Operation Bootstrap: The Industrialization of Puerto Rico

The history of Puerto Rico in the twentieth century is a history of massive social and economic changes. It is an example of how one agrarian society transformed into a modern industrialized economy and provides us with an interesting look at the role government institutions can play in economic development and social change. This paper will focus on the people of Puerto Rico and their ability to transform their society to meet the needs of a growing population through the application of technological advances and institutional reforms. It will seek to answer the question of why Puerto Ricans industrialized their economy and how they went about doing it.

When the United States (U.S.) took control of Puerto Rico in 1898 the island was marked by 400 years of Spanish colonial rule. Puerto Rico, along with other colonies in the Caribbean, was an important agricultural base for international markets. Ironically, the Spanish almost granted the island independence in 1898 but with the arrival of U.S. troops during the Spanish-American War that same year, the island became a war prize and was transferred to U.S. military control. In July 1898 Maj. Gen. Nelson Miles gave a famous speech to the people of Puerto Rico saying:

“In the prosecution of the war against the kingdom of Spain by the people of the United States, in the cause of liberty, justice, and humanity, its military forces have come to occupy the island of Puerto Rico. They come bearing the banner of freedom. They bring you the fostering arm of a nation of free people, who's greatest power is in justice and humanity to all those living within its fold.”[1]

While the U.S. was unable to transform the lofty rhetoric of liberty into the concrete reality of independence, it did succeed in extending a fostering arm that marked U.S. – Puerto Rican relations and the islands economic growth throughout the twentieth century.

Initially the U.S. continued the Spanish colonial legacy of large commercial plantations. In 1900 the U.S. Congress created a civil government on the island made up of a governor and five federally appointed members to replace the military system in effect after the war and in 1917 the U.S. Congress passed the Jones Act that granted U.S. citizenship to Puerto Ricans.[2] The Great Depression of 1929 and U.S. President Franklin Roosevelt’s “New Deal” economic policies heavily influenced young politicians in Puerto Rico who gained experience and influence by administering government social programs on the island. The decision to undertake a massive reform of the island’s institutional and economic structure, following on the heels of the success of the New Deal, came naturally to politicians who had witnessed the same thing occur just years before in the U.S. [3]

When Luis Muñoz founded the Partido Popular Democrático (PPD) in 1938, he founded a non-marxist, pro-U.S., labor party that quickly won the support of the majority of Puerto Ricans as well as the U.S. Congress. The party platform emphasized three basic points. First, it was pro-independence, but not to the exclusion of other issues, the PPD was more concerned about social and economic security than deciding the federal status of the island. The second point was an emphasis on institutional change. The party focused on eliminating corruption and waste in the government and improving administrative infrastructure to more effectively direct the island’s economy. Finally, the PPD fought for social justice and represented a popular peoples’ movement. Under Muñoz’ leadership, the PPD won control of the Puerto Rican Senate in the November 1940 elections with 38% of the vote.

In 1941 Rexford Guy Tugwell, an agricultural economist and one of Roosevelt’s New Deal “brain trust,” was appointed governor of Puerto Rico.[4] Throughout the 1940s this political team worked together to enact a series of administrative reforms that centralized authority and reinforced the political infrastructure in Puerto Rico.

The need for political reform can be explained by the institutional explanation of economic change given by Douglass North and R.P. Thomas. [5] In this model, as population grows, society experiences diminishing returns in agriculture, causing a disequilibrium and change in institutional structure. As the island’s population grew, the traditional agrarian economy was unable to provide enough food for citizens leading to malnourishment, hunger and a high cost of living.[6] By 1944 the PPD used popular discontent with the status quo to consolidate their political base and win the November elections with 64.7 percent of the majority. Once firmly in power, the PPD began to institute political reforms that would allow for a more efficient management of the island’s economy. The rise of the PPD and the greater political autonomy granted to the island in 1948 enabled the party to consolidate decision-making power in the hands of locals who were more aware of the realities of island society than U.S. political appointees. The result of these reforms was the implementation of a series of economic initiative known as Operation Bootstrap, a revolutionary attempt to reshape the economic framework of the island and create a modern market-based system that would “develop the island and provide an inspiration for Latin America.”[7]

Until 1956 Puerto Rico was still a predominantly agricultural society.[8] Sugar, coffee, tobacco, and molasses were the primary cash crops produced on corporate haciendas and the majority of the Puerto Rican population lived and worked in rural areas. The diminishing returns of this agricultural system were caused by a series of market, social, and environmental factors that gradually eroded the profitability of the system.

The first step in the decline of the agricultural system came about naturally. In 1899 the longest lasting hurricane in recorded history devastated the island. Hurricane San Ciriaco hovered over the island for 28 days killing over 3,000 people and causing millions of dollars of crop damage.[9] The financial loss sustained by farmers, specifically large coffee growers, was made worse in 1901 when the U.S. Congress passed the Foraker Act, establishing a civil government and free commerce between the U.S. and Puerto Rico. The establishment of free commerce opened up Puerto Rican markets to competitors it had never previously been exposed to, both inside and outside the U.S. Strong competition from Brazilian coffee growers, a rising cost of living on the island, as well as federally imposed credit limitations on the coffee industry combined to make production in this sector unprofitable.[10] As coffee profitability declined, it was replaced by U.S. owned corporate sugar plantations that merely shifted emphasis from one crop to another. Instead of picking coffee, Puerto Rican rural laborers would cut sugar cane. While sugar producers did introduce new techniques that speeded production, declining profits and the rising cost of living caused growers to demand long working days from workers to help recover losses. During this time period the average sugar cutter worked 10 to 12 hours a day and lived in poverty.[11]

The 1920s were marked by increasing class conflict between rural workers and land owners. The stock market crash of 1929 devastated Puerto Rico’s economy creating widespread hunger and unemployment.[12] In 1930, Theodore Roosevelt Jr. reported in the island’s annual report to Congress that unemployment was at 60%. Strikes, violent protests, and the burning of sugar fields underscore the social discontent with the system. It was within this social environment that a number of populist and nationalist political parties were founded: the Partido Sociliasta Puertorriqueño (1920), the Partido Nacionalista de Puerto Rico (1921) and the successor to the socialist party, the PPD (1938). The political ideology of these groups reflected society’s discontent with U.S. management of island resources through platforms that called for island independence and social revolution.

