LHD- 6 Santiago, Chile

August 10, 1966

All taken, it was a discouraging month among Chileans working for the Yankee dollar. First Senator Ernest Gruening released his case history on what was wrong with U.S. aid to Chile. Then Congress cut back foreign assistance generally, while the Agency for International Development made clear that less money would be coming to Santiago in any case.

For a country that relies heavily on U.S. funds, Chile seemed to react with surprising equanimity. Perhaps it was just disinterest. After all, July was the month of the world soccer championships. Chile lost out in that one, too. And in the Andes above the capital, international ski trials began. Then there were such domestic diversions as fissures in the Socialist-Communist Front, brothel closings, an argument over the proper size of a loaf of bread, and finally the colorful question of whether taxi owners could be forced to paint a red stripe around their rattly hacks. They couldn’t. ‘With all this there was also evidence that Chileans simply are becoming as inured as North Americans to the annual play of the long knives upon the foreign aid bill.

Accordingly, the Santiago newspapers carried perfunctory accounts from the U.S. wire services of a few of the scandals surfaced in the Gruening Report, and the holier-than-thou Mercurio dutifully read aloud the lesson of the aid cutback as handwriting on the wall for Chile.

In the finance offices of President Eduardo Frei’s government, and in the AID Mission of Ambassador Ralph Dungan’s embassy, the concern with Gruening’s criticisms, and with the impending aid cutback, was more profound.

The word on future reduction of long-term loans to Chile came from outgoing AID Director David E. Bell in testimony before a House subcommittee. He doubtless acted on the recommendation of the AID Mission here, and the reduction might have been expected even had Congress taken a flier by doubling the authorization and putting the program on a four-year commitment. As it was, the AID Mission had to tell Washington now what Chile’s needs were likely to be 18 months ahead. At least two trends militated against unstanched aid to this country, which receives more U.S. aid per capita than any other in Latin America:
The current price and future prospects of copper, the principal export, were so favorable that it seemed Chile might be able to meet current foreign exchange needs unaided. The stress was on “needs,” for if the windfall earnings should be allowed to go for luxury imports, or otherwise to enter the inflated economy untagged, the result could only be more inflation. An undiminished supply of U.S. capital aid would increase the temptation to loosen the grip on those new dollar earnings. It could be argued that the best use of new AID grants might be to reduce the big foreign debt that resulted from earlier borrowing. But this would have the ring of debt cancellation.

In the opinion of many observers Chile had reached the point where it could not absorb many more dollars. This would be a sort of escalation of the first point. Usually foreign investment must be complemented by national outlays -- as when AID provides funds for an airport, Chile might well have to invest in training pr6gtama for the future employees and to invest escudos in access roads and power lines. When the foreign inducements are many, as they are here, there comes a time when the associated domestic currency and trained manpower are not sufficient to meet all the demands.

This homely paradox, of underdeveloped nations being unable to use effectively the aid they so desperately need, has agitated lenders and borrowers, philanthropists and economists down through-the development decades. Now even some congressmen are concerned. Hence the Report of Sen. Gruening (D-Alaska), “United States Foreign Aid in Action: A Case Study,” submitted to the subcommittee he chairs under the Senate Committee on Government Operations.

Gruening’s Report raises many effective points concerning U.S. aid to Chile, with the issue of the ability -- or willingness -- of either the recipient or provider to apply assistance effectively being perhaps the dominant theme. This issue is posed in the dull but important distinction between two styles of aid: program and project lending. The program lenders got the worst of it in the Report, and some worthwhile suggestions are made for improving AID’s performance. But the question of how the borrower’s capacities can be increased, how he can absorb the aid he needs, is never really answered. A symptom of the lack of understanding on this point is the failure of the United States to define with other than generalities the purpose of its aid collectively or to specific countries. The Gruening Report is not addressed to this need of definition, and its conclusions are weaker thereby.

