1940: Chile

Political Affairs.

A very confused political situation has developed during the year, with inherent possibilities for a break in Chile's Popular Front government, which has just completed two years in office. The three important elements of the Popular Front are the Radicals, the Socialists and the Communists. The two traditional rightist parties, the Liberals and the Conservatives, dominate both houses of Congress, however, and a bill outlawing the Communist Party has passed the Chamber and is pending before the Senate. Most of the rightist groups too, have recently formed the Acción Nacional Anti-Comunista. Moreover, a sensational attack on the Communists by Oscar Schnake, Minister of Fomento and other outstanding members of the Socialist Party, and supported by Marmaduke Grove, secretary of the party, may lead to an important political realignment. The attitude of the leading Radicals to this break between the Socialists and Communists is contradictory but the Radical Party has officially declared that the Communists should be considered a loyal element of the Popular Front. The Executive Committee of the Popular Front, on Dec. 20, refused to oust the Communists, as recommended by the Central Committee of the Socialist Party. The Communists hold no Cabinet positions, although here, as in Uruguay (and in these two countries alone in all South America) they are permitted to function as a political party.

A break with the Communists might have meant a loss of votes in the Congressional elections scheduled for March 1940, which the rightist parties, fearing loss of their majority in Congress, have unsuccessfully tried to have postponed and have now announced their intention of boycotting. A new bloc, representing the Agrarian Party, the Popular Socialist Vanguard (formerly the Nacista Party), the Democratic Party and the Falangist group, was formed in September for the purpose of lining up candidates for these elections. This marks the re-entry of the Chilean Nazi group into the political field. In July this same Vanguardia Popular, headed by Jorge González von Marées, was implicated in an unsuccessful plot to overthrow the government. A test senatorial election Nov. 17 proved a victory for the Popular Front.

The government has weathered several storms and Cabinet crises throughout the year, but a smooth working of the alliance of its three leftist elements is further complicated by indications of a cleavage within the Radical Party, 'progressive elements' challenging the Party's leadership and criticizing the Party members of the Cabinet, which has been dubbed the 'Millionaire's Cabinet.' Throughout the changes of the year, however, the same balance of power has been maintained between the component elements of the Popular Front: six Radicals, three Socialists and two Democrats.

Foreign Relations.

Spain broke off relations with Chile on July 16, just before the Havana Conference (see CUBA), 'diplomatic asylum' to Spanish Loyalists in the Chilean Embassy being the real issue, although pique at the anti-Franco sentiments expressed at a public meeting in Chile June 17 and at Chile's hospitality to refugees from Nationalist Spain was the ostensible reason. (See also SPAIN.)

Reports of highly organized and well-financed Nazi propaganda activities, following a pattern common throughout Latin America, have been plentiful, and Nazi exploitation of the defense discussions with the United States, revolving around the question of naval and air bases, has been evident in the Popular Vanguard's attacks on the United States in its paper, Trabajo. The United States has made it clear that neither cessions nor leases of bases were contemplated but a policy, rather, of encouraging their establishment through financial and technical assistance and their control by the country owning the territory affected, provided they might be available for use by the United States in situations calling for joint defense. Chile's Defense Minister, in November, announced his country's willingness to cooperate in the spirit of the Havana and Panama agreements but its refusal to cede any territory. A bill for national defense and rearmament, calling for one billion pesos, is going through the final legislative stages as 1940 closes. As a war measure the Interior Department has limited all strikes to not more than ten days, after which arbitration is mandatory. It has also taken a firm stand against all non-governmental armed organizations. A 'sixth column,' the League of Defense, composed of thousands of youths of all classes and parties, has been organized to investigate 'fifth column' activities and to assist in the defense of Chile against Nazi influences. On June 2, at the expiration of the two-year notice, Chile withdrew automatically from the League of Nations.

Two sets of conflicting territorial claims with the Argentine have arisen this year. Dispute over the ownership of three islands, Picton, Nueva and Lennox, strategically located at the entrance to Beagle Channel on the Atlantic side of the Straits of Magellan, will be submitted to the arbitration of a Justice of the United States Supreme Court. Chile, as the present possessor, has just put the islands under a new maritime jurisdiction. A decree of the Chilean government, claiming all of the Antarctic regions between longitude 53° and longitude 90° on the basis of geographic continuity, is in conflict with Argentina's claims.

Foreign Trade.

On the other hand, closer economic relations with its eastern neighbor are evidenced in the recent trade agreement with Argentina, in line with the policy of the ABC powers to recoup export losses resulting from the European War by economic cooperation with each other. An opportunity for partial realization of the economic defense essential to hemispheric solidarity presents itself to the United States in the case of Chile, which needs, more than cash credits, increased purchases of its copper, nitrate and other key commodities. A re-orientation of Chile's markets for nitrate, necessitated by the wars in Europe and the Far East, points to an increase in trade with both the United States and Japan. As a matter of fact, the first seven months of 1940, which showed a shrinkage in imports from Germany to $1,600,000 as compared with $12,900,000 for the like period of 1939, indicated a corresponding increase in purchases from the United States, totalling $26,400,000. Negotiations for a reciprocal trade agreement have lagged, however, owing to the suggested reduction in the copper import tax, whereas a $12,000,000 loan has been granted the Chilean Corporación de Fomento by the Export-Import Bank, to be used for purchases in the United States in connection with extensive hydro-electric developments and other projects for intensified national production.

Finance.

The export surplus for the first nine months of 1940, 187,300,000 pesos, is misleading as an indication of a favorable economic situation since 95 per cent of the shipments were copper, which enters the United States primarily for refining and re-export and the returns from which, as the product of foreign capital, remain largely abroad as gross profits. The chronic scarcity of dollar exchange, therefore, led the government early in December to decree suspension of amortization, not of interest, of the external debt, thus diverting some $6,000,000 to the Exchange Control Board for the financing of essential imports from the United States. The basis for this action was established in the earthquake reconstruction legislation of last year. The budget for 1941 represents a record figure, about 2,200,000,000 Chilean pesos, which is 10 per cent higher than that for 1940.