PROBABLE DEVELOPMENTS IN CHILE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A002800010001-1
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: September 11, 2012
• Sequence Number: 1
• Publication Date: August 21, 1953
• Content Type: NIE

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COPY NO.
.43EtigliiRITY INFORMATION
COPY
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NATIONAL INTELLIGENCE ESTIMATE
1403 OBOM
PROBABLE DEVELOPMENTS IN CHILE
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Approved 18 August 1953
Published 24 August 1953
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The Intelligence Advisory Committee concurred in this
estimate on 18 August 1953. The FBI abstained, the
subject being outside of its jurisdiction.
The following member organizations of the Intelligence
Advisory Committee participated with the Central Intel-
ligence Agency in the preparation of this estimate: The
intelligence organizations of the Departments of State,
the Army, the Navy, the Air Force, and the Joint Staff.
CENTRAL .INTELLIGENCE AGENCY
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PROBABLE DEVELOPMENTS IN CHILE
THE PROBLEM
To estimate the current situation and probable developments in Chile, with
particular reference to the stability of the Ibanez government and the probable
development of its foreign policy.
CONCLUSIONS
1. The present situation and trend in
Chile are adverse to political moderation
and stability. The gravity of Chile's eco-
nomic situation and a widespread sense
of political frustration have increased
demands for radical and nationalistic
solutions.
2. President Ibanez was elected on the
strength of his demagogic campaign
promises and his personal reputation for
vigorous action. He is hindered by lack
of an established political organization
and lack of an effective majority in Cong-
ress. On the other hand his political op-
position, ranging from conservative land-
holders and big industrialists through
the middle-class supporters of the pre-
ceding administration to labor organiza-
tions and the Communists, is divided and
ineffectual.
3. In present circumstances Ibanez is
capable of controlling Communist activi-
tives in Chile and will probably do so.
However, a severe deterioration of the
economic situation would greatly en-
hance Communist capabilities to foment
labor disturbances and civil disorder.
Should the Communists gain such influ-
ence as to threaten the government and
Ibanez proved unwilling to take suffi-
ciently vigorous action to control them,
the armed forces would probably assume
police powers, if not actually take over
the government.
4. Ibanez' most urgent political and eco-
nomic problem is to halt a severe infla-
tion. He may succeed in checking tem-
porarily the inflationary trend, but a
lasting solution of this problem would
require a substantial increase in produc-
tion of consumer goods, which cannot be
achieved during Ibanez' term in office
without substantial foreign financial aid.
In the absence of adequate foreign aid
and of more drastic domestic action, it
is likely that the unsolved problem of in-
flation will lead to a political crisis in
Chile during Ibanez' term.
5. Chile will almost certainly support (or
at least not oppose) the United States in
the UN on major issues arising from the
East-West conflict. At the same time
Chile will increasingly seek to demon-
strate independence of the United States
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and, in economic matters, to act in con-
cert with other Latin American countries
regardless of the position of the United
States.
6. Economic cooperation between Chile
and Argentina may increase, but in the
development of such cooperation Chile
will exercise care to avoid economic and
political domination by Argentina.
7. As long as Ibanez has any hope of US
financial aid he is likely to take care to
avoid antagonizing the United States,
but he may seek to extort such aid by
threatening cooperation with Argentina,
with the USSR, or with the Arab-Asian
bloc in the UN. If he is seriously dis-
appointed in his expectation of US aid
and faces a severe deterioration in the
economic and political situation in Chile,
he will probably attempt to regain popu-
lar support by a return to Yankee-baiting.
8. In the event of such a deterioration in
the internal situation it is likely that
Ibanez will find it impossible to cope with
the problems which beset him by con-
stitutional means and resort to arbitrary
rule.
9. Given the probable support of the
armed forces, it is likely that Ibanez could
rule arbitrarily for some time. His exer-
cise of dictatorial powers would probably
not relieve the economic situation sub-
stantially, however, and it is likely that
there would be efforts to overthrow his
regime. If, in these circumstances, po-
litical opposition and popular hostility
became so general and intense as to lead
to widespread disorder, the armed forces
would probably withdraw their support
and the regime would fall.