The Land Reform Act of 1942 is a good example of the success of popular political parties. The law created the Puerto Rican Land Authority that limited corporate land holdings to no more than 500 acres (202 hectáres) each.[13] At this time, politicians were still trying to reform the declining agrarian system because it was not yet apparent to everyone, specifically U.S. political appointees, that the old system was incapable of sustaining the economy, what was obvious was the need to calm the public. The political success of the agrarian land reform helped Muñoz and the PPD solidify support for their party to the exclusion of all other political parties on the island. The fact that the PPD was able to limit the influence of well connected U.S. corporate sugar interests highlights the extent of popular discontent and its negative effect on the market. According to Karl Polanyi, “the market system was more allergic to rioting than any other system we know.”[14] This statement gives us a general explanation of why politicians began to take average citizens seriously and listen to their demands for improved social conditions. Work disruption, political violence, and widespread protests created a political environment that, in a pseudo-democratic system like Puerto Rico, made it a political necessity for the government to take concrete steps toward remedying the daily hardships faced by Puerto Ricans. Later in the decade, as the population continued to grow, it became apparent that mere land reform would not solve the underlying problems faced by the island. Government planners needed to diversify the economy so that it could withstand the periodic market fluctuations and generate enough wealth to provide for the population; the antiquated colonial agrarian model was not able to do this.

From the time that the PPD came to power in 1940, the party had a relatively clear idea of how they wanted to develop Puerto Rico’s economy.[15] The Chardón Report, an assessment of the island’s economy prepared by the PPD stated that,

“the economic problem of Puerto Rico, in so far as the bulk of its people is concerned, may be reduced to the simple term of progressive landlessness, chronic unemployment and implacable growth of the population.”[16]

To combat these problems the PPD created a series of new government institutions to tackle the demands of the growing population. In 1941, Puerto Rico founded the Compañía de Fomento Industrial (Fomento), the Banco Gubernatal de Fomento, Junta de planificación, La Autoridad de Fuente Fluviales, La Autoridad de Comunicación, La Autoridad de Acueductos Y Alcantarillados, and the Autoridad de Transporte.

While the impetus for the creation of these institutions was instigated by the PPD, Puerto Rico’s subordinate political status to the U.S. necessitated that any political change must be approved by the U.S. appointed governor and in turn by the U.S. Congress. While the PPD had a good working relationship with Gov. Tugwell between 1941 and 1946 when he retired, in general, this was a major roadblock to reform on the island because congressmen in Washington, D.C., with little understanding of local situations, were tasked with approving growth plans in Puerto Rico. The PPD understood these limiting factors and initiated a campaign for greater political self-determination. In 1947 Luis Muñoz presented plans to the U.S. Congress calling for the direct election of the governor. Congress approved the proposal and in 1948 Muñoz became the first popularly-elected governor of Puerto Rico.

Following the 1948, the PPD honored their campaign promise to tackle the question of federal status. In 1952 the party negotiated Commonwealth status with the U.S. that cleverly avoided any permanent decision while at the same time firmly linking the two economies.[17] Puerto Ricans were granted local self-government under the U.S. constitutional framework but did not pay federal taxes, any tax revenues from Puerto Rican products sold in the U.S. was also returned to the island. The new agreement streamlined exchange between the island and mainland and through creative tax laws encouraged U.S. industrial investment.

By the early 1950s the Cold War was increasingly subordinating all other political issues in the U.S. to the necessity of beating the Soviet communist expansion. Accordingly, the rise of a pro-U.S., pro-democracy party in Puerto Rico was a unique opportunity for the U.S. to create a counter-model to the Soviet socialist revolutions; the result was Operation Bootstrap. The plan was to stimulate investment in basic infrastructure and improve the labor force by replacing sugar plantations and small farms with labor intensive factories. U.S. companies were encouraged to open manufacturing plants on the island through federal and local tax holidays and relaxed wage laws.[18] Although Puerto Rico was subject to federal minimum wage laws the PPD had negotiated an exemption in 1940 to allow the island economy a chance to catch up to the U.S. The majority of these factories were small U.S. affiliates that used the island as a low cost assembly center for U.S. products that were later shipped back to the U.S. for sale.

Operation Bootstrap was an experiment. The failures of government-run industries in the 1940s convinced politicians that private investment was necessary to industrialize the economy to create jobs for Puerto Ricans. The trick was to convince U.S. companies to relocate to Puerto Rico and assume the additional cost of operating on the island. One of the first steps was the passage of a 100% tax exemption law in 1947. While critics charged the PPD with selling out popular interests to U.S. capitalists, the administration argued that the “psychological cost of capital,” that is, the risk of investing in Puerto Rico, had to be overcome by offering outside investors significant incentives to relocate.[19] As the industrialization programs took effect, U.S. labor unions began to complain that the 1940 agreement that granted Puerto Rico exceptions to the federal minimum wage law was robbing U.S. workers of jobs. The complaint was justified, considering that by 1955 Puerto Rico had captured 20 percent of the U.S. production of brassieres. Influential leaders of the International Ladies Garment Workers Union complained to Congress that Puerto Rico was using the wage law exemptions to create sweat shops on the island. Muñoz and Muscoso countered the arguments by explaining the vast differences between the two economies. Puerto Rico’s economy, while growing, was nowhere near that of the U.S., unemployment was at 15 percent and per capita income was one-third that of the U.S. Puerto Rico, they argued, needed jobs before it could worry about wages.[20]

The situation presented by the flight of U.S. jobs to Puerto Rico is interesting because, while it is in keeping with a development-as-exploitation model of economic change, i.e. that “core” capitalists exploit the “periphery” for cheap labor, it goes against the geographic notion of core and periphery, developed and underdeveloped.[21] The case of Puerto Rican brassier production in the 1950s is more in keeping with class discussions on the subject that emphasized that core and periphery are more closely associated with social classes than with geographic areas. The capitalist in this case were profiting from lower class exploitation in both the U.S. and later Puerto Rico. It is also relevant to point out that the PPD was a popular movement that, based on election statistics, represented the majority of the population. It was not the capitalists who were exploiting Puerto Ricans, but the Puerto Ricans themselves, nor was the end result an impoverishment of the Puerto Rican people as the model would have us believe. Based on economic figures available, between 1950 and 1990, Puerto Rico raised the average family income from $1,495 to $22,000, life expectancy increased by 14 years, the doctor patient ratio decreased from one doctor per 4,108 persons to one doctor per 335 persons and over 135,000 additional students were attending universities.[22]

