CONTENTS
Page
THE PROBLEM
CONCLUSIONS
DISCUSSION
NTRODUCTION
II. THE ADMINISTRATION'S RECORD
and Social Program
Government Role in the Economy . 10
HI. OUTLOOK
Outlook tor thi- Congressional
Presidential
D- Future Relations with Olher Countries
T
CHILE
THE PROBLEM
To examine the likely political and economic developments in Chile over the next year or so, with particular reference lo the congressional election ofnd to the general outlook for the presidential election in
CONCLUSIONS'
the past four years the administration of Eduardobeen endeavoring to carryocial, economic, andpeaceful, constitutional means. He has madein some important fields, but in others has fallen farhis goals. An important faction of his-Christian Democraticis insisting that the scope of reform be widened and its
prospects for the short run are bleak, and wechance for much further progress on basic problems overyear or so. Thereew favorable aspects, notably theinvestments under the copper expansion agreement and theof substantial foreign assistance over the next year.Frei administration is already caughtuandary ofwith rapid inflation. As the elections approach,government spending on wages and welfare will almostand business confidence will probablyew low.
outcome of the congressional elections of Marchhave an important bearing on the selection of candidates andof political coalitions for the presidential election inPDC has some chance ofajority in the Senate and
1 See footnote of diwiit onollowmeontliuiom.
is likelv toizable plurality in the lower house. Nonetheless, factionalism within the PDC, the maneuvering of other parties for political advantage in0 election, and Frei's lameduck status will weaken his influence over the new Congress.
the final choice of candidates and of political partyis made, it is not feasible to attempt to estimate the outcomepresidential election in more than the most general terms.possible outcomes, the current odds are that there will becandidates for the presidencyhat no one of thema majority, and that the Congress will select as presidentwith the largest vote. If the Communist, Socialist, andparties could set aside their differences to agree on awouldtrong contender, especiallyhree-man race.
ommunist-supported candidate won0 webelieve that the Chilean Armed Forces would intervene tohis inauguration- They wouldonstantthe new administration, but would plan to move against itChilean institutions, particularly their own, were threatened.
relations of any new Chilean administration with thelikely to be under repeated strains. Whoever succeeds Freipresidency is likely to continue to stress Chileanbe less cooperative with the US on many issues than Frei hasto explore somewhat broader relationships withAn administration elected with Communist supportwould take steps aimed at moving Chile away from thecloser to the Communist countries. We believe, however, thatvariety of reasons, including feareaction from thean administration would be deterred from precipitate or
C. Because Frei himself has gone on record as opposing outright expropriation of the US copper companies, wc see it as unlikely while he is still in power. In our judgment, however, further steps toward greater government participation in or even outright nationalization of these holdings are inevitable. The manner, the terms, and theof such steps will depend heavily on the makeup of the next administration. Evenightist administration, or one of the
center left such as Frei's has been, sonic additionalt least, is likely. Chile might assume high economic costs in the process, especially in case of abrupt nationalization; but in the long runpoliticalthanalmostbe the crucial factors in deciding this question.
Mr. Thomaihe Director of Intelligent'* and fuutiuch. Department of State, believe* that the Ultimate oimtatei the criticaliiy ol the Chilean economic Mtuatlon and (he Frei Government'! tetponiihditv for it. at well us theDemmialic Party'i predicament in thelection! Hi believe*:
hai toppet pmn and production arc likely* brllrririium foein-iNMn iru ourupti'* than indicatni.
b) Thai dl* icr.ii.livr.il thExuIim aremeaandinc nature and. therefore, belt at-RtbuUMe to PrmoVnt Frrl and bkthan the twrukt kadilo
cl Thai the QuMun Democtatu Party,rfornuK but moderateooaerr than tha Etbuut* tureem. and
hat wtuatvtt the ihort-run mad*he lone-run direction in tewanl refonn. even radicalam fiom the ronventiorjl point ci view, and uul th* unuMlictxa of torrie importantbli (itornounmowarduotei balanced, iimehown. by fuvorlble poliltc-al Ruction* ofintVnentetl.
discussion
i. introduction
il enteringeriod likelye decisive both ior the future
ofFrei's reform programs and for the politico] direction which Ihe
nation iltcK will lake. With two yean remaining of bis si* year presidential term.ore beset While his administration can pointecord ot considerable accompli dimcnt in some important fields, it hat had almost no success in others, ttept taken in its social programsonflicted with the attainment ol tome economic goals and the government's inability to please everyone has entailed important political costs. Chiles chronic pioblem of inflation has againurn for tho worse, and its broader economicIwenleeted by thisevere draught, the worstears.
