CHILE: PINOCHET UNDER PRESSURE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00317R000100160001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 24
• Document Creation Date: December 22, 2016
• Document Release Date: May 3, 2010
• Sequence Number: 1
• Publication Date: July 1, 1984
• Content Type: REPORT

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f, ~ Directorate of
Chile:
Pinochet Under Pressure
a~e n" 'F~ RA Y
a ice: ! r.~ r
An Intelligence Assessment
ALA 84-10067
July 1984
cy 294
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Directorate of Secret
Intelligence
Chile:
Pinochet Under Pressure
with a contribution by
Office of African and Latin American Analysis. It
was coordinated with the Directorate of Operations.
Comments and queries are welcome and may be
directed to the Chief, South America Division, ALA,
Secret
ALA 84-10067
July 1984
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Chile:
Pinochet Under Pressure I 25X1
Key Judgments Since mid-1982 the Chilean political scene has changed-irreversibly we
Information available believe-in some ways that have worked to President Pinochet's
as of I July 1984 disadvantage:
was used in this report.
? Public attitudes toward the government's free market economic policies
have been soured by a recession and foreign debt problems, and opinion
polls show most Chileans now believe Pinochet should step down before
his term ends in 1989.
? Trade unions and political parties have undergone a revival that has
brought political life back to Chile and resulted in the formation of the
National Workers Command and three major political blocs-the leftist
Popular Democratic Movement, the centrist Democratic Alliance, and
the conservative Group of Eight.
? Radical leftists have become more politically active-holding public
meetings and participating in informal discussions with moderate par-
ties-and the Chilean Communist Party has developed a nationwide
organizational base that is second only to the Christian Democratic
Party.
? The number, sophistication, and boldness of radical leftist terrorist
attacks have escalated dramatically in the past 10 months, prompting the
adoption of new antiterrorist legislation and an increase in rightwing
extremist attacks against political opposition figures.
? Military solidarity with Pinochet has suffered its first strains over
differences in how to handle political dissent and the timetable for
returning Chile to civilian rule.
Since the middle of 1983 the opposition has attempted to foment mass
protest activity to force Pinochet's resignation and the early restoration of
civilian rule. The opposition hopes to make a major push for concessions
before mid-December 1984, when Chile's unique tradition of "summer"
political recess will again undercut their momentum. We believe the next
six months will be important as a watershed that will determine whether
Pinochet can arrest the erosion in his fortunes and finish his term solidly in
control or whether the opposition can establish a base from which to launch
increasingly effective challenges in successive years.
iii Secret
ALA 84-10067
July 1984
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We judge that in the approaching months the government will pursue a
twofold strategy of negotiation and repression. We expect the moderate
political and labor opposition to agree to negotiate but also to stage protests
and a national strike. These actions will be designed primarily to press
Pinochet to set a date for congressional and presidential elections. Pinochet
probably will respond to a national strike by arresting organizers and firing
workers, but we believe he will also offer concessions to some groups of
workers in order to undermine labor solidarity. He will probably stall on
the election issues.
Despite building pressure on Pinochet, the support he receives from the
armed forces will probably be kept intact by economic policy adjustments
and the military's apprehension about increasing terrorism, prosecutions of
military officials for human rights abuses in Argentina, and the future
policies of civilian politicians in Chile. If this support begins to break down,
however, we believe Pinochet will make major concessions on political
policies to the junta and conservative political groups in order to retain his
hold on power. Overall, we judge that he stands about three chances in four
of remaining in office during the next six months.
We judge there is about a 1-in-4 chance that the armed forces will replace
Pinochet with another military figure to safeguard their own institutional
interests. They would be inclined to remove Pinochet if they were faced
with increasing public disorders, a series of effective national strikes,
growing political cohesion among opposition political groups, and contin-
ued economic stagnation.
We see almost no likelihood that leftist elements could come to power in
1984, even though we expect them to increase their terrorist attacks and
exploit any opportunity to promote their interests. Should the radical left
improve its strength and terrorist activities well above current levels,
through some combination of greatly increased Soviet and Cuban support
or internal events, we believe the military and upper and middle classes
would rally strongly behind Pinochet.
We judge threats to US political and economic interests from the two most
probable scenarios-Pinochet remains President or is replaced by a
somewhat less hardline military figure-are minimal. US direct invest-
ments in Chile are small, and Santiago has and continues to behave
responsibly in renegotiating its foreign debt and adhering to IMF perform-
ance guidelines. Only if the influence of the radical left increased
dramatically would US interests begin to be jeopardized. A dramatic rise
in terrorism would pose the greatest security threat to US diplomatic and
business personnel and commercial facilities. These interests would be least
jeopardized if a negotiated settlement outlining a smooth return to civilian
rule before 1989 is reached.
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Key Judgments
Growing Radical Strength
3
Rising Terrorism
3
Changes in Military Perceptions
5
Has Pinochet Changed?
7
Level of Terrorist Activity
8
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Figure 1
South
A t /anti c
O c e a n
Valnaraiisn( ' .Mendoza
( ,Cord b
SANT140*
Chile l BUENOS AIRES
Concepci6n~ I r Argentina
s
FALKLAND ISLANDS
(ISLAS MALVINAS)
(administered by U.K.,
claimed by Argentina)
Boundary representation is
not necessarily authoritative.
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Chile:
Pinochet Under Pressure
to the sense of turmoil.'
