Chile

CHILEANS are accustomed to earthquakes, but the recent upheaval in their politics is so unusual that historians peer back to 1841 to find a parallel. Christian Democrat Eduardo Frei is the first president since then, under Chile’s multiparty system, to be elected by an absolute majority and to have a congress to do his bidding.

His victory by 56 percent in the presidential elections of September, 1964, was startling enough, but it might have been considered the wages of fear: the Marxist left was running so strong — and did, indeed, chalk up a hefty 39 percent — that the right and center voted for him as a lesser evil, in spite of his revolutionary program. In the congressional elections six months later, however, the old alignments were back in force; the right and center, Chile’s traditional governing parties, fully expected to return a congress able to block untoward presidential initiative. Instead, Frei’s party all but swept them away, while the far left slightly improved its position.

The result is not only a green light for Frei’s Revolution With Liberty, which aims at transforming Chile’s social structure, but also an unexpected revolution in its politics. The era of compromise, mutual back scratching or sheer deadlock — is over, at least for the time being. Indeed, it is likely that disgust with political infighting played its part, as it does in Gaullist France, in this sudden emergence of a majority party. Like De Gaulle, Frei, before the landslide, had asked for a constitutional amendment permitting him to go to the people should congress become too obstructionist.

Peaceful revolution

The program which is now the approved blueprint for Chile’s future follows closely the outlines for peaceful revolution drawn up at the Punta del Este conference as the basis for the Alliance for Progress. Emphasis is placed on achieving a social impact where it will be most immediately and dramatically evident in Chile: among the landless farm laborers and among the unorganized proletariat that swarms in city slums.

Chilean agriculture has been for some years a major reason for the imbalance of the economy. Once a net exporter of agricultural products, Chile now imports more than $140 million worth, two thirds of which could be produced locally. In Chile’s inflationary rat race, agricultural prices have lagged behind industrial ones because of government attempts to control the cost of the urban “market basket”; worse still, these controls have been erratic, thus discouraging rational development.

While these economic considerations are important, it is the social aspects which most concern the Christian Democrats. They point out that one third of the population lives on the land, 60 percent is illiterate, and the death rate of infants in rural areas is 129 per thousand, shocking figures for one of the most advanced countries in Latin America. The government goal is not, thus, just an increase in production — which they will encourage by allowing food prices to rise faster this year than those of industry — but a profound agrarian reform.

Frei has promised to distribute land to 100,000 new farmers during his six-year term, and to provide, through cooperatives, the necessary technical and financial assistance to make the venture efficient. In this respect, his government has a valuable heritage from his predecessor, conservative president Jorge Alessandri, who got a well-articulated if somewhat mild agrarian reform law through congress in 1962. Under this law 6000 plots have already been distributed. The present government plans to amend the law, to speed up the process of expropriation, and to allow for deferred payment of indemnities instead of cash on the line.

The urban slums

The program for the urban slums, which have been rebaptized “marginal neighborhoods,” goes under the name Popular Promotion, a hodgepodge package aimed at bringing them into the mainstream of national life. Here, too, the Alessandri heritage gives Frei a head start, since Alessandri built more low-cost housing than any previous president. Frei hopes to build still more, and in the existing slums to install water systems, pave the streets, put in electricity, with latter furnished largely by the inhabitants themselves.

He is most enthusiastic about the creation of neighborhood organizations: sewing circles, teams for various sports, parent-teacher associations, and local self-government councils, which are to have the right to federate with similar councils throughout the country in order to form effective pressure groups. Frei promises that none of these activities will be linked with polities, but some of his critics wonder how it is humanly possible to keep them separate.

In neighboring Peru, President Belaúnde’s similar and successful Popular Cooperation has been accused of being primarily a device for building grass-roots support for his party. In any case, only 10 percent of Chile’s working class is organized, in unions largely Communist-controlled, at least at the top. Organizing people “where they live as well as where they work” is thus an interesting new approach to the problem of giving civic representation to the submerged proletariat.

A third area where Frei has already achieved dramatic social impact is education. It is a shocking fact that in this country of eight and a half million people of largely European extraction there were approximately 200,000 children with no school to go to. In a crash program initiated immediately on taking office in November, at the beginning of the Chilean summer, Frei organized an intensive course to train new teachers, asked existing ones voluntarily to accept longer hours, and undertook the construction of thousands of schoolrooms, as well as lodgings for teachers in remote areas.

He mobilized the goodwill and enthusiasm of various groups: villagers gave land and their labor and sometimes local materials; the armed forces sent their troops and equipment; fifteen hundred university students spent their holidays mixing mortar and laying bricks. This year for the first time no Chilean child will be denied the pleasures of the three R’s.

Agrarian reform, public housing, and education cost money, and Chile is already overextended in the matter of foreign credit; it has received more dollars per capita in Alliance for Progress aid than any other Latin-American country. However, Frei also inherited from Alessandri an economy which, while certainly not brilliant, is still in relatively good shape. The balance of payments in 1964 showed a slight credit, thanks largely to the high price of copper and restricted imports. The growth rate was 4 percent, not too far below the Alliance goal of 5 percent.

The budget is approximately in balance, owing to a tax reform that is just beginning to show its benefits —among which Chileans count not only increased collections but a jail sentence actually enforced for a tax evader, an unheard-of phenomenon in Latin America.

