U.S. Department of State
U.S. Department of State
Other State Department Archive SitesU.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
Home Issues & Press Travel & Business Countries Youth & Education Careers About State Video
 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Johnson Administration > Volume XXXI
Foreign Relations, 1964-1968, Volume XXXI, South and Central America; Mexico
Released by the Office of the Historian
Documents 279-309

279. Telegram From the Embassy in Chile to the Department of State/1/

 

Santiago, June 14, 1965, 1540Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, DEF 11 US. Confidential; Priority. Passed to DOD.

 

1920. Subject: Project Camelot./2/

 

/2/ See Document 280.

 

Communist newspaper Saturday morning, June 12, broke story Project Camelot under headline "Yankees Study Invasion of Chile," subheaded, "Project Camelot Financed by U.S. Army," etc.

 

Embassy recently became aware through university community of serious anxiety middle-of-the-road scholars with this project and specifically with the manner in which university people here were approached by SORO personnel./3/

 

/3/ The Special Operations Research Office, a private research organization affiliated with the American University in Washington, D.C.

 

I consider, particularly under current conditions, this effort to be seriously detrimental to U.S. interests in Chile and urgently request full explanation of Department Army actions in this regard. Was this project approved by the Department?

 

On basis December 4 memorandum SORO concerning Project Camelot,/4/ consider this whole effort not only politically dangerous, but a serious duplication of other U.S. Government efforts, and a waste of government funds. Urgently request guidance from Department and explanation from Army OSD this activity in Chile without prior notification./5/

 

/4/ A copy of the memorandum is in the National Archives and Records Administration, RG 59, Central Files 1964–66, DEF 11 US.

 

/5/ The Department subsequently reported that it had expressed its concern in a letter to the Secretary of the Army. (Telegram 1238 to Santiago, June 17; ibid.) In the letter, the Department complained that the arrangements for Camelot fell "far short of the kind of coordination that such an ambitious project may require." In addition to telegram 1920 from Santiago, the Department had received other reports of the "unfavorable impression made by the Camelot project on Latin American scholars—a fact of considerable political importance." (Letter from Llewellyn Thompson to Stephen Ailes, June 19; ibid.) Joseph Califano, Special Assistant to the Secretary and Deputy Secretary of Defense, defended the project in a memorandum to Bundy, June 24: "No Camelot research activities have been authorized or conducted outside the continental United States, including Chile. The only known contact is a letter written by a U.S. scientist to a Swedish social scientist presently resident in Chile." (Johnson Library, National Security File, Country File, Chile, Vol. III, 12/64–9/65)

 

Dungan

 

 

280. Memorandum From Secretary of State Rusk to President Johnson/1/

 

Washington, June 30, 1965.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, DEF 11 US. Confidential. No drafting information appears on the memorandum.

 

I understand that you wish a brief memorandum on the "Camelot" matter./2/

 

/2/ The President had asked Mann for a memorandum, particularly in the wake of an upcoming investigation by the Senate Foreign Relations Committee: "I want a complete report from you on your best judgment sometime before the day’s over on this Camelot project and Ralph Dungan and what he did about it, and who got this stuff out, the Army and the State Department fighting about it." "I don’t know why Ralph Dungan’s getting it out in the paper and why it’s getting published, and what the story is, and give me a memo on it so I can understand it." (Johnson Library, Recordings and Transcripts, Recording of telephone conversation between President Johnson and Thomas Mann, June 30, 1965, 12:57 p.m., Tape F65.52, Side A, PNO 1)

 

I have discussed this with Secretary McNamara and he and I agreed that we personally would both review urgently the Army sponsored research activities on political and international problems outside the United States and try to prevent the kind of stir and misunderstanding which has arisen from Camelot.

 

Senator McCarthy’s office is trying to locate him in order that he and I can be in touch by telephone in order to arrange a meeting to discuss it with him./3/

 

/3/ I did reach him; he is relaxed and will wait until Fulbright returns and can talk about it. This was a part of McCarthy’s attitude toward CIA, etc. DR. [Footnote in the source text.]

 

Camelot is an Army sponsored project being carried out by the Special Operations Research Office. It is a large-scale unclassified project calling for an estimated 140 professional man hours of work and a budget of more than $4,000,000. The proposed study would attempt to make a scientific analysis of international tension and war and insurgency and counterinsurgency. Considerable case work abroad is envisaged, including intensive studies of Bolivia, Colombia, Paraguay, Peru and Venezuela.

 

Such studies made by private social scientists would probably elicit little attention, even though some of the "jargon" of the social scientists subjects them to quick public misunderstanding. The sponsorship of such studies in foreign countries by our own military services touches upon sensitive nerves and can cause problems. In Chile, for example, discussions among social scientists about the project was the basis for a sharp communist attack as well as criticisms from skeptical and more traditional social scientists themselves.

 

It is my understanding that, inside the United States, there are important differences of opinion among social scientists about the utility of this type of quantitative research project.

 

Secretary McNamara and I will follow up on this here, and I will try to help Ralph Dungan cool tempers in Chile.

 

This will serve as the report which you requested from Tom Mann earlier today./4/

 

/4/ The Department of Defense announced the cancellation of Project Camelot on July 8. The President subsequently directed the Secretary of State to "establish effective procedures which will enable you to assure the propriety of Government-sponsored social science research in the area of foreign policy." (Letter from the President to Rusk, August 2; Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1965, Book II, p. 832)

 

Dean Rusk/5/

 

/5/ Printed from a copy that indicates Rusk signed the original.

 

 

281. Memorandum From William G. Bowdler of the National Security Council Staff to the President’s Special Assistant for National Security Affairs (Bundy)/1/

 

Washington, November 10, 1965.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67. Confidential.

 

SUBJECT
Chilean Program Loan

 

BOB will have back to you sometime today the Chilean loan paper with Schultze’s recommendation./2/ I understand that BOB will recommend a reduction of $10 million in the $80 million recommended.

 

/2/ Attached but not printed are memoranda to the President from Bell (November 6) and Schultze (November 10).

 

Our negotiating team has not left for Santiago and will not do so until the President’s authorization is in hand. Dungan has been informed of the delay./3/

 

/3/ In telegram 431 to Santiago, November 9. (National Archives and Records Administration, RG 59, Central Files 1964–66, AID(US) 9 CHILE)

 

At staff meeting on Monday/4/ you asked why the program loan had to be as high as $80 million. The AID memo to the President does not really address itself to this question. The Chileans wanted $100–$130 million for 1966. State, AID, and the Country Team scaled this down to $80 million, based on these considerations:

 

/4/ November 8.

 

a) This amount is what they think Chile needs to cover its balance of payments deficit and to produce the local proceeds necessary for Frei to continue an adequate level of public investment to maintain the momentum of his "Revolution in Liberty".

 

b) An amount higher than $80 million would reduce the pressure on Chile to make needed self-help efforts.

 

c) An amount appreciably lower (say $60 million) would confront the Chilean Government with the need to cut its 1966 investment program even more drastically than we are proposing, or resort to inflationary financing. Frei would undoubtedly opt for the latter and thereby aggravate the problem which is Chile’s most serious obstacle to a viable economy./5/

 

/5/ In a November 10 memorandum to Bundy, Mann reported taking another consideration into account: "the fact that the Chilean Government was most uncooperative in the Dominican crisis." Although he concurred in providing the $80 million program loan, Mann suggested a confidential mission to tell Frei "that we expect cooperation to be a two way street and that we are very disturbed about the Chilean Government’s attitude towards the Dominican crisis." (Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67)

 

BOB is recommending a reduction of $10 million. The BOB argument is that increased copper prices and better tax collections make a reduction of this magnitude possible without materially affecting either Chilean balance of payments or the public investment budget. As I mentioned in staff meeting this morning, BOB also has in mind demonstrating to Chile and other aid recipient countries that we follow a flexible approach in setting the limits of our assistance.

 

The state of play as I write this memo is that BOB is waiting to hear from Dave Bell whether he goes along with the BOB cut and will modify his memo accordingly.

 

I think that the cut can probably be justified. But we need to weigh the political impact from these standpoints:

 

1. If the project loan assistance for Chile (which was $16 million in FY 1965) is not continued in FY 1966 (as ARA says is the case, and they have agreed to that), the net reduction of our assistance will be $26 million.

 

2. The assistance to Brazil should also reflect a corresponding reduction if we are to avoid invidious comparisons.

 

I suggest that in your memo to the President recommending approval of the loan, you make these points:

 

1. On the anniversary of his first year in office (November 3) President Frei addressed the nation. Regarding U.S. aid, he said:

 

"Without abandoning any of our fundamental positions, we have maintained loyal and frank friendship with the United States and have found in them understanding for our task and fundamental economic cooperation for the life of the country, which is a debt that we recognize".

 

2. Chile has told us that it will participate in the Rio Conference./6/

 

/6/ Reference is to the Second Special Inter-American Conference which was held in Rio de Janeiro November 17–30.

 

3. We can hardly do less for a strong democracy like Chile than we do for shaky constitutional government in Colombia and a de facto government in Brazil.

 

4. In terms of the contest between democracy and communism to bring reform and prosperity to the people of Chile, and of the other Latin American countries, we have a big stake in the success of the Frei experiment./7/

 

/7/ The memorandum to the President was apparently never sent. On November 15 the Department informed the Embassy that action on the program loan had been deferred pending the outcome of the Harriman–Solomon mission. (Telegram 454 to Santiago, November 15; National Archives and Records Administration, RG 59, Central Files 1964–66, FN 10 IMF)

 

WGB

 

 

282. Telegram From the President’s Special Assistant for National Security Affairs (Bundy) to the Ambassador to Chile (Dungan)/1/

 

Washington, November 12, 1965, 8:48 p.m.

 

/1/ Source: Johnson Library, National Security File, Situation Room File, Outgoing Traffic, 11/9/65–11/14/65. Secret; Eyes Only. A draft with Bundy’s handwritten revisions is ibid., White House Central File, Confidential File, Oversized Attachments, December 1965.

 

CAP 65695. Eyes Only for Ambassador from McGeorge Bundy.

 

1. October price rise in Chilean copper from 36 to 38 cents is asserted by companies to be a primary reason for identical U.S. copper price rise announced this week by Anaconda and Phelps Dodge. This creates most serious concern here and leads us to ask what combination of carrots and sticks might persuade the Chileans to reduce their price by 2 cents.

 

2. We fully recognize that export price of copper is a deeply sensitive question in Chile and that world copper market is tempting at present. But we also believe strongly that long-run price stability is deeply in interest of both U.S. and Chile, and CEA as well as some of the wisest heads in copper business tell us that high copper prices may simply lead to rapid substitution of aluminum in important sectors of the market, like automobile radiators and local electric transmission lines. High voltage lines have already been lost to aluminum.

 

3. We thus see a strong basis of common interest between Johnson and Frei administrations and sensible copper companies in preventing runaway copper prices.

 

4. We have our eye on the following possible sticks:

 

(1) Pending $80 million program loan.

 

(2) Hold-up on investment guarantees for $80 million Kennecott loan to Chile and $135 million new Anaconda investment with the result that there would be no expansion.

 

(3) Hold-up on pending Ex-Im Bank applications for $135 million of loans to companies operating in Chile.

 

(4) Use of 700-thousand-ton U.S. stockpile to break world copper market.

 

(5) Use of government incentives to promote substitution of aluminum for copper.

 

5. Among carrots available we are considering:

 

(1) Strengthening of program loan in return for price rollback. As we see it, two-cent increase brings only 38 million a year to Chilean Government, and we are ready to consider sympathetically any politically manageable deal which would cover cost of rollback.

 

(2) Continuing warm political support for Frei on all practicable issues.

 

(3) Personal appeal to Frei from highest level here.

 

6. We recognize difficulty of Chilean decision to reduce prices and are prepared to do our best to create a situation in which such a decision can be strongly defended by Frei. It occurs to us, for example, that a price rollback here might usefully set stage for later Chilean action, and there may be other things we can do which you would see more clearly than we can. In any event, your assessment should consider relative advantages of Chilean rollback before, with, or after a decision by American companies to rescind U.S. price increases.

 

7. We know this is a tough one, but effective rollback of copper price increases is at least equal in importance to earlier aluminum rollback. Chilean rollback now looks like the key, so success with Frei is of first importance to us. We count on your political imagination to devise best possible tactics to achieve this result.

 

Please answer via same communications channel.

 

 

283. Telegram From the Ambassador to Chile (Dungan) to the President’s Special Assistant for National Security Affairs (Bundy)/1/

 

Santiago, November 13, 1965, 1530Z.

 

/1/ Source: Johnson Library, White House Central File, Confidential File, Oversized Attachments, December 1965. Secret; Eyes Only. Repeated to the Department of State.

 

131545Z. Eyes Only for McGeorge Bundy from Ambassador. Ref: CAP 65695./2/

 

/2/ Document 282.

 

1. Understand generally impact copper price rise and effect on US economy and problems caused by increase following on heels aluminum roll-back. Request urgently some backup data on inflation effect in order make convincing case here if this course is directed. Taken as given the question of inflationary impact copper price rise, I wonder whether you have bought too easily the assertion that Phelps & Anaconda price increases necessitated by Chilean action. In other words, there are two ways in which US economy could be protected: (1) force roll-back in Chilean price increase as you suggest or (2) force American companies to absorb raw material price increase. Here are some factors which suggest course number two.

 

A. Pure copper bars put on board ship Antofagasta at cost of 141⁄2 cents per pound—copper sold in US at 38 cents and on LME at 65 cents per pound. Somebody makes a hell of a profit.

 

B. Chilean copper represents only 13 percent American consumption. According 1963 Bureau Mines figures Chilean imports to US 228,000 tons out of consumption 1,744,000 tons. Therefore, theoretically Chilean price rise need have minor inflationary impact in US. Chileans believe that substantial amounts Chilean copper now being bought US companies 38 cents going into London market at 65 cents.

 

C. USG has held off antitrust suit US companies at our request pending outcome copper legislation. Suggest you consult findings Department of Justice regarding price and market control in copper before we embark on what I consider to be a suicidal course in terms of American foreign policy.

 

2. I mention the above among other elements which should be considered before the decision is made to force Chile to back down on its recent price increase. I am not an expert on copper prices and marketing, but I know enough to lead me to question whether forcing Chile to back down is the only or best method to pursue in order to keep prices to US copper consumers within non-inflationary limits.

 

I am certain that you have already given thorough consideration to inevitable adverse political effects of course suggested reftel. Political effects not only in Chile but through the LDC’s. Nevertheless, I feel I must state my own opinion before we embark on this course.

 

Carrot-stick combination listed might succeed in forcing GOC rollback. The cost to the Frei government and to the extent that it represents the hope of democracy and the Alliance for Progress in Latin America would be incalculable. Recent increase to 38 cents strongly supported by all political parties including the conservatives and public opinion. Lagarrigue/3/ now struggling against increasing pressure to push price to 40 cents in view of tight market apparently continuing well into the future. In other words, to force Frei government to a rollback might very well bring the government down or so weaken it as to make it difficult or impossible to pursue the reform program on which it is embarked.

 

/3/ Javier Lagarrigue, head of the Chilean Copper Department.

 

Substitution question is not paramount in Chilean minds. Their research shows very tight supply for immediate future and increase markets in developing countries as means of meeting long range marketing problems. Moreover Chileans believe that substantial sales in London market over relatively long period at high prices plus long term prospective tight supply has probably already caused whatever substitution is likely to occur. In other words, the substitution has or is occurring without any price benefits redounding to Chile.

