INTELLIGENCE MEMORANDUM ASSESSMENT OF CHILE'S AGRARIAN REFORM PROGRAM

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CIA-RDP85T00875R001600030069-3
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June 1, 1970
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Uaw Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 e/ fi-/N71111 l PV 0-67 Doel- s ,."X DIRECTORATE OF INTELLIGENCE Intelligence Memorandum Assessment Of Chile's Agrarian Reform Program Genf ?d/er? w0 ER Ir 70-69 June 1970 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 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- ceipt by an unauthorized person is prohibited by law. 1GROUP I E,cluded Isom uolomatie dawngcoding -J dedmciGmNon Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence June 1970 INTELLIGENCE MEMORANDUM Assessment of Chile's Agrarian Reform Program Introduction The agrarian reform program launched by the out- going Christian Democratic administration of Presi- dent Eduardo Frei has caused revolutionary changes in Chile's rural society, as intended. It has fallen far short of its goals, however, and is under attack from both the left and the right. It has stimulated sporadic rural violence that may increase in this election year. Nevertheless, agrarian reform has already proceeded too far to be turned back by whatever administration succeeds Frei. This memo- randum reviews the economic, political, and social conditions in which Frei launched the program and assesses its progress and effects. Bases for Radical Democratic Change The Political. Setting 1. Conditions leading to radical agrarian re- form through legislation began to develop in Chile long before the 1961 Declaration of Punta del Este legitimatized land redistribution as a national goal.. The rural oligarchy had been gradually losing Note: This memorandum was produced solely by CIA. It was prepared by the Office of Economic Research and was coordinated with the Office of Current In- teZZigence and the Office of National Estimates. CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 MEMEEM Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL political influence since the 1920s, and a mild land reform bill was passed as early as 1928. Although the next three decades brought little change in land tenure,, the balance of political power shifted to the rapidly growing middle-class urban groups. By lending legislative support to industrial and urban programs, the rura] oligarchy temporarily preserved the traditional pattern of land ownership? Its bargaining power was not sufficient, however,, to overcome urban opposition to credit, price, and investment policies favoring agricultural producers. In effect, the status quo in the countryside was ,1 maintained only through farmers` support of policies that strengthe...ad urban groups, many of them avowedly opposed to the rural oligarchy. 2. Within the two rightist parties -- the Con- servatives and the Liberals -- the rural elite lost influence to the growing industrial and commercial upper classes. Moreover, the rightist parties' desire to broaden their appeal induced amore flex- .:e.ible and moderate stance on several issues, including agrarian reform. The parties' voting strength never- theless continued to deteriorate, and by the mid 1950s their hold on the countryside had loosened. considerably. In the 1958 presidential election, many peasants voted for the Popular Action Front (FRAP), a leftist coalition dominated by the Commu- nists and Socialists, and almost brought victory for its candidate, Salvador Allende. Although the inde- pendent conservative, Jorge Alessandri, gained the presidency by Congressional support. for his narrow plurality, the 1961 election in which the conserva- tive coalition lost its crucial one-third control in the legislature* probably portrayed political moods more accurately. 3. Us pressures and offers of aid for accel- erated agrarian reform under the newly established Alliance for Progress thus brought a stronger re- sponse in Chile' than elsewhere in Latin America. Political pressures on the rural oligarchy were.in- tensifying further as the centrist parties (the Under the Chilean bicameral system, amendments to a bill can be blocked in many instances,by one third of .the. vote; also, the President's . addit-Zone to a bill through h;s so-called veto power will carry if-they receive one-third support-in both houses. - 2 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 MEEKINEEM Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL Christian Democratic Party (PDC) and the Radicals) joined the FRAP in calling for agrarian reform. Forced into a mood of compromise, agricultural interests supported both the Agrarian Reform Law passed in 1962 and the 1963 constitutional amend- ment required to enforce it. 4. Although attacked by the left and by for- eign observers as too mild, this reform legislation marked a radical departure from once-sacrosanct property rights. The "inviolability" of property ownership was altered by taking "social 4-unction" into account. As a result, abandoned or poorly exploited land became subject to expropriation and redistribution. The constitutional amendment also authorized deferred payments for expropriated prop- erty -- a change that landowners earlier had opposed as bitterly as the state's right to expropriate. 