From Dictatorship to Democracy: Rebuilding Political Consensus in Chile 9781685851637

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From Dictatorship to Democracy

Woodrow Wilson Center Current Studies on Latin America Published with the Latin American Program of the Woodrow Wilson International Center for Scholars Joseph S. Tulchin, Director

From Dictatorship to Democracy Rebuilding Political Consensus in Chile edited by

Joseph S. Tulchin Augusto Varas

Lynne Rienner Publishers • Boulder & London

Published in the United States of America in 1991 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 1991 by The Woodrow Wilson International Center for Scholars. All rights reserved

Library of Congress Cataloging-in-Publication Data From dictatorship to democracy: rebuilding political consensus in Chile edited by Joseph S. Tulchin, Augusto Varas. (Woodrow Wilson Center current studies on Latin America) Includes bibliographical references and index. ISBN 1-55587-294-8 1. Chile—Politics and government—1988- 2. Representative government and representation—Chile—History—20th century. 3. Chile—Relations—United States. 4. United States—RelationsChile. I. Tulchin, Joseph S., 1939- . II. Varas, Augusto. III. Series F3100.F75 1991 983.06'5—dc20 91-34858 CIP British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984.

Contents

Preface

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2 3 4 5 6 7 8 9

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Introduction Joseph S. Tulchin and, Augusto Varas

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The Challenges Faced by Latin America: Democracy, Structural Adjustment, and Social Cohesion Angel Flisfisch

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Promoting Economic Growth and Stability Carlos Ominami

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The Chilean Economy and US-Chilean Relations RolfLüders

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Commentary Riordan Roett

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The Social Debt in the Chilean Development Process Jorge Arrate

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The Chilean Political Transition to Democracy Edgardo Boeninger

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The Transition to Democracy and US-Chilean Relations Carlos Portales

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New Perspectives on US-Chilean Relations Augusto Varas

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Commentary Arturo Valenzuela

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Index About the Book

87 91

Preface

The publication of a book always involves debts of various kinds. One of the pleasures in writing or editing books is that the author or editor gets the opportunity to thank publicly some of those who have been of help along the way. In this case, we want to give credit to those whose special efforts were critical in putting together the conference that led to this volume. Principal among them were our Chilean colleagues who, from their perch in Santiago, saw that Chile was in great danger of disappearing from Washington's field of view. In FLACSO-Chile, those working at the International Relations Study Area—especially Carlos Portales, now Deputy Minister of Foreign Relations for Political Affairs—were crucial to organizing and carrying out this event. The conference was held at the Wilson Center in December 1989. It was both an academic exercise, including serious efforts to analyze the transition to democracy in Chile, and a political event of major significance. The Chilean group that participated constituted a significant concertacion, a pulling together of political groups that had been at loggerheads for years, in a joint effort to achieve the smoothest possible transition to democracy. This book is a collection of the papers presented at that conference. And, although the editors have made an effort to update the text through careful editing and some notes, the papers themselves appear as presented at that time. In the Latin American Program, Andrew I. Rudman, program associate, and Lucy Hetrick, program assistant, were indispensable to the success of the conference and to the lengthy, sometimes tortuous process of converting the conference papers into this book. Leah Florence edited the transcripts of the discussion to extract the pearls of wisdom found there.

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PREFACE

The Latín American Program and FLACSO also wish to thank the Ford and Mellon foundations for their generous support that made the entire project possible. We hope that they will consider this product worthy of their generosity. JosephS. Tulchin Augusto Varas

viii

Introduction Joseph S. Tulchin & Augusto Varas

The great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political conexion as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop. —Farewell Address of President George Washington to the People of the United States, 17 September 1796.

From a Latin American perspective, the aims of US foreign policy, as stated almost two hundred years ago, appear to have been difficult to achieve. Contrary to the purposes of the American founding fathers, entanglement in hemispheric political and economic affairs has been the predominant pattern, not the aberrant exception. The United States has been deeply involved in Latin American politics repeatedly, and not always in a manner that reflected favorably on the government. Nor have commercial relations always been carried out smoothly or with clear reciprocal advantages. This historical pattern is today subject to intense pressure for change. The hemisphere is confronted with a new international order and must accommodate to this new global reality. Whether we embrace this new order or not, it has set in motion a transition from an old pattern of relationships to a new one. There have been shifts in hemispheric relations before, earlier transformations in patterns of relations. Sometimes, these transformations in the past have seemed serendipitous. On other occasions, a conscious effort to effect change has been made. In the current situation, we believe a deliberate effort to change traditional patterns of relations is being made. Remarkably, these efforts, in and of Joseph S. Tulchin is director of the Latin American Program of the Woodrow Wilson Center. Augusto Varas is senior researcher for the Latin American Faculty of Social Sciences (FLACSO) and adviser to the General Presidential Staff Ministry of Chile.

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FROM DICTATORSHIP TO DEMOCRACY

themselves, are contributing to the process of change, in ways that were largely unanticipated. All of these changes, the deliberate and the unanticipated, suggest the need to reevaluate the structure of the hemispheric community. What is to be the framework for the relations of the United States with the nations of the hemisphere? Now that the cold war has ended, will the United States return to a pre-cold war framework in which it assumed a laissez-faire posture toward external influences within the hemisphere until and unless those influences were considered direct threats to US security, and where the definition of what was a threat to US security was the province exclusively of the United States? Or, would the United States take a more narrow spheres-of-influence approach, using the Western Hemisphere, implicitly or explicitly, as a counterpoise to the emerging blocs formed by the nations of Europe and the nations of the Pacific Rim? And, how are the nations of Latin America to frame their relations with the United States? After all, if they no longer considered themselves bound by the rules of the game established during the cold war, would they be able to assert their own strategic interests in world affairs? If so, how would those strategic interests be expressed and how would the adoption of more independent foreign policies affect bilateral relations with the United States and multilateral relations with other states in the region? Even before the cold war ended, it was becoming an article of faith among students of international relations that the bipolar world was giving way to a multipolar world, a world in which the United States would have less clear hegemony over other nations, a world in which the economic power of Japan and of Germany, to take two obvious examples, would count for more and more. In such a world, each nation might expect to play a more independent role in world affairs, the success of which would vary according to its economic and political capacity. It no longer would be necessary to gauge all international actions in terms of their effect on the cold war, in which the level of threat they might pose to US security was conceived in zero-sum terms, in marked contrast to the calculation of external threat that prevailed before the Second World War. In such a world, multilateral organizations and even multilateral ad hoc groupings might play a more prominent role in conflict resolution or in the articulation of a nation's interests than hitherto had been the case. In this as yet unfinished process of building a new hemispheric order, US-Chilean relations appear as a crucial case around which it is possible to observe how, after so many years of reciprocal misunderstandings, both the political elites of Latin America and the United States might reach a new stage in their relationships in the context of a new world

2

INTRODUCTION

order. The Chilean transition to democracy was an integral part of the long-term endeavor by the United States in the second Reagan administration to achieve, in good faith, a consistent and coherent economic and political approach to the region. Chilean political leaders reacted with hope and enthusiasm to the possibility of reshaping a damaged relationship. They considered stable and fruitful reciprocal relations an indispensable element in their struggle to restore democracy in Chile. President Bush's trip to Chile in December 1990 and the solution of long-standing controversies in the political and economic arenas appear to have paved the way to a new era of more amicable relations. After the inauguration of the new democratically elected government of Patricio Aylwin in March 1990, relations improved rapidly. The US executive certified to Congress a dramatic improvement in human rights in Chile, thus opening the way to a restoration of military links. The decision to reintegrate Chile into the General System of Preferences because of the normalization of labor relations enacted by the new government in Santiago further improved the climate of relations between the two nations. The Chilean-US agreement to use the framework of the bilateral Treaty for the Advancement of Peace, labeled as the Bryan commission in honor of the US secretary of state William Jennings Bryan, opened the way to a compromise on how to proceed regarding the Letelier-Moffit assassination. How was such a swift transformation of relations possible? It is obviously a gross caricature of the political process in Chile to suggest that it was the mere transition to democracy that eliminated all difficulties between the two countries. What were the factors that permitted such a rapid rapprochement? Can we expect the new cordiality to last? And, can we expect that the dramatic decline in tension in the bilateral relationship will contribute significantly to the evolution of a new framework for hemispheric relations? This book is the first effort to answer these questions. Previous US involvement in the breakdown of Chilean democracyeven though it was not decisive—damaged US links with democratic forces in the country. For Chilean democrats, for a long time after the military coup of September 11,1973, the US government was perceived either as supportive of the dictatorship or inconsistent in its approach to democratization in Chile. For the brief period of the Carter administration (1977-1981), US policy was much clearer in terms of its condemnation of human rights violations, but the government did not implement its declared policy coherently and consistently with adequate political and diplomatic tools to achieve its goals. There is no question that the US policy saved Chilean lives. But the policy as enacted did not ac-

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FROM DICTATORSHIP TO DEMOCRACY

complish its stated goals. US sanctions for human rights violations also harmed US relations with the military and the right. Changes in US policy during Reagan's second term, prompted by many NGOs and a staunch group of supporters in the Congress, and the highly skillfull diplomatic performance in Santiago and in Foggy Bottom of the team led by Ambassador Harry Barnes, permitted the US to play a new role in the restoration of democracy. Joining efforts with the rest of the international community, from which it had been alienated because of its support for un- and even antidemocratic regimes in the region, expanding its contacts with all major political sectors in Chilean society, and showing a consistent approach to violations of human rights, the US started to develop a bilateral policy that coincided perfecdy with the new approach of the majority of Chileans: to achieve development through democratic consensus. This crucial shift in the US approach to the Chilean political transition in the first instance served to limit authoritarian excesses and to strengthen domestic democratic forces attempting to forge coalitions that might face down the authoritarian regime. In this way, the United States joined a large group of countries supporting the Chilean transition process and seeking to achieve development and democracy in Latin America through peaceful means. These changes were facilitated also by crucial transformations in Chilean political culture. After seventeen years of military dicatorship, Chilean political leaders all across the political spectrum began to put an end to a long tradition of bitter confrontations, and slowly to value more and more democratic stability through compromise. An important modernization of political life occurred under the authoritarian regime. It consisted of a more pragmatic, nonideological approach to political issues and a consensual commitment to the maintenance of democratic rules of the game. The trauma of the military coup and its long and bloody aftermath were powerful incentives for all political sectors not to recreate the same conditions that produced the breakdown of democracy. They understood that the only way to build a stable political system in the future was to forge new forms of consensus. This new approach to political life was maintained under great stress during the first year of democratic transition. An example of this new atittude, of this new approach to politics, in the first year of democratic government, was the consensual modification of labor laws and the tax system. These reforms, in turn, allowed an increase in the provision of social services like health, housing, and education, which then permitted the definition of an increasingly consensual policy to tackle the investigation of human rights violations during the military dictatorship and the solution to the problem of those imprisoned for political reasons but charged with criminal offenses. The success in dealing with these controversial issues 4

INTRODUCTION

opened the way to confronting new problems faced by the democratic government, problems typical of contemporary urbanized societies but scarcely recognized under the military, such as higher rates of urban delinquency and, more broadly, the critical situation of Chilean youth. The unprecedented political coalition bringing together seventeen political parties, including previously bitter rivals like the Socialist party and the Christian Democratic party, has provided the required stability to the Chilean political system. The perception that the authoritarian regime was a suboptimal outcome for all key players in Chilean politics was a good incentive for all of them to develop a pluralist democracy not repeating the previous errors that caused the breakdown of democracy. Within this new consensual framework, both the left and the right found they could use parliamentary and interparty accords to pursue their own goals. In this context of a new macropolitical and economic consensus, the democratic government is engaged in overcoming all those restrictions to democracy inherited from the authoritarian regime. These restraints include the structures of local and regional power, the judiciary, the regional political organization, and others that required constitutional reforms. They would permit linking the new market economy and structural change with genuine democratization. The Chilean democratic government maintained and increased economic performance since it could skillfully manage governmental policies and at the same time create growth and redistribute the product of macroeconomic success without destabilizing the whole system. This implied a redefinition of the role of the state—not invading the private realms, but providing those goods and services that the market is not able to trickle down. Economic reforms have been stabilized in such a way that foreign investments during the first year of democratic government reached $1 billion, far in excess of the figures for 1989. Fifty-five percent of this new investment was in mining, 34 percent in services, and 7.4 percent in the industrial sector. The investment came from Canada (32 percent), Great Britain (22 percent), the United States (17 percent), and the Netherlands (7 percent), among other nations. The private sector is trying to increase its international competitiveness through exports with higher value added and has continued its aggressive positioning in world markets supported by dynamic and highly imaginative specialized bodies in the administration. In 1990, exports to the European Community rose by 36.7 percent, with the principal shares going to Germany, Great Britain, and France; exports to the United States rose 19 percent, to Japan 16 percent, and to Latin America 11 percent. In this context, President Bush's "Enterprise for the Americas Initiative" has been welcomed by

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FROM DICTATORSHIP TO DEMOCRACY

Chilean economic officials, since it provides a framework to solve longterm protectionist policies that prevent a better positioning of Chilean products in US markets. Despite these successes in the first year of the new government, several problems persist that indicate the difficulties in a transition to democracy. The principal difficulty has been the normalization of the situation with reference to human rights. The publication of the formal report by the Commission on Truth and Reconciliation (the Rettig Report) in March 1991 was received with approval by the vast majority of the political parties and the public. The reaction of the military was quite different. At the end of March, General Pinochet delivered a defense of the military's role in suppressing subversion. This issue, along with the more general problem of General Pinochet's tenure as commander of the army, will continue to complicate civil-military relations. Another m£yor problem confronting the civilian government is the commitment to social equity in a time of fiscal restraint. The effort to redress accumulated wage grievances has been stymied by the fear that a too-rapid adjustment of wages would destabilize the economy and by a general shortage of revenues for the state to redistribute. This has been especially painful in the areas of education, health, and housing. Closely linked to this broad issue of social policy is the more specific dilemma of unemployment among the youngest segment of the work force, which appears to be tied directly to soaring rates of urban juvenile delinquency and indirectly to the persistence of several urban terrorist groups. The phenomenon of urban delinquency, not a common occurrence in Chilean history, appears to be common to most large cities in Latin America. A final dilemma that the new civilian government must face is the brevity of its mandate. Four years is a short time to accomplish the goals of the transition to democracy while at the same time defending the administration from the normal, legitimate critiques of a democratic opposition that wants to share power. Only a year after the elections that brought Aylwin to power, candidates for the next presidential election began to jockey for position. This puts at risk the delicate coalition of Christian Democrat and socialist parties that made the transition possible in the first place. The election in 1994 is expected to be hotly contested. To allow the normal emergence of presidential candidates without destroying the consensus that holds the current government together will require political statesmanship of the first order. All these achievements in the Chilean case show the United States that through appropriate—coherent and consistent—foreign policies and a better understanding of specific domestic situations in the region, it is possible in Latin America to strengthen market economies and 6

INTRODUCTION

democratic polities simultaneously. They also suggest that the hemisphere has reached a remarkable conjuncture and faces an opportunity to introduce important changes both in the US policymaking process toward Latin America and in Latin American policies toward the United States. It is a moment, too, when there is greater disposition, north and south, to settle disputes t h r o u g h multilateral organizations a n d mechanisms than at any time in this century. Chile also shows how, by merging development and democracy, it is possible to strengthen the collective regional capability to develop innovative hemispheric policies, with countries of the region tackling common issues and developing consensual policies. The reinsertion of Chile in the international community actually permitted her—in the first year of the newly elected government—to start to play a positive role in integrating the group of Latin American countries committed to these ideals. Drug traffic, the deterioration of the environment, trade barriers, international migration, or terrorism are common threats to all hemispheric parties. These issues require responses with collective action through a new set of regional policies. These policies should be decided collectively, and for this it is necessary to strengthen multilateral organizations. The only way to fortify these hemispheric bodies is to have regional counterparts able to maintain stable foreign policies. In its turn, the stability of Latin American foreign policies depends o n the level of domestic support these policies can find internally. Accordingly, strong domestic consensus is essential for the creation of a new democratic hemispheric order. The new spirit of consensus in Chilean politics was manifest in the seminar that provided the material for this book. The seminar was simultaneously a political and academic effort, and its record, in the same fashion, is an academic evaluation of the transition to democracy in Chile and United States relations with Chile and is a political commitment to that transition and to a closer, more constructive relationship between the two countries. The participants in the seminar represented a wide variety of groups working for a transition to democracy, and most of them would go on to play critical roles in the new civilian government after March 1990. O n e of the features of the emergent consensus that was indispensable to the transition was the understanding that the transition could not be complete and that a national consensus could not be maintained unless and until relations with the United States could b e reestablished consensually on firm and friendly grounds. The fact that the seminar was held in Washington had more than symbolic significance. The formal sessions were complemented by informal meetings between the participants and

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FROM DICTATORSHIP TO DEMOCRACY

members of the Congress and of the executive branch of the US government. Personal relationships were established that would be translated six months later to effective official links between the new civilian government in Chile and the US government. The political consensus highlighted in this book demonstrates that the strengthening of democracy in Chile requires catching and holding the attention of the US government during moments of normal relationships and of domestic tranquility, and notjust during moments of domestic or international crisis. The success of Chile in constructing a democracy with development through a market economy is a critical case that should be taken into account by the United States as a point of reference for its relations with the rest of Latin America. The chapters of this book indicate how the various segments of Chilean politics modified their traditional positions in order to work together to defeat authoritarian politics, first in the plebiscite and then in the general election of 1990. The opening chapter by Angel Flisfisch shows how the socialists reformulated a theory of democracy for development, which enabled several factions of that party to adhere to the emerging coalition. Carlos Ominami picks up the same theme to outline the set of political economic policies that would give effect to this joint goal of democracy and development. Rolf Liiders, who held positions in the government of the military regime, explains in detail how the redistributive policies proposed by the new coalition might undermine the policies of the Pinochet government, although he emphasizes the need for attention to redistributive policies that were ignored under the military. Riordan Roett and Arturo Valenzuela offer perceptive comments on these and succeeding presentations, exploring the most likely consequences of the policy options proposed by the authors. The chapters by Edgardo Boeninger and Jorge Arrate, representatives of the highest leadership of their respective parties, demonstrate how the consensus forged in the opposition to the dictatorship has been assimilated by the major parties, has made the political transition feasible, and, in effect, has opened the way to a period of democracy and development in a post-authoritarian society. Finally, the chapters by Cartas Portales and Augusto Varas indicate the challenges and opportunities that lie ahead for the civilian government of Chile. They focus on the challenge of reestablishing a stable relationship with the United States after a long period in which the United States was a major supporter of the military dictatorship. They argue that the reestablishment of a constructive, fruitful relationship with the United States will be the key element in the reinsertion of a democratic Chile into the community of nations.

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1 The Challenges Faced by Latin America: Democracy, Structural Adjustment, and Social Cohesion Angel Flisfisch

—

—

In the 1970s, analyses of Latín America that dealt with generalities—with integrating and interpreting diverse realities, searching for an understanding of the region that was based on two or three ideas—gave way to monographic studies that emphasized particularities and individual features, in both synchronic and dyachronic terms. This seduction by the contextual, by the specific case as a tool for developing an intelligible understanding of phenomena specifically situated in time and space and not transferable to other situations, was the result of a generalized perception that problems confronting a society were particular to that society. The historical roots of each nation, or of regions and localities within a nation, were associated with specific historical traditions. During the last decade, there has been a complete change in this perception and a growing realization of the commonality of the problems and challenges faced by Latin American countries. The most dramatic proof of this was provided by the problem of the debt. It became readily apparent that the most important aspect of the debt had little to do with the specific context of each nation and more to do with global economic phenomena. The problem presented by the debt is only one element in a constellation of factors and challenges that fundamentally affects all of Latin America equally. With the passage of time, this change from the specific to the general has become even more dramatic. The effort to understand these generalities has demonstrated that the same tendencies, restrictions, and challenges are being faced by all of the nations of Latin America. These problems are not essentially different from those confronted by the central capitalist economies, the countries in Eastern Europe that were recently socialist, countries such as the People's Republic of China, or Angel Flisfisch is director of the Studies Division of the Presidential Staff Ministry of Chile.

