Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

S/S–OCB files, lot 62 D 430, “Chile”

Paper Prepared for the Operations Coordinating Board¹

secret

[Washington,] December 17, 1954.

Courses of Action on Chile

analysis

The Working Group concluded that the present situation in Chile was serious but that the country was not likely to fall under Communist control in the near future. The political scene is marked by weakness and ineptitude in the Executive and a high degree of Congressional irresponsibility, and the two branches are currently in conflict. The Communists, strongly entrenched in Chile since the days of the Popular Front in the ’30’s wield great influence among the students and in the labor movement, where efforts of the free trade union movement to displace them have not to date been successful. The armed forces, however, are believed relatively free from Communist influence.

Chile’s economy is in a lamentable condition. The country is currently in the grip of galloping inflation: prices rose 71.85% between September 1953 and September 1954 and the Government’s budget is and for years has been hopelessly unbalanced. The exchange rate system has operated to distort trade patterns, misdirect investment, subsidize favored groups and contribute to the depression of agriculture. Efforts at applying direct economic controls have been uncoordinated, ineffective and have distorted domestic productive patterns. Agricultural production has been falling off, forcing Chile, which was at one time an agricultural exporting country, to devote roughly 25% of its foreign exchange income to food imports. Industrial productivity is low and there have been a series of labor disputes and strikes, usually motivated by the need for higher wages to keep pace with spiralling prices, which lend themselves to exploitation by the Communists for political ends.

Finance Minister Jorge Prat recently initiated a program intended to stabilize the economy over a period of two to three years. The obstacles in Prat’s way are enormous: the Government’s political position is weak and he has to overcome the opposition of vested interests among capital, labor and the bureaucracy who are not convinced of the necessity of making short-term sacrifices for long-term gains. Despite these obstacles and the serious shortcomings of the plan itself, the Group believes that Prat’s program offers a better chance of starting Chile on the road to recovery than any other program now in sight.

basic approach

The consensus of the Group is that only the Chileans can bring about the reforms necessary to stabilize and strengthen their economy and that U.S. aid cannot be effective unless the Chileans enact and implement the required reform measures. But it also recognizes that a certain amount of United States support may be desirable concomitantly with a reform program. It is believed that the limited progress achieved by the Chileans to date justifies an initial step to show that we are ready to help Chile as long as she is moving in the right direction. The extension of U.S. support must be timed in such a way as to bring the Chileans to the realization that the primary responsibility for the improvement of conditions in Chile rests squarely with them but that the U.S. is sympathetic with their problems and will help when our help can be useful.

No need is seen at this time for a “crash” program; on the contrary, such a program would in all probability defeat the objective of inducing the Chileans to carry forward their own reform program. The economic assistance measures which follow are therefore designed to be contingent upon Chilean progress in putting their house in order and to be put into effect step by step as they demonstrate such progress. Additional measures which are recommended and which do not depend for their implementation upon economic improvement should be carried out in accordance with the capabilities of the responsible agencies.

recommendations

Economic

1. Shipment of Agricultural Commodities

Every effort should be made to expedite action on the Chilean request for wheat, vegetable oil and cotton under P.L. 480.

2. Support for IMF Drawing

In the light of appraisal by the National Advisory Council on International Monetary and Financial Problems of Chile’s financial program, the NAC should consider the appropriateness of instructing the U.S. Executive Director of the IMF² to support:

a. IMF pressure on Chile for further economic and financial reforms, and

b. An IMF drawing by Chile.

3. Export-Import Bank Loan

If the Chilean economic program shows promise of success, the Export-Import Bank should consider the appropriateness of further loans to Chile within the established lending policies of the Bank to help ameliorate the existing crisis.

4. IBRD Loan for Economic Development

If the Chilean economic program shows promise of success the NAC should consider on its economic merit the appropriateness of the development plan based on an FAO–IBRD study or any other proposals for development loans to Chile which may be put before the Executive Directors by the Bank Management.

Diplomatic Action

5. Diplomatic Support

The continuing efforts of our Ambassador and his staff at Santiago to impress on appropriate officials and key individuals the necessity for taking measures to check inflation and stabilize the economy, should be given every support.

6. Creation of Anti-Inflation Advisory Committees

Recognizing that support from the widest possible segments of public opinion will be required if Prat’s economic rectification program is to have any chance of success, it is recommended that the Working Group on NSC 5432/1 appraise the experience of the Austrian Government with anti-inflation advisory committees and consider the desirability of suggesting the use of similar committees in Chile. If the appraisal is favorable, Ambassador Beaulac should be provided with the necessary information so that he can decide whether it should be called to the attention of the appropriate Chilean authorities.

7. Potential Coal Emergency

If it is established that the Chilean coal supply situation is grave and that a strike by communist-dominated coal miners’ unions is imminent and would have an immediately crippling effect on the Chilean economy, the U.S. should give consideration at once to an emergency shipment of coal to that country. There should, however, be discussions with appropriate U.S. trade unions before a decision is reached to make such shipments.

