CHILE: Facing the Blockade
Farnsworth, Elizabeth & Feinberg, Richard & Leeson, Eric
INTRODUCTION The following article was prepared both for this issue of the Report and for a new edition of the NACLA pamphlet, NEW CHILE. Thus, certain facts and figures already written into NEW...
...Each one of us got scared...
...That denial (in August, 1971) was the first indication of the hard-line credit policy...
...Los Angeles Times, October 4, 1972...
...1973 Published monthly, except May-June and July-August, when it is published bi-monthly, at 160 Claremont Ave., New York, N.Y...
...To extend the debt postponement into 1973, Chile plans to return to Paris to ask that payments be reduced from 30 percent to 15 percent of the $410 million maturing debt...
...Quoted by Lewis H. Diuguid in The Washington Post, June 11, 1972, p. 36...
...According to President Allende, Braden's (Kennecott's subsidiary's) profits on invested capital averaged 52.8 percent per year since 1955, reaching the incredible rates of 106 percent in 1967, 113 percent in 1968 and 205 percent in 1969.5 Also, though Kennecott had not invested any new capital, it looked forward to augmented profits from the expansion of production in its facilities due to the "Chileanization" program undertaken by the Frei government...
...assistance programs in Chile, as elsewhere, was to prop up weak but friendly regimes is revealed in a 1966 State Department bulletin: Major U.S...
...On October 11, 1972, the Truck Owners' Federation went on "strike" against the government, to be followed in rapid succession by the merchants, professional unions, and the Chilean Association of Manufacturers--all supported by the opposition political parties...
...The Credit Blockade Takes Its Toll in Industry The lack of credit from the United States has led to a drastic reduction of Chile's imports from the United States, especially in 1972...
...An invisible but effective financial blockade would make the UP government look irresponsible, unable to serve the people's needs...
...The homes built with IDB dollars in the 1960's came with Christian Democratic stickers...
...We wish to thank Petras and La Porte for supplying us with the original, un-cut version of that article, hereafter referred to as Petras and La Porte, original...
...source: U.S...
...At this moment, the U.S...
...At all times, the economics and the politics were closely entertwined: to win political support, the economic plan of nationalizations and income redistribution had to advance successfully...
...Government Printing Office, 1971, pp...
...See Chadwin, Part II, p. 152...
...The Central Bank set differential exchange rates which made it difficult to import consumer goods and to travel abroad, a perogative the middle class had utilized extensively in the past...
...The spokesman replied, "We're interested in solutions to problems...
...cit., p. 371...
...With both the public and private sectors of the national economy effectively hamstrung, the path was clear for foreign corporations and money lenders Such was the predicament of Chile in 1958, when the economy was still depressed but inflation was again threatening...
...the "hard-line" approach...
...and multinational, sometimes make loans directly to private enterprise...
...14 The World Bank Since its founding in 1944, the World Bank (International Bank for Reconstruction and Development) has granted Chile 18 loans totalling $234,650,000...
...Other Latin American nations have also condemned Kennecott...
...The loan, however, has not been forthcoming, just as other well-researched and reasonable requests for electrical power and natural (liquid) gas have gone unfulfilled...
...ODEPLAN, op...
...In the earlier centuries, Chile was a net exporter of grain, but by the 1930's, trade in foodstuffs showed only a slight surplus...
...Chilean Development Corporation, Financlamiento Externo (Santi- ago: 1968), p. 73...
...We thank the Chileans in the Washington Embassy and the New York office of CORFO for their help in compiling data...
...loans are a subsidy to friendly foreign governments, they are also a boon to U.S...
...imperialism, the UP government would want and need, at least in the short term, to maintain fairly normal trade patterns with the United States...
...Kennecott's embargo of Chilean copper in France cut off some possible credit from European countries who saw that future copper sales were endangered...
...assistance during the two years preceding the 1964 election was directed at maintaining the modest gains that had been realized in earlier years...
...AID study in 1965 predicted that by 1970, under the best of circumstances, Chile would still require $267 million in foreign supplementary financing or $362 million under less favorable circumstances...
...Additional thrusts aimed at destroying Chile's economic reputation included: (1) the U.S...
...The U.S...
...Nevertheless, Chile is still saddled with a huge debt to U.S...
...Exports of manufactures ac- tually declined from $46.7 million in 1950 to $32.4 million in 1963, and their increase thereafter had small incidence in total exports...
...This was both the strength and the weakness of the via chilena, the Chilean road to socialism...
...Interview with Lewis Girdler, Chile Desk, U.S...
...One of the reasons the credit blockade producing this situation has remained somewhat "invisible" is that export-import operations, and international finance as a whole, are subjects that few people discuss or understand...
...The UP government has actively sought and gotten trade credits and medium and long-term loans from many other countries...
...High due to loans for copper expansion negotiated under the Chileanization agreements...
...investment, or it will be cut out of ordinary business transactions-at least with the western blocaltogether...
...12 Since the mid-50's, when the Klein-Saks mission further adjusted the Chilean economy to depend on foreign capital, the "autonomous capital movements" have been positive, and so have helped to offset the generally negative trade balance...
...for the second stage of a cattle breeding program (begun with the World Bank's cooperation) and for electrical power development under the National Electrical Power Co...
...72) indicates that interest groups represented within the Nixon administration disagreed on what the policy should be...
...The solution to this impasse: "The new (Alessandri) administration decided to openly adopt a policy of foreign indebtedness, and to create the conditions for the repatriation of Chilean capital abroad...
...Treasury into corporation vaults (or into the Treasury's own accounts...
...Since 1967, however, AID loans to Chile have decreased, partly because the Frei government, enjoying the bounty from the highest copper prices in history, temporarily accumulated a positive reserve balance, and so made fewer requests for AID loans: In 1970, AID loaned Chile only $15 million...
...bank credits are good for purchases anywhere in the world, other nation's are not...
...7. Franklin Fisher, Paul Cootner and Martin Baily, "An Econometric Model of the World Copper Industry," The Bell Journal of Economics and Management Science, Autumn, 1972...
...investments in its traditional spheres of influence more important than ever...
...At the time the request was made (early 1971), U.S...
...advertising and cultural propaganda encouraged Chile's middle classes to buy goods that Chile could not afford...
...of Commerce, "U.S...
...State Department, "Background Notes on Chile...
...Both the business community and the U.S...
...Free profit remittances and lower taxes were part of a program to foster an inflow of foreign investment...
...policy in this area...
...Chile has also benefitted from Eximbank's guarantee and insurance programs...
...IV., no...
...and (b) the personalities involved in shaping Chilean policy, especially the officials with strong backgrounds in banks and businesses which had important international interests...
...The biographical information comes from recent editions of Who's Who in Americaa...
...In February, 1972, Chile agreed to pay $84 million which represented payment for the 51 percent of the mines bought under the "Chileanization" plan...
...Chile Hoy, August 11-17, 1972, p. 16...
...is to meet the threats arising from the expansion of the European and Japanese economies, the U.S...
...exporters, while the credit guarantees are available to bankers...
...9 CAP: Pacific Steel Company Due to financial difficulties incurred during the New York embargo, CAP decided to abandon its U.S...
...This made it easier to import food, which benefitted all the people, but made it difficult to import the items which had benefitted mostly the middle classes...
...On September 14, 1971, ITT President Harold Geneen met over lunch with Peter Peterson and Brigadier General Alexander M. Haig Jr...
...6. Wall Street Journal, June 4, 1971...
...Meanwhile, the UP tried to complete key parts of its Program...
...In an interview, a Crown Zellerbach executive told us: "We are being very innovative, holding the plant together with baling wire...
...and Republica de Chile, Direccion de Presupuestos, Folleto No...
...Hereafter referred to as CIAP Report 19...
...1' 3 Thus, economic deterioration was forestalled by augmenting imports by 56 percent between 1958-61, although exports remained virtually stationary...
...The public sector had to run a deficit in order to maintain its level of economic activity, and the private sector was incapable of increasing supply or improving productivity...
...Thanks also to Steve Shames for the free use of his photography...
...Usually governments wanting stand-by arrangements must agree in a "letter of intent" to achieve financial and monetary stability, as defined by the IMF...
...ruling circles which seriously question the importance of foreign investment to the United States...
...the pressures brought against Chile by U.S...
...In 1970, Kennecott held 13 percent of its world-wide investments in Chile, but received 21 percent of its total profits from those holdings...
...Formerly with the Bank of America ('36-'42, '47-'49) and a director of the B of A until his recent appointment by Nixon as head of the powerful Office of Budget and Management...
...Chile's export earnings were reduced to 11 percent 1 of their previous levels...
...the mobilization of grande capital, national and foreign, is the responsibility of the World Bank Group...
...some consumer items like yarn, textiles, and medicines...
...The United States Seeks to Preserve the Status Quo From 1955 to 1970, the United States evolved two distinct policies for Chile...
...These are: 3 5 ROY ASH: Architect of the CIEP and close advisor to Nixon...
...These two assumptions had long underlaid U.S...
...The U.S...
...Chile used to import around 40 percent of its total imports from the United States...
...In their absence, great confusion arises, and all transactions must be paid off in cash, which is difficult if not impossible in most normal business operations...
...Expropriations Policy Shortsighted," Congreulonal Record, January 4, 1972, p. S317...
...However, relations between the Treasury Dept...
...Endesa...
...they also expressed class solidarity with the Chilean bourgeoisie...
...and granted $11 million to Sagasca Copper, a project that unites Chilean government investment with that of two multinationals, Continental Copper and Steel, and Dowa of Japan...
...We didn't know if the new director would be an experienced banker, or a political hack...
...7 Chile's rising debt figures indicate that foreign sources pumped in over $1.3 billion, or $140 per capita, from 1960-64.'8 Such was the cost of defeating Allende in the 1964 elections...
...Deputy Assistant-under Kissinger-for National Security Affairs) to discuss the Chilean expropriations...
...Available dollars were allocated to best meet the expanded consumption power of the workers...
...Senator Ernest Gruening, United States Foreign Aid in Action, A Case Study, p. 115 (emphasis added).like a Chilean social register, and includes former President Jorge Alessandri and the powerful Edwards...
...3Further, the emulative consumption patterns of this growing middle class helped give Chile low domestic savings, which increased Chile's dependence on foreign funds...
...bilateral and multilateral aid policy* (and which is widely con- sidered to be the most vigorous advocate of private big business interests within the Executive Branch...
...The Chilean economy is in severe difficulty...
...3 ' At about the same time ITT continued on its own to press the U.S...
...From an unpublished internal circular on the debt renegotiations, Banco Central de Chile...
...Annually the company purchased between $800 thousand and $1 million worth of equipment abroad, the bulk of it in the U.S...
...This view comes out in a study prepared by Peter G. Peterson, former president and chairman of Bell and Howell and assistant since January 1971 to the President for international economic policy...
...when Algeria was nationalizing French oil companies...
...From 1955 to 1970, short and medium term bank loans to Chile rose from $50 million to over $300 million...
...New York Times, December 2. 1972...
...19 Finally, the United States was forced to drop its opposition to the renegotiation and the creditor nations agreed to renegotiate 70 percent of the debt, asking that Chile improve its balance of payments (which it has not) and decrease the fiscal deficit and the expansion of the money supply (which it has...
...2 9 Price and Supply Committees, controlled prices, a new pattern of consumption whose cheaper goods left a smaller margin of profit-all these UP policies, combined with its general attack on private property, threatened Chile's merchants, especially the merchants who served the wealthier neighborhoods...
...By 1970, 40 of the 100 largest firms were under foreign control, and these included the most dynamic sectors.' 0 Chile's dependency on imports for its machinery remained as strong as ever...
...copper companies in mid-1971 helped reduce the outflow of profits to foreigners from $97 million in 1970 to $37.7 million in 1971...
...PAUL A. VOLCKER: Connally's key aide on international monetary matters...
...2 3 In effect, such loans pass swiftly from the U.S...
...The JAP have issued cards for purchase of poultry and beef, and in one community, a People's Supermarket has been formed...
...La Economia de Chile, op...
...increasing tendency to dishonor commitments...
...In 1971, the Allende government requested several new loans, some of which were considered for preliminary examination by an IDB special mission which visited Chile in June, 1971...
...expanded government insurance "of certain export risks...
...foreign policy makers, recognizing that the military is a crucial, if dormant, factor in Chilean social and political stability, contributed more military aid to Chile between 1950 and 1970 ($175.8 million) than to any other Latin American country except Brazil...
...But by late 1971 Chile was lacking dollars, and the middle class was beginning to feel the bite of the blockade...
...In Chile, unfortunately, neither has anything else...
...capital exports...
...2 0 This would, in turn, cause severe hardships-especially on the Chilean middle class, which had benefitted most from the imports...
...September 29, 1972, and New York Times of the same date...
...6. Feinberg, op...
...Address, op...
...But Herrera was not the main promoter of loans to Chile from the IDB...
...Yet, in this fairly typical year, services on foreign capital totalled $370 million: $171 million for profit remittances and debt interest payments...
...Hegemony," Monthly Review, Vol V.., no...
...See Patman's remarks in the Congressional Record, House, January 23, 1969, p. H422...
...government on their policy toward Chile., The State Department told us in interviews that Kennecott is exercising its legal rights as any citizen may do under the constitution...
...These are not really capital flows, but are the "grease" of trade, and while some U.S...
...The AID data is available in New Chile, NACLA, 1972, pp...
...They both expressed support for a new statement defining U.S...
...Chile had always intended to pay this loan, but it missed the first payment (due in December, 1971) because of complicated legal procedures in Chile...
...The aid and the private loans that it encouraged deepened Chile's dependence on U.S...
...I In fact, U.S...
...The bankers and exporters interviewed were quick to deny any direct, political pressure to cease giving credits to Chile...
...interests in July, 1971, with the issuance of a National Security Study Memorandum (NSSM 131) directing an interagency study of current and possible future policies...
...The Anaconda dispute differs from Kennecott's in that it concerns the payment of promissory notes issued during the Chileanization of the Anaconda properties, rather than loans...
...Al- though some loans have been obtained from Europe, expansion plans have been delayed or cut back, thus creating a serious bottleneck in all future heavy industrialization plans...
...banks...
...The Chilean Middle Class The transformation the Chilean middle class has undergone in the last thirty years can be grasped by recalling the Popular Front days...
...5 Two loans granted to Chile in 1970 (totalling $30.5 million) were authorized before the election of Allende...
...The Unidad Popular government was elected because Chileans could no longer accept this situation...
...Export-Import Bank (Eximbank), a dependency of the Treasury Department, specializes in financing the sale of machinery...
...Other policy makers had served as bank directors: John N. Irwin II was a trustee of the Rockefellercontrolled U.S...
...creditors met with the Chilean negotiators, the U.S...
...They assist governments willing to work towards this end in four main ways: by building the needed infrastructure, by directly lending to private firms, by fostering the proper political attitudes, and by serving as a guarantee to foreign capital that profits can be remitted...
...cit., pp...
...The Forbes reporter asked, "Which is...
...Although many UP leaders exhorted the workers to keep wage demands within manageable limits, opposition groups sought supporters by pressing for tremendous wage increases...
...investments and private financial opera- tions overseas...
...1 2 The importance of governmental aid to U.S...
...Chile's capitalists have organized a black market which some call the central arena of class struggle in Chile...
...would make up for with loans and continuing leverage to assure that Chile respected private property and foreign investment...
...The difference is accounted for by negative "financial services" and "autonomous capital movement"-that is, by debt payments and capital flight...
...investors, bankers and suppliers...
...9. Ibid., p. 2248...
...interests are protected and expanded abroad...
...The year 1956 is a transitional period, and while some difficult steps must be taken before stabilization can be assured, real pro- gress has evidently been achieved.21 In Chile, the World Bank has made loans to, among others, a cement firm partially owned by Koppers International...
...2 5 William J. Mazzocco, the AID representative serving on the CIEP staff, melded the two drafts, modifying somewhat the harsh language of the Treasury draft...
...December 6, 1972...
...The result is that more copper was actually produced in the large copper mines in 1941 than in 1958.' Total copper production decreased by 8 percent between 1949 and 1954, and the share of Chilean copper in world production fell from 21 percent in 1948 to 11.6 percent (1953-4...
...maritime, casualty and property insurance companies...
...At a recent State Department-sponsored seminar called the "Impact of Economic Nationalism on Key Mineral Resources Industries," representatives from industry and the government exchanged ideas on how to protect and expand U.S...
...As a result of the embargo, those lines were never opened...
...As presidential assistant Peter M. Flanigan described it: In the past, economic interests were sacrificed when they came into conflict with diplomatic in- terests...
...In fact, even under the management of these companies, the expansion program had been running well behind schedule...
...This profligacy was funded from abroad: in those three years, Chile's foreign debt rose from $569 million to $1,090 million...
...Lesser autonomous capital flows are omitted...
...The following medium and long-term credits had been negotiated with socialist countries as of November, 1972, with low, or in some cases (as with China) no interest: 28 USSR China Poland Bulgaria Hungary German Democratic Republic Rumania Czechoslovakia Popular Democratic Republic of Korea $259 million $55 million $35 million $25 million $22 million $20 million $20 million $5 million $5 million According to a CORFO study which detailed the credits available as of June, 1972 (their figures were lower than those given above), 95.2 percent of the credits granted by the socialist countries for use by CORFO had not yet been utilized, as compared to 25.8 percent of the credits granted by Western Euro- pean countries and the United States...
...imports...
...Fostering Proper Political Attitudes Photo by Steve Shames cessional loans...
...He would come up here and say, "if you don't give me what I want, you'll have to deal with the Communists...
...sought to block the renegotiation...
...Faced with a large market demand, firms did, in fact, increase production: in 1971, industrial output rose 12 percent and unemployment in Greater Santiago fell from 8.3% to 3.5%.' These successes, combined with the popular nationalization of the copper indus- try, and of other key industries, and the nationalization of the banks and latifundia, contributed to the UP's winning 51 percent of the vote in the April, 1971, municipal elections...
