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Release 2006/12116 :CIA-RDP79-00927A004600070002-5 2 October 1964 OCI No. 0351/64A Copy No .; CJ C.~ SPECIAL REPORT LMPLICATIONS OF THE RECENT ELECTIONS IN CHILE CENTRAL INTELLIGENCE AGENCI~ OFFfCE OF CURRENT INTELLIG ENCE: ?~~9i~F~I~i~:DF Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Q Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 SECRET ~ IMPLICATIONS OF THE RECENT ELECTIONS IN CHILE President-elect F,duardo Frei won an impressive victory in the 4 September elections, but faces some formidable problems when he assumes office on 3 November. He will have to deal with a serious fi- nancial situation aggravated by inflation, a burden- some foreign debt, an adverse balance of payments, and inadequate agricultural production. He will be handicapped by the weakness of his Christian Demo- cratic Party in Congress, a weakness that will con- tinue at least through the March 1965 congressional elections. Frei must also balance conflicting na- tionalist and company interests if he is to secure a new agreement with the important US-owned copper companies. Althauvh he expects to reach satisfac- tory arrangements, his copper policy, zeal for so- cial reform, probable recognition of the USSR and satellites, and casual attitude toward domestic Com- munist threats make Frei a potentially difficult, although not impossible, ally. In the Chilean presiden- tial election of 4 September, Christian remocrat Eduardo Frei won 56 percent of the vote. The Communist-Socialist Popular Rev- olutionary Action Frant's (FRAP) Salvador Allende secured only 39 percent, with the small re- mainder going to the Radical Party's Julio P,uran. Frei is the first candidate since 1942 to gain an absolute majority. A high 85.5 percent of the reg- istered electorate voted, less than ore percent of the ballots were invalidated, and the elec- tion proceeded with complete calm and order . Analysis of Election Returns Frei ran surprisingly well throughout the country's 25 prov- and among all segments of the population, His margins of loss were slight in five of the six provinces where he ran behind Allende, whereas he out- distanced Allende decisively in areas of high population density. Only in the depressed, coal min- ing province of Arauco, long a FRAP stronghold, was Frei beaten badly. By c antrast, he accumu- lated an overwhelming lead in the key provinces of Santiago and Valparaiso, where 51 percent of the tots 1 valid votes wE~re cast. Assisted by his unexpected strength among the slum dwellers and his unparalleled appeaA to women voters, Frei outdrew Al- lende by approximately 323,000 votes in these important dis- tricts, tallying 60.5 percent against Allende's 35.7. Tie women voters, who never before exceeded 35 percent of the SECRET Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Ruse 2006/12116 :CIA-RDP79-00927A4600070002-5 SECRET presidential electorate, in- creased their share to 46.6 per- cent and rallied to Frei. Allende's attraction failed in historically leftist north- ern Chile where he even lost the support of the copper miners. Apparently many of them feared the loss of their privileged position in the Chilean labor force, and were apprehensive that Allende's advocated na- tionalization would reduce some of their benefits. Frei's sweep included vic- tories in Valdivia, which had. practically been written. off by the Frei high command, and in Curico, scene of the impressive FRAP landslide in the March 1964 by-election. Frei also exceeded all expectations by out polling Allende among campesinos (peas-, especially in the central Walley of Chile. Allende's defeat was undoubtedly the people's :fear of Communism which was exploited and drama- tized during the campaign. Na- tionalistic Chileans were de- termined :not ~to let their coun- try become a second Cuba. Both ,~llende and the Communist press admitted -that fear of Communism was the dominant factor in FRAP's defeat. The democratsc press commented that Fidel Castro was the big loser in this election. Despite FRAP's feebly contrived efforts to-claim US Government intervention, FRAP was never able to regain the initiative it began .i:o lose when the Cuban- sponsored--and FRAP-supported-- Second Latin American Youth Con- i'erence failed in 114arch 1964. FRAP was kept on the defensive throughout the campaign, with the exception of a few weeks after the Curico by-election. The Communist Party (PCCh) thesis of the peaceful route to power (via Pacifica) received a serious setback which may in- crease the strength of Chinese- line splinter groups. Allende, however, nearly tripled his 1958 vote, increased his percentage of the electorate from 29 to 39, and confirmed that Chilean Marx- ism remains a force to be reck- oned with. PCCh chairman Sena- tor Corvalan said that a "stage" in the Marxist movement has ended, but he insisted that the movement itself is irreversible in Chile. The single- most important campaign issue contributing to The almost charismatic- f.igure of Frei was presented to the electorate as the face. of change and the spirit of hope. Frei, however, n-ust now meet the realities of governing a country that is a net importer of food, is deeply enmeshed in a serious inflationary cycle, depends on copper earnings for the bulk of. its foreign exchange, has a chronic budgetary deficit and a critical external debt, and needs a continuous input of foreign grants and loans. 1Yith- out substantial foreign assist- ance, Frei will find it dsffi- cult., if not impossible, to ful- fill the broad aspirations which he has stimulated and is publicly committed to satisfy. SECRET' Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 ~...