Chile: The Big Grab

WHEN Salvador Allende Gossens was elected President of Chile last year, some nervous Americans with investments there reassured themselves that, although Allende was a Marxist, he had always maintained a healthy respect for the due process of law. That assessment has proved correct, if a bit too sanguine. While giving conscientious attention to democracy and legality, Allende has nonetheless been expropriating American holdings almost as fast as he can. In July, he announced the nationalization of the mining interests of Anaconda, Kennecott and Cerro--but only after a constitutional amendment permitting the takeover had been duly introduced, debated and passed unanimously by the legislature. The amendment also provided for compensation based on the book value of the mines.

Last week Allende announced that Chile will deduct $774 million in "excess profits" from the compensation due to Anaconda and Kennecott (Cerro's mine began production only last year). In effect, that means that the two companies will receive not a penny for their properties. The $774 million figure was arrived at through a complex formula. The Allende administration estimated each company's average worldwide copper profits over the past 15 years as a percentage of its book value and came up with a figure of 10%. Any profits from the company's Chilean operation that exceeded 10% a year were considered "excessive." The companies figured differently.

"Allende has somehow computed Kennecott's alleged excess profits over the past 15 years to be more than our total earnings from Chile in that period," complained Kennecott President Frank Milliken, whose firm has been a particularly good corporate citizen in Chile. Said Anaconda President John Place: "Allende's accounting theory is nothing more than a thin pretext for confiscation. He's now contrived to grab the world's biggest open-pit copper mine [Anaconda's Chuquicamata], plus a second major underground mine, and not pay a dime."

Imperiled Credit. Most U.S. copper men had written off the prospect of compensation long ago. Nationalization is becoming a familiar, if uncomfortable fact of life for American firms in Latin America. In the past few months, Bolivia, Peru, Guyana and Ecuador have seized U.S. holdings. Robert McNamara, president of the World Bank, warned last week that such a trend in developing countries may "seriously imperil" their ability to get credit and may discourage investment in entire regions.

A hard-line faction within the Nixon Administration is arguing for retaliation to show that the U.S. is not "soft" on takeovers. Under the 1962 Hickenlooper Amendment to the Foreign Assistance Act, the President is required to suspend U.S. foreign aid to countries that expropriate American holdings without compensation. Nixon once threatened to use the amendment against Peru after it seized a subsidiary of Standard Oil of New Jersey, but he has never carried out his threat. Some State Department careerists argue that the U.S. should definitely not get tough now because retaliation against a developing nation would drive its leadership to further radicalism.

Letter of the Law. Kennecott, which has $141 million in Chilean investments, relied on them for about 11% of its net income last year. Anaconda, with $458 million invested, received about two-thirds of its net profits from Chile. The companies may need a special ruling from the Internal Revenue Service to take tax write-offs on the losses, but they may be able to collect on as much as half their losses from the Overseas Private Investment Corp., a Government agency that insures investments abroad. If President Allende continues to pursue his intention of turning Chile's resources over to Chilenos, OPIC may have to ask Congress for more money.

Last week, too, Allende announced that the Chile Telephone Co., a subsidiary of ITT, would be run by a government intervener. The move is seen by some ITT officers as the first step to expropriation. ITT's stake in Chile Telephone is covered by about $100 million in OPIC insurance. Together with the copper companies' coverage, that amounts to more than $400 million in claims. In the 20 years of its existence, the insurance corporation has paid out a total of less than $4 million.

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