Economic neutrality during the Cold War: the World Bank, the United States, and Pinochet’s Chile, 1973–1977

Abstract

This paper reconstructs the unknown Chile-World Bank interactions during the formative years of Pinochet’s dictatorship (1973–1977). Prevalent understandings of the WB portray it as a loyal Washington ally. However, new evidence from the WB Archives and additional documents reveal that US efforts to make lending contingent on human rights considerations, thereby forcing the Bank to abandon its so-called economic neutrality, were only partially effective. Pinochet’s case provides a new prism to examine the cold war in Latin America and the Bank’s use of its ‘neutrality’ as a means to reach increasing autonomy from its strongest member states, mainly the United States.

Keywords:

• World Bank
• Chile
• Augusto Pinochet
• cold war
• economic neutrality

Notes

¹ Roger Nelson to Files, ‘Summary of US Government Assistance,’ 29 April 1975, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1, World Bank Group Archives (WBGA).

² The World Bank Group is currently composed of five specialised institutions: (1) The International Bank for Reconstruction and Development (IBRD) supports middle-income countries; (2) The International Development Association (IDA) provides loans to countries that are not considered 'creditworthy' in international markets; (3) International Finance Corporation (IFC) works with the private sector; (4) Multilateral Investment Guarantee Agency (MIGA) provides investment through insurance; and (5) International Centre for Settlement of Investment Disputes (ICSID), which facilitates the settlement of investment disputes between governments and foreign investors.

³ ‘Acta de Junta de Gobierno no. 117-a. Informe del Sr. Leniz sobre gestiones realizadas durante su reciente viaje a Estados Unidos, Dec. 11, 1974, Historia Politica Legislativa del Congreso Nacional de Chile’, http://historiapolitica.bcn.cl/historia_legislativa/visorPdf?id=10221.3/34211#f=3,p=1,t=Banco Mundial (accessed July 17, 2017).

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⁵ Valerie Assetto, The Soviet Bloc in the IMF and the IBRD (Boulder: Westview Press, 1988), chaps. 2–4. Poland rescinded membership in 1950 and Czechoslovakia in 1954. Romania joined the Fund in 1972. Most former Soviet states rejoined the WB from 1992 onwards.

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¹⁵ Babb, Behind the Development Banks.

¹⁶ Catherine Gwin, ‘U.S Relations with the World Bank, 1945–1992’ in The World Bank, vol. 2, 195–274.

¹⁷ Thomas Andersen, Henrik Hansen, and Thomas Markussena, ‘US Politics and World Bank IDA-Lending,’ Journal of Development Studies 42, no. 5 (2006): 772–94; Robert Fleck and Christopher Kilby, ‘World Bank Independence: a Model and Statistical Analysis of U.S. Influence,’ The Review of Development Economics 10, no. 2 (2006): 224–40; Bruno Frey and Friedrich Schneider, ‘Competing Models of International Lending Activity,’ Journal of Development Economics 20 (1986): 225–45; Richard Peet, Unholy Trinity: The IMF, the World Bank and the WTO (London: Zed Books, 2003); Ngaire Woods, The Globalizers: The IMF, the World Bank and Their Borrowers (Ithaca: Cornell University Press, 2006).

¹⁸ Craig Burnside and David Dollar, ‘Aid Policies and Growth,’ American Economic Review 90, no. 4 (2000): 847–68.

¹⁹ Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Era (Ithaca NY: Cornell University Press, 2014); Staples, ‘Seeing Diplomacy.’

²⁰ James Lebovic and Erik Voeten, ‘The Cost of Shame: International Organisations and Foreign Aid in the Punishing of Human Rights Violators,’ Journal of Peace Research 46, no. 1 (2009): 79–97; Sebastian Saiegh, ‘Do Countries have a “Democratic Advantage”? Political Institutions, Multilateral Agencies, and Sovereign Borrowing,’ Comparative Political Studies 38, no. 4 (2005): 366–87.

²¹ Daniel Bradlow, ‘The World Bank, the IMF and Human Rights,’ Transnational Law and Contemporary Problems 6, no. 1 (1996): 47–90.

²² William Clark, ‘Reconsiderations: Robert McNamara at the World Bank,’ Foreign Affairs 22 (1981): 167–84.

