Memorandum by Milton Barall of the Office of South American Affairs to the Director of That Office (Atwood)



  • The Situation in Chile

1. Political Structure and Orientation of Government

Chile has a democratic form of government under the Constitution of 1925 and, since 1931, all Chiefs of State have been elected by the people. A Chamber of Deputies and a Senate make the laws which are then promulgated by Presidential decree. In actual practice, the President and his Cabinet form a strong executive branch which directs the centralized activities of the government. With a multiplicity of political parties, and with no majority party, the Cabinet is generally formed by coalition to give the President a working majority in Congress. President Ibañez took office in November 1952 after receiving 47% of the popular vote in a 4-way race. The present lame-duck Congress will be replaced after Congressional elections in March, 1953. Ibañez’s campaign was virulently anti-U.S. but he has tried to curb the pro-Peron, pro-Nazi and pro-Commie factions among his supporters. The present Cabinet will probably not last long, but it cannot be described as friendly to the U.S. The Minister of Interior1 is … and anti-U.S. He is in a key position with respect to Communism, which has been as successful in Chile as anywhere in South America. The Foreign Minister2 … is anti-U.S. and pro-Peron. His foreign policy, though professing not to be anti-U.S., calls for the creation of a Latin-American economic bloc to compel the U.S. to pay high prices for raw materials. Alliance with other underdeveloped countries, it is argued, will reduce Chile’s economic dependence on the U.S. Historically, Chile generally has been friendly toward the U.S. and if Ibañez can control the forces he set in motion, his regime may very well continue in this tradition.

2. Economy

Though more people are engaged in agriculture than in any other occupation, Chile has switched from an exporter to a large net importer of foods, while it has been building up its industry. The bulk of government revenues and foreign currency exchange is derived from the export of minerals, chiefly copper, of which Chile has the world’s largest reserves. Chile’s monopoly on fertilizer was broken by the development of synthetics, though the production and export of nitrate and iodine is the second most important factor in the country’s economy [Page 694] and foreign trade. With the assistance of Eximbank loans and U.S. technicians, Chile has a steel mill, using domestic iron and coal. Large iron deposits are being developed for the export of ores to the U.S. The Government’s Fomento Corporation has helped develop the manufacture of consumer products such as textiles, leather, pharmaceuticals, cement, glass, tires, but the government’s meddling in private industry and its restrictive practices have also helped produce a dangerous and continuous inflation, about 30% in 1952. This has led to great curtailment of imports from the U.S. Chile is not now economically sound and it faces a major crisis in 1953 because of its dependence on the present artificially high price of copper for government funds and for economic development. The long-range solution lies in reduced government controls, increased agricultural and industrial production, diversification of the economy, and an improved communications network. Chile has the basic resources and manpower for the establishment of a prosperous economy and a much higher standard of living. Chile has no Trade Agreement with the U.S. but is a member of GATT.3

3. Strategic Military Importance

Chile’s long coastline and its control over the Straits of Magellan give it strategic military importance, especially if the Panama Canal should be knocked out and the Drake Passage becomes our means of communication between the Atlantic and Pacific Oceans. Since its acquisition of 2 cruisers from the U.S. in 1951, Chile has the strongest navy on the West Coast and by signing a military pact with the U.S., in 1952, has undertaken some responsibility in the protection of the hemisphere. Under agreements running until 1954, the U.S. has Naval4 and Air Missions5 in Chile to help train its armed forces.

4. Major Problems dealt with in 1952 which Furthered U.S. Objectives

U.S. initiative
In response to Chile’s denunciation of the copper agreement in May of this year the U.S. amended its price control regulations on imported copper. This has permitted the continuation of sales of large quantities of copper in the U.S. The high prices helped eliminate sales to the iron-curtain countries.
Interested Executive agencies agreed unanimously to seek continued suspension of the 2 cents per pound copper tax. The present suspension terminates February 15, 1953.
The distribution of Chilean copper was retained under the IMC by the favorable price policy adopted by the U.S.
A new … program was put into effect to help counteract virulent anti-U.S. propaganda.
Chile signed the bilateral military agreement which was then ratified by its Congress. The U.S. was subjected to much vilification because of this agreement, which became one of the leading issues in the presidential election. After a short delay to see if Ibañez would denounce the agreement, the U.S. started the shipment of supplies and will live up to its responsibilities. Ibañez and his Cabinet have agreed to honor their commitments.
U.S. maintained a friendly and favorable policy on requirements for Chile, especially for the Huachipato steel mill.
Chilean Initiative
Ibañez was elected President with a 47% plurality. The following anti-U.S. issues were raised during the campaign:
Denunciation of the military pact
Reestablishment of diplomatic and commercial relations with Communist countries
A possible “third position”, especially economically
Repeal of the Law for the Defense of Democracy, which curbs Communists
Possible eventual nationalization of copper mines.
Ibañez won with the support of ex-Nazis and Commie sympathizers. By sending a strong delegation, headed by Mrs. Roosevelt,6 to Ibañez’ inauguration,7 and by maintaining a friendly but correct and “hands-off” attitude toward the new government, the U.S. has helped stave off the anti-U.S. actions which were campaign issues. There has been no further deterioration in U.S.–Chile relations and friendly contacts have been established with Ibañez himself.
Ex-President Gonzalez Videla put pressure on the U.S. copper companies to contribute to the campaign fund to defeat Ibañez. Fortunately, the State Department prevented this by refusing to relax its prohibition on this type of activity.8
Anglo-Lautaro and Cia Salitrera de Antofagasta y Tarapáca have requested loans from the Eximbank to expand production and improve methods. A new U.S. loan policy toward Chile is still to be formulated but we have agreed to approve an IBRD loan for a chemical pulp and paper mill and the Eximbank loan to de Castro’s nitrate company without further delay for political reasons.
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5. Major Problems which did not Develop Successfully in 1952