Introduction
In late 1982, President Augusto Pinochet witnessed
the first serious manifestations of popular and politi-
cal opposition to his regime since he had come to
power in the military coup of 1973. The opposition
movement drew its initial strength from growing
public resentment over hardships spawned by the
serious economic recession that had begun the previ-
ous year. In 1983 these challenges evolved into a full-
blown protest movement, as long quiescent political
parties and labor unions began reorganizing, formed
opposition coalitions, and staged nationwide days of
protest each month. Radical leftist groups carried out
an increasing number of terrorist actions, contributing
The armed forces, the base of Pinochet's power, grew
concerned that a crisis was developing and encour-
aged the President to accelerate the transition to
civilian rule-scheduled for 1989-to reduce dissent.
Pinochet was able to engage the moderate political
opposition coalition in dialogue and, without making
significant concessions, gain the three-month breath-
ing space associated with the traditional political
recess of the Chilean "summer."
The developments last year, nevertheless, produced a
dramatic change in the political atmosphere through-
out the country compared to the Chile of the last
decade. This year, therefore, could be an important
watershed that will determine whether the pace of
change will continue and increasingly weaken Pino-
chet's hold on power or whether, instead, he can
decisively arrest the erosion in his fortunes and finish
his term in 1989 solidly in control.
A Different Chile
New Attitudes in 1984. We believe the Pinochet
government's premise that political restrictions were
an acceptable price for Chileans to pay for economic
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prosperity has lost credibility over the past year. Press
accounts and polls confirm that public attitudes to-
ward Pinochet's free market economic policies have
soured since the economic downturn began three
years ago. The severe recession, which started in mid-
1981 and lasted into the fourth quarter of 1983,
demolished Chile's financial network and led to high
unemployment rates, two successive years of declining
real wages, and arrests of several prominent business-
men and government economic officials.
Opinion polls indicate that most Chileans' views of the
schedule for returning the country to civilian rule in
1989-outlined in the Constitution they approved in
1980-have also changed. A majority now apparently
favors accelerating the political transition. This is
particularly true since talks between Interior Minister
Jarpa and democratic opposition leaders broke down
in September 1983-leaving people more cynical re-
garding Pinochet's willingness to make a commitment
in principle and within a specific time frame to a
transfer of political power. Pinochet has contributed
to public cynicism, in our view, by reversing many of
the liberalization measures he enacted in 1983-he is
increasingly viewed as a person who gives concessions
only under extreme pressure and recants as soon as
possible.
The Revival of Political Life. Political activity-from
party organizing to coffee shop debate-has returned
to Chile. In 1982, trade unions began organizing in
earnest to protest restrictive labor policies, the murder
of a prominent labor leader, and a government deci-
sion to lower the wage floor for collective bargaining
agreements. In April 1983 five of the largest labor
confederations formed the National Workers Com-
mand (CNT) and called the first national day of
protest. Copper and transport workers led a national
strike in June.
Political parties also took advantage of rising discon-
tent. Five center-left parties formed the first opposi-
tion coalition, the Democratic Alliance (AD), last
August. Extreme leftist groups, after being denied
admission to the Alliance for their refusal to disavow
violence, formed the Popular Democratic Movement
(MDP) in October. Most Socialist factions coalesced
into a loose bloc last fall. Conservatives were slower to
organize, but formed several parties and an umbrella
Table 1
Chilean Labor Blocs
CNT (National Workers Command); opposition
President: Rodolfo Seguel
CTC (Copperworkers Confederation)
Rodolfo Seguel,
Christian Democrat
CNS (National Labor Coordinator)
Manuel Bustos,
Christian Democrat
(associated with ICFTU)
UDT (Union of Democratic Workers)
Hernol Flores,
Social Democrat
(associated with AFL-CIO)
CEPCH (Confederation of Private Employees)
Federico Mujica,
Independent
FUT (United Workers Front)
Humberto Soto
(associated with CLAT)
MSU (United Trade Union Movement); opposition
President: Emilio Torres
FRENAO (National Front of Autonomous Organizations);
progovernment
President: Manuel Contreras
Movimiento Nacional Sindicalista
President: Werner Von Bischoff-sausen
Guillermo Medina-GOC-appointed labor member on the Council
of State
Jose Ruiz di Giorgio-Chilean Oil Workers Union
Juan Jara-taxicab owners/drivers
Adolfo Quinteros-transport owners/drivers
Rafael Cumsille-Retail Business Confederation
Political breakdown of organized labor a
70 percent are opposed to government
20 percent are progovernment
10 percent are independent or nonpolitical
Within the opposition:
60 percent are oriented toward PDC
30 percent are Communist
10 percent are other leftists-Socialist, Radical, Christian
Left, MAPU, and MIR
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organization known as the Group of Eight by March
1984. Although political parties are still legally "re-
cessed", US Embassy report that all
have been recruiting new members, ho ding meetings,
strengthening grassroots organizations, and develop-
ing strategies to press for and take advantage of a
faster transition to civilian rule.