 

However the overriding consideration in your suggestion is whether we are going to confirm in the minds, not only of Chileans, but all the world the Marxist propaganda line that our only interest is in protecting the profit situation of our American companies. I realize completely that there is a large and critical American self-interest involved here. I have no doubt that it is important to maintain stable prices in primary metal in the American market. The central political question is who will pay the piper. Reftel clearly says that in every case where a price is to be paid it will be paid by the producing country to the advantage of the American entrepreneur.

 

I respectfully suggest that most serious consideration be given to the very long-run adverse political effects that course suggested in reftel will have for the United States. I also respectfully suggest that the course suggested is political suicide for the US in the developing world and particularly Latin America.

 

If after your meeting today you conclude a Chilean roll-back is the only solution I will put together your imposing arsenal of sticks and not so imposing supply of carrots and make a deal. It can be done, I believe. But the price will be atrocious and I strongly recommend that every other course be explored before we resort to the one suggested reftel. There is also a very real possibility that Frei as a matter of principle and practical politics will consider this suggestion beyond the pale.

 

I shall stand by for instructions. If you decide that the pitch should be [made] I will try to do it today or tomorrow when I have lunch with Frei.

 

Incidentally, the copper veto has not yet been released./4/ I would not be at all surprised to see the whole Chileanization scheme scrapped in face of proposal in reftel and we would end up with marketing monopoly if not outright nationalization. It probably would be economic suicide for Chile but I think they might risk it.

 

/4/ Reference is to Frei’s program to manage the copper industry, which was approved by the Chilean Congress on November 3. Frei subsequently modified the proposal by presidential veto.

 

Dungan

 

 

284. Memorandum of Telephone Conversation Between President Johnson and the Under Secretary of State for Economic Affairs (Mann)/1/

 

November 13, 1965, 12:15 p.m.

 

/1/ Source: Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1965. No classification marking. Drafted by Patricia A. Saunders. Mann was in Washington; the President was in Texas. According to the President’s Daily Diary, Johnson placed the call. (Ibid.)

 

The President said he wanted to talk about the Chilean copper thing. He said he guessed that Mr. Mann had seen all the traffic including Dungan’s cable/2/ saying the copper companies want to roll back. Mr. Mann said he had not seen the cable. The President asked Mr. Mann to get all of the communications and to read them and then they could see what could be worked out. The President said that McNamara had talked with the President of Anaconda/3/ and they don’t want a higher price. They say that the trouble is that Frei only has 30% of the Senate and they forced him to raise the price to 38 and will force him to go to 40. The President said that the danger was that they would go up further.

 

/2/ Document 283.

 

/3/ Charles Jay Parkinson.

 

The President said he had been advised to send a person down to convince Frei that he should roll the price back to 36¢. Ralph Dungan says that the copper companies ought to roll back, not Chile. The President said he thought we had to find some way to say we will both roll back. He thought we should explain that if our economy goes bad we will not be able to give any loans. Ask them to keep the price down and keep it out of the papers. Tell them we have not decided on an $80 million loan—probably will give them 60, but we will talk about that later.

 

The President said he had been informed that Mr. Mann was not the one to go down to Chile for this job. Mr. Mann said that was correct—he was too visible. The President said they were suggesting Clifford, but he did not like to use these private lawyers who had clients of their own.

 

Mr. Mann asked about Bob Anderson and the President said he thought he was a little too much Johnson. Mr. Mann said he thought he was a very convincing talker and that he can make a very good case. Mr. Mann said he thought perhaps we should send someone down outside of government.

 

Mr. Mann said that Mr. Bundy was suggesting a young fellow named Gensberg (?)/4/ on his staff. Mr. Mann said he did not know him. The President said he was more of a price man in this country and he did not think he was the one to do it.

 

/4/ Reference is apparently to Edmund E. Getzin, chief of the Division of Industrial and Strategic Materials Division, Office of International Commodities, Bureau of Economic Affairs, Department of State.

 

Mr. Mann said we needed a tough guy and that the best negotiator in this building was Tony Solomon. He negotiated the agreements with Brazil and the first one with Chile and Mr. Mann was convinced that he would do the job. He added that Mr. Solomon has no political image—he is just a very good economist. Mr. Mann said if the President wished to choose someone to go, Solomon could accompany that person. This would eliminate the need for the person chosen by the President to speak Spanish.

 

The President asked if Berle would be any good. Mr. Mann said he might. He said he knew the Latins and he has a liberal image.

 

Mr. Mann said he thought the trick would be to send somebody down to say the first objective is to get a roll back to 36¢. Mr. Mann said he would have to say that the American companies would go along with it. Even if this failed, at least we should get a commitment not to go any higher. Mr. Mann said he would hope that both things could be accomplished. He said he thought the substitution argument 36 to 38¢ makes aluminum competitive with copper, and the argument that Chile has a program to increase its production from 600,000 to 1 million tons by 1970, should show that the Chilean Government has every reason to keep the price down so that they do not lose the market. They should go into volume rather than price. Mr. Mann said it might also help if we could offer them something on our tariff. He said he did not know what the US attitude would be but we do produce 90% of our own consumption.

 

Mr. Mann said another arrangement would be the stockpile. And another would be the AID package.

 

Mr. Mann said the one thing we should not do is offer them any kind of political support. He said that Frei was o.k. but that his party has leftwingers and the opposition is leftwing and they may shift any day on Chicom representation in the UN or they could take all of Latin America away from support of keeping them out. They could also shift on the Dominican Republic.

 

The President asked if they had any communists in the government. Mr. Mann said no, but they are in the opposition. He said that in the party they have socialists who are even left of the communists—who are for violent political action. He said that he felt, with these pressures, we could not depend on Frei’s political moves. The President asked what political support Mr. Mann was talking about and Mr. Mann said that he was referring to the paragraph in the cable that went out last night from the W.H./5/ The President asked who sent it and whether Mr. Mann had seen it. Mr. Mann explained that Mr. Bundy had tried to reach him but he was at the Japanese [Embassy?] and they could not get to him.

 

/5/ Document 282.

 

Mr. Mann said that the President should not forget that Frei has a lot of leverage on us because of the US copper industry and the deal just through Congress. He said we should not push him too far.

 

Mr. Mann said the second thing was the cartel with Zambia and Congo. He said Zambia will be under great pressures to impose economic pressures against Southern Rhodesia/6/ and if they do then there will be the problem of getting Zambian copper out. He said this copper goes through Rhodesia and the Rhodesians could retaliate. One-sixth of the world’s copper is produced in Zambia and if this were taken off the market Mr. Mann did not think we could hold the price line. Mr. Mann said he thought we should get the UK to help us in urging the Zambians not to get into blows and counter-blows with the Rhodesians.

 

/6/ On November 11 Prime Minister Ian D. Smith unilaterally declared Rhodesia’s independence, prompting Zambia and Great Britain to press for economic sanctions.

 

The President said that he thought Mr. Mann should try to pull this together. The President said that he is advised that an emissary should go to Chile right now. McNamara thinks that the price will go to 40¢.

 

The President said he would like to have a memo from Mr. Mann on the following items.

 

Points:

 

1. How do we increase our own production and the production of friendly countries—work around the clock, do it any way we can.

 

2. Find out what procurement the government has—not only Defense Department but each and every agency.

 

3. Forego, substitute, postpone or minimize the use of copper.

 

4. See what the principal civilian requirements are such as power companies, what suggestions they have on how they could minimize consumption—civilian as well as government.

 

5. Try to evolve some plan that could be sold to any leftist that would show it would be to his gain rather than loss.

 

a) Frei’s expansion program

 

b) Substitution argument

 

c) Stock pile

 

d) Tariff

 

e) AID Package

 

Mr. Mann asked the President who was in touch with the companies and the President said McNamara and Califano.

 

[Omitted here is discussion of possible candidates for the mission to Chile.]

 

 

285. Memorandum by the Under Secretary of State for Economic Affairs (Mann)/1/

 

Washington, November 13, 1965.

 

/1/ Source: Johnson Library, White House Central File, Subject File, Ex BE 4/Copper. No classification marking. Drafted by James D. Johnston, Mann’s staff assistant. The memorandum was evidently sent to the President at the LBJ Ranch in Texas.

 

Our views on the Chilean export of the copper problem follow:

 

You should know that we have a telegram from our embassy in Zambia/2/ reporting that President Kaunda believes that the British measures against Southern Rhodesia are deficient; and that if the rebellion is not nipped in 3 months, the Rhodesian rebels can consolidate their positions and begin winning sufficient international support to make the unilateral declaration of independence irreversible. Kaunda believes that active participation by Zambia in the sanctions program is indispensable if the program is to succeed. He says Zambia cannot be the channel for sustaining the Smith regime. Kaunda, therefore, requests the British and us to provide contingency and economic assistance so as to permit Zambia to impose a total boycott on all Rhodesian imports, including coal.

 

/2/ Telegram 711 from Lusaka, November 12. (National Archives and Records Administration, RG 59, Central Files 1964–66, POL 16 RHOD)

 

George Ball and I believe this poses even more serious problems than last month’s Chilean price increase. We are sending a cable,/3/ copy of which will be repeated to you, which will in essence point out that Katanga and Rhodesia supply 25% of the world’s supply of copper and if this were taken off the market, not only would a world shortage and sky-rocketing prices result, but the British would lose a large amount of foreign exchange (British have spoken to George Ball about 200,000,000 pounds), which they have asked if we could replace. We have replied to the British in the negative, given our balance of payments situation. We are saying to Kaunda that Zambian sanctions against Southern Rhodesia would hurt Southern Rhodesia less than counter-sanctions against Zambia by Southern Rhodesia would hurt Zambia, since: (a) railroad through which Zambian copper now moves to sea passes through Southern Rhodesia and we are not certain of time it would take or the cost to ship Zambian copper by other means; (b) Zambia is dependent on Rhodesia for coal. Telegram presumably will say that we are not prepared to pick up large checks either for Zambia or for the British if Zambia engages in sanctions campaign against Southern Rhodesia. Also, Zambia may have in mind military and other actions in addition to economic sanctions.

 

/3/ Not further identified.

 

On the Chile side of the copper problem, we think an effort should be made to get Frei to agree: (a) to rollback copper price from 38¢ to 36¢ contingent on U.S. industry taking the lead and, (b) regardless of Frei’s willingness to do a rollback, to agree to resist pressures which Dungan reports already exist for additional price rises. Avoidance of additional price increases in view of the uncertain Zambian situation is even more important than the rollback.

 

In approaching Frei, we should not push our case to the breaking point since Chile’s ability to reverse its position on the agreement reached with the copper companies and Chile’s ability to expropriate the copper mines, gives Frei real leverage in the precise area which is of most concern to us at this time.

 

Ball, Solomon and I agree that the most effective way to approach Frei would be to emphasize the following point:

 

1. A 38¢ price level—and even more so if price levels increase—will result in substitution of aluminum for copper. This conflicts with the plans of the Chilean government already publicly announced to increase copper production from 600,000 to 1,000,000 metric tons by 1970. The United States is, itself, a large copper producer and we believe maximum revenue from industry will be gained by paying attention to volume as well as to price.

 

2. Not only in order to maximize the return from the copper mining industry but also in order to prevent inflationary price increases consistent with actions which the U.S. government has already taken with regard to aluminum, the U.S. government would be prepared to sell from its stockpile. We should not commit ourselves at this time to sell, or to sell at any particular price level, but should leave the impression in Frei’s mind that we will probably sell from our strategic stockpile if the price remains at 38¢. The experts tell us that the President has the authority to sell from the 775,000-ton stockpile by making a determination that the national security justifies such action. There would, however, almost certainly be sharp criticism of this action on the ground that a security stockpile was being used to support price policy.

 

3. Inflationary price rises in the U.S. set off by copper will have an adverse impact on the U.S. competitive position and hence on U.S. balance of payments position. This would, of course, affect the ability of the U.S. to finance its AID program. We, therefore, think that Frei should cooperate with us in maintaining a reasonable price level in copper. If the Chilean government can cooperate with us, we would be prepared to finance through the Exim Bank, the purchase of 2 jet aircraft valued around $15 million and to make a program loan at an $80 million level. This would help cushion the loss of $16 million which would result from a 2¢ rollback in the price of Chilean copper.

 

4. The U.S. will undertake at the earliest opportunity within the GATT framework to eliminate the present U.S. tariff of 1.7¢ a pound on imported copper (this has some, but only limited, attraction for Chile because Kennecott and Anaconda, under an agreement with the Chilean government, currently absorb this tax so that Chilean government revenues would not be currently affected. However, this has some attraction for Chile since it does remove one trade barrier and presumably increases their ability to extract additional concessions from the companies).

 

We have considered, but do not yet have final opinions, on the following additional aspects of the problem:

 

1. Increase of production. Our present information from industry sources is that it would take 12 to 18 months to increase production either here or abroad.

 

2. U.S. government procurement. We will try this afternoon to get some figures or information on this from other U.S. government agencies and will report later.

 

3. Possibility of postponement or substituting uses of copper. Our first information is that the substitution of aluminum for copper in underground cables and in some automobile parts, such as radiators, is not yet technically and economically feasible. It may be in the future. We need more time to report on this.

 

4. Suggestions from major users of copper as to ways of minimizing consumption. We will need more time to report on this. Consultation with industry will be required.

 

5. In addition to the points suggested above, arguments Frei could use to convince Leftists and Nationalists that copper rollback is in Chilean interest. We could suggest to Frei that Chile, Canada, the United Kingdom, Peru, Zambia, the U.S. and other copper producers consult together concerning measures for keeping prices at a level which will not invite substitutions and be harmful to the copper industry and at the same time meet world demand during this period of shortage and uncertainty. Frei might find that participation in a committee of this kind would be useful to him from a domestic political standpoint.

 

On the separate question of who might be the most effective persons to approach Frei, George Ball and I believe that Governor Harriman and Tony Solomon, together, would be the best choice for this job./4/

 

/4/ A handwritten note from Marvin Watson records the President’s decision: "Califano—call Tom Mann notify Harriman and Solomon ask them to undertake this assign[ment] and proceed as your judgment dictates." (Johnson Library, White House Central File, Subject File, Ex BE 4/Copper) For another account of these instructions, see Joseph A. Califano, Jr., The Triumph and Tragedy of Lyndon Johnson: The White House Years, p. 102.

 

Thomas C. Mann/5/

 

/5/ Printed from a copy that bears this typed signature.

 

 

286. Telegram From the Embassy in Chile to the Department of State/1/

 

Santiago, November 16, 1965, 0001Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL 7 US/HARRIMAN. Confidential; Immediate; Exdis. Passed to the White House.

 

629: Ref: Embtel 626./2/ For President from Harriman. Pass Ball, McNamara, Mann, Califano, Bundy.

 

/2/ Telegram 626 from Santiago, November 15, reported that Harriman had arrived in Santiago without publicity. (Ibid., INCO COPPER 17)

 

1. At 3 p.m. Ambassador Dungan, Solomon and I met with President Frei alone at his private residence. I stressed President Johnson had personally sent mission to share with Frei some of his problems as U.S. President:

 

A. Inflation. Underlined serious concern that unless great care exercised inflation could jeopardize continued success of full employment economy policies beneficial not only U.S. but world economy. If we can hold prices, success possible without serious reduction overseas expenditures.

