interest, are invaded by Government tax inspectors
phrase "general interest", in effect asserting that under the law of Argentina
accompanied by police. The agents made a thorough search of the files and
a lower court judge, including one that the same Court had censured for
took photo copies of various documents, concentrating on papers containing
impropriety, has unlimited discretion in approving or disapproving a com-
references to DIL or its directors. In the case of Argentaria, the Court of
position between a corporation and its creditors.
Appeals had already withdrawn the action from Lozada's jurisdiction.
Because of the timing of the search, the companies were able only on the
following Monday to seek relief from the Court of Appeals.
September 6, 1972
The Court of Appeals, on the supposition that a proper proceeding might be
initiated in the future, refuses to lift the protective order for the benefit of
August 9, 1973
The Court of Appeals dismisses the motion to extend the CSLP bankruptcy
CSLP's creditors.
to the other Deltec group companies. According to the Court of Appeals,
FORD
8
9
GERALD
LIBRARY
a motion in the bankruptcy case of one company was not the proper pro-
ascertain which companies and persons were to be included in the Court's
ceeding in which to determine the bankruptcy of other companies, but
finding of responsibility, issued bankruptcy orders against thirteen com-
rather separate new proceedings would need to be initiated against such
panies which, according to him, were already shown in the record to con-
other companies before such a finding could be made. The Court of Appeals
stitute the Deltec group in Argentina.* These companies included Deltec
also held that the foreign corporations had neither been properly served
International, Deltec Banking, Deltec Argentina, two operating and one
with process nor had voluntarily submitted themselves to the jurisdiction of
inactive subsidiary of CSLP, Argentaria, its mutual fund management and
the Argentine courts.
distribution companies, three inactive subsidiaries and Ingenio La Esper-
anza, a sugar company. Interventors in all of these companies were ap-
September 4, 1973
The Supreme Court of Argentina, all of whose members were appointed
pointed and the Referee in the CSLP bankruptcy was instructed to prepare
after the March, 1973 elections, renders its decision on the entire case. In
a consolidated statement of all the assets and liabilities of the entire group.
a long and detailed opinion, the Court affirmed the decision of the Court
of Appeals in upholding Judge Lozado's declaration of CSLP's bankruptcy.
In addition, the Court, reversing the Court of Appeals, held responsible
for the bankruptcy CSLP's parent, Deltec International, and Deltec Argen-
Values:
tina S.A., the local holding company for most of Deltec's other investments
in Argentina. The Court thus reinstated Judge Lozado's order of November
U.S.$ equiv.
16, 1971 but expanded it by characterizing as joint and several rather than
La Esperanza
Book net worth
25,052,000
contingent the liability of the other Deltec group companies in Argentina
Argentaria
Arm's length offer (see August 31, 1972)
487,500
for the debts of CSLP. The Court purported to find ample evidence in the
record that the Deltec group companies constituted a single economic enter-
CSLP
Univ. Tec. Nac. valuation of fixed assets
96,698,000
prise and that the enterprise had conducted itself in a manner damaging to
122,237,500
the national interest, although the only "evidence" of such conduct to which
the Court refers is the JNC report (see December 20, 1971) on pricing
Locally owed peso debt of CSLP
6,504,000
policy which was never the subject of an evidentiary hearing and which
contains its own refutation. Having found the Deltec group companies to
constitute a single economic enterprise, the Court of Appeals was held to
be in error when it determined that the other Deltec units had not been
properly made parties to the proceedings; since they constituted a single
enterprise, they were necessarily parties to the proceeding and had had
ample opportunity to litigate all issues, including the issue that they con-
stituted a single enterprise, and could not be heard to complain if they had
failed to avail themselves of the opportunity to do so. The Court therefore
remanded the proceedings to the trial court with instructions that the latter,
among other things, ascertain which entities and persons were included in
the economic group thus held to be liable. Proceeding to a decision of
peripheral issues, the Court reversed the Court of Appeals' reversal of the
award of costs and attorneys fees to Mr. Zurdo and Drs. Alconada Aramburu
and Polak, and its lifting of protective orders to secure the same.
Judge Lozada, without awaiting the return of the record from the Supreme
FORD
September 6, 1973
Court and ignoring the Supreme Court's order that he first proceed to
GERALD
10
11
LIBRARY
MEMORANDUM
CIA. SWIFT DE LA PLATA
Status of Argentine Litigation
December 18, 1975
The purpose of this Memorandum is to bring up to date the chrono-
logically arranged printed pamphlet entitled "The Case of Compania Swift
de La Plata, S.A.F." which ends with the comfirmation by the Supreme
Court of Justice of Argentina on September 4, 1973, of the bankruptcy
of CSLP and the declaration by Judge Salvador Maria Lozada on September
6, 1973, of the bankruptcy of the other Deltec group companies. Copies
of these two decisions, together with unofficial English translations,
have been furnished to the Office of the General Counsel of the Trea-
sury (Mr. Goodman) and to the Office of the Legal Adviser of the
State Department (Mr. Gantz). A copy of the pamphlet in which these
decisions, among other matters, are summarized is annexed hereto as
Exhibit A and is referred to herein as the "Chronology."
For easier comprehension, the approach in this Memorandum will
be topical rather than strictly chronological.
I. Sale of Argentaria
Lozada's September 6, 1973 bankruptcy order purported to include
in its coverage Argentaria S.A. Compañía Financiera ("Argentaria"),
an investment banking company substantially wholly owned by Deltec's
Argentine intermediate holding company, Deltec Argentina S.A.F.M.
The Central Bank was named as interventor-liquidator. Under the law,
GERALD FORD LIBRARY
Memorandum
December 18, 1975
Page 2
a regulated financial institution may not be declared bankrupt, and
therefore Judge Lozada still during September, 1973 corrected his
bankruptcy order to exclude Argentaria which, however, remained, and
was after a suspension of a few days reopened, under Central Bank
intervention. Lozada having been suspended (see below), a judge
temporarily assigned to the case, Guillermo F. Tabanera, on October
26, 1973 ordered Argentaria to be sold at public auction as a going
concern. Deltec expressly consented to the sale. The group to whom
Deltec itself had arranged a sale (see Chronology entry of August 31,
1972) was permitted to bid, and did indeed bid the price at which
Deltec had been willing to sell, but two substantially higher bids
were entered by other groups, to one of which Argentaria was in due
course adjudicated. The purchase price was paid into the court's
CSLP liquidation account (see heading VII below).
II. Removal and Replacement of Judge Lozada
As noted in the Chronology, the companies had made repeated
efforts to obtain the disqualification of Judge Lozada for prejudice.
Although the Court of Appeals had imposed sanctions on Lozada for im-
proper conduct (see Chronology entry of June 13, 1972), it had declined
(e.g., on February 13, 1973) to remove him from the case. After the
bankruptcy order, however, the Court of Appeals suspended him from
FORD is LIBRARY GERALD
Memorandum
December 18, 1975
Page 3
further participation in the CSLP matter. Subsequently, in the course
of 1974, the Ministry of Justice offered Lozada a "promotion" to law
officer of the Court of Commercial Appeals; Lozada declined and took
early retirement.
After temporary assignment to Judge Tabanera and to another judge,
Von Oertner, responsibility for the case was during the early part of
1974 definitively assigned to Judge Juan Carlos Nievas, whose previous
experience was in the labor law field and who is thought to be a Peron-
ist identified with the trade union leadership.
III. The Criminal Proceeding
As mendioned in the Chronology (see entry of September 27, 1972),
there was filed a private citizen's complaint alleging violations of
the criminal law in connection with the CSLP bankruptcy by persons not
specifically named in the complaint. The matter was assigned to an
investigating magistrate (juez instructor) whose function in the Argen-
tine legal system is analogous to that of the grand jury in the Anglo-
Saxon system; that is to say, to determine the probable existence of
crimes and identify the persons who probably committed them. The magis-
trate has complete control of the proceedings before him. The public
prosecutor need not be, and in this case is not known to be, a party
to these proceedings. As in the case of the grand jury proceedings,
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 4
the proceedings before the magistrate are secret. He has the the
power to subpoena records and to compel the attendance of witnesses.
Witnesses summoned to appear before him may be accompanied by counsel;
however, counsel for persons who are summoned but fail to appear are
not entitled to be heard.
After about a year of relative inactivity the magistrate, Jose
Maria Orgeira, appointed a panel of accountants, which included one
member (the "Parties' Expert") suggested by the Deltec Group's
Argentine counsel. Around September, 1973, the panel submitted a
report, in the conclusion of which the Parties' Expert did not join,
suggesting various violations of the penal code in connection with the
insolvency of CSLP. The Parties' Expert submitted a dissenting report
on November 9, 1973, which Magistrate Orgeira refused to include in
the record.
In November, 1973 there appeared in the Buenos Aires press a
report to the effect that the magistrate had summoned certain persons
to appear before him as possibly implicated ("imputados") in possible
criminal acts; such persons having failed to appear, he had issued
warrants for their arrest; and, since they were not to be found in
the country, he had requested their whereabouts to be ascertained
through Interpol. The persons then named in the newspaper reports
were A. Thomas Taylor, Chairman of the Board of Deltec International
FORD & LIBRARY GERALD
Memorandum
December 18, 1975
Page 5
Limited; Clarence Dauphinot, President of Deltec International; David
Beaty III, an Executive Vice President of Deltec International (resi-
dent in Brazil); Enrique A.D. Holmberg, the last President of CSLP
and a Vice President of Deltec International (an Argentine citizen
then and now working for Deltec in Coral Gables, Florida); and Raul
N. del Sel, the last Vice President of CSLP (an Argentine citizen
then and now working for Deltec in Madrid).
Subsequently, the extradition of del Sel was requested from the
government of Spain, which referred the matter to the appropriate
tribunal. A copy of the Spanish justice ministry's reference to the
tribunal was obtained by del Sel's Spanish counsel and is analyzed in
the letter dated August 9, 1974 from the undersigned to del Sel, a of
copy of which is annexed heretoto as Exhibit B(1). On March 11, 1975
the Spanish tribunal refused extradiction on the grounds set forth in
an opinion a copy of which has been furnished to the State Department
and which is summarized in the undersigned's transmitted letter dated
June 13, 1975 to David A. Gantz, Esq., Assistant Legal Adviser (copy
annexed hereto as Exhibit B(2)). In August, 1975 it was learned that
a new extradition request, in which the previously ascertained proced-
ural defect had been cured, had been filed in Spain. It is not known
precisely what disposition has been made of this request, except that
FORD & LIBRARY GERALD
Memorandum
December 18, 1975
Page 6
del Sel, who is still residing and working in Madrid, has not in fact
been extradited.
In September, 1974 there appeared a further publication in the
Argentine press to the effect that the magistrate had issued warrants
for the arrest for, and was seeking the whereabouts of, a long list of
other persons, including substantially all persons who appeared from
Deltec International's published 1970 Annual Report to be members of
the Executive Committe of its Board of Directors; a number of its
officers who appeared to have been personally involved in matters re-
lated to the Argentine subsidiaries; and several local directors and
officers of CSLP and of some, but not all, of the other subsidiaries
(e.g., none from the board or management of La Esperanza were named).
It is understood that all persons now in Argentina who were
summoned duly appeared and testified. So far as is known, all of
them remain at liberty and no indictments have been returned against
any of them.
None of the persons now physically outside of Argentina have
chosen to appear. However, although not required to do so, Magis-
trate Orgeira in August, 1974 accepted for the record a detailed sworn
deposition prepared by Mr. Holmberg in Florida and submitted through
Holmberg's local counsel. In this deposition, Mr. Holmberg (a retired
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 7
army colonel whose family was noted for distinguished public service
during many generation and whose own public service career culminated
in the early 1960's with a tour as Argentine military attache in
Washington) sets forth at length not only his own but also his Deltec
colleagues' exemplary conduct in the CSLP matter.
