Allende’s Chile and the Inter-American Cold War (30 page)

Then, at the last moment a possible silver lining appeared. On the eve of UNCTAD III and Chile’s external debt renegotiations in Paris, the
Washington Post
published documents pertaining to the International Telephone and Telegraph Corporation (ITT) that detailed Washington’s efforts to prevent Allende’s inauguration and create economic chaos in Chile.
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Immediately, Chile’s economic ills were attributed to Washington, and the United States was put on the defensive. Certainly, the disclosures provided Chile with immense sympathy abroad, and their fortuitous timing appeared to strengthen Santiago’s position as its representatives headed
to Paris for debt negotiations. Overall, however, Letelier urged Allende to be restrained, privately suggesting that holding back would give the Chileans “cards in their hand to play later on.”
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At the grand-opening session of UNCTAD III, Allende chose a characteristic in-between stance by denouncing multinational companies’ actions in the Third World while conspicuously neglecting to mention the United States by name. As he proclaimed, he subscribed to a “Third World philosophy,” which stood for recuperating national resources from foreign ownership and sustainable development against cultural and economic imperialism.
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But as the spotlight hovered over Chile, the question was whether Allende could capitalize on UNCTAD III to undermine his enemies’ ability to hurt him. Within the G77, Allende was one of only a few leaders that decisively challenged the international economic system in words as well as deeds. Now, Chile’s deteriorating economic and political situation weakened the effectiveness of its challenge, especially as the possibility of rescheduling Chile’s external debt burden was still being negotiated in Paris. There were also some within Chile who did not agree with the prospect of sitting down to negotiate with the global North and demanded that the South should squarely confront and overthrow the world’s already tottering economic system. Certainly, as delegates sat down to discuss the finer points of international economic relations at UNCTAD, Miristas burned U.S. flags outside the conference hall and demanded that a “revolutionary wave” engulf Chile and expel the U.S. delegation.
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Overall, then, there was no Chilean left-wing consensus on how to deal with the United States, the USSR, or the Third World, let alone any agreement on what the ultimate shape of Chilean socialism should be. Even if Allende restrained the MIR by curtailing Cuba’s support for the party, he could not eradicate its influence altogether or impose unity on his coalition government. Internationally, Santiago also found itself reacting as fast as it could to mounting financial pressures while looking to multilateral forums for support. In this situation, what could UNCTAD III achieve? Letelier, for one, was highly dubious that it would resolve anything. Just before delegates arrived in Santiago from around the world, he had warned Almeyda that the conference would be of only “secondary value.” It was unlikely to significantly change Washington’s posture toward the Third World, he argued, and would not have any substantial impact on the United States’ approach to Chile.
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Letelier would have been surprised to learn that U.S. policy makers were actually rather worried about UNCTAD III and that they would change the way they dealt with Chile partly as a result of it. What made the conference a daunting prospect for Washington’s policy makers was not that it would force the Nixon administration to substantially alter its policies toward Chile given the country’s new standing in the Third World. Rather, it was the other way around: administration officials feared that the conference would unfavorably change the power dynamics between the United States and Chile and that this would consequently have negative implications for Washington’s standing in Latin America and other areas of the global South. Rather than merely being concerned about UNCTAD, however, it was the coincidence of this event, the ITT revelations, an imminent OAS General Assembly meeting, and forthcoming debt negotiations in Paris that concerned U.S. officials as they believed that they all provided Allende with sympathetic platforms from which to rally support. As the State Department and Kissinger’s new assistant on Latin American Affairs, William Jorden, warned, the ITT leaks had been a “setback” and Allende was “increasingly positioning himself as leader of [the] Third World.”
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In what was commonly regarded as a balance between “him and us,” administration officials were now concerned that they were about to lose ground to “him” in Chile, Latin America, and the global South overall.
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These fears were clearly exaggerated, but they were taken seriously enough to precipitate a number of actions to prevent a loss of worldwide prestige. Henceforth, the Nixon administration appeased the Chileans at Paris at the last minute and also began working more effectively with frustrated Latin American nationalists in order to undercut Chilean, Cuban, and Soviet influence in the hemisphere.

