149. Memorandum From William J.
Jorden of the National Security Council Staff to the
President’s Assistant for National Security Affairs (Kissinger)1
Washington, September 16, 1973.
SUBJECT
- Allegations of U.S. Economic Pressure Against Chile—and
Answers
The attached package deals with the allegation (as in this morning’s Washington Post) that the U.S. carried out a
campaign of economic pressure against Chile that led to Allende’s downfall. The first paper
puts this whole matter in perspective. I would drive home several key
facts:
[Page 770]
(1) The overriding cause of Chile’s economic plight was its own misguided
economic policies and government mismanagement.
(2) A good case can be made that we were, if anything, too soft in
dealing with a Chile that had seized without compensation more than $800
Million worth of U.S. private assets, and defaulted on more than $1
Billion direct or guaranteed debts.
(3) Multilateral banks continued disbursements on existing loans to Chile
throughout the Allende
period—with average annual disbursements exceeding those of the three years before Allende.
(4) Multilateral banks—like the Inter-American Development Bank and the
World Bank—are independent institutions with expert staffs of wide
experience. They are not controlled by the U.S., but make their own
independent judgments. (I would cite especially the statement made by
Bob McNamara of the World
Bank regarding Chile in November 1972—see page 2 of the “Allegations and
Responses” paper.)
(5) On the question of military credits, two things stand out: (a) the
requests were made by the Allende government not by the
military forces themselves; and (b) Chile had paid its military debts in
contrast with its sad performance on government and bank credits.
(6) The Congress will understand that our general approach on aid and
loans was to a great extent determined by the will of Congress itself as
expressed in the Hickenlooper
amendment (which requires us to cut off aid to any country that
expropriates U.S. assets without compensation) and the Gonzalez amendment (which requires us
to vote in international financial institutions against any loan to a
country that has seized U.S. assets without payment).
The “Allegations and Responses” Paper (prepared by State at my direction)
deals with the specific charges raised in the Stern article.
I am also attaching for possible use or background:
—An economic fact sheet on Chile;
—A list of U.S. actions that benefitted Chile during the Allende years;
—A list of Inter-American Bank Disbursements from 1968 to 1973.
[Page 771]
Attachment2
Washington, undated.
DID U.S. CAUSE CHILE’S DOWNFALL?
Question: Did U.S. wage economic warfare against Chile and cause
downfall?
Answer: No. Chile’s economic plight was caused by their own misguided
economic policies. The facts amply support that as does objective
international opinion.
The posture of USG was correct in
every sense of the word in its economic relations with Chile, and I
might even say, benign in view of the actions they took in
expropriating without compensation over $800 million of U.S. private
assets and in defaulting on over $1 billion worth of USG direct or guaranteed debt. Here
are the facts:
1. No embargoes (unlike Cuba) on trade with Chile were carried out.
In fact, U.S. firms continued to supply spare parts and equipment as
long as the country’s economic management and credit rating merited.
Cash sales continued. No overt or covert pressure or restrictions
were put on U.S. firms or their subsidies abroad by USG.
2. Private U.S. copper firms whose assets had been seized in Chile
pursued their international legal right by court actions abroad (in
France and Germany).
3. The USG continued to disburse
normally on the small remaining bilateral aid loans after Mr.
Allende came to
power.
Characteristic of most Marxist governments, there was no evidence of
a desire on their part to ask for bilateral aid from us. Under laws
of our country (Hickenlooper
Amendment) it would not have been legal for us to make new bilateral
loans—even had they expressed an interest.
The 100 percent default on Chilean debts to U.S. since November 1971,
representing not having to pay about $250 million, was, of course,
equivalent to making a new loan to them of like amount.
4. Multilateral banks continued to disburse during entire period on
existing loans to Chile—totaling $83M during the August 1971 to
August 1973 period. This represented an increase in average annual
disbursements as compared with the three years prior to Allende’s coming to power.
[Page 772]
The World Bank made no new loans to Chile—in line with its stated
policies of (a) not loaning to countries who are in default on their
international debt, (b) who have expropriated and not compensated
assets of private firms, or (c) who don’t meet normal economic
policy criteria. Chile failed on all three counts. I would refer you
to a speech by Mr. McNamara,
the President of the World Bank—never known as one who is the
implementor of U.S. policies—answering the Chilean charge that no
World Bank loans were made to Chile for political reasons. As he
explained, the absence of credit was due purely and simply to the
disastrous economic policies which the country was following.