Apart from the extradition proceedings against del Sel, none of
the persons apparently sought by the magistrate have to date been
molested in any way. The principal impact of the pending proceedings
is the impairment of communications between Deltec and either its own
legal team or any responsible official in Argentina. In view of the
practical impossibility for any senior Deltec officer with any back-
ground in Argentine matters actually to enter the country, all such
communications have had for over a year to be conducted through
correspondence or through meetings outside of Argentine.
Annexed hereto as Exhibit B(3) is a copy of a letter dated May
24, 1974 from the undersigned to Vincent A. Rodriguez, Esq., of
counsel to, and a member of the Board and Executive Committee of,
Deltec International. In this letter there are analyzed the accusa-
tions of criminal misconduct that appear to have been leveled against
Deltec and its management. This summary was prepared from such avail-
able materials as the citizen's complaint and the accountants' panel
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 8
report, both referred to above. It must be reemphasized that no
indictment or other formal charges have ever been brought against
any person and may never be brought.
It must be conceded that the criminal proceedings are now in a
state of procedural impasse. Unless and until some person who admits
to knowledge of the facts appears and testifies, the magistrate is no
position either to move forward to an indictment or, realistically,
to dismiss the charges. If the bankruptcy proceedings could be term-
inated through a payment of the creditors and due compensation for
Deltec, and if thereafter appropriate arrangements could be made for
the safety of our persons, either from arbitrary inprisonment or from
terrorist violence, Mr. Holmberg and the undersigned, and possibly
others, would not hestitate to appear and give the required testimony.
IV. The Receiver's Report; "Calificación
de Conducta"; Date of Insolvency
On October 21, 1974 the Receiver of CSLP (the same official
referred to in the Chronology as the Referee) submitted to the court
a report of some 1,700 typewritten pages on all of the Argentine group
companies other than CSLP and Argentaria. A zerox copy of the complete
report has been delivered to David A. Gantz, Esq., Assistant Legal
Adviser in the Department of State. A summary prepared by the under-
FORD & LIBRARY CERALD
Memorandum
December 18, 1975
Page 9
signed, copies of which have previously been furnished to the Depart-
ments of State and Treasury, is annexed hereto as Exhibit C.
It may be of interest to observe that the report places on La
Esperanza, the sugar company, a value of 707,469,000 pesos (equiva-
lent at the time to $71,000,000 at the then official, and to over
$35,000,000 at the then black market, rate of exchange).
Counsel for all the companies other than the CSLP subsidiaries
duly filed objections to this report.
Among the procedural steps called for by law in any insolvency
proceeding is a characterization by the court of the conduct of the
insolvent debtor and its management as either fraudulent, culpable
or innocent ("calificación de conducta"). The Receiver makes cer-
tain recommendations in this regard which are summarized in Exhibit
C. These recommendations are not, however, binding on the Judge,
who is required to make his own determinations based on evidentiary
hearings in each individual case. In these hearings the person whose
conduct is to be judged may appear by counsel and need not appear
personally. To date, no such hearings have been held. In these pro-
ceedings, when held, the issues to be litigated may overlap with the
issues in the criminal proceedings, but in theory at least the two
are entirely independent of one another.
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 10
One of the issues currently being strenuously litigated is the
"date of insolvency" (fecha de cesación de pagos) of the group com-
panies other than CSLP. As to CSLP, such date had been found to be
June 20, 1970, the date on which CSLP had failed, with the creditor's
consent, to pay a maturity of a loan from the Export-Import Bank of
the United States; this finding had been affirmed by the Supreme
Court. As to the other group companies, the Receiver recommended a
finding of the same date; the parties, while not conceding that they
were ever insolvent in fact, contended for September 6, 1973, the date
on which Judge Lozada declared them bankrupt. The date is significant
because it is the debtor's conduct between this date and the initia-
tion of insolvency proceedings that is relevant for the purpose of
such conduct's characterization. The earlier the date, the larger
the number of people insolved in the characterization proceedings
and of the issues that might be raised, with a correspondingly greater
cost of legal representation. On June 9, 1975, Judge Nievas ruled
in favor of the Receiver's contention for the June 20, 1970 date.
An appeal was taken from this ruling and briefs on appeal were filed
on July 18, 1975. The Court of Appeals has not yet acted on this
appeal.
FORD : LIBRARY GERALD
Memorandum
December 18, 1975
Page 11
V. Extension of Bankruptcy; The "Orso Case"
Judge Lozada's September 6, 1973 decision to declare bankrupt
certain named Deltec Group companies was appealed by all of such com-
panies other than the CSLP subsidiaries (Provita, Ibri and Ganados -
see Exhibit C), on the ground, among others, that such decision was
a misapplication of the Supreme Court's September 4, 1973 mandate.
On December 20, 1974 the Court of Appeals affirmed such decision,
copies of which, together with the undersign's annotated translation
(attached hereto as Exhibit D) have previously been furnished to the
Departments of State and Treasury. An appeal from this affirmance
was filed in the Supreme Court by, among others, La Esperanza in April
1975; the Supreme Court has not to date ruled whether it will hear
the appeal, not to speak of ruling on the merits.
It will be recalled that a general creditor's assignee (Leopoldo
Orso) had initiated a proceeding to extend CSLP's bankruptcy to the
other group companies (see Chronology entry of March 8, 1973). This
collateral proceeding was not before the Supreme Court by the time
that it rendered its September 4, 1973 decision on the main case; but
that decision together with Lozada's September 6, 1973 implementing
decision, which reached the result sought by Orso, was thought to
moot the Orso case. However, on March 11, 1975 Judge Nievas,
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 12
apparently gratuitously, rendered a decision in the Orso case that
duplicated the Court of Appeal's December 20, 1974 decision in the
main case. An appeal was taken to the Court of Appeals. Thus the
same issues are pending decision both in the Court of Appeals
(which had already decided them) and in the Supreme Court.
On June 6, 1975 the Judge decided a number of other motions
adversely to the Deltec companies.
VI. Administration of La Esperanza
The court's administration of La Esperanza, the only substantial
Deltec asset in Argentina outside of CSLP, is the subject of a con-
stant stream of motions filed by that company's counsel.
While the court originally retained the company's operating man-
agement, it superimposed thereon a court-appointed superstructure, at
a cost on the order of $500,000 a year, consisting of first one and
then two coadministrators and a substantial staff. Under this burden
the operating results, which appear still to show a profit, have suf-
fered. Moreover, the company's assets and operations have become the
subject of a three-way tug of war among the Governor of the Province
of Jujuy, when La Esperanza's fields and mill are located, and the
two co-administrators, one a Jujuy Communist first appointed by Judge
"which in March 1976 reversed and dismissed the
collateral proceeding as duplicative.
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 13
Lozada and the other a Peronist labor union official who is a protégé
of Judge Nievas.
On May 30, 1975 Judge Nievas fired La Esperanza's operating
general manager.
VII. Liquidation; "The Sola Motion"
Late in 1973 a general creditor, Guillermo de Sola SRL, filed
a motion that the court suggest to CSLP's Administrator that he pre-
pare a plan of liquidation. In a decision rendered on February 4,
1974, a translation of which is annexed as Exhibit E, the then
sitting judge, Von Oertner, denied the motion, essentially on the
ground that the wind-up of CSLP was a problem for the national govern-
ment. This action by the Judge was affirmed by the Court of Appeals.
However, de Sola recently renewed his motion, with the support of
the Receiver; the currently sitting Judge, Nievas, again denied the
motion and an appeal from this denial is pending.
*
Nevertheless, some action has been taken to liquidate some of
CSLP's peripheral (non-packinghouse) assets:
On October 4, 1974 the legislature of the Province of Santa Cruz
declared CSLP's sheep slaughtering plant in Rio Gallegos to be seized
with the public interest. On July 3, 1975 the Santa Cruz legislature
made the same finding as to the sheep slaughtering plant in Puerto
LIBRARY GERALD P. FORD
*In March, 1976, the Court of Appeals reversed and
ordered the liquidator. administrator to prepare
a plan of liquidation. This official, a government
appointee, has mover to appeal to the Sugreme Court.
Memorandum
December 18, 1975
Page 14
San Julian. Both plants, in the extreme south of the country, have
been operating under lease to the Province. Expropriation (eminent
domain) proceedings are in progress.
In June 1975 Judge Nievas ordered the sale at public auction® of
a 116,140 M2 tract of land in Isla Rio Santiago. The sale was effected
for Arg. Ps. 1,290,000 cash.
Also in June 1975, the Judge ordered the receiver to arrange for
a public sale as a going concern of the Provita-Ibri poultry and
balanced feed business. The Universidad Tecnologica Nacional has
been commissioned to make an appraisal for the purpose of setting the
upset price.
No action has yet been taken with respect to the other peripheral
assets, which include among others the country's second largest vege-
table oil operation, a powdered milk factory and a golf course, all
in Rosario; a sausage factory in Buenos Aires; a nation-wide grocery
products distribution organization; etc. And, of course, no action
has been taken with respect to the two large beef processing facil-
ities in Rosario and Puerto La Plata, for which the only conceivable
buyer is the national government or a government sponsored entity.
In September, 1975, the Judge ordered the credit balance in the
Receiver's liquidation account, amounting at this time to Arg. Ps.
FORD : LIBRARY CERALD
Memorandum
December 18, 1975
Page 15
5,026,227, to be invested in readjustible government bonds. Up to
this time, this account, a large part of the balance in which arose
from the sale of Argentaria in 1973 when the peso-dollar exchange
rate was under 10 to 1, had been maintained in a non-interest bearing
peso bank account.
VIII. Attempted Negotiations
In December, 1973 there was hand-delivered in the Casa Rosada a
letter dated November 5, 1973 from Deltec International's Chairman
of the Board, Mr. A. Thomas Taylor, to then President Peron suggesting
negotiations with a view to a settlement of the issues in the light
of the Supreme Court's September 4 decision. To this letter there
was received only a printed form letter response to the effect that
the President was busy and that the matter had been referred to the
Ministry of the Economy. The latter was never heard from.
During 1974, there took place two meetings between Deltec
officers and the then Minister of Justice, Dr. Antonio Benitez, one
in Rio de Janeiro in March and the other in Madrid in August. Both
meetings, while cordial, were inconclusive.
It should be mentioned that at various times Deltec has been
approached by various persons claiming to speak on behalf of persons
in authority, including Dr. Benitez and Judge Nievas, and demanding
what amounted to bribes, which Deltec consistently refused to pay.
FORD i LIBRARY GERALD
Memorandum
December 18, 1975
Page 16
Contact has also been maintained with the Argentine Embassy in
Washington.
The State Department (Deputy Assistant Secretaries Bowdler and
Ryan) and Ambassador Robert C. Hill were kept currently informed of
each and every one of these meetings, approaches and contacts.
It is understood that the Deltec Group's lead counsel in
Argentina has also established contact with several officials of the
current government. Because of the communications difficulties pre-
viously referred to, Deltec has no concrete information as to these
contacts; it is believed that counsel keeps the U.S. Embassy informed.
Max A. Stolper
MAS:sms
FORD & GERALD LIBRARY
December 23, 1975
Honorable Albert Fishlow
Deputy Assistant Secretary
for Inter-American Affairs
Department of State
Washington, D. C. 20520
Dear Dr. Fishlow:
As a result of conversations with the officials in both
State and Treasury who have occupied themselves with the Swift
de La Plata problem in Argentina, it has become apparent that
the question of the values involved is not clearly understood.
