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Approved For Release 2006/12/19: CIA-RDP79-00927A006400020004-8 Secret DIRECTORATE OF INTELLIGENCE WEEKLY SUMMARY special Report Chile: A New Opening to the Left? Secret N2 39 12 April 1968 No. 0015/68A Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927A006400020004-8 SECRET Chile is involved in it serious political and economic situation that could result in the elec- tion of a Communist-supported Popular Front presi- dent in 1970. President Frei, now halfway through the fourth year of his six-year term, is constitutionally in- eligible to succeed himself. In addition to the problems posed by his lame-duck status, he is find- ing himself increasingly isolated politically. His own Christian Democratic Party is wary of some of his economic retrenchment plan:; because it fears it will lose popular support. Most opposition parties would rather defeat Frei than stabilize the economy. The Communists continue to be willing to support selec- tive programs, but only at the price of damaging concessions from the government. Meanwhile, the traditional problems of the Chilean economy persist. One of Frei's priority goals has been to control the inflation that has plagued Chile throughout the 20th century. He was able initially to cut back on the cost-of-living in- crease through a combination of higher taxation, in- creased production, and better monetary management. Last year, however, prices began to get out of hand again and production slowed down. Frei's proposals to deal with these problems were severely weakened in the opposition-controlled Senate. In the absence of a strong Christian Democratic showing in the 1969 congressional elections, Chile probably will stumble along until a new administration--possibly with Com- munist support--takes over in 1970. SECRET Page 1 SPECIAL REPORT 12 Apr 68 Approved For Release 2006/12/19: CIA-RDP79-00927A006400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 SECRET Composition of Chil~ea~n Congress SENATE 147 Seats SECRET * 1 Presently in jail (PDC) Christian Democratic (PS) Socialist (PADENA) National Democratic (PCCh) Communist (PSD) Social Democratic (PR) Radical (PSP) Popular Socialist (PN) National Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 SECRET Political Problems With elections just around the corner--in Chilean terms-- all parties are beginning to maneuver for support. The pres- ent situation could change dras- tically, but at the moment the isolation of President Frei within the Christian Democratic Party (PDC) and of the PDC from other political parties decreases the likelihood of meaningful attempts to solve Chile's serious economic and social problems. The leftist parties expect significant gains in the congres- sional elections in March 1969 and a victory in the presidential election in September 1970, but they may fall victim to internal strains. After ten years of co- operation in the Popular Action Front (FRAP), the Communists and Socialists are in major disagree- ment on political strategy. The Communists (PCCh), considerably less extreme than their Socialist colleagues, are dedicated to gain- Lng power through electoral ac- tion. They want to capitalize on the recent leftist take-over of the Radical Party machinery and on the strength of the leftist wing of the PDC to organize a broad leftist front like the So- cialist-Communist-Radical combina- tion that defeated the PDC in two senatorial by-elections last year and elected pro-Castro Socialist Salvador Allende as president of the Senate. The Socialists, al- ready split by a dispute over intraparty tactics and personali- ties, strongly oppose cooperation with the Radicals, whom they con- sider bourgeois and opportunistic. Tensions Within the Christian Democratic Party The PDC is divided into three groups. One strongly supports Frei and currently is in control of the party leadership. Another is a left-wing group that is willing to SECRET SPECIAL REPORT 12 Apr 68 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved Release 2006/12/19: CIA-RDP79-OQGQ7AO06400020004-8 SEC R ET break with Frei because he has not achieved the changes it wants. On many issues this group is closer to the Communists than to the government. The balance of power is held by a third group that drifts between the other two, wanting more far-reaching change but not willing to break with -Frei. After the inauguration of the administration in 1964, Frei was content to let PDC affairs pretty much run themselves. As a result, the leftist group within the party increased in strength. At the national convention last July, the leftists gained control of the party's national council, and then obtained unanimous sup- port for the "Chonchol Report," which elaborated a theory of non- capitalist economic development. Frei was able to work out compro- mises with this group for a while, but they rebelled at his proposal for the 1968 wage adjustment bill. Frei believed that this legisla- tion was vital to his economic austerity program, which had run into trouble during a general eco- nomic slowdown in 1967. The PDC leaders, however, feared that sup- port for this unpopular legisla- tion would irreparably damage their election prospects in 1969 and 1970. His control was probably weakened, however, by his disregard for party wishes regarding revisions in the wage adjustment bill, and the leftists could regain control of the party at the national conven- tion scheduled for this summer. Intra-PDC tensions will prob- ably be exacerbated when Radomiro Tomic returns to Chile from the United States, where he has been ambassador since 1964. Although not trusted--let alone liked--by the other leftist parties, he en- visions himself as the leader of a broad leftist front that would include the Communists. He has kept close tabs on Chilean po- litical developments and often has tried to exercise his influence from Washington. His presence on the scene will be a potentially disruptive factor that could shat- ter the party's fragile unity. Frei finally forced a show- down with the party leadership last January. By means of strong personal intervention, he was able to get a vote of confidence for most of his legislation and to in- stall sympathetic