5. Implementing the Alessandri reform laws was slowed by financial and legal constraints as well as by landowners' continued influence in the adminis- tration. Much time was lost while the.newly organ- ized Agrarian Reform Corporation (CORA) completed legally required investigations and coordinated plans with various government agencies. Because compensation for most expropriated properties was based on commercial value and had to be completed in ten years (with a 20% downpayment, 4% interest on the balan;.e, and annual payments adjusted for inflation), land acquisition was costly. Finally, the landowners' right to contest CORA's expropria- tion decisions in the courts resulted in prolonged delays. By September 1964, only some 1,200 fam- ilies had been settled, mainly on property previ- ously owned by the government or voluntarily sold by private owners. 6. Agrarian reform was a contentious issue in. the 1964 presidential campaign waged by the PDC candidate Eduardo Frei and FRAP's candidate Salvador Allende. Although Julio Duran of the Radical Party also was on the ballot, there was no center-right candidate for all practical purposes because Duran's coalition folded long before the election. Promises of radical reform escalated as the two major candi- dates attempted to take advantage of the apparent leftist swing in Chilean politics. Aided by right- ists who had no real alternative. and leftists who feared Communism, Frei won amandate for his "Revolu- tion in Liberty", capturing 56% of the vote. This - 3 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL mandate was strengthened when his PDC swept the 1965 congressional election, gaining an absolute majority in the lower house and a strong plurality in the Senate. The Marxist parties also picked up strength, running second to the PDC. The Radicals, on the other hand, lost half their lower house strength and all but ten Senate seats, while the traditional rightist parties suffered an electoral collapse -- retaining only nine out of the 147 lower house seats and the seven Senate seats not, up for election. Rural Conditions Before Frei 7. Before 1965, Chile's agriculture was under- going moderate evolutionary change. The concentra- tion of land ownership was gradually breaking down, but a rapidly increasing number of families *ere struggling to exist on very small holdings. These small landowners, or minifundistas, plus share- croppers, landless workers, and resident workers comprised about 65% of the rural population of some three million in 1965. A long period of low agri- cultural prices and meager public investment in rural improvements had held down agricultural growth. Between 1940 and 1965, agricultural income per capita increased only about 30% -- approximately one-half the national rate. Rural poverty was re- flected in an infant mortality rate about twice the national average and a literacy rate of 65%-70% compared with 90% nationally. Because of illiteracy, isolation, and transportation difficulties, only an estimated,40% of the adult rural population voted in 1964 compared with 70% nationally. 8. Between 1955 and 1965, the agricultural area increased only about 0.4% annually, compared with a 2.7% average for Latin America. Chile's land use pattern, however, changed appreciably,, While about 70% of the regional increase in agricultural produc- tion resulted from expanded farm area, about 80% of Chile's. agricultural growth came from more intensive land use. The land in orchards and vineyards in- creased by 12%, cropland by 20%, and land in im- proved pasture (mainly on large. farms) by more than 100% (see-Table 1). In only ten years, division of holdings through sale and. inheritance raised the, number of properties smaller than 25 acres from 76,000 to 157,000 and the farm total from 151,000 to 253,000 (see Table 2). - 4 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL 9. Because of substantial migration to urban areas -- an estimated 30,000-35,000 parsons an- ually -- Chile's agricultural population fell from about 30% of the national, total in 1955 to 25% in 1965. The agricultural labor force grew only about 1% annually, or two-fifths of the national rate, and in 1965 totaled about 740,000. Worker produc- tivity increased an average of 1% annually, but most of this rise occurred on large farms economizing on labor because of gradually increasing wages and un- favorable prices. Output per man on extremely small farms stagnated or declined, further widening the income gap between minifundistas and full-time workers on large farms. Most small farmers appar- ently stayed on the land despite their worsening lot, while the workers discharged by the larger farms migrated to the cities. As a result, small farmers numbered 240,000 or one-third of the rural labor force in 1965, compared with only one-fourth in 1955, and the proportion of landless and resident farm workers declined to a similar extent (see. Table 3). 10. During 1955-64, agricultural output in- creased by an average of 2.2% annually. Although output kept up with population growth, it lagged considerably behind demand. Net agricultural im- ports thus swelled from a,$60 million average during 1952-54 to a $115 million average during 1962-64. Frei's Agrarian Reform Program Goals and First Steps 11. The PDC's agrarian reform has been gradual but far from conservative in its basic premises and ultimate goals. With the avowed aim of creating a "revolution in the countryside," Frei attempted to (a) improve the rural poor's lot, (b) fully inte- grate the campesinos (peasants) into national life, and (c) increase agricultural output. The program's keystone is a massive redistribution of agricultural land and income and a corresponding transformation of the agrarian power structure. Unlike the Mex- ican