THE SITUATION AND PROSPECTS CHILE*

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00904A000100050007-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 16, 2016
• Document Release Date: July 5, 2005
• Sequence Number: 7
• Publication Date: November 18, 1954
• Content Type: MF

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D
CENTRAL INTELLIGENCE AGENCY
18 November 1954
MEMORANDUM FOR THE DIRECTOR OF CENTRAL INTELLIGENCE
SUBJEECT: The Situation and Prospects in Chile"
1. The situation in Chile has developed along the lines
projected in NILE-85, lg August 1953, and the political crisis
anticipated in the fourth conclusion of that ostitiate now appears
to be approaching. The probably imminent Congressional rejection
of the state of siege proclaimed by President Ibanez and continued
Congressional denial of legislation desired by the President
to deal with the critical economic situation, will probably
in the course
load to a showdown between the President and Congress
of which the President is likely to dissolve Congress and rule
by decree. Such an attempt would rrovoko some popular resistance
and consequent disorder, but, initially at least, the P:~esidont
would probably receive the support of the armed forces and would
be able to control the situation.
2. In the longer view, Ibanez' assumption of dictatorial
power would probably not relieve substantially the economic
difficulties which underlie Chilean political instability. If,
in a progressively deteriorating economic situation, political
oTmosition and popular hostility become so general and intense
as to lead to industrial paralysis and widespread disorder, the
all, forces y~in withdraw previous Ibanez dictatorship
fall, It was
was brought to an and in 1931.
ed develop-
3. The pertinent conclusions fNIdetailed ndcrelated
ments are reviewed in Tab A. A more
current situation is in Tab B.
FOR THE BOARD OF NATIONAL ESTIMATE
SHEI N KENT
*The findings of this estimate ar~ot concrred coordand the
inated the
relevant branch of DDP. It has
IAC agencies.
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# RET
TAB "A"
1. NIE-85, paragraph 1:
Ibanez' most urgent political and economic problem
is to halt inflation. He may succeed in checking tem-
porarily the inflationary trend, but a lasting solution
of this problem would require a substantial increase in
production of consumer goods, which cannot be achieved,..
without substantial foreign financial aid. In the absence
of foreign aid and of more drastic domestic action, it is
likely that the unsolved problem of inflation will lead
to a political crisis in Chile during Ibanez' term.
Since the appointment of Jorge Prat as Minister of Finance,
in June 1954, the progress of inflation has been checked and the
Chilean peso has actually recuperated slightly in free market
quotations. Congressional acceptance of Prat's financial program
would greatly ameliorate the situation, but is unlikely in the
face of popular opposition to its austerities. Meanwh>7e, there
has been no progress toward the correction of the basic economic
imbalance indicated above, which can be accomplished onlyVtith
substantial foreign financial assistance.
In September 1954 Ibanez' proclaimed a "state of siege"
in most parts of Chile for a period of six months. The immediate
occasion for this act was labor unrest attributable primarily
to distress caused by inflation. Ibanez attributed this situation
to the failure of Congress to grant his request for special powers
to deal with critical economic and political problems, and to
Communist conspiracy. Formal Congressional rejection of the "state
of siege" is probably imminent. Such action, together with con-
tinued Congressional denial of legislation demanded by the President,
will probably lead to a showdown between the President and Congress.
2. NIE-85, paragraph 8:
"In the event of such a deterioration in the internal
situation) it is likely that Ibanez will find it impossible to
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cope with the problems which beset him by constitutional moans
and will resort to arbitrary rule."
Unable to obtain from Congress legislation necessary to carry
out his program and challenged by Congressional rejection of the
"state of siege," Ibanez is likely to dissolve Congress and to
rule by decree.. He has expressed reluctrtinee to take this course$
but has declared that he will take it if forced to do so by con-
tinued Congressional denial of emergency powers. At the some time
he appears to have been preparing justification for such a course,
not only by denunciations of Congressional inaction, but also by
fabricating a document intended to prove that Chile is threatened
by a Kremlin-directed Communist plot.
3. NIE-85, paragraph 9:
"Given the probable support of the armed forces, it is
likely that Ibanez could rule arbitrarily for sor'io time, His
exercise of dictatorial powers would probably not relieve the
economic situation substantially, however, and it is likely that
there would be efforts to overthrow his regime. If, in those
circumstances, political opposition and popular hostility bocamo
so general and intense as to lead to widespread disordo7,, the armed
forces would probably withdraw their support and the regime would
fall."
