STRICTLY CONFIDENTIAL
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, n.c. Thursday, December 22,
Public Disclosure Authorized 1966 A meeting of the Executive Directors of the Inter national Bank for Reconstruction and Development was convened
in the Board Room, 1818 H Street, N.w., at 10:30 o'clock,
a.m., Mr. George D. woods, President, presiding. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized STRICTLY CONFIDENTIAL 2
C O N T E N T S
page
Proposed Loan - Fifth Power Project to Chile 3 STRICTLY CONFIDENTIAL 3
P R O C E E D I N G S
MR. WOODS: Good morning, gentlemen.
Today we have Bank and IDA meetings, and as your
agenda reflects, they'll be followed by an IFC meeting.
we start as the B2nk, and the first item on the agenda
is the proposed loan to Chile. The documents involved are
R66-163 and R66-163-1. The proposal is to loan $60 million t
ENDESA AND CORFO as joint borrowers. If approved, this trans
action will represent the fifth loan for purposes of power
to ENDESA and CORFO. It will be the largest. In feet, the
aggregate of the four preceding loans is $65.4 million.
This proposed loan will help to finance the foreign
exchange cost of a large hydroelectric power plant and
related works and transmission and distribution facilities,
as well as certain consultant services.
Mr. Reitter of the western Hemisphere Department
will discuss the Bank operations in Chile in general.
Mr . Dosik, also of the western Hemisphere Department, will
speak on the economy of the country. And they'll be ~ollowed
by Mr. Sear of our Projects Department, who will discuss the
technical aspects.
Mr. Reitter.
MRo REITTER: Mr. Chairman, Members of the Boap I am plea sed to speak briefly on the proposal befor you to extend a loan of $60 million to Chile to assist in t he STRICTLY CONFIDENTIAL 4 financing of ENDESA's future power expansion program. The borrowers, ENDESA and CORFO, were the recipients of the Bank's first development loan in 1948 for ENDESA's first najor expansion program and they are, in that sense, I believe the Bank's oldest clients. The proposed loan, as has been stated before, would be the fifth loan to ENDESA and CORFO. Includi the proposed loan, the Bank will have lent slightly over $125 million for ENDESA's successive expansion programs which, when completed, will have provided about 950,000 kilowatts of generating capacity and have extended ENDESA's interconnected transmission system to serve practically all main industrial and commercial centers of the country. As a rough measure of the contribution that the Bank has made, I would just like to mention that ENDESA's installed capacity in 1948, when we made the first loan, was barely 60,000 kilowatts. This achievement is equally, I believe, a reflection of the progress and performance of ENDESA, as well as of the country's development effort in general over the past eighteen years. The Bank's relations with ENDESA have always been good, but I should like to say, however, that this tradition ally good relationship has become even closer in the course of the preparation of the proposed loan, particularly during the present year. I should just like to mention that practically all major problems or issues which had been of concern to the Bank in the past were solved or settled during, 5 STRICTLY CONFIDENTIAL or even before, the appraisal of the project was undertaken and consequently the negotiations were completed in a very brief and short time. we also believe that this good relation ship augurs well for the execution of this very large project in the future. The proposed loan would be the largest single loan the Bank has made in Chile, and it comes after a time during which no significant Bank lending took place. Three years ago, almost to the day, the Bank extended two loans totalling $25 million for livestock development and meat and milk processing facilities, and the only other loans made since then were the last loan to ENDESA of $4.4 million and $2.75 million for vocational training in Chile, and both of them were made in 1965. At the time these last loans were made, the economic outlook of the country was still unclear, and ENDESA's financial situation and its earnings situation made the prospects of new loans rather uncertain. During these last two years, however, the basis was laid which would now permit the resumption of lending to Chile on the proposed scale. 