Major labor and political blocs have worked to be-
come more unified both internally and with each
other. For example, representatives of the National
Workers Command officially met for the first time
with their counterparts in the Democratic Alliance
and Popular Democratic Movement to coordinate
strategies before the first national protest of 1984 on
27 March. Also, negotiations between the centrist
Democratic Alliance political coalition and the right-
ist Group of Eight have been under way for several
months, and
drafts of proposed joint transition proposals have been
discussed. Many problems still impede unity-person-
al and ideological conflicts between moderates and
leftists still complicate many discussion sessions,F_
Growing Radical Strength. Another important
change has occurred in the strategies and capabilities
of radical-left political groups. Several groups, espe-
cially the Chilean Communist Party (PCCh), have
strengthened their organizations and increased their
political activities over the past two years.
beginning in the fall of
1982, Socialist and Communist groups began to coop-
erate informally with moderates and human rights
groups to press for the return of exiles, a popular
national cause. These links evolved to the point that in
1983 the moderate Democratic Alliance was able to
persuade leftists to limit their appeals for violence
during several national protest days. The leftists
recognize they have difficulty staging protests on their
own (an attempt to do so without AD or labor support
in October 1983 failed), but
Democratic
Alliance leaders recognize that leftists can easily
sabotage peaceful protests if they are not included in
the planning.
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The Communist-dominated Popular Democratic
Movement held its first national convention in Febru-
ary 1984 in Santiago. MDP spokesman, Manuel
Almeyda, outlined a platform calling for Pinochet's
resignation, prosecution of military leaders, and a 25X1
national strike. Leftists also have been building
"front" groups, such as the Metropolitan Poor Peo-
ples' Coordinator and the Command of Social and
Popular Organizations,
The US Embassy reports that the Com-
though not its membership-is now second only to
that of the Christian Democratic Party, Chile's larg-
est party.
Rising Terrorism. By early 1983, Chile's principal 25X1
terrorist group, the Movement of the Revolutionary
Left or MIR, had been seriously crippled by the 25X1
Other violent leftist groups-the Socialist/Almeyda
faction and "La Chispa"-were hampered by govern-
ment surveillance and exiled leadership.
Despite these difficulties, the MIR, PCCh, and vio- 25X1
lent Socialists continued to carry out sporadic bomb-
ings and attacks on government officials. The were
assisted, by 25X1
new activists smuggled into Chile after training by
Cuba, Communist Bloc countries, and international 25X1
terrorist groups. Beginning with a series of bombings
of subway, railway, and powerlines in March 1983, 25X1
leftist terrorists escalated attacks by the end of the
year to bombings that blacked out the 1,000-mile-long 25X1
Central Valley, assassinations of police, and the mur-
der of the military intendant of Santiago.
during the first four 25X1
months of 1984, there were 222 terrorist bombings
reported compared to 46 over the same period in 25X1
1983. Terrorists also employed more aggressive and
sophisticated techniques-launching group attacks 25X1
against several police stations and bombing an occu-
pied Carabinero (national police) bus.
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Leftist terrorism is prompting increased counterac-
tions by the Carabineros, Center for National Intelli-
gence (CNI) agents, and rightwing extremist groups.
during the first week in April
President Pinochet established a commission made up
of top military and government security chiefs to
direct antiterrorist activities.
strong antiterrorist legislation in May.
Vigilante groups, such as the Chilean Anti-
Communist Association (ACHA), have also begun
combating alleged leftists.
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Changes in Military Perceptions. Another important
change is that for the first time military solidarity
with Pinochet has been strained, and his ability to
demand unquestioning support from the armed forces
has been weakened. We know less about attitudes
within the military than most sectors, because it is a
very insular institution, Pinochet is one of its own, and
officials of the US mission have had limited access
since US arms sales to Chile were embargoed in the
late 1970s. Nevertheless,
__]US military attaches have detected growing
concern during the last year among members of the
junta-the commanders of the Navy, Air Force, and
Carabineros and an Army representative who func-
tion as the legislative authority-over the potential
impact of the transition on their interests. They and
other concerned members of the armed forces have
been influenced by continuing economic difficulties,
reports of corrupt financial practices by Pinochet and
members of his family, his domineering style, and
rising political pressures. So far, the strongest criti-
cism of the regime has come from the Air Force and
Navy, which have historically felt less personal loyalty
to Pinochet than the Army. The Army and the
Carabineros remain the principal bulwarks for the
regime. They support Pinochet's continuation in of-
fice,
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relationship with the armed forces are, in our view,
unprecedented. For example, Air Force commander
Matthei and Navy Admiral Merino have repeatedly
expressed discontent with Pinochet's frequent lack of
consultation with the junta on major policy decisions,
dent proposed publicly and to the junta a new antiter-
rorist law that would give agents of the Center for
National Intelligence the power of arrest, give mili-
tary courts jurisdiction in terrorist cases, and impose
the death penalty for conviction on terrorist charges.
the junta members are disinclined to have their
services take on internal police functions again, fear-
ing it will deplete their resources and lead to a loss of
respect for the military. Matthei and Merino have
expressed opinions that pressures would ease if Pino-
chet established a timetable of specific steps in the
political transition.
Matthei has indicated he prefers accelerating
the entire process by two years, and
Admiral Merino met
junta into political consultations.
with leaders of the conservative Group of Eight bloc
to discuss transition proposals in May. The US Em-
bassy notes that this is the first public venture by the
Signs of strain between Pinochet and the 60,000-man
Army, the keystone in his power base, are less evident.
We believe some strain exists because Army com-
manders fear that their service could become em-
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concerned over the possibility that Pinochet might
allow their authority to be assumed in two or three
years by an elected congress while his position as
President would remain unaffected until 1989. Pino-
chet announced in June that this proposal would not
be considered until constitutional problems are
worked out.