Accordingly, I propose to set forth briefly herein some calcula-
tions showing Deltec's equity in the Argentine assets:
I. Cia. Swift de La Plata
Net Assets
US$ 1,000
Fixed assets as per Universidad
Tecnologica Nacional 8/31/71
valuation (Ps. 483,490,492 @5)
96,698 (1)
US$ 1,000
Foreign currency debt admitted
8,000
#
n
# non-admitted
3,988 (2) 11,988 (3)
84,710
31
Arg.Ps. 1.000
Current and other assets 8/3/71
72,733
Local currency liabilities
69,100
3,633 @5
727 (4)
85,437
Equity
Parent CO. advances agreed to be capitalized
9,216 (5)
Equity
76,221 (6)
85,437
FORD i LIBRARY GERALD
Honorable Albert Fishlow
December 23, 1975
Page Two
Notes
(1) This purports to be going concern value, and probably
approximates replacement cost. As a valuation of fixed
assets, it is theoretically invariant against currency
fluctuations. Actual going concern value as a function
of profitability is problematical. Profitability in
turn is a function of, on the one hand, efficiency of
utilization and, on the other, governmental policies
relating to raw material supply, wage and fringe benefit
rates and employment levels, and exchange rates applied to
export earnings. The UTN report emphasizes the high degree
of utilization efficiency under the Deltec management.
To the extent that governmental policies precluded profit-
able operations, these themselves could be argued to be a
sub-rosa form of expropriation, apart from the govern-
mentis actual intervention in and operation of these assets.
At any rate, the value placed on these assets by an inde-
pendent, technically competent Argentine institution under
official sponsorship is an indication at least of what
they should be worth.
(2) Includes:
$1,972,000 claims of Eurodollar noteholders
provisionally disallowed for
technical reasons.
2,016,000 "Deltec group" commercial claims (product
advances, tin plate, etc.) and
miscellaneous,
$3,988,000
(3) Under Argentine law, in the case of a bankruptcy these
amounts are frozen. in pesos at the date of declaration of
bankruptcy (in the case, Arg. Ps. 6.80 to US$ 1.00, the
rate at November 8, 1971), whereas in the case of a
creditor's agreement (concordato) all debts would have
been payable 1n the currency in which they were denominated.
Thus the gratuitous declaration of CSLP's bankruptcy it-
self amounted pro tanto to an expropriation of the foreign
creditors. From the point of view of the equity, the
reduction in value of the foreign currency payables theoret-
ically results in a credit.
(4) This is the only element in this calculation that, theoret-
ically, is exposed to depreciation in the external value
of the Argentine currency. Theoretically, its virtual
disappearance results in a credit to the equity.
FORD is LIBRARY GERALD
Honorable Albert Fishlow
December 23, 1975
Page Three
(5) This is the amount of Deltec's "financial advances" which
Deltec, in its negotiations with prospective buyers and
as part of the management's concordato proposal to the
creditors, had agreed to capitalize.
(6) The resultant of the calculation.
II. Ingenio La Esperanza, S.A.
Receiver's valuation of equity in October, 1974: Arg. Ps.
707,469,000. At the then official rate of Arg. Ps. 9.98 to
US$ 1.00, this places a value on the equity of
$71,000,000 (approx.)
That this corresponds to fair market value in Argentina is shown
by the following analysis, based on (1) latest available financial
information on La Esperanza and (2) published information of
amounts paid for other sugar properties sold and/or legally
expropriated in 1954:
7
M111 at $5,500 per ton/day of grinding capacity
$29,000,000
Alcohol distillery
2,000,000
Transport system
3,000,000
Agricultural machinery
2,000,000
10,000 Hs. irrigated canefields @ $250
25,000,000
60,000 Hs. other land @ $50
3,000,000
Fixed assets
64,000,000
Net current assets (inc. refined sugar inventory)
6,000,000
Other assets
200,000
Non-current liabilities
( 1,400,000)
Net worth
$68,800,000
III. Miscellaneous
Proceeds from sale of Argentinian: ARIA investment in insurance brokerage
and ranching companies; miscellaneous assets of Deltec Argentina:
say
$4,000,000
IV. Recapitulation
Equity in Cia, Swift de La Plata
$ 85,400,000
Equity in Ingenio La Esperanza
68,800,000
Miscellaneous
4,899,000
$158,200,000
FORD i LIBRARY GERALD
Honorable Albert Fishlow
December 23, 1975
Page Four
The purpose of this analysis is to give you an order of
magnitude idea of the value of Deltec's claim. As has been
indicated to you in conversation, Deltec is, realistically,
prepared to settle for a great deal less. However, in the light
of these magnitudes, Deltec is not prepared to give up.
My very best wishes for the New Year.
Very sincerely yours,
mes
Max A. Stolper
cc: Hon. John A. Bushnell
Acting Assistant Secretary of the Treasury
Hon. Stephen Low
Executive Office of the President
bcc: Mr. A. Oakley Brooks
MAStoTper:mtaylor
FORD i LIBRARY GERALD
MAX A. STOLPER
ATTORNEY AT LAW
BERLINER, MALONEY, GIMER & MUIR
1100 CONNECTICUT AVENUE, N. W.
(202) 293-1414
WASHINGTON, D. C. 20036
3:45 p.m.
Tuesday, April 20, 1976
Max Stolper called to leave the following name and
address for you:
Mr. Daniel Arrill
Director
Investment Policy Division
Office of International Finance
and Investment
Department of Commerce
FORD & LIBRARY GERALD
Tuesday 4/20/76
Meeting
4/20/16
2:30 p.m.
1:10 Max Stolper called at Governor Connally's suggestion
to request an appointment.
We have scheduled a meeting at 2:30 this afternoon
(Tuesday 4/20).
Firm: Berliner, Maloney, Gimer and Muir
293-1414
(Mr. Stolper is representing Deltec International
in the matter he wishes to discuss with you.)
m. Schmults:
4/27/76
Per our pline conversation
trolag.
MAX A. STOLPER mas
ATTORNEY AT LAW
BERLINER, MALONEY, GIMER & MUIR
1100 CONNECTICUT AVENUE, N. W.
(202) 293-1414
WASHINGTON, D.C. 20036
LAW OFFICES
BERLINER, MALONEY, GIMER & MUIR
HENRY A. BERLINER, JR.
BARRY C. MALONEY
1100 CONNECTICUT AVENUE, N. W.
RICHARD H. GIMER
WASHINGTON, D. C. 20036
J. DAPRAY MUIR
CABLE ADDRESS
MAX A. STOLPER
(202) 293-1414
BERMAR
THOMAS LUMBARD
LAURENCE A. ELGIN
A. THOMAS CARROCCIO
EDWARD a SMITH. JR.
ERIC L. CUMMINGS
JACKSON L. MORRIS
April 26, 1976
PATRICK J. GRIFFIN, JR.
OF COUNSEL
Hon. Richard G. Darman
Assistant Secretary for Policy
Department of Commerce, Room 5858
Washington, D. C. 20230
Dear Mr. Darman:
It has been suggested to me that I call to your attention the situation
of Deltec International Limited, a corporation with which I was associated for
many years as an executive and which I now represent as counsel. This situation
is particularly relevant to your work in connection with Secretary Richardson's
new task force on improper corporate payments.
Deltec is an international financial and trading company which for many
years has devoted itself principally to the development of the Latin American
region. Its stockholders include a number of important European and Latin
American investors; however, over 75% of its stock is owned beneficially by
U. S. nationals, including some 8,000 public investors whose shares are listed
on the New York Stock Exchange.
In 1969, Deltec acquired by merger with International Packers Limited
(Organized in 1918 as a spin-off of the international activities of Swift &
Company) the shares of, among other entities, Cia. Swift de La Plata (CSLP),
the largest meatpacking company in Argentina. Because of discriminatory
governmental policies and despite massive infusions of fresh cash from abroad,
CSLP was forced toward the end of 1970 to apply to the Argentine courts for
an arrangement with its creditors. The proceedings were turned, with the
active encouragement of successive Argentine governments, into a mockery of
justice, culminating in the seizure of all of Deltec's other properties in
Argentina -- including one of the country's most efficient sugar producers --
and accusations of criminal misconduct against most of Deltec's directors and
senior executives, who include a number of the most prominent leaders of
America's industrial and financial community.
The details of this unhappy story, as well as Deltec's SO far fruitless
efforts to achieve a just settlement in the interests of its shareholders and
CSLP's creditors, both Argentine and external, are in the files of your Depart-
ment (Bureau of International Economic Policy and Research). Officials of the
Departments of Treasury and State have also occupied themselves with this
problem, so far to no avail.
GERALD FORD VIBRARY
Hon. Richard G. Darman
April 26, 1976
Page Two
An aspect that should be of particular interest to you at this time
is the fact that almost from the beginning of its involvement with CSLP,
Deltec has been subjected to a continuous stream of extortion demands.
During the recently concluded Peronist era, these included, but were not
limited to, approaches from highly placed officials in the government and
the judiciary. In each case, money was demanded, in amounts ranging from
a few thousand to millions of dollars, in consideration of promised assis-
tance toward a solution to which the company was by law entitled but which
has so far eluded us. Without exception, these approaches were turned away.
The point has no doubt been made to you by others that the corporate
morality which the United States properly demands from its nationals in
their dealings abroad, and which is the concern of the Secretary's task
force, should have as its counterpart our country's full backing of American
investor-owned companies, such as Deltec, whose proper conduct is rewarded
by physical violence, theft and extortion actively engaged or acquiesced
in by officials of other countries.
I should very much like to discuss this subject with you further,
and accordingly propose to give your office a call in the next few days.
Very sincerely yours,
mal
Max A. Stolper
FORD i LIBRARY GERALD
August 26, 1976
Dear Mr. Dauphinot:
Thank you for sending me a copy of your report
"Chile - An Economic Review." I shall read this
report with great interest and, as you indicated,
it should give me a better insight into Chile's
economic affairs.
With best regards.
Sincerely,
Edward C. Schmults
Deputy Counsel to the President
Mr. Clarence Dauphinot
Deltec International Limited
Deltec House
Cumberland & Marlborough Streets
P. 0. Box N-3229
Nassau, Bahamas
FORD i LIBRARY GERALD
DELTEC INTERNATIONAL LIMITED
TELEPHONE: NASSAU 2-8733
DELTEC HOUSE, CUMBERLAND & MARLBOROUGH STREETS
CABLES: INTERDELTEC NASSAUBAH
P.O. BOX N3229, NASSAU, BAHAMAS
TELEX: NS 101 INTERDELTEC
August 16, 1976
Hon. Edward C. Schmults
Associate Counsel to the President
The White House
Washington, D. C. 20500
Dear Mr. Schmults:
We have spent a considerable amount of time and money researching
the economic and financial situation in Chile and have made a report
on the present economic condition of that country, the background that
brought it to its present state and the possibilities of future progress.
Our conclusions are definitely positive and we ourselves are going to extend
considerable additional credit to Chile henceforth as a result of these
conclusions.
I hope that this report will be interesting to you and will give you
a deeper and objective insight into that country's economic affairs.
Chrence Danphurt
Enclosures
FORD : LIBRARY GERALD
INCORPORATED IN ENGLAND, REGISTERED NO. 1119099, REGISTERED OFFICE: II, COPTHALL AVENUE, LONDON EC2R 7LU, ENGLAND
Chile
an
economic
review
JULY 1976
THE DELTEC BANKING CORPORATION LIMITED
o FORD FIBRARY
Contents
Introduction
page
Introduction
1
Background
2
The Chilean Economy
5
Foreign Trade
7
The Domestic Economy
12
Few countries in the world in recent years have been the object of as much international
Foreign Investment
13
attention as the Republic of Chile. Much of this attention has focused on the events taking
place from 1970 to the present. In September 1970, the Congress elected an avowed
Chile and the Andean Bloc
14
Marxist president of Chile although he had received only 36% of the popular votes cast.