The initial success of Operation Bootstrap in the 1950s drew world attention to Puerto Rico. In 1962, the Britannica Yearbook claimed, “Puerto Rico . . . is the most hopeful example in the Americas of how to develop an underdeveloped community in the clean atmosphere of freedom.[23] With Fidel Castro threatening to turn Latin America into “many Vietnams” the U.S. was confronted with the challenge of proving that it really was committed to the ideals of democracy and freedom in the Western Hemisphere. The John F. Kennedy administration decided to use Puerto Rico’s success as an example of how U.S. support could help developing countries in Latin America prosper.[24] In 1961, a day after the Bay of Pigs Invasion, Teodoro Moscoso, the director of Fomento, was named the U.S. ambassador to Venezuela, underscoring the importance the U.S. placed on Operation Bootstrap. In 1962, President Kennedy appointed Moscoso as the director of the Alliance for Progress, a U.S. foreign aid program designed to develop Latin America and support the U.S. Cold War interests. “The task we set for ourselves in the Alliance for Progress, which is the development of an entire continent,” said Kennedy in 1962, “is a far greater task than any we have ever undertaken in our history.”[25] If Castro could export the Cuban Revolution, Kennedy would export the Puerto Rican one.

Even with all the praise being heaped on Puerto Rican politicians and the miracles of their industrial revolution, life the island economy was not creating enough jobs to keep up with the growing population. In 1900 the population of Puerto was 986,000, [26] and by 1950 the population had more than doubled to 2,218,000, today the island population is 3,808,610[27] making Puerto Rico, with 435 people per square kilometer, one of the most densely populated places in the world. The island had reached carrying capacity and the economic expansion was unable to provide employment for so many people. At the start of the 1950s Puerto Ricans increasingly used their U.S. citizenship to immigrant to the mainland. While the government did not specifically endorse immigration, it did set up programs to facilitate an easy transition into U.S. society, taught basic English skills to future migrants and pressured airline companies to keep the cost of travel between the island and mainland low. Even though immigration offered a temporary solution to unemployment, it was not enough to solve the problem. Around the same time, Puerto Rico began a massive campaign to sterilize women. Clinics were set up in factories and women were given time off work to have the operation. By 1974, 35 percent of child-bearing age Puerto Rican women were sterilized and by 1980 Puerto Rico had the highest per-capita rate of sterilization in the world.[28]

The fact that more than 40 percent of Puerto Ricans live in the U.S., despite the modern industrialized economy existing on the island today, emphasizes the role that population played in changing Puerto Rican society. While technological advances and capitalist exploitation of cheap labor played a part in the change, any model that does not give priority to the role of the people on the island would fail to explain the profound social changes that occurred during the twentieth century. Obviously, the surge in population can be attributed to improved medical techniques that decreased infant mortality and increased life expectancy, but these elements, while technical in nature, manifested themselves through their effect on population levels.

Analysis of Puerto Rican institutions, particularly the Compañía de Fomento, helps explain how Puerto Rico arrived at industrialization. While population growth explains why the society was forced to look for new solutions, it does not explain the actual process that brought about the needed change. Institutional models help us understand which specific areas were important to decision makers and how exactly they went about achieving their goals. The realization that the two part governance system used on the island until 1948 was inefficient and frustrated attempts to enact much needed reforms was an important step in the process toward change. While in theory the U.S. appointed governor was charged with the well-being of the island, in practice many appointees used their position to further U.S. business interests at the expense of the population. The decision to create a 100 percent tax-free business-environment would probably have generated much stronger opposition if it had come from a political appointee as opposed to the popularly elected governor. However, the institutional reform that gave the island more political self-determination was critical in the success of the policy that attracted so much businesses to the island.

In conclusion I have attempted to develop a model of economic change that explains what happened in Puerto Rico in the twentieth century by showing the necessities placed on politicians by the growing population. A system that worked poorly with less than one million people in1900 was entirely incapable of providing for the 3.8 million that inhabited the island at the end of the century. Puerto Ricans used government institutions to manipulate tax laws and create economic incentives to industrialize the economy and create jobs for unemployed workers. That the results of this industrialization process are unclear and, at the very least, contributed to the migration of millions of citizens is irrelevant to explaining how and why this change occurred. What is important is understanding the process that brought about these changes.

Bibliography

Anderson, J.L. “Explaining long-term economic change.” Economic History Society.
Cambridge University Press, Cambridge. 1995.

Bethell, Leslie, editor. “Historia de América Latina 13. México y el Caribe desde 1930”
Cambridge University Press, 1990. Crítica Barcelona, 1998

Maldonado, A.W. “Teodoro Moscoso and Puerto Rico’s Operation Bootstrap.” University of Florida Press, 1997.

Santiago-Valles, Kelvin A. “Subject people” and colonial discourses: economic transformation and social disorder in Puerto Rico, 1898-1947.” Albany: State University of New York Press, New York. 1994.

Skidmore, Thomas and Peter H. Smith. “Modern Latin America” 4^th Edition. Oxford University Press, Oxford. 1997.

Web Pages

CIA World Factbook: Puerto Rico
http://www.cia.gov/cia/publications/factbook/geos/rq.html

Irizarry, Johnny, Maria Mills-Torres, Marta MorenoVega and Anita Rivera, American Friends Service Committee. “Puerto Rico Resistance in Paradise: Rethinking 100 Years of U.S. Involvement in the Caribbean and the Pacific
http://www.cosmos.ne.jp/~miyagawa/nagocnet/data/prhistory.html

Louis de Malave, Florita Z: “STERILIZATION OF PUERTO RICAN WOMEN:
A Selected, Partially Annotated Bibliography. 1999 http://www.library.wisc.edu/libraries/womensstudies/bibliogs/puerwom.htm

Rivera, Magaly: History of Puerto Rico

http://welcome.topuertorico.org/history5.shtml

Search Engine Colossus: Puerto Rico

http://www.searchenginecolossus.com/PuertoRico.html

U.S. Census Bureau: Resident Population of the U.S. House of Representatives, Puerto Rico.

http://www.census.gov/dmd/www/resapport/states/puertorico.pdf

[1] U.S. Senate Committee on Energy and Natural Resources

[2] Advocates of Puerto Rican independence claim that the U.S. imposed citizenship on the island.

