1942: Chile

'Non-Belligerency.'

Although the Chilean Foreign Minister prefers to apply the term 'non-belligerency' rather than 'neutrality' to his country's foreign policy, the fact remains that, down to the close of 1942, Chile continued to maintain diplomatic relations with the Axis, while at the same time it has conceded the United States non-belligerent status, is supplying it heavily with such war essentials as nitrates and copper, and is probably more sympathetic officially to the United Nations' cause than the only other isolationist country of Latin America, Argentina. Chile has explained its cautious position regarding the war on the grounds of the extreme vulnerability of its relatively undefended 2,600-mile coastline. The record business of its merchant fleet and the Japanese threats against Chilean shipping if neutrality should be abandoned may also be a deterring factor. A small but important German concentration in southern Chile suggests an additional explanation.

Axis Espionage Activities.

Resentment was sharp over the public rebuke contained in the charge made by Under-Secretary Sumner Welles in October that Chile and Argentina were allowing Axis agents to operate undisturbed in their territories. It subsided, however, following the publication by the Inter-American Advisory Committee for Political Defense of the Continent (see URUGUAY) on Nov. 3, of a 7,000 word memorandum which furnished the evidence on which Welles' charges were based. This document, which had been delivered to the Chilean President on June 30 by the United States Ambassador, Claude G. Bowers, proved that valuable information had been going from Chile to Germany by secret radio as the result of the work of a Nazi espionage organization, of which the Air Attaché of the German Embassy was a leading figure. The activities of the group, through whom facts covering the arrival and departure of Allied ships had been sent to Berlin, had been discovered through the interception of radio messages by the United States FCC. Following the publication of this evidence the Chilean Government took drastic steps to curb Axis espionage and sabotage activities. The fact remains, however, that for four months no official cognizance was taken of the revelations contained in the memorandum.

Neutrality a Political Issue.

As in Argentina, neutrality has become a major political issue, though it cuts across party lines. Political feeling ran high following the Welles incident. President Ríos' proposed trip to the United States, which had been anticipated as a possible prelude to a break with the Axis, was cancelled. The entire Cabinet resigned as a face-saving device for the elimination of the Foreign Minister, Ernesto Barros Jarpa. The new Foreign Minister, Joaquín Fernández y Fernández, is much more favorably inclined towards the United Nations' cause. Oscar Schnake, the Socialist Minister of Development (Fomento) and an outspoken advocate of a shift in foreign policy, had already resigned. The Socialists and Communists, and important elements in the Radical party, including Marcia Mora, who had resigned as President of the party over this issue, have conducted an active campaign for severing relations with the Axis. The Confederation of Chilean Workers has urged a break. Moreover, a large anti-Axis demonstration in Santiago in November indicates some public sentiment in favor of a decided stand against the Axis nations. In his inaugural address in April, however, President Ríos declared that there would be no change in foreign policy unless there should be a clear popular mandate for one. By continuing Chile's neutrality down to the end of 1942 the Ríos administration has, apparently, recognized no such mandate. The departure, on Dec. 12 for the United States, Brazil and Argentina, of Dr. Raúl Morales, Minister of the Interior, who has been active in curbing Axis operations in Chile, seemed to indicate that a break in relations with the Axis might be imminent. (In January 1943 Chile severed relations with the Axis.)

National Elections.

In the elections held Feb. 1 Juan Antonio Ríos, who had been imposed on the coalition by the dominant Radical party to fill out the unexpired term of the late Pedro Aguirre Cerda, was chosen President. His opponent, General Carlos Ibáñez del Campo, the Rightist candidate, was defeated by a decisive margin. The inauguration of President Ríos on April 2 put the Rightist branch of the moderate Radical party in control of the Government. Formerly director of the National Mortgage Bank, he has always been a middle-of-the-road member of the party. The presence in the Cabinet of two Liberals, a party which refused to cooperate with Aguirre Cerda's Popular Front, marks the more conservative character of the Ríos Government. In his campaign the President refused the support of the Communists, who had belonged to the Popular Front. Since the elections, strong nationalist and fascist elements in the country have formed a bloc called the Nationalist Union.

Foreign Trade; Economic Situation.

