CHILEAN PROBLEMS AND FREI'S PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00967A000800010015-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 19, 2016
• Document Release Date: August 2, 2006
• Sequence Number: 15
• Publication Date: March 4, 1968
• Content Type: MEMO

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Secret
SPECIAL
MEMORANDUM
BOARD OF
NATIONAL ESTIMATES
Chilean Problems and Frei's Prospects
Secret
4 March 1968
No. 5-68
MORUCIDIF
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INDO mm
r
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title.
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
cciht by an unauthorized person is prohibited by law,
GROUP I
E.XCL.UI-ifit) f1tOM ANto MA'C'K
flOW NG'.HA[llNO ANC)
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4 March 1968
SPECIAL MEMORANDUM NO. 5-68
SUBJECT: Chilean Problems and Frei's Prospects*
President Frei, now in the last half of his term (1964-1970),
is facing an extremely difficult situation. The slump in the
Chilean economy last year has continued, and in some sections
unemployment has increased. The cost of living has risen some
22 percent in the last year, and the administration's anti-
inflationary policies are becoming less effective and increasingly
unpopular. Moreover, the present leftist leadership of the
eclectic Radical Party appears determined to reach an electoral
agreement with the Communist-Socialist coalition (FRAP). This
could result in Frei's Christian Democrats losing to the FRAP in
both the 1969 congressional and 1970 presidential elections,
particularly if the government persists in its present economic
policies.
This memorandum was produced solely by CIA. It was prepared
by the Office of National Estimates and coordinated with the
Office of Current Intelligence, the Office of Economic
Research and the Clandestine Services.
GROUP 1
Excluded from automatic
downgrading and
S-E-C-R-E-T declassification
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1. President Eduardo Frei, now in the last half of his
six-year term (1964-1970), is facing an extremely difficult
situation. The Chilean economy, which had responded satis-
factorily to his anti-inflationary and development programs
during 1965 and 1966, did not do well in 1967 and does not
appear to be improving in 1968.* The annual rate of increase
in the cost of living, which had been reduced from 38 percent
in 1964 to 17 percent in 1966, rose to about 22 percent in 1967.
Real wages have increased more than 40 percent in the last three
years and industrial employment has continued high, but the
unemployment rate in the important construction industry is
at about 17 percent in the Santiago metropolitan area and
higher in some provincial areas. Furthermore, organized labor,
whose leadership contains elements bitterly opposed to Frei, is
opposing the administration's efforts to hold down wage increases
and is being strongly supported by Frei's political opponents --
including members of his own party.
In 1965 and 1966 the annual increases in GNP were 6.1 and 6.8
percent, respectively; in 1967 the increase is estimated at
about three percent.
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2. Nor is the political situation encouraging for Frei. In
a recent important by-election for the Senate, the Radical Party
(PR) candidate received Communist and Socialist support in narrowly
defeating the Christian Democratic (PDC) c+ndida.te in something of
an upset. The PR leadership appears deter-mined to reach an agree-
ment with the Communist-Socialist coalition (FR.AP) to support each
other's candidates in the elections of 1969 and 1970. If such an
agreement is made, the chances will sharply decline that the
Christian Democrats can win control of the Congress, in the elec-
tions of March 1969, or elect the next president, in September
1970. A continued deterioration in the economic situation would,
of course, further enhance the chances of the FRAP coming to power.
3. Frei's political problems stem from a variety of sources.
Elected by a majority vote, something that had not occurred in
Chile for many years, he refused to form a coalition government
by bringing the opposition parties into his cabinet. Although
the congressional elections of 1965 provided him with an unprece-
dented majority in the Chamber of Deputies, his party could not
secure a majority in the Senate.* In his lengthy public career
Only 21 of the Senate's 4+5 seats were being contested, the PDC
won 12, but had only one holdover there.
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as an opposition politician, Frei made many political enemies and
thus there is a highly personal as well as political element in
the bitter opposition he has encountered since becoming President.
This situation has also been exacerbated by his administration's
failure to do its political homework carefully before launching
new initiatives, and by his own inclination to take a rather
disdainful view of the sort of compromises that have always been
part and parcel of Chilean politics.
I+. Nevertheless, Frei has made significant progress in
introducing and carrying through social and economic programs
of the type envisioned under the Alliance for Progress. Every
step of the way he has been opposed by one important group or
another, but he has managed to secure enactment of legislation
to expand Chilean copper production, to reform tax systems and
collections, to carry out an agrarian reform, to legalize the
organization of rural workers, and to improve the lot of the
poorest third or more of the population.
5. Despite this progress, Frei clearly has not achieved
what he promised in his campaign platform. He has not moved
fast enough or far enough to satisfy the more radical elements
in his own party. He has had difficulty in controlling them and
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for several months lost control of the party machinery to them.
Though he regained control earlier this year, he still does not
have a united party behind him; moreover, his control over the
party will probably weaken as he increasingly becomes a lame-duck
president, unable to succeed himself in office, and he could lose
control again. In view of the clear and determined hostility of
the majority in the Senate, there appears to be little chance that
he could secure passage of the additional reform measures his
opponents within the PDC are demanding. Finally, the PDC may split
wide open over the choice of a presidential candidate for 1970.
6. Frei's principal assets are, on the one hand, his still
considerable prestige and popularity, and on the other, the diffi-
culties that the Radicals, Communists, and Socialists may have in
reaching agreement on the candidates, programs, and tactics. Al-
though Frei was not able to transmit his personal popularity to
PDC municipal candidates in 1967, when local issues predominated,
he is still preeminent on the national scene. If he should decide
to make winning the important congressional election his first and
foremost goal, Frei would still be a very formidable campaigner on
behalf of his party's candidates.*
There is the possibility that, if the PDC wins decisive control
of the Congress in 1969, the Chilean Constitution could be
amended to permit Frei to run for the presidency again in 1970.
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7. There seems to be little chance that the PDC could now
make a coalition with, or get appreciable support from, any of
the other political parties. The rightists supported the copper
agreements with the North American companies, but they regard
the rest of Frei's program as undermining their position and
feel that they were defrauded when they helped to elect him in
1964. They are now urging Jorge Alessandri, a popular former
president (1958-1964), to be their candidate again in 1970. The
Communists were willing to work with Frei on some aspects of his
program and his agrarian reform measures were passed with Communist
and Socialist support. Now, however, the Communists appear as
determined as the Socialist and Radicals to block Frei in every
way possible. The opposition parties are likely to propose
economically unsound but politically popular measures which he
will have to veto if he is to maintain his anti-inflationary policies.
8. This is the nub of Frei's problem. He is committed to
anti-inflationary policies, including stiffer taxes and wage
restraints, in a pre-election period. If he eases controls over
inflation and increases government spending, he risks alienating
the sources of the foreign assistance that his administration
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still needs. It is by no means certain that Frei would be able
to achieve PDC victories in 1969 and 1970 even if economic
conditions improved. But if he maintains the austerity-type
program to which he is now committed, this could result in
the Christian Democrats losing to the Communist-Socialist
coalition in both the congressional and presidential elections.
FOR THE BOARD OF NATIONAL ESTIMATES:
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