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1 September 1947 
TABLE OF CONTENTS 
SUMMARY 
SECTION I—POLITICAL SITUATION 
1. Genesis or THE Present Pourrica, System 
c. Liberal Party 
SECTION II —THE COMMUNIST SITUATION 
SECTION 
ECONOMIC SITUATION 
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4. FINANCE. 
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HARRYES,. 
'| PRESIDENT * 
PETAR 
SSIDENT'S 
SECRETARY FILE 
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SECTION IV— FOREIGN AFFAIRS 
SECTION V— MILITARY SITUATION 
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4, STRENGTH AND DISPOSITION oF THE ARMED FORCES 
b. Maximum Military Capacity 
re 
ee 
VI— STRATEGIC CONSIDERATION S AFFECTIN G US SECURITY 
SECTION VII —DISSENT OF THE INTELLIGENCE DIVISION, 
DEPARTMENT OF THE ARMY 
APPENDIX A—Topography and Climate 
APPENDIX B—Map—Chile: Roads and Railroads 
APPENDIX D— Population Statistics and Characteristics 
APPENDIX E— Biographical Data 
Econ 
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HARRY S. TRUMAN) 
SUMMARY 
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Economically and strategically Chile is not a considerable factor in US security. 
; 
- 
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It is, however, the Latin American country where the Communists have the greatest 
Po 
ae 
potential for working against US interests.* Should the Communists succeed to any 
} 
extent in Chile, their success would encourage similar movements in other parts 
of the continent. 
Consequently, Chile can be viewed as a gauge by which to measure 
Soviet progress in Latin America. 
-. Chile’s governmental system is so organized as to provide a high degree of legis- 
i 
lative and administrative centralization. 
The subordinate governments are basically 
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= 
agencies for executing policies set by acts of Congress and presidential decrees. 
The 
| 
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executive officers of all levels of government form a hierarchy heading up in and 
— 
dominated by the President. 
Although, by law, the President has extensive powers, the nature of Chilean party 
politics is such that, as a matter of practical fact, he by no means enjoys freedom 
-of action or exercises the degree of control that one might suppose. One result of the 
Chilean multiple-party system is the continuing fragmentation of the electorate, which 
has proceeded so far in recent years that no single party can any longer hope for a 
Clear majority at the polls. Hence the President of Chile is further burdened with the 
necessity of working out compromises between conflicting interests that must be held 
together in a coalition if the Government is to be able to act at all. For this and other 
reasons set forth in the report, the Chilean Government is a relatively inefficient instru- 
ment for the execution of public policy. 
' 
The political situation in Chile is unstable. 
This is due primarily to the fact of 
the Government’s demonstrated incapacity to correct the steadily deteriorating eco- 
~ nomic situation. 
The most pressing needs are (a) measures to assure careful and 
- economical use of the current flow of foreign exchange produced by exports, (b) foreign 
- 
loans, and (c) ‘increased production. 
The most serious obstacle to increased produc- 
tion is growing labor unrest, which has manifested itself in numerous strikes. 
The 
- Communists, who have already gained control of unions in the most strategically situ- 
ated of Chile’s industries, have played an important role in these strikes. 
If and when 
they decide on determined aggressive action against the Government and people of 
Chile, there is every reason to believe that they could seriously dislocate if not actually 
paralyze Chilean economy. 
Moreover, recent reports indicate that the Government 
would not be able to meet such a crisis effectively without assistance from abroad. 
The Chilean economy also is unstable, and the prospects for greater stability 
in the near future are slender. The current decline in Chile’s accumulation of foreign 
exchange will continue to impair its already insufficient capacity to pay for imports, 
* The Office of Intelligence Research, Department of State, believes that this generalization 
cannot be justified in view of existing situations in, for example, Cuba and Venezuela. 
Note: This report has the concurrence of the intelligence organizations of the Departments of 
the Navy and the Air Force, and, except as noted, of the Department of State. 
For a dissent 
by the Intelligence Division, pegertanens of the Army, see page VII-1. 
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as upon which it is still highly dependent. 
Moreover, the cost of imports has increased 
at a greater rate than the world prices for the commodities which Chile exports. 
— 
For some time the Chilean Government has shown profound awareness of the 
country’s condition, and it has sought to meet the situation by (a) increasing exports, 
and (b) developing industry and agriculture so as to reduce the volume of needed im- 
ports. Labor troubles at home and declining demand abroad have stood in the way 
of the desired increase in- exports. 
Lack of capital and technological ability, along 
with labor troubles and governmental inefficiency, have nee industrial and agri- 
cultural development. 
The dependence of the Chilean economy upon external markets for its raw ma- 
terials and external sources of vitally necessary imports makes the country peculiarly 
sensitive to the cross-currents of international politics. 
The Chilean Government’s 
policy of giving strong support to the idea of international cooperation and to all United 
Nations activities is clearly dictated by the country’s economic situation. 
In the 
meantime, the loss of European markets has caused Chile to orient its foreign policy in- 
— toward its neighbors in the Western anemynaee, partewbarly the United 
States. . 
Chile’ s military establishment has highly limited potentialities, in part because 
it is small—army, 24 000" (including usually 12,000 annual conscripts); navy, 14,000; 
air force, 4,500. Among the Latin American countries, however, Chile’s power, charac- 
terized by comparatively great emphasis on naval strength, is considerable relative 
to its population. 
The forces are well schooled in the rudiments and in small-units 
tactics, fully equipped (though largely with antiquated weapons), animated by a pro- 
 fessionally military rather than by a politically orientated spirit, and adequate both 
for the defense of the country against a possible attack from its northern neighbors 
and for the maintenance of internal order. 
Although compulsory military service 
has obtained in Chile for more than forty years, there is no effective system for main- 
taining the proficiency of reserves. 
The extent of the country’s future military 
capabilities will depend largely on the amount of assistance the US makes available. 
The fact that Chile lies beyond the zone of immediate US predominance colors 
many of the economic, military, and political factors that must be taken into account 
in evaluating Chile’s strategic importance to the US. Chile produces no commodities 
. 
of vital necessity to the US economy in war or in peace. 
Chilean products are useful 
rather than vital, although the fact that in the years 1942-1945, 63% of the imports of 
copper into the US came from that country, shows the importance of this source of 
strategic material. 
(The Chilean ore bodies are the largest presently known.) 
Chile 
has no great military potentialities from the US point of view. 
Chile’s importance to 
the US arises out of its role in the family of Latin American nations. 
Its remoteness 
from the centers of US power gives it a greater sphere of independent action, and for 
that reason can be looked upon as an indicator of the mood and intensity of Latin 
American cooperation with US policy. 
Because of Chile’s influence among Latin 
American states, its attitude toward US policy can do much to promote or retard the 
~ success of that policy in Latin America generally. 
HARRY s. TRUMAN 
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POLITICAL SITUATION 
1. GENESIS OF THE PRESENT PourricaL SYSTEM. 
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Chile is sometimes cited as that one of the Latin American Republics in which 
| 
the people exercise real political power and in which government is therefore conducted 
ma- 
in the popular interests. 
Whatever claim Chile has to this distinction 
is of fairly recent 
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origin: from colonial days to the election of President Arturo Alessandri in 1920 the 
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country was governed primarily by—and in the interests of—the upper classes, whose 
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political monopoly had until then gone unchallenged. In subsequent years the classes 
the 
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hitherto excluded from effective participation in government have on any showing 
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made great political gains, and Chilean Government has to just that extent taken on 
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an increasingly popular orientation. 
Chile’s recent”constitutional development has brought changes not onty with 
regard to the basic character of its government, but also with regard to the scope 
and objectives of governmental activity, especially that type of governmental activity 
that takes the form of. state intervention in economic and social matters. 
The two 
; 
sets of changes have, however, a common origin—in the country’s reaction to the notori- 
ous indifference of the former ruling class to the impoverished condition of the masses. 
To consolidate their political emancipation from the former ruling class, the other 
| 
classes of Chilean society wrote into the Constitution of 1925 a “strong executive” 
type of government. 
Beginning with the Revolution of 1891 Chile had had a quasi- 
parliamentary form of government; but the preceding constitution, that of 1833, had 
entrusted to the President great power, and several of the presidents between 1833 and 
1891 had successfully used this power in the interests of their immediate friends and 
followers. The ruling class remained content with these arrangements until the 1850’s, 
when a new “liberal” party came into prominence.. Most of the party’s members 
were from the upper classes, but their ideas derived from the European liberal revolution 
of 1848, and the reforms they advocated seemed certain to undermine the position of the 
traditional conservatives. 
Because of the “strong” presidency, the group which held 
the office at any particular moment enjoyed great advantages in the struggle 
for power; therefore the conservatives, who had discovered that they could control 
congressmen more effectively than presidents, precipitated a revolution in 1891 and 
adopted a series of laws which, inter alia, made it impossible for subsequent presidents 
to keep in office any Cabinet officers unacceptable to Congress. 
This opened the road 
for a return to “the good old days,” and the condition of the masses worsened. 
Al- 
though it involved a patent distortion of the constitution, this system under which 
Congress was able to impose a government of upper-class sympathies, prevailed until 
the Constitution of 1925 was adopted. 
. 
-The 1925 constitutional reform was the result of a decision on the part of the 
Popular parties (which had greatly increased their following) that they could but 
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perpetuate their lease on power and accelerate their program by restoring the presi- 
dency to its former commanding position. Through their control of the urban centers, 
which were now so populous as to dominate nation-wide elections, they could, they 
believed, keep the presidency in their own hands. 
Chile’s long experiment with parlia- 
mentary government along English lines thus came to an end; congressional votes 
of censure were abolished; provision made for an executive budget and for a presi- 
_ dent chosen by direct popular election; and the powers of Congress with regard to 
- 
congressional elections greatly reduced. 
New conceptions were written into the con- 
_ stitution concerning the ownership of property, the right to work and organize, and 
social security, in an attempt to commit the emergent regime to a long-run program of 
economic 
and social readjustment looking 
to the welfare of the wage-earning classes. 
2. Present GovennmMENT STRUCTURE. 
Chile’s governmental system is characterized by a ‘nat degree of legislative and 
administrative centralization. The “right” of local self-government—since the consti- 
tution provides for local government machinery and leaves no power vacuum in 
which such machinery might arise—is unknown. 
Provision is made, rather, for three 
levels of subordinate government; but they are basically agencies for the administration 
of policies set by acts of Congress and presidential decrees. 
On the administrative side, 
the executive officials of all levels of government form a hierarchy headed up in and 
_ dominated by the President; and while there are Provincial Assemblies and Municipal 
Councils, their enactments merely implement and apply locally laws from the center, 
and are subject to all the limitations upon the ordinance-making function. 
a. The Executive Branch. 
cannot succeed himself. 
To become President by popular verdict alone, however, 
a candidate must receive a majority of the votes cast in the elections; and if no 
one obtains such a majority, Congress (in joint session) makes its own choice between 
' the two leading candidates. 
| 
There is no Vice-President as such. The law provides that in case of a tem- 
porary or permanent vacancy certain Cabinet officers shall succeed to the presidency 
in a specified order. The US custom by which the substitute becomes President in the 
fullest sense of the word does not exist in Chile; for the duration of his service in the 
presidency, the Cabinet officer has the title of Vice-President. 
If the vacancy is 
permament, the successor to the presidency is required to issue orders for a new election. 
| 
Any attempt to understand the realities of Chilean politics must start from 
the fact that the President not. only has extensive legal powers but, by virtue of his 
position, exercises great personal influence as well. The constitution provides a mini- 
mum of checks upon the exercise of his wide range of executive powers, and gives 
him direct participation in the formulation of legislative policy far beyond that con- 
templated in the US Constitution. 
The highly centralized character of Chilean ad- 
ministration, and the fact that the President’s appointment and removal power extends 
to all four levels of government, encourage machine-building and ‘me marke, apomre 
of influence over matters 
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- The President of Chile may directly introduce proposed legislation by means 
of a-message to Congress (that is, he does not, as in the US, merely recommend it). 
He may exert his influence during congressional deliberation on any bill through 
his. Secretaries of State, who may participate in the debates of either house. 
The 
Secretaries are, moreover, given preference in being heard, so that the President 
— 
can send in a Secretary whenever the legislative situation appears to require it. 
- ‘The President’s budget powers give great influence as regards the determina- 
tion of governmental organization and operations. 
The budget (and supplementary 
budget bills) are his submissions; and while the Constitution, in an attempt to assure 
a balanced budget, requires Congress to approve no new expenses without indicating 
the source from which the money is to come, the President and his subordinates are 
— 
in a position to obtain credits from the Central Bank and thus face Congress with a 
fait accompli. 
It is this practice that has brought the Chilean budget to its chronic 
state of imbalance. 
The Chilean President has no pocket veto. He is tne thirty days in which 
to sign or veto a bill; and if Congress adjourns before the expiration of thirty days, the 
President must return it with his objections at the next session, regular or oor. 
(A veto may be overridden by a two-thirds vote of both houses.) 
The President’s constitutional power with regard to congressional sessions 
assures him a further means of influencing legislations. 
The annual ordinary sessions 
of Congress open and close at constitutionally prescribed times, 21 May to 18 September; 
but if these four months prove (in his view) insufficient, the President may extend 
the session or call a special session. 
In either case, moreover, Congress may transact 
no business save that specifically mentioned in the call. 
(No information is avail- 
able as to the extent to which Chile’s presidents make use of this power.) 
As already noted, the President’s personal influence results in large part 
from an appointment and removal power that reaches down through the various 
levels of government even to the more important municipalities. 
There are few elec- 
tive offices at any level of Chilean Government; there is no civil service merit system; 
there is no professional bureaucracy; and the result is that appointments and removals 
are made on purely political grounds. 
The President freely appoints and removes 
Cabinet officers, and acting directly or through the Cabinet officers, likewise appoints 
and removes practically all officials in the national administration so that none of his 
immediate subordinates is in a position to develop a patronage machine of his own. 
The same situation obtains with regard to Intendants of Provinces, the Governors 
of Departments, and the Mayors of Santiago, Valparaiso, and Vifia del Mar. 
The Chilean Civil Service, greatly expanded under the Popular Front Govern- 
ment (1939-41) as a natural accompaniment of its program of increased government 
activity, has continued in an inflated condition ever since. 
The most recent figures 
(5 July 1947) show an estimated 71,000 civilian employees. 
In Chile, as in other 
democratic countries, there is continued talk of early reductions, but there is no 
present reason to suppose that this will be accomplished more easily in Chile than 
elsewhere. The available evidence suggests that Chile’s Government departments are, 
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HARRY’ s, TRUMAN: 
without exception, wasteful and inefficient when judged by present-day US or British 
criteria of public administration. 
One reason for this lies in the fact that the budgets of 
the several agencies make grossly inadequate provision for stenographic, clerical, and 
manipulative personnel, with the result that officials equipped, in greater or lesser 
degree, to perform difficult, important tasks are obliged to devote large amounts of 
time to routine functions. ‘Even the officials in the professional classifications, more- 
over, receive salaries notably smaller than those of persons in comparable positions 
in private enterprise. From the standpoint of the so-called merit system, finally, Chile 
lags far behind other contemporary democracies and clings to a spoils system whose 
effects are all the more deleterious because of the country’s peculiar multiple-party 
system. 
Because it is impossible for any one of Chile’s many parties to win a presi- 
dential election single-handed, the successful contender in each election normally 
owes his victory to a pre-electoral deal among several parties, and patronage questions 
figure prominently in the relevant negotiations. On inauguration day, therefore, the 
President finds himself already committed with respect to the bulk of his appoint- 
. 
ments, which are accordingly made without regard either to efficiency or to the ap- 
pointees’ real devotion to the President’s purposes. 
These patronage arrangements, 
moreover, must subsequently be revised with each shift in the governing coalition. 
For reasons that will emerge clearly in the subsequent sections of this report, 
the deficiencies of the Chilean Civil Service—particularly in the context of the excellent 
career service arrangements in the armed services (see Section V, p. V-4)—have a direct 
bearing upon Chile’s prospects for meeting its economic and social problems in the years 
ahead. For the absence of a career service comparable to the officer corps in the 
Army, Navy, and Air Force, national policy planning must proceed indefinitely on 
its present claudicant basis. 
| 
b. The Legislative Branch. 
The Chilean Senate is based on equal ciidiieiiaiian thems nine regions, in which 
the provinces of the country are grouped to form senatorial election districts. 
Each 
of these nine regions elects five senators, an arrangement clearly weighted in favor of 
the small towns and rural areas since there are only four cities over 50,000 (each, 
moreover, is located in a different region). This accounts for the essentially conserva- 
tive orientation of the Chilean Senate, since in Chile as elsewhere “advanced” political 
and economic ideas are to be found mainly in cities. 
In the latest election (1945), 51 
per cent of the Senate seats were won by members of the various rightist parties; i.e., 
Conservative, Liberal, and Agrarian Laborite parties. 
As a general rule, however, no 
single party wins all five seats in any region, and none wins a majority in the Senate 
itself. 
The Senators sit for eight years, but are divided into two groups so that alter- 
nately 20 and 25 Senators are elected every four years. 
The Chamber of Deputies is made up of 147 Deputies, for whom the basic 
election district is the Department (in general, each Department is assigned a number 
of Deputies proportional to its population) ; some Departments whose population would 
not entitle them to elect a Deputy are grouped together to form districts. 
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States. However, the Chilean Congress enjoys certain powers that are denied to the 
United States Congress. The President of the Senate, for example, shares with the 
President of the Republic the authority to call Congress into special session, and must 
call a special session pon petition by a majority of either house (a session summoned 
in this manner may deal with all matters within Congress’ competence). 
Since in the 
United States, Congress determines its own adjournment date, the major consideration 
that makes this power important in Chile cannot be understood in US terms, namely 
that the constitutionally prescribed four-months regular session may prove too short 
for completing the tasks in hand, and that the President may have reasons of his own 
for refusing to call a special session. Another case in which this power is important 
occurs when the President declares a state of siege during a congressional recess. 
Congress, if it considers such a declaration unnecessary or dangerous, may call itself 
into special session and nullify it. (No information is available as to the extent to 
which Congress. makes use of this power.) 
The House_of Deputies has the special power ts make formal criticism of 
acts of the President or of any of his Ministers, who are constitutionally obligated to make 
formal reply. | 
“Although a vestige of the parliamentary regime, this is not the same thing 
as a vote-of-censure procedure. The criticism is embodied in a resolution which, if 
approved by a simple majority, is sent to the President who is required either to answer 
_in writing or to send a Minister to the House of Deputies to answer verbally; and 
aside from public opinion, no sanction is involved. The resultant situation, however, 
contrasts sharply with that in the US, where—though the two houses can and do criti- 
cize executive action, the President may ignore completely the criticism if he chooses. 
(No information is available as to the extent this: seed is used as an effective check 
“= 
For some years now no Chilean party has been strong enough to obtain a 
majority in either house of Congress. This is a source of both strength and weakness 
for the President, ‘and it‘throws much light on the indecision, vacillation and in- 
efficiency that characterize the day-to-day conduct of Chilean Government. 
The Presi- 
dent must, in order to promote his program, devote much time to the formation and 
maintenance of blocs. 
On the other hand, a Congress consisting of many parties 
jockeying for position can be manipulated with relative ease by a skillful politician 
armed with the President’s extensive appointment and removal power (although the 
instability inherent in blocs: weakens to some extent the hand of the President, espe- 
cially if he is:not skillful, and in any case makes for a certain measure of uncertainty). 
‘The following chart, which is quite typical, shows the strength of the various 
parties in the epeeoad —— which was determined in the Seo election 
Ors 
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Seats in Senate (45) 
Seats in House (147) 
Conservative 
Liberal 
Communist 
| 
Radical Democratic 
Democratic 
Socialist 
Agrarian Laborite 
Falange 
| 
Authentic Socialist 
Independent Rightist 
Independent Socialist © 
Liberal Progressive 
c. The Judicial Branch. 
