153. National Intelligence Estimate1

NIE 91–58

THE OUTLOOK FOR ARGENTINA2

The Problem

To estimate the outlook for Argentina, with special reference to the character of the new regime, the economic situation, and prospects for the survival of constitutional government.

Conclusions

1. Argentina is in the throes of adjusting to democratic rule and, at the same time, is suffering from severe economic deterioration which began in the late forties during the regime of former dictator Perón. (Paras. 5, 9, 10, 12, 13)

2. The next year will be critical for President Frondizi. Measures taken to cope with pressing economic and political problems are bound to arouse opposition from various important civilian and military elements. Nevertheless, although dissatisfaction and indications of active plotting exist among the military, the bulk of the armed forces will be reluctant to interfere with constitutional processes, which they were instrumental in restoring. Meanwhile, the Peronists will be preoccupied with rebuilding their movement, and labor will be partially placated by further material benefits granted by the administration. At the same time, the Frondizi administration will almost certainly allow the Communist Party of Argentina (PCA) to operate freely so long as it does not seriously interfere with public order; this in turn will enable the PCA to increase its following and influence. (Paras. 11, 19, 20, 24)

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3. If Frondizi can persuade congress to support his economic programs and acts decisively to prevent interference with them, he will almost certainly gain the active support of the military. If Argentina receives a considerable amount of foreign private investment, together with some loans and economic assistance, we believe that he has a better than even chance of serving out his term and laying the groundwork for the continuation of constitutional government—even though tangible results in the economic field will seem small for several years at best. (Paras. 7, 8, 17, 18, 25)

4. If Frondizi does not make progress in his various programs, the economic situation will deteriorate with the probability that the military will remove Frondizi, either:

a.
because they have become convinced that Frondizi is unable to cope with Argentina’s problems; or
b.
because of civil disturbances accompanied by Peronist resurgence and communist agitation. (Para. 26)

Discussion

Introduction

5. Argentina is going through a difficult period. It is attempting to adjust to democratic rule after almost 30 years of authoritarian governments. Although the military leaders, who unseated Perón in 1955, voluntarily turned over the government to civilian control following national elections, they are continuing to keep the civilian government under close scrutiny. The supporters of former dictator Perón are numerous and influential, especially in the politically vocal labor organizations. The situation is further complicated by major economic problems—the Argentine economy has been stagnant for a number of years and its foreign exchange reserves are virtually exhausted. The ability of newly elected President Arturo Frondizi to cope with these economic problems will largely determine the future of democratic rule in Argentina.

The Political Situation

6. In the free elections of February 1958, Frondizi and his left-of-center party, the Intransigent Radical Civic Union (UCRI), won a sweeping victory although it appears that the magnitude of this victory may have been due to a protest vote. In addition to the presidency and vice presidency, the UCRI won all seats in the senate, more than two-thirds of the chamber of deputies, all provincial governorships, [Page 490] and the majority of municipal posts.4 In the campaign, he exploited dissatisfaction with the economic situation. He advocated the adoption of much of Perón’s liberal social program, but strongly opposed the repression of civil liberties. His party’s platform called for continuation of state control of national resources and public services. Frondizi received substantial support from both Peronists and Communists. However, his present cabinet is drawn largely from the more moderate wing of his party and suggests that he will follow a course only slightly left-of-center.

7. Frondizi’s main problems in the political field will be to hold his own party together and win congressional approval for his economic program while he seeks: (a) to reduce the effectiveness of the Peronists as an organized political movement; (b) to reduce Peronist and Communist influence over major portions of organized labor and, in turn, to gain labor’s political support; and (c) to convince the military that it is to their advantage, as well as to that of Argentina, to support Frondizi as the head of the constitutional government.

8. Despite his sweeping electoral victory, Frondizi’s support in congress is not entirely reliable because of the lack of unity in his own party. He faces the problem of satisfying the diverse groups in his party while at the same time seeking to neutralize the potential sources of opposition, both civilian and military.

9. Although the strength of the Peronist movement was reduced by the anti-Peronist measures of General Aramburu’s provisional government and by internal factionalism, it still retains considerable numerical strength and the capability to cause serious disorders. Frondizi is apparently seeking to maintain the support of the Peronist machine while attempting to win over elements of the Peronist following. In addition to supporting many features of Perón’s economic and social programs, Frondizi persuaded the congress, as one of its first actions, to grant general political amnesty, chief beneficiaries of which were the Peronists, and he has subsequently appointed some Peronists to official positions, though not at the cabinet level. While Frondizi is unlikely to permit Perón’s return in the foreseeable future, he might agree to the formation of a party bearing the Peronist label, particularly if necessary congressional authorization is given. In pursuing this approach to the Peronists Frondizi will be hampered somewhat by the [Page 491] fact that in addition to the military, the moderates within his own party, who are the largest faction and control the party machinery, are apprehensive concerning the resurgence of Peronism.

