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...
...6. See Dom Bonafede...
...imperialism...
...Hereafter referred to as CIAP Report 19...
...and Dev., op...
...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...
...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...
...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become a credit risk once the support of the United States and the international financial agencies it controls, was withdrawn...
...President Nixon, "Policy Statement, Economic Assistance and Investment Security in Developing Nations," Press Release, January 19, 1972...
...Multilateral aid is aid granted from an nstitution with many nations represented, like the world Bank...
...cit., and Universidad de Chile, La Economia de Chile...
...The U.S...
...cit., p. 371...
...2. Chile, Direccion de presupuestos, folleto no...
...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...
...In fact, even under the management of these companies, the expansion program had been running well behind schedule...
...IL, U.S...
...U.S...
...As a "showcase" of the Alliance for Progress, Chile received more aid per capita than any other nation in Latin America...
...9. Ibid., p. 2248...
...hard-line policy toward Chile greatly influenced the decision of the private banks to cut off their credit facilities to Chile...
...Designed to prevent another Cuba, the Alliance emphasized austerity less, and preached the more appealing demagogy of aid...
...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...
...cit., p. 15...
...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...
...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 4 According to Chadwin, the State Department draft was "prepared with its foreign constituencies at least as much in mind as its domestic ones...
...Meanwhile, the agricultural sector stagnated, making rising food imports necessary...
...The UP* government, on the other hand, threatened one of the largest U.S...
...They helped create an enlarged petty bourgeoisie whose consumption levels were an illusory impermanence, dependent on everlarger loans...
...Even during the sixties, Chile's "character" was in question...
...The former will hereafter be referred to as Chadwin, Part I; the latter as Part IL 22...
...2 0 This would, in turn, cause severe hardships-especially on the Chilean middle class, which had benefitted most from the imports...
...To do this, Chile would have had to continue importing an ever rising amount of food and consumer goods...
...The CIEP, working with State and Treasury, was to draft a public statement...
...A Klein-Saks-IMF style program stabilized prices by contracting government spending and tightening the reins on local business via harder credit...
...One area where the middle class feels especially threatened is in their decreasing ability to buy beef...
...imports...
...JOHN R. PETTY: Assistant Secretary of the Treasury (international affairs...
...Along with Connally and Charles E. Walker, Petty decided on the Treasury position on loan applications to the bi- and multi lateral agencies...
...Annually the company purchased between $800 thousand and $1 million worth of equipment abroad, the bulk of it in the U.S...
...But in 1971, net autonomous capital movements were negative by $103 million...
...assistance during the two years preceding the 1964 election was directed at maintaining the modest gains that had been realized in earlier years...
...goods that otherwise might not have been competitive on the world market...
...10027...
...This ready availability of credits helped convince Chile to purchase high-priced U.S...
...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...
...One excuse the Bank gives for not lending is Chile's unfavorable exchange position...
...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...
...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...
...cit., pp...
...The Chilean economy was oriented towards fulfilling the needs of private investment, especially U.S...
...government has assumed that U.S...
...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...
...investments in its traditional spheres of influence more important than ever...
...We should examine each of these functions briefly...
...AID, Study on Loan Terms, Debt Burden and Development, 1965, p. A-46...
...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...
...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...
...Nevertheless, the shortages persisted...
...the large, foreign-owned mines, the banks, the latifundia and numerous industries...
...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...
...Furthermore, the U.S...
...For over half a decade CAP has sought to obtain $150 million in external loans for expansion...
...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...
...model of dependent industrialization, were not forth- coming...
...Thanks also to Steve Shames for the free use of his photography...
...ODEPLAN, op...
...In an interview, a Crown Zellerbach executive told us: "We are being very innovative, holding the plant together with baling wire...
...When it couldn't borrow the dollars it needed, Chile would have to use these reserves, further impairing its "credit worthiness...
...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...
...Hegemony...
...policy in this area...
...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...
...Exports to Chile by Chief Categories U.S...
...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...
...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...
...8 Neither the austerity nor the aid programs gave Chile growth: per capita GNP rose only 0.7 percent from 1955 to 1970...
...therefore Braden was still the rightful owner of its 49 percent share of the copper...
...copper companies in the 1964-70 period alone...
...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...
...Chile, Office of National Planning (ODEPLAN), Antecedentes sobre el desarrollo chileno, 1960-70 (Santiago, 1971), Table 321...
...The UP government has actively sought and gotten trade credits and medium and long-term loans from many other countries...
...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...
...leverage and going into more detail about the form U.S...
...rather than oppose the Popular Front statists, they chose to co-opt them...
...John N. Irwin (a partner in Wall Street's prestigious Patterson Belknap and Webb and legal counsel to the Rockefeller Foundation...
...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...
...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...
...These credits are actually dollar loans extended by Eximbank directly to borrowers outside the United States for purchases of U.S...
...Suddenly, no foreign exchange was available to buy the accustomed imports...
...Millas, op...
...press reports of "marxist destruction" of Chile's economy...
...maritime, casualty and property insurance companies...
...government policy, the copper controversy, and the "run on capital" in Chile...
...6. Unless otherwise noted, macroeconomic data in this sector was compiled from Universidad de Chile...
...Growth from 1967-69 was a poor 0.4 percent per capita...
...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...
...Socialist Ineptness...
...A U.S...
...30 Meanwhile, working class communities have taken concrete steps towards rationing...
...Hereafter referred to as Millas TYPESET BY ARCHETYPE 4. Ibid., p. 59...
...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...
...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...
...In addition, see New Chile, op...
...Peterson admitted to a National Journal reporter that while most U.S...
...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...
...The truck owners who precipitated the October "walk- outs" cited as a reason for striking their inability to obtain needed replacements for their trucks...
...But by late 1971 Chile was lacking dollars, and the middle class was beginning to feel the bite of the blockade...