 

B. Balance of Payments. Though situation somewhat improved, we have come to limits requiring great care be exercised.

 

C. Copper Prices. Reviewed steel and aluminum cases. Said President Johnson feels Chile the bellwether: If Chile brings price back to 36 cents price rise can be prevented. Said President Johnson asks Frei’s cooperation to reverse this recent price increase knowing he is equally concerned with the health of the world’s economy. Pointed to gain for Chile in discouraging substitution for copper. Noted that President Johnson feels that Frei and he have same material as well as political interest in this.

 

2. I then said we realize there are serious political difficulties for President Frei in considering this, and that we are prepared to discuss ways and means of helping him cooperate in bringing copper price back to 36 cents. We authorized to discuss ways of compensating Chile for short-term loss involved. Moreover, we would welcome any ideas on ways in which we can help Frei with political problems his cooperation would pose.

 

3. President Frei responded that "naturally" he must consider the question because President Johnson had sent a personal mission asking him to do so. "My disposition is to help, because the United States helps us. But the problem is not easy," he said, giving the following reasons:

 

A. It is not just a problem of the U.S. market, but also the London market which indirectly affects prices on more than one million tons of copper in the world market.

 

B. All political elements in Chile have attacked the GOC for not setting even higher copper prices. The conservatives, radicals and liberals have even been more strongly critical than the Communists. The most reasonable of congressmen have spoken of 45 cents, the radicals of 50 cents, and others even more.

 

C. Substitution problem very serious, Frei convinced, when London market goes over 60 to 62 cents. (Yesterday it was 67 cents.)

 

D. Some producers (not American companies) are purchasing copper at 38 cents, processing it, and selling in Europe at 67 cents. In view of this Frei has been criticized here for discouraging further price increase.

 

E. GOC cabinet members are unanimously in favor of increasing the Chilean selling price still further. Frei has stood alone in cabinet arguing for "rational" pricing policy. GOC has advised European consumers of intention (but not formal decision) to raise Chilean price to 40 cents in early January if the present conditions of the London market continue. All members of cabinet feel price should be over 40 cents.

 

4. President Frei then described his difficult struggle to reverse the serious inflation which existed when he came into office, and emphasized the "tremendous importance" to Chile for balance of payments and other reasons for a one cent change in the copper price. "For us copper is not just one problem; it is the problem," Frei said. He recognized he must have good will for President Johnson whom he described as extremely open and generous toward Chile.

 

5. Frei asked if U.S. could not keep U.S. price at 36 cents by removing 1.7 cent import duty. Solomon replied that though that should be part of the considerations, the price stability of the world copper market which we both desire requires the cooperation of our two countries. Unilateral U.S. action on tariff without GOC roll-back would promote undesirable multiplicity of price markets in various parts of the world.

 

6. Frei said he would consult with his advisers, and arranged for Solomon and Dungan to meet at 6 p.m. this evening with Saez, Lagarrigue and Tomic to explore in depth ramifications and possibilities. He agreed that this evening’s meeting might be first of several. He has agreed to see us again possibly 10 o’clock this evening if other meeting makes sufficient progress./3/

 

/3/ An account of the meeting among Solomon, Sáez, and others is in telegram 630 from Santiago, November 16. The Embassy also reported that Frei had decided against meeting at 10 p.m. in order to confer with his advisers. (Ibid., POL 7 US/HARRIMAN)

 

Comment: Difficult as yet to judge whether Frei’s willingness to explore possibilities represents simply courtesy to President Johnson or a degree of substantive flexibility. Obviously he will be influenced by the advice of his experts as well as his political pressures. Strike still unsettled and copper bill must be returned to Congress shortly with both item vetoes and essential additional provisions requiring majority approval of both Houses.

 

Dungan

 

 

287. Telegram From the Embassy in Chile to the Department of State/1/

 

Santiago, November 17, 1965.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER 17. Secret; Immediate; Nodis. No time of transmission appears on the telegram; it was received in the Department at 4:42 a.m.

 

642. Fm Harriman to the President. Info Ball, Mann, McNamara, and Califano.

 

At a meeting with Ambassador Dungan, Solomon and me this evening, President Frei (Tomic, Saez, Lagarrigue also present), received us in a grave mood. He began by stating simply and clearly that President Johnson’s request for rollback of copper price poses the most difficult problem conceivable for his government at this time. However, referring to substantial assistance US provides Chile, Frei stated that it was not in his "hands" to say no to a request from President Johnson for cooperation. Frei said that the economic difficulties of the price rollback, although important, were not controlling and that the discussions between us had been "positive".

 

1) Political Problem for GOC: Before describing further the substance of his response, Frei elaborated political problem request poses. If GOC reduces copper price to 36 cents it will have to face a "political crisis of the highest magnitude." Although he personally can understand why it is desirable accede President’s request, it is absolutely impossible to explain to the Chilean people [who] see US as so tremendous, powerful and rich that it is not possible for them to understand why such step necessary. No political party, nor the military nor the ordinary Chilean would understand. Opposition already maintains that GOC has given excessive benefits to American companies in copper agreements. Only today, he noted, important Chilean mining entrepreneurs called on him urging that time ripe to raise copper prices to 45 cents. Frei asked specifically that I inform President Johnson that he can count on GOC’s cooperation but "If President Johnson can find another formula, another way, he will again render us a new service. But if he cannot find another way of handling this problem, we will cooperate even though this means for GOC the gravest risk in its history."

 

2) Timing of Chilean Response: Frei then turned to problem of timing proposed Chilean rollback. Two factors make present moment extremely unfavorable for rollback:

 

A) Copper strike, which hope to resolve within a week, resolved by drastic action. (President Frei this afternoon, exercising emergency powers, arrested several leaders of socialist-led copper workers union and took over operation mines.)

 

B) Copper legislation, which he hoped would be resolved in a month. To move price down now would probably kill legislation, Frei concluded.

 

3) Two alternatives proposed by Frei: First—Chile would roll back price in its world sales but only after other major producers take the initiative. Politically impossible for GOC to take initiative for rollback. Initiative would bring his government down. Chile would, however, follow lead by U.S. domestic and European producers, and we could inform the European producers of this agreement which GOC would confirm. I responded that our understanding had been that Chile was the bellwether, and I questioned whether USG has leverage to induce Europeans take lead.

 

Second—bilateral arrangement with U.S. to reduce price on copper for U.S. consumption to 36 cents. Frei turned to this second alternative by saying that if U.S. and Europeans cannot take initiative, let us then restrict the problem to the U.S. market. Chile’s real interest is in cooperating with the U.S., not with Europe, which would benefit from general reduction in Chilean price. Frei said there have been several instances in past when price to U.S. for Chilean copper was below general Chilean world producers’ price; the most noteworthy example the agreement in 1951 with President Truman which was dictated by Korean War circumstances./2/ Vietnam is similar situation, Frei noted.

 

/2/ Documentation on the agreement, which was concluded on May 7, 1951, is in Foreign Relations, 1951, vol. II, pp. 1239–1242, 1258–1273, and 1276–1279.

 

Frei made it clear that his preference is for the second alternative. When Solomon explained U.S. faced with difficult problem if action not taken within few days, Frei responded that under second alternative we could begin discussions immediately on informing U.S. domestic producers of impending Chilean rollback and in the meantime Chile could suspend application of 38 cent price to exports for U.S. consumption.

 

4) Importance to GOC of U.S. cooperation: Frei went to considerable lengths to stress his conviction that Chile’s national interest lies in promoting close and cooperative relationship with USG. If U.S. is truly interested in Chile’s "experiment" it will succeed, he said. Frei explained that "We are for free enterprise, not [Communist?] economy. We must make agricultural and economic reforms made 30 years ago in Europe and the United States, in spite of strong opposition from vested interests." It is essential for GOC that Chilean people sense clearly USG confidence in GOC.

 

5) I told President Frei we would advise Washington of his proposals and left open question of considering other alternatives.

 

Comment: Ambassador Dungan and Solomon concur with me that compelling Frei, assuming that could be done, which we doubt, to take the first open action to rescind the price increase would represent too high a political cost to Chile and to the U.S. Also we believe there is fair chance (based on our conversations with Brinckerhoff of Anaconda and other copper experts), that given their past opposition to price increases, European producers would go along with U.S. domestic producers in rescinding price increase if they were assured that Chile would follow as Frei has promised. However, Washington is in better position to ascertain if this presumption correct under present world circumstances. Certainly it is the unanimous view of all experts that raising margin requirements in New York copper market and tightening trading practices on London Metal Exchange (with its consequent reduction in prices) would make this price reduction more feasible for all producers, both in Africa and the U.S., as well as for the GOC.

 

Question arises if Frei’s second alternative—reducing prices to 36 cents on all sales to U.S. market—is not more advantageous from U.S. viewpoint since the cost of offsetting Chile’s financial loss would be 1/6 or less of the cost under the first alternative. Also it then makes sense to apply export controls on copper to keep the U.S. economy on 36 cent copper which is certainly easier than trying to keep worldwide producer sales on 36 cents, particularly with possibility of Zambian difficulties.

 

If, however, decision is to opt for first alternative of worldwide price reduction, then we believe that economic package outlines previous cable 636/3/ would probably suffice, bearing in mind Frei’s caveat about U.S., Canadian and European producers reducing prices first with him following after strike and copper bill settled, estimated to take four weeks.

 

/3/ Telegram 636 from Santiago, November 16, reported on a second meeting among Solomon, Sáez, and others, in which the Chileans suggested elements of a tentative agreement. (National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER CHILE)

 

Although we are not recommending it, if it is difficult to reach decision quickly between alternatives, we could attempt to conclude now agreement with Frei based on alternative two, but leaving open to us option for reasonable time to explore feasibility of alternative one.

 

During conversation Frei was informed by Dungan of uncertain GOC position on ChiCom representation issue. Frei reacted immediately. Went to telephone and ordered GOC representative to vote against admission Communist China.

 

Dungan

 

 

288. Telegram From the Department of State to the Embassy in Chile/1/

 

Washington, November 17, 1965, 8:47 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER 17. Secret; Nodis; Flash. Drafted by Mann, cleared at the White House and by Bell (paragraph on AID), and approved by Mann.

 

469. For Harriman and Solomon. Please express to President Frei President Johnson’s warm personal thanks for his offer of cooperation. We are gratified that he understands the reasons why the failure to hold the price line in the US economy would be detrimental not only to the US but to the hemisphere and the world.

 

In view of the need for urgent action here and Frei’s political difficulties described in Embtel 642/2/ we accept Frei’s second alternative, i.e., a bilateral arrangement between Chile and the US.

 

/2/ Document 287.

 

We plan, as a first step, to make a public announcement/3/ at 7:15 p.m. Washington time today November 17 which will refer to hostilities and disturbances on world scene and threatened disruptions and distortions of copper market which pose problem of inflationary pressures in copper and generally throughout our economy. (You may inform Chileans that because of press leaks today on copper problem it was necessary to move quickly in order to avoid risk that substantial quantities of copper would be attracted abroad by higher prices.) USG announcement will cover following specific points:

 

/3/ The text of the announcement made by Secretary of Defense McNamara is in telegram Tosec 42 to Rio de Janeiro, November 18. (National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER 17)

 

1. USG will promptly make available approximately 200,000 tons of copper from the stockpile and arrange for its orderly disposition to correct current imbalance between supply and demand. FYI. The mention of this amount of copper does not foreclose the possibility of additional releases in the future should this prove to be necessary. End FYI.

 

2. Special export licenses will henceforth be required for exports of copper produced in the US or imported for consumption in the US market. Export licensing procedure would apply to scrap. FYI. This would be necessary to prevent higher prices elsewhere draining copper from this economy. Licenses would of course be granted for Chilean copper imported into the US in blister form for processing and re-export. End FYI.

 

3. The President will recommend to Congress early in 1966 a suspension of import duties for a limited period of time. The exact nature of the Executive’s recommendation to the Congress will be determined after appropriate consultation with the Government of Chile, the US copper industry and the US Congress. FYI. An alternative formula would be the elimination of the 1.7¢ a pound tariff so long as the world price should remain above a certain level. The GOC should not be informed of this however unless Washington specifically so authorizes you. End FYI.

 

4. USG will discuss with Directors of New York Commodity Exchange solution of problem of excessive speculation in copper trading, perhaps by raising the margin requirements to a figure comparable to requirements for trading on the New York Stock Exchange. FYI. USG has no legislative authority to direct that this be done. End FYI.

 

Once this announcement is made we believe, on basis of our conversation with members of US copper industry today, that US producers will in the case of Kennecott maintain its current 36¢ price level and that other US producers will roll back to 36¢ a pound. We estimate the steps taken in the announcement will result in a 36¢ price level in our market.

 

As we understand, GOC, when US price level at 36¢ is established, would be willing to make available, through the usual commercial channels, copper in quantities currently being imported for consumption in the US at a price of 36¢. FYI. The current level of US imports of Chilean copper for domestic use is about 100,000 tons per annum. We would prefer not to specify the 100,000 tons, thus leaving open the possibility of being able, depending on future developments, to maintain some flexibility in level of Chilean copper imports into this market. Request your opinion however on whether failure to specify precise tonnage would create a substantial risk that GOC will attempt to reduce this amount in the future especially if world prices remain at a level higher than 36¢.

 

Continue FYI. Similarly, we are inclined to believe it would be advantageous to US to fail to fix precise term of bilateral arrangements with Chile since future is somewhat unsure, especially in view of uncertainties surrounding future relations between Southern Rhodesia on one hand and Zambia and Katanga on the other. We are hopeful that Zambia and Katanga copper can continue to be exported at current or increased levels but we cannot be sure that there will be no temporary interruptions in flow from these sources.

 

Continue FYI. In addition to current level of 100,000 tons imported from Chile, US is currently importing about 150,000 tons from Canada produced by International Nickel and Noranda and 50,000 tons from Peru produced by the Cerro Corporation. The industry estimates that since both Canada and Peru have free economies most of Canadian and Peruvian imports will continue to flow into this market and that it will adjust to 36¢ price level since it is in the interest of these producers to maintain their traditional customers in this market and also because a part of this fabrication of this copper is done in US. The 200,000 ton imports from Canada and Peru will presumably be partially offset by export controls on scrap which according to our latest information is now leaving US at rate of about 135,000 tons annually. Balance can presumably be made up from stockpile. We do not think it is necessary therefore to approach Canadian and Peruvian Governments at this time. End FYI.

 

The US, in cooperation with policy of Chilean Government to reduce inflationary pressures in Chilean economy and promote Chilean economic development and social progress and, in cooperation with programs of international institutions, will make available 90 million dollar program loan on terms and conditions to be agreed upon by Governments of US and Chile. Negotiations will commence immediately and will follow self-help principles already discussed between two governments. Ten million dollars was added to 80 million dollar figure previously under consideration in view of estimated four million dollar loss to Chilean economy from roll back to 36¢.

 

Report urgently whether this arrangement is satisfactory to Chilean Government.

 

FYI. Foregoing leaves unresolved question of worldwide roll back which, as we understand, GOC is in any case unable to accept until copper legislation is finally approved by Chilean Congress and until strike is settled. Depending on reaction of world market to steps described above we have in mind possibility of discussing with GOC later question of general roll back. We leave to your discretion question of whether this possibility should be mentioned to GOC at this time. Our immediate aim is to obtain roll back in Chilean copper exported to US and this is paramount for time being.