Fret's Christian Democratic Party (PDC) cannot hope to match its previous iwcepinc victories as it looks aheadongressional election in9residential election inhe party it suffering from fic-tionahsm. Since Frei cannot legally luccced himself at president, his own leverage is impaired, and no new leader of anything like his stature has emerged Al the same time there arc signs of growing momentum on the part of th*_opposiQori parbei to flir right and the left of Frei's PDC Tbe opposition, which inlections existed for practical purposes only on the left, has become two-tided during tho Frei administration. The Radical Party, which opposed him from the right asplinteras since acquired leftist leadership. The rightist Liberal and Conservative Parties, which did not evenandidateave merged lo form the National Patty, whichmndcr this banner hat recovered somewhat, whileinor party. There is now considerable backstage maneuvi-ruig among conservatives in favor of former President Alessandrf. while leftist elements talk of puttingew and stronger coalition of far-left forces Nevertheless, tbe PDC is less divided at present than its leftist opposition, is larger tlian the conservative forces, and has some advantage from being thend the primary focus for the non-Marxist reform vote.
AH this marks deterioration from the nmosphere which prevailed when Frei began his term in4 .litercampaign in which both leadingpledged basicret had received someercent of the totalt agninst his opponent'sercent)opular mandate lo carry out tar>rcachiiijjconomic, and political changes. Conditions wore favorable for ihe iite ol fiscal and monetary polities to achieve both price stability and economic growth. Prices for copperwhich provide ihe bulk ol export
1 Uiaourh therehad caacbdatr. the race aat tterccuBy ber-reo Fmad Salvador Abrade candidate of the fai4rii raabtua Fnraee de -Vcaui fopaitrho pimped fee ftaioluiatt ia tbe Castro itvk. Both drew maav loan (rant the ncaaaai laenath ol die Pedicel Parry, whose caadidaie cwnwnll-recanadmm* iwa prrrent af ihe loul
income and an important though variable element of taxalmostercent during Freis Erst two years in office and have remained high. His admiruslration has received net authorizations of0 million in economic assistance from the US and0 million from international financial organizations. As has been the case lor decades. Chile under Frei has received more total US economic assistance per capita than any other Latin American country and is second only to Brazil in total amount.
in sharp contrast to usual Chilean political practice, Freicarry out the reform program on which he campaigned, he alienatedthe upper and middle class Chileans who had voted for him simply toSocialist-Communist coalition from attaining power. Although the PDClarge majority of the seats in the Chamber of Deputiesinority in the Senate, where about half the seatsrei has had to bargain for congressional support caseand most of his legislative proposals have been blocked, delayed, ormodified.
of Frci's difficulty in getting his programs through Congress ishis rejection of the Chilean pattern of coalition government. While itsbitterly partisan and the conceptoyal opposition isengthy tradition of maintaining representative government.has dependedonsiderable degree upon thef thearrange coalition governments under which the needs of the "outs"in return for their support in tlie Congress. Frei, however,to go it alone. Tlie obstruction he has "faced in Congress has alsoin part at least, to the fact that earlier,DC senator, Frei hadof the legislative proposals and programs of the previous(Liberals, Conservatives, andonetheless, some ofelements of his legislative program have now been enacted. Theof the elections of9 will, of course, affect the prospectsreform proposals as well as the environment for implementingenacted.
II. THE ADMINISTRATION'S RECORD
A. Economic and Social Program
he Frei administration has had very mixed results in its eiforts to improve Chiles economic conditions- Tax reforms and rising copper pricesharp increase in government revenues and in public investment during Freis first two years. The administration's inability to restrain the rise in currentparticularly for wages, however, resulted in increasing budgetary difficultieslowdown in investment growth. During Frci's first two vears. Chiles balance of payments also improved markedlyesult of the sharp rise in copper prices and the continuationigh level of loreign aid. coupled with the administration's adoptionore flexiblerate policy and improved management of the foreign debt. Despite
continued high copper prices, the deficit on goods and services climbed1 millionowever, and Chilemall loss in loreign exchange reserves. Although this deficit grew by0 millionecord inflow of foreign aid and the expansion of investments by US copper companies were more than sufficient to offset tlic Imbalance.
rate
hile's rate of economic growth during the past tour years has been lew than the average for Latin America. Per capita output grewoderately highut declineds manufacturing andtion activities slowed. Agricultural production has continued to lag behind ;he growth in population. The rate o: inflation slowed during the first two years of the Frei administration but then speeded up and reached aboutercenthus, four vears alter Frei's inauguration, budgetary difficulties and the rate ol indation have not been significantly reduced, the trade deficit continue* to grow, and overall economic growth is now at best sluggish.
