The "Invisible Blockade" and the Overthrow of Allende

Paul E. Sigmund

From Foreign Affairs, January 1974

Summary:  A striking aspect of the world reaction to the military coup that overthrew Salvador Allende as President of Chile in September 1973 has been the widespread assumption that the ultimate responsibility for the tragic destruction of Chilean democracy lay with the United States. In a few quarters, the charge includes an accusation of secret U.S. participation in the coup. However, a subcommittee of the Senate Committee on Foreign Relations, headed by Senator Gale McGee, has just investigated this accusation and concluded that there is no evidence of any U.S. role whatever.

A striking aspect of the world reaction to the military coup that overthrew Salvador Allende as President of Chile in September 1973 has been the widespread assumption that the ultimate responsibility for the tragic destruction of Chilean democracy lay with the United States. In a few quarters, the charge includes an accusation of secret U.S. participation in the coup. However, a subcommittee of the Senate Committee on Foreign Relations, headed by Senator Gale McGee, has just investigated this accusation and concluded that there is no evidence of any U.S. role whatever.

More commonly, however, the bill of particulars relies on what President Allende himself, speaking before the United Nations in December 1972, called the "invisible financial and economic blockade" exercised by the United States against his government. Articles taking this line have appeared, for example, in The Washington Post, the National Catholic Reporter and The New York Review of Books. On the other hand, The Wall Street Journal has been critical of what it calls a "simplistic plot" theory espoused by members of the academic community-that "Washington by simply turning off the spigot of low-interest loans" was able to bring down Allende.

Was there in fact an undeclared economic war between the Nixon administration and Salvador Allende-to use Allende's own words, "an oblique underhanded indirect form of aggression . . . virtually imperceptible activities usually disguised with words and statements that extol the sovereignty and dignity of my country"? Did this warfare have a direct relationship to the bloody events in Santiago? A critical examination of the considerable evidence on this subject available in this country and in Chile can help to answer these questions, and possibly suggest whether wider conclusions are in order about the relations between capitalist nations and a democratic Socialist regime.

II

Even before Allende won a 36.2 percent plurality in a three-way popular election for the Presidency on September 4, 1970, American business interests in Chile, including the International Telephone and Telegraph Company (ITT), which owned 70 percent of the Chilean Telephone Company, had been concerned over the possible effect on their investments of Allende's accession to power. The Chilean constitution provided that in the event that no presidential candidate received an absolute majority, the Chilean Congress was to choose between the top two candidates 50 days after the popular election. Unquestionably Allende's election produced an immediate financial panic and run on the banks in Chile. Is there persuasive evidence that U.S. interests or the U.S. government deliberately contributed to the panic, or otherwise attempted to prevent Allende's election by use of their financial and economic influence?

The most important available evidence on this question appears in the confidential ITT papers published by Jack Anderson in March 1972, and in the hearings on these papers conducted by the Senate Foreign Relations Committee a year later. This material establishes that offers of financial aid aimed at stopping Allende were made by ITT president Harold S. Geneen to the CIA in July 1970 and to Henry Kissinger's office in September. The record indicates that the July offer was rejected by the CIA and that the September offer was never passed on to Kissinger by the assistant who received it. However, the ITT papers also include a report to Geneen from his senior vice president, E. J. Gerrity, describing a discussion on September 28 with William Broe of the Clandestine Services Division of the CIA, in which Broe outlined a program "aimed at inducing economic collapse" in Chile before the congressional runoff election in late October. The Broe proposals, said Gerrity, included nonrenewal of bank credits, a slowdown in deliveries of spare parts, pressure on Chilean savings and loan companies, and withdrawal of technical help by private companies. Gerrity reported to Geneen that following his conversation with Broe, ITT's New York office had contacted several other companies about the plan, but those companies had responded that "they had been given advice which is directly contrary to the suggestions I received." Broe himself testified to the Senate committee that Gerrity had been negative about his plan, and subsequent documents confirm that the other companies were unwilling to coöperate. When questioned by the Senators, Charles Meyer, Assistant Secretary of State for Inter-American Affairs at the time, insisted that U.S. policy had been strict nonintervention and described the Broe conversations as merely an exploration of "the possibility or a series of possibilities which might have been inputs to changed policy but were not." The only contrary evidence in the papers and hearings is a report on October 15 to the ITT Washington office by its Chilean representative that the American ambassador, Edward Korry, had indicated that he was reducing the amount of U.S. aid "already in the pipeline" as much as he could. The report added: "The ambassador said that he had difficulty in convincing Washington of the need to cut off every possible assistance to Chile."1

The Senators also questioned representatives of the major New York banks with interests in Chile about their lending policies in the period between the popular election in Chile on September 4 and the runoff on October 24. All denied being contacted by ITT or putting economic pressure on Chile. First National City Bank testified that it had made available $5.4 million in credits to Chilean government agencies in the last three months of 1970; Manufacturers Hanover reported that by the end of November its "exposure" in Chile had increased from $68 million to $72 million; Chase Manhattan explained that a slight reduction of its lines of credit in the last quarter of 1970 was due to the failure of one customer to utilize its facilities; and the Bank of America testified that its correspondent banks in Chile had been asked to hold their short-term lines of credit at an approximately constant level-a policy which was followed until December 1971.2

Thus there appears to be no substantial evidence in the ITT papers or hearings of an effort by the government or by private companies or banks to create an economic crisis to prevent Allende from coming to power in 1970. There is no doubt, however, that such a policy was discussed in at least one instance.

III

The next crucial period runs from Allende's accession in November 1970 to early 1972. During this period the Chilean government moved to nationalize American interests and carried out internal economic policies with serious effects on both domestic investment and its international economic position. Finally, in November 1971, Chile declared a moratorium on most of Chile's foreign debts, while on the U.S. side President Nixon issued a formal policy statement in January 1972 that, unless there were "major factors" to the contrary, the United States would not itself extend new bilateral economic benefits, and would oppose multilateral loans, to countries expropriating significant U.S. interests without taking "reasonable steps" toward compensation.