2In the first place, the significant improvement in Chile's economic situation and future outlook, about which Mr. Dosik will speak in more detail, and, at the same time, a marked improvement in ENDESA's financial situation and in its earnings. The proposed loan would be the fourteenth loan to 6 STRICTLY CONFIDENTIAL Chile, apart from one IDA credit, and with the present loan, the Bank and IDA will have lent over $220 million to Chile. As the President's Report indicates, and as you have been informed on previous occasions, many of the loa~s that we have made to Chile have experienced difficulties or delays, for various reasons. However, we can say at the pr$sent time that in almost all cases, the progress and performance under these loans have improved significantly, and I believe that there ar reasonably good prospects that no major difficulties with all of our existing operations will recur. I would just like to add that in connection with the Livestock Project that the mission which reviewed the progress made and assessed the prospect• for its completion has returned from Chi·le, and the general conclusions are favorable. In concluding I should like to say that apart from the proposed loan, there are no other loans under considera tl.on .at the present time due to the lack of suitable projects. For some time the Bank has impressed upon the Government the necessity of intensifying its efforts in the field of project preparation. Some progress has been made, but a much greater effort will be required in the future. The Bank has already extended technical assistance for highway studies which we expect would seive as a basis for future projects in that sector. Likewise we are exploring now with the Government the possibility or assisting Chile in the preparation of t STRICTLY CONFIDENTIAL 7 projects in agriculture, principally in irrigation. In addition, UNESCO will help us early next year to identify possible projects in the educational field. With this assistance we hope there will be a basis to extend new loans to Chile in the future. Thank you, Mr. Chairman. MR. WOODS: Thank you, Mr. Reitter. Mr. Dosik on the general economy. MR. DOSIK: Mr. Chairman, gentlemen of the Board: The Economic Report on Chile that you have received concludes that the country's economic performance has improved considerably since the Frei Government took office late in 1964. It also concludes that there are promising prospects for further progress toward raising the rate of economic growth and toward greater internal financial stability. However, the report also points to certain pressing problems, particularly the need for greater restraint on Government spending, for tighter incomes policy, for improvements in the q.1.ality of the public investment program, and for continued restraint by Chile in the use of short- and medium-term suppliers credit. This Economic Report was completed several months ago, but the economic outlook today remains very much the same judging from information gathered during the course of the annual International Monetary Fund consultations which were just completed last week. STRICTLY CONFIDENTIAL 8 In reaching our conclusion that Chile is credit- worthy for this loan to ENDESA, and for substantial additional amounts of foreign borrowing, the Economic Mission was much impressed by the favorable prospects for the country's exports. Of course, Gh4:-±e, in the case of Chile, exports and copper are , virtually synonymous. The very sharp rise in world copper prices since 1964 has greatly strengthened the Chilean balance of payments, and while the copper price is now somewhat beneath the very high levels reached early this year, the Chilean foreigp exchange situation should continue to be quite strong next year, so long as copper prices do not fall very harply; and I think it is reasonable to assume that no very marp fall will occur next year, given the prevailing conditions in the world copper market. For the longer ·run, a very substantial increase in Chilean exports now seems virtually assured as a result of the Government's success earlier this year in finally obtaining legislative approval of the copper agreements for expanding production that had been reached, after the Government took office, with three major companies. By now decrees implementin two of the copper agreements have already been issued in Santiago and the third one is expected shortly. Under these copper agreements, nearly $500 million will be invested over the next five years to expand productive capacity by about 60%, In addition, a good part of the large copper mining STRICTLY CONFIDENTIAL 9 industry in the country will be "Chileanized" through the formation of mixed companies which will own and operate one of the largest of the existing mines, as well as two new mines which are to be opened under the investment program. By 1971 when this copper investment program should be completed, Chile should be capable of exporting annually some $700 million worth of copper on reasonable assumptions about what the copper price may be at that time. Since the passage of the copper bills, the Chilean Government's principal legislative preoccupation has been with the agrarian reform program that it presented to its Congress about a year ago. The agrarian reform bill has run into very stiff political opposition in the Chilean Congress, but the Government now hopes for passage by March or April next year. In the domestic economy generally, the Government's principal economic objectives are to increase the rate of \ ' ~'" I " .