A 'preclusive' purchasing agreement was signed Jan. 30 by which the Metals Reserve Company of the United States undertakes to buy such amounts of copper, gold ore concentrates, manganese, lead, zinc, refined mercury and certain other metals as are not absorbed in the normal course of business with Western Hemisphere countries, and to take a minimum of 165,000 tons of copper ore concentrates. An unprecedented demand for copper sent the 1941 output to an all-time peak; figures for the first quarter of 1942 indicate that production in 1942 will exceed this. Chile's foreign trade is closely related to the mining industry, since mining products constitute 82 per cent of the total. The value of 1941 exports came to 781,500,000 pesos, representing an export surplus of 256,300,000 pesos. The actual balance of payment is much smaller than these figures indicate, however, since Chilean copper is controlled by foreign capital. An Export-Import Bank loan, signed in May, increased credits to the Chilean Fomento Corporation from $12,000,000 to $17,000,000, the money to be used for the purchase of United States merchandise. During the Rio Conference (see BRAZIL) a $5,000,000 credit for new railroad equipment was extended. In spite of Chile's maintenance of relations with the Axis, no such economic pressure as has been exerted on Argentina has been applied to the West Coast nation, and the United States has continued to ship military equipment and supplies and to advance credits to that Republic, no doubt because of its urgent need for Chile's minerals.

To meet rising living costs, ceilings have been placed on rents and some foodstuffs. A newly created Instituto Económico Agrícolo will try to solve the food problem. A recent agreement with Argentina provides for the exchange of Chilean copper and nitrates for Argentine meat, grain and scrap iron.

1941: Chile

Political Affairs.

The Popular Front President, Pedro Aguirre Cerda, died on Nov. 25, and the executive powers passed to Vice-President Gerónimo Méndez, leader of the Radical party. The election campaign for a new president was bitter.

President Aguirre Cerda was a member of the moderate Radical party. His program of social progress, likened to the Roosevelt 'New Deal,' was necessarily postponed, first, by a disastrous earthquake and, next, by the repercussions in Chile of the war in Europe. Thus reconstruction and national defense superseded social reform as primary aims of his administration. The deceased president served as a balance wheel between the conflicting political factions of Chile, although his followers had been gradually deserting him and the continued unity of the Leftist forces seemed doubtful. The outbreak of hostilities between Germany and Soviet Russia led in September to a reconciliation between the Chilean Communist and Socialist parties, whose antagonism earlier in the year threatened the collapse of the Popular Front. A bill passed by the Congress to outlaw the Communist party was vetoed by the President a few weeks before the Congressional elections of March 2. These elections, conducted fairly, increased the Communist seats in the Chamber from 7 to 17 and added three new Communist Senators. This left the Socialists holding the balance of power in both houses but displaced them as fourth political party of the nation. Motions to unseat the newly elected Communist Congressmen were defeated in July.

Schism within the Radical party added to the political confusion. A dispute between the President and the party in June led to the resignation of five of the six Radical Cabinet ministers on party orders. The sixth, Minister of Interior Arturo Olavarría, remained but forfeited party membership. A revamping of the Cabinet in October brought four Radicals back into ministerial posts. The key post in the Cabinet is now held by a strong anti-Nazi, Leonardo Guzmán. The Vanguardia Popular Socialista, formerly the Nacista party, has been moving farther and farther away from the Popular Front. On May 20, forty-two members of the party were arrested on charges of plotting against the Government. The party leader, González von Marées, as a Deputy, is immune from arrest, but the editor of the Vanguardia organ, El Trabajo, was among those apprehended. Juan Antonio Rios was elected president Feb. 1, 1942.

War Status.

Immediately following the Japanese attack on Hawaii, Chile requested a meeting of the Foreign Ministers of the American republics in order that united action might be taken (See BRAZIL for the Rio Conference). Chile granted the United States non-belligerent status but declared its neutrality in World War II. Current Chilean-Argentine proposals for fortifying the strategic Straits of Magellan, unfortified to date by mutual agreement of 1881 for their perpetual demilitarization, call for the use of equipment from the United States. The Straits are important in continental defense as the only means of maritime traffic between the Atlantic and Pacific if the Panama Canal should be closed. The strategic importance of Chile's distant Pacific possession, Easter Island, is also receiving consideration. The Republic set a precedent for other South American nations suffering an acute shipping shortage by requisitioning five Danish ships in Chilean ports on the ground of 'political necessity,' to be returned with compensation after the War.

In spite of the large German-speaking population in south Chile, the Chilean Government has been vigorously pro-democratic, as is indicated by a number of anti-Nazi demonstrations, the arrest of German members of a Landesgruppe following the seizure of documents pointing to the organization within the country of a military Nazi society, and the appointment of a pronounced anti-Fascist as Minister of the Interior. Chile led the Latin American countries in protesting the Nazi execution of French civilian hostages. The Chilean administrative attitude in this respect has been in marked contrast to the caution displayed by the Argentine Government (See ARGENTINA). Following charges of subversive activities involving the Embassy the newspaper Crítica initiated a move to have the German Ambassador ousted.

