Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

402. Telegram From the Ambassador in Chile (Lyon) to the Department of State¹

Santiago, January 5, 1957—1 p.m.

346. Upon my return Chile² I find psychological atmosphere regarding successful pursuit of anti-inflationary program much improved. Although fundamental problems remain, and there was in 1956 around 40 percent rise in cost of living, which in other countries would be disastrous, there is feeling here that much progress has been made. In comparison with around 90 percent rise for previous year this is true.

There continues to be clearly numerous weak spots such as large government deficit, rather serious foreign exchange position, more than normal unemployment, especially in the construction field, President’s irascibility and unpredictability, and uncertainty over outcome March elections. But inflation appears definitely retarded, the copper picture is favorable, foreign exchange situation is considered manageable, and degree unemployment not excessive in context inevitable adjustments economy attendant first phase stabilization program.

Outlook elections will not return to Congress majority inalterably opposed government’s program. Financing deficit is major economic problem facing government and calls for new taxes and increased administrative economies. If wage increases kept reasonable, and there is reason to hope they will be, and government workers wages financed by new taxes, deficit financing may be avoided and cost living increase in 1957 can probably be restricted to about half of 1956.

This estimate of course presupposes continuation government’s determination hew anti-inflationary line, continued relative passivity labor, and favorable outcome elections.

In brief picture, while far from being as bright as one would like, is considerably better than might have been expected following slippage several months ago, plus pre-election attitudes and atmosphere of today.

Thus 1956 closes with feeling that considerable progress has been made and general belief that the line will be fairly well held until March election, and that after that further progress can be made.

Lyon

1. Source: Department of State, Central Files, 825.00/1–557. Limited Official Use. Cecil B. Lyon was appointed Ambassador to Chile on May 10, 1956; he presented his credentials to the Chilean Government on June 15.
2. Lyon had been in the United States for home leave, November 18–December 28, 1956.