²³ Edmar Bacha and Richard Feinberg, ‘The World Bank and Structural Adjustment in Latin America’, http://www.econ.puc-rio.br/pdf/TD100.PDF (accessed May 10, 2016).

²⁴ Sharma, ‘The United States, the World Bank,’ 586.

²⁵ Catherine Weaver, Hypocrisy Trap: The World Bank and the Poverty of Reform (Princeton: Princeton University Press, 2008), 150–7.

²⁶ ‘Congress Changes its View on International Lending Agencies,’ New York Times, 27 May 1979.

²⁷ Monetarism is a school of economic thought that gained prominence in the 1970s. It emphasises the impact of inflation on an economy's growth and stresses the importance of controlling the money supply to keep inflation low.

²⁸ Valerie Brender, ‘Economic Transformations in Chile: The Formation of the Chicago Boys,’ American Economist 55, no. 1 (2010): 111–22; Manuel Délano and Hugo Traslaviña, La hererencia de los Chicago Boys (Santiago de Chile, 1989); Carlos Huneeus, ‘Technocrats and Politicians in an Authoritarian Regime: The “ODEPLAN Boys” and the “Gremialists” in Pinochet's Chile,’ Journal of Latin American Studies 32, no. 2 (2000): 461–501; Paul Sigmund, ‘The Rise and Fall of the Chicago Boys in Chile,’ SAIS Review of International Affairs 3, no. 2 (1983): 41–58; Juan Gabriel Valdés, La escuela de Chicago: Operación Chile (Buenos Aires, 1989).

²⁹ Alan Angell, Chile de Alessandri a Pinochet: en busca de la utopía (Santiago de Chile, 1993), 96–100; Verónica Valdivia Ortiz de Zárate, ‘Estatismo y neoliberalismo: un contrapunto military, Chile 1973–1979,’ Historia, 34 (2001): 167–226; Pilar Vergara, ‘Las transformaciones del Estado chileno bajo el régimen militar,’ Revista Mexicana de Sociología 44, no. 2 (1982): 413–52.

³⁰ Claudia Kedar, ‘The International Monetary Fund and the Chilean Chicago Boys: Cold Ties between Warm Ideological Partners,’ Journal of Contemporary History, (Published online: February 2017. doi: 10.1177/0022009416685895).

³¹ ‘Chile's Junta Acting to Restore a Free Economy,’ New York Times, 24 September 1973; ‘Private US Loans in Chile Up Sharply,’ New York Times, 12 November 1973.

³² Tanya Harmer, ‘Fractious Allies: Chile, the United States, and the Cold War, 1973–1976,’ Diplomatic History 37, no. 1 (2013): 109–43.

³³ Vanessa Walker, ‘At the End of Influence: The Letelier Assassination, Human Rights, and Rethinking Intervention in US-Latin American Relations,’ Journal of Contemporary History 46, no. 1 (2011): 109–35.

³⁴ David Forsythe, Human Rights and U.S. Foreign Policy: Congress Reconsidered (Gainesville: University Press of Florida, 1988), 7–9; Schmidli, The Fate of Freedom, 59–66.

³⁵ Forsythe, Human Rights, 10.

³⁶ Schmidli, The Fate of Freedom, 5–7, 92–5.

³⁷ ‘Carter is Rebuffed by House on Rights,’ New York Times, 7 April 1977.

³⁸ Babb, Behind the Development Banks, 184.

³⁹ ‘Decreto 497. Autoriza Contratación de Crédito Externo y Concede Garantía del Estado,’ Hacienda – Decretos Originales 1974 (451-505) Vol. 12573 (Archivo Nacional de Chile. Hereinafter: ANC).

⁴⁰ ‘Ampliación Préstamo 559-CH,’ 19 March 1974, Hacienda – Decretos Originales 1974 (451-505) Vol. 12566. [ANC].

⁴¹ ‘Decreto 496. Autoriza Contratación de Crédito Externo,’ 29 March 1974, Hacienda – Decretos Originales 1974 (451-505) Vol. 12566. [ANC].

⁴² Bruck to McNamara, 13 October 1973, File unit 1596191, Chile – General – 1972/1974 Correspondence Vol. 1 (WBGA). Also the ‘Coordination Comite Europeeen pour Defence Prisonniers Politiques’ sent letters to McNamara protesting WB aid to Chile. See: Cable to McNamara, 26 January 1976, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁴³ Alter to Bruck, 3 December 1973, File unit 1596191, Chile – General – 1972/1974 Correspondence Vol. 1 (WBGA).