 

Likewise we leave to your judgment whether to inform Chilean of following: Industry members today expressed strong opposition to copper commodity agreement. It is possible that we will be able to bring them around on this point but we are not in a position now to make any commitments to GOC beyond statement that we are prepared to discuss this problem with them since a commodity agreement would presumably require Congressional approval and we are uncertain at this time of what Congressional attitude would be, especially if US industry is strongly opposed.

 

We did not reveal to industry today fact that Chileans had raised with you possibility of USG using its influence to get companies to agree to additional concessions in their negotiations with GOC. We estimate situation at moment here is such that this would be unwise since our program is dependent on cooperation of industry. We are not therefore in a position to make any commitments at this time concerning negotiations between GOC and copper companies beyond undertaking to permit floating of 20,000 dollar Chilean bond issue in this market and permitting financing of Chilean copper expansion program along lines already discussed.

 

For same reasons we did not discuss with industry representatives question of creation of revolving fund and have not had time to study effect on US economy of increased Chilean capacity to process copper. You should therefore make no commitments regarding this.

 

We are however as always ready to discuss with Chileans these and other problems in an effort to find a mutually beneficial solution.

 

Report soonest GOC reaction to foregoing./4/

 

/4/ Frei accepted the U.S. proposal in a meeting with Harriman on November 18. Harriman and Frei agreed that the understanding should be "essentially verbal," but that Solomon and Sáez would draft an unsigned memorandum for the record. (Telegram 661 from Santiago, November 18; ibid.) Califano forwarded a copy of the unsigned memorandum to President Johnson on November 20. (Johnson Library, White House Central File, Confidential File, Oversized Attachments, December 1965)

 

Ball

 

 

289. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, December 10, 1966.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67. Confidential.

 

SUBJECT
Loans for Chile

 

AID requests (Tab B),/2/ under the new commitments procedure, your approval of a $65 million assistance package for Chile divided as follows:

 

/2/ Tab B was a memorandum from Gaud to the President, November 16; attached but not printed.

 

—$35 million program loan;
—$20 million sector loan for agriculture;
—$10 million sector loan for education.

 

The request is $25 million under what you approved for 1966, and $40 million less if the PL 480 reduction is included.

 

Joe Fowler concurs in the proposed program (Tab C)./3/ AID knows about the understandings mentioned by Fowler in his note. Charlie Schultze recommends your approval (Tab A)./4/

 

/3/ Tab C was a memorandum from Fowler to the President, undated; attached but not printed.

 

/4/ Tab A was a memorandum from Schultze to the President, November 30; attached but not printed.

 

One aspect in which you will be particularly interested is the relationship of continued high copper prices and the level of our assistance. Bill Gaud foresees the possibility that copper prices in 1967 may stay close to the present high level. Against this possibility, he plans to release the $35 million program loan in three tranches, the final $15 million subject to need in the light of copper prices and exchange reserve trends. From the windfall copper earnings this year, the Chilean Government has agreed to use, as the situation permits, $40 million for advance repayment of short term US debt: $7 million to the US Treasury and $33 million to US private banks.

 

Tony Solomon and Linc Gordon strongly recommend that we not try to get the type of copper arrangement with Chile that we had this year. Their reasons and alternative suggestion for handling—which they have discussed with Joe Califano and Gardner Ackley—are explained in the memorandum at Tab D./5/ They propose securing a Chilean commitment that Anaconda will supply the United States with 125,000 tons or more at market price during 1967 instead of extending this year’s deal which would cost AID $25 million for the difference between 36 cents and present market price.

 

/5/ Tab D was a memorandum from Gordon to the President, November 23; attached but not printed.

 

I join Gaud, Fowler and Schultze in recommending that you approve the Chilean aid package./6/

 

/6/ None of the options below is checked. On December 20 the Embassy reported that Frei had decided to forego the program loan due to increased revenues from the high price of copper. (Telegram 2119 from Santiago, December 20; Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67) In a December 21 memorandum to Rostow, Bowdler called the report a "bombshell," although he noted that Frei still wanted $30 million of sector assistance. Bowdler also commented: "This demonstration of Chilean self-help is welcome, even if it makes AID’s estimates of Chilean requirements look a little sick." (Ibid.)

 

Approve
Disapprove
Speak to me

 

Joe Califano and I recommend that you approve the Solomon–Gordon formula for meeting our copper requirements from Chile for 1967.

 

Approve/7/
Disapprove
Speak to me

/7/ The President checked this option.

Walt

 

 

290. Intelligence Note From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk/1/

 

No. 55            Washington, January 25, 1967.

 

/1/ Source: National Archives and Records Administration, RG 59, OPR/FAIM/IS Files: Lot 81 D 121, Chile (INR), Background Intelligence Notes and Memorandums, 1963–1974. Confidential.

 

SUBJECT
Frei Moves to Break Political Impasse in Chile

 

President Eduardo Frei has faced up squarely to the major political crisis which began on January 17 when the Chilean Senate denied him permission to leave the country for a visit to the US./2/ He has chosen to force what may be a political showdown with his opposition rather than to risk further erosion of his leadership and authority to execute foreign policy and to implement his domestic program. Although the outcome of Frei’s struggle with the opposition is by no means assured, his prospects of success now seem reasonably good.

 

/2/ President Johnson announced on December 20, 1966, that Frei had accepted his invitation to make an official visit to Washington February 1–2, 1967. The statement included the following remark: "I am particularly interested in learning more from President Frei about the achievements of his great experiment of revolution in freedom." (Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1966, Book II, pp. 1446–1447) Senators who opposed the visit cited this remark in refusing to grant permission for Frei to leave the country. (New York Times, January 18, 1967) Although both sides continued to discuss the possibility of a visit, Frei never visited the United States as President of Chile.

 

Frei will fight. Frei will be both aggressive and shrewd in combatting the presently united Senate opposition. He undoubtedly hopes to inflict sufficient damage within opposition ranks to ensure a viable course for his program during the remaining three years of his tenure in office. He will try to use to full advantage the sympathy for him and outrage toward the Senate opposition felt by many Chileans who Consider that their national prestige has been tarnished. His proposal for a constitutional amendment which would allow him to dissolve Congress and call new elections has apparently taken the initiative away from the opposition and frightened some sectors within it. In his battle to sustain his political leadership, Frei will probably rely heavily upon generating and channelling public opinion to support his cause and confound his enemies. At the same time, he will seek to divide the fragile and eventually untenable togetherness which at present unifies the right, the Radical center, and the extreme left. On the tactical level, Frei has already begun to oust officeholders belonging to the opposition parties—principally Radicals—from government jobs.

 

The escalating conflict. The spectacular success of Frei and his Christian Democratic Party (PDC) in the 1964 and 1965 elections badly shook the opposition parties. Instead of the traditional Chilean Government by coalition and compromise, the opposition was faced with a well-defined program backed by a party controlling a majority in the Chamber of Deputies and the largest single bloc (13 of 45 seats) in the Senate. Initially, the opposition sought to delay and compromise, but the President’s resistance to any watering down of his program, reinforced by his continued popular support, brought about a hardening of opposition which finally came to a head on January 17 in the Senate veto of his US visit.

 

A blow where it hurts most. Frei has devoted much time and effort to developing a position of leadership in hemispheric affairs. As one of the outstanding Latin American advocates of social reform within a democratic framework, he has travelled widely to express his views to other leaders in the Hemisphere and in Europe. Frei hoped to use the occasion of his planned trip to the US to strengthen his prestige and to discuss with President Johnson topics which may appear on the agenda of the Summit meeting that is under consideration for April. The opposition parties not only bore a cumulative grudge against Frei over domestic issues but also strongly resented the boost to Frei’s standing which the US visit would have represented. Their refusal to allow him to leave the country was a measure of this resentment and an attempt to undercut Frei’s prestige by casting doubt on his authority in Chile.

 

The Senate’s action arouses uncertainty as to whether Frei will attend the proposed Summit meeting, where he would be expected to play an influential role. For the moment, at least, Frei’s attention has focused so sharply upon his domestic concerns that he undoubtedly has relegated the Summit meeting to second place in his order of priorities.

 

Constitutional reform proposal challenges opposition. The opposition-controlled Senate can maintain its bottleneck on Frei’s legislative program and—as has been seen—can seriously hamper his conduct of foreign policy; at least until the next congressional elections in 1969. To overcome this stalemate is now the principal task facing Frei; to do so without either sacrificing vital aspects of his program or abandoning his democratic principles poses a major challenge to his ingenuity. Confident of his public support, Frei denounced his obstructionist opposition on January 19 in announcing the constitutional reform proposal to allow dissolution of Congress and holding of new elections. Rejecting both compromise and unconstitutional methods, he challenged the opposition parties to let the people decide who should speak for them.

 

Frei has stated his case in such terms that an outright rejection of the reform proposal by the opposition parties would be tantamount to an admission that they fear elections, and that Frei is right in calling the opposition "unrepresentative." Nevertheless, the proposed constitutional amendment is complicated, and Congress could well spend many months discussing and amending it. Moreover, the constitution requires that 60 days elapse between passage of an amendment by both houses and final approval by a joint session. Meanwhile, the municipal elections on April 2 will test the state of public opinion and thus each party’s chances in national elections. A great victory by the PDC would adversely affect the prospects for passage of the constitutional amendment, so far as opposition party acquiescence is concerned; and a poor showing by the PDC would be likely to cause the administration to reconsider its position on the amendment; if neither extreme occurs, the amendment may well go through.

 

Can Frei win? Frei’s personal commitment to his program and to the battle to establish presidential authority gives him an intangible but very real psychological advantage. He seems to have maintained very substantial popular support and the personal affront administered him by the opposition has almost certainly enhanced his popular appeal. His constitutional reform proposal obviously entails considerable risk to the PDC, but perhaps even more to the opposition. Certainly the risk to some Radical and National Party senators is so great that the very threat of the proposed amendment may provide useful opportunities for disarming some elements of the Senate opposition, and perhaps thus open the way for new working arrangements within the present Senate./3/

 

/3/ The proposal to amend the constitution was passed on December 30, 1969, and signed into law on January 21, 1970. In addition to a provision for national referenda, the amendment allowed the President to leave the country for 2 weeks without congressional approval. The amendment took effect on November 4, 1970—the day after Frei left office.

 

 

291. Editorial Note

 

In early 1967 the Johnson administration considered a proposal to provide financial support to the Christian Democratic Party (PDC) for the municipal elections in April. When Deputy Assistant Secretary Sayre first raised the issue on February 17, Assistant Secretary Gordon replied: "On substance, you know my ground rule that we should engage in election funding only where there is a clear US national interest at stake. In Chile there was in the 1964 national elections but this is not at all self-evident in the 1967 municipals. It also seems to me extraordinary that PDC should still need funding on this scale after two years in national power." "Much as we admire Frei," Gordon concluded, "a very strong case would have to be made to justify this funding, and I have grave doubts that it can be made." (Memorandum from Gordon to Sayre, February 18; Department of State, INR/IL Historical Files, Chile, 1967–1968)

 

At a March 2 meeting with Sayre, William V. Broe, chief of the Western Hemisphere Division, Directorate for Plans, reported that Ambassador Dungan had forwarded a request from President Frei for funds to cover half of the PDC campaign budget of $1 million. Although he was against financial support for the party, Dungan suggested an alternative: a direct subsidy of $75,000 to Frei himself. Dungan also recommended that the Johnson administration "express interest" in giving the Christian Democrats assistance to "organize the party more rationally and put it on a self-sustaining basis." After presenting the Ambassador’s views, Broe commented: "The $75,000 sop to Frei would accomplish little," he argued; "if we were to give any support at all, we would have to go all the way." In Broe’s opinion, the United States should decline the request but do so in such a way as to "hold out hope for the future." Sayre maintained that the Christian Democrats were not as badly organized as was generally believed. Moreover, Gordon had already questioned the need for the program since there was no apparent threat to U.S. interests. Sayre, therefore, agreed to await the outcome of the municipal elections, i.e. to see how well the PDC could do "without outside help." Sayre thought the Department would instruct Dungan to "hold out some hope" to the Christian Democrats "but not do anything." Broe replied that, "in view of the time elapsed already, the Party has probably already gotten this message." (Memorandum for the record by Sliffman [Broe], March 6; ibid., Latin America, 1966, 1967, 1968)

 

 

292. Memorandum of Conversation/1/

 

Punta del Este, April 13, 1967, 2 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 7 IA Summit. Confidential. Drafted by Barnes. Approved in S on April 19 and by the White House on April 22. The luncheon meeting was held at President Johnson’s temporary residence. The memorandum is part II of II parts. Part I, "Conference of Chiefs of State," is ibid. The meeting of American chiefs of state was held at Punta del Este, April 12–14.

 

SUBJECT
Chilean Progress and American Assistance

 

PARTICIPANTS
For the U.S.
President Lyndon B. Johnson
Secretary of State Dean Rusk
Assistant Secretary Lincoln Gordon
Ambassador to OAS Sol M. Linowitz
Special Assistant to the President Walt W. Rostow

 

For Chile
President Eduardo Frei
Ambassador Pedro Daza (LAFTA)
Foreign Minister Gabriel Valdes
Amb. to OAS Alejandro Magnet
Ambassador Radomiro Tomic
Special Advisor Raul Saez

 

Both President Johnson and Secretary Rusk expressed their praise for the progress made in Chile under the Frei administration. Secretary Rusk said it was important for the entire hemisphere that Chile become a successful example of economic and social progress. President Frei said progress had been achieved in a number of fields, such as housing, education, health, and industrialization, but a great deal of work remained to be done in the field of agriculture. He said he faced opposition from two extremes: the right on the one hand, and the left, composed of the Socialists and Communists, on the other. The Socialists were now more extremist than the Communists. The left coalition was acting in a very aggressive fashion, realizing that if the Frei administration were successful, particularly in the field of agrarian reform, this success would have a far-reaching impact, not only in Chile, but throughout Latin America. It would spell the end of any hope for power in the hands of the extreme left.

 

When Secretary Rusk asked President Frei what his most pressing problem was, he replied that it was the whole problem of agriculture. Chile was going to have to spend $170 million on food imports this year. In addition, Chile’s rural population was pressing for a betterment of their conditions. In the past, any attempts to increase the prices of agricultural products had been attacked as a boon to the wealthy land-owners. Now, however, with an increasing number of small farmers being created under agrarian reform, this problem is decreasing in magnitude. Chile needed fertilizer, seed, and credit for its agrarian reform and modernization problem.

 

In this connection, Chile would like American assistance in a pilot agricultural project. Chile would be able to finance compensation for land, but would appreciate assistance in the other aspects of this project./2/

 

/2/ Tomic raised the "pilot agricultural project" in a conversation with Gordon, April 27. Although he failed to offer any details, Tomic maintained that agrarian reform in Chile would fail without U.S. assistance. Gordon reiterated the "U.S. commitment to agrarian reform in Latin America and our interest in seeing it succeed in Chile." Gordon suggested, however, that further discussion of the issue take place in Santiago. (Telegram 184953 to Santiago, April 29; ibid., POL 7 CHILE)

 

Finally, President Frei said that, in spite of what some others had said in the course of the conference,/3/ he felt Chile had received the proper understanding and cooperation from the United States.

 

/3/ Reference is evidently to critical remarks made by President Arosemena of Ecuador; see Document 51.

 

 

293. Letter From the Ambassador to Chile (Dungan) to the Assistant Secretary of State for Inter-American Affairs (Gordon)/1/

 

Santiago, April 19, 1967.