But first a look at the 124-page Report’s findings. In a preface, Gruening says that the study was meant to identify shortcomings, and this concentration “inevitably paints a bleak picture.” It certainly does. He says in summary that “the U.S. assistance program is far from realizing the purposes for which it was created.” He cites, as the best statement of those purposes, three paragraphs, which he quotes from the 1961 Foreign Assistance Act. They seem to say that to assure peace and worldwide freedom, the United States ought to assist “less developed friendly countries ... to develop their resources and improve their living standards, to realize their aspirations for justice, education, dignity and respect... and to establish responsible governments.”

The Report is drawn largely from internal reports of the AID Mission here and from the experiences of Gruening and his staff during two visits to Latin America. This included one visit to Chile two years ago. The study covers aid to Chile from the start of the Alliance for Progress in 1961 until December 31, 1965. Among its findings:

“AID is weak in evaluating merits of projects and programs.” Evidence is cited to show that Chile lacks a workable development plan or ability to administer aid, and that therefore the task falls to the AID Mission. But the Mission is found to be ineffectual also. As an example, the Report follows the development of a project undertaken in November 1963. With a burst of descriptive enthusiasm AID detailed how it would provide equipment for 50 canning cooperatives. The need was documented and the support of the Chilean government was described as enthusiastic. But despite the seeming watertight study of the project’s feasibility, nary a pea had been canned by the promised operational date of March 1964. By the end of 1965 only the pilot, training cannery plus one other were operating, many of the sites were abandoned for lack of the previously assured local interest, and AID was casting about to get the universities to take over the machinery so that it could get out from under a project that was to have been paying its way two years earlier.

“AID-Chile’s ability to monitor and expedite on-going activities is inadequate.” To document the finding, the Report quotes from files of the small Mission monitoring group, in this case covering a $90,000 project to help create 25 demonstration farms. It contrasts these accounts, optimistic to the bitter end, to those made by the Mission auditors, who found that the implementing Chilean agency had conformed to virtually none of the previously agreed-to conditions. They found no evidence of any demonstration work on any farm visited.

On the other hand, the Report suggests that when AID turned over the monitoring chore to a Chilean agency, the results were even worse. The most provoking scandals were turned up after AID lent funds to the Chilean government’s Housing Corporation for relending. The money was to go to landowners for construction of housing for their laborers. The auditors checked on 55 of the 60 loans authorized through the end of 1964. In 38 percent of the cases, obligations were broken. Eight houses were incomplete though four of these owners had received 100 percent of the loans. One man built a house in the city. Four farm-owners were living in the houses themselves. Forty per cent of the borrowers were delinquent in payments. Three blatant cases were quoted from the auditors’ reports, including this one:

The debtor requested the loan to construct three houses for farm-workers. The auditor made the on-site visit in January 1965 and saw evidence of only one house constructed but it was not occupied by the only farm-worker and his family existing on the farm. This house was furnished with a gas cooking stove, a refrigerator, and a separate duplex toilet with hot water. It has also a big swimming pool at one side of the house. It is occupied by the owner and his family in summer time and on weekends in wintertime. The auditor interviewed the borrower, who is a doctor, in his apartment in Concepcion. He stated that he was teaching the ‘inquilino’ and his family how to live in a good clean house and then, further on, he would transfer it to the farm-worker.

Gruening points out that such incidents give rise to the often-heard charge that U.S. aid helps the rich grow richer.

“Technical assistance, to achieve any success, must be welcomed and strongly supported by officials in the host government who are responsible for instituting innovations.” The example of failure in this area involved a 1962 half-million-dollar AID contract under which a U.S. management firm would teach modern high-speed accounting and reporting methods to the key Controller General’s Office here. According to evidence cited, the AID Mission saw the need for the project but the Chilean agency did not. The result was a long result less exercise in frustration that ended a year ago with the Controller General canceling the contract. This led the Mission to conclude that “the rejection of the central purposes of the project is a significant setback in U.S. attempts to establish effective financial management, reporting and auditing systems for all Chilean agencies.” In turn, Gruening adds that as long as the efforts are thought of as U.S. instead of Chilean, “AID will be unable to distinguish between those projects which Chileans genuinely want and will support, and those which Chileans accept because of AID’s importuning, then will not follow through on.”

