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May 1, 1983
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Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Directorate of Intelligence Chile: Prospects for Pinochet ALA 83-10078 May 1983 Copy 3 01 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Directorate of Secret Chile: Prospects for Pinochet An Intelligence Assessment This assessment was pre ared by,,, with a contribution by ice of African and Latin American Analysis. It was coordinated with the Directorate of Operations and the National Intelligence Council. Questions and comments may be directed to the Chief, South America Division, 25X1 25X1 Secret ALA 83-10078 May 1983 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Secret Chile: Prospects for Pinochet Key Judgments The Pinochet regime will face continuing recession and mounting political Information available pressures, in our view, through the rest of this year. We expect the as of 17 May 1983 President's adversaries-unilaterally and occasionally in unison-to capi- was used in this report. talize on the poor economic outlook to significantly expand the level of antigovernment activity. In particular, we expect opposition labor forces to become more active. We do not believe, however, that the Chilean opposition will be able during 1983 to form the kind of multiparty front necessary to: ? Force the government to revise its policies. ? Offer an alternative political force. ? Effectively threaten Pinochet's hold on power by undermining his support. we believe that Pinochet will 25X1 respond firmly to the growing pressures and will avoid making significant concessions, especially in the way of political liberalization. He will reaffirm his commitment to the present timetable for restoring full civilian rule in the 1990s and to reorienting the economy away from Allende's socialist model. We do not expect that progress in stabilizing the economy or restoring the government's international credibility will be rapid. We assess that Pinochet will continue to threaten severe consequences for any group attempting to disrupt his administration's course. Following the nonviolent "Day of National Protest" on 11 May, for example, the government arrested several hundred participants, ordered the prosecution of protest organizers, and banned news broadcasts by a national independ- ent radio network that reported on protest activities. Pinochet may balance 25X1 his hardline approach with cosmetic gestures calculated to reduce discon- tent, deflect criticism, and keep the opposition off balance. We believe Pinochet's popular support will decline in 1983, but we do not expect this to pose a serious threat to his rule. The memory of the chaotic Allende period still grips most Chileans and is a strong factor in promoting stability. Further, and key to our judgment, is the belief 25X1 that the military will continue to back 25X1 the President. There may be occasional objections to specific policies, particularly from the Air Force and the Navy, but the President's firm control of the Army will enable him to dominate all the services. Moreover, the civilian opposition still lacks a clear strategy for dealing with the military's solid backing for Pinochet. Secret ALA 83-10078 May 1983 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Pinochet believes normalization of relations with the United States is long overdue. We expect Chile's present economic crisis will lead Pinochet to again look to Washington for various types of economic cooperation. But he also wants renewed military ties and economic assistance, which require US certification. If Argentina is certified and Chile is not, US influence in Chile will decline significantly. Chilean nationalism would be aroused and public support for Pinochet would probably increase because various groups-including some of the moderate opposition-would regard such action by Washington as discriminatory, harmful to Chile's national security, and regionally destabilizing. Pinochet's responses could include withdrawal from joint naval exercises, increased efforts to acquire arms, more frequent anti-US stances at international forums, closing off US- Chilean military exchanges, even less sensitivity to human rights than is now the case, and a reduced voice for the moderates among his advisers. Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Secret Key Judgments The Christian Democratic Party's Key Role 1 Conservative Stirrings 4 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 (Islas Malvinas) ladnmistered by U K- Uarnod by Argenhna) Boundary representation is not necessarily authoritative. Guyana -*PARAMARIBO riname *CAYENNE 4' it I %c' Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Secret Chile: Prospects for Pinochet Introduction Domestic and international setbacks have weakened President Pinochet's position in the past year, accord- ing to US Embassy reporting. After a six-year boom (1976-81), Chile's economy suffered a serious reversal induced as much by internal as external factors. In 1982 GDP dropped by 14 percent, unemployment rose above 25 percent, and several large business and financial institutions collapsed. This recession has given the repressed and largely inactive opposition a long-sought issue to exploit, in our view, and has eroded public confidence in the regime. Government failures on the economic front have weakened a primary rationale for authoritarian rule and have made the public-including some proregime ele- ments-receptive to increased political activity A less significant consideration in this changing cli- mate is the regional trend toward democratization, which has contributed to the regime's isolation at home and abroad. The replacement