10. Frondizi is also confronted with difficult problems in dealing with organized labor, which under Perón’s control was a political instrument of major importance. Although the Aramburu regime removed Peronists from leadership of the General Confederation of Labor (CGT) and its member unions, Peronists remain the most influential force in organized labor. During Perón’s regime, labor gained substantial material advantages, a sense of participation in national life, and an equal status with other social groups. Regardless of the loyalties of its future leadership, labor will almost certainly seek to increase these economic benefits and to enhance its political position. To minimize the possibility of trouble with labor in the short run, Frondizi, as one of his first acts, granted labor a nominal wage increase. Although Frondizi made pre-election commitments to support a reconstituted strong labor confederation, there are indications that he is now intent on avoiding such a development by supporting the organization of a labor segment, loyal to his party, which could be used as his instrument whether it is within or without the CGT.

11. The Communist Party of Argentina (PCA), which enjoys legal status, polled only two percent of the vote in the national elections and won only a few municipal posts. It poses no immediate threat to political stability. Nevertheless, in the open political climate prevailing since the Perón ouster, the PCA has more than doubled in size, and with its present membership of about 70,000 to 80,000, has become the largest Communist party in the Western Hemisphere. Communists also have a strong position in some important labor unions. Although Frondizi does not favor communism and has denied any obligation to the PCA for its open electoral support, his administration will almost certainly allow the PCA to operate freely so long as it does not seriously interfere with public order. Thus it seems likely that Argentina will remain one of the principal centers of propaganda and liaison for international communism in Latin America during Frondizi’s tenure and that the PCA will be able to increase its following and influence.

12. Frondizi’s tenure of power will depend ultimately on the acquiescence of the armed forces.3 Most leaders of the army, navy, and air force do not care for Frondizi’s left-wing background. They [Page 492] have been generally dissatisfied with his performance in office. However, they apparently are still willing to go along with him because of their respect for the size of his electoral mandate and, to some extent, because of the growing sensitivity of the military to public opposition to military dictatorship. Although Frondizi has cautioned the armed forces to stay out of politics, he apparently realizes the need to satisfy some of their aspirations in order to maintain military support. Important military leaders would almost certainly try to unite the armed forces in an effort to remove Frondizi if he allows Peronists or Communists an important role in his administration, if he should adopt an extreme leftist program, or if he fails to make progress in solving the economic problems confronting Argentina.

The Economic Situation

13. Perón almost bankrupted his country in his efforts to eliminate foreign capital and to finance an industrialization program at the expense of the agricultural sector of the economy. During the past decade, the country has suffered a declining rate of investment and real per capita Gross National Product (GNP) has remained below 1948 levels. While there was some annual increase in GNP during the years 1952 to 1957, the rate of growth of GNP did not keep pace with the approximate two percent annual growth in population, which is now 20 million. Moreover, Argentina has had a sizeable annual trade deficit in six of the past ten years. When Frondizi took office on 1 May, gold and foreign exchange reserves were down to $250 million and the trade deficit for 1958 was projected at $315 million. Although imports had already been severely restricted, Frondizi’s immediate and desperate action was to suspend issuance of import permits pending a study of the international payments situation.5

14. The weakness of Argentina’s trade position and its internal economic stagnation cannot be overcome in the longer run until Frondizi meets the fundamental problem of rehabilitating and expanding domestic productive capacity. Capital needs include an estimated three billion dollars to be expended over a five-year period to supply minimum requirements in the basic services of transportation, communications and power. Substantial amounts of foreign exchange must be secured to pay for required imports of machines and equipment.

15. While Frondizi has said that his government will not advocate additional nationalization, we do not foresee any important reduction of the state’s substantial role in the economy. However, the government’s internal borrowing capacity is limited. The budget deficit for 1958 is estimated at 14 billion pesos, or about $780 million, but this [Page 493] does not include funds which will be required for planned and urgently needed state development. Heavy borrowings in the past have nearly saturated the limited market for government bonds. While official foreign loans can provide partial solution to Argentina’s financial problems, current foreign indebtedness of approximately $1 billion adversely affects the country’s ability to obtain additional large-scale loans.

