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January 13, 1967
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Approved Focelease 2006/04/13 : CIA-RDP79-0092?0 600040002-7 ecret DIRECTORATE OF INTELLIGENCE WEEKLY SUMMARY Special Report Achievements of Chile's Christian Democratic Government Secret N2 40 13 January 1967 No. 0272/67A Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 25X1 Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 Approved FbwRelease 2006/04/13 : CIA-RDP79-0091A005600040002-7 SECRET ACHIEVEMENTS OF CHILE'S CHRISTIAN DEMOCRATIC GOVERNMENT Chile's Christian Democratic Government under President Eduardo Frei, has moved steadily to im- plant a reform program characterized by the slogan "Revolution in Liberty." Since the 1964 election, Frei has obtained much of the legislation necessary for his program, although congressional obstruction- ism remains a problem. He must now direct his major effort toward implementing the laws he has gotten on the books. Economic reforms have been hampered by the con- tinuation of Chile's chronic inflation, even though at a lower rate. The anti-inflationary program has caused resentment among population groups that be- lieve their incomes have not kept pace with the cost of living. Periodic strikes, supported by the Communist-Socialist labor organization, have attacked the government's wage adjustment policy. President Frei will visit the United States the first week in February. He does not intend to ask for increased economic assistance and will probably concentrate on a general improvement of US-Chilean understanding. Preparations for the inter-American summit meeting, tentatively scheduled for this spring, will also be discussed. Domestic Policies During its first two years of power, Frei's Christian Demo- cratic administration has fos- tered a reformist mentality within Chile that well may be the key to the success of the "Revolution in Liberty." Frei has taken Chile a substantial way along the road to reform and there is little likelihood that the country will turn back, despite the cries of anguish from traditional power groups. Frei has not had to con- tend with a strongly entrenched oligarchy, but his attempts to modernize certain facts of Chilean economic, social, and political life have been opposed by a va- riety of forces. In addition to the tradi- tional conservative opposition, Frei from time to time has faced resistance from leftist elements that believe either that he is moving too slowly or that his Christian Democratic Party (PDC) will obtain credit for all re- forms, and thus prevent other reformist parties from scoring. In general, however, Frei's pro- gram has struck a responsive chord in the previously ignored segments of Chilean society. SECRET Approved For Relle se 2p06/QSA/12-ACfIA Pf f~,-009217 k0q?g0q(~j40002-7 Page Approved For Rel'ease 2006/04/13 : CIA-RDP79-00927A600040002-7 Composition Of Chilean Congress SENATE (PDC) Christian Democratic (VNP) National Popular Vanguard (PS) Socialist (PCCh) Communist (PADENA) National Democratic (PR) Radical (PN) National CHAMBER OF DEPUTIES Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 Approved For Release 2006/04/13 : CIA-RDP79-00927A005600040002-7 SF'CRF'1' One of the first problems facing Frei after his election in 1964 was to deal with a divi- sion within the PDC that threat- ened to hamper the conduct of government. A left-wing "rebel" element, led by Alberto Jerez and Rafael Gumucio, nearly gained control at the party congress in 1965, and consistently has criti- cized the pace of reform. In general, this faction is composed of politicians accustomed to an opposition posture and unwilling to submerge their own views in the interest of party unity. The PDC congress held in August 1966, however, gave Frei strong backing for his conduct of the government. Party Support for the government is expected to continue at least through 1967. The PDC gained control of the Chamber of Deputies in the congressional elections of March 1965. It lacks a majority in the Senate, however, and has been forced to compromise with other parties from time to time. In addition, reform legislation has been delayed or diluted dur- ing extended congressional de- bates. Nevertheless, substantial reforms have been accomplished. Frei has obtained congressional support for a number of economic programs, and has improved pub- lic health services and facili- ties. Housing and school con- struction have increased greatly since 1964, and. the education system has been improved through- out the country. Frei undertook some agrarian reform measures under existing legislation while awaiting approval of laws that EDUARDO FRET would facilitate a broader pro- gram. The government has felt pres- sure outside its own party from the Communist-Socialist Popular Action Front (FRAP), both in Congress and in the field of labor. There has been some friction in recent months between the Socialists and the Communists. In general the Socialists es- pouse a harder line than the Communist Party which from time to time has advocated cooperation with the government on certain issues. The two parties seem to be drawing closer together, how- ever, as the April 1967 munici- pal elections approach. FRAP's power to harass the government was strikingly evi- dent in the recent election of Socialist Senator Salvador Al- lende as head of the Chilean Senate. In his new position Allende, a