of military gov- ernments in Peru, Ecuador, and Bolivia and the coming transition to civilian rule in Argentina and Brazil could broaden sentiment in Chile to accelerate the return to civilian rule. We do not believe that this trend toward democratization, however, will have much direct influence on Pinochet's thinking. to the one that undermined the Allende government. We believe the formation of such a front over the near term is unlikely. The political parties (officially "in recess"), labor, and student groups will continue this year to explore points of convergence, but old personal animosities and ideological disagreements will take time to overcome. Meanwhile, the regime will place roadblocks in the way of opposition unity. Thus, we expect that opposition elements probably will cooper- ate intermittently and coordinate some activities, but probably will not merge into a unified movement by the end of this year. The Christian Democratic Party's Key Role. The centrist Christian Democratic Party (PDC)-the larg- est and most effective democratic force in Chile-will play a pivotal role in any opposition endeavors, in our view. Not only has the PDC stepped up activity in the past year, but a number of PDC members have become heavily involved in promoting a coalition of political parties, students, and labor. The most active opposition group to date, the National Development Project, was formed by two Christian Democratic ex- parliamentarians and receives strong PDC backing. We believe that the Christian Democratic Party will shy away from a formal alliance with the Communists this year, even though the leftist faction of the PDC This paper assesses the impact of the changing cli- mate in Chile on the various opposition forces and conservative progovernment groups, Pinochet's re- sponse to the growing pressures on his regime, the effects of growing political opposition on the Presi- dent's base of support in the military, and the implica- tions of Pinochet's problems for US-Chilean relations. Resurgent Opposition We assume that Pinochet's power base in the military will endure through this year and that his greatest problems would result from the formation of an opposition front-broad-based, nonpartisan, and drawn from the working and middle classes-similar has promoted a formal pact for some time. party would be subject to severe government repres- sion if it became involved with the Communists. 25X1 25X1 25X1 25X1 25X1 2bAl Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Following growth that averaged nearly 7 percent during 1976-81, GDP nosedived by 14 percent last year, undermining public confidence in Pinochet's market-oriented policies. The slide began in late 1981, when falling export earnings coincided with sharply reduced domestic demand, resultingfrom the government's tight fiscal policies. Only the mining sector grew significantly. Commerce, manufacturing, and construction-sectors of large-scale employ- ment-all contracted by 15 percent or more. The economic slide reduced workers' living standards in sharp contrast to the gains they recorded in the late 1970s. The rate of unemployment doubled to more than 25 percent. The sharpest drops came in manu- facturing and among skilled professionals. Following a series of devaluations that began near midyear, import price increases pushed inflation to over 20 percent in 1982 as compared to only 9 percent the year before. As a result, the level of real wages in December 1982 was down 16 percent from a year earlier. Reduced demand quickly translated into sharply lower import levels. Plunging imports pushed the trade balance into surplus from a $2.5 billion deficit in 1981. Increased interest payments on the external debt, however, partially offset the trade improvement. Even so, the current account deficit declined to $2.4 billion-a 50 percent improvement over the previous year from a small surplus in 1981 to a $1.2 billion deficit last year. Despite the drawing down of reserves to cover the shortfall, gross foreign debt grew by.10 percent to $17.1 billion, adding to a rising debt service burden. About two-thirds of foreign debt is attributable to private-sector borrowing, and $3.3 billion of the total is payable within a year. The financial squeeze sent Chile to the IMF for help, and in January 1983 a package of $880 million was approved. In addition to providing an injection of foreign exchange, the Fund program was expected to bolster the confidence of international bankers who were being asked for $1.4 billion in new loans during 1983 as well as the rescheduling of maturing credits. Government intervention in the troubled banking sector and government spending and monetary expan- sion in excess of Fund targets have brought at least a temporary halt to additional draws from the Fund, placing about $420 million as well as banker confi- dence in jeopardy. Santiago hopes to meet the June IMF performance targets and regain Fund draws and banker coopera- tion. We believe growth for 1983 will be in the range of 2 to 4 percent. Gradually rising copper prices are expected to help push up export earnings, but a current account deficit of more than $1.5 billion is likely to remain. Even assuming net capital flows do not diminish further, reserves will continue to decline this year. A 75 percent drop in net loan inflows combined with capital flight forced the overall balance of payments We and the US Embassy believe that the moderate PDC majority is likely to dominate the party's strate- gy and actions. The moderates probably believe that it is in their best interest to avoid any further polariza- tion and radicalization of Chilean society as well as any new civilian-military confrontation. Pinochet and work out an accelerated