U.S. initiative
Chile agreed to consult under GATT on import restrictions but consultation will not take place until after Chile’s consultation with the IMF in January 1953. Embassy’s efforts in Santiago to remove restrictions proved to be fruitless.
No Point IV Education Agreement was signed because the political situation has kept Chile from adopting a firm position. The U.S. has now given Chile the initiative and if Chile wants an agreement it will have to approach us. Not much progress was made in improving agriculture.
Chile did nothing to implement the provisions of the copper agreement of 1951 with respect to increased production.
Chile failed to act on the passage of a new tax and exchange law for the copper companies.
No improvement was achieved in securing firm support from Chile for U.S. objectives in the UN.
No improvement was noted in the attitude of Chilean labor with respect to political strikes against U.S. companies.
Chilean initiative

Chile has asked for assistance to small and medium copper mines. So far the U.S. has not actively supported this. The problem has been referred to DMPA regional office in Lima in order to delay action until the course of the new government is clearer.

6. Status of Pending Problems (Urgent when marked with asterisks)

The issue of the two-cent tax on copper is a great potential danger to our relations with Chile. The Executive agencies are actively seeking continued suspension and Representatives Patterson9 of Connecticut and Reed10 of New York submitted bills for suspension until June 30, 1954. We should exert pressure to meet the February 15 deadline.
Chile has requested or is likely to request large loans for 1953, for the Chilean Railways, nitrate production, aid to small and medium copper miners, coal production, irrigation and agriculture, and others. Quite apart from political considerations, there is a real question as to Chile’s ability to absorb and service additional debts. An overall loan policy toward Chile will have to be formulated.
Anti-U.S. sentiment and propaganda is still a problem. We will continue efforts to bring our case to the people and explain away distortions and misconceptions. We must try to keep the government and the people on our side, with particular emphasis on Ibanez, so that he can keep his extremist supporters in line.
Intersessional GATT consultations will take place after January 1953 to try to ameliorate Chile’s discrimination against imports from the U.S.
Over 250,000 tons of copper have been sold in the U.S. at the 35½ cents price. A serious internal problem will arise in Chile if the world price falls, (as is likely if the U.S. removes controls) for its economy and budget are geared to continued high receipts.
The possible shipment of strategic supplies to Communist countries will continue as a problem. Chile has agreed to some control measures and has not knowingly sold behind the Iron Curtain, but a change in the price of copper or in Chile’s political orientation might lead to deliberate sales.
Chile’s foreign policy and strong nationalist tendencies will bear close watching. There is an incipient movement toward emotional and irrational nationalism such as we have seen in Iran and Bolivia.
Chile is the source of almost all copper imported into the U.S. (40% at the present time). We should make continued efforts to secure the cooperation of the Chilean Government for protection of the Kennecott and Anaconda plants in accordance with a NSC directive.11
  1. Guillermo del Pedegral Herrera.
  2. Arturo Olavarría Bravo.
  3. Reference is to the General Agreement on Tariffs and Trade, concluded at Geneva, Oct. 30, 1947, and entered into force for the United States, Jan. 1, 1948; for text, see TIAS No. 1700, or 61 Stat. (pts. 5 and 6).
  4. For text of the Agreement providing for the services of a U.S. Naval Mission to Chile, signed at Washington, Feb. 15, 1951, and entered into force on the same date, see TIAS No. 2202, or 2 UST 535.
  5. For text of the Agreement providing for the services of a U.S. Air Force Mission to Chile, signed at Washington, Feb. 15, 1951, and entered into force on the same date, see TIAS No. 2201, or 2 UST 522.
  6. Mrs. Eleanor Roosevelt.
  7. President Ibáñez was inaugurated on Nov. 3, 1952.
  8. In telegram 53, from Santiago, dated Aug. 14, 1952, Ambassador Bowers reported that the Chilean Government apparently planned to draw on U.S. companies for contributions to the presidential campaigns of Senator Matte and/or Señor Alfonso, and he stated the following: “Aside from fact this is a squeeze, am convinced it would be dangerous remove ban [on campaign contributions], unwise for our people become involved in election and certainly unwise for our govt become involved.” (725.00/8–1452)

    The Department’s telegram 52, to Santiago, dated Aug. 15, 1952, reads in part as follows: “We concur that it is undesirable for Amer owned concerns to become involved in internal affairs other LA countries by making financial contribution to campaigns of particular candidates …. We assume Amer cos and Chile Govt already aware of this.” (725.00/8–1452)

  9. James T. Patterson.
  10. Daniel A. Reed.
  11. Reference uncertain.