• • economic growth, to halt inflation, and to1(redistribution incomes in favor of the lower paid industrial and agricultural workers, and actually good progress has been made in each of these three areas in the past two years. While economic growth in Chile h~storically has not averaged more than 4% /I I . · , . . < a year, Gross/Product rose about 5% in 1965, and a 6% increase ,. is expected this year. Of course the copper boom has con tributed importantly to the rise in the rate of. economic growth STRICTLY CONFIDENTIAL 10 but the public investment program and the redistribution of income have also been powerful stimulants to the Chilean ~onomy in recent years. The redistribution of income is essential to President Frei's plan for achieving what he calls a 11 revolution in liberty': in Chile. The Government has pursued this redistribution of incomes by aggressively implementing a tax reform program, by expanding health, housing, education, and other social services, as well as by direct action to push up the wages of the people •t the bottom of the income scale. As regards stabilization, the Government's strategy has been to make a gradual attack on the inflation which has been such a notorious feature of the Chilean economy for so long. The stabilization program got off to a good start in 1965, when the rate of increase in the cost of living was lowered to 26% from 38% in 1964. This year there should be a further reduction in the rate of increase in prices to about 2()%. However, the Government had hoped to put an even sharper brake on inflation in 1966, and its failure to do so clearly reflects the need for readjustment in its spending policies and in its income policies in support of the fight against inflation. The 1967 budget proposals which the Government has so far put before the Congress do indicate that it is moving in the right direction. The budgeted increase in current expenditure next year, although it will be considerabl, STRICTLY CONFIDENTIAL 11 is much less than it was in the past two years, thanks in part to abandonment of a policy of 100% readju2tment of wages to the previous year's cost of living increase. Capital spending is also scheduled to rise less sharply next year and relatively more is to be invested in the productive sectors, that is industry and agriculture, and relatively less is to be spent on ~ocial infrastructure. On the revenue side, further improvements in administration, coupled with some increases in tax rates, can be expected to give another substantial increase in Government income, although the increase won't be as large as in the past two years when Chile was gathering the first fruits of one of the most successful tax reform programs in Latin America. As the 1967 budget now stands, it calls for an increase of nearly 25% in the current account surplus of the Government, which means that public savings could finance more than three-quarters of public investment, compared with only about 65% in 1964, when public investment was very much lower than it is now. However, there is a need for the Government to find additional savings in next year's budget if it is to avoid undue recourse to inflationary domestic borrowing. The Government realizes this and is seeking to make the necessary economies now. However, a program of belt-tightening, of restrainin spending and restraining incomes is no more politically popular STRICTLY CONFIDENTIAL 12 in Chile than it is anywhere else in the world. It is also particularly difficult policy for the Frei Government to pursue because it does not have a majority in both houses of the Congress, and it faces a political opposition which is strong, persistent, and well organized and which also controls many of the principal labor unions in the country. Last night President Frei went on radio and televisi n in Chile, and gave what, according to information we received this morning, tells us was a major economic address. He had two principal points the first point was that with copper prices still so very favorable, Chile should be able to dis pense next year with special foreign assistance, in particular with program assistance for budgetary support from the U.S. Government, and with stand-by credit for balance-of-payment support from the International Monetary Fund. The second point the President made was that it would only be possible, however, for Chile to take advantage of the present favorable situation and stand upon its own feet in this sense next year if there is adequate attention to the necessary wage restraint~ on the part of the unions and the country in general. Of course President Frei also made a point that in dispensing next year with such special foreign assistance as the U.S. and IMF provide for the budget and balance of payments, he id not mean that he would not require regular development nancing, such as we are proposing to provide through this loan STRICTLY CONFIDENTIAL 13 to ENDESA. MR. WOODS: Thank you, Mr. Dosik. Mr. Sear of the Projects Department. MR. SEAR: Mr. Chairman, Members of the Board: The two major entities which have been serving the power sector in Chile are ENDESA with a plant capacity of 547 megawatts and Cia Chilena de Electricidad, a subsidiary of American and Foreign Power Company with a plant