...The restrictions imposed by Johnson were at first voluntary and then mandatory after 1968...
...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...
...Development and Humanitarian Assistance Program, Presentation to Congress FY 1973, Project and Program Data...
...Chile Hoy (Santiago), August 18-24, 1972, p. 9. 27...
...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...
...Senator Edward Kennedy, "U.S...
...That denial (in August, 1971) was the first indication of the hard-line credit policy...
...This implied a new perspective on foreign relations as a whole...
...8. 8. Forbes, April 15, 1972...
...old loans were paid off with new ones...
...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...
...Didn't Chile want to become less dependent on U.S...
...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...
...goods and services...
...increasing tendency to dishonor commitments...
...1971...
...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...
...The U.S...
...9. United States Department of Agriculture, Agricultural Reforms and Productivity and Trade in Chile Since 1965 (Washington, October, 1972...
...Kennecott's embargoes will necessarily serve as a factor in the current negotiations between Chile and the U.S...
...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...
...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...
...3Further, the emulative consumption patterns of this growing middle class helped give Chile low domestic savings, which increased Chile's dependence on foreign funds...
...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...
...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...
...2 9 Most of the congressional opposition centered around the part of the policy relating to the multilateral agencies...
...Didn't he realize that the worst thing you can do is kick an elephant...
...Quoted in Yanqui Dollar (NACLA, 1971) from World Bank, IDA and IFC...
...From 1964-1970 alone, the Eximbank extended $368,779,000 in loans to Chile...
...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...
...24 The effect of these embargoes was to further imperil Chile's credit standing in the United States...
...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...
...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...
...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...
...In the earlier centuries, Chile was a net exporter of grain, but by the 1930's, trade in foodstuffs showed only a slight surplus...
...Tomic, as ambassador, left a poor impression...
...companies during World War II...
...The Allende government has continued to pay off its loans to these banks and has criticized them for becoming tools of the U.S...
...CORFO, Gerencia de Produccion Financier, Dpto...
...They know our position...
...Chile was forced to suspend copper shipments to France temporarily...
...This profligacy was funded from abroad: in those three years, Chile's foreign debt rose from $569 million to $1,090 million...
...Interview with Claudio Bonnefoy, op...
...In September, it would act again to enforce its will...
...Universidad de Chile, La Economia...
...John M. Hennessey, deputy assistant secretary of the Trea* UP-Unidad Popular, the governing coalition led by President Salvador Allende...
...An invisible but effective financial blockade would make the UP government look irresponsible, unable to serve the people's needs...
...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...
...72) indicates that interest groups represented within the Nixon administration disagreed on what the policy should be...
...foreign investment is crucial for the growth of the American economy...
...Allende had won the three-way presidential contest with 36 percent of the vote...
...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...
...From an unpublished internal circular on the debt renegotiations, Banco Central de Chile...
...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...
...of Treasury...
...231-237...
...origin...
...The workers mobilized to keep production up and seized those factories where the boss attempted a lockout...
...304...
...The invisible blockade involves not only "aid" from the United States but the normal credit arrangements necessary for all export-import operations...
...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...
...Lesser autonomous capital flows are omitted...
...An additional loan was provided in 1962 following an exchange crisis...
...Because workers were consuming more beef...
...Economic Commission on Latin America (ECLA...
...credit blockade has particularly severe effects in Chile, because of Chile's historical dependence on U.S...
...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...
...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...
...But the court ordered Chile to hold the money in an escrow arrangement, pending further investigation of the case...
...Chile has also benefitted from Eximbank's guarantee and insurance programs...
...We thank the Chileans in the Washington Embassy and the New York office of CORFO for their help in compiling data...
...industries vis a vis Japan and Western Europe and analyzes foreign trade trends and balance of payments difficulties...
...It was no coincidence that Kennecott chose France as a testing ground for its legal actions...
...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...
...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...
...January 25, 1971...
...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...
...As presidential assistant Peter M. Flanigan described it: In the past, economic interests were sacrificed when they came into conflict with diplomatic in- terests...
...mining and other interests in Chile had been resolved...
...7. Wall Street Journal, October 14, 1971...
...Nixon Expropriation Warning Greeted Cooly," National Journal, VoL IV., no...
...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...
...lines of credit...
...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...
...government continued its aid to the Chilean military...
...Formerly a vice president of the Chase Manhattan Bank NATHANIEL SAMUELS: Deputy Under Secretary of State (economic affairs...
...government loans, it is equally true for the supposedly multilateral Inter-American Development Bank...
...Expanded imports range from more food from Argentina to buses and capital equipment from Brazil...
...The bankers and exporters interviewed were quick to deny any direct, political pressure to cease giving credits to Chile...
...9 CAP: Pacific Steel Company Due to financial difficulties incurred during the New York embargo, CAP decided to abandon its U.S...
...It now operates through Canadian and Panamanian banks with smaller lines of credit...
...some consumer items like yarn, textiles, and medicines...
...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...
...Thus, at this moment, Chile can sell copper to French consumers with the obligation to repay Kennecott should the court uphold Kennecott's claim...
...Chile, like most Latin American nations, has little capital, in the sense of permanent exchange reserves...
...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...
...Both Hinton and Weintraub are former Directors of AID in Chile...
...Even while defying U.S...
...Most damaging was the impact on negotiations of $200 million in lines of credit that Chile was negotiating with European banks...
...He was chairman of the operations group of CIEP and head of the under secre- taries' committee on expropriations in Irwin's absence...
...the capital flight...
...and $90 million in depreciation allowances (see Table I on next page...
...cit., p. 60...
...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...
...AID's "technical assistance" program has continued under Allende...
...and more expensive items like radios, tires, cameras, film, and photo lab chemicals...
...1955...
...The major thrust of the U.N...
