THE NEW LOOK OF THE ONGANIA ADMINISTRATION

Created: 6/28/1967

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SPECIAL MEMORANDUM

tfieofce Ongariia Administration

APPROVED FOR RELEASE

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CENTRAL INTELLIGENCE AGENCY OFFICE OP NATIONAL ESTIMATES

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SPECIAL MEMGRANEUM7

SUBJECT: Tea New Look of the Ongania Administration*

SUMMARY

* This memorandum has been prepared solely by CIA. It haa been coordinated with the Office of Current Intelligence, the Office of Research and Reporta, and the Clandaatino Services.

xcluded from automatic downgrading and declaaaificaticn

In recent months the administration of Oen. Juan Carlos Onganiaaa made an impressive start on resolution of some of Argentine's most difficult political and economic. After an inauspicious beginning, CcgenXa haarogram, of economic reform which is already winning both In-tainatloual and domestic respect. Ea haa reaponioi to public oritioiam, improved his cabinet, and nowighly-stilled group of economic advisers. The dimensions of the problems still ahead are large, and for many there can bo no quick or painless solutions. But there are gzounds for hope in the fact that Argentina, after three dncudea of floundering, noweform-minded government, both determined to govern andng the power to do ao.

I. BACKGROUND

Ecor-ctaic Problems

1* For several decades Argentine baa failed toata of econceic growth cossaansurate with Ha natural and human raaourcaa.* Sine* tho removal of Peron inress National Product (ONP) baa increased at an average annual rate of leaaeraont. Over tho lost five, despite record harvests that apurred the economyrowth roteercent in two aucceaalve yeara, the average annual rate for the periodhole waaercentbout the same aa the rate of population increase. The general stagnation of the acorjomy has bean accompanied by strong inflationary preaaures, deriving nalnly from large budget deficits caused by falling revenuea and the aubsldlas required by increasingly inefficient stats antorprlaeaotably the railroads, nnual coat of living and wage lncreaaea have averagedndercent roipectively.

* Argentina haa on extensive and fertile agricultural arealsable industrial base. Its homogeneous population la one of the world's beat fed and clothed and the literacy rets la high

2. Domestic econcmlc problems have also bean reflected la the external sector. Rising requirements for Industrial imports, diminishing agricultural exports, and periodic flights of capital have produced large balanca-of-payments deficits. These deficits were financed by the accumulationeavy foreign debt and by the reduction of foreign exchange reserves to perilously low levels.* The restrictions on imports required to maintain foreign payments in recent years, in turn, have speeded the inflation and inhibited ecoriomic growth.

Political Frobloms

Total foreign indebtedness2 billion3 and waa gradually reduced7 billion by the end Grose foreign reserves, however, continued to hover about0 million markufficient to cover only two months'ntil the devaluation in

3- Politically, Argentina has not yet recovered from the decade of Many Argentines attribute virtually all theirroubles to the deleterious effect of his dictatorship, but no government aince hia overthrow haa been able to achieve any consensua on national goals and programs, andboth the power and tha will to govorn. The Percolates are still the most unified political force In the com try; with some

ercent of the electorate they vould probably win any freely conducted national election end ouch Important provincial elaotiona an those of Buenos Aires and Cordoba. The central feature of Argentine polltlca5 has been sorely negative: the refusal of the military establishment to permit the Peroniatae to recover effective political power. Meanwhile the economic and political problems of Argentina have piled up, and caused each successive government to flounder more ineffectually. Finally, in latohan tea IUla sdmiclstrstion was still struggling to get its budget for calendar and6 pest an obstreperous Congress, the military intervened.

II. THE PRESENT AEMINtBTRATION

*** Character of tha Cngaoia Governjent. Theictatorship whose ultimate source of power Is the collective leadership of the Army. Although It haa preempted all executive and legislative powers on the national and provincial levels, it has used them with restraint. The presa and the Judlcisl system function freely, and political opponents can criticise official policies sod actions. Ongania and his military supporters appear determined, however, to retain power for aa long as required

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to carry out their plana for the modernization of Argentina. Biua far Ongania haa ahovn little intoreat in reatructuring the country's political parties. Nor has he trie! to crsste an official party toacade of constitutionalism for hie virtual monopoly of political power.