plan for a transition to civilian rule. The US Embassy points out that the proposal rests on unproven assumptions, but Zaldivar is a highly respected politician and could represent the views of a large number of Christian Democrats who wish to garner support gradually from various opposition, progovernment, and perhaps some the exiled centrist former head of the PDC, Andres Zaldivar, recently proposed playing down antigovernment activities, so that the military might be encouraged to replace military elements' 25X1 25X1 25X1 25X1 25X1 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Leftist Coalition. We and the US Embassy judge that, although greater cooperation among the left is likely this year, several problems will prevent the formation of a potent leftist front. Ideological and personal conflicts as well as the schism between exiled and domestic leaders probably will continue to be more acute among leftists than among centrists. Disagreements over the doctrine of armed struggle and acceptance of foreign support-Soviet and Cuban-also will continue to impede collaboration. The banned Chilean Communist Party (PCCH}- which numbers between 10,000 and 25,000-will continue to dominate the left, in our view. A well- developed clandestine network has enabled the PCCH to survive repression better than the other leftist parties. The Communists have maintained contacts with a broad spectrum of varties, including the PDC. --]Because of the party's organizational strength and commitment, it has been at the forefront of opposition demonstrations. On 24 March the Com- munist Party orchestrated the largest, most violent, and best organized demonstrations since the military came to power. The longstanding internal-external split in the Com- munist Party could be aggravated by what we expect will be a period of increased opposition activity. For some time, the internal leadership of the party has paid only lipservice to the exiles' persistent calls for armed revolution and has worked to restrain the party's violence-prone youth wing. Continued eco- nomic hardship, however, and the resulting increase in opposition activities will, we believe, encourage exiles and youth to push for a violent campaign, thus potentially polarizing leftist opinion. The numerous non-Communist leftist groups may occasionally coordinate antigovernment activities but are not likely to join in a united front. The Socialist Convergence, a coalition of nonviolent Socialist par- ties, has distanced itself from the Communists. Ac- cording to US Embassy sources, the Convergence is not subversive and it seeks a coalition with the PDC. More damaged by repression than the other parties, the Socialist parties will probably continue to be hampered by lack of funding and organizational problems. Labor and the Parties. We believe the organized political parties will have more success over the coming year than they have had in drawing workers into antigovernment activities. According to the US Embassy, the PDC has made gains with the Demo- cratic Labor Confederation, and the Communists 25X1 have increased their influence in the National Trade Union Coordinating Group, which has been the most active antigovernment labor group. Although labor dissatisfaction will grow and wide- spread labor unrest is a possibility, numerous factors militate against the development of a massive, unified, antigovernment labor offensive. Labor has borne the brunt of military repression, and government restric- 25X1 tions on labor remain tight and effective. In addition, the unsolved murder of a prominent labor leader 25X1 involved in promising efforts to unify the unions undoubtedly has intimidated other organizers, who believe that the government approved of and may have ordered the killing. Moreover, ideological differ- ences will continue to hamper unification efforts; the 25X1 democratic labor confederation, for example, refuses to join forces with the Communist-influenced Nation- al Trade Union Coordinating Group. Another factor is the widespread sentiment against returning to the intense politicization of the Allende years, when labor interests were subordinated to political concerns. Finally, the economic crisis has made many workers afraid of losing their jobs if they take part in political activities. All of these factors contributed to the decision by the copperworkers union to call off plans to stage a national strike on 11 May. The more symbolic "Day of National Protest" that replaced the 25X1 planned strike-and included nonviolent streetcorner demonstrations, horn blowing, pot banging, and school absenteeism-was judged sufficiently success- ful by its organizers to lead them to plan a similar Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 action on 11 June. The government believes the opposition will stage such activities monthly until the 11 September anniversary of Allende's downfall, when large-scale protests are expected. Students. Student groups, in our view, will play an increasingly important role in opposition activities this year. Despite government restrictions on political organizing, the parties recently have had considerable success in rebuilding campus affiliates. Conservative Stirrings. We believe the regime is .concerned also over growing discontent among con- servative groups. Shaken by the economic crisis and disappointed by the government's erratic response, conservative democratic forces have begun to criticize the administration. These groups have emphasized publicly the necessity for economic adjustments to restore growth and bolster their financial positions, and some would like to see the transition to civilian rule accelerated, we believe. In December, several conservative groups demonstrated against