IA - CHILE: PROSPECTS FOR PINOCHET

Created: 5/1/1983

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Chile:

Prospects for Pinochet I

Chile:

Prospects for Pinochet

The Pinochet regime will face continuing recession and mounting political pressures, in our view, through the rest of this year. We expect the President'sand occasionally inon the poor economic outlook to significantly expand the level of antigovcrnment activity. In particular, we expect opposition labor forces to become more active. We do not believe, however, that the Chilean opposition will be able3 to form the kind of multiparty front necessary to:

the government to revise its policies.Offer an alternative political force.

Pinochet's bold on power by undermining his support.

| we believe that Pinochet will respond firmly to the growing pressures and will avoid making significant concessions, especially in the way of political liberalization. He will reaffirm his commitment to the present timetabie for restoring full civilian rule innd to reorienting the economy away from Allende's socialist model. We do not expect that progress in stabilizing the economy or restoring the government's international credibility will be rapid.

We assess that Pinochet will continue to threaten severe consequences for any group attempting to disrupt his administration's course. Following the nonviolent "Day of National Protest" onay. for example, the government arrested several hundred participants, ordered the prosecution of protestnd banned news broadcastsationalradio network tbat reported on protest activities. Pinochet may balance bis hardline approach with cosmetic gestures calculated to reducedeflect criticism, and keep the opposition off balance. Bkaaaaal

We believe Pinochet's popular support will declineut we dothis toerious threat lo his rule. Tbe memory of theperiod still grips most Chileans andtrong factor inFurther, and key to our judgment, is thethe military will continue to back

the President. There^na^beoccasional objections to specific policies, particularly from the Air Force and the Navy, but tbe President's firm control of the Army will enable him to dominate all the services. Moreover, the civilian opposition stilllear strategy for dealing with the military's solid backing for Pinochet, i

Pinochet believes normalization of relations with the United States is long overdue. We expect Chile's present economic crisis will lead Pinochet to again look to Washington for various types of economic cooperation. But he also wants renewed military lies and economic assistance, which require US ceruficatioa. If Argentina is certified and Chile is not. US influence in Chile will decline significantly. Chilean nationalism would be aroused and public support for Pinochet would probably increase because varioussome of the moderateregard such action by Washington as discriminatory, harmful to Chile's national security, and regionally destabilizing. Pinochet's responses could include withdrawal from joint naval exercises, increased efforts to acquire arms, more frequent anti-US stances at international forums, closing off US-Chilean military exchanges, even less sensitivity to human rights than is now the case,educed voice for the moderates among his advisers.

Contents

Key Judgments

Introduction

Resurgent Opposition

Theocratic Party's Key Role

Leftist Coalition

Labor and tbe Parties

Students

Tbe Church

Conservative Stirrings

Opposition Activities

Pinochet Under Pressure

Policy Needs

Military Attitudes

Implications for tbe US

Chile:

Prospects for Pinocb

Domestic and international setbacks have weakened President Pinochet's position in the past year|

ix-year ICS economyerious reversal induced as much by internal as external factors.2 GDP dropped byercent, unemployment rose aboveercent, and several large business and financial institutions collapsed. This recession has given tbe repressed and largely inactiveong-sought issue to exploit, in our view, and has eroded public confidence in the regime. Government failures on the economic front haverimary rationale for authoritarian rule and have made thesome proregimeto increased political activity.B

A less significant consideration in this changingis the regional trend toward democratization, which has contributed to the regime's isolation at home and abroad. The replacement of militaryin Peru, Ecuador, and Bolivia and the coming transition to civilian rule in Argentina and Brazil could broaden sentiment in Chile to accelerate tbe return to civilian rule. We do not believe that this trend toward democratization, however, will have much direct influence on Pinochet's thinking. 9M

This paper assesses the impact of the changingin Chile on the various opposition forces and conservative progovernment groups, Pinochet'sto the growing pressures on his regime, tbe effects of growing political opposition on thebase of support in the military, and theof Pinochet's problems for US-Chilean relaiions.

Resurgent Opposition

We assume that Pinochet's power base in tbe military will endure through this year and that his greatest problems would result from the formation of an oppositionnonpartisan, and drawn from the working and middle

to the one that undermined Ihe Allende government. We believe (he formation ofront over the near term is unlikely. The political parties (officially "inabor, and student groups will continue this year to explore points of convergence, but old personal animosities and ideological disagreements will take time to overcome. Meanwhile, the regime will place roadblocks in the way of opposition unity. Thus, we expect that opposition elements probably willintermittently and coordinate some activities, but probably will not mergenified movement by the end of this year.|

The Christian Democratic PartyV Key Role. The centrist Christian Democratic Partyand most effective democratic forceivotal role in any opposition endeavors, in our view. Not only has the PDC stepped up activity In the past year,umber of PDC members have become heavily Involved inoalition of political panics, students, and labor. The most active opposition group to date, the National Development Project, was formed by two Christian Democratic ex-parliamentarians and receives strong PDC backing.