...As we shall see, the middle classes, led by the opposition, would take to the streets to protest the shortages of consumer goods...
...7-51...
...Department of State, External Research Study, "Impact of Economic Nationalbm on Key Mineral Resource Industries...
...rather, these imports led to increasing dependence on the United States and in fact further underdeveloped the Chilean economy...
...Since the accounts of CODELCO and CORFO were already attached, Anaconda attached Chile's holdings in New York warehouses...
...In addition, tires and replacements for autos and buses, components for machinery, rails, and cement, are in short supply...
...It directly conflicts with the President's previously expressed view that we should be seeking a partnership with other nations in multilateral development efforts...
...and certainly State's position on Chile would have been softer than the credit warfare currently being waged against Chile...
...One excuse the Bank gives for not lending is Chile's unfavorable exchange position...
...Without such "foreign assistance" programs, the investment climate would be precarious indeed...
...Mitsui is not private...
...Nevertheless, the importation of lighter, followed by durable goods industries did not foster greater national independence and lead to real economic growth...
...The Treasury draft, Chadwin reports, was "more blunt in style and content, asserting U.S...
...TIGHTENING THE SCREWS: THE U.S...
...industry in order to increase exports and become more competitive on the world market...
...origin...
...and John B. Connally, who was attorney for Sid Richard- son, the Texan oil and gas multi-millionaire and then administrator of Richardson's estate...
...these needs gener- ally coincided with those of the Chilean wealthy, interested in imitating U.S...
...Most important, it meant increasing power for the Department of the Treasury, which is responsible for U.S...
...government might have adopted toward Chile...
...The most recent prior case, Peru's nationalizations of the properties of the International Petroleum Company (a subsidiary of Standard Oil Co., New Jersey) was somewhat inconclusive...
...The U.S...
...Source: Computations by Ken Flann, Stanford University...
...1, 1972, p. 8. 2. From the text of President Allende's Address delivered to the U.N...
...In Chile, the pre-industrial elites, with some Popular Front associates, merely shifted their wealth from farming or commerce into industry, aided and comforted by a State they controlled...
...1968), p. 214...
...The stagnation of the agricultural sector, its drain on Chile's balance of payments, its inability to feed the population...
...In 1964, this top 20 percent consumed 42.5 percent of imports (defined here to include inputs utilized in consumption goods...
...541, "Domestic Efforts and the Needs for External Financing for the Development of Chile," April 21, 1972, p. 140...
...But the smaller firms which do not produce directly for national development suffer even more from the external blockade...
...It was no coincidence that Kennecott chose France as a testing ground for its legal actions...
...This implied a new perspective on foreign relations as a whole...
...2 5 Nevertheless, the amount does not represent a real replace- ment of the U.S...
...The legal battle spread across Europe when Kennecott took similar action in a Swedish court on October 30...
...But that was not possible given the impera- tives of Empire...
...The expropriation of the U.S...
...Both Hinton and Weintraub are former Directors of AID in Chile...
...Allende referred to all levels of U.S...
...Even while defying U.S...
...and 3) subsidize balance of payments deficits...
...7, summer, 1972...
...Previously an economist with the Federal Reserve Bank of New York and then, from 1957-1961 an executive of the Chase Manhattan Bank...
...Millas...
...Chadwin, Part IL, p. 154...
...has a policy of wanting to promote foreign direct investment, which is why the OPIC [Overseas Private Investment Corporation] exists...
...actions were initiated for conducting a full hearing on the case...
...Banks and other lending agencies seemed willing to overlook the three C's in order to gain a foothold in Chile's expanding market...
...47-49...
...Millas, Budget Speech, op...
...7Table I 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 534.4 (30d)' 531.2 (290) 568.4 (290) 584.7 (290) 676.8 (314) 776.4 (364) 977.7 (474) 985.9 (48d) 1,032.2 (52d) 1,306.3 (654) -642.3 -726.9 -680.7 -666.8 -712.8 -716.6 -888.3 -909.2 - 954.2 -1,086.8 -107.9 -195.7 -117.3 - 82.1 - 36.0 59.8 89.4 76.7 73.0 219.5 Capital Inflow Total a) Investments b) Loans Utilized 139.2 260.2 210.4 234.5 296.9 244.4 369.5 355.7 581.6 77.8 75.0 62.4 38.9 64.6 67.6 93.8 149.4 142.2 54.0 171.4 208.3 227.3 240.5 237.9 258.3 227.7 438.9'** Capital Outflow Total -116.8 a) Net Profits Remitted & Debt Interest Payments - 38.2 b) Amortization of loans - 46.2 c) Depreciation - 32.4 -156.9 -176.8 - 58.0 - 77.7 -213.5 -241.3 -282.2 -370.9 -435.9 - 85.5 - 95.6 -11 t6.4 -171.6 -204.1 - 486.4 - 725.9 - 208.3 - 234.9 - 72.6 - 69.8 - 63.1 - 88.5 - 91.6 -109.4 -122.2 - 135.2 - 244.9 - 26.3 - 29.3 - 64.9 - 57.2 - 74.2 - 89.9 -109.6 - 142.9 - 246.1 Net Capital Flow:Reserves 22.4 103.3 33.6 21.0 55.6 - 37.8 - 59 -191 -234.5 -264.0 -238.7 -182.9 - 1.4 - 80.2 - 66.1 - 91.5 ' Copper price, cents per pound...
...The Eximbank grants credits to U.S...
...Even the Crown Zellerbach sub27 Categorysidiary, Crown-Laja, which annually exports $6 million worth of IBM cards, has trouble getting dollars to import parts...
...while 77 percent of middle-income, and 99 percent of high income households were finding them less accessible...
...The dollar reserves accumulated during the wars were vanishing rapidly, and inflation, a sure sign that consumption demand was exceeding import capacity and internal production, hit 84 percent in 1955...
...In recognizing Japan and Western Europe's increasing share of world trade at the expense of the United States, U.S...
...3 What lay behind this deficit...
...The Department of State has set up a special office to follow expropriation cases in support of the Council on International Economic Policy...
...If this continues, then it seems to me that in order to protect the American workingman from the inordinately low wages that are paid in other nations of the world, in order to protect the industries here that provide jobs, the United States is going to have to become involved one way or the other-either greater assistance to American industries or working with other governments to provide for less producing capacity in the world...
...In Chile, however, this method of industriali- zation did not fundamentally alter the class relations that had been making Chile underdeveloped nor the ties to imperialism which had kept Chile a producer of raw materials for the industries of the world...
...aid should continue in sufficient amounts to cover payment...
...9. U.S...
...CIAP Report, op...
...The remainder of the loans went to the public sector, which had to borrow dollars to finance even some of its normal operations...
...In fact, Chile has not been able to get from European countries the financing it had hoped...
...The Austral is dominated by Chile's conservative German population, and the Catholic University is a stronghold of anti-UP activities...
...Study published, March 20...
...cit., p. 59...
...pressures...
...economic interests around the world...
...4. Chile, Banco Central, "Desarrollo monetarto y problemas generales de intercmbio.," 1972...
...1960-70 Santiago, 1971 ); and Inter-American Committee on the Alliance for Progress (CIAP), Domestic Efforts and the Needs for External Financing for the Development of Chile, April, 1972, Table V-6...
...Given Chile's relatively low rating in the test of the three C's, how can we explain the great increase in lending to Chile during the sixties...
...and from Chadwin, "Nixon's Expropriations Policy Seeks to Woo the Angry Congress," National Journal, VoL IV., no...
...the capital flight...
...goods and services...
...AID offers services ranging from investment guarantees to feasibility surveys to con6 In Chile, AID continued budget support and balance-of-payments assistance during the 1964 election year to prevent economic deterioration which would have sparked unemployment and discontent and, presumably, a swing to the far left politically...
...According to a New York Times article (August 1, 1971), the State Department indicated that the decision to block Eximbank loans to Chile was "made on the White House level," under pressure from American com- panies...
...Secondly, as explained above, longer-term loans have a deep effect on a nation's development that cannot be erased overnight, much less in a difficult period of political upheaval...
...This bloqueo invisible is a new and subtle form of warfare which capitalizes on the less developed countries' need for credit to import vital consumer and capital goods and to pay off their debts to the developed countries...
...Considered by some to be the most important figure in forming policy towards Latin America in 1971...
...Millas, Budget Speech, op...
...This 1970's version of "dollar diplomacy" had several important implications for Chile...
...PART III 1. United States Dept...
...Other participants in the study, according to Mark Chadwin, included: Philip H. Trezise, former Assistant Secretary of State for economic affairs (1969-1971), Sidney Weintraub, Deputy Assistant Secretary of State (international finance and development), Charls E. Walker, Under Secretary of the Treasury, John R. Petty, Assistant Secretary of Treasury (international affairs), Henry * The Nixon Administration had already denied Chile loans from the Export Import Bank, as we shall see below...
...Secretary of State, understood the tie-in between aid, infrastructure and foreign investment...
...CORFO, Gerencia de Produccion Financier, Dpto...
...statements supporting the rights of national sovereignty.' Further, the U.N...
...and Anibal Pinto, Chile: una economic dificil (Mexico: Fondo de Cultura, 1964...
...Deprived of credit in the United States, and faced with the copper embargoes in Europe, Chile is facing serious shortages in food, in consumer items like toothpaste, film, tobacco, and textiles, and even wheel chairs and crutches...
...Chadwin, Part II., p. 152...
...25 Table III Total Import Breakdown, 1971-72, thousands of dollars Total Imports Jan-Aug Jan-Aug % Variation 1971 1971 1972 Food Stuffs and Beverages 267,044 178,029 254,115.2 42.7 Primary Materials for Industry 292,259 194,839 282,387.7 44.9 Fuels and Lubricants 109,698 73,132 75,071.8 2.7 Machines and Accessories 215,304 143,536 134,568.1 -6.2 Transport Equipment 143,334 95,556 126,806.8 32.7 Consumer Goods 98,135 65,423 27,662.8 -57.7 Total 1,125,774 750,515 900,612.4 20.0 Source: Republica de Chile, Direccion de Presupuestos, Folleto No...
...3. Interview with official in Manufacturers Hanover Bank, conducted December, 1972...
...Joan M. Nelson, Aid, Influence and Foreign Policy (New York: 1968), p. 73...
...3. July-August 1971...
...Ibid., p. 3. 8. Quoted by Dom Bonafede, op...
...3. Harry Magdoff, The Age of Imperialism (New York: Monthly Review Press, 1969), p. 14...
...John M. Hennessey might be included because of his role as consultant to A. D. Little, Inc...
...cit., p. 40...
...30 Meanwhile, working class communities have taken concrete steps towards rationing...
...The CIEP, working with State and Treasury, was to draft a public statement...
...Thanks to Ken Flann, Stanford UniversitY, for making available to us his extensive data on consumption in Chile in recent years 25...
...Rationing will be necessary to keep the black market from pricing goods too high for the average family to buy...
...Limitations of wage adjustments, restrictions on bank credit, a sweep- ing exchange reform, and new tax legislation are the principal steps taken to date...
...Character," refers to a borrower's respect for a "contract," a willingness and ability to repay loans: or from an investor's viewpoint, respect for private property...
...Perhaps the gravest heritage of the aid programs is Chile's accumulated indebtedness...
...As one New Yorker stated: Many banks represent a financial power base for the political opposition...
...In addition, the truck drivers, closely bound to the merchants, were feeling the bite of the blockade and complained of shortages of parts and tires...
...In 1966, for example, personal consumption rose a full 10.9 percent, 2 2 thanks to $258 million in foreign credits...
...bankers and government officials have increasingly stronger tools available to them to enforce their will upon these indebted nations...
...However, should Chile ask the IMF for additional funds, restrictive conditions will probably be attached...
...The size of the industries fostered concentration of ownership, and the high capital/labor ratio assured continued unemployment...
...AID projects...
...Theoretically, however, no direct pressure would really have been necessary...
...policy towards Chile), stated succinctly the government position: "I think we assume there is a link between the availability of resources at a reasonable cost and foreign direct investment at this time...
...This assistance was effective in providing the new government with a better base to begin a serious effort toward reform and development by helping to prevent economic deterioration...
...Hoarding and speculation, combined with the gen- uine shortages resulting from the credit blockade, have resulted in spiralling inflation, reaching an official 150 percent for 1972...
...The way in which the policy was developed demonstrates the increasing power of Treasury and the strong business bias of the administration...
...In February, 1972, Allende announced that most of the loan had been usefully invested and would be repaid...
...In addition, see New Chile, op...
...U.S...
...18-27...
...2country's record any cases of "insufficiently compensated nationalizations of private investment...
...investments abroad, State also established a new unit under Weintraub, the Office of Investment Affairs...
...and $90 million in depreciation allowances (see Table I on next page...
...If no new major loans are granted, Chile will be in the ironic position of being a net capital exporter to the Inter-American Development Bank...
...In the past, Chile had around $220 million in short-term credit-lines from U.S...
...1971...
...It has been brought to our attention that you are g for the purchase, acquisition, or disposal of copper or ducts which are derived from the El Teniente mine in the id to which we have rights of ownership...
...November 1, 1956, "$15 million power loan to Chile...
...now only $35 million is available...
...Chile claims that Anaconda should not be paid the amounts due under Chileanization since they, unlike the Kennecott payment, were not reinvested in Chile...
...lines of credit...
...Economic Commission on Latin America (ECLA), External Financing in Latin America (New York, 1965...
...Some industrial products were sold directly through the labor unions...
...8 Exports Imports Trade Balance 729.2 137.6 639.4-' 95.2 3.3 37.7 219.8II...
...Three other U.S...
...Chile was forced to suspend copper shipments to France temporarily...
...If the U.S...
...government's hard-line at the Paris debt renegotiations...
...capital assistance to Chile began in 1961...
...Department of Commerce Data (Millions of U.S...
...Chile has meticulously met the payments due on this consolidated debt, having paid $3.6 million in June and in December, 1972...
...Both policies, however, would greatly increase Chile's dependency...
...This figure includes legal fees...
...Chief among these imports were machinery and transport equipment, manufactured goods, chemicals, food and live animals.' These imports were facilitated by credits from the suppliers themselves (which function like a charge account), by credit from private banks, by credit (or loans) from U.S...
...13 Kennecott knows that its actions will have the following effects on Chile: short term loss of francs...
...At the annual meeting of the World Bank and International Monetary Fund, in September, 1972, Alfonso Inostroza, president of Chile's Central Bank, said that in deciding not to grant new credit, the World Bank had acted in a "manifestly precipitate and prejudiced manner...
...The magnitude makes it worthwhile to examine their contribution to Chilean underdevelopment...
...Quoted by Benjamin Welles, The New York Times, October 23...
...financial squeeze began to take effect...
...When exports failed to provide sufficient dollars to allow for the continued expansion of consumerism, USAID stepped in, and loans poured forth...
...However investment did decline...
...8 However, the drastic fall in the price of copper, which began in late 1970, reduced the value of copper exports by 16.2 percent, costing Chile some $200 million...
...Thus, the State Department has been largely responsible for U.S...
...and multilateral (Inter-American Development Bank and World 5FOREIGN AID IN ACTION Bank Group) aid to Chile totalled a trememdous $1.1 billion, more than equal to one year's export earn- ings...
...Kennecott cannot deter customers from buying Chilean copper if they have no where else from which to buy...
...and (c) cut off the guarantee and insurance program for commercial banks and exporters...
...CORFO meant to encourage basic industry and promote consumer goods manufacturing in order to substitute previously imported goods with Chilean produced goods...
...The Manhattan offices of General Counsel Pierce McCreary, who is directing the campaign, has the air of a war room...
...Trust Co...
...2 3 The huge inflow of AID in the '60's further Americanized the Chilean middle class...
...Further, much of the imported industry fortified the class structure within Chile...
...2 2 The IMF's continuing aid to Chile has been attributed to certain well-placed officials in the IMF bureaucracy who are sympathetic to the UP, and to the strong European influence in the IMF as a whole...
...While the concept of adequate compensation is stated in law, there are also strong U.N...
...The same source said that the agricultural loans have been held up because of U.S...
...Millas, op...
...problems have been encountered in obtaining credits and supplies both in the United States and in Europe...
...credit blockade has particularly severe effects in Chile, because of Chile's historical dependence on U.S...
...policy toward Chile would have raised the threat of these funds being cut off...
...At the same time, the UP has felt that it could not continue its advance toward socialism without winning over a sizeable percentage of Chile's relatively large and well-organized middle class...
...The opposition, foreign and domestic, has sought to compare current copper production with the levels "programmed" by the outgoing U.S...
...The impact of the U.S.-imposed credit blockade cannot in the politically crucial, short-run transition period be offset by credits from other countries...
...At the same time, the Peterson Report emphasizes that foreign investment is crucial to a healthy economy...
...and (2) the stronger commitment of the Nixon administration to interests committed to the protection and expansion of direct U.S...
...3. the transformation of the exchange reserve balance from a positive $67 million to a negative $59 million in 1960...
...2. We will not go into detail in this section about the early interchanges between the U.S...
...According...
...government and $72 million from the international lending agencies...
...THE UP MOVES TO COMPLETE ITS PROGRAM In 1971, the UP carried out a radical income redistribution, with the share of wages in total national income rising from 51 percent to 59 percent (somewhat more than planned...
...Aid and Comfort to the Corporations The people who formulated the NEP consider increasing government aid for U.S...
...cit., pp...
...By 1972, only $35 million in short term credits were available from private banks to the Allende government, as compared to about $220 million in past years...
...At the same time, the prices, as well as the quantity, of goods that Chile has wanted to import have increased steadily...
...In the past, the limited dollars went to fulfilling the desires of the upper and middle classes In 1971, the UP had considerable reserves to use in importing, and imports as a whole rose, but the rising consumption power of the workers allowed them to buy goods which previously had been unavailable to them...