and Bolivian experiences, Chile's "revolution" thus far has been nearly bloodless. In its objec- tives, the Chilean experiment nevertheless is one of the most radical yet attempted by peaceful means in a non-Communist society. - 5 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 lassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL 12. In his election-campaign, President Frei called for. 100,000 new, viable, family-sized farms by the end of his term in 1970 -- an ambitious goal involving about 750,000 people, or one-fourth'of the rural population. He also advocated raising wages of rural workers by unionizing them and raising. small farmers' incomes by promoting coop- eratives and improving credit and n}arketing facil- ities,., In addition', he pledged to narrow the gap between rural and urban poor by sharply expanding social services in the countryside. 13. Realizing that a frontal attack on land- owners' rights could adversely affect agricultural output,, Frei promised immunity from expropriation for efficient producers and higher prices and other incentives for agriculture as a whole. Although large landowners contended that low farm output resulted mainly from years of discriminatory gov- ernment.policies, they generally approved redistrib- uting poorly used land. They emphasized, however, that safeguards were needed for efficient producers. Although Frei and his spokesmen repeatedly reassured them on this point, it was apparent that views dif- fered widely within the PDC and Congress. 14, The government initiated portions of the reform program soon after assuming power in November 1964. Because Chile has had a price control system for decades, the government was able to improve agricultural terms of trade, at least temporarily, by raising price ceilings on agricultural products more than those on non-agricultural items and by limiting competition from under-priced imports. Similarly, increases in minimum agricultural wages and family allowances and in social security, health, education, and other public services involved little or no controversial legislation. The administration also got an early start in organizing the rural poor into labor unions, cooperatives,. and community asso- ciations. 15. The Frei government had to wait until. July 1967, however, for legislative approval of its land expropriation and redistribution program. The bill was not submitted to the Congress until late 1965. Attacked by both the right and the left and re- quiring another constitutional amendment, it was delayed for another 20 months. The agrarian re- form law that finally emerged differed little in - 6 CONFIDENTIAL, Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 _ CIA-RDP85T00875R001600030069_3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL its basic-clauses from the original draft. Rightist forces won only minor victories; leftist forces, while continuing to demand an even more radical bill, privately expressed considerable satisfaction. Land Expropriation 16. During 1965?-69 the Frei government expropri- ated 1,120 farms embracing more than one-fifth of Chile's irrigated land and almost 10% of the total land in farms. Land reform activity has been partic- ularly intensive in the rich agricultural provinces surrounding Santiago (see the map). Before mid-1967 the government acquired considerable land under the 1962 law,.primarily because some landowners were willing to sell rather than take their chances under the new law. During this early period, CORA also assumed control over large state-owned tracts. During the first 12 months under the new law, CORA's expropriation activities were hampered by organiza- tional and financial difficulties. Since niid-1968, however, the pace of expropriation has speeded up considerably, as shown in the. following tabulation: Number of Farms Expropriated Total, 1959-64 N.A. 1965 a/ 85 1966 262 1967 221 1968 220 1969 332 Tota4, 1965-69 1,120 Amount of Total Amount Irrigated Land of Farm Land 45 2,064 93 1,105 141 1,263 128 592 110 1,608 141 2,524 613 7,092 a. Including several large holdings taken over from state entities: 17. Greatly expanded since 1964 and directed.by Rafael Moreno -- a young, left-wing Christian Dem- ocrat -- CORD is by far the most powerful operational agency involved in land reform. It has authority to decide which properties are to be expropriated, the basis for expropriation, the properties' value, the 7 _ CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL Chile: Proportion of Irrigated Land and Total Land in Farms Expropriated by Zone, 1965-69 Irrigated Land 78288 6.70. CIA 40% to 50% Over 50% Less than 3% 0 5% to 10% 10% to 20% 20% to 30% 30% to 40% Agrarian Reform Zones Provinces Zone 1. Tarapac6 and Antofagasta 2. Atacama and Coquimbo 3. Aconcagua and Valparaiso 4. Santiago 5. Colchagua and O'Higgins 6. Curicb, Talca, Maule, and Linares 7. Nuble, Bio-Bio, and Malleco 8. Concepclon and Arauco 9. Cautln, Valdivia, Osorno, and Llanquihue 10. Chilo6 and Aisdn 11. Magallanes 8 _ CONFIDENTIAL Total Land In Farms Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL cash payment, and who can retain part of his prop- erty. A landowner can contest some of CORA's deci- sions in the Agrarian Reform Courts but cannot con- test the decision to expropriate or hold up CORA's acquisition of the property. Under the 1967 law, CORA can take property immediately upon making the required cash payment, even if the owner contests its judgments. An amendment approved late in 1969 by the Congress further speeds up the "quick-take" process. . 