S. fledijfriouJioii of Income. Many of Frei's serious economic problems can be attributed to the rapidity of redistribution of income in favor of lower-income groups that has occurred during his administration. Wages and salaries have increased much faster than prices and the overall rate of economic growth. In addition, social services have expandedarge share of governmenthas gone into social improvement programs. Whereas previous Chilean administrations had been attentive to the demands of urban middle etas* groups and of more highly skilled, organized labor. Frei is the first Chilean president to strive for substantial improvement in the living conditions of agricultural workers and unskilled urban laborers. An even more radical change has been Frei's effort to imorove the political position ofsubmerged groupsinimum agricultural wage, attempts to unionize the campesinos, and expansion of educational and other programs. The poorest workers have benefited from his income policy but organized workers probably have gained proportionated more, since they had the power to secure even larger raises. By and large both the political and the economic gains of labor have been made at the expense of-is owners of iarge and middle-sized (arms, private businessmen, and the wealthy class inof whom had supported the PDC.
oreign Copper Investment. The administralion's major economic success has been in securinc aureemems tornew foreign investments in copper mining. Under Frei's program o: "Chileantzation- the government is narticinating with US companies in the ownership and management of the country's copperolitical opposition to this plan, pariicularly from
otal output ot G'fl.uft) metric ton* ol primaryG. Blwa* produced bv whelk-ownedof ihe AiKHOmIj Company.e.ccnieniiecotl wbJidiarv in uhiehhild" Government1 portent interest, and Uve remainder bv rrjmeiou. smaller. Chilean-owned companies The Chilean Government also Ivai interns olndercent, respectively, in two mines berneby Anaconda and Cerroeduled toetric ton* of copper
Kiiuull. bi* ihe earlv
the Communist and Socialist parties which advocated outright nationalization, stalled theongress for some time. The US companies are scheduled to invest0 million In production facilities lo raise capacityetric tons o! primary topper4 toetric tons in Ihehese new investments arc insured by tlie US investment guarantyunder which the copper companies would receive indemnification from the US Government in the event of expropriation without compensation.
Agriculture. Despite Fret's concern with Chile's complex and enduring agri-culturaf problems, he has made little progress in resolving them. Promisedin farm pikes were short-lived, and solutions have not been found for deep-seated problems Sttch as inadequate credit, storage, and marketing mechanisms. In addition, the insecurities associated with Freis agrarian reform programs have served further to discourage long-needed private investments.ult, the country continues to be increasingly dependent on imports of foodstuffs. Food shortages have been intensified by the severe drought which began in the key central area of the countrySeeor the area involved and its importance ta thentil World War II Chileet exporter of foodstuffs, but net imports of foodstuffs now amount to0 million annually. Perhaps three-quarters of these imports consist of Hems that could be produced domestically if the agricultural sector were more efficient.
Although Frci's agrarian reform bill was held up in Congressaws passed in the previous administration enabled some moves towardand land distribution. Between the endndhe govern-merit's agrarian reform agency acquired about four percent of the total area inaboutercent of Chile's irrigated land. Although less than one-half of the land acquired so lar has been obtained through expropriation, political involvement of radical members of the PDC has made the reform more damaging economically and more abrasive socially than it needed to be. About lour-fifths of the land acquired has been organized intoovernment-managed cooperative settlements. The program embracedamilies0 persons) bynd was expected to0 families bv the endepresenting perhaps four percent of the rural population.ears of government tutelage. Ihe cooperative members are to decide whether to continue the cooperative or divide the land up into individually owned small farms. More0 million has now been spent on resettlement, and tome of the social objectives of the agrarian reform are being realized. But these outlays, and oilier large government expenditures on fertilizers, seeds, breeding stock, machinery, and agricultural credit have not accelerated the rate of growth of total agricultural output. Crowing government spending onhas been largely offset by the failure to maintain profitable agriculturalkev plank in Frei's original agrarian reiotmby the continuing fear of expropriation which has undermined tlie incentives of the icmaining private landowners. These factors and the drought have combined to depress production severely in5 andn the longer run. new
foreign assistance tor irrigation works, agrarian reform activities, andcredit may help to mitigate some of the adverse effects of Chile'sfarm problems.