10. Any estimate of future developments
in Chile must be qualified by reference to
Ibanez' advanced age and reported ill-
health. He may become physically or
mentally incapable of acting vigorously
on either a constitutional or a dictatorial
basis.
11. In the event of Ibanez' death or re-
moval from office, any successor govern-
ment would face the same economic prob-
lems and would be subject to the same
radical and nationalistic pressures as
affect the present regime.
DISCUSSION
INTRODUCTION
12. Chile normally supplies the United States
with about half of its copper imports, or about
20 percent of US copper consumption. More-
over, Chile's standing in the Latin American
community is such that the character of its
political relations with the United States (or
with Argentina) is a matter of general sig-
nificance.
13. The world-wide depression in the early
1930's made Chile acutely conscious of its
excessive dependence on the proceeds from
copper and nitrates. Succeeding adminis-
trations attempted to promote rapid indus-
trialization. They also sought a less unequal
distribution of income. However, the man-
ner in which these programs have been car-
ried out has led to a severe inflation. Mean-
while, as a result of the development of in-
dustries in urban areas, the preponderance of
political power has shifted from the land-
owners to new urban interests. These new
political groups have been unable to unite on
a program for solving Chile's problems and
are becoming more inclined to advocate radi-
cal and nationalistic solutions as these prob-
lems become increasingly severe.
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POLITICAL SITUATION
14. The present economic trend in Chile is
adverse to political moderation and govern-
mental stability. This trend is more funda-
mental than the character of any particular
administration as a determinant of political
developments.
15. The dominant personality in the present
political situation is that of seventy-five year
old Carlos Ibanez del Campo, who succeeded
to the Presidency in November 1952. In the
course of a stormy political career Ibanez has
proved himself to be an opportunist addicted
to strong personal rule. A professional Army
officer, he achieved political prominence in
1925 as leader of a coup by younger officers
which overthrew a military junta and re-
stored a reformist civilian regime. In this
way he became Minister of War and, two
years later, President. His regime was based
on military force, but nevertheless collapsed
in 1931 under the impact of the depression.
After a period of exile in Argentina, Ibanez
reappeared in 1937 as leader of the Chilean
Nazis, whose disorders led to their suppres-
sion. In 1942 he was the unsuccessful presi-
dential candidate of a conservative coalition,
and subsequently on several occasions he was
suspected of plotting to overthrow the duly
elected government. In 1949 he was elected
to the Senate, from which position he ran for
the Presidency in 1952.
16. In the presidential election of 1952 the
mood of the Chilean electorate was one of
intense dissatisfaction with the administra-
tion of Gabriel Gonzalez Videla. He had been
elected in 1946 as the leader of a leftist coali-
tion which promised the laboring classes a
larger role in the national life and a greater
share of the national income. Gonzalez
Videla estimated that, with US financial
assistance, his industrial expansion program
could be accomplished before inflation be-
came unmanageable. In order to make Chile
eligible for US assistance, among other con-
siderations, he expelled the Communists from
the three cabinet posts which they had been
awarded and officially outlawed the Commu-
nist Party under the Defense of Democracy
Law, which he sponsored for this purpose.
This law alienated organized labor, which
complained that the government used it to
circumscribe legitimate trade union activi-
ties. Moreover there was general reaction
against the runaway inflation. Ultranation-
alists succeeded in intensifying anti-US feel-
ing by charging that Gonzalez Videla had
surrendered the national sovereignty to US
interests.
17. Ibanez successfully exploited this rising
tide of discontent. He avoided identification
with any established political party and ran
on his personal reputation for forceful action.
To the workers he promised economic and
social improvement and repeal of the Defense
of Democracy Law. To ultranationalists he
promised to vindicate the national sover-
eignty, and curried favor with them by
severely criticizing the military assistance
agreement with the US. To all segments of
the population he promised elimination of
corruption and waste in government, a "more
balanced" economic development policy, and
a lower cost of living. Ibanez was elected
President with a popular plurality, though
not a majority.
18. Ibanez' most reliable political support
comes from the middle sector of society,
which embraces small industrial and agricul-
tural proprietors, professional men, govern-
ment officials, and white-collar employees.
