secret
COPT NO. -lv
TOR THE
ACQUISITIOK i
DEPT.OF
NATIONAL INTELLIGENCE ESTIMATE
PROBABLE DEVELOPMENTS IN CHILE
Am""
Approved3
Published3
Tfie Intelligence Advisory Committee concurred tn this estimate on II August IJS3. The FBI abstained, the
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a
INTELLIGENCE AGENCY
eeeBn
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PROBABLE DEVELOPMENTS IN CHILE
THE PROBLEM
To estimate tlie current situation and probable developments in Chile, with particular reference to the stability of the Ibanez government and the probable development of its foreign policy.
present situation and trend in Chile are adverse to political moderation and stability. The gravity of Chile'ssituationidespread sense of political frustration have increased demands for radical and nationalistic solutions.
President Ibanez was elected on the strength of his demagogic campaign promises and his personal reputation for vigorous action. He is hindered by lack of an established political organization and lack of an effective majority in Cong* ress. On the other hand his politicalranging from conservativeand big industrialists through the middle-class supporters of theadministration to laborand the Communists, is divided and ineffectual
In present circumstances Ibanez is capable of controlling Communist activi-tives in Chile and will probably do so.evere deterioration of the economic situation would greatlyCommunist capabilities to foment labor disturbances and civil disorder.
SIONS
Should the Communists gain suchas to threaten the government and Ibanez proved unwilling to takevigorous action to control them, the armed forces would probably assume police powers, if not actually take over the government
Ibanez' most urgent political andproblem is toevereHe may succeed In checkingthe inflationary trend,asting solution of this problem wouldubstantial increase inof consumer goods, which cannot be achieved during Ibanez' term in office without substantial foreign financial aid. In the absence of adequate foreign aid and of more drastic domestic action, it is likely that the unsolved problem ofwill leadolitical crisis in Chile during Ibanez' term.
Chile will almost certainly support (or at least not oppose) the United States in the UN on major issues arising from the East-West conflict At the same time Chile will increasingly seek toindependence of the United States
and. In economic matters, to act inwith other Latin American countries regardless of the position of the United States.
cooperation betweenArgentina may increase, but inof such cooperationexercise care to avoid economicdomination by Argentina.
As long as Ibunez has any hope of US financial aid he is likely to take care to avoid antagonizing the United States, but he may seek to extort such aid by threatening cooperation with Argentina, with the USSR, or with the Arab-Asian bloc in the UN. If he is seriouslyin his expectation of US aid andevere deterioration in the economic and political situation in Chile, he will probably attempt to regainsupporteturn to Yankee-baiting.
In the event ofeterioration in the internal situation it is likely that Ibane2 will find it impossible to cope with the problems which beset him bymeans and resort to arbitrary rule.
Given the probable support of the armed forces, it is likely that Ibanez could rule arbitrarily for some time. Hisof dictatorial powers would probably not relieve the economic situationhowever, and it is likely that there would be efforts to overthrow his regime. Ii, in these circumstances,opposition and popular hostility became so general and intense as to lead to widespread disorder, the armed forces would probably withdraw their support and the regime would fall.
Any estimate of future developments in Chile must be qualified by reference to Ibanez' advanced age and reported ill-health. He may become physically or mentally incapable of acting vigorously ononstitutionalictatorial basis.
In the event of Ibanez' death orfrom office, any successorwould face the same economicand would be subject to the same radical and nationalistic pressures as affect the present regime.
DISCUSSION
Chile normally supplies the United States with about half of Its copper imports, or aboutercent of US copper consumption.Chile's standing in the Latin American community is such that the character of Its political relations with the United States (or with Argentina)atter of general
The world-wide depression in thes made Chile acutely conscious of Its excessive dependence on the proceeds from copper and nitrates. Succeedingattempted to promote rapidThey alsoess unequal distribution of income. However, thein which these programs have beenout has ledevereesult of the development ofin urban areas, the preponderance of political power has shifted from theto new urban interests. These new political groups have been unable to uniterogram for solving Chile's problems and are becoming more inclined to advocateand nationalistic solutions as thesebecome increasingly severe.