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FROM DICTATORSHIP TO DEMOCRACY

almost any of the societies of the world. This does not mean that all nations are alike. Factors specific to a certain nation or region continue to be of importance and should be taken into account both in developing an appropriate strategy and in evaluating the viability and potential for the success of that strategy. With astonishing regularity, essentially similar conditions are found in countries as different as the Soviet Union, Argentina, Poland, and even the United States. With the same astonishing regularity, it is discovered that the policies, strategies for response, and changes required are also similar. This should be taken into consideration in any analysis of relations between the United States and Latin America, or of any case in particular, such as that of Chile and the United States. There are always conditions specific to a particular event that help explain that event, or even a wider pattern of relations. For example, the invasion of Panama is inexplicable if an analysis of the events ignores the very special role played by General Noriega. Likewise, an analysis of the pattern of relations between the United States and the drug-producing nations cannot ignore the factor of international drug traffic. But beyond very specific circumstances, whether in time or in space, the repetition of situations and of similar patterns in society invites us to the conclusion that there are wider, more generalized processes that in the years to come will determine the existence and permanence of problems that will make up the central issues of relations between the United States and Latin America. Despite the risk of oversimplification, it is not unreasonable to propose that Latin America today is confronting challenges posed by two necessary changes: democratization and structural adjustment.1 In addition, there is a third challenge, posed by a necessary precondition for the consolidation of these changes: developing new forms of cohesion or social solidarity, in the sense of the concept proposed by Durkheim.2 These are necessary in order to (1) replace forms that would prove dysfunctional or too traditional with respect to needed economic changes and (2) to replace a generalized state of anomie generated by the destruction of preexisting forms of social solidarity. When we say that these changes are historically necessary, we are not presupposing a philosophy of history based on their inevitability. The processes at work in our societies that move us toward these changes can have different and contradictory consequences, resulting in either the consolidation of democratic forms of economic organization or in widespread and significant political destructuration accompanied by economic destructuration. One of the possible consequences is a state of decadence that will in turn result in global marginalization and, nationally, in a socioeconomic order approaching Hobbes's state of 10

DEMOCRACY, STRUCTURAL ADJUSTMENT, AND SOCIAL COHESION

nature, accompanied by a growing lack of viability of the national state. As this is a very real specter for some nations of Latin America, the crossroads at which they find themselves is particularly dramatic. These three challenges place the state and political institutions in historical center stage. Whether by intent or by accident, the policies and actions of governments are the principal agents in the processes of transformation. Both continuity and change in the state and politics—in the form of state and political organization—and the ability to govern effectively that these imply affect decisively the future turns taken by processes at work. These are challenges to political action and the states of the Latin American countries, in the sense of being capable of self-induced change and of successfully concluding the processes of change. Although it appears paradoxical, given the connotations associated with the notion of structural adjustment, the state and the efficacy of political action are today more necessary than ever in the countries of Latin America. There is no invisible hand to guide us through these changes and into safe harbor. A happy ending requires as a necessary precondition states and civil societies with a strong and well-articulated level of political participation. But this is not sufficient. The present situation calls for a particular role for government, a role that must be taken on for the long term. The foregoing demonstrates the importance of any action or actions taken by the United States in relation to the nations of Latin America and their chances of success in the face of these challenges. Whether we like it or not, this behavior cannot help but influence, positively or negatively, the role that these governments must play and their ability to be effective governing bodies. Ever since the wars for independence, democracy has posed an important question in the intellectual and political history of Latin America. It is not only that democracy has been a problem in Latin America for a great part of the present century; democracy never became a pivotal or catalyzing force in politics, nor has the issue of democracy worked to develop collective and long-term movements within society. Democracy as a vehicle of change—if not in the vanguard, at least as a favored option by movements or more profound currents that developed in the national social fabric, publicly involving different social groups and large numbers of followers—is a recent phenomenon, important only in the last two or three decades. Superficially, the emergence of democracy as a deeply felt factor appears to coincide with the adoption of democracy and human rights as important features of the international policy of the Carter administration. Certainly, and despite its ups and downs and retreats, the continuation of this policy into the 1980s proved favorable to the democratization 11

FROM DICTATORSHIP TO DEMOCRACY

that is now changing the face of Latin America. Nonetheless, to attribute the development of a social climate in which democracy has begun to have a positive influence on the international policy of the United States is at best an extravagant claim. What is happening in Latin America cannot be explained as an effect of imported ideologies—as a sort of exercise in example-setting on the ideological plane—nor as the product of the development of an ideological confrontation occurring on a worldwide scale. The strength of democracy has its origins in the structural transformations of national societies. During the twentieth century, traditional production relations have been increasingly substituted by contract labor and market relations, in this way causing the erosion of those forms of social control that were based on the maintenance of these relations.3 This has greatly reduced the potential costs that were associated with collective action in the past.4 Under present conditions, the only manner in which this might be changed is through state repression. In cultural terms, this transformation is expressed in a transition from what Almond and Verba5 have called a "subject culture" to a distinct constellation of basic attitudes towards the state, politics, and the role of government. We are not seeing the large-scale adoption of a highly sophisticated democratic credo, analogous to the idea of the American Creed, or the growth of a culture of participation or a civic culture. What is occurring is a generalized sense that the state and politics are something that can and should be at the service of the people, that the public has certain rights and interests that can be demanded from the authorities, and that, once the favorable circumstances are in place, it is possible to organize and carry out effective collective action vis-à-vis the official power structure. These changes have opened and expanded opportunities for new political actors,6 opportunities that did not exist previously. At the same time, these new opportunities have developed in a context where economic modernization, increasing social stratification, and the expansion and diversification of the educational system have generated a cadre of potential political leaders at all levels (national, local, communal, sectoral, etc.) on a scope previously unseen. The tendencies that exist today, which are moving toward more polyarchic7 political configurations, are explained by the transition from a social structure in which power was noticeably concentrated to those in which a wide range of social sectors can participate. Political polyarchy is the present challenge to societies that stopped being oligarchies and passed into being social polyarchies. It is this structural feature that explains the instability of contemporary authoritarian governments. If the forms in which the 12

DEMOCRACY, STRUCTURAL ADJUSTMENT, AND SOCIAL COHESION

authoritarian regimes have evolved depend on the changing relationship between repression or tolerance of collective opposition movements, 8 then the changes that have occurred indicate a change in the relationship. Given sufficient time, the capacity for collective action and potential for political leadership in society tilt the balance in favor of democratizing strategies. Nonetheless, the presence of this feature does not guarantee that its consequence will be the consolidation of democracy. That requires a sustained governmental effort, capable of maintaining a dynamic social equilibrium over the long term and subject to the restrictions inherent in a democratic system: the very real possibility of change in government, electoral competition, and a high level of collective action based on a wide diversity of interests. This is not only a requirement for the initial democratic government but for those that follow. In this sense, it is more than a characteristic or a particular attribute of a specific government, it is a systemwide requirement; the political process generated by democratic tendencies has to culminate in the formation of a state in which these requirements are inherent in the system. If this does not occur, the result is political decadence, characterized by cycles in which there is an effort towards democratization followed by regression to authoritarianism. These cycles would be marked by weak government, incapable of effectively regulating the economy or social conflicts. Stated in another manner, these cycles would produce a succession of governments as incapable of providing for the public good as of ensuring conditions favorable to the development of forms of collective action appropriate to their creation. 9 To associate the consolidation of democracy with the presence of a certain kind of state with the previously mentioned features might seem excessive. Nonetheless, the necessity of the economic transformation connoted by the notion of structural adjustment justifies the seeming excessiveness of the requirement. At other times and under other economic, domestic, and international conditions, the job of consolidating democracy in Latin America could have been easier work, capable of being separated to some degree from efforts toward economic development. Today, the challenges of democratic transformation and of structural a d j u s t m e n t are simultaneous. T h e success or failure of confrontation with the latter challenge will determine, irredeemably, the success or failure of the consolidation of a democracy. At first blush, the notion of structural adjustment appears to allude simply to a kind of policy operating on the macroeconomic level and essentially oriented to obtaining and preserving a certain macroeconomic equilibrium. But in reality the adjustment leads to a particular type of economic regime, to a kind of economic organization in which 13

FROM DICTATORSHIP TO DEMOCRACY

systems and market relations are the basic organizational principles and direct the function of economic activities. The great change experienced in the 1980s is precisely the revalorization of the market as the institution responsible for the distribution of resources within society. At present, it could be said of the market what has been said of democracy: that it is unsatisfactory, even undesirable from many points of view, but it is still the best option available insofar as the allocation of resources is involved. As is the case with the challenges being posed by democracy, the revalorization of the market is not the result of the worldwide triumph of neoliberal ideology, linked to the exercise of the power available to institutions such as the International Monetary Fund and the central capitalist economies. Clearly, ideological confrontation as well as the strategies and resources available to certain institutions and countries are important ingredients in this process. But the basic impulse comes from the direction taken by the international and domestic economies, both capitalist and socialist. On the one hand, during the last few years, there has been a notable heightening of interdependence in international economic relations.10 This increase has been of a magnitude such that scientific and technological innovations and changes in the productive infrastructure in domestic economies has affected substantially other national economies, frequently imposing a need for change in the latter. The only strategy that could be adopted to avoid this effect and neutralize the challenge posed by the need for structural adjustment is the conversion to an autarchic economy. Supposing that the internal social and political conditions allowed for this change, the conversion to this kind of an economy would be synonymous with economic stagnation. Most probably, a premeditated strategy of international isolation would lead to the same end as those Utopian socialist and Tolstoyesque communities founded at the end of the nineteenth and beginning of the twentieth centuries. The problem for the vast minority of the countries of the third and fourth worlds is not how to get out of the world economic order, but how to work out the best strategy for insertion into the international economic system. That strategy requires structural adjustment. On the other hand, since the 1980s, the performance of the capitalist and socialist economies has made apparent that the regulation of economic activities results in such severe inefficiencies as to be socially undesirable, and these inefficiencies can be overcome only by allowing the logic of the market to run the economy. These inefficiencies also relate to the manner in which the insertion into the international economy is carried out and the advantage taken of that position in the economy. Besides a specific kind of governmental management of macro14

DEMOCRACY, STRUCTURAL ADJUSTMENT, AND SOCIAL COHESION

economic variables, this structural adjustment also concerns and implies additional policies and orientations, such as significant deregulation of the labor market, open economies, a secondary role for public enterprises, and the elimination of political-administrative or politicalcorporativist barriers to markets. All these factors and others point to the same principle, although subject to adjustment in accordance with circumstance: the substitution of the logic of policy for the logic of the market. Paradoxically, this substitution always requires initiative on the part of the state. This is decisive, as much for the initiation of the process of substitution as for its continuation against political-corporativist pressures (this, of course, assuming that the substitution has been carried out successfully). Essentially, the challenge being faced by the nations of Latin America, and the successive governments that will run their affairs, is that of substituting a new economic regime for an order that has been evolving since the Second World War. In the new economic order, the modes of organization of the market will be secondary to the primacy of the market and market criteria of efficiency. The principal difficulty posed to the nations of Latin America by the challenge of structural adjustment rests in the inertia of the ancien régime that developed in the forty years preceding the 1980s and points to the need for an abiding respect for the extent of innovations that are required. Faced with events such as the economic crisis of the 1930s, or even the Second World War, the nations of Latin America developed a series of defensive strategies in a reactive rather than a premeditated manner. The basic feature of these strategies consisted of a large step away from a market economy, creating enclaves or foci of security within society that were protected from the constant economic pounding at the hands of exogenous economic forces. With the passage of time, such enclaves grew in number, and what had in the beginning been appropriate responses to a series of problems became an extensive network of social coalitions concerned with the distribution of goods. These distributional coalitions11 utilized the state and governmental policy to maintain and create income12 that was generated by the state itself. These coalitions, in turn, organized collective action to defend their position against change that might be promoted by other distributional coalitions, with state policies adverse to their interests, and also to confront changes within the market economy. Except in the case of Chile, and to a lesser degree that of Uruguay, authoritarian regimes work to preserve the existent system of distributional coalitions already in place within a particular society, but gready favoring some over others.1 In a democratic regime, all of the distributional coalitions operate on a more equal footing, which is expressed in 15

FROM DICTATORSHIP TO DEMOCRACY

an open intercorporative struggle that produces a condition in which effective government becomes impossible, such as demonstrated by the recent cases of Argentina and Brazil. For democracies in Latin America, the challenge of structural adjustment is the challenge of confronting the system of distributional coalitions that are already in place, modifying that system considerably by forcing the participants to give up a fundamental part of their activities to the open competition of the market, and at the same time forcing an admission of the primacy of the free market. This makes it impossible for the society itself, already organized into various distributional coalitions, to be the agent of its own structural change. What is required is systematic and prolonged activity on the part of the state. Under a democratic system, this implies action on the part of various successive governments. The consolidation of democracy requires that the political actors develop a new kind of state. If this kind of state is not developed, the continued actions of the distributional coalitions will lead to a state that cannot be governed. This, in turn, will lead to inefficiencies and negative economic effects sufficiently severe as to heighten the probability of a regression toward authoritarianism that will also not be able to remain stable due to the presence of democratizing tendencies that have deep roots within the structure of society. Tironi and Lagos 14 have identified four models for state action that can work to confront and overcome corporativist resistance—that is, the resistance of distributional coalitions—to structural adjustments: (1) an authoritarian model, forcefully imposed, that can operate as well in authoritarian regimes (Chile) as in democratic ones (Bolivia); (2) a model based on co-optation, where the government manages to form a supporting coalition consisting of the business community and part of the middle sectors; (3) a political model, in which a government, which was recently elected by a wide margin and with the support of a broad coalition, mobilizes public opinion against distributional coalitions; and (4) a model of compromise, where a government attains long-term labor support where labor assumes the costs of the adjustment in exchange for expected progress in the long term. Most probably, the point of rupture with the ancien régime developed in accordance with one of these models or a combination of them. The problem resides in that structural adjustment, in economic terms, is put together all at once and is not maintained automatically. Its continued success requires constant action by the state, that is to say, a type of state that works systematically and can be maintained through political action. A necessary condition for this kind of state is the presence of a strong party system. This political system can be of two types. First is a system composed primarily of parties that have a high 16

DEMOCRACY, STRUCTURAL ADJUSTMENT, AND SOCIAL COHESION

level of control over groups within society. In this case, weakness would occur when parties were easily penetrated by distinct social interests and were controlled by society. Second is a system of national parties, that is, of parties oriented toward the provision of the public good for all of society. A clear example of a party system that does not fulfill this requirement is that of the United States, where all of the parties fail to work out any effective national-level planning. This lack suggests the predominance of strategies based solely on electoral considerations, a situation not conducive to efforts aimed at the sustained development of policies that are necessarily going to be unpopular. Another condition for this desired state is the development of stable and cooperative relations within the party system that would work to attenuate significantly the effects of electoral competition and the transfer of power.16 This would allow for the continuity of efforts by the state toward economic structural adjustment. The stability of these cooperative relations depends on the political institutions that make up the regime under which the democratic system operates. For example, in many of the Latin American nations, the office of the president has few incentives to promote interparty cooperation, a situation that would probably change were there a parliamentary or semipresidential system. Structural adjustment requires a significant opening of the domestic economy. At the same time, there are factors operating that make difficult and precarious the insertion of Latin American nations into the world economy, negatively influencing the possibilities of success and adjustment. On the one hand, there is a tendency toward the regionalization of the world economy,17 which leaves the great majority of the Latin American economies at a disadvantage. The manner in which these economic blocs are developing, except perhaps in the case of a nation such as Mexico, narrows the potential for insertion into the world economy and tends toward economic inefficiency. Within this process of regionalization, the most negative happenstance is the formation of the bloc consisting of Canada and the United States, which works only to the advantage of Mexico, if the latter manages to become integrated into the regional accord. What is needed is for the nations of Latin America to become integrated into blocs or regional accords with sufficient strategic advantages to ensure the success of structural adjustment and the consolidation of democracy. On the other hand, changes occurring in Eastern Europe are affecting all facets of the economy. These changes will most probably increase in the future and will be prejudicial to the interests of Latin America. The European Community, which will come together in 1992, and the European integration promoted by Gorbachev promise an exciting and optimistic future for the Soviet Union and the European nations. But for 17

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the Latín American nations it is a source of insecurity, of the certainty that these processes will reduce, perhaps to a significant degree, the capacity for negotiation between Latin America and the United States. The optimal strategy under these circumstances is the integration of Latin America, with the possibility of forming a Latin American bloc capable of creating a regional market of considerable size and more capable of negotiating with other blocs, particularly the United States and Canada. Nonetheless, this strategy reproduces, in a magnified form, the problems of domestic structural adjustment. A precondition to the implementation of this strategy is that these nations have overcome, to a great degree, the ancien régime and are on their way toward the consolidation of a new kind of state. Obviously, the current situation in Argentina and Brazil, nations whose leadership is necessary to any process of integration, is incompatible with the idea of Latin American integration. The processes of change that produce a positive result are progressive insofar as they are linked to the elimination of well-established special interests that affect negatively the possibility for development or that work against the general interest of the majority of the population. But the destruction of an old order can also have serious consequences. To the degree that the destruction of preexisting social relations has widely felt effects, one of the costs is the loss of social cohesion and the generalization of anomie throughout society. In its turn, this affects negatively the daily life of a people by leading away from beneficial attributes, such as the fundamental motivations for discipline among the workers, to behavior that significantly reduces personal security as much as it does the public good, effectively undermining the basis for growth in productivity. One factor that must be emphasized is that, since 1945, the nations of Latin America have undergone change of a kind never before experienced in that region of the world. Most probably, the extent of the changes, and the rate at which they occurred, is greater than that experienced from the colonial or postcolonial periods to the Second World War. This change has led to a fundamental destruction of existing social relations, with the consequent loss of solidarity, in the sense used by Durkheim, and the generalization of anomie. The characteristics of everyday metropolitan life, such as those found in Rio deJaneiro, are the results of this phenomenon. One also has to consider the high costs that these processes of structural adjustment impose on the lower classes. Besides having an effect on their material life, these structural adjustments also have a severe negative impact on individual and collective psychological well18

DEMOCRACY, STRUCTURAL ADJUSTMENT, AND SOCIAL COHESION

being. 18 This is the result of placing significant portions of the population in situations that are characterized by high levels of uncertainty and insecurity, complemented by a high level of competitiveness. The crucial features of the process of adjustment that produces these effects are the deregulation of the labor market and the changeover o f activities, particularly the privatization o f certain sectors that were previously public, and the destruction and creation o f new activities with the consequent changes in the labor market. The response on the part of the West in the twentieth century to this great transformation 19 has been the development o f the Keynesian state. Given that not only the present conditions, but also the very idea of structural adjustment runs against the Keynesian state, or at the very least is compatible only in very watered-down forms, it is not a workable option with which our countries may confront the challenges arising from the social costs of the adjustment. Certainly, at some point in the process, state activity needs to be oriented toward providing minimum levels of social security, medical care, and access to education. But it is not clear that this will be o f sufficient scope. Additionally, in the nations o f Latin America there exist neither the cultural conditions that permitted the growth of the Puritan ethic, with the potential for neutralizing the disruptive effects inherent in a market economy, nor the motivating ascetic behaviors and strong work habits that characterize the societies of Southeast Asia. As a means of dealing with these problems, it has been suggested20 that the state take over the functions that might be performed by the kind of ethic mentioned above—by fostering political integration through the promotion of national and institutional symbols. In the judgment of those authors, political parties could become protagonists in this process. This idea, which is not far from the interpretation proposed by Durkheim 21 with regard to contemporary civic ceremonies, is suggestive.