We believe the junta and the armed services are
philosophically committed to the 1980 Constitution,
but are more willing than Pinochet to work out a
peaceful political solution. In our view, this is because
they are more concerned than Pinochet by the protests
and the possibility that the armed forces will have to
participate in increasingly harsher crackdowns to
Criticism of his policies by the junta and by retired
officers who supported the coup seems to bother
Pinochet. He is reported
to have
been so unhappy with open criticism from Matthei
and Merino that he has considered firing them, as he
fired junta member Air Force General Leigh in 1978.
the US Embassy doubt that
and military bases of support.
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We believe that, on balance, Pinochet's support from
the armed forces has held up because of other factors
? The armed forces are skeptical about the motives
and abilities of civilian politicians.
? Senior officers fear the uncertainties surrounding
transition to civilian rule, particularly the question
of their accountability for human rights abuses.
? Many in the military believe Pinochet wants to
prevent a resurgence of the far left, an objective
they support.
Has Pinochet Changed? Pinochet has always shrewd-
ly balanced tactics of concession and repression. US
defense attaches note that he has typically practiced
"brinkmanship"-holding a tough line until confron-
tation is imminent, then pragmatically offering the
minimal concessions needed to relieve the pressure. In
1983, Pinochet felt
compelled by wavering among his military backers to
grant more concessions to the opposition than he
wanted and to check his instinct to crack down. He
agreed to speed the return of exiles, reduce press
censorship, release opposition leaders from jail, initi-
ate a dialogue with the opposition, and lift the state of
siege.
We see no evidence that Pinochet's responses to
pressures to date represent a fundamental change in
his views. His record instead remains one of making
changes only under strong duress and using the first
opportunity to reverse them. Lengthy procedures for
the return of exiles were reinstated at the end of 1983.
In 1984, Pinochet has reimposed prohibitions against
multiunion meetings and requirements for permits 10
days in advance for public meetings, renewed the
state of emergency, imposed curfews, exiled oppo-
nents, and prompted enactment of new and stricter
antiterrorist and libel laws. Thus, his basic convic-
tions-that organized labor and political party activ-
ists could again pave the way for an Allende, that he
alone can save Chile from Communism, and that
serving out his term as President until 1989 is in the
national interest-all appear to us unchanged.
The Critical Variables in 1984
Protest Activity. If, as we believe, Pinochet grants
meaningful concessions only under pressure, the most
critical variable affecting Chile's political course in
1984 will be the level of protest activity. The first 25X1
national day of protest on 27 March followed the
pattern developed last year-Chileans were asked to
keep children home from school, avoid shopping or
conducting business, hold neighborhood or factory
meetings, and bang pots and pans in the evening. The
opposition judged the protest a success because it shut
down transportation and commerce in Santiago,
where 40 percent of Chile's population lives, and
because of the relatively low level of violence. The US
Embassy reported that participation was on a par with
some of last year's larger protests. Organizers were
also pleased that participation in other cities exceeded
previous protests. 25X1
The government, on the other hand, felt that its
hardline measures-prior arrests of Communist lead-
ers, a massive police presence, and curfews-were
successful in controlling violence and reducing partici- 25X1
pation in the protest, and that these measures in
themselves accounted for the commercial shutdown in
Santiago. Carabineros reported, however, that people 25X1
stances last year,
On-the-scene observers reported thousands of 25X1
people standing on major streets "waiting for some-
thing to happen," and some candidly expressing griev-
ances in the presence of Carabineros in riot gear. On 25X1
balance, we believe, the protest gave the opposition
the opportunity to reestablish its momentum after the
"summer" (December 1983 to March 1984) lull in
political activity, and it confirmed that Pinochet is
still on the defensive.
Since March, there have been efforts to initiate
political dialogue, in our view and the US Embassy's,
because both sides realized they were looking down
the road at confrontation and political polarization.
The appeal of Santiago Archbishop Fresno in March
for all parties to come up with timetables and transi-
tion proposals and to begin a dialogue was endorsed
by the CNT and AD, and Interior Minister Jarpa
agreed to meet with church mediators, according to
press reports. We believe both sides recognize that a
lack of rapid progress in these talks could quickly
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opportunities to increase the pressure on the govern-
ment and instead become dependent on Pinochet's
The Catholic Church has played a key role in holding
the Pinochet government to account for human rights
abuses such as disappearances and torture. It also
has provided a haven for intellectuals dismissed from
the universities and has founded a human rights
organization-the Vicariate of Solidarity-that has
served as a model for similar institutions worldwide.
When activist Cardinal Silva retired in June 1983,
the government was relieved that one of its harshest
critics was being replaced by a conservative who it
believed would be more amenable.
While the conservative new Archbishop of Santiago,
Juan Fresno, has stoutly maintained the church's
support of human rights, he has tried to mediate
between opposition and government forces. In two key
instances, he has played a role in bringing the parties
together for talks. In August 1983 he succeeded in
bringing Democratic Alliance leaders together with
Interior Minister Jarpa, thus lowering the level of
tension and violence. Following his call in March for
renewed efforts at dialogue, the National Workers
Command, the Democratic Alliance, and several
smaller conservative parties have held consultations
and developed specific proposals for a political transi-
tion. Fresno has attempted to keep the church impar-
tial to facilitate dialogue, and he has used the moral
authority of the church to condemn intransigence on
both sides and terrorism.
polarize the situation, since there have been previous
disappointments in attempts at dialogue, and because
leftist groups in organized labor are continuing to
push for a national strike.