International Monetary Reserves,
On September 11, 1973, the armed forces took control of the country and ended rule by
Balance of Payments and Foreign Debt
15
civilian governments that had dated uninterruptedly from 1932.
The Banking Sector
18
Summary
21
The assumption of power by the military was in response to a series of events. The
executive branch of the government was constantly at odds with the Congress and the
courts, persistently flouted Congress' wishes and was cited for unconstitutional behavior
by the Supreme Court. Attempts were made to dominate or eliminate dissenting opinions
in the case of radio and television by state monopoly control of the supply of broadcasting
equipment, and in the case of the press by intervention and harrassment of newspapers
and, finally, by control of newsprint supplies. These actions were undertaken to
strengthen the hold of the minority on the constitutional process and took place in an
economy which was fast disintegrating as a result of chaotic and counterproductive
decisions taken in the public sector. By the time the military moved to assume power, the
minority President was being openly supported by the international Marxist movement,
whose support included the presence of several thousand non-Chilean personnel in
Chile. Finally, the military, convinced that the country's democratic procedures faced total
erosion under the Marxist President, moved to assume power.
Since the 1973 ascent of the military to power, Chile has been the object of much
commentary, some of it critical. It is not, however, the purpose of this report to discuss
present politics in Chile, to engage in value judgments or political analyses of past or
current events, or to make any kind of judgment of a political nature.
The purpose of this report is to focus clearly on the current state and future prospects of
the economy of Chile, where the remarkable progress achieved since 1973 has often
been obscured in the rhetoric of political discussion. With respect to the Chilean
economy, the figures speak for themselves in describing the disastrous effects of the
economic policies undertaken between 1970 and 1973. They also indicate the difficulty of
managing the economic situation between 1973 and 1975 as a result of these policies,
and the substantial improvement registered since mid-1975. This improvement is notable
not only with respect to the short-range problems caused by the prior administration, but
also with respect to the correction of fundamental problems in the economy which date
back to pre-1970 years.
This report is intended for use by those persons, particularly in the international
financial community, interested in making an objective evaluation of the current state and
future prospects of the Republic of Chile. It has been prepared by The Deltec Banking
Corporation Limited, an international banking organization with long years of experience
in Chile and throughout Latin America.
GERALB FORD LIBRARY
1
Background
The New Administration's Policies
The policies developed between 1973 and 1975, which are currently being implemented, represent a
The 1973 Situation
course of action designed to correct not only the specific problems inherited from the previous adminis-
In order to examine the current economic situation in Chile and to measure the progress realized since
tration, but also to implement basic changes of long-term impact in the economy. A key element
1973, it is useful to understand the exact state of the economy inherited at that time by the present
in the long-range program is the encouragement of exports of non-copper products as a means of
government from the prior administration. By the end of 1973, the economy was in serious difficulty.
reducing the traditional, almost total, dependence of Chile on copper as a primary source of export
Inflation, fed by massive government deficits and monetary expansion, totalled 508% for the year as
earnings. Other elements are to place both external and internal financing on a sound basis and to
measured by the official Consumer Price Index. By year-end consumer prices had increased some
restore Chile as a country with access to international investment and lending sources. Yet another
35-40 times over 1969 and average real wages and salaries had fallen significantly below their 1969
long-term goal is to effect wider distribution of income within Chile through an overhaul of the taxation
levels by the middle of 1973. The combination of enormous inflationary pressures and the system of
system.
controls on public utility tariffs, interest rates, exchange rates and other prices had created serious
distortions of relative prices and consequent supply shortages. The public sector deficit had risen from
In order to achieve these goals, Chile has embarked on a program of economic policies whose chief
3% to 17.5% of the Gross Domestic Product between 1969 and 1973 and was financed almost entirely
feature is to free the economy from government controls and to allow prices and interest rates, respond-
through domestic money creation. The money supply had grown 37-fold during that period. Real output
ing to supply and demand, to play the key role in resource allocation. In addition to this rationalization of
had fallen approximately 5% in 1973 after having stagnated in 1972. The decline in agricultural produc-
the internal sector of the economy, the government has embarked on a program of tariff reduction
tion was particularly sharp, output falling below the average levels of the mid-1960's. Rising food imports
aimed at forcing the country's industry to become more competitive in international terms. This plan also
and falling copper production converted a foreign exchange surplus of $343 million in 1970 to a deficit of
contemplates filling up idle capacity with foreign orders, stimulated by placing exchange rates on a
$725 million at the end of 1973. Chile had ceased to meet fully its external debt service obligations in
realistic basis to encourage foreign purchases.
1971. More than 300 manufacturing enterprises, the entire financial sector, the major copper mines, and
Many of the above reforms have long been urged by economists within Chile, by international agencies
6.4 million hectares or 32% of agricultural land had been expropriated or otherwise placed under
and by banks and others concerned with the country's long-term progress. In undertaking these mea-
government control over the three years ending in 1973, with ensuing problems of administration,
sures, it has been apparent from the beginning to Chilean and international planners that bitter economic
structural adaptation, loss of investment and flight of technical-managerial expertise. Clearly the situation
"medicine", no matter how salutary in the long run, would involve short-term costs, principally of a social
in 1973 had reached crisis proportions.
nature.
By the middle of 1975, the new government, despite the chaotic legacy described above and an
Specific actions taken by the government prior to June 1976 include the sale or return to the private
unexpected downturn in world copper prices, had solidified its economic policies and begun to measure
sector of virtually all of the private companies nationalized by the previous administration. The con-
results. The available economic data from the years during the previous administration and up until
sequent administration of these companies by private shareholders has generally been accompanied by
mid-1975 has often been cited by Chile's critics as demonstrating that the new military administration has
lower employment levels. Other constrictive measures have included:
been a failure. It has been alleged that even with temporarily higher copper prices during part of the
1973-1975 period, Chile's international net reserves position continued to deteriorate; that the 1973-
1975 recession in the Chilean economy contrasted sharply with the "prosperity" of the years from
A cut of 15%, in real terms, of all government expenditures.
1970-1973; and that the unemployment cost to Chile at present is at an unacceptable level.
A total halt of new employment by the government.
An examination of the economic data for 1970-1973 could lead to an opinion that Chile was well off under
A 25% cut in all foreign currency expenditures.
the prior administration. A fair analysis of the figures will show more clearly, however, that despite the
A 10% surcharge on all property and income taxes.
illusion of prosperity under that administration, what really was occurring was the systematic destruction
The fixing of significant reserve requirements for banks.
of Chile's economic base. The figures for agricultural production in 1973 clearly show that output, in
physical terms, for 11 of 14 key crops had fallen to the lowest level since 1969. Net international
Increases in rates for all public utilites such as gas, electricity and telephone, in some cases by as
monetary reserves of $343 million by the end of 1970 had been converted to a deficit of $725 million by
much as 1,000%, to the point of covering the costs of providing these services.
the end of 1973, for a swing of over $1 billion. The illusion of prosperity created during the prior years by
Tariff cuts of a widespread nature to the point where. for most products, the maximum tariff as of June
rapid increases in salaries, coupled with price controls at unrealistically low levels, left a "mortgage" to
30 will be 35%.
be paid in future years. The task of rebuilding Chile's agricultural sector, industrial sector and interna-
Establishment of a flexible system for the peso/dollar exchange rate which involves frequent mini-
tional reserves fell to the successor administration.
devaluations in order to keep the peso from becoming overvalued and hindering export efforts.
BERALB FORD LIBRARY
2
3
Although these measures have been frequently described as "Draconian" by outside observers, there
really was no practical alternative to accepting their short-term cost in favor of long-term benefits. The
large majority of the Chilean population appears willing to accept its share of the sacrifices needed to
The Chilean Economy
reestablish the country's economy.
Summary of Results to Date
A sector-by-sector analysis of the Chilean economy follows as the body of this report. The main results of
the new economic programs to date are summarized in the following paragraphs:
The government that assumed power in September of 1973 inherited an economy beset by falling
On the negative side:
production in many sectors, operating in isolation from international financial sources as a result of the
Unavoidable dislocations have occurred in the economy, particularly in the form of unemployment as a
erosion of Chile's reserve position and the lack of confidence of international financial institutions in
result of (a) constrictive policies in general, (b) the return to private hands of previously state owned
Chile's stated policies. In addition, the country was painfully and violently wracked by political divisions.
enterprise, and (c) the placing of the remaining government activities on a self-supporting basis.
Faced with an economy closer to ruin than at any other time in Chile's national experience, the govern-
As a result of these measures, unemployment in Santiago, which is the only area where complete
ment had to cope not only with internal problems but with problems derived from the international
statistics are available, reached 16% in September of 1975. It is doubtful that there has been sub-
economy within which it must operate. Food imports necessitated by the productivity problems resulting
stantial improvement since that date.
from expropriation and nationalization of farms, and oil imports, on which Chile is dependent for 75% of
On the positive side:
its petroleum needs, cost significantly more than expected. The general negative fallout effects of a
Copper production levels have been restored to former peaks, and the uncertainty surrounding
worldwide recession were compounded for Chile by lower copper prices and shipments. The effects of
the downturn in Chile were intensified by the austerity measures imposed by the government as part of
African deliveries has resulted in Chilean production for 1976 being completely sold out.
the program to reestablish the nation's financial integrity.
Total imports for 1975 were reduced by over US $430 million from the 1974 figure, to the lowest level
in real per capita terms since 1965.
The depths of this recession, which in 1975 drove Chile's gross national product below 1968 levels, are
Non-copper exports have soared from US $200 million in 1973 to over US $650 million in 1975, and
illustrated by the following table:
the figure for 1976 is expected to surpass 1975.
Agricultural production between 1973 and 1975 increased 10%, with a corresponding savings in
TABLE I
foreign exchange, through reduction in food imports, of US $300 million.
GROSS NATIONAL PRODUCT
All debt service requirements are being met and projections by the Chilean Government, as well as by
(1965 Chilean pesos in thousands)
the World Bank, indicate that Chile's firmly stated policy of meeting all foreign debt without further
1968
1969
1970
1971
1972
1973*
1974*
1975*
renegotiation, will be successfully achieved.
Consumer expenditure
15,790
16,222
16,868
18,563
19,426
18,908
17,581
15,500
The current and forthcoming national budgets are balanced.
Gov't current expenditure
2,296
2,431
2,591
2,831
2,964
3,132
3,483
3,016
Gross domestic fixed
Inflation, although still at high levels by world standards, has been reduced sharply, from the 508%
assets formation
3,166
3,313
3,407
3,446
2,837
2,946
3,302
2,278
experienced in 1973, to an average of 10.5% per month for the past six months.
Change in inventories
204
417
467
300
171
336
845
-
Contracts with foreign enterprises for investment in Chile, totalling US $285 million, were entered into
Exports of goods
between October 1974 and December 1975. Of these 38% are in sectors other than mining. Approxi-
and services
2,875
3,055
3,040
2,982
2,536
2,420
3,339
3,215
mately $300 million in additional foreign investment has been agreed to in principle and awaits
Less: Imports of
documentation, while a further US $500 million, including significant investment in natural gas liquifica-
goods and services
3,159
3,533
3,678
3,682
3,515
4,222
3,997
3,066
tion, is under study.
Gross National Product
21,172
21,905
22,695
24,440
24,419
23,520
24,553
20,943
The above statistics indicate that Chile has made significant progress toward recovery from the difficult
Provisional figures
economic situation existing in 1973. This progress has been possible through a series of austere
Source: National Planning Office
measures designed to correct problems of long standing as well as those problems of recent origin
existing in 1973. Such austerity programs are expected to continue until such time as Chile has rebuilt its
The above table clearly illustrates some of the injurious trends that developed between 1970 and 1973.
economy and can relax the belt-tightening measures undertaken to date. Meanwhile, Chile's direction is
Government expenditures shot upwards, exports dropped, imports increased and domestic fixed asset
both clear and firm and its national accounts reflect promising progress on the road to recovery. The
formation fell dramatically.
impact of the progress to date and the promise of progress in the future stand out clearly in the figures in
this report, but have too often recently been submerged in political discussion at the international level.