Notes 1. E. Tironi and R. A. Lagos, "Ajuste estructural, actores sociales y estado: Cinco hipótesis," unpublished manuscript, 1989. 2. E. Durkheim, Suicide (New York: The Free Press, 1951) and Les formes élémentaires de la vie religieuse (Paris: Presses Universitaires de France, 1968). 3. S. Popkin, The Rational Peasant (Berkeley: The University of California Press, 1979). 4. M. Taylor, The Possibility of Cooperation (Cambridge: Cambridge University Press, 1987). 5. G. Almond and S. Verba, The Civic Culture (Princeton: Princeton University Press, 1963).

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6. N. Frohlich, J. Oppenheim, and O. R. Young, Political Leadership and Collective Goods (Princeton: Princeton University Press, 1971). 7. R. Dahl, Polyarchy (New Haven: Yale University Press, 1971). 8. Ibid. 9. R. Comes and T. Sandler, The Theory of Externalities, Public Goods and Club Goods (Cambridge: Cambridge University Press, 1986). 10. R. Gilpin, The Political Economy of International Relations (Princeton: Princeton University Press, 1987). 11. M. Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982). 12. J. M. Buchanan, R. D. Tollison, and G. Tullock, Toward a Theory of a Rent-seeking Society (College Station: Texas A&M University Press, 1980). 13. G. O'Donnell, "State and Alliance in Argentina 1956-1976," in R. H. Bates, ed., Toward a Political Economy of Development (Berkeley: University of California Press, 1988). 14. See note 1. 15. P. Gourevitch, Politics in Hard Times (Ithaca: Cornell University Press, 1986). 16. A. Flisfisch, La politica como compromiso democrático (Santiago de Chile: FLACSO, 1987). 17. See note 10. 18. See note 1. 19. K. Polanyi, The Great Transformation (Boston: Beacon Press, 1957). 20. See note 1. 21. Durkheim, Les formes ilémentaires (see note 2).

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2 Promoting Economic Growth and Stability Carlos Ominami

Marcelo Selowsky, a World Bank economist, identified three stages through which countries have to pass in order to enter the growth stage: (1) the stabilization of macroeconomic conditions, (2) the implementation of structural reforms directed at the creation of sectors with comparative advantages, and (3) the development of a positive investment climate. According to this approach, Chile is already in the final stage, in which the main characteristic is the desire of businesses to invest in the country. The figures on investment projects for the coming years, the positive attitude toward Chile that exists in external financial markets, and the many conversations that we have held with national and foreign entrepreneurs indicate that we are standing on solid ground for reaching sustained growth in the future. Once the economy has reached this stage, the big question is how to stay there in the medium and long run. It is possible to make the mistake of thinking that growth will evolve from the simple extension of past trends; this would be equivalent to saying we have reached the growth phase, so now we need not change anything. Undoubtedly, many aspects must be preserved, but the domestic social dynamic and the changes that are continually occurring at an international level force us to look at the future with a different perspective: we must identify the challenges and the concrete ways of handling them successfully. Chile will face three challenges in the next decade. First, macroeconomic stability must be maintained. Second, Chile must keep a solid competitive position in the demanding international markets. The consolidation of our export development requires a qualitative j u m p in the organization and magnitude of our presence abroad. Third, we must take advantage of the transition to democracy to attain greater social harCarlos Ominami is minister of economy of Chile.

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mony, both in the country as a whole and within enterprises. T h e first point refers to the elimination of poverty and exclusion; the second poses the need to modernize labor relations, recognizing that the country has an enormous gap that the democratic system will help to close.

The Challenge of Stability The first condition for growth in the next decade is to maintain a healthy macroeconomic environment. T h e key h e r e is to manage fiscal, monetary, and financial policies within ranges compatible with economic stability. This has been a fundamental factor in the strengthening of the private sector and is something that must be preserved in order to achieve both growth and development. T o attain this goal within the framework of a democratic society, it is necessary to harmonize the demands that arise f r o m the different sectors, especially from those that still have not had a fair share of the fruits of growth. For the labor sector, economic stability means having access to stable and well-paid jobs, decent health coverage for workers and their families, effective training, and opportunities that allow workers to improve their productivity and living conditions.

The Challenge of International Competitiveness The decade of the 1990s will be characterized by a significant increase in the export orientation of developing economies and countries in the East. In order to be successful in this highly competitive setting, the national productive sector will have to make considerable efforts to incorporate intelligence and new technologies into productive processes. T h e challenges that we must face in some key sectors of our economy are oudined below. Mining

Chile's participation in the world production of some basic minerals is not proportionate to the magnitude of its reserves. Moreover, technological development can generate new products that erode the earnings f r o m these activities. The intensification of the production of and exploration for minerals such as copper, silver, gold, molybdenum, and lithium requires substantial investments that are possible only with the cooperation of foreign investors. The mining project portfolio, whose estimated value is over $6 billion, can materialize only if the current rules

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for handling foreign investment are maintained. In the area of mineral processing, the country also faces huge challenges. The shortage of copper-smelting capacity in the world will widen the spread between the price of ore and the price of processed copper. Chile can take advantage of this opportunity. However, it makes no sense to commit our own scarce internal savings to a highly capitalintensive activity. Foreign investors can participate in these projects, with technological and economic advantage for our country. Forestry

In the last ten years, an explosive growth in forestry plantations, especially Monterrey pine, has taken place. Forestry subsidies had a fundamental role in stimulating the expansion of these plantations. It is expected that the total wood supply will increase from 12 million cubic meters in 1989 to 27 million in the year 2000. T h e major forestry industries are also carrying out investment projects that will permit a significant rise in the production capacity of sawable wood. In the area of wood products, there are opportunities as well. Currently, less than 10 percent of our sawed wood production is exploited in the wood manufacturing industry. In 1985, the country started exporting furniture; current figures from this sector are close to $10 million. This sector also has important potential with the improvement of its technological and design conditions. With respect to cellulose production, the country needs to invest more than $2 billion in the next decade. A large part of this investment is already u n d e r way. Forestry is one of the most promising activities in the medium and long run. O u r country is marginal in the world market of forestry products, and the expectations that the exploitation of the native forest in the Amazon jungle will be restricted could generate a more positive trend in the prices of these products in the medium term. In order to take advantage of these opportunities, it is vital to incorporate m o d e r n wood treatment technologies and to train skilled labor; moreover, exporters must establish standards and quality control systems and launch a major external marketing campaign. Fishing

Chile also has outstanding prospects in fishing activities. O n e of the most promising areas for increasing the supply of highly valued fishing resources is the development of aquaculture, particularly of salmon. The need for the conservation of this resource means that it is not possible to sustain the current growth of total catch. For this reason, the develop-

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ment of the sector must be buttressed chiefly by raising the level of processing and aquaculture. The recent authorization by the FDA for the use of fish pulp as an input in the food industry, along with the development of surimi, marks a revolution in the world fishing industry. Chile is in a position to pioneer the use of open-seas species as a protein input for the world foods products industry. The production of high-quality special fish meals is another dynamic area with potential for significandy increasing value added in the fishing sector. The expansion of these activities requires the modernization of equipment and processes. It is important to stress that most of the capital goods needed for improving the productive process offish meal should be produced domestically. New Industrial Opportunities In recent years, the local production of capital goods has fluctuated between $100 million and $150 million, including metal structures, boiler products, machinery, and equipment. It is estimated that there will be a potential demand of $5 billion in capital goods associated with investment projects programmed for the coming years. If the necessary coordination is established, the country could meet a considerable portion of the needs for capital goods of the primary exporting sectors. On that basis, there may be promising opportunities in technology and capital goods exports in certain niches where we can develop a competitive edge. As an example, it is not impossible that the renovation and automation of the Peruvian and Ecuadorian fish meal industry could be carried out largely by Chilean producers. In information processing, the relative abundance of skilled labor and the quality of national engineering gives us comparative advantages. Consequently, the possibility of becoming an important software exporter is taking shape. Other traditional industrial sectors, such as footwear and garment manufacture, appear to have enormous export potential. The world trade model has changed in recent years. The developed countries have been gradually abandoning traditional industries, a trend that will be accentuated in coming years; this can provide excellent opportunities. Nevertheless, having a relative abundance of labor is not enough to gain us a competitive position in world trade. These industries need a great deal of expertise in product design and extreme flexibility to adapt to changing styles. In order to do that, it is necessary to strengthen our ties with consumer countries that also excel in the design field. In addition, there are important prospects for expanding tourism, both external and internal. To implement them, it is necessary to 24

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undertake several initiatives, such as the creation o f a project bank for the sector, open to investors interested in participating in this activity, which would mean a major contribution to our foreign currency revenues and to regional development.

Promotional Policies of Productive Activity Economic modernization and the strengthening of productive development requires a coherent economic policy. T h e basis for implementing these policies is the reallocation of resources in the Chilean economy. In other words, the idea is not to select new activities for promoting productivity, but to design instruments that help overcome our current weak points and thus consolidate the competitiveness of national production. T h e three basic components of the policy that the country needs in the productive field are: technological development, the training o f the labor sector, and the expansion of the entrepreneurial base. In other words, more technology, better-trained workers, and more enterprises and entrepreneurs. Currently in Chile a substantial number of producers in technological areas have lagged behind in terms of modernization. O n e of the initiatives that we wish to push is the creation of a Technological Development Fund to make viable and stimulate technological innovation aimed at improving the country's productivity and competitiveness. This initiative refers to all the aspects associated with technological innovation, including the creation of research units, development o f national consulting services, contracting of interinstitutional technological services, negotiation and transfer of technology, creation of technology-based enterprises, and d e v e l o p m e n t o f a system containing information on opportunities in this field for national and foreign investors. Another activity oriented at increasing the competitive capacity of national production, especially in the sector of medium and small enterprises, consists of facilitating access to information on overseas markets and businesses and promoting the establishment of private institutions to catalyze the export effort. This initiative can result in the creation o f private foundations related to business associations that, with state support, coordinate the requirements for successful exportation. Chile's incorporation into the technological era also means approaching the subject of labor training. In any modern economy, training the labor force is a vital factor for achieving development goals. Training is a fundamental mechanism for adapting labor qualifications to changing technological conditions; this also helps to boost labor productivity, 25

FROM DICTATORSHIP TO DEMOCRACY

developing its creativity and innovational capacity. It is necessary to overcome many problems associated with the lack of incentive that exists today. These include underparticipation by small enterprises in training activities and the impossibility for the labor sector to take the initiative in this field. Some changes in these areas will help to stimulate the demand for training services. The state must collaborate with the private sector by creating labor-training centers associated with business organizations and by supporting preexisting ones. We must take advantage of a series of opportunities in this field that can be provided through international cooperation. A third policy action is to broaden the entrepreneurial base in the country. Investment levels have been depressed for a long time, and productive modernization has spread very slowly to the medium and small business sector. On the other hand, we see an important resurgence of business careers. Expanding our entrepreneurial base means increasing investment, creating new businesses, stimulating foreign investment, and strengthening and modernizing the medium and small business sector. These processes are occurring partially in the Chilean economy. Nevertheless, it is possible to generate more favorable conditions for development. The country must have permanent policies dedicated to solving the main problems of financing, marketing, and technical assistance.

The Challenge of Integrated Enterprise The transition to democracy will generate new events in many areas of the country's life. Democracy must be understood as the most important element for economic, social, and political stability. There is an awareness in practically all social groups of the need to attain greater equality and harmony for creating true stability in the country. Entrepreneurs recognize the hazards of not having good relations between labor and business. They are unanimous in their view about that integrated enterprise is needed. What is happening in the unions also shows very positive signs. In a survey of union leaders conducted recently, 77 percent rate labor relations in the businesses between average and bad; however, 55 percent of those interviewed stated that they noticed an improvement during the last year. Asked about labor relations in the future, 70 percent of those interviewed believed that relations between entrepreneurs and workers will be good; only 5 percent think that these relations will be bad. On the other hand, on the strategies that union leaders expect to adopt in an effort to improve the conditions of their members, 78 percent of the answers suggest a strategy of integration and

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agreement within the enterprise. When questioned about current labor legislation, 98 percent felt that it reduces the negotiating ability of the workers. Many of the tasks in this area are in the hands of the entrepreneurs. In Chile, businesses have progressed remarkably in building a culture and environment capable of integrating the efforts of entrepreneurs and the labor sector. The experience of developed countries shows that the solution to new market challenges requires an ability to define jointly a flexible framework for labor relations. There are many cases where adequate flexibility is achieved without harming job stability, which is an advantage for the entire enterprise. Chilean businesses have invented different formulas for avoiding layoffs when there are temporary contractions in demand or changes in market structure. Aside from temporary adjustment mechanisms, such as cutting back working hours and wages during the adjustment period, there is the possibility of using training to provide new opportunities to the labor sector. This type of solution assumes an advance toward a form of integrated enterprise in which there is a determination by each of the sectors to improve the results for the benefit of all. This new attitude must be reflected in a normalization of the power imbalance that currently exists in the collective bargaining law. The proposals that we have formulated share the characteristic of reducing the restrictions and broadening the room for negotiation; this is a subject on which the Concertacion government wishes to promote a widespread debate with all the sectors involved. Conclusion The transition to democracy in Chile puts an end not only to an authoritarian regime, but also to several decades of political and social experiments whose result was the polarization of society and the predominance of rigid approaches in government management. The restoration of the past and the mere maintenance of existing policies are no longer valid options for guaranteeing a stable growth in our country. The conditions exist for conducting a major transition to democracy, capable of combining political stability with economic efficiency and social justice. Note 1. Surimi is a synthetic product that imitates the properties of crab or lobster and is packaged in paste form—Ed.

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3 The Chilean Economy and US-Chilean Relations Rolf Liiders

The revolution in the structure and nature of its economy that Chile has experienced during the last fifteen years is going to allow the new democratic government to take over at a time in which Chile's economy is doing relatively well, compared with others in the region. This is a unique situation among Latin American countries in transition to democracy. It is therefore not unrealistic to expect Chile's economy to continue to grow without the great macroeconomic imbalances that have been so troublesome for Argentina, Brazil, and Peru. The United States is, by far, Chile's largest trading partner and is even more important as a foreign investor and lender. Since the economy has proven to be vulnerable to foreign economic conditions, US policies have a profound economic effect on Chile. The opening of the Chilean economy to international trade and finance during the 1974-1989 period has resulted in a substantial increase in the share of Chilean exports that go to the United States, which has doubled in value from about 10 to about 20 percent. In terms of volume of exports, the effect has been even more impressive, since exports from Chile to the United States have multiplied six times since the early 1970s. The same is true with respect to imports from the United States, which have increased from a few hundred million dollars per year in the early 1970s to about a billion dollars in 1990. Technically speaking, in Chile a government-manipulated, highly protectionist, and distorted economy was transformed into a modern, open-market economy, in which the government continues to play two important roles. On the one hand, it takes care of some of the market inefficiencies that exist in any economy, providing public goods, regulat-

Rolf Luders is senior researcher for the Institute of Economics of the Catholic University of Chile and former minister of economy of Chile.

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ing some of the monopolies, and taking other actions oriented to equalize private and social prices. On the other hand, the government has been maintaining a high level of social expenditures to try to equalize opportunities for all Chilean citizens. For those who are not economists, perhaps it is more meaningful to say that the government has simply transformed the protectionist and distorted economy of the early 1970s into what in Germany is called a social market economy. Performance of the Present Chilean Economic System The results of the Chilean economic system have been quite satisfactory, particularly if one compares the performance of the Chilean economy after the recessionary period of 1981-1983 with that of its neighbors— especially Argentina, Peru, and Brazil. In particular, Chile's economy over the last few years has enjoyed relative price stability, has been growing steadily and quite fast, and has not faced any major macroeconomic imbalances. This does not mean that the economy has done well if compared with the rest of the Latin American countries over a longer period of time. In particular, comparing Chilean growth rates and several other indexes with those of the region as a whole over the 1970-1987 period, Chile shows a relatively poor performance. This can be attributed to several factors: first, Chile, during its reform period, went through a deep sociopolitical crisis that had a severe impact on the economy; second, Chile had to pay the costs of a revolutionary economic transformation; and, finally, Chile's terms of trade dropped more than those of any other country in the region. Table 3.1 compares several economic indexes for Argentina, Chile, and Peru for the 1984-1988 period. Chile's economic growth rate was higher than that of the other two countries, while its inflation rate was significantly lower. Moreover, real wage rates in Chile rose at least somewhat during that period, whereas in the other countries they fell dramatically. Chile's export values during the period increased strongly, due, in part, to a rise in the price of copper, Chile's main export item. However, export quantity also rose significantly, while it did not change much in Argentina and fell in Peru. Finally, while Chile improved its debt-to-export ratio dramatically, the ratio in the other two countries actually increased. Table 3.2 compares a measure of income distribution in Chile with that of some other countries. If one compares the most recently available estimates of the ratio of the income received by the 20 percent of the population with the highest income with that of the poorest 20 percent, 30

US-CHILEAN ECONOMIC RELATIONS

Table 3.1 Comparative Economic Indicators: Argentina, Chile, and Peru, 1984-1988 (Index: 1984 •= 100 percent) Per capita GDP Inflation

Chile Argentina Peru

113.1 97.8 99.1

12.7 372.0 1307.1

Real Wages 103.8 77.0 75.2

Exports (Value) 188.6 106.2 84.4

Exports

(Q) 131.4 105.0 72.0

Debt/ Exports 54.0 110.9 126.6

Source: ECLA, Estudio Económico de América Latin y el Caribe: Síntesis Preliminar, 1989.

Chile has the same ratio as Argentina, a country generally considered as having a relatively even income distribution, as far as developing countries are concerned. The next "best" Latin American country is Mexico, followed by Colombia, Peru, and Brazil. This does not mean that Chile's income distribution is satisfactory. For example, comparison with Taiwan or Thailand shows the relative unevenness of its income distribution. The data covering the last few years give a rather favorable impression of Chile's economy. But, for the period 1965-1987, which the World Bank uses for its longer-term comparisons (and the Bank's data are universally judged to be reliable), Chile is classified as a lower middle-income economy. As a matter of fact, the country's per capita income in 1987 was only slightly higher than that of the average lower middle-income economy (see Table 3.3). During the 1965-1987 period, Chile's per capita income grew by only

Table 3.2 Income Distribution (Highest 20% of income as a ratio to lowest 20%) Taiwan China Thailand Chile Argentina Philippines Mexico Malaysia Colombia Peru Brazil Ecuador

4 6 9 12 12 14 14 14 22 33 34 40

Source: Jeffrey Sachs, 1989. (Taken from El Mercurio.)

31

FROM DICTATORSHIP TO DEMOCRACY

Table 3.3 The Chilean Economy in Perspective Growth GNP Rate of Per Capita Growth CNP 1987 1965-1987 Lower-middle-income economies Upper-middle-income economies Chile Mexico Brazil

Investment To GDP 1965

Ratio 1987

1200

2.2

20

21

2710 1300 NA NA

2.9 0.2 2.5 4.1

23 15 20 20

25 17 15 20

Source: World Development Report, The World Bank, 1989.

0.2 percent. This means that for more than twenty years the country's per capita income stayed practically constant, which, of course, is not good. In the same period, the lower-middle-income economies grew 2.2 percent per year, whereas the higher-middle-income economies grew at 2.9 percent per year. Investment explains growth to a large extent. Chile's investment ratio in 1965 was 15 percent, and during 1989 it was about 20 percent.1 Although Chile now has a higher investment ratio than before, most other countries in the same category have even higher investment ratios.