There are several other findings, some of which with the related conclusions make indisputable contributions to thinking on aid: a call for more effective evaluation and “memory” of Agency performance, so that today’s experiences will contribute to similar problems’ solution in the future; listing of the endless polyglot agencies that along with AID crowd Santiago’s office buildings and offer assistance to Chile, and the suggestion that a prime task of its government is to concert them.

With instances of mishandling larded throughout, the Report tends to create a sense of outrage, whether or not the individual conclusions drawn are justified by the existence of the cited fiascos. For a sense of perspective, some estimate of the ratio of misappropriations to total aid would have been helpful. The Report does not offer this, and the AID Mission will not, although it says that instances are relatively few and recovery rate high.

Perhaps obscured by the scandal is the important discussion that centers on the Report’s weighing of program versus project lending. As the U.S. and other aid programs evolved the emphasis from the start was on providing assistance for specific projects -- a dam, highway, schools, a civil servant training program. The recipient country always played the dominant role in theory in the selection of apt projects. But just as execution of projects taxes a nation’s capital and manpower, planning and selection of projects can exhaust the supply of technicians qualified for that crucial task. The national institutions -- the finance ministry, perhaps, or the planning agency if there is one, or the public works ministry --often lack the talents or experience needed to prepare the great many projects needed to get the economy moving. Yesterday’s financial institutions wither in the heat.

At some point, then, the country reaches a limit on the amount of aid it can absorb and this limit often Js distressingly below what seems to be the need. This limit can be pushed up by infusion of foreign experts into the project selection process. The limits then become fixed by the skill of the foreign assistants, their ability to adapt their own training to the needs of their hosts, and by the willingness of the hosts to entrust important tasks to foreigners. If the planning financial institutions succeed in producing high-priority projects, the limit will then be in the manpower to execute them -- and this limit, too, can be pushed back by introducing foreign technicians.

By the account of AID Mission people, they found this situation in Chile in 1962: the general economic situation was chaotic, with inflation running at 50 per cent yearly. Basic structural changes were needed in the financial institutions of the government, which were failing to locate, facilitate and give priorities to the obvious abundance (f needed projects. By this account, AID decided therefore to go to a program loan. For 1963, $35 million was committed, to be released in quarterly parcels after review with the Chilean Finance Ministry of progress toward pre-fixed, mutually agreed-upon objectives. The reasoning was that via project loans there was very little beneficent leverage on the country’s basic economic policies. With the program loan, distinct sums would be ticketed for specifies, but at the same time the Mission could encourage policies deemed favorable in such areas as wages and investment. Specific commitments were made in such areas as credit expansion, savings and exchange controls.

In 1964 another of the very-low-rate program loans was arranged, for $55 million, and with the coming to power of the reform-minded Frei government the annual amount was raised to $80 million for 1965, with the same for 1966. This lending was supplemented by some project loans, as for Santiago’s new airport that is to open in November, six years after a $10.5 million commitment that has since been upped; by technical assistance grants, especially in areas critical to improved financial practices; by other funds administered through the Inter-American Bank, the Peace Corps, etc.

Advocates of the program approach make rather qualified claims for its success. “All that we can do,” said one of them “is watch for the men with the right policy ideas, and offer support for those ideas when time comes to pay the bill.” Ambassador Dungan feels that the purpose of the exercise is to build strong governmental institutions, or at least to help do so, but he thinks this objective is overlooked by some of the dollar watchers.

Gruening makes a strong stand against the program loan, demonstrating that while Chile has in almost all cases adhered to the letter of the agreements; it has in fact evaded many of the stringent reforms that the commitments were intended to compel. “The plain fact is that the desirable economic measures set forth as conditions for continued U.S. assistance involve political determinations,” he argues, “and nothing in our experience gives us superior knowledge of the best political strategy to pursue in an alien environment.”