The Chilean judicial system is made up of four grades of en In general, 
the J udges, who are appointed and remain in office during good behavior, enjoy a good 
reputation for integrity. 
Those of the higher courts are particularly well qualified for 
their positions by both character and training. 
= 
The Supreme Court is composed of 13 Justices. 
Whenever a vacancy occurs, 
the President appoints as Justice someone proposed by the other Justices; and Judges 
of the nine Courts of Appeals are also appointed by this process. 
The Judges of the 
various Courts of Appeals propose nominees in the same way for the Departmental 
Courts of Appeals in their respective Departments. Most Judges of the Small Claims 
Courts and local Police Courts are appointed also upon nomination by the Appeals 
Judges, 
As in other Latin American countries, the expense of the antiquated court 
_ 
procedure makes justice much more readily available to the litigant who has money. 
It is based upon written briefs, written replies, etc., involves a minimum of oral pleading, 
and is conducive to excessive delays. 
The power of judicial review was introduced for the first time by the Constitu- 
| tion of 1925, and is therefore a relatively recent development in Chile. 
Previously the — 
Supreme Court had consistently held that in the absence of specific constitutional 
| 
grant of such power it could not pass upon the constitutionality of legislation. 
The 
introduction of judicial review in 1925 further illustrates the constitution-makers’ 
determination to reduce the power of Congress. 
Judicial review in Chile differs from that in the United States in two interesting 
particulars. 
In the first place, any party in interest may question the constitutionality 
of a law before the Supreme Court at any point in litigation in a lower court; and the 
judicial procedure actually encourages such determinations of constitutionality before 
the lower courts hand down their decision so that the latter may be based upon it. 
Secondly, the Chilean Supreme Court (as compared with the US Supreme Court) has a 
1-6 
relatively lim 
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use (147) 
relatively limited power to review presidential acts. 
(Information as to the political 
impact of judicial review in Chile is unavailable.) 
d. Suffrage. 
— 
The Constitution provides that Chileans “who are twenty-one years of age, 
= 
know how to read and write, and are inscribed in the electoral registers” shall have the 
m. 
right tovote. 
Legislation, however, restricts the electorate by denying registration to 
: 
] 
regular ecclesiastics and to the enlisted men and subordinate officers of the armed 
forces and of the police forces. 
Chilean women who meet the constitutional qualifica- 
tions participate in municipal elections only (curiously, aliens—both men and women— 
_ who are twenty-one years of age, literate, and have resided in Chile for five consecutive 
years are permitted to register for municipal elections). 
In the municipal elections of 6 April 1947 the latest electoral registers became 
effective for the first time. 
These registers indicated that there were 657,485 qualified 
voters: 529,741 national electors (Chilean males), and 127,744 persons (Chilean women 
and aliens of both sexes) qualified to vote in only municipal elections. 
Since the offi- 
cial estimate of Chilean population, made in January of 1947, is 5,466,014, only 9.6 per 
cent of the population is qualified to vote in the national elections and only 12 per cent 
is qualified to vote in municipal elections. 
The current agitation for women’s suffrage in national elections is led by the 
women’s clubs, the Catholic Church, and the Communist Party, and has already 
achieved a measure of success: the House has passed suffrage legislation, and the Senate 
has approved it with some modifications. 
(Latest information indicates that the bill is 
in the hands of the House Committee on Legislation and Justice.) 
In addition to giving 
women the right to vote in presidential and congressional elections, it enfranchises the 
regular clergy for all elections. 
A campaign spearheaded by the Communist Deputy 
Natalio Behrman looks to the enfranchisement of the subordinate officers and enlisted 
men in the armed forces, the national police (carabineros), and the prison gendarmerie. 
While no legislation is yet on the statute books, informed observers in Santiago expect 
women’s suffrage by the end of 1947, and at the latest, early enough for women to 
participate in the next (1949) congressional elections. 
Virtually universal adult suf- 
frage is therefore in sight. 
The enfranchisement of women for national elections is unlikely to ‘cause any 
appreciable shift in the relative strength of the various political parties. 
The results 
of the municipal elections in April 1947 point clearly in this direction. 
They were held 
_ 
at a moment when the question of women’s suffrage was being discussed all over the 
country, and more women participated than ever before. 
But there is no evidence that 
women as a group tended to support any particular ideology, platform or party 
(Spanish experience with this problem seemed to suggest that the Rightist parties 
would be the major beneficiaries, and the Conservative Party did gain noticeably in 
Strength; but the Communist Party did too). 
€. 
Political Subdivisions and Local 
_ 
There are three territorial subdivisions in Chile; i.e., Province, Department, and 
Municipality. 
The three subdivisions are organized on the basis of administrative 
centralization os up in the President. 
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(1) Province. 
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The provincial government is headed by an Intendant, who is freely 
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appointed—theoretically for a term of three years—and Temoved by the President. 
He 
acts as the executive head of the Province, and has jurisdiction over al] its public 
Services and public works, * 
: 
In each Provincé there is an Assembly, 
j 
Congress; the Intendant is its presiding officer. ent 
of proportional representation by the various Municipal Councils 
The President, 
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with Senate consent, may dissolve the Assembly at any time. 
The Provincial Assem- 
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blies are primarily administrative agencies established to Carry out policies set by 
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Congress and by presidential decree, so that, even in theory, they possess no inherent 
| 
legislative power. 
| 
| 
(2) Department. 
| 
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The Department is an administrative subdivision of the Province and 
; 
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has no assembly. 
Its head is a Governor, appointed by the President upon recom- 
§ 
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ee Py the Intendant with the consent of the 
| 
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In all cities of 100,000 and any other specifically designated by Congress. 
the Mayors (Alcaldes) are appointed by the President and are removable by him with the 
b 
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consent of the Provincial Assembly. 
(This arrangement obtains in Santiago, Val- 
§ 
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Paraiso, and Vina del Mar.) 
In the other municipalities the Mayor is Selected by the 
# 
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Municipal Council, and is removable by local action. 
The functions of the Mayor are: 
1) to preside over the Municipal Council, 2) to execute the ordinances and resolu- 
tions of the council, and 3) to Carry out any other functions Congress may impose. 
i 
In each Municipality there is a Municipal Counc] composed of members 
(am 
—_ 
elected by direct popular vote for a term of three years. 
The size of the Council is fixeg 
by Congress. 
Councils are charged With 
respon 
Supervising and promotin. 
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the national level 
Congress 
; 
has wide discretion in deciding how much of this policy shall be implemented and 
} | Po 
executed by the President and his subordinates (Intendants, Governors, and Mayors) 
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and how much shall be assigned to the Provincial Assemblies and Municipal Councils 
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(No information is available as to: the practical political considerations 
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that govern the President’s appointment and removals on the subordinate levels of gov- 
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ernment; the extent to which, because of the sheer impossibility of making all decisions 
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at the center, the local governments function more or less autonomously; the role of 
| 
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presidential appointees in national politics and party organization.) 
oan 
All Chileaz political parties except the Communist are relatively unstable ang 
> 
‘oose-Knit as regards their internal organization. 
The result is that their policies and 
, 
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even their role in presidential and congressional elections are more difficult to predict 
than the policies and electoral behavior of parties in, for example, the United States and 
Great Britain. 
Phrases such as “the Socialists and their natural allies”, or ‘the tradi- 
tional Radical position”, or “the orthodox liberal policies”, are sometimes used in dis- 
cussions of Chilean politics; but they do not have the same significance as in other 
countries. 
| 
' Chilean parties are so organized and operated that their members cannot acquire 
any real sense of loyalty to party as an institution. 
Party activities between elections 
are virtually negligible. 
The rank and file of the membership has little opportunity 
even to go through the motions asscciated in other countries with participation in 
formulating party policy. 
That policy is, therefore, determined by the party leaders 
and handed down,at election time. 
The resulting personalistic character of Chilean 
parties tends to deprive them of stability. 
The leaders, under no real pressure to sub- 
ordinate their immediate desires to the “long-run interests of the party,” are free to 
carry their disagreements to the point of revolt, and know beforehand that their fellow 
dissidents will not be deterred by any supposed duty to stick to the party through thick 
and thin. Bolting the party, in short, carries with it none of the stigma that attaches 
to it in the United States, nor does the revolting group feel any need to justify its action, 
or any alliance it may subsequently make with erstwhile opponents. 
This lack of traditional well-integrated party institutionalism in large part explains 
the existing multiple-party system. 
It means continuing fragmentation of the electo- 
rate and this has proceeded so far in recent years that no single party can any longer 
hope for a clear majority. 
Coalitions and blocs are the order of the day, and the result- 
ing governments are no more stable than their constituent parties. 
Only the Commu- 
-nist Party shows discipline in its day-to-day activities. 
The principal parties are as 
follows: 
| 
a. Radical Party. 
_ This party resulted from a split in the Liberal Party during the 1850’s. 
In the 
beginning it was essentially a lower-middle-class party committed to the maintenance 
of a laissez-faire economy. 
In the 1920’s, however, it embraced concepts of state 
intervention and sought proletarian support. 
The party’s present philosophy is com- 
parable with that of the British Labor Party. 
Shortly before the election of Gonzalez 
Videla to the presidency, the Radical Party was weakened by a splitting off of the more 
conservative elements of the party to form the Radical Democratic Party. 
The latter 
party polled 22,889 votes in the municipal elections of 6 April 1947, which elections were 
its first test of strength. The Radical Democratic Party consists largely of well-to-do 
land holders in the south of Chile. 
(1) Membership. 
Party membership consists of: urban and rural middle-class groups; 
small businessmen, artisans, and a scattering of professionals. 
In the municipal elec- 
tions of 6 April 1947, the Radical Party polled 101,994 votes. 
| 
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(2) Platform. 
Domestic: 
(a) nationalization of public utilities, particularly electric power; 
(b) nationalization of insurance companies; 
| 
(c) foreign capital investments without “foreign economic imperialism.” 
International; » 
(a) opposition to Franco Spain; . 
(b) acceptance of limitations upon Chilean sovereignty in the interest 
of international solidarity; 
_(c) a Latin American economic bloc (the party has supported the 
tine commercial treaty) ; 
(d) friendship with the United States. 
b. Conservative Party. 
This is one of the oldest parties in Chile, and its political and economic satin 
phy has been little affected by modern ideological tendencies. 
In recent weeks, Con- 
servative influence and power appear to be increasing. 
Alone among Chile’s non- 
Communist parties, it has achieved a considerable measure of internal discipline. 
Membership. 
The membership of this party is made up of: large land-owners and 
well-to-do farmers; commercial and banking elements; Catholic middle-class elements; 
a scattering of professionals. 
The party polled 105, 257 votes in the a elections 
of 6 April 1947. 
(2) 
Platform. 
Domestic: 
(a) opposition to state erenntion in economic and social affairs; 
_ 
(b) support for limited foreign investment in Chile, tempered by anxiety 
‘regarding the expansion of unionization it deems to be inherent in 
any widespread industrial development; 
-(c) opposition to social legislation in general except that looking to 
health and housing (with regard to which the party has a developed 
program) ; 
| 
(d) violent opposition to Communism; 
(e) extreme nationalism; 
| 
(f) support for measures promoting self-sufficiency and the production 
of essential foods (the party shows no interest in the development of 
export crops). 
International: 
(a) support for Franco Spain; 
(b) support for a Latin American bloc (some Conservatives pave the 
bloc as anti-United States measure, others see it as a means of collabo- 
rating with the US). 
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c. 
Liberal Party. 
Founded as an. anti-Church party, the Liberal Party is one of Chile’s oldest. 
In more recent years the party has moved to the right (for a time it had shown pro- 
gressive tendencies), and is now considered a conservative group. 
(1) 
Membership. 
| 
The Liberal Party is made up of: landowners; banking and industrial 
elements; and professionals. 
The party polled 64,269 votes in the municipal elections 
of 6 April 1947. 
: 
(2) 
Platform. 
. 
Domestic: 
(a) opposition to state intervention; 
(b) support for educational reforms, particularly those looking to estab- 
lishment of technical and professional schools; 
, 
(c) bitter opposition to Communism. 
International: 
(a) opposition to all forms of intervention in the internal affairs of other 
countries; 
(b) coolness toward Hemisphere cities 
(c) indifference regarding the Argentine commercial treaty; 
(d) moderate friendliness toward the United States. 
d. Communist Party. 
The Communist Party as such was established in 1921. 
Disbanded during the 
administration of President Carlos Ibanez del Campo, it was revived in 1931 and has 
operated without interruption since that time. 
In the early days of the Party’s history 
there was the usual conflict between the “Leninites” and “Trotskyites.” 
The latter 
group finally withdrew and was absorbed by the Socialist Party. 
The Communist 
Party participated in the “Chilean Popular Front” (1939-1941). 
Prior to this time it 
_ 
Was the “untouchable” element in Chilean politics, and no other party was willing to 
collaborate with it. 
It became the principal beneficiary of the Frontist regime, which 
gave the Communists unprecedented freedom of action, permitted their well disciplined 
forces to compete successfully with the Socialists in the struggle for control of the labor 
unions and of the working-class vote, and enabled them to infiltrate other left-wing 
parties. 
(See Section II—“The Communist Situation.”) 
(1) Membership. 
Communist Party membership is made of: urban ons rural workers; 
“advanced” middle-class elements; and young professionals. 
They polled 85,131 votes 
in the municipal elections of 6 — 1947. 
(2) Platform. 
Domestic: 
(a) industrialization; 
(b) expropriation of large land hehehe 
(c) strong unions for farm laborers; 
| (d) agrarian reforms. 
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International: 
(a) strong opposition to the United States and to inter-American mili- 
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tary cooperation; 
| 
(b) severance of relations with Franco: 
| 
(c) ratification: of the Argentine commercial treaty. 
e. 
Socialist Party. 
| 
The Socialists are vigorously anti-Communist. Their major, all-consuming 
interest is to gain influence with Chile’s workers and control of its trade unions. 
The 
_ party has suffered greatly, particularly since 1943, from internal dissension, mostly on 
the question of collaboration with the Communists. The pro-Communist elements 
finally withdrew, and have been absorbed into the Communist Party. 
With the 
presently developing anti-Communist attitude in Chile, the Socialist i s importance 
will probably increase. 
(1) Membership. 
The membership of the Socialist Party is made up of: unionized workers 
in the better paid categories; small farmers; and low-salaried white-collar workers 
(along with other lower middle-class elements). 
They received 43,967 votes in the 
municipal elections of 6 April 1947. 
(2) 
Platform. 
Domestic: 
(a) industrialization; 
(b) subdivision of the land; 
{c) agricultural cooperatives; 
(d) mechanization in agriculture; 
(e) nationalization of public utilities and coal mines; 
(f) a state-controlled economy. 
International: 
(a) support for a Latin American bloc; 
_ 
(b) friendliness toward the United States (on this point the party is 
notably more cool than it was during the war). 
| 
f. Democratic Party. 
This party was originally a workers’ party but now has little following in labor 
circles. 
No particular tendency or philosophy can be attriouted to it. It appears to be, 
in the main, a patronage organization, seeking government jobs for its members and 
supporting any coalition that offers it aid in obtaining this objective. 
The mem- 
bership consists of small shopkeepers, army pensioners, and minor government em- 
ployees. 
In the 6 April 1947 municipal elections this party received 30,294 votes. 
g. National Falange Party. 
The National Falange was organized in 1935 as a youth movement within the 
Conservative Party. 
By 1937 it had become a virtually distinct political entity. 
The 
party’s program embodies the social-Christian doctrines of the Papal Encyclicals. 
It 
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supports the leftist parties. The group is anti-Fasclat, 
@ and vaieetaiiy has no con- 
nection whatever with the Spanish Falange. 
. 
(1) Membership. 
This party is made up of young middle-class Catholics, and it polled 
17,838 votes in the last a elections. 
(2) Platform. 
Domestic: 
(a) advocacy of its own broad program of social legislation, ograrian 
_ reform, and unionization of farm workers; 
(b) support for a “directed” economy. 
International: 
The party was intensely pro-United States in 1942, but now maintains a 
- 
reserved and markedly cooler attitude. 
| 
h. Agrarian Laborite Party. 
| 
This is a minor party of distinctively conservative tendency. 
| 
(1) Membership. 
The party consists of prosperous farmers in the south of Chile, sine 
persons who own and operate their own properties. 
The Agrarian Laborites _ 
23,830 votes in the municipal elections of 6 April 1947. 
(2) Platform. 
Domestic: 
(a) support for measures sali to ending farm production and new 
_ markets for farm products; 
(b) opposition to farm unionization; 
(c) opposition to intervention by the state in economic matters; 
(d) opposition to Communism. 
International: 
Support for international iii as a means of securing markets 
for farm produce. 
4. 
StaBILiry or THE PRESENT 
President Gabriel Gonzalez Videla was elected on 4 September 1946 when the death 
of President Rios necessitated a new election. 
Rios had been elected for a six-year term 
11942. 
President Gonzalez’ term continues until 1952 because, 
according to Chilean 
AW, a president elected in this way serves a full six-year term. 
The Communists’ role 
“+ Gonzalez’ election and their subsequent participation in the government are discussed 
*sewhere in the present report (see Section II—“The Communist Situation”). 
The fact that the Communists have now been separated from all government posi- 
aus bee is the most dramatic manifestation of the growing opposition to Commu- 
‘dee Chile, means neither that Chile is well on the way toward the effective 
ion of this major threat to domestic peace nor even that the stability of the 
I-13 
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present administration is assured against it. The economic problems that beset Chile 
are so urgent that a well organized and determined Communist Party could—even if 
it were small and obliged to operate clandestinely—create a dangerous state of crisis, 
confusion, and bitterness. 
The Chilean Communists have already shown great skill in 
choosing the time and place for action to this end. 
The present administration in Chile must, in order to achieve even a limited degree 
of stability, prove that it can increase production (both for. domestic needs and for 
exports), control speculation and hoarding, promote industrialization, increase real 
‘Wages, and provide a greater measure of effective social security for the masses. 
It 
must, in accomplishing these objectives, work through an overexpanded and inefficient 
civil service and in the context of a huge national debt, rapidly dwindling foreign 
exchange holdings, and a poor international credit rating. 
It has, furthermore, no 
clear, integrated, practical program of action, and President Gonzalez has shown none 
of the statesmanlike qualities that might justify optimism about the likelihood of his 
devising such aprogram. 
His opportunism has undermined confidence in Chile abroad, 
and the results of the latest municipal elections seem to point to diminishing confidence 
in him at home. 
The Congress, whose cooperation he must obtain, is controlled in 
both houses by a “conservative” majority that will give him, at best, grudging and ~ 
limited support. 
The five Communist members of the Senate and the fifteen Commu- 
nist deputies will, now that they are out of the coalition, become vigorous and obstreper- 
ous opponents; and even if Gonzalez succeeds in holding the Radical, Democratic, and 
Socialist members together to be used for balance-of-power purposes against the con- 
servative elements and the Communist members, this will have to be done at great cost 
from the standpoint of presidential initiative. 
Instead of leading, Gonzalez will be 
obliged, as he has been obliged until now, to conciliate. 
The next congressional elec- 
tions could, since Chilean public opinion expects solutions from Gonzalez’ Government, 
prove crucial as regards internal stability. 
The immediate objectives that Gonzalez appears to eer as most pressing 
are (a) that of obtaining foreign loans and credits, and (b) that of preventing strikes. 
The still unratified commercial treaty with Argentina would help on the first of these 
objectives, but opposition to it is developing rapidly, and it is by no means certain that 
Gonzalez can get it ratified. 
Help from any other quarter is unlikely, since the United 
States Government and the International Bank appear to be unwilling at this time to 
grant Chile financial aid. 