Widely divergent views on both political and
economic policies are held within this group-
ing. The Ibanez Administration's most inti-
mate relations appear to be with those ele-
ments which admire the authoritarian
regimes of Peron and Franco and which favor
a corporate form of government (like that of
Salazar in Portugal) , State control of labor,
and emphasis on agricultural development.
However, the only strong ties uniting Ibanez'
middle-class supporters are their distrust of
the more conservative political parties, their
anti-US nationalism, and their belief that
Ibanez is the only man who can overcome
Chile's economic ills.
19. Most of the middle-class elements which
supported the preceding Radical Administra-
tion oppose Ibanez. Most intellectual and
student groups (traditionally an important
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factor in Chilean politics) oppose him, pri-
marily because of his authoritarian associa-
tions. The Radical Party, since its fall from
power, has attempted to regain some of its
former political influence by advocating pro-
labor programs and generally outbidding
Ibanez for mass support.
20. Organized labor, which constitutes rough-
ly 20 percent of the total labor force, has been
a political force in Chile for the past fifteen
years. Its support was an important factor
in Ibanez' election, although his mass vote
came primarily from unorganized workers.
In the first few weeks of his regime Ibanez
adopted a friendly policy toward labor, inter-
vening in strikes to award benefits to workers
and expressing a direct personal interest in
the problems of individual workers. How-
ever, he soon began to criticize organized
labor by claiming that it placed its own in-
terests above those of the national welfare.
A target of Ibanez' criticisms has been the
new national labor confederation, CUTCH,'
which was organized in February 1953 to pro-
vide labor a unified leadership free of govern-
ment control. Virtually all labor organiza-
tions in Chile are affiliated with CUTCH.
Despite active Communist collaboration in the
unity movement and Communist influence
in constituent unions, CUTCH has so far
avoided Communist domination. At present
CUTCH is evincing opposition to Ibanez, in
part because some of his followers have cre-
ated a rival labor organization. Still in the
embryonic stage, this new pro-Ibanez labor
group as yet poses no serious threat to
CUTCH.
21. Conservative elements in Chilean society
have on the whole been opposed to Ibanez.
These elements are represented primarily by
the large landholders and the business inter-
ests, which comprise the most cohesive social,
economic, and political groups in Chile.
Their opposition to Ibanez is based primarily
on their dislike of social welfare schemes and
increased government controls, and their fear
that Ibanez may again resort to personal dic-
tatorship. The large industrialists resent
Central Unica de Trabaj adores de Chile.
the reduction in emphasis on industrial ex-
pansion. Although some large landholders
approve Ibanez' emphasis on agriculture, they
fear that the Administration may intervene
in marketing processes and may press legis-
lation for minimum agricultural wages.
22. During recent years there has been an
increasing fragmentation of political parties.
Thirty-six parties participated in the March
1953 congressional elections, and twenty won
seats. The Administration's main strength
lies in two parties, the Agrarian Laborites
and the Popular Socialists, which differ on
many issues, particularly on the proper rela-
tionship between government and labor.
Together with a group of small factions which
normally support Ibanez, they have barely
half of the seats in the Chamber of Deputies
and are a minority of less than one-third in
the Senate. The principal opposition parties
are the Conservatives, Liberals, and Radicals,
which, together with a group of small anti-
Ibanez factions, control the remaining seats
in Congress. However, on both sides party
loyalties constantly shift, and there is a con-
tinual regrouping of loose, ad hoc alliances.
23. After the Chilean Communist Party was
outlawed by the Radical Administration in
1948, it ceased to constitute an effective
direct political force. The Communist politi-
cal front, the People's Front coalition, polled
only about 50,000 votes in the September
1952 and March 1953 elections and won only
10 seats in Congress. The Communist
Party's membership is estimated at about
35,000. Its principal immediate objectives
appear to be to win control of labor organi-
zations and of student and intellectual
groups; to further the influence of anti-US
ultranationalists in the Ibanez Administra-
tion; to press for legalization of the Party
through repeal of the Defense of Democracy
Law; and to secure the re-establishment of
commercial and diplomatic relations with the
Soviet Bloc. Although the Communists op-
posed the candidacy of Ibanez, they hailed
his victory as a defeat for the US and offered
him support for an anti-US program. For a
while Ibanez maintained a tolerant attitude
toward the Communists. More recently he
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has caused difficulties for the Communist
press, harassed individual Communists, and
given warning that he would not tolerate
strikes threatening the national interest.