Finance and Trade.

The 1942 budget proposal submitted to Congress calls for the largest annual expenditure in the history of the Republic, and, for the first time in a decade, authorizes an actual cash deficit. Revenues, estimated at 2,419,723,500 pesos, were roughly 10 per cent more than the 1941 estimate, but expenditures have been increased 18 per cent. The year 1941 closed with an accumulated deficit representing at least one-tenth of the total budget. Increased taxation, stiff cuts in general expenditures, and reduction in imports not indispensable have been recommended. A constitutional amendment to restrict Congressional authority to initiate extra-budgetary credits was defeated. Superimposed on the ordinary budget is a national defense program of 4,000,000,000 pesos (with the peso equivalent to four cents U. S. currency), which was passed by the lower house in November after a two-cent per pound copper export tax was divorced from it. The Government is authorized to contract foreign loans to finance this program.

The expansion of the United States defense effort, following the passage of the lease-lend bill in March, created an increased demand for copper, which worked to Chile's benefit since it is the largest copper-producing country of Latin America. The 'over-all' agreement concluded by the United States with Chile, Peru and Argentina in September for the acquisition of strategic and critical metals brought Latin American copper into the United States' market, and deprived Japan of an important source of this, and other strategic materials, such as manganese and mercury, which Japan, through outbidding the United States, acquired in rapidly rising amounts in 1940 and the first half of 1941. Japan's imports of bar copper from Chile, for example, increased from 559 metric tons in 1938 to 14,460 tons in 1940.

Nitrate is, however, Chile's basic industry and a more accurate barometer of the Republic's general economic situation, and it indicated 1941 as a satisfactory year. The United States increased its purchases from 600,000 to 900,000 tons, the latter figure representing from 80 to 85 per cent of total output. United States-Chilean trade, in general, has made tremendous gains in the last two years. In the same interval Japan jumped from eighth to third rank in Chile's trade. The Republic's first international trade emergency measure was approved by Congress in July, empowering the President, for three years, to set up a complete control of exports. See also PAN-AMERICAN AFFAIRS.

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.

1939: Chile

The first anniversary of the election of the Popular Front Government of President Aguirre Cerda was celebrated on Oct. 25. On that occasion leaders of the Socialist, Communist and other Leftist Parties confirmed their support of the President. During the course of the year political opposition has not been lacking, however. A Conservative plot against the Government was uncovered in July, and arrests were made of many former police and army officers and civilians, who were disgruntled at the sweeping dismissal of officials at the outset of the new régime. On Aug. 25 the Government easily suppressed a military revolt in which General Carlos lbanez, former president and head of the reorganized Nacista Party, was implicated. A state of siege for a month was then decreed. Rightist strength in both houses of the Legislature, where the conservative parties have a majority, is a source of worry to the President and impedes the progress of the reform program of the Popular Front Government.

Emergency Caused by Earthquake.

On Jan. 24, a terrific earthquake demolished the city of Concepcion; Chillan, a city of 50,000; and 5 other cities and 5 towns. Devastating an estimated 40,000 sq. mi., it cost 30,000 lives and a property damage of $50,000,000. This earthquake created an emergency situation. Sharp disagreement developed between the opposing coalitions over the loan bill to raise 2,500,000,000 pesos, half again as large as the normal annual budget, for reconstruction and relief. The Rightists approved 1,000,000,000 for earthquake reconstruction but opposed the second part of the proposed measure calling for an appropriation to increase national production. The bill, authorizing the full amount and for both purposes, was passed in April, however. The Government was empowered to borrow from funds derived from profits on nitrate sales and copper exports, which are earmarked for service of the foreign debt. Foreign and internal loans were also authorized, a further point of disagreement between the Right and Left groups, the former being opposed to capital borrowings from the United States for the purposes of this bill. Two Government corporations were created to carry out the two general provisions of the bill. If the money should not be raised, in part at least, from foreign loans, very heavy taxes would be required constituting a drain on the nation's resources and on income largely in the hands of the wealthy class, which is opposed to the Popular Front. This would further cripple the Government's social program. In July, President Aguirre reported offers of capital from abroad, both for reconstruction and for intensification of production.

Economic Questions.