...Such credits are the grease of international trade...
...The U.S...
...This has led to a need for more foreign exchange to cover importing, which in turn has led to further indebtedness...
...It trod lightly on the bilateral and multilateral leverage available to the government...
...policy on bilateral and multilateral aid through several mechanisms...
...Table V U.S...
...Some bankers, especially Europeans, felt that, if Allende survives two more years or so, some credit lines would reopen...
...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...
...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...
...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...
...interests abroad and to insure the ex- pansion of U.S...
...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...
...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...
...companies was a major theme of the State Departmentsponsored seminar mentioned above...
...cit., p. 59...
...Chile immediately needs credits for consumer items, and for the replacements and parts for its U.S.-made machines...
...Study published, March 20...
...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...
...citizens, we will presume that the U.S...
...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...
...3 First, the imported machinery came mostly from the United States...
...and Who's Who in Government, 1st Edition, 1972-73, Chicago, 1972...
...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...
...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...
...What went wrong with "import substitution...
...Chile has negotiated $10 million in long-term credits from Brazil, $20 million from Mexico, and $40 million from Peru and Argentina...
...7 Without further credits from the United States, it will be difficult for Chile to pay off these loans...
...But Herrera was not the main promoter of loans to Chile from the IDB...
...administrator Henry Costanzo, not by the nominal president, Mexican Ortiz Mena...
...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...
...1 8 This represented an untenable strain on Chile's already serious shortage of foreign exchange...
...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...
...U.S...
...Aid to Chile," New Chile, p. 48...
...Aid as a Prop That a major function of U.S...
...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...
...Cemento El Melon The operations of this company, which makes cement, have been particularly damaged by the blockade...
...Foreign exchange refers to the currency, usually dollars, that is acceptable for use in international operations...
...They should finance projects such as transportation and irrigation, which are foundations for economic development, and which are not ordinarily attractive to private investment...
...de Creditos Externos, "Disponibilidad de recursos financieros externos pars proyectos de inversion," 1972...
...1 9 These Senators, and others in government, 11did not perceive the threat to private investment in Chile as a threat to U.S...
...5 Two loans granted to Chile in 1970 (totalling $30.5 million) were authorized before the election of Allende...
...the external sector would be balanced by establishing a free and fluctuating exchange rate and a liberalized importation policy...
...As the CIAP 1972 report concluded, "approximately twothirds of the total deficit was determined by the behavior of financial factors...
...November 1, 1956, "$15 million power loan to Chile...
...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...
...Its capacity to pay has been a function of the price of copper and of U.S...
...government might have adopted toward Chile...
...Loaning to Private Enterprise The lending agencies, both U.S...
...Perhaps the gravest heritage of the aid programs is Chile's accumulated indebtedness...
...and strategic institutions, such as the Central Bank, remained in anti-socialist hands...
...14III...
...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...
...In an aside, the officer added, "Allende moved too fast...
...A small family home, integrated into a carefully controlled neighborhood committee, was considered a good way to alleviate pressures from the lower classes...
...The autonomous capital movements and financial services figures graphically illustrate how payments on the debt...
...In addition, tires and replacements for autos and buses, components for machinery, rails, and cement, are in short supply...
...Interview at Chilean Embassy, Washington, D.C...
...Thus, the rate of growth will probably slow down...
...September 29, 1972, and New York Times of the same date...
...speech, however, dealt with the "bloqueo invisible," the invisible credit blockade which has cut Chile off from access to international credit sources...
...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...
...As a result of the embargo, those lines were never opened...
...Thanks to Ken Flann, Stanford UniversitY, for making available to us his extensive data on consumption in Chile in recent years 25...
...94701...
...policy...
...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...
...The U.S...
...7. Mamalakis and Reynolds, op...
...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...
...hegemony the world over...
...Exports by Chief Economic Categories," 1971...
...it fully supplies the IDB's "Special Fund," and exercises a veto power over most loans...
...Many people ask, "Didn't the Allende government expect this...
...Dept...
...cit., p. 57...
...Meanwhile, the middle class became increasingly interested in obtaining modem consumption goods, which were placed vaguely within reach by the importation of U.S...
...Department of State, External Research Study, "Impact of Economic Nationalbm on Key Mineral Resource Industries...
...6. Wall Street Journal, June 4, 1971...
...corporations a necessity in view of similar aid provided to foreign competitors by their governments...
...investment, or it will be cut out of ordinary business transactions-at least with the western blocaltogether...
...Without such "foreign assistance" programs, the investment climate would be precarious indeed...
...As we will describe in more detail below, the effect of the capital outflow was drastic for Chile...
...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...
...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...
...In the past 25 years, Chile has received $600 million worth of direct credits from the Eximbank...
...See also the table in New Chile, p. 49...
...parts and machinery...
...16 The blatantly political nature of U.S...
...In Sept...
...government to protect and expand U.S...
...financial squeeze began to take effect...
...Yet "shortages" intensified...
...Kennecott's embargo of Chilean copper in France cut off some possible credit from European countries who saw that future copper sales were endangered...
...This modem industry, Papelera, which binds together U.S., international, and domestic capital, has become a stronghold of the Chilean bourgeoisie...
...When the United States tried to oust IMF president Pierre-Paul Schwitzer, Chile rallied the Latin American members to his support...
...8. CIAP, op...
...government policies and Kennecott's actions fully complement each other...
...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 2 This letter, like the infamous ITT "Papers," indicates how close those interests felt to the Nixon Administration...
...3, January 15, 1972, p. 106...
...No plot is necessary...
...and UP governments...
...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...
...On December 4, 1972, President Salvador Allende summarized before the General Assembly of the U.N...
...In order to carry out its Program, the UP sought to win over some of those opposing votes...
...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...
...Chile is a perfect example of this arrangement...
