Latinnews Archive
Latin American Weekly Report - 20 October 1972
Chile: war of nerves
The campaign for next year's congressional elections looks like being the roughest and toughest ever. Increasing pressures from abroad are making the government's position more difficult.
As the Chilean government faces its worst crisis to date, the pattern of politics in Chile for the next five months is firmly established -- a monthly crisis in which both opposition and government clash furiously, as they test their varying skills at brinkmanship in the runup to the congressional elections in March. The present crisis is no exception. Provoked by lorry owners in the south refusing to be nationalized, the crisis has ended up engulfing the whole of Chile as essential supplies have failed to reach their destinations. The crisis was made more acute by the Christian Democrats' decision to support the lorry owners, presenting themselves as the defenders of the legitimate right to strike. But as the Christian Democrats have only newly discovered the trade union movement, it is difficult to see them in such a role. What their action has done, however, is to add fuel to the demands of those on the extreme Right who want President Salvador Allende and his coalition government overthrown.
But however serious Allende's problems on the home front, they do not include the threat of a precipitate expulsion from La Moneda. There is the danger, of course, that someone will go too far with brinkmanship, but as yet those who want to circumvent the elections are in the minority.Outside Chile, however, the situation is more complicated.Kennecott's action in getting a French court to embargo payment on a shipment of Chilean copper has snowballed. Another cargo of Chilean copper diverted from Le Havre was not allowed by the Dutch transport union to unload in Rotterdam. A further cargo destined for Sweden was expected to be sequestrated on its arrival at the port of Vaesteras. While the lawyers representing Chile remain confident that the present disruption in their clients' copper sales will be temporary, there is no doubt that Chile's foreign exchange position has been seriously affected.
One of the side effects of Kennecott's action has been the suspension of loans already negotiated by Canadian and Dutch banks. The suspension of loans to Chile is one of the chief frustrations of Allende's government. At the recent meeting of the World Bank and the IMF, Alfonso Inostroza, president of the Chilean Central Bank, gave vent to the government's feelings when, taking his cue from Robert McNamara's somewhat Olympian inaugural address on the need for social reform in the developing world, he delivered a strong attack on the World Bank's attitude to Chile. The point made by Inostroza was obvious enough: why should one of the few countries which is attempting serious social reform be precisely the one which has been blacklisted for new loans by the World Bank? The bank has made no new loans to Chile since Allende was elected.
The reasons for the World Bank's attitude are said to be Chile's lack of credit worthiness -- certainly not a new phenomenon, although nobody can deny the parlous condition of the country's balance of payments. Chile has defaulted on a large part -- the United States part -- of the debt service due after the refinancing arrangement of December, 1971, and the claims of the United States copper companies are not settled. This is the basic obstacle. McNamara is most unlikely to want opposition from Congress in Washington at a time when it has been most difficult for the World Bank to get approval for the next allocation of the United States share to its soft loan window, the International Development Association (IDA). Moreover, even forgetting the adverse reaction of the US congress, it would be difficult to get the approval of the World Bank's board for a loan to Chile. The United States has 23 per cent of the votes, and other major shareholders such as West Germany are very anxious to avoid offending it.
All this, of course, is of little comfort to the Chileans. The bank has in the past refused to make loans to a number of member countries, including Batista's Cuba, Trujillo's Dominican Republic and Sukarno's Indonesia, but they were not in a position to put pressure on the bank since they owed it nothing. But Chile's debt to the bank is important, totalling 134 million dollars -- with another 29 million dollars to be disbursed under old loans, according to the bank's latest annual report.Although Inostroza carefully avoided mentioning the threat of a Chilean default to the bank in his speech, such a step would not be surprising. At the debt refinancing meeting in Paris last December, there were mutterings from several European creditors that the bank was getting off scot-free without joining in the refinancing, essentially a moratorium in 70 per cent of the interests and principal due. In fact, the bank has rarely extended refinancings or granted reschedulings -- India has been the main exception -- arguing that such action would only harm its shareholders, the member countries who would have to put up more capital to make up for the diminished possibility of obtaining borrowed funds on world capital markets.
In fact, if there is a confrontation between Chile and the world Bank, it will not be so much an argument about money as about principle. Chile could not reasonably hope to get even a moderate share of its foreign exchange requirements for development from the bank at a time when the exchange reserve loss for 1972 will be well in excess of 300 million dollars. In these circumstances what is needed is a massive injection of foreign exchange, which the World Bank is unable to provide. As far as the bank is concerned, a rescheduling of Chilean obligations would hardly affect the Bank's finances or its standing in capital markets, and the same would be true if Chile defaulted. The alternative therefore is whether the bank is willing to face the possibility of its first default ever, or sacrifice a little bit of principle and agree to reschedule.
* * * As a result of a misprint in last week's issue, the price of copper was given as 9 cents a pound. This should have read 49 cents.
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