POUT1CAL SITUATION
The present economic trend In Chile Is adverse to political moderation andstability. This trend ls morethan the character of any particular adrninistrationeterminant of political developments.
The dominant personality in the present political situation is that of seventy-five year old Carlos Ibanez del Campo. who succeeded to the Presidency inri the coursetormy political career Ibanez has proved himself to be an opportunist addicted to strong personalrofessional Army officer, he achieved political prominence5 as leaderoup by younger officers whichilitary Junta anda reformist civilian regime. In this way he became Minister of War and, two years later. President. His regime was based on military force, but nevertheless collapsed1 under the Impact of the depression.eriod of exile in Argentina. Ibanez reappeared7 as leader of the Chilean Nazis, whose disorders led to2 he was the unsuccessfulcandidateonservative coalition, and subsequently on several occasions he was suspected of plotting to overthrow the duly elected government.9 he was elected lo the Senate, from which position he ran for the Presidency
n the presidential election2 the mood of the Chilean electorate was one of Intense dissatisfaction with theof Gabriel Gonzalez Videia. He had been elected6 as the leadereftistwhich promised the laboringarger role in the national lifereater share of the national Income. Gonzalez Videia estimated that, with US financial assistance, bis industrial expansion program could be accomplished before inflationunmanageable. In order to make Chile eligible for US assistance, among otherhe expelled the Communists from the three cabinet posts which they had been awarded and officially outlawed theParty under the Defense of Democracy Law, which he sponsored for this purpose.
This law alienated organized labor, which complained that the government used It to circumscribe legitimate trade unionMoreover there was general reaction against the runaway inflation. Ultranatlon-alists succeeded in intensifying anti-USby charging that Gonzalez Videia had surrendered the national sovereignty to US interests.
banez successfully exploited this rising tide of discontent. He avoided Identification with any established political party and ran on his personal reputation for forceful action. To the workers he promised economic and social improvement and repeal of the Defense of Democracy Law. To ultranationalists he promised to vindicate the nationaland curried favor with them by severely criticizing the military assistance agreement with the US. To all segments of the population he promised elimination of corruption and waste inmore balanced" economic development policy,ower cost of living. Ibanez was elected Presidentopular plurality, thoughajority.
id. Ibanez' most reliable political support comes from the middle sector of society, which embraces small industrial andproprietors, professional men.officials, and white-collar employees. Widely divergent views on both political and economic policies are held within thisThe Ibanez Administration's mostrelations appear to be with thosewhich admire the authoritarian regimes of Peron and Franco and whichorporate form cf government (like that of Sal ajar intate control of labor, and emphasis on agricultural development. However, the only strong tics uniting Ibanez' middle-class supporters are their distrust ot the more conservative political parties, their anti-US nationalism, and their belief that Ibanez is the only man who can overcome Chile's economic ills.
ost of the middle-class elements which supported the preceding Radicaloppose Ibanez. Most Intellectual and student groups (traditionally an Important
factor Ln Chilean politics) oppose him.because of his authoritarianThe Radical Party, since its fall from power, has attempted to regain some of its former political influence by advocating pro-labor programs and generally outbidding Ibanez for mass support.
rganized labor, whichercent of the total labor force, hasolitical force in Chile for the past fifteen years. Its support was an important factor in Ibanez' election, although his mass vote came primarily from unorganized workers. In the first few weeks of his regime Ibanezriendly policy toward labor,in strikes to award benefits to workers andirect personal interest in the problems of individual workers. he soon began to criticize organized Labor by claiming that It placed its ownabove those of the nationalarget of Ibanez' criticisms has been the new national labor confederation.hich was organized in3nified leadership free ofcontrol. Virtually all laborin Chile are affiliated with CUTCH. Despite active Communist collaboration in the unity movement and Communist Influence in constituent unions. CUTCH has so far avoided Communist domination. At present CUTCH Ls evincing opposition to Ibanez, ln part because some of his followers havea rival labor organization. Still in the embryonic stage, this new pro-Ibancz labor group as yet poses no serious threat to CUTCH.