⁴⁴ I refer to File 1596218 – Chile – General Finance/debt 1972–1974 correspondence, vol. 2.

⁴⁵ Office Memorandum, Knapp to Files, 18 December 1973, File unit 1771003, Records of President Robert S. McNamara – Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁴⁶ Ibid.

⁴⁷ ‘Acta de Junta de Gobierno no. 61. Exposición del Sr. Saez a la Junta de Gobierno, realizada el 8 de Enero de 1974 sobre su misión en EEUU, January 8, 1974, Historia Politica Legislativa del Congreso Nacional de Chile’, http://historiapolitica.bcn.cl/historia_legislativa (accessed June 21, 2016).

⁴⁸ ‘Acta de Junta de Gobierno no. 117-a. Informe del Sr. Leniz sobre gestiones realizadas durante su reciente viaje a Estados Unidos, Dec. 11, 1974, Historia Politica Legislativa del Congreso Nacional de Chile’, http://historiapolitica.bcn.cl/historia_legislativa/visorPdf?id=10221.3/34211#f=3,p=1,t=Banco Mundial (accessed June 21, 2016).

⁴⁹ ‘Chile is Returning 21 Seized Concerns,’ New York Times, 25 May 1974.

⁵⁰ ‘Meeting of McNamara with Raul Saez,’ Alter to Files, 30 July 1974, File unit 1771003, Records of President Robert McNamara – Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁵¹ Ibid.

⁵² Office Memorandum, N. Holcer to C. Dickenson, ‘Chile-Telecomunications Programme,’ 6 January 1975, File unit 1596335, Chile – General Sector – 1975/1977 Correspondence Vol. 1 (WBGA).

⁵³ Ibid.

⁵⁴ Memorandum from President to delivered to Lt. General Vernon Walters by Colonel Juan Contreras, 3 January 1975, FRUS, 1969–1976 Richard M. Nixon/Gerald R. Ford Vol. E-11, Part 2, 489–90.

⁵⁵ ‘Memorandum from the Chief of the Latin America Division of the Central Intelligence Agency (Phillips) to Director of Central Intelligence Colby,’ 21 February 1975, FRUS 1969–1976, Docs. on South America, 1973–1976, 492–3.

⁵⁶ Office Memorandum, Daniel Lecuona to Files, 21 February 1975, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁵⁷ Marshall Brown (US-AID) to Guenther Wiese, 7 March 1975, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁵⁸ Lecuona to Distribution List, ‘Chile-New Cabinet,’ 16 April 1975, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁵⁹ Adalbert Krieger to Knapp, ‘Chile-Recent Developments,’ 16 April 1975, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁶⁰ Office Memorandum, Nelson to Files, ‘Meeting of Minister Cauas with Knapp,’ 7 May 1975, File unit 1771003, Records of President Robert McNamara – Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁶¹ World Bank. 1975. Chile – Agricultural Rehabilitation Project. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/1975/03/1557688/chile-agricultural-rehabilitation-project (accessed August 17, 2017).

⁶² Ibid.

⁶³ ‘A Loan for Chile?,’ New York Times, 22 January 1976.

⁶⁴ ‘World Bank Approves Chile Loan,’ New York Times, 4 February 1976; ‘World Bank Set to Grant £16.5 M Loan to Chile,’ Times, 3 February 1976: 8.

⁶⁵ ‘Loans from Abroad Flow to Chile's Rightist Junta,’ New York Times, 20 February 1976.

⁶⁶ ‘Chile,’ Latin American Weekly Report, 6 February 1976, http://www.latinnews.com/search.html?id=80&archive=24433&search=World%20Bank%20AND%20Chile&content_match=negative (accessed July 8, 2016).

⁶⁷ ‘World Bank's Loan to Chile is Assailed,’ New York Times, 24 March 1976.

⁶⁸ Office Memorandum, John Blaxall to McNamara, ‘Chile CPP-Outstanding Policy on Programme Issues,’ 12 July 1976, File unit 1771003, Records of President Robert McNamara – Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁶⁹ ‘Chile Seeks New Credits Abroad,’ Latin American Economy & Business, 13 February 1976, http://www.latinnews.com/search.html?id=80&archive=21840&search=World%20Bank%20AND%20Chile&content_match=negative (accessed July 8, 2016).