This same objective analysis and conclusion was repeated this year,
when professional International Monetary Fund Staff, after an
in-depth analysis, reported on the deplorable state of the economy
and the need for sensible policies. The Fund has never been known as
a particularly American-biased institution.
The creditor countries who make up the Paris Group—including
countries most sympathetic to the Allende Government, such as the French, Germans,
Danes, Spanish and Italians concluded in April of 1972 and again in
July of 1973 that there was little they could do to help Chile
unless it would adopt sensible policies. I will provide subsequently
some facts and figures for your records on the extent and nature of
their economic policies—but let me return to some other points
first.
(a) Illustrative of our giving the benefit of the doubt to Chile were
the USG favorable votes on two
Inter-American Bank loans to Chile of over $10 million in January of
1972—more than two months after accession of President Allende and after nationalization
of the copper companies had been announced.
(b) New Eximbank loans were withheld for economic reasons, not
political. Chile was and is still in default on all their Eximbank
debt. For 18 months discussions on this debt have gone on
multilaterally in the Paris Club and bilaterally without any
payments having been made—again with some considerable restraint on
U.S.’s side. This, of course, is why the request for Exim loans for
the purchase of Boeing aircraft was turned down in 1971.
(c) Minor military loans of about $12 million were made to Allende’s government to keep the
minimum level of equipment going and maintained. It could be likened
to our continuing disbursement on existing AID, and Eximbank loans for past projects, as well as
our decision to approve the two mentioned Inter-American Bank loans.
We were trying to keep the signals positive and the door open.
(d) In 1971/3 period the International Monetary Fund made the
equivalent of two separate loans (drawings) to Chile totaling $86
mil
[Page 773]
lion to make up
shortfalls in export earnings. The U.S. took no action to oppose or
otherwise make these drawings difficult.
Thus the answer to the question: did the U.S. cut off their credit in
international agencies is demonstrable NO. Where new credit flows
ceased, it was due to the rules and policies of the institutions
themselves and to Chile’s own economic action.
(e) Private credit from industrial countries did dry up over time.
This again was a function of a response to Chilean economic policies
and actions rather than some plot. U.S. and European banks postponed
payment of 70 percent of Chile’s debt payment falling due in
1972—worth about $128 million, which is the same as having given her
new money.
What I can say unequivocally—what President Nixon said earlier regarding our
relations with Chile—is that we were prepared to have the kind of
relations that Chile wanted. A consistently open-handed policy was
followed. In fact, some consider that we were soft on Chile, as I am
sure you will recall from the testimony given earlier this year
before the Church Subcommittee.
The truth of the matter is we did not want to drive the Allende Government into an
opposing camp or to an extremist position. We hoped they would be
reasonable and pragmatic. It would have made little sense in this
era of détente to have done otherwise. The fact remains that for
their own domestic political reasons the Government of Chile showed
little or no inclination to have good relations with us and, in
fact, did use international forums to attack us continuously—to
which we responded with restraint.
In sum, I believe no one can assert that this Government—the
Administration of President Nixon—did anything directly or indirectly to bring
down the Allende regime.
Quite to the contrary, I believe we bent over backward to show
patience and restraint in word and deed in the face of their
economic and public attacks. The Chilean revolution was a revolution
of the middle class—of doctors, housewives, airplane pilots,
truckers and the like. It was to support these people and to save
Chile from economic chaos that the military government intervened.
It was done after many months of trying to work as part of the
Allende Government, and
after failing by that means to bring order. While we can all regret
the fate of Dr. Allende and
his government, it can in no way be laid at the doorstep of the
U.S.
[Page 774]
Attachment3
Washington, undated.
ANSWERS TO ALLEGATIONS CONTAINED IN STERN ARTICLE,
WASHINGTON POST, SEPTEMBER 16
Allegation:
USG has used various instruments to
exert economic pressure against Allende Government, including the Inter-American
Development Bank, the World Bank, and private U.S. banking
institutions.