18. The agrarian reform law authorizes expro- priating farms that are excessively large, poorly exploited, or abandoned. All holdings exceeding 198 "basic" acres (defined as 198 irrigated acres in the Maipo Valley, near Santiago, or an equally productive area elsewhere) are subject to expro- priation even if efficiently exploited. A property is judged poorly exploited if it fails to meet cer- tain requirements concerning land use, capital im- provements, and other standards or if economic bene- fits to its workers are deemed inadequate. An aban- doned property is defined as one that, while it may be occupied, is not worked. A hotly contested ret- roactive clause authorizes expropriation as one unit of any estate subdivided after November 1964. Farms owned by corporations; farms rented, leased, or otherwise non-owner operated; and land needed for irrigation projects are also subject to expropriation. Finally, the law permits expropriating minifundia and communes judged too small to support their occupants, but CORA thus far has made no attempt to implement this provision. 19. Compensation for expropriated land is based on its tax-assessed value -- generally about one- half the market price. The cash payment, made immediately, varies according to the grounds for expropriation: 1% of the assessed value for aban- doned property, 5% for poorly exploited property, and 10% for efficiently exploited holdings of ex- cessive size. The value of improvements made since November 1964 also is paid in cash. The remaining compensation consists of 25- or 30-year, nontrans- ferable bonds that pay 3% interest and are to be adjusted in value to reflect about 70% of inflation. Economists employed by a landowners' association have estimated that compensation may be as little as 20%-30% of a property's market value. Represent- atives of the radical left, on the other hand, ques- tion the justification for any compensation. 9 CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 ~ Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 UU N F ID N'1'IAL' 20. A landowner suffering expropriation osten- sibly is allowed to retain 198 "basic" acres unless the property has been abandoned, totally leased, or poorly exploited in CORA's judgment. Before exer- cis,ing this."right of reserve," the landowner must receive CORA's approval or, on appeal, a favorable judgment from an Agrarian Reform Court. Modifica- tions in the agrarian reform law in late 1969 have deepened landowners' doubts that the full "right of reserve" will be recognized. 21. Expropriation of abandoned farms or those that clearly are poorly exploited has not generated much controversy. But Frei's continued assurances that efficient producers are not threatened, even if the holdings are large, have been undermined by CORA's actions. Moreover, CORA's willingness to appraise large farms' efficiency objectively has been seriously questioned, in part because it is less costly to expropriate on the basis of poor exploitation than of excessive size. After losing a court decision involving the expropriation of a particular farm on the ground of poor exploitation, CORA announced in February 1968 that excessive size would be the legal basis for all future expropria- tions. Although excessive size has been the formal ground for most subsequent takeovers, CORA has taken the position -- when paying for many holdings -- that they were poorly exploited as well as excessively large. This tactic has allowed CORA to limit both its cash outlays and landowners' rights of reserve. Land Redistribution 22. In an effort to avoid the experience of Mexico, Cuba, and Bolivia -- where agrarian reform initially reduced farm production and, even more, market deliveries -- Chile's law provided for a transitional period of cooperative organization on redistributed land, under.CORA's tutelage. The government hoped that the newly settled campesinos could learn to farm efficiently during this period. The asentamientos (communal settlements) are scheduled to last up to three years but can be extended to five years by presidential decree. During this time, the land is farmed as a unit, and each member is paid wages according to the number of days worked. Net profits, if any, are divided among the members. CORA chooses the campesinos for these settlements, giving preference to -landless workers previously living on the holding, and provides both credit and technical assistance. 10 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL 23. At the end of the cooperative period, land titles are to be issued to individuals, to the co- operative, or a combination of the two. According to the agrarian reform law, most aoentamientoo were to be divided into privately owned, family-sized farms, cooperative titles being issued only if indi- vidual plots were technologically infeasible or if requested by the members. In practice, CORA has shown a strong predisposition toward communal owner- ship. It has stated that it will give priority in issuing titles to aaentamientoo opting for communal ownership and, in fact, has delayed giving titles to three- to four-year-old aoentarnientoo requesting in- dividual titles. As the end of the government's term approaches, the pressure to accept communal owner- ship rather than no ownership at all has intensified. 