[3] Skidmore p.314

[4] Wikipedia: Rexford Guy Tugwell

[5] Anderson p.42

[6] Santiago-Valles p. 147

[7] Skidmore p. 314

[8]Bethell p.305

[9] Wikipedia: Hurricane San Ciriaco

[10] Santiago-Valles p.137

[11] Santiago-Valles p.138

[12] Rivera

[13] Bethell p.299

[14] Santiago-Valles p.138

[15] Bethell p.300

[16] Maldonado p.36

[17] Bethell p.302

[18] Skidmore 314

[19] Maldonado p.138

[20] Maldonado p.137

[21] Anderson p.

[22] Maldonado p.163

[23] Maldonado p.79

[24] Maldonado p. 163

[25] Maldonado p. 162

[26] Search Engine Colossus

[27] U.S. Census Bureau

[28] American Friends Service Committee

UNEMPLOYMENT RATE INCREASES IN CHILE

(May 31, 2006) Chile’s National Institute of Statistics released unemployment figures for the past three months Monday placing the nation’s unemp[loyment rate at 8.3 percent. The figure is up 0.1 percent over the same time period in 2005 and up 5.45 percent since the last report at the end of March.

The figures coincide with business sector expectations which estimated the unemployment rate at somewhere between 8 and 8.3 percent. According to the report the increase in unemployed workers is due to the admission of 94,470 new workers, representing a 6.84 percent increase in the labor pool since the INE released figures in March.

The report also detailed unemployment rates between sexes, showing a 0.5 percent increase in female unemployment and a 0.1 percent decrease in male unemployment. The overall figures for these two groups are 6.7 percent unemployment for men and 11.2 percent for women.

SOURCE: EL MERCURIO

BACHELET ADMINISTRATION REACTS TO REPORTS OF U.S. THREATS

(May 30, 2006) Government spokespeople downplayed U.S. Department of State threats against Chile in the event that Chile supports Venezuela’s bid for a seat on the United Nations Security Council. Ricardo Lagos Weber, Chile’s government spokesman, indicated that Chile would not be pressured by the U.S., but instead seek regional consensus on the issue before indicating which way Chile will vote on the issue.

“These are distinct issues that have nothing to do with each other,” said Lagos Weber. “I do not see how a country could be penalized for exercising its international rights.”

According to a story that was published in La Tercera on May 28th, U.S. Deputy Secretary of State Robert Zoellick told Chile’s Minister of the Exterior Alejandro Foxely that Chilean support for Venezuela as a member of the U.N. security council in October’s elections would “decisively damage” bilateral relations between Chile and the U.S. The report went on to quote Zoellick as saying that, in the event that Chile did support Venezuela, it would lose its status as a “major non-NATO ally of the U.S.” and suffer economic penalties in the form of reduced commercial exchange between Chile and the U.S. (ST, May 30).

In a statement that seemed to dismiss the threats, Foxely said that Chile would consult with the Group of Latin American and Caribbean States (GRUPAC) to arrive at a consensus as to which way the region would vote.

“We are in a phase of consultations in which we are going to evaluate and appreciate the opinions of friendly countries and then, later, we will make a decision,” said Foxely.

In the 2003 build-up to the invasion of Iraq, Chile cast a deciding vote against the U.S.-led resolution to overthrow Saddam Hussein without any noticeable affect on bilateral relations with the U.S.

SOURCE: LA NACIÓN, EL MERCURIO, LA TERCERA, RADIO COOPERATIVA

BERRIÓS CASE: JUDGE INVESTIGATES PINOCHET’S SON

(May 30, 2006) The investigation into the murder of Eugenio Berríos has uncovered links between Augusto Pinochet Hiriart, the eldest son of the former dictator Gen. Augusto Pinochet, and various military organizations in Chile and Uruguay suspected of taking part in the 1993 homicide of the former secret police chemist.

Investigative Judge Alejandro Madrid released previously undisclosed information relating to the 1991 “Pinocheques” incident that caused Pinochet Jr. to flee Chile rather than testify why the Commander in Chief – his father Gen. Pinochet – paid him $971,000,000 pesos (approximately US$1.8 million) to act as the intermediary between the Chilean military and a then bankrupt weapons factory.

The case was closed after government administrators pressured the State Defense Council (CDE) to dismiss the charges saying that the case threatened the democratic stability of the government. At the time Chile was beginning the transition to democracy after 17 years of military dictatorship.

According to Pinochet Jr.’s testimony, he first tried to go to Argentina in late 1991 on an Air Force mail flight under a false name. He was forced to wait overnight when he learned from Gustavo González, an officer with Chile’s Investigations Police, that the owner of the I.D. he was going to use was wanted in Chile.

Pinochet Jr. left the next day for Buenos Aires under his real name accompanied by the then Chief of the Special Units of the Directorate of Army Intelligence (DINE) Arturo Silva Valdés. Once in Buenos Aires Pinochet Jr. traveled to Brazil and Spain using fake documents made for him by an Argentinean secret service agent named Carlos Narea González.

Judge Madrid is interested in the story because of its similarities to the Eugenio Berriós case. Berriós was also wanted for questioning in 1991 for his role in several high profile murder cases. He was snuck out of the country by the army and later murdered in Uruguay in 1993 (ST, May 17).

It now appears that in April 1993 Pinochet Jr. was in contact with Col. Tomás Casella, one of the three Uruguayan military officials extradited to Chile who is accused of murdering Berríos. Autopsies of Berríos’ body show that he was shot sometime between April and June of 1993.

Government officials are now investigating what links González has to the Pinochet family due to the inside information he provided in 1991 as well as his signature on the 2001 police report detailing the entries and exits of both Pinochet Jr. and his younger brother Marco Antonio that was requested by Judge Madrid in the Berríos case.

González is currently the Public Relations spokesman for the Circle of Retired Police Officers.

SOURCE: LA NACIÓN

FUJIMORI: PERU REQUESTS GAG ORDER

(May 25, 2006) President Michelle Bachelet requested that Chile’s Supreme Court keep ex-Peruvian President Alberto Fujimori quiet after a series of comments on Peru’s upcoming elections provoked an outcry from government officials in Lima. Since being released on bail, Fujimori has generated a whirlwind of controversy between the two countries as well as confrontations with a group of high school students in central Chile.