Labor

8. Additional Labor Staff

Labor Department and FOA believe that provisions need to be made for additional staff assistance in the labor field to handle increased programs resulting from FOA Technical Assistance and Exchange activities. The State Department agrees that additional labor staff should be made available if after the arrival of the Labor Attaché it becomes evident that it is needed.

9. Labor Institute

A labor institute should be established with labor sponsorship in order to provide training and information on free trade union leadership and union organization and on general labor problems for present and prospective labor leaders and others interested in labor. At first emphasis should be on short-term courses held in the major labor centers of the country. The interested agencies are collaborating in the preparation of a detailed program for this project. As soon as this program is prepared by the agencies, it should be submitted to the Ambassador for his views and suggestions.

10. Labor Leader Exchange Program

The labor leader exchange problem should be maintained.

Technical Cooperation

11. Technical Cooperation Program

The Technical Cooperation Program in Chile should be strengthened and serious consideration should be given to diversification and expansion of technical assistance activities, utilizing both U.S. technician and trainee techniques.

Certain recent Chilean requests merit attention. These include: (a) a request for a Hoover-type commission to study the governmental operations of Chile; (b) a request for a university contract in the field of general resources planning and management; and (c) a request for a U.S. advisor to assist the Chilean Council of University Presidents in the methodology of, and in planning activities for, increasing productivity, for improving the organization of economic activities and for promoting the rational utilization of national resources.

12. Need for Inter-Agency Agreement

The Working Group noted that the Department of State and FOA have not been able to agree upon the desirability of establishing positions for general labor officers and investment advisors, as well as upon other activities which do not in themselves affect the Chilean programs. Pending a decision on these matters, the FY 1955 Technical Cooperation Program in Latin America has not been implemented. It is recommended that these differences be resolved immediately.

Information and Cultural

13. Intensification of Information Program

There should be an intensification of the information program in Chile primarily in terms of content and following the guide lines of the short-term objectives now being established by USIA in consultation with the Embassy and the State Department. This intensification should provide maximum information support in Chile to one or two objectives supporting the U.S. on major issues and permitting a concentration of film, press, radio and Information Center activities over the next six months on groups whose opinions will be playing a key role in the present crisis.

14. Increased Support for Binational Centers

Binational Centers are regarded as a highly important means of reaching influential groups. Their ability to utilize Chileans to influence Chileans should be extended. The three centers now receiving regular support from USIA (Santiago, Valparaiso and Concepcion) should be provided with additional support necessary to permit the extension of their programs to larger audiences, particularly university and labor groups.

It is of special importance to support Centers in the provincial areas. Centers in Osorno, Maria Elena, and Antofagasta, which heretofore have received only sporadic or no assistance, should be provided with support adequate to reach key groups in these cities. Such support should include American personnel and funds for rent of adequate quarters if necessary. Also, it is suggested that other Centers in provincial areas be assisted similarly, if, in the opinion of the PAO, an extension of their activities would support U.S. objectives.

It is suggested that additional Smith–Mundt visiting lecturers be sent to Chile to lecture in the Binational Centers.

15. Comment on Chile in U.S. Newspapers

In view of the influence public opinion in the U.S. has on Chilean leaders, it is desirable to encourage the expression of such opinion supporting the U.S. position in American newspapers and magazines with subsequent publication of such articles in Chilean media.

16. Indigenous Source for Free Labor News

There is need for an indigenous free labor press in Chile. It could rally support for non-Communist labor groups and combat the Communist newspaper, El Siglo’s line.…

. . . . . . .

17. Exchange Programs

More than 200 Chileans, travelling on Communist travel-grants, attended Communist-sponsored Congresses in Iron Curtain countries during the last six months of 1953. To counteract the intensive, increasing Communist campaign against the United States, our exchange programs, particularly for observation or leader-type grants, should be substantially increased.³

1. A covering memorandum, transmitting this paper to the OCB, by OCB Executive Officer Elmer B. Staats, dated Dec. 17, 1954, is not printed. The paper was prepared on a priority basis by the OCB Working Group on NSC 5432/1.

   For text of NSC 5432/1, a statement of policy titled “United States Objectives and Courses of Action With Respect to Latin America,” dated Sept. 3, 1954, see p. 81.

   For information concerning the formation of the OCB, see the second editorial note p. 44.

2. Frank A. Southard, Jr.
3. In a memorandum to Under Secretary Hoover, dated Dec. 21, 1954, Deputy Assistant Secretary Sparks recommended that Mr. Hoover favor adoption of the proposed courses of action with respect to Chile at the OCB meeting scheduled for Dec. 22 (S/S–OCB files, lot 62 D 430, “Chile”).