onservative elements in Chilean society have on the whole been opposed to Ibanez. These elements are represented primarily by the large landholders and the businesswhich comprise the most cohesive social, economic, and political groups In Chile. Their opposition to Ibanez Is based primarily on their dislike of social welfare schemes and increased government controls, and their fear lhal Ibanez may again resort to personal The large industrialists resent tlie reduction in emphasis on IndustrialAlthough some large landholders approve ibanez' emphasis on agriculture, they fear that the Administration may intervene in marketing processes and may pressfcr minimum agricultural wages.
uring recent years there has been an increasing fragmentation of political parties. Thirty-six parties participated In the3 congressional elections, and twenty won seats. The Administration's main strength lies in two parties, the Agrarian Laborites and the Popular Socialists, which differ on many issues, particularly on the properbetween government and labor. Togetherroup of small factions which normally support Ibanez. they have barely half of the seats in the Chamber of Deputies andinority of less than one-third In the Senate. The principal opposition parties are the Conservatives. Liberals, and Radicals, which, togetherroup of smallIbanez factions, control the remaining seats in Congress. However, on both sides party loyalties constantly shift, and there is aregrouping of loose, ad hoc alliances.
fter the Chilean Communist Party was outlawed by the Radical Administrationt ceased to constitute an effective direct political force. The Communistfront, the People's Front coalition, polled only0 votes in the2 and3 elections and won only 10 scats in Congress. The Communist Party's membership Is estimated at Its principal Immediate objectives appear to be to win control of laborand of student and intellectual groups; to further the Influence of antl-US ultranaUcnalists in the Ibanez Adrninistra-tion; to press for legalization of the Party through repeal of the Defense of Democracy Law; and to secure the re-establishment of commercial and diplomatic relations with the Soviet Bloc. Although the Communiststhe candidacy of Ibanez, they hailed his victoryefeat for the US and offered him support for an antl-US program. hile Ibanezolerant attitude toward the Communists. More recently he
has caused difficulties for the Communist press, harassed individual Communists, and given warning that he would not tolerate strikes threatening the national Interest. This shift in Ibanez1 attitude probablya sense that the Communist challenge his personal authorityesire to win US and conservative approval. Nevertheless, In June Ibanez acceded to Popular Socialist demands that he support repeal of theof Democracy Law, which would have the effect of restoring Important political and organizational rights to the Communist Party. Ibanez stipulated, however, that repeal of the Defense of Democracy Law musttrengthening of the basicSecurity Law.
Communists virtually controlunions in the nitrate fields andThe major copper workers'is an ti-Communist, butinoritycopper mine workers. As copperis now entering the deep-pit phase.opportunities for sabotage areThe Communists have somein the maritime and port workers'but at present are not strong infederation or inCommunists have so far failed Into gain control of CUTCH, butimportant influence In the Santiagoaffiliate of CUTCH.