Response: This is patently false. The
international institutions cited are independent bodies which have
their own lending criteria and have sufficient experience in this
field to formulate their own judgments.
Private banks and other private U.S. entities are entirely free to
make decisions as they perceive in their self-interest. Some private
bank lending has continued, although it is true that the amounts
have dropped sharply. We assume this is because private banks have
been as concerned as others about Chile’s lack of
creditworthiness.
Allegation: Ex-Im Bank refused the loan
application for the purchase of Boeing aircraft in August 1971 and
arbitrarily ended further lending.
Response: Regarding the aircraft case, there
was no refusal. The Ex-Im was perfectly prepared to continue
discussions on the loan request.
Ex-Im did ask for information on Chile’s economic policies pertinent
to the Bank’s responsibilities, since assurance of repayment is
fundamental. This normal precaution by Ex-Im was fully justified
when, less than three months later, the Allende Government unilaterally declared a
moratorium on its existing debt schedule, effective November 12,
1971. Chile has been in default to Ex-Im ever since. In accordance
with its normal practice, Ex-Im extended no further loans or
insurance and guarantee coverage after Chile defaulted.
Disbursements were also suspended then, for the same reason. I
emphasize the sequence of dates. It is totally false to state that
Ex-Im informed Chile in August 1971 that disbursements would be
terminated.
Allegation: U.S. prevented Chile from
obtaining credits from international financial institutions.
Response: We have said many times that the
international lending institutions are responsible organizations,
staffed by experienced, skilled and responsible experts in their
field. They know their business
[Page 775]
and we have every confidence that their
decisions are based entirely on such considerations as
creditworthiness and economic performance.
I should like to clarify the repeated misstatements on this subject
by quoting a statement made by the President of the World Bank on
October 18, 1972. I quote: “The primary condition for bank lending—a
soundly managed economy with a clear potential for utilizing
additional funds efficiently has not been met. The Chilean economy
is in severe difficulty . . . in this situation it is clear that
internal measures to reestablish reasonable economic stability are
required—and no amount of external financial assistance can
substitute for them. As matters stand—in the absence of such
fundamental economic stability—it is simply impossible for Bank
funds to be used productively for the benefit of the Chilean people,
and with the reasonable probability of repayment, which the Bank’s
Articles of Agreement require.”
I think it also important to note that during the entire period of
the Allende Government no
Chilean loan applications were presented to the IBRD Board, therefore, it is absurd
to speak of “U.S. veto”. Regarding the Inter-American Bank, two
Chilean applications for loans came to a vote early in 1971 when
economic conditions were much healthier. At that time, the U.S.
voted for these loans. It is totally false to say that the U.S.
blocked a Chilean loan application for the development of a
petro-chemical industry. This project has not come before the Board
for a vote and has been under study by the Bank’s technicians.
Allegation: While the U.S. refused economic
assistance on the grounds that Chile was a bad credit risk, it
continued to extend credit to the Chilean military.
Response: The decision of the Allende Government to request the
extension of U.S. credits under the FMS program was one which only it could make. Our
decision was whether or not to continue extending credits under the
FMS program to military
institutions which had, over the years, developed and maintained an
inventory of items produced in the U.S. The fact is that the
Allende Government was
current in its FMS repayments,
whereas it has been in default since November 1971 on payments due
to other U.S. Government creditor agencies.
Allegation: The USG cut off its aid program.
Response: The USG reduced its lending to Chile even before the
Allende Government took
office in November 1970. Only one loan was signed after October 1968
and that was a $2.5 million Human Resources loan which was signed in
April 1970. After President Allende took office, we continued disbursements on
existing A.I.D. loans and Chile did not request any new loans.
It could hardly be expected that the U.S. would extend new
development loans, even if the GOC
had requested them, after Chile stopped servicing existing loans
beginning November 1971. Nonetheless, in
[Page 776]
1972 when the GOC was more than six months in arrears in repayment of
certain A.I.D. loans, the U.S. waived legislative provisions which
would have cut off existing U.S. grant assistance programs. It is
frequently overlooked that there are ongoing U.S. assistance
programs in Chile. These include a P.L. 480 grant program for food
shipments which has amounted to some $10 million under the Allende Government, grant
assistance for training abroad, and community development projects,
and the Peace Corps. We also provided substantial amounts of
disaster relief supplies to the Chilean Government in the wake of
winter storms and an earthquake in mid-1971.