...PAUL A. VOLCKER: Connally's key aide on international monetary matters...
...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...
...It reacts like an organism when its interests are threat- ened...
...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...
...IPC was only one of many U.S...
...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...
...The Congressional elections will probably not change the situation for 1973 significantly, since neither side seems likely to win a two-thirds majority...
...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...
...While U.S...
...Chadwin, Part IL, p. 154...
...13 Inter-American Development Bank [IDB] Since its founding in 1959, the IDB has granted Chile 59 loans totalling $310 million...
...Copper production, for example, is heavily dependent on U.S...
...and (2) the stronger commitment of the Nixon administration to interests committed to the protection and expansion of direct U.S...
...It's a new ball game with new rules...
...The banks had also previously called in $180 million of short-term credits, many of which had covered materials imported during the Frei regime...
...cit., p. 66...
...blockade of development finance...
...official policy towards the UP victory was based on two key assumptions...
...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...
...government adapted their strategy to fit the via chilena...
...when Algeria was nationalizing French oil companies...
...foreign investment...
...Without these "exchange support" loans, countries would be unable to service their existing debts nor allow corporations to remit large profits...
...These include Secretary of State William Rogers...
...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...
...Interamerican Committee of the Alliance for Progress (CIAP), no...
...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...
...2 3 In effect, such loans pass swiftly from the U.S...
...In any case, the IDB and World Bank's arguments conditioning long-term loans on current exchange difficulties lack coherence...
...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...
...policies towards Peru during the IPC controversy...
...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...
...The UP hoped that an increase in popular consumption power would encourage the production of basic necessities instead of luxury goods...
...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...
...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...
...economy...
...position was not the only reason for cutting off loans to Chile...
...Chile as of yet has had no problems with the International Monetary Fund (IMF...
...The U.S...
...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...
...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...
...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...
...2 Beclouding these early victories was the gathering U.S...
...would make up for with loans and continuing leverage to assure that Chile respected private property and foreign investment...
...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...
...18-27...
...is production bottlenecks, caused by lack of replacements and parts for machinery which is of U.S...
...THE ECONOMIC CONTEXTTHE NEW ECONOMIC POLICY In 1970, the U.S...
...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...
...Henry Kearns (president of the Export-Import Bank...
...As a Chilean working for the IDB complained, "The IDB is behaving like an umbrella that's up only when it's not raining...
...Each one of us got scared...
...was an intolerable brake on Chilean development...
...the pressures brought against Chile by U.S...
...It usually had between 30 and 120 days to pay for spare parts and equip- ment upon arrival in Chile...
...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...
...International Bank for Reconst...
...1972...
...In 1938, Radicalism preached rationality, free thought, and women's rights...
...Takes a Hard Line It was difficult to say in 1970 just what the re- sponse of the U.S...
...As Harry Magdoff, in explaining why the U.S...
...Its propagating mechanism was described by a banker: "When a capital flight begins, it snowballs...
...Thus, C. Harry Burgess, vice-president of Kennecott, bewailed losing out to the Japanese in competition for hard minerals...
...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...
...All suppliers' credits were cut off...
...4. See Table, "U.S...
...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...
...VII, No...
...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...
...Thus, a divided country will meet the growing eco- nomic problems...
...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...
...cit., and Yanqui Dollar, NACLA, 1971...
...See Patman's remarks in the Congressional Record, House, January 23, 1969, p. H422...
...Inter-American Committee of the Alliance for Progress, (CIAP), "Domestic Efforts and the Needs for External Financing for the Development of Chile," April 21...
...sury for development finance (a man who helped shape U.S...
...cit., p. 53...
...0 1972 by the North American Congress on Latin America, Inc...
...and forcing Chile to expand foreign currency on legal expenses incurred in Europe...
...10disadvantages to many potential exporters...
...20U.S...
...It proposed that the CIA assist in this process...
...For the 1972 crop, productivity may be down sharply...
...Lest there be any doubt as to U.S...
...and (b) the personalities involved in shaping Chilean policy, especially the officials with strong backgrounds in banks and businesses which had important international interests...
...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...
...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...
...Three other U.S...
...In the past, Chile had around $220 million in short-term credit-lines from U.S...
...Anaconda also embargoed some Chilean assets in New York in February, 1972, in a similar attempt to force payments due under the Chileanization agreements...
...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 UP had hoped that its "legality," won in the ballot box, would prevent the United States from erecting an economic blockade...
...Domestic employment were high...
...In 1969, for example, they were a positive $263 million...
...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...
...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...
...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...
...The Reaction The Kennecott moves were denounced by all sectors of Chilean political life as economic aggression violating national sovereignty...
...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...
...from 1968 to 1970...
...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...
...Nevertheless, the Chilean expropriations came at a particularly bad moment for Kennecott, because the corporation was under attack in other parts of the world...
...to Chile's Central Bank, England and Germany tended to support the United States, France remained neutral, while Italy and Spain leaned towards Chile...
...5 More Power to Treasury The NEP also implies more power for the Treasury Department in making foreign policy...
...domination and to build an economy which serves all the people...
...Ibid., p. 60...
...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...
...the Nixon ad- ministration has requested $805,000 for 1973...
...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...
...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...
...Address, op...
...is to meet the threats arising from the expansion of the European and Japanese economies, the U.S...
...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...
...Under President Alessandri (1958-'64), a worker had to labor 5 hours 32 minutes to buy a kilo of stew beef...
...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...
...See also, "Secret Memos from ITT, NACLA's Latin American and Empire Report, April, 1972...
...Key sectors that received Eximbank loans to import U.S.-made machines include copper, nitrate, steel, electricity, communications and railroads...
...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...
...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...
...from 1956 to 1961, an orthodox IMF-style austerity program was imposed in exchange for loans to balance Chile's trade deficit...