ARMED FORCES
Chilean armed forces have astrength0 men,surpassed in South America onlyand Brazil. Thesearablneros (securityndilots. Army anddiscipline, and training arethe Latin American average,are serious deficiencies in arms,and supplies. Combat effectivenessArmy Is low by US standards, butcomparison vrith other LatinThe Navy is perhaps the mostin Latin America. The governmentefforts to expand and modernizeUS World War II-type air force by acquisition of US or British jets. The morale of the armed forces is normally high and remains good despite the adverse effects of inadequate pay In the face of Inflation and of the threat of political interference implicit in recent high-level retirements. Communist efforts to penetrate the armed forces have been unsuccessful. The armed forcesthe Carablneros) have shown themselves capable of suppressing civil disturbances and strikes and of guarding against sabotage In the copper mines and other strategic
Chilean armed forces activelythe Ibanez dictatorship,then they have remained aloofloyally supporting successivegovernments. On takingretired an unusually large numberofficers in order to put personalIn positions of command.forces will certainly support IbanezPresident, and wouldto support him il, in criticalhe were to resort to dictatorialIf, however, an Ibanezto relieve economic distress anduniversal political opposition andhostility, the armed forces wouldwithdraw their support, as they did
ECONOMIC SITUATION
The survival and future course of the Ibanez regime depends largely upon itsor failure in dealing with Chile's serious economic problems. Severe inflation and an Imminent decline in Chilean copper export earnings are the two immediate threats.
The cost of living, which had been rising rapidly during the postwar period, spiralled upward at the rate ofercent per annum. Since2 the dollar value of the free peso has depreciated by aboutercent. This Inflation wasby direct governmental promotion of Industrialization through large-scale and long-term development programs whichresources from production of foodstuffs
consumption goods. Industrialwas promoted by central bank loans, by direct subsidies, and by preferential exchange rates to facilitate imports of materials and equipment. The growth of bank-helddebt resultedecondaryof bank credit,peculative boom. More recently additional impetus to inflation has come from increases in wages and welfare benefits.
Agricultural production has received comparatively little governmental aid orand has not kept pace with the growth of population.? Chile haset Importer of foodstuffsand distribution methods are poor. The use of fertilizers Is extremely limited despite Chile's position as the world's largestof natural fertilizers. Imports of farm machinery have been hampered byLn the terms of trade of Chile'sproducts.
In February Ibanez obtained fromspecial powers,o carryroad program ofreforms and anli-LnllationaryUnder the authorization all measures decreed by Ibanezugust wouldin effect after that date. Numerous administrative changes were effected under these powers, mcluding measures tothe government's credit machinery, and to reduce anticipated budget deficits through governmental reorganization and economy measures. It was notthat Ibanez tookelay owing partly toof opinion in his cabinet over specific measures and partlyeluctance tovested interests untU he had improved his political position.uly he ordered: (a) abolition of preferential exchange rates on most imports in order to alter the pattern of trade;eneral price rollback to3 effective for two years; (c) wage rises ofoercent affecting medium and low wage workers to compensate for higher prices on the Imported foods and materials formerly subsidized by artificial exchange rates. Onuly the Administrationtoomprehensive economic plan including austerity measures, fiscal and financial reforms,roduction policyto emphasize agricultural and service industries.
Increased domestic production ofgoods and foodstuffs is one element essentialasting solution of theproblem. Incentive prices and subsidies would stimulate increases in agriculturalbut unless carefully managed would In the short run contribute to inflationaryIbanez hopes to obtain short-term US Export-Import Bank loansong-term World Bank loan to Increase agriculturalThe World Bank has estimated that, in order to case the growing burden of food Imports and to raise consumption levels slightly, it would be necessary to increasein agriculture byne-third ln dollar-financed imports, over an eight-year period This would approximately double the present rate of investment inwhich is nowercent of gross national product
The Chilean economy is heavily dependent on copper exports The copper industryprovides about two-thirds of Chile's total foreign exchange earnings and aportion of its budgetary revenue. The government controls the sale of Chilean copper. It derives revenue from the USthrough the differential between its buying price from the companies and its higher export prices and through Income and indirect taxes. It is highly doubtful that the current export price of Chilean copper can be maintained in the face of competition from other copper-producing areas, and theavailability and use of aluminum and other substitutes. In addition the demand for copper for rearmament and stockpiling purposes will almost certainly be reduced in the immediateeduction infrom copper exports would aggravate the unbalance in Chile's Internationa! payments.