24. During 1965-69, CORA settled about 19,500 families on 821 aoentamientoo, as shown in the tabu- lation below. By the end of Frei's term in Novem- ber 1970, this figure probably will rise to 25,000 to 28,000 families -- a substantial number, but only about one-fourth of the original goal. Most of the people settled were landless workers and sharecroppers resident on the land when expropriated, and the re- mainder were largely landless workers from the sur- rounding area or Indian families from reservations. Thus far, few if any minifundiotas have received land. Number of Communal Settlements Number of Number of (Asentamientoo) Families Land Titles Established Settled Issued Total, 1959-64 0 1,169 1965 33 2,061 1966 62 2,109 1967 151 4,218 1968 200 5,500 1969 375 5,612 a/ Total, 1965.69 821 19, 500 a/ 1,700 b/ a. Provisional figure. b. Permanent communal rights only. - 11 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 lassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL 25. About 1,700 families received land titles of asort during,1969, all of them on a. communal basis. ,The,, titles do not transfer ownershi p of a particular piece of land (aside from a small housing site) but merely evidence part ownership of the com- munal farm. Moreover, the family may stay on the- land only so long as it remains in good standing with the commune and with CORA, and it cannot inde- pendently sell, lease, or bequeath its communal rights. CORA's refusal to issue individual titles has been a major cause of dissension on many aoenta- mientoo and has become an important political issue in some areas. Although this decision can be con- tested in the Agrarian Reform Courts, CORA's power- ful position in the land reform discourages litiga- tion by settlers. Large landowners and others opposed to the reform, however, have capitalized on the titles issued by asserting that CORA is nothing but a new patron, and one with loss com- passion than the old one. in support of its policy, CORA has pointed to what it claims to be the potentially greater efficiency of communal farms compared with individual plots. 26. Financial and administrative problems are largely responsible for holding down the pace of land reform. Costs have been rising rapidly and have far exceeded original estimates. By 1968, direct expenditures on land reform equaled an esti- mated 6% of the central government's expenditures and about one-fifth of the investment outlays (in- cluding loans and advances, some of which will be repaid). CORA's spending alone has averaged, more than $10,000 per family settled. Administrrttivo and technical costs have been high: CORA has between 2,100 and 2,400 employees, or about three for every five families settled per year. Technical assistance costs and credit extensions to the aoentamientoo con- siderably exceed construction expenditures and cash outlays for land acquisition, as shown in the tabu- lation below. On many of the aoentamientoo, wage advances and crop loans alone have greatly exceeded output value, and large financial losses have occurred. 27. The government also supports the aoentamientoo in other, less direct ways. The Agricultural Market- ing Agency (ECA) gives the aoentamientoo disguised subsidies by purchasing a large part of their output at prices considerably higher than those paid other farmers. Mainly because of these subsidies, ECA - 12 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030069-3 111 11111111111 IDIOM 11~11111 111111111~1111~Iij,~zllj g 1111 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL Million 1968 US $ 1969 1970 1965 1966 1967 1968 Plan Plan Technical assistance and credit 5 12 21 41 N.A. N.A. Construction 2 4 6 7 N.A. N.A. Land acquisition (down- payments only) 1 2 4 7 N.A. N. A. Other 4 5 7 7 N.A. N.A. Total 12 23 38 62 72 109 Less: Repaid credits 1 3 6 11 22 a/ 24 a/ Net expenditures 11 20 32 51 50 85 registered annual losses of about $8 million in 1968-69 compared with surpluses of $12-$15 million in 1964-65. The National Agriculture and Livestock Service (Chile's extension service) was ordered in early 1969 to work largely on the acentamientos to help counteract their rising financial difficulties. The National Housing Corporation has shared in the cost of housing provided by CORA on the acentarnientos. Also, the State Bank has given the asentamientoo additional credit, and other government agencies have provided technical and financial assistance. Inclusion of all these expenditures would consider- ably raise land redistribution costs per family, perhaps to as much as $20,000 -- twice the figure for CORA spending alone. Rural Organisation 28. In addition to land redistribution, the PDC's agrarian reform program has concentrated on organizing the rural lower classes for social, eco- nomic, and political purposes. The Agricultural Livestock Development Institute (INDAP) has been charged with establishing rural labor unions, co- operatives of small farmers, and community asso- ciations. Jacques Chonchol, an agricultural spe- cialist and onetime UN employee detailed to Castro's agrarian reform agency, headed INDAP until he left the PDC in 1969 to form a rival party now in coali- tion with the Communists, Socialists, and leftist Radicals. Under Chonchol, INDAP expanded to more than 3,100 employees, many of whom were involved - 13 - CONFIDLN'IiAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 assified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL exclusively in political activities. Whereas Chonchol aggressively promoted peasant organization as a revolutionary force, his successor Roberto Infante -has'stressed productive efficiency. During this pre-election period, however, INDAP probably, will not materially alter its image as a dispenser of "more ideology than technology." 