The Chilian Economic Plunge

Foil owing growth lhai averagedercent. GDP nosedived byercent last year, undermining public confident* in Pinochet's markei-orienied policies. The slide began inhen/ailing export earnings coincided with sharply reduced domestic demand, resulting from the government's tight fiscal policies. Only the mining sector grew significantly. Commerce, manufacturing, andof targe-scalecontracted by IS percent or more. The economic slide reduced workers' tiring standards in sharp contrast to the gains they recorded in the. The rate of unemployment doubled to more thanercent. The sharpest drops came inand among skilled professionals.eries of devaluations that began near midyear, import price Increases pushed inflation to overercent2 as compared toercent the year before.esult, the level of real wages in2 was downercentear earlier. ^

Reduced demand quickly translated Into sharply lower Import levels. Plunging imports pushed the trade balance into surplustltton deficitncreased interest payments on the external debt, however, partially offset the trade Improvement. Even so. the current account deficit declinedO-percent Improvement over the previous year. |

percent drop in net loan inflows combined with capital flight forced the overall balance of paymentsmall surplus1illion deficit last year. Despite the drawing down of reserves to cover the shortfall, gross foreign debt grew byercentillion, addingising debt service burden. About two-thirds of foreign debt Is attributable to private-sector borrowing,3 billion of the total is payable within a

The financial squeeze sent Chile to the IMF [or help, and inackageillion was approved. In addition to providing an Injection of foreign exchange, the Fund program was expected to bolster the confidence of international bankers who were being asked forillion in new loans3 as well as the rescheduling of maturing credits. Government intervention in the troubled banking sector and government spending and monetaryIn excess of Fund targets have brought atemporary halt to additional draws from the Fund, placing about0 million as well as bankerIn Jeopardy-

Santiago hopes to meet the June IMF performance targets and retain Fund draw* and bankerWe believe growth3 will be in the rangeercent. Gradually rising copper prices are expected to help push up export earnints.urrent account deficit of more thanillion Is likely to remain. Even assuming net capital flows do not diminish further, reserves will continue to decline this year Bjj

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thai, although greater cooperation among ihc left is likely this year, several problems will prevent the formationotent leftist front Ideological and personal conflicts as well as the schism between exiled and domestic leaden probably will continue to be more acute among leftists than among centrists. Disagreements over the doctrine of armed struggle and acceptance of foreignandwill continue to impede collaboration.

The banned Chilean Communist Partywhich numbers0 andcontinue to dominate the left, in ourell-developed clandestine network has enabled the PCCH to survive repression better than the other leftist parties. Tbe Communists have maintained contactsroad spectrum of parties, including tbe PDC and have begun rebuilding their infrastructure within labor and the umversities.^Bof tbe party's orgsniraisonal strength and commitment, it has been at tbe forefront of opposition demons!rations Onarch tbeParty crchcatrated the largest, most violent, and beat organiied demonstrations since the military came to power. |

Tbe longstandingitetn.il split in (areParly could be aggravated by what we expect willeriod of increased opposition activity. For some time, tbe internal leadership of the party has paid only lipseJ-vice to the exiles' persistent calls for armed revolution and has worked to restrain tbe party's violence-prone youth wing. Continuedhardship, however. and the resulting increase in opposition activitieselieve, encourage exiles and youth to pushiolent campaign, thus potentially polarizing leftist opinion.

Tbe numerous non-Communist leftist groups may occasionally coordinate sntigovernmcnt activities but are not likely to joinnited front The Socialistoalition of nonviolent Socialisthas distanced itself from the Communists.

More damaged by repression than the other parties, the Socialist parties will probably continue to be hampered by lack of funding and organizational problems

labor and tht Ptitits. We believe tbe organized political parties will have more success over the coming year than they have bad in drawing workers anligovcrnment activities Afafanua^Lnmftnai

HScTDCbat made gams with the Demo-cratic Labor Coofederatioo, and the Cooimunists have increased their influence io the National Trade Union Coordinating Group, which has been the most active antigcrvcrnment labor group. |