Friction has arisen between the Chilean Government and the US copper companies (Rennecott and Anaconda) operating in Chile. The companies maintain that the
government pays them an unjustly low price (the former US ceiling price) for their copper, and that by asking an artificially high price abroad it has curtailed export sales. Atthere is an accumulation of0 tons of unsold metal, equivalent to about seven weeks' production. They also complain that the income taxes are exorbitant and dls-cruriinatory, and that the arbitrary exchange rate is unfair to them. On the other hand, the Chilean Government complains that the local US managers arc offensive in theirwith the government and that thehave not trained Chileans for higher executive positions. It also complains that the copper companies' labor relations have been unsatisfactory.
present the Chilean Government Isa revision of its policy towardcompanies in order to maximizefrom the sale of copper. Thehas initiated consultationsiew to maintaininglevel of governmental revenuegovernmental control of theof copper more effective.
FOREIGN POLICY
Chile's foreign policy is conditionedtrong desire to retain the friendship andof the United States, its most important copper market and the prospective source of needed financial and technical aid. Chile has generally cooperated with the US in theof American States and hasthe US in the UN on major East-West issues. It has ratified the Rio Treaty and enteredilateral military assistance agreement with the US. Although Ibanez severely criticized this agreement during his campaign for the Presidency, his Adrninistra-tion has taken steps to implement it.
In recent years, however. Increasingin Chile has complicated relations with the US. In common with other Latin American nations, Chile resents the alleged US neglect of Latin America since the end of World War II. It is strongly conscious of its position as an underdeveloped nationcapital goods and manufacturedwith the exchange earnings of itsof raw materials. Itonstant fear of deteriorating terms of trade and Isto the point of view thatcountries have the right totheir natural resources and to receive increased financial and technical aid from industrialized nations. On these Issues Chile has exhibited over the past few years ato cooperate in the UN with othercountries such as the Arab-Asian bloc. Moreover, some elements In the Ibanez Administration favor the re-establlshment of diplomatic and trade relations with the Soviet Bloc, hoping thereby to expand Chileanat higher prices. Thus far thesehave been overruled by Ibanez, whoecent speech before Congress, attacked Soviet Imperialism as being responsible for world tensions. Notwithstanding publiclysupport of the provisions of the Battle Act. Chile has not thus far adopted effective safeguards agamst the diversion of strategic materials to the Bloc. Substantial amounts of copper were shipped to the Bloc12 via third parties, and Soviet buyersto make special efforts to obtainamounts.
Ibanezersonal friend of Percn and his following includes elements disposed to favor closer political relations with Argentina-Some of these individualsenuinefor Peron's nationalisticothers wish to make an alliance with Argentina as the nucleusolid Latin American bloc: still others hope to exerton the US by making friendly overtures to its major opponent in theraditional Chilean fear o: Argentine dominationesire to avoid alienating the US have thus farlose alignment of Chile with Argentina. Ibanez himself has been waryloserelationship with Peron. In particular, he resisted Peron's attempts to Includeclauses In the economic agreement signed by the two presidentsuly.
This Argentine Chilean agreementno specific economic commitments. It lseneral statement of hopes for the future expansion of trade between the two
countries. Chile requires foodstuffs,meat, from Argentina, while Peronto increase Imports of Chilean copper. Iron ore, and Iron and steel manufactures. In any case the amount of trademall percentage ol the total foreign trade or each nation.
PROBABLE DEVELOPMENTS
Ibanez" most urgent political andproblem is to halt inflation. Bisin dealing with this problem will be limited by softening of the world price ofby his lack of an effective majonty in Congress, and by the diversity of hissupport. Requisite domesticto curb inflation will require further Congressional action and each will tend to antagonize some Important interest.Ibanez may succeed in carryingrogram which would temporarily check the inflationary trend. No lasting solution of this problem is possible, however, without aincrease in Chilean production ofgoods. Such an increase cannot be achieved during Ibanez' term Ln office without substantial foreign financial aid. There is no assurance that such aid will be forthcoming or that It would be put to effective use. In the absence of adequate foreign aid and drastic domestic action, it Is likely that the unsolved problem of Inflation will leadolitical crisis in Chile before the expiration of Ibanez' term.
