303. Telegram From the Embassy in Chile to the Department of State 1

3042. Subj: The End of the Revolution in Liberty.

1.
However the current maneuverings among the Chilean parties may end, the inescapable fact is that we are witnessing the end of the noble and necessary Frei experiment in “Revolution in Liberty.” Because the US has attached so much prestige and so many resources to the person of Frei and to his programs, it is essential in my view that we understand now the situation as it is and gear our actions as well as our policies to it.
2.
The current congressional struggle over the GOC’s wage readjustment bill is both an uproarious wake for the Frei administration and a licentious baptism for an unrecognizable bastard offspring. No one now has manageable control over events in Congress, least of all the President. Having reportedly decided that he erred in making a deal two weeks ago with the Communists, he is seeking to “balance” his opening to the left with one to the right—or to anyone.
3.
I say the revolution in liberty has ended because, as Ambassador Tomic told the Secretary in his farewell call March 19,2 the government of President Frei has reached the limit in its ability to carry forward its program of economic and social reform within a democratic framework. Tomic’s judgement is beyond dispute. Neither the political nor economic situation provides meaningful opportunities for Frei to move forward. At best he can only “consolidate.” For the remaining two years nine months of his term he can only fight for a semblance of personal dignity and an appearance of control over events.
4.
At the time I left for Washington three weeks ago today, we were using our influence to seek a locus of interim stability. In our view, the one hope of consolidating the past gains of the Frei administration and of effecting a political equilibrium prior to the March 1969 congressional elections was the program which the new Minister of Finance Raul Saez had agreed to execute. While no one had any illusions about the defensive nature of the Saez budget, particularly since at best it involved a retreat to an inflationary rate of 25 to 30 pct, it did offer an opportunity to control economic forces, to achieve a defensible level of growth, to make a start on the reduction of a swollen bureaucracy, [Page 661]to concentrate on production improvement, to create a climate of quasi confidence in the business and foreign sectors and above all to lay a base for improved performance prior to the 1969 congressional and 1970 presidential elections.
5.
As Saez and we feared, the President caved at the first crunch. He fell into a trap laid by the Communist Party which astutely recognized that the Saez ministry would have the effect of stopping the slide of Chilean politics to the left. The Communists wanted Saez out and they maneuvered him to the sidelines.3 Having sucked the President into a position of dependence on Communist goodwill, the Communists, true to their word are now seeking to gut the rest of the bill. Indeed they are having difficulties explaining their initial maneuver with Frei to their own militants in the labor field. Hence the President, having made dubious gain from his mismatch with the Communists is back at square one with nothing ahead but the adders and snakes of the other political parties. He now regrets his liaison with the Communists as does his Minister of Interior Perez Zujovic who was the midwife of this abortion. Frei must not know the axiom which governs the lives of surgeons and of statesmen—that you can never afford to say “oops.”
6.
There are those who believe that the only real option open to Frei is to operate temporarily outside the democratic framework. Exponents of this approach believe he could turn to the military to impose a program that would hold the inflationary line and establish some economic and political order. After taking into account (a) the posture adopted two weeks ago by the military chiefs in their interview with Frei in which they reportedly eschewed stronger options and pressed instead the military’s wage claims (b) the absence of a potential man on a white horse and the generally unimpressive intellectual caliber of the leading officers (c) the proclivity among officers to join with the civilian claimants and to blame the GOC for the failure to manage Chile’s economic affairs well, particularly their pay raises (d) the reluctance, to use the mildest adjective of Frei, to take extra-constitutional measures, I can only conclude that this possibility is an outside one. In any event I have no sympathy for it.
7.
The structure and tradition of Chilean democratic politics has for many decades pushed parties into alliances. As I have reported almost from the time of my arrival here, three years of aloof operation above this historic pattern has (perhaps it was inevitable) led to the political isolation of Frei. Historic examination will also show the [Page 662]dispassionate observer that almost every President has had three years in which to introduce reforms before being immoblized by the political system prior to the extended period of campaigning for one kind of election or another. Moreover, some of the reforms of the past (e.g. the first Alessandri’s introduction decades ago of social security) were perhaps as “revolutionary” in Chile as anything attempted by the Frei government thus far. Finally, it has been the custom for Chilean Governments in the second half of presidential tenure to accept, however reluctantly and fatalistically, the inevitability of printing money as the only “democratic” way out of the political impasse. What we are hearing as a debate in Congress right now is the reversion to form. And it must be honestly stated that Frei is seeking to hold some kind of line. Thus far he has rejected such crackpot ideas as importing 4,000 cars to sell in this seller’s market at profits of E 50,000 each to fill budgetary gaps and such potentially explosive proposals (from his own party) as breaking the copper agreements by taxing the companies’ income or adding an export tax on copper. But to get a law he will probably have to yield some place. If there were no law, the odds are that we would then be in a situation of “revolution” or “liberty” since the cost of living the first two months has risen fast (8.4 percent) and since the official index increase of 21.9 percent for 1967 has not yet been compensated. Most Chileans prefer not to analyze long-term economic trends: rather they want cash to pay bills. In their overwhelming majority they will not blame the political parties: they will hold the GOC responsible for blocking increases.