The Income Distribution Paradox The GINI coefficient is one of the most commonly used indicators of income distribution. It indicates a perfectly equal income distribution if it has a value of zero, and a perfectly unequal income distribution if its value is one; the higher the coefficient, the more unequal the income distribution. The coefficient for Chile moved from .46 during 1960 to .53 during 1987. This means that between 1960 and 1987 Chile's income distribution tended to become more uneven. Although income distribution in Chile worsened between 1970 and 1980, it was already bad before 1970. Therefore, this cannot be simply and directly related to the present economic system, as many have tried to do. It can be direcdy related to Chile's extremely low rate of economic growth, a characteristic of its economy over several decades. As shown in Table 3.4, total central government social expenditures in Chile as a percentage of GDP, as reported by the last World Bank report, dropped between 1970 and 1987 from 26.9 to 19.5 percent.

32

US-CHILEAN ECONOMIC RELATIONS

Table 3.4 Distribution and Social Justice 1960

GINI Coefficient (family income) Chile Social Expenditures (% of GDP) Chile Total Education Health Housing and SS Lower-middle-income economies Upper-middle-income economies Mexico Brazil

.46" NA NA NA NA NA NA NA NA

1970

1980

1987

.50

.53

.53

26.9 b 6.2 3.5 17.2 8.1 8.7 5.4 8.8

NA NA NA NA NA NA NA NA

19.5 4.0 1.9 13.6 6.7 NA 4.2 NA

Sources: World Development Report, World Bank, 1989, and Luis A. Riveros, "Labor Marketsin an Era of Adjustment The Chilean Case," in Labor Markets in an Era ofAdjustment, R. Kanbur and D. Mazumdar, eds., forthcoming. a 1965=0.47 b 1972

However, if one compares Chile's social expenditure levels with those of other countries with the same income level, Chile was, and still is, spending three times more in relation to GDP. For instance, during 1970, the lower-middle-income economies had a central government social expenditure level of 8.1 percent of GDP, while Chile was spending 26.9 percent. Those same lower-middle-income economies were spending 6.7 percent of GDP during 1987, while Chile was spending 19.5 percent. The information on average central government total social expenditures as a proportion of GDP for the upper-middle-income economies during 1987 was not published by the World Bank, but it is possible to infer from the data for individual countries that its relative level was lower than that of the Chilean economy, maybe less than half. The Mexicans, for example, are spending only about one-fifth of Chile's level in this category of expenditure. Social expenditures in Chile are a high percentage of its GDP; our hypothesis is that their high level probably explains the country's low rate of investment.2 If so, since the low rate of investment is largely responsible for Chile's low rate of growth, the poor income distribution can be attributed to a large extent to the excessively high level of social expenditures. This is the crucial issue. If the country wants to improve its income distribution over the middle and long term, it must raise the rate of economic growth, which requires putting a limit on the rate of growth of its public sector-financed social expenditures. 33

FROM DICTATORSHIP TO DEMOCRACY

Is the Present Economic System Likely to Be Changed? The question is: What will happen next? Under the center-left coalition government, Chile's economic institutions might perhaps not change that much; they might even, in a fundamental sense, remain intact. The institutions referred to are the market orientation of the economy, the opening of the economy to international trade and finance, and the "limited" role of the government. Hie notion that Chile, under Pinochet, institutionalized a laissez faire economy is a myth; the "low" social expenditure is another. In fact, government expenditures in Chile are still relatively large. Fiscal expenditures are 30 percent of GDP, much higher than in most other Latin American countries. If the rest of public sector expenditures are considered, for instance the value added by large state enterprises (CODELCO and ENAP) and social security, the share of the public sector in the economy is easily among the highest of any country with a market economy with a degree of economic development similar to Chile's. Chile's economic system might remain basically unchanged because it is working well, not only as judged by the numbers shown above, but also because the economy has achieved a high degree of autonomous dynamism; and this is felt and recognized by a significant proportion of the population, including the opposition leaders. In this sense, Chile's economy reminds one of the economy of the Asian "tigers"; it has achieved the same high growth rates, led by powerful export expansion. Also, if one compares Chile with its close neighbors, its economy is obviously doing much better, regardless of the indicator used. The same is true if one compares the recent performance of the Chilean economy with that of other developing countries that have adopted interventionist economic policies. Comparative studies, which in general have thrown unexpected light on the understanding of the development process, all show that open, market-oriented economies tend to do much better than others. This has been a powerful argument in gaining widespread popular approval for the existing set of economic policies in Chile. The rapid and drastic sociopolitical changes of the Eastern European countries obviously affect the decisionmaking process in Chile and tend to reinforce, at the public opinion level, the conclusion that open, market-oriented economies are more efficient. Finally, after decades of significant economic policy shifts, people in Chile are getting tired of sweeping institutional changes. They do not want controversial changes anymore, and they want to live in peace. All these factors were reflected in the political platforms of the different parties and candidates for the December election. Both the Concertación (coalition of center-left parties) and Democracia y Progreso 34

US-CHILEAN ECONOMIC RELATIONS

(coalition of center-right parties) catered to a public opinion that did not want big economic policy changes. This implies that in the medium term, the country will hardly experience profound changes in its economic arrangements. However, there are substantial public pressures to change the Chilean labor law. The platform of the Concertación, the attitude of entrepreneurs, in general, and most workers favor some changes in that law. Moreover, most Chileans favor an increase in publicly financed social expenditures, as opposed to the position taken in this chapter. There was one important difference between the two political programs. Democracia y Progreso proposed to increase social expenditures as the economic growth rate increased. Since Chile has an elastic tax system, if there is economic growth, taxes grow faster than the change in GDP, generating the necessary resources to finance increased government expenditures. Those who favor this alternative argue that these additional revenues should be used (in part) to increase social expenditures. The Concertación, on the other hand, favored increasing social expenditures at once. The present dynamism of the economy might be interrupted for many reasons, and some of them are external: a foreign recession, an increase in import tariffs in the developed countries as a result of protectionist pressures, the interruption of normal foreign fund flows, and so on. Most of these external events are beyond Chile's control. However, internal economic policies could also disrupt the economy. In this category fall excessive tax increases or an inflationary macroeconomic policy, both of which might be generated by excessive public sector expenditure increases. The dynamism of the economy seems to be the only way, in the medium and long term, to improve the income distribution and wellbeing of the people; at least this is what the economic history of Chile and many comparative studies suggest. If so, governments have to be careful with explicit increases in taxation levels and/or inflation rates to avoid discouraging investment and growth. The Pinochet regime was able to control social expenditure levels and reduce total taxation levels. The new government will also have to keep popular demands for increased public sector-financed social expenditures in check, if it wants to succeed in raising the standard of living of the poor.

US-Chile Economic Relations From the Chilean point of view, a US recession, US protectionist trade measures, and US restrictions to the free flow of foreign funds and 35

FROM DICTATORSHIP T O DEMOCRACY

Figure 3.1 Chile's Grass Domestic Product, 1909-1987 1981

9

12 15 18 21 24 27 JO $3 36 Ï 9 42 «

I?«

4« S I 54 57 «0 63 66 69 72 75 78 8 ) 84 87

Sources: Indicadores Económicos y Sociales, Central Bank of Chile, 1987; Perspectiva Económica No. L, Instituto de Economía, Pontificia Universidad Católica de Chile, 1989 (for 1986 and 1987 data). Note: Logarithm of GDP index, 1909=100.

investments are detrimental. However, and this is a personal opinion, the country would not benefit, and perhaps would even be hurt, by significant "aid" flows.8 Chile's recessions and booms are closely related to the US business cycle. A plot of Chile's GDP over the last eighty years, as seen in Figure 3.1, shows significant business cycles up to 1930, the time when the economy became closed to international trade. During the protectionist period between 1930 and 1973, the economy also experienced business cycles, but they were relatively less significant. However, after the trade opening began in late 1973, the country again experienced large cycles. This is quite logical. An open economy is likely to be hit much harder by foreign cycles. A significant recession in the United States today is likely to have a strong impact on the Chilean economy, just as it did in the early 1980s. Chile can only hope that the United States has a "soft landing" so that its economy will not be much affected. Turning toward trade figures, shown in Table 3.5, total Chilean exports were between 10 and 12 percent of GDP during the import-substitution phase of the economy (1930-1973). When the economy was opened up to trade after 1973, this percentage rose steadily to about 30 percent of GDP. The percentage of Chile's exports to the United States rose after 1973 from about 11 percent to about 20 percent. The point is that the United States has something to gain from Chile's present economic policy, since exports in absolute values increased manyfold. Although 36

US-CHILEAN ECONOMIC RELATIONS

Table 3.5 Chile-US Trade

Year 1960 1970 1973 1980 1985 1986 1987 1988

Total Chilean Exports 1 (% of GDP) 12 11 10 24 26 27 28 27

Percentage of Total Chilean Exports to the US

—

11.5 12.6 23.6 21.9 21.0 20.0

Percentage of Total Chilean Imports from the US

— — —

21.8 20.5 19.9 21.0

Sources: F. Ossa, Políticas át Fomento al Sector Exportador Chileno, Documento de Trabajo No. 114, Instituto de Economía, Pontificia Universidad Católica de Chile, 1988 (196080). Economic Trend Reports, United States Embassy Santiago, April 1989 (198048). aFOB.

Chile is not an important trading partner for the United States, there are US firms and companies, as well as consumers, who benefit from Chile's open trade policy—witness off-season fruit consumers. Imports from the United States into Chile have been more constant as a percentage of total imports, hovering at about 20 percent. In this case, the United States has benefited from the fact that the total volume of Chile's trade increased rapidly after 197S—US exporters are exporting three times as much to Chile as before. That is also of some interest. Table 3.6 shows the state of Chile's foreign debt. This debt increased, in nominal terms, between 1982 and 1986. In fact, Chile's foreign debt started to increase rapidly after 1976. However, starting in 1987, it dropped in nominal terms year after year, reaching, at the end of 1989, a level of about $16 billion, a rather extraordinary accomplishment for a highly indebted developing country. In real terms, of course, the debt reduction is much more impressive. The structure of the debt also changed, with the public sector taking over a high proportion of the private debt. Moreover, the financial package, the total amounts of loans that have been renegotiated or that correspond to "new money," fell in 1989 from $7.8 to $6.2 billion. The share of the United States in the financial package, which had been averaging 40 percent, dropped between March and September 1989 to 31 percent. This rapid reduction was due to significant amounts of debt-equity swaps and repurchasing of foreign debt. Chile owes US banks a total of less than $2 billion; given the amounts involved in the rest of Latin America, this is not large in relative terms. However, the 37

FROM DICTATORSHIP T O DEMOCRACY

Table 3.6 Chile-US Finance

Chile's Total Foreign Debt Public Sector (M+LT) Private Sector (M+LT) Short-Term

End 1982 (billions $US)

End 1986 (billions $US)

September 1989 (billions $US)

17.23 5.16 8.66 3.34

19.50 14.38 3.44 1.69

16.44 10.69 2.91 2.84

March %USA 1989 (billions $US)

September 1989 (billions $US)

%USA

Total M+LT Debt Financial Package Suppliers Credit

14.96 7.82 .76

36 40 16

13.60 6.21 .80

30 31 17

Short-Term Credit Total Foreign Debt

2.43 17.39

72 41

2.84 16.44

73 38

Source: Economic Studies Department, Central Bank of Chile, 1989.

United States is still Chile's largest financial partner. There seem to be no strong protectionist tendencies in the United States with respect to international financial flows. This is positive. Moreover, Chile expects official US support for any rescheduling of the debt that might have to take place in the future. If the United States supports such a rescheduling, and the banks accept it, as they have done up to now, Chile may well be on its way to overcoming its foreign debt problem. In fact, Chile's foreign debt levels, in relation to exports or GDP, are already reaching limits that might allow for the resumption of spontaneous credit. Between approximately 1982 and 1989, direct foreign investment also made a significant contribution to finance Chilean investments (see Table 3.7). The stock of direct foreign investment increased from about $2 billion in 1983 to about $4 billion in 1988. The percentage of that stock of investment owned by US citizens or corporations has been a relatively steady 49 percent. In 1983, Spain took second place with only about 10 percent of the total; today, Australian investors hold that place, due almost exclusively to Bond's purchase of the Chilean Telephone Company. Direct foreign investment flows in Chile go heavily into mining, and 38

US-CHILEAN ECONOMIC RELATIONS

Table 3.7 Chile-US Direct Investment Item

1983

1988

Total Stock of Direct Foreign Investment (billions $US) Percentage by US Percentage by Spain Percentage by Australia

1.99

4.11

49 10

49

—

Total Direct Investment Flows (billions $US) Percentage by U.S.

—

7

.27

.78

57

38

1982-1989 3.00

Total Direct Investment Flows under DL600 (billions $US) Mining Services Industry

1.26 .90 .71

1985-1989 Operations approved under Chapter XIX (billions $US) Percentage by US Percentage by UK

2.89 40 14

Source: Chilean Foreign Investment Committee, 1989.

most US investment in Chile is in mining and services, mainly financial services; and again, by far, the most important investors in that sector come from the United States. Operations approved under Chapter 19 of the Central Bank law are basically debt-equity swaps; banks or other financial institutions from the United States have done 40 percent of these operations. For Chile, direct foreign investment is important not only as a means to obtain financing, but especially as a way to insert the Chilean economy into international markets and receive the latest technology. Any US measure affecting foreign investments by its companies and/or citizens, unlikely today, might be costly to Chile, given the significance of the flows from that country.

39

FROM DICTATORSHIP TO DEMOCRACY

Some Remarks About Foreign Aid There are some valid arguments against foreign aid. On the one hand, seldom does a country receive foreign aid without the donor pursuing some specific interest that does not necessarily coincide with the interests of the recipient country. This means that a country that wants to follow freely those policies it deems appropriate should not become dependent on foreign aid. On the other hand, by definition, important amounts of foreign aid affect the exchange rate significantly. Foreign aid inflows appreciate the real exchange rate with respect to the one that would otherwise prevail. This appreciation of the exchange rate is a disincentive to exports and tends to make countries dependent on imports financed through this type of aid. In some African countries this process of exchange rate appreciation has been carried to the point where they are practically unable to export any more. Ironically, reports prepared by international donor agencies recommend increased exports; at the same time, they and their sister organizations offer such huge amounts of aid that those countries have absolutely no incentive to make the necessary export effort. This does not mean that Chile should not seek technical assistance or foreign finance. Quite the contrary. Technical assistance and/or reasonable amounts of foreign finance obtained at market interest rates pose no problem. In fact, market-oriented transactions are, in general, welcome; foreign aid at concessionary rates is not.

A Projection of Chile's Economy Table 3.8 presents a projection of the main macroeconomic variables of the Chilean economy for the 1990-1995 period, prepared by the Institute of Economics of the Pontifical Catholic University of Chile. There are, of course, many assumptions behind these projections, not all of which can be explained here for lack of space. According to these projections, the most likely outcome for the Chilean economy is a relatively high economic growth rate: 4.5 percent on average per year. This rate does not seem impressive when compared with the 10 percent estimated growth rate for this year, but this latter rate is not sustainable. However, the projected rate does compare favorably with the historic yearly rate of economic growth of about 2.0 percent. To be able to have this relatively high rate of economic growth, Chile needs a high rate of investment. We think that this is likely to take place. Chile's historic rate of investment was about 14 percent, while the projected rate is at or about 20 percent. This investment is likely to be

40

US-CHILEAN ECONOMIC RELATIONS

Table 3.8 Chile: Will It Look Like This? 1985

1989 a

1990 b

1993 b

1995 b

2.4

10.0

4.5

4.5

4.5

13.7

20.1

20.0

20.6

21.6

Gross National Savings Rate (Percentages of GDP) 5.4

17.2

14.6

18.3

18.9

8.3

2.9

5.5

2.3

2.7

Inflation (Cost of Living, Dec.-Dec.)

26.4

21.4

14.9

12.0

12.0

Foreign Debt (Billions of $US)

19.32

16.25

16.81

18.81

20.62

D e b t / E x p o r t Ratio

5.1

2.0

2.1

1.6

1.5

Exports (Billions of $US) Copper Non-Copper

3.80 1.79 2.02

8.08 4.05 4.03

7.93 3.03 4.90

11.68 3.85 7.82

14.12 4.24 9.88

Economic Growth (Percentages)

Rate of Investment (Percentages of GDP)

Foreign Savings (Percentages of GDP)

Copper Price (US c e n t s / p o u n d )

64

129

92

95

105

Source: Instituto d e Economía, Pontificia Universidad Católica d e Chile, 1989. a Estimate b Projection

financed through internal savings of about 17 percent of GDP and foreign savings of about 3 percent of GDP. The first is higher than the historic level, while the expected foreign savings level is about the average of the last decades. A higher internal savings rate is expected as a result of some relatively recent institutional changes, notably tax incentives. The projected inflation rate is quite low, which basically means that the next government, most likely, will be fiscally responsible. Optimism with respect to price stability is also based on the recently approved independence of the Central Bank. However, the foreign debt level is 41

FROM DICTATORSHIP TO DEMOCRACY

expected to rise modestly. T h e service of the foreign d e b t will decline to about 6 or 7 percent of GDP, and since foreign savings are expected to average 3 percent of GDP, the remainder of the service will have to b e financed by way of a commercial account surplus and with new loans. This latter is the reason for the moderate increase in foreign debt. T h e debt-to-export ratio currently has a level of a b o u t 2.0, after a dramatic d r o p during the last few years. Banks use several rules of t h u m b w h e n approving international loans, o n e of which is a maximum debtto-export ratio of two. Only below this "magic n u m b e r " d o they t e n d to operate spontaneously. U n d e r spontaneous operation, governments d o n o t have to officially renegotiate the foreign debt. Chile is a b o u t to reach this ratio of two, a n d the projection assumes that the g o v e r n m e n t will continue to manage the foreign debt in such a way that it will soon b e able to o p e r a t e spontaneously. Finally, the projection assumes that the economy will continue to b e o p e n to international trade a n d finance and that exports will continue to increase rapidly. This must happen, to get the expected results, in spite of the fact—an important point—that it is anticipated that the price of c o p p e r will d r o p dramatically, at the latest at the beginning of 1991. 4 As a result (with d e b t m a n a g e m e n t as anticipated and a high investment rate) serious effort is required to limit excessive expenditure d e m a n d in the country. Since the excessive aggregate d e m a n d is most likely to c o m e a b o u t in the social expenditure area, to keep these d e m a n d s in check will b e the main task of the new government. In fact, it will determine the success or failure of its economic policy.

Notes 1. Central Bank of Chile, National Accounts Department 2. This point of view is presented in Rolf Lüders, "Veinte y cinco años de ingeniería social en Chile: Un breve ensayo sobre la historia económica del período 1960-1977," Cuadernos de Economía, No. 76, December 1988, Santiago, Chile. 3. Aid defined in terms of financial flows at "concessionary" rates. 4. As in fact occurred—Ed.

42

4 Commentary .

Riordan Roett

-

The global framework within which Chile or Argentina or Peru must work is quite clearly the one that is going to be decisive. This framework may well turn negative from the point of view of those countries now going through their second phase of democratic transition—the Uruguays, the Argentinas with a second election, and now Chile experiencing its first transition from an authoritarian regime to a democratic regime. First and foremost, we are talking about the United States. Quite clearly, in terms of the very dramatic changes in East-West relations and the degree to which those changes reduce the usual perception of threat to US interests in South America, South America will receive less attention from the United States. The postwar justification of US policy in Latin America was communism. There is no threat from communism in Latín America or in South America at the present time. The degree to which that threat is reduced in South America, the degree to which, suddenly, Central America and the Caribbean basin are once again high profile in terms of US policy concerns (El Salvador, Nicaragua, and the whole set of relations that deal with the shipment of arms, either from the Soviet Union, Cuba, or Nicaragua to El Salvador), and the great debate that will probably take place over US policy in El Salvador once again means that policy attention will be stolen—from my point of view unfortunately—from South America. Once again we are back in the quandary of the 1980s: Central America, Panama, and the issue of broader East-West questions in Central America. While I would like to be optimistic about the economic future of the US, and, given the data suggested in terms of the trade linkage as well as

Riordan Roett is director of the Latin American Studies Program of the School of Advanced International Studies of the Johns Hopkins University.