Leaders of the National Workers Command are now
carefully gauging the views of workers before voting
on a national strike. According to the US Embassy,
they hope for what Copperworkers union chief Seguel
terms "iron solidarity" and the particular backing of
workers in the transport, copper, business, and profes-
sional sectors. This caution has been shared by the
moderate political forces. We note that the risk
opposition leaders run in moving with such care is
that, by failing to seize the initiative, they may miss
missteps to catalyze support for protests.
In our view, the opposition hopes that continuing
protests and a national strike will force Pinochet to
use the armed services for crowd control and repres-
sion. This will encourage the armed services to reas-
sess whether the maintenance of Pinochet in power is
compatible with their institutional integrity. We be-
lieve opposition leaders also seek, through peaceful
protests, to convince the military that the democratic
opposition is a powerful political force, but one that is
responsible, capable of controlling leftists, and the
best chance Chile has to return to civilian rule. F_
Level of Terrorist Activity. Terrorism is rising, and we
ists hope both to demonstrate that the government is
not able to manage the country and to provoke
Pinochet into stronger repression that will alienate
more of the populace. Thus, successful terrorist at-
tacks would enable leftists, in their view, to recruit
more youths and radicals into their ranks.
Most observers acknowledge that increasing terrorism
presents a major problem for the moderate opposition,
because it frightens the middle class and the military,
damages the reputation of the opposition movement as
a responsible force, and buttresses Pinochet's ratio-
nale for hardline policies. Therefore, the Democratic
Alliance and National Workers Command have tried
hard to ensure nonviolence during their activities.
The Effect of Presidential Policies. Another factor
affecting events this year will be the impact of
Pinochet's policies on political developments and the
perceptions of the military. His mix of force and
limited compromises served him well in 1983 by
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nities for substantive changes.
keeping opponents off balance and temporarily reas-
suring the military. According to the US Embassy,
however, the alternating policies have made opposi-
tion leaders more skeptical and wary of dialogue with
Pinochet or Interior Minister Jarpa since they see the
talks as stalling tactics that do not offer real opportu-
repression.
During the next six months, we believe more signifi-
cant government concessions on the transition timeta-
ble will be necessary to reduce dissent, and policies of
repression will have a greater chance of provoking a
backlash. The military tends to judge Pinochet's
policies in terms of their effectiveness, and, thus, is
likely to be satisfied with cosmetic gestures only if
they reduce opposition to the government. Moreover,
as previously noted, they are not pleased by increased
External Inlluences. In our view, the prosecution by
the new civilian government in Argentina of senior
military officers for human rights abuses will affect
military and civilian attitudes in Chile. Chilean Com-
munists have already said publicly that top Chilean
military leaders should be similarly tried. Although
moderate opposition leaders have not taken a clear
stand on the issue,
opponents.
the
specter of trials for human rights abuses has made
Chilean officers fearful of being punished for alleged
tortures and disappearances under the Pinochet ad-
ministration. We believe this has strengthened sup-
port for President Pinochet among some officers who
fear an early return of the government to civilian
Other regional developments could influence events in
Chile to a limited extent:
Continued progress in the transition to civilian rule
in Uruguay and Brazil will encourage the democrat-
ic opposition in Chile.
Belief by Chilean authorities that Argentina or
Bolivia is becoming a haven for Chilean leftists
could lead to increased military solidarity with
Pinochet because of his acknowledged effectiveness
in resisting Communist subversion.
? In the unlikely event that Chile's longstanding
border disputes with Peru and Argentina sparked
conflict, the military and much of the public-would
temporarily rally to Pinochet.
Soviet, East European, Libyan, Cuban, Nicaraguan,
and Latin American and international terrorist
groups' support for leftist activities in Chile has beeil
and will continue to be troublesome.
previous external support
has included training, travel, funding, and technical
support to the Chilean Communist Party and other
leftist groups. Havana and Moscow harbor special
antipathy for Pinochet as the agent of Allende's
downfall. Ha-
vana has provided guerrilla warfare training in Cuba
for hundreds of Chileans and since 1979 has infiltrat-
ed scores of terrorists into the country to strengthen
the pro-Cuban presence in the leftist opposition. Re-
cently, the US Embassy concluded that Havana may
also be backing the Manuel Rodriguez Patriotic
Front, a shadowy group that has claimed responsibil-
ity for numerous recent bombings. Chilean MIR
terrorists are gaining
combat experience and training by participating in
insurgencies in Central America. We judge it unlike-
ly, however, that the Soviets or their surrogates would
significantly increase their current level of support
during the remainder of this year because the poten-
tial for insurrection in Chile is still very low.
they, nevertheless, remain alert to
seize the earliest opportunity to strengthen the radical
left's hand when it appears likely to pay off.
Economic Performance. The economic downturn that
began in 1981 helped launch the protest movement.
We believe the pace and direction of political change
this year, however, are less likely than in the past two
years to be influenced by the performance of the
economy, popular perceptions of economic conditions,
or changes in government economic policies.
