POLITICAL CRISIS IN CHILE*

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00937A000500030032-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 9, 2016
• Document Release Date: February 12, 1999
• Sequence Number: 32
• Publication Date: April 18, 1957
• Content Type: MEMO

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"TrElligmaimi
CENTRAL INTELLIGENCE AGENCY
OFFICE OF NATIONAL ESTIVATES
STAFF YEMORANDUM 24-57s (Draft for the Board
SUBJECT*. Political Ce.sis in Chile
18 April 1997
DOCUMENTNO.____425
NO CHANGE IN CLASS. ri
DECLASSIFIED
. CHANGED TO: IS $ C
NEXT REVIEW DATE:
AUTH: HR 70-2
DATE: 1120410 REVIEWER: 0 09 2?54
1, Conclusions. Chile is in the throes of a political crisi
most.Ta"..,..eraffiagaverio
brought on by the Ibanez administrationgs determination to d al with the
count!7U8 chronic inflationary Problem throdeh the brim:Mon of a
stebilization programa This program appears to have caused severe
economic sacrifices in the lower and middle classes. Between 28 March
and 3 Aprils there occurred in Chileis two leading cities popular riots
protesting an increase in transit fares. The army as called out to
restore order and in the process 167 Chileans were killed. Although
the government has renewed bus service at the old fares s potentially
explosive social and political tensions remain
2. At issae io the govermientgs anti.inflation programs the key
question beings who is going to pay for it? Rightist political forces
In control of the Senate with whom President Ibanez is apparently
Identified on the stabilization issue have so far been reluctant to
accept a proportionate Ware of the sacrifice involved in the programs
* The substanc of this memorandum has been discussed informally with.00I3
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including a more equitable tax structure ? The center and leftist
parties controlling the lower house have taken the line that the
workers? austerity burden should be reduced at the expense of the
right. Since the two houses will probably have difficulty in agreeing
uhen the new Congress debates the program next month, the Administration
will be faced with these three alternatives:
a. It can attempt to impose the program upon the Chilean ?
population by force.
It can reduce the severity of the austerity measures by a
moderate enforcement of the program?
It can abandon the program completely and return ta virtual
ranawv enilation?
Oe balanee, we believe that alternative CO will be the one which
Ibanez will fellow? However, if Ibanez should follow either alternative
(a) or (c), we believe that he would aave no better then an even chance
of surviving the remaining 18 months of his tem? Adoption of the
second alternative will not solve Chileos economic difficultiese and a
period of economic and political unrest appears likely.
30 Haelwapund. Chilees severe inflation was the principal issue
in the 1952 presidential election, won by elderly Carlos Ibanez del
CaMp00
Despite his repeated, efforts at economic reform, inflation
became rummy, The pesos, 132 to one dollar at the time of Ibanez
inauguration, was 70 to the dollar by m14.19550
? 2 .
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A comprehensive economic stabilization program was then
iritiated in January 1956 on the advice of an American investment
firm, and it MB been moderately successful, largely because of
support from the cvneervative parties and the relatively high price of
copper. The costeofeliving rise last year was held down to 37% as
compared with over e80% in 1955. Nevertheless, the real income of workers
is steadily deotiningl, and the program has placed the heaviest burden
on the middle ard lower classes? In general, the mageeprice stabilization
law has not Nam strictly enforced, but it has been fairly effectively
enforced in relation to wages. Recent price increases, previously
delayed to give an.appearanoe of price stability before the 3 parch
congressional elections, have be,n particularly unpopular, Mereovev,
world copper prices have declined*, and this is threatening a budgetary
deficit and creating a serious drain on foreign exchange reserves,
already at a law level,'
50 In the elections, the parties supporting the governmentes
economic program retained a majority in the Senate, but those opposing
the program obtained a slight edge in the ChaMber of Deputies. The
distribution of votes among the parties Bugg? ta thaethere was a considerable
protest vote based upon economic discontent. The Agrarian Laborite Party,
* The price of copper, which averaged 50 cents per pound in the first
quarter of 1956, had felled to 30 cents by March 1957a
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the group most closely identified with the government9 lost about halt
its strength. The relatively moderate parties the middle class
Radical Party and the liberal Catholic National Falange, collected the
protest vote. However, some satisfaction with the goiernment9s program
ae evident in less substantial gains for the conservative parties*
6. Probable Developments 'bane probably still hopes to make the
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