⁷⁰ ‘Ampliación Crédito Especial Banco do Brasil SA por $40.000.000,’ 21 April 1977, Hacienda – Decretos Originales 1977 (406-445) Vol. 13215. [ANC]; ‘Decreto 767,’ 23 August 1977, ‘Autoriza Contratación de Crédito Interno,’ Hacienda – Decretos Originales 1977 (751–780), vol. 13223. [ANC].

⁷¹ ‘Decreto 530,’ 20 June 1977, Hacienda – Decretos Originales 1977 (526-560) vol. 13218. [ANC].

⁷² ‘McNamara Rebuts Reuss by Declaring that Loan to Chile is Sound,’ New York Times, 12 April 1976.

⁷³ ‘Loan to Chile Defended,’ Times, 12 April 1976: 18.

⁷⁴ Oficina de Planificación to Presidente Ejecutivo (CODELCO), ‘Visita de funcionarios del Banco Mundial,’ 21 April 1976, File unit 1596335, Chile – General Sector –1975/1977 Correspondence Vol. 1 (WBGA).

⁷⁵ ‘Loans from Abroad Flow to Chile's Rightist Junta,’ New York Times, 20 February 1976.

⁷⁶ ‘For a Fistful of Dollars,’ Latin American Weekly Report, 14 May 1976, http://www.latinnews.com/search.html?id=80&archive=24631&search=World%20Bank%20AND%20Chile&content_match=negative (accessed July 8, 2016).

⁷⁷ ‘Chile Revalued in Bid to Boost Flagging Economy,’ Latin American Economy & Business, 9 July 1976, http://www.latinnews.com/search.html?id=80&archive=34042&search=World%20Bank%20AND%20Chile&content_match=negative (accessed June 7, 2016).

⁷⁸ Office Memorandum, John Blaxall to McNamara, ‘Chile CPP-Outstanding Policy on Programme Issues,’ 12 July 1976, File unit 1771003, Records of President Robert McNamara – Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁷⁹ Confidential, ‘Chile: Annual Meeting Briefing Paper, 1976,’ 9 September 1976, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁸⁰ Ibid.

⁸¹ ‘Autorización de Crédito Externo,’ 10 September 1976, Hacienda – Decretos Originales 1977 (526-560) Vol. 13218. [ANC].

⁸² Holsen to Files, ‘Chile-Meeting with Delegation, Manila, October 5, 1976,’ 13 October 1976, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁸³ Lerdau to Files, ‘Chile-Annual Meetings,’ 13 October 1976, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁸⁴ Ibid.

⁸⁵ ‘Egg on their Faces,’ Latin American Weekly Report, 17 December 1976, http://www.latinnews.com/search.html?id=80&archive=25330&search=McNamara%20AND%20Chile&content_match=negative (accessed June 8, 2016).

⁸⁶ ‘Recomienda Contratación crédito externo entre ENDESA y el BIRF por un monto de $35 millones. Certificado 471,’ 5 January 1977, Hacienda – Decretos Originales 1977 (28-75) Vol. 12305. [ANC]; Iram Peña (ENDESA's Manager) to Sergio de Castro, ‘Préstamo Banco Mundial a ENDESA,’ 7 January 1977, Hacienda – Decretos Originales 1977 (28-75) Vol. 12305. [ANC].

⁸⁷ ‘World Bank Votes Loans to Chile of $60 Million, with U.S. in Favour,’ New York Times, 22 December 1976.

⁸⁸ Walker, ‘At the End of Influence,’ 120.

⁸⁹ Kedar, ‘The IMF and the Chilean Chicago Boys,’ 2–3.

⁹⁰ Confidential, ‘1977 Briefing Paper-Chile,’ 13 September 1977, File unit 1596192, Chile – General – 1975/1977 Correspondence Vol. 1 (WBGA).

⁹¹ Confidential Office Memorandum, Eugenio Lari to Records, ‘Chile-Visit of Minister Sergio de Castro,’ 11 December 1979, File unit 1771003, Records of President Robert McNamara - Contacts with member countries: Chile – Correspondence 02 (WBGA).

⁹² World Bank. 1980. Chile – Water Supply Project. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/360701468216295514/Chile-Water-Supply-Project (accessed August 11, 2017).