Education, Housing, and Public Health. Frei liasigh priority to reforms in the system of public education and has made substantial progress in this field, particularly in expanding school facilities and in improving the quality of instruction for low-income groups. He was less successful in his housingwhich during its first three years fulfilled onlyhird of thesix-year goalew bousing starts. The program has now been revised toew target for low-income housing and to stress self-help projects. It will probably benefit from recent legislation which authorizes the Housing Ministry to expropriate urban landraction of its market value. Similarly. Frei is committed to expansion ol public health facilities, but any substantial improvement requires basic reforms in the country's chaotic social securitylie has so far been unable to accompfish.
Inflation. During its first two years in office, the administration'sprogram succeeded in cutting back the rate of inflation. This promising beginning was undermined mainly by the administration's inability to maintain its wage policy in the face of intense opposition from within the PDC as well as from the far left. The Congress ignored the administration's guidelines and granted increases that allowed real wages in the public sector to-rise by someercent. These large increases made it impossible to balance the budget. They also made it increasingly difficult for the private sector to observe the administration's guidelines, and real wages in private employment rose at an even faster rate. The government's financial problems limited public investment and lequired borrowing Irom tiie_ banks, which in turn resulted in the restriction ol credit available to business. Large wage gains and tax increases boosted costs in the private sector, stepping up inflationary pressures andost-price squeeze on some firms that discouraged private investment andto unemploymentlowdown in economic growth.
Despite worsening inflationary' pressures from accelerated government spending, rapidlv rising real wages,arge expansion in the money supply, the rise in prices was kept toercent5 andercent' This achievement, ho" ever, relied heavily upon the use of price controls andmeasures.he combination of growing demand, risuig real costs, and stagnating output were too strong lor price controls to be effective, and the cost of living rose byercent, ,is comparedoal of onlyercent. The original goal8 was relative price stability', but the rise in the cost of living reached aboutercent. In an attempt to limit the ability of Congress to inflate greatly its wage recommendationshe Frei administration
'This alrciC-ii inei the procramuied couli ofndercent incn-ase* foiuan. PrvcM had men bySW Official eo^enuix'nt data probably understate tl* actual rise inc level, and thus overstate the intream intei iittlkatcd in paraeraph II
included its wage readjustment legislation in9 budget bill. As submitted, the legislation provideseneral increase ofercent in public sector wages, vet special raises authorized but not paid fully last year to certain publicteachers, judges, the military and thethe overall rise in the public sector wage bill toercent. Pressures for wage raises are likely to be even greater in the private sector. Thus we think it almost certain that the Frei government's foundering stabilization program will be put injeopardy.
Government fiofo in 'he Economy
The Chilean Government has played an important role in the economy sinces, and has been particularly instrumental in developing thesector, which now contributes aboutercent of gross national productovernment influence on the economyariety of forms: outright ownership and equity participation in joint companies. 6nancing of privatein manufacturing and mining and commerce, large transfer aod subsidy payments, plus tax concessions, price controls, and trade restrictions aimed at influencing production. Despite the many advantages granted to the industrial sector over the past three decades, however, manufacturing has focused on import substitution and its products are high-cost and noncompetitivetlie protected domestic
Under Frei, the public sector has expanded substantially, and3 were equivalent to nearly half of Chile'shighest ratio in South America. Moreover, while the total share of output allocated to investment is gradually declining, the public sector hat become far morethan the private sector in capital formation, in pan because foreign financing has none chiefly to support government investment. Public investment expenditures, which include government loans for private investment in petro-cliemicals. paper, cellulose, ami steeL now represent more thanercent of total gross domestic investment. In thehey usually were less thanercent of the total. Public investment under Frei has continued to beon transDortation and electric power facilities, and on housing, education, and other social welfare projects. Government spending has only partly offset the depressing effect the administration's economic policies have had on private investment in manufacturing and agriculture.
