LATIN AMERICA REGIONAL AND POLITICAL ANALYSIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00912A000700010017-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: February 1, 2006
• Sequence Number: 17
• Publication Date: May 24, 1977
• Content Type: REPORT

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Secret
Latin America
Secret
State Department review completed
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LATIN AMERICA
24 May 1977
Chile: Violations of Human Rights . . . . . . . . . 1
Chile: Economic Situation and
Outlook for, 1977 . . . . . . . . . . . . . . . . . 3
Colombia: Narcotics Trafficking and
the Judicial System . . . . . . . . . . . . . . . 9
Guyana-USSR: Fishing Agreement. . . . . . . . . . . 11
This publication is prepared for regional specialists in the Washington community by
the Latin America Division, Office of Regional and Political Analysis, with oc-
casional contributions from other offices within the Directorate of Intelligence.
Comments and queries are welcome. They should be directed to the authors of the
individual articles.
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Chile: Violations of Human Rights
Reports of gross violations of human right-., in Chile,
which had nearly ceased earlier this year, are Tgain on
the rise. infor-
mation reaching the US embassy that the Pino'crie,_ govern-
ment is reverting to the practices that have jeopardized
its international standing since the 1973 coup.
This backsliding comes at a particularly bid time
for Chile, since apparent improvement in the human rights
situation was helping improve its image abroad. Critics
will now have additional ammunition for their ze:tacks on
the Chilean regime and
their appeals to boy-
cott. it.
Chile's National
Intelligence Director-
ate is apparently be-
hind. the recent in-
crease in torture, il-
legal detentions, and
unexplained "disap-
pea.rances." The Direc-
torate's chief, Colo-
nel Manuel Contreras,
is a. close confidant
of Pinochet, who ac-
claimed the organiza-
tion in a recent press
interview for its "de-
cisive role" in bring-
ing extremism under
control. Contreras
answers directly to
the President, and it
is unlikely that he
would act without the
knowledge and approval
of his superior.
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Most of the Directorate's targets now appear to be
Socialists, but some Communists and Christian Democrats
are also victims. A campaign against Communist Party
leaders last year largely immobilized that organization,
j and the security services are apparently turning to
other opponents. The Directorate is reportedly disre-
garding government decrees intended to protect individual
rights.
The Directorate's detention facility at Cuatro
Alamos is said to be in operation again. This site was
largely abandoned after a decree in January 1976 empowered
the Supreme Court president and the interior minister
to inspect--without prior notice--areas suspected of
being used for torture. Neither official appears to have
exercised this authority since last year.
Pinochet stated this week that the emergency meas-,
ures in effect under the state of siege will be enforced
as long as necessary "to repress drastically any attempt
-Z
that might become a threat to internal security or
mesti.c peace." Following his recent crackdown on
do-
former
president Frei's Christian Democratic Party and on
out-
spoken democratic labor leaders, Pinochet has made
that he will move harshly against anyone who runs
of his government.
clear
afoul
The President may believe that the cutoff in US aid
has removed Washington's leverage against his regimes on
the human rights issue. He may also be buoyed by the
gradual improvement in the country's economic situation.
In any case, reports of increased repression are sure to
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Chile: Economic Situation and Outlook for 1977
Gradually recovering world copper prices and rising
noncopper exports should provide Chile some relief from
the harsh fiscal and monetary measures of recent years.
After two years of severe :import curtailment in response
to the drastic downturn of copper prices of late 1974
and the need to meet large foreign debt repayment obliga-
tions, the military junta plans a 24-percent increase in
imports this year. The gain will spur a recovery in real
GNP from the severely depressed 1975-76 levels, which
averaged about 11 percent below 1974, and should further
aid in reducing Chile's triple-digit inflation.
Unlike most LDCs of comparable development and so-
phistication, Chile had to slash imports--and thus do-
mestic income and employment--to cope with the payments
problems stemming from the OPEC oil price hike and world
recession. Its extremely weak international credit rat-
ing practically ruled out access to commercial funds;
world criticism of its human rights practices severely
limited new official economic assistance and made foreign
debt renegotiation difficult at best. The Chilean populace
has complained little about the austerity because of the
threat.of government repression and, more important, be-
cause many citizens--if not most--still feel they are
better off than under the previous Marxist regime of
Salvador Allende.
Economic Reforms, Payments Adjustment, 1974-76
Inheriting an economy in chaos after Allende's down-
fall in September 1973, the military government immediately
set out to restructure the economy along free-market
lines and to restore Chile's international credit rating.
--The size of the public sector has been reduced
from 50 percent to 30 percent of GDP through the
return of most expropriated firms and agricultural
lands to their former owners and through sale of
other public enterprises to private investors.
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--Prices for most goods and interest rates have
been freed to seek market levels.
/,I
--Foreign exchange and import controls have been
largely dismantled and tariffs cut.
--Noncopper exports have been encouraged by devalu-
ing the peso roughly in line with domestic infla-
tion.