some of the regime's economic policies. The subsequent expulsion from Chile of a conservative leader provoked vocifer- ous reaction from all conservative parties and even from some of the,progovernment press. Conservative spokesmen and the leading daily newspaper-also proregime-publicly counseled the government to be- have moderately after the "Day of National Protest" on 11 May. PDC. We believe that through 1983 the conservatives will become more politically active, seek to influence government policies, and take advantage of any politi- cal opening. The conservatives will continue also to discuss cooperation with other parties, principally the regime. Unless the economy collapses, we and the US Embas- sy foresee little conservative involvement in. major antigovernment movements this year. The democratic right best remembers the chaos of the Allende years and is fearful of a resurgent left. In this context, the conservative groups still support the military regime as a necessary stage in the transition to democracy. In the face of mounting leftist-orchestrated activism, they may feel compelled to close ranks behind the Opposition Activities. At least through the end of this year, we expect the opposition as a whole to step up its activities, which to date have included demonstra- tions, rallies, organizing, and publishing manifestos calling for economic reform and democratization. Such manifestos have been issued by a broad spec- trum of groups: parties, labor, and the Church. even the moderate parties may become more active- in order not to lose support to the left. We believe the chance is small that widespread terrorism will accompany a surge in opposition activi- ties. The terrorist Movement of the Revolutionary Left (MIR) may renew isolated bombings and other attacks, but lacks the capability to conduct a major campaign. 25X1 25X1 25X1 25X1 25X1 2 A11 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Pinochet Under Pressure Policy Needs. Hardliners (duros) and moderates (blandos) in the Pinochet government have debated for years,such issues as the pace of restoring civilian rule, restrictions on civil liberties, and responses to opposition activities. Duros believe that Chile is the target of Communist-inspired international subver- sion, in the face of which only tough policies will succeed. Blandos argue that repressive policies will polarize society and weaken the regime by alienating moderate supporters. The President has periodically followed some of the advice of the blandos but has never strayed from the fundamental strategy of firm- ness that he believes has served him well during difficult periods. Although Pinochet is concerned about the economic crisis and about present as well as potential levels of unrest, he is at present showing no signs, privately or publicly, of making major policy changes. determination to proceed with the prescribed transi- tion to civilian rule. He has insisted that accelerating the transition would prevent true democratization by subjecting the system to the machinations of nonrep- resentative, self-aggrandizing parties. Finally, he has promised to deal harshly with any groups that attempt to disrupt his administration. In the economic sphere Pinochet apparently intends to continue to support free market principles, while making adjustments to promote recovery and improve public welfare. In its recent emergency program, the regime included liberal domestic debt refinancing, temporary tariff surcharges against predatory foreign competition, and three bonuses in 1983 for public employees. The measures reflect what we see as the regime's determination to complement free market mechanisms to correct economic deficiencies while recognizing that an upturn in the world economy is necessary to lift Chile from recession. Pinochet's overriding priority, however, is to reestab- lish at home and abroad the credibility of his regime's economic policies. The economic plunge has shaken confidence in Pinochet's free market policies, and 25X1 dismissing four Finance Ministers, including the ar- 25X1 chitect of the recently ended economic miracle, only heightened public apprehension. The mishandling last year of the peso devaluation also revealed some policy 25X1 confusion. After publicly insisting it would maintain a fixed rate of 39 pesos per US dollar, Santiago deval- ued by 18 percent in June. Subsequently, it switched exchange rate policy-adopting floating rates and then exchange rate bands-adding to concern about disarray in economic policymaking and eroding sup- port for Pinochet. The abrupt intervention in the 25X1 management of more than a dozen banks'-which began only days after an agreement with the Interna- tional Monetary Fund was signed in January-added to the climate of uncertainty. We have seen no indications that these problems have led to serious divisions within the government, but neither do we ' Since 1980, the Chilean Government has responded to financial mismanagement by exercising tighter regulation over banking operations rather than placing these institutions under government control Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 expect Pinochet to achieve rapid progress in restoring the economy or his government's international credi- bility. Even though Pinochet opposes a substantial political opening, he is likely to make gestures designed to deflect criticism and keep the opposition off balance. Last year he established a commission to initiate a process for the return of exiles. Intended primarily to deprive the opposition of an issue, the program led to the return of a few hundred politically insignificant figures and ignored all prominent exiles. The process continues, nevertheless, and we believe Pinochet may