The cost of living

However, on Chile’s main problem, endemic inflation, the Alessandri government, after an encouraging start, made no headway. The cost of living rose 38 percent in 1964; since 1960 it has nearly tripled. Previous attempts to stop the runaway in its tracks having failed, Frei is proposing to apply the brakes slowly, lie aims for a rise of only 25 percent in 1965, with lesser rises in succeeding years until stability is reached, hopefully by 1968. However, this year he is proposing that the rise be fully compensated by wage increases, with agricultural prices and wages to be overcompensated to redress previous injustices.

In order to maintain the overall increase within the 25 percent limit, he is, therefore, insisting that industrial prices rise no more than 19 percent. In this framework, only a sharp rise in production can maintain previous profit levels. Stringent controls, more effective than any yet devised, will be necessary to hold the line.

Financing social programs in so tight an economy thus requires some maneuvering and a high level of competence, but Frei has attracted a team of young economists from the various universities — particularly the Institute of Economics, organized some years ago by Professor Joseph Grunwald of Columbia — and from the United Nations Economic Commission for Latin America (ECLA), whose headquarters are in Santiago. Chileans like to call them the Brain Trust.

Service on the foreign debt, which would have absorbed more than half the export returns of the next few years, has been successfully renegotiated to provide a breathing spell. The United States has extended loans of various types for SI 20 million. And Chileans themselves have been asked to make a sacrifice: a capital levy on personal property of 1.5 to 3 percent annually for a period of five years.

This proposal has naturally aroused the ire of the propertied classes — and not only because of the money involved. Frei was careful to cite such precedents as France’s similar levy just after the war and to point to its present glowing prosperity as the result. What really upsets many Chileans is the declaration of their possessions which is implied in the levy. Income tax evasion would thereby become much more difficult. (At present, in spite of tax reform, the salaried class bears most of the burden; only 11,000 people have declared a taxable income of over 35000 a year!)

New deal in copper

Redressing social injustice, however admirable, is nevertheless no sure cure for inflation and economic stagnation. To get the country moving, Frei has tackled the problem at its very center — copper. This metal dominates the Chilean economy; it provides more than 50 percent of foreign exchange and 385 million annually in taxes. But five sixths of the copper is extracted by two American companies, Anaconda and Kennecott. Although these companies pay the highest wages in the country, and the highest mining taxes in the world, the presence of two foreign colossi at the heart of the economy is a constant irritant to national pride, particularly since a good deal of the copper is refined abroad and its marketing is beyond the control of Chile.

The Marxist left has been campaigning for some time in favor of outright expropriation. The American companies have hesitated to invest in the face of this threat and the concomitant one of confiscatory taxes. Kennecott even announced a few years ago that it was not planning any further expansion in Chile and would spend its money in developing its American properties.

Frei, for his part, proposed an intermediary solution which he called the Chileanization of copper. Immediately after the election, he sent a commission to the United States to see how the new word could be defined.

The definition has turned out to be not only dramatic but eminently satisfactory to everyone concerned except, of course, Chile’s die-hard Marxists. What it amounts to is a business association between the Chilean government and the mining companies, a new departure, on a scale like this, in the whole concept of “how to do business abroad.”

In two cases, that of Anaconda and the Cerro Corporation - new to Chile but already operating in Peru — Chile has acquired a 25 percent equity in new companies formed to exploit new ore beds. In the most startling agreement, that with Kennecott, Chile has bought outright 51 percent of a new company to exploit the rich El Teniente mine, whose production, with the aid of Kennecott, will be vastly expanded. The companies will benefit by tax reductions and guarantees, while Chile feels much more master of its fate.

Similar tax benefits and other stimuli have also been offered to the smaller companies to encourage them to expand too. All this implies a tremendous increase in production. Frei announced that by the end of his term in 1970 tonnage will have doubled—to 1,200,000 tons a year— and that Chile will then be the biggest copper producer in the world. More of this copper will be refined in Chile, and Chile, with seats on the boards of directors, will have some say on how the metal is to be marketed.

Chile will doubtless continue its flirtation with the Communist bloc it has even shipped to Red China as a gesture of defiance. At the same time, Frei has said, it will “respect with all due dignity and independence the interests of our principal consumer and biggest investor.”

Chile has not been able to lay much cash on the line for these tremendous acquisitions. Its chief contribution will be in housing for miners, access roads and other construction, and the supply of power, all elements in its development plan anyway. The emphasis on mining may withdraw resources from other areas, but new foreign investment will amount to $400 million, some of which will, of course, be disbursed within Chile itself. However, the program will not bear its full fruit until Frei’s term is nearly over. “I am governing for Chile,” he says, “which was not born nor does it die in one presidential term,”

The long-term prospects for a significant increase in government revenues and foreign exchange are thus excellent. The problem is to survive until this ship comes in, and meanwhile to encourage other exports: iron ore, of which Chile has rich deposits, cellulose products from the Andean forests, and fish meal, where a budding enterprise hopes to emulate the Peruvian bonanza. Further industrialization within so small a market is hardly viable except with the prospect of an effective Latin-American Common Market. Frei is pushing hard for a summit meeting to cut away the petty nationalist haggling which has hampered negotiations for years.

Chileans, the most civic-minded of all Latin Americans, are conscious of these problems, conscious too that with the new political alignment within their country the price of failure in this experiment of Revolution With Liberty may be revolution without liberty. “We must show Latin America,” they constantly say, “that there is an alternative to Castro.”