 

/1/ Source: National Archives and Records Administration, RG 59, ARA Files, 1967: Lot 70 D 150, Chile 1967. Confidential; Official–Informal. A notation on the letter indicates it was sent on April 24.

 

Dear Linc:

 

Before getting into the main business of this letter, I want to offer my most sincere congratulations to you as the person most responsible for the success of the Punta del Este meeting. I know that in many ways it was the product of team effort, but I also know that without your persistent and wise leadership it could have been a fiasco. We are all in your debt.

 

It occurred to me that while you had the benefit of our various cabled analyses of the recent municipal elections,/2/ you might like to have an informal rundown of the situation as I see it. There is no doubt that the Frei government and the PDC took a drubbing in the eyes of the public and the world, despite the fact that they made substantial gains in the number of local officials whom they elected, and despite the fact that they held onto significant elements of the electorate. In my opinion the psychological defeat which they suffered was due in large measure to their political error of projecting the municipal election as a plebiscite. The situation is not dissimilar to that which we have in the United States. You know the reluctance of an incumbent President to commit his prestige in a Congressional election, but it would be virtually impossible to get a President to put his prestige on the line in a whole series of local contests. I’m really at a loss to know why this happened here, and the only reason that I can deduce is that, stung by the Senatorial rebuke in January, Frei felt that he had to strike back in a decisive way. Moreover, I think he was bemused by the prospect that the magic of Freismo could even pull him through an election in which local issues and candidates traditionally have dominated the picture.

 

/2/ The "cabled analyses" are telegrams 3420, 3468, and 3658 from Santiago, April 3, 5, and 14, respectively. (All ibid., Central Files 1967–69, POL 18–1 CHILE) The Christian Democratic Party received 36 percent of the vote; the Radical Party finished second with 16 percent; the Communist, National, and Socialist parties split the remainder.

 

If he had not made it a plebiscite he could have very well argued that this was simply a normal return of voters to their traditional political homes. If, on the other hand, the PDC had come out as everyone was predicting they would, he could have claimed it as a magnificent surge in support of his program despite the normal trend in municipal elections. There is no doubt that the plebiscite decision was a major political blunder which is now well recognized here in Chile.

 

But regardless of the psycho-political effect, do the election returns have any real significance in terms of indicating an ideological or political preference of the electorate? I am inclined to think not. I believe that the Chilean electorate is essentially a conservative electorate, but a large part of it is also unsophisticated and really not clued in to the real issues on a day-to-day basis. They tend to participate in elections every three or four years without any continuing involvement, through the press or otherwise, in what could be called "issue politics." Moreover, in each election there is a rather substantial group of new voters whose political allegiances are increasingly difficult to predict. My own belief is that local candidates and a certain discontent over PDC style (prepotencia), and the adverse effect of stabilization on upper and middle class voters combined to drive voters into their traditional political patterns.

 

If the election does not represent a significant shift in the socio-political opinions of the electorate, it does represent a reshaping of party political strength—the net effect of which is to shift the effective political spectrum left. This may sound somewhat involved, but let me describe what I mean. The Radical Party is in the control, and is likely to remain in the control, of a Marxist-oriented faction. As a minority and power-hungry party, the temptation to amalgamate with other elements will be overpowering, as we are now seeing in the Colchagua Senatorial election where the Radicals have joined in support of a Socialist candidate. I believe that the Communists will give tacit support to this kind of a coalition, and among the three of them, on the basis of the municipal percentages, they control more than 45% of the vote. If you add to this grouping some disaffected left-wing PDCers and some spiteful Nacionales, you have a majority of the Chilean electorate. The only coalition of forces (not necessarily of parties) is left leaning. There does not appear to me to be any attraction on the right. I would like to think that there is some possibility of the center left elements in the Radicals regaining control of their party and mobilizing their share of the electorate in support of some sort of a loose arrangement with the PDC, but I honestly do not see it. Surprising though it may seem, the anti-clerical basis of radicalism is present here, but even more important, is the rejection by the moderate elements of the Radicals, including Julio Duran, of the reformist policies and programs which the PDC and we have backed in Chile in recent years.

 

Looking ahead, the picture as I see it is as follows. First, there will be a two to two and a half year period of jockeying and flirtations between Radicals and Socialists, perhaps some elements of the PDC with the Communists, and probably continued friction between the Communists and the Socialists. In short, the political picture in the immediate future is likely to be very murky.

 

In the face of this, the Christian Democrats are faced with basically two choices. First, nailing their shirt to the mast and plowing ahead with their program, changing their rhythm to accord with economic reality, and I believe most importantly, abandoning their ideological penchant and attempting to build bridges to any respectable element in the community which will support a progressive program. I describe this political policy as pursuit of the politics of consensus, and abandoning the politics of ideology./3/ I believe that Frei can do this because he is by far the strongest political force within the PDC. If he puts himself forward as President of all the Chileans and makes clear in ways that he has not done heretofore that he is working for the welfare of the bulk of the Chileans, he may be able to pull it off. In other words, he must seek to build around a core of 30–35% of the electorate a sufficient number of people who believe in the soundness of his program to carry his party and his candidate to victory in 1970. This will take some doing because it involves very courageous acts on the economic side and a really completely new style of Chilean politics.

 

/3/ In a May 16 letter to Dungan, Gordon replied that he was "heartily in accord" with this conclusion: "In observing the Frei–Tomic dichotomy over the last year, I have been increasingly impressed with the absurdity of Tomic’s notion that the PDC could be made into a kind of Chilean PRI (in Mexican terms), and concerned at various missed opportunities to seek the support of moderate Radicals and others outside the PDC fold. Is there anything that we might do to encourage your recommended trend, other than friendly conversations when the opportunity permits?" (Ibid., ARA Files, 1967: Lot 70 D 150, Chile 1967)

 

The alternative to Frei being able to pull this off, I think, is a return to the old system of three political forces, with the Presidency probably going to a so-called Popular Front candidate elected with the basic support of the Radicals and Socialists, and I believe, the tacit support of the Communists. In such a situation the PDC would come in with about 30% of the vote and the Nationals with about 15–20%. It is impossible to predict what kind of a program such a government would advance, but I cannot but think that it would be either a do-nothing government or one which would be oriented radically to the left./4/

 

/4/ Sayre wrote the following comment in the margin: "This is puzzling since Socialists are farther to the left than Communists." Gordon also picked up on this point in his letter of May 16 cited above: "Given the extremely radical position of the Socialists, and your own description on page 2 of the controlling Radical faction as Marxist oriented, why should one be confident that a Popular Front Presidency would not ‘be oriented radically to the left.’ On the face of it, that would seem precisely the orientation to be expected." (Ibid.)

 

For the moment I really don’t think there is very much for us to do except to keep our lines open to all elements, especially the Radicals and the Nationals, and wait for the situation to clarify somewhat. I think we should continue to support the bulk of the Frei program because it is the most sensible—indeed the only coherent program in Chile today. However, I think our support must be extended with a firmer hand than probably has characterized our effort here in the past. I do not mean by this to be self-accusatory, although undoubtedly we have made mistakes. I am simply reflecting my conviction that the situation is a good deal crunchier at the present time than it was before the April elections. It’s an up-hill fight, politically and economically, and is going to require a higher degree of discipline on their part than they were willing to accept heretofore. Fortunately or unfortunately, we are part of the disciplinary side of the equation.

 

I hope these thoughts may serve to clarify rather than to confuse those of you who are trying to make something out of this complex situation. I assure you that we are not pessimistic but that we, as I think the present government does, recognize the need for change of style and a change of pace. I don’t think there’s much danger of a strong shift to the left within the PDC, but only the next few months will be able to give us a clear indication of that.

 

With every best wish.

 

Sincerely,

 

Ralph

 

 

294. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Gordon) to the Deputy Under Secretary of State for Political Affairs (Kohler)/1/

 

Washington, April 25, 1967.

 

/1/ Source: Department of State, INR/IL Historical Files, 303 Committee Files, c. 49, April 28, 1967. Secret; Eyes Only. Sayre initialed the memorandum for Gordon.

 

SUBJECT
Proposal to Aid Moderate Elements in Radical Party of Chile

 

There is attached a memorandum for the 303 Committee/2/ that proposes covert financial assistance of $20,000 to the moderate faction of the Radical Party (PR) of Chile to attempt to contain the drift of this Party, under its present pro-Marxist National Committee, toward an alliance with the Communist-Socialist Popular Action Front (FRAP). The memorandum points out that the PR holds the balance of power in the Chilean Senate between President Frei’s Christian Democratic Party (PDC) and the FRAP, and notes that under the current leadership of the National Committee (CEN) the Party has tended increasingly to vote with FRAP to obstruct key legislation of President Frei’s program, the success of which the US regards as of first importance. The memorandum also states that the Committee has recently enjoyed a considerable accrual to its prestige because of the relative success of the PR in the 2 April nationwide municipal elections.

 

/2/ Dated April 8; attached but not printed.

 

Election of CEN members is to take place at the Party convention in June. It is argued in the memorandum of proposal that were the leftist control of the Committee eliminated or diluted in this election, sentiment in the PR to maintain the current voting alliance with FRAP would be weakened, and that the likelihood of effective collaboration between the two groups in the 1969 Congressional and the 1970 Presidential campaigns would also be reduced. The expenditure contemplated in the memorandum is directed toward this Committee election.

 

ARA agrees that the ends sought by the proposal are desirable./3/ We recognize that there is no guarantee that the action contemplated will in fact achieve the ends sought, but we believe that on balance it represents the most practicable means immediately available to ensure that we can go into the 1969 and 1970 campaigns with some reasonable prospect of preventing the undesirable coalition.

 

/3/ In a draft memorandum from Gordon to Kohler, April 19, this sentence continues: "but we have serious doubts that the action recommended would be successful." A handwritten note on the draft memorandum indicates that Sayre decided to withhold signature on the memorandum until the Embassy had the opportunity to clarify its "contradictory advice." (Department of State, INR/IL Historical Files, Chile, 1967–1968) In his reply on April 25 Dungan stated his case as follows: "I believe that this program is reasonably sure of accomplishing its modest purpose to deny an open field to the Marxist-oriented wing of the party. It is a one-shot operation which may or may not have future implications for the U.S. I believe that the risks are minimal and the prospects for success in the attainment of limited objectives are good. To take no action involves little risk but a high probability that the present leftist-oriented leadership of the CEN will be strengthened." (Ibid.)

 

ARA recommends that you support the proposal in the 303 Committee./4/

 

/4/ According to the minutes of the April 28 303 Committee meeting: "The proposal to help save the Radical Party from marriage with FRAP was approved by the committee with some members curious about whether $20,000 was sufficient to keep the prospective bride intact. It was explained that this was estimated to be about what the traffic could properly bear at this time." (Memorandum for the record, May 1; ibid.) On July 3 the Embassy reported that the election for the national committee of the Radical Party had resulted in a "resounding triumph" for the leftist faction. (Telegram 21 from Santiago; National Archives and Records Administration, RG 59, Central Files 1967–69, POL 12–3 CHILE)

 

 

295. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, June 27, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67. Confidential.

 

Mr. President:

 

Last December you authorized Bill Gaud to negotiate with Chile a program loan ($35 million) and sector loans in agriculture ($20 million) and education ($10 million). The sector loans were to be submitted to you for final approval.

 

You will recall that because of the windfall from high copper prices, President Frei decided last December to forego the program loan as long as the price of copper remained high. He asked, however, that negotiations proceed on the sector loans.

 

Since then, the price of copper has dropped sharply. The Chileans are discussing with AID the possibility of a program loan covering the balance of 1967. Negotiations on the agricultural sector loan are proceeding. The education loan agreement has been completed.

 

Attached is a memorandum from Bill Gaud/2/ asking your approval of the educational sector loan. Charlie Schultze and Joe Fowler concur in the request, as does Covey Oliver./3/

 

/2/ Attached but not printed was a June 16 memorandum from Gaud to the President.

 

/3/ Attached but not printed was a June 24 memorandum from Schultze to the President.

 

The loan is justified because:
—Chilean self-help this year has been good.
—Chile has agreed to two major steps for improving its overall economic performance as conditions for this loan.
—Chilean performance in education has been impressive.
—The loan will accelerate Chile’s own efforts.
—It is in line with the Punta del Este decisions to put increased emphasis on education.

 

I recommend approval./4/

 

/4/ The approve option is checked. A handwritten note on the memorandum reads: "Mr. Bowdler said he’d notify all concerned. RLN."

 

Walt

 

 

296. Information Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, July 20, 1967, 3 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. IV, 10/65–7/67. Confidential. A notation on the memorandum indicates that the President saw it.

 

Mr. President:

 

In the past few days, President Frei has suffered two body blows from his own Christian Democratic Party.

 

The Party’s National Council on July 12 published an extraordinarily naive—and unhelpful—statement saying that:

 

—the Cuban-backed Latin American Solidarity Organization (Castro’s vehicle for promoting "national liberation" movements) should be allowed to establish an office in Chile provided it does not stimulate violence.
—guerrilla warfare is a phenomenon resulting from underdevelopment and exploitation by national oligarchies and foreign interests, and not always attributable to Cuba.

 

The statement reflects the ascendancy of "left-wing" elements of the Party and their desire to strike a "liberal" stance in the face of goading by the Socialist-Communist coalition which has picked up voting strength in recent municipal and by-elections. Frei responded with a strongly-worded, public denunciation of LASO. This statement also helped reassure President Leoni and the Christian Democrats in Venezuela who were furious over the Chilean PCD declaration.

 

The second set-back is the capture of the Party national leadership by the "left-wing" during last weekend’s National Assembly. Ralph Dungan reports that Frei, who has remained aloof from Party politics, did not intervene in the Assembly and the "moderates" were not a match for the more aggressive "left-wingers"./2/

 

/2/ Reported in telegram 206 from Santiago, July 19. (National Archives and Records Administration, RG 59, Central Files 1967–69, POL 12 CHILE) Dungan left Chile on August 2 to assume his new responsibilities as the first Chancellor of Higher Education in New Jersey. On July 25 the White House announced that his replacement would be the Ambassador to Ethiopia, Edward M. Korry. Korry was confirmed by the Senate on August 23 and presented his credentials in Santiago on October 16.

 

The new leadership will try to push Frei towards greater nationalization of important sectors of private enterprise. Anticipating this, Frei, in signing the new Agrarian Reform Law on July 16, made clear that he would not vary from his announced government program fostering the growth of the private sector.

 

Ralph Dungan concludes that Frei is so strong with the rank and file of his party that the new leadership will not be able to budge him from his policies if he is willing to take his case to the Party faithful.

 

Walt

 

 

297. Memorandum From William G. Bowdler of the National Security Council Staff to the President’s Special Assistant (Rostow)/1/

 

Washington, December 18, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. V, 6/67–11/68. Confidential.

 

SUBJECT
Chile: Frei Suffers Another Setback

 

President Frei seems to have suffered another setback yesterday when the Christian Democratic candidate for a Senate by-election in the conservative, agricultural 8th District of southern Chile lost by 58 votes to the Communist-backed Radical nominee. Lavendero, a young dynamic, middle-of-the-road Christian Democrat who strongly supports Frei, waged a vigorous personal campaign. But the party machinery, now controlled by the more leftist elements of the PDC, sat on their hands. Baltra, an old-time Radical politician of extreme left bent and president of the Chilean-Soviet Friendship Institute, ran in combination with the FRAP coalition. The Communists, in a quiet, sophisticated way, campaigned hard for him.