43

FROM DICTATORSHIP TO DEMOCRACY

the investment levels of the United States in Chile, I would be very careful if I were in charge of public policy in Chile not to tie my policies any more strongly to the future of the US economy in the early 1990s. There are a number of reasons why. The usual questions are the traditional deficits, which drive US monetary policy and interest rates and which have some impact on pressures for protectionisrrTpressures that continue to circulate in Washington at very high levels. One indication of where the US is in terms of deficits was the announcement in September 1989 that the balance of trade in the services and investment sector had gone negative, had posted a deficit for the first time in some years. The New York Times asked a number of specialists: What does this mean when the balance of trade in the services and investment sector posts a deficit? Lester Thurow at MIT responded: What [the United States] has been doing is moving our real standard of living from the present period to a period in the future. Between 1982 and [1989, Americans] consumed $800 billion in products we have not yet paid for and did not produce.1 In addition, stock dividends that come from owning companies like Firestone or RJR Nabisco now go to Japan and to Europe. In the future, the standard of living—which has some implications for trade—will be lower than it would have been had we Americans not been living beyond our means. Roger Altman, former assistant secretary of the Treasury, now with the Blackstone Group in New York, was asked to comment, and he said, The bad news . . . is on a broader plane and has to do with our future standard of living. More and more of our nation's gross national product will be diverted to service our debts Long term, if we don't reduce our deficit, American incomes will fall. We have a real oddity now. The trade deficit is flat while the current account is worsening because of our debt service. People have compared the situation to Mexico's, but I would say it is only true to the extent that greater and greater portions of our CNP must now go to servicing our debt In the past, we had 100 percent of our CNP to use. But now more and more is being siphoned off to go overseas. This will have a major depressing effect on the economy.... This has been predicted for a long time. But, I don't think the Bush administration fully grasps the ominous implications of our deficits.

Given levels of protection in Japan and Western Europe, they have not been buying Chilean or other Latin American products. We have, all through the 1980s. To the degree to which we cannot continue to purchase Latin American exports during the 1990s (if the most moderate predictions are clear, we'll barely have a soft landing), precisely as the transition is reaching its head in Chile, the implications in terms of trade 44

COMMENTARY

and, of course, the implications in terms of investment levels will be negative, not positive, with regard to the US relationship with Latin America. So, point one is the changing geopolitics, East-West relations, and the role of South America; point two is the deficits that the Bush, Reagan, and Carter administrations refused to deal with. And these are negative implications not only for the fiscal deficit; now the balance of trade and the services and investment have turned negative for the United States. There aren't many more to turn negative. The third point, of course, is that Chile is now making its transition at a point at which there are going to be some very dramatic changes with regard to private commercial bank strategy and debt. There is no question that the Brady Plan, if it hasn't failed, has hit a serious impediment. That is, that the private commercial banking systems of the United States and, most recently, Great Britain have now taken larger and larger loan loss reserves. They have taken those loan loss reserves because they are sick and tired of being pushed and battered by an impoverished US government to take the responsibility for solving Latin America's debt problem. Whether that's good or bad policy is a grand debate among a number of people in town. But the issue is quite clear. J. P. Morgan is now 100 percent reserved. They couldn't care less about future commercial banks' loans. What they are concerned about is sitting on the other side of the table (future debt-equity swaps) and becoming financial advisers and corporate finance agents in the Third World, which is a very different profile than when the private commercial banks acted as commercial bankers. US private commercial banks don't want to be and very soon will not be commercial bankers. I don't think this is understood in the United States or in Latin America. It's well understood in Tokyo and in London. The debate is changing, in large part because the Chilean debt has certainly been reduced. Given the vulnerability, the issue of Chilean debt is less than the point at which new financing is going to be required for Chile. All sides of the spectrum agree that the financing gap is going to be most serious from late 1991 through 1994, precisely when the private commercial banks will have little or no interest in providing new loans. Now, the debate in terms of the Brady Plan is precisely that. The private commercial banks do not want to roll over and restructure Third World debt, although they will be forced to do so to some degree. More important, until the United States, or the World Bank or the IMF, is able to make some kind of contribution for further enhancements for the private commercial banks, we may be reaching a difficult impasse precisely when Chile requires our financial support. To the degree to which the White House and the Congress resolve their differences over new quotas 45

FROM DICTATORSHIP TO DEMOCRACY

for the IMF, the Fund may be able to play a greater role. Those differences will not be resolved in the short term. The degree to which the World Bank can play an extended role, given its resources, will, of course, also be important. But as we know, Latin America is a capital exporter in many ways. It is also now a capital exporter to the World Bank; that is, it is paying back more to the World Bank than it's receiving in new loans from the World Bank. That can be reversed, but it takes a policy decision to do so. That is, the flows are all wrong for a country like Chile, coming of age democratically in 1990. More important, the macro- and geopolitical realities of the world are not necessarily negative, but they certainly are far from positive. I agree that the way in which Chile has been inserted through the diversification of its exports is precarious. As the grape shock demonstrated, the loss to Chile can be significant. There are unpredictable events, and then there are predictable events. The more predictable events are that if the United States economy does begin to slide, precisely the kinds of goods that are bought from Chile are the first that will be cut in terms of consumer demand. Second, the new Chilean government will begin to address social questions, and then begin to redirect revenue flows and tax flows. The implication for the direct private investor, as well as for the commercial and investment banks, is not necessarily positive. Because what happened during the Pinochet years was that private commercial banks and the direct foreign investor came to life in Chile in a rarified, controlled, unreal atmosphere. And to the degree to which Chile now returns to a realistic atmosphere in terms of finance and economic performance in the context of the global realities, economic and geopolitical, private investors, private commercial banks, and investment banks will become extremely nervous. Finally, the broad question for South America, as well as for Chile, is where does Chile's economic future rest in the 1990s, given these realities. Chile has no special relationship with Western Europe. It has not had a special relationship with East Asia or the Eastern bloc. It has no special relationship with the United States and Canadian free trade area into which Mexico and a good deal of the Caribbean basin would seem to be fitting or emerging as associate partners or members. That question—particularly for a vulnerable economy like Chile's, which does not have an industrial base such as Brazil's, or the natural resource base of a Venezuela or a Colombia, and for those countries more vulnerable, more dependent upon financial movements, investor perceptions, and exogenous decisions with regard to international and global banking and investment—becomes very important as Europe, which will continue with its high protection, begins to have very different priorities in terms of its 46

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investments, both after 1992 and with regard to Eastern Europe. That question also becomes important as East Asia begins to sort out its own priorities and position as it faces pressures from the United States and rival opportunities elsewhere. This does not mean that everything will turn negative together. What it does mean is that there are a number difficult fall points for Chile as it begins this very delicate process to maintain stability: simultaneously to respect what is good about the model, and to respond to legitimate social and political demands. The international finance system doesn't have a great deal of interest in the social and political needs of Chile or Argentina or any other country. So the degree to which the performance of the economic team in Chile is able to convince needed investors, financiers, and others that the model has been maintained or has been shaded to a degree that is acceptable will, to a large extent, predict and determine the way in which the economy will get through the shortfall from 1991 to 1994, the degree to which new investment flows will reach Chile, and the degree to which Chile's exports will find comparable or continued access to the industrial countries' markets.

Notes 1. Joel Kurtzman, "Prospects: A Brand New Deficit," New York Times, Sept 17,1989, sect. 3, p. 1. 2. Ibid.

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5 The Social Debt in the Chilean Development Process Jorge Arrate

What would we like Chile to be in four or five years? A majority of the Chilean people want a democratic country with stable political institutions built upon the basis of respect for human rights. They want a society in which the relationship between the civil and the military is such that society respects the popular will expressed in free elections. The majority of the Chileans want an economy that will grow and distribute the fruits of this growth with some very clear criteria of social justice and equity. Most people want an end to the tragic situation of the many who live under conditions of extreme poverty. And we all want a country that is not isolated in international terms, and that is respected, not because of its military or economic power or its political influence, but mainly because it is a country that represents, once again, certain basic values related to Chilean history and culture. What we need now is a showing of the persistence of the democratic political culture of the Chilean people. This is something that Chile had for many years and that was internationally recognized, even with the limitations that we now see with regard to the systems or the ways of practicing politics during those times. But after sixteen years in which the government attempted not only to introduce significant change in the economy but to introduce significant change with regard to political parties, political institutions, and the concept of democracy, it is clear that it failed. We again showed the old political tendencies, the old political currents in Chilean life. Chile is a country in which we have organized political parties that correspond to old traditions that are rooted in Chilean political history. Almost all of these political currents have undergone important changes, in the sense that they have gone through a renewal of their thinking, of

Jorge Arrate is secretary general of the Socialist Party of Chile.

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their way of looking at the world, of interpreting phenomena in Chilean society, and their way of transforming themselves, or at least attempting to transform themselves into useful modern political instruments. However, there are probably political tendencies and sectors that have not undergone this process, and this is disquieting for the future of Chile's society. One is a sector that is identifiable with the authoritarian right, and another is a sector linked with the conservative left, mainly represented by the most orthodox sectors of the traditional leftist movement in Chile. For sixteen years, Chile was a preoccupation of the international community, not only of the United States but of Europe and other parts of the world. A democratic tradition in Chile has a unique opportunity at this moment, which will not be repeated in the future, of being perceived by the international community that has been so much engaged with the successes and failures of the Chilean nation. Chile is not in any condition to ask for donations. But Chile may present itself to the international community as a country that could have an interesting future in economic terms for international investors or for international development cooperation. It is also true that this opportunity may face difficulties that could not be easy to overcome. As Carlos Ominami states in his chapter, the new government will inherit many social problems. Most of the Chilean people do not expect that any government could solve them in a day. But the government has to show, and the people have to feel, that there are clear signs of correction in the direction of reestablishing the criteria and principles of social justice and equity in conducting the economic and social affairs of the country. The fact that the new government will also inherit an economy with positive indicators in the financial, monetary, and growth fields is certainly a relative advantage compared with the situations in other Latin American countries or elsewhere. It is important to mention something that is difficult to measure. I would call it the state of the national spirit, the way in which people form different sectors, social classes, ideologies, and positions with regard to the election—the spirit in which people are looking at national affairs. Most Chileans are looking for forms of consensus, of agreement, not of confrontation. This has been quite a road that Chilean affairs have traveled. I returned to Chile in August 1987 after fourteen years in exile. There was a campaign on for free elections in Chile. Some of the political parties, not all, were urging the people to register, to demand free elections. And there was a big discussion on whether this was wise or if it really meant a sort of white flag from the party of the opposition with regard to the Pinochet government. It was a wise decision, a crucial decision. In 50

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February 1988, the parties of the democratic opposition reached an agreement—and that was really a turning point in the political affairs in the country because Concertacion was born. This way of pushing for the restoration of democracy meant the defeat of the outlook in Chilean society that violent means or extreme social confrontation would lead to a restoration of democracy in Chile, and this was very important. The referendum of October 1988 also defeated the possibility that General Pinochet would continue for eight more years as president of the republic; after twenty-three or twenty-four years without ever having participated in a free election, he finally submitted his name to a free decision of the citizenship. The dark side of this story is that there are sectors that are not in this spirit. Normally the press in Chile, and sometimes internationally, stresses the role that is played by small groups of the ultra-left that continue practicing violence in politics. Normally political violence or terrorism is practiced by very small groups; but although they are small, they can provoke strong social cataclysm and commotion. We have condemned these practices. Nevertheless, there is a concrete risk from the most authoritarian sectors of the Pinochet regime, sectors that are contributing to a political atmosphere that is dangerous and damaging to an orderly and democratic transition. Violent actions were condemned by all parties of the Concertacion. Sectors that were not part of the Concertacion, such as the Communist party or the Manuel Rodriguez Patriotic Front military group, also refused to recognize these acts. Some of the things the military government did also damaged the transition, specifically, the legislation enacted in haste at the end of the Pinochet regime, in which the government attempted to establish the autonomy of the Central Bank. For ten years, the members of the council of this autonomous bank will be nominated by General Pinochet. 1 Another example is the creation of the National Council of Television. The members who are already in place were nominated by General Pinochet. 2 A law that tried to encourage ministers of the Supreme Court to retire before a certain date permitted General Pinochet to nominate five of the ministers of the Supreme Court as members for life. The legislative branch of the government, which is formed by "four parliamentarians"—the four generals, chiefs of the armed forces—as stated in the organic law of the armed forces, will enact a new organic law without consulting any political sector of the country. It establishes principles that are dangerous to reconstructing a safe and reasonable democratic relationship between the military and the civilian worlds. The success of the democractic transition in Chile will depend on how we tackle two main problems, which are basically two ways of equilibrating social objectives. One is to continue responsible manage51

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ment of the national economy. We must sustain growth, investment, and offer reliable policies to foreign investors. At the same time, we have to balance this policy with the ability of the next government to introduce into the system social reforms that people are demanding in the country. In political terms, we have to work for democratic institutions based on the restoration of the principle of the solidarity of people. At the same time, we have to rebuild the relationship between the military and the civilian worlds. Chilean Socialists are working for the reconstruction of only one Socialist party in Chile, one characterized by its renewal—both its capacity to renew itself, to produce new, creative ideas, and to be m o d e r n and flexible—a party that is a reconstitution of our history. We identify ourselves with our history, we are proud of our history, although we are certain that we made mistakes. At the same time, it's not only a reconstitution of the old party but the creation of a new political entity in the sense that it puts together this element of identity that we recognize in our past with the elements of the future. 3 We want to look forward, not backward. W e are fully committed to Chilean democracy, to the reestablishment of a full democratic system in Chile. That is the main principle u n d e r which we place the other purposes or objectives of the party. For the first time in fifty-six years, the Chilean Socialist party is supporting a Christian Democrat, and we are doing so enthusiastically, as the candidate himself has noted. We will support him firmly in his government. W e want to pay the costs and receive the benefits of what the government is. And that means 100 percent compromise with participants in government. The long-run perspective of Chilean Socialists is rebuilding our party, which should b e one of the largest parties in the country. I think in the parliamentary elections of December 1989 we will b e the second parliamentary force in government, and the third parliamentary force in the country. If we are very lucky, we could be the second in the country. 4 But it's very difficult. O u r perspective in the long run is not to make this transition just a period in which we are struggling to establish democratic institutions, and then to go off to reinitiate strong competition between the democratic forces. O n e of the tasks of this next period is to discuss together the deep reform that would establish a political system in Chile that encourages cooperation between political tendencies. This is completely different f r o m the system established under the 1925 constitution or a strong presidential constitution that did not place a premium on consensus. We wish to build a democratic force composed of all those parties with deep roots in Chilean society and democratic thinking and progressive social thinking. And in that sense, the type of relationship that we 52

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build between the Socialists and the Christian Democrats is important to us.

Notes 1. A consensual nomination of the ten members of the Central Bank Council was reached before 11 March 1990—Ed. 2. In fact, a negotiation took place between the military government and the opposition. The Central Bank board of governors was nominated by General Pinochet, but his government and the opposition each appointed two out of five members, and the president of the Central Bank was nominated by consensus— Ed. 3. This goal was achieved in July 1990—Ed. 4. Actually the Socialist Party received 10 percent of the votes for the Senate and 20.8 percent for the House of Representatives (Diputados), ranking as the second electoral force in government and third in the country—Ed.

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6 The Chilean Political Transition to Democracy —_____

Edgardo Boeninger

Chile is feeing both a golden opportunity and number of risks. We should be able to rebuild in Chile a stable, democratic political system provided we can overcome some of the short-term issues and problems we inherited or will inherit from the present regime. Because of the evolution of Chilean political parties and of the feeling in the country after two decades of often bitter conflict, there has been an ideological convergence between the main political groups. The incredible developments in Eastern Europe, for instance, and whatever might be happening in the rest of the world now reinforce the processes that have been going on in our own country. First, there is no longer a challenge to pluralist democracy from the left, in terms of alternative options of a political system for the future. Second, there is a growing economic consensus that an open economy is inevitable. It is part of the rules of the game as we approach the end of the twentieth century. The open economy and growth and interdependence worldwide work basically with market forces and private enterprise, with varying responsibilities of the states. If you take these things together, you have what political scientists have often called agreement on fundamentals. Now, the agreement on fundamentals in turn leads to the concept that change, much-needed change in a country like ours, will be gradual; that Utopia on short notice—in three, four, five, six years, within a presidential term—is no longer in the cards. Therefore, change will be attempted from the starting point of the system as it is and within the system, and with no basic contradiction to the essential elements of the system. This means that if you reform the economy, you have to introduce social justice,

Edgardo Boeninger is minister of the Chilean General Presidential Staff and former vice-president of the Christian Democratic Party in Chile.

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equality of opportunity, and so on. But the starting point is basically a privately owned, market, capitalist economy. If you look into the future, the sectors on the left would be what one might call generically social democrats. If this is true in the center and the left, the effect on the right will also show itself over time, in that if the perceived threat to the basic values or interests of the right is significantly reduced because of these other developments, the temptation to be protected by the armed forces against a potential revolution will be significandy reduced. Therefore, the right will break away from the authoritarian temptation. In the next few years we will still see some diehards from sectors close to Pinochet. There are a couple of organized groups in Chile that clearly will not move swiftly away from authoritarianism. But there is a promise of a new democratic right that has an identity, that feels it can compete for power with its own ideas, with its own vision of the future. And if there is no perception of a real threat, this will enable them to channel themselves into the normal democratic process. Looking at it from another point of view, coalitions may be possible. Chile has been a country where coalitions have for long been impossible. Chile has been a country of minority governments, minority governments with presidential assistance and, therefore, no incentives. If coalitions are possible, we can overcome this history of minority governments, and I think we now understand that coalitions are a necessity. There can be no stable government in a fragmented polity like Chile's with a half dozen political parties that all have strong roots in society. A practical expression of my contention is the parties that have coalesced into the Concertación de Partidos por la Democracia. This was not simply to unify against Pinochet. On the contrary, I think that we have been able to take further steps in strengthening the bonds between us far beyond the most optimistic expectations. And this is not because of Pinochet. It has happened because coalition building is now possible in Chile. Pluralist democracy is a shared goal that enabled us to take the first crucial step that Jorge Arrate mentioned in the previous chapter: the decision to enter the electoral arena and take our chances to win the plebiscite. There was a shared awareness that the only road to democracy was a peaceful road in the electoral arena. What we now need is to help this process along not only by overcoming the short-term issues, but also through political engineering and institutional change—institutional change toward strengthening the party system and strengthening a more parliamentary behavior of government. The election of presidents and presidential systems is a winner-takeall kind of game, and a winner-take-all game is bad for stable politics. 56

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There is no incentive for coalition building. You elect the president. If you win, you have all the power. If you lose, you have no power. S o the move to more parliamentary politics will help the process of coalition building. We expect, during the four years of the transition period, to take steps in that direction. This means that the president, whose authority is an absolute necessity in the early stages, has to b e reconciled to the fact that he should increasingly become a head of state more than a head of government. The second process that we must also support decisively is political decentralization: the transfer of authority, resources, and decisionmaking power to the local level. This should lead gradually to degrees o f regional self-government, which would reduce the conflicts at the center. It will reduce the margin of change from one government to the next. And it will, very importantly, increase the number of political rewards. Again, it will help politics to be less of a winner-take-all game or one in which the number of prizes is limited. Now, where do our problems lie? The first problem o f course is the full restoration of democracy. It is important to understand that the transfer of government had the democratically elected government taking power on March 11,1990. But that by itself did not mean the full restoration o f democracy because of the power structure that was carefully built by Pinochet through the autonomy and authority o f certain institutions, like the National Security Council, the Supreme Court, and the Central Bank. The autonomy o f these institutions or the veto power of certain institutions, and the fact that General Pinochet appointed individuals and boards in key positions, are incompatible with full democracy. This is also true of the constitutional provisions that make the commanders in chief nonremovable. It is true of the Supreme Court. It is true of 95 percent of the mayors in Chile. And if we want to democratize society, we cannot live for the next four years with mayors appointed by Pinochet. S o here we require constitutional reform, legal reform, and the democratization of society, especially at the local and regional levels. There are sources of tension and conflict. However, the process o f constructive, consensus-oriented thinking and action has led the Concertacion to take steps that prove we are committed to reform within the limits of the constitution and the law, however we might dislike the present constitution or any of its provisions. We accepted amendments to the constitution that included two-thirds, or 60 percent—or 57 percent in some cases—minorities for reforming certain provisions of the constitution. We are committed to live with that. We accepted the idea that the basic rules that should govern a country in the long term require agreements even broader than the broad coalition o f the Concertacion. 57

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And in that direction we moved. So, now we have to remove the roadblocks and restore democracy through real change—constitutional reform—on the basis of reaching the necessary agreements with the democratic sectors of the right once the new government is in power. The moderation of Chilean politics has already expressed itself in the actual behavior of the Concertaciôn. This is the first basic issue. The second problem is that we face a likely explosion of expectations, of social demands. The authoritarian regime was tough, hard-fisted. Carlos Ominami mentioned in his chapter changes in labor registration, for instance. Perhaps it is as much a question of some of the provisions of the existing legislation as the fact that it was brutally put into place from above without any consultation, without any right to dissent. Thus, it was felt as lacking legitimacy by the workers. 1 We have to try to reconcile the fact that in the social area, where I would say we've had a market economy, we have not had a social market economy. We can do more as a country. We have to mobilize resources. We are planning tax reform within very reasonable limits.2 But we have to do more and we have to do it quickly. At the same time, we have to reconcile this with the need to keep the economy going. Here again, I think we have learned from the experience of our neighbors. All parties in Chile have, among other things, become growth conscious. They understand that without sustained growth, even social justice becomes an impossibility. We do not have much room for maneuver, but we have learned from past history. We understand that we have to do some things quickly, but that we cannot solve the country's problems or put an end to poverty overnight. First, we have the basic task of democratization and the instant change in what we could call the style of governmental action. The campaign slogan of "Aylwin will listen to the people" is much more than a campaign slogan. It is a basic attitude we must take to government to make people perceive that though we cannot solve their problems overnight, there is a deep commitment to solving those problems. Second, we have a question of political initiative, of choosing the basic priorities to solve pressing needs, and to meet the demands of both the poorest sectors of society and the middle class. The third point is that we need a strategy for policy implementation. We must not run out of ideas and resources after the first year or two. We must be able to spread the implementation of our program over the full four years of the transition period. Otherwise, we will be put on the defensive, and all the negative underlying forces, which always exist, will come to the fore. Then there are the objections, the questions raised by the skeptics. First is that the coalition is heterogeneous and will inevitably fall apart.