Although labor dissatisfaction will grow andlabor unrestossibility, numerous factors militate against the developmentassive, unified, antigewernment labor offensive. Labor has borne tbe brunt of military repression, and governmenton labor remain tight tnd effective. In addition, tbe unsolved murderrominent labor leader involved in promising efforts to unify the unions undoubtedly has intimidated other organizers, who believe that the government approved of and may have ordered tbe killing. Moreover, ideologicalwill continue to hamper unification efforts; the democratic labor confederation, for example, refuses to join forces with the Communist-influencedTrade Union Coordinating Group. Another factor is tbe widespread sentiment against returning to tbe intense pdii>cizatsoc of the Allende years, when labor interests were subordinated to pout seal concerns. Finally, the economic crisis has made many workers afraid of Icating tbeu jobs if they lake part in political activities. All of these factors contributed to tbe decision by the copperworkars union to call off plans toational strike onay. The more symbolic "Day of National Protest" that replaced the plannedincluded nonviolent sireetcorner demonstrations, horn blowing, pot banging, and schooljudged sufficiently success-fa! by its organizers to lead them toimilar

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action onune. The government believes the opposition will stage such activities monthly unlit tbeeptember anniversary of AHcndes downfall, when large-scale protests are expected.

from some of ihe progovernment press. Conscrvaiive spokesmen and the leading dailycounseled the government lomoderately after the "Day of National Protest" on 11 H

Church. We believe lhat tbe Roman Catholic Church will continue this year lo criticize government actions seen as oppressive, but in nonconfrontalional

- the Pinochet re-

gime still considers the Church to be bosiile. even though it hasodus vivendi with tbe government. In fact, we judge that most ofhierarchy opposes Pinochet, and some low-rsnklng clergy are working against ihe regime by organizing activist social programs and urging the public to express objections to government policies. Moreover, the Church has extensive contacts with most political parries, in particular the Christian Democrats, who maintain their provincial network primarily through the Cburcb. Government officials, for their part, reportedly recognize tbat the Church could cause them serious problems.

Constrratin Stirring* We believe the regime is concerned also over growing discontent amonggroups. Shaken by the economic crisis and disappointed by the government's erratic response, conservative democratic forces have begun to criticize tbe administration. These groups have emphasized publicly the necessity for economic adjustments to restore growth and bolster their financial positions, and some would like to see the transition to civilian rule accelerated, we believe. In December, several conservative groups demonstrated against some of the regimes economic policies. The subsequent expulsion from Chileonservative leader provokedreaction from all conservative parlies and even

We believe that3 the conservativesmore politically active, seek topolicies, and take advantage of anyopening. The conservatives will continue alsocooperation with other parties, principally

Unless the economy collapses, wclittle conservative involvement in major Tmigovernment movements this year. The democratic right best remembers the chaos of the Allende years and is fearfulesurgent left. In this context, the conservative groups still support ihe military regimeecessary stage in the transition to democracy. In the face of moun ling leftist -orchestra led activism, they may fed compelled to close ranks behind the regime. |

Opposition Acthiliti, At least through Ihe end of this year, we expect Ihe oppositionhole to step up its activities, which lo dale have includedrallies, organizing, and publishing manifestos calling for economic reform and democratization. Such manifestos have been issuedroadof groups: parlies, labor, and the Church.

Ibut if ihe economy continues to stagnate, even the moderate parties may become morein order not to lose support to (he left.

We believe the chance is small that widespread terrorism willurge in oppositionThe terrorist Movement of ihe Revolutionary Left (MIR) may renew isolated bombings and other attacks, but lacks the capability toajor campaign.

jo- Pressure

Policy S'ttdi Hardliners (durost and moderates Iblandol) in ihe Pinochet government have debated for years such issues as tbe pace of restoring civilian rule, rcstrtctions on civil liberties, and responses lo opposition activities. Duros believe that Chile is the target of Communist-inspired internationalin the face of which only tough policies wiD succeed. Blandos argue tbat repressive policies will polarize society and weaken the regime by alienating moderate supporters. The President bas periodically followed some of the advice of the blandos but has never strayed from the fundamental strategy ofthat he believes bas served him well during difficult periods.

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Pinochet is concerned about the economic crisis and about present as well as potential levelsunrest, he is at present showing noaking major policy changes^

in spcecDes. the President has reiterated his determination to proceed with the prescribedto civilian rule. He has insisted tbat accelerating the transition would prevent true democraUzation by subjecting the system to the macfainaUons ofself-aggrandizing parties. Finally, he bas promised to deal harshly with any groups thai attempt to disrupt his administration.