capacity of 317 megawatts. The Government signed an agreement in 1965 to acquire the company and, although it has not yet completed the purchase, it has indicated that it intends that ENDESA shall be responsible for all future power generation. The other power entities are to purchase their future power needs from ENDESA and will serve as distributors only. The proposed loan would enable ENDESA to undertake its Fifth Power Program, of which the Project proposed for Bank financing would form the major part. This phase of expansion would enable ENDESA to meet forecast power demand through the 1972-1974 period. The Power Project proposed by ENDESA consists essentially of the construction of the 400 megawatt El Toro hydro plant and a trunk transmission system which would form a backbone for bulk power transmission from the generating plants in the southern part of the country to the principal load center to the north in the Santiago area. Other plant 14 STRICTLY CONFIDENTIAL additions are now being completed or planned for construction. These new plants would by 1972 add a total of 875 megawatts to ENDESA's existing system of 547 megawatts. Thus this phase of power expansion would make ENDESA the sole future sou ce of electric power for public service and would further advance the formation of a large integrated power system supplying the whole country. The pro~ect has been carefully studied with the help of a number of consultants and exhaustive studies have been made of the various aiternative possibilities to meet the forecast demand. The proposed project is technically and economically the best of these alternatives. ENDESA proposes to continue using consultants during the construction stage of the project to assist it in using the most appropriate construction equipment and procedures to ensure the expeditious and efficient performance of the construction work. The plan for financing the Project is satisfactory and ENDESA is expected to provide an adequate proportion of the cost from its own resources. As in the past, CORFO, which holds 97% of ENDESA's shares, will contribute, · as required, to make up any shortfalls in ENDESA's construction funds. It should be pointed out that during the past two years, ENDESA has achieved a remarkable improvement in its earnings, in spite of the inflationary cost increases which STRICTLY CONFIDENTIAL 15 have occurred. Its present level of earnings is satisfactory and is expected to improve further during the next two years. This has resulted in part from improved internal management procedures, but principally from a better understanding with the Tariff Commission which now grants the necessary tariff increases more promptly and fully. It can therefore be said in conclusion that the proposed Loan would make a major contribution to power develop ment in Chile and would be essential to enable ENDESA to meet its future greatly increased responsibilities in the Power Sector. The proposed Project can therefore be recommended as being suitable for Bank financing. Thank you, Mr. Chairman. MR. WOODS: Thank you, Mr. Sear. Dr. Machado. DR. MACHADO: Mr. Chairman, you're recommending to us this morning that we approve a loan of $60 million to ENDESA with the guarantee of the Government of Chile. For the benefit of those of my colleagues who are on their first term of duty on the Board, I'd like to speak for a minute on the proposed borrower. ENDESA is the oldest client of the Bank. The loan that we made in 1946 of $13 million to ENDESA with the Government of Chile's guarantee was the first loan made by this Bank not only in Latin America, but to an undeveloped country for purposes of development. If you look at a list of STRICTLY CONFIDENTIAL 16 our loans you will find that this loan is No. 5. In other words, after the four loans that we made for reconstruction purposes in Europe, this is the first operation made by the Bank for truly developmental purposes. ENDESA has not only paid promptly all of its commitments to the Bank, it has followed the recommendations and advice of the Bank, and the consultants; and after many years of struggle, it is now in a position where in the future it will have the sole responsibility for electric generation in Chile, a most important item for the progress and the development of this country. I'd like to speak for a minute on the guarantor, Chile. If we have to find one single undeveloped country that has been afflicted with all of the maladies of economic development, I think Chile would be a good competitor for firs place. Right after the first World War, Chile saw its prosperity built on copper completely vanish, and the Germans during the First world war had invented how to obtain nitrogen from the air for synthetic purposes, and they sold fertilizer and the natural fertilizer business disappeared, so right after the first World War, Chile, after an era of apparent prosperity, was flat on its back. The Chileans were faced with the problem of developing their own resources and they, instead of crying over their lost prosperity, sat down to