On the question of institution building, Gruening is both pessimistic and pro-project lending:

“Clearly, if Chile is to utilize effectively large amounts of development assistance, the nation must first build institutions capable of managing the infusions of external capital. While sympathizing (sic) with the Chilean desire to compress several centuries of the industrial revolution into a decade, the hard fact is that overburdening fragile institutions is self-defeating.” Later he adds that “program lending erodes Chile’s incentive to undertake the necessary steps to formulate its investment program on a rational basis. Quick access to funds to meet general external resource “requirements”... lessens the pressure upon the Chilean Government to prepare sound projects meeting development loan criteria.”

Since the program loan was introduced it has increased in importance; as the total annual appropriation has decreased, disbursements have largely narrowed to countries that have operated under this concept. In some respects the program approach does seem either more sophisticated or more spurious, depending on one’s outlook, than the old idea of finding a project and providing what cannot be obtained locally to bring it to fruition. But whereas it would seem that the sophistication would come only after a country mastered the conventional project routine, this does not necessarily follow. Defenders of the program approach say that a country’s failure to keep up the pace in project management proves the necessity of an institution-strengthening approach -- so that in the future it will have the means to recognize valid projects and complete them, eventually with domestic capital and men.

AID Director Bell discussed this still rather unorthodox attitude in July’s Foreign Affairs. In an article called “The Quality of Aid,” he said, “Some of our AID people in the field ... have suggested it is a mistake to think -- as we customarily do -- of technical assistance and capital assistance as separate categories. They suggest that the objective invariably should be to develop institutional capacity in the developing country, and that technical and capital aid should be related in whatever combination is needed to achieve the desired results.”

This would seem to carry one step further the thinking in the Mission here. “I am not yet ready to accept this idea wholly,” said Bell, “but I believe it is very much worth thinking about as we try to improve the process of aid administration.”

With its proclaimed purpose of improving the aid program, the Gruening Report might well have offered research into the effect of U.S. assistance on institution building in Chile. That worthy objective must remain unmet in this report also, but some random observations can be put forth on what aid looks like and sounds like in Chile.

First, what the Chileans say (when it becomes obvious that the intruder knows nothing of the football championship): Workers at installations assisted by U.S. funds -- such as the Platina Agricultural Research Station near here, built with Rockefeller aid and being expanded with AID money -- are quick to point out the role played by the foreigners. These Chilean technicians seem proud of the work they are doing and grateful for the assistance that allowed them to get it underway. U.S. aid understandably is not a prime topic of conversation at any level, but eventually the Chileans who have benefited in the past, or who know people who have, are likely to offer some frank observations. They say, for instances that one result of the aid is the growth of a new tier in the Chilean society, the professional AID projector. This is supposed to be the man with the Midas ability to propose projects that will appeal to AID. There have, in fact, been cases of lawyers working with an AID-supported group who moved on to now and similar arrangements when the contract ran out. Often frank Chileans cite cases similar to those in the Gruening Report where a project officer in AID saw an obvious need and found obliging Chileans to fill it -- using U.S. money. But though the officer might well have been correct in seeing the need he was incorrect in assuming that the Chileans did, and the project never became self-supporting. An example would be the Chilelean Institute of Cooperative Education, which received an AID commitment of $125,000 in 1963, to be spread over three years. But the expected growth of autonomous support for training cooperative leaders has yet to step forth, and the Institute’s foreseeable future seems to be tied to AID.