The table also illustrates the effects of subsequent government policies in practically all accounts.
The sector-by-sector analysis of the Chilean economy that follows gives clear objective evidence of this
Consumer expenditure has necessarily dropped as a result of deflationary policies, government current
progress and discusses it in detail.
FORD
BERALD
LIBRARY
4
expenditure has dropped, investment has dropped to reflect lower demand levels, imports have been
Subsequent sections of this review show detailed figures on foreign debt service schedules which the
slashed and exports substantially increased, in spite of lower copper prices in 1975.
government is firmly committed to meet without further renegotiation export development, and the
These changes have stemmed from the austerity measures introduced by the government, the in-
long-term benefits accruing to Chile's net foreign reserve position. The government targets call for a real
annual growth rate of 6.6% between 1976 and 1981, with expected growth for 1976 set at 5.8%. With the
creased emphasis on non-copper exports, and new import policies.
renegotiation of foreign debt already effected, copper prices holding firm at satisfactory levels and the
At the same time, the government has attempted to brake inflation. As the following table shows, inflation
great degree of national resolve shown by the acceptance of the sacrifices implicit in the national
continues at high levels by world standards, but has lessened considerably, particularly in the first
development plan, the outlook for Chile is one of cautious optimism. Chile's progress will require con-
quarter of 1976 as compared to the first quarters of 1974 and 1975.
stant monitoring, but the improvement in both measurable terms and direction since the 1970-1973 era is
clear.
Inflation, as measured by the official Consumer Price Index, has shown the following trends since 1973:
TABLE II
MONTHLY CHANGES IN THE CONSUMER PRICE INDEX
1973
1974
1975
1976
January
-
14.0%
13.9%
10.5%
February
-
24.5
16.5
10.1
March
-
14.2
21.2
13.5
April
-
15.3
20.8
11.9
May
-
8.7
16.0
9.8
June
-
20.8
19.8
July
-
11.5
9.3
Foreign Trade
August
-
10.9
8.9
September
16.8%
12.8
9.2
October
87.6
18.9
8.4
November
5.7
9.7
8.2
December
4.8
6.5
7.1
The Export Sector
Source: National Institute of Statistics and Central Bank of Chile
Faced with the dual short-term needs for foreign exchange and greater capacity utilization in depressed
industries, in addition to a longer-term desire to diversify away from copper exports as the sole large-
scale source of foreign exchange earnings, Chile has embarked on a program of encouraging non-
The Consumer Price Index is the most closely watched indicator of inflation in Chile. Salaries are
copper exports. This program has been remarkably successful since 1973.
readjusted every three months by an across-the-board increase equivalent to the total inflation for the
prior three months, as measured by the Index. The stated goal of the government is to reduce the
Traditional exports have always been considered to be copper, nitrates, iron ore, and to a lesser degree,
monthly rate of inflation to 5% by the end of 1976 and to lower rates thereafter. In the Chilean context,
wood and pulp products. Increased exports in the latter category, plus significant quantities of other
inflation at normal rates by world standards may be difficult to achieve. Chileans have been accustomed
non-copper products, have increased total non-copper exports to US $694 million in 1975, com-
to double digit inflation for many decades and expectations of such inflation and accompanying be-
pared to a total of US $226 million in 1972. This increase has been achieved through a national drive
havior patterns make it unlikely that inflation at low rates will be easily achieved. As long as indexing is
emphasizing exports, the pegging of exchange rates at levels designed to encourage exports, and a
flexible and exchange rates are not artificially set, the impact of any inflation on Chile's future progress is
variety of tax incentives to export. An unusual key feature in the government's export promotion program
lessened.
has been the deliberate lowering of tariff barriers in order to force Chilean producers to compete on
non-protected terms with world industry and trade. By the end of June it is expected that the general
The government intends to continue on its present course of austerity in economic policy. As a result of
maximum ad-valorem tariff on imports will be 35%, with only a small list of exceptions - most notably
these measures and the gradual improvement they have produced, the government expects a slow and
automobiles and other vehicles. This policy represents a radical departure from traditional economics in
undramatic recovery, proceeding independently of world developments in most respects. The recovery
developing countries whose tariff policies usually are set to keep out foreign competitors and usually, as
would, of course, be enhanced by an upturn in the currently depressed world economy, particularly to the
a consequence, foster local industry whose protection in the internal market has not compelled it to
extent this upturn were to be reflected in higher copper prices.
develop real efficiencies in production.
DERALO FORD LIBRARY
6
7
The table below illustrates the Chilean export panorama from 1972 through 1975.
in foreign exchange of approximately US $20 million. The average annual price, f.o.b. Chile, in recent
years has been:
TABLE III
TABLE IV
CHILEAN EXPORTS 1972-1975
COPPER PRICES FOR CHILE 1970-1975
(in thousands of U.S. dollars)
(U.S. cents per lb.)
1972
1973
1974
1975
1970
1971
1972
1973
1974
1975
Copper
629,521 (73.6%)
978,148
(79.5%)
1,893,898
(76.4%)
967,118
(58.2%)
57.4
45.5
46.1
70.9
85.4
52.6*
Natural Resource
(16.7%)
(11.1%)
(13.6%)
(17.2%)
*preliminary
Iron
56,012
55,555
132,444
88,885
Nitrate
20,553
24,113
37,030
43,784
lodine
8,183
6,933
10,776
5,393
It is interesting to note that Chile exported US $967 million of copper in 1975, with copper at 52.6 cents,
Molybdenum
13,625
6,728
12,764
26,907
versus US $978 million in 1973, the last year of the prior regime, when copper was at 70.9 cents. This
Fishmeal
18,003
13,600
35,230
24,221
occurred in spite of a cut-back in Chilean production in 1975 by about 100,000 tons, in a joint effort by
Cellulose
17,433
20,767
77,965
60,511
copper-producing countries to stabilize prices at a higher than actual level. The effort failed and this year
Paper
9,313
9,017
32,117
36,623
Chile will again produce at a normal level of 900,000 tons, all of which has been sold for future delivery at
Other Products
82,807
(9.7%)
115,652
(9.4%)
248,250
(10.0%)
407,887
(24.6%)
the then-prevailing price in world markets. Current prices for copper are in a range from US $0.65 $0.75
855,450
1,230,513
2,480,474
1,661,329
per pound.
Total Copper
629,521 (73.6%)
978,148
(79.5%)
1,893,898
(76.4%)
967,118
(58.2%)
Chile, which will again in 1976 be the world's largest copper exporter, and third largest producer after the
Total Non-Copper
225,929 (26.4%)
252,365
(20.5%)
586,576
(23.6%)
694,211
(41.8%)
United States and the Soviet Union, belongs to Comité de Paises Exportadores de Cobre, CIPEC, the
855,450
1,230,513
2,480,474
1,661,329
fledgling OPEC-type copper cartel. It was under CIPEC auspices that Chile cut back production in 1975.
Source: Superintendency of Customs, which has indicated that product
In general CIPEC has not met with much success. This is a result of the relatively large demand elasticity
classifications and figures are tentative and subject to revision.
for copper and the wide range of products which may be substituted, such as polyvinyl chloride in
plumbing applications and aluminum in electrical installations. As the world's largest exporter, Chile is in
The impressive totals for non-copper products, in absolute terms, show the beneficial impact non-
the same position relative to CIPEC as Saudi Arabia is to OPEC, and may be expected to act relatively
traditional exports can provide in a year such as 1975, when total copper exports were negatively
independently in accordance with its own foreign exchange needs. Moreover, CIPEC members, in view
affected by world price and demand levels.
of their general status as developing nations, do not have large foreign reserves to fall back on in an
extended period of production curtailment. A further factor which weakens CIPEC is that the USA and
The Natural Resource Sector
USSR are not only the world's largest consumers, but also the largest producers. Although CIPEC is
Although national policy calls for special stimulation of non-copper exports, this does not imply de-em-
expected to attempt to stabilize prices for copper at higher levels from time to time, Chile's role will not
phasis of the potential of the mineral sector.
be an active one for the present, in view of its vital need for foreign exchange.
Chile has an estimated one-fourth of all of the world's known copper reserves. The indispensability and
In addition to copper, Chile has traditionally been an exporter of iron ores and nitrates. Emphasis is
strategic importance of these reserves is highlighted by a 1974 estimate that while 75% of world copper
expected to continue in these areas, as well as in molybdenum. The most promising non-extractive
is consumed by non-Communist industrialized nations, 65% of reserves lie in Communist-bloc and Third
natural resources are wood, pulp, and cellulose products. In 1975, there were 82,594 hectares replant-
World countries. Furthermore, the richness of Chilean ore bodies and their relatively short distance to
ed and an additional 90,000 hectares are expected to be reforested during 1976. There are an estimated
sea transportation (no part of Chile is more than 300 km from the coast) offer competitive production cost
4,000,000 hectares of forestable land, compared to planted areas totalling 450,000 hectares. Exports of
advantages of significance. Chilean copper production is generally considered to break even at world
forest-based products have risen from $27 million in 1972 to $97 million in 1975.
price levels of slightly less than US $0.50 per lb., a figure which is also believed to represent the lowest
In addition, Chile is studying the feasibility of natural gas liquification, involving an investment of several
cost break-even point in world copper production.
hundred million dollars, to exploit large proven natural gas reserves in the southern part of the country.
Existing Chilean copper mines, owned by the government since the prior administration, will be retained
under state ownership, although new ore bodies may be exploited by foreign investors under general
Non-Natural Resource Exports
foreign investment guidelines. Negotiations are at present in advanced stages concerning foreign par-
Non-natural resource exports have shown rapid growth and diversification. In 1975, Chile exported
ticipation in new ore bodies on a joint venture basis between foreign partners and the Chilean Govern-
69 different products, including elaborated metal products, with a value in excess of US $1 million.
ment.
These products were as diverse as frozen lobster, sewing machines, garlic, pears, tires, grapes,
wine and raw sugar. Of these products, 13 were not exported at all in prior years. Taking all products into
Copper prices are of vital importance to the Chilean Government in view of their impact on foreign
consideration, including those with an f.o.b. value of more than US $100,000, 82 new products were
exchange earnings. At current production levels, each change of US $0.01 means a change in earnings
exported in 1975
GERALD FORD LIBRARY
8
9
Chile exported to 70 different countries during 1975. The table below illustrates the pattern of its
Chile expects to import up to 650,000 tons of wheat in 1976, which will make up the single largest import
export trade:
item. Due to both lower quantity requirements, because of better production, than in most recent years,
and to lower world wheat prices in 1976, the negative impact on the balance of trade will be less than in
prior years.