29. One of INDAP's more successful programs has been unionization of farm workers. Although rural labor federations were illegal until 1967, the PDC and rural parties began promoting them as early as 1960. Of the 150,000-175,000 workers employed on private estates in 1969, almost 100,000 were union members. About half the workers belong to labor federations sponsored by INDAP, and most others belong ti federations formed by other Christian Democratic groups and by the Socialist and Commu- nist parties. Collective bargaining, together with landowners' fears of expropriation for failure to provide adequate workers' benefits, has played an important role in increasing real rural wages since 1964. Although accelerated inflation during 1968-69 reduced gains in minimum wage scales, the real wages of most rural workers clearly have risen under Frei.. 30. INDAP also has been organizing and aiding Chile's numerous small farmers. By the end of 1969, it had helped to establish some 230 coopera- tives with 36,000 members and to organize 130,000 small farmers into associations. These organiza- tions already are benefiting their members somewhat and should be able to improve their living standards further through joint marketing, production, and investment projects. Some farmers, however, are dissatisfied with INDAP's technical assistance. Presidents of small farmer committees in Linares, Curico, and Nuble Provinces have complained, for example, that their members often know more about farming than the young INDAP specialists.* INDAP's financial assistance to Chile's 240,000 small farmers contrasts sharply with CORA's large outlays One leader of a small farmer federation bitterly complained that the INDAP staff in Linares consisted of "80 promotores (aociaZ promoters), two veteri- narians, and one agronomist." ?armors in couth- central Chile tall a joke about a lion that thrived all winter by eating an INDAP official each morn- ing -- none of whom were ever missed. - 14 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 E. Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFIDENTIAL, on the asentamientoe. During 1965-69, INDAP's lending amounted to only $6-$9 million annually. Except for a few showcase projects such as the Marchique Poultry Cooperative in Colchagua, individ- aa~ loans have been very small. Crop loans to 45,000 farmers in 1968 were made mostly in kind and averaged only $100 each. Moreover, some small farmers complai-A! that these loans of fertilizer, seed, and other inputs often were delivered too late to be utilized effec- tively. Some Effects of the Pro rams Production Impact 31. Agrarian reform appears to have hampered agricultural growth, as was to be expected despite Frei's hopes, but it has not brought a sharp decline in output. Its impact cannot be accurately measured because other factors, such as weather, also play an important role. Agricultural output rose by only 7% from 1964 to 1968, an average of 1;% annually com- pared with a 23-,% average during the preceding four years (see Figure 1). In 1969, total agricultural output dropped by 8% and crop production by 16% -- largely because of a severe drought, although agrarian reform disruptions probably had some effect. The gap between output and demand has widened considerably under Frei. Not agricultural imports increased from $125 million in 1964 to about $180 million in 1968 and may have approached $250 million in 1969. 32. All of the increased output in 1965-68 de- rived from the livestock sector; crop output dipped in 1965-66 and merely returned to its 196.1 level in 1967-68. The major cattle-raising areas are in southern Chile and have been little affected by land redistribution until the last year or so. Moreover, livestock producers have benefited from sharply im- proved terms of trade (see Figure 2). In recent years, livestock prices have been at their highest level since the early 1950s, when they had been freed from controls for a brief time. Relative livestock prices jumped 15% in 1965 and subsequently have declined only slightly. The Frei government only temporarily improved crop prices, however, mainly because it felt compelled to tighten food price. controls as the pace of inflation quickened. Rel- ative crop prices were raised by 21% in 1965-66 but by 1968 had fallen back to their low 1964 level. - 15 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONFI1)EN'.i'IAL, Chile: Agricultural Production Indexes* 1950-69 ILLEGIB Chile: Trends in Agricultural Terms of Trade* 1951-69 hi ' ]"*.a 1O4f.AU Aver#UD-U?( ILLEGIB - 1G t;c)NFII)VN I' AI Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 (,'JUN1'.I i>EN.11 AI, Crop prices probably accounted for little if any of the minor improvement in agriculture' u Lermu of trade last year. 33. Despite the Frei adminintrati.on'u oft-avowed aim to incroane agricultural efficiency, the PDC program in primarily a social reform with a high ideological content. Had economic conuicIcrationu been paramount, the Frei government clearly would have adopted loon coetly and more expeditious ways of strengthening production and inveotment incon- tiveu, utilizing land more effectively, and im- proving farm technology. A relatively umai l share of the govcrmmnent'n large exponditureri on agrarian reform has gone into irrigation and other long-term physical improvementu. Moreover, because of the, failure to provide oafeguardu for efficient pro- ducers and to maintain favorable crop prices, the impact on private agricultural investment tan been greater than it needed to be. 