...CHILE ACTS TO BREAK THE BLOCKADE In order to break its dependence on the United States, Chile must diversify its credit and import sources, and it has in fact already begun to do this (see the chart on this page...
...The control of the world's credit mechanisms are in the hands of the major capitalist nations and their banks...
...Renegotiation Act, April 1942, which allowed the government to take back in taxes excess profits made during World War II...
...grants (not loans) money to be used to train "selected Chileans" in urban administration, rural development and similar fields...
...All of the Third World will watch carefully the events of 1973 in Chile, as a determined working class and its allies strive to break free of U.S...
...We should examine each of these functions briefly...
...Chile is a perfect example of this arrangement...
...Ibid., p. 60...
...economy home and abroad...
...As White House press secretary Ronald Ziegler described the post, Schultz will be "The focal point and over-all coordinator of the entire economic policy decision-making process, both domestic and international...
...CHILE FACES THE BLOCKADE A shortage of dollars has always been a constraint on Chile's economy, geared as it was to importing its machines, industrial inputs and some consumption goods...
...We urge people who want to know what they can do to fight the invisible blockade to contact NICH-Non-Intervention in Chile, 731 State Street, Madison, Wisconsin, 53703...
...12 per year for institutions ($22 for two years...
...and the relaxing of certain antitrust laws with "inhibiting Thief...
...These brief reports are representative of many industries tied to U.S...
...What Else Can You Expect...
...25 Total beef consumption in 1971 exceeded that of 1970 as more beef was imported or slaughtered to meet the rising demand...
...9 Neither copper nor agricultural production declined in 1971, and imports increased only moderately...
...U.S...
...In 1971 and 1972, Chile paid back around $16 million, and in 1973, $17.5 million is due...
...Thus, the availability of credit from the Eximbank has a great deal of leverage on export-financing as a whole...
...Bank President Robert McNamara's former employer, Ford Motor Company, has left Chile voluntarily, complaining of "impossible conditions" set by the UP government...
...With reserves vanishing and the United States hostile, Chile had become, after all, a "credit risk...
...The black market has existed since half a year ago, but long lines for such basic articles as cooking oil, cigarettes, meat, sugar, coffee, margarine, pow- dered milk, and detergents really began after the October strike...
...will not extend new bilateral economic benefits to the expropriating country unless and until it is determined that the country is taking reasonable steps to provide adequate compensation or that there are major factors affecting U.S...
...Allende U.N...
...Autonomous capital" measures direct investments, depreciation, portfolio adjustments, bank deposits, government certificates, certain loan categories, and other "non-compensatory" capital movements...
...This and the following information on Klein-Saks comes from Enrique Sierra, op...
...Emphasis ours...
...In the decade of the '60's, national savings rose only slightly, from 14 percent to 16 percent of GNP...
...policy on bilateral and multilateral aid through several mechanisms...
...elimination of credit possibilities based on discounting future copper sales, cutting into Chile's "credit worthiness...
...In the past 25 years, Chile has received $600 million worth of direct credits from the Eximbank...
...The system broke down when, first, the Germans during World War I invented a synthetic substitute for nitrate, and second, the Great Depression knocked the bottom out of the copper market...
...Though there were undoubtedly differences among them, depending on what interests within the ruling class they represented, their aims were the same: isolate Chile, cut it off from the credit it needed, and ultimately get rid of that irritation represented by the UP government...
...THE ASSUMPTIONS From the beginning, U.S...
...cit., p. 125...
...John B. Connally...
...The nation's foreign debt skyrocketed from $569 million in 1958 to nearly 4 billion in 1970, 9 while physical volume of exports increased only 48.5 percent in the decade of the 1960's...
...not as an independent multinational body at the service of the economic development of all its members, but in fact as a spokesman or instrument of private interests of one of its member countries...
...Chile has partially made up for the loss by negotiating around $490 million in short-term credits from other countries, including' $103 million from the USSR, $56 million from Argentina, and $52 million from Italy...
...the victory of Salvador Allende brought the national liberation battle to a new, much more intense stage...
...In addition, the bankers tended to believe the exaggerated U.S...
...Ibid...
...Information on IDB operations comes from interviews conducted there as well as recent IDB annual reports...
...The New Economic Policy, announced by Nixon in August, 1971, gave notice to the world that, in order to confront the economic problems that came to a head in 1971, the U.S...
...Many people ask, "Didn't the Allende government expect this...
...2 ' Should the U.S...
...Military Assistance U.S...
...No formal overseeing by the International Monetary Fund was included in the agreement, which Chile considered a major victory...
...1955...
...chapters 1 and 2, and bibliography...
...it had broken all the rules a debtor must obey...
...AID: as of June, 1971, Chile owed AID some $500 million payable in dollars, and $30 million payable in escudos...
...2 Short term credits and the longer term credits and loans for development projects are crucial to developing countries because of their chronic shortage of foreign exchange...
...Most recently, in mid-January, 1973, Kennecott took its case to German courts...
...But this strategy potentially conflicted with the UP pledge to increase working class and peasant incomes...
...A small family home, integrated into a carefully controlled neighborhood committee, was considered a good way to alleviate pressures from the lower classes...
...The United States poured aid into Chile to keep it safe for capitalism, to try to buy off the discontented Chileans who well understood that the Chilean economy was in trouble because of its historic relationship with the developed world...
...14III...
...Moreover, it is an open question whether it was in the best interest of the Chilean people and the incoming Frei administration to present them with a tottering economy pasted together temporarily by emergency assistance...
...They, like the copper industries, continue to receive whatever dollars are available...
...and the developing countries...
...5 Finally, Chile was forced to spend $150,000 to wage its legal battle against the embargo...
...Under the scope of the nationalization of the properties, outstanding notes were to be inputed into the calculation for compensation and are thus subject to deductions for excess profits (From interviews with the legal advisor in the Chilean Embssy...
...The IDB has made two new loans to Chile, for the Catholic ($7 million) and Austral ($4.6 million) Universities...
...Or, it would be forced to move outside the constitution, inviting military intervention...
...7. On this, see Yanqui Dollar, NACLA, 1971, p. 32...
...3 3 It was natural that the government would seek the advice of the business community, since most of the high government officials had previously been corporate or banking executives and would soon return to their previous roles...
...The ship sailed to Holland 22 A Heavy Loss where it immediately became embroiled in a new set of legal controversies which were ultimately resolved...
...As a Chilean working for the IDB complained, "The IDB is behaving like an umbrella that's up only when it's not raining...
...A source in Chile estimates that around 30 percent of the privately owned "microbuses," 21 percent of the taxibuses and 33 percent of the state owned buses are immobilized because of lack of parts or tires...
...consumption patterns...
...Department of Agriculture admits that "Institutional changes introduced by the Allende ad- ministration may not have had much direct impact on 1971 crops because crop decisions had been made and planting had taken place prior to the change in adminis- trations...
...While U.S...
...The Central Bank, which allots all foreign exchange, granted permits for a 31 percent increase in importation of intermediary inputs in 1971, even though industrial production rose only 14 percent-that is, allocating vital dollars to businessmen clearly planning to stockpile and speculate...
...interests which require continuance of all or part of these benefits In the face of the expropriatory circumstances just described, we will presume that the United States Government will withhold its support from loans under consideration in multilateral development banks...
...4 The "import-substitution" policies promoted by CORFO did lead to increasing self-sufficiency in certain "traditional" consumer goods like textiles, prepared foods and drinks, furniture and shoes...
...could have played a waiting game and hedged, giving little bits of aid to Chile, encouraging private investment and loans, and generally treating the Allende government as it had Peru...
...2) promote a favorable climate for private investment (which the United States thought would promote growth...
...Further he said, "we assume that the U.S...
...Their capacity to offer or withhold their "services" gives them tremendous political power...
...Nevertheless, interest payments, the other factor in "financial services paid to foreigners," were $88 million in Allende's first year...
...Finally, the odyssey ended on October 21, 1972, when the ship returned to Le Havre to unload the contested cargo...
...would "cut off aid unless she provided prompt compensation...
...In 1969, for example, they were a positive $263 million...
...We compiled the following summary of the effects of the blockade on key industries within the state sector from interviews conducted in Chile with fac- tory managers, Central Bank officials in Chile, and CORFO officials in New York...
...This reasoning, however, promises great difficulties during "transition" periods for any progressive Third World government...
...Richard Feinberg, The Triumph of Allende: Chile's Legal Revolution (New York: Mentor, 1972...
...Although Treasury has always been a powerful department, it had, until the advent of Connally and the NEP, shared with State the role of forming policy towards nations involved in expropriation controversies with the U.S...
...investment and influence, and, maybe even promote Chilean growth...
...in 1972, only between 13 and 20 percent of total imports (of nearly $1 billion) came from the United States...
...firms going abroad, while U.S...
...foreign investment is crucial for the growth of the American economy...
...In January of 1962 two separate exchange rates were created, and imports were restricted...
...With the intervention of the military, the strike was settled...
...intimidation of other copper customers...
...but the demand for these products was limited because of the class structure within Chile...
...Exports by Chief Economic Categories," 1971...
...We deal with the USSR, with Yugoslavia and China, but not with Chile...
...Thus, C. Harry Burgess, vice-president of Kennecott, bewailed losing out to the Japanese in competition for hard minerals...
...Exports and Overseas Investment, Machinery and Allied Products Institute, Washington, D.C., 1964, p. 12...
...economy vis a vis Western Europe and Japan...
...aid was underwriting the Chilean economy...
...Aid as a Prop That a major function of U.S...
...In fact, when the Allende government came to power, 78.4 percent of the total short term trade credits available to Chile came from U.S...
...Chile Hoy (Santiago), August 18-24, 1972, p. 9. 27...
...granted Chile a $5 million military credit for the acquisition of a C-130 four-engined transport aircraft and paratroop equipment...
...During the six years of the reformist Christian Democratic government (1965-1970), U.S...
...From 1962 onwards, with the coming of the Alliance for Progress, the emphasis on austerity was dropped, and the United States poured loans into Chile in a THE HOUSE OF CARDS COLLAPSES While exports remained dependent on the fluctu- ating price of copper, the demand for imports, for industry and consumption, kept mounting...
...Many bankers admitted to us in interviews in San Francisco and New York that Chile had them "worried and concerned" on several occasions, especially in the early sixties...
...For a more complete discus- sion of this necessarily abbreviated historical section see Cademartori...
...The special case of Kennecott acting on its own to defend its interests will be considered below...
...20U.S...
...To do this, Chile would have had to continue importing an ever rising amount of food and consumer goods...
...6 Moreover, in a recent econometric study of the world copper industry and its historical reactions to price changes, it was predicted that "Chilean output would be very sluggish even in the absence of nationalization...
...3, May-June, 1970...
...As we will describe in more detail below, the effect of the capital outflow was drastic for Chile...
...They helped create an enlarged petty bourgeoisie whose consumption levels were an illusory impermanence, dependent on everlarger loans...
...PART 11 1. Anibal Quijano, "Nationalism and Capitalism in Peru," Monthly Review, Vol...
...5. Allende U.N...
...9. United States Department of Agriculture, Agricultural Reforms and Productivity and Trade in Chile Since 1965 (Washington, October, 1972...
...24 The effect of these embargoes was to further imperil Chile's credit standing in the United States...
...These include Secretary of State William Rogers...
...government is going to have to get involved...
...These credits are actually dollar loans extended by Eximbank directly to borrowers outside the United States for purchases of U.S...
...In 1938, Radicalism preached rationality, free thought, and women's rights...
...direct investment, except for guns, is dollars...
...The Administration took its first official steps* towards formation of policy toward nations which expropriate U.S...
...It was natural for Chile to import U.S...
...Meanwhile, the inflow of investment capital was only modest, but profit remittances were immense, and foreign firms gained control of an ever-widening sector of Chile's economy...
...The foreign debts of the commercial banks and the Banco del Estado climbed from $10.9 million to $105.2 million between 1958 and 1961, thus binding together local and foreign banking directorates...
...Barron's Magazine, October 23...
...Such credits are the grease of international trade...
...23 The first drafts for the official policy statement were prepared under Weintraub at State and John M. Hennessey at Treasury...
...To avoid having the $1,330,000 payment embargoed, French dock workers in Le Havre, in a demonstration of solidarity with Chile, refused to unload the Birte Ollendorf...
...8. See for example, U.S...
...7 But a reporter for Forbes magazine exacted a more telling quote...
...The U.S...
...Humanitarian assistance will, of course, continue to receive special consideration under such circumstances In order to carry out this policy effectively, I have directed that each potential expropriation case be followed closely...
...Wall Street Journal, October 12, 1972...
...And you don't get solutions by sitting on your hands...
...It is true that during the years following World War II, manufacturing was, in comparison to the sluggish export and agricultural sectors, the most dynamic sector of Chile's economy, and that by the early 1960's, Chile was fairly self- sufficient in most consumer goods...
...and that this increased demand for goods would overcome one of the scourges of dependent capitalism: the existence of large excess plant capacity alongside of high unemployment...
...interest without making reasonable provision for such compensation to U.S...
...In fact, Chilean copper production rose 8.3 percent in 1971, a major victory considering the dislocations that accompany a nationalization...
...4. Chilean government advertisement, New York Times...
...Throughout 1972, the struggle grew...
...See Yanqui Dollar, NACLA (1971...
...When asked whether this might not be interpreted as a "slap in the face" to Chile and other Latin American nations, Rogers, already reflecting the influence of Treasury's hard-line, suggested that "such measures might be the only language they understand...
...Before granting a loan, the World Bank ascertains that certain preconditions will be fulfilled...
...FCIA insurance is available to U.S...
...government has reiterated its commitment to this goal again and again...
...The percentage of white-collar employees, however, increased, from 13.9 percent to 20.1 percent, and their average real salary rose...
...government was well aware of the addictive nature of its aid-and the stranglehold it would give the United States over Chile...
...12 According to interviews with Chilean Embassy officials, Kennecott lawyers have admitted that their strategy is aimed at pressuring Chile to enter negotiations by depriving it of copper earnings and possibly copper markets...
...Klein-Saks sought to reverse the limited gains made during the Popular Front period...
...By the 1960's, a ten percent and rising share of foreign exchange earnings was being gobbled up by food imports...
...The latter two should supplement, not compete, with private capital...
...See also "The End of U.S...
...The World Bank's $20 million loan to the "Papelera" has been supplemented with another $17.4 million from the Inter-American Development Bank...
...would henceforth take a hardline in promoting its economic interests...
...The Blockade Takes Effect TRANSITION ECONOMICS The economic policy of the Unidad Popular has had two central thrusts: overcome the stagnation and dependency of the past by initiating the construction of socialism, and consolidate the political support needed to undertake this construction...
...23, No...
...Multilateral aid is aid granted from an nstitution with many nations represented, like the world Bank...
...AID's "technical assistance" program has continued under Allende...
...A listing of its major stockholders reads To groom the people to accept such large-scale industry, with its concentration of power and wealth, the lending agencies have a number of programs with a clear political content...
...The Reaction The Kennecott moves were denounced by all sectors of Chilean political life as economic aggression violating national sovereignty...
...The cutting off of private, official U.S., and multilateral credits was the first major step in undermining Chile's economy...
...122, "Exposiclon sobre a political economics del gobierno y del estado de la hacienda publicsa," presented by Minister of Finance Orlando Millas Correa, November 15, 1972, p. 60...
...1 4 In addition, Dutch and Canadian lines of credit were cut because Chile had become more of a risk...
...Chile was Latin America's most favored recipient: lavish loans poured in to support the South Hemisphere's model of progressive democracy--and to halt the Marxist advance...
...Andres Zausquevich, production manager for the former Anaconda properties said that these operations alone required from $20-30 million in short term credits annually to import needed components...
...Daniel Szabo, Deputy Assis- tant Secretary of State (for Inter-American Affairs [economic policy] ) was a special assistant to Senator Jacob K. Javits from 1963-1969...
...They should finance projects such as transportation and irrigation, which are foundations for economic development, and which are not ordinarily attractive to private investment...
...government will have to be more committed than ever to the expansion and growth of the U.S...
...As Javits' assistant, Szabo also worked closely with the Atlantic Community Development Group for Latin America (ADELA), a consortium of American, Euro- pean and Japanese Companies founded in 1964 which invests jointly with local capital in Latin American industrial projects...
...Ercilla (Santiago), September 13-19, 1972, p. 10...
...Chile's Dependence on $$ In the early twentieth century, Chile depended on earnings from its mineral exports to permit the importation of the manufactures its upper classes consumed...
...24 These aid programs gravely distorted Chile's economic and social fabric...
...Quoted in Chadwin, Part L, p. 104...
...Robert H. Finch...
...7 Aside from its falseness and arrogance, such a statement, coming from the head of the World Bank, is a departure from normal diplomacy...
...What went wrong with "import substitution...
...Chile gets around 80 percent of its foreign exchange from sales of copper...
...of Commerce, FT-420 and FT-455...
...From interviews in CORFO alpd with Japanese representatives to UNCTAD IIL Santiago...
...Lest there be any doubt as to U.S...
...Thanks to John Dinges for supplying the information from the article...
...Exports to Chile by Chief Categories U.S...
...8 Senator Kennedy was joined in his critique by other liberals in Congress, especially Senator Frank Church...
...also, Julio Cesar Jobet...
...Anaconda also embargoed some Chilean assets in New York in February, 1972, in a similar attempt to force payments due under the Chileanization agreements...
...In the 1958 presidential elections the Popular Action Front, and its candidate Salvador Allende, had missed victory by only 35,000 votes...
...Millas, op...
...Although Kennecott was hurt a great deal in losing the Chilean properties, it did not lose all...
...When the United States tried to oust IMF president Pierre-Paul Schwitzer, Chile rallied the Latin American members to his support...
...9dwindling, the U.S...
...mining and other interests in Chile had been resolved...