As had been the case since Allende’s election, the majority of Washington’s foreign policy team still believed that the United States could not overtly bring Allende down without bolstering the latter’s chances of success and harming Washington’s reputation in the process. As the State Department explained at the beginning of April, “combining independence from U.S. influence and sweeping social change carried out with a show of legalistic deference to pluralism, has inherent appeal in Latin America. The extent to which this appeal is manifested in political developments in other countries will depend on the evident success or failure of
the Allende regime, and whether Allende can persuasively attribute his difficulties to external factors. The implications for U.S. strategy are clear.”
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Making sure that the United States did not receive the blame was also a priority for Kissinger and his staffers at the NSC, the U.S. ambassador in Santiago, and leading opposition figures in Chile. And in April, this most obviously meant suggesting that the United States accept Chile’s petition to reschedule debt repayments. Ex-president Eduardo Frei privately also urged Washington not to “torpedo” negotiations, and Ambassador Davis warned his superiors in Washington not to give Allende a “credible and emotionally overwhelming foreign threat” by doing so. As Davis saw it, a U.S.-Chilean confrontation coupled with the deterioration of Chile’s economy would only lead Allende to “press harder for larger-scale [Soviet] bloc aid … in desperation.”
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In Davis’s words, ITT revelations had offered the UP persuasive evidence it could use to argue that the United States was “attempting to deny Chile necessities of life.”
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Even so, this majority still faced the task of winning over Nixon, who had been more inclined to punish Allende overtly for having expropriated U.S. copper companies without compensation. In early 1972, Washington insiders were referring to the deterrence of future Third World expropriations as “one of the cardinal objectives” of Nixon’s foreign policy.
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Thus, when Treasury Secretary John Connally had complained to Nixon that the State Department was poised to renegotiate Chile’s debt at the beginning of the year, the president had reacted by swiftly placing the Treasury Department in charge of negotiations and instructing it that he was firmly against any rescheduling.
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Essentially, it was the growing prospect that Allende would effectively use UNCTAD III, Paris, and the OAS to boost his chances that altered this hard-line posture and led the White House to contemplate a more flexible position. As Jorden warned Kissinger three days before UNCTAD III, it was time to get Washington’s “ducks in a row” and to make sure Treasury officials understood that “strictly financial objectives” would be pursued only in the context of Washington’s “
overall relations
with Chile.”
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As things were, State Department analysts warned that European creditors appeared to be on the verge of rescheduling Chile’s debt independently, placing Washington’s position in “serious danger.”
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Others were also suggesting that by actually joining in and rescheduling Chile’s debt, the United States would not be in danger of solving Allende’s economic problems anyway. In fact, Ambassador Davis, the State Department, and Jorden argued that the United States would be in a far more favorable position to undermine
Allende’s government further down the line if it gave ground on this issue. They therefore advocated appearing cooperative while simultaneously gaining a lever to use against Chile in the future in the shape of a clause linking future debt renegotiation with evidence of compensation for copper companies.
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As Jorden advised, Chile would still have to renegotiate future debts and, if Allende had not abided by agreements by then, the United States would be “in a much stronger international position” to take a “tougher line.”
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Although it is unclear what Nixon thought of this argument, he did nothing to oppose it. On 20 April 1972 the United States signed the Paris Agreement, which gave Chile a three-year deferral on 70 percent of its external debt between November 1971 and December 1972, as well as the opportunity to reschedule debts for 1973 at the end of the year. Crucially, the agreement also stipulated that Chile was to reschedule remaining repayments with individual creditors, which tied Santiago down to bilaterally negotiating its repayments with Washington. As per U.S. designs, the Paris Agreement also included a clause regarding Chile’s commitment “to grant just compensation in accordance with Chilean legislation and international law” for expropriations. This reference to “just compensation” in Article 4, as it was subsequently known, was clearly open to conflicting interpretations, and it would become a frustrating impediment to Chile’s efforts to resolve its issues bilaterally with the United States.
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Washington’s decision to go along with a framework for debt rescheduling therefore turned out to be a shrewd move. Although it offered the Chileans some respite, it allowed the Nixon administration to regain much of the initiative vis-à-vis Chile that it had lost in the previous few months.

In the end, things also went well for the United States at UNCTAD III, which ultimately failed to change either the U.S.-Chilean relationship or the balance of international economic relations. One participant later went so far as to describe the conference as a “gigantic farce,” and Venezuelan leaders would later explicitly label it as having “failed” to do anything about the rising debt problem in Latin America.
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The North managed to defend its position and the South managed only to get hazy commitments on aid. So much so, in fact, that after the conference, Algeria’s foreign minister, Abdelaziz Bouteflika, lamented that “the road of Third World economic emancipation … does not run through UNCTAD” but rather through the South’s own efforts to forcibly change its relations with the developed world.
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However, it was not only the North that was intransigent. To be sure,
where Chile was concerned, delegates pledged their support for its economic battles. But as far as the British ambassador in Santiago was concerned, Allende’s opening address—which the ambassador labeled as “extreme” and “demagogic”—had “probably divided rather than helped the developing world.”
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Although the ambassador’s labels may have been somewhat shrill, his observations regarding the problems the developing world faced in uniting behind a common cause led by Chile were astute. As Hernán Santa Cruz had forewarned, the Third World’s leaders who had gathered in Santiago to change the world economic system and their position within it had been vulnerably divided when they arrived. Or, as Ambassador Letelier observed from Washington, all that UNCTAD III had done was to show the Third World’s task of transforming the world economic system was going to be long, with “scarce” prospects of success and with little immediate impact on Chile’s situation. He therefore advocated the promotion of “more limited, solid, stable and also more realistic nuclei, at regional and sub-regional levels, like the Andean Pact.”
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Chile’s chances of benefiting from the Andean subregional grouping were nevertheless also increasingly tenuous. By 1972, investors abroad were welcoming the pact’s apparent new “flexibility” regarding the restrictive rules it had previously placed on foreign investment. After an initial year of activity, international observers also noted a “depressing … lull” had overtaken the group. True, by the end of 1971, trade within the pact had increased by $100 million, reaching a total of $160 million. Yet foreign observers were unimpressed, especially as Peru’s exports to member states were decreasing. Chile and Peru were also rumored to be resisting new imports that competed with local industries.
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Although the UP was politically committed to the pact, Chile’s economic situation was clearly affecting its participation. With Chile increasingly forced to focus on essential imports to save its shrinking foreign exchange reserves, it was growing apparent that the UP could not comply with the pact’s stipulations for economic integration.
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Beyond this, when Andean foreign ministers met in Lima in June 1972, they could confirm commitment to “ideological pluralism” and an “Andean Spirit” on “political, economic, cultural and social issues,” but little more.
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What did this mean for the Nixon administration’s approach to Latin America? Having joined forces with Brazil the previous year, and having
more than survived UNCTAD III, the United States now began paying far more attention to this “lull” and to calculating how it could take advantage of regional divisions. As we have seen, Nixon’s Latin American policy was still rather ill-defined beyond its general anticommunist offensive in the Southern Cone. And, officially at least, the United States was supposed to be pursuing a “low profile” in Latin America. However, as Kissinger had privately remarked at the beginning of 1972, there was a “major revolution” going on in Latin America and “not being domineering, is not an end in itself. We have to say what we are for.”
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