NATIONAL INTELIGENCE DAILY FRIDAY 27 MARCH 1981 - 1981/03/27

• Document Type: SPECIALCOLLECTION
• Collection: Argentina Declassification Project - The "Dirty War" (1976-83)
• Document Number (FOIA) /ESDN (CREST): 06628464
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 21
• Document Creation Date: April 3, 2019
• Document Release Date: April 12, 2019
• Publication Date: March 27, 1981

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Director of
� "i Central
Intelligence
National Intelligence Daily
� Friday
27 March 1981
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Contents
Special Analysis
Argentina: Viola Takes Charge 12
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SPECIAL ANALYSIS
ARGENTINA: Viola Takes Charge
3.5(c)
When retired Army General Roberto Viola replaces President
Jorge Videia on Sunday, he will face massive economic problems,
conflicting pressures over civilian participation in the political
process, and demands for an honorable settlement of the Beagle
Channel dispute with Chile. Viola's prescriptions for solving
these and other problems are likely to encounter vigorous opposi-
tion as Argentina enters its sixth year of military ruZe.
The politically moderate Viola will share power
with a three-man junta comprising the heads of the mili-
tary services. Although important government decisions
will be made only after consultations with and approval
by the junta, Viola is a strong leader who will seek. to
impose his own personal views on policymaking. He will
have to contend with some influential members of the
military hierarchy who are opposed to his alleged popu-
list leanings and softness in dealing with Chile, as
well as his tacit support of outgoing Economics Minister
Martinez de Hoz, whose policies 11.7.ve left a legacy of
economic uncertainty.
3.5(c)
Economic Situation
The ailing economy, which has registered little
growth in the last five years, will be the new govern-
ment's most urgent concern. Although Martinez de Hoz
has restored Argentina's international financial stand-
ing and maintained full employment, he has not been able
to make Argentine businesses competitive overseas or to
lower the inflat:.on rate to an acceptable level.
3.5(c)
3.5(c)
A wave of ban'iruptcies and financial jitters, more-
over, have undermined business confidence and have led
to a drain on foreign reserves. To reduce inflation,
the peso was allowed to become progressively more over-
valued during the past year in the expectation that
12
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cheaper imports would force Argentine producers to cut
costs and lower prices. Many businesses were unable
to compete, however, and they failed, as did several
financial institutions that had lent too much to found-
ering firms. 3.5(c)
The overvalued peso made Argentine exports over-
priced for foreign buyers; exports, in turn, dropped
while imports jumped. The sizable current account
deficit reduced foreign exchan e serves in 1980 from
$11 billion to $7 billion. 3.5(c)
After Martinez de Hoz finally permitted a 10-
percent devaluation in early February of this year,
Argentines concluded that a more realistic devaluation
would follow, ana they rushed to convert pesos to dol-
lars. The massive outflow since devaluation has further
reduced reserves to a little over $4 billion.
Viola's economic team now must restore confidence
and stimulate growth. It probably will not be much more
successful than Martinez de Hoz, however, in restraining
government spending--the chief cause of inflation.
Additional devaluation to stimulate export produc-
tion and to restrain imports is likely, but it also
would be inflationary. A new round of inflation could
prompt active opposition from organized labor.
Political Liberalization
The new President's toughest political test will be
in developing a framework for bringing civilians--
especially the Peronists--back into the political proc-
ess. The military's timetable for reversion to civilian
rule remains unclear, but it appears unwilling to accept
an elected civilian government before 1987.
A number of senior officers fear that a failure
to resolve Argentina's economic difficulties could
precipitate a premature turnover of power. They
believe that the traditional political parties are
incapable of governing and that the entire civilian
party structure has to be r v --a process that
will take several years. 3.5(c)
--continued
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The military is particularly wary of the Peronists,
who they believe brought the country to the brink of
ruin before being ousted in March 1976. Viola's culti-
vation of old-style party and trade union leaders also
has raised suspicions in some military quarters that he
will provide them a political opening.
Political party activities are still suspended, but
recent open criticism of government policies by the
parties has become harder for the authorities to ignore.
Meanwhile, Viola is placing more civilians in his
cabinet and at all levels of government, and his inclu-
sion of some Peronists and Radical Party members in
lower-level governmenL jobs will add to the unease of
some of his military colleagues.
The Beagle Channel Issue
There also is concern in some military and civilian
3.5(c)
3.5(c)
3.5(c)
circles about
Paul II's
major split
ure to establish
give rise
the Beagle Channel mediation. Pope John
proposal for solving the dispute created a
in Argentina's ruling group because its fail-
clearly Argentine maritime claims could
3.5(c)
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to future disputes.
3.3(b)(1)
I The Argentines seem
determined to draw out the talks, hoping to wear down
both the Vatican and Chile, which accepts the Pope's
proposal.
3.5(c)
Viola
3.3(b)(1)
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Iwill have to fend off its most influential
critics, who
probably would push for a military solution
if the mediation
fails.
3.5(c)
Outlook
Viola's recent unofficial meetings with top US
officials have given him an important boost. The view
in Buenos Aires that he has substantially improved
relations and opened the door to renewed US military
sales to Argentina will afford him considerable short-
term political capital.
--continued
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The long-term success of Viola's administration,
however, will depend largely upon his ability and that
of his advisers to bring Argentina out of its economic
doldrums. Although they probably will continue to adhere
to free market principles, some major changes in policy
will be required. 3.5(c)
The new leadership has not yet agreed on specifics,
but the more extreme measures that may be necessary
will be hard to sell. Argentines are not accustomed
to austere living. 3.5(c)
The onus of failure will fall more directly upon
Viola than it did upon Videla because he will assume
more responsibility for economic decisionmaking. A
major improvement in the economy appears essential
before any real progress can be made in Viola's
cherished program of political liberalization. Until
that time, Viola will have to summon all of his political
skills to mollify his military opponents, who mistrust
and could try to overthrow him, and civilian political
leaders, who believe that military rule has nearly ex-
hausted itself.
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