7.
[sic] Senator Ibanez, the leading light of the Nacional Party and former Finance Minister Lucho MacKenna (under Alessandri) called on me yesterday to enlist my consent for a scheme they wanted to negotiate with GOC. Their proposal called for division of wage readjustment bill into two separate bills: (a) one would be confined strictly to readjustment aspects including a 21.9 percent cash payment to one third of public sector workers now scheduled to get 12.5 percent through mechanism of cash bonus: the wage increases for all the public sector would be financed by higher consumption taxes (which is a part of GOC proposal) and by further cuts in GOC expenditures and (b) separate financing bill for rest of fiscal expenditures. In latter Nacionales would insist on heavy cutbacks in agrarian reform programs including firing of MinAgriculture Trivelli and INDAP head Chonchol, cancellation of planned increase in sales tax, reduction of wealth tax. The role they had given the U.S. was to use the program loan for housing and for CORFO’s planned investment.
A.
I rejected their proposal, pointing out inter alia that, as far as I was concerned, availability of program loan depends on meaningful anti-inflation program and other criteria. I seriously doubted Frei would accept their proposal. If they really interested in healthy economy [Page 663]it was essential that they help get sensible wage bill through Congress now so housing starts could begin without delay. I added that I did not want to get involved in Chilean party politics. They had collaborated with the Communists in getting rid of Saez. Their explanations for their actions were not convincing to me. Therefore since they were among the parties who had gotten themselves into this mess over wage readjustment they must extricate themselves.
B.
Late today left-wing newsmen were spreading rumors that Nacionales were going to vote for Reajuste because I had called them in (sic) to denounce their politicking and to accuse them of accelerating Communist gains.
8.
Senator Ibanez put forward the extraordinary argument that the U.S. owed Chile’s pro-American private enterprise sector “damages” because of our support of Frei’s programs. In support of this thesis he invoked the recent toast by the Vice-President of Ambassador Tomic and of the Frei government. In this connection, we are informed by AP’s Lee Brady that today he asked Communist Senator Teitelboim his reaction to Vice-President’s toast and that the reply Brady says he filed was that if Tomic ever had chance to be president it has disappeared. What Teitelboim presumably meant is that CP won’t play ball with Tomic which was his view at this time in any case.
9.
Thus far, I have made clear to all who have sought me out— and I have sought no one—that U.S. is leaving it to Chileans to decide their political and economic future. U.S. aid has nothing to do with parties or with personalities but with effective use of economic resources. I got this across to Foreign Minister Valdes who summoned me for unrelated business when he broached subject. I noted to him that GOC has not consulted U.S. about deal with Communists nor any other aspect of current political problem, that we had no complaints and I trusted he had none either. He did not. I also mentioned to him that GOC’s total silence on anti-American terrorism contrasted with the immediate denunciation by Allende and Teitelboim and that I wondered if this reversal of roles taken together with Zuniga’s eulogy of the guerrillas in Bolivia meant that the U.S. should deal in the future with the FRAP in such matters.
10.
Once we have clearer idea of what kind of bill will emerge from Congress and its likely effects on U.S.-Chile relations as well as perspectives of Chilean politics, we will provide our views by cable.4
Korry
  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 23–9 CHILE. Secret; Priority; Limdis. Repeated to USCINCSO.
  2. See Document 301.
  3. Sáez resigned on March 15 and was replaced by Andres Zaldivár (Telegram 2844 from Santiago, March 15. (National Archives and Records Administration, RG 59, Central Files 1967–69, POL 15–1 CHILE)
  4. The Embassy reported on April 4 that the Senate had narrowly approved a modified version of the wage readjustment bill. (Telegram 3107 from Santiago; ibid., LAB 11 CHILE) An analysis of the “budgetary effects” of the bill is in telegram 3149 from Santiago, April 9. (Ibid.)