--Compensation has been arranged for the former
owners (mainly US) of the copper holdings expro-
priated by Allende.
--Most barriers to new direct foreign investment
have been eliminated; Chile's open courtship of
foreign investors led to its withdrawal from the
Andean Pact in late 1976.
Before the reforms got very far, rising oil import
prices and plummeting copper export prices created a
balance-of-payments crisis. The situation was further
complicated by the need to repay large foreign debt obli-
gations accumulated during the Allende years and before.
Although Santiago managed with great difficulty to ob-
tain $750 million in official foreign capital, including
$200 million in debt relief, it still had to cut imports
by 19 percent to balance its international accounts for
1975. The impact of the necessary fiscal and monetary
restraint was severe.
--Industrial production initially dropped 23 percent
and in 1976 was still 14 percent below the 1974
level.
--Real GDP declined 13 percent in 1975 and only
partly recovered in 1976.
--Unemployment peaked at 14.5 percent of the labor
force in 1975.
--Real wages, which had been allowed to plummet in
late 1973, were cut further in 1974-75 and have
since recovered only slightly.
--The downturn also discouraged potential direct
foreign investment.
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Although the government cut its budget deficit sharply,
major emphasis was placed on credit restraint to the
private sector. Real money supply, cut 15 percent in
1975, was permitted to rise a little in 1976; credit
policy remained extremely tight; throughout the period.
The inflation rate dropped only slightly in 1975, to 341
percent, but declined to 174 percent in 1976.
Partly because of reduced domestic demand, the junta
has achieved striking success in its vigorous promotion
of noncopper exports--mostly agricultural commodities,
chemicals, and metal products. The government has stream-
lined export administration, facilitated export financ-
ing, lifted most export restrictions, and introduced ex-
port tax incentives. As a result of these efforts, non-
copper exports totaled $756 million in 1976, 30 percent
above 1974 and triple the 1973 level. By mid-1976, thanks
to rising noncopper earnings, booming copper production,
moderate recovery in world copper prices, and short-term
capital inflows attracted by soaring interest rates, the
balance of payments had improved considerably. The junta
took advantage of the improvement to terminate its foreign
debt renegotiation efforts and to rebuild foreign reserves.
Although peso devaluation was slowed and tariffs were
further cut, fiscal and monetary measures caused imports
for the year as a whole to drop an additional 8 percent.
113
Outlook for 1977
This year, the military government intends to use
its improved foreign reserve position and the small ad-
ditional gain expected in export earnings to permit an in-
crease in imports sufficient to restore real GNP to the
1974 level. Although this will. require some easing of
austerity, the government hopes that increased supply will
permit continued progress against inflation. It also
intends to avoid the debt renegotiation hassle and to
assert its independence from the US and other critics of
its human rights practices by sharply reducing borrowing
from multilateral and bilateral. sources. Reliance will
be placed mainly on commercial bank and supplier credits.
Balance of Payments
Exports will likely rise about 7 percent in 1977,
to $2.1 billion. Copper shipments will remain roughly
at last year's level of 980,000 tons, but an expected
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Chile: Balance of Payments
1974
1975 1976
1977
Trade balance
-56
-278 312
40
Exports (f.o.b.)
2,134
1,498 1,952
2,080
Copper
1,551
835 1,196
1,260
Other
583
663 756
820
Imports (c.i.f.)
-2,190
-1,776 -1,640
-2,040
Net services and transfers
-241
-350 -382
-388
Of which: interest
-197
-306 -322
-328
Current account balance
-297
-628 -70
-348
Private capital
145
366 749
549
Direct investment
-98
50 80
91
Repatriated capital
134
63 112
60
Suppliers' credits
108
90 110
145
Commercial banks
1
163 447
253
Official capital
597
747 463
178
Multilateral
125
226 193
50
Bilateral
472
521 270
128
Of which: debt relief
287
231 21
0
Debt amortization (medium
and long term)
-367
-506 -533
-555
Capital account balance
375
607 679
172
Errors and omissions
-77
-31 0
0
Reserve movement
1
-52 609
-176
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5
rise in average copper prices will boost earnings moder-
ately. Stronger demand for noncopper exports in markets
developed since 1973 should allow such sales to rise to
$820 million, despite an expected weakening in Chile's
competitive position because of slower peso devaluation.
Santiago's desire to obtain foreign capital without
exposing itself to political recriminations over its
human rights practices has led it to cut back on US and
International Monetary Fund aid this year. Thus, official
capital inflows will fall to around $180 million, com-
pared with $460 million in 1976. Chilean missions to
the US and Western Europe are seeking commercial bank
loans to partly fill the gap. Direct investment will re-
main low mainly because of past bureaucratic delays in
approving new projects. Full debt amortization payments
for 1977 will require $555 million, slightly more than in
1976. Total net capital inflows will consequently shrink
to about $170 million, compared with $680 million in
1976.
Santiago is expected to increase imports to about
$2 billion. Higher domestic wheat yields and low wheat
import prices will permit a reduction in food import
spending. Most of the increase in imports will come in
fuels, raw materials, and intermediate goods for industry.