Among the politicians, probably the Communists and their more leftist cohorts, the Socialists, talk most about U.S. aid. They are hardly consistent, damning the United States if it lessens aid, and damning the aid itself as a neo-imperialist plot. AID received probably its finest tribute here when President Frei gave his equivalent of the State of the Union speech in March. He devoted an unprecedented three paragraphs to U.S. relations and the support given his “Revolution in Freedom.” ‘We have thus relied upon a permanent and decisive financial assistance; with ample understanding and respect for our internal solutions and for our international activity,” said Frei. Within the ruling Christian Democratic Party, but mildly critical of Frei and to the left of him, is Senator Rafael Gumucio. He finds U.S. aid to be useful, and better today than in the past in one important respect: A much larger percentage of the aid now gets to the lower economic classes. He attributes this more to the new Frei Administration than to initiatives of the U.S. Embassy. The Party’s ideology is decidedly anti-capitalist and Gumucio is a leader in the cause of defining just where Christian Democracy should lodge to the left of free enterprise. He sees a place for U.S. private investment in Chile’s future, but under restrictions that undoubtedly will turn away some firms. One of the favorite justifications for the U.S. aid program has been that it opens possibilities for private foreign investment. This argument is heard less here than among most North Americans.

Second, what the U.S. community here says: One of the sharper critics of AID was a Peace corpsman-economist who had watched the program for his two years. He took the perhaps typically Spartan attitude that the AID officials came under a handicap they seldom mastered -- their affluence. He felt that the AID officers, with their new cars in a country of ancient wrecks, their commissary privileges while Chileans can import little, their suburban ramblers when domestic capital fails to fill the housing gap, simply cannot communicate with the (admittedly few) Chilean officials who understand the needs of the many. He felt that often the prerequisites attracted men without dedication, and that the conspicuousness of the consumption alienated the Chileans. If the big salaries are necessary, he said after supporting a wife on a volunteer’s wage, let most of it be banked until return to the United States.

It does seem to be true that the typical young AID worker lives in a higher style here than he would be expected to in Washington, but there does not appear to be a consensus on this affecting their dedication. Those I have encountered work hard and feel that their efforts are worthwhile. But they often are critical of the performance of the Chileans, with whom they deal, feeling variously that the Chilean government officials are indolent, inefficient, corrupt or ignorant. The more perceptive acknowledge frustrations but write them off to differences in cultures.

An official in the one U.S. bank here praises the aid program for what it has built physically, doubts that it has been so successful in the less tactile institution building. A year ago most of the bank’s import business was generated by AID dollars. Today Chilean exporters are helping to fill the need. The banker notes that while imports are still tightly controlled, restrictions have now been eased in areas critical to economic expansion. This is partly possible because of the success of past policies, in turn possible in part because of U.S. assistance.

U.S. political scientists and economists abound, many of them in Santiago themselves under government or institutional assistance grants. Their attitude toward aid seems to be affected less by this than by the political or economic attitudes they brought from home. Definitely in the minority are the economists who call for Chile’s dropping its great maze of economic controls. A spokesman for this group criticizes the AID Mission for supporting the Frei government’s sallies into the controlled economy. He feels that the program loan essentially is a balance of payments bailout that obviates hard decisions.

Another feeling frequently expressed is that the AID program is being used for political ends -- that since Washington likes the politics of Frei it will help him economically even if little material betterment can be expected. The Gruening Report said aid definitely was used in a political way at the end of the administration proceeding Frei’s in order to paste the economy together until he could be elected. The Report recommended that “political considerations for proffering assistance must be divorced from economic purposes.” This is a criticism that does not long detain the Embassy. For one thing, as neat as the economic-political distinction is in theory, the shades are so varied in practice as to make the concept useless. Furthermore, aid does have political purposes, as so strongly implied in the 1961 Foreign Aid Act quoted by Gruening to define the purpose of assistance.

Third, what the men in the financial institutions spy, and what is said about them: The one sure sign I have encountered that firmer government institutions are forming In the fiscal sector is that officials in this area are almost impossible to see. Most of the bright young men of this government keep busy, but the key economics-finance-planning officials seem exceptionally so. They must be accomplishing something, though the amount of credit that should go to AID is debatable. Probably a good number of them are filling out U.S. forms in duplicate after filling out the Chilean five-ply version. By the testimony of the AID Mission men who work closest with the Chileans, the most talented officials in the most crucial positions are also the most responsive to prodding and suggestion. Observers independent of both AID and the government make a judgment that would seem to be crucial to the future of program lending here. They say that in fact a great many of the Chilean officials are better trained (often under top U.S. faculties), more intelligent (though rarely better-paid), and certainly more experienced in the Chilean economy than their counterparts in program lending from the Mission. How, then, is the Mission to right the ship of state if a fitter crew cannot? It could be that the Chilean crew simply will not, but all evidence points to their sincerity. The glum fact is that Chile’s is a most difficult economy, where the only inertia in motion are inflation and the birth rate. And the growth rate is measured in decimals while old ideas persist long after they are discredited. One hope is training for other clerks.