Within the private sector of Ihe economy, and particularly among the iargei landowners, the traditional distrust of government programs has intensified under the PDC administration. While Frei and the more conservative leaders of die party have reiterated the continued importance of private enterprise,and administrative actions have done httle to lend credence to theirPrivate interests understandably resent the squeezing of their profits between price controls on the one hand and ever-rising taxes and wages on the oilier. This souceze has been exacerbatedevere tightening of credit, except for the projects being promoted by tlie government in certain industries.
veitor confidence has been further eroded by uncertainties concerning land reform policy and by repealed threats against private Industry (includingthat have emanated from the more leftist elements within the PDC as well as from Marxist parties. The present environment for privatealso appears lo have dampened the interest of potential foreign investors, except for the US copper companies (whose new expenditures arc insured) and the foreign partnersew major investment projects arranged some time ago.
b. Political Developments
hile Frci's efforts to carry out his relorm program have antagonized the more conservative elements in Chile, he has, at the same tunc, successfully resisted leftist demands for more rapid and extremeeftist faction within his own party, which has grown in influence, has joined with other leftists to insist that the scope of reform be widened and its tempo quickened. By pushing ahead with reforms while attempting to minimize their inevitable disruptive effects, he has met with oppositiooJrom both sides,
ithin the partv, supporters of the President (called Ofictallsios) and their opponents arc now playing down their differences in the interest of unity, but that effort is likely to break down once the congressional election is over and each faction begins to vie for the nomination- Freis most determined opponents in the PDC. the far-left Rebeldcs, urge nationalization of rnining. steel, and electric power industries, and the telephone companies,harp rise in expropriation and distribution of land holdings. This faction is particularly critical of the meager results of Freis agrarian policies (under which land may be redistributed to0 famiUcsnstead of the announced goalnd his failure to nationalize the privately owned elements of the banking system. Another group, the Terccristos, also criticizes the slow pace of Frei's reform program, but tries to bridge the gap between the rebels and the Ofcidistas.
Uadomiro Tomic, at present the leading contender for the party'sto succeed Frei, has agreed with the party rebels on the desirability ofaguelv defined wide leftist front with the Communists and other grouos seeking sweeping economic, social, and political reforms. He has also, while not openly breaking with Frei.urther reduction of the role ol private enterprise in Chile. But Tomic's developmentampaignwith specific proposals which would win such wide support, remains vague andtate of flux.
The fact that the Frei administration has initiated and brought forward some basic reforms and improvements shouldolitical asset for the PDC. however difficult to measure. Through social action and other programs of varied effectiveness both in the cities and in Ihe countryside, large numbers of people throughout the nation, including practically everyone on salary, have seen
significant improvement in their condition since Frci took office, ln recent years, however, the opposition has usually gained ground in the congressional election preceding the Chilean presidential election.
III. OUTLOOK A. Economic
The Outlook for the Chilean economy over the nest year or so is bleak.ew aspects ol the situation are favorable, such as the foreignto espand copper production and the likely continuation of foreigncircumstances generally are distinctly unfavorable. Already caughtuandary of economic stagnation with rapid inflation, tlic Frei administration faces increasing economic difficulties and reduced capabilities to deal with them. The chances of positive government action to cope with the country's problems appear slim because Frci.ameduck president, probably will have even greater difficulty in securing congressional support than in the past. As theapproach, pressures for government spending on wages and welfare almost certainly will intensify, and business confidence willew low, thus further slowing investment. Even with normal climatic conditions, per capita output probably would not have grownith the added blow from the drought, the administration faces the likelihoodecline in production9 and perhapsartial recovery in
Although prices (or Chile's copper exports have remained abnormally high throughout the past four years, some decline probably will occur9ven the scheduled expansion in production probably Mill not keep copper earnings from droppingnd it might merely restore themevelsnasmuch as the drought is reducing supplies of hydroelectric power and of water, needed by the copper industry, production gains may be lower than projected. The drought will also increase the need for food imports while reducing agricultural exports. Chile's deficit on goods and services may Increase by0 million9ecord high ol morebout one-half of total commodity export earnings. Nonetheless, large-scale drawings on official credits (already in the pipeline or beingwith the US Government and international financial organizations) and the inflow of investment capital (chiefly from US copper ctn/.panies) may be sufficient to cover most or all ofeficit as well as to finance scheduled debt repayments. The Frei administration, however, may find it more difficult to avoid serious balance o( payments difficultieseturn tots ability to do so again will depend largely on ihe willingness of loreign lenders to be fully responsive to Chiles financial needs.
Frei's prospects for averting further setbacks in his stabilization program are also unfavorable. In the past the administration has fared poorly in its efforts to hold down wage increases in the public sector, and it will have even less influenceongress looking to the elections9here is little chance thai expenditures for public investment will be cut. because of the
negative impact oiut on politically impuitant welfare pro|ects and on employment levels. It will be difficult to secure new tax revenues to keep the budget deficit manageable. Vet failure to hold budget deficits within certain limits will not only feed the inflation but may alao endanger continued receipt of budget support aid from the US and drawings on standby credits from the International Monetary Fund.