Performance

The Cogania adminiatration started badly,eavy-handed effort to control disorders in the national Police forces overreacted to provocation by university students, and many liberal as well as radical profaasoro resigned, depleting acme faculties of the National University of Buenos Aires. Many of these faculty members have not returned. Later actions by the government proved to be more sensible and auccassful: the univeraiUaa are now functioning under regulations which baractivity from the university buildings sod grounds, give the faculties control over university administration and policy, and limit the role of atudents In university councils to that of Bis extra-territorial status of the universities haa baen removed, and requirements for retaining student status have been tightened.

K^T

Parceltn still dominates tho labor movement. Whan Ooganle assumed power, hovavar, the Peroalat-controlled General ConfederaUcn of Labor (COT) had apllt Into two main faotiona, one of which ccntlnuee to be aubaervlent to Peron himself. The leadera of the other group maintainominal loyalty to Peron apparently ballaving that be will never return to pwer. The adminiatration haa profited from thia apllt and it haa further weakened labor re oistance by granting wage and other benefits to thoae unions which cooperate with it. Co tha other hand, the administration haa dealt firmly with recalcitrant unions by employing police and military forces to contain illegal strikes, by tsking ovor control of key unions and freezing their funds, snd by dismissing or refusing to reemploy striking union members and leaders. Thus far, those tecUcs have kept tho unions off balance and without an issue atrong enough to bring the workers out into the streets sgainat tha government.

It is clsar that tha Ongarla government assumed office with no clear ldaa how to go about atabiliilcg and modernising the economy aa promised, and Its initial montha were apent trying to decide upon the moat effective path to follcv. Ifcere wcra successful moves sgalnst scene obvious targets for change auch aa

the inefficient and coatly port system, the sugar problem in Tucuman province, and draving up new work rules for the rail-reads. But little progress had been made by the and of 1in solving basic economic problems, sod inflationary pressures were stronger than before the revolution. At that point (latenganla faced up to the need to change eccoomists. Heew minister of Economy and Labor, Dr. Adalbert Krieger Vasono, an Internationally respected economist who we bellevB insisted upon and received carta hlaneho to dsvlee economic reforms.

8. Within thrsa montha. Dr. Krlegar's new economic tec-drewroad and complex program for financial stabilization end economic development and moved quickly toide variety of necessaryand oftan unpopularreforms. In March7 almost all restrictions on international payments and transfera were lifted. At the same time the peso waaby kO percent lo an attemptat least initiallyto reverse tho flight of capital, encourage the development of new exports, and attract foreign investment. Tho government also hss taken the initlstlvs of discussing with the United States an agreement to guarantee investments, has signed

new aattlomanta with potrolemn companies whose contracts had beend by tho IUia administration, and has drawnode of Xswb oneo-.irasing foreign participation in tooof petroleum and other mineral resources. Legislation has also been issued to stimulate domestic investment by providing tax benefits for investment in both iuduetry and agriculture, revising the land tenure syatem, and liberalizing credit ro-quirementa for importa of capital equipment.*

9. The government, moreover, has taken otrong mecsuros in both the public and private sectora to combat tho chronic These involve reduction of the budget deficit, freezing wagaa of public and private employees, ana limiting thedeficits of tho public enterprises. rive for greater efficiency throughout the government has been launched end, while large scale dismissals are being avoided, too government iotourplus workers into more productive employment. To diocourage tho inflationary mentality of producers

* That the government already has succsadsd to an impressive degree in increasing investor confidence Is evident in the rejuvenation of the Buenos Aireshore after years of Inactivity atock salaa have zoomaaand government bond Issues have been widely oversubacribod.

and retailers, tha government haa threatened the uae of price eeiUnga, the freeing of specific imports, and other methods of forcing reduced coats and increased efficiency, and hasrice control law involving particularly stiff penalties. The recent aeciaion by the Leaders of the business community to collaboratevoluntary" price control program indicates that they do take tha governments stabilization efforts