Pessimists say that even given the good intentions of the Chilean officials toward Chile’s welfare, this does not preclude their taking advantage of the AID Mission to use the assistance in ways contrary to the first interests of the North Americans. The AID officials have a partial answer for this. They believe that sufficient key people in the ministries agree wholeheartedly with the Mission on the efficacy of certain difficult reforms, but that these men do not necessarily have the leverage to overcome the forces that find the easier way more salable politically. Therefore, the Mission becomes the lightning rod. When an unpopular reform is under attack, the beleaguered sub-secretary says, “Yes, but those gringos insist, and we need the aid.” Of course, things do not come to this point very often, and this justification for the Mission or the program loan would have difficulty standing alone.

The one clear success in institution building seems to be in an office that had little relevance to the economy ten years ago -- the tax collector’s. Collections in real terms increased 26 percent last year. A better measure is the high pitch and booming volume of the tax-paying business community’s wail that it is being wrung dry. One of the principal factors given for this success is the performance of a team lent by the U.S. Internal Revenue Service. Gruening is among those to praise the effort. A similar team, trying to help recast the 19th Century customs practices, got off to a slower start, which the Report noted. This team now is said to be progressing, working its way out of the corner offices in the Valparaiso Customs House where it had languished since 1963.

Although North Americans find this economy’s tight controls, repugnant, their own country normally avoiding them effortlessly, these visitors often acknowledge that Frei’s new administration does a competent job in this most complex undertaking. This either implies maturing institutions or already mature ones.
The Mission bench markers say that they have seen progress; though they see room for more by the standards they brought in their baggage. Words do not necessarily serve to refute the facts, if a limited number of facts, in the Gruening Report, But when a visitor hears President Frei warn the people that elected him that he can offer nothing but hard work now and the hope of a better life for the children; when he watches the Latin countenance cloud at announcement that inflation is being held back, but less tightly than hoped; when a beset government promises to use copper profits to pay off unmatured debts -- these things seem to offset some of the auditors’ disrobed peculators. Some of the policies in copper sales, and initiatives in. regional integration, look like products of a government worthy of investment, even if the exact content of AID’s previous input cannot be measured in the payout.

Fourth, what one sees of aid: You can’t miss it. At least you won’t be able to when the new international airport opens. One of the Gruening Report criticisms was that the Chileans have failed to put up signs acknowledging Alliance for Progress aid, as demanded in the project agreements. If the Mission can get a sign on that airport, virtually every U.S. visitor will be aware of aid. And there is some feeling that they are the only ones who would be affected by the signs anyway. In the case of the Chileans there is no doubt whose money is making the airport possible. The press of left and right has made the point incessantly at appropriate points in the cycle of project delays. And every Chilean who suffered the inadequacies of the present drome will thank the United States. Actually, the graveler around Chile does see the Alliance signs. Trim schools in the south, with wide green lawns, not only carry the billboard-sized acknowledgements but often fly the Stars and Stripes on a staff beside the Chilean tricolor. One school is even named “Alianza” or some such. And in the towns where the poor line up for food, they draw their cooking oil from a drum advertising the Alliance, carry home grain in an Alliance sack, and mix their milk from an Alliance carton.