This means that insofar as Gonzdlez and his advisers are 
correct in thinking that Chile must have outside assistance, Chile’s economic problem is 
likely to assume crisis proportions in the next months. 
(There are, of course, other 
grounds—especially the uncontrolled inflation—for expecting this.) 
Chile has been ailing economically for so long a time that it cannot be cured over- 
night by weak, indecisive, and vacillating leadership. 
But if the strikes can be stopped 
and the coveted foreign financial aid obtained, Gonzalez will probably be conceded a 
breathing spell during which a degree of short-term stability might be achieved. 
Long- 
term stability, however, cannot be achieved without internal improvements. 
On the 
labor front, the big question is how much trouble the Communists will make: The 
Chilean Communist Party remains a legal party; it is well organized and disciplined; it 
I-14 
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showed real strength as recently as the latest municipal elections; and all this, plus its 
influence over the unions, means that at any time it wishes it can inaugurate a series 
of strikes that would be fatal to any recovery program Gonzalez might have under way. 
~ Ina word, the Communists:have it within their power to precipitate the crisis Gonzalez 
is trying to prevent (and thus to pose to the US the difficult — of whether to go 
to the rescue of the Chilean economy). 
I-15 
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upwards’ of 10 per cent of the 
in national elections, are 4 more effective political force than those-of amy other 
Latin American country except: possibly Cuba. 
Their party, ‘highly ceetpnined and 
organized, has enjoyed its period of most rapid growth since 1939. 
Hiab: SRS 
oak 
’ 
Since the congressional elections of March 1945, when the Comminaiais? 46,257 votes 
gave them 5 seats’ in the Senate and 15 in the House of Deputies, anti-Communist 
sentiment has developed apace in Chile. 
Up to the present time, however, their ability 
to get votes does not seem to have been impaired. In the municipal elections of 6 April 
1947, for example, their. showing was still impressive: with 130 successful Communist 
candidates for: alderman they doubled: tHeir: — in the 
we 
President Gonzélez Videla has. stated 
that the 
while not 
a decisive factor in the 1946 election that brought him to power, were valuable allies. 
They accordingly shared in the spoils of. his victory. 
Three Communists became 
members of his Cabinet. 
A considerable number received administrative posts in agen- 
cies strategically important from the standpoint of Chilean economy such as the Central 
Bank, the Amortization Fund; the Development Corporation, Mining Credit. Fund, 
Workers’ Insurance Fund, Work Accidents Fund, Central Board of Welfare, Agrarian 
Credit Bank. Communists were also appointed Intendants of Provinces and ai nhagenees 
of 
embracing areas of great economic importance to Chile. 
Ajthough several important political groups objected to these 
Communists at first had enough popular support over the country as a whole to prevent 
the objectors from having their way with the President. As the months passed, how- 
ever, the behavior of the Communists in office estranged many who had originally 
‘avored the appointments; and when these newly estranged elements finally joined 
hands with Chile’s traditionally anti-Communist elements, Gonzalez Videla was obliged: 
tolisten. 
(The evidence regarding his personal preference in the matter is conflicting.) 
In April 1947 the President dismissed the Communist members of his Cabinet, apparent- 
‘Y hoping that this gesture would satisfy his critics. . 
Instead the critics exerted in- 
elicaicsiad pressure, demanding the removal of all Communists from office. 
For a while 
‘he President, convinced that wholesale removals were not feasible politically, adopted 
‘he policy of removing a few Communists each week. He followed that policy until 
August 1947, when the Communist-inspired “bread strikes” in the coal fields and rail- 
‘oad yards so aroused public opinion that Gonzalez Videla on 20 August declared. 
vacant all appointive offices held by Communists. 
_ A significant sequel’ to the removal is the report that the ia vacated in 
the 
administration are being offered to members of the Socialist Party while vacant 
and. governorships ‘are being filled with military personnel. . Intendants 
a4 Governors have. as one of their major functions maintenance of the Publis peace; ae 
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military personnel, Gonzflez may be preparing for bold police action in these areas: 
ooh 
in the nearfuture. 
xine ° 
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have been offered 
hades 
to Socialists should estop the conclusion that the removal of Communists is ipso facto ME 
© Radic 
evidence that the Government is.“‘moving to the right.” Bernardo Ibafiez and his 
Socialist Party are Social Democrats in the fullest. sense of the word. In view 
of the 
» 
progt® 
nature of the administrative 
posts offered (the agencies are listed above), the Social- 
to prt 
ists’ acceptance would give them a) influential positions from which to apply their 
ment, 
social philosophy, b) a great advantage 
in their traditional contest with the Lerserns 
oppos 
The fact that the hand of the 
was 
the Com- 
aii to compel removals but not strong enough to force an immediate and whole- 
oc 
sale house-cleaning, points to a precarious balance of forces that. merits careful study 
— 
and observation. Taken in the context of the Communists’ showing in the April 1947 
= N 
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municipal elections (no elections have been held since), it suggests that bits of 
et 
should not be 
of’ Communist decline in 
to th 
unlikely, 
that the Communists plan a 
test of 
such as 
might tempt the Government to adopt repressive measures comparable to those recently 
ask 
reported from Brazil. 
The Communist Party clearly conceives its mission in Chile, 
chat 
as elsewhere, to be inter alia that of creating popular uncertainty and promoting dis- 
the 
satisfaction with the Government, and their reasoning apparently runs as follows: 
port 
If the Government takes repressive measures against the Communists, the populace will 
SUct 
be forced to choose sides. Once its choice is made, one kind of uncertainty the Com- 
ser 
munists are capable of creating will be dissipated... In short, the present preoccupation 
the 
| 
concerning possible repressive measures is by no means purely defensive. The Chilean 
ant 
Communists, for reasons which are pointed out below, are ina strong defensive position 
tac 
already.’ Repression would indeed drive them underground; but the Communists fear 
it mainly because it would, by removing popular doubts concerning the Government’s 
own future policy, render impossible the fulfilment of an portant phase of thelr 
the lot of the working classes—despite the fact that through wholehearted cooperation 
—_— 
- 
with the Radicals and Liberals, and reconciliation ‘of their differences with the 
 } 
Socialists, they might have accomplished much in this direction. 
(Their strategic 
ys 
position in the governing coalition would, moreover, have assured them a dispro- 
yp 
portionately large share of the popular credit for the relevant accomplishments.) 
In 
a 
a country like Chile, however, where working-class discontent:is a constant source of 
S 
instability, improving the workers’ lot would, on balance, promote popular confidence, 
" 
unity, and stability and would therefore be incompatible with the Communist mission 
as Communists now interpret it. The course they actually followed while in office was 
v 
that of denying the Government any real cooperation, while effectively propagandizing 
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its inefficiency and inadequacies. 
In a certain sense, therefore, they provided: the 
arguments needed in order to exclude them from the Government; but their mission, 
of which they never lose sight for a moment, forced _— ” do 50, SO as vet en the 
kind of crisis on which 
Party notoriously thrives,* 
Out of office, the ‘Communists face a real dilemma ‘by’ virtue of the fact that the 
Radicals, the Socialists, and the Conservatives are committed to a not unambitious 
program of reforms looking to improved conditions for the working class. This 
program, if successfully realized, could—for reasons already referred—be expected 
to promote stability, to ‘consolidate popular support behind the present Govern- 
ment, and to tie these three anti-Communist parties closer together.’ By ‘openly 
opposing the Government’s avowed program, the Communists would show their hand 
and possibly alienate existing or potential popular support. By supporting that 
program, on the other hand, they would add political strength to a Government that 
has made no Secret of its enmity toward them. 
Chile’s Communists are refusing 
both horns of the dilemma: They attack the Government for its failure to deliver on 
its promises of improved conditions for the workers, deliberately concealing the 
fact that the rapidly worsening economic situation makes delivery almost impossible, 
but they are careful not to carry the attack to lengths that would expose them 
to the possibility of having the Party outlawed. They assure the workers that the 
Communist Party is the one viable avenue to social and economic gains, pillory 
the Government for its failure to accomplish anything in this regard, and, in effect, 
ask for a blank check empowering them to take over the task themselves. 
With 
characteristic impudence—because Cardinal Caro has been an outspokencritic of 
_ the present condition of the working-class—they have carried their appeal for sup- 
port even to: the- Catholic Church. 
This political strategy is, moreover, proving 
successful, as the. April election results show: Only the Communists and: the Con- 
servatives among Chile’s parties polled an increasing percentage of the votes, so. that 
the extreme left and the extreme right profited at the expense of the Socialists, Radicals 
and Liberals. It is therefore probable that the Communists will homens their presen’ 
tactics into at least the immediate future. 
| 
The Communists’ have already gained control of unions in the most 
- gieaheen 
cally situated of Chile’s industries. 
If, therefore, a situation were to arise in which they 
would wish to attempt determined aggressive action against the Government and 
people of Chile, there is every reason to believe thas ony could rpms vepsonned if 
Typical of this state of affairs is the situation in the weit waist region.’ “Chile 
produces practically all the coal it needs for domestic consumption, but cannot stock- 
pile it because a) its coal does not weather well, and b) its storage facilities are inade- 
quate. As a result, coal consumers are ~— to buy almost on a day-to-day basis. 
* The office of 
Research, 
of State, ‘feels that these statements in- 
adequately reflect the flexibility of Communist tactics. 
The Communists did support elements 
of the government program; did support measures favorable to the working classes and minimized 
criticism of the government.in their official newspaper; and did, at. least outwardly, indicate 
Willingness to reconcile differences with the Socialists. 
Interpretation of. these points would 
become important should the 
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Obviously, therefore, a protracted strike in the coal fields could do incalculable harm; 
and Communist control of the mining unions gives them the power to institute 
such a strike at a moment’s notice. 
All this was clearly demonstrated during the 
Chilean coal strike of June 1947, which so crippled transportation, electric power, 
_ 
and industry that the Chilean Government was obliged to approach the United 
States Government regarding possible shipments of US coal. 
Although the termi- 
nation of the strike interrupted the negotiations in their initial stages, the following 
inference appears amply justified: A Communist-dominated miners’ union has it 
within its power to pose for the US a choice between a) providing Chile with coal, and 
_ 
b) accepting the consequences of a complete paralysis of the Chilean economy. 
In transportation, the Communists have control, first, of the unions of dock and 
waterfront workers in practically all Chilean ports, including the nitrate and copper 
ports. These commodities are of great importance to Chile’s domestic economy and to 
its foreign trade, and if, as appears likely, the dock and waterfront unions are in a 
position to interrupt traffic in them at any time they wish, this also is a weapon that 
could be used against the Government with devastating effect in any serious crisis. 
In the event of war with the Soviet Union the United States might, because of it, find 
itself cut off from supplies of Chilean copper. 
Although some of Chile’s railroad unions are controlled by the Socialists, those 
controlled by Communists have a somewhat larger membership (neither party controls 
a@ majority of the railroad workers, and the powerful Railroad Federation has remained 
independent of both). 
The Communists, however, are especially strong in the unions 
of the Santiago-Concepcién Railroad and certain other small lines, and while they 
presumably could not prevent the country’s railway system from operating, they could 
undoubtedly—by withdrawing their services—reduce its efficiency to a marked extent. 
The Communists so dominate the strategic unions in the copper and nitrate indus- 
tries as to be able to bring production to a virtual stop. Of particular interest to the 
United States is the situation at the Braden Copper Company. 
The employees of the 
company are distributed among four unions. 
The employees of the concentrating 
camps belong to the “Sewell y Mina” union, which has a little over 3,500 members. 
The workers at the company’s smelter are members of the “Caletones” union, which has 
nearly 900 members. 
Its powerhouse employees belong to the “Coya y Pangal” union, 
with approximately 350 members. 
Employees of the company’s railroad, shops and 
warehouses belong to the “Rancagua” union, with approximately 1,500 members. 
Until recently the only one of these four unions which the Communists clearly 
controlled was the “Sewell y Mina” union; but the union elections for the period 1947-48 
brought all the unions except “Caletones” union under Communist control. 
Sources 
close to the company attribute this increase of Communist strength to bad tactics on 
the part of the Socialists (by presenting a.large number of candidates, the Socialists 
spread their votes too thin, while the Communists shrewdly concentrated on a small 
_ number of candidates). Since the elections, the directorates of these unions have stood 
as follows: “Rancagua,” three Communists and two Socialists; “Coya y Pangal,” three 
Communists and two Socialists; ‘Sewell y Mina,” four Communists and one Socialist; 
“Caletones,” four Socialists and one Independent. 
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In communications the picture is less clear. 
The Communists have developed an 
extensive system of party schools that offer courses in radio communication and elec- 
tricity, a fact which suggests that the communications industries figure prominently in 
future plans. 
They reportedly control the unions in the electrical and telephone indus- 
tries in the strategically situated city of Valparaiso. 
The directorate of the Postal and 
Telegraph Union was formerly Communist controlled but is no longer so. 
_ There are several important Communist-front groups in Chile. 
One of the most 
active of these is, the Chilean-Soviet Cultural Institute (Institute Cultural Chileno- 
Soviético). 
. The most important Chilean outlet for Soviet propaganda, it has, since the 
activation of the Soviet Embassy, undertaken an ambitious program of expansion, and 
_ 
informed observers say that its efforts to promote Soviet culture are apparently pro- 
gressing well. 
Of the present officers only two are known Communists, but there is no 
doubt that the organization’s program is controlled by the Communist Party and the 
Soviet Embassy. 
The Chilean Alliance of Intellectuals (Alianza de Intelectuales de Chile), in which 
Communist control is known to be highly effective, has some 600 members (among 
whom, however, the incidence of outstanding Chilean intellectual leaders is small). 
It 
sponsors lectures and forums for the A scoala Marxist lines—of current 
Chilean problems. 
‘Communist “influence is also strong in the Unién de Profesores de Chile, to which 
about 80 per cent of Chile's primary- and secondary-school teachers belong. 
However, 
the Communists have never yet been able to dominate the organization’s national con- 
gresses, and the union has now split into a Communist faction and a non-Communist 
faction. 
The former cooperates actively with the Communist-dominated Latin Ameri- 
can Confederation of Teachers, which was established in 1946 with headquarters in 
Mexico City. Whatever the future of the factional struggle in the union, the Com- 
munists are clearly already in a position to influence to some degree the character of 
primary- and secondary-school instruction in many localities. 
- 
‘The women’s Communist movement in Chile has been active in promoting con- 
| 
gresses and organizations which, though ostensibly devoted to sponsoring legislation 
for women’s rights, have consistently followed the Communist Party line. 
These organ- 
izations include the Movement for the Emancipation of Chilean Women and the Chilean 
Federation of Women’s Institutions. 
The National Committee of United Youth and the Chilean Federation of Students 
are the major Communist-front youth groups. 
The former is ostensibly a national 
committee on which the youth sections of several Chilean parties are represented, but 
it was created at Communist instigation and has at all times operated as a stronghold 
of Communist influence. 
Of the estimated 4,000 members of the Federation of Stu- 
dents, among them students of all the leading universities, about half are reported to 
be Communists or fellow-travellers. 
Although the Slavic movement is far less advanced in Chile than in some other 
South American countries, efforts to organize the Slavic immigrant groups in Chile in 
support of the Soviet Union have been partially successful. 
An Inter-Slav Coordinating 
II-5 
LIBRARY |! 
Papers ° 
HARRY. 
TRU! 
FILE 
RESIDENT! 5S SECRETARY 
| 
te 
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- 
Committee has been established to coordinate the activities of the Soviet, Polish, 
Yugoslav, and Czechoslovakian groups. 
This organization is nominally cultural and 
non-political, but its activities are supported by the Soviet Embassy and its propaganda 
is manifestly pro-Soviet. 
For their propaganda the Communists rely principally upon the press rather — 
than the radio. TASS does not have an office in Chile, but the establishment of a 
small bureau is reportedly now under consideration. Until several months ago, 
TASS was sending material to El *Siglo (the official Communist daily) through 
Press Wireless, but this has been discontinued. 
The TASS bureau, when and if it 
is established, will be headed by Miguel Teitelboim, of El Siglo. 
His older brother, 
-Velodia, is a member of the Central Committee of the Chilean Communist Party. 
The 
Russians have, up to the present time, failed to interest the non-Communist papers in 
their press handouts, and are by no means able to compete with the US and British 
programs of this type. 
Considerable Soviet printed propaganda, in the form of books 
and pamphlets, is distributed through the Communist Party’s publication house. 
The 
volume of foreign publications carrying Soviet propaganda has increased sharply since 
the establishment of the Soviet Embassy. 
The Communist press in Chile is notable for its high degree of centralization (it is 
directly controlled by the Party’s Central Committee) and for its excellent management. 
Instead of encouraging numerous small provincial Communist papers controlled by 
provincial committees, the Communists have chosen to work, for purposes of printed 
propaganda, through a single firm, Barra y Cia., Ltda., which maintains its office in 
national Party headquarters in Santiago, and owns and operates most of the official- 
Communist Party newspapers throughout the country. 
There is little radio propaganda at present. 
The Party does not control or own a 
station of its own (at one time in the past it virtually controlled station Nuevo Mundo). 
In April 1947 the Communists were reportedly contemplating the purchase of either 
Radio Santa Lucia or Radio Cervantes, and conducting negotiations in that sense 
through the Sociedad de Ediciones Técnicas, which publishes Arte y Picnic and 
Panorama Econdmica. 
Although having a widely read press, the Communists of Chile channel more of their 
energies into public mass meetings, forums, and internal Party activity. 
Their liaison 
with Soviet agencies, though certainly direct and organic in character, apparently in- 
volves no such complete tutelage as to suggest that the Chilean Communists could not 
function without continued and intensive prodding from Moscow. 
The cutting off of 
communications with the USSR would, rather, cause them a minimum of dislocation and 
inconvenience. 
They would go forward uninterruptedly with their program of obstruct- 
ing Chile’s cooperation with the United States, and they are clearly in a strong position 
in this regard. 
The activities and position of the Communist Party in Chile should remain a high- 
priority objective of US intelligence, because a) its platform and policies impinge 
directly upon important US interests, b) the real causes of the growth and influence of 
the Communist movement in Chile, which must be laid bare before corrective action 
can be taken, remain obscure, and c) nothing is discernible upon Chile’s political hori- 
II-6 
‘Papers of 
| 
UMAN 
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- zon that can be counted on to remove or even attenuate the problems the movement 
poses. 
There is no reason to believe, with some optimistic observers, that the Chilean 
Government could, at a moment of crisis, solve these problems through “tough” meas- 
- ures: it possesses neither the administrative skills nor the means of coercion that would — 
be required for this operation—always a difficult one to carry out against an organized 
mass movement. 
The Communists are, furthermore, actively supporting Gonzalez. 
Videla’s program of trade treaties with Argentina, Brazil, and other Latin American 
countries, which is at variance with US commercial policy in general and US policy with 
regard to the ITO in particular. 
Their opposition to inter-American military coopera- 
tion runs counter to US plans for Hemisphere defense. 
Their policy of fomenting eco- 
nomic and political instability within Chile is a constant threat to the US stake in that © 
country. 
HARRY Se TRUMAN 
SECRETARY FILE 
| 
|
SECTION Iil 
ECONOMIC SITUATION 
The Chilean economy is unstable and the prospects for improvement become in- 
creasingly more uncertain. 
The country is still greatly dependent upon imports, but 
the rapid depletion of accumulated exchange threatens Chile’s ability to pay for vitally 
necessary imports. 
This is further aggravated by the fact that the cost of imports 
_ has increased at a greater rate than the world — for the commodities which Chile 
exports. 
For some time the Chilean Government has been aware of the country’s condition 
and has sought to meet the situation by (a) increasing exports, and (b) by developing 
industry and agriculture so as to reduce the volume of needed imports.. Labor troubles 
have obstructed any significant success in increasing exports. 
