Memorandum by Mr. Edgar L. McGinnis of the Division of North and West Coast Affairs1


A recent despatch from Santiago (No. 230 of April 4, 19492) emphasizes two fundamental problems in the economic field faced by Chile. It is felt that since these problems are actually common to many ABA countries, this memorandum might be of interest to other divisions of ARA.

The Embassy’s despatch under reference is based upon a conversation between an officer of the Embassy and Sr. Alessandri, Chilean Minister of. Finance. The first problem covered is how far Chilean financial policy can go in curbing inflationary tendencies in the light of the preoccupation of business interests over the possibility of a business recession. This concern is increasingly general and has naturally been stimulated by reports of deflationary tendencies in the U.S., particularly the weakness in the metals and agricultural markets in this country. Accordingly, Chilean officials face the dilemma, which is common to many LA governments, of ascertaining which way the economic cat may jump. Official efforts have been directed toward slowing rather than halting inflation and have been influenced by the possibility that a reversal of policy might be required in the event that deflationary tendencies become predominant.

From the long term point of view, Sr. Alessandri’s comments upon Chile’s motives in endeavoring to attract foreign capital are of more general interest. The Embassy’s summary of his remarks along these lines is quoted in extenso:

“Sr. Alessandri’s candid, almost cynical reference to the motives behind the Chilean Government’s efforts to attract foreign capital (and hence its recent orthodox fiscal and monetary policies) merits particular attention. He developed a similar line of thought in a speech before the delegates to the Hemispheric Stock Exchange Conference last autumn, when, speaking of the underlying causes of inflation, he mentioned ‘a disproportionate tendency to consume, stimulated by motion pictures and other highly developed informational media.’

“To the Governments of underdeveloped countries, this general problem, a reflection of the times, is a fundamental one. Wartime influences, and the postwar ideological conflict, have awakened new and often far-reaching hopes and economic aspirations among populations [Page 591] which had formerly been more or less resigned to traditional ways of life, at or close to a subsistence level. Today their Governments, in so far as they respond to democratic forces, must seek a rapid adaptation to the economic and political culture of the ‘century of the common man.’ At the same time, the favored and influential classes want to imitate the outward forms of American life, sporting expensive imported luxuries, while also trying to safeguard past economic, social and political privileges. To satisfy the aspirations of both groups, Governments foster ambitious development programs; the political need of emphasizing propaganda value often causing less dramatic but more practical needs to be overlooked. The interplay of these forces, which give rise to strong political as well as economic pressures, causes these nations to live beyond their immediate means, and to expect rapid advances in living standards without the hard, patient and undramatic work and sacrifice which has always been a prerequisite of progress, especially progress on a broad base. This is especially true in Latin America, where emphasis is so largely on dramatic political action by the central government, rather than on quiet individual and collective effort on the private level.

“Sr. Alessandri’s remark acknowledges that the attraction of foreign capital is the obvious and perhaps the only politically feasible way out of a dilemma forced upon governments by the main cultural trends of the times. If the flow of investment fails to come, they—and we—court the danger of widespread disillusionment. On the other hand, too great reliance on foreign effort and capital alone, and too great an emphasis on showy projects for which political credit can be claimed, tend to mortgage the future, and may lead to default when and if serious deflation next occurs.”

  1. The memorandum was addressed to the Deputy Director of the Office of American Republic Affairs (Woodward), the Chief of the Division of North and West Coaist Affairs (Mills), the Acting Assistant Chief of that division (Krieg), and Mr. Bainbridge C. Davis of the same division.
  2. Not printed.