Of course there are many unmarked projects -- “Our biggest problem is roads, it said an AID man, “but how do you mark a road, anyway?” -- yet most U.S. officials feel this is one of their lesser problems. Unless the projects are not up to standard they will outlast the signs Gruening feels that the signs are necessary to engender conviction that the Alliance will improve the future. The opening ceremonies, with somebody from the Embassy cutting the last red tape, are geared to the same purpose. But it may well be that the project itself, not the sign or the ceremony, will have the hope-generating power.

In summary, then, it can be argued that the implications of new aid concepts in Chile are more provocative than the Gruening Report’s recounting of dollars lost -- arresting as the revelations are. In the new light, the most efficiently planned and executed project might have only minimal relevance to the main thrust of the aid program. It would be useful in this respect only if as the project evolved, the aid recipients learned lessons that would make later, home-grown and home-fed projects a reality. And within reason, economic losers in the league of development could be winners if tile experience made the right men wiser.
Oh yes, the other domestic issues -- the Communist-Socialist falling-out, the size of a loaf of broad, the color of taxis. Each gets into the aid question somehow, for it is a pervasive thing. It ought to be, since the United States alone claims to have put in $1 billion here since World War Il.

But back to the FRAP, as the far-left front is known. One of the reasons for a crossfire of open letters between the partner parties is that the Communists have been too soft on Frei in the opinion of the Socialists. But how could the Communists attack Frei for accepting aid from the United States, when the Soviet Union is about to give Chile aid as well? Fidel Castro snipped at the Russians for consorting with Frei, and the Cuban Premier berated Frei for consorting with the imperialists. The Chilean Socialists cheered Fidel on, but the Communist Party member in Havana during Castro’s speech packed his bag and left.

The bread-and-taxis Issues are little more than comments on the maturity of governmental institutions. Chile, like the United States, has wage guidelines. The rule here is that contract settlements should not provide wage increases greater than the rise in the cost of living. In the United States the increase should not exceed the growth in productivity per man. The latter is more subtle, but then Chile’s inflation runs 15 times as fast as the United States’. So when the bakers’ union insisted on a rise -- that is, raise -- far exceeding the guidelines, the government looked for evidence of increased productivity. Apparently it didn’t find any, and in the desperation to avoid the disruption of a strike in this bread-eating land, some bounder came up with the idea of changing the loaf size. Then the means to measure output per baker would be lost in the batter. The government could accept a bigger wage increase without loss of principle. For a time the fine French-style pan corriente was in danger of being drawn out thin, for sale by length instead of weight, until it was nothing but crust. Reason ruled, however, and the poor man’s sustenance was the winner. The old loaf is to remain, with the pointed ends rounded in a most efficient way. Against this credit in the government’s institutional ledger is the deficit of allowing the bakers a 43 per cent increase when the inflation guideline is 25.9. Thus by slices goes the stern task that would tax the strongest government, control of inflation. With the year half gone, the Frei hope for a 15 per cent rate in 1966 had already been fulfilled, to his sorrow.

Meanwhile, the Health Ministry announced that it would begin to close the houses of prostitution that it had long policed, and attempts would be made to rehabilitate the unemployed. And the taxi drivers balked at the municipal demand that cabs acquire “a 20-centimeter stripe around the widest part below their middle.” The more docile drivers obediently bought cans of red and added a wavy smear to their mostly paintless Cords, Packards, Kaisers, Model As and at least one Pierce Arrow. But the real individualists held out against this mongrelization of the fleet, until strikes and violence resulted and the national congress was called in to legislate. It all seemed so un-institutional, in the North American societal frame of reference.

When the House of Deputies was through, all cabs were under orders to acquire yellow tops by some vaguely defined future date. The spectre of a blue 137 La Salle, with a red stripe and chartreuse top, hung above the city like the smog. It was too much for a press humorist. Let one law do it all, he said. For the girls of the street and the cabs of the street, “a 20-cenitmeter stripe around the widest part below their middle.”


Mr. Diuguid is a 1965 Alicia Patterson Fund fellowship award winner on leave from The Washington Post. Permission to publish this article may be sought from the Foreign Editor, The Washington Post.

Received in New York August 15, 1966.