TABLE V
EXPORTS - 1975 BY MAJOR COUNTRY OF DESTINATION
(in thousands of U.S. dollars)
TABLE VII
Country
Copper
Non-Copper
Total
BALANCE OF TRADE 1970 - 1975
West Germany
179,454
59,696
239,150
(in millions of U.S. dollars)
Japan
92,173
94,463
186,636
1970
1971
1972
1973*
1974*
1975*
Argentina
52,390
114,027
166,417
United States
67,368
79,103
146,471
Exports of Goods
1,118.9
996.8
847.4
1,346.9
2,043.0
1,530.0
United Kingdom
118,988
18,190
137,178
Copper
839.8
701.2
618.2
1,102.6
1,557.0
875.0
Brazil
55,741
42,257
97,998
Other Goods
279.1
295.6
229.2
244.3
486.0
655.0
Netherlands
63,094
27,646
90,740
Imports of Goods
956.0
1,014.9
1,102.6
1,607.7
2,239.0
1,804.0
Italy
70,480
9,667
80,147
France
63,155
7,155
70,310
Foodstuffs
135.5
192.2
338.4
594.9
472.0
337.0
11,037
67,738
Capital
276.2
248.0
165.1
285.0
338.0
295.0
Spain
56,701
Belgium-Luxembourg
44,767
11,378
56,145
Intermediate (non-foods)
445.0
485.2
460.2
663.8
1,358.5
1.102.0
Sweden
28,711
5,604
34,315
Consumer Goods
99.3
89.5
138.9
64.0
70.4
70.0
Colombia
169
24,865
25,034
Balance of Trade
162.9
- 18.1
-255.2
-260.8
-196.0
-274.0
Peru
—
24,971
24,971
*Provisional
Venezuela
13
23,893
23,906
Source: Banco Central de Chile
Source: Superintendency of Customs
Imports and the Balance of Trade
Future Balance of Trade
Chile is highly dependent on imports in two areas. In the food sector, she relies heavily on imported
As the table below shows, Chile does not expect to show a positive balance of trade until 1977. In
grain. Increasing demand for imported food as a result of agricultural production problems caused by
keeping with the program to provide incentives to export non-copper products, significant increases are
large-scale nationalization of land holdings by the prior regime, coupled with higher worldwide wheat
expected in manufactured goods, agriculture, seafood and forestry products.
prices, have had a sharp impact on food import requirements. In the energy sector, Chile's annual
production of approximately 8 million barrels supplies only about 25% of petroleum needs. At the same
time, although the industrial recession within Chile, as well as realistic internal price levels for energy,
TABLE VIII
have held down demand, the bill for imported petroleum products has jumped sharply.
The ten most important exporters to Chile in 1973 and 1974, the latest years for which a complete
PROJECTED TRADE BALANCE 1976 - 1981
breakdown is available, were as follows:
(In millions of U.S. dollars)
1976(2)
1977
1978
1979
1980
1981
TABLE VI
EXPORTS (FOB)
1,826.6
2,328.2
2,589.7
2,814.8
3,316.7
3,841.8
IMPORTS BY MAJOR COUNTRY OF ORIGIN (1973 and 1974)
Minerals
1,320.6
1,626.0
1,783.3
1,911.0
2,270.9
2,585.0
(in thousands of U.S. dollars)
(Copper) (1)
(1,113.0)
(1,333.1)
(1,437.2)
(1,643.0)
(1,842.7)
(2,121.6)
1973
Agriculture and seafood
126.0
170.0
196.0
225.0
281.0
351.0
1974
Industrial
380.0
532.2
610.4
678.8
764.8
905.8
United States
179,060
415,694
323,816
IMPORTS (CIF)
1,830.6
2,184.0
2,436.0
2,722.0
2,951.0
3,241.0
Argentina
166,576
West Germany
112,792
151,446
Net Services
-40.0
-43.0
-46.0
-50.0
-54.0
-58.0
Australia
47,381
98,048
TRADE BALANCE
-44.0
101.2
107.7
42.8
311.7
542.8
Brazil
33,952
84,890
Ecuador
13,388
78,107
(1) For price projections used see page 16.
United Kingdom
64,030
68,909
(2) Preliminary estimate.
FORD
France
36,382
54,426
Japan
35,187
48,574
Source: Banco Central de Chile
Netherlands
31,404
48,394
GERALD
LIBRARY
Source: Superintendency of Customs
11
10
TABLE X
INDEX OF INDUSTRIAL PRODUCTION
The Domestic Economy
(base 1969 100)
General
Consumer
Consumer
Transport
Intermediate
Intermediate
Various
Year
Index
Softgoods
Durables
Materials
Industrial
Construction
Manufactures
1970
103.5
104.5
115.6
100.0
100.6
104.1
97.2
Agriculture
1971
114.7
117.8
141.2
91.4
111.1
113.2
105.9
1972
117.6
116.6
128.3
105.9
115.5
123.5
120.5
About 8% of Chile's gross national product is derived from agricultural activities, although a far greater
1973
109.9
110.0
111.2
71.6
113.8
117.8
114.4
proportion of the country's population is dedicated to agricultural pursuits. Harvests, by principal crops,
1974
111.1
104.3
123.9
72.8
132.9
113.4
105.6
for the past six years have been as follows:
1975
Jan.
93.4
86.0
95.5
78.5
122.0
88.4
72.0
Feb.
78.4
68.8
87.4
43.5
112.8
76.6
63.0
TABLE IX
Mar.
100.2
96.3
120.0
58.4
126.0
91.3
83.7
Apr.
100.2
100.0
118.4
63.1
124.5
80.4
83.3
AGRICULTURAL PRODUCTION 1970 - 1975
May
83.6
86.0
84.2
46.2
105.1
66.2
70.0
(thousands of cwt.)
June
76.9
78.4
95.4
34.5
104.8
58.9
45.0
Crop
1970
1971
1972
1973
1974
1975
July
78.8
82.0
94.8
38.8
99.2
58.5
53.2
Aug.
77.0
75.3
90.7
44.5
108.3
58.3
48.0
Wheat
13,069
13,680
11,951
7,467
9,390
10,024
Sept.
81.4
85.1
88.0
58.5
102.3
56.9
57.6
Oats
1,105
1,120
1,113
1,091
1,499
1,311
Oct.
92.8
99.3
91.7
62.2
113.7
66.6
66.9
Barley
974
1,136
1,390
1,074
1,496
1,206
Nov.
81.8
84.8
85.4
61.4
103.6
55.1
63.6
Rye
107
123
124
85
146
111
Dec.
93.0
94.7
84.8
59.2
128.0
63.9
74.1
Rice
762
671
863
550
344
763
Corn
2,391
2,583
2,830
2,940
3,663
3,290
Source: National Institute of Statistics
Beans
656
722
829
650
748
741
Lentils
112
120
107
98
128
121
Peas
74
85
107
88
125
63
Chilean manufacturing production has risen and fallen in accordance with the state of the economy.
Chickpeas
54
72
93
41
50
49
When apparent incomes were increased through rapid increases in money supply in the 1970-1973
Potatoes
6,838
8,358
7,334
6,236
10,120
7,379
16,551
13,907
12,016
9,659
10,453
16,167
period, sales were substantial. Since the advent of austerity measures designed to dampen consump-
Sugarbeets
Marigolds
282
203
199
135
104
178
tion as well as reduce the supply and velocity of money in the Chilean economy, manufacturing
Turnips
699
821
780
140
368
614
production has shown a drop-off. The table above illustrates the trends in of Chilean industry, and the
Source: National Institute of Statistics
trough in manufacturing activity encountered in August 1975 is indicated in the index of industrial activity
for most manufacturing sectors, where a low point is registered, followed by increasing production.
The impact of the past administration's policies can be seen in the 1973 agricultural production figures.
Manufacturing
Chile has a widely diversified manufacturing industry. Since most of Chile's industry was established
Foreign Investment
under the protection of high tariff barriers, it is generally considered not to be efficient on a world scale.
This relative inefficiency has been compounded by a tendency towards oligopoly in basic product
manufacturing. Gradual changes in the efficiency of Chilean industry are expected as a result of the
modernization being forced upon the manufacturing sector through the relaxation of tariffs. The table
following illustrates production levels of important manufacturing industries in Chile:
One of the chief elements of domestic policy of the previous administration was the nationalization of
foreign investment in Chile. Through the use of legal and extra-legal devices, including price controls and
administrative harrassment, Chile succeeded in nationalizing virtually the entire foreign investment
sector between 1970 and 1973.
FORD
GERALD
LIBRARY
13
12
The present administration has recognized the vital need for foreign investment, both to rebuild the
economy and to provide the tax revenues and foreign exchange for future progress. Its policy is one of
encouragement of foreign investment, although some properties nationalized under the previous ad-
International Monetary Reserves,
ministration in certain sectors, such as mining, will be retained under state control. Otherwise, virtually all
of the enterprises acquired by the state have been returned to private hands, including manufacturing
Balance of Payments and Foreign Debt
industries, fisheries and banks.
In recognition of the changed attitude towards foreign investment, foreign investors have begun to make
substantial new commitments in Chile. Current procedures call for investment contracts to be worked out
between the commission regulating foreign investment and the interested foreign parties. Tax conces-
International Monetary Reserves
sions, equity percentages and the entire range of investment conditions incidental to foreign investment
are negotiated between the commission and the foreign investors.
At the end of 1970, Chile had a net positive international reserve position amounting to US $342 million.
Between 1970 and 1973, as a result of economic policies of the government, net reserves shrank by over
Since the new administration assumed control in Chile, the emphasis on new foreign investment has
US $1 billion, to a negative figure of US $724 million. This figure continued to worsen throughout the
shown impressive results. As stated before, between October of 1974 and December of 1975 contracts
recession, into 1975, as is shown by the table below.
totalling US $285 million have been entered into between Chile and foreign investors. Of these, 38% are
in sectors other than mining. Approximately US $300 million in additional investments has been agreed
to in principle and awaits documentation, while another US $500 million, including significant investment
TABLE XI
in natural gas liquification, is under study. As the world and Chilean economies continue to improve,
INTERNATIONAL MONETARY RESERVES
even greater foreign investments are expected to make a greater and greater contribution to Chile's
(in millions of U.S. dollars)
future economic growth.
Apr. 30
1970
1971
1972
1973
1974
1975
1976
Central Bank Total
331.7
88.9
-261.9
-440.5
-564.6
-851.9
-637.7
ASSETS
434.0
213.9
151.8
258.4
263.9
195.0
393.7
Gold
45.7
47.1
51.5
58.1
60.7
54.8
55.9
SDR's
21.8
38.3
2.2
0.4
16.8
24.5
55.6
Chile and the Andean Bloc
IMF Gold Tranche
39.5
-
I
I
-
-
-
Foreign Correspondents
310.3
120.9
96.7
134.9
37.7
31.4
179.5
Reciprocal Credit
Agreement & other
16.7
7.6
1.4
65.0
148.7
84.3
102.7
LIABILITIES
102.3
125.0
413.7
698.9
828.5
1,046.9
1,031.4
Net Use of External Credit
102.2
104.6
243.1
427.8
509.1
835.7
828.5
Chile, along with Venezuela, Ecuador, Colombia, Peru and Bolivia, is a member of the Andean Bloc. This
Reciprocal Credit
bloc of countries was formed in order to promote common policies of member countries with respect to
Agreement (ALALC)
0.1
20.4
18.2
85.3
130.8
53.0
46.3
foreign investment, tariffs and internal trade.
External Debt
Refinancing
-
-
152.4
185.8
188.6
158.2
156.6
Some of the stated policies of the Andean Bloc are in direct conflict with present government policies.
Specifically, Chile wishes to lower tariff barriers to external goods while the Andean Bloc in general
Commercial Banks and
wants to preserve tariff barriers behind which to build local industry. The other signers of the Andean
Banco Del Estado Totals
10.5
-54.4
-180.7
-283.4
-302.8
-227.5
-266.9
Pact also intend to give preferential treatment in intraregional trade to companies owned or controlled by
Andean Bloc nationals. These policies are at variance with Chile's desire to force Chilean industry to
ASSETS
60.6
38.7
52.4
67.8
105.6
87.9
67.8
modernize through exposure to foreign competition, and to rebuild an industrial base in partnership with
Gold
4.2
4.1
4.2
4.3
5.7
5.7
5.7
foreign investors.