+ SECRET The first problem Frei will face is the formation of a government, which he said will be composed of Christian Demo- cratic Party (PDC) technicians and independents. His party has relatively few members ex- perienced in public administra- tion. His second problem, which will endure at least until af- ter the March 1965 congressional elections, is that the PDC is a minority party in Congress, hold- ing only 4 Senate seats out of 45, and 28 deputies out of 147. Frei, therefore, will need at least the votes of the Conserva- tives and Liberals in the Cham- ber; :in the Senate, where the situation is even less promis- ing, he will need the backing of Liberals, Conservatives, and some Radicals if he is to have effective legislative support. Substantial assistance from them is unlikely, however, and Frei rejects all thought of FRAP cooperation. This will make it difficult for him to establish a record of accomplishment on his stated program prior to the March congressional elections. Frei might, although it is unlikely, choose to run head-on against the sense of the Con- gress in his use of the interim special powers which in recent years new Chilean presidents have been granted by Congress for the period it is not in ses- sion. He may thereby attempt to carry through parts of his pro- gram and to create the basis for Christian Democratic gains in March. He may seek to demon- strate that he needs a PDC con- gressional bloc strong enough to sustain a presidential veto if he is to implement his plans for social and economic reform. Fifty deputies would meet this need. Frei has stated that af- ter the congressional elections he may find it necessary to make changes in his cabinet to con- form with election results, In the fiscal field, Frei's pressing problem is to renegotiate L _. _. _..___ _ _~1 Chile's external debt burden which he estimates at approxi- mately $290 million annually. By refinancing he hopes to re- duce debt repayments and inter- est to approximately $120 mil- lion a year, which he feels Chile can afford. In the event the debt renegotiation is not successful, Frei feels that he will require $470 million from all outside sources in the next calendar year. Of this sum, $290 million will be used for SE CRE T Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Lase 2006/12116 :CIA-RDP79-0092704600070002-5 SECRE?' debt payment and $180 million for- new social programs and balance -of-payments financing: He has said that large external assistance will be ,justified only by a proportionately large Chilean internal effort. Frei knows the escudo should be devalued to bring it close to the broker's rate, but is apprehensive about such an action's political feasibility. Apparently, outgoing President Alessandri is reluctant to take this unpopular step, although he is permitting some erosion of the rate. Frei will try to reduce inflation t-o less than. 10 percent a year by increasing foreign exchange earnings, prob- ably by raising copper pradue- tion and cutting imports. Fre's Program Frei's program also in- cludes ambitious plans for agrar- ian reform, industrialization, the construction. of 360,000 housing units in the next six years, a broader educational program, and other social meas- ures. Although land distribu- tion will continue at a delib- erate pace, Frei; in his eco- nomic program, will probably place major emphasis on price policies, higher tariffs, tax. and credit measures,and the reduction of imports. Generally speaking, his reforms, assuming he has the funds to implement them,. are probably more in line with Alliance for Progress objec- tives than the program of the Alessandri government. With the United States, Frei expect:s "the best possible" relations. He stated that to hate the US is "suicidal stra- tegically,'y but he cautioned that US-Chilean relations must be on a basis of mutual respect. There are, however, points of potential conflict between the United States and Frei's Chile. The ambitious reform program depends heavily on continued US aid at the current level or higher. Should this aid not be forthcoming, Frei's domestic program and politics will be adversely affected and a certain coolness in relations with the United States may result. Frei is primarily inter- ested, as regards copper, in new investment and increased foreign exchange earnings, Ma- jor elements of his copper pol- icy are to increase the produc- tion of copper in Chile, to in- sist that all copper be refined locally, to "associate" with the companies in new investments, and to exert some influence over capper sales, The most diffi- cult phase of this program is marketing control. In return for these concessions he seems prepared to modify the capper tax: structure and to provide the copper companies with as- sured stability., Frei would like to create a more favorable climate for badly needed foreign investment, but simultaneously he does not wish to lose control of the economy to foreign interests. He, there- fore, insists an a strong measure of government supervision. He SECRET Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 `~?+ a SECRET expects to achieve his ends in direct negotiations with the copper companies, but if he fails, miscellaneous threats and actions, inevitably involy- ing the US, might result. Frei will probably grant diplomatic recognition to some Commu~.iist countries, although he has stated that he will not renew relations with Cuba or recognize Communist China or East Germany. He has also publicly stated that he will trade with any country, regardless of ideology, and has not excluded the direct sale of strategically-important copper to the USSR. Alessandri has sold copper directly to Red China. Concerning the OAS and its measures against Cuba, Frei said that he admires the con- sistency of Mexico's attitude, and he believes that "after the US elections" it may be possible to "look for a peaceful solu- tion to the Cuban problem within a framework of nonintervention and self-determination," Fx~ei's treatment of the threat of internal Communist subversion is unlikely to be more vigorous than the pe~?mis- sive attitude of Alessandri. He recognizes, however, that FRAP may resort to violence, particularly in the labor field. SECRET Frei will be a less ac- commodating and a more nation- alistic ally than Alessandri, because of his zeal for reform. Frei's favorable attributes more than offset this. He is genuinely anti-Communist and democratic, is close to the Eu- ropean tradition of temperate Christian Democracy, has dem- onstrated a firm resolve to remain in the democratic camp, and follows policies that are more in line with Alliance for Progress objectives. Frei has a keen awareness and a~~- preciation of the vital imt~or- tance of US and international loans, and as a responsible per- son with no trace of the dema- gogue, it would appear that he will be guided, in the loni; run, by Chile's economic realities and interests of hemispheric solidarity. With some good fortune and tactful handlirg, Frei could become an outstand- ing leader and statesman in Latin America and n all valuable, Erie { a es. (SECRET) 25X1 25X1 Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5 Approved For R ease 2006/1 79-00927 4600070002-5 ~~ SECRET'' Approved For Release 2006/12116 :CIA-RDP79-00927A004600070002-5