The ex-dictator, wanted in Peru on corruption and human rights charges, was detained in Chile after arriving in Santiago unexpectedly on Nov. 7, 2005. Fujimori’s arrival in Chile marked his first return to South America after he fled Peru in 2000 and resigned from the presidency by fax from a Japanese Hotel. (ST, Nov. 8).

Since being released from prison on May 18, Fujimori has given several interviews with national and foreign news agencies. In the interviews Fujimori spoke at length about Peru’s upcoming June 4 run-off elections between Alan García and Ollanta Humala as well as the possibility he would return to Japan where his Japanese citizenship grants him immunity from extradition.

Fujimori’s comments caused outrage in Peru and an official request from Peru’s government on Monday that Fujimori be prohibited from giving any more interviews.

“The Fujimori case is damaging our interests as a country,” said Jorge Tarud, the president of the international commission of Chile’s lower chamber of deputies.

When asked about the controversy, President Bachelet said, “there is one thing that is very clear, the fundamental task of the president of Chile is to protect the interests of Chile. It is clear that the actions of Sr. Fujimori in the last few days caused situations that are undesirable in our relationship with our neighboring country Peru.”

The President of Peru’s Supreme Court, Walter Vásquez announced that President Bachelet’s comments were, “healthy and positive.”

In Chile, Judge Orlando Alvarez, the judge presiding over the Fujimori case, claimed that the situation “has been taken care” because Fujimori has agreed to cancel all interviews with the press and refrain from discussing Peru’s political situation.

SOURCE: LA NACIÓN, RADIO COOPERATIVO, EL MERCURIO

FUJIMORI: PERU REQUESTS GAG ORDER

(May 25, 2006) President Michelle Bachelet requested that Chile’s Supreme Court keep ex-Peruvian President Alberto Fujimori quiet after a series of comments on Peru’s upcoming elections provoked an outcry from government officials in Lima. Since being released on bail, Fujimori has generated a whirlwind of controversy between the two countries as well as confrontations with a group of high school students in central Chile.

The ex-dictator, wanted in Peru on corruption and human rights charges, was detained in Chile after arriving in Santiago unexpectedly on Nov. 7, 2005. Fujimori’s arrival in Chile marked his first return to South America after he fled Peru in 2000 and resigned from the presidency by fax from a Japanese Hotel. (ST, Nov. 8).

Since being released from prison on May 18, Fujimori has given several interviews with national and foreign news agencies. In the interviews Fujimori spoke at length about Peru’s upcoming June 4 run-off elections between Alan García and Ollanta Humala as well as the possibility he would return to Japan where his Japanese citizenship grants him immunity from extradition.

Fujimori’s comments caused outrage in Peru and an official request from Peru’s government on Monday that Fujimori be prohibited from giving any more interviews.

“The Fujimori case is damaging our interests as a country,” said Jorge Tarud, the president of the international commission of Chile’s lower chamber of deputies.

When asked about the controversy, President Bachelet said, “there is one thing that is very clear, the fundamental task of the president of Chile is to protect the interests of Chile. It is clear that the actions of Sr. Fujimori in the last few days caused situations that are undesirable in our relationship with our neighboring country Peru.”

The President of Peru’s Supreme Court, Walter Vásquez announced that President Bachelet’s comments were, “healthy and positive.”

In Chile, Judge Orlando Alvarez, the judge presiding over the Fujimori case, claimed that the situation “has been taken care” because Fujimori has agreed to cancel all interviews with the press and refrain from discussing Peru’s political situation.

SOURCE: LA NACIÓN, RADIO COOPERATIVO, EL MERCURIO

FUJIMORI: PERU REQUESTS GAG ORDER

(May 25, 2006) President Michelle Bachelet requested that Chile’s Supreme Court keep ex-Peruvian President Alberto Fujimori quiet after a series of comments on Peru’s upcoming elections provoked an outcry from government officials in Lima. Since being released on bail, Fujimori has generated a whirlwind of controversy between the two countries as well as confrontations with a group of high school students in central Chile.

The ex-dictator, wanted in Peru on corruption and human rights charges, was detained in Chile after arriving in Santiago unexpectedly on Nov. 7, 2005. Fujimori’s arrival in Chile marked his first return to South America after he fled Peru in 2000 and resigned from the presidency by fax from a Japanese Hotel. (ST, Nov. 8).

Since being released from prison on May 18, Fujimori has given several interviews with national and foreign news agencies. In the interviews Fujimori spoke at length about Peru’s upcoming June 4 run-off elections between Alan García and Ollanta Humala as well as the possibility he would return to Japan where his Japanese citizenship grants him immunity from extradition.

Fujimori’s comments caused outrage in Peru and an official request from Peru’s government on Monday that Fujimori be prohibited from giving any more interviews.

“The Fujimori case is damaging our interests as a country,” said Jorge Tarud, the president of the international commission of Chile’s lower chamber of deputies.

When asked about the controversy, President Bachelet said, “there is one thing that is very clear, the fundamental task of the president of Chile is to protect the interests of Chile. It is clear that the actions of Sr. Fujimori in the last few days caused situations that are undesirable in our relationship with our neighboring country Peru.”

The President of Peru’s Supreme Court, Walter Vásquez announced that President Bachelet’s comments were, “healthy and positive.”

In Chile, Judge Orlando Alvarez, the judge presiding over the Fujimori case, claimed that the situation “has been taken care” because Fujimori has agreed to cancel all interviews with the press and refrain from discussing Peru’s political situation.

SOURCE: LA NACIÓN, RADIO COOPERATIVO, EL MERCURIO

BARRICK GOLD BACKS OUT OF CERRO CASALE PROJECT

(May 25, 2006) Representatives from Barrick Gold, a Canadian owned gold mining company announced that they were backing out of the Cerro Casale project and leaving the way open for two other mining companies interested in the project.

The Cerro Casale project is a series of open-pit gold and copper mines located in Region III of northern Chile. The project was initially run by Placer Dome, another Canadian mining company, until Placer was bought out by Barrick Gold.

Barrick Gold decided to leave control of the project with two minority investors who were previously working with Placer Dome, Bema Gold and Arizona Star.

“We think that, during the acquisition process, the best thing to do is respect the contracts of the company we bought, said Igor González, President of Sudamérica de Barrick.

