Investors Shape Latin American Politics

ACCORDING TO business school theory, U.S. business becomes an asset to foreign countries by contributing technical knowledge, training, new equipment, and capital. Latin American countries, however, can only be hurt by U.S. investment.

Although businessmen claim that multinational corporations contribute capital to developing countries, statistics show that the bulk of capital used by U.S. investors is not imported from the United States but borrowed locally or reinvested from the company's earnings. In the 1960s, U.S. companies exported $2.4 billion to invest in Latin America and brought in to the United States $10.2 billion in income, not including fees for management and royalties, which would raise the figure higher.

Latin America does not have the independent position of China or Europe to be able to establish controls over foreign business. Nor does business face the pressure which is exerted by internal groups in the United States--labor unions, environment groups, and consumer groups.

When Latin American countries attempt to control the extent of international acquisition, excess profits, monopoly practices, draining of natural resources, and wage levels, they invariably face opposition by U.S. business. Allende, for example, said that he did not intend to discourage all American investment, but only to gain Chilean possession of the country's most crucial businesses and establish firm controls over business practices and profits. U.S. business, through the U.S. government, pressured for political conditions favorable to its interests in Guatemala in 1954, Brazil in 1964, the Dominican Republic in 1965, and recently, in Chile.

In enacting a socialist program, Salvador Allende provoked opposition from two sides--one, the internal Chilean class struggle and the other, the U.S. economic blockade.


When Allende became president in 1970, he inherited a stagnating Chilean economy, heavily dependent on U.S. loans. Chile had begun a system of industrialization in the 1940s which encouraged self-sufficiency in consumer goods and ignored the export and agricultural sectors. The Chilean upper class did not make a sufficient investment in research and development to build industry for export, but preferred to rely on an easy internal market, protected by tariffs and an overvalued currency. The copper exports also failed to increase because U.S. companies used their profits from Chilean mines to invest elsewhere.

In 1955, the price of copper fell, and Chile found itself in a balance of payments crisis. U.S. and international organizations attempted to promote a favorable climate for private investment by filling the gap with loans. During this period, the Chilean economy did not grow, but the loans enabled the middle and upper classes to maintain a high level of consumption. In the years 1965-1970, foreign organizations loaned Chile $1.1 billion, increasing the already staggering foreign debt.

When Allende nationalized U.S. business, the United States adopted a hard-line policy and cut off all credit from the Agency for International Development and the Export-Import Bank (Eximbank), as well as from U.S.-controlled international organizations, the World Bank and International Development Bank. As soon as these institutions withdrew their support for the Chilean economy, private U.S. and European banks withdrew credit for the short and medium-term loans which are necessary to normal import-export transactions.

Allende's supporters had thought that the legality of his election would prevent the establishment of an economic blockade by private organizations. They failed to realize that it was only on the basis of U.S. government long-term loans that private sources of short-term loans thought Chile worthy of credit.

As the North American Congress on Latin American quoted one U.S. banker:

When a capital flight begins, it snowballs. Suppliers' credits to Chile were, perhaps $300 million, in addition to another $220 million in banker's lines of credit: They were cut. Then profits are remitted faster, and cash balances held in Chile are reduced. No plot is necessary. Each one of us got scared.

Since World War II, Chile has obtained 65 per cent of its capital imports from the United States. An immediate problem posed by the credit blockade was Chile's inability to import parts and replacements for U.S.-built machinery. Small industries and transportation were the most heavily affected but the larger industries also began to feel the scarcity.

As the Unidad Popular party controlled prices and raised the wages of the working class, it intended to maintain the pre-Allende level of middle-class consumption. The economic blockade and shortage of dollars, however, forestalled the necessary increase in imports. Workers had the money to compete with the upper classes for goods which were limited in supply. The Central Bank set differential exchange rates which gave priority to food imports over consumer goods. As workers found it easier to purchase essential products and the middle classes felt their own consumption power threatened, the workers and bourgeoisie became increasingly polarized. The combined pressure of middle class discontent and economic difficulties created the conditions under which the military could successfully topple the government.

U.S. protection of its business interests is always two-sided. As other economic aid was cut, the United States continued a high level of military aid to Chile, which was second only to its aid to Brazil between 1950 and 1970. Four thousand Chilean officers were trained in the Panama Canal Zone. General Pinochet, the head of the junta, had been Chile's military attache to the United States, and each of the other junta generals had spent some time in this country. Last spring, Nixon signed a statement waiving restrictions on selling sophisticated F-5E Freedom Fighter Jets to Chile on the condition that the financing was important to "U.S. national security."

Besides the connection between ITT, the CIA, and the State Department in the 1964 and 1970 elections, there is evidence of U.S. financial aid to the truck owners for the October 1972 strike, the U.S. embassy's use of ten CIA agents since 1970, and the Nixon administration's admitted prior knowledge of the September coup.

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