We conclude that the Fret administration will have few, if any. attractive options in determining its economic polities. Hutlier. the choice is likely to be among several unpalatablend a* problems mount, both Frei and his opposition will he increasingly tempted to seek solutions that arexpedient. Thus pressure Is likely to be exerted nn the government to tax the foreign-owned copper mutesigher rale Irian that agreed upon under the copper expansion program, toarger equity in the mines, or even to nationalize the properties outright. Because Frei himself has gone on record a* opposing outright expropriation, wes unlikely while he is still in power. Members of his party may. however, declare in favor of partial or complete nationalization during his last year-in office, in an attempt to undercut their pobtical opponents. Even those members ol the National Party who have been friendly to the US may come to share the growing Chilean sentiment for early nationalization. Expropriation would be more profitable politically thanhowever, since the payment of compensation wouldajor drain on income, adding perhapsillion to an already burdensome foreign debt. If it did not compensate for such an expropriation. Chile would probably lose more in US economic aid and private capital investment than il secured from taking over the copper companies.
In sum. the economic problem* confronting the Frei administration are unsoivable in the short ntn and intractable irrihe long run. They will be par-ticulariv difficult to come to grips with during the next year or so. when the effect of the drought and the distraction of national elections will be mostOver the longer run. unless the management of the country's resources improves, the pressure from population growlh. particularly from itsin the Santiago area iseeChile: Drought Area and Populationill increase.1
B. Political: Outlook for the Congressional Election
the deterioration in economic prospects ihe ctlect on thethe congressional9 rn.iv not be particularlyto continued foreign assistance and good copper prices. Thishave an important hearing on the selection oi candidates and thepolitical coalitionslthough voting patterns in localare not necessarily repeated in presidential contests where masstends to focm on large national is*uev and personalities. The results
'We eituiiale that Qui" population Iiillion, aboutercent urban,outercent inucrean oi iHc If the population continue*i-trm* at It* prr-rnl rale, "huh we eatiiiute atpiicemill itnuUe hy.
arc particularly important to the moderates in the PDC whose chances olcontrol of the parly organization will be critically affected by the PDC's showing in the congressional election. The party, which hasfeats in the Senate, shouldajority there and may even attain it, (See figureChilean Politicalrie present PDC majority in the Chamber of Deputies was won. in the election ofhen the other parties were in considerable disarray in the aftermath of Frei's triumph inecovery of (he other' parties will probably keep the PDC from holding its majority in ihe Chamber, but it is likely at least toizable plurality there, and it could attract enough support from independents and Smaller parties to form temporary matOrities.oor showing by the party's congressionalwas approved byintensifv existing problems ol party discipline and further weaken its chances in the presidential election.
2S. The congressional election is also important to the chances of the parties of the right and extreme leftf. as seems likely, thereurtherby the small conservative National Party, this would enhance the chances that Jorgeopular former president, would run strongly, as an "independent" presidential candidate. The Nationals were badly damaged in the Christian Democratic triumphs45 andopular base, but they will probably continue,odest scale, the recovery they made in the municipal electionshey may win some additionatrseats in the Chamber of Deputies, but are likely to suffer some losses in the Senate.
The Chilean Communist Panyhich probably has0 active members, has gamed statusegitimate party which consistently stresses the viaand eschews violent revolution as the means for attaining power ints prospects for the election9 probably have not been greatly damaged by Ihe party's defense of ihe recent Soviet occupation of Czechoslovakia, The PCCh is adept at diverting attention from its close hewing to the Mos-cow Unc. Unless new actions by the USSR further antagonize the Chilean public, by9 the effect of the invasion of8 is likely to be minimal. Thus the PCCh will probably lose little, if any. of the electoralwhich causes other leftist parties to bid for its support in presidential elections.
The showing made by the Socialist and Radical Parties9 will determine, in large part, the candidate the PCCh will supporthe Socialist movement has been split hy personal rivalries, but the orthodoxmay attract some voters who normally support Communist candidates but were alienated by the Soviet occupation of Czechoslovakia. Socialistof the occupation has caused new strains in the already shaky Socialist-Communist electoral coalition (theut the coalition has survived other serious strains in the decade it has been in existence. Furthermore, the Socialist
Ihe PCCh was outlawed,he partyncut setback. Since reeainine ill legal Status tho PCCh has been careful to avoid any action which mlchr result in its Iwintt outlawedS4 Ihe PCCh mnpoitcd Salvador AllenrJe ea the FRAP candidate for ihr pmiaVncy.