work and they started diversifying the economy as well as they could STRICTLY CONFIDENTIAL 17 This country has had all of the sickness and maladie, as I said, of development. They've been afflicted with inflation, with having to depend on single commodities for the earning of their exports, but the marvellous thing is the way in which this country has responded and come back by the hard I ( / ( work of its ..epe,ple-. Today I think after many years of hard work and a more diversified economy, a~ter facing the problems of earthquakes and floods and political disturbances and everything else, Chile is really on a more rosy horizon for the future and I think the arrangements for intensi?icatiQR of copper production, the arrangements to make private capital attractive in the mining business is an assurance that this country will eventually be able to come to the top as it deserv s. So here we have a good project needed for the develop ment of a country, a good borrower, the first this Bank ever had, which has always paid its obligations promptly, and a good guarantor. I think by all means we ought to support your recommendation, and I am very happy to praise the project that we have before us. MR. WOODS: Thank you, Dr. Machado. I'm delighted to see and hear that you've fully recovered your health. Thank you very much. Any other comments or questions with respect to this matter? Mr. Merchant. 18 STRICTLY CONFIDENTIAL MR. MERCHANT: May I ask just one question, Mr. Chairman, for information. There was reference in the presen tation to an estimated figure of $700 million receipts from th export of copper, based, I think it was said, on a reasonable estimate of what the price of copper would be at such future time. I wonder what figure was used in arriving at that estimate? MR. WOODS: Mr. Dosik. MR. DOSIK: Our idea of reasonableness in this context was specifically 35 cents a pound. Most people whom we've talked to in the Bank and outside the Bank on long-term normal copper prices, seem to agree that the price would be higher in the future than it was before 1964, when it was 30, 31, 32 and we settled on 35 cents as representing as good a number as any in that context. MR. WOODS: Is there a free market price now? MR. DOSIK: well, the price at which the Chileans and other major producers in Africa are selling at is the London Metal Exchange price. Now how free that is, I don't know. It's rather a special market. Right now it's about 54 or 55 cents I believe. MR. WOODS: Yes. MR. DOSIK: It was up, of course, to something like 90 cents earlier this year. MR. WOODS: Anything else, Mr. Merchant? STRICTLY CONFIDENTIAL 19 MR. MERCHANT: No, thank you. MR. WOODS: Anyone else? Mr. Rajan. MR. RAJAN: Thank you, Mr. Chairman. I give my support to this loan. I would like to comment on certain very desirable and welcome features. One is that though this is primarily for construction of a hydroelectric power station there is ample provision for developing transmission and distribution facilities. Another factor is that the Bank loan is only 11% of the total construction expenditures. Nearly 65% is raised from their own internal resources and equity contribution, and of coursefahere are other foreign exchange loans also. I only wanted to ask whether -- there is no mention of domestic preference here -- has the point been raised or what is the situation with relation to use of Chilean equipment? MR. WOODS: Yes. Mr. Sear. MR. SEAR: Mr. Chairman, in this particular case the loan will finance exclusively imported components. The Chilean component actually in this case will be essentially labor. There will not be very much else locally. MR. WOODS: Thank you. The economy of Chile is such that this question really doesn't come up. Anyone else on this? Mr. Radford. STRICTLY CONFIDENTIAL 20 MR. RADFORD: Thank you, Mr. Chairman. Iw:>uld like to give my full support to this loan and also from it I think as a corollary to what Dr. Machado said, I notice this is one of the borrowers who is within striking distance of completing repayment of a loan, and that must be the same loan, I'm sure, which was made in 1948. This is an encouraging and perhaps novel circumstance. I have only one question on the loan itself. I was prompted to look up the papers on the recent Brazilian power loan because they seem to be rather similar circumstances as regards the difficulty of keeping the tariffs in the regime in line in a country experiencing inflation, and I was struck by what seemed to be a rather less rigorous approach here than perhaps we had in the case of the Brazilian loan. I'm not suggesting there should be complete uniformity. I am sure circumstances are different in different cases, but one particular point that I think in the case of the Brazilian tariff regime was that it would be an event of default on the loan if the relevant provisions of the law were to be changed adversely. I see in the provisions of the Loan Agreement befor us this morning that what might be called the corresponding provision is an obligation of the borrower to notify the