...The struggle reached a climax in the presidential elections of 1970...
...government...
...6 Chilean industrialists preferred to produce for a protected and monopolist domestic market with its high and easy profits...
...and Chile, ODEPLAN (Office of National Planning), Antecedentes sobre el desarrollo Chileno, 1960-1970 (Santiago, 1971...
...The larger middle-class did not participate in this limited demonstration, but all of Chile took notice of the engaging struggle over consumption power...
...13 Inter-American Development Bank [IDB] Since its founding in 1959, the IDB has granted Chile 59 loans totalling $310 million...
...Millas, Budget Speech, op...
...Although glad to accept state loans for their industries, the Chilean industrialists (who were largely the same people who had been latifundistas and free traders) were careful to keep the profitable consumer goods sector in private hands, and they sometimes even bought out profitable state industries...
...Then profits are remitted faster, and cash balances held in Chile are reduced...
...Let us examine briefly each point...
...In 1950 he stated: For economic development foreign capital will be needed from three main sources: from private investors, from the International Bank for Reconstruction and Development (the World Bank), and from the Export- Import Bank...
...Kennecott's strategy has transformed a Ilaenl iellp intfn nnlitifial nnl prnnnmir atsialcrlp KENNECOT OF EL TE RIGHTS Gentlemen: Together with out Street, New York, notice to you as foil or may be arranging other metals or prod Republic of Chile at attention to the fact in aid of such purt other metals or proc to governing princif action as may be cor rights with regard tS regard to their proce r'S COMMUNICATION TO CUSTOMERS NIENTE COPPER OF ITS CONTINUED OF OWNERSHIP IN SUCH COPPER September 7, 1972 r subsidiary, Braden Copper Company, of 161 East 42nd New York, United States of America, we wish to give lows...
...Few Chileans could afford to buy the new consumer goods...
...Washington Post, April 11, 1971...
...A financial blockade would make it difficult for Chile to maintain economic growth, a shortage of dollars would frighten the members of the middle class who had consumed most of the imports in the past...
...Kennecott and Anaconda Join In Kennecott Corporation joined in the economic offensive against Chile in February, 1972, when it "attached" the accounts of several Chilean government agencies operating out of New York, including the State Development Corporation (CORFO), and the Chilean Copper Corporation (CODELCO...
...Peter G. Peterson, The United states in a Changing World Economy, Vol...
...His desk is strewn with shipping reports, and on one wall hangs a large map for plotting ships' courses...
...It's a new ball game with new rules...
...Expanded imports range from more food from Argentina to buses and capital equipment from Brazil...
...government continued its aid to the Chilean military...
...CIAP, op...
...AID to the Opposition The United States' strategy towards Chile is evident in the programs it continues to operate there...
...General Assembly, December 4, 1972, p. 11...
...interests...
...White House Report/Peterson Unit Helps Shape Tough International Economic Policy," National Journal, VoL IIL, no...
...Ibid., p. 87...
...company which rents important machines to the firm threatened to remove the machines unless El Melon paid debts in cash...
...He is known to be fascinated by international economic affairs...
...5 More Power to Treasury The NEP also implies more power for the Treasury Department in making foreign policy...
...2) many cannot be fully utilized due to the traditional dependence on U.S...
...Emphasis ours...
...Senator Edward Kennedy, "U.S...
...aid program in Latin America has had three broad purposes: 1) prop up unstable but friendly governments...
...Unpublished study by Ken Flann, Stanford University Department of Economics...
...During the Council of the America's (the main lobby for U.S...
...When it couldn't borrow the dollars it needed, Chile would have to use these reserves, further impairing its "credit worthiness...
...Charles Nisbit...
...This embargo is still in effect, and it has forced CODELCO to reroute its purchases through ports other than New York...
...The electrification program had already been actively supported by the Bank for twenty years...
...cit., pp...
...government has assumed that U.S...
...The assumptions which have long underlaid U.S...
...The UP hoped that an increase in popular consumption power would encourage the production of basic necessities instead of luxury goods...
...The insurance program is administered by an Eximbank affiliate, the Foreign Credit Insurance Association (FCIA), a group of the principal U.S...
...2. For more on this, see Richard Feinberg, The Triumph of Allende: Chile's Legal Revolution (New York, New American Library, 1972...
...The IDB funded the elite-producing universities, which were encouraged to undergo "modernization" reforms...
...1 0 The Report calls for strong government action to expand exports and investment abroad: specifically, Peterson recommends more liberal tax treatment for exporters and foreign investors, and suggests that restrictions on foreign investment abroad be dropped...
...Chilean private importers and state development projects have depended on the credits granted by the capitalist nations, especially the United States, to import needed goods...
...Yet this 5.6% growth is considerably less than the 10.9 percent annual rise registered from 1966-70.5 Moreover, imports as a percentage of GNP actually declined...
...For example, Chile recently paid cash ($5.5 million) for a Boeing 727, even though the USSR made credits available for buying Soviet-made Ilyushins...
...January, 1966...
...The Debt Renegotiations In November, 1971, Chile declared a moratorium on its debt repayments to the United States and other countries, and asked for a rescheduling of its remaining 1971 debts and of the estimated $414 million due in 1972...
...40, October 2, 1971, p. 1991...
...1972...
...Tad Szulc, New York Times, December 9, 1972...
...government aid and support had in effect made Chile "credit worthy" for private U.S...
...The U.S...
...4, January 22, 1972...
...Social concerns were reduced to a combat against Marxism (by integrating the rebellious into the extending petty bourgeois value system), -and women's rights were negated in the holy structure of the Christian family...
...Petras and La Porte...
...The institutional and financial relationship between the banks and the copper companies whose assets were nationalized also played a part...
...extra shipping costs, and interest on embargoed funds Orlando Millas detailed the costs in a recent speech to budget commission of the Chilean congress 17...
...We draw your that any purchase, acquisition or disposal (or any action :hase, acquisition or disposal) of such copper and/or ducts without our express permission would be contrary ples of law, and inform you that we will take all such sidered necessary in order to protect our rights, including t such copper and/or other metals or products and with eds...
...The majority of the medium-term credit transactions in which commercial banks are involved are handled either by an Eximbank guarantee or with FCIA insurance...
...cit., pp...
...Helping to Adjust Balance of Payments Loans smooth over potential friction between governments and private foreign investors, by helping to adjust the balance of payments...
...Table IV Balance of Payments, 1970-71 (Millions of Dollars) Trade Exports Imports Trade Balance Financial Services Paid to Foreigners Profits Interests Paid by Foreigners Autonomous Capital Movements Balance of Payments Total Reserves 1970 1,272 (61d)* 1,202 + 71 - 129 186 97 90 57 + 149 91 344 1971 1,146 (50d)* 1,270 - 122 - 90 126 38 88 36 - 103 -315 30 * Copper price per pound in U.S...
...The anti-UP press, both within Chile and abroad, has blamed "socialist ineptness" for the deficit, and 24for "pilferring away" the exchange reserves left by President Frei...
...Peter G. Peterson actively solicited the advice of the private community during the months in which the expropriation policy took shape...
...They do not really expect to gain the equivalent of compensation by exacting their share of copper sales in actions throughout Europe...
...but do have the power of self-fulfillment...
...of Treasury...
...As the CIAP 1972 report concluded, "approximately twothirds of the total deficit was determined by the behavior of financial factors...
...and the New York banks are on a day-to-day, personal basis, and one banker did admit: "We are influenced to a considerable degree by the attitude of the U.S...
...World Bank, International Development Association, Annual Report, 1972, p. 124...
...government supplies three-fourths of the capital for the IDB...
...Senator Kennedy in the Congressional Record, op...
...In September, it would act again to enforce its will...
...foreign investment...
...ct., p. 91...
...6. See Dom Bonafede...
...See also New Chile, p. 47: and Hector Melo and Israel Yost, "Funding the Empire, Part 2 - The Multinational Strategy," NACLA Newsletter, VoL IV...
...Suppliers' credits are credits extended by producers to foreign importers...
...If a dollar blockade could keep the UP from building the political base it needed, then it would be unable to carry out its program...
...If the UP could win majority backing, Chile's democratic tradition allowed people to hope that real reforms could be made without much violence...
...government stopped playing banker, and it cut off its sources of credit, knowing that private bankers and suppliers would follow suit...
...JOHN M. HENNESSEY: Deputy Assistant Secretary of the Treasury (development finance institutions) since 1970...
...investment abroad in order to improve government and business awareness of each other's concerns, actions, and plans...
...4 The 1971 capital outflow, the response of international capitalism to Chile's progressive nationalism, reduced Chile's reserve balances, built up temporarily by the high price of copper in the late '60's, to near zero...
...p. 119...
...The former will hereafter be referred to as Chadwin, Part I; the latter as Part IL 22...
...The United States was on the defensive, and policy makers confronted the threats arising from the Chilean expropriation from a perspective which magnified their importance to U.S...
...But the UP was unable to break the primarily middle-class strike, and finally Allende asked commander-in-chief of the Army, General Carlos Prats, to become his Minister of the Interior...
...Chile, Office of National Planning (ODEPLAN), Antecedentes sobre el desarrollo chileno, 1960-70 (Santiago, 1971), Table 321...
...5. Inter-American Committee on the Alliance for Progress (CIAP), 541, Domestic Efforts and the Needs for External Financingfor the Development of Chile, April, 1972, p. 52...
...They could also guess that Chile would export less than it needed to import (largely because of the drop in the price of copper), and that it would have to borrow or dip into reserves to cover the deficit...
...and other groups attempted to block Kennecott's plans to open new mining operations in Black Mesa, Arizona, and Puerto Rico...
...Indicative of this is the continual emphasis in Chile on an overvalued cur- rency, which made imports cheaper, both for Chilean industry and for the middle and upper classes' con- sumption, but which impeded exports by making them more expensive...
...18In the words of one of its own publications, the Bank is seen as a "safe bridge over which private capital could move into the international field...
...policy towards Chile took on new implications in mid-1971 because of two factors: (1) the worsening situation of the U.S...
...Peterson, VoL I., pp...
...Chile Nuevo (Santiago), July, 1972, p. 37...
...Other European investors, however, apparently have shied away from a nation- alist government in the "unstable" position of being in a struggle with the United States...
...To preserve itself in power, the national elite would look to its imperial allies for salvation, in the form of foreign investment, machine tools, and especially, loans...
...corporations a necessity in view of similar aid provided to foreign competitors by their governments...
...Oils and Fats, Animal and Vegetable Chemicals Manufactured Goods Classified Chiefly by Material Machinery and Trans- port Equipment Miscellaneous Manufactured Articles Items not Classified by Kind Totals Up to 1972 Chilectra's credit system in the United States functioned normally...
...loans...
...the external sector would be balanced by establishing a free and fluctuating exchange rate and a liberalized importation policy...
...41-45...
...The information on IDB operations comes from Inter-American Development Bank, La Accion del BID in Chile, no date given, but the report covers 1961-1969...
...industries vis a vis Japan and Western Europe and analyzes foreign trade trends and balance of payments difficulties...
...63-78...
...In any case, the IDB and World Bank's arguments conditioning long-term loans on current exchange difficulties lack coherence...
...What Chile lacked in terms of capital, capacity and character, the U.S...
...It is important to note that the industries described above are among the most crucial sectors of the Chilean economy...
...Its capacity to pay has been a function of the price of copper and of U.S...
...model of dependent industrialization, were not forth- coming...
...32-34...
...policy, but otherwise differed in approach reflecting the conflict between State and Treasury in foreign economic policy (sometimes referred to as the "soft-line" vs...
...Chile, like most Latin American nations, has little capital, in the sense of permanent exchange reserves...
...pressure, including ITT's infamous machinations and Kennecott's aggression in Europe...
...banks...
...Although a full discussion of the failures of import substitution is beyond the scope of this article, it is necessary to understand how it exacerbated Chile's dependency on U.S...
...2 First, the U.S...
...The New York Times, July 3, 1971...
...5. Financing U.S...
...goods and led to rising indebtedness, while Chile's economy continued to languish...
...Several were lawyers with strong ties to inter- national corporations...
...Chadwin, Part IL, p. 150-152...
...government policies and Kennecott's actions fully complement each other...
...Aid to Chile," New Chile, p. 48...
...The U.S...
...Quoted in Chile Hoy, Santiago, November 3-9, 1972, p. 13...
...jurisprudence in regard to the exorbitant profits made by U.S...
...6 Since Treasury also makes U.S...
...Take 1966, for example: In that year the nation's trade balance in commodities and services was slightly positive, by $89 million (since copper prices were rising), and this surplus was supplemented by $94 million in capital inflow for investment...
...Economic Commission on Latin America (ECLA...
...George P. Schultz, currently Secretary of the Trea- sury and in 1971 Director of the Office of Manage- ment and Budget, was Dean of the University of Chicago Business School...
...But under the UP a worker labors only two hours to buy the same amount...
...The following article should help to fight the invisibility of the blockade, to make more accessible to people the truth about this new form of economic warfare...
...But the outlines of the struggle were clear...
...Peterson admitted to a National Journal reporter that while most U.S...
...3 Thus, we can see the growing conviction by private businessmen and government officials that strong governmental action is necessary to protect U.S...
...dollars...
...government cannot walk away from any significant expropriation...
...Thus Senator Edward Kennedy, in criticizing Nixon's January 19, 1972 expropriations policy announcement, said that the interest of the United States should not be based on the private interest of foreign investors: "We should seek to divorce government policy from private interests...
...so the debt grows, but the means to pay it do not...
...The major thrust of the U.N...
...They thus represent interests especially committed to the expansion of capitalism in the Third World...
...Allende had won the three-way presidential contest with 36 percent of the vote...
...109 million for amortization of loans...
...See also the table in New Chile, p. 49...
...1 6 To attract private capital into its projects, the Bank conditions its loans upon the creation of a favorable investment climate...
...of New York...
...For details on this, see "Coexistence or Confrontation...
...The Chilean bourgeoisie was unable to thrust forward towards a self-sustaining and independent growth...
...94701...
...Chile's debt repayments would have totalled around $400 million in the next three years-37 percent of anticipated foreign exchange earnings...
...Chile has negotiated $10 million in long-term credits from Brazil, $20 million from Mexico, and $40 million from Peru and Argentina...
...The Chilean bourgeoisie cannot believe that peasants are capable of running their own farms, so they refuse to accept UP figures showing that agricultural production rose 5 percent in 1971...
...Furthermore, the U.S...
...banks, however, operating out of business motives, agreed to renegotiate some $300 million in loans, that included $110 million incurred by the copper companies during the Frei Chileanization program...
...By working directly with the government, the foreign lenders expropriated for themselves a growing share of the decision-making process, and tightened the links between the Chilean State and the ultimate benefactors of the loans, the foreign and domestic capitalists...
...Further, the dollar scarcity had forced a reduction in non-agricultural consumer good imports by 58 percent.' 5 Though production was rising, money in circulation-due to rising wages and government spending-was growing faster, and demand began to exceed supply for an increasing number of goods...
...The disappearance of reserves and credits means that Chile will have to import less in 1973, exacerbating shortages Further, while the industrial sector grew considerably in 1971-'72, new investment was minimal due to the lack of dollars and the necessity to allocate scarce resources elsewhere...
...Throughout this period, more farms and industries were incorporated into the state sector, giving the UP greater control over their produce...
...interests without proper compensation is our 20th century version of the British gunboat diplomacy of the last century...
...The doctrine of free trade and the international division of labor reigned supreme, and Chile was well on the way to becoming underdeveloped...
...Even though a general expansion of production in 1971 permitted all sectors of the population, except the very wealthiest to benefit, most middle class Chileans continued to oppose the UP...
...Bonaede, op...
...An officer in a large New York bank said, An unfavorable investment climate...
...Shortterm" credit is to be repaid in one to six months (usually 90 days) after the purchase arrives at its final destination...
...41-43...
...All suppliers' credits were cut off...
...Meanwhile, the middle class became increasingly interested in obtaining modem consumption goods, which were placed vaguely within reach by the importation of U.S...
...Most significantly CIPEC, the organization of copper exporting nations (Chile, Peru, Zaire and Zambia - they produce 44 percent of the world's copper) met in December, 1972, and issued a declaration stating they would not deal with Kennecott and that they would refrain from selling copper to markets traditionally serviced by Chilean exports.' 9 Such solidarity is important, because it undercuts the Kennecott strategy in the present market where the supply is plentiful...
...machinery in the forties and fifties since the United States was the only economy during much of that period able to produce machines for exportation...
...companies preferred to use the profits from their Chilean mines to invest elsewhere and pay dividends...
...As of January, 1973, the United States was the only country which had not formally signed bilateral renegotiation agreements, although negotiations have gone on for at least two months...
...NACLA'S LATIN AMERICA & EMPIRE REPORT (Formerly NACLA NEWSLETTER) * Vol...
...The most important failure of the import-substi- tution policy was that it encouraged (through pro- tection devices and through foreign exchange manipu- lation) importation of machinery to achieve self- sufficiency in certain items but ignored or gave little encouragement to the export and to the agricultural sectors...
...6 Generally such deductions not only mean that the U.S...
...However, the causes of the decline cannot be clearly identified with changes introduced by the Allende government...
...Didn't he realize that the worst thing you can do is kick an elephant...
...hard-line policy toward Chile greatly influenced the decision of the private banks to cut off their credit facilities to Chile...
...Chile's "current account," listing trade balance and profit remittances, historically has been negative, but it has been partially balanced by a positive "capital account," which recorded the net dollars available from investments and loans, even after subtracting debt servicing and depreciation...
...In 1970, Chile's middle classes voted to preserve their privileges, under either Alessandri or Tomic...
...The program also funds labor union visits and exchanges conducted by the American Institute of Free Labor Development (AIFLD), which is basically a corporate- and labor-funded tool for infiltrating the Chilean labor movement...