The reform program was outlined in the President's opening message to Congress on May 21. Chile is a country without a middle class. Extremes of wealth and poverty are great. Until last December the landowning aristocracy had been in control. The new Popular Front Government's primary concern, therefore, is with improving the status of the hitherto submerged working classes. To this end steps have been taken to lower living costs by fixing food prices, to cancel pawn pledges and return all pawned tools and machines, and to construct cheap workingmen's homes. Public education is to be brought within the reach of the poor by the abolition of enrollment fees and by the provision of clothing for destitute children, 41 per cent of whom are said to be inadequately clothed. Changes in the direction of reorganizing the educational system include the institution of a nation-wide program of free adult education, the elimination of religious influence in the schools, and curricular modifications reducing the emphasis on the professions and increasing instruction along industrial and commercial lines.

Plans for basic changes in the national economy include an attack on the semifeudal system of land tenure and measures towards greatly increased industrialization. Although no steps such as Mexico has taken towards land division have been adopted, decrees of the previous administration granting land concessions in the Territory of Magellanes, in southern Chile, have been annulled as socially unjustifiable. Moreover, the colonization of useful federal lands is contemplated, and plans for the expenditure of 80,000,000 pesos for that purpose were reported early in the year. The first Congress of Chilean Peasants, meeting in Santiago in May, announced plans for the placing with Government help of 40,000 families, organized in collective agricultural colonies. Such undertakings as these have had to yield place to earthquake reconstruction, however, although an immediate plan for the support of Chilean agriculture, calling for an expenditure of 89,000,000 pesos, was announced in September.

The inclusion in the reconstruction bill of authorization to pursue an intensified program of national production points to the second basic feature of the Popular Front policies, i.e., industrialization. The first step in this direction is hydroelectric development to supply cheap power to the nation's industries, and this is the major provision of the five-year plan announced in September by the State corporation to promote national economic development. By expanding the country's industries a great reduction in the volume of imports is hoped for. The movement towards economic self-sufficiency is intense, but whether Chile can industrialize successfully on a large scale depends in part on the elevation of the extremely low purchasing power of the masses. That no aggressive action towards North American or other foreign capital is intended has been stated and confirmed in a number of official pronouncements, although the announcement of the establishment of a Government monopoly on the sale and distribution of petroleum, which would force the Standard Oil Company of New Jersey and the Royal Dutch-Shell to liquidate properties valued at about $9,000,000 immediately, seemed like a contradiction of this policy. Chile under the Aguirre administration has not been without its labor difficulties. According to a Government report, up to Oct. 31 there have been 536 industrial conflicts affecting 118,427 workers, most of them concerned with wage demands. Settlement without strike was accomplished in 348 of them. Wage increases obtained have ranged from 5 to 80 per cent, and have totalled 91,140,000 pesos. The largest textile mill in the country, in November, announced its closing because of labor troubles.

Trade Treaties.

An intention to negotiate a reciprocal trade treaty with Chile was announced by United States Secretary Hull on Oct. 2. Hearings on the proposed agreement were completed Nov. 28. It is not generally believed that the breakdown in negotiations for the treaties with Argentina and Uruguay will affect the Chilean treaty. Violent protests to the proposed pact from United States western mining states, opposing any reduction in the 4-cent a pound excise tax on copper, were so effective that the United States Department of State announced on Dec. 21 that there would be no tariff concession on Chilean copper and copper products. This is the first time such an announcement has ever been made prior to the conclusion of a trade pact, and may be designed to avert some of the opposition to the renewal of the trade agreements program, which expires in June 1940 (see VENEZUELA). The great decline in Chilean-American trade was indicated by Secretary Hull when he pointed out that in 1919 the United States sold Chile products valued at $55,776,000 and purchased $102,025,000 worth from that country, whereas, in 1938, the export and import figures had dropped to $24,603,000 and $28,592,000 respectively.

Finance.

At the same time that the trade pact proposal was announced the Export-Import Bank completed arrangements for advancing $5,000,000 to Chile to facilitate commercial transactions and to develop production. The Finance Minister pointed out that the loan was needed only because of a shortage of foreign exchange, and that there was peso revenue sufficient to finance all plans for reconstruction and intensified production. He announced a balanced budget at the end of the fiscal year, without suspending foreign debt service or contracting new loans abroad. Budget estimates for the coming year are not much larger than those for the present year. The good condition of the national finances caused a favorable impression among the Rightist opposition groups as well as among the Popular Front elements. The allotment of over 100,000,000 pesos for new schools, waterworks and housing in the area devastated by the earthquake and other large sums invested in roads were indicated in the annual report of the Ministry of Hacienda.