Barrick is also involved in the controversial Pascua Lama project, a planned open-pit gold mine located on the border between Argentina and Chile (ST, May 18). Barrick is currently trying to negotiate a tax agreement with both countries to avoid paying double taxes on material produced at the mine.

Both projects have generated criticism because of expected damage to the respective areas’ water systems. The Pascua Lama project would require the relocation of three glaciers and cause disruption of river systems in the glacial watershed area while the industrial waste waters of the Cerro Casale mine cross two national parks.

SOURCE: LA NACIÓN, EL MERCURIO

HIGH RANKING MEMBER OF DICTATORSHIP CHARGED WITH MURDER

General Alejando Medina, president of the Chilean Circle of Retired Admirals and Generals was arrested Monday for the murder of seven paratroopers immediately following the 1973 military coup. Thirty-two years after the paratroopers were executed by members from their own unit, Gen. Medina, then director of the military’s school of paratroopers, as well as six other retired military officials, were charged with two counts of aggravated kidnapping and five counts of homicide.

Gen. Medina was placed under arrest after appearing before Judge Carlos Gajardo and transferred to the Military Police Battalion (BPM) in Peñalolen. He was later released shortly thereafter on a $200,000 peso (US$375) bail while awaiting sentencing.

Judge Gajardo convicted Gen. Merino on five counts of homicide for the murders of Alberto Ampuero, David González, Julio Martinez, Javier Sobarzo, Enrique Toledo, and the two counts of kidnapping for the disappearance of Luis Barraza, and Jorge Piérola whose bodies have never been found. All seven men were arrested on Sept. 11, 1973, the day of Chile’s military coup, and executed by a firing squad between Sept 12 and Sept. 15, 1973.

According to Nelson Caucoto, the prosecuting attorney in the case, the men were murdered because of suspected links to the Movement of the Revolutionary Left (MIR). After being arrested on the day of the coup, they were held at a detention center in Peldehue and later transferred to a military van for transportation to the National Stadium where approximately 7,000 suspected left wing political activists were tortured or killed immediately following the coup.

According to the court documents filed in the case, when the transport van reached kilometer 5 of the Gen. San Martín highway en route to the stadium, “the men were ordered out of the van, lined up with their backs facing La Leona hill…and shot with SIG 7.62 caliber assault rifles.”

Also charged in the deaths of the paratroopers were Brigadier Rafael Sánchez, Colonel Renato Alarcón, Major Carlos Sarabia, Sub-Major Domingo Cortés, and two junior officials Fidel Segovia and Hernán Arancibia.

Gen. Merino’s lawyers plan to appeal the court’s decision.

CHILE’S COMMERCIAL SECTOR PREDICTS GROWTH IN 2006

A newly released market analysis by Chile’s Production and Trade Confederation (CPC) predicts that Chile’s economy will grow by 5.5 percent in 2006. The report highlights internal demand as the continued driving force behind Chile’s economic expansion.

Strong gains are expected in the banking sector with a predicted growth rate of 13 percent in 2006. The construction industry is also expecting another boom year with the Chilean Chamber of Construction planning to increase investments in infrastructure by eight percent, slightly less than 2005, but private construction companies predict a 14 percent overall increase because of investments in production capacity over the last year.

The pulp and paper industry is also expected to increase its production capacity this year. The Chilean Wood Corporation (CORMA) estimates that cellulose, milled wood, lumber, and newspaper production will increase capacity by 10 percent, representing an 8.3 percent profit increase over 2005.
Mining should continue to boost Chile’s economy. The continued high price of copper, estimated at an average annual rate of US$1.65 to US$1.75 for 2006, as well as increases in production capacity, and the opening of new mining deposits has Chile’s National Mining Society (SONAMI) optimistic about the future. Chile expects to mine approximately 31.3 percent of the total world copper output this year which should translate into a five percent overall growth rate.

ACHET ACCUSES LAN AIRLINES OF FALSE ADVERTISING

The Chilean Tourism Companies Association (ACHET) accused LAN Airlines of false advertising Thursday and announced that the association is considering a formal request that the National Economic Regulator (FNE) open an antimonopoly investigation into LAN Airlines.

The false advertising charges are based on reviews of promotional ticket prices offered by LAN airlines that ACHET claims are misleading to consumers. According to Lorena Arriagada, secretary general of ACHET, the ticket prices omit a series of costs that can increase the final ticket price by as much as 50 percent.

“The advertised prices are those of the cost of the plane ticket without security fees, the cost of fuel, or taxes,” Arriagada said. “This is where we enter into the issue of false advertising.”

ACHET is also concerned that LAN Airline’s December announcement to decrease independent travel agencies’ commissions by six percent represents unfair market manipulation. The organization has threatened to send the issue to the FNE for consideration. The decision to decrease commissions has the potential to seriously impact small and mid-size travel agencies because many up to 50 percent of their total profits from the commissions.

According to a letter from LAN to ACHET released on Jan. 4 by Abel Bouchon, the president of ACHET, LAN “does not have a definite opinion, much less a concrete plan regarding the decrease…When it is opportune, (LAN) will request a meeting with ACHET to analyze the possible effects of an eventual change with the hope of arriving at a beneficial agreement for (LAN’s) clients, the travel agencies, and LAN.”

ACHET is expected to announce this week whether or not the group will formally seek government intervention in the matter.

SUPREME COURT NOMINEE WILL GIVE COURT RECORDS TO SENATE

Supreme Court nominee Carlos Cerda reached an agreement with Supreme Court President Enrique Tapia to provide the Senate with internal court evaluations of his work. The agreement should diffuse the tension resulting from the Supreme Court’s refusal to release the documents to the Senate last week.

The agreement allows Judge Cerda to personally transmit his evaluations to the senate while allowing the court to maintain its decision to refuse the Senate’s request. The senate, in an unprecedented request, asked the Supreme Court to provide the nomination committee with records of the grades Cerda received since becoming a judge more than 20 years ago. Cerda nearly lost his job in the early 1980s after refusing to apply amnesty laws in several human rights investigations of officials in the military regime of former dictator Augusto Pinochet.

“The senate must get to know me and the evaluations are part of this process, said Cerda. “What I do not want to say is that I am judging, or criticizing, or commenting on the decision of the excellent Supreme Court.

The nine-to-eight Supreme Court decision to withhold the records cited existing norms of the court prohibiting court dissemination of the evaluations.