...The discussion of the formation of the policy comes from information in Mark Chadwin, Part I., "Foreign Policy Report, Nixon Administration Debates New Position Paper on Latin America," National Journal, Vol...
...Nevertheless, the Chilean expropriations came at a particularly bad moment for Kennecott, because the corporation was under attack in other parts of the world...
...Without the necessary power to enforce an immediate and complete redistribution of available goods, the UP would need to satisfy the middle classes at the same time as it raised the consumption power of the working class...
...The Left identified these primary causes of Chile's demise: foreign ownership of strategic and wealthy natural resources, and, increasingly, of industry, commerce and banking...
...sury for development finance (a man who helped shape U.S...
...to promote certain "small scale self-help projects...
...and Peter G. Peterson was a director of the First National Bank of Chicago...
...Nor was it possible to correct these conditions through a domestic, national effort...
...Chile was late in paying because it had determined under the Constitutional Amendment nationalizing the copper holdings that it would repay only those loans which had been usefully invested...
...the large, foreign-owned mines, the banks, the latifundia and numerous industries...
...domination and to build an economy which serves all the people...
...government adapted their strategy to fit the via chilena...
...John N. Irwin (a partner in Wall Street's prestigious Patterson Belknap and Webb and legal counsel to the Rockefeller Foundation...
...By the early fifties, the economy showed signs of stagnation, as investment fell to a low 8 percent of GNP...
...3 Kennecott first tried to get satisfactory compensation by litigating in Chilean courts...
...The domestic economy looked good in '71, but indicators for the external sector were foreboding: in 1971, the balance of payments ran $315 million in the red, jeopardizing the future health of the economy...
...9 Though the implications of this new international policy are clearest for Japan and Western Europe, the policy obviously has profound implications for the underdeveloped world...
...2 0 The Inter-American Development Bank specializes in stimulating small and medium domestic investment...
...JOHN R. PETTY: Assistant Secretary of the Treasury (international affairs...
...2) The U.S...
...For the French courts to recognize the transfer of property in a nationalization, CODELCO must show that it adequately compensated Kennecott...
...2 2 Though earlier expropriations than those in Chile had bothered the administration, members of the CIEP admitted that the "review" was largely to determine policy toward Chile...
...Allende, as President, inherited a stagnating, dependent and mortgaged economy...
...What Sacrifice...
...This situation is often referred to as the "spiralling indebtedness" of underdeveloped countries...
...They would rather deal with a capitalist regime, but dealing with a nationalist government is better than no business at all-which is the rationale for doing business with Eastern Europe and China...
...reactions might take in the event of future expropriations...
...This ready availability of credits helped convince Chile to purchase high-priced U.S...
...investments in the hemisphere and closed the door to foreign investment except on the UP's own (more restrictive) terms...
...In the wellpublicized "march of the empty pots," these people demanded that their quota of beef and other goods be restored...
...3 2 This letter, like the infamous ITT "Papers," indicates how close those interests felt to the Nixon Administration...
...Mark L. Chadwin, "Foreign Policy Report, Nixon Administration Debates New Position Paper on Latin America," National Journal, Vol...
...Buildings constructed with IDB money for "adult worker upgrading" bear posters of Che Guevara...
...Moreover, the objective of the Development Bank is supposedly to help Latin nations overcome economic problems...
...Unpublished paper, Santa Clara Law School, Dec...
...4 The major borrower was the private sector, as the links between the Chilean bourgeoisie and imperialism were tightened...
...representatives on the Inter-American Development Bank and the Executive Director of the World Bank and International Development Association boards are Treasury officials, directly answerable to the Secretary of the Treasury...
...government understood by early 1971 that Chile was dependent on U.S...
...This influx of loans notwithstanding, the economy lay dormant...
...The trade balance had been negative in most years since 1955, in 1961 by $184 million...
...THE BLOQUEO INVISIBLE AND THE MIDDLE CLASS Under capitalism the problem of distribution is solved simply...
...AID Since 1946, Chile has received $540 million in "development" loans from the Agency for International Development, and its predecessors...
...The Process of Industrial Devel- opment in Latin America (New York., 1966...
...Ensayo Critico del desarrollo economico-social de Chile (Santiago: Editorial Universitaria...
...banks, Irving Trust, Bankers' Trust, and the Bank of America, have left open some $35 million in credit lines...
...The election of Allende in November, 1970, put the powerful Executive branch in the hands of the Left, but virtually all the other centers of power-the Congress, the Courts, the media, most of the means of production-stayed in opposition hands...
...Hegemony...
...Speech by Minister of Economy Pedro Vuskovic, before the CIAP Subcommittee on Chile, February, 1971...
...cit., pp...
...Key sectors that received Eximbank loans to import U.S.-made machines include copper, nitrate, steel, electricity, communications and railroads...
...Also, North Americans owned and supplied Chile's copper mines, telephones and an increasing number of other industries...
...Latin America: Problems of Economic Development, 1968...
...Some articles, such as toothpaste and razor blades can only be bought on the black market, which is not clandestine but openly accessible on the streets of Santiago...
...3 4 We have compiled a list of 20 men who played an important part in the development of the expropriations policy, either as members of the CIEP, as members of one of the related study groups, or as high officials in Treasury, State and the White House...
...4. six years (1956-61) of negative trade balances, financed always by a spiralling debt...
...As we explained above, the Eximbank position has made it more difficult for bankers to lend to Chile, since they can no longer get guarantees for their loans...
...While 150 years of underdevelopment could not be overcome at one blow, the Unidad Popular strove to nationalize much of the major means of production...
...If we are going to have a system that continues, the U.S...
...Likewise, Japan has committed some $50 million, primarily for mining investments, but no more...
...It could be argued that a visibly desperate situation would have resulted in Frei getting the powers he needed to initiate quick, far-reaching reforms...
...ENAP has had some success in obtain- ing adequate parts from Rumania...
...The restrictions imposed by Johnson were at first voluntary and then mandatory after 1968...
...with large amounts of U.S...
...Its propagating mechanism was described by a banker: "When a capital flight begins, it snowballs...
...When this failed, it threatened actions abroad in a letter directed to the customers of El Teniente copper (see box on this page...
...As each bank was taken over, we cut credit...
...and for the economic policy, especially the nationalizations, to proceed, the UP needed more political support...
...Since November, UP supporters and the Opposition have tried to recoup and consolidate their political forces in preparation for the March, 1973, Congressional elections, in which both sides hope to win a two-thirds majority...
...The dollars that Chile desperately needed to purchase consumer items and inputs for her factories, as well as the new capital equipment required by the Photo by Steve Shames 4lavish attempt to create a "showplace for democracy...
...The Private Banks Follow Suit The U.S...
...One reason the IDB is hesitant in loaning to Chile is that the agencies it previously funded in its attempt to develop a viable middle class in Chile are now dominated by communists and socialists...
...3, January 15, 1972, p. 106...
...it fully supplies the IDB's "Special Fund," and exercises a veto power over most loans...
...economic "aid" to Chile...
...The shortage of parts and of capital to import from the traditional sources was underscored by Minister of Finance Orlando Millas in a recent speech in Chile when he urged Chile's workers to use their ingenuity to avoid having to import parts and replacements except where absolutely necessary...
...If there is a shortage, the price rises until only the wealthiest (or a poor person willing to allocate a sizeable portion of his/her meager income) can afford the item...
...9 The continuation of these programs is justified on the basis that they are "humanitarian" and "peopleto-people" and thus exempt from Nixon's "hard-line" policy...
...IL, U.S...
...Their proposals, heartily endorsed by the International Monetary Fund and the World Bank" were ones of orthodox stabilization: they proposed slowing the rate of inflation by slashing government spending, ending subsidies to public utilities, and tightening credit...
...corporations and the U.S...
...While this might be expected with U.S...
...machines that produced these goods...
...1 2 And in a press conference held in Washington in October, 1972, Inostroza extended the criticisms to the InterAmerican Development Bank...
...In all of these cases, Kennecott is taking an aggressive position to protect its interests at home and around the world...
...122, "Exposicion sobre la politics economics del gobierno y del estado de ia hacienda publics," presented by Minister of Finance, Orlando Millas Correa to the comfison mixta de presupuestos, Santiago, November 15, 1972, hereafter referred to simply as MiUs, Budget Speech...
...Since 1970, Chile has received no new loans from AID...
...Formerly general manager of the First National City Bank, in Lima and La Paz 1964-1968...
...Copper production, for example, is heavily dependent on U.S...
...Suddenly, the whole structure collapsed: with the end of the Korean War, the price of copper plum- meted...
...In Sept...
...Chile as of yet has had no problems with the International Monetary Fund (IMF...
...The Chilean bourgeoisie has not striven to export manufactured goods...
...This reflects the dominance of the Treasury Department, which is, as Representative Wright Patman, head of the House Subcommittee on Banking and Finance, has decried, increasingly controlled by commercial banking interests...
...VoL II., no...
...Finally, we should include President Nixon among the policy makers...
...The Left's objective was to transform the economy as rapidly as possible, so that the old, anemic structures would not become the responsibility of the Left as government...
...The basis for the statement came from the drafts done by Weintraub at State and the one written by Hennessey...
...companies-Anaconda and Kennecott...
...cit., p. 60...
...122, Orlando Millas, Minister of Finance, "Exposicion sobre la politica economic del gobierno y del estado de la hacienda publica," November 15, 1972...
...This was the first clue that the Nixon Administration would erect a credit blockade, and the private banks and suppliers, well-trained actors in the capitalist game, took the cue...
...Yet, here was Nixon implying, as Senator Kennedy put it, "that the World Bank and the InterAmerican Development Bank are our tools to wield however we wish...
...Loaning to Private Enterprise The lending agencies, both U.S...
...Dept of State, Washington, D.C., December 4, 1972...
...Quoted in David Baldwin, Foreign Aid and American Foreign olicy (New York: Praeger, 1966), p. 65...
...This was clear from the first consultations between policy makers and representatives of interests affected by Chile's anti-imperialist actions...
...At the ballot box, the Left's vote rose steadily...
...Designed to prevent another Cuba, the Alliance emphasized austerity less, and preached the more appealing demagogy of aid...
...Since World War II, the United States has provided Chile with 40 percent of its total imports, and 65 percent of all its capital imports...
...loans...
...policy...
...A Klein-Saks-IMF style program stabilized prices by contracting government spending and tightening the reins on local business via harder credit...
...3 (As one banker put it, "Chileans are the world's most charming mendicants...
...It proposed that the CIA assist in this process...
...Takes a Hard Line It was difficult to say in 1970 just what the re- sponse of the U.S...
...all five have cut credit completely...
...Policies and Operations," Washington, June, 1969, p. 3. 17...
...3. Interview with Claudio Bonnefoy, Chilean legal adviser, Washington, D.C...
...Their trading company represents a coalition or consortium with the Japanese government," Burgess said...
...See U.N...
...Given the dependent state of the Chilean economy, Chile would have become a credit risk once the support of the United States and the international financial agencies it controls, was withdrawn...
...Didn't Chile want to become less dependent on U.S...
...Chile's total foreign debt is nearly $4 billion, more than half of which is owed to U.S...
...aid was evident in the $64 million in loans extended to Chile on the eve of the 1964 elections, "to dampen inflation...
...Such credits were previously supplied by U.S...
...As shown above, this difficulty is largely due to U.S...
...The Nixon administration had advocated channeling more aid through the multilateral agencies, thus lowering the U.S...
...policy makers essentially announced the end of what has been called its "Marshall Plan liberalism" 7 and the beginning of a new era of competition between major trading blocs...
...From the very day of our electoral triumph on 4 September 1970, we have felt the effects of a large-scale external pressure against us, which tried to prevent the inauguration of a government freely elected by the people and has tried to bring it down ever since...
...On December 4, 1972, President Salvador Allende summarized before the General Assembly of the U.N...
...Interview with Claudio Bonnefoy, op...
...AN UNEASY INTERIM The presence of Prats and two other military officers in the cabinet ended the violent aspects of class confrontation developing out of the prolonged and damaging strike...
...We also thank the following people who took time from their studies or from work in Chile to help put together the story of the "bloqueo invisible": Rod Savoignan, Alejandro Toledo, Hernan Rosenberg, Kathy Hays, Kyle Steen- land, John Dinges, Ruth Needleman, Leslie Krebs, and Bob High...
...cit., p. 82...
...Then, on October 8, a National Security Decision Memorandum (NSDM 136) assigned responsibility for handling investment and expropriation problems to the President's Council on International Economic Policy...
...The U.S...
...As described by Chile's Instituto de Econofnia: It was felt that neither the public nor the private sector was capable of generating the internal savings sufficient to guarantee stable prices and economic devel- opment...
...The value of the dollar on the black market fell from about 350 to 250 escudos...
...For the 1972 crop, productivity may be down sharply...
...We thank Fred Block for helping us clarify our ideas on these points...
...press reports of "marxist destruction" of Chile's economy...
...23, October, 1971...
...If we define as middle class, the 20 percent of all Chilean families that enjoy the highest income, the table below indicates their interest in the existence of a high import capacity...
...2 5 Chileans were not blind to the contradictions between the interests of dependent capitalism and those of Chile...
...government...
...2 Thirty years of dependent industrialization converted the middle classes to Christian Democracy...
...In 1956, when the Bank granted Chile $15 million for electrical development, it praised the orthodox capitalism of Klein-Saks: After years of chronic and accelerated inflation, the Chilean Government has embarked on a program to restore economic and financial stability...
...8 Neither the austerity nor the aid programs gave Chile growth: per capita GNP rose only 0.7 percent from 1955 to 1970...
...Along with Connally and Charles E. Walker, Petty decided on the Treasury position on loan applications to the bi- and multi lateral agencies...
...As Assistant Secretary of the Treasury John R. Petty said later of the policy, "we hope it will make any other government contemplating such steps think twice before taking them...
...304...
...The banks had also previously called in $180 million of short-term credits, many of which had covered materials imported during the Frei regime...
...Much of the information in this article comes from interviews conducted in Washington, D.C., and New York by the authors, and in Santiago by Roger Burbach and George Lawton...
...1 8 This represented an untenable strain on Chile's already serious shortage of foreign exchange...
...They were alarmed by the growing dollar shortage, and they could see that the UP Program would in the end enforce some sacrifice on their part, given the UP's commitment to the working class...
...He ran a miserable government, in finance, budgeting and foreign exchange, just where you'd expect him to be good...
...Chadwin, Part I., p. 101...
...Because workers were consuming more beef...
...medium-term" credit gives longer time for payment and usually covers more expensive items, such as "consumer durables," (refrigerators, cars), and capital goods, which are equipment used in producing other goods...
...The creation of a "favorable investment climate" is the stated goal of foreign aid programs...
...John M. Hennessey, deputy assistant secretary of the Trea* UP-Unidad Popular, the governing coalition led by President Salvador Allende...
...But in 1971, net autonomous capital movements were negative by $103 million...
...Foreign exchange refers to the currency, usually dollars, that is acceptable for use in international operations...
...International Bank for Reconstruction and Development (World Bank) Press Release, no...
...An action that has tried to cut us off from the world, to strangle our economy and paralyze trade in our principal export, copper, and to deprive us of access to sources of international financing...
...The autonomous capital movements and financial services figures graphically illustrate how payments on the debt...
...investment...
...This modem industry, Papelera, which binds together U.S., international, and domestic capital, has become a stronghold of the Chilean bourgeoisie...
...government has reacted so strongly to threats to its investments even in small and seemingly unimportant countries, has written: "the reality of imperialism goes far beyond the immediate interest of this or that investor: the underlying purpose is nothing less than keeping as much as possible of the world open for trade and investment by the giant multinational corporations...
...The United States undoubtedly assumes that this would generate an internal crisis which would force Allende's removal...
...In desperation, Chile's middle class united with the militant Marxist miners in the Popular Front of 1938 and defeated in elections the traditional conservative alliance of traders, foreign mine owners and latifundistas, with their peasant clientele vote...
...The Allende government has continued to pay off its loans to these banks and has criticized them for becoming tools of the U.S...
...From 1964-1970 alone, the Eximbank extended $368,779,000 in loans to Chile...
...Thus the State Development Corporation (CORFO) was set up to invest in steel, cement, oil, power, tires and other basic industries...
...We take the position that we can't have a strong foreiglr policy without a strong foreign eco- nomic policy...
...government confronted Chile's expropriations in a different context than it faced Peru's...
...Nor were they prepared to tolerate the social mobility necessary to generate a talented and skilled labor force, nor make the required investments in research and development...
...IV., no...
...IPC was only one of many U.S...
...3. A more complete discussion of import-substitution industrialization can be found in Alberto O. Hirschman, "On the Political Economy of Import-Substitution Industrialization," in ed...
...The ceiling is most limiting in the Western European region because the ceiling is low compared to the level of foreign investment there...
...export to Chile, and, as described above, crucial to the functioning of the Chilean economy...
...American banks refuse to extend credit and European banks have tightened up their terms...
...To complete the UP economic policy of nationalizations and income redistribution, the UP would need over 50 percent...
...hard line" tells the underdeveloped world that it had better play the game right, i.e...
...cit., p. 57...
...cit, p. 2238...
...For over half a decade CAP has sought to obtain $150 million in external loans for expansion...
...The Opposition in Chile capitalizes on these shortages, and even encourages black market speculation in "legitimate" protest against the "totalitarian" government...
...fuels) Mineral Fuels and Lubs...
...CIAP, p. 9. 12...
...The Pompidou government has assumed a position of neutrality noting separation of judicial and executive activities...
...These groups would then withdraw support from the Allende government and provoke a crisis into which the more conservative elements, particularly the military, might move...
...2 The issues were studied by the Council on International Economic Policy (hereafter referred to as CIEP), and by an undersecretaries committee chaired by John N. Irwin II, Under Secretary of State, and in his absence by Nathaniel Samuels, Deputy Under Secretary of State (economic affairs...
...Nevertheless, most of those credits and loans are tied to purchases in the countries granting them...