As of June 1939, the holders of 55.2 per cent of the total amount outstanding of the Chilean external debt had assented to the Republic's debt plan of 1935, by which the Government may use 50 per cent of the funds set aside for the debt for repatriation through purchase in the open market. The Foreign Bondholders' Protective Council, in August, reported its criticism of this plan unchanged, although it no longer felt it must recommend against acceptance of the offer. Receipts for 1938, available for debt service, were reported on Dec. 30 as $14,135,573, compared with $6,106,751 in 1937. Of this figure $2,747,242 was derived from the Government's participation in the profits of the Nitrate and Iodine Sales Corporation. At the close of 1938 the total external debt was about $390,000,000, including about $43,000,000 of short-term loans. It is still regarded as burdensome in spite of considerable reduction through repatriation.

Politics.

The first definite step by the Government towards checking German Nazi activities in Chile was the closing of foreign educational establishments, aimed at the German schools in the southern provinces. The expulsion of all foreigners considered to be associating themselves with local politics led to deportation orders against both a German accused of trying to create race conflict by the distribution of over 100,000 anti-Jewish pamphlets and a Briton for the distribution of leaflets attacking Hitler and recommending a boycott of German commercial concerns. The reorganization of the indigenous Nacista Party as the Popular Socialist Vanguard was an attempt to establish it as free from association with Hitler and the Third Reich.

1938: Chile

Presidential Elections.

The Chilean presidential election of Oct. 25 had unusual significance among Latin-American shifts in power, as the forces pitted against each other represented real differences in basic social philosophy. The principal candidates were Gustavo Ross. Minister of Finance, representing the Rightists, and Pedro Aguirre Cerda, a prominent Radical and leader of the Popular Front, a coalition of left-wing groups. Other Leftist groups, together with the Nazi party, backed General Carlos lbáñez, a former president, whose administration was popularly associated with an elaborate public works program to which the world depression had called a halt. Sr. Aguirre Cerda won the election and was formally inaugurated as president on Dec. 24. A charge from the Rightists that the violent attitude of Aguirre's supporters had hampered free voting led to an investigation of the returns by an examination committee, whose report was to be issued Nov. 24. A reappraisal of the election returns reduced President-elect Aguirre's majority from 7,000 to 4,000, and later to 800 in a total vote of nearly 500,000. Twelve days before the court decision on the election was to have been announced the defeated candidate, Gustavo Ross, called for an end of the recount and left the country. General Ibáñez was arrested after the Nazi revolt in September, which put an end to his candidacy, although he was later exonerated. One group which supported the General until his arrest, the Popular Liberating Alliance, then switched to the Popular Front, and is now disgruntled because its shift of allegiance has not been rewarded by representation in the first Aguirre Cabinet. This is the first time in the history of the American republics that a Popular Front has taken part in a national election. The mainstay of the Chilean Popular Front is the Radical party, a moderate political group, but it includes as well Socialists, Communists and Nazis.

The short-lived but sanguinary revolt of Sept. 5 was a symptom of the tension caused by the bitter presidential campaign. It was led by the Nacistas, an indigenous Nazi group which claims a membership of over 30,000 armed men. Its leader is Deputy Jorge Gonzalez von Marée, who was sentenced to twenty years imprisonment for his complicity in the revolt. Other leaders received sentences of from ten to twenty years imprisonment or deportation for from five to twelve years. Martial law for four months was decreed following the suppression of the uprising. The Nacistas are strongly nationalistic and favor a totalitarian form of government for Chile, but they are not anti-racial and probably have very little, if any, support from Europe. Special Nazi organizations control the German element of the population, which is fairly large, especially in south Chile. At the last municipal elections the Nacistas polled 13,000 votes, an all-time high for this political group, and they have been able to elect two deputies to the National Chamber of Deputies. Sr. Gonzalez von Marée had created a political disturbance in May, at the opening of the Congress, and was in prison, serving a sentence of one and a half years, at the time of the election. Further disorder was feared in December on the arrival of the Spanish Loyalist leader, Sr. Indalecio Prieto, for the inauguration, since his visit had the outspoken disapproval of the Rightists. In view of the bitterly contested election, conservative reaction seemed inevitable, if not imminent. Whether it will be precipitated, as in Spain, by internal dissension among the Leftists — Prieto, since his arrival, has warned of this — or by dissatisfaction with the policies of the Aguirre government, remains to be seen. Although the Nazis are represented in the Popular Front, it is unquestionably dominated by its Leftist contingents. It has been outspoken in its condemnation of Germany's anti-Jewish activities and, through local committees, has called on all democratic forces in Chile to support it in order to avoid the spread of Fascist tendencies. In general, its victory promises to strengthen Left-wing forces and to weaken totalitarianism in Chile.