Foreign Correspondents
56.4
34.6
48.2
63.5
100.9
82.2
62.1
LIABILITIES
50.1
93.1
233.1
351.2
403.4
315.4
334.7
The other members of the Andean Bloc have so far shown some flexibility in this respect, postponing the
deadline for common tariff agreements to December 31, 1977, and agreeing to submit for restudy the
Due to Foreign Banks
46.5
87.5
228.8
337.7
405.6
311.5
330.9
question of preferential treatment for national investors.
Foreign Bank Deposits
3.6
5.6
4.3
13.5
2.8
3.9
3.8
Net International
Given the basic conflict between full adherence to Andean Bloc policies and the need to rebuild its
Monetary Reserves
342.2
34.5
-442.6
-723.9
-867.4
-1,079.4
-904.6
economy through greater exposure to and participation in the world economy, Chile may be expected to
adopt a cautious attitude in the future regarding Andean Bloc participation.
Source: Banco Central de Chile
GERATO FORD LIBRARY
14
15
Although the partial figures for 1976 show some signs of improvement, no dramatic improvement is
expected until Chile's balance of trade begins to turn favorable in 1977 and greater foreign investor
the prospects would, of course, be enhanced. This positive oulook must be predicated on continued
confidence speeds up flows of funds on capital account in Chile. The Central Bank has prepared a debt
fiscal and monetary restraint, good performance for non-copper exports and a positive response on the
service schedule for the years 1976-1981. Although this schedule must be regarded as highly tentative
part of foreign private investors.
and subject to frequent revision, it shows the net reserve position bottoming out in 1979. As a safeguard
during this period, in which Chile expects to meet all existing and future foreign obligations without
Foreign Debt
rescheduling, the government has recently negotiated with a group of private financial institutions, led by
The largest element of Chile's foreign debt is that outstanding to the so-called Paris Club. This informal
United States and Canadian commercial banks, standby facilities for balance of payments support that
group has acted on an ad hoc basis to present a united front to Chile with respect to debt renegotiation
total US $125 million.
and is principally influenced by European government lenders. Chile has not always enjoyed smooth
relations with this group, especially with regard to questions of a political nature, although it must be
assumed that relations will improve if Chile is able to adhere to the debt service schedule agreed to in
1975 without further requests for refinancing. This is Chile's firm intention, as reiterated on many
occasions by the government's spokesmen.
TABLE XII
PROJECTED EXTERNAL FINANCING 1976 1981
(in millions of U.S. dollars)
TABLE XIII
1976
1977
1978
1979
1980
1981
LONG AND MEDIUM-TERM EXTERNAL DEBT
Gross Financing Need
at December 31
Balance of Trade
(44)
101
108
43
312
543
(in millions of U.S. dollars)
Debt Service
(762)
(772)
(795)
(771)
(794)
(850)
1970
1971
1972
1973
1974
1975*
Profit Remittances
(43)
(39)
(58)
(77)
(96)
(115)
Total
(849)
(710)
(745)
(805)
(578)
(422)
International
Organizations
308.0
342.0
336.4
354.0
386.6
386.3
Sources of Financing
Paris Club
2,067.0
2,060.5
2,298.2
2,507.2
3,091.5
3,195.0
Foreign Investment
80
91
130
146
162
177
Latin American
Public and Private
Nations
21.0
18.4
65.5
94.9
266.1
377.0
Sector Loans
537
454
522
625
701
807
Socialist Countries
14.0
6.6
65.5
103.7
148.3
137.0
Net Reserve Variance
(232)
(165)
(93)
(34)
285
562
IMF
41.0
39.5
128.7
143.0
195.1
372.0
Total
2,451.0
2,467.0
2,894.3
3,202.8
4,087.6
4,467.3
Source: National Planning Office
Annual Service
Principal
194.0
252.0
106.0
126.0
194.0
307.0
Interest
96.0
79.0
51.0
51.0
103.0
164.0
The key elements that will influence the meeting of the above schedule are the world copper price and
Total
290.0
331.0
157.0
177.0
297.0
471.0
the success of the non-traditional export program.
Debt Service as a % of
In making the above projections, the Chilean Government has assumed that non-mineral sector exports
Exports
25.9%
33.2%
18.5%
13.1%
14.5%
30.1%
will increase slightly in 1976 over 1975 levels, then increase by 25% in 1977 and 15% per annum from
1976
1977
1978
1979
1978 on.
1980
1981
Projected Debt Service
The government, in arriving at the above figures, also estimates that copper prices will rise from current
as a % of Exports
41.7%
33.2%
30.7%
27.4%
23.9%
22.1%
levels at a rate of 6% per year due to worldwide inflation and a further 6% per year due to increases in
world demand. The estimates of the f.o.b. Chile copper price per pound work out to:
Preliminary figures
Source: National Planning Office
1976
US $0.600
1978
US $0.758
1980
US $0.955
1977
US $0.674
1979
US $0.852
1981
US $1.074
Much of the foreign debt shown above was incurred by Chile as a result of nationalization of foreign
Beyond 1976, should copper prices rise and expansion of non-copper exports continue, gross domestic
investment during the 1970-1973 era. At the end of 1974, the total foreign debt arising from recognition of
product should grow by 5% in 1977, without loss of reserves, and at a somewhat higher rate, of the order
nationalization amounted to approximately US $500 million. The percentage of exports which Chile
of 6-7% per annum through the rest of the decade, while enjoying a balance of payments surplus and the
expects to have to devote to foreign debt service in the future is high by world standards. On the other
gradual replenishment of international reserves. Should new projected oil drilling, soon to get underway
hand, there are few instances of other countries with such high ratios that have shown the willingness to
in the Straits of Magellan, meet substantial success or copper prices rebound earlier or more strongly,
follow the austere policies Chile has implemented in order to reestablish its position in the world financial
community.
FORD
GERALD
LIBRARY
16
17
Chilean banks may engage in a wide range of banking activities under the supervision of the Central
Bank. In exercising its supervisory functions, the Central Bank fixes reserve requirements guidelines and
The Banking Sector
regulations. Since 1974 the commercial banks have been complemented by finance companies, the
largest of which in mid-1976 had a capital of only US $1.5 million.
Current Credit Conditions
Chilean credit conditions in general reflect the inflationary expectations of the economy. Rates are high
General
for both loans and deposits, while terms for both are very short. In June 1976, deposit rates were from
During the prior administration, the government nationalized virtually the entire banking sector of Chile.
12-14% per month for a maximum term of 45 days, while lending rates to prime customers were in a
For all practical purposes, this bank equity has been returned to the private sector by sale or other
range from 14-17% per month. The table below illustrates average monthly rates paid by credit institu-
transfer. The sole government-owned bank at present is the Banco del Estado, whose assets make up
tions for certificates of deposit of short term, usually 30 days.
about 45% of the total assets of Chile's commercial banking sector.
TABLE XV
In general, the shareholdings in the private banks are widely distributed, due to a proviso in the resale to
MONTHLY RATES OF INTEREST
private hands of bank shares that limited purchases by individuals and corporations to 1.5% and 3%,
respectively, of outstanding shares. Although individuals may pool their equity holdings in order to effect
BANKS
FINANCE COMPANIES
control of a private bank, the shares are considerably less concentrated in the hands of individuals or
Deposits
Loans
Deposits
Loans
corporations than they were prior to the nationalization and subsequent resale.
1975
Jan.
9.3%
9.6%
11.1%
13.9%
The Table below shows the structure of the Chilean commercial banking system at April 30, 1976.
Feb
10.4
9.6
11.8
14.1
Mar
11.5
9.6
13.3
15.0
Apr
12.6
9.6
17.1
20.0
TABLE XIV
May
14.5
19.0
18.4
22.0
June
15.8
21.0
18.1
23.7
CHILEAN COMMERCIAL BANKING SYSTEM
July
15.2
21.2
18.4
22.8
April 30, 1976
Aug
13.0
19.1
14.0
18.4
(in thousands of U.S. dollars)
Sept
9.5
18.3
12.1
17.8
Net Earnings (1)
Oct
8.0
12.0
10.3
12.0
Total Assets
(Year to 12/31/75)
Nov
8.0
Bank
Equity
12.0
9.0
12.0
Dec
10.0
14.5
11.1
15.5
Banco del Estado
131,892
1,066,221
3,248
Banco de Chile
58,494
375,521
5,628
1976
Jan
10.1
14.6
11.5
15.4
Banco Osorno
21,019
126,794
1,000
Feb
10.2
14.5
11.2
14.5
Banco de Crédito e Inversiones
20,606
138,047
1,324
Mar
10.0
14.6
10.8
15.2
Banco Español Chile
13,338
75,666
1,827
Apr
10.4
14.8
11.6
14.9
Banco de Concepción
13,037
134,030
1,124
Banco Sudamericano
11,978
134,819
1,907
Source: Central Bank of Chile
Banco O'Higgins
11,930
132,620
1,763
Banco Nacional de Trabajo
11,686
105,525
1,150
Banco Comercial de Curico
6,579
50,141
566
Banco Talca
6,496
89,619
683
Banco Continental
5,789
32,611
619
Banco Israelita
4,190
28,512
124
Banks and finance companies are free to set rates at will, and rate changes are made on a daily basis.
First National City Bank
3,310
15,663
-
In view of the high internal rates of interest and the declining inflation rates, many bank clients have
Banco do Brasil
2,538
19,690
-
Banco Regional de Linares
374
1,054
def.
turned to foreign credits as a means of reducing true interest costs. Chilean domestic banks, which may
Banco de Constitución
183
549
def.
hold dollar and other hard currency deposits themselves and may also denominate loans in dollars, are
Banco Chileno Yugoeslavo
87
1,871
10
permitted by current Central Bank regulations to issue guarantees in an amount equalling their capital,
Total
323,526
2,528,953
20,973
reserves, and retained earnings. Many banks are now engaged in issuing guarantees for foreign obliga-
tions of Chilean companies contracted directly with foreign banks. Recently, these loans have been less
(1) Using year-end exchange rate pesos 8.5 = US $1.00.
expensive to the Chilean borrower and of longer term than the 45 days now granted by Chilean banks on
Source: Banco de Chile
internal credits.
FORD
GERALD
LIBRARY
18
19
Summary
Foreign Banks
Since the return of the Chilean banks to the private sector, two foreign banks have opened branches in
Chile. The first of these, which had been present in Chile for decades prior to nationalization, was
Political Situation
Citicorp of New York. It reopened a branch in Santiago in December 1975. Citicorp was followed, in
Chile, under firm military control, is unlikely to experience political divisiveness of the type which charac-
February 1976, by the Banco do Brasil. Current dispositions of Chilean law permit the establishment of
terized the 1970-1973 period. The Chilean military may be expected to relinquish more and more of its
foreign banks, as branches or subsidiaries, in Chile, provided government approval is granted. In
functions by appointing civilians to government posts as a precursor to eventual elections. At present,
addition to the two foreign banks operating in Chile, the following other foreign institutions have accre-
most of the planning and ministerial functions dealing with the economy are carried out by civilians. In
dited representatives in Chile:
June 1976, the President named an 18-man advisory body, reporting directly to him, which will advise on
matters of state policy. It is significant that this board is composed almost entirely of civilians, among
Inter-American Development Bank
Deutsche-Sudamericanische Bank AG
whom are many of the leaders of Chile's former political parties.
Bank of America
Dresdner Bank AG
As Chile's austerity programs produce the desired results and as the economy continues to cycle
European-American Banking Corp.
Ibero Amerika Bank AG
upwards from the deep recession of the past, the standard of living of the population should generally
European-American Bank and Trust Co.
Banco Francés e Italiano para la América del Sur
increase. This will bring not only increased economic benefits but also a more relaxed political atmos-
Banco de la Nación Argentina
Banco de Santander
phere. Long-needed tax reforms have been implemented and should have the effect of more widespread
Banco de Crédito Rural Argentina
Banco Popular Español
income distribution as production increases and Chile's tax base widens.