Lack of capital and 
technological know-how along with labor troubles and governmental ineficiency have 
retarded industrial and agricultural development. 
1. Foop AND AGRICULTURE. 
Although Chile exports foodstuffs, the masses of its iia normally consume 
a bare subsistence diet. 
For this reason, the country is peculiarly vulnerable vis-a-vis 
trends or forces disruptive of agricultural activity, or capable of preventing its expan- 
sion, since such trends and forces play directly into the hands of those elements, the 
Communists especially, that profit from economic instability. 
To this must be added, 
as reasons for considering Chilean agriculture a danger-spot in the nation’s life, (a) 
the miserable working conditions and low wages characteristic of most Chilean agri- 
cultural enterprises, which make them breeding-places for discontent and agitation, 
and (b) the difficulties that stand in the way of Chile’s continuing to derive from 
trade in agricultural products the benefits it has derived in the past. Agricul- 
tural products have never been the major category of Chile’s exports, but they have 
always made a significant contribution to the total of sales abroad with which the 
country finances its large imports. 
Any decline in exports of copper and nitrates 
would make expanded production of exportable surpluses of agricultural products 
all the more important to Chilean economy. 
The present and foreseeable shortage of | 
shipping, the sharp limits upon Europe’s ability to pay for imports, and especially 
Chile’s poor prospects for success in the necessary expansion of agricultural production, 
all militate against any significant developments along these lines. 
Although agriculture is carried on in other parts of the country, Central Chile is 
its chief agricultural area, and within this area the most important single region is 
the Central Valley, which is 20 to 40 miles wide and extends about 800 miles (from 
La Serena to Puerte Montt). 
In most of the northern parts of the valley agriculture 
cannot be carried on profitably without irrigation. 
In the southern parts, which lend 
themselves more readily to the cultivation of staples than to the vineyards and sub- 
1-1 
'S SECRETARY 
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' pa 
of 
GARRY Se TRUMAN: 
tropical fruits that flourish under irrigation in the northern parts, the principal 
products are grains, legumes, fruits, vegetables, and hemp and flax fibers. 
A little over a half-million of Chile’s population of approximately 5,237,000 are 
agricultural workers. 
No other single economic activity employs so many hands. 
Under less primitive methods of cultivation a notably smaller number of workers could 
presumably do the job, as may be inferred from the fact that the ratio of workers 
to acres in Chile is 1 to 6, while in the US it is 1 to 35. 
The land area of Chile is 189,898,880 acres. 
About one-third (62,000,000 acres) 
is in agricultural holdings, but almost two-thirds of these holdings consist of mountain- 
ous terrain. 
Only 13,700,000 acres are classified as arable. 
Of the arable land only 
3,400,000 acres are under cultivation. 
Under optimum conditions the cultivated area 
could be increased about 300 percent. 
The greatest pastoral industry is sheep raising. 
There is no specialized cattle 
industry, and commercial dairying is still relatively undeveloped. 
The important 
sheep-raising area is in the provinces of Aysén and Magallanes in southern Chile. 
Chile 
also possesses the resources for the development of an important and profitable fishing 
industry. 
Since, however, fish is not an important element in the Chilean diet, the 
piscatorial resources of the colntry largely await exploitation. 
Although only seven per cent of Chile’s land area is suited to agricultural pro- 
duction, this land could under favorable conditions support the country’s relatively 
small population at a high dietary standard. 
The potential production of fish and 
pastoral products is equally as good. The US interest in the development of food 
. 
production in Chile cannot, however, be based upon the possibility that Chile will be- 
come an important food exporter. 
Its greatest potential production would yield 
-amounts which, problems of transport to one side, could be of little direct use to the 
US in peace or war. 
The relevant considerations from the US point of view are, rather, 
political in that the expansion of food production, accompanied by improvement in 
the means of internal distribution, would contribute greatly to the stability of Chile’s 
politics, its economy, and its social system; it would reduce the likelihood of Chile’s re- 
_ 
quiring large-scale economic aid from the US; it would tend to make the Chileans less 
susceptible to Communist propaganda and minimize the danger of their country’s 
becoming a spearhead of Communist penetration in the Hemisphere. 
Any progress 
along this line would increase the probability that the US could enter any future war 
with the USSR with a friendly, stable, and prosperous capitalist nation guarding the 
Straits of Magellan. 
- 
However, in order to bring all of its arable land into production, Chile would need 
; 
- to make an investment of capital and effort far beyond its present capabilities; and 
even after it had solved the production problem, it would need, both for purposes of 
internal consumption and for purposes of export, new facilities for storing, precunne. 
and distributing food. 
One major obstacle to increased production is the present system of land tenure. 
The typical agricultural unit is the large estate or fundo dating back to colonial land 
grants. 
About nine-tenths of the agricultural land is given over to estates of 500 acres 
111-2 
RETARY FILE 
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or more whose owners are absentees, unwilling or unable to give thought and attention 
to improving the utilization of the land or modernizing methods of cultivation. 
There is some sentiment in Chile in favor of breaking up these large estates, but 
no steps have yet been taken in this direction. 
The potential beneficiaries have never 
yet developed a unified and determined agrarian reform movement, and the largest — 
and poorest group of these beneficiaries, the agricultural laborers, have not enjoyed 
the benefits of leadership and united action inherent in unionization. 
This, together 
with the high incidence of ignorance, superstition, and the conditions of peonage 
that obtain on many of the estates, militate powerfully against their exerting as a 
. 
group any real impact upon politics. The new Farm Unionization Law may for this 
reason possibly mark the beginning of an era of radical changes in the Chilean agri- 
cultural system. 
The Farm Unionization Law, in its present form, looks to the formation and opera- 
tion of farm unions, but surrounds them with conditions far more restrictive than 
those governing non-agricultural unions. 
For this reason certain groups, particu- 
larly the Communists, are sharply critical of the measure. 
The landowners, for 
the same reason, support it—not, of course, because of having changed their minds 
about the desirability of farm unions, but because they felt that unions of some 
kind were inevitable whether they approved or not, and they believe that the 
unions permitted under the legislation are so hemmed about with restrictions as 
to prevent their undermining the landowners’ present advantaged position. 
In view 
of existing attitudes on both sides, the prospects for peaceful and stable evolution in 
owner-laborer relations are slender. 
The very existence of unions, no matter how re- 
stricted, will encourage common action on the part of the farm laborers, will help make 
them more conscious of their problems, and will, in the long run, lead unavoidably to 
demands predicated upon new conceptions of the farm laborer’s rights. 
If successful 
in pressing these demands, the unions would vastly improve the lot of their members; 
but there is as yet no reason to believe that the latifundistas are willing or able to foot 
| 
the bill. 
But, on any showing, the new law will, as time goes on, probably produce 
marked changes in the system of land tenure and in employer-employee relationships. 
~ 
Chile has a homestead law, whose most successful application to date has been in 
the southern part of the Central Valley where there are few large estates. 
Because of 
its dense woods and apparent lack of promise for farming it did not attract the Spanish 
and Italian colonial settlements. 
Years ago, however, through a liberal policy of land 
grants the Government drew into the area considerable numbers of Germans, who 
have cleared much of the land, put it to crops and grazing, and thus notably increased 
Chile’s agricultural potential. 
Here, more than in any other part of the country, sig- 
nificant agricultural development has taken place and the area serves as an example to 
which critics of the latifundistas can point in arguing for a new deal in agriculture. 
For the country as a whole, increased production must in any case wait upon 
improved methods of cultivation and, most particularly, improved soil-conservation 
practices, which will put a stop to, or at least reduce, the loss of valuable mineral soils 
(especially lime) through soil erosion and floods (the latter are especially frequent in the 
Central Valley). 
Meanwhile, Chile will continue to need relatively large amounts of 
HARRY 
TRUMAN: 
(
HARRY S. TRUMAN 
PRESIDENT!S SECRETARY FILE 
. 
( 
Papers of 
_ fertilizers, only one of which (nitrates) it is capable of producing in adequate amounts. 
_ 
The Government, through such agencies as the Chilean Development Corporation, is 
_ 
attempting to increase domestic production of calcium, phosphates, and potash; but 
even assuming a maximum of success in this enterprise, Chile cannot hope to maintain 
_ 
its present levels of agricultural production without large imports in this category, and 
cannot hope to achieve higher levels of agricultural production without a concurrent 
modification of its present pattern of imports so as to make available additional foreign 
exchange for foreign purchases of fertilizers as well as agricultural equipment. 
Fur- 
thermore, in the present world market fertilizers are in short supply. 
For all these rea- 
sons, no notable increase in Chilean agricultural production should be expected within 
the predictable future in the absence of large-scale assistance from some other country. 
The several private and governmental agencies whose business it is to raise the levels of 
Chilean agricultural production operate under administrative, personnel, and financial 
limitations which (a) constitute genuine barriers to large-scale accomplishment, and 
(b) are not likely to be removed within the near future. 
Chile’s workers will, therefore, 
continue to confront a market in which the available food is insufficient both in quantity 
and variety, and expensive as well. 
The small farmer and the agricultural laborer will 
continue to receive a relatively small share of the total sums spent on food. 
The infla- 
tion, which seems likely to continue, progressively aggravates these problems; and, in- 
creasingly, forces are at work in Chilean politics which will skillfully exploit the resultant 
popular discontent in the cities and the rural districts alike. 
Insofar, therefore, as 
there is a US interest in the stability of the Chilean political and economic system, 
Chile’s food problem and its desperate need for assistance in aciving it must be re- 
garded as directly relevant to that US interest. 
The same limitations—insufficient means and inefficient administration—stand 
- 
in the way of the improvements in the country’s transportation and storage facilities 
that might provide a further incentive for expanded food production and food exports. 
Only in Central Chile is the railroad service reasonably good even by Latin American 
standards; and while recent years have brought some progress in the construction of 
hard-surface highways, over the country as a whole (including Central Chile) the 
roads are so inferior that most hauling is still done by ox-drawn vehicles. 
Outside 
Central Chile, therefore, large amounts of food fail to be produced or, having been 
produced, spoil on the grower’s hands because of the sheer impossibility of transport- 
| 
ing it to domestic markets and to the ports from which it could be shipped abroad—or, 
! 
where the transportation problem is to some extent solved, because of the inadequacy 
of existing storage facilities and food-processing establishments. 
These considerations 
affect, moreover, the production even of relatively unperishable commodities such as 
cereals: the railroads are swamped with shipments at harvest-time, and in most areas 
there are no storage facilities to tide the growers over until the peak is passed. _ 
Food products are normally the third most important category in the Chilean 
export trade. 
The total of food shipments has nevertheless never amounted in value 
to much more than one-sixth of total exports. 
No expansion is in prospect that would 
significantly alter the characteristic of the traditional export pattern. 
Improved trans- 
portation, storage, and processing facilities would, however, open up great domestic 
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PRESIDENT! SECRETARY FILE 
marketing possibilities which would therefore stimulate production. But any increased 
_ 
production might, through its general effect on the nation’s prosperity, operate in the . 
( 
long run even to reduce the amount of food available for export. 
And it is obvious that 
“other favorable economic conditions” would have to prevail before these various 
improvements could be undertaken. 
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NATURAL RESOURCES.. 
-@ Copper. 
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“3. 
ne s estimated copper reserves, the world’s largest, total about 30 per cent of 
the world’s known reserves. 
__ 
* Ninety per cent of Chilean evebuition is controlled by three US-owned com- 
panies: The. greatest single field is the Chuquicamata, operated by the Chilean Ex- 
ploration Company, an affiliate of Anaconda Copper. 
A second Anaconda affiliate is 
the Andes Copper Company, which operates the Potrerillos field, about 90 miles east 
of'the port of Chafiaral. The third is the Braden Copper Company’s mine El Teniente, 
at Sewell, about 60 miles southeast of Santiago. 
(The Braden Copper Company is a 
subsidiary of Kennecott Copper Corporation.) 
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Numerous small copper-mining enterprises have received considerable assist- 
ance from the Chilean Government’s Caja de Crédito Minero, which purchases ores for 
export and furnishes outlets for small mines at prices somewhat higher than most. 
of them could otherwise obtain. _ 
Operators of small mines had until recently a further 
market in two French-owned custom smelters ( the only ones in Chile) at Chagres and 
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Naltagua. These smelters belonged to companies which operated small mines of their 
own, but functioned primarily as buyers of ores and concentrates. 
From 1942 to 1945 
the smelters operated under a contract with the United States Commercial Company, 
and upon expiration-of the contract production could not be continued without the 
contract subsidy. During the war the United States Commercial Company also sub- 
sidized the operations of several hundred small mines, but by February 1946 only one 
' 
of these was still operating. . 
It is reported that several small mines have recently been 
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oe 
reopened to take advantage of favorable copper prices and various government aids. 
! 
“QE all practical purposes, the future of the US-owned mines is the future of the 
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industry, as other operations are so small-scale as to be negligible. 
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asocuvadlge Chuquicamata, where only the surface oxide ores are now being worked (by 
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open cut mining operations), the ore has a copper content of 2.5 per cent to 3 per cent. 
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It is estimated that the reserves of surface oxide ore will last for eight to ten years at 
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the 1945 production rate. With additional plant equipment, however, the company 
could work the underground reserves of sulphide ores, which are much larger. A capital 
investment of $50-100 million would be required in mine, mill and smelter equipment. 
+, Theother Anaconda Copper holding, Potrerillos, where the oxide ore reserves are 
almost exhausted and operations are virtually on a day-to-day basis, has been a 
marginal producer for several years. 
At the present rate of production, the reserves 
) 
of sulphide ore will last approximately five years. 
Both types of ore have dropped 
- notably in grade and now average less than 1 per cent copper. 
For this and other 
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reasons, the costs of production at Potrerillos have greatly increased, so that, but for the 
present high price of copper, it would probably have to shut down. 
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The ore reserves of the Braden Copper Company’s. mine at Sewell were 
formerly estimated at 200 million tons, all sulphide; but a drilling survey extending 
over a period of two years has produced a new estimate of one billion tons. 
Even 
before the drilling survey the reserves were considered adequate for 60 years of normal 
operations. 
Local economic and political trends have exerted upward pressure on the 
costs of production of Chilean copper, which are now higher than those in any other 
important producing area. 
Labor costs'have risen, as may be seen from the fact that 
the average daily wage at Chuquicamata rose from $1.84 (US) in 1940 to $5.20 (US) in 
1945. 
The inflationary pressures have forced up the prices of locally purchased articles 
essential for the production of copper. 
The Government has in recent years greatly 
increased the tax levies on the larger companies, and has discriminated against them 
| 
in manipulating foreign exchange in such fashion as to give “lower-cost” competitors a 
differential advantage. 
The Government, for instance, requires US copper producers 
_ 
to buy pesos for operating requirements at the rate of 19.37 to the dollar, and resells 
| 
the dollars to importers either at the official rate of 31 to the dollar or at the export draft 
rate of 25 to the dollar. 
Si 
Although there are insistent rumors that the Government intends to estab- 
lish a Copper Sales Corporation comparable to its Nitrate and Iodine Sales Corpora- 
tion, officials of the large companies reportedly discount them as a threat to their 
economic future. 
However, since government corporations are already playing an 
important role in Chile’s economic life, and since the idea of such a corporation for 
copper lends itself to exploitation by groups seeking to foment discord, it should be kept 
in mind as a possibility in estimating the future of Chilean copper. 
The outlook for Chilean copper exports depends in part upon the complex 
factors that determine the world demand and supply of the metal, in part upon 
the course of events within Chile, in part upon Chile’s competitive position with rela- 
tion to other principal suppliers. 
During the immediate post-war years, Chilean pro- 
duction must apparently revert to the level of the late 1930’s, even assuming the exist- 
ence of international arrangements for “stabilizing” production. 
The pressure of lower- 
cost producers and of. competing substitutes is likely even on this showing to reduce, 
perhaps drastically, the volume of Chilean copper exports in the long run. 
During the war, world copper production increased from the 1935-39 level of 
about 2,000,000 tons to approximately 3,000,000 tons. 
This figure greatly exceeded 
even the most optimistic peacetime estimates of the world’s capacity to consume copper. 
Demand for copper for reconstruction and the backlog of unsatisfied needs that ac- 
cumulated during the war will probably maintain production at the 1940 level for an 
indeterminate period. 
After this, the world demand is likely—in the absence of great 
stock-piling programs—to decline to a point at which primary production of copper 
will be cut to about 2,000,000 tons a year. 
The burden of such reduction will, because 
of the cost factor, fall principally upon Chilean, Canadian, and African producers, in 
that order. 
The variables in this connection appear to be: (a) the extent to which 
consumers develop facilities for the recovery of copper from scrap (scrap production 
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in the US amounted to over 50 per cent of 1940 consumption) ; (b) the rate at which 
substitutes, particularly aluminum, magnesium, and possibly plastics, are developed 
and used; (c) the extent to which the Soviet Union, which before the war imported 
100,000 to 150,000 tons of copper a year, frees itself by expanding its own output, from 
dependence on foreign 
(b. Nitrates. 
| 
-Chile’s riltrate deposits, which lie in the Atacama desert in northern Chile, are 
| scattered irregularly throughout a zone about 450 miles long between the coastal range 
and the Andes. For the most part the deposits are along the eastern side of the coastal 
range. The produce moves by rail to some ten ports, from Pisagua to Taltal. 
— 
Thirteen companies are now engaged in nitrate production. 
The three largest 
are the Anglo-Chilean Nitrate Company (almost wholly owned by US interests), the 
Lautaro Nitrate Company. (a British corporation, but largely owned by US interests), 
and the Tarapaca and Antofagasta Nitrate Company (dominated by British investors). 
These three companies account for approximately 85 per cent of total production. 
— 
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There is no reliable estimate of Chile’s nitrate reserves. 
Although most of 
the unproved lands belong to the government, tracts are sold from time to time. 
At 
- one time it was Believed 
that reserves were inadequate to keep the industry going very 
long; but recent evidence points strongly to the existence of enormous unexploited 
deposits of nitrate. The present danger for the industry has to do, not with the possible 
exhaustion of its deposits, but rather with competition from synthetic nitrates. 
- Before World War I, the Government depended onthe nitrate industry for 
most of its revenues. This is no longer the case; and export and. employment con- 
siderations underlie the Government’s concern about the industry. 
At the time 
World War II began, sodium nitrate and its by-product, iodine, accounted for 20 to 
25 per cent of the country’s exports; and 30,000 pereee were directly employed upon 
their production. 
Competition of synthetic production in Cesemeas and other European countries 
- began to cause trouble for the industry in the interval between the two World Wars. 
For a while, by introducing the newly invented Guggenheim process, Chile was able 
to maintain its position.. By 1930, however, the situation in the industry had be- 
come desperate. Forty of the then existing companies joined with the Government 
to organize the Chilean Nitrate Company (known as “Cosach”), The Government 
thus became a partner in the industry, and in return for its share it removed the 
lucrative (but inhibitory) export tax on nitrates. 
| 
The new combine virtually monopolized the =a neg of nitrates; but it 
was unable to reduce prices enough to meet foreign competition successfully (the 
more since the great depression sharply narrowed the market) and it was dissolved. 
In January 1934 the present Chilean Nitrate and Iodine Sales Corporation, a semi- 
official public corporation, was formed. 
It does not concern itself directly with pro- 
ducing nitrates, but rather monopolizes sales and exports by virtue of a concession 
that gives it, for thirty-five years, an exclusive right to purchase the output of all pro- 
ducers at cost and distribute it in the world market. 
Profits are divided on the basis 
of 25 per cent for the Government and 75 per cent for the producers. 
The corpo- 
| FLARRY 
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_ Tation assigns production quotas and distributes the income to the participating com- 
panies. Actual title to the nitrate properties vests in the Government. 
This sales corporation was operating with some degree of success at the time 
of Pearl Harbor. 