...As Minister of Foreign Relations Clodomiro Almeyda has said, "In- ternational capitalism shows structural solidarity...
...In essense, Kennecott resolved unilaterally to try to coerce Chile to pay Kennecott for its properties...
...speech, however, dealt with the "bloqueo invisible," the invisible credit blockade which has cut Chile off from access to international credit sources...
...An additional loan was provided in 1962 following an exchange crisis...
...Since the loans did not result in the increased production needed to repay them, Chile fell into a "spiralling indebted- ness...
...Further, Kennecott probably considered Chile's decision to make payments on the $92 million a tribute to the success of Kennecott's aggressive actions...
...The main growth in exports occurred in copper, leaving Chile yet more dependent on an export whose price fluctuated radically, and whose investment decisions were in the hands of two U.S...
...companies was a major theme of the State Departmentsponsored seminar mentioned above...
...Nixon's hard-line policy, however, was shaped over the course of a year's study, primarily by the representatives of corporate America, and not by the liberal social planners Actually, the credit boycott had been gradually imposed during 1971, and the Nixon statement simply justified it and made the boycott official policy...
...old loans were paid off with new ones...
...The court was requested to embargo the proceeds of the sales until it could decide on the Braden claim of ownership...
...The truth is that the Nixon Administration 17considers these programs and the continuing military assistance programs important in strengthening the sources of actual and potential opposition to Allende...
...Although the New Economic Policy in its international ramifications does not represent so much a change in U.S...
...SUBSCRIPTIONS: $6 per year for individuals ($11 for two years...
...7, February 12, 1972, p. 238...
...As a "showcase" of the Alliance for Progress, Chile received more aid per capita than any other nation in Latin America...
...In an aside, the officer added, "Allende moved too fast...
...It trod lightly on the bilateral and multilateral leverage available to the government...
...The Christian Democratic regime received $192 million from the IDB...
...10027...
...For example, the president of the World Bank, always a North American, is currently ex-Secretary of Defense Robert McNamara, and the real power in the IDB is held by U.S...
...Since the price of copper has fluctuated widely in recent years, the amount of foreign exchange available to Chile has also fluctuated...
...companies approved of the White House action, "some business groups have been less than complimentary...
...economy, especially in terms of international trade and the consequent formation of the New Economic Policy...
...The importation of lighter industries had failed to inject dynamism into the Chilean economy, and the heavier durable and capital goods industries were much more expensive and technologically too complex to be extensively developed...
...The credit blockade has reduced the amount of Table II Import Diversification under the Unidad Popular (percentages) Other USA Capitalist LAFTA * Socialist Cuba 1970 37.2 42.0 1971 17.0 47.3 First Semester 1972 11.8 43.1 20.3 0.5 0.0 31.8 2.0 1.9 33.1 7.0 5.0 * The Latin American Free Trade Association includes all the South American countries except Guyana, plus Mexico...
...A special inter-agency group will be established under the Council on International Economic Policy to review such cases and to recommend courses of action for the U.S...
...citizens, we will presume that the U.S...
...Sewage, hospitals, and schools, needed to provide the workers suitable for modern industry, are among the U.S...
...Thus, the rate of growth will probably slow down...
...This amounted to about 10 percent of Chile's total defense budget in the same period...
...government-it couldn't be otherwise...
...but those interested in overthrowing Allende did not stop there...
...William J. Mazzocco, who was responsible for melding the State and Treasury's Drafts, is also a long-term State Department and AID functionary (with Vietnam experience...
...13-15...
...He was also involved in the creation of the Overseas Private Investment Corporation (OPIC...
...Very truly yours, C. D. MICHAELSON President Metal Mining Division Kennecott Copper Corporation and as President Braden Copper Company Kennecott- A Beleagured Giant The loss of its Chilean holdings inflicted a heavy loss on Kennecott...
...cit., p. 53...
...468, "Report on the Economy of Chile," February 16, 1971, p. 71...
...But the United States has not given up, and it uses the dependence it helped engender to bring down this threat to its hegemony in the hemisphere...
...leverage and going into more detail about the form U.S...
...their risk was greatly lessened because U.S...
...Building the Infrastructure Dean Acheson, former U.S...
...No plot is necessary...
...cit., and Yanqui Dollar, NACLA, 1971...
...At the same time, Chile received the disputed $1.3 million payment...
...Hereafter referred to as Millas TYPESET BY ARCHETYPE 4. Ibid., p. 59...
...Serious problems now exist in obtaining these parts...
...All the United States did was to pull out its prop from under the Chilean economy, and the other capitalists scurried out from under the collapsing roof...
...Nixon Expropriation Warning Greeted Cooly," National Journal, VoL IV., no...
...The IDB poured money into the agrarian reform, especially the "asentamientos" (the transitional phase after expropriation), widely recognized as an attempt to erect a prosperous rural petty bourgeoisie that would act as a barrier against the swelling mass of proletarian and unemployed peasants...
...The United States started the flight of capital from Chile...
...Development and Humanitarian Assistance Program, Presentation to Congress FY 1973, Project and Program Data...
...They are concerned that it may aggravate relations between the U.S...
...Later (October 1, 1971), ITT vice president and Washington lobbyist William R. Merriam, wrote to Peterson proposing an "economic squeeze" on Chile through denial of international credit, a ban on imports of copper and on vital exports to Chile so that sufficient "economic chaos" would develop to convince the armed forces to "step in and restore order...
...7 Without further credits from the United States, it will be difficult for Chile to pay off these loans...
...5 Chile's swelling middle class had reason to begin to identify with the American industrial structure...
...while in the same time periods the influx of foreign credits rose from $104.6 million to $289 million...
...The Klein-Saks mission had met strong resistance by the workers, and heavy street fighting had broken out in April of 1957...
...The response of the Left to the October 26-day "strike" was to organize comandos comunales, and other local mass movements, to assure a more normal distribution of essentials...
...told a trade conference in Chicago in March, 1972, that the hard-line policy towards nations expropriating U.S...
...economy...
...He was also president of Litton Industries and will be included among the businessmen involved in forming the policies...
...public agencies like the Export-Import Bank, or by loans from the multilateral agencies such as the World Bank and Inter-American Development Bank...
...5. Markos Mamalakis and Clark Reynolds, Essays on the Chilean Economy (Homewood, 111: Richard D. Irwin, 1965...
...This will, of course, change in the long-run, but meanwhile the middle classes continue to demand their U.S.-style goods...
...Thanks to Paul Drake for making available to one of the authors his unpublished dissertation on the Chilean Socialist Party...
...Inter-American Committee of the Alliance for Progress, (CIAP), "Domestic Efforts and the Needs for External Financing for the Development of Chile," April 21...
...16 The blatantly political nature of U.S...
...policy makers is that the most powerful leverage available to discourage threats to U.S...
...2. Universidad de Chile, Instituto de Economia, La Economia de Chile, 1950-1963, Tomo II (Santiago, 1963), p. 174...
...the United States had its own reasons for wanting aid to pour into Chile, and it is the United States, not the titular Latin president, that controls the Bank...
...3 The U.S...
...International Bank for Reconst...
...Department of State External Research Study, op...
...They know our position...
...All This and No Growth...
...Or, as Assistant Secretary of the Treasury John Petty (a key figure in shaping policy towards Chile) said, "I think you'll find the U.S...
...Even in their summation before the French Court, Braden lawyers acknowledged that their actions were an exercise in "teaching Chile the political realities of life...
...Table V U.S...
...2 3 Chile paid the installment in March, and Kennecott dropped its embargoes...
...AID PROGRAMS The U.S...
...It usually had between 30 and 120 days to pay for spare parts and equip- ment upon arrival in Chile...
...foreign policy decisions, but they took on special significance given (a) the over-all context in which policy towards Chile was made, and especially the eco- nomic situation which gave rise to the New Economic Policy (NEP...
...was an intolerable brake on Chilean development...
...The Allende government has received $148 million from the IMF, for compensation for the fallen copper price, and from its normal allotment of drawing rights...
...The assets of any of the major Wall Street banks surpasses the annual GNP of many nations, including Chile's, and are growing much faster...
...This has led to a need for more foreign exchange to cover importing, which in turn has led to further indebtedness...
...jeopardizing future orders...
...Chile's workers will presumably not permit this, and they are prepared to defend the gains they have made under the UP...
...The Eximbank took a hard-line when it denied the Allende administration's first request for a loan-a request for $21 million to finance the purchase of three Boeing passenger jets for the state-owned LANChile airline...
...The Three C's Bankers and suppliers grant credit to importers or national agencies that they consider to be good credit risks: a good risk is a borrower who rates well on the test of the "three C's"-capital, capacity and character...
...and more expensive items like radios, tires, cameras, film, and photo lab chemicals...
...government loans, it is equally true for the supposedly multilateral Inter-American Development Bank...
...Chile also agreed to pay off the loans to private banks and to the Export-Import Bank that Kennecott had negotiated to expand production in the mines...
...The black market is fed by illegal "corporations'[ which withdraw products from regu- lar distribution channels and feed them into the black market...
...Thus, a divided country will meet the growing eco- nomic problems...
...It is true that the Nixon administration has not lifted the restrictions on private investment abroad that were imposed by the Johnson administration to stop the dollar outflow that contributed to the balance of payments deficit...
...The black market recorded the inflow...
...So great was the flow of credits that some critics charged Felipe Herrera, the Chilean president of IDB, with favoritism...
...According to observers in Chile these efforts are not completely supported by the UP which seems unable to control the rise of black market activities...
...For more on this see "Support for your Local Police," New Chile, NACLA, 1972...
...In this regard, it is interesting to consider what alternative policies the U.S...
...Interviews in Chile by Roger Burbach...
...1972, p. 139...
...The arguments against the policy centered on the choice of strategy and tactics on how best to assure the growth and expansion of the capitalist system and how best to keep as much as possible of the world free for corporate enterprise...
...MAKING THE POLICYTIGHTENING THE SCREWS Policy toward Chile was made throughout 1971 by the Departments of State and Treasury and, peripherally, by Peterson and the staff of the Council on International Economic Policy...
...Before describing the details of the formation of the policy, and the personalities involved in making it, we should reiterate the paramount U.S...
...The U.S...
...Kennecott conducted this European legal offensive in military fashion...
...3 These are the cold facts of capital flight from Chile...
...Peterson's suggestions caused the New York Times (January 4, 1972) to editorialize that "the administration's heavy emphasis on the business government partnership has disturbing overtones of corporate statism...
...Petras and La Porte, op...
...Kennecott did this to force Chile to pay off loans amounting to $92 million, which Chile had contracted under the 1967 Chileanization agreement...
...A study by the Interamerican Committee of the Alliance for Progress (CIAP) concluded: "Because of the very unfavorable evolution of the terms of trade, although the physical increase in exports exceeded that of imports and the real growth of the latter declined markedly in relation to the average observed in 1966-70, there was a deficit in the balance of trade...
...the semi-feudal, latifundia structure of farming...
...But the United States, always flexible, had just come up with a new approach to development: the Alliance for Progress...
...Even in 1969-'70, beef was available only about one-half the days of the month, but then (in 1969), the wealthiest 25 percent of the families in Santiago consumed 54 percent of the prime quality beef...
...Why...
...The NACLA staff condemns and mourns the murder of Amilcar Cabral-a leading figure in Africa's fight against Portuguese colonialism and U.S...
...6 In August, Eximbank president, Henry Kearns, finally informed Chile's ambassador in Washington that Chile could expect no loans or guarantees until the question of compensation for U.S...
...They most often point to supposedly exorbitant imports, low copper production, chaos in the agrarian reform, and fallen investment...
...Most of these inputs cannot be obtained elsewhere, and the decreasing ability to buy them cannot help but cause a serious drop in Chilean output in the future, though 1972 figures do not yet reflect this...
...People thought he'd become more civilized here, but he was equally radical when he returned to run [for the presidency in 1970...
...But the power of foreign capital, of big finance, of debt collectors, and of vengeful cartels and their governments, still weighed heavy over Chile's immediate future...
...To assure that available goods reached workers and their families, the UP and its supporters set up grassroots Price and Supply Committees (JAP) to supervise merchants, and in many cases, to actually distribute basic commodities, especially food...
...1972...
...exporters, since nearly all loans are "tied" to purchases in the United States...
...It is especially enlightening to note the predominance of bankers in the formation of the policy towards expropriating nations...
...Javits is widely considered a spokesman for his powerful Wall Street constituents and multinational corporations...
...The UP had hoped that its "legality," won in the ballot box, would prevent the United States from erecting an economic blockade...
...Interviews in the Chilean Embassy and in the New York CORFO office...
...Chile's commercial trade balance, registering imports and exports, was negative-$122.2 million in 1971, which, considering the low copper price, was well within traditional bounds...
...government would be to the UP's plans to expropriate many U.S.-owned industries, especially the copper holdings...
...In the Third World, the ceiling is high compared to the level of foreign investment, and the ceiling has not hindered investment from going to that part of the world...
...Although official bilateral and multilateral aid to Peru was cut back, the U.S...
...President Nixon, "Policy Statement, Economic Assistance and Investment Security in Developing Nations," Press Release, January 19, 1972...
...In the blueprints of many UPers, 1972 was to be the year of political consolidation and electoral victory...
...Government...
...while the private sector's savings actually declined from 10.2 percent to 9.4 percent...
...The Frei government had won a debt postponement in 1965, and bankers have admitted to us that under normal circumstances Chile would have been granted a debt consolidation and postponement...
...But the official U.S...
...It reacts like an organism when its interests are threat- ened...
...The U.S...
...In addition, the Kennecott actions came at a time when Chile was negotiating new copper contracts and potential customers were hesitant to buy "complicated" copper that might end up in litigation and delay production schedules...
...he also calls for special credits for exports...
...under Frei, 4 hours 53 minutes...
...The Executive was without power to coerce private firms to raise their level of investment, while general insecurity prompted individuals to exercise their freedom to save less...
...A U.S...
...Formerly a vice president of the Chase Manhattan Bank NATHANIEL SAMUELS: Deputy Under Secretary of State (economic affairs...
...Interamerican Committee of the Alliance for Progress (CIAP), no...
...Nevertheless, the shortages persisted...
...cit., p. 79...
...For an analysis in a broader context of this process, see Magdoff, op...
...the Housing Agency is now dominated by Communists...
...suppliers and banks...
...Further, Peru continued to welcome large amounts of foreign investment in other areas...
...Universidad de Chile, La Economia...
...Proceedings of a Conference sponsored by the Bureau of Intelligence and Research," November 10, 1971...
...What the UP government failed to realize was that U.S...
...5. September-October, 1972, pp...
...7. Quoted in "The End of U.S...
...In addition, the concept of deducting excess profits exists in U.S...
...References PART I 1. Jose Cadematori, La Economia Chilena: un enfoque marxista (Santi- ago: Editorial Unlversitaria...
...The Banco de Chile [until Allende, Chile's most aristocratic private bank] wasn't just that dull, grey building off HuerfanosAvenue It was the board of directors that I knew personally...
...14-165...
...8 The Legal Offensive On September 30 Kennecott's threats materialized into legal action, asking a French court to block payments to Chile for El Teniente copper sold in France...
...15 Six long years of imperialist economic theory and partial austerity-shouldered primarily by the workers-had left the Chilean economy in general, and the external sector in particular, in disastrous shape...
...financial blockade...
...government for application of the "numerous justifiable leverages" available to embarass Chile...
...NEW CHILE, NACLA, 1972, and James Petras and Robert La Porte Jr., "Chile: No," Foreign Policy, no...
...interests abroad and to insure the ex- pansion of U.S...
...source: Minister of Finance Orlando Millas, "Exposicion sobre la political economica del gobierno y del estado de la hacienda publica," presented to the comision mixta de presupuestos, Santiago, Novem- ber 15, 1972...
...10disadvantages to many potential exporters...
...source: Chile, Office of National Planning (ODEPLAN I. Antecedentes sobre el/ desarrollo chileno...
...The Copper is Chile's...
...Of those men, 6 or one third had been officers in major banks with foreign operations...
...See also, "Secret Memos from ITT, NACLA's Latin American and Empire Report, April, 1972...
...5. the attraction of direct foreign investments totalling $221.4 million in the 1957-59 period, dwarfing the $72.6 million of the three previous years...
...Even with the upturn in copper prices with the beginning of the Second World War, Chile still had trouble getting the imports it needed, since the West was preoccupied with pro- ducing armaments...
...Liberal critics of the hard-line, anti-expropriations policy pointed out that the U.S...
...THE ECONOMIC CONTEXTTHE NEW ECONOMIC POLICY In 1970, the U.S...
...The industrialization strategy pursued first by the Radicals within the Popular Front and later by the more traditional co-opting groups was basically as follows: use State investment to encourage de- velopment...
...Several of the policy makers were businessmen, including Peterson, a former president of McCann- Erickson advertising agency in Chicago, and former president and chairman of Bell and Howell...
...Klein-Saks sought to eliminate all traces of uncapitalist-like thinking, such as government socialprogram spending, low prices for public services, and wages higher than the workers' "marginal productivity...
...As of early January, 1973, the Kennecott strategy had achieved a certain degree of success...
...Mining operations are especially handicapped by the difficulties in obtaining spare parts...
...cit., p. 8. 15...
...1 7 The disturbing aspect of Treasury's power over the underdeveloped countries is that the people who make international economic policy in Treasury are nearly always men who have worked in high capacities in banks with important international operations or in large multinational corporations...
...Environmentalists questioned Kennecott's right to pollute the air in Arizona and Utah...
...Nevertheless Chilectra is a high priority industry and still obtains vital currency from the Central Bank...
...In order to carry out its Program, the UP sought to win over some of those opposing votes...
...foreign policy as an institutionalization and aggressive justification for policies that underlaid the more liberal rhetoric of past administrations, it does solidify an increasing commitment to apply the strongest leverage possible to insure that U.S...