Chile currently is undergoing a slow recovery, and,
despite predictions of 2- to 4-percent growth in 1984,
we and the US Embassy foresee no dramatic improve-
ment in the economic status of most Chileans this
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The Chilean private sector is still reeling under a
financial system that is nearly insolvent because of
bad debts arising from the 1982 recession. With poor
prospects of funding new investment domestically,
Santiago is looking to foreign funds to supplement
recovery. Early this year, Finance Minister Carlos
Caceres tried to spark an upturn-necessary to re-
duce unemployment-by rescheduling external debt,
requesting new foreign money under IMF auspices,
enacting a new minerals law to encourage foreign
investment, and changing the tax law to stimulate
savings for domestic investment. These measures,
along with a negligible inflation rate and a drop in
unemployment from 16 percent in December 1983 to
14.7 percent in the first two months of 1984, appeared
promising.
The efforts, however, apparently were not producing
the quick results Pinochet was seeking. The new
minerals law and tax laws probably will not have
much impact until next year, since investors and
savers will take time to study the laws before taking
advantage of them. Caceres also tried to dismantle
the public works program and was hesitant to use
major economic stimulants because he feared in-
creased inflation and upsetting the syndication of the
1984 commercial bank loan package. Despite his
careful balancing, inflation increased a sharp 2.5
percentage points in March after dropping 0.2 point in
already asked the Fund to consider easing the spend-
ing targets from 4.8 percent of GDP to 5.6 percent to
help finance reactivation for the second half of the
year. Economy Minister Collados has promised to
reduce unemployment without jeopardizing IMF tar-
gets by helping construction and agriculture and
providing domestic firms with debt relief.
Nonetheless, we believe more expansionist measures
are likely because of the political pressure to reduce
unemployment.
Though Caceres had planned to disman-
tie the public works program, Escobar has shelved
the step and is planning to double the wages of those
in such programs, according to US Embassy reports.
The new economic team also is promising to resolve
financial-sector insolvency and to provide debt relief
to reduce the drag on economic recovery. According
to press reports, Escobar has indicated he will en-
courage specific lending in each province that ad-
dresses its respective employment needs. The loan
programs for the provinces and debt relief efforts are
likely to be inflationary and threaten IMF compli-
ance.
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February and unemployment rose slightly.
Pinochet decided in
March to install a new economic team because he
became convinced that the slow economic recovery
was fueling political opposition activity and that
Caceres had not pushed hard enough for more expan-
sionary IMF targets.
The new economic team is publicly calling for cau-
tious reflation and continuity with Caceres's econom-
ic recovery program to avoid a confrontation with
international bankers. Finance Minister Luis Escobar
has agreed to an IMF request to continue the pro-
gram negotiated for the first half of the year, but has
If Escobar gains IMF support for his recovery pro-
gram-and we judge the odds are about 50 percent-
Chile is likely to have 4 -percent growth, 13- to 14-
percent unemployment, and 35- to 40 percent annual
inflation by the end of this year. The balance of
payments probably will worsen as increased consum-
er demand spurs imports and the current account
deficit increases from $1.3 billion last year to over
$1.8 billion. Reserves could fall by as much as $1
billion to cover the shortfall.
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year. It is unlikely, therefore, that Pinochet will
benefit very much politically from this limited upturn
in the economy.
Information on public expectations concerning the
economy is mixed: spokesmen for some business sec-
tors acknowledge signs of recovery and applaud recent
changes in the government's economic policies and
ministers, but many ordinary Chileans are pessimis-
tic.
Overall, we judge that Pinochet has reduced his
vulnerability on the economic issue in recent months
by changing some policies and policymakers. Follow-
ing a lengthy power struggle within the Cabinet,
Interior Minister Jarpa was able to convince the
President that Finance Minister Caceres's austerity
program was contributing to political unrest. Pinochet
replaced Caceres with a new economic team that
announced increased spending to reduce unemploy-
ment and boost wages in the government's make-work
programs. These changes are popular but will take
time to have a positive impact.
Outlook for the Second Half of 1984
We judge that in the last half of 1984 the government
will pursue a twofold strategy of negotiation and
repression, and that the opposition will follow a
strategy of negotiating while staging periodic protests
and preparing for a national strike. Pinochet will try
to string out for as long as he can the concessions he
has to offer: a political parties law, creation of voter
registers and an election court, setting a date for
election of a congress, and offering the opportunity for
plebiscites on constitutional changes. He will, thus,
try to buy time, divide his opponents, reduce their
popular backing, and attempt to prevent a strike.
Chile's Looming Foreign Financing Constraint
With one of the lowest savings rates in South Ameri-
ca, Chile needs new money to support recovery with-
out unleashing rapid inflation. Despite Santiago's
past cooperation with the IMF, foreign banks are
reluctant to extend fresh credit because of poor
repayment prospects, signs of continuing political
restiveness, and concern about Chile's future econom-
ic policies. Although by the end of March bankers
had rescheduled over 95 percent of both public and
private external debt for 1983 and 1984, they had yet
to begin disbursement of a new $780 million loan
promised in February.
Chile's new economic team agreed to comply with the
original IMF program through June. Bankers re-
sponded by subscribing the new loan by the first of
June. Chile drew half of the loan on 28 June and
probably will draw the remainder soon.
How-
ever, Chile may fall out of IMF compliance by
September, thus making any additional loan unlike-
ly. Without new money, Chile would be strained to
service interest and import payments, threatening its
trade credit lines. Should Chile's trade credit lines be
cut, Santiago would be unable to sustain imports
required to nourish a revival of domestic economic
activity. Instead, the economy would be forced to
limp along under an external constraint that would
produce low growth and high inflation-and continu-
ing political restiveness.