The US was at that time purchasing about 40 percent of Chilean 
production, European countries and Egypt most of the remainder. 
The shipping 
shortage would, other things being equal, have caused a marked slump in exports, and 
was avoided only because (a) the US increased its purchases to approximately two- 
thirds of total output, and (b) sales to other Latin American countries sharply in- 
- 
creased. 
Sales to Europe and Egypt of course became negligible. 
The outlook for the nitrate industry is, in general, unfavorable. World 
capacity in the production of nitrogen products exceeded the demand even before the 
war; and since 1939 synthetic output, especially in the US, has greatly increased. 
— 
Private industry in the US has so expanded that it could meet all domestic industrial 
and fertilizer requirements. The continuing preference of US farmers for the natural 
product may, however, enable Chile to retain some of its market here. In Germany, 
I. G. Farben is now back to 40 per cent of its prewar production of synthetic nitrates; 
and under the “level of industry” plan for Germany, I. G. Farben would regain its prewar 
production level in four years.~ Continued substantial exports of Chilean nitrates are 
therefore unlikely unless the industry can deliver its products at prices in line with those 
for synthetic and by-product nitrogen. Technological improvements of the refining 
will, it appears, enable Chile to quote the world’s lowest prices for commercial nitrogen 
at the point of origin. But Chile is remote from its major markets, and the price of the 
delivered product must include shipping charges. 
In the US market, the latter amount 
to one-third of the delivered price. 
Chile’s location, for the same reason, gives it a asad 
differential advantage in some Latin American markets. 
Such cartel arrangements as those which obtained between 1929 and 1939, with 
intermittent Chilean adherence, would, if restored, assure the country a modest though 
Teduced market, as would the creation of a UN agency to handle the problem. 
During 
the immediate reconstruction period, increased world-wide demand for food and thus 
— 
indirectly for fertilizers is likely at first to keep production in Chile at high levels for 
a while. 
Afterwards, however, European demand for Chilean nitrates will probably 
decline to a point below the prewar levels. 
The US as well can hardly be counted upon 
for purchases of prewar magnitude. 
Increased sales in the other American Republics, 
where sales have grown substantially during the war, are on the other hand a distinct 
possibility; and President Gonzalez Videla has commitments from Brazil and Argentina 
to erect no synthetic nitrate plants and to continue using the natural Chilean product. 
China has officially approached the Chilean Government regarding possible future ex- 
_ change of nitrates and copper for sugar and textiles, and according to an unconfirmed 
rumor, the British-Latin Import Corporation has offered to supply machinery and 
_ other equipment (valued at 2,000,000 pounds sterling) used in producing nitrates. 
The 
_ 
Egyptian Government has reportedly requested permission to install on Chilean soil 
two new nitrate plants that would remain its property, and has been refused because 
of objections raised si 
the Sales Corporation. 
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_ ‘What is in question here is not new trends but rather the continuance and 
probable intensification of severe prewar competition. 
To meet this competition Chile 
must abandon the relatively costly Shanks method and make exclusive use of the 
| 
relatively cheap Guggenheim and Krystal systems. 
There is, however, political op- 
position to this changeover, and the opposition is able to make use of some effective 
economic arguments. 
The new methods employ much less labor, and the persons who 
would be disemployed cannot readily be absorbed by other industries for some time. 
An industry spokesman was recently quoted as saying that the Chilean industry could 
operate on 1,000,000 tons export per year and prosper on 1,500,000 tons. 
A smaller 
industry using more efficient production methods could probably operate with moderate 
profits at 850,000 tons a year. But this would constitute an economic cost to Chile, 
as a whole, in unemployment. 
- 
The nitrate companies are reportedly being made the victims of a series of 
“slowdowns” and sabotage in all departments of their operations. 
The slowdowns 
follow a definite pattern (for example, the various syndicates take turns at them), and 
there appears to be no doubt that the orders are being issued from outside. 
Production 
has been definitely affected, and no immediate solution is in sight. 
; 
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Latin America, which is poor in coal, Chile is the leading coal producer. 
Its 
coal fields are located in the southern part of the country near Concepcién. 
The 
mines. are along the coast, and many of the tunnels run under the bed of the sea. 
Owing to an increasing domestic demand for fuels, coal has in recent years been in short 
supply in Chile; and the Government is known to have given careful attention to the 
possibility of increased production. 
The total proved coal resources of Chile are esti- 
mated at approximately 62,000,000 tons (an additional 52,000,000 tons are considered 
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“probable”). This coal is, however, of a low-grade bituminous type. Until recently 
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it has been regarded as unusable for coking, but late technological developments have 
raised Chilean hope that this essential for iron and steel manufacture may soon become 
For some time the Government has been giving the coal industry both financial 
assistance and tariff protection against foreign coal and foreign fuel oil. The railways 
are by far the greatest consumers of domestic coal; but certain manufacturing plants 
are also large purchasers, as are the merchant marine, several gas and electric works, 
and some of the nitrate and mining companies. 
Despite existing high duties, how- . 
ever, there are still large fuel consumers that use imported oil. Many new office build- 
ings and apartment houses, on the other hand, have installed central heating systems 
that consume coal and thus put added pressure on the local supply. 
Under ideal conditions, coal production and consumption approximately balance 
each other at the present time, but in such fashion as to leave no margin of safety for 
Chilean consumers. 
Because Chilean coal disintegrates too rapidly for open storage, 
and because facilities for out-of-the-weather storage are inadequate, they cannot 
stock-pile supplies for protection in periods of reduced production brought about, for 
example, by strikes. 
Until extensive new storage and production facilities are built, 
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ein on a day-to-day basis and constantly at. 
the mercy of the miners. 
The unstable labor conditions in the coal fields, the chajor barrier to increased 
or even stabilized production, are due in large part to Communist control of the coal- 
mining unions. 
From the standpoint of exclusively domestic economic strategy, the 
coal industry is the strongest position the Communists could occupy. 
Communist 
terrorism is frequently reported from the coal flelds; and this, plus bad working con- 
ditions in the mines, makes for cumulative discontent and numerous strikes. 
More- 
over, the coal industry is itself experiencing difficulties that encourage strikes. 
Ninety-two per cent of Chile’s coal output is produced by two Chilean-owned 
firms, Lota and Schwager. 
Production costs at Lota are far higher than those at 
Schwager, but the two firms quote approximately the same prices. 
To protect its 
higher margin of profit, the Schwager Company is concerned to maintain the present 
relative cost-of-production position. If, therefore, strikes drive up wages at Schwager’s, 
it loses its differential advantage; and the officials of the Schwager Company reportedly 
defend themselves against this danger by taking steps to extend any strike in their 
mines to those of their competitors. 
In a sense, therefore, a segment of ownership 
in the industry is frequently in the paradoxical position of supporting Communist-in- 
spired labor activity, and the Communists have shrewdly exploited this situation. 
- Some Chilean leaders hold out the hope that the successful execution of the 
present Government plans for hydro-electrification may greatly lessen the country’s 
dependence upon coal. 
This view overlooks the fact that these electrification plans are 
part and parcel of a wide program of general industrialization that calls for new estab- 
lishments (using all forms of power) that would use up any coal that eacrriBcation 
might economize. 
d. Iron. 
Chile has high-grade iron deposits, conveniently located at points less than 
twenty miles from the coast. The three best known are El Tofo, Romeral, and Algarrabe. 
Of these only El Tofo is worked intensively. 
It lies a little north of the port of Coquimbo, 
and is operated by the Bethlehem Chile Iron Mines Company (average prewar annual 
production, 1,600,000 tons). 
Before World War II the entire output was exported 
in Bethlehem ships to Sparrows Point, Maryland; but during hostilities, when shipping 
space was short and available space was reserved for more important commodities like 
copper, shipments were drastically reduced. 
(Iron should not, therefore, be included 
— the commodities for which the United States depends upon Chile in time of war.) 
- 
Under present conditions, however, Chile’s iron is virtually useless save as 
an export commodity. 
Chilean production of steel and ferro alloys is so small that 
domestic consumption absorbs only a fraction of the iron ore mined. 
The Chileans 
have plans for expanding their steel industry, but rapid progress in this regard is im- 
probable. 
Meanwhile, the high quality Chilean ore is in a good competitive position 
in the post-war market, and iron ore shipments to the United States will probably re- 
turn to their prewar level. 
The company operating El Tofo has an extraordinary record in one respect: 
it has never had a strike. 
There is very little labor turnover in the mine, and the 
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unions there are not Communist controlled. 
Recent Communist attempts to infiltrate 
these unions have apparently been eo. 
( 
e. 
Lumber. 
Most of the country’s timber resources are in a belt 400 miles long in the south 
of Chile. 
From its 12.6 million acres of forest area, Chile supplies most of her own 
lumber needs and draws a certain amount of hardwoods for export. 
The area is, 
however, still undeveloped as regards large-scale commercial operations. 
Only a few 
species of the timber are of commercial value, and even these grow intermixed so that 
logging must be selective and thus relatively expensive. 
Because of retarded highway 
development, the lumber is difficult to haul to shipping and railway points. High 
freight rates on lumber moving from sawmills to finishing mills and yards further in- 
crease costs. Finally, rains are so frequent and heavy in the lumbering area that 
operations are carried on under great difficulties and are confined mainly to the three 
or four least rainy months. 
a 
The number of sawmills has been declining since 1939. The war eliminated. 
Chile’s principal foreign market, Germany. 
Argentina has been the leading purchaser 
- 
since 1940. 
Under present conditions the production of lumber is sufficient for domestic 
needs. 
While some lumber is imported, principally Douglas fir from the US and 
Canada for mine-props, a protective tariff has now reduced these imports. 
Should 
overseas markets 
for nitrates, copper and other minerals decline drastically, the decline 
might stimulate greater efforts to exploit the great timber reserves for export. purposes. 
In the immediate future, however, the possibilities in this direction are severely limited 
by poor transportation, lack of capital, and adverse climatic conditions in the timber 
Whether or not Chile possesses important petroleum reserves remains to be 
determined; and the task of exploiting any reserves that may be discovered would call 
for a long-term program for which the country has neither know-how, capital nor 
equipment. 
Chilean oil men lack both training and experience; and the Government 
up to the present time has refused to give foreign oil men the relatively free hand they 
would demand in order to begin the job. 
Title to all oil lands vests in the Government, 
which regards itself as committed to government monopoly and control as well. Two 
US firms, United Engineering Co. and the Livermore Corp., under contract with Chilean 
petroleum authorities provide technical advice and supervision for exploration and 
production. However, the only region in which any measure of success has been 
achieved is the Springhill area in the extreme south where several test wells have been 
brought in with a reported capacity to produce at the rate of a a | 
over 500, 000 
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barrels a year. 
Chile consumed 7,919,481 barrels in 1946. 
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‘Tf existing financial and technical difficulties were overcome and large deposits 
j 
discovered, extraordinary expenditures of capital and effort would be required before 
: 
the Chilean economy could begin to derive substantial benefits from them. 
Chile’s 
ee 
transportation system is grossly inadequate for the efficient handling of large amounts 
of locally produced oil. 
The roads in the part of the country in which the deposits 
j 
are believed to lie connect, not with the Chilean centers of population to the north, 
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but with Argentina. 
There is no railroad development south of Puerto Montt, and 
there are no inland waterways of any consequence. 
Under present conditions further- 
more, Chile cannot hope to make early provision for such facilities—whether to 
transport a sizeable volume of crude oil to refineries that might be built elsewhere, or, 
assuming that the refineries would be built near the fields, even to transport the finished 
products to the centers of consumption. 
Water transport cannot offer a way out of this difficulty. 
Punta Arenas and 
Puerto Natales are the only sizeable ports in the area in question, and their conversion 
into oil ports would require great outlays of capital for developing roads, pipelines, or 
inland waterways (or some combination of these). 
The acquisition and maintenance 
of fleets of tankers would be an additional financial burden. 
This problem is the 
more urgent because a large, well-developed oil industry would be of incalculable value 
to Chile, not only from the domestic point of view but internationally as well. 
The size 
of Chile’s population and the state of its industrial development are such that it could 
not soon develop a domestic market capable of absorbing large amounts of petroleum 
products. A large oil field would, therefore, produce an excess that would be available 
for export. 
This would mean lessened dependence upon the nitrate and copper trade. 
Given its other economic difficulties, both present and prospective, Chile will 
probably be unable to achieve~any notable success in its oil venture without foreign 
aid. 
The two most likely sources of aid are the US and Argentina. 
If aid were forth- 
coming from the US, its extension could be based on the grounds that, as a highly in- 
dustrialized nation, the US is interested in developing petroleum supplies everywhere, 
thus also in Chile, or on the grounds that the aid, by contributing to the health of the 
Chilean economy, would favor the US economic and political stake there. 
Argentina’s plans for industrial expansion have a certain bearing upon the 
problem of Chile’s future. 
Since the prospective Chilean fields are located in the 
Tierra del Fuego region, they are, in effect, more accessible by sea to Argentina 
than to Chile, because the latter cannot finance the necessary. transport facilities. 
The Argentines would presumably welcome Chilean petroleum development both 
because Chile is a near neighbor and because, in the opinion of many Argentines 
and some Chileans, it is being drawn increasingly into Argentina’s economic orbit. 
It must be kept in mind, in this connection, that the Chilean fields, if developed, would 
be the only source of oil south of Talara, Peru, not already under Argentine control. 
Argentina would, therefore, like to participate in their development; and because 
Chilean oil promises much less direct benefit to the US than to Argentina the latter can 
feel free to demand a high quid pro quo in return for any financial aid it provides. 
From 
Argentina’s viewpoint the ideal situation would be one in which the actual processing 
was in Argentina hands, and any Argentine offer of financial assistance is likely to 
include conditions tending in that direction. 
One unconfirmed rumor states that 
a secret agreement already exists under which the entire Chilean production will be 
sent for refining to Bahia Blanca in return for finished petroleum products. 
3. 
InpUSTRY. 
The Chilean Government’s forward-looking plans for industrialization address 
themselves to a two-fold goal: (a) increasing the diversity of the country’s exports, and 
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(b) decreasing the volume and diversity of imports. 
Because at all times (a) has 
been given equal importance with (b), this goal, though in one sense nationalistic, 
should not be confused with that of self-sufficiency. 
While by no means seeking to 
withdraw from international trade, Chile, having experienced the impact of two World 
Wars and a world-wide depression, seeks to order its economy so as to be less at the mercy 
of world events. 
Large numbers of Chileans are convinced that planned industrial- 
ization, by broadening the country’s economic base, will cushion them against the ex- 
tremes of boom and depression that have characterized their recent economic history, 
and against their. excessive dependence upon the highly competitive world market in 
copper and nitrates. 
The major industrialization developments to date have taken place in the extract- 
ing and processing of raw materials for export either as raw materials or as semi-manu- 
factures—the only lines in which Chile and its Latin American neighbors can hope, at 
present, to compete successfully. 
So far as the well established extractive industries 
(copper and nitrates) are concerned, the owners, forced by competition in the world mar- 
ket, have borne the major expense of industrialization. 
The Government has directed 
its efforts primarily toward the discovery of new deposits of minerals and the develop- 
ment of hitherto “marginal” deposits—not only in the traditional lines but also in new 
| 
ones that might enable Chile to offer a greater variety of raw materials in the world 
market. 
Any success it may achieve in this regard will, in the Government’s view, offer 
a two-fold advantage: (a) a more favorable trade balance, with reduced vulnerability 
vis-a-vis fluctuations of world prices for nitrates and copper; and (b) increased opportu- 
nities for the development of semi-manufactures for export. 
The Government’s efforts 
to develop molybdenum and rom production are examples of this emphasis of its indus- 
trialization policy. 
| 
The Government’s Aaveléiiinnt plans also include, however, (a) the expansion of 
those industries that provide services for immediate use, such as power plants, foundries, 
and construction enterprises, and (b) the development of factories to produce con- 
sumers’ goods intended primarily for domestic consumption. 
One of the outstanding features of the past decade in the evolution of Chile’s 
economy has been the rapid development of certain manufacturing industries to which 
fortuitous causes and deliberate policy have alike contributed. 
The external deprecia- 
_ tion of the peso, a necessary adjustment to the world-wide depression, raised the cost | 
of imported articles and thus stimulated the expansion of domestic industry. 
More 
recently, wartime scarcities of manufactured goods and of shipping in which to trans- 
port to Chile any manufactured goods still available, have tended in the same direction, 
though against this stimulus must be offset the parallel difficulties of a ma- 
chinery and equipment for new manufacturing enterprises. 
The Government has, however, within the limits set by the difficulties a men- 
tioned, taken a deliberate hand in assisting the development of such new enterprises— 
by increasing customs duties and by setting up a system of import licenses and foreign 
exchange allocations with a view to holding imports at a minimum, by making avail- 
able to the new enterprises the lending resources of the Central Bank, by drawing for 
development purposes upon the fiscal resources of the Government itself, and, finally, 
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by intervening directly through the activities of the Chilean Development Corporation. 
Twenty-odd domestic industries are today able to meet either the whole or at least 
the greater part of the present level of domestic demand for their products’ 
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These initial successes in the field of deliberate industrialization have been due, 
in large part, to the fact that Chile was among the first of the Latin American countries 
to inaugurate programs of research and planning for industrialization. 
For this very 
reason, however, some Chileans ‘are, at the present time, inclined to overestimate the 
long-run potentialities of Chilean industry and to think (thus in effect repudiating the 
original objectives of the industrialization program) in terms of economic self-suffi- 
ciency as an ultimate goal. 
In view of the Chileans’ widespread and articulate resent- 
ment concerning their country’s dependence (as a supplier of raw materials) upon the 
leading industrialist countries, this new orientation is not surprising. 
On the other 
hand, it is not for this reason the less dangerous as regards its — 
for the 
future of Chilean economy. 
4. 
FINANCE. 
Chile’s financial position is unsound, alike as regards its balance of payments and 
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from the standpoint of its domestic economy. There is, moreover, no reason to expect 
any immediate improvement in the position. 
The inflation is, and will continue to be, the major domestic financial problem. 
During 1946 wholesale prices increased 25.4 per cent and the cost of living 30 per cent— 
on top of 1945 increases of 4 per cent and 7.8 per cent respectively. 
Although these 
inflationary trends are no doubt accentuated by rising prices elsewhere, the Chilean 
Central Bank is of the opinion that “internal factors” (among others, a wave of “‘specu- 
lation” and an unhealthy expansion of bank credit) are primarily responsible. 
Both 
the speculation and the bank credit expansion appear to have been motivated by (a) 
the Government’s policy of deficit spending, and (b) by exaggerated post-war optimism 
in Chilean business circles which had somehow convinced themselves that, with war- 
time barriers and restrictions out of the way, the Chilean economy would promptly 
move into a new phase of prosperity and progress. 
Nevertheless, the resumption of 
national production in the categories hardest hit by wartime shortages got under way 
very slowly and foreign trade did not expand nearly so rapidly as the businessmen had 
expected. 
In this background, the subsequent sharp increases in the volume of credit 
have flowed, as a matter of course, into speculative channels. 
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In November 1946, the Government attempted to arrest the prevailing inflationary 
trends by drastically curbing credit expansion. 
In the sequel, however, no prices were 
notably affected save those of shares on the stock market; other prices continued up- 
ward, if anything at a more rapid rate than formerly. 