A decline in Chile's copper export earnings is apparently Impending and inevitable.ecline would reduce both foreign exchange availability and government revenue, and would thereby aggravate Chile's alreadyeconomic difficulties This development would probably stimulate demands that the US support the price of Chilean copper or make up the difference through other forms of economic aid.
To the extent that Chile is unable to sell copper in the free worldatisfactory price there will be increasing pressure to sell to the Soviet Bloc. Ibanez' statements of policy in relation to this subject have been equivocal or contradictory.
Chile will almost certainly support (or at least not oppose) the United States in the UN on all major Issues arising from the East-West conflict. At the same tune Chile will tend increasingly to demonstrate its independence of the United States, and. in economicto act in concert with other Latincountries regardless of the position of the United States.
Economic cooperation between Chile and Argentina may Increase, but In theof such cooperation Chile will exercise care to avoid economic and politicalby Argentina.
As long as Ibanez has any hope of US financial aid he Is Ukely to take care to avoid antagonizing the United States, but he may seek to extort such aid by threateningwith Argentina, with the USSR, or with the Arab-Asian bloc In the UN. If he is seriously disappointed in his expectations of US aid andevere deterioration in the economic and political situation in Chile, he will probably attempt to regaineturn to Yankee-baiting.
Ibanez would prefer to maximizereturns from the US copper companies ln Chile without proceeding to the extreme of nationalization. If denied US aid, however, andesperate economic and political situation, he would be likely, for political as well as economic reasons, to take steps against the copper companies which might lead eventually to nationalization of the industry. In the short run at least, nationalization would be more likely to reduce than tothe revenues that the Chileandrives from copper. Nationalization would not ellmlnato Chile's Imperative need to sell copper to the US.
n present circumstances Ibanez Is capable of controlling Communist activities in Chile and will probably do so.evere deterioration of the economic situation would greatly enhance Communist capabilities to foment labor disturbances and civil disorder. Should the Communists gain such influence as to threaten the government and Ibanez proved unwilling to take sufficiently vigorous
EC RE I
action to control them, the armed forces would probably assume police powers if not actually take over the government.
Ibanez is apparently concerned to redeem his reputation by ruling constitutionallyhis present term. It is likely, however, that his regime will become unpopular and that he will be unable to obtain effectiveIn the Chilean Congress. It is likely that sooner or later impatience, frustration, and the real need for drastic action will move turn to abandon constitutional political processes and resort to arbitrary rule.
Given the probability of continuedamong his political opponents and of the continued support of the armed forces, tt is probable that Ibanez could rule arbitrarily for some time. It is likely, however, that hisof dictatorial powers would fail to relieve the economic situation substantially, and that there would be efforts to overthrow his regime. If. In these circumstances, pobttcal opposition and popular hostility became so general and intense as to lead to widespread disorder, the armed forces would probably withdraw their support and the regime would fall.
Any estimate of future developments In Chile must be qualified by reference to the advanced age and reported ill-health ofIbanez. He will be eighty-one at theof his termf he survives that long. He may become physically or mentally incapable of dealing vigorously with theproblems which beset him. If he should die In office, the Minister of the Interior, under the Chilean constitution, would assume the functions of the Presidency,pecial election to be held within sixty days. The present Minister ot the Interior Is Osvaldo Koch. Ibanez' son-in-law. Koch was an active Chilean Nazi before and during World War II. Like Ibanez. he has no present partyIf he came to power in tbeenvisaged he would presumablyto continue the Ibanez regime and policies. He lacks, however, the personaland political strength of his father-in-law.
In the event of Ibanez' death or removal from office, any successor government would face the same economic problems and would be subject to the same radical andpressures as affect the present regime.
SVfTET
Original document.
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