strong supporter of Fidel Castro and Frei's chief SECRET Approved For Rol",se 2906/Q4i&7rALA- i9];0092177Q05S000'40002-7 Approved For Re ase 2006/04/13 : CIA-RDP79-00927A00040002-7 SECRET opponent in the 1964 election will be able to guide Senate de- bate and will represent Chile at international parliamentary meet- ings. His election resulted from cooperation between the Radical Party and FRAP. His tenure is conditional upon the retention of Radical support, however, and this fact may hamper his freedom of action. FRAP controls the most im- portant labor body, and the PDC has shown little enthusiasm for establishing a rival workers' federation. Only about 15 percent of the labor force is organized. The government was confronted during 1.965 and 1966 with several serious strikes, but has resisted the most extreme demands of the leftist-dominated unions. The PDC has encouraged the organization of independent but PDC-oriented campesino unions. These have successfully chal- lenged Communist influences among rural workers, and seem to have attained a relatively secure base. to how accurately this index re- flects real changes in the cost of living, as it is composed mainly of items covered by price controls. The government has had vary- ing success with its stabiliza- tion policies. Improvements in administration increased tax rev- enues, in real terms, by 25 per- cent in 1965 and by about the same percentage in 1966. Govern- ment expenditures rose by a greater amount, however, neces- sitating continued government borrowing. Under the resultant pressure the money supply in- creased by 65 percent in 1965 as compared with 51 percent in 1964. Some progress has been made toward wage stabilization, but many workers object to having their wage increases tied to the change of the questionable price index. Despite such problems, however, the population gener- ally supports the administra- tion's economic stabilization effort. Economic Reform Frei's economic policies are centered around an economic stabilization program that has as one of its goals a reduction in the rate of the inflation which has plagued Chile for more than 50 years. The inflation rate--measured by the index of consumer prices in Santiago--de- creased from 38 percent in 1964 to 26 percent in 1965, and to about 19 percent in the first eleven months of 1966. There is some question, however, as Renegotiation and reschedul- ing of Chile's external public debt was an important early ac- complishment of the Frei adminis- tration. Payments relief during 1965 to 1966 amounted to almost $100 million. In addition, the maturity structure of the debt has been reordered so that payment dates are more evenly spaced. This action, plus higher export prices for copper, controlled deprecia- tion of the value of the currency, and import restrictions, strength- ened Chile's international balance- of-payments position in both years. SECRET Approved FGn elease 20 514 ,: 9 79-00?g7AA(56ff 040002-7 Approved FoiwRelease 2006/04/13 : CIA-RDP79-009005600040002-7 SECRET One of the most important parts of Frei's program involved the "Chileanization" of copper. This program was conceived as an alternative to outright national- ization, which the leftist groups advocated. Frei's plan called for the Chilean Government to ac- quire an interest in the three largest copper companies, all of which are owned by parent corpo- rations inthe United States. This program drew a great deal of criticism from many sectors in Chile. The leftists accused Frei of selling out to American inter- ests, whereas rightists feared that the principle of government participation would be extended to Chilean businesses. However, enabling legislation was passed early in 1966, and by the end of the year investment decrees were signed which provided for the es- tablishment of three new joint corporations with a total invest- ment of more than $400 million by 1970. The Chilean share in these joint corporations is to be 51 per- cent of the Kennecott operations and 25 percent of the Anaconda and Cerro companies. In addi- tion to expanding mining opera- tions the new corporations will develop copper refineries and fabricating plants so as to di- versify the Chilean copper indus- try. Frei's agrarian reform pro- gram was aimed at increasing the productivity of agriculture in order to make Chile self-suffi- cient in food production. Be- cause of legislative bottlenecks, very little progress has been made. Legislation aimed at giv- ing the government more flexible land expropriation powers, with a view toward resettling 100,000 families by 1970 was introduced in November 1965. This bill was opposed by both the left and right, and has not yet passed Congress. In the meantime, the Agrarian Reform Corporation, es- tablished under legislation ante- dating the Frei administration, has conducted some resettlement and has built some ancillary fa- cilities such as road and water distribution systems. These steps have had little impact on agriculture, however, and the government's resettlement goal will not be met. The Chilean economy expanded at a rate of about 5 percent an- nually in 1965 and 1966 because of gains in industry and mining. Agricultural production continued to be a major weakness, and the economy remains highly vulnerable to fluctuations in the world price for copper--the source of 70 per- cent of Chile's export earnings. In a speech in December 1966, Frei announced