Moreover, the credit restric- 
_ 
tion was handled in such fashion as to confuse both the public and the banking com- 
2Prepared foodstuffs, beverages, tobacco products, shoes, clothing, matches, pharmaceuticals 
(many, especially bismuth, mercury, cocaine and quinine products), toilet articles, cheaper textiles 
(over 50 per cent of coarse cotton cloth, smaller proportion of woolen and worsteds), window glass, 
plastics (a limited number), enamel, glassware, furniture, lighting fixtures, electrical appliances 
(a limited number), rubber products, paints and varnishes, cardboard paper products, cement, 
explosives, binder twine, some chemicals (especially iodine, sulphur, oxygen, borax, glycerine, acetic 
acid, tartaric acid, peroxide, calcium carbide, sulphuric acid, nitric acid). 
| HARRY S. TRUMAN 
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munity, since the curbs aimed at speculation proved highly inhibitory to non-speculative 
ventures as well. The curbs were accordingly abandoned after only a month’s trial. 
ie 
Actually, the inflation has ceased to be even mainly a matter of bank credits granted to 
individuals or business firms. 
The banks, to be sure, have granted such credits liber- 
ally, but two other intimately interacting factors are exerting heavy upward pressure on 
prices: (a) the rising volume of currency in circulation, and (b) the Government’s own 
fiscal policy. 
It is estimated that the cumulative deficit will reach two billion pesos 
by the end of 1947. 
Instead of facing up to this situation the Government, over and 
above financing its expanding operations more and more by emergency credits from 
the Central Bank and the National Savings Bank, is resorting to the printing _ 
In 1946, currency outstanding was increased by more than 20 per cent. 
Because prices have risen more rapidly than wages, the inflation has enabled both 
~ 
public and private employees to demand higher wages, and insofar as these demands 
have been met, the result has naturally been increased cost of production for private 
business and increased costs of operation for the Government. 
Also, higher wages 
intensify the demand for consumers’ goods, and force prices constantly > 
because 
national production and imports continue to lag. 
Such a situation calls imperatively for strong measures, and there is no evidence 
that the Government is itself disinclined to adopt them. 
On the other hand (as is 
evidenced by the recent request for a US adviser), the Chilean Government is not 
entirely clear as to the shape these measures should take, and moreover it is obliged 
to take into account the political difficulties any such measures would have to sur- 
( 
mount. 
US interests are likely to exercise great caution with respect to the Chilean 
Government’s repeated requests for loans for internal improvements and industrial 
expansion. 
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(The external aspects of Chile’s financial conditions are ineorpornsed in the 
following section.) 
5. INTERNATIONAL TRADE. 
The Chilean economy could not exist without international trade, and it is not 
likely to change in this regard in the years immediately ahead. 
Chilean economic 
observers are fond of pointing out that up to 1929 their country’s economy was “colonial” 
in type, and of implying that the subsequent expansion of domestic industry has tended 
to “emancipate” the country from its erstwhile dependency. 
Some of them go so far 
as to suggest that the time is coming when world prices of nitrates and copper will no 
longer be major determinants of Chilean prosperity. ‘These prognosucauons are 
demonstrably over-optimistic. 
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Unquestionably, Chile has made progress with its industrial development program, 
and has improved its economy to that extent, but this has not had the effect of lessening 
Chile’s need for imports: it has, rather, expressed itself in shifts of purchases from one 
* The Government proposes to finance 42 per cent of its 1947 deficit by the issuance of 830 
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To provide the semblance of soundness of the operation, the 
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official gold reserves now valued on the basis of the gold peso are to be revalued, that is, the 
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gold. peso is to be devalued. 
Although its action will provide a larger peso gold reserve for the 
currency, the revaluation will be merely a bookkeeping transaction as the physical quantity, and 
therefore the US dollar value, of the gold will not be increased. 
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category to another, and has rather intensified than attenuated the total demand for 
imports. 
Chile’s ability, however, to pay for a greater volume of imports has become 
increasingly open to doubt, so that the question has ceased to be whether Chile 
can, over the next five or ten years, continue to move toward economic independence, 
but whether it can hold the ground already won. 
There is, for instance, reason to 
believe that Chile lacks the financial capacity to maintain its present level of industrial- 
ization without foreign financial aid, or domestic subsidies, or both. 
Both may weli 
fail to materialize; but either or both would in any case contribute, directly and in- 
_ 
Girectly, to a continuing large volume:of imports. 
It is this dilemma that renders 
- 
unavoidable a less optimistic prognostication about the a= economic a than 
that cited in the preceding paragraph. 
Chile now produces more commodities than ever before (see the foregoing discus- 
sion on Industry). 
As a result, however, the country requires a steady flow of raw 
materials which it cannot produce or which it can buy more cheaply abroad. 
(Oils 
for the Chilean soap industry are an example.) 
There is, to be sure, some disagree- 
ment as to the extent to which the raw materials necessary for a well rounded in- 
dustrial economy can be produced in Chile, and it is certainly too early to say what 
- new lines of raw materials production could be undertaken and what present lines 
considerably expanded. 
What is certain is that up to the present time Chile has made 
no very significant strides towards exploiting fully the raw materials it is known to 
possess. 
(Due to labor troubles, lack of machinery, etc., the production of iron and 
coal, to cite only two examples, is now declining.) 
Such operations as the building of 
new factories, the establishment of new industries, or the expansion of existing indus- 
tries inevitably results, therefore, in an increased need for imports—not only to put the 
plants into production but also to keep them in production. 
The war has intensified 
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Chil:’s need for international trade; but the situation just described would have obtained 
even had there been no World War. 
Chile came out of the war with an unprecedented amount of foreign exchange to 
her.credit. Wartime unavailability of imports from Chile’s normal sources of supply 
had stimulated its domestic production of certain consumers’ goods. 
At the same 
time, however, the war situation had made unavailable the machinery and other 
materials needed for any considerable expansion of the country’s industrial estab- 
lishment. 
When hostilities terminated there was, therefore, a large backlog of demand 
- both for capital equipment and for consumers’ goods. 
Chilean imports consequently rose sharply after the war. 
At first, very little 
care was exercised in allocating foreign exchange, and the result was large-scale im- 
portation of commodities for which Chile could ill afford to give up exchange. 
The 
deterioration of Chile’s foreign exchange position was further accelerated by the rapid 
rise of the prices of the goods imported. 
A spectacular shift to an adverse balance 
occurred in 1946. 
The dissipation of foreign exchange placed the Chilean economy in 
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a critical condition. 
Finally, in August 1947, the Government announced a policy of 
stabilization looking toward greater industrial and agricultural production, an increase 
in worker output, and strict currency control. 
By such a policy, the Chilean Govern- 
ment is hopeful of achieving a more normal foreign exchange position by the end of 
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1947. 
Subsidies for domestic production and bilateral trade agreements (with Argen- 
tina and Brazil for example) are also part of the general program for hmaabene: —" 
and reducing imports. 
Chile’s multiple exchange rate system (partly dictated by political considerations) 
functions somewhat as an obstacle to the success of Chilean recovery program. The 
bulk of transactions are made at the official rate of 31 pesos to the dollar (the rate 
established with the International Monetary Fund) as compared to the free rate of 
around 50 (July-August 1947 range, 46-55). 
There are two major exceptions: (a) ex- 
change granted for sugar, newsprint, and chemical woodpulp is at the rate of 25 pesos 
to the dollar; (b) the copper domestic “cost of production” rate. 
With regard to the 
latter exception, the foreign-owned copper companies, as the price for the privilege of 
retaining their profits abroad, are required to sell dollars in an amount equivalent to 
their domestic costs of production at the unfavorable rate of 19.37 pesos to the dollar. 
The foreign exchange profits thus realized by the Chilean Government, together with 
the heavy direct taxes on the copper companies, clearly indicate the extent to which 
that government relies on the US copper interests for revenue. 
For the year ending 30 June 1947 Chilean exports of copper and nitrates (which 
account for well over 50 per cent of Chile’s total exports) were allocated as follows: 
Copper ($101 million) 
_ 
Nitrates ($53.4 million) 
: 
46% 
US 
33% 
Great Britain 
19% 
Egypt 
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19% 
France 
11% 
Latin America 
10% 
Italy 
8% 
France 
9% 
Sweden 
5% 
UNRRA_ 
1% 
Brazil 
3% 
‘Spain 
6% 
Argentina 
2% 
All others 
All others 
8% 
The total value of Chilean imports for 1946 was $196 million, of which the most 
important were industrial machinery (from US and Switzerland), sugar (from Peru 
and the Dominican Republic), cattle (from Argentina), petroleum (from US, Venezuela, 
and Curacao), and cotton fabrics (from US and Brazil). 
In summary: Chile requires a large volume of imports because (a) its industrial 
establishment produces too few of the items its people consume, and (b) this industrial 
establishment not only lacks machinery and equipment obtainable only from the outside 
world, but also must look abroad for a large share of its raw materials. 
At the same 
time, it, becomes increasingly difficult for the country to create exchange with which 
to pay for these urgently needed imports. 
For all the recent expansion of its industry, 
Chile still has only. two products to offer in the world market—copper and nitrates. 
Exports of lumber, leather goods, food, molded plastics, coal, inorganic chemicals, tex- 
tiles, iron—all of these might conceivably be so developed as to carry part of the burden, 
but this is not likely to happen within the near future. 
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The major aspects of Chile’s “labor problem” grow out of the fact that its labor 
movement is both ideologically and politically divided, and thus (a) overlaps with the 
country’s Communist movement, and (b) attracts to its leadership men who are pri- 
marily politicians rather than, in the US or British sense, professional labor leaders. 
Many of the parties in Chile’s multiple-party political system are represented by 
factions in the labor movement, and these factions defy the attempts of the leaders to 
create, for bargaining purposes, a large, ‘solid bloc of labor votes that could be offered 
to (or withdrawn from) this or that party as labor’s interests might seem to require. 
The labor leaders, like the President, therefore accomplish their purpose through 
coalitions of parties, on pain of so splitting the labor vote at the polls 
as to benefit 
anti-labor parties and groups. 
The majority of the electorate in Chile is unquestion- 
ably pro-labor; but the fact that most of the Chilean parties bid for labor support 
makes the labor leaders’ coalition-building both more difficult and more necessary. 
The bitter struggle between the Socialists and Communists for control of labor is the 
most crucial of the political and ideological divisions in the movement. 
By no means do all of Chile’s unions belong to the Chilean Confederation of Workers 
(Confederacion de Trabajadores de Chile—CTCH). 
It is nevertheless from most points 
of view the country’s most important labor organization. 
Its original leadership and 
program were furnished by the Socialist Party; but as the Communists gained influence 
with the workers the Socialists found themselves increasingly obliged to share the top 
positions in the unions with them, so that (as happened in many countries) the Com- 
munists were soon in a position to inaugurate an open and aggressive campaign to 
_ 
drive the Socialist leaders out altogether. 
The Communists’ superior discipline gave 
them a real advantage in the subsequent struggle, as may be seen from the history 
of the congressional elections of 4 March 1945. 
Both Communist and Socialist mem- 
bers of the National Executive Council of CTCH were candidates for Congress; three 
Communists were elected, while all the Socialists, at great cost of course to their prestige 
in the CTCH, were defeated. 
The fight within the CTCH finally led, in February 1946, to a complete split. The 
final break was precipitated by the events following the so-called “Plaza Bulnes Affair” 
on 28 January 1946, when some workers were killed by the police in a riot that grew 
out of a labor mass meeting, 
The Communists in the CTCH called for a general strike 
for 4 February to protest against the “high-handed” methods of the police, and at the 
same time against the Government’s having withdrawn legal recognition from the 
unions at the strike-bound Tarapaca nitrate works. 
At first the Socialist elements in 
the CTCH decided to support this strike. 
When, however, Alfredo Duhalde Vasquez, 
who served as Vice President during President Rios’ illness, admitted four Socialists 
to his Cabinet on 3 February, the Socialists came out against the strike on the grounds 
that the Government had meanwhile restored the legal status of the unions at Tarapaca. 
The strike was held as scheduled on 4 February, but did not attract enough labor support 
to accomplish its purposes, and aie in the event to. be a — — for the 
Communists. 
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After an unsuccessful attempt to remove the Socialist Bernardo Ibafiez as Secre- 
tary-General of the CTCH, the Communists concluded that their goal of completely 
eclipsing the Socialists in the labor movement could not be achieved within the CTCH, 
and withdrew. 
Today, in consequence, there is a Communist CTCH as well as the 
traditional Socialist CTCH. 
Between them they represent about 300,000 workers. 
Of the two factions, the Socialist is the smaller. 
The Communist faction sympathizes and cooperates with Vicente Lombardo Tole- 
dano’s confederation of Latin American Workers (Confederacién de Trabajadores de 
America Latina—CTAL), and is therefore the vehicle in Chile for Moscow-dominated 
Communism; while the Socialist faction of the CTCH opposes the CTAL and is the 
cordial and — ally of any national or international group working against Com- 
munism. 
In.recent months the Socialist faction has moved to meet the CTAL on its own 
grounds, that is, Hemisphere labor organization. 
On 8 March 1947 it announced its 
secession from the CTAL, alleging that that organization was identifying itself “with 
Communist world political activities in the exclusive interests of Soviet diplomacy.” 
It 
then summoned other Latin American labor organizations to a meeting (5-10 May 
1947) in Montevideo “‘with a view to the — formation of a non-totalitarian labor 
confederation to.rival or supplant the CT 
The Montevideo meeting was attended by delegations from Argentina, Uruguay, 
Chile, Paraguay, and Venezuela, and its final resolutions have been adhered to by the 
Aprista Party in Peru and by the Socialist Party in Ecuador. 
- These resolutions are difficult to evaluate from the standpoint of US security. 
Their anti-Communist emphases suggest that the new international, if it survives 
its struggle to be born, could become a useful or even indispensable ally against the 
CTAL, which despite its liaison with the CIO is not likely to abandon its pro-USSR 
orientation. 
The US Embassy Montevideo learned from a “source close to the con- 
ference” that “the sole purpose of the meeting was to discuss the possibilities of organ- 
izing an independent labor movement 
. . 
. which would cooperate with the American 
Federation of Labor and oppose the CTAL and the CIO,” and that the participants be- 
lieved that if they could “organize a labor movement free of Communism, which would 
rival the CTAL and be allied with the AF of L, the latter organization had several 
hundred thousand dollars available with which to organize and finance such a move- 
ment.” 
On the other hand, statements appear to have been made at the meeting about 
US “imperialism,” and about the need to “defend” against it the interests of Latin 
America’s workers, which suggests that the new movement, while an enemy of the USSR, 
will be no friend of the US. 
Press reports state that another meeting is scheduled 
_ for November 1947. . 
Another major element in the contemporary labor scene in Chile is the farm union- 
ization movement, which developed in a way that further illustrates the anti-Communist | 
trend in certain segments of the Chilean working class. 
Until recently, “unions” of farm laborers, while not unknown in Chile, had no 
legal status. 
During the administration of President Pedro Aguirre Cerda (1938-1942) 
the leftist groups proposed governmental action to vouchsafe to them the legal rights 
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and other benefits that recognized unions enjoy under the Chilean Labor Code. 
The 
conservative elements, particularly of course the farm-owners, vigorously fought the 
proposal, especially that part of it that looked to permitting the farm unions to 
strike. 
The Communists, who viewed the unions as a potential source of support, 
threw their weight behind the proposal, and thus gave the Conservatives an added 
reason for resisting it. The resulting debate had assumed an alarming degree of 
bitterness when, in 1940, the President took the extraordinary step of forbidding farm 
unions by executive decree. 
This adjourned the discussion, and since no one challenged 
_ 
the decree’s constitutionality it remained law until Gonzalez Videla revoked it in 1946. 
With the ban against farm unions thus lifted, Chile’s leaders had to decide whether 
to handle the problem under the existing Labor Code (that is, treat them like other 
unions) or through ad hoc legislation. 
The bill finally introduced in Congress was 
based on the second of these two approaches, and it was amended by the rightist 
majority in such fashion as to place the farm unions under notably more severe restric- 
tions than other unions. 
Many of the President’s supporters, particularly the Com- 
munists who were in his camp at that time, demanded that he veto the bill, while the 
- Liberals let it be known that a veto would cost the President their support in Congress. 
With the Argentine trade agreement still before Congress, this division of sentiment 
within his own coalition called for a maximum of political skill on Gonzalez Videla’s part. 
The Communists, and their allies in the struggle, objected strenuously to all those 
stipulations which were clearly weighted in favor of the owners. 
Although the forces 
for and against the bill were more or less equally divided, Congress finally passed it; 
and Gonzalez Videla returned the bill to Congress with “objections.” Many of his 
objections were overridden and the bill went into force on 29 July 1947 in a form ad- 
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vantageous to the owners. 
Farm union legislation has a direct bearing upon the labor movement in Chile and 
its relation to the Communists. 
The agricultural laborers, as the largest single labor 
group, could through effective unionization deeply affect both Chilean politics and 
the Chilean economy. As stated, the anti-Communist elements believe the present 
unionization law embodies adequate guarantees against Communist penetration, and, if 
if proves to be enforceable, they are probably correct. 
But if it does not, and the Com- 
munists gain control of all or most of the farm unions, they will have rounded out 
their control of the key spots in Chile’s economy. 
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HARRY S, TRUMAN. 
PRESIDENT! 
‘SECRETARY: FILE 
SECTION 
IV 
The major considerations on which Chile’s foreign policy is based are (a) the 
country’s location on the outer fringe of (but nevertheless within) the US power orbit, 
which most Chileans clearly see as identifying their national security with the Monroe 
Doctrine, inter-American cooperation, and an “isolationist” attitude toward centers of 
economic and political power outside this Hemisphere, (b) its need for economic aid 
from the outside world, and to a lessor extent, (c) its distrust and jealousy of Argentina 
and its watchful attitude: toward Peru and Bolivia. 
These considerations are generally 
interpreted in Chile as involving ultimate dependence on the United States. 
The 
strategic factors in this breakdown are, however, less compelling at present than the 
economic factors. 
Any Chilean Government must, in order to win and keep popular 
support, take action against the rapidly deteriorating economic situation. 
This be- 
comes a further reason for the orientation of Chilean foreign policy toward the United 
States. 
During the 19th Century, US-Chilean relations were disturbed by a series of inci- 
dents precipitated in large part by political instability in Chile. 
In the course of the 
century many Chileans became markedly anti-US; and while this sentiment has sub- 
sided to some extent, the Chileans’ nationalistic pride keeps it alive. The trend toward 
friendly US-Chilean relations began about 1900, and has been greatly accelerated by the 
€ 
Good Neighbor Policy, by the increasing stability of Chilean policy, and by Chile’s 
~~ need for economic assistance. 
Chile can strengthen its present weak economic position is through foreign loans 
with which to purchase capital equipment for use in developing its domestic industry. 
The fact that the International Bank has disallowed Chile’s requests for loans, and the 
opposition within Chile to the Argentine trade treaty because of its loan provisions, 
suggest that loans from non-US sources are unlikely at present. 
This situation, coupled 
with (a) the lapse of Chile’s European markets during World War II and the possibility 
of continued dislocation in world trade, and (b) the US Good Neighbor Policy, makes it 
fairly certain that Chilean foreign policy will retain its pro-US orientation. 
The extent 
of Chile’s day-to-day commitment in this sense, about which even non-Communist 
political leaders can be expected to show a certain restiveness on occasion, will vary, 
though within narrow limits, with the amount of foreign economic assistance that any 
particular Chilean Government is seeking and with the likelihood of obtaining it from 
non-US sources. 
For example, Chile’s present need for foreign capital and the 
— 
absence of non-US sources undoubtedly hastened President Gonzdlez Videla’s com- 
plete break with the Communist Party, and may well lead the Chilean Government to 
a more conciliatory policy toward US interests in Chile. 
None of this means, however, that when issues arrive between the US and Chile, 
the latter’s bargaining position is necessarily weak. 
Chile could conceivably withhold 
from the US, at demonstrable cost to the latter (a) support for US foreign policy, 
including. the inter-American arms-standardization program and opposition to USSR 
penetration of the Hemisphere; (b) the maintenance of domestic policies congenial to 
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US investments (present and future) in Chile; (c) access to Chile’s strategic materials; 
and (d) access to the Chilean market for US imports. 