 

The Baltra victory—if sustained/2/—is expected to consolidate the Radicals joining forces with FRAP in a move to beat the PDC in the 1970 Presidential elections.

 

/2/ Baltra was subsequently declared the winner in the Senate by-election.

 

It will also weaken Frei’s hold over the PDC by giving the more radical elements—already unhappy over Frei’s moderation—ammunition to swing the party further left.

 

Frei has had a rough year on the political front. It started off with the Senate denying him permission to visit the US. The PDC made a poor showing in the spring municipal elections. At the summer party convention, the radical young turks took over the party leadership. They embarrassed Frei with their sympathetic statement on the LASO conference./3/ More recently Frei has had a hard time getting his party to back him on his anti-inflationary wage readjustment program.

 

/3/ The first conference of the Latin American Solidarity Organization was held in Havana, July–August 1967.

 

There are still three years to the next elections. If the Christian Democrats are to stay in power, they will have to show more cohesion and success than they have during the past 12 months.

 

WGB

 

 

298. Information Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, January 18, 1968.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68. Secret. A notation on the memorandum indicates that the President saw it.

 

SUBJECT
Ed Korry Reports on Chile

 

When Ed Korry called on you before going to Chile,/2/ you told him that he is an Ambassador with a built-in "self-starter" who did not need to be pushed from Washington. The attached report/3/ demonstrates the accuracy of your remark.

 

/2/ According to the President’s Daily Diary, Johnson met Korry for a brief "courtesy call" on October 4, 1967. (Johnson Library) No substantive record of the meeting has been found.

 

/3/ Airgram A–327 from Santiago, January 10; attached but not printed. Another copy is in the National Archives and Records Administration, RG 59, Central Files 1967–69, POL CHILE–US.

 

After observing the Chilean scene for three months, he concluded that Frei was being out-maneuvered by the Chilean Communist Party, with potentially serious implications for Chilean democracy and for us. He decided to discuss the situation with Frei, which he did on January 3 with good results.

 

Ed’s analysis runs like this: Since taking office, Frei knowingly played along with the "opening to the left" tactic (i.e., diplomatic and trade relations with Moscow and friendly dialogue with the Chilean Communist Party), of which his Foreign Minister and Ambassador Tomic are leading advocates. He did this to curry Communist support to put through his "Revolution in Liberty" program. In the process he shunned cooperation with democratic forces to the right of the PDC (i.e., the Radical Party) and increasingly blamed them for hindering passage of that program. This alienated the Radicals and blurred the sharp distinction between those who believe in democratic principles and those who do not which emerged so clearly in the 1964 elections and won Frei the presidency. In the ideological confusion, the Chilean Communist Party smartly out-maneuvered Frei by: making a formal alliance with the Radicals; maintaining their coalition relationship with the Socialists; and establishing a working intimacy with key members of Frei’s own party. As a result, the Communists were pushing the government into an isolated position in which Frei seemed to be unable to control his party and was forced to lean more heavily on the discredited Right for survival.

 

Ed thinks our policy has been partially to blame for this state of affairs because we have over-emphasized economic support of Frei’s program—which Ed fully supports—in the mistaken assumption that economic performance would produce the political results we seek. He thinks the US Ambassador should be providing more political assistance.

 

A chance trip with Frei on January 3—three days before the Christian Democratic National Convention—gave Korry the opportunity to express his concern to the President. Frei welcomed the discussion and apparently responded to Ed’s counsel. At the Convention, Frei had a head-on collision with the wing of his party which wants a further shift to the left and which won control of the party leadership last July. Frei won and forced the radical directorate to resign. He also unequivocally attacked the Communists.

 

I think Ed’s analysis is dead right. The "self-starter" came into play at a critical moment./4/ Time will tell whether Frei will be able to reestablish a clear-cut distinction between the Communists and anti-Communists and win back the confidence of the democratic forces which elected him in 1964. We are fortunate to have Ed in Chile as Frei moves toward the crucial national election of 1970.

 

/4/ The CIA later claimed its share of credit: "We wish to point out that the Ambassador’s awareness of the situation and the information he used in carefully stirring Frei to action were largely the result of our intelligence effort in Chile" and "the result of close briefings provided the Ambassador by Station personnel." (Memorandum from Broe to Helms, January 24; Central Intelligence Agency, DDO Files, [file name not declassified])

 

Walt

 

 

299. Information Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, February 15, 1968, 7:15 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68. Confidential. A notation indicates that the President saw the memorandum.

 

SUBJECT
The Cabinet Resignation in Chile

 

Ambassador Korry reports that President Frei’s Cabinet resigned last night./2/ He accepted the resignations and is expected to announce a new slate of Ministers by tomorrow.

 

/2/ Telegram 2474 from Santiago, February 15. (National Archives and Records Administration, RG 59, Central Files 1967–69, POL 15–1 CHILE) The Embassy also reported that the key figure in the new cabinet was Raúl Sáez, the Minister of Finance. (Telegram 2494 from Santiago, February 15; ibid.)

 

This is the long-expected Cabinet reshuffle. It is designed to give Frei a free hand in shaping new policies for coping with mounting political and economic problems.

 

To continue his stabilization program, Frei needs new legislation regulating wage increases covering last year’s inflation (about 22%) and some retrenching of his more ambitious programs. His wage readjustment proposal, which would have substituted bonds for most of the cash, was withdrawn after the Senate made clear it would not approve. Prospects for getting any non-inflationary proposal through are not encouraging.

 

The Senate opposition comes not only from the "outs" on the right and left, but from elements inside his own party. In his three years in office. Frei has not cultivated support from the non-communist parties. On the contrary, he has alienated them. He now finds he has less support in the Congress than he did when he started out.

 

Complicating matters further, a President in Chile begins suffering from "lame-duckitis" after he passes the half-way mark in his term. Ed Korry in a cable today/3/ describes the situation in these terms.

 

/3/ Not further identified.

 

"Chilean politics have descended into pre-electoral arena with all parties maneuvering for advantages prior to the 1969 Congressional elections. It is painfully clear that all opposition parties are putting partisan interests ahead of the country’s; their determination is to discredit Frei as a governing force; their belief is that the PDC can be blocked from renewing its mandate in the 1970 presidential vote, if Frei is paralyzed or severely limited from executing his proposals."

 

Korry is working closely with those who will form the new economic team. How they will work out a sound economic program for 1968 within the existing framework is not clear. It is reassuring to have a smart operator on the scene.

 

Walt

 

 

300. Briefing Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to the Under Secretary of State (Katzenbach)/1/

 

Washington, March 5, 1968.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL CHILE–US. Secret. Drafted by Shankle and cleared by Morris. Initialed for Oliver by Sayre.

 

SUBJECT
Ambassador Tomic and Christian Democratic-Communist Popular Front in Chile

 

President Frei told Ambassador Korry that it would be valuable to him if we could take advantage of farewell meetings with Ambassador Tomic to emphasize the total US coldness to any possibility of a Christian Democratic Popular Front combination with the Communist Party in Chile./2/ You may wish to take advantage of the occasion of your March 7 luncheon with Ambassador Tomic to discuss this with him, possibly before or after the luncheon. If, given the ceremonial nature of the luncheon, it seems inopportune to do so, we can see that Ambassador Tomic receives our thoughts on this matter on some other occasion.

 

/2/ Reported in telegram 2547 from Santiago, February 21. (Ibid., POL 7 CHILE)

 

As you can see from the general briefing memorandum for the luncheon,/3/ Ambassador Tomic has ideas about forming a political grouping of the left and left-center. He clearly includes the Communists in his thinking. President Frei believes that Ambassador Tomic has convinced himself that the US would be willing to provide the same degree of support to such a coalition government including Communists as it does to the present government. President Frei believes that Tomic should be disabused of this idea, and he hopes that we would make our opposition clear before Ambassador Tomic returns to Chile. President Frei said that Ambassador Tomic running on a straight PDC ticket would be the strongest presidential candidate in 1970, and that it would be within his character to decide to make a deal with the moderate forces in Chile in pursuit of the presidency if need be.

 

/3/ In this March 5 memorandum from Oliver to Katzenbach, Oliver explained that Tomic had a "good chance" of winning the 1970 presidential election and that the purpose of the luncheon was to convince him that "he has made friends at the highest levels of the U.S. Government." (Ibid., POL 17 CHILE–US)

 

Ambassador Korry stresses that in discussing this matter with Tomic, there should be no indication of initiative from him or from President Frei./4/

 

/4/ Donald F. Herr, staff assistant to the Under Secretary, wrote the following note on the memorandum: "I have heard that Chilean Communists are less red than the Socialists. Tomic’s idea of a coalition of the left may not be all that bad. At any rate, it is worth further investigation." The talking points for the meeting suggested that Katzenbach "privately" discuss the problems associated with a Popular Front in Chile, including the following argument: "The United States is a strong supporter of Christian democracy in Latin America. Any combination with communists, however, could only serve to bring this support into question." (National Archives and Records Administration, RG 59, Katzenbach Files: Lot 74 D 271, Luncheon—March 7, 1968, Host for Chile Ambassador Tomic) No substantive record of the luncheon has been found.

 

 

301. Memorandum of Conversation/1/

 

Washington, March 19, 1968, 10:30 a.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 17 CHILE–US. Confidential. Drafted by Morris on March 20 and approved in S on March 21. The meeting was held in the Secretary’s office. According to the Secretary’s Appointment Book, Rusk briefly met Korry before meeting Tomic. (Johnson Library) No substantive record of that meeting has been found.

 

SUBJECT
Farewell Call by Ambassador Tomic

 

PARTICIPANTS
Foreign
Ambassador Radomiro Tomic, Ambassador of Chile

 

United States
Secretary Rusk
Mr. Patrick F. Morris, Country Director, Office of Bolivian-Chilean Affairs

 

After an exchange of pleasantries with Ambassador Tomic on his sojourn in the U.S. and his pending departure for Chile, Secretary Rusk asked the Ambassador about the present economic difficulties in Chile and the prospects for the future. He said that he understood that there was a possibility of an alignment of democratic parties with non-democratic parties in Chile, and asked Ambassador Tomic to comment on it.

 

Ambassador Tomic answered that he wanted to be absolutely frank with the Secretary and therefore he had to admit that the government of President Frei had reached the limit in its ability to carry forward its program of economic and social reform within a democratic framework. He explained that the government lacks the popular support primarily from organized labor to reach its stabilization goals as originally projected. The Christian Democratic party will have to accept the fact that it cannot get over 33% of the vote in the forthcoming congressional and presidential elections and therefore must look to working with other parties if it is to continue as an active promoter of social and economic change in Chile. There is the need for a new alignment of forces and a re-definition of social and economic goals to coincide with this realignment. Under these circumstances, it is possible that the Christian Democratic party will enter into some kind of arrangement with other parties on the left.

 

The Secretary commented that of course Chile would have to make its own decisions regarding its political future, but that any democratic party should make a very careful examination of the ultimate aims and objectives of the Communist party before entering a political arrangement with them. He said that he could not speak on Chile, but that the pattern of Communist party activities in Southeast Asia and the Middle East clearly indicates that they have not abandoned their goals of world domination. He said that the tradition of democratic institutions in Chile might make it strong enough to withstand the strains of a coalition government which included the communists but that in some of Chile’s neighbors with less strong institutions such a coalition might have more serious results. He then asked why a coalition of democratic forces of the Center and Left could not be worked out.

 

Ambassador Tomic answered that the situation in Chile was very confused. He said that the moderates within the Radical party were not in control of the party machinery; that the Right was generally discredited and there were many divisions in the non-communist Left. It is necessary that a new combination of forces be brought into being which is not based upon the leadership of an individual, (caudillismo or personalismo) but which expresses the needs and aspirations of the Chilean people. The Christian Democratic party is a vital and modern party which is guided by the aspirations of a majority of the electorate, but it will not achieve its objectives within the narrow confines of its own structure. It can serve as a nucleus for a broader and more inclusive political expression. He said that he recognized that it would take a number of miracles to bring such things to pass.

 

The Secretary congratulated him on his ambassadorship of three years in Washington and wished him well on his return to Chile./2/

 

/2/ Tomic also made a farewell call on President Johnson, March 22. A brief account of the meeting is in a March 22 memorandum from Bowdler for the file. (Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68)

 

 

302. Record of Discussion at the 32nd Meeting of the Senior Interdepartmental Group/1/

 

Washington, March 21, 1968.

 

/1/ Source: National Archives and Records Administration, RG 59, S/S–SIG Files: Lot 70 D 263, SIG/RA #34, 3/26/68, Future Meetings. Secret. Drafted by Hartman on March 26. ARA prepared a discussion paper for the meeting in which it reviewed the current political and economic situation and recommended that the United States support the anti-inflationary program of the Frei administration while encouraging "the development of a moderate political consensus in Chile of which the Christian Democrats would be the main element." (Ibid., SIG/Memo #57, 3/20/68, 32nd SIG Meeting)

 

 

Present
Under Secretary of State, Chairman
Deputy Secretary of Defense
Chairman, Joint Chiefs of Staff
The Director of Central Intelligence
The Administrator, Agency for International Development
Mr. Akers for the Director, United States Information Agency
Special Assistant to the President
Under Secretary of Treasury
Deputy Under Secretary for Political Affairs
Counselor of the Department
SIG Staff Director

 

DOD
Mr. Lang
General Orwat
Mr. McGiffert

 

State
Mr. Oliver
Ambassador Korry

 

[Omitted here is discussion of future meetings.]

 

II. Chile

 

The Chairman said that he had asked Mr. Oliver to present several of the particularly difficult problems in Latin America to the SIG prior to SIG discussion of the Joint State/Defense Study./2/ He thought that this would be useful to SIG members in giving them a more detailed knowledge of particular country problems.

 

/2/ Reference is to a study entitled "Latin America: A Recommended U.S. National Strategy," prepared under the direction of Ambassador Edwin M. Martin. The SIG discussed the Martin study at its meetings on May 2 and June 13. At the latter meeting, Katzenbach directed that the country teams consider the study "in their policy/program planning and development." (Ibid., SIG/RA #41, 6/26/68, Chairman’s Summary at Discussion and Decision)

 

Ambassador Korry then gave a presentation on the general situation in Chile and the problems faced by Frei as he approaches the coming elections. Ambassador Korry stressed his conclusion that Chile’s long history of democratic evolution would continue. He felt that this might very well mean however, a more left-wing group coming to power, possibly with the active cooperation of the Communist Party. This would obviously present special problems in our relationship with Chile. He thought that the record of the Chilean Government in agricultural reform and anti-inflation measures was reasonably good but that the test, particularly on inflation controls, was only now coming. A major factor in Chilean elections, aside from the personality of the candidate in the presidential election, is the rate of inflation.

 

Ambassador Korry also described the copper situation and the windfall benefits that the copper companies have gained because of the strike in the United States and its effect on world copper prices. Ambassador Korry pictured the political party structure and mentioned the status of current aid discussions.

 

Mr. Katzenbach summed up the discussion by saying that our choices in terms of US actions were narrow. In essence, we were trying to take out insurance which would in some way strengthen the moderate forces in the coming 1969 congressional elections. We could do this through applying additional resources, particularly where they helped achieve economic stabilization. But we had to make a choice at some point about whether to apply pure IMF doctrine with the risk of seriously damaging moderate forces or taking a less rigid stand. The central problem remained, however, how to hold inflation in controllable limits. He agreed with Ambassador Korry that whatever we did in Chile, we should conduct ourselves in as unobtrusive a fashion as possible and not allow US prestige to be completely tied to one personality.