'T'hus the full economic coctn of agrarian reform will be felt in the yearn ahead. It remains to be Veen if the administration's inveuttr.ent in human renource ue- velopment will pay off sufficiently to offset there contu and if the communal form of land ownerr:hip it has fostered thus far is even workable within the Chilean context. y liu la I, I-' na i*VTi :ii ' lh i- l~r;.4n t. ;'-fs: r1c 34. The Chrir;tian t rloeratic !~C) ern i(-ii~'ri (iota` ecanful. drive to oreani s e and poll `ici E? the rural poor han stir ulatf_>ctoo while they have received little financial aid. The PDC's political strength among these groups will turn largely on whether they compare their present lot with what it was before 1965 or with that of peasants who have gained far more. 421. The r.ti n i f undia tatr may represent a special ''_ se of b cklash . L-'conomically, they are possibly worse off now than they were in 1964; their pc~ition rel,itive to almost all other rur"-l groups assuredly hats eroded. Their chance.: to expand their property holdings to a viable family size have not improved. In fact, COtti has used the law against parcels ation to block their attempts to purchase land from pri- vate owners. Althoucrh many of these people supple- ment their income ttiroucih outside employment, their wacge incrca.=e.a probably have not equaled those received by full-time unionized workers. A(7rarian P?c?form an .an t;1t'ction I3 ,u(. 4 3. igrarian reform will. be an important issue in this year's Presidential election at l+ ant among rural residents, who ;rake up about one-fourth of the electorate. To one degree or another, the PDC's p).ot;ram has affected nearly everyone in the country- 1F'or th" heavy lcsers and wir.ners, the choice - 20 - (W ONI=II)ENTIAI. Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CJONIUI_)EN'].'I AT, among the candidates probably is a fairly simple one and already has boon made. Others may be swayed by the candidates' positions and personalities and per- haps by campaign promises yet to coma. 44. Already assured of the landowner vote, Jorge Alessandri -- the 73-year-old ex-President who is running as an independent -- is trying to attract the poorer rural classes by promising "reform with tranquility." He probably will say little about the pace of land redistribution, but his support for private ownership of holdings will be well received by many voters. Alessandri is expected to advocate programs of general rural appeal, including increased public investment in infrastructure, higher agricul- tural prices, and improved credit and marketing fa- cilities. Ile may also propose reclamation of largo tracts for distribution to the rural poor. Never- theless, in the countryside as in the cities, Alessandri's broadest appeal rests not on his spe- cific positions but on the popular conviction that he -- as an apolitical and stern father figure -- can bring progress without turmoil. 45. Radomiro 'c'omic, having failed repeatedly to form a grand alliance of leftist forces, is running undor the PDC banner. Left of Frei in political orientation, Tomic advocates a "communitarian" sys- tem -- a concept perhaps vague even to him but clearly stressing a non-capitalist road to develop- mtnt. On agrarian matters, Tomic probably will campaign on the PDC's record and a promise to speed up the "revolution in the countryside." Although his personal preference is for some form of social- ized agriculture, he and the PDC will appeal to many voters as an alternative to the conservatives and the Marxists. 4G. The Marxist coalition (formerly FW1P) has been expanded to include the Communists, Socialists, leftist itadicals, Social Democrats, and Chonchol'a ........ ,.c ...._vnr~ .tt.._t.. .ti.. ?...~tc .t.... 1~VVai V4 V/-t v1r 1. t.V I.V4. .11V t/Vn VU AO A. *Of.: I. 1. UI 1t Popular Unity Movement (MUI') . This coalition, which is again supporting Salvador Allende, will try to improve upon his 40% share of the 1964 vote by capitalizing on the disappointment of those who gained lest; than expected from the PDC'r more grad- ual approach to agrarian reform. The Marxistn have been well established in the countryside far longer than the IPDC and, for many peasants, do not present CON 1 II)I N'I'IAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 CONfIDFN':I:'IA.L a fearful image. In 1970, however, Allende will be trying to strengthen his credentials as true leader of the "revolution in the countryside" without in- creasing the defection to Alessandri of those who find turmoil too high a price to pay for change. Conclusions 47. The Frei administration's agrarian reform has affected revolutionary changes, although it has fallen far short of its goals. During its first five years, the government succeeded in settling almost 20,000 landless rural families, mainly on property o propriatod from private landowners, and by the and of its term in late 1970, it will have accomplished somewhat better than one-fourth of its original goal of settling 100,000 families. It also has awakened the rural masses to their political-economic potential. The economic lot of many rural poor has improved and the campovino has become a participant in national life, but the gap between expectations and gains during six years of Christian Democratic rule is very wide. 48. The thrust of Frei's agrarian reform has been social revolution, for which the government has been willing to absorb an economic cost. This cost probably is exceeding what Frei and his eco- nomic team originally had in mind, however. Frei had intended to preserve private producer and in- vestor incentives by clearly establishing expro- priation guidelines and by adopting more favorable agricultural policies. Landowners feel, however, that the two main agrarian reform agencies, CORA and INDAP, have carried out the program as much in a spirit of vengeance as reform. Despite presi- dential reassurances that efficient producers have nothing to fear from reform, CORA in the last two years increasingly has, been expropriating well- managed farms -- partly to offset its own mounting financial problems. It almost certainly will con- tinue to do so in the months ahead, and landowners can be expected to adopt increasingly forceful methods to block takeovers. 