party leadership. SE CRE, T Page 4 SPECIAL REPORT 12 Apr 68 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927A00006400020004-8 SECRET The Position of the Chilean Communists All this maneuvering leaves the Communists in a 'very strong position. They are being wooed by the Socialists, the Radicals, the left wing of the PDC, and by Tomic, and can pose as a spokes- man for the left. At the same time, however, they can desert their leftist allies to vote with the government, bargaining for major concessions while projecting the image of a responsible party operating within Chilean political institutions. This approach was clearly demonstrated last month during negotiations over Frei's revised wage adjustment bill., when discus- sions were carried on with an independent leftist senator act- ing as intermediary. The Commu- nists finally agreed to support the bill, although they reserved the right to object to specific parts. In turn, Frei agreed to delete a no-strike provision that had been opposed by the labor movement as well as by the PDC national council. present debate among Communist parties as to the best means of attaining power. PCCh Secretary General Luis Corvalan, one of Moscow's strongest backers in Latin America, is a firm advocate of electoral action as opposed to armed revolution. The PCCh there- fore can be expected to use all the resources at its disposal to enhance its electoral position in 1969 and 1970. Economic Problems The resignation of Finance Minister Saez points up Frei's difficulty in implementing an effective stabilization program. Even if the government could im- plement an anti-inflationary pol- icy, the PDC probably would lose so much political support that FRAP and the leftist Radicals would. make large gains in the con- gressional elections next year. Permitting rapid inflation would aggravate economic problems, how- ever, and thus also cut into the government's popular support. Either way, Frei and the PDC are in for trouble. A further benefit to the Communists is the divisive effect that such deals create within Frei's party. The ]?DC leadership was annoyed that Frei was willing to give in to the Communists on an issue on which he had remained adamant within his own party. Al- though the bill had stood no chance of passing in its original form, Finance Minister Raul Saez resigned because he believed the compromise fatally weakened the legislation. The Chilean Communists oc- cupy an important position in the Saez's entrance into the cab- inet in February 1968 was regarded by some people as an attempt at rapprochement with the right, which had been generally ignored during the early part of Frei's presidency. The small converva- tive National Party (PN) now seems determined, however, to exact re- venge for Frei's earlier disdain by refusing cooperation except at an unacceptable price. Saez's resignation will weaken business confidence in the administration, which in turn may hurt investment prospects. SECRET Page 5 SPECIAL REPORT 12 Apr 68 Approved For Release 2006/12/19: CIA-RDP79-00927A006400020004-8 Approved Foelease 2006/12/19: CIA-RDP79-009?,006400020004-8 SECRET I I The Chilean economy has been bouyed recently by continuing high prices for copper. Even so, government revenues have not kept pace with expenditure demands. Inasmuch as any proposal for in- creased taxes is likely to en- counter strong resistance, the expected drop in copper prices toward the end of 1968 will put increasing pressure on the gov- ernment to seek additional exter- nal assistance. The government also faces problems from the organized labor movement, whose leadership is con- trolled by the Communists and So- cialists. The Single Center of Chilean Workers (CUTCh) organized a general strike last November in opposition to the government's original wage adjustment proposal, which was later withdrawn. CUTCh opposed a provision of the revised bill that it claimed infringed the right to strike. Government attempts to impose limitations on wage settlements in private in- dustry probably will foster in- creasing labor agitation during 1968. Outlook For the first time in many years, more than idle discussion is being heard of possible noncon- stitutional action on the part of the military or the government. Both Saez and the acting interior minister referred to possible "noninstitutional" actions if the wage'bill was defeated. Although there has been some speculation that Frei, with backing from the armed forces and the national po- lice, might try to dissolve Con- gress and rule by decree, there is no indication that he is seriously contemplating such action at this time. Similarly, the armed forces show no sign of planning to act on their own initiative. Fear of such developments, however, was a factor in prompt- ing the PCCh to undertake nego- tiations with the government. The Communists are afraid that a gov- ernment move to a hard-line policy would markedly increase the pos- sibility that they would again be declared illegal, as they were from 1948 to 1958. They believe that other leftist parties might welcome such a development be- cause it would permit them to siphon off the Communists' popu- lar support. The generally leftist trend in Chilean politics has alarmed the more conservative neighboring countries--Argentina, Bolivia, and Peru. They are especially con- cerned that Chile might become a staging area for guerrilla opera- tions in other countries. Argen- tina is organizing an interna- tional military exercise with most adjoining countries from which Chile has pointedly been excluded. The Argentine armed forces re- portedly are trying to strengthen contacts with the Chilean mili- tary in hopes of encouraging preparations for a coup in the event of the election of a FRAP- supported president. PDC gains in the congressional elections and a PDC victory in the presidential election would be little more ac- ceptable to many Argentines and Peruvians, who fear the left wing of the PDC at least as much as they fear the Communists- I SECRET Page 6 SPECIAL REPORT 12 Apr 68 Approved For Release 2006/12/19: CIA-RDP79-00927A006400020004-8 Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8 Secret Secret Approved For Release 2006/12/19: CIA-RDP79-00927AO06400020004-8