 

[Omitted here is discussion of Panama.]

 

AA Hartman
Staff Director

 

 

303. Telegram From the Embassy in Chile to the Department of State/1/

 

Santiago, March 29, 1968, 2205Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 23–9 CHILE. Secret; Priority; Limdis. Repeated to USCINCSO.

 

3042. Subj: The End of the Revolution in Liberty.

 

1. However the current maneuverings among the Chilean parties may end, the inescapable fact is that we are witnessing the end of the noble and necessary Frei experiment in "Revolution in Liberty." Because the US has attached so much prestige and so many resources to the person of Frei and to his programs, it is essential in my view that we understand now the situation as it is and gear our actions as well as our policies to it.

 

2. The current congressional struggle over the GOC’s wage readjustment bill is both an uproarious wake for the Frei administration and a licentious baptism for an unrecognizable bastard offspring. No one now has manageable control over events in Congress, least of all the President. Having reportedly decided that he erred in making a deal two weeks ago with the Communists, he is seeking to "balance" his opening to the left with one to the right—or to anyone.

 

3. I say the revolution in liberty has ended because, as Ambassador Tomic told the Secretary in his farewell call March 19,/2/ the government of President Frei has reached the limit in its ability to carry forward its program of economic and social reform within a democratic framework. Tomic’s judgement is beyond dispute. Neither the political nor economic situation provides meaningful opportunities for Frei to move forward. At best he can only "consolidate." For the remaining two years nine months of his term he can only fight for a semblance of personal dignity and an appearance of control over events.

 

/2/ See Document 301.

 

4. At the time I left for Washington three weeks ago today, we were using our influence to seek a locus of interim stability. In our view, the one hope of consolidating the past gains of the Frei administration and of effecting a political equilibrium prior to the March 1969 congressional elections was the program which the new Minister of Finance Raul Saez had agreed to execute. While no one had any illusions about the defensive nature of the Saez budget, particularly since at best it involved a retreat to an inflationary rate of 25 to 30 pct, it did offer an opportunity to control economic forces, to achieve a defensible level of growth, to make a start on the reduction of a swollen bureaucracy, to concentrate on production improvement, to create a climate of quasi confidence in the business and foreign sectors and above all to lay a base for improved performance prior to the 1969 congressional and 1970 presidential elections.

 

5. As Saez and we feared, the President caved at the first crunch. He fell into a trap laid by the Communist Party which astutely recognized that the Saez ministry would have the effect of stopping the slide of Chilean politics to the left. The Communists wanted Saez out and they maneuvered him to the sidelines./3/ Having sucked the President into a position of dependence on Communist goodwill, the Communists, true to their word are now seeking to gut the rest of the bill. Indeed they are having difficulties explaining their initial maneuver with Frei to their own militants in the labor field. Hence the President, having made dubious gain from his mismatch with the Communists is back at square one with nothing ahead but the adders and snakes of the other political parties. He now regrets his liaison with the Communists as does his Minister of Interior Perez Zujovic who was the midwife of this abortion. Frei must not know the axiom which governs the lives of surgeons and of statesmen—that you can never afford to say "oops."

 

/3/ Sáez resigned on March 15 and was replaced by Andres Zaldivár. (Telegram 2844 from Santiago, March 15. (National Archives and Records Administration, RG 59, Central Files 1967–69, POL 15–1 CHILE)

 

6. There are those who believe that the only real option open to Frei is to operate temporarily outside the democratic framework. Exponents of this approach believe he could turn to the military to impose a program that would hold the inflationary line and establish some economic and political order. After taking into account (a) the posture adopted two weeks ago by the military chiefs in their interview with Frei in which they reportedly eschewed stronger options and pressed instead the military’s wage claims (b) the absence of a potential man on a white horse and the generally unimpressive intellectual caliber of the leading officers (c) the proclivity among officers to join with the civilian claimants and to blame the GOC for the failure to manage Chile’s economic affairs well, particularly their pay raises (d) the reluctance, to use the mildest adjective of Frei, to take extra-constitutional measures, I can only conclude that this possibility is an outside one. In any event I have no sympathy for it.

 

7. The structure and tradition of Chilean democratic politics has for many decades pushed parties into alliances. As I have reported almost from the time of my arrival here, three years of aloof operation above this historic pattern has (perhaps it was inevitable) led to the political isolation of Frei. Historic examination will also show the dispassionate observer that almost every President has had three years in which to introduce reforms before being immoblized by the political system prior to the extended period of campaigning for one kind of election or another. Moreover, some of the reforms of the past (e.g. the first Alessandri’s introduction decades ago of social security) were perhaps as "revolutionary" in Chile as anything attempted by the Frei government thus far. Finally, it has been the custom for Chilean Governments in the second half of presidential tenure to accept, however reluctantly and fatalistically, the inevitability of printing money as the only "democratic" way out of the political impasse. What we are hearing as a debate in Congress right now is the reversion to form. And it must be honestly stated that Frei is seeking to hold some kind of line. Thus far he has rejected such crackpot ideas as importing 4,000 cars to sell in this seller’s market at profits of E 50,000 each to fill budgetary gaps and such potentially explosive proposals (from his own party) as breaking the copper agreements by taxing the companies’ income or adding an export tax on copper. But to get a law he will probably have to yield some place. If there were no law, the odds are that we would then be in a situation of "revolution" or "liberty" since the cost of living the first two months has risen fast (8.4 percent) and since the official index increase of 21.9 percent for 1967 has not yet been compensated. Most Chileans prefer not to analyze long-term economic trends: rather they want cash to pay bills. In their overwhelming majority they will not blame the political parties: they will hold the GOC responsible for blocking increases.

 

7. [sic] Senator Ibanez, the leading light of the Nacional Party and former Finance Minister Lucho MacKenna (under Alessandri) called on me yesterday to enlist my consent for a scheme they wanted to negotiate with GOC. Their proposal called for division of wage readjustment bill into two separate bills: (a) one would be confined strictly to readjustment aspects including a 21.9 percent cash payment to one third of public sector workers now scheduled to get 12.5 percent through mechanism of cash bonus: the wage increases for all the public sector would be financed by higher consumption taxes (which is a part of GOC proposal) and by further cuts in GOC expenditures and (b) separate financing bill for rest of fiscal expenditures. In latter Nacionales would insist on heavy cutbacks in agrarian reform programs including firing of MinAgriculture Trivelli and INDAP head Chonchol, cancellation of planned increase in sales tax, reduction of wealth tax. The role they had given the U.S. was to use the program loan for housing and for CORFO’s planned investment.

 

A. I rejected their proposal, pointing out inter alia that, as far as I was concerned, availability of program loan depends on meaningful anti-inflation program and other criteria. I seriously doubted Frei would accept their proposal. If they really interested in healthy economy it was essential that they help get sensible wage bill through Congress now so housing starts could begin without delay. I added that I did not want to get involved in Chilean party politics. They had collaborated with the Communists in getting rid of Saez. Their explanations for their actions were not convincing to me. Therefore since they were among the parties who had gotten themselves into this mess over wage readjustment they must extricate themselves.

 

B. Late today left-wing newsmen were spreading rumors that Nacionales were going to vote for Reajuste because I had called them in [sic] to denounce their politicking and to accuse them of accelerating Communist gains.

 

8. Senator Ibanez put forward the extraordinary argument that the U.S. owed Chile’s pro-American private enterprise sector "damages" because of our support of Frei’s programs. In support of this thesis he invoked the recent toast by the Vice-President of Ambassador Tomic and of the Frei government. In this connection, we are informed by AP’s Lee Brady that today he asked Communist Senator Teitelboim his reaction to Vice-President’s toast and that the reply Brady says he filed was that if Tomic ever had chance to be president it has disappeared. What Teitelboim presumably meant is that CP won’t play ball with Tomic which was his view at this time in any case.

 

9. Thus far, I have made clear to all who have sought me out—and I have sought no one—that U.S. is leaving it to Chileans to decide their political and economic future. U.S. aid has nothing to do with parties or with personalities but with effective use of economic resources. I got this across to Foreign Minister Valdes who summoned me for unrelated business when he broached subject. I noted to him that GOC has not consulted U.S. about deal with Communists nor any other aspect of current political problem, that we had no complaints and I trusted he had none either. He did not. I also mentioned to him that GOC’s total silence on anti-American terrorism contrasted with the immediate denunciation by Allende and Teitelboim and that I wondered if this reversal of roles taken together with Zuniga’s eulogy of the guerrillas in Bolivia meant that the U.S. should deal in the future with the FRAP in such matters.

 

10. Once we have clearer idea of what kind of bill will emerge from Congress and its likely effects on U.S.-Chile relations as well as perspectives of Chilean politics, we will provide our views by cable./4/

 

/4/ The Embassy reported on April 4 that the Senate had narrowly approved a modified version of the wage readjustment bill. (Telegram 3107 from Santiago; ibid., LAB 11 CHILE) An analysis of the "budgetary effects" of the bill is in telegram 3149 from Santiago, April 9. (Ibid.)

 

Korry

 

 

304. Memorandum From the Chief of the Western Hemisphere Division (Broe) to the Deputy Director for Plans, Central Intelligence Agency (Karamessines)/1/

 

Washington, April 26, 1968.

 

/1/ Source: Central Intelligence Agency, DDO/IMS Files, Job 79–00207A, [file name not declassified] Political and Economic 1968. Secret.

 

SUBJECT
Circumstances Leading up to CIA Participation in Electoral Operations in Chile

 

The second confrontation in Chile between the Christian Democratic Party and the Socialist–Communist Political Front (FRAP) will come in September 1970. In the first round in 1964, the Christian Democrats were victorious resulting in the election of President Frei. Since that time the Christian Democrats have encountered increasing difficulty in both the economic and political fields. As an indicator of their economic problems, inflation which was reduced in the first two years of the Frei administration from a level of about 39% to 17% a year has begun to climb again. In 1967 the rate was 21% and for the first three months of 1968 it was 10%. Since these are government figures the actual rate is undoubtedly higher. Perhaps even more important than a deteriorating economic situation has been the development of a leftist trend within the non-Communist political parties and a growing political isolation of the Frei administration. The Radical Party, a key left of center group, is now controlled by its more extreme faction which favors an electoral alliance with the FRAP. The National Party, a right of center group, which has borne the brunt of some of the reforms carried out by the Christian Democrats, such as in the agrarian sector, has been alienated from the Christian Democrats and is now in active opposition. Even within the Christian Democratic Party itself there is a strong extreme faction which would be amenable to collaboration with the FRAP and for a period was in control of the party leadership. The control of the Radical Party by its extreme faction is one of the more worrisome aspects of the situation since a Radical–FRAP electoral alliance could elect a president in 1970. As a recent example of the desperate situation confronting Frei, the administration felt it had to turn to the Communist Party to get Congressional approval of their wage readjustment bill. The Communists exacted their price by forcing the Christian Democrats to remove a no-strike provision from the bill. During further consideration of this bill the Christian Democrats then turned to the National Party for support; they in turn forced the Frei administration to agree to lower taxes. As a result of both of these deals the prospects for increased inflation are better than ever.

 

Faced with this deteriorating situation and with the prospect that if left unchecked the present political trends could bring to power a popular front government in Chile in 1970 the Ambassador began to mobilize his Embassy. He brought together key officers, which included the Chief and Deputy Chief of Station, and began to map out his program. It was understood by all that the major response by the Embassy would have to be in the overt sector probably through providing additional program loan assistance to the Chilean Government in order to help it hold down inflation and to carry forward its essential programs. It was also recognized that a smaller, supplementing effort would be needed in the covert field through an election operation in connection with the Congressional elections of 1969. These elections are all important since their outcome will determine the nature of the party alliances that will be formed in connection with the presidential election of September 1970.

 

Using information and analyses provided by the Embassy’s political section as well as from [less than 1 line of source text not declassified] the Station has begun to put together a political action program to be carried out within the context of the overt effort. The final political action proposal will be a joint Station/Embassy effort with the Ambassador playing the key role. This proposal is expected to arrive in Washington within the next 7–10 days and will be submitted to the 303 Committee for approval./2/ The basic concept is to undertake a district by district analysis of the voting patterns and electoral trends in each district so that we can determine where covert leverage can be most effectively applied. With this information the objective is to elect as many moderate candidates of the Radical, Christian Democratic, and National parties as possible at the expense of the FRAP. If this can be successfully accomplished and an overt program implemented, our prospects for heading off a FRAP victory in 1970 might be improved.

 

/2/ Korry subsequently forwarded a proposal for a "covert election operation of very limited scope," a [text not declassified] contingency fund including direct support to moderate candidates from the Christian Democratic, Radical, and National parties. According to an undated memorandum prepared by the CIA: "The Ambassador has no intention to channel support to candidates through the political parties themselves because of the danger that funds so channeled would be used to support individuals contrary to our interests; i.e. left-wing Radicals and left-wing Christian Democrats." (Department of State, INR/IL Historical Files, Chile, 1967–1968)

 

William V. Broe

 

 

305. Information Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to Secretary of State Rusk/1/

 

Washington, May 15, 1968.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL CHILE. Confidential. Drafted by Shankle and Morris. Copies were sent to Korry and Bowdler. A notation on the memorandum indicates Rusk saw it.

 

SUBJECT
Chilean Political Situation

 

Discontent within Chile’s traditionally apolitical military forces has added new dimensions to President Frei’s political difficulties. Recent events in Chile have aroused widespread public uneasiness accompanied by rumors and allegations that a military coup was possible or even imminent.

 

All branches of the military and the national police are dissatisfied with their pay and allowances. The military have been displeased by the weak authority of the GOC in dealing with political opposition and strikes. However, despite these and some professional grievances, there is no evidence of conspiracy or plotting within the military or police. In an attempt to placate the military, President Frei has appointed his personal friend, retired Army General Tulio Marambio, as Minister of Defense. He has also designated a personal friend as new CINC of the Army, and named a retired general to become new Director of the strike-plagued Postal Service. The appointment of General Marambio, the first military man to hold cabinet position in more than ten years, is not in itself sufficient to placate the military. On the contrary, he was considered a "political general" by his peers before his retirement. However, Marambio has already initiated discussions on substantial pay increases which should take some of the heat out of the military discontent. Also, the GOC now seems to be demonstrating a firmer hand in the face of strikes. This should improve the government’s image in the eyes of the armed forces.

 

On the other hand, the appointment of a military man to the cabinet has exacerbated public tensions which have been steadily growing as President Frei becomes more and more a lameduck president, and as his authority and control appear to be weakening. The basic political struggle is taking place in congress, where President Frei’s 1968 anti-inflationary wage policy proposals are being debated. The political attitudes towards these proposals, however, should be viewed in the context of a situation where all political parties have found common cause in a campaign to discredit President Frei and the Christian Democratic Party. At stake are the 1969 congressional and 1970 presidential elections.

 

President Frei’s wage proposals have already been emasculated. Indeed, it is questionable whether what remains of President Frei’s initial proposal can even be considered anti-inflationary, or if in its present state it would only contribute further to the inflationary spiral.