16. There is little hope that Argentina in the next few years will be able to expand exports sufficiently to finance more than a portion of its import requirements of capital goods. Western Europe, which accounts for over 55 percent of Argentina’s total trade, offers the best prospects for expanding trade; not only might this area be willing to increase its imports of agricultural goods but it might be willing to continue extending medium-term credit and to make some investment capital available. At the present, Argentina has a favorable trade balance with Western Europe. Part of this must be used to reduce existing commercial indebtedness which was consolidated and made payable over a ten-year period, and part to offset its deficit in trade with the US. It is difficult to expand trade with the US, amounting to one-fifth of the total in 1957, because agricultural products are Argentina’s principal export.

17. While Argentina’s ability to export would probably be increased if the peso were devalued, in the longer run the most hopeful possibility for alleviating the trade problem lies in the reduction of imports. The development of petroleum resources, plus exploitation of coal reserves, could materially reduce Argentina’s requirements for fuel imports, which in 1957 amounted to over $317 million. However, even with fully adequate capital and technical resources this will take several years at best.

18. Despite the history of popular opposition to the development of petroleum resources by private foreign capital, Frondizi is pressing for private foreign capital participation, but on a contract rather than a concession basis. Frondizi’s long record as an ardent nationalist will probably assist him in convincing the public that private foreign investment in this and in other industries can be encouraged without jeopardizing Argentine sovereignty.6 Frondizi probably hopes to use the critical state of the Argentine economy as a further strong argument in support of his petroleum policies. He has recently completed an agreement with an American firm and he is negotiating with other foreign oil companies for similar contracts to develop and to produce oil for delivery to Yacimientos Petroliferos Fiscales, the government oil agency which Frondizi has placed under his personal supervision. [Page 494] Under such arrangements, the Argentine government would retain full control of oil resources and would not have to put up the capital for the development of the fields.

19. Frondizi will be faced with a series of dilemmas in his efforts to revive the Argentine economy. He must increase prices to encourage agricultural production, the principal source of export commodities; but this will contribute to internal inflationary pressures and, in particular, to increased demands by urban labor for higher wages. If he devalues the peso to improve the competitive position of exports and to reduce imports, the rising cost of imported goods will contribute to domestic pressures for higher incomes. If he seeks to check an increase in consumption by resisting wage increases, Frondizi will have to face heightened labor unrest, reduced output, and, most importantly, a loss in political support from labor. If he attempts to meet Argentina’s needs for capital by encouraging foreign private investment, he is likely to run into opposition from strong nationalist groups. However, the scope of such opposition will probably depend on Frondizi’s success in obtaining terms favorable to Argentina and his ability to obtain widespread understanding of his actions.

20. In this situation, Frondizi will probably take a calculated risk, and follow a moderately inflationary credit and wage policy in order to avoid serious internal labor strife, minimize unemployment, and increase incentives. Such a policy will also tend to offset the rising domestic prices of food which will result from his effort to increase agricultural output. Argentina probably will be able to expand agricultural exports, but only slowly. Frondizi will probably be gambling not so much on an increase in exports as on his ability to obtain substantial foreign assistance. Frondizi has already obtained important commercial assistance in Western Europe and he probably estimates that a more favorable internal situation will, at least temporarily, substantially improve Argentina’s credit. He will also make a determined effort to obtain large-scale financial assistance from foreign governments. Unless his gamble pays off and Argentina receives considerable external financial help within the next year, a severe economic crisis is likely to develop. At this point, Frondizi’s political position would be jeopardized.

External Relations

21. Despite the quasi-isolationist record of his party, Frondizi seems ready to follow the trend toward increasing cooperation in [Page 495] international affairs which marked the Aramburu regime.7 He has asserted Argentina’s firm identification with the West and its intention to honor all international commitments. The military will almost certainly continue its anti-Communist and generally pro-US orientation, and Argentina’s cultural and commercial ties will follow their traditional attachment with Western Europe. Frondizi has shown special interest in strengthening ties with other Latin American countries, particularly in the economic field. These countries in turn have generally welcomed the new administration’s overtures, an attitude which contrasts with the widespread distrust of the Perón regime.

22. Frondizi has called for close relations with the US. However, prospects for a continuation of generally friendly relations with the US will be in large part a direct function of American cooperation on economic matters critical to Argentina—financial assistance, commercial policies affecting Argentine dollar markets, and the US agricultural surplus disposal program. Many Argentines resent the small amount of support which the provisional regime received from the US government. Frondizi already has indicated that if he does not get help from the US he will have to seek it elsewhere.