Relations wltti the United States

10. The aharp contrast between the alacrity with which the US recognized the Caatello Branco government In Brazil and the delay In recognizing the Ccgaula government raised the hackles of acme of tho more nationalist members of the new adminiatration in Argentina. Onganta, however, did not react to that delay, or to unfriendly reporting by the US press, by whipping upfervor, instead, his administration haa been reasonably cooperative with tho US; haa stressed its anU-Ccomunlatand, at the same time, haa mads it clear that its policies In any field will be made In Argentina by Argentines.

XI. It la easy enough for Ongania to understand the general US preference for constitutional governmsnta brought to power in

frealy ccnteatad elections. Ir.dead it vaa he, aa Cocxcaiider-in-Chief of tho Army, who held off military proaaurea against the Xllla adminiatration for icma two yearst long aa he thought there was still any chance that it could accomplishew conatructiva atepa toward the modernization of Argentina. But tha reality of political life in Argentina has repeatedlytho inability of elected governments to achieve the modernization of the country. Ongania has suppressed muchactivity but haa shown more respect for civil libertiesnot connected with electionsthan have acme constitutional governments in Argentina and elsewhere in Latin America. Thus far, be haa bewfittad from widespread dlaillUBionment in Argentina with tha traditional political parties and their loaders, and there has teen no effective political opposition to his

III. PRCGPECT9

12. Whan tho Ongania adminiatration took power Argentina's prospects appeared bleak indeed. But the damonatrated ability of that military dictatorship to rsspond to constructive criticism io now one of the hopeful aajecto of tha Argentine situation.

Mare over its oouraga In taking tea politically unpopular actions neceaanry to implement its stabilisation programs appaara to have von the confidence of liiportant elaaants of tha country's buainesa and financial cceaunlty and of foreign obaervera aa well.* Whan tha present situation is eonpared with thatear ago, we beliavo it la clearorner has been turned and that the government la now asking noteworthy progress on the tssk confronting it.

13* urther progreaa will also depend heavily upon maintaining the support of key military leaders and keeping central over Organised labor. Although the basic antagonism between leaders of the anti-Peronist military and of Peronlst labor makes the administration's relationship with each of theseery tricky one, Cngsnio can also use that antagonism to hia advantage. Thus labor recalcitrance, late last year and early this year,losing of ranks in the military behind Cnganla. While indications of personal rivalry among ambltloua

* In recant weeks the Ongania administration hasillion from the International Monetaryillion from tha US Treasury Stabilisation Tund, and two loans0 million each from luropean and UB tanks, both of which were oversubscribed.

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snUltsry Leaders persist, they have fllnlnlahed anarply since Onsjania began to take aetioo oo basic ecoooadc problems and showed that, at least In tha short run, he could dealwith labor.

Tula la not to eay that an end to Argentina'a prolonged tine of troublea la at hand. Much atlll needs to be done In the economic sphere, and there are key factors such ss weather and world market pricea which art beyond Ongenia's control. At tha seme time the administration must maintain Its successful record in dealing with the military leadarshlp and organ! red labor. For it la in theae delicats fields cf military and labor reletiona that there la atlll the greatest danger of some slip up by the administration which could lead to ita undoing.

15* The combination of continued atrong military support, control over organiisd labor, bumper harvests, and favorable world aarkat prlcea may all fall neatly into place. In that event the chancea would be excellent for Ongania staying the couraa and reatorlng tho Argentina economy to reaaonable levels of performance, 'ffiere is, however, no raaliatic way of toting up tho odds onombination. And there Is still the danger thata result of aiacalculation by tho administration

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or tha opposition Ongania and his military supporters might

became ouch mora authoritarian in their treatment of the opposition. Nevertheless, wb coneluda that under the present government there la more reason to be optimistic, oa to both the short and longer-run future of Argentina, than there has been at any other time In the last three decades of Argentine history.

SHERMAN KENT Chairman

FOR THE BOARD OF NATIONAL ESTIMATES

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