 

The current level of political tensions can be expected to continue, if not increase. All the strikes are not over, and preferential treatment for the military could trigger strike activity on the part of other public employees. Prospects are that there will be continued agitation from wage earners as the rate of inflation accelerates. With the government unable to impose its will on the congress to approve an anti-inflationary wage policy, it will probably rely more and more heavily on the police and armed forces to contain labor pressures. Even though there is little evidence of a possible coup, there is a real possibility that the police and the military, by receiving special wage treatment and carrying out the government’s dictates in containing labor pressures, will become more closely identified with and eventually more involved in the Frei Administration. The appointment of military officers who are personal friends of President Frei to key positions may indicate that the process has already begun. Although each move by Frei with the military has a logic of its own, the inexorable buildup of circumstances compelling the military and the government toward each other, if carried to extremes, could eventually compromise the military’s traditional apolitical stance. This would come about more by accident than design. But the result would be that the military, caught up by circumstances, would find itself propelled into positions and activities which clearly extend into political and government spheres.

 

The spectre of military participation has frightened the Communist Party, the best organized of President Frei’s opposition, into a counter-coup campaign. The communists justifiably fear that they would be the first victims of any extra-constitutional steps by the Frei Administration or the military. The communists charge that the US is plotting with the Chilean right to persuade the military to initiate a coup. On the other hand, in an attempt to establish its own credentials with the military, the communists are expressing their sympathy for the financial plight of military personnel.

 

Although there has been no significant evidence of military plotting or conspiracy, and although it is most unlikely that extra-constitutional means will be employed to deny President Frei the remainder of his presidential term; the entire process of cabinet changes, military appointments, coup scare and communist counterattack must be viewed as a manifestation and warning signal of the political and economic malaise gripping Chile. Its acknowledged successes notwithstanding, President Frei’s Administration has not succeeded in solving Chile’s ingrained economic problems, particularly inflation. Social discontent and political agitation are on the upswing. The political consensus with which President Frei assumed office, unless in retrospect it was in fact illusory, has disappeared. He faces political opposition on every front, including from within his own party.

 

Although the wage bill struggle, a festering sore that has been draining the country’s energies since last October, is almost over, the more serious, deeply rooted problems are still unsolved. We expect that the political difficulties that plague the Frei Administration will continue and even possibly grow worse as the forthcoming elections draw nearer. However, in considering the current and projected crisis situation, we should not lose sight of the fact of Chile’s jealously guarded tradition of constitutionalism and democratic processes. This is the foundation of the Chilean political and social structure, and all political parties and groups, except the most extremist, quasi-terrorist lunatic fringe, can be expected in the final analysis to behave in a manner consistent with this tradition, even though their tactics are so self-serving as to raise serious doubts.

 

 

306. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to the Deputy Under Secretary of State for Political Affairs (Bohlen)/1/

 

Washington, July 5, 1968.

 

/1/ Source: Department of State, INR/IL Historical Files, 303 Committee Files, c. 71, 7/12/68. Secret; Eyes Only. Initialed for Oliver by Sayre.

 

SUBJECT
Chile: Assistance to Congressional Candidates

 

The attached memorandum/2/ asks 303 Committee approval of a proposal that we help elect, through covert financial assistance, moderate candidates in the 1969 elections in Chile. An initial contingency fund of $350,000 is requested, which would be used for this purpose at the direction of the Ambassador on recommendation of an Embassy "election team" made up of State and CIA personnel.

 

/2/ Dated June 20; attached but not printed.

 

The memorandum identifies a number of factors at work in Chile since early 1967 that have gravely eroded the position of President Frei and his moderate supporters and that have led to a situation in which all three of the likely important candidates in the 1970 presidential elections are actively seeking Communist Party support. These adverse influences include a renewed upsurge of inflation, a decline in the rate of increase of the GNP, a loss of momentum in the pace of social reform, and loss of important areas of support in Congress with an accompanying assumption of leadership of the Christian Democratic and Radical Parties by left-wing elements. The upshot of these developments is a real possibility that in 1969 Chile will elect a Congress dominated by the Communists and by the Socialists, who in Chile are a particularly doctrinaire and left-wing group. Such a development would in turn bring quite material prospects that in 1970 there will be elected as President either a pro-Communist President or—as in the case of former Ambassador Tomic—one who can be unduly dependent on Communist and Socialist support.

 

The objective of the attached proposal is therefore to promote the election in 1969 of the greatest possible number of moderate senators and deputies in order to maximize effective opposition to the popular front candidate in 1970 and to create a body of moderates who could act as a restraint on the policies of any popular front president, should one be elected.

 

The determination as to which candidates will be supported will be made by the Embassy election team. Support will go to the candidate as individuals rather than to party organizations, for these organizations will almost certainly nominate some men that the U.S. would not wish to assist. The money will be made available to those selected through a number of tested individual channels whose stature is such that their contributions will appear natural and appropriate. Risks of exposure, while of course present, are believed to be acceptable. As Embassy selections are made, and as the campaign proceeds, the Agency will from time to time submit reports to the 303 Committee on the progress of the Embassy’s efforts.

 

Of the $350,000 sought, $250,000 would be used in the manner described above. $100,000 would be spent for media operations (CIA has access to two of Chile’s leading newspapers and to a national net of radio stations); for possible support to a new splinter socialist party in order to exacerbate socialist differences; and for support to farm, youth and urban organizations that are effective among particular sectors of the electorate.

 

ARA agrees with the objectives of the proposal program and believes that the methods and tactics described in the CIA memorandum are suited to their attainment. The forces led by Frei are by and large dedicated to reform through the democratic processes; they represent therefore an important alternative to the varieties of social extremism that trouble the politics of Chile and of much of the rest of Latin America. The survival and health of these forces is desirable and congenial to our interests. I therefore recommend that you support the proposed action program./3/

 

/3/ The 303 Committee considered the proposal at its meeting on July 12. Broe explained that the funds would act as a "reserve" to support individual moderates who would be "carefully selected in an effort to brake the leftward drift toward a popular front which threatens to engulf Frei." "By early planning, a country team setup, and personal direction of Ambassador Korry," Broe maintained, "significant results are possible." The Committee approved the proposal "with the proviso that monthly progress be indicated to the committee from this moment on." (Memorandum for the record by Jessup, July 15; Department of State, INR/IL Historical Files, 303 Committee Files, c. 71, 7/12/68) The 303 Committee received progress reports on the congressional elections on September 3 and December 27. (Ibid., c. 73, 9/3/68 and c. 74, 12/27/68)

 

 

307. Action Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, July 24, 1968.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68. Confidential.

 

SUBJECT
$20 Million Program Loan for Chile

 

Herewith a recommendation from Bill Gaud, Covey Oliver and Ed Korry, endorsed by BOB and Treasury, that you authorize a $20 million program loan to Chile for the remainder of 1968 (Tab B)./2/

 

/2/ Tab B was a memorandum from Gaud to the President, July 15; attached but not printed.

 

Charlie Zwick’s lucid memorandum summarizing the loan proposal (Tab A)/3/ has all the essential elements and I will not repeat them. You should understand, as Charlie points out in his recommendation, that the loan is primarily a political bailing out operation to help President Frei and the moderate Christian Democrats make the best possible showing in the Congressional elections in March 1969. These elections set the stage for the Presidential elections in September 1970.

 

/3/ Tab A was a memorandum from Zwick to the President, July 20; attached but not printed.

 

After a record of steady progress in reducing inflation and stimulating development and reform during 1964, 1965 and 1966, President Frei fell on hard times in 1967 and 1968 when the opposition on the left and right ganged up on his anti-inflation program. If we do not help him to the extent recommended, he will either have to slash his investment budget for Alliance programs or engage in highly inflationary Central Bank borrowing, either of which will have serious adverse political implications for him in the March 1969 elections.

 

I join Ed Korry and Covey Oliver in the political judgment that our interests in Chile are best served by helping Frei through this particularly hard period. Hopefully, our aid, combined with his own self-help measures, will enable him to reverse the economic trends and make a good showing in the Congressional elections. If it does not turn out that way, we will still be free to decide how we will gear future aid.

 

In recommending that you authorize negotiation of the loan, I suggest you do so on an ad referendum basis.

 

Walt

 

Approve/4/
Disapprove
Call me

 

/4/ This option is checked, and a July 25 handwritten notation by Bowdler indicates that Rostow informed Bowdler and Dottie Fredley. On August 27 Rostow reported that the negotiations had been concluded, that Chile had agreed to the fiscal and monetary conditions, and that a severe drought in Chile "makes the program loan more important than ever in President Frei’s economic planning." The President authorized the loan. (Telegram CAP 82188 from Rostow to the President, August 27; Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68)

 

308. Action Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, October 17, 1968, 11:50 a.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Vol. V, 8/67–11/68. Confidential.

 

SUBJECT
PL 480 Program for Chile

 

The attached memorandum (Tab B)/2/ from Orville Freeman/Bill Gaud recommends your approval of a $3 million PL 480 sales agreement with Chile for corn/grain sorghum and rice. Chile would repay this amount in dollars over a 20-year period, with a 10 percent down payment.

 

/2/ Tab B was a memorandum from Gaud and Freeman to the President, October 10; attached but not printed.

 

This PL 480 assistance for Chile is urgently needed because of a severe drought which has caused an emergency shortage of livestock feed. Chile has done quite well in meeting the self-help conditions we set in an earlier agricultural sector loan and PL 480 agreement.

 

The Chilean Governent is feeling particularly isolated after the recent military coup in Peru, as Chilean leaders see themselves completely surrounded by military regimes. President Frei would undoubtedly welcome a sign of US support for his democratic government at this moment.

 

Charlie Zwick supports the Freeman/Gaud recommendation (Tab A)./3/ I also recommend that you approve the negotiation of this sales agreement with Chile.

 

/3/ Tab A was a memorandum from Zwick to the President, October 15; attached but not printed.

 

Walt

 

Approve/4/
Disapprove
Call me

/4/ This option is checked. Handwritten notations by Bowdler indicate that Dottie Fredley and Sam Lewis were informed on October 17 at 4:50 p.m. and 4:55 p.m., respectively, and a copy was sent to Fredley on October 18.

 

309. Action Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, January 14, 1969, 4:55 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Chile, Filed by LBJ Library. Confidential.

 

SUBJECT
FY 1969 Assistance Program for Chile

 

Bill Gaud and Covey Oliver have requested your authorization to negotiate a $68 million economic assistance package with Chile for 1969 (Tab C)./2/ The package includes a $20 million program loan, a $10 million agricultural sector loan, a $36 million PL 480 agreement, and $2 million in project loans. Orville Freeman joins Gaud in recommending your approval of the PL 480 sale agreement—mainly for wheat, corn, and rice (Tab D)./3/

 

/2/ Tab C was a memorandum from Gaud to the President, December 23; attached but not printed.

 

/3/ Tab D was a memorandum from Gaud and Freeman to the President, December 23; attached but not printed.

 

Charlie Zwick has some reservations about Chile’s economic performance and prospects. On balance, however, he recommends your approval of the whole package (Tab A)./4/

 

/4/ Tab A was a memorandum from Zwick to the President, January 6; attached but not printed.

 

Joe Barr is prepared to support all elements of the package except the program loan. He questions the need for balance of payments support of this magnitude, and raises other questions about the realism of AID’s proposed negotiating instructions. He states that he can not weigh what he sees to be economic shortcomings in the program loan proposal against political considerations underlying our support for President Frei, and would have to leave that to your judgment. Barr is satisfied, moreover, that the arrangements governing AID lending in Chile provide reasonably satisfactory protection for the US balance of payments (Tab B)./5/

 

/5/ Tab B was a memorandum from Barr to the President, January 10; attached but not printed.

 

We provided a $20 million program loan for Chile in 1968. The final installment was released in December. Chile’s performance on the self-help commitments under that loan and under an earlier agricultural sector loan of $23 million has been reasonably satisfactory—especially when Chile’s economy is being buffeted by the worst drought in its history. As Zwick and Barr state, progress toward price stability has been slipping. The outlook is now for about 30 percent inflation in 1969—up from 28 percent last year. But without substantial continued foreign support, Frei’s stabilization program could completely collapse. The drought has undermined both agricultural and industrial production and sent unemployment rates skyrocketing. To deal with this temporary social and political crisis, Frei is having to divert funds for temporary jobs and emergency farm credit. So far, Chile is managing its economic crisis with considerable skill. The outlook for 1969 is not as bleak as Zwick and Barr suggest.

 

This assistance package has been worked out in close cooperation with the IBRD and the IMF, both of whom have negotiating teams in Chile now to work out overall agreements to support Frei’s 1969 program. Our negotiating objective in the fields of fiscal, exchange rate, and monetary policies are integral parts of this effort. For example, Chile is seeking an IMF standby, and the IMF team doubts that Chile will qualify without the prospect of the US assistance package outlined in this memorandum. It is very important to the future of Frei’s economic program that we be able to negotiate our package this month in parallel with the other two international agencies. Our negotiating leverage is also augmented by simultaneous negotiations.

 

Critical congressional elections are scheduled for March in Chile. Frei’s term runs until late 1970. His ability to continue those constructive programs in such fields as agrarian reform and education which have made Chile a leader in the Alliance for Progress depend heavily on the kind of showing his party makes in the March election. With the great strains placed on the economy by the drought, Frei needs both the assistance proposed and the strong moral support implied by a negotiating package of this type. Ambassador Korry urges your approval of the negotiations so that no time-lag can intervene in the rhythm of our support for Frei’s program.

 

Chile has made outstanding achievements in the social and political fields under the Alliance for Progress—and Frei is currently reasserting a strong leadership position within the Christian Democratic Party to consolidate many of these gains during his two years in office. Although Chile’s economic problems are worrisome, Frei has shown remarkable tenaciousness and courage in facing up to them in recent months. I have looked carefully into the reservations expressed by Barr and Zwick, and I think they are based to some extent on a misunderstanding of recent actions taken by the Chilean Government and Congress.

 

On balance, I think Chile is a good bet and that President Frei deserves our full support. I recommend that you authorize negotiation of the full assistance package as outlined in the Gaud memorandum at Tab C.

 

Walt

 

Approve/6/
Disapprove
Call me

 

/6/The first and last options are checked and the President wrote: "Let’s pass until next week." In a January 16 memorandum to the President, Rostow reported: "Rusk is inclined to go with Ed Korry’s view on the Chilean loan. If you approve, he will clear with [Secretary of State-designate William P.] Rogers—if it is the transitional problem that concerns you." In response, Johnson checked the "Talk to President" option. (Johnson Library, National Security File, Country File, Chile, Filed by LBJ Library) On January 17 Korry reacted angrily to a report that the Department of the Treasury had "rejected" the program loan: "If parochialists in Treasury are going to exercise veto power over US foreign policy, if they are to be both arrogant and powerful enough to assume such political responsibilities in defiance of the considered judgments of State, AID, and the President’s personal representative, then it is the latter’s responsibility to record for history the range of possible consequences of their action." (Telegram 215 from Santiago, January 17; National Archives and Records Administration, RG 59, Central Files 1967–69, POL CHILE–US) President Johnson subsequently approved the loan.


Return to This Volume Home Page

  Back to top

U.S. Department of State
USA.govU.S. Department of StateUpdates  |   Frequent Questions  |   Contact Us  |   Email this Page  |   Subject Index  |   Search
The Office of Electronic Information, Bureau of Public Affairs, manages this site as a portal for information from the U.S. State Department. External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained therein.
About state.gov  |   Privacy Notice  |   FOIA  |   Copyright Information  |   Other U.S. Government Information

Published by the U.S. Department of State Website at http://www.state.gov maintained by the Bureau of Public Affairs.