...Sewage, hospitals, and schools, needed to provide the workers suitable for modern industry, are among the U.S...
...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...
...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...
...Ibid...
...1 4 In addition, Dutch and Canadian lines of credit were cut because Chile had become more of a risk...
...3, May-June, 1970...
...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...
...At this moment, the U.S...
...corporations and the U.S...
...Information on IDB operations comes from interviews conducted there as well as recent IDB annual reports...
...Chile no longer respected the holy right of contract, and was not allowing free capital entry and exit...
...Or, it would be forced to move outside the constitution, inviting military intervention...
...2 5 Chileans were not blind to the contradictions between the interests of dependent capitalism and those of Chile...
...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...
...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...
...PART IV 1. Universidad de Chile, Instituto de Economica, La Economia Chilena en 1971 (Santiago, 1972), pp...
...I In fact, U.S...
...Serious problems now exist in obtaining these parts...
...Peter G. Peterson, The United states in a Changing World Economy, Vol...
...SUBSCRIPTIONS: $6 per year for individuals ($11 for two years...
...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...
...2country's record any cases of "insufficiently compensated nationalizations of private investment...
...The World Bank's $20 million loan to the "Papelera" has been supplemented with another $17.4 million from the Inter-American Development Bank...
...5. September-October, 1972, pp...
...Yet, in this fairly typical year, services on foreign capital totalled $370 million: $171 million for profit remittances and debt interest payments...
...World Bank, International Development Association, Annual Report, 1972, p. 124...
...People found it hard to get certain food stuffs (like chicken, beef, pork, and potatoes...
...and Republica de Chile, Direccion de Presupuestos, Folleto No...
...4. six years (1956-61) of negative trade balances, financed always by a spiralling debt...
...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 Since Treasury also makes U.S...
...Charles W. Robinson, president of the Marcona Corp...
...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...
...and other groups attempted to block Kennecott's plans to open new mining operations in Black Mesa, Arizona, and Puerto Rico...
...Although the New Economic Policy in its international ramifications does not represent so much a change in U.S...
...of Commerce, "U.S...
...In fact, Chilean copper production rose 8.3 percent in 1971, a major victory considering the dislocations that accompany a nationalization...
...ENAP has had some success in obtain- ing adequate parts from Rumania...
...3 Thus, we can see the growing conviction by private businessmen and government officials that strong governmental action is necessary to protect U.S...
...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...
...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...
...See Yanqui Dollar, NACLA (1971...
...Now the Company has to pay cash for its imports...
...government is going to have to get involved...
...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...
...The report lauds the Japanese example of large governmentsponsored trading companies which specialize in export development...
...20 After agreeing on the broad principles of renego19tiation, Chile proceeded to work out the details bilaterally with the different countries involved...
...Further he said, "we assume that the U.S...
...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...
...Renegotiation Act, April 1942, which allowed the government to take back in taxes excess profits made during World War II...
...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...
...jurisprudence in regard to the exorbitant profits made by U.S...
...But the outlines of the struggle were clear...
...bank credits are good for purchases anywhere in the world, other nation's are not...
...Thus, the State Department has been largely responsible for U.S...
...The insurance program is administered by an Eximbank affiliate, the Foreign Credit Insurance Association (FCIA), a group of the principal U.S...
...40, October 2, 1971, p. 1991...
...But the smaller firms which do not produce directly for national development suffer even more from the external blockade...
...2) promote a favorable climate for private investment (which the United States thought would promote growth...
...1973 Published monthly, except May-June and July-August, when it is published bi-monthly, at 160 Claremont Ave., New York, N.Y...
...and multinational, sometimes make loans directly to private enterprise...
...4 The major borrower was the private sector, as the links between the Chilean bourgeoisie and imperialism were tightened...
...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...
...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...
...2 7 The long lag between the beginning of inquiries into the policy (summer, '71) and the announcement of the policy (Jan...
...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...
...2 8 (Marcona has interests in Peru 12 lthat are suffering as a result of the Peruvian reaction to the partial U.S...
...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...
...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...
...This situation is often referred to as the "spiralling indebtedness" of underdeveloped countries...
...direct investment, except for guns, is dollars...
...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...
...Some industrial products were sold directly through the labor unions...
...Time magazine reports: "Kennecott officials are determined to keep the heat on Chile...
...Quoted in Chile Hoy, Santiago, November 3-9, 1972, p. 13...
...Meanwhile, Chile continues to pay off its debt to the IDB...
...it had broken all the rules a debtor must obey...
...bankers and government officials have increasingly stronger tools available to them to enforce their will upon these indebted nations...
...copper companies in mid-1971 helped reduce the outflow of profits to foreigners from $97 million in 1970 to $37.7 million in 1971...
...Emphasis ours...
...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...
...of Commerce, FT-420 and FT-455...
...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...
...Throughout this period, more farms and industries were incorporated into the state sector, giving the UP greater control over their produce...
...Thus the top 20 percent, and even the next most favored sector, were used to consuming large amounts of imported goods...
...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...
...cit., p. 2241...
...People thought he'd become more civilized here, but he was equally radical when he returned to run [for the presidency in 1970...
...Limitations of wage adjustments, restrictions on bank credit, a sweep- ing exchange reform, and new tax legislation are the principal steps taken to date...
...5. Allende U.N...
...The Treasury draft, Chadwin reports, was "more blunt in style and content, asserting U.S...
...investments abroad, State also established a new unit under Weintraub, the Office of Investment Affairs...
...Even the U.S...
...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...
...468, "Report on the Economy of Chile," February 16, 1971, p. 71...
...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...
...The basis for the statement came from the drafts done by Weintraub at State and the one written by Hennessey...
...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...
...actions were initiated for conducting a full hearing on the case...
...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...
...The struggle reached a climax in the presidential elections of 1970...