We consider this still a valid estimate. Ibanez' assumption
of dictatorial powers would almost certainly provoke popular re-
sistance and consequent disorder, but, with the probable support of
the armed forces, at least initially, he should be able to control
the situation. It is unlikely, however, that he could remedy the
economic situation by dictatorial moans, and in the end his regime
would probably be overthrown in the manner described, as was his
previous dictatorship in 1931.
4. NIE-85, paragraph 11:
"In the event of Ibanezt death or removal from office, any
successor government uuould face the same economic problems and would
be subject to the same radical and nationalistic pressures as affect
the present regime."
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POLITICAL
On 20 September President Ibanez declared a state of
siege in most parts of Chile for a six-month period. As
reasons he cited the dilatory treatment by Congress of his
request for special powers to combat Chile's critical polit-
ical and economic problems, threats to the "free play of
democratic life," labor unrest, and Communist activities which
threaten the public order, A state of siege enables the presi-
dent to transfer persons to any place in the country, or confine
them, ad he sees fit.
Congressional action to approve or disapprove the state
of siege has not been taken, but the American embassy in
Santiago reported on 17 November that Congressional refusal
to approve Ibanezt action was a "foregone conclusion."
On 31 July Ibanez had informed Ambassador Beaulac that
if Congress refused his request for special powers ho would
closo it and rule by decree. Similar reports have boon ro-
coived concerning Ibanez' intentions should Congress di.saprrovo
the state of siege. On 3 November, however, Ibanez stated that
he did not wish to close Congress and hoped that he would not
be provoked unduly. It has also been reported that Ibanez con-
siders his role as dictator, in 1927-1931, as a blot on his
career, and that his great desire is to finish his presidential
term legally,
On 17 November Minister of Justice Osvaldo Koch subnitted
his resignation because he felt that he had failed in his effort
to obtain congressional approval for the state of siege declara-
tion, The other cabinet members then submitted their resignations
to express their solidarity with Koch. The only resignations
accepted, however, were those of Minister of Interior General
Abdon Parra, and Minister of Agriculture Dr. Eugenio Suarez. Parra
was replaced by Arturo Olavarria Bravo, who served as Foreign
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*a rabid hater of Communism. As Minister of Interior he is
Minister in Ibanez1 first cabinet, November 1952-April 1953.
Olavarria has been described as probably the worst enemy of
the United States in Chile, with one redeeming feature--he is *
constitutionally next in lino for the presidency, and he commands
the Carabineros, or national police force of some 24,000 men.
ECONOMIC
Chief economic problems, which the present cabinet is
attempting to solve, are severe inflation caused by chronic
budget deficits and a shortage of foreign exchange, particularly
dollars, to pay for essential imports. The Minister of Finance,
Jorge Prat Echaurron, appointed in Juno 1954, is the first of
Ibanez' four appointees to this position to make any progress toward
a solution of these problems, and his retention in the cabinet
following the 17 November cabinet crisis is considered a good
sign. Inflation has boon slowed, and the peso has recuperated
somewhat in its free market quotations. A 10 November "unofficial"
devaluation of the peso is expected to increase Chile's dol?.ar
income. Furthermore, if Congress accepts Pratts reeommert a'j.-_'ons
for modifying the inflationary social security laws and co.:-
hauling the tax structure Chile could achieve a balanced bL_'..get
in 1955.
Because of strikes in the copper mines in the United States
and Central Africa Chile has had no trouble in disposing of its
recent copper production. The American-owned mines are now operat-
ing on a seven day week in an attempt to fill orders on hand.
COSM
In present circumstances Ibanez is capable of controlling
Communist activities in Chile. Currently, Communists have some
35,000 party members, control unions in the coal and nitrate
industries, have important influence in the directorate of the
largest Chilean labor confederation (CUTCH), and have an effective
press and propaganda organization.
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SECRET
A nunYber of Communists and/or Communist sympathizers,
including Baudilio Casanova of the CUTCH directorate, have
boon banished to small villages in the extreme northern or
sourthcrn parts of the country since the state of siege has
been declared. Those actions together with other anti-Communist
moves indicate that Ibanez' administration is aware of the
Communist throat and has a continued determination to contain it.
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