This shift in Ibanez' attitude probably re-
flects a sense that the Communist challenge
his personal authority and a desire to win
US and conservative approval. Nevertheless,
in June Ibanez acceded to Popular Socialist
demands that he support repeal of the De-
fense of Democracy Law, which would have
the effect of restoring important political and
organizational rights to the Communist Party.
Ibanez stipulated, however, that repeal of the
Defense of Democracy Law must be accom-
panied by a strengthening of the basic In-
ternal Security Law.
24. The Communists virtually control the
labor unions in the nitrate fields and coal
mines. The major copper workers' federa-
tion is anti-Communist, but the Communists
nevertheless command a minority following
among copper mine workers. As copper min-
ing is now entering the deep-pit phase, Com-
munist opportunities for sabotage are in-
creasing. The Communists have some influ-
ence in the maritime and port workers' fed-
eration, but at present are not strong in the
railway federation or in telecommunications.
The Communists have so far failed in their
efforts to gain control of CUTCH, but have
won important influence in the Santiago pro-
vincial affiliate of CUTCH.
ARMED FORCES
25. The Chilean armed forces have a total
approximate strength of 67,500 men, a
strength surpassed in South America only by
Argentina and Brazil. These forces include:
Army - 24,000; Carabineros (security police) -
21,000; Navy - 17,500; and Air Force - 5,000,
including 250 pilots. Army and Carabinero
leadership, discipline, and training are well
above the Latin American average. However,
there are serious deficiencies in arms, equip-
ment, and supplies. Combat effectiveness of
the Army is low by US standards, but high
in comparison with other Latin American
forces. The Navy is perhaps the most effi-
cient in Latin America. The government is
making efforts to expand and modernize its
small, US World War II-type air force by
acquisition of US or British jets. The morale
of the armed forces is normally high and
remains good despite the adverse effects of
inadequate pay in the face of inflation and
of the threat of political interference implicit
in recent high-level retirements. Communist
efforts to penetrate the armed forces have
been unsuccessful. The armed forces (includ-
ing the Carabineros) have shown themselves
capable of suppressing civil disturbances and
strikes and of guarding against sabotage in
the copper mines and other strategic indus-
tries.
26. The Chilean armed forces actively sup-
ported the Ibanez dictatorship, 1927-1931.
Since then they have remained aloof from
politics, loyally supporting successive consti-
tutional governments. On taking office,
Ibanez retired an unusually large number of
senior officers in order to put personal ad-
herents in positions of command. The
armed forces will certainly support Ibanez as
constitutional President, and would probably
continue to support him if, in critical circum-
stances, he were to resort to dictatorial meth-
ods. If, however, an Ibanez dictatorship
failed to relieve economic distress and faced
nearly universal political opposition and pop-
ular hostility, the armed forces would eventu-
ally withdraw their support, as they did in
1931.
ECONOMIC SITUATION
27. The survival and future course of the
Ibanez regime depends largely upon its suc-
cess or failure in dealing with Chile's serious
economic problems. Severe inflation and an
imminent decline in Chilean copper export
earnings are the two immediate threats.
28. The cost of living, which had been rising
rapidly during the postwar period, spiralled
upward at the rate of 22 percent per annum
during 1951-1952. Since January 1952 the
dollar value of the free peso has depreciated
by about 90 percent. This inflation was stim-
ulated by direct governmental promotion of
industrialization through large-scale and
long-term development programs which di-
verted resources from production of foodstuffs
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and consumption goods. Industrial develop-
ment was promoted by central bank loans, by
direct subsidies, and by preferential exchange
rates to facilitate imports of materials and
equipment. The growth of bank-held gov-
ernment debt resulted in a secondary expan-
sion of bank credit, permitting a speculative
boom. More recently additional impetus to
inflation has come from increases in wages
and welfare benefits.