With regard to the variables, we believe:
? Political terrorism and assassinations by groups on
the left and right will increase this year. To some
extent, this will call into question the government's
ability to maintain order, but on balance the trend
will favor Pinochet by alarming the middle class.
? Pinochet's tactics toward the opposition will lose
effectiveness as the year passes and his motives
become clearer. The military will support his poli-
cies so long as they do not provoke a serious
backlash.
Chile could rectify its balance-of-payments problems
with a devaluation-reducting imports-however, the
government will probably be forced to draw down at
least 25 percent of its $2 billion in foreign reserves to 25X1
support recovery programs. Unless exports rally
strongly-and we believe they will not-expansionist
efforts would produce accelerating inflation. In-
creased domestic spending, financed by rapid mone-
tary expansion, would collide with reduced imports,
leading to spot shortages and disruptions in produc-
tion by the end of the year. The result would be an
aborted recovery, with Pinochet possibly turning to
an economic team that would sponsor greater govern-
ment involvement in the economy.
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? Economic recovery will be too modest to benefit the
regime, but Pinochet will continue to make policy
adjustments that will reduce his vulnerability to
opposition attacks on the issue.
? External factors will have a major bearing only in
extreme, and unlikely, cases, such as extensive
prosecutions of military officers in Argentina for
human rights abuses, a serious threat of hostilities
with Peru or Argentina, or large-scale Soviet or
Cuban aid to the opposition.
In view of these likely developments, therefore, we
believe protests will continue. If they remain fairly
peaceful and do not provide a pretext for a govern-
ment crackdown, a dialogue could continue. If nego-
tations on a timetable for returning Chile to civilian
rule are not well under way in August, however, or if
protests swell above last year's levels, a national strike
is likely before the end of 1984. Neither labor nor
opposition groups believe they could sustain a pro-
longed stoppage, and the strike is likely to be of two or
three days' duration. This is because some workers
remain fearful of losing their jobs in a prolonged
strike, the government can manipulate some labor
leaders, and people in the poorer neighborhoods do not
have the food storage facilities to sustain an indefinite
strike.
A major labor leader has suggested in public state-
ments that the strike would be only one component of
the opposition's strategy of pressure rather than the
culmination of it. Nevertheless, it is a tactic that
seriously concerns Pinochet. He will probably react
harshly to a national strike-preemptive arrests of
strike organizers, mass firings, and aggressive strike
breaking-but he will continue to offer concessions to
some groups of workers to undermine labor solidarity.
Only a very successful strike and continuing protests
consistently larger than those of last year would be
likely to impress the military and impel Pinochet to
grant real concessions on the transition. We believe,
however, that in the end he would rather do so than
risk alienating his support in the armed forces. F_
We judge there is roughly a 3-in-4 chance that
Pinochet will still be in office at the end of the year.
That he will accomplish this by negotiating a formal
compromise plan enabling him to serve out his term
until 1989 is unlikely. Rather, we expect he will
survive either because his strategy will succeed in
recapturing some public support and dividing his
opponents; opposition groups will be unable to exploit
opportunities; or, as a last resort, he will grant
concessions shortening certain phases of the transi-
tion.
US Embassy and defense attache personnel believe
Pinochet's chances of finishing out the year are
slightly better. Their somewhat greater optimism
stems from several factors, which we also recognize
but do not weigh as heavily:
? Despite the advances it has made, the opposition has
still not persuaded the mainstream of Chilean soci-
ety, and especially the military, that it could respon-
sibly and effectively rule Chile.
? Increasing terrorism as well as the challenge of a
national strike will cause the military to rally behind
Pinochet in the short term, even though these
factors could weaken his position over the longer
term.
? Despite increased pressures, the military's fears of
chaos and retribution have disinclined it to turn
power over quickly to civilians.
? The effectiveness of Pinochet's tactics is proved,
although that effectiveness is declining.
We ascribe somewhat less weight to these consider-
ations than the Embassy because, while they have
been constants in recent years, the Chilean political
scene is changing irreversibly, and this introduces
uncertainties. Also, we believe Pinochet's past tenden-
cy to crack down on and rally public support behind
opposition figures could easily recur. This also could,
in turn, affect military thinking about the wisdom of
Pinochet's policies.
Alternative Scenarios
We believe there is about 1 chance in 4 that, as a
result of protests and strikes well above last year's
levels, the junta and top military officers will increas-
ingly see Pinochet as a liability. Their dissatisfaction
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over his domineering style and efforts to cut them out
of decisionmaking will be less a factor than their fear
that the military's institutional integrity is being
threatened by a swelling protest movement. US Em-
bassy sources note that opposition leaders have ac-
knowledged the need in 1984 to exceed the level of
previous protests in terms of numbers of participants,
direct impact on the economy, and demonstration of
moderate control of the movement. Some US Embas-
sy officers suggest that the level of disorders before
the 1973 coup would be an appropriate standard
against which to measure potential unrest. That is, a
situation approaching the rolling strikes and near
chaos of that period would be at least necessary before
the military would seriously consider ousting Pino-
chet.
Under these circumstances, the high command would
quietly urge Pinochet to adopt a clear timetable for
accelerating the transition. If he refused, or agreed
but did not carry through, armed forces leaders would
carefully work to build a consensus favoring his
removal. The deeply rooted hierarchical traditions
and rigid discipline within the military make it unlike-
ly that the armed forces would splinter over the issue
or that major elements would move without a consen-
sus. He would probably recognize the futility of
resistance, since the armed forces would act only with
near unanimity, and accept some graceful premise to
step down. The high command would probably ap-
point an interim military president and junta to rule
and negotiate a plan for turning the government over
to civilians within two years.