Party recognizes lhat it needs Communist support for its leader. Salvador Allendc. if he is toajor candidate again
he Radical Partv. which has recoveredery poor showing in the presidential election4 (five percent of the votej, also suffers fromIt has traditionally found ils main support in the middle class. The nghtwing of the party leans towards Alessandri while its present leftistis seeking an electoral coalition widi the Communists and. if possible, with the Socialists. The Radicals are united only in their desire to regain power and in their bitter hostility towards Frei and the Christian Democrats. The Radical Parti- is likelv lo gain some additional seats in the lower house and to do no better than hold theeats it now has in the Senate. Once the congressional election is over, some moderates and many of the more conservative Radicals are likelv to increase their opposition io the efforts of the party's leaders to align it with the PCCh
C. The Presidential Election
Until the final choice of candidates and of political party alignments is made, it is not feasible to attempt an estimate of the outcome of the presidential election in more than the most generalwo-man race is possible, but among many possibilities we believe that the most likely willloselythree-man
The problem for the left will be to unite competing elements of the Socialist and Radical Parties, with Communist support,ingle candidate. The prospects foroalition are affected by ideological as well as tacticalamong all three parties. While the Communists pubbcly stress the primacy of the FRAP, thev seem disDosed to join any-coalition which they think they can influence. The Socialists, on the other hand, have repeatedly rejected the idea of cooperation wilh non-Manrist parties, and continue to cling to their intention ofresidential candidateowever, the Communists, and even more so the Radicals, have not committed themselves and may have seriousaboutociaUst candidate. Finally,ortion of the Radical Partv favors an alignment with the far left-
Despite these differences, an effective coalition of these three partiesossibility. If they- can coalesce, their candidate wouldtrong contender, especiallyhree-manany members of these parties would notoalition candidate from another party or from an 'alien" faction of their own partv. On the other hand, we believe that the candidate of any far-left coalition would benefit from the likelv continuation of the general trend to the left that has marked Chilean politics in recent decades. Thus he would be likely to receive considerable support from the large bloc of nonabgned. independent voters and to gain some adherents from former PDC voters, unless that partytandard bearer satisfactory to its radical wing.
- The Socialist. Radical, anil Communist Parlies, runnine icpaiately.otal5 percent of the vote in the muniopal electionsee Figure 2.
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'- i
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iii
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o ma tier who wins the PDC nomination, there is likely to be some splitting off of patty members and followers. The party has no potentialas broadly appealing as Frei. Nor is it likely lo form an electoral alliance with one of the other large political parties, on either the left or right. At this point there seems to be very little chance that Badomiro Tomic will beinroad coalition of leftist forces behind his candidacy or that the party is likely again to receive any substantial support from the Chilean right. Most likely, the PDC will runentrist force, with its candidate appealing either for leftist or rightist support, depending on which faction of the party he represents, in the hope oflurality of the total vote. The PDC has strong advantages as the incumbent party, the iargest single party,ocus for the non-Marxist reform vote. But at this point its chances depend heavilyariety of circumstances which are beyond its control and at present
The opposition of the National Party and other Chilean conservatives to Frei's attempts to carry out basic reforms by constitutional means has not made conservatism more popular in the country, but rather has increased the sentiment for radical change. The conservative forces might regain some ground if the aging AJessandriere to campaign vigorously. His remarkable appeal cuts across class and party lines and alsoonsiderable number of independent voters. The conservatives have no other candidate oLcomparable stature, and without Alessandri in the race they would be likely to suffer another decline in strength and influence in
In sum, the current odds are that there willhree-man race,n which no candidate willlear majority, and the final choice will be made by the Chilean Congress. The necessity forecision has arisen several times in the lastears. On each occasion the Congress has chosen the candidate with the largest number of votes. We believe that the Congress probably would do so again, particularly if therelear margin between the two leading candidates.
hoever is elected0 will bave considerable difficulty in getting any program through the Congress, letontroversial one. Frei has said that his fundamental mistake was in not pushing hard, early in his term, for an amendment of the Constitution that would enable the president (once during his term in office) to dissolve the Congress and, in effect, tolebiscite on his program. If Frci's four years in power have demonstrated anything, it is thatresident with the unusual advantageajority, both in the popular vote and in the lower chamber, finds tt very rough going indeed when he attempts to change the status quo in Chile.