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Second is that in the nature of political competition, if you have another election in four years' time, after the first year or so parties will find it in their own best interest, in positioning themselves for the ensuing competition, to shy away from government. So the whole strategy of policy implementation is linked to strengthening the commitment of the parties to the government for the whole period. This is the attitude of the Christian Democratic party today. Beyond that you have to help the process. This means increasing the cost of defection or reducing the incentive to defect. T h e move toward a more parliamentarian system is part of that game. An implementation strategy covering the four years is not part of that game. It is essential to organize a government day-to-day in such a way that the parties share both the costs and benefits of these four years. There is also the question, because there are seventeen parties, that party interference will make the government impossible for the president. H e r e again, we have to understand that the government will be sustained by the parties, which, to make a strong and lasting commitment, must feel that they are participating. At the same time, we have to organize ourselves in such a way that interference, in the negative sense of the word, and obstruction of governmental action of policymaking d o not take place. There is one risk, of course, in the behavior of the parties that have strong roots in Chilean society but that are not part of the Concertacion. Here the Communist party comes to mind. However, they wouldn't ignore or not feel the impact of perestroika and the developments in Eastern Europe. Whatever their present state, one of the important challenges we face is how to ensure the responsible behavior of the groups of society for whom this party has importance. The answer lies somewhere in the way of political decisions and an inducement for the party to become a legitimate, accepted part of the political system. This should help us reintroduce the Communist party into the long-term democratic system, which is an absolute necessity for Chile. We cannot drive parties into the jungle. It also requires a willingness on their part. Here, again, we have some risks, bijt I think we stand a good chance. T h e perception that the government cares for social justice and that the democratic government will d o its best to increase the well-being of the majority is essential if we want to reintroduce all the other groups into the mainstream of a politics committed to compromise, agreement, and consensus building. No significant group in Chile can be kept outside this process. I do think that the United States will have a unique opportunity to establish a more harmonious, nonconfrontational bilateral relationship with a democratic Chile under the new conditions of ideological conver-

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gence—a Chile with a more consensus-oriented political regime. A democratic Chile with an open economy, combining sustained growth with perceptible steps in the direction of social justice, might become a case of great interest to the world at large because there are not many developing countries that have succeeded in combining these elements, certainly not in Latin America. If you look at it this way, the success of Chile in this new stage is in the best security interests of the United States.

Notes 1. 2.

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It was consensually approved in 1990—Ed. These were consensually approved in 1990—Ed.

7 The Transition to Democracy and US-Chilean Relations Carlos Portales

The transition to democracy in Chile has been at the center of US-Chilean relations for some time. 1 The transition has been gradual, nonviolent, and has not broken the institutional framework of the authoritarian regime, but rather started to reform it. In this sense, the Chilean transition resembles the Spanish and Brazilian processes; but in the former, the transition started after the passing away of a strongman, and in the latter, the institutional framework set u p by the military did not establish the permanence of the top leadership of the armed forces. In Chile, on the contrary, General Pinochet remains as commander in chief of the army; and the chiefs of the navy, air force, and Carabineros (the police) cannot be removed f r o m office for eight years. In the event of their retirement, the new president is allowed to choose a replacement only f r o m among the five upper-ranking generals (or admirals); these new chiefs would also be unremovable for a period of four years. Therefore, the process of transition will need further reforms; more important, new practices must be established to achieve full democracy. Starting in the mid-1980s, the Chilean opposition began to take advantage of the liberalization process—the government response to the protestas and foreign influence. When the seventeen political parties decided to participate in the plebiscite to confirm or reject a presidential candidate to be chosen by the four chiefs of the armed forces and the police, and organized the Concertación de Partidos por el No, they implicitly operated within the formal framework of the regime. An analysis of the external influences in the Chilean political process f r o m 1983 to the 1988 plebiscite shows that the policies of foreign powers—particularly those of the United States—sought to favor a gradual

Carlos Portales is ambassador and foreign policy director of the General Ministry of Foreign Relations of Chile.

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and peaceful process of transition to democracy, negotiated a m o n g moderate forces of the opposition and within the regime. 2 External influences limited the arbitrary policies of the military government and induced liberalization—either (exceptionally) by direct pressure or (mainly) through enhancing moderation in domestic actors. The following attitudes and actions demonstrated the involvement o f a wide range of U S actors who influenced the Chilean transition: support for the Acuerdo Nacional in 1985; continuous concern of human rights organizations; pressures to lift the states of exception until they ended in August 1988; policies and actions to guarantee freedom in the electoral process; the joint statement of President Reagan and Secretary Shultz in December 1987; the role of the National Endowment for Democracy in enhancing the possibilities of a contested plebiscite in 1988; the role o f the Committee to Support Free Elections in Chile, chaired by senators Kennedy and Lugar; visits by human rights groups, politicians, civilians, and military officials; and last, but not least, the summoning of the Chilean ambassador by the State Department on 3 October 1988, to express concern about plans to cancel the plebiscite or to alter its results. After the victory of 7 October 1988, the now Concertación de Partidos por la Democracia began to press for constitutional amendments. A push-pull period followed a m o n g the Concertación, the proregime Renovación Nacional party, and the government before a set of reforms was approved by plebiscite. For the first time in almost two decades, common rules to settle differences had been widely recognized. Nevertheless, after the consensual constitutional amendment o f July 1989, the military government continued enacting legislation—the constitutional organic laws (COLs)—to keep in place many of the political structures o f the authoritarian regime without taking into account the points of view of the Concertación or the Renovación Nacional. T h e purpose was to severely limit the ability of the majority to exercise power in important areas. T o remove these ataduras, to amend COLs, a four out of seven majority in each chamber is required. Thus, this legislation has become almost a supplementary constitution. Electoral law reinforced this barrier for the new democratic authorities. As a result of the combination of (1) a senate with 47 members (48 if General Pinochet leaves his post as commander in chief of the army and became a senator for life), of which only 38 are elected and 9 are appointed either by the current president, the National Security Council, or the Supreme C o u r t all proregime bodies; (2) a practical two-thirds majority in 8 o f the 19 senate districts plus a majority in the rest of them; and (3) a practical two-thirds majority in 9 of the 60 electoral districts for the Chamber of Deputies (the House), with a majority in the remaining 51 districts required to obtain the four out of seven quorum needed to amend the 62

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COLs. The Junta has approved, or is considering the approval of, COLs that will establish or enlarge the autonomization of state institutions, such as the armed forces, the Central Bank, and the state copper corporation, CODELCO. These institutions will be directed by unremovable authorities chosen by the current military government and unaccountable to elected representatives. 3 T h e military g o v e r n m e n t is also t r y i n g to g u a r a n t e e a proauthoritarian, regime-minded Supreme Court, seeking to prevent eventual investigation of human rights abuses. A law offering very favorable retirement conditions for Supreme Court justices allowed the appointment of five new members in the last half of 1989. New appointments in the army, including military courts, have strengthened the control of General Pinochet. Norms introduced in several COLs that prohibit the new Congress from placing political responsibility for actions committed before 1990, and the dissolution of the secret police (CNI) and the elimination of its records, will further diminish the possibilities of newly elected authorities or the public to investigate human rights abuses and impose effective sanctions. To amend the constitution and to change political legislation are the main objectives of the Concertación's platform (Bases Programáticas Político Institucionales). Reform proposals include enhancing protection of human rights, strengthening the role of Congress, modernizing the judiciary system, democratizing regional and local power, controlling the military by democratically elected authorities, establishing proportional representation in the electoral system, and strengthening pluralism. On many of these points there is a substantive agreement with Renovación Nacional, and joint action will be needed in all probability, after the new government assumes power. 4 The renewal of meetings between Concertación and Renovación Nacional in the weeks prior to the December 1989 presidential election may be seen as a sign that negotiation and reform will continue. To achieve full democracy, the process of transition must continue after December 1989 and March 1990. This poses the first requirement for those abroad interested in democracy in Chile: continuous attention to the Chilean political process. This issue should not disappear from US-Chilean relations. Renewed attention of the international community, particularly of the United States, is required to support the efforts to complete the transition and to consolidate democracy. But the new situation will also require change in policies and the instruments to achieve them. The transfer of power f r o m an authoritarian regime to a democratically elected government should transform pressure on the government—to limit excesses, to improve 63

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protection of human rights, and to liberalize the political system and open room for transition—into support of the democratically elected authorities in their efforts to strengthen the democratic system. The carrot-and-stick approach that was instrumental in inducing an authoritarian government to move toward democracy will no longer be useful in relation to a civilian democratic government with limited power vis-à-vis the remnants of authoritarianism that is still in place after the new government assumes power. Its continuation could even weaken the civilian government. Instead, an approach that increases and improves the policy instruments available to civilian authorities will be required. To support transition to democracy under the new conditions, policy instruments should be examined from this perspective. According to current US legislation, full restoration of bilateral relations requiress certification by the president of the United States of progress toward a democratic government, improvement in the protection of basic human rights in Chile, and indications that the Chilean government is taking adequate steps to bring to justice, through all available legal means, those indicted for participation in the assassination of the former minister of Foreign Relations Orlando Letelier and his assistant Ronni Moffitt. In March 1990, Chile should have a democratically elected government, committed to full protection of human rights and to cooperating to bring to justice those indicted in the Letelier case. Once this step is implemented, presidential certification should follow.5 The transformation of the political institutions inherited from authoritarianism will be the main political task of the Concertation government. Although constitutional reform and legislative change are domestic affairs, foreign support could provide important resources to strengthen and modernize Congress and the judiciary. Renewed military relations could increase modernization and promote democratic attitudes in the armed forces, if properly reestablished through a Ministry of Defense fully responsive to the president. The Concertation program envisages the restoration of a balanced relationship between the armed forces and the democratic state through a modern defense policy. Consolidation of democracy requires not only institutional change, but also cooperation and moderation of political, social, and economic actors. The linkage between economic performance and sociopolitical stability is apparent. This relationship was emphasized by all Latin American democratic governments at the beginning of the transition, but Chile has the advantage of having overcome the worst period of recession and having already paid high economic and social costs for establishing an open economy. The economic program of the Concertation seeks to maintain macroeconomic equilibrium, to induce investment, and to maintain growth. 64

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At the same time, it must progressively solve the more pressing social problems in order to keep stable economic programs within a democratic process. The role of the external sector continues to be crucial, and the United States is seen by the Concertacion as key to a successful linkage of economic policies and democratic transition. Presidential candidate Patricio Aylwin stated: U.S. bilateral policy and U.S. influence in the international economic organizations will have a decisive role to keep open and stable markets for our export commodities and to obtain the financial flows needed for the adequate functioning of our economy and, therefore, the success of our process. We understand that support of the transition to democracy implies cooperation with the economic development needed to keep a stable economy able to solve the problems of all Chileans.

The three main issues are on the agenda and a fourth one could be considered: (1) to keep a continuous flow of funds to support the stability of macroeconomic parameters; (2) to keep open markets for export commodities; (3) to lift 1987 sanctions that excluded Chile from the Generalized System of Preferences (GSP) and made investment in Chile ineligible for insurance in the Overseas Private Investment Corporadon (OPIC); and (4) to approve a package of aid supporting the social programs of the new Chilean government. Public and private external financing are needed for continued growth. An expanded role of the World Bank and the Inter-American Development Bank in financing programs for health, education, protection of the environment, infrastructure for exporting, managing of natural resources, and long-term credits for private sector investment will be required to avoid a net outflow of funds to these institutions. US authorities' support is very important in the approval of new programs. At the end of 1990, the Chilean government again needed to reschedule its external debt in cooperation with the banks. The role of the US government in such an endeavor should also be supportive. The poisoning of two Chilean grapes and the subsequent crisis in March 1989 illustrated the vulnerability of the fresh fruit export industry, one of the pillars of the recent economic success of the country. Protectionism has become a concern for the continuing success of the Chilean open economy. The exclusion of Chile from the GSP and from the coverage of OPIC in 1987, due to labor relations problems, should be removed soon if the United States wants to send a clear signal of support to the new regime and the private sector. Although exclusion from the GSP affects only

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small exporters (and most of the potential OPIC quota for ensuring investment in Chile is already covered), the role of lifting sanctions to attract new investment should not be disregarded. The Chilean labor leader Manuel Bustos, then recently liberated from internal exile, asked here in Washington in mid-1989 for the lifting of these sanctions, b u t the process is neither automatic nor assured. 7 The goal of Concertación "to progressively overcome extreme inequalities that exist today in the country," 8 and particularly its proposed "Social Investment and Solidarity Fund," which would be established to combat poverty, could receive financing from externa] sources. Although foreign aid is not a popular issue in the United States today, and in spite of attention given to the dramatic changes that are taking place in Poland and other Eastern European countries, consolidation of democracy in Chile through a gradual process of transition and reinforcement of an open economy should be an appealing model in this country. After so many failures in consolidating democracy in Latín America and the poor economic performance in several countries, strengthening a stable economy in a pluralistic political system able to overcome poverty requires an additional cooperative effort that should be worthwhile, given the US foreign policy commitment to support democracy and open economies. Transition to democracy will lead to the reassertion of a positive Chilean foreign policy. The country should be able to leave behind sixteen years of indictment for human rights abuses and repressive policies and recover a place in the international community. Presidential candidate Patricio Aylwin stressed the importance of traditional principles of Chilean foreign policy: self-determination, nonintervention, sanctity of treaties, juridical and peaceful settlement of disputes, peace and international security, human rights, ideological pluralism, promotion of cooperation and integration in Latin America, and the primacy of international law. According to the Concertación candidate, these principles should be implemented with political realism and economic pragmatism to attain the main foreign policy goals: human rights; economic integration and political cooperation in Latin America; universal relations of cooperation; open, modern, and sovereign international economic policy; and reinforcement of Chilean participation in multilateral organizations. 9 New opportunities for cooperation should spring f r o m a new Chilean foreign policy, US policies that promote h u m a n rights and democracy, and the new emphasis of the Bush administration on the role of multilateral organizations, particularly in the Western Hemisphere. New issues, like drugs, the protection of the environment, the Pacific basin, and scientific and technical cooperation, could also be considered

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by the United States and Chile, and beyond the bilateral realm. In sum, the transition to democracy will open the agenda of bilateral relations to foreign policy issues beyond the nature of the regime. Also, US-Chilean relations will have to address the challenges to the world environment that are arising in the 1990s.

Notes 1. Heraldo Muñoz and Carlos Portales, Elusive Friendship: A Survey of U.S.-Chilean Relations (Boulder, Colo.: Lynne Rienner Publishers, 1991). 2. See Carlos Portales, "Los factores extemos y el régimen autoritario: Evolución e impacto de las relaciones intemationales de Chile en el proceso de transición a la democracia," FLACSO Working Paper No. 419, July 1989. 3. This was the case of the COL on the armed forces. Central Bank authorities were negotiated. In CODELCO, the new government appointed all its top officials—Ed. 4. Renovación Nacional did not honor this agreement—Ed. 5. It did happen on 2 December 1990—Ed. 6. "Política internacional del futuro gobierno democrático," presentation of Patricio Aylwin to the Consejo Chileno de Relaciones Internacionales, 16 November 1989. (My own translation.) 7. See "Los Estados Unidos y la transición a la democracia en Chile: La política de los Estados Unidos," an address of US ambassador Charles A. Gillespie, Jr., to the Cámara de Comercio Chileno Norteamericana, 29 August 1989, Texto Oficial, Servicio Cultural y de Prensa, Embajada de los Estados Unidos de América, Santiago, p. 5. 8. "Bases Programáticas Económico-Sociales de la Concertación," en Concertación de Partidos por la Democracia, Programa de Gobierno, Documentos La Epoca, p. 11. 9. See note 4, p. 22.

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8 New Perspectives on US-Chilean Relations Augusto Varus

Chilean-US military and security relations have to be analyzed in the context of the evolving nature of hemispheric relations in a post-cold war period. In this framework the peculiarities of bilateral relations could be better studied. Accordingly, in this chapter I will summarize recent changes in US approaches to regional military matters, characterize some scenarios of Chilean civil-military relations, and, finally, outline a tentative agenda for bilateral military relations.

The United States and Democratic Governance in the Hemisphere Recent changes in Washington's approaches to hemispheric political affairs and democratization in process in Chile are creating new conditions to improve bilateral military relations. The United States is more clearly emphasizing democratization—a military subordinated to democratically elected civilian authorities—and giving renewed consideration to multilateral regional arenas. Since the second Reagan administration, when a new emphasis on democratization was placed at the inter-American relations level, the main priority has been to strengthen Latin American democratic institutions, to permit appropriate civilian control over the military, and to give conditional economic support to democratic behavior.1 These changes—and some carryovers—can be better appreciated by observing current US approaches to civil-military relations and to military assistance programs.

Augusto Varas is senior researcher for the Latin American Faculty of Social Sciences (FLACSO) and adviser to the General Presidential Staff Ministry of Chile.