...Chile's copper exports during the fifties and sixties did not increase significantly...
...Under Frei, there was an...
...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...
...Peter G. Peterson actively solicited the advice of the private community during the months in which the expropriation policy took shape...
...rather, these imports led to increasing dependence on the United States and in fact further underdeveloped the Chilean economy...
...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...
...Production of electrical equipment and consumer durables also grew...
...Los Angeles Times, October 17, 1972...
...AID projects...
...The Manhattan offices of General Counsel Pierce McCreary, who is directing the campaign, has the air of a war room...
...policy toward Chile would have raised the threat of these funds being cut off...
...advertising and cultural propaganda encouraged Chile's middle classes to buy goods that Chile could not afford...
...Indeed, Chile's reserves had often been negative, but that was before falling out of favor with the dominant imperial power...
...What Sacrifice...
...would henceforth take a hardline in promoting its economic interests...
...Since the accounts of CODELCO and CORFO were already attached, Anaconda attached Chile's holdings in New York warehouses...
...government...
...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...
...5 Finally, Chile was forced to spend $150,000 to wage its legal battle against the embargo...
...We take the position that we can't have a strong foreiglr policy without a strong foreign eco- nomic policy...
...investors in Latin America), annual meeting in Washington, in June, 1971, Peterson asked for Council members' ideas on protecting private investment abroad...
...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...
...Trust Co...
...41-43...
...elimination of credit possibilities based on discounting future copper sales, cutting into Chile's "credit worthiness...
...banks...
...This was clear from the first consultations between policy makers and representatives of interests affected by Chile's anti-imperialist actions...
...The black market is fed by illegal "corporations'[ which withdraw products from regu- lar distribution channels and feed them into the black market...
...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...
...cit., pp...
...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...
...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...
...Although Kennecott was hurt a great deal in losing the Chilean properties, it did not lose all...
...government loans have participated in similar capital infrastructure projects, as well as in "human infrastructure" creation...
...6 Chilean industrialists preferred to produce for a protected and monopolist domestic market with its high and easy profits...
...The United States undoubtedly assumes that this would generate an internal crisis which would force Allende's removal...
...interests are protected and expanded abroad...
...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...
...The Chilean economy is in severe difficulty...
...Liberal critics of the hard-line, anti-expropriations policy pointed out that the U.S...
...Treasury into corporation vaults (or into the Treasury's own accounts...
...financial blockade...
...Second-class postage paid at New York, N.Y...
...Endesa...
...5 Chile's swelling middle class had reason to begin to identify with the American industrial structure...
...Chile had in the past received credit for LAN-Chile purchases...
...47-49...
...the "hard-line" approach...
...Formerly an investment banker with Kuhn, Loeb & Co., managing partner after 1966...
...According...
...With the intervention of the military, the strike was settled...
...short-term credit to Chile from 78.4 percent of the total to around 6.6 percent...
...Also, North Americans owned and supplied Chile's copper mines, telephones and an increasing number of other industries...
...PART 11 1. Anibal Quijano, "Nationalism and Capitalism in Peru," Monthly Review, Vol...
...the semi-feudal, latifundia structure of farming...
...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...
...La Economia de Chile, op...
...dollars in order to import needed goods...
...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 Chilean bourgeoisie has not striven to export manufactured goods...
...But under the UP a worker labors only two hours to buy the same amount...
...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...
...7, February 12, 1972, p. 238...
...Expropriations Policy Shortsighted," Congreulonal Record, January 4, 1972, p. S317...
...Chile's export earnings were reduced to 11 percent 1 of their previous levels...
...Thanks to Leslie Krebs for sending us this information from Chile...
...8. See for example, U.S...
...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...
...creditors met with the Chilean negotiators, the U.S...
...Why...
...They, like the copper industries, continue to receive whatever dollars are available...
...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...
...23, October, 1971...
...Most recently, in mid-January, 1973, Kennecott took its case to German courts...
...Allende referred to all levels of U.S...
...63-78...
...In the 1958 presidential elections the Popular Action Front, and its candidate Salvador Allende, had missed victory by only 35,000 votes...
...We thank Fred Block for helping us clarify our ideas on these points...
...3. Interview with Claudio Bonnefoy, Chilean legal adviser, Washington, D.C...
...Bonaede, op...
...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...
...Quoted by Benjamin Welles, The New York Times, October 23...
...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...
...While the concept of adequate compensation is stated in law, there are also strong U.N...
...This plus interest is what Kennecott wanted paid back in 1971...
...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...
...The percentage of blue-collar workers in the labor force declined from 1930 to 1952, as did the average real wage earnings per laborer...
...aid in past years...
...Suppliers' credits to Chile were, perhaps, $300 million, in addition to another $220 million in banker's lines of credit: They were cut...
...would "cut off aid unless she provided prompt compensation...
...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...
...interests...
...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...
...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...
...These brief reports are representative of many industries tied to U.S...
...interest without making reasonable provision for such compensation to U.S...
...government stopped playing banker, and it cut off its sources of credit, knowing that private bankers and suppliers would follow suit...
...In this regard, it is interesting to consider what alternative policies the U.S...
...See 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...
...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...
...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...
...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...
...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...
...hard line" tells the underdeveloped world that it had better play the game right, i.e...
...See also New Chile, p. 47: and Hector Melo and Israel Yost, "Funding the Empire, Part 2 - The Multinational Strategy," NACLA Newsletter, VoL IV...
...State Department, "Background Notes," op...
...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...
...Roy L. Ash...
...source: U.S...
...7 But a reporter for Forbes magazine exacted a more telling quote...
...government...
...This was both the strength and the weakness of the via chilena, the Chilean road to socialism...
...loans...
...The cutting off of private, official U.S., and multilateral credits was the first major step in undermining Chile's economy...
