Chapter 2

2.6 STRENGTH AND WEAKNESS

When the Pentagon decided in October 1970 to wait and see if
Allende could be managed within reasonable limits as a "fireman for
the people's fire", the "reformist" generals were agreeable.
Consulting with the Chilean industrial and commercial sectors, they
estimated that if the experiment was not suffocated from without, it
could succeed and "the structures' reform into a sturdier state
capitalism" could "calm the popular insurrection".

Allende's administration had initiated a policy of "economic
reactivation" for 1971 which was basically founded on utilizing the
entire installed productive capacity and on expanding internal demand
by means of substantial upward adjustments in wages and salaries, and
the institution of price controls which, in reality, turned out to
affect the oligopolies less than it did the medium- and small-sized
businesses. This economic reactivation had the effect of achieving
an 8.3 percent index of economic growth in 1971, a record gain. But
that was the peak. If there was not an immediate influx of capital,
the system would crumble, causing popular pressure to exceed the
Chilean oligopolists' idea of "reasonable limits."

On another front, the "reformist" generals' pressure on Allende had
managed to whittle down to a splinter the main plank of the Unidad
Popular's platform, which was the reassignment of all the oligopolies
in private Chilean or foreign (chiefly North American) hands. In order
to actually expropriate the oligopolies, out of a total of slightly
more then 35,000 industrial and distributional establishments in the
country, about 266 businesses had to be transferred over to the state,
to the Area of Social Property. Allende had promised to transfer only
90 of these. This left more than 50 percent of oligopolistic capital
in oligarchic and North American hands. And of the 90 transferred
only 53 would be totally controlled by the state; the remaining 37
would be in the so-called mixed area, in association with the same
oligopolistic companies in private American and Chilean hands.

Allende had agreed to undertake this "expropriation" within the
confines of "the Constitution and the laws." This made the cost of
forming the Area of Social Property gigantic and transferred enormous
quantities of capital to the "expropriated" owners, permitting them
to maintain substantial economic and strategic power. Even for
August 1971 the numbers were eloquent: they were eloquent: they were
promised a total of 10,846 million escudos for that year, the
equivalent of $890 million. This was the breakdown:

Purchase of shares to nationalize
commercial banks                                400 million escudos
Cash payment for the expropriation
of large estates                                320 million escudos
Purchase of industrial oligopolies              600 million escudos
Purchase of three foreign banks                 120 million escudos
Purchase of U.S. iron, saltpeter,
and industrial consortia                        576 million escudos
"Indirect" indemnification to
Anaconda and Kennecott                        8,830 million escudos

Clearly, this created a potential weakness in the government's
economic plan which, in August 1971, made the Chilean oligopolists
confident that they could handle the "situation" and keep Allende
within "reformist change" so as to "avoid revolution." Obviously,
it was important not to asphyxiate the Chilean economy, almost
completely dependent on American capital, in order to achieve a
"relative economic level" that would discourage the labourers,
peasants, and office workers from "moving ahead in the process of
transformation." But the Pentagon had been unable to convince Nixon's
economic advisers to maintain "a prudent and open attitude with
respect to Allende." Instead, Kennecott and Anaconda were manipulating
Nixon.

At that moment, doubts began to spring up in the heart of the military
high command. It had been only two months since enormous popular
pressure had obliged the reactionary majority in Parliament to pledge
itself to the leftist minority and unanimously approve the
nationalization of the North American copper mining companies. This
had not had the effect of dissipating the feeling of "anti-imperialism
at the grass roots". On the contrary, it was growing every day.

A group primarily of Army generals, led by Oscar Bonilla (former aide
to President Frei and closely linked politically to the Frei faction
in the Christian Democratic party); Manuel Torres de la Cruz, ultra-
Catholic and a sort of "father" to Chilean fascism, chief of the
Fifth Division in the extreme South; Hernan Hiriart, chief of the
Cavalry Division centred in Valdivia, in the South; Ervaldo
Rodriguez Lasa, chief of the Third Division, centred in Concepcion;
Alfredo Canales Marquez; and Ernesto Baeza Michelsen began to voice
opposition to the "reformist" generals' philosophy of "wait and see."

This group came to be called the "hard-liners." They contended that
the "reformists" were wrong about being able to manipulate Salvador
Allende, who would go "wherever the masses dragged him." In their
estimation, the main task of the Army and the rest of the armed forces
was to persuade the Pentagon that Allende had to be overthrown
"to reinstate a democratic government like Eduardo Frei's."

Manuel Torres de la Cruz, for example, believed that Allende would
not be able to restrain the destructive wishes of the Marxist elements
and would do everything possible to gain time to put himself in a
position to turn the country inside out.

The "hard-liners" were believed to have advocated reactivating a
"plan of action" resembling that of September-October 1970. The
idea was to appoint a transitional military junta, headed by Torres
de la Cruz, and after a six-month period hold new presidential
elections, with Eduardo Frei as the candidate of the forces of order.
During the second half of 1971 and the first eight months of 1972,
the "hard-line" thesis did not carry much weight with the Army, even
though it had the sympathy of the commander in chief of the Air Force,
Cesar Ruiz Danyau, and his generals Gustavo Leigh, Cesar Berdichewsky,
and Carlos Van Schowen, as well as the chief of the First Naval
District (Valparaiso), Vice-Admiral Jose Toribio Merino, and his
colleagues Pablo Weber and Horacio Justiniano (the three of them
being in close contact with the U.S. Navy). Justiniano, meanwhile,
performed his role of "Allendista" perfectly, in Salvador Allende's
eyes "a progressive man," "an admirer of the Soviet Union" and "of
impeachable loyalty."

This group of "hard-line" generals had an advantage their "reformist"
colleagues lacked: close contact with political figures, Frei in the
Christian Democrat party, as well as Patricio Phillips, Pedro Ibanez,
and Francisco Bulnes in the National party.
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