29. Agricultural production has received
comparatively little governmental aid or at-
tention, and has not kept pace with the
growth of population. Since 1947 Chile has
been a net importer of foodstuffs. Cultiva-
tion and distribution methods are poor. The
use of fertilizers is extremely limited despite
Chile's position as the world's largest pro-
ducer of natural fertilizers. Imports of farm
machinery have been hampered by deteriora-
tion in the terms of trade of Chile's agricul-
tural products.
30. In February Ibanez obtained from Con-
gress special powers, terminating 4 August
1953, to carry out a broad program of admin-
istrative reforms and anti-inflationary meas-
ures. Under the authorization all measures
decreed by Ibanez before 4 August would re-
main in effect after that date. Numerous
administrative changes were effected under
these powers, including measures to ration-
alize the government's credit machinery, and
to reduce anticipated budget deficits through
governmental reorganization and economy
measures. It was not until 2 July 1953, how-
ever, that Ibanez took important anti-infla-
tionary steps, a delay owing partly to differ-
ences of opinion in his cabinet over specific
measures and partly to a reluctance to antag-
onize vested interests until he had improved
his political position. On 2 July he ordered:
(a) abolition of preferential exchange rates
on most imports in order to alter the pattern
of trade; (b) a general price rollback to 15
June 1953 effective for two years; (c) wage
rises of 10 to 15 percent affecting medium and
low wage workers to compensate for higher
prices on the imported foods and materials
formerly subsidized by artificial exchange
rates. On 14 July the Administration out-
lined to Congress a comprehensive economic
plan including austerity measures, fiscal and
financial reforms, and a production policy de-
signed to emphasize agricultural and service
industries.
31. Increased domestic production of con-
sumers' goods and foodstuffs is one element
essential to a lasting solution of the inflation-
ary problem. Incentive prices and subsidies
would stimulate increases in agricultural out-
put, but unless carefully managed would in
the short run contribute to inflationary pres-
sures. Ibanez hopes to obtain short-term US
Export-Import Bank loans and a long-term
World Bank loan to increase agricultural in-
vestment. The World Bank has estimated
that, in order to ease the growing burden of
food imports and to raise consumption levels
slightly, it would be necessary to increase in-
vestment in agriculture by about $300,000,000,
one-third in dollar-financed imports, over an
eight-year period. This would approximately
double the present rate of investment in agri-
culture, which is now about 2 percent of gross
national product.
32. The Chilean economy is heavily dependent
on copper exports. The copper industry nor-
mally provides about two-thirds of Chile's
total foreign exchange earnings and a sub-
stantial portion of its budgetary revenue.
The government controls the sale of Chilean
copper. It derives revenue from the US com-
panies through the differential between its
buying price from the companies and its
higher export prices and through income and
indirect taxes. It is highly doubtful that the
current export price of Chilean copper can be
maintained in the face of competition from
other copper-producing areas, and the in-
creasing availability and use of aluminum and
other substitutes. In addition the demand
for copper for rearmament and stockpiling
purposes will almost certainly be reduced in
the immediate future. A reduction in earn-
ings from copper exports would aggravate the
unbalance in Chile's international payments.
33. Friction has arisen between the Chilean
Government and the US copper companies
(Kennecott and Anaconda) operating in
Chile. The companies maintain that the
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government pays them an unjustly low price
(the former US ceiling price) for their copper,
and that by asking an artificially high price
abroad it has curtailed export sales. At pres-
ent there is an accumulation of some 60,000
tons of unsold metal, equivalent to about
seven weeks' production. They also complain
that the income taxes are exorbitant and dis-
criminatory, and that the arbitrary exchange
rate is unfair to them. On the other hand,
the Chilean Government complains that the
local US managers are offensive in their deal-
ings with the government and that the com-
panies have not trained Chileans for higher
executive positions. It also complains that
the copper companies' labor relations have
been unsatisfactory.
34. At present the Chilean Government is con-
sidering a revision of its policy toward the
copper companies in order to maximize its
profits from the sale of copper. The govern-
ment has initiated consultations with the
companies with a view to maintaining the
present level of governmental revenue and
making governmental control of the market-
ing of copper more effective.