“The refusal is for his benefit”, said Supreme Court President Tapia. “My opinion is that he is entitled to his own opinion and, if he likes, he can give the senate the evaluations. I cannot show them.”

Judge Cerda was picked by President Ricardo Lagos from a list of five candidates to fill the seat of José Benquis who stepped down last year after reaching the mandatory retirement age of 75. The senate confirmation hearings are scheduled to begin on Jan 18.

CODELCO TO SIGN COPPER AGREEMENT WITH MINMETALS

Chile’s National Copper Corporation (CODELCO) is expected to sign an agreement with Minmetals, a Chinese metals firm by the end of the week. The deal would guarantee the company a fixed price on 55,750 metric tons of copper over the next 15 years.

In return for the copper, Minmetals would pay Chile US$550 million up front in anticipation of the future delivery of the copper. Chilean officials are currently finalizing negotiations with the company in London this week and hope that an agreement will be reached shortly.

“It is complex negotiation and we must ensure it is done well,” said Alfonso Dulanto, Chile’s mining minister. “All that we have requested as a directing body is that we are clear on every last detail.”

The agreement provides insurance against price variation over the next 15 years guaranteeing a fixed market for Chilean copper and set prices for a rapidly industrializing China. Under the new Chile-China Free Trade Agreement, the two countries are set to remove all tariffs on copper exports by the end of 2006.

CONTRERAS ACCUSES TORTURE VICTIMS OF SLANDER

Manuel Contreras, the former head of Chile’s notorious secret police, the Directorate of National Intelligence (DINA), is accusing more than 200 former torture victims of slander. Even though Contreras has been convicted on three separate murder charges and is facing prosecution for torture and murder of hundreds of political detainees during the military dictatorship, he claims that testimony against him amounts to slander.

The specific charges involve 200 counts of false testimony against survivors of the regimes most notorious torture center, Villa Grimaldi, as well as one charge of false testimony against Inspector Rafael Castillo, Chile’s police chief of the Division of Organized Crime and Special Affairs, one charge of exceeding authority filed against Commissioner Sandro Gaete, former chief of the Police Special Affairs and Human Rights Brigade. Contreras has also charged detectives of the Police Investigations department of petty theft of a cellular phone and a document in Jan. 2005.

The testimony in question concerns hundreds of specific accusations of torture and human rights abuses against Contreras during the time he was in charge of the DINA between 1973 and 1977. Contreras was in charge of collecting information on Chile’s left wing political activists and neutralizing threats to Pinochet’s military government. The 1991 Retting Report that the DINA, under Contreras’ command, was responsible for thousands of human rights abuses, including torture, kidnapping and homicide.

Villa Grimaldi was the DINA’s most important detention and torture center. Located inside Santiago, it was used from mid-1974 onward to torture approxmitaley 5,000 political detainees. Former inmates report that among the most common torture technique was electrical shock, consisting of a metal rack to which the naked prisoner was tied and then electrical current would be applied to sensitive parts of his or her body. Hanging, partial asphyxiation and the torture of family members was also a common method of extracting information from detainees.

The charge of theft comes from Contreras’ 2005 arrest when detectives seized his cell phone and a statement of last intents after the former general reached for a gun when police detained him at his home. The document was later published in several national newspapers.

Contreras is currently facing charges of human rights abuses in the Operation Colombo case where 119 left-wing activists were murdered and for tortures at the Villa Grimaldi prison.

COLONIA DIGNIDAD LEADER INTERRORGATED BY JUDGE

The investigating Judge in the Colonia Dignidad case Jorge Zepeda interrogated former colony leader Paul Schäfer Tuesday about the murder of Miguel Becerra, a former agent of the Directorate of National Intelligence (DINA). Colonia Dignidad was a right-wing paramilitary compound run by German immigrants suspected of collaborating with former dictator Gen. Augusto Pinochet.

Authorities are trying to piece together what happened to Becerra when he tried to resign from DINA and leave the colony in 1974. At the time Becerra was living with his son at the compound. Less than a year later, his body was found inside his car a short distance from the colony.

Judge Zepeda earlier determined that Becerra was poisoned with a piece of fruit but is still trying to determine the motives behind the murder, the interrogation failed to provide any useful information for the investigation.

INVESTIGATIONS INTO PINOCHET’S SECRET FORTUNE EXPAND

Judge Carlos Cerda moved forward on several fronts in the Riggs Bank case Tuesday ordering a financial assessment of two of former dictator Augusto Pinochet’s mansions, another request to Citibank to provide him with the details of a series of money transfers made on behalf of members of Pinochet’s family, and request to the Finance Ministry for a list of all previous directors of the national budget between 1973 and 1998, corresponding to the years that Pinochet was the military commander in chief.

The first order requests that the four architects that built Pinochet’s two homes, Claudio Correa, Claudio Escobar, Mario Contreras, and José Reyes, provide Judge Cerda with the exact value of Pinochet’s homes in Los Boldes in Region V and La Dehesa, an upscale community in Santiago. Judge Cerda also requested the Police Investigations unit to provide him with detailed blue-prints and aerial photographs of the two properties

According to a transcript of the order, Cerda would like to “define the cost-quality relationship of the two homes to determine whether or not there was an overestimation of the cost of the materials used.”

The second order directed at Citibank was a reiteration of a previous request that the bank explain its relationship with Pinochet and his family and provide detailed information about several accounts that he and his wife and children maintained at the bank.

Judge Cerda is investigating two U.S. Citibank executives, Maureen Ruggiero and Emilie Judd O’Neill on allegations that they helped Pinochet hide his fortune from Chilean authorities. The Pinochet family opened 63 different Private Bank accounts between 1981 and 2004. Fifteen of these were directly related to Pinochet, and 19 in the name of other Pinochet family members (ST, Nov. 24).

The last order directed at the Finance ministry is meant to determine the exact amount of “reserve funds” appropriated from the national treasury that Pinochet had access to as commander in chief of Chile’s armed forces.

This new flurry of activity follows more than a year of painstaking investigations into the various sources of Pinochet’s hidden wealth. To date, authorities believe that Pinochet amassed more than US$27 million in bank accounts and offshore holding companies around the world. The former dictator has been arrested on charges of tax evasion, money laundering, and falsifying official documents, his wife and four children are also being investigated as accomplices to the financial crimes.