that Chile will no longer require budget support loans from the US. This develop- ment marks an important step in Chile's progress. Such loans have amounted to $80 million over the past two years. Chile will continue to receive loans for spe- cific projects, however, and will benefit from other AID actions from time to time. Foreign Affairs Frei strove early to demon- strate independence from US in- fluence in Chilean foreign policy SECRET Approved For RRe 2006/04 Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 SECRET since he assumed Dffice. This led to differences of position between Chile and the US o a number of issues, including, during 1965, action in the Domin- ican Republic and the seating of Communist China iz the United Nations. Since 1)65, however, there has been cl,;)ser US-Chilean consultation. In 1966 Chile sup- ported the US on :he Chinese rep- resentation issue and on other international que;tions. ),resident Frei is attempt- ing to become a leader of the movement toward c-oser Latin American cooperat:_on. He at- tended the "little summit" meeting in Bogota in August 1966,, and has pronoted exchanges of visits among South American leaders. Chile gave evidence of the strength o::' its advocacy of economic intecrration at the conference of foreign ministers of the Latin Amer-can Free Trade Association (LAFTI,) in December. 1966, when Frei's foreign min- ister, Gabriel Va-.des, left because the participants were unable to agree on a mechanism for making automatic reductions on tariffs on goocs from member states. Chile's bilateral diplo- matic relations with most other Latin American stE.tes generally have been friendly. It has main- tained particularly close contact with Colombia, Peru, and Vene- zuela, and with Argentina until the overthrow of the Illia gov- ernment. The existence of mili- Lary-backed goverrments in Brazil and currently in Argentina has hampered the development of re- lations with those countries. Furthermore, Chilean public opin- ion traditionally has feared the possibility of Argentine expan- sion into Chile. The desire to maintain at least a facade of readiness has encouraged acqui- sition by the Chilean armed forces of modern equipment to re- place older material. Chile's relations with Bo- livia have been strained ever since Chile conquered the Boliv- ian littoral during the 19th century War of the Pacific. The two countries have not had dip- lomatic relations since they were broken by Bolivia in 1962 during a dispute over the waters of the Lauca River. Periodic reports of friction along the borders, and of Bolivians "infiltrating" northern Chile keep the situa- tion tense. Furthermore, Boliv- ian President Barrientos has announced that he will not attend the summit meeting of the Organiza- tion of American States (OAS) planned for the spring unless Bolivian ac- cess to the sea is on the agenda. Because of Bolivia's intransigence, prospects are dim for an ameliora- tion of relations between the two. The Frei administration has consistently criticized the OAS as it is presently constituted. Chile opposed OAS action in the Dominican Republic and the crea- tion of an Inter-American Peace Force. Recently, it has advo- cated transforming the OAS into an organization primarily con- cerned with economic and social matters, leaving security and peace-keeping functions to the United Nations. During the summer of 1965 President Frei visited Europe, meeting with officials of France, Italy, Great Britain, and West SECRET Approved For easy 20( 6 /1. C pWR79-0Qq2 Qi05 Q0040002-7 Approved Foelease 2006/04/13 : CIA-RDP79-0092005600040002-7 SECRET Germany. In addition to increas- ing Frei's prestige in Chile, the trip offered an opportunity to acquaint European leaders with some of the problems of Latin America. Frei has no intention of trying to substitute European for American influence, but he is anxious to broaden Chile's diplomatic contacts. Since 1964, Chile has re-es- tablished diplomatic relations with the Soviet Union, Poland, Czechoslovakia, Hungary, Bul- garia, and Rumania. Communist China maintains a four-man trade information office and a New China News Agency office in San- tiago. The establishment of re- lations with Communist nations was primarily an attempt to ex- pand Chile's diplomatic horizon and to enchance the country's in- ternational prestige. Trade and aid agreements between Chile and the USSR probably will be signed early in 1967. There has been some trade with Communist China, in nitrates and iodine, often at prices above world market levels. During his last four years in office President Frei will face problems different from those that confronted him during the early part of his term. With much of the legislation vital to his reform program now enacted, the government will be concerned primarily with enforcing the new laws and following through on the projects. Most of the con- gressional battles still to come will involve the extent of sup- port to be given existing pro- grams rather than new concepts of governmental authority. Frei's foreign policies probabl will remain much the same. SECRET Approved For F else 2006/01/.13iz IArRDP -00927 W 606040002-7 Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 S EC RET SECRET Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7 Approved For Fase 2006/04/13 : CIA-RDP79-00927600040002-7 Secret Secret Approved For Release 2006/04/13 : CIA-RDP79-00927AO05600040002-7