We see a negligible chance that radical leftists could
come to power this year. They have neither the
political nor armed force to accomplish this in the face
of solid determination on the part of the military and
the general population to prevent it.
Indicators That Would Alter Outlook
Indicators that our most likely scenario is not on track
include:
? A mass resignation of the President's cabinet or
shakeup in the military.
? The complete domination of the opposition move-
ment by the radical left.
? A refusal by the carabineros or the armed forces to
go into the streets to control demonstrations.
? A serious rupture within the labor or political
coalitions caused by ideological conflicts, personal
jealousies, or disagreements over strategy.
? Protests that become very violent and result in
numerous (more than 50) deaths.
? Argentine Government prosecution of military offi-
cers at every level for human rights abuses.
Implications for the United States
US economic interests in Chile are concentrated in
banking and mining, but investment has been relative-
ly low because of the recession, political instability,
and doubts that the very favorable foreign investment
law will survive beyond Pinochet. US banks hold
about 50 percent of Chile's $11 billion private-sector
debt. Banking interests have conducted debt renegoti-
ations fairly easily with Chile and, given Santiago's
disinclination to participate in a debtors' cartel, will
probably be able to do so in the future. However,
should bankers cut off new lending, foreign exchange
needs from Chile's reactivation efforts could prompt
an interest payment moratorium by fall. The United
States is not vitally dependent on Chile as a source for
copper-Chile's major export.
We and the US Embassy judge that no vital US
political or security interests will be in peril through
the end of 1984 if events unfold as we expect. Chile's
location makes it important in any long-term US
strategy for Pacific Basin security. Its strategic im-
portance would grow if the Panama Canal were closed
because the Straits of Magellan would become the
only Atlantic-Pacific transit. Based on our view of
Chilean domestic developments this year, access to
the Straits or Chilean participation in Pacific security
arrangements will not be issues of concern. We
believe US political interests would begin to be jeop-
ardized only if the extreme left were able dramatical-
ly to increase its numerical and military strength and
political influence-conditions that we judge require
extensive preparations and are low probabilities with-
in the next six months. US interests would face the
greatest threat from a dramatic rise in terrorism and
would be least jeopardized by a negotiated settlement
hastening the return to civilian rule.
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Table 2
Principal Plans for a Transition to Civilian Rule
Accept Validity of Implementation of Establishment of Presidential Return to Full
1980 Constitution Political Laws a Congress Term Democracy
Constitution of Yes Direct military rule until 1990
1980 1989; military-dominat-
ed National Security
Council; no definite
timetable or mechanism
Popular Demo- No Democratic national ac- 1984
cratic Movement cord; go back to 1925
February 1984 a constitution until new
Manuel Almey- one is adopted
da's statement
Democratic Alli- No Universal suffrage in 1984
ance August 1984; Constituent As-
1983 Manifesto sembly called to write
new constitution; provi-
sional government for 18
months
April 1984 AD Subject to vote August 1983 Democrat- 1985
President Val- is Alliance plan plus
des's statement agreement within 45
days among all demo-
cratic sectors on plan to
return Chile to democra-
cy in 1985, on constitu-
tional statute, and on
procedure for establish-
ing political laws
National Work- No National Commission 1985
ers Command for Reconciliation (rep-
March 1984 resentatives of political,
CNT President's social and economic sec-
statement tors; armed forces;
church; and Supreme
Court) draws up plan for
returning Chile to de-
mocracy
Group of Eight Yes Enact law on political 1986
April 1984 public parties' future electoral
statement system in 1984; hold
plebiscite in 1985 to re-
form current Constitu-
tion
Pinochet until 1989; 1990 or 1997
junta selects candi-
date in 1989 subject
to plebiscite approv-
al; if rejected, open
presidential elections
in 1990
Pinochet's immedi- 1984
ate resignation
Pinochet's immedi- 1985
ate resignation
Pinochet's immedi- 1985
ate resignation
New president in 1985
1985
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Table 2 (continued)
Principal Plans for a Transition to Civilian Rule
Accept Validity of Implementation of
1980 Constitution Political Laws
Pinochet 1973-84 Yes
public statements
(1) Plan for appointive
bodies or indirect elec-
tions based on local and
regional development
councils (2) Civilian-mil-
itary movement to sup-
port government (3) Po-
litical parties' law in
1984; electoral system,
tribunal, and register
laws, and congressional
organization laws in
1985
Interior Minister Yes Publish political parties
Jarpa 1983-84 law by midyear; enact
public state- laws governing general
ments, elections, electoral regis-
tration, election tribu-
nals, congressional orga-
nization, then hold
plebiscite, electoral cam-
paign, and congressional
elections.
Air Force junta Yes
member Matthei
March 1984 pub-
lic statements,
Publish political parties
law by end of 1984; elec-
toral registers and board
by end of 1985; plebi-
scite in 1986 to amend
constitution
Establishment of Presidential Return to Full
a Congress Term Democracy
1990/1987 a pro- Pinochet until 1989 1989
posal to amend
Constitution to
enable Pinochet
to "consult" the
people through
plebiscites on im-
portant political
issues; a one item
of consultation
may be to move
elections to 1987
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