PRESIDENT LAGOS CALLS FOR AN END TO CHILE’S BINOMIAL SYSTEM

President Ricardo Lagos repeated his call for a major overhaul of the Chilean electoral system Monday just three months before he steps down as Chile’s head of state. The proposal would do away with a Pinochet-era election law that effectively ensures Chile’s right-wing an equal representation in the congress.

If a truly proportional election system were in place in Chile, the governing Concertación coalition would have fared significantly better in Sunday’s congressional races, with two additional senate and four additional deputy seats. Christian Democrat (DC) Sen. Andrés Zaldívar, for example, lost his senate seat even though he polled 2.3 percent more votes than Jovino Novoa of the rightist UDI party. This is because the ticket Zaldívar was a part of did not double the votes of the opposition’s two candidates.

Chile’s current election law stipulates that each legislative district send two senators and two deputies to Congress. This system favors large coalitions in that the congressional seats are divided between the two highest polling coalitions. Only if the leading coalition receives twice as many votes as the runner-up, can they send both of their candidates to Congress.

Thus a coalition with only 34 percent of the popular support, receives the same representation in Congress as a political coalition with 66 percent of the vote. The election law has had the effect of assuring equal representation in Congress for the right wing parties, as illustrated in the example above.

In order to change the election law Lagos will need 23 votes in the senate and 72 in the Chamber of Deputies. Even with Sunday’s gains, the Concertación is still short three senate votes and eight deputy votes.

PINOCHET’S LAWYER INTERRORGATED IN HUMAN RIGHTS INVESTIGATION

Judge Alejandro Solís interrogated former dictator Augusto Pinochet’s lawyer Pablo Rodríguez Saturday about information he may have concerning the disappearance of María Ramírez, a 65 year old woman who was seized while visiting her two children at the Tres Álamos detention center in 1974.

According to Óscar Castro, one of María Ramírez’ children imprisoned at the detention center, the day his mother came to visit, she was seized by a soldier and dragged out of the prison by her hair and turned over to the Directorate of National Intelligence (DINA). In Castro’s testimony to Judge Solís he claims that later, during a special visit to the prison by a group of lawyers, he asked the group what had happened to his mother. He claims that Rodríguez, a member of the group, replied, “you know, there is not much hope that she will be found alive.”

Judge Solís, who is investigating the disappearance of a number of victims, including María Ramírez, who were last seen at Villa Grimaldi, questioned Rodríguez as to how exactly he had access to information concerning detainees at the torture center. While acknowledging the visit, he denied saying anything to Castro about his mother.

Villa Grimaldi was the DINA’s most important detention and torture center. Located inside Santiago, it was used from mid-1974 onward to torture approxmitaley 5,000 political detainees. Former inmates report that among the most common techniques used to extract confessions were electrical shock, hanging, and asphyxiation by submersion in liquids or tying a bag around the inmates head.

“This is going to go down in history as my word against his,” said Castro. “When (Rodriguez) told me about my mother, I thought he showed a certain solidarity with me, like a doctor telling you that you are sick….At the time, I didn’t think it would be the kind of thing I would have to reveal 30 years later.”
Judge Solís is expected to question the two men together to help resolve differences between their stories.

CHILE’S FORMER DICTATOR INVESTIGATED FOR DRUG TRAFFICKING

Judge Adds Another Three Disappearances To List of Indictments Against Pinochet

Judge Víctor Montiglio charged former dictator Gen. Augusto Pinochet with three new counts of “disappearing” political activists in the Operation Colombo investigation Monday. Meanwhile, Judge Carlos Cerda, in charge of the Riggs Bank case, met with detectives from Chile’s Anti-Narcotics division to investigate possible links between the dictator’s fortune and drug trafficking operations.

Judge Cerda was briefed by Patricio Bascuñán of the Carbineros Investigations Police in the ongoing investigation of Edgardo Bathich, a suspected weapons and drug trafficker with links to Gen. Pinochet and his oldest son Augusto Jr. Investigators have not ruled out the possibility that part of Pinochet’s secret fortune came from drug-running.

Gen. Pinochet is accused of laundering more than US$27 million in bribes and illegal kickbacks from the sale of military weaponry while he was commander in chief of Chile’s armed forces. He was arrested and released on bail for charges in the Riggs Bank case on Nov. 23 but was placed under house arrest the following day by Judge Montiglio in the Operation Colombo case (ST, Nov. 28).

Prosecutors in that case originally tried to indict Gen. Pinochet on 15 counts of disappearing political detainees, but Judge Montiglio has so far only approved nine of those counts while rejecting another four because of previous legal rulings. Authorities believe Pinochet was the mastermind behind a 1975 operation between the military regimes of Chile, Argentina, and Brazil to cover-up the execution of 119 members of political opposition groups.

Chilean proscutors have been trying to indict Pinochet for these murders for several years, but have never managed to clear all of the legal hurdles necessary to prosecute the former head of state. However, following the Nov. 9 ruling that Pinochet was mentally and physically capable of standing trial, judges in the two cases have brought a total of 13 different criminal charges against the former dictator.

The charges are: one count of falsifying passports, one count of falsifying a 1989 statement of personal assests, one count of falsifying government documents in 2002, one count of tax evasion, and 9 counts of “disappearing” political detainees.

On top of these charges, investigations continue in the Croatia arms case and the Huber murder investigation. The first is a civilian inquiry into a 1991 illegal weapons shipment to Croatia during the Balkan War, while the second is a military investigation into the 1992 murder of Col. Gerardo Huber, an employee of Chile’s Army Weapons Factory (FAMAE) involved in the Croatia arms deal.

Judge Claudio Pavez, lead investigator in the Huber murder case, met Tuesday with Gen. Pinochet in his Santiago home to question the general about his links to the dead man. Authorities believe Huber was murdered because of testimony he gave in the original 1992 Croatia arms investigation implicating Capt. Pedro Araya and Gen. Carlos Krumm, both military officials working for FAMAE in the early 1990s.

Capt. Araya was sentenced to five years in jail for his role in the Croatia arms sale in August, but was released from prison when the case was reopened on Oct. 18. In Araya’s court testimony, he implicated seven high-ranking Chilean generals, including then Commander in Chief Gen. Augusto Pinochet (ST, Oct. 27). None of the generals were found guilty, one of the main reasons cited in a military court’s unanimous decision to reopen the case.