In the economic sphere Pinochet apparently intends to continue to support free market principles, while making adjustments to promote recovery and improve public welfare. In its recent emergency program, the regime included liberal domestic debt refinancing, temporary tariff surcharges against predatory foreign competition, and three bonuses3 for public employees The measures reflect what we see as tbe regime's determination to complement free market mechanisms to correct economic deficiencies while recognizing lhat an upturn in the world economy is necessary to lift Chile from recession. |

Pinochet's overriding priority, however, ii toat home and abroad the credibility of his regime's economic policies. The economic plunge bas shaken confidence in Pinochet's free market policies, and dismissing four Finance Ministers, including theof the recently ended economic miracle, only heightened public apprehension. The mishandling last year of the peso devaluation also revealed some policy confusion After publicly insisting it wouldixed rate ofesos per US dollar, Santiagobyercent in June. Subsequently, it switched exchange ratefloating rates and then exchange rate bands adding to concern about disarray in economic policymaking and erodingfor Pinochet. The abrupt intervention in use management of moreozenbegan only days after an agreement with tbeMonetary Fund was signed inlo ihe climate of uncertainty. We have seen no indications that these problems have led to serious divisions within tbe govcrnmeni. but neither do we

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expect Pinochet to achieve rapid progress in restoring the economy or his government's international

Even though Pinochetubstantial political opening,ikely to mike gestures designed to deflect criticism and keep the opposition off balance. Last year heommission torocess for the return of exiles. Intended primarily to deprive the opposition of an issue, the program led to the returnew hundred politically insignificant figures and ignored all prominent exiles. The process continues, nevertheless, and we believe Pinochet may be more generous on this front.peech last March commemorating the second anniversary of the constitution, Pinochet announced another high-levelone to study the implementation of the constitution's specificWW/M

Military Attitudes. Public speculation andabout military attitudes have grown along with the economic downturn and opposition activity. Opposition politicians are constantly looking foramong military officers

. and some opposition group^tpparenu^Svc^ "attempting to foster it. One widely circulating rumor claims tbat tbe US Government has been urging the military to replace Pinochet. In February, the international pressthe Air Force had arrested Pinochet and seized the government I

armed forces are

ly concerned by tbe economic crisis and jrowing political pressures, but are not demoralized.

Force and Navy memoers ot tne junta have disagreed with Pinochet on certain decisions, notably thelast summer. For the most part, however, these officers have directed their criticism at the economic team. |

hole, the armed forces still share Pinochet's distrust and dislike of politicians. Most officers arc dedicated toesurgence of tbe left in Chue. Moreover, the military believes that thepanies, in particular the Christian Democrats, bear much of the blame for tbe ascendancy of Allende

and tbe ensuing chaos. Consequently, so far as we know, no factions within the military haveorking relationship with any political parties or groups- P

We believe tbat the military remains firmly behind President Pinochet. The Army is the mostwhile the Air Force has been the most independent.

astute politician. Pinochet has handpicked every general in the Armyecade and has retired any suspected of disloyalty or presidential ambition. Tbe prospectolonels1 movement is minimal, wc believe, largely because of the Chilean military's strong tradition of loyalty, service, and stria observance of tbe chain of command.

Implications for tbe US

Chile's present straits probably will complicate its relations with the United States. We believe Chileans arc likely to view bilateral issues primarily in the context of their current internal problems. This means tbat Washington's position on international andfinancial and commercial Questions will belargely in terms of how it affects Chile's efforts to stabilize its economy. Santiago will look to the United States for assistance in this regard. Moreover, although disappointed that full political-militaryhave not been reestablished, tbe Pinochetprobably expects eventual support from the Reagan administration and will scrutinize US policies for positive :' |

Tbe questions of human rights and US certification will become increasingly sensitive bilateral issues. Chilean officials recognize the costs that hardline domestic policies impose on the nation's international standing.

Certification for Argentina at the same time it was denied for Chile probably would, in our view,Pinochet's siege mentality and significantlyUS influence in Chile- Tbe action would arouse nationalist sentiment among Chileans, antagonize pro-US senior officers, deepen anti-US feelings among junior officers, and even upset some moderate opposition leaders. These groups probably would view it as discriminatory, harmful to Chile's nationaland regionally destabilizing. Thus. Pinochet could capitalize on ibis reaction to regain some of his popular support. In reaction toS move, we believe Pinochet would:

Withdraw from the UNITAS joint naval exercise in August, but not necessarily close ihe door on future participation

Close off almost all exchanges and cooperation between the Chilean and US militaries.

Step up effortscquire arms fromsources

Increasingly oppose the United States inforums on issues that do not involve vital Chilean interests or conflict with Pinochet's anti-Communist principles.

More frequently ignore moderate advisers andwho have counseled him lo court Washington in hopes of gaining certification.

Become less sensitive to domestic andto respect human rights.

Pinochet probably would not alter significantly Chile's international economic policies, however, be-causc Chile's needs at present arel

From the Chilean perspective, US certification of only Argentina would assure Buenos Aires's militaryand, by enhancing Chile's pariah status, spur what the Chileans regard as tbe Argentines'tendencies. We believe Pinochet's commitment to peaceful resolution of Chile's disputes with Argentina, Peru, and Bolivia would probably not change because it items from pragmatic recognition that Chile is militarily vulnerable. Thus, Pinochet is unlikely to engage in military adventuresto divert pubhcfrom problems at home.

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