FOREIGN POLICY
35. Chile's foreign policy is conditioned by a
strong desire to retain the friendship and sup-
port of the United States, its most important
copper market and the prospective source of
needed financial and technical aid. Chile has
generally cooperated with the US in the Or-
ganization of American States and has sup-
ported the US in the UN on major East-West
issues. It has ratified the Rio Treaty and
entered into a bilateral military assistance
agreement with the US. Although Ibanez
severely criticized this agreement during his
campaign for the Presidency, his Administra-
tion has taken steps to implement it.
36. In recent years, however, increasing na-
tionalism in Chile has complicated relations
with the US. In common with other Latin
American nations, Chile resents the alleged
US neglect of Latin America since the end of
World War II. It is strongly conscious of its
position as an underdeveloped nation import-
ing capital goods and manufactured equip-
ment with the exchange earnings of its ex-
7
ports of raw materials. It has a constant fear
of deteriorating terms of trade and is sym-
pathetic to the point of view that under-
developed countries have the right to na-
tionalize their natural resources and to receive
increased financial and technical aid from
industrialized nations. On these issues Chile
has exhibited over the past few years a willing-
ness to cooperate in the UN with other under-
developed countries such as the Arab-Asian
bloc. Moreover, some elements in the Ibanez
Administration favor the re-establishment of
diplomatic and trade relations with the Soviet
Bloc, hoping thereby to expand Chilean ex-
ports at higher prices. Thus far these ele-
ments have been overruled by Ibanez, who in
a recent speech before Congress, attacked
Soviet imperialism as being responsible for
world tensions. Notwithstanding publicly de-
clared support of the provisions of the Battle
Act, Chile has not thus far adopted effective
safeguards against the diversion of strategic
materials to the Bloc. Substantial amounts
of copper were shipped to the Bloc in 1951 and
1952 via third parties, and Soviet buyers con-
tinue to make special efforts to obtain addi-
tional amounts.
37. Ibanez is a personal friend of Peron and
his following includes elements disposed to
favor closer political relations with Argentina.
Some of these individuals have a genuine ad-
miration for Peron's nationalistic authoritari-
anism; others wish to make an alliance with
Argentina as the nucleus of a solid Latin
American bloc; still others hope to exert pres-
sure on the US by making friendly overtures
to its major opponent in the Western Hemi-
sphere. However, a traditional Chilean fear
of Argentine domination and a desire to avoid
alienating the US have thus far inhibited a
close alignment of Chile with Argentina.
Ibanez himself has been wary of a close po-
litical relationship with Peron. In particular,
he resisted Peron's attempts to include politi-
cal clauses in the economic agreement signed
by the two presidents on 9 July.
38. This Argentine-Chilean agreement con-
tains no specific economic commitments. It
is simply a general statement of hopes for the
future expansion of trade between the two
MOW
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countries. Chile requires foodstuffs, espe-
cially meat, from Argentina, while Peron de-
sires to increase imports of Chilean copper,
iron ore, and iron and steel manufactures.
In any case the amount of trade involved rep-
resents only a small percentage of the total
foreign trade of each nation.
PROBABLE DEVELOPMENTS
39. Ibanez' most urgent political and eco-
nomic problem is to halt inflation. His capa-
bilities in dealing with this problem will be
limited by softening of the world price of cop-
per, by his lack of an effective majority in
Congress, and by the diversity of his Con-
gressional support. Requisite domestic meas-
ures to curb inflation will require further
Congressional action and each will tend to
antagonize some important interest. Never-
theless, Ibanez may succeed in carrying out a
program which would temporarily check the
inflationary trend. No lasting solution of this
problem is possible, however, without a sub-
stantial increase in Chilean production of con-
sumer goods. Such an increase cannot be
achieved during Ibanez' term in office without
substantial foreign financial aid. There is no
assurance that such aid will be forthcoming or
that it would be put to effective use. In the
absence of adequate foreign aid and drastic
domestic action, it is likely that the unsolved
problem of inflation will lead to a political
crisis in Chile before the expiration of Ibanez'
term.