...The IDB helped construct 27,000 individual homes, and contributed to housing developments, both central to President Frei's "community development" efforts...
...13-15...
...profile in Latin America...
...In 1970, Chile's middle classes voted to preserve their privileges, under either Alessandri or Tomic...
...Evidently, Chile is not such an absolute risk-not yet anyway...
...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...
...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...
...so the debt grows, but the means to pay it do not...
...Chile's total foreign debt is nearly $4 billion, more than half of which is owed to U.S...
...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...
...As Minister of Foreign Relations Clodomiro Almeyda has said, "In- ternational capitalism shows structural solidarity...
...cit, p. 2238...
...intimidation of other copper customers...
...In addition, the bankers tended to believe the exaggerated U.S...
...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...
...The Forbes reporter asked, "Which is...
...Policies and Operations," Washington, June, 1969, p. 3. 17...
...It was the UP's bad luck that while the price of copper was falling, the value of imports, especially foods, was rising...
...In 1971 and 1972, Chile paid back around $16 million, and in 1973, $17.5 million is due...
...We didn't know if the new director would be an experienced banker, or a political hack...
...We deal with the USSR, with Yugoslavia and China, but not with Chile...
...International Bank for Reconstruction and Development (World Bank) Press Release, no...
...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...
...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...
...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...
...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...
...and the concentration of power and wealth in the hands of sluggish, vende-patria local bourgeoisie...
...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...
...Mining operations are especially handicapped by the difficulties in obtaining spare parts...
...Such credits were previously supplied by U.S...
...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...
...Should the Right win more than 50 percent of the vote, it will probably demand that Allende resign...
...At the time the request was made (early 1971), U.S...
...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...
...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...
...government would be to the UP's plans to expropriate many U.S.-owned industries, especially the copper holdings...
...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 JAP have issued cards for purchase of poultry and beef, and in one community, a People's Supermarket has been formed...
...while the private sector's savings actually declined from 10.2 percent to 9.4 percent...
...The U.S...
...The Copper is Chile's...
...ct., p. 91...
...The Private Banks Follow Suit The U.S...
...Further, Kennecott has written off for income tax purposes its equity interest of $50.4 million in its Chilean holdings...
...exporters, while the credit guarantees are available to bankers...
...Shortterm" credit is to be repaid in one to six months (usually 90 days) after the purchase arrives at its final destination...
...General Assembly, December 4, 1972, p. 11...
...He was also president of Litton Industries and will be included among the businessmen involved in forming the policies...
...PART III 1. United States Dept...
...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...
...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...
...2 First, the U.S...
...The U.S...
...Los Angeles Times, October 4, 1972...
...Before granting a loan, the World Bank ascertains that certain preconditions will be fulfilled...
...Chile used to import around 40 percent of its total imports from the United States...
...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...
...CUTS CREDIT One of the key factors influencing American suppliers and U.S...
...cit., pp...
...Suppliers' credits are credits extended by producers to foreign importers...
...THE BLOQUEO INVISIBLE AND THE MIDDLE CLASS Under capitalism the problem of distribution is solved simply...
...This was exacerbated by a growing black market where speculators sold hoarded items at terrific profits...
...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...
...13 Kennecott knows that its actions will have the following effects on Chile: short term loss of francs...
...Kennecott conducted this European legal offensive in military fashion...
...companies approved of the White House action, "some business groups have been less than complimentary...
...Chilean Development Corporation, Financlamiento Externo (Santi- ago: 1968), p. 73...
...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...
...of New York...
...Ercilla (Santiago), September 13-19, 1972, p. 10...
...December 6, 1972...
...and Chile, ODEPLAN (Office of National Planning), Antecedentes sobre el desarrollo Chileno, 1960-1970 (Santiago, 1971...
...Under this program, the U.S...
...In January of 1962 two separate exchange rates were created, and imports were restricted...
...From interviews carried out in the Banco Central de Chile by George Lawton, whom we thank for his help...
...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...
...Hegemony," Monthly Review, Vol V.., no...
...Formerly general manager of the First National City Bank, in Lima and La Paz 1964-1968...
...the mobilization of grande capital, national and foreign, is the responsibility of the World Bank Group...
...The Christian Democratic regime received $192 million from the IDB...
...all five have cut credit completely...
...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...
...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...
...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...
...If we are going to have a system that continues, the U.S...
...As shown above, this difficulty is largely due to U.S...
...granted Chile a $5 million military credit for the acquisition of a C-130 four-engined transport aircraft and paratroop equipment...
...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...
...Javits is widely considered a spokesman for his powerful Wall Street constituents and multinational corporations...
...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...
...The special case of Kennecott acting on its own to defend its interests will be considered below...
...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...
...At the ballot box, the Left's vote rose steadily...
...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...
...1 2 The importance of governmental aid to U.S...
...Copper payments to Chile were impounded until the Court rendered a decision on its competence to judge the legality of the expropriation...
...1 Allende remarked in his December speech before the United Nations: "As always, Chile must sell cheap and buy dear...
...with large amounts of U.S...
...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...
...Allende, as President, inherited a stagnating, dependent and mortgaged economy...
...statements supporting the rights of national sovereignty.' Further, the U.N...
...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...
...industry in order to increase exports and become more competitive on the world market...
...and 3) subsidize balance of payments deficits...
...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...
...1972, p. 139...
...But the most significant credits now come from the socialist countries, with the USSR replacing tthe United States as the largest lender to Chile...
...The spokesman replied, "We're interested in solutions to problems...
...Preparing for this eventuality, the U.S...
...and "multilateral" efforts to boost investment, capitalism in Chile continued to languish...
...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...
...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...
...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...
...7-51...
...The outcome was unavoidable: Chile would have to erect its own industry...