he well trained security forces of Chile have always been essentially antagonistic to the Communists and Socialists, this is particularly true of the paramilitary national police force, the Carabineros. who haveong history of clashes with extreme leftists. Even so. the security forces have maintained an apolitical position towards national politics forears; on the two Occasions
resident was elected with Communist support, the military did not intervene to keep him Jrom taking office. Rather than intervene at once toommunist-supported administration from taking officehe security forces would probablyonstant surveillance over It. particularly if it were led by Salvador Allende, and would plan to move against it only if they were convinced that Chilean institutions, especially their own, were threatened.
their part, the Communists and Socialists have vied with theparries in praising the armed forces and in supportingmilitary equipment, and have repeatedly professed approval of the rolerrulrtaxy as the protectors of constitutional government. We believe thatadministration would be careful, at least initially, toaction likely to cause the rnihtary to intervene.*
D. future Relations with Othor Countries
the FRAP were to win the electionnd particularly ifcandidate were Allende or Alberto Baltra, the pro-Communistthe Radicalhe new administration would almost certainly takeat moving Chile away from the US and towards closer tics withcountries. Allende himself has frequently demonstrated hisCastro and the Cuban Revolution, and an Allende or Baltra cabinetinclude members of the PCCh. But we believe that evenwould be deterred from precipitate or drastic action by severalconsiderations;
awareness of the strengdt of nationalist sentiment in thein the Congress, and in their ownnationalism bkely tostrongly against subordinating Chile to the tutelage of Moscow (orit has been against anything it considers subordination to Wasblngtoo;
realization that they must have and retain the support ofother than those that elected them if their administration is toallsince counsels would probably be divided inranks on some aspects of both foreign and domestic policy;
concern that if their administration tried tooo far and tooChilean security forces would unseat it;
apprehension (and one which Moscow would probablyull embrace of communism in Chile wouldon the part of Argentina. Peru, the US. and otherin supportakeover by the Chilean military, perhaps evenintervention.
'The security forces consist of an armyavyn ail force. and the Carabinerosn emerKeneies, the Carabineros are placed under army cuounaDd.
Alt these factors are likelv loew president, even if he represents the extreme left, from bringing about the adherence of Chile to one or another segment of the Communist camp. These considerations do not, however, argueadical shift in internal programs or against an intensificatton of the effort to be independent of the US. In our view, whoever succeeds to the presidency will be less cooperative with the US than Frei has been. Wc think that there will be pressures in almost all political parties, including the PDC, for the new Chilean Government to stakeore independent line; in some of them, demandslearly anti-US posture will be strong. Thus Chilean relations with the US are likely to be under repeated strain over the foreseeable future. Anv new administration will probably explore somewhat closer ties with Communist countries. And the skillful low key way in which the Soviet Embassy in Santiago has conducted its relations with tlie Chilean Government and public might begin to bring an expansion of trade and cultural relations between the two countries. Thus far, however, little progress has been made in implementing the economic agreements with the USSR signed in"
We think that the next Chilean administration, regardless of who heads it, will continue Chile's traditional policies supporting nonintervention, the protection of national sovereignty, -and the sanctity of treaties. The policiesew administration will continue lo be strongly influenced by the recurrent border disputes with Argentina, by Bolivia's efforts to regain the outlet to the sea it had lost to Chile in the last century, and by concern that Peru will renew its claim lo territory it too lost to Chile. The next aclrninistration is likely to push even harder than Frei did to stress the independent nature of Chile's role In both the Organization of American States and the United Nations.
Perhaps the touchiest issue of all in relations with the US will he that of ownership or control of the US share in the copper companies. Further steps toward greater government participation in or even outright nationalization of these holdings are, in our judgment, inevitable. The manner, the terms, and the timetable of "such steps will depend heavily on the makeup of the nextAn extreme leftist government would very likely opt for complete and rapid nationalization. Evenightist administration, or one of the center left such as Frci's has been, some additionalt least, is likely. Chde might assume high economic costs in the process, especially in case of abrupt nationalization; but in the long run nationalistic, pobticalrather thanalmost certainly be the crucial factors in deciding this question.
-Total Chilean exports to the Communist countries amounted77 com-paftd3 millionhile iinporit1 million72 mdlWo6 Although import! from the Communistav be uo slightlyo sub-.uiiiul increase in exports is expected
Original document.
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