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The second option. The military dictatorship had an official censorship bureau in place. Proposed news articles had to be run through it before publishing. When some story was barred, it was usual for journal staff to fill its empty slot with something else, like poems, short stories, tall tales, et cetera, that obviously felt out of place. This way people were made aware something that should be there did not make it.

And the people attacked in the weird scene are people that tended to just be dissappeared by police. Gay men. Prostitutes.

> I interpreted it as people making up stories so that they didn't have to face the truth.

That's a very plausible interpretation. I grew up hearing about this myth :p