23. Argentina has more extensive diplomatic and trade relations with the Soviet Bloc than any other Latin American country. It maintains diplomatic relations with the USSR and all of its European satellites except East Germany and Albania and has trade treaties with all save Albania. While the Bloc provides an outlet for Argentine agricultural exports and is a source of useful imports, trade with the Bloc has been a small proportion of Argentina’s total trade and in the post-Perón period has fallen off. Bloc offers of trade and development credits, especially in the field of petroleum, will receive the closest attention from the Frondizi government. Frondizi will almost certainly favor increased trade with the Bloc, but will probably be reluctant to accept any Bloc proposals for substantial economic aid as long as there is a possibility of assistance from other sources.

The Outlook for Argentina

24. The next year will be critical for the Frondizi administration, and decisions made to cope with pressing economic and political problems will give rise to opposition from various important civilian and military elements. Although there is dissatisfaction with the administration among the military and there are indications of active plotting in some quarters, the bulk of the armed forces will be reluctant to [Page 496] interfere with constitutional processes which they were instrumental in restoring. Moreover, rivalries and lack of unanimity will make it difficult for the military to take joint action against the administration. Frondizi may also be protected against military action by the lack of an acceptable alternative to him. Meanwhile, the Peronists will be in the process of attempting to rebuild their own political strength, and labor will be at least partially placated by further material benefits granted by Frondizi.

25. If Frondizi persuades congress to support his economic program and acts decisively to prevent interference with economic rehabilitation even at the risk of antagonizing Peronists, labor, and ultra-nationalists, he will almost certainly gain the active support of the military. Moreover, evidence of a constructive economic policy probably would serve to attract foreign private capital and other outside financial assistance. If he receives a considerable amount of foreign private investment, together with some loans and economic assistance, we believe that he has a better than even chance of serving out his term and laying the groundwork for the continuation of constitutional government—even though tangible results in the economic field will seem small for several years at best.

26. If Frondizi does not make progress in his various programs, the economic situation will deteriorate with the probability that the military will remove him, either:

a.
because they have become convinced that Frondizi is unable to cope with Argentina’s problems; or
b.
because of civil disturbances accompanied by Peronist resurgence and Communist agitation.

  1. Source: Department of State, INRNIE Files. Secret. According to a note on the cover sheet, the estimate was “Submitted by the Director of Central Intelligence. The following intelligence organizations participated in the preparation of this estimate: The Central Intelligence Agency and the intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and The Joint Staff.”

    The estimate was “Concurred in by the Intelligence Advisory Committee on 5 August 1958. Concurring were the Director of Intelligence and Research, Department of State; the Assistant Chief of Staff, Intelligence, Department of the Army; the Director of Naval Intelligence; the Assistant Chief of Staff, Intelligence, USAF; and the Deputy Director for Intelligence, The Joint Staff. The Atomic Energy Commission Representative to the IAC and the Assistant Director, Federal Bureau of Investigation, abstained, the subject being outside of their jurisdiction.”

  2. This estimate supersedes NIE 91–56, “The Outlook for Argentina,” 17 July 1956, and SNIE 91–57, “The Outlook for Argentina,” 12 November 1957. [Footnote in the source text. The estimates are printed in Foreign Relations, 1955–1957, vol. VII, pp. 424 and 495, respectively.]
  3. Out of the total 9,049,615 votes, Frondizi won 4,090,840; his principal rival, Ricardo Balbin of the People’s Radical Party (UCRP), 2,624,454 votes; and other candidates, 1,502,663 leaving a remainder of 831,658 blank votes, many of which probably represented Peronists. The Chamber of Deputies is composed of 133 UCRI members, 54 members of the UCRP, and two members from the Liberal Party of Corrientes. No other parties are represented. The Saenz Pena electoral law in effect gives two-thirds of the seats in the Chamber of Deputies to the leading party in each province and the remainder to the runner-up. While the UCRI won all senate seats up for election last February, two provinces have not yet elected national senators. [Footnote in the source text.]
  4. The Argentine army is estimated to have a strength of about 50,000; the Federal Police, 20,000; and the National Gendarmérie, 10,800. The air force consists of approximately 17,000 men (400 pilots) and 450 aircraft; the Naval air arm has 1,280 men (224 pilots) and 175 aircraft. Naval strength is estimated at 36,000 men and 123 vessels. While the over-all strength of the ground forces was reduced during the Aramburu regime for reasons of economy, these forces retain their capability for maintaining internal order. [Footnote in the source text.]
  5. The attached graph depicting imports and exports, 1951–1957, not printed.
  6. The US is the leading foreign investor in Argentina with $470 million in private direct investment in 1956, mostly in manufacturing. [Footnote in the source text.]
  7. During the Aramburu regime, Argentina joined the World Bank and the IMF, ratified the charter of the Organization of American States—being the last country to do so—and approved the 1954 Caracas anti-Communist resolution. [Footnote in the source text.]