...Domestic employment were high...
...and forcing Chile to expand foreign currency on legal expenses incurred in Europe...
...2) the embargoes of Chile's New York accounts and warehouses obtained in court actions by Kennecott and Anaconda...
...Thus, between 1946 and 1961, (before aid really began to flow in), Chile received $450 million in loans and grants from the United States development agencies and the Export-Import Bank...
...The final statement, delivered by Nixon on January 19, 1972, supposedly contained sections from both State's and Treasury's drafts, but it clearly expressed Treasury's views more than State's...
...cit., p. 15...
...On the legal front, Kennecott is contesting the Federal Trade Commission's order to divest itself of the multimillion dollar acquisition of the Peabody Coal Company...
...From interviews carried out in the Banco Central de Chile by George Lawton, whom we thank for his help...
...Thus, certain facts and figures already written into NEW CHILE are not repeated here...
...16 Kennecott and the U.S...
...In the past, ENAP relied on foreign loans for importing heavy capital equipment necessary to expand operations...
...Kennecott's embargoes will necessarily serve as a factor in the current negotiations between Chile and the U.S...
...dollars in order to import needed goods...
...3 0 The liberal criticisms of the Nixon policy and these differences between the Departments of State and Treasury should not be taken to indicate that there are elements of U.S...
...But even in this interim period, class polarization and struggle 29continues, as Chile undergoes an "economic civil war," characterized by the growth of a flourishing black market amidst government proposals for rationing of basic necessities...
...6. Unless otherwise noted, macroeconomic data in this sector was compiled from Universidad de Chile...
...The upper and middle classes had declared war on the UP government...
...AID, Study on Loan Terms, Debt Burden and Development, 1965, p. A-46...
...Copper payments to Chile were impounded until the Court rendered a decision on its competence to judge the legality of the expropriation...
...2 This process, called "easy import-substitution industrialization" looked easy, and indeed some nations like Japan, with a differing sort of history and social structure, have developed by importing needed ma- chines...
...The UP did not anticipate that nearly all short-term bank credits would be cut...
...During the months of October and November, copper sales were tied up, and Chile had to suspend several shipments of copper...
...and the lack of incoming credits eliminated Chile's foreign reserves...
...and also Petras and La Porte, op...
...The IDB and U.S...
...The crisis of 1955 signalled the end of the easy import-substitution industrialization program...
...Millas, op...
...hegemony the world over...
...dollars, in the form of official bilateral and multilateral aid, and in the form of private loans and suppliers' credits s were, in 1970, the most important U.S...
...Since Chile wasn't playing by the right rules, the U.S...
...Imposing the 10 percent import surcharge and cutting off gold sales, and allowing the dollar to "float," were only the most visible manifestations of this new hard-line...
...Kissinger, Peter G. Peterson, and officials from OPIC and the Export Import Bank...
...3, January 15, 1972...
...and "multilateral" efforts to boost investment, capitalism in Chile continued to languish...
...These payments could not have been made without the inflow of an additional $258 million in foreign credits, of which $122 million were provided by the U.S...
...Washington Post...
...One area where the middle class feels especially threatened is in their decreasing ability to buy beef...
...Kissinger favored a moderate stand, while Peterson proposed a harder line to discourage other governments from taking similar action...
...investors in Latin America), annual meeting in Washington, in June, 1971, Peterson asked for Council members' ideas on protecting private investment abroad...
...In effect, bilateral and multilateral aid guaranteed private bankers and suppliers that Chile would be provided the dollars needed to continue participating in the world capitalist game...
...In essence Kennecott claimed that the expropriation was not valid because there had been no compensation...
...41-42...
...VII, No...
...While internal prices were being brought into line with international ones, IMF "stand-by" loans would fill in...
...Dept...
...The Invisible Blockade Normal import-export operations between nations are financed by credit, which means that the importer need not pay for the goods upon ordering them, but pays according to a pre-arranged schedule...
...3 6 Then there are the people with long histories in AID, such as Deane R. Hinton, assistant director of the CIEP, and Sidney Weintraub, head of the newly established State Department Office of Investment Affairs...
...He will sit through two hours of discussion on the subject," said a White House aide, "but maybe won't for 15 minutes on domestic affairs policy...
...The report lauds the Japanese example of large governmentsponsored trading companies which specialize in export development...
...in 1970, $149 million...
...8. 8. Forbes, April 15, 1972...
...He was chairman of the operations group of CIEP and head of the under secre- taries' committee on expropriations in Irwin's absence...
...and Dev., op...
...At that time, the bank's representatives and the Chilean authorities agreed to promote a petrochemical complex-a perfect "development" project, transferring technology and capable of earning foreign exchange...
...This litigation process is likely to cast a shadow over El Teniente copper for many months if not years...
...But winning the approval of the majority meant, among other things, maintaining a high level of economic output and satisfaction...
...Once these means were exhausted, Chile would face an internal adjustment process, which would mean further reductions in imports from the U.S.-which it badly needed...
...Certainly, given the rapprochement with the Soviet Union and China, the United States did not have to be locked into an old Cold War pavlovian reaction to a "Marxist" government such as Allende's...
...cit., p. 4. 6. Wall Street Journal October 25, 1972...
...aid in past years...
...Address op...
...19 The World Bank, whose loans to Chile total $273 million has concentrated loans in the construction of roads and electrical power...
...national interest to get its loans to underdeveloped countries paid back...
...Quoted in Yanqui Dollar (NACLA, 1971) from World Bank, IDA and IFC...
...and the concentration of power and wealth in the hands of sluggish, vende-patria local bourgeoisie...
...Thanks to Leslie Krebs for sending us this information from Chile...
...9 Then, on November 29, 1972, the French Court ruled that it could determine whether or not the expropriation was illegal and thereby judge Kennecott's claim of ownership...
...McNamara was well aware of the damage such statements could do to Chile's worldwide credit rating...
...As pointed out above, State took a softer line with Peru than Connally and others would have liked...
...1 9 These Senators, and others in government, 11did not perceive the threat to private investment in Chile as a threat to U.S...
...Kennecott had reloaned toChle the $80 million which Chile had paid for its 51 percent interest in the El Teniente mine...
...122, Orlando Millas, Minister of Finance, "Exposicion sobre la political economics del gobierno y del estado de Is hacienda publica" November 15, 1972.The balance-of-payments chart below shows that while the trade balance was -$122 million, the total deficit in the balance of payments was -$315 million...
...Now that workers have the money to compete for these goods-many of which are in limited supply due to the reduction in import 28 Table VI Chile - 1964 Import Consumption % Imports Consumed* % Population % Income * (Includes inputs to consumer goods) 30.4 (poorest) 11.3 13.1 26.4 17.4 18.5 24.2 24.5 25.9 20.0 (richest) 46.5 42.5 Figures underestimate participation of higher income groups...
...In a stand-by arrangement, a country needing IMF aid can make drawings from the fund up to a stated amount over a stated period, usually one year...
...and Who's Who in Government, 1st Edition, 1972-73, Chicago, 1972...
...A slight pick-up in 1961 added to the ever-rising demand for still more imports, so when the price of copper dipped, the external sector again entered a crisis: Despite the important influx of foreign exchange, in December of 1961 the Central Bank of Chile had to suspend its operations in foreign currencies for several weeks due to the increasing scarcity of foreign exchange...
...Former economist and special assistant to the president of the Republic National Bank of Dallas, Texas--and former executive vice president of the American Banker's Asso- ciation and chief lobbyist for it...
...9. nteramerican Committee of the Alliance for Progress (CIAP), No...
...8. CIAP, op...
...In detailed tables and graphs, the Report reiterates how foreign investment benefits the United States...
...Time magazine reports: "Kennecott officials are determined to keep the heat on Chile...
...Thus the top 20 percent, and even the next most favored sector, were used to consuming large amounts of imported goods...
...2 9 Most of the congressional opposition centered around the part of the policy relating to the multilateral agencies...
...Thus, at this moment, Chile can sell copper to French consumers with the obligation to repay Kennecott should the court uphold Kennecott's claim...
...taxpayer will absorb the company's losses, but also that attractive merger possibilities are created with firms seeking easy tax write-offs...
...Our primary goals should be to encourage social and economic development of the low-income nations of the world as a fundamental prerequisite for political stability...
...Yet "shortages" intensified...
...a $25 million loan was granted by the Ex-Im Bank in 1969...
...This plus interest is what Kennecott wanted paid back in 1971...
...and as we have described above, Chile must continue to import a substantial amount of food and machinery from the United States in order to feed people and to keep U.S.-made machines and equipment working...
...Tactics including stalling, insisting on a formal "stand-by" arrangement that involves orthodox monetary policy contrary to the UP program, and demanding compensation for the copper companies...
...A public relations officer for the World Bank reiterated the official Bank position that failure to approve new loans for Chile is based on evidence that Chile isn't credit worthy...
...For the first time since September, 1970, dollars flowed back into Chile-to subsidize the strikers...
...companies during World War II...
...Likewise, the agrarian reform programs previously funded by the Bank are in the hands of those aiming to create a "revolutionary worker-peasant alliance...
...Indeed, Chile's reserves had often been negative, but that was before falling out of favor with the dominant imperial power...
...The Unidad Popular has preferred to try to control prices, or at least keep workers' wages rising as fast as prices-so that workers and their families wouldn't be priced out of the market by the wealthier classes...
...Many of these loans were funnelled into President Frei's priority anti-Marxist programs for winning over and enlarging the strata in Chile that consider themselves lower-middle or middle-class...
...Others had close ties with business and banks...
...But when Chile elected a Marxist President, and the UP government began to act on its program to nationalize foreign-owned industries and to reclaim its natural resources, its 3 C's rating was put in the lowest of categories...
...Meanwhile, Chile continues to pay off its debt to the IDB...
...This is especially true now that Treasury Secretary Schultz also holds the title and responsibility of assistant to the president at the head of the Council on Economic Policy, which is now a cabinetlevel body...
...The percentage of blue-collar workers in the labor force declined from 1930 to 1952, as did the average real wage earnings per laborer...
...Jose de Cubas, president of Westinghouse Electric, and Chairman (succeeding David Rockefeller) of the Council of the Americas responded in August with a four-page single-spaced letter to Peterson urging that the federal government use its influence to assure that when the World Bank or any other multilateral lending institution rates a country's creditworthiness it consider whether there were in the 13 NIXON ANNOUNCES THE HARDLINE JANUARY 19, 1972 Thus, when a country expropriates a significant U.S...
...The IDB helped construct 27,000 individual homes, and contributed to housing developments, both central to President Frei's "community development" efforts...
...Now the Company has to pay cash for its imports...
...Thus, of the 20 or so people involved in making the policy, nearly all came from the leading private banks or big business...
...According to representatives of the World Bank whom we interviewed but who asked to remain anonymous, the electrification project was turned down because Chile would not agree to raise electricity rates...
...It was the UP's bad luck that while the price of copper was falling, the value of imports, especially foods, was rising...
...Address all mail to Box 57, Cathedral Station, New York, N.Y., 10025, or Box 226, Berkeley, Cal...
...objective in cutting off aid to Chile...
...The austerity program was a gift to Chile of the "Klein-Saks" mission, a Washington-based financial advisory firm, invited by the Ibafiez government in 1955...
...Second-class postage paid at New York, N.Y...
...In December, 1972, Administration officials said that they intend to grant Chile $10 million in military aid for use in 1973...
...November 13, 1971, p. 2242: and Fred Block and Larry Hirschhorn, "The International Monetary Crisis," Socialist Revolution, Vol II., no...
...Socialist Ineptness...
...Despite all these U.S...
...The U.S...
...According to one banker, (who, like the others we interviewed, desired to remain anonymous), "Chile had all the characteristics of underdevelopment: chronic inflation, over-valued currencies, a bad balance of payments-all in all, a reasonably unhospitable climate...
...The workers mobilized to keep production up and seized those factories where the boss attempted a lockout...
...In fact, the precepts of international law are not as clear as Kennecott might like to believe...
...2 Attempts were made to lower tariff barriers and to force local industries to compete with foreign imports...
...Growth from 1967-69 was a poor 0.4 percent per capita...
...Roy L. Ash...
...2. Chile, Direccion de presupuestos, folleto no...
...This great increase is due mainly to increased imports for the copper mines due to the Chileanization expansion program...
...however, an official source added that France recalls the 'correct' line followed by the U.S...
...But the most significant credits now come from the socialist countries, with the USSR replacing tthe United States as the largest lender to Chile...
...based on D. Hachette, "Efectos del sobrevaluacion del escudo en la distribucion del ingreso en Chile," Cuadernos de Economa, Dec., 1966, end unpublished 1964 budget data, CIEUC, Catho- lic University of Chile.capacity-the middle classes feel increasingly threatened by the UP government...
...The accomplishments of the Klein-Saks policy were: 1. a contraction of the economy, per capita GNP falling 1.6 percent per annum from 1956-59...
...Cemento El Melon The operations of this company, which makes cement, have been particularly damaged by the blockade...
...cit., and Universidad de Chile, La Economia de Chile...
...Suppliers' credits to Chile were, perhaps, $300 million, in addition to another $220 million in banker's lines of credit: They were cut...
...These banks, and especially Chase and Chemical, which have personal ties with Anaconda (the president of Anaconda was once an officer of Chase, and a member of Chemical's international advisory board is currently a vice president of Anaconda) have been most hostile toward Chile...
...The Radical 19th century belief in the boundless possibilities of people were replaced with a narrow technocracy and its corollary, a Christian submissiveness to hierarchy...
...As described in Part I, these loans flowed into Chile largely to bolster the economy and prevent the election of Allende in 1964, and then to facilitate Frei's "Revolution in Liberty...
...People found it hard to get certain food stuffs (like chicken, beef, pork, and potatoes...
...government lending agencies and private creditors...
...Charles W. Robinson, president of the Marcona Corp...
...its concerns were individual freedom, and social welfare, and these sometimes contradictory tenets were reconciled in the masonic lodges, the binding force behind the 1938 alliance of Radicals and Socialists...
...position was not the only reason for cutting off loans to Chile...
...In interviews, the bankers justified cutting credits by referring to U.S...
...cit., p. 2245...
...and strategic institutions, such as the Central Bank, remained in anti-socialist hands...
...and when has any transition to socialism occurred without short and medium term economic dislocations and without threatening those who had in the past benefited from an unjust economic system...
...is production bottlenecks, caused by lack of replacements and parts for machinery which is of U.S...
...2 Beclouding these early victories was the gathering U.S...
...Chile, however, has not only expropriated the huge copper mines without compensation, but several of the Bank's previous projects are earmarked for nationalization-the Bio-Bio Cement Company and the Lota-Schwager coal mines have already been taken over, and the Paper and Carton Corporation is threatened...
...5. Bilateral aid is aid granted from a U.S...
...de Creditos Externos, "Disponibilidad de recursos financieros externos pars proyectos de inversion," 1972...
...Government It is not easy to ascertain the degree of coordination between Kennecott and the U.S...
...1) It chairs the National Advisory Council, whose purpose is to "coordinate the policies and operations of the United States" on the International Monetary Fund and the World Bank, and "of all agencies of the government which make or participate in making foreign loans or which engage in foreign financial exchange or mone- tary transactions...
...Certain of the liberal wing of the capitalists engaged in overseas investment and trade attacked the policy...
...At the Paris Club meetings, in early 1972, where the European and U.S...
...investment in the Third World...
...As Harry Magdoff, in explaining why the U.S...
...In October, 1971, shortly after Allende's announcement that the copper companies would not be compensated, Secretary of State William Rogers met with representatives of Anaconda, Ford, IT&T, Ralston Purina, the First National City Bank of New York, and the Bank of America (all major investors in Chile) to assure them that the U.S...
...The Congressional elections will probably not change the situation for 1973 significantly, since neither side seems likely to win a two-thirds majority...
...therefore Braden was still the rightful owner of its 49 percent share of the copper...
...from 1968 to 1970...
...Switching to Soviet-made aircraft would have necessitated retraining Chilean crews, setting up expensive new maintenance facilities and stockpiling new parts, all of which Chile would rather avoid...
...To provide them with staff and to study longer-term methods of protecting U.S...
...Not only is France a leading consumer of Chile's copper, but more importantly France has promulgated unusually strong laws protecting private property as a result of its own Algerian experience...
...January 25, 1971...
...22 Further, the IDB loaned money to small and medium-sized capitalists, whom it hoped would become bulwarks of capitalism in Chile...
...cit., p. 144...
...Also foreign investment committee of the Investment Bankers' Association of America...
...Frank K. Fowlkes, "Economic Report/Connally Revitalizes Treasury, Assumes Stewardship of Nixon's New Economic Policy," National Journal...
...Most damaging was the impact on negotiations of $200 million in lines of credit that Chile was negotiating with European banks...
...Production of electrical equipment and consumer durables also grew...
...0 1972 by the North American Congress on Latin America, Inc...
...of 1971, CAP lost the right to draw on the remaining $13 million, thereby halting construction already in process with American machinery...
...Finally, the dollar had become the world's key currency by the fifties, and the United States had abundant liquidity to grant "aid" to countries wishing to import from the United States...
...27 In sharp contrast to the commercial blockade erected around Cuba in the 1960's, Chile has won numerous statements of solidarity from other Latin American countries, and Chile's trade with its neigh- bors has increased significantly...
...CHARLS E. WALKER.: Under Sec...
...Latin America, London, December 8, 1972...
...2 9 This is partly because the credits from socialist countries are largely long-term loans to be used for importing capital or transport equipment...
...b) make it impossible to get new loans...
...The effect of this would be to isolate Chile from the capitalist world...
...On the differences between State and Treasury, see below...
...copper companies in the 1964-70 period alone...
...New York Times, December, 1972...
...Interview in Crown Zellerbach with an officer in charge of Chilean operations...
...The most politically interesting of the Bank's recipients is the Paper and Carton Corporation, in which Crown Zellerbach has an interest...