This category will expand an estimated 30 percent to re-
build depleted inventories. Bringing total imports to
the target level will require about $175 million more
than Chile now expects to receive from trade and capital
flows net of debt service. Given the recent improvement
in the Chilean credit rating, we believe that Santiago
will find it possible to raise this additional amount
from private sources.
Demand and Inflation
Although the junta is still pursuing a strong anti-
inflation policy, it intends to ease austerity. Real
wages are to be increased about 5 percent. The junta
began to relax its restictive monetary policy slightly in
the first quarter. Lower reserve ratios for the banking
system are easing a credit crunch experienced in late
1976; nominal short-term interest rates had declined by
March to 11 percent monthly, compared to 13 percent in
December. On May 1, Santiago announced a moderate pro-
gram of tax reductions, increased social spending, and
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wage increases for government workers. These steps are
expected to result in a government deficit of around 12
percent of expenditures this year--up from the original
target of 7.9 percent but still well below the 17 percent
deficit of 1976. Growth in the money supply is still ex-
pected to decline from last year's 217 percent to about
150 percent. The attack on inflation has
also been
aided
by the two-month voluntary price freeze by
private
industry
just ended. On balance, we estimate that
inflation
will
decline moderately in 1977, to around 130
percent.
Output and Employment
With somewhat stronger demand, real GDP should grow
6.5-7 percent this year, coming close to the 1974 level
of output. Finished goods inventories in some industries
are likely to hold industrial growth to 10 percent, com-
pared with 12.2 percent last year. Thanks to good weather,
agricultural production could be up as much as 7 percent
above last year. Construction activity, which began
picking up in the fourth quarter of 1976, should grow this
year for the first time since 1974. Since copper mines
are now operating at full capacity, little further gain
can be expected over last year's record production of 1
million tons. Employment will rise some 4.5 percent this
year; because both the labor force and productivity will
increase moderately, the unemployment rate will decline
only slightly to 12.2 percent.
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Colombia: Narcotics Trafficking and the Judicial System
According to a recent report in the Bogota press,
special protective services for Colombian judges will
be provided by the Ministry of Defense. The action is
being taken to avoid attacks of the type that have re-
cently cost the lives of several magistrates, particu-
larly those who deal with cases involving narcotics
traffickers.
The catalyst for the defense minister's decision
was the murder of a judge in Cali earlier this month.
The judge, known for his honesty and integrity, was
slain by members of a drug croup after bribery attempts
failed to stave off an adverse ruling against an im-
prisoned colleague. To make the message even more
forceful, the judge was murdered as he was returning to
a narcotics seminar for local magistrates that was being
visited by the minister of justice.
Colombia's judicial system is considered by many
to be a prime obstruction to any narcotics control pro-
gram. Although corruption is widespread in the various
local enforcement agencies, numerous drug traffickers
are arrested and brought to trial. At present, however,
members of the judiciary are subjected by traffickers
and other criminal elements to a two-pronged attack con-
sisting of large cash bribes and physical intimidation.
In June 1975, the government, acting under state of
siege authority, placed narcotics trafficking offenses
in the category of major crimes to be tried before mili-
tary courts. The move was intended primarily to speed
up the judicial process and to get around the corrupt
practices that had typified the criminal court system's
handling of major drug cases. The judicial process has
since been returned to the civil courts, however, and
many major traffickers are again able to gain acquittal
or release through bribery or other tactics.
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Guyana-USSR: Fishing Agreement
Guyana and the USSR signed a framework agreement for
fisheries cooperation in Georgetown on May 17.E
The USSR apparently offered to partic-
ipate in a Joint ishing company, train Guyanese personnel
on board Soviet trawlers, construct a deep-water port
facility, and undertake marine resource surveys of Guyana's
coastal zones.
Moscow has been negotiating since last fall for access
to a Guyanan port and the right to fish in Guyanan waters
in order to expand the operations of its Cuban-based
Caribbean fishing fleet. Reciprocal rights given the
Soviets in most fishing agreements signed with less de-
veloped countries have provided Moscow with refueling
bases as well as repair, maintenance, storage, and support
facilities. In addition to the accommodations for the
Soviet fishing fleet in Guyana, the Soviet navy reportedly
is also interested in gaining permission for port visits.
Moscow has signed fisheries agreements with at least
38 less developed countries to which Moscow has extended
$230 million of assistance. In Latin America, although
the Soviet Union has signed fisheries agreements with
Argentina, Chile, and Peru, only the Peruvian accord is
now active. The Soviets are assisting in the construction
of the Paita fishing complex in northern Peru.
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The USSR also has established 18 joint fishing com-
panies with less developed countries and has offered such
ventures to at least eight others. Joint companies, like
the one proposed in Guyana, give the Soviets access to the
200-mile zones of the coastal states and often enables
Moscow to increase its hard-currency earnings.
Most less developed countries have increased their
fish catch as a result of Soviet cooperation, and in some
cases these countries.have established viable fishing in-
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