_ 
The Chilean Foreign Office shows every evidence of awareness of these bargaining 
counters, and can be expected to make skillful use of them in any future negotiations. 
_ At the same time, the US bargaining position in any such negotiations will always 
ultimately be the stronger up to that point at which the bargain might become so 
unfavorable to Chile as to provide apparent justification for nationalist and Communist 
charges of “imperialism,” and thus sweep out of power the political elements overtly 
friendly to the US. In this connection, the Chilean Communists will maintain a vigi- 
lant watch for situations, real or supposed, in which they can make a case for their 
habitual contention that Chile is always the loser vis-a-vis the US. 
Chilean moves in South America itself are determined mainly with an eye to the 
comparative military potential of its neighbors: Argentina and Brazil, both stronger 
than Chile; Peru, which is weaker but is rapidly increasing its military potential and 
is already strong enough to forestall a Chilean attack; Bolivia, notably weaker than 
Chile, but with ambitions that might bring it into any anti-Chilean combine. 
Brazil 
and Chile, which have no common frontier, are traditional allies: they complement 
each other in international trade, and share a deep distrust of Argentina. 
As regards 
ABC (Argentina-Brazil-Chile) power relationships, therefore, Chile’s leaders think of 
Brazil as an indispensable balance against Argentina. 
Chile’s nitrate quarrel with 
Peru was settled in 1929, and the declining importance of nitrates makes further diffi- 
culties unlikely. 
Nevertheless, Chileans continue to regard another Peruvian-Bolivian 
alliance against them as a real possibility, particularly in view of Bolivia’s apparent 
need and wish to gain back the Pacific port, Arica, it lost to Chile as a result of the 
War of the Pacific (1879-1883), and Peru’s continued resentment over its defeat in 
that war. 
Although the Chileans do not expect any cei attack from Argentina, and 
Chilean-Argentine relations have been on the whole amicable, nevertheless, Argentina’s 
strength and strategic location have been a matter of concern to them for many years. 
The long-standing Chilean-Argentine boundary dispute has been largely settled; but 
the presence of oil in southern Chile might conceivably tempt Argentina to revive it. 
The two countries have conflicting claims in the Antarctic, but are for the moment 
acting together in the interest of a “South American Antarctic” and of their case 
against the UK’s claim to much of the same territory. 
But their own conflicting claims 
to Antarctic territory remain as a possible source of future conflict. 
It was apparently Chile’s pressing need for economic aid that led President Gonzalez 
Videla to sign the pending trade treaty and customs’ union agreement with Argentina 
in January 1947. This agreement ptovides, among other things, for (a) two loans of 
300 million Argentine pesos to be used for industrial improvements and a general public- 
works program in Chile, (b) a commitment on the part of each country to deliver no 
exports to a third party until it has met certain stipulated quotas of shipments to the 
other, and (c) free-port privileges for each of the two countries in the other’s territory. 
It is estimated that observers have exaggerated the extent to which this agreement 
involves “domination” of the Chilean economy by Argentina. 
Some Chileans, never- 
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_ theless, arguing that the amount of the loan exceeds Chile’s capacity to pay, regard 
it as a first step toward Argentine control over Chile, and have succeeded in delaying 
its ratification up to the present moment (September 1947); moreover, the political 
— 
strength they have developed suggests that Chile, if it accepts Argentine aid, will be 
careful to avoid any deep involvement with Argentina. 
This estimate is confirmed 
© 
by Chile’s current advocacy of a general South American economic federation, by the 
trade treaties it has negotiated with Brazil and Peru, by its proposal for a Latin Ameri- 
can economic federation under UN auspices, and by the way it has used these three 
_ 
policies as weapons in a struggle against the Argentine conception of a Buenos Aires- 
dominated federation. 
Furthermore, Chile warmly supports Latin American or inter- 
_ American agreements that promise military security for all Latin American countries, 
large or small, and has actively participated in the UN and UN agencies on the explicit 
grounds that the alternative for Chile is to play a 
, losing game of power politics with 
larger and stronger nations. 
Chile strongly supports the idea of international cooperation and therefore the 
United Nations, and has joined all existing international organizations of importance.’ 
The Chilean role at the Chapultepec Conference, the San Francisco Conference, the 
- 
recent Rio Conference, and in the United Nations has on the whole paralleled that of 
the United States. 
There is, furthermore, reason to believe that Chile would support 
any US proposals looking toward a strengthening of the United Nations or other inter- 
national agencies. 
The extent and character of Chile’s participation in international 
organizations will, of course, be conditioned to some degree by (a) its economic neces- 
@ 
sities, and (b) possible opposition to its foreign policy objectives, for example, its Ant- 
arctic claims. 
(Thus the-Chilean delegate at the ITO discussions in Geneva took the 
- position that economically backward areas like Chile should be granted special dispen- 
sation in the matter of tariff barriers. 
This stand admittedly complicated the task of 
those negotiators who were seeking expanded world commerce through international 
action against trade barriers; it was dictated, however, not by Chilean ideology but 
rather by Chile’s foreign exchange position.) 
Chile’s relations with Europe were in the past influenced in the main by its need 
for the European market, and a complete or even a large-scale reopening of prewar 
trade channels would restore Europe as a factor in the formulation of Chilean foreign 
policy. 
At present, however, Chile considers itself so far removed from Europe as to 
be able to ignore political developments there save as they affect its own trade position. 
The above indicates clearly that throughout the foreseeable future, Chilean foreign 
policy will be oriented toward its neighbors in the Western Hemisphere, particularly the 
United States. 
To be sure, Chile showed a certain reluctance to join the Hemisphere 
front against the Axis, and the considerations that appear to have influenced it in this 
sense (its large German population, its 2,660 miles of coast line, and its wish to enjoy 
) 
TTt is estimated that Chile’s withdrawal from the League of Nations in 1938 has little bearing 
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on the strength of Chile’s commitment to the idea of international organization. 
This action 
admittedly was facilitated by the League’s call for economic sanctions against Italy in 1936 (which 
threatened Chile’s copper trade), but probably would not have occurred in the absence of such 
factors as: (1) growing world-wide disillusionment regarding the League’s ability to solve inter- 
national disputes, which was reflected in Chile by an increased interest in inter-American collective 
security commitments, such as that embodied in the “Declaration of Lima” of 1938 and (2) US 
non-membership in the League. 
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the commercial advantages of a neutral position) might influence it to some extent 
in any future war. 
But the Germans may well be allies of the US in any future war, 
no country save the US could successfully attack Chile’s coast line at present, and 
the US might be in no position to tolerate neutrality within the hemisphere in any 
new world war. 
A recurrence of the 1942-43 situation is therefore unlikely unless the 
Chilean Communist Party secures a strong enough position to exercise political control 
or to threaten the stability of the nation. The extent to which the Communists 
influenced Chile’s foreign policy during their participation in Gonzalez Videla’s coalition 
is difficult to determine, but Chilean foreign policy during that period involved certain 
emphases that were similar to the USSR line: for example, (a) opposition to converting 
the Committee for Political Defense of the Americas into an instrument for fighting 
- Communism in the Western Hemisphere; (b) reported negotiations for a trade agree- 
ment with the USSR involving the sale of nitrates and lumber; and (c) a certain cool- 
ness toward the inter-American arms-standardization program. 
The Chilean Commu- 
nist Party still hopes by heckling the Government and exploiting its strength in the 
trade-union movement to persuade the Government to adopt a pro-Soviet attitude on 
international questions. 
Gonzalez’ break with the Communists should, however, mark 
the end of that phase in the development of Chile’s foreign policy and place that country 
squarely behind the US on all major issues in world politics. 
Chile’s present foreign policy thus embraces (a) recognition of Argentina’s over- 
whelming superiority in power, save as this can be balanced via relations with the 
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US and, more particularly, Brazil, (b) vigilance with regard to any possible Bolivian- 
Peruvian attempts to regain their lost territory, and the consequent orientation of 
military defense to the north, (c) maintenance of friendly relations with the other 
American Republics and with the US as the acknowledged leader in hemisphere affairs, 
- (d) the acquisition of foreign economic aid and the expansion of Chile’s post-war trade, 
and (e) support for the United Nations and its specialized agencies, and for inter- 
American organizations. 
In following this policy, the Chilean Army is used solely 
as a defensive instrument because Chilean planners (a) do not think in terms of terri- 
torial aggression or expansion, and (b) support the developing inter-American principle 
that armed force should not be used in forwarding foreign policy. 
Chile, like other countries, bases its foreign policy upon a determination to protect 
its territorial security and political independence, and regards this as involving the 
increase of its economic strength. 
Due to Chile’s lack of economic and military power, 
the country relies upon and actively supports all movements to create any international 
machinery that might contribute to its security and commerce. 
Chile, however, is not 
afree agent. 
Its participation in any international activity is unavoidably conditioned 
by its view of the capabilities and intentions of those countries, Argentina and the US 
in particular, which are in a position to exert economic or military pressure in response 
. 
to any Chilean opposition or embarrassment to their own programs within these organi- 
_ 
zations. 
Thus Chile, obliged to take into account both the United States and, though 
to a lesser extent, Argentina, cannot follow its own bent in formulating its foreign policy. 
It must get along as best it can in the shadow of a more powerful neighbor who, along 
with itself, lives in the shadow of a still more powerful neighbor. 
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HARRY S. TRUMAN 
PRESIDENT! S SECRETARY FILE, 
SECTION V 
MILITARY SITUATION 
1. GENESIS OF PRESENT MILITARY POLICIES. 
- Chite’s military policies are the product of its series of successes in gaining and 
maintaining independence from Spain, in subduing the Auracanian Indians within its 
borders, and in extending its territory to the North in the War of the Pacific (against 
the Peru-Bolivia coalition). Chile’s military power and influence has generally been, 
in proportion to its population, greater than that of any other Latin American country; 
even today it stands ahead of Colombia and Peru, both of which are countries with 
considerably greater populations, and is definitely Orerenagowes only by the more pop- 
ulous countries (Brazil, Argentina, and Mexico). 
Chile’s peculiar geography—its 2,660 miles of length as compared to an average 
110 miles of width, for example, and its lack of natural inland transportation routes— 
has caused it to place a high value on naval strength from its early history, and to em- 
phasize cooperation between land and sea forces; so that the Chilean Navy has consist- 
ently enjoyed, as over against the country’s Army, a stronger position than that of any 
other Latin American country. 
Unlike the Army, which was molded by German influ- 
ences, the Chilean Navy was created and initially commanded by a British officer, and 
remained under strong British influence until a quite recent date.. Similarly, the pres- 
ent status of the Chilean Air Force as an equal member of the Army-Navy-Air team 
under « single Secretary of National Defense is the result of a reorganization effected in 
1930 and is based in large part upon British conceptions. At present United States influ- 
ences are dominant in the iad and Air Force, and will probably — in the Army 
as well. 
2. 
POTENTIAL. 
It is estimated that Chile’s 
of 
one-half million includes. 
about one million males of military age (15 through 49) and fit for military service. 
Of. 
these, approximately 225,000 have since 1925 received training under the compulsory- 
service law; slightly over 40,000 belong to the armed forces; and the remaining 735,000 
are of scant military value alike because of the time it would take to train them and 
because of the probable high incidence of men upon whom training would be largely 
wasted. The Chilean illiteracy rate possibly runs as high as 40 per cent; and because of 
ita considerable portion of the compulsory-service period must be devoted to elementary 
education. 
The conscripts acquire some knowledge of military fundamentals, but 
comparatively little of the technical specialization required of the individual soldier in 
modern warfare. 
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b. Natural Resources. 
_. Chile has few of the natural resources necessary for the maintenance of a 
modern military machine. To be sure, it is one of the world’s great producers of copper 
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and nitrates; it has low-grade, non-coking coal and more than sufficient iron for its own 
use; and it produces an exportable surplus of sulphur, manganese, and mercury. It 
nevertheless lacks most of the ferro-alloying elements necessary for a modern steel in- 
dustry; and what resources it has are for the most part highly vulnerable to air attack. 
Three refineries account for almost all its output of copper, and one mine for its entire 
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output of iron; and its mercury, which is a by-product of gold mining, is available in a 
single locality. 
Chile has made extensive plans for developing its promising hydroelec- 
tric power resources but lacks the necessary capital and engineering experience. Oil has 
recently been discovered in Tierra del Fuego on the Straits of Magellan; but development 
difficulties (see Section III, “Economic Situation,” p. III-11) will probably deprive the 
field (even if it should prove rich) of real military value for some time to come. 
c. Industry. 
Chile has, practically speaking, no war industry. One Santiago plant turns 
out small arms, small-arms ammunition, grenades, mortars, and mortar shells, all | 
of good quality; and local shipyards make vessels up to 1500 tons. 
Present facilities 
could conceivably. be expanded to manufacture additional armament and munitions, 
but Chile will probably depend for some time to come on imported aircraft, naval vessels, 
artillery of all calibers, heavy munitions, instruments, and signal _— 
d. Science. 
Chile has few first-rate scientists, and is relatively backward in both research 
and invention. 
It is therefore improbable that Chile will play an important role in the 
future development and/or production of rocket, ae electronic, bacteriological or 
other scientific weapons. 
e. Finance. 
Chile’s financial situation is in general precarious (see Section IT, “Economic 
Situation,” p. III-14). National defense consumes at present about 40 per cent of the 
national budget (Army, Navy, and Air Force for 1946, 29.9 per cent; Carabineros, 9.4 
per cent). A war of even short duration that involved only the present armed forces 
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would probably, failing substantial outside assistance, prove disastrous financially, and — 
for Chile to support, out of its own resources, total-mobilization in a major war, would 
be out of the question. 
3. Basic POLICIES AND PRACTICES. 
a. Mission of the Armed Forces. 
The Chilean armed forces appears to regard their mission as three-fold: (a) 
defense of the national territory; (b) maintenance of internal order ; 
rene us diffusion 
of elementary education. 
There is no evidence that Chile’ s oe of national defense calls for attacks 3 
against any of her neighbors. 
The Chileans apparently reason that any substantial 
attack coming from outside the Western Hemisphere will be successfully met through 
joint action of the inter-American community, and particularly through assistance from 
the United States. 
There is some evidence that Chilean planners feel a certain uneasi- 
ness about recent _— for substantial additions to the — Air Force, and that 
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they do not ignore the possibility of disputes with their stronger neighbor over (a) the oil 
in Tierra del Fuego, and (b) conflicting claims in the Antarctic; but they apparently rely 
( 
upon Chile’s traditional friendship with Brazil and upon Hemisphere arrangements 
rather than upon their own military dispositions for security against any possible 
Argentine threat. 
It is clear, however, that the planners’ conception of Chile’s national | 
interest continues to call for forces of such size and character as to give Chile a reason- 
able chance of meeting successfully a simultaneous attack from Peru and Bolivia; for 
example, the strongest and most modern units of the Chilean Army and its single 
army-corps headquarters are stationed in the north. 
The efficient national police, the Carabineros, are clearly able to mishatein 
order under normal circumstances, and the Army would be needed only in case 
of serious civil disturbances. 
_ The armed forces admit their responsibility for conscripts becoming literate 
and self-reliant citizens by the time they are ready for release. 
General education 
should, therefore, be considered a part of the armed forces’ mission. 
__ 
_ The Chilean Government announced in September 1947 that it was consid- 
ering a plan under which the conscripts called up each year would be divided into two 
groups—one for military service and one for labor service on public works. 
Such a plan, 
in addition to. possible effects.on the country’s economy (see Section III, “Economic 
Situation,” Introduction) , would indicate assumption by the armed forces, as part of 
their mission, of responsibilities for government projects not usually assigned, except in 
emergencies, to military forces. 
( 
b. Favored Arms and Techniques. 
es 
- Chilean Army combat strength is, roughly, 60 per cent infantry, 17 per cent cav- 
alry, 13 per cent artillery, and 10 per cent armored and motorized. 
Infantry divisions 
are triangular in organization, and infantry regiments are of three basic types—desert, 
level country, and mountain. Only a small portion of Army transport is mechanized. 
It may be expected that the Chileans will remain chary of extensive motorization until 
they can free themselves from dependence on other countries for fuel and lubricants. 
Their teaching stresses unified command in combined ground-sea-air operation; and 
an officer is provided—the Chief of the Coordination General Staff—who would head 
such a unified command in the North if it were ever needed. 
Chilean military per- 
sonnel have shown themselves receptive to new ideas, able to assimilate instruction, 
and yet sensible in adapting modern technique to local conditions. 
c. General Military Organization. 
(1) Political. 
The President is Commander-in-Chief of the armed forces; he is advised 
by a national war council of cabinet officers. 
A single officer of cabinet rank, the 
Secretary of National Defense, is responsible for the three. branches of the service— 
Army, Navy, and Air Force—each of which has its own commander-in-chief anditsown 
__ 
general staff. 
The post of Secretary of National Defense is regarded as “technical” 
(that is, nonpolitical), and is generally filled by a senior officer of the Army or Navy. 
He is assisted by a coordination general staff and an assistant secretary for each of the 
three branches. 
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(2) 
Recruitment. 
A universal-service law has been in effect 47 years. 
Young men reg- 
ister—about 50,000 each year—at the age of twenty. 
Between 10,000 and 16,000, 
chosen by lot, are called up each year. 
The training, theoretically of a year’s dura- 
tion, actually lasts about nine months; and university students, to avoid interrup- 
tion of their courses, may take their required training during two successive 
vacation periods. 
Most conscripts are attached to the infantry and cavalry divisions 
for training, and make up at any one time about half the listed strength of the Army. 
A few go to the army-corps headquarters, the services, and the Air Force, but the Air 
Force depends largely, and the Navy entirely, on volunteer enlistments. 
University 
students who do well in the required service periods are made reserve officers. 
The 1931 
compulsory-service law provides for a required period of refresher training, 15-45 days in 
length, in the ninth or tenth year after completion of compulsory service, but the — 
sions of this law are not being carried out. 
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(3) 
Training. 
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In all three branches of the armed forces well organized school ‘iit 
provide initial and advanced training for officers and non-commissioned officers. 
The 
highest institution among the.armed-forces schools is the recently (March 1947) organ- 
ized National Defense Academy to provide training for staff officers and those of general 
and flag rank in national planning and in combined-arms problems. 
The reputation 
of the Chilean military-education system has attracted students from other countries; 
many Venezuelans and Ecuadorans, particularly, are graduates of Chilean schools. 
Foreign missions have played a considerable part in Chilean military history: in the 
ground forces, German missions at various periods from 1886 to 1936 advised and 
instructed the Army and determined many of its present characteristics; the Navy 
has owed much to British influence; and the Air Force was considerably influenced by 
British training prior to 1940. 
United States missions are at present accredited to the 
Navy and the Air Force. 
The officers who have been sent to the United States and have 
received training here are already sufficiently numerous to exercise considerable in- 
fluence in the Chilean armed forces. 
(4) 
Officers. 
Officers in the Chilean armed forces are drawn generally from the middle 
classes; there are, however, usually a few famous Chilean names in the lists, and a small 
number of scholarships for the military and naval academies make possible the attend- 
ance of sons from families without means. 
A recent increase in pay rates has partially © 
corrected a condition which, because of the serious inflation since pay had last been 
adjusted, had caused much apparently justified dissatisfaction. 
The Chilean officer 
tends to be a conservative in political thinking, but a high sense of professional ethics 
. and the strict traditions of the services have kept the armed forces from playing in 
politics the dominant role they have sometimes assumed in other Latin American 
countries. 
Promotion in the Army is by combination of seniority and recommendations 
- 
by selection boards; promotion in the Navy is reported to be by seniority. 
There is no 
evidence that other than strictly professional considerations enter into the — 
of the average officer up to the grade of colonel. 
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(5) 
Mobilization Plans. 