...but by the 1960's, Nufioa had fallen to the Christian Democrats, and the Radicals that remained were closer to the reactionary National Party than to the progressive position of their Radical ancestors...
...and Charles A. Meyer (formerly vice president of Sears and Roebuck...
...Chile immediately needs credits for consumer items, and for the replacements and parts for its U.S.-made machines...
...less prepared to turn the other cheek...
...short-term credit to Chile from 78.4 percent of the total to around 6.6 percent...
...Dollars) 1965 1966 1967 1968 1969 1970 1971 24.3 35.7 16.8 27.1 18.9 22.3 12.0 2.9 3.5 4.9 2.4 3.0 2.9 3.0 6.4 5.6 5.4 8.8 5.2 5.4 6.2 6.6 5.9 5.7 7.6 9.7 9.6 8.2 3.8 0.6 1.9 4.7 3.4 5.9 6.4 27.4 30.6 25.7 32.5 30.4 32.6 30.7 31.9 25.3 21.9 26.8 43.2 41.6 25.1 119.7 130.4 148.4 181.5.180.6 152.6 110.0 9.5 9.8 11.0 10.8 13.4 12.2 13.4 2.3 2.5 3.2 2.5 3.3 5.1 4.1 234.9 249.8 246.0 306.6 314.3 299.5 223.0 Food and Live Animals Beverages and Tobacco Crude Materials- Inedible (excl...
...Los Angeles Times, October 17, 1972...
...2 4 According to Chadwin, the State Department draft was "prepared with its foreign constituencies at least as much in mind as its domestic ones...
...The Chilean economy was oriented towards fulfilling the needs of private investment, especially U.S...
...In an interview with Frank V. Fowkles of the National Journal, he expressed his views: As you look at nations around the world, you can see other governments becoming more and more involved with specific industries in their own countries...
...The report, prepared for the studies that preceded the announcement of the NEP, describes the decreasing competitiveness of U.S...
...Funding of projects with external credits means that the loans must be paid off in foreign exchange: yet infrastructure in itself produces nothing that could earn those dollars...
...When asked if there had been any consultation between Kennecott and the State Department, a State Department spokesman said, "Sure, we're in touch from time to time...
...sway some of Chile's other creditors, Chile would be forced either to accept a "stand-by"* and liquidate its revolution, or else default on its debt...
...Most important, the development policies followed by Chile's elites throughout the 1940's and early 50's did not help Chile to become less dependent on exports of copper and imports of manufactured goods and capital equipment...
...Some bankers, especially Europeans, felt that, if Allende survives two more years or so, some credit lines would reopen...
...and works cited in the footnotes section of New Chile (NACLA, 1972...
...institution to a foreign country...
...official policy towards the UP victory was based on two key assumptions...
...In 1971, imports rose by 5.6 percent to allow for $261 million in food imports to meet the needs of the workers 4 and to supply the humming industries with the needed imported fuels and other inputs...
...never applied the full force of its credit leverage, and recently some of Peru's requests for credit have been granted.' This was partly because Peru's acts never significantly threatened United States holdings...
...and (3) Kennecott's aggressive actions in Europe...
...share in world trade was down, and the U.S...
...Chile's copper exports during the fifties and sixties did not increase significantly...
...31Kennecott Extends The Blockade 1. Marjorie F. Cohn, "Expropriation in Chile: A Violation of International Law...
...and it is true that there is some negotiating going on between the Nixon administration and the multinational corporations to determine just what the administration's policy will be towards investments in the developed world.' 4 But the increasingly problematic nature of economic relations with the developed world (particularly Western Europe and Japan) makes U.S...
...231-237...
...9. "Kennecott Declares War," Time, November 6, 1972, P. 94...
...Suddenly, no foreign exchange was available to buy the accustomed imports...
...Should the Right win more than 50 percent of the vote, it will probably demand that Allende resign...
...Furthermore, Chile expected larger compensating amounts of credit from some Western European nations, as well as from Socialist countries and Japan...
...Because of the policy of the government...
...2 6 To defend their traditional consumption patterns, upper class Santiago women took to the streets in December, 1971, when the effects of the U.S...
...balance of payments was running a deficit ($3 billion during 1970).6 U.S...
...cit., p. 60...
...PART IV 1. Universidad de Chile, Instituto de Economica, La Economia Chilena en 1971 (Santiago, 1972), pp...
...and UP governments...
...The truck owners who precipitated the October "walk- outs" cited as a reason for striking their inability to obtain needed replacements for their trucks...
...Interview at Chilean Embassy, Washington, D.C...
...As the dollar shortage became more intense through 1972, the limitations that "democracy" placed upon the Executive Branch deprived Allende of the powers he needed to confront the crisis...
...20 After agreeing on the broad principles of renego19tiation, Chile proceeded to work out the details bilaterally with the different countries involved...
...Under Frei, there was an...
...government to protect and expand U.S...
...4. See Table, "U.S...
...Under President Alessandri (1958-'64), a worker had to labor 5 hours 32 minutes to buy a kilo of stew beef...
...parts and machinery...
...government loans have participated in similar capital infrastructure projects, as well as in "human infrastructure" creation...
...150-153...
...State Department, "Background Notes," op...
...22-27...
...ENAP: National Petroleum Company Almost all ENAP equipment is heavily dependent on spare parts from the United States because an American firm built most of the ENAP refinery...
...bi- and multilateral aid policy, it will dominate policy-making towards the underdeveloped countries...
...private investors reacted negatively to the unstable political atmosphere, and public investment could not make up the difference, because scarce dollars went to buying food and intermediate inputs for industry and transportation, all necessary to meet rising demand...
...Further, Kennecott has written off for income tax purposes its equity interest of $50.4 million in its Chilean holdings...
...8 In 1971 and 1972, Chile received $1 million in technical assistance grants for these programs...
...4 The overall effect of the credit blockade has great implications for the entire underdeveloped world, for whom the old rules, typified by the three C's, have been unable to promote real growth...
...The Departments of State, Treasury, and Commerce are increasing their interchange of views with the business community on problems relating to private U.S...
...photo by Nelson Henriquez) 15It started with Alessandri...
...See the U.S...
...Rising spending and speculation, fueled by inflation, were the surface manifestations of deeper ills...
...Since foreign trade and economic advantage are now seen as inextricably entwined with foreign policy interests, Treasury will have a great deal of input in major foreign policy decisions...
...16 The most immediate effect of the trade reduction 26Chilectra: Chilean Electric Co...
...Nor did private foreign capital enter in large quantities (the large corporations used other means to continue their penetration of the Chilean industrial sector), especially compared to the fabulous $728.9 million profits earned by the U.S...
...Secretary of the Treasury John Connally supported the Peterson conclusions, especially as regarding the necessity of government intervention to promote exports...
...Chile had in the past received credit for LAN-Chile purchases...
...Whether or not the government was instrumental in Kennecott's actions, the United States now has an additional, powerful bargaining tool...
...Although production finally re- gained the World War II levels, in 1959, the price varied, and Chile remained dependent for its foreign exchange upon the external fluctuations of the price of copper...
...officials admitted that Chile had been scrupulous in paying its debts, and a Commerce Department official admitted that Chile's "credit worthiness" was the simplest part of the problem, implying that the question of whether to grant the request was political...
...Hereafter referred to as CIAP...
...Thus far, a formal blockade has not been necessary...
...Even the U.S...
...This "capital account" averaged a positive $202 million from 1965-1970, but it was a negative $212 million in 1971, thus drastically reducing Chile's capacity to make dollar payments and forcing Chile to eat up its reserves...
...Chile no longer respected the holy right of contract, and was not allowing free capital entry and exit...
...Five major New York banks--Chase Manhattan, Chemical, First National City, Manufacturers Hanover, and Morgan Guarantee-had extended loans to the copper companies in recent years...
...7. Wall Street Journal, October 14, 1971...
...1972...
...2 6 As for long-term European investments, Fiat is now producing trucks in a former Ford Motor plant, and will share Chile's automotive industry with two other European firms...
...private bankers to cut off credits was the hard-line taken by the United States government in not granting Allende's first official request for a loan from the U.S.-controlled Export-Import Bank (Eximbank), which in the past had supplied approximately one half the U.S...
...Under this program, the U.S...
...The information on Eximbank operations comes from various Eximbank annual reports and literature supplied by the FCIA...
...The UP aimed to use the broad powers of the Executive branch to incorporate banks, farms and factories into the state sector, and, simultaneously, to augment its political base...
...AID also funded training programs for peasant and industrial workers in an attempt to buy off the Chilean working class...
...Business-Banks-White House In fact, most of the important business groups had urged the Nixon administration to adopt the expropriations decision...
...Within a few years of the founding of the Popular Front, its development strategies had become new means by which to satisfy the needs of the rich...
...Specifically, the Chilean economy still needed dollars to import crucial parts and equipment for its machinery, for food (like corn) available only in the United States, for certain fertilizers, chemicals, and petrochemicals, unavailable elsewhere...
...copper companies...
...By 1972, the rising demand and the shortage of dollars came together to produce more serious shortages, especially in parts and replacements for U.S.made machinery...
...THE EXTERNAL SECTOR The anti-UP press, domestic and foreign, gave false explanations to cover up the fact that the real difficulties that the Chilean economy faced in 1971-'72 were caused by international capital movements and by the invisible blockade...
...Thus, the alleged skyrocketing of imports was an invention...
...State has in the past justified its "softer" line by pointing out that It is in the U.S...
...Since then, Chile has requested loans for a fruit-growing project...
...THE "MULTILATERAL" INSTITUTIONS: THE IDB AND THE WORLD BANK Since the election of Allende, no new loans have been granted from the World Bank or from the Inter-American Development Bank, though both agencies have continued to disperse loans previously negotiated...
...3 7 Of the key policy makers only Henry Kissinger had a background in academic circles, and at Harvard he was considered opportunistic and fascinated by powerful men like the Rockefellers, whom he advised...
...profile in Latin America...
...blockade of development finance...
...The UP* government, on the other hand, threatened one of the largest U.S...
...the company must pay cash, though some credit lines are still open...
...Without these "exchange support" loans, countries would be unable to service their existing debts nor allow corporations to remit large profits...
...People spoke openly of the differing views of Peterson and Kissinger on the expropriations policy in terms of Chile...
...The beef crisis was heightened by the latifundistas' contrabanding of whole herds to Argentina The UP was even prevented, by "immobility laws," from replacing most government employees...
...was deteriorating at inflation and ungold reserves were * Treasury controls U.S...
...Thus, the middle classes found themselves competing for the already limited supply of food and certain consumer goods...
...It now operates through Canadian and Panamanian banks with smaller lines of credit...
...The machines for both would obviously have to come from abroad: from 1940-1954, 84.5 percent of new machine equipment was imported...
...Ceilings on the amount of foreign investment allowed to a corporation vary from region to region...
...Eximbank guarantees credits granted by private banks against the commercial and 16political risks of non-payment...
...investments in Peru, others of which were left intact...
...In 1971, the U.S...
...cit., p. 2241...
...The most significant conclusions of the report involve the necessity for an activist policy on the part of the U.S...
...Formerly an investment banker with Kuhn, Loeb & Co., managing partner after 1966...
...In one instance the U.S...
...administrator Henry Costanzo, not by the nominal president, Mexican Ortiz Mena...
...4 A second assumption of U.S...
...They share the same objectives and function on the same premises of punitive sanctions and coercive pressures guised in the garb of legitimate legal and financial operations...
...goods that otherwise might not have been competitive on the world market...
...Food imports, which had already doubled in 1971 to $261 million, rose to an estimated $383 million in 1972.28 Imports of industrial inputs rose 44.9 percent, and import of non-agricultural consumer goods were cut, fulfilling the worst fears of the bourgeoisie...
...and multilateral aid figures and information in these pages comes largely from interviews, from different agencys' and banks' annual reports, and from their press releases...
...Meanwhile, the agricultural sector stagnated, making rising food imports necessary...
...17 The credit blockade seriously affects the Chilean transportation sector where a large percentage of all buses and trucks are General Motors or Ford models...
...McNamara, who has been especially aggressive towards the Allende government, has stated, "The primary condition for banking lending-a soundly managed economy with a clear potential for utilizing additional funds--has not been met...
...imperialism...
...policies towards Peru during the IPC controversy...
...23IV...
...1 Allende remarked in his December speech before the United Nations: "As always, Chile must sell cheap and buy dear...
...This failure to render asunder old structures planted within the "easy import-substitution process" the seeds of its own demise...
...Henry Kearns (president of the Export-Import Bank...
...The courts protected private firms that refused to comply with the UP's economic plan, sanctioned a "free press" intent upon fostering fear and chaos, and even meted out minimal punishment to the convicted ringleader of the group which assassinated General Rend Schneider in October, 1970...
...An opinion poll published by the opposition magazine, Ercilla, admitted the success of the UP's importation and distribution policies: 75 percent of lower-class households polled said that essential products had become easier to find...
...Kennecott Declares War," Forbes, December 1, 1972, p. 27...
...8. See "Leaders for Labor," New Chile, NACLA, 1972...
...Dom Bonafede, op...
...2. an enlargement of the unemployment rolls to 7.5 percent of the work force by 1960, and a drop in the real wage index...
...Preparing for this eventuality, the U.S...
...Grasping this reality, the upper classes of Chile changed their tactics...
...The invisible blockade involves not only "aid" from the United States but the normal credit arrangements necessary for all export-import operations...
...cents source: Interamerican Committee of the Alliance for Progress (CIAP/541), "Domestic Efforts and the Needs for External Financing for the Development of Chile," 1972, Table V-6...
...Both policies, while differing in content, had similar underlying objectives: to stabilize a tottering "democracy," protect and promote U.S...
...nor were these payments offset by fresh loans, as in the past...
...to Chile's Central Bank, England and Germany tended to support the United States, France remained neutral, while Italy and Spain leaned towards Chile...
...Any hard-line policy on the part of Eximbank would (a) cut off the disbursements of the direct loans previously negotiated with Chile...
...Tomic, as ambassador, left a poor impression...
...rather than oppose the Popular Front statists, they chose to co-opt them...
...With majority backing, the Left could dissolve Congress, and write a new, radical constitution, that would, as Allende put it, "open the gates to socialism...
...In 1938, the Popular Front was spearheaded by the Radical Party, the party of the urban and provincial rising middle classes A typical middle-class barrio in Santiago, Nufioa, composed of small businessmen and women and professionals and their families, was solidly Radical...
...These interrelated objectives are shared by the "international" lending agencies, the World Bank Group and the InterAmerican Development Bank (IDB), both of which the United States dominates, by being the major source of funding, controlling the largest block of votes, and by reserving for itself key administrative positions...
...Even during the sixties, Chile's "character" was in question...
...3. Chile, Direccion de Presupuestos, Foleto No...
...CAP, op...
...4 The corporation earned enormously high profits from its El Teniente mine...
...Trade and Development Board, in clarifying the method of expropriation, declares: ". . . it is for each State to fix procedure for these measures, and any dispute which may arise in that connexion falls within the sole jurisdiction of its courts...
...But the court ordered Chile to hold the money in an escrow arrangement, pending further investigation of the case...
...the Nixon ad- ministration has requested $805,000 for 1973...
...trading partners, especially Japan and Western Europe, meanwhile were experiencing high rates of growth in trade and industry and were expanding investment abroad...
...Bradford Mills, president of OPIC, agreed: "Really, what American mining companies are facing today is not private competition...
...Evidently, Chile is not such an absolute risk-not yet anyway...
...The Allende government has adopted a rate schedule which favors the poor, and it refused to raise those rates...
...3 0 21Kennecott Declares War Since Kennecott learned of the UP's decision to deduct from its indemnification the excess profits earned since 1955 (excess profits were determined by comparing the rate of profit the nationalized companies earned in Chile to the return on capital invested elsewhere), the company's position has been that Chile acted in violation of international law...
...With no new loans available from the United States, ENAP is looking to the USSR, which may make available a $6 million loan for a lubricating plant...
...Class Struggle Takes Many Forms A legalistic, parliamentary democracy, the finest bulwark against radical change, served Chile's bourgeoisie well-at least until 1970...
...In September, 1972, the Central Bank adopted differential exchange rates to ration dollars: food imports were set at 20 escudos to the dollar, while other imported consumption items were valued at 80 escudos per dollar...
...Thus, any hardening of U.S...
...3 First, the imported machinery came mostly from the United States...
...government policy, the copper controversy, and the "run on capital" in Chile...
...In 1972, however, some drop did occur, partly attributable to short term dislocations caused by the reform itself, and partly due to obstruction by the opposition, including wanton slaughtering, contrabanding 200,000 cattle to Argentina and a coordinated campaign of lies and rumors meant to spread fear and insecurity among the peasants...
...government is now committed to extending "aid and comfort" to corporations as a whole, and especially in those areas crucial to the growth and expansion of the U.S...
...CUTS CREDIT One of the key factors influencing American suppliers and U.S...
...December 6, 1972...
...This was exacerbated by a growing black market where speculators sold hoarded items at terrific profits...
...The outcome was unavoidable: Chile would have to erect its own industry...
...The situation may deteri- orate in 1973 when the effects of the credit blockade will be even greater than in 1972...
...from 1956 to 1961, an orthodox IMF-style austerity program was imposed in exchange for loans to balance Chile's trade deficit...
...7. Mamalakis and Reynolds, op...
...cit., p. 66...
...government...
...2 7 The long lag between the beginning of inquiries into the policy (summer, '71) and the announcement of the policy (Jan...
...short-term credits, because (1) many of the credits are tied to purchases in the creditor country...
...2 8 (Marcona has interests in Peru 12 lthat are suffering as a result of the Peruvian reaction to the partial U.S...
...1 / Jan...
...This implies more "aid and comfort" to the corporations and especially more active encouragement and protection for U.S...
Vol. 7 • January 1973 • No. 1