be more generous on this front. In a speech last March commemorating the second anniversary of the constitution, Pinochet announced another high-level commission-this one to study the implementation of the constitution's specific provisions. Military Attitudes. Public speculation and rumor- mongering about military attitudes have grown along with the economic downturn and opposition activity. Opposition politicians are constantly looking for dis- content among military officers rumor claims that the US Government has been urging the military to replace Pinochet. In February, the international press reported-erroneously-that the Air Force had arrested Pinochet and seized the government. According to the US Embassy, the armed forces are deeply concerned by the economic crisis and growing political pressures, but are not demoralized. Ranking officers have urged the President to take corrective action, For the most part, however, these officers have directed their criticism at the economic team. As a whole, the armed forces still share Pinochet's distrust and dislike of politicians. Most officers are dedicated to preventing a resurgence of the left in Chile. Moreover, the military believes that the moder- ate parties, in particular the Christian Democrats, bear much of the blame for the ascendancy of Allende and the ensuing chaos. Consequently, so far as we know, no factions within the military have established a working relationship with any political parties or groups. We believe that the military remains firmly behind President Pinochet. The Army is the most loyal-and powerful-service, while the Air Force has been the most independent. Despite specific disagreements, the services are convinced that Pinochet is running the country efficiently and honestly and that most prob- lems are externally induced, An astute politician, Pinochet has handpicked every general in the Army for a decade and has retired any suspected of disloyalty or presidential ambition. The prospect for a colonels' movement is minimal, we believe, largely because of the Chilean military's strong tradition of loyalty, service, and strict observance of the chain of command. Implications for the US Chile's present straits probably will complicate its relations with the United States. We believe Chileans are likely to view bilateral issues primarily in the context of their current internal problems. This means that Washington's position on international and bilat- eral financial and commercial questions will be evalu- ated largely in terms of how it affects Chile's efforts to stabilize its economy. Santiago will look to the United States for assistance in this regard. Moreover, although disappointed that full political-military rela- tions have not been reestablished, the Pinochet admin- istration probably expects eventual support from the Reagan administration and will scrutinize US policies for positive signals. The questions of human rights and US certification will become increasingly sensitive bilateral issues. Chilean officials recognize the costs that hardline domestic policies impose on the nation's international standing. Nevertheless, the President reportedly is convinced that political intransigence is necessary and 25X1 25X1 25X1 25X1 25X1 25X1 25X1 75X1 25X1 25X1 25X1 25X1 25X1 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84S00552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Secret that Chile would gain little from making concessions to gain US certification, which would in any event remain subject to scrutiny by the US Congress. Certification for Argentina at the same time it was denied for Chile probably would, in our view, aggra- vate Pinochet's siege mentality and significantly re- duce US influence in Chile. The action would arouse nationalist sentiment among Chileans, antagonize pro-US senior officers, deepen anti-US feelings among junior officers, and even upset some moderate opposition leaders. These groups probably would view it as discriminatory, harmful to Chile's national secu- rity, and regionally destabilizing. Thus, Pinochet could capitalize on this reaction to regain some of his popular support. In reaction to such a US move, we believe Pinochet would: ? Withdraw from the UNITAS joint naval exercise in August, but not necessarily close the door on future participation. ? Close off almost all exchanges and cooperation between the Chilean and US militaries. ? Step up efforts to acquire arms from non-Commu- nist sources. ? Increasingly oppose the United States in interna- tional forums on issues that do not involve vital Chilean interests or conflict with Pinochet's anti- Communist principles. ? More frequently ignore moderate advisers and oth- ers who have counseled him to court Washington in hopes of gaining certification. ? Become less sensitive to domestic and internation- al-especially US-pressure to respect human rights. Pinochet probably would not alter significantly Chile's international economic policies, however, be- From the Chilean perspective, US certification of only Argentina would assure Buenos Aires's military supe- riority and, by enhancing Chile's pariah status, spur what the Chileans regard as the Argentines' aggres- sive tendencies. We believe Pinochet's commitment to peaceful resolution of Chile's disputes with Argentina, Peru, and Bolivia would probably not change because it stems from pragmatic recognition that Chile is militarily vulnerable. Thus, Pinochet is unlikely to engage in military adventures to divert public atten- 25X1 25X1 cause Chile's needs at present are too great. tion from problems at home. Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2 Secret Secret Sanitized Copy Approved for Release 2011/02/18: CIA-RDP84SO0552R000200120004-2