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Civil-Military Relations From the mid-1980s, US policymakers realized that their permanent and suitable commitment to civilian democratic governments is crucial to the political future of the region. They understood that transitional processes do not strengthen civilian governance automatically.2 But, the Latín American military still controls important areas of policymaking and protects its prerogatives and reserved domains. This impedes effective civilian democratic governance of the state and creates permanent political instability.8 In this vein, the assistant secretary for InterAmerican Affairs, Elliott Abrams, stated in February 1988 that "the option of military rule to 'correct' the alleged errors of the electorate is not acceptable for those who seek the respect or the support of the United States."4 After this clear statement, Latin American armed forces are aware that they will not have US support for coup attempts. This clear posture has been crucial to discourage military coups, but it is not powerful enough to restore total civilian governance. According to one American analysis, "Though civilians occupy more presidential palaces now than they did at the beginning of this decade, their hold is tenuous at best. Few enjoy actual power over the armed forces. Perhaps the major reason the militaries have not yet seized control is the potential blame that goes with presiding over a devastated economy.... Perhaps the best that can be said is that the headway the Reagan administration made elsewhere in the world gives the Bush administration an opportunity to focus significant attention on helping to achieve the democratic gains that its predecessor claimed."5 The same was observed by another analyst when he indicated that "in all but two South American countries, democracies are in power—yet the military rules. No decision is made by the new democracies without considering how the military will react. A veneer of popular participation covers the continuing power of the defense establishment."6 New possibilities have been opened for hemispheric military and strategic relations after recent global strategic changes. Nevertheless, they are also the result of endogenous democratization processes occurring in the region and the important changes introduced in US foreign policy during the first year of the Bush administration, particularly vis-à-vis Latin America. In this respect, President George Bush stated that since the United States and Latin America "share common interests, we must work toward a common aim. Our battlefield is the broad middle ground of democracy and popular government, our fight is against the enemies of freedom on the extreme right and on the extreme left."7 The same has been underlined by Secretary of State James Baker, when he stated that "if we are engaged in a joint venture north and south to

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advance and defend democracy then each of us must do our part—collectively when possible—to create new mechanisms and to strengthen existing ones to defend human rights, to guarantee the integrity of free elections, and to establish sanctions against those who threaten democratically elected governments." 8 Here, all sources of political instability are condemned, and a spirit of collective conflict resolution reappears. However, some old, rooted interventionist tendencies persist, as was shown when the new assistant secretary of state for Inter-American Affairs "pledged to push democracy in the hemisphere without ruling out the use o f force to protect U.S. national interests." 9 Similarly, other US policies, not well regarded in Latin America, still remain. One of them, covert actions, could conspire against civilian democratic governance in the hemisphere. This danger appeared when CIA director William M. Webster described the "increasing unrest of 'coup plotting' in Latin American countries" and declared that "a bipartisan policy must be developed to support covert action in the region. . . . Some of the democracies in the region are so fragile . . . that their survival depends on the attitude of their military and the capacity of their military to maintain law and order." 10 This tendency to coerce political processes in the region does not support real progress toward democratic governance and civilian control over the military. Military Assistance US approaches to Latin American civil-military relations are matched by military assistance programs. The latter, in a period of change under recessive economic conditions, faces unique challenges. On the one hand, economic difficulties and political instabilities are straining poor countries. The close linkage among these issues has been clearly recognized by the former head of the USSOUTHCOM, General Fred Woerner, when he indicated that "some current and prospective leaders within South America are adopting strident, often anti-American, rhetoric as they seek mass approval." The reasons for this posture, according to Woerner, lie in the fact that "Latin America in the next ten years may indeed develop as a variant o f the Indian subcontinent: very modernized and prosperous sectors coexisting with sectors of gross backwardness and poverty The potential for new outbreaks o f social conflict in Latin America is greater now than at any time in the last generation. Without the tonic o f economic growth, democracy faces a grim future." 11 Poverty as the main source of political instability has been once again underlined. Nevertheless, the military component in US approaches to Latin American instability has not been clearly subor71

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dinated to political goals. On the contrary, it sometimes seems that US military assistance is aimed specifically at coping with instability produced by poverty. Military assistance is a part of the US intention not to involve and commit more military forces abroad. For these reasons, the secretary of Defense asked the military to accelerate training and other assistance to military and police forces in Latin America: "No U.S. troops will accompany Latin American forces on military operations. U.S. troops will be restricted to training and technical aid, such as improving communications."12 According to a recent analysis, "military assistance (FMS: foreign military sales) financing, IMET (international military education and training), and MAP (military assistance program) general costs, and economic support funds (ESF) promote U.S. interests by pursuing a number of mutually reinforcing goals. These include: enhancing the ability of U.S. security partners to deter and defend against aggression and instability; maintaining the cohesion and strength of our alliances; developing sound military-to-military relations that support our diplomatic strategy and enhance U.S. influence and prestige; . . . and providing support for emerging democracies while defending existing democratic institutions and values in other countries." 13 On the other hand, the Bush administration is aware of the need to curb the economic impact of the arms race in the Third World and specifically in Latin America. Although this trend has declined in recent years, due to regional economic problems, high levels of military expenditures remain in Latin American countries, particularly after the processes of democratization of military governments. According to President Bush, "the security challenges we face today do not come from the East alone. The emergence of regional powers is rapidly changing the strategic landscape. . . . In our own hemisphere, a growing number of nations are acquiring advanced and highly destructive capabilities—in some cases, weapons of mass destruction and the means to deliver them. . . . Our task is clear: we must curb the proliferation of advanced weaponry; we must check the aggressive ambitions of renegade regimes; and we must enhance the ability of our friends to defend themselves. We have not yet mastered the complex challenge. We and our allies must construct a common strategy for stability in the developing world."14 In a context of economic difficulties and political instability, military assistance could conspire against democratic governance and civilian control over the Latin American military. This is a complex policy to be executed. Since the way to enhance the ability of US allies in security matters is through the transfer of modern technology, and considering that defense expenditures represent a heavy burden to overcome in economic recession, the right

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equilibrium between security and economic cooperation is not easy. This tension appeared clearly in the analysis made by the under secretary for Political Affairs. He indicated that "diffusions of advanced weapons systems in volatile regions of the Third World . . . are very disturbing precedents in a world where the proliferation of medium- to high-technology armaments is increasingly common Third World conflicts are becoming increasingly dangerous. . . . But many of our friends around the world lack the ability to support their own national defense requirements as well as provide resources for economic development. . . . Consequently, we provide defense and economic support. . . . Cuts in security assistance programs can only place at risk our ability to maintain the degree of presence and influence that we need in various areas of the globe."15 Drug trafficking has been defined by US officials as another important security problem. According to President Bush, "our common partnership must confront a common enemy: international drug traffickers. Drugs threaten citizens and civil society throughout our hemisphere. Joining forces in the war on drugs is crucial."16 Secretary of Defense Richard Cheney ordered the Pentagon to develop plans to strengthen US military presence in the Caribbean and along the US southern border to curb cocaine smuggling. Even though some officers were reluctant to take on the antidrug mission, the U.S. military is expanding its role in the drug war.17 In some crucial Latin American cases, military assistance to combat drug producers has been linked to easier funding for military purchases. In Colombia, the Export-Import Bank helped the Barco government finance arms purchases to cope with drug traffickers.18 Nonetheless, this problem does not find an identical definition in Latin America. In sum, US security policy in the hemisphere could be summarized as follows: interdependency is increasing, and partnership is the way to confront collective challenges; regional problems are common to the inter-American system and should be tackled collectively in multilateral arenas; the USSR is not a threat to US security interests in the hemisphere; superpowers are committed to a process of peaceful regional conflict resolution; nuclear proliferation and the arms race threaten peace in the hemisphere; economic destabilization affects hemispheric security; democracy should be observed by all parties in Latin America; sanctions will be applied to those who threaten democratic governments; civilian authority should be unquestioned by the military; specific policies for different issue areas should be developed; and drug trafficking is considered a security problem in the United States. These new traits of US policy in hemispheric military affairs sketched some new opportunities to redefine hemispheric military relations, 73

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opening new alternatives for all the parties involved, under the conditions to overcome nonconducive policies. In the Chilean case, this will also depend on the evolution of its civil-military relations.

The Future of Civil-Military Relations in Chile Chilean military relations with the United States will be conditioned by the approaches to Latin American military and security isssues mentioned above, and by the outcome of current domestic political developments within Chile. The latter will be heavily determined by the evolution of civil-military relations under the new democratically elected government. Democratic stability in Chile will partially depend on the civilian capacity to prevent new military incursions into politics, maintaining military institutions in their professional roles, containing their proclivity to keep indirect political control, and reducing their role diffusiveness. 19 At the same time, it will rely on civilian wisdom to tackle military and security issues, working out these problems together with the armed forces. Considering the election of Patricio Aylwin in the presidential contest, these relations will be inspired by the policy toward the military developed by the Concertación de Partidos por la Democracia (CPPD) and the military's response to the first democratically elected government in sixteen years. The future of democratic governance in Chile will d e p e n d on the changes in the civilian perspective toward the military as well as changes in the perception of the military vis-á-vis its role and linkages with the rest of the state and society. T h e CPPD national defense policy has been oriented toward strengthening the professional role of the military in national defense, not internal security. T o professionalize the military, the Concertación proposed to increase the interoperativity of the services and to develop joint doctrines, strategic planning, and common policies at different levels, strengthening the joint chiefs of staff work. The CPPD is also committed to the modernization process. Accordingly, during its presidential term, it proposed to keep the military budget without reductions. A joint procurement policy has been proposed. To modernize the military a special effort of transferring modern technology to local military industries to develop dual technologies and better coordination among industries have also been considered. To finance this process, a reduction in personnel, previously dedicated to governmental and political areas, would be enforced. To integrate the military with the rest of the state in those areas 74

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related to national defense, the CPPD proposed to include the military o n advisory committees on foreign policy of the foreign relations ministry, advising the Antarctic, airspace, maritime, and borders policies; to include them in the policymaking of confidence-building measures, arms limitation, disarmament, and peace initiatives at the regional and international levels; and to include them in developing regional cooperation regimes in specific security areas. Some governmental areas to which the military could contribute have been identified, such as public works, transport, and communications. T o reintegrate the military into civilian society, the CPPD proposed renewed interest and attention of the executive and the Congress in the definition and evaluation of defense policies. Similarly, the CPPD proposed a closer interaction with universities and specialized academic centers, creating joint programs for defense studies and exchange of faculty and students. The response of the military government to the CPPD's proposals was twofold. O n the one hand, General Pinochet, in his speech during the ceremony of the sixteenth anniversary of his nomination as commander in chief of the army, demanded that the new government "abstain f r o m intervening in the definition and execution of the defense policy," enumerating the same topics contained in the CPPD proposal. In addition, he demanded that the future government "respect the spirit and provisions of the constitution related to the armed forces; maintain the commanders in chief of the armed forces and police; protect the prestige of the military and prevent political retaliations; prevent class struggle; prevent and punish terrorism; respect the opinions of and demands for information by the National Security Council; and maintain the amnesty law."20 O n the other hand, the military government, not respecting a verbal agreement made during the negotiation of the constitutional reforms in July 1989, sent to the legislative J u n t a a proposal for an organic constitutional law on the armed forces. 1 T h e "bunkerization" of General Pinochet in the army has been made through the constitutionalization of institutional prerogatives, reaching the highest level of institutional autonomy vis-a-vis the rest of the state and society. The organic constitutional law would solidify the domains of the military not only in institutional matters b u t also in budgetary and political ones. 22 This institutional autonomization—the highest in Chilean history and probably in Latin America—would prevent civilian forces f r o m tackling military and security issues together with the armed forces, impeding the legitimization of civilian leadership in the barracks. In this sense, the Pinochetian "bunkerization" would directly and indirectly erode democratic transition to democracy, preventing a collective effort 75

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for professionalization and modernization of the armed forces and questioning civilian authority in political matters. In addition to the military government's attempt to constinationalize the autonomization of the armed forces, several attempts have been made to ideologically support the role of the armed forces as warrantors of political institutions.23 This role was stated in the Constitution of 1980, but the latest constitutional reforms introduced to the National Security Council reduced the scope of this general role. However, some military sectors still think as if the constitutional reform had not occurred, insisting on the diffuseness of military functions. The latter implies a concept of the military as an independent state power that does not recognize any limitation other than national values, which are unilaterally defined by themselves.24 The public acceptance and legitimization of the military in future democradc scenarios is essential for the stabilization of democratic governments. But the role of the military in those scenarios must be clearly defined. Institutional continuity, avoidance of internal crisis, and a new internal consensus could only be provided through a new emphasis on the professional role of the military. To legitimize this professional role in the area of national defense would imply detaching the military from actual political roles and changing the institutional image of the armed forces created during military regimes. The relegitimization of the professional role of the military and the involvement of civilian democratic forces in national defense issues are the processes through which a new civilian-military relation could be developed. Political, social, or economic issues would be areas for confrontation between a "military fortress" and political parties and government. Accordingly, democratic professionalization of the Latin American armed forces is the most important factor in the future of Chile as well as the whole region.25 Role expansion in nonmilitary fields and role diffusiveness should be avoided and the specificity of professionalization strengthened. Even though the military regime has been an institutional one supported by the armed forces as a whole, the role of Pinochet in domestic politics as well as in institutional matters could delay or transform the transitional process. The uniqueness of the Chilean case lies in the complex combination of personal leadership, institutional cohesion, political alliances among military officers and civilian technocrats in government, and supportive entrepreneurs that received the benefits. This peculiar combination of political factors explains how General Pinochet remained in power for sixteen years. But his lack of massive electoral support explains the occurrence of transition. How this military caudillo will affect the transitional and democratization proces76

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ses is one of the main open questions in Chilean politics.

US-Chilean Military Relations As stated above, the future of Chilean-US military relations will depend on maintaining the new orientations that US officials are enacting in their relationships with Latin American military, and on the way that civilmilitary relations will reach a suitable stage of democratic accomodation in Chile. Nevertheless, to restore and develop bilateral military relations, some practical steps should be taken. Considering current changes in US policy in the hemisphere, and the issues that military-civilian relations face in Chile, the following are the main issues to be tackled in future US-Chilean military relations: 1. Following President Bush's orientation on how to deal with common security issues, democratic stability should be seen as the collective duty of "government, business, and labor; and, in the United States, between the different branches of the federal government."26 In addition, bilateral military relations should be oriented toward strengthening an unquestioned civilian authority over the military. This policy goal must be made explicit to business, labor, and political groups all over Latin America, as well as in Chile. This goal has not yet been clearly understood at all levels of the Bush administration. According to the historical experience in the region and considering the autonomization process of the military, democratic institutions are not strengthened by military-to-military relations but by the permanent and direct involvement of democratically elected civilian officials in this linkage, and by conditioning these relations to a real subordination of the military to the executive power. 2. New ways to tackle the problem of a credible defense by Latin American countries should be found. One less-burdensome policy could be a combination of nonoffensive defense policies—"defensive deterrence"—together with an effective method for peaceful conflict resolution, respected and supported by the United States. 3. One crucial problem related to the support of the modernization process is how to enhance military professional roles without endangering regional peace.27 How to solve this problem is the most important and urgent collective task for military and civilian democratic forces in Latin America. In this respect, it might be possible to develop programs of technology transfer to the state-owned Chilean military industries, like FAMAE, ASMAR, and ENAER, in dual technologies. A partnership in production and marketing could be an attractive incentive for coopera-

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tion at this level.28 4. A closer bilateral cooperation should be developed in the area of creating peaceful conflict resolution mechanisms and/or institutions. A multilateral effort could be made at the nuclear level,29 enforcing existing regional nonproliferation agreements, creating an effective mechanism for arms limitation and disarmament, and working toward a regional system of peaceful resolution, abdicating the use of force in international relations. 5. A complementary policy for the United States would be to act collectively with other developed parties on the arms transfer issue, regulating the flux and creating a de facto military balance also o n the suppliers' side. 6. Crisis management to cope with social or political unrest d u e to economic constraints should refrain from covert action to influence the military and convert them into a political force in domestic affairs. T o conduct these actions would only promote nostalgic dreams of hardliners in the military, converting them into real enemies of freedom. 7. The United States should support the civilian endeavor to professionalize the military and modernize military services and the police, reestablishing complete bilateral military relations, first, because sanctions were linked, according to the US government, to the participation of Chilean officers in the Letelier-Moffit assassination; 50 second, because the next democratically elected government should not be punished, nor the military institutions under a democratic rule; third, because a solution to the bilateral conflict implies a change in the juridical behavior of the Chilean Supreme Court, which should make possible additional investigation of the facts; fourth, because the Supreme Court could not be influenced through military sanctions; fifth, because the new government would need to count on policy instruments, among them military international relations, to relegitimate the military in society and to exercise its own civilian control over the services. For all these reasons, it is highly advisable to detach the investigation and sanctions imposed as a result of the Letelier-Moffit assassination f r o m sanctions imposed on the Chilean military.*1 The reestablishment of military relations with Chile depends on the certification of a real democratization process, an improvement in human rights conditions, and governmental cooperation to judge those involved in the LetelierMoffit assassination. 32 8. The United States could support the professionalization effort by the civilian government, multiplying joint operations and exercises, interchanges, training, and visits.5 Reinvigorated bilateral military relations should be carried out through civilian authorities in the executive branch as well as in the defense ministry. Military-to-military relations

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NEW PERSPECTIVES ON US-CHILEAN MILITARY RELATIONS

should permanently include the participation of the civilian government in the policymaking process. 9. The United States could support the modernization effort made by the civilian government through several channels, like sales of weapons systems to modernize the services. According to the assistant secretary of state for Politico-Military Affairs, "only those countries which previously received FMS credits would be permitted to use FMS financing for commercial purchases."34 In the Chilean case this provision should be removed. 10. Another problem associated with the previous one is that "authorization for limited amounts of excess defense articles to be granted to Western Hemisphere military and law enforcement units [are] primarily for the purpose of their active participation in antinarcotics programs."85 Since the clear differentiation between military roles in defense and police roles in internal order should be underlined, the temptation to apply this provision to the Chilean military should be avoided. 11. Finally, bilateral relations with police institutions will be welcomed to cope with drug traffickers and other internal security matters.

Notes 1. This was clearly stated by former assistant secretary for Inter-American Affairs Elliott Abrams at the Inter-American Defense College in July 1985. These changes also reached civil-military relations in the United States. According to press sources, even the curriculum of US military schools has been changed. A senior Pentagon offficial stated that "with emphasis on human rights and institution building . . . we want to get the military out of their ghetto mentality and bring them together with civilians." Roger Cohen, "Shift in U.S. Policy on Latin America Decreases Likelihood of Military Coups," WallstreetJournal, 4 May 1989. 2. A short, but complete, analysis of this situation in Third World countries is in David C. Unger, "Armies in Transition," New York Times, 13 December 1987. 3. Alfred Stepan, Rethinking Military Policy (Princeton: Princeton University Press, 1988). 4. Elliott Abrams, "Obstacles Hindering Latin American Democracy," USIS Santiago, 29 February 1988. 5. Aryeh Neier, "In Latin America, Winter for Democracy," New York Times, 11 February 1989. 6. Charlene Smith, "Latin America: Still the Man on Horseback," Los Angeles Times, 14 May 1989. 7. President George Bush, "Commitment to Democracy and Economic Progress in Latin America," Current Policy, No. 1168,1989.

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8. Secretary of State James Baker, "U.S. and Latin America: A Shared Destiny," Current Policy, No. 1167,1989. 9. "Aronson Pledges to Push Democracy," Miami Herald, 16 June 1989. 10. Jack Nelson, "CIA Chief Warns on 'Coup Plotting' in Latin America,''

Los Angeles Times, 9 February 1989.

11. Andres Oppenheimer, "U.S. Generals: Latin Radicals Gaining," Miami

Herald, 29 May 1989.