Deutsche Bank AG
Lloyds International Bank
Domestic Economy
Source: Central Bank of Chile
Economic indicators seem to point to a bottoming out of Chile's deep recession at about August of 1975.
Unemployment levels of around 15% may be expected to improve in step with an improving world and
Foreign bank credits are expected to play an important role in Chile's progress over the next five years.
Chilean economy. Domestic agriculture and industry will continue to encounter some difficulties in the
At present foreign banks make lines of credit available to Chilean banks for the financing of international
unfamiliar experience of being subjected to a progressively greater number of efficient foreign com-
trade, usually for 180 days. Other foreign bank loans are made at present on the basis of Chilean bank
petitors. From this competition, however, Chile's domestic economy should emerge in far stronger
fundamental condition than that created during the 1970-1973 period when counter-productive govern-
guarantees at terms of 6 to 18 months. Most bankers expect that the terms of foreign bank loans will
ment policies brought both industry and agriculture to the point of collapse.
become progressively more favorable as Chile's economic progress becomes more evident. Greater
foreign competition will result in increased terms, lower margins, and in some cases the elimination of the
Continued success may be expected in the fight to control inflation. However, the Chilean entrepreneur,
need for a bank guarantee. Several foreign banks are at present weighing the opening of representative
consumer, and wage earner are long accustomed to double-digit inflation and these expectations may
make it difficult to achieve a low level of inflation by world standards.
offices in Chile as demand for foreign credits from credit-worthy borrowers begins to approach the pre
1970-1973 levels.
Growth levels in real terms on the order of 5-7% per year seem feasible, spurred by the utilization of idle
capacity through greater foreign and domestic demand as the economy accelerates from its recent
recession.
External Payments
Chile's remarkable record of the past two years of structuring its system to encourage non-traditional
exports augurs well for a continued increase in exports of non-copper products.
Copper products from Chile may be expected to produce substantially more revenue as the world
economy continues to improve or if deliveries from other areas, especially Africa, become more uncer-
tain. In view of the potential instability of African sources of copper, a greater awareness of the strategic
value and indispensability of Chilean copper may be expected. This awareness, coupled with Chile's
natural advantages in terms of richness of ore veins and ready access to ocean transport, would indicate
a favorable future for her copper and other mineral production. During the critical period for Chile's
international payments situation, however, constant monitoring of copper prices will be required in order
to assess the country's progress towards its international payments goals.
Another key factor in Chile's recovery will be the continued cooperation of international public and
private financing institutions. This cooperation will be indispensible in the next several years. The recent
credits totalling over US $125 million offered by the group of Canadian and American banks would seem
to indicate that future support will continue to be forthcoming provided Chile continues, as expected, to
observe sound principles of economic management in coping with its economic problems.
FORD
GERALD
LIBRARY
Printed U.S.A.
20
THE DELTEC BANKING CORPORATION LIMITED
Deltec House
Cumberland & Marlborough Streets
P.O. Box N-3229
Nassau, Bahamas
@
MUIR & STOLPER
1100 CONNECTICUT AVENUE. N.W.
TELEPHONE
WASHINGTON, D.C. 20036
(202) 293-1414
CABLE ADDRESS
"MUIRLAW"
October 8, 1976
Hon. Richard D. Erb
Deputy Assistant Secretary for
Developing Nations Finance
Department of the Treasury
Washington, D. C. 20020
Dear Mr. Erb:
Enclosed for your information is a summary that I have prepared
of a recent decision of the Argentine Supreme Court on one aspect of
the Deltec problem. I have in the process of translation the complete
text of the opinion, a copy of which I shall forward to you shortly.
This decision is considered by our friends in Argentina to be
more important for what the Court said than for what it actually de-
cided. By leaving no doubt regarding the Court's judgment as to the
impropriety of earlier proceedings, it should facilitate politically
the task of the economic team in working out a fair settlement for
the assets of which Deltec has been deprived.
Regarding this latter aspect, there is also enclosed a brief
report of Mr. Holmberg, Deltec's (exiled) Argentine Vice President,
who has just returned from a prolonged visit to Montevideo.
Sincerely yours,
max a
Max A. Stolper
Enclosures
CC:
Hon. Hewson A. Ryan
Deputy Assistant Secretary of
Inter-American Affairs, State Dept.
FORD LIBRARY is CERALD
Hon. Richard G. Darman
Assistant Secretary for Policy
Department of Commerce
Hon. Edward C. Schmultz
Associate Counsel to the President
The White House
MEMORANDUM
Cia. Swift de La Plata S. A. F.
Decision of Argentine Supreme Court
September 21, 1976
On September 21, 1976, the Supreme Court of Argentina handed down
a decision which signals a pronounced departure from the trend of the last
six years in the treatment meted out to the Deltec interests by that country's
judicial system in the litigation arising out of the insolvency of Cia. Swift
de La Plata S. A. F. ("CSLP").
Procedurally, the Court has pending before it two distinct matters:
1. Appeal by Ingenio La Esperanza S. A. ("ILE", the Deltec-controlled
sugar company) from the affirmance by the Court of Appeals of the
declaration by the CSLP bankruptcy court on September 6, 1973, of
the bankruptcy of ILE, following the Supreme Court's previous decision
of September 4, 1973 (the "First Decision").
2. Petition by ILE and Deltec Argentina S. A. ("DASA", Deltec's Argentine
intermediate holding company and ILE's immediate parent) that the
Court annul the First Decision on jurisdictional grounds.
The Court chose to address itself to and resolve the first of these matters,
and therefore considered it unnecessary to deal with the second "in this case".
In the First Decision, the Court had held, among other things: "I. That
the dispossession of (CSLP) from its property must extend to the property
of the companies constituting the so-called Deltec Group and, in particular,
Deltec International Limited and (DASA)... II. That in an appropriate proceeding
there shall be ascertained which other persons or companies in fact belong
to this group to the extent of amounting to an economic unity with the insolvent
enterprise." Conducting no further proceedings of any kind, the bankruptcy
court implemented the First Decision two days later by decreeing the bankruptcy
of 13 companies, including Deltec International Limited and DASA, but also
FORD i LIBRARY GERALD
including ILE. Substantially all affected companies filed appeals, but only
ILE's appeal was ripe for decision by the Supreme Court at this time.
Page 2
Because the procedural context permitted the Court to focus exclusively
on the case of ILE, a company not specifically mentioned in clause I of the
First Decision, the Court was able to limit itself to examining the question
of whether the lower courts had correctly applied its mandate in clause II.
Reversing the judgement of the courts below, the Supreme Court pointed
out that clause II of the First Decision contained three elements: (1) it called
for an appropriate proceeding; (2) it required that in such proceeding a company
be shown by competent evidence to belong to the Deltec Group; and (3) it
required a similar evidentiary showing that a company, belonging to the Deltec
Group, did so to the extent of amounting to an economic unity with the insolvent
enterprise.
On the first element, the Court came to the obvious conclusion that
no proceeding could not be an appropriate proceeding. Here the Court took
the opportunity to remind the lower courts of the elements of procedural due
process: the necessity of notice to and hearing of the adverse party, of the
presentation of competent evidence and opportunity for the adverse party
to controvert such evidence. Among other things, the Court noted that the
National Meat Board and Office of Tax Frauds staff memoranda, which the
bankruptcy judge had placed in the record and cited in his decree, were not
competent evidence.
On the substantive issue involved in the third element of the First Decision's
clause II, the Court held that an affiliated company could not be saddled with
responsibility for the debts of CSLP unless there were made, on the basis of
competent evidence, findings fact as to whether the company had acted
in its own interest or in those of CSLP or Deltec; whether it had disposed of
assets in fraud of creditors; and whether the conduct of its business had any
direct or indirect impact on CSLP's insolvency. The Court declared flatly
that improper conduct may not be presumed merely on the basis of the affiliation
itself.
FORD & GERALD LIBRARY
Page 3
The Court thus remanded the ILE case to the Court of Appeals for further
proceedings consistent with its opinion. There can be no doubt that the only
possible outcome of these further proceedings, which may be expected in short
order, is the removal of ILE from the CSLP bankruptcy proceedings.
It should be noted, however, that Deltec is not yet by any means free
to dispose of the shares of ILE. These shares are the property of DASA, and
DASA still stands "dispossessed" of its property as a result of the First Decision's
clause I.
Since DASA had not, any more than ILE, been accorded due process
of law in the earlier proceedings, it is the expectation of Argentine counsel
that the Court's decision will be helpful in eventually establishing the complete
separation of the DASA group of companies from the insolvency of CSLP.
However, further litigation will be required to attain that end.
M.A.S.
FORD i LIBRARY GERALD
I. Report on Progress of CSLP Assets Sale
a) IBRI and PROVITA Finally after about 30 days' delay, the Receiver
presented his program for the consideration of the other parties involved.
The program differs from the one we considered the best but is acceptable.
Judge Dassen should have the program for final approval on Friday,
October 8. Upset prices are the same proposed by U.T.N. ($2,500,000)
and are in line with our appraisal ($2,000,000).
b) Sausage Factory The program should be ready by Friday, October 8;
once approved by us it will be submitted to Judge Dassen.
c) Formosa Ranch CSLP has requested a new appraisal from two
realtors in order to put up the ranch for sale within 30 days.
It is estimated that programs a), b), and c) will be completed by December 15.
d) Rosario and La Plata meat-packing plants, trademarks and domestic
distribution. Judge Dassen has ordered the CSLP administrator to
file the program by October 20, 1976.
Our recommendation with respect to the sale of the assets mentioned in point
d) is that the Rosario and La Plata plants, trademarks and the domestic distribution
should be sold as a single group; however, well reasoned redommendations
are being presented in Buenos Aires that the beef operation should be split
in groups as follows: 1) La Plata plant, 2) Rosario plant, 3) domestic distribution,
and 4) trademarks.
In our opinion the CSLP administration is making a remarkable effort
to speed up the sale of CSLP assets but is facing some bureaucratic obstacles
arising out of the intercrossing of assets, property titles, etc., between CSLP
and subsidiaries (IBRI, Provita and Ganados).
For the ten months ended July 31, 1976, CSLP has shown a net profit
GERALD FORD LIBRARY
of Arg$2,488,000,000 ($10,000,000). The working capital is theoretically $9,752,000,
but because of the large beef extract stock still unsold CSLP is facing a tight
Page 2
financial situation. According to the administrator the extract inventory amounts
to approximately $8,000,000. While potential buyers are offering $3.00/pound
F.O.B. Baires, the National Meat Board is thus far-not willing to allow the
sale at less than $4.70/pound.
II. La Esperanza S.A. At our request, Judge Dassen has dismissed the company's
manager appointed by former Judge Nievas and replaced him with Alfredo
Stewart, financial manager of La Esperanza under our administration. For
the four months ended July 31, 1976, the company showed a profit of Arg$336,700,000
($1,340,000), or 17.3% on sales.
The financial position is fairly good; for the first time in three years
the company has "excess liquidity" invested in bonds totalling Arg$611,400,000
($2,400,000). For more details, reference is made to the attached report on
La Esperanza dated September 20, 1976.
III. The Criminal Proceeding
The Examining Magistrate last month issued a decision definitively
absolving from any criminal charges all but two of the local directors and
officers of CSLP and "provisionally absolving" the other two. This decision
is being appealed by the complainants' attorney (recently indicted for forgery)
and by the public prosecutor. The recent Supreme Court decision, reminding
the judiciary of the importance of evidence in both civil and criminal proceedings,
should be helpful in the decision of this appeal.
LIBRARY GERALD GERALD R. FORD