40. A decline in Chile's copper export earnings
is apparently impending and inevitable. Such
a decline would reduce both foreign exchange
availability and government revenue, and
would thereby aggravate Chile's already seri-
ous economic difficulties. This development
would probably stimulate demands that the
US support the price of Chilean copper or
make up the difference through other forms
of economic aid.
41. To the extent that Chile is unable to sell
copper in the free world at a satisfactory price
there will be increasing pressure to sell to the
Soviet Bloc. Ibanez' statements of policy in
relation to this subject have been equivocal or
contradictory.
8
42. Chile will almost certainly support (or at
least not oppose) the United States in the UN
on all major issues arising from the East-West
conflict. At the same time Chile will tend
increasingly to demonstrate its independence
of the United States, and, in economic mat-
ters, to act in concert with other Latin Amer-
ican countries regardless of the position of the
United States.
43. Economic cooperation between Chile and
Argentina may increase, but in the develop-
ment of such cooperation Chile will exercise
care to avoid economic and political domina-
tion by Argentina.
44. As long as Ibanez has any hope of US
financial aid he is likely to take care to avoid
antagonizing the United States, but he may
seek to extort such aid by threatening co-
operation with Argentina, with the USSR, or
with the Arab-Asian bloc in the UN. If he is
seriously disappointed in his expectations of
US aid and faces a severe deterioration in the
economic and political situation in Chile, he
will probably attempt to regain popular sup-
port by a return to Yankee-baiting.
45. Ibanez would prefer to maximize govern-
ment returns from the US copper companies
in Chile without proceeding to the extreme of
nationalization. If denied US aid, however,
and facing a desperate economic and political
situation, he would be likely, for political as
well as economic reasons, to take steps against
the copper companies which might lead
eventually to nationalization of the industry.
In the short run at least, nationalization
would be more likely to reduce than to in-
crease the revenues that the Chilean Govern-
ment drives from copper. Nationalization
would not eliminate Chile's imperative need
to sell copper to the US.
46. In present circumstances Ibanez is capable
of controlling Communist activities in Chile
and will probably do so. However, a severe
deterioration of the economic situation would
greatly enhance Communist capabilities to
foment labor disturbances and civil disorder.
Should the Communists gain such influence
as to threaten the government and Ibanez
proved unwilling to take sufficiently vigorous
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?
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action to control them, the armed forces would
probably assume police powers if not actually
take over the government.
47. Ibanez is apparently concerned to redeem
his reputation by ruling constitutionally dur-
ing his present term. It is likely, however,
that his regime will become unpopular and
that he will be unable to obtain effective sup-
port in the Chilean Congress. It is likely that
sooner or later impatience, frustration, and
the real need for drastic action will move him
to abandon constitutional political processes
and resort to arbitrary rule.
48. Given the probability of continued divi-
sion among his political opponents and of the
continued support of the armed forces, it is
probable that Ibanez could rule arbitrarily for
some time. It is likely, however, that his exer-
cise of dictatorial powers would fail to relieve
the economic situation substantially, and that
there would be efforts to overthrow his regime.
If, in these circumstances, political opposition
and popular hostility became so general and
intense as to lead to widespread disorder, the
armed forces would probably withdraw their
support and the regime would fall.
9
49. Any estimate of future developments in
Chile must be qualified by reference to the
advanced age and reported ill-health of Presi-
dent Ibanez. He will be eighty-one at the ex-
piration of his term in 1958, if he survives that
long. He may become physically or mentally
incapable of dealing vigorously with the diffi-
cult problems which beset him. If he should
die in office, the Minister of the Interior, under
the Chilean constitution, would assume the
functions of the Presidency, pending a special
election to be held within sixty days. The
present Minister of the Interior is Osvaldo
Koch, Ibanez' son-in-law. Koch was an active
Chilean Nazi before and during World War II.
Like Ibanez, he has no present party affilia-
tion. If he came to power in the circum-
stances envisaged he would presumably en-
deavor to continue the Ibanez regime and
policies. He lacks, however, the personal pres-
tige and political strength of his father-in-law.
50. In the event of Ibanez' death or removal
from office, any successor government would
face the same economic problems and would
be subject to the same radical and nationalis-
tic pressures as affect the present regime.
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