12. "Pentagon Is Ordered to Set Plans for Drug Interdiction," Wall Street Journal, 19 September 1989. 13. H. Allen Holmes, "FY 1990 Security Assistance Program," Current Policy, No. 1159,1989. He also perceived that military assistance "makes possible economies of scale in procurement for the U.S. Armed Forces [such as longer production runs] which convey both military and economic benefits." 14. President George Bush, "Security Strategy for the 1990s," Current Policy, No. 1178,1989. 15. Michael Armacost, "Military Power and Diplomacy: The Reagan Legacy," Current Policy, No. 1108,1988. 16. See note 7. 17. 18.

International Herald Tribune, 28 August 1989. Washington Post, 21 July 1989.

19. An analysis of the autonomy of the Latin American militaries and their

political roles in Augusto Varas, ed., Democracy Under Seige, New Military Power in

Latin America (New York: Greenwood, 1989). 20. "Discorso de General Pinochet para conmemorar el decimosexto aniversario de su nominación como Comandante en Jefe del Ejército," La Epoca 24 August 1989. 21. An organic constitutional law requires five-sevenths of the parliament to be changed; other laws need only more than 50 percent to be modified. 22. This process could reach the "near untenable position for democratic leaders" described by Alfred Stepan in Rethinking Military Politics (see note 3). 23. See Genero Arriagada, "Un estado militar dentro del estado democrático," La Epoca, 22 October 1989, p. 14. 24. See General Alejandro Medina, "Seguridad nacional y la visión ideológica de la defensa nacional," Seguridad nacional (Santiago), December 1987, and "Las fuerzas armadas como garantes de la institucionalidad bajo el concepto de la seguridad nacional," CEDENAC, Ensayo No. 4, June 1989; Carlos Molina, "Chile: Los militares y la política," CEDENAC, Ensayo No. 5, July 1989; Arturo Lane, "La lucha ideológica en torno a la seguridad nacional," CEDENAC, Ensayo No. 6, September 1989; Jaime García, "Presencia militar en la vida política nacional," CEDENAC, Comunidad chilena y defensa nacional (Santiago), 19-23 June 1989. 25. An updated analysis of this issue is inj. Samuel Fitch, "Inter-American Military Relations: Past, Present and Future," a paper presented to FLACSO's international seminar U.S.-Chilean Relations: The Coming Decade (Santiago), 19-23

June 1989. 26. See note 7. 27. Some clues have been provided by recent analyses. See Augusto Varas,

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NEW PERSPECTIVES ON US-CHILEAN MILITARY RELATIONS

ed., Hemispheric Security and U.S. Policy in Latin America (Boulder, Colo.: Westview

Press, 1987). 28. This is especially crucial since Argentina and Brazil are working in this direction: "Argentina venderá avión Pampa a EE.UU.," El Mercurio, 22 September 1989. 29. "En un plazo de 10 a 15 años Chile podría construir una central termonuclear. En estudio firma de convenio de cooperación bilateral con EE.UU. en materia de desarrollo nuclear pacífico," La Epoca, 15 August 1989. 30. "Caso Letelier en Washington. Chile y Estados Unidos analizaron invocatoria del Tratado Bryan," El Mercurio, 22 August 1989; "El caso Letelier es el único pendiente entre Chile y EE.UU., consejero de la Embajada de EE.UU. James F. L. Dandridge, II, afirmó que sólo cuando se aclare el crimen del excanciller, las relaciones entre ambos países serán absolutamente normales," El Mercurio, 8 November 1989. 31. This process has already begun: "EE.UU. vendió helicópteros a Chile pese al embargo," La Epoca, 19 August 1989; "EE.UU. neiga cambios de su polótica militar hacia Chile," La Epoca, 22 August 1989; "Embajada de EE.UU.: La enmienda Kennedy-Harkin continua vigente," El Mercurio, 22 August 1989. 32. An official statement on this matter is in Charles A. Gillespie, Jr., "Los Estados Unidos y la transición a la democracia en Chile: La política de los Estados Unidos," USIS, Santiago, 29 August 1989. 33. This process has already started. See "Tropas norteamericanas realizaron ejercicios con las FF.AA. chilenas," La Epoca, 19 August 1989; "Todas las fases de las guerra naval, se practicarán en la Operación UN ITAS 1989. Almirante Merino destacó la importancia que tienen los ejercicios para la Armada chilena," La Epoca, 23 September 1989; "Las maniobras se realizaron entre Cabo Forward y Cabo Tamar y participaron aviones A-37B y mirage-50 de las Fuerza Aérea de Chile, El Mercurio, 24 September 1989; "Norteamericano elogió a pilotos de Fuerza Aérea," El Mercurio, 4 September 1989. 34. See note 13. 35. Ibid.

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9

Commentary Arturo

Valenzuela

Some of the very best work in Latin American social science has been done by Latin American social scientists in their own countries, and now there is an extraordinary capacity for research and work there on such issues as international relations, inter-American affairs, and international security. FLACSO in Santiago has been one of the pioneers in this effort. Chile has been symbolically important for the United States, far more important than its strategic interests should dictate, as those interested in the relationships between the United States and Chile for the last twenty-five critical years can testify. The preceding chapters remind us that the United States should pay continued attention to Chile at a time when it has disappeared entirely from the thought processes of policymakers. At the same time, they make quite clear that the United States should not return to the same kind of bilateral relationship that existed between the two countries in the past. Symbolically Chile is important for the United States today because it does provide a unique case in which democracy might succeed at a time when the continent is facing some extremely difficult challenges. It might succeed because the transition in Chile is a very favorable transition, generally speaking, although someone could point to some of the pitfalls. The economic situation is far better than it was in the transitions of other countries. There's a clear challenge to reshape this state that the military regime has left behind, to make it more responsive, and to make it more democratic. But clearly some of the reforms that other countries are struggling with now were carried out under the military regime, which provides the country with an unusually good situation. At the same time, there have been some significant changes in the political culture of Arturo Valenzuela is director of the Latin American Studies Program of Georgetown University.

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FROM DICTATORSHIP TO DEMOCRACY

the country over the years, a product not only of the authoritarian period, but also of the breakdown in the level of democratic consensus that existed in the country before. So Chile does provide perhaps an unusual and a significant test case of a country in Latin America that might succeed in the transition to democracy. But, as the chapters in this book have suggested, this success will require an understanding from the international community and from the United States. As Chile moves toward democratic politics, it is absolutely critical for the United States not to get involved in the domestic internal politics of the country. A strong lesson comes out of the difficult relationship between the United States and Chile over the last twenty-five years, out of the attempt to micromanage the internal politics of the country, with massive support for one party in 1964, and massive support for one particular government in the 1964 period, in an attempt to try to show the world symbolically that Chile in fact was a different case, a showcase that would counteract the Cuban experiment. Intervention has been shown clearly to have had a very deleterious effect on the nature of democratic consensus in Chilean politics. I do not need to remind this audience of the nature of intervention in 1970 and the period afterward. The position that the United States took toward Chile in the last few years of the authoritarian regime was very positive. In fact, it was more of a support for the principle of democratic transition, and less a support for any particular element within Chilean society. This kind of posture must be maintained. In that sense, there may be merit in the suggestion that, for example, the United States might work with civilian elites in Chile to restructure certain elements of the Chilean state; but this must be general support for a democratic process and not in any way support for a particular party or conception or fragment within a particular kind of party. While the economic situation does look favorable at this point, there are certainly some serious question marks ahead. Open markets have to be maintained. There has to be continuous public and private finance coming from abroad. I believe it would be a serious mistake for the United States to be concerned only with the intensive-care cases of Latin America and not pay attention to those that, like the Chilean case, look more promising but are vulnerable and fragile and could use significant multilateral and bilateral support. It is important for the United States to pay significant attention to the bilateral relationship in military affairs. But we should not delude ourselves into thinking that closer relationships between the Chilean military and the United States military are necessarily going to lead to a greater democratic attitude on the part of Chilean military officers. My

84

COMMENTARY

own experience has been that Chilean officers have had a greater impact on educating US officers about Chile from their point of view than vice versa. But it is absolutely critical for the civilian leadership in Chile to be in power in security matters. And this empowerment can be done by contributing to the normalization of relationships with the country in security matters. In particular, at a time when military budgets are going to become a very serious issue, the normalization of military relations with Chile could help the civilian leadership enormously in its attempt to address some of the social debt that exists in the country, while at the same time maintaining a relatively good equilibrium with the military forces. Certainly this is an extremely important challenge for the military leaders as the issue of the military enclaves that the Pinochet regime is trying to maintain and keep into the future continues to be a problem, as the authors have noted. I do agree with Angel Flishfisch that there is an important task in our looking at the issue of governability over the next few years in Chile and in the rest of the Latin American countries. This is the most significant challenge that the Latin American countries face. How do we make democracy work under these extraordinary economic and social situations? I also agree with Flisfisch that political parties are fundamental actors in this process and that the evolution and strengthening of political parties is an important element on the agenda. We see the spectacle of Brazil today, after having had a military regime that tried to micromanage the politics of that country to create a new party system, falling into a situation where parties are weak and ephemeral. It's hard to conceive of a stable democratic process with that sort of party system. We cannot think about the importance of parties and party systems as an element in itself. We must pay attention to the fit between the political party system in countries in Latin America and the institutional structures that have evolved over time. It is most important for policymakers as well as social scientists to try to examine what processes are necessary to encourage a greater degree of consensus building and a greater degree of compromise and working together among the different political forces.

85

Index

Cheney, Richard, 73 Chilean Telephone Company, 38 Christian Democratic party, 5, 6, 52, 53,59 Civic culture, 12 CNI.63 Coalitions, 5, 6, 8; construction of, 5657; distributional, 15, 16. See oho Concertacion de Partidos por la Democracia Cocaine, 73 CODELCO, 34 Collective action, 13,15 Colombia, 31, 73 COLs. See Constitutional organic laws Commission on Truth and Reconciliation, 6 Communism, 43 Communist party, 51, 59 Comparative advantage, 21 Concertación de Partidos por el No, 61 Concertación de Partidos por la Democracia, 27, 51, 56, 62, 66; actions of, 57-58; economic policy of, 34-35, 64-65; military role of, 74-75; platform of, 63-64; strength of, 58-59 Conflict resolution, 2,73, 78 Congress, 53(n4), 63 Constitution, 76 Constitutional organic laws (COLs), 62-63 Cooperation: economic, 50, 73; scientific and technical, 66,77-78 Copper industry, 30, 63 Coups, 4, 70, 71 CPPD. See Concertación de Partidos por la Democracia Credit, 38 Crisis management, 78

Abrams, Elliott, 70 Acuerdo Nacional, 62 Aid: foreign, 36,40,65,66 Amnesty law, 75 Argentina, 15,18, 29,30, 31 Armed forces. See Military Arms, 78, 79 Arms race, 72, 73 Army: Pinochet's role in, 75-76 Asia, 47 ASMAR, 77 Assassinations, 3, 64, 78 Australia, 38 Authoritarianism, 12-13,15,16,56,64 Aylwin, Patricio, 3,6,58,65, 66, 74 Baker, James, 70-71 Banks, 39, 45 Barco government, 73 Barnes, Harry, 4 Bases Programáticas Politico Institucionales, 63 Bolivia, 16 Bond, 38 Brady Plan, 45 Brazil, 15,18,29,30, 31 Bryan commission, 3 Bush, George, 3, 66, 77; on economic incentives, 5-6; on security, 72, 73; on trade deficits, 45, 70 Businesses, 16,26-27,36 Canada, 5,17,18, 46 Capital, 46 Caribbean basin, 46,73 Carter, Jimmy, 3,11,45 Central America, 43 Central Bank, 39,41; autonomy of, 51, 53(n2); power of, 57,63 Chamber of Deputies, 62

87

INDEX

Culture of participation, 12 Debt, 9, 65; foreign, 37-38, 41-42; restructuring, 45-46 Debt-equity swaps, 37-38,39 Debt-to-export ratio, 30 Defense, 72, 74-75, 76,77 Deficits: trade and investment, 44-45 Delinquency: urban, 5, 6 Democracia y Progreso, 34-35 Democracy, 49, 60; pluralist, 55, 56; role o f , 11-12; and Socialist party, 52-53; support for, 66, 7071; transition to, 34,7,8,10,13, 21-22, 26, 43, 51, 57, 58, 61, 64, 83-84 Development, 4, 8, 21 Dictatorship, 3,4-5 Drugs, 7,10, 66, 73 Eastern Europe, 17, 47 Economic support funds (ESF), 72 Economy, 2,10,12,14, 21, 25,35,49, 50, 52, 66, 73, 78; and Concertaci&n p r o g r a m , 64-65; market, 7,8,15,19,29-30,34,58, 60, 84; projection of, 40-42; reforms in, 5-6, 55-56; regionalization of, 17-18; United States, 43-44 Ecuador, 24 Education, 6,12

FDA. See Food and Drug Administration Finance, 29; international, 34, 40, 47; public and private, 65, 84; United States, 37-38 Fishing, 23-24 FMS. See Foreign military sales Food and Drug Administration (FDA), 24 Footwear industry, 24 Foreign military sales (FMS), 72, 79 Foreign policy, 61-62,66-67,75 Forestry, 23 France, 5 Fruit industry, 65 Garment industry, 24 CDP. See Cross domestic product Generalized System of Preferences (GSP), 3,65-66 Germany, 2, 5 Government, 30, 56; military, 51, 6263; reform in, 61, 63-64 Grapes: exports of, 46, 65 Great Britain, 5, 45 Gross domestic product (GDP), 32-33, 41,42 G S P . See G e n e r a l i z e d System o f Preferences History, 52 Human rights, 49, 62; protection of, 63, 64; violations of, 3-4; as United States policy, 11-12, 66

Elections, 17,43,59,64; free, 49,50-51; presidential, 56-57 Electoral system, 63 ENAER, 77 ENAP.34 "Enterprise for the Americas Initiative," 6 Environment, 7 ESF. See Economic support funds E u r o p e , 46. See Eastern Europe, European Community; various countries European Community, 5-6,17 Exchange rates, 40 Export-Import Bank, 73 Exports, 21,22,34,46,65-66; levels of, 5-6, 36-37, 47; to United States, 29,44-45

IMF. See International Monetary Fund Imports, 37 Income: distribution of, 30-31, 32-33; per capita, 31-32 Industry, 24-25 Inflation, 41 Inter-American Development Bank, 65 International Monetary Fund (IMF), 14,45-46 Interventionism, 71 Investment, 21; foreign, 5, 38-39, 47, 50; levels of, 26, 32; mining, 2223; rates of, 40-41; trade linkages and, 4344; by United States, 36, 45,65

FAMAE, 77

Japan, 2, 5

88

INDEX

Judiciary system, 63, 78 Justice: social, 49, 55, 64 Keynesian state, 19 Labor, 12, 16; and business, 26-27; deregulation of, 14,19; relations normalization, 3,22; training of, 23,25-26 Latin America, 46, 66, 71-72, 77; economic integration in, 17-18; trade with, 4445; United States relations with, 9-10,43 Leadership: political, 12,13 Legislation, 35,62-63 Letelier, Orlando: assassination of, 3, 64,78 Loan loss reserves, 45 Macroeconomics, 21,22,29 Manuel Rodriguez Patriotic Front, 51 MAP. See Military assistance program Markets, 12,23,47; economic, 7,8,15, 19, 34, 56, 58, 60, 65, 84; revalorization of, 13-14 Mexico, 17, 31,46 Migration, 7 Military, 70, 74, 79, 84-85; modernization of, 64, 77-78; Pinochet's role in, 75-76; power of, 61, 63; role of, 6, 56 Military assistance program (MAP), 69; United States, 71-74 Military dictatorship. See Dictatorship Mining, 22-23,38-39 Ministry of Defense, 64 Modernization, 12, 25,26, 64 Mofiit, Ronni: assassination of, 3, 64, 78 Morgan, J. P., 45 Multilateral organizations, 2,66 National Council of Television, 51 National Endowment for Democracy, 62 National Security Council, 57, 62, 75, 76 Netherlands, 5 New economic order, 15 NGOs. See Nongovernmental organizations Nongovernmental organizations

(NGOs), 4. See also Multilateral organizations OPIC. See Overseas Private Investment Corporation Overseas Private Investment Corporation (OPIC), 65, 66 Panama, 43 Peru, 24, 30, 31 Pines: Monterrey, 23 Pinochet, Augusto, 6, 34, 51; military role of, 75-76; policies of, 8, 50; power of, 57,61,62, 77 Pluralism, 63 Police, 63, 78, 79 Political parties, 49, 59, 61; and free elections, 50-51; national, 16-17 Political system, 57, 58, 64, 66, 74; changes in, 4-5, 49-50, 83-84; power in, 76-77; reform of, 55-56 Poverty, 22,35,66 Power, 2, 14; political, 57, 62, 63, 64, 76-77 Presidency, 62 Press, 51 Private sector, 19 Production, 18; national, 25-26 Protectionism, 35-36,44,46,65 Public enterprises, 14-15 Public sector, 19,33, 34 Reagan, Ronald, 3,4,45, 62, 70 Recessions, 36 Reform: economic, 5-6,55-56; government, 63-64; social, 52; structural, 21; tax, 58 Renovación Nacional party, 62,63 Resources, 25 Rettig Report, 6 Sanctions, 78 Science, 66 Security, 2,15,18,73,77,85; of United States, 60,72 Self-government: regional, 57 Senate, 62 Service sector, 39, 44 Shultz, George, 62 Smuggling, 73 Social classes, 18-19 Social equity, 6,49 89

INDEX

Social expenditures, 30,32,58; publicfinanced, 33,34,35 "Social Investment and Solidarity Fund," 66 Socialist party, 5, 6, 52-53 Social security, 34 Soviet Union, 17, 73 Spain, 38 Special interests, 18 Spheres-of-influence, 2 Standard of living, 35, 44 State enterprises, 34, 63 Stock dividends, 44 Structural adjustment, 10, 11, 17; processes of, 18-19; role of, 1314,16 Structural reform, 21 Supreme Court, 51,57,62,63, 78 Surimi, 24 Tax system, 35, 58 Technological Development Fund, 25 Technology, 40, 66; mining, 22-23; transfer of, 25, 72, 77 Terrorism, 6, 7 Third World, 72, 73 Tourism, 24-25 Trade, 7; international, 24, 34, 36-37; partners in, 29, 4647; terms of,

90

30,43,44-45 Training: of labor, 23, 25-26 Treaty for the Advancement of Peace, 3 Unions, 26-27 United States, 65; debt restructuring by, 45-46; and democracy, 34, 70-71, 83; economy of, 43- 44; finances from, 37-38; human rights policy of, 11-12; investment from, 5, 39; and Latin America, 9-10; military relations with, 69, 71 -74, 78-79; protectionism by, 35-36; and regional economy, 17-18; relations with, 2-3, 7-8, 59-60, 61-62, 63, 6^67, 77; trade with, 29,36-37 Urban sector, 5, 6 Uruguay, 15 USSR. See Soviet Union Wages, 6, 30 Weapons. See Arms Webster, William, 71 Woe me r, Fred, 71 World Bank, 31,45-46, 65 Youth: delinquency of, 5

About the Book

Representing one of the first efforts to evaluate the transition to democracy in Chile, this book is the fruit of a meeting of key participants in the extraordinary effort at political convergence that made possible the victory over Pinochet in the Chilean plebiscite and the subsequent election of Patricio Alwyn to the presidency. The authors show how the various segments of Chilean politics modified their traditional positions in all areas in order to work together to defeat authoritarian politics. They also indicate the challenges and opportunities that lie ahead for Chile's civilian government. One focus of the book is the challenge of reestablishing a stable relationship with the United States, which, it is argued, will be the key element in the reinsertion of a democratic Chile into the community of nations. The perceptive commentary chapters explore the most likely consequences of the policy options proposed by the authors.

91