49. The Fr?-Ni administration's policies appear to have slowed an already unsatlsfaetory rate of agricultural growth but have not brought a sharp - 22 CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 ssified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 11 CONFIDENTIAL decline in output. The deep-seated problems affect- ing Chilean agriculture during the past three dec- ades probably have been at least temporarily exac- erbated rather than eased, as had been hoped. At least, in the last year or two, political uncertainty has further strengthened existing disincentives to agricultural investment. Thus the full economic effects of agrarian reform will not be felt for some years. 50. The financial costs of the program have been much higher than anticipated and are the major cause of the relatively slow resettlement pace. CORA's expenditures alone (including loans) have averaged more than $10,000 per family settled, largely be- cause of the large credits and technical assistance provided, and total resettlement costs may be as much as twice this amount. Land acquisition costs amount to only about 10% of COR.A's total expenditures be- cause property valuations are low and compensation is effected mainly through 25- to 30-year bonds. Although it has not been able to settle all the land taken, CORA probably will further speed up expropriation in 1970 for political reasons. 51. No peasant families have actually become independent landowners under the program. The 1967 agrarian reform law provided for a trar:sitional training period of about three years during which the beneficiaries would farm the land as a coopera- tive under CORA's tutelage. Although it originally was thought that most land titles issued at the end of this period would be on an individual basis, thus far the government has refused to issue any but communal titles. 52. Those selected for land "ownership" -- mainly persons living on the land before expropria- tion -- clearly have gained the most under the pro- gram. A much larger group has benefited from in- creased real wages under Frei, mainly because of government-fostered unionization. Small farmers, who constitute about one-third of the rural popu- lation, have gained little, however -- many are relatively worse off now than in 1964. 53. Rural voters in the September 19?0 election will make their choice largely on the basis of how they have fared under the agrarian reform, which has affected nearly everyone in the countryside. - 23 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030069-3_~ Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030069-3 CONFIDENTIAL Unlike the 1964 election, the losers,,in ,the struggle for change will have a conservative alternative tha.s time in ex-President Alessandri. The winners: will not necessarily back the Christian Democratic Party. Some will opt for the more radical change offered by the Marxist coalition; others will 'prefer Ales- sandri's "reform with tranquility" to the social turmoil of the last six years. Agrarian reform will not be a major issue in the cities, but the urban vote will be strongly affected by the Christian Democrats' failure to control inflation -- partly a product of inadequate agricultural output -- and by rural violence that may grow during the campaign period. 54. Regardless of whc wins in September, agrar- ian reform will continue, although its style. and pace will be affected by the new administration's political complexion. The "revolution in the coun- tryside" has gone too far to be turned bac;,c even in the unlikely event that new government leaders wanted to. - 24 - CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 _ CIA-RDP85T00875R001600030069-3 CONFIDENTIAL Chile: Table 1 Use of Arable Land 1955 1965 Annual crops 23.5 28.6 Improved pasture and forage crops 8.8 ' 19.1 Orchards and vineyards 3.2 3.6 Fallow and unimproved pasture 64.5 48.7 100.0 100.0' Chile: Land Distribution,: by Farm Size Percent of Total Arable Land Number of Farms Farm Size (Acres)' 1955 1965 1955 (Estimated) Less than 25 75,627 156,708 2.8 6.0 25-124 41,420 59;336. 10.3 13.0 125-494 20,820 23,959 18.4 16.9 495-2,470 9,842 10,158 31.3 29.2 2,471-12,355 2,554 2,601 24.9 23.2. More than 12,356 696 730 12.3 11.7 Total 150,959 253,492 100.0 100.0 25 ;(NFTT WMTT A T . Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3 I Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030069-3 Tablo. 3 Chile., Rural Labor. x'orco by Social Class and Occupation Parcent: 1955 1965 Upper class 10.3 9.9 Landowners and families on large and medium-size holdings 6.9 0.3 Administrators and technicians 1.4 1.6 Middle.class 27.1. 25.1 Family farm owners and families 21.1 10.6 Skilled workmen, foremen, and guards 6.0 6.5 'Lower class 62.6 64.9 Small landowners and sharecroppers 23.2 32.6 Resident workers 12.4 10.0 Landless farm laborers 27.0 22.3 Total 100.0 100.0 - 26 - :.. CONFIDENTIAL Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030069-3