Bank of such changes and it seems to stop there. I wonder if we could perhaps have just a word of explanation about the rather different approach. No doubt thee are other circumstances which give us the assurance we need STRICTLY CONFIDENTIAL 21 that the tariff rate in this case will also be kept in line with the requirements of a proper tate of return. MR. WOODS: Yes. Who 1s prepared to respond to that MR. HITTMAIR: One of the reasons why we did not impose similar provisions as in the Brazilian case was that the law has been very well operated 1n Chile. The provisions of the law have been meticulously kept during the last two ~ars, and in the case of the Loan Agreement we have a provisi in that the Chileans would consult with the Bank so we would have an opportunity to express our opinion and agree on an approach if essential sections or the law would be changed. MR. WOODS: Yes. Thank you, Mr. Hittmair. Mr. Knapp. MR. KNAPP:, Well, may I comment op this that the ~ Chilean model follows the usual model where we have a covenan• with respect to a reasonable rate of return on the properties. The Brazilian case is a very special case. we were unable to work out with the Brazilians -- as we explained, we got into a v,ry complicated matter~- but we were unable to work out with them the definition of an objective standard by viich their rate performance would be measured. However, we agreed with them that their existing rate regime gave that result. However, they arrived at it, it gave that net result, so in that very particular case we simply came into agreement , with them if they changed their legislation, we would have the 22 STRICTLY CONFIDENTIAL right to review the results of it. I think the Brazilian thing should be regarded as exceptional. MR. RADFORD: Thank you, Mr. Chairman. MR. WOODS: Mr. Knapp, isn't the essential point, the one that Mr. Hittmair made in passing, that in Chile this operation has been going on for a number of years and the policies and practices are pretty well defined. In Brazil, the nationalization after normal negotiations, settlement, and solution of questk>ns of cost and all the rest of it, the nationalization of one or two very large power systems and melding them into the existing power system in Brazil, raised a lot of questions that would only be resolved with experience, with perhaps five or ten years of joint operation. MR. KN.App: Yes. MR. WOODS: I think this is a part of it, as Mr. Knapp says. Have/!ou anything else? MR. RADFORD: NJ, that' s a 11, Mr. Chairman. Thank you. MR. WOODS: Mr. Cavanaugµ, just in passing, in IFC we have several situations where our investment has been closed out, that is, paid off or sold out; but in the Bank I daresay there are a number of loans that were made for periods of ten, twelve, or sixteen years that have been paid out. Have you anything in your mind about this? MR. CAVANAUGH: I'm sure there are a number. I don't STRICTLY CONFIDENTIAL 23 remember the number, but I would guess almost a hundred have been either sold out or -- MR. WOODS: I think it's an interesting statistic because it is a fact that the early loans in this situation are about to be paid off, but I have the impression that over these twenty years this has become reasonably routine. You might just make a piece of paper, without going into the details, just some idea of the number of loans and the amount of money involved that are no longer on the rooks because they were either sold out or repaid, be they reconstruction loans or development finance loans. Any other Director on this matter? Mr. Reid. MR. REID: Mr. Chairman, I would very briefly like to give my warmest possible support to this loan. Dr. Machado mentioned Chile is an example of a country which has met with extraordinary difficulties in the past, and I think it is also true to say, after listening to Mr. Dosik's impressive presentation, that the Government of Chile is an example of a government which in the face of rather difficult obstacles is making exceptional courageous and effective efforts in the interest of economic and social development of Chile, and is an example of a Government which should certainly be rewarded, an I hope it will be possible to come up with more projects for Chile in the future. STRICTLY CONFIDENTIAL 24 Thank rou. MR. WOODS: Thank you, Mr. Reid. Mr. Malaplate. MR. MALAPLATE: Mr. Chairman, High consumption, chronic inflation, low savings, low investment, poor use of capital in the public sector,and very moderate growth in spite of relatively favorable resources endowment, this isn't the way I am describing the economy of Chile but the way the Bank report is doing, and this doesn't seem to me to be so much the normal resultnor underdevelopment but rather the result of bad management of the economy, whatever the reasons for this bad management may be. This is certainly not an encouraging basis for a new loan to Chile, and particularly for a very large_and important loan. Nevertheless, I would give my support to this loan with the understanding that we are all confident that there will