...Thus the State Development Corporation (CORFO) was set up to invest in steel, cement, oil, power, tires and other basic industries...
...7 Aside from its falseness and arrogance, such a statement, coming from the head of the World Bank, is a departure from normal diplomacy...
...under Frei, 4 hours 53 minutes...
...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 machines for both would obviously have to come from abroad: from 1940-1954, 84.5 percent of new machine equipment was imported...
...The Unidad Popular government was elected because Chileans could no longer accept this situation...
...At the same time, the Peterson Report emphasizes that foreign investment is crucial to a healthy economy...
...1968), p. 214...
...The value of the dollar on the black market fell from about 350 to 250 escudos...
...government understood by early 1971 that Chile was dependent on U.S...
...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...
...3. July-August 1971...
...But winning the approval of the majority meant, among other things, maintaining a high level of economic output and satisfaction...
...All This and No Growth...
...Millas, op...
...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...
...IV., no...
...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...
...capital exports...
...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...
...Since then, Chile has requested loans for a fruit-growing project...
...1 6 To attract private capital into its projects, the Bank conditions its loans upon the creation of a favorable investment climate...
...The New York Times, July 3, 1971...
...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...
...Petras and La Porte...
...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...
...Tad Szulc, New York Times, December 9, 1972...
...problems have been encountered in obtaining credits and supplies both in the United States and in Europe...
...machines that produced these goods...
...cit., p. 79...
...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...
...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...
...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...
...consumption patterns...
...9. U.S...
...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...
...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...
...2. We will not go into detail in this section about the early interchanges between the U.S...
...Proceedings of a Conference sponsored by the Bureau of Intelligence and Research," November 10, 1971...
...Even the Crown Zellerbach sub27 Categorysidiary, Crown-Laja, which annually exports $6 million worth of IBM cards, has trouble getting dollars to import parts...
...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...
...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...
...His desk is strewn with shipping reports, and on one wall hangs a large map for plotting ships' courses...
...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 effect of this would be to isolate Chile from the capitalist world...
...Despite all these U.S...
...November 13, 1971, p. 2242: and Fred Block and Larry Hirschhorn, "The International Monetary Crisis," Socialist Revolution, Vol II., no...
...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...
...TIGHTENING THE SCREWS: THE U.S...
...See U.N...
...now only $35 million is available...
...109 million for amortization of loans...
...The Eximbank grants credits to U.S...
...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...
...It was natural for Chile to import U.S...
...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...
...The legal battle spread across Europe when Kennecott took similar action in a Swedish court on October 30...
...AID: as of June, 1971, Chile owed AID some $500 million payable in dollars, and $30 million payable in escudos...
...nor were these payments offset by fresh loans, as in the past...
...This reasoning, however, promises great difficulties during "transition" periods for any progressive Third World government...
...2 3 Chile paid the installment in March, and Kennecott dropped its embargoes...
...THE ASSUMPTIONS From the beginning, U.S...
...John M. Hennessey might be included because of his role as consultant to A. D. Little, Inc...
...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...
...Allende U.N...
...bi- and multilateral aid policy, it will dominate policy-making towards the underdeveloped countries...
...Chile has meticulously met the payments due on this consolidated debt, having paid $3.6 million in June and in December, 1972...
...Washington Post...
...Bradford Mills, president of OPIC, agreed: "Really, what American mining companies are facing today is not private competition...
...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...
...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...
...If the UP could win majority backing, Chile's democratic tradition allowed people to hope that real reforms could be made without much violence...
...What the UP government failed to realize was that U.S...
...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...
...When this failed, it threatened actions abroad in a letter directed to the customers of El Teniente copper (see box on this page...
...3 These are the cold facts of capital flight from Chile...
...3. Interview with official in Manufacturers Hanover Bank, conducted December, 1972...
...16 Kennecott and the U.S...
...cit., pp...
...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...
...CHARLS E. WALKER.: Under Sec...
...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...
...However, should Chile ask the IMF for additional funds, restrictive conditions will probably be attached...
...However, the causes of the decline cannot be clearly identified with changes introduced by the Allende government...
...Nevertheless, Chile is still saddled with a huge debt to U.S...
...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...
...The upper and middle classes had declared war on the UP government...
...Several were lawyers with strong ties to inter- national corporations...
...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 court was requested to embargo the proceeds of the sales until it could decide on the Braden claim of ownership...
...Frank K. Fowlkes, "Economic Report/Connally Revitalizes Treasury, Assumes Stewardship of Nixon's New Economic Policy," National Journal...
...government has reiterated its commitment to this goal again and again...
...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...
...Further, much of the imported industry fortified the class structure within Chile...
...January, 1966...
...economy home and abroad...
...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...
...Millas...
...At the same time, the prices, as well as the quantity, of goods that Chile has wanted to import have increased steadily...
...Deputy Assistant-under Kissinger-for National Security Affairs) to discuss the Chilean expropriations...
...a $25 million loan was granted by the Ex-Im Bank in 1969...
...He would come up here and say, "if you don't give me what I want, you'll have to deal with the Communists...
...cit., pp...
...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...
...12 per year for institutions ($22 for two years...
...to promote certain "small scale self-help projects...
...government will have to be more committed than ever to the expansion and growth of the U.S...
...For more on this see "Support for your Local Police," New Chile, NACLA, 1972...
...23 The first drafts for the official policy statement were prepared under Weintraub at State and John M. Hennessey at Treasury...
...companies preferred to use the profits from their Chilean mines to invest elsewhere and pay dividends...
...9dwindling, the U.S...
...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...
...Kennecott cannot deter customers from buying Chilean copper if they have no where else from which to buy...
...Secretary of the Treasury John Connally supported the Peterson conclusions, especially as regarding the necessity of government intervention to promote exports...
...These are: 3 5 ROY ASH: Architect of the CIEP an