Attachment4
Washington, undated.
Economic Facts
1. At time of accession of new government in November 1970, the
Chileans had a historic net foreign exchange position of $343
million. The net foreign exchange position now is estimated at
negative $450 million.
2. The preceding government laid the groundwork for a stable economic
expansion, particularly in the copper sector. A purchase favorable
to Chile of 51% of U.S. companies share at book value or less had
taken place with 12 year repayment terms. Payment would come from
the government’s share of company profits, so in effect it cost them
nothing. In addition, an expansion plan was agreed to by the
companies to double production.
3. In spite of the doubling of physical capacity by the companies as
a result of the above decision, production has never come close to
capacity because of mismanagement. The professional cadres in the
mines, particularly engineers and supervisors, left the country.
4. Copper which was worth 45¢ to 50¢ per pound has increased to over
80¢ today. Under normal economic management, each cent increase
should have meant $20 million in new exports to Chile.
5. The money supply was increased 150% in 1972 and is estimated to
rise more than 400% in 1973. A fiscal deficit as a percentage of
total revenues increased from 14 percent in 1970 to over 80 percent
in 1972. Naturally, inflation was rampant—reaching from around 163%
in 1971 and 350 or more in 1973.
[Page 777]
6. For a good part of the first year—while Chile was living beyond
its means, some felt better off. Once the reserves had run out,
investment declined and the inflation had caught up with everyone,
it was clear even to workers that they were worse off.
7. Debt refinancing worth $130 million for 1972 payments took place.
New Communist country credits of more than $100 million were
reportedly made. In addition, Chile has not made any debt repayments
for 1973, worth about $262 million. They drew $86 million from the
International Monetary Fund. All of these resources, on top of
historically high reserves, were used up.
Attachment5
Washington, undated.
US ACTIONS BENEFICIAL TO ALLENDE GOVERNMENT
1970
Nov. When withdrawing its installations from Easter Island, USAF donated two sets of basic
weather forecasting equipment for use on the island
Disbursements of AID loans in
pipeline continued
1971
Jan. 14—US voted in favor of two IDB
loans for university development
June—AID provided $50,000 in special
relief supplies in wake of severe winter storms
July to Dec.—AID provided $205,000
in special relief supplies in wake of earthquake
—Residual disbursements of Ex-Im loans
1972
Apr. 19—Signed multilateral Paris Club Agreement to reschedule 1972
GOC debt subject to subsequent
bilateral agreement
Sept–Oct.—In addition to continuing scientific assistance, NSF put its research vessel Hero at the disposal of GOC-sponsored scientists
Nov. 17—When GOC fell more than 6
months in arrears in repayment of certain AID loans, Secretary of State exercised authority to
waive Section 620(q) of Foreign Assistance Act which would have
[Page 778]
cut off U.S. assistance
programs in Chile for training and community development
ONGOING
The US Weather Bureau continues to provide equipment and technical
advice to Chilean counterpart
FMS and military training program
(at the request of the Allende Government)
PL–480 Title II programs
Special Development Activities (SDA) grant assistance
Grant assistance for technical training overseas
FAA technical assistance to Chilean
Aeronautics Board
Peace Corps
Narcotics enforcement assistance
Attachment6
Washington, undated.
IDB Disbursements, 1968–July
31, 1973
($ millions)
|
1968 |
1969 |
1970 |
Ave. 1968–70 |
1971 |
1972 |
1st-7 Mos. |
Ave 1971–73 |
|
FSO
|
13.9 |
21.6 |
18.5 |
18.0 |
24.8 |
16.8 |
7.1 |
17.9 |
| OC |
15.9 |
5.1 |
7.4 |
9.5 |
9.3 |
3.2 |
5.4 |
7.3 |
| Total |
29.8 |
26.7 |
25.9 |
27.5 |
34.1 |
20.0 |
12.5 |
25.2 |
|
IBRD (FY’s) |
| 6/30/67–6/30/78 |
|
|
|
|
|
6/30/72–6/30/73 |
|
7.9 |
2.4 |
9.5 |
6.6 |
21.0 |
14.9 |
21.0 |
19.0 |