be a change in this policy. But, on the other side, I'm a~raid that the same argument of a radical and courageous change in the policies followed by this country or by many other co~tries in the world nas already been made in relation and in time with the new loan, and so I would like to check a little if we have reason to think that there will be such a change, and I would take just one criterion, that of inflation. I notice in this report of August 22nd, 1966, that the rate of change in the prices in the period 1960-1965 was STRICTLY CONFIDENTIAL 25 an average of 25% per annum, and I see that in 1965, the rate of change was one point more, 26%, so that it would seem that the inflation rate is growing in the more recent period, rather than decreasing. Is this explanation a good one? MR. WOODS: Thank you, Mr. Malaplate. Mr. Dosik, without regard to the long chronicle of ills, this narrow point, the control of inflation, is there a brief comment you could make on this? MR. DOSIK: Well, I would just like to reiterate about the more recent period what I said in my presentation, that the 1965 rate of inflation which has just been stated was a considerable improvement over 1964; that we have in 1966 another significant improvement over 1965, and that the Government seems to us to be taking the necessary policy measures, and it is certainly strongly desirous of achieving another considerable improvement next year. This is one, as I said, of the principal objectives of the Government and in President Frei's speech of last night, as I have it reported to me, he again held this up as a cardinal objective of their policy which they are going to do everything they can to achieve. MR. WOODS: In your judgment, they're headed in the right direction? MR. DOSIK: Yes. MR. WOODS: Thank you very much. Anyone else on this matter? STRICTLY CONFIDENTIAL 26 The resolution is before you. A motion is in order, gentlemen. (Motion made and seconded to adopt the resolution included in Report R66-163.) MR. WOODS: All those in favor, please so indicate. (Show of hands) MR. WOODS: Thank you. Those opposed? (No response) MR. WOODS: Thank you, qentlemen. The resolution ~ is adopted, and we will proceed accordingly. I might state that while we have had no evidences of interest on the part of investors in this loan which you have just approved, in connection with the consideration of it we did find three commercial banks, the Girard Trust in Philadelphia, the Meadow Brook in New York, and the Marine Midland in New York, who were interested in an aggregate of $250,000 and have agreed to purchase $250,000 of the April 15, 1970, maturity of Loan 244, which is a loan that we made to th same borrower sometime ago. Mr. Escobar. MR. ESCOBAR: Mr. Chairman, the most important single Chilean borrower from the Bank has been ENDESA, as has been pointed out here this morning, and with the loan now approved, which is the fifth to this corporation, ENDESA would have received more than 60% of the total amount of the loans that 27 STRICTLY CONFIDENTIAL the Bank has made to Chile. This shows the high priority that both Chile and the Bank have assigned to power development in my country. Since 1948 when the Bank signed the first development loan, which was to ENDESA, a very close working relationship has grown between the Bank and Chile, which has always been most pleasant and stimulating, as Mr. Reitter pointed out. The negotiations for the fifth loan were no exception, and I want to thank the staff who negotiated directly with ENDESA and CORFO representatives for their cooperation and very constructive attitude. I should also like to extend my thanks on behalf of the Chilean Government to the management of the Bank and to the Executive Directors for their support which we appreciate so much. Thank you very much. MR. WOODS: Thank you. The matter you brought up at the time of your first meeting, where we postponed some action, was that finally settled? MR. ESCOBAR: It will be settled today. A memorandu was circulated. MR. WOODS: That's right; it left my mind, but that's behind us. MR. ESCOBAR: As of the close of business today, yes. MR. WOODS: That's all finished. Well, thank you ve y much. STRICTLY CONFIDENTIAL 28 Mr. Knapp points out, and it is a very pertinent point, that in all probability the reason that we have no interest on the part of banks in this loan which you've just approved, is because the first maturity is seven years. This is a case where we're on the policy of longer periods of grace, and I wanted to make Mr. Knapp's point to you for two reasons: one, the fact the Banks aren't in it has nothing to do with Chile; it has to do with the maturity. And the other is that we are gradually lengthening the periods Of grace in this type of loan. Thank you very much. We'll now proceed as Directors of IDA. (Whereupon, at 11:15 a .m. the meeting of the Executive Directors of the International Bank for Reconstruc tion and Development was adjourned, immediately followed by a meeting of the Executive Directors of the International Development Association.)