No data are available regarding Chile’s plan, if it has one, for general 
or total mobilization. 
War plans call for the expansion—by recall of conscripts trained 
in the last ten years—of the present five infantry and one cavalry divisions from their 
present strength—ranging from about 5,000 for the 1st and 2nd Infantry Divisions 
to 1,000 for the 5th Infantry Division—to a war strength of 12,000, 15,000 or 20,000 men, 
as may seem to be required by the situation. 
4. STRENGTH AND DISPOSITION OF THE ARMED FORCES. 
Army Strength. 4 
= 
Major army units include five infantry divisions and one 
) cavalry division, one 
mechanized cavalry brigade, and one armored regiment. 
Total army strength is about 
24,000—1, 800 officers, 10,700 regular enlisted grades, and 11,500 annual conscripts. 
Equipment is generally ample in quantity, but both antiquated and heterogeneous in 
source. Some howitzers and anti-tank guns were obtained from the US under lend- 
lease, and complete ordnance equipment for one regiment of infantry and for one bat- 
talion of field artillery was received in May of this year under the interim allocation 
phase of the American Republics Program. 
A trend toward motorization is evidenced 
_ by one armored regiment, by two regiments of mechanized cavalry, and by the fact that 
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the transport ofthe infantry regiments is now partially motorized. 
Maintenance of 
equipment, while not satisfactory by US standards, — to be carried out about 
as well as circumstances permit. 
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b. Navy Strength. 
Chile’s one battleship and one cruiser still in commission are 
, 
obsolete. The 
battleship, however, is the heaviest that any Latin American Navy possesses; and six 
destroyers are rated as effective, besides numerous smaller craft that are reasonably 
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modern and in good condition. 
The four submarines are capable of limited service 
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only. No Chilean vessel is equipped to protect itself against air attack. Total person- 
nel strength, all grades, is about 14,000. 
The naval base at Talcahuano has two 
drydocks and can make emergency repairs on vessels up to 35,000 tons, though 
facilities for repair of heavy armor and armaments are limited. The Navy has its own 
communications by radio the length of the coast. 
There is no fleet air-arm. 
The three 
coast defense regiments, which also furnish landing parties for service aboard warships, 
man eight points along the coast; the Valparaiso unit has four 28 cm. guns; and there 
are four mobile units each equipped with four six-inch guns. 
In spite of largely 
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antiquated equipment, training is good, and morale and esprit, particularly in the 
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Coast Guard, high. 
Force Strength. 
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The Chilean Air Force is organized in four “air brigades” (roughly 
to US groups) with a total of seven tactical grupos (US squadrons) and one transport 
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grupo; one of the “air brigades,” however, and one tactical grupo are at present skeleton. 
i 
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organizations. 
Effective operational strength is now about 150 planes, mostly US 
sore 
trainer types. The interim allocation under the American Republics Program has pro- 
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vided five squadrons for Chile, one each of medium bomber, transport, fighter, liaison, 
SIDENT'S SECRET 
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and weather planes, totaling, however, only 67 aircraft. 
The Chileans have ordered — 
39 of these planes, and 30 have been delivered, after Chileans were trained by the United 
_ States Military Air Mission in the use of them. 
Total personnel strength is now about 
4,500. Training is rated as far superior to equipment (many of the pilots have received 
_ 
US training), but maintenance, though improving, is still considered unsatisfactory be- 
cause of deficiencies in trained mechanics, tools, and standardized procedures. 
There 
are no very heavy bomber airfields in Chile; Los Cerillos airfield at Santiago is suitable 
for heavy bombers and transports, and planes of these types have landed on five other 
fields; smaller transports (C-47, DC-3) have used 25 other fields. 
Fields and facilities 
are, in general, inadequate for military use. Radio navigational aids are fairly extensive, 
and radio, telephone, and telegraph equipment is adequate. 
The only effective meteor- 
ological service in Chile, however, is that operated by the Panagra Company. 
While 
the Chilean Air Force compares favorably with that maintained by any other South 
American country except Brazil, and possibly Argentina, it has neither the backing 
of a local aircraft industry nor an accumulated store of replacement parts, and would 
therefore become inoperative shortly after engaging in combat. — 
d. Anti-Aircraft Defense. 
The Air Forces have one anti-aircraft artillery regiment, which is equipped. 
with US lend-lease materiel; anti-aircraft weapons are also included in the infantry 
. divisions and the coast-guard installations. 
The country has, however, no known 
passive defense system, no installed camouflage, no radar, and no early-warning system. 
It could offer no effective resistance to modern 
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alr attack. 
Disposition of Forces. 
Army ground forces are distributed by regiment viene the country, with 
the strongest units in the North. 
Air forces are similarly distributed, by grupo (US| 
squadron). 
A frontier detachment is maintained at Arica; the single army-corps head- 
quarters and the headquarters of the 1st Infantry Division, along with the Army’s only 
armored regiment, a mechanized cavalry regiment, and one air squadron, are at Iquique; 
one mechanized cavalry regiment is stationed at Antofagasta; in Santiago are the head- 
quarters of the 2nd Infantry Division and of the one cavalry division, and one air 
squadron; headquarters of the 3rd, 4th, and 5th Infantry Divisions are at Concepcidén, 
Valdivia, and Punta Arenas, respectively; the remaining air squadrons are stationed at 
Quintero (near Santiago), Temuco (near Valdivia), Puerto Montt, and Punta Arenas. 
f; Quasi-Military Organizations. 
The Carabineros (National Police), with a strength of 18,500, recruit men who 
have completed their year of conscript service. 
The recruits receive additional, special- 
ized training. 
They are an efficient body, comparable in quality, man for man, with the 
regular army—though of course with inferior tactical training—and would be a valuable 
body of auxiliary troops in case of emergency. 
The Linea Aerea Nacional, owned and 
operated by the Government, rates as an auxiliary transport group for the Air Force. 
Throughout Chile. the aviation clubs, subsidized by the Government, train about 300 
pilots a year, of whom some 15 per cent become reserve officers and an additional bea 
per cent receive some additional training from the Air Force. 
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5. 
ESTIMATE OF MILITARY CAPABILITIES. 
a. Adequacy of Present Forces. 
(1). National Defense. 
- 
. It is believed that present Chilean armed forces are, even with the im- 
provements already under way, adequate for the accomplishment of their mission only 
under the limitations assumed above. 
While Chile probably could not meet successfully 
an all-out Argentine attempt to conquer either the whole country or some part of it 
(such as the oil regions of Tierra del Fuego), and particularly could not defend its cities 
and its important installations against air attacks, it could make any attempt at con- 
quest very expensive; and this predictable cost, plus the demonstrated value over Many 
— 
years of the normally good relations between the two countries, plus its chances of 
exerting influence through other than military—for example, economic—measures, 
would probably deter Argentina from any such attempt. 
Failing a substantial increase 
in the Peruvian air forces, Chile could expect successfully to meet a combined Peruvian- 
Bolivian attempt to reconquer its northern provinces. 
_ 
(2) 
Internal Order. 
The Chilean armed forces, like those of every other Latin American 
country, have of course participated in civil strife, but their’ record in regard to 
barracks-initiated revolutions has been better than average. 
The armed forces now 
have a national rather than a political cast of mind, and are loyal to the constituted 
government of the country rather than to any of the political parties. 
There is no 
evidence that the Communists have had any degree of success in infiltrating the armed 
forces, and little evidence that they have made any real efforts in this direction. 
It is 
inconceivable that the Chilean armed forces would support any Communist attempt 
to take over the government by violent revolt or by paralyzing strikes, and it is highly 
unlikely that in the near future Communist elements could by infiltration impair to 
any extent the ability of the armed forces to crush such a revolt. 
In the unlikely event 
of the Communists’ obtaining, by legitimate political means, parliamentary majorities 
and control of the executive branch of the Government, the position of the armed forces 
would be most difficult: they would be torn between their loyalty to constituted author- 
ity and their strong personal prejudices—prejudices almost universal at least among 
the officers—against Communist ideas. 
In such an event, the efficiency of the armed 
forces would unquestionably be greatly diminished, either as arm of government 
authority or as backing for an effort to throw out the Communist government. 
Ina 
complete breakdown of civil authority, the armed forces would probably support those 
elements from the center or right that seemed most likely to restore order, though 
possibly not as a unit (the Army and the Navy took opposite sides in the revolution 
of 1891). 
In general, therefore, the armed forces should be accounted an etomnent 
making for stability rather than against it. 
b. Maximum Military Capacity. — 
Chile must depend on further United States support for any substantial in- 
crease in military power, and the amount of such increase will depend on United States 
policy rather than Chilean potentiality. 
It would be possible to modernize and greatly 
wy 
, HARRY! S._TROWAN’ LIBRARY 
PRESIDENT'S SECRETARY FILP 
(
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increase the effectiveness of the Chilean armed forces, either relative to those of the 
country’s neighbors or simultaneously with similar increases of their effectiveness, thus 
raising the value of possible Chilean contributions to a hemisphere defense plan, 
‘without increasing the total size or greatly adding to the expense of the Chilean forces. 
_ A step has already been taken in this direction with lend-lease materials and the first 
elements of the American Republics Program. 
PRESIDENT 
SECRETARY FILE 
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recent years, made little attempt to maintain intimate contact—that part which, be- © 
impact upon the over-all economy of the US. 
Under even the most favorable circum- 
SECTION Vi 
STRATEGIC CONSIDERATIONS AFFECTING US SECURITY 
-- The relation of Chile to US foreign policy differs from that of, for example, Vene- 
suela and Colombia, in that it is not a part of the Caribbean zone (the US “Mediter- 
ranean”), but belongs rather to a part of South America with which the US, until 
cause it lies beyond the virtually untraversable region along the Equator, can be reached 
only by sea or by air. The current efforts on the part of Argentina and Chile—and, 
marginally, Brazil—to arrive at more intimate relations among themselves have no real 
parallel within the Caribbean area from the standpoint of power politics. 
Chile, then, 
shares with Argentina, because like Argentina it lies outside the zone of immediate US — 
predominance, a capacity for efforts to counterbalance US strength, whether by common 
action of the two countries or, by bringing to bear strength when opportunity offers, 
from outside the hemisphere. For US foreign policy Chile is, therefore, “overseas”’ 
territory, remote from its own centers of power; and this remoteness colors many of 
the economic, military, and political factors that must be taken into account in evalu- 
ating Chile’s strategic importance to the US. 
_ 
Chile produces no commodities of vital necessity to the US economy—in war or 
in peace. Although Chilean copper, iron, and nitrates have been exported to the US 
in volume, complete cessation of this trade would cause no serious dislocations for US 
economy. 
No critical or strategic materials are obtained from Chile that cannot be 
obtained from alternate sources within the Hemisphere. Chile’s trade is helpful rather 
than vital to the US, however necessary its continuance may be from the standpoint 
of Chile’s own economic, and hence political, stability. 
. 
Much the same considerations apply to Chile’s domestic industrial iiieiiiaee. 
If, unexpectedly, Chile should achieve notable success in its industrialization plans, the 
demand for US machinery, equipment, raw materials, etc., would have no significant 
stances, moreover, Chile could manufacture no commodity in sufficient volume to make 
a significant or vital contribution to the satisfaction of any US need. 
_... Chile, because of its location, is perhaps less likely than any other country in the 
Western Hemisphere to become strategically important to the US as a defense zone, 
or strategically dangerous because of occupation by an enemy power. 
Its control of 
the Straits of Magellan and of the islands bordering on the passage around Cape Horn 
is, however, of strategic interest to the US, which must reckon with the possibility that 
the Panama Canal might become unusable because of action by an enemy power, and 
that US transcontinental railways could not carry the resultant additional burden. 
| 
The southern tip of South America is so remote from ‘the centers of power of any 
collie major enemy of the US as to make it highly improbable that such an enemy 
would endeavor to. establish himself in force in this area. 
Consequently, Chilean 
friendship would seem to assure free use of either route—through the Straits or around 
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the Horn—to the United States. 
There is, however, the possibility that a great-power 
enemy of the US might endeavor to break the inter-American front and either exert 
_ pressure upon Argentina to seize this area itself (which, though at considerable expense, 
it probably could do), or urge Chile to close the Straits to US use. 
Chile would hesitate 
to risk actual warfare with Argentina unless strong US support were immediately 
available; so that, while possession of the Straits by a friendly Chile is strategically 
advantageous for the US, the US must stand ready to validate and develop this advan- 
tage by rapid movement of forces to assist Chile; and the availability of the necessary 
series of bases in Chilean territory by which such a movement could be made and sup- 
ported would contribute at least as much to US security as Chile’s present control of the 
region. 
Chile’s military traditions and policies are such that its armed forces, however 
limited in number, would be reliable and valuable allies in joint operations in the area 
surrounding the Straits; but Chile’s principal military-strategic bearing upon US 
security lies in its possession of the Straits of Magellan region, and in its policy toward 
development of bases necessary for moving forces into that area and maintaining them 
there. 
Chile has no great military potentialities from the US point of view, and the 
extent of its future capabilities_will in any case be determined mainly by the amount 
of assistance and support it receives from the US. 
While Chile is not vital to US economic strategy, and enters importantly into the 
military picture only in one probably remote contingency, the country is, nevertheless, 
immediately important from the standpoint of overall US policy, with respect to the 
Hemisphere. 
The power position of the US and the history of US relations with the 
other American Republics alike tend to foster in these republics a continuing anxiety 
with regard to US intentions, with regard to possible impairments by the US of their 
full sovereignty, and with regard to the assumed danger that the US, in its great power 
role, will guard their interests less zealously than, in their view, it should. 
This anxiety 
has been intensified since the war by the Latin American’s tacit recognition that US 
power has increased relative to theirs, that there is a sense in which foreign policy 
for the Hemisphere is made in Washington, and that US commitments in other parts 
of the world render improbable US economic assistance to Latin America in the amounts 
the Latin Americans would like. 
These considerations, reflected to a varying degree 
in the other American Republics’ external policies, in their behavior at hemisphere 
conferences, and in their impact upon the international organizations to which they 
belong, bind them together—emotionally and psychologically—in a bloc which, though 
rarely conscious and unified and never — anti-US, is at the margin i acl 
of 
exerting pressure upon the US. 
Chile, from this point of view, occupies—in part because of its remoteness from 
the centers of US power—a crucially important position as regards US hemisphere 
policy; the other American Republics and the outside world alike are aware that it lies 
on the fringe of the US power orbit, and see it to some extent as an indicator of the mood 
and intensity of Latin American cooperation with US policy. 
That is why develop- 
ments within Chile over the next months and years, as foreshadowed in other sections 
of this report, will require careful scrutiny. 
The country’s internal political situation 
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is inherently unstable; its baffling economic and social problems continue to undermine 
the Government’s control of the situation. 
Should events take a turn that would permit 
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the Communists to assume a major role there, the resultant “eastern” orientation of 
Chilean foreign policy would have implications far beyond those suggested by Chile’s 
present military and strategic value. 
It is estimated, however, that this contingency 
is still remote, still preventable by the anti-Communist elements in Chile and in the 
Hemisphere as a whole, and still therefore so improbable as to exclude predictions 
concerning the shape the new situation would take. 
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HARRY’ § 
SECTION Vil 
DISSENT OF THE INTELLIGENCE DIVISION, DEPARTMENT OF THE ARMY 
The Intelligence Division, Department of the Army, disagrees with the idea 
_ implicit in several sections of the report that Chile is of little or no strategic importance 
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to the United States. It is believed that, although Chile is not currently one of the 
several areas of prior strategic importance, it has, nevertheless, definite strategic im- 
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portance due to its location in relation to the Strait of Magellan and its —— 
of strategic minerals. 
It is believed that in a future war denial of the use of the Panama Canal to the 
United States by enemy action must be considered as a strong possibility. 
In the 
event that the use of the Panama Canal should be interrupted temporarily or perma- 
nently, control of the Strait of Magellan and the passage around Cape Horn would 
become vital. 
Chile’s long coastline, with its many secluded inlets, could be used as 
bases of military (air, naval) activities inimical to the United States. Furthermore, 
the unrestricted operations in this area of espionage and subversive groups would be 
extremely harmful to a United States war effort. 
Copper is one of the four most essential metals in modern industry. 
Chile, which 
accounted for almost one-fourth of the total US supply of copper during World War II, 
furnished 64 per cent of total US copper imports during this period. The War Produc- 
tion Board listed copper with aluminum as the most difficult of the strategic metals to ob- 
tain in meeting defense and civilian needs. Therefore, it is believed that the denial of 
Chilean copper to the United States in the event of war would have an immediate 
effect upon US industry. The denial of copper sources outside the Western Hemisphere 
to the United States by enemy action must be considered a distinct possibility in United 
States planning. 
In such an eventuality, Chilean copper would assume an even 
greater strategic importance. 
Hence, the protection of this source is considered of 
major importance to the United States. 
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APPENDIX A 
TOPOGRAPHY AND CLIMATE 
Chile, with an area of 286,396 square miles, is the eighth largest cuaakes in Latin 
America. 
No other nation is farther removed from the world’s key industrial and 
population centers, although the construction of the Panama Canal improved its 
position in this regard. The country is 2,660 miles long and averages about 110 miles 
in width. 
Chile has a number of island possessions from 400 to 2,000 miles off shore; 
the largest are the Juan Fernandez group, the Salas y Gomez group, and Easter Island. 
Its territory is washed by many rivers, the more important of which are the Maule, 
Bio-Bio, Imperial, Valdivia, Bueno, Maullin, Palena, and Aysén (most of them, however, 
are in the populous and economically important central region). 
Only 450 miles of 
Chilean rivers are navigable by. steamer. 
Chile, alike from the standpoint of economy, social problems, ieee and 
climate, may conveniently be divided into three distinct regions: a) North Chile, that is 
the Atacama. nitrate desert, which extends from Arica on the Peruvian border to 
Copiap6; b) Central Chile, in which 90 per cent of the population live, extends from 
Copiap6é to Puerto Montt (Central Chile in turn may be divided into two sub-regions: 
that between Copiapé and Concepcién and that between Concepcién and Puerto Montt) ; 
c) South Chile, a land of broken bays and rains and forests, extends from Puerto Montt 
toCape Horn. 
These three regions are separated by imaginary lines running from east 
to west; but for some purposes a division of the country by lines running north and 
south is more useful. 
Here again the regions are three in number: the Andes region 
in the east, the central valleys, and the coastal ranges. 
In the north the Andes system 
consists of several ranges, but south of about latitude 27° S. the system somewhat nar- 
rows down to one dominant cordillera on the crest of which stand some of the highest 
peaks of the continent (Aconcagua, highest in the Western Hemisphere, is 22,835 feet). 
_ As far south as latitude 35° S. the passes are all above 10,000 feet, which means that most 
of the economically significant portion of Chile is handicapped by the fact that there 
are no good transportation outlets for trade with Argentina. 
The coastal range rises abruptly from the seashore. 
In North Chile it is virtually 
an unbroken wall, rising from 2,000 to 3,000 feet, through which a single river (Rio Loa) 
reaches the sea. 
In Central Chile this range is a level-topped plateau, dissected by 
streams (it ranges from 7,000 feet around Valparaiso to between 1,000 and 2,000 in the 
vicinity of Concepcion). Beyond this gap at Concepcion, the range reappears in typical 
form in the peninsula of Lebu, and in South Chile it becomes an archipelago that 
extends all the way to Cape Horn. 
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A series of long valleys lie between the Andes and the coastal range. 
In North 
Chile there is a series of dry basins (bolsones) at an elevation of about 2,000 feet. The 
Central Valley is cut up, by spurs of the Andes, into separate basins. 
The elevation of 
this valley (north to south) ranges from 1,700 to 300 feet. It descends to sea level 
in a series of terraces, and ends abruptly at Puerto Montt. 
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