Economic Situation.

Some doubt is felt as to the course the new government will follow in its economic policies, especially with respect to foreign capital. The day after his election President Aguirre announced a policy of 'ample protection' to foreign investment. On the other hand, in a statement published in Mercurio, Santiago's leading newspaper, shortly before the election; he said:

'Times have been changing, and there is need of carefully revising the privileges obtained by foreign capital in other days. . . . If it threatens to leave the country, let it! — and the sooner the better! but I do not think that foreign capital invested in concerns extracting products from our soil, especially North American capital, will prove to be stupid and fail to appreciate the times in which we live.

'If it wishes to continue doing business, it must yield wherever yielding is just. No more privileges! — or, if there are to be any, they must be for Chileans. Foreigners engaged in the above-mentioned lines must understand clearly that it is no longer sufficient that they should pay us salaries and a certain degree of tribute.

'No! We wish to share the wealth which, up to now, they have taken away. Moreover, did not President Roosevelt say a very short time ago that North American capital did not behave well in these countries of ours, and that the time had passed forever when, behind each dollar, well or badly acquired, there were warships and cannon?'

Even granting that this might be merely campaign talk, it is the expression of an anti-imperialist attitude which, following the expropriation policies of Mexico, makes foreign capital very uneasy. In Chile, North American investors have a stake of about $750,000,000, second in size only, in Latin America, to the investment of United States citizens in Cuba. This sum is principally invested in copper and nitrates. The anxiety of these interests was intensified by Chile's proposal at the Lima Conference (see PERU) for the adoption of a principle of no special recourse for foreign investors in cases of expropriation or confiscation. Yet President Aguirte has declared his government opposed to nationalization or socialization of the country's great industries, although it would like to encourage the development of medium-sized industries by Chilean capital so far as possible. It has also announced that if encouragement to the small farmer, through government credit agencies, calls for the division of large but economically inefficient properties, this will be done, with compensation. The education of the masses is an important objective of the new president, who was at one time Minister of Education.

Foreign Trade.

On Jan. 6 a provisional trade pact with the United States was concluded, and in May negotiations were renewed for a new commercial treaty with Great Britain, of the most-favored-nation type, to replace the modus vivendi which expired June 30. But here, as elsewhere in Latin America, Germany has found a profitable area of trade expansion through its system of payment in compensated marks. In November it was announced that the commercial agreement with the Reich would be prolonged for another six months, in spite of the opposition of the Popular Front, which has complained of the large purchases from the totalitarian countries. The high foreign trade figures for 1937, when exports rose 68 per cent in value as compared with 1936, tended to level off in the opening months of this year. In 1937 the United States led in both the import and export trade, displacing Germany as principal supplier of imports. Great Britain ranked second as customer for Chile's exports, and Germany third. This increase in foreign trade reflected a period of great economic activity during 1937, but a general price decline towards its end, affecting chiefly the copper industry, made the outlook for 1938 not so favorable. Copper production in 1937 was the highest ever registered in Chile. (See also WORLD ECONOMICS.)

Finance.

The budget for 1938 provided expenditures totaling 1,620,900,000 pesos, receipts to the amount of 1,622,000,000 pesos. The budgetary surplus carried over from 1936 to 1937 of about 86,000,000 pesos was reduced almost one-half, so that, as of Dec. 31, 1937, there was a carry-over of about 44,000,000 pesos. By decree of May 17, 1938 an official interpretation was rendered of the law of January 1935, setting forth the plan for partial resumption of service on the external debt, which, up to this time, the Foreign Bondholders' Protective Council had been unwilling to accept. The external dollar debt outstanding on Dec. 31, 1937 amounted to $216,070,000. After the 1938 retirements it will be about $182,000,000. Since the 1935 plan was put into effect the dollar debt has been reduced by about 30 per cent. Receipts in 1938 available for debt service amounted to $14.135,573,50 per cent to go for interest payments, the balance for retirement. These were derived principally from taxes on the profits of copper enterprises and from the Government's participation in the profits of the Chilean Nitrate and Iodine Sales Corporation.