Chile: the balanced view : a recopilation of articles about the Allende years and after

contrary, the United States would not itself extend new bilateral economic benefits, and would oppose multilateral loans, to countries expropriating significant U.S. interests wit– hout taking "reasonable steps" toward compensation. In July of 1971 the Chilean Congress unanimously passed a constitutional amendment nationalizing the remaining American ownership in the Chilean copper companies (part having al ready been taken over in 1967 and 1969 under President Frei). The amendment provided for an independent evaluation of the foreign-owned assets by the Controller– General, but added a provision for deducting from that evaluation a sum to be fixed by the President covering excess profits since 1955. When the evaluation and excess profits figures were announced in October, the two major copper investors in Chile, Anaconda and Kennecott, were to receive no compensation whatsoever, since the excess profits figure exceeded the Controller's evaluation of their copper holdings. In's telephone holdings were also taken over in this period, when the Chilean government "intervened" the Telep- hone Company in September. . As for Allende's domestic economic policy, designed to stimulate the sluggish Chi– lean economy by massive government spending and income redistribulion, its initial success obscured for a time its fundamental economic weakness. One of his first measures was lo use the .annual wage readjustment to increase the purchasing.power of the lowest economic groups without reducing that of Qther groups. Combined with stricter enforce– ment of price-control laws, this resulted for a time in an expansion of industrial production without serious inflationarypressures (by Chilean standards), because Chilean industry had been operating well below capacity, especially after the September election. The government also sharply accelerated the agrarian reform program, but this did not have a serious adverse effect on the 1971 harvest because the planting season was already completed before Allende carne to power. The resultfor 1971 w~san increase in production and consumption, a decline in the inflation rate, and a considerable drop in the unemploy– ment rateo Yel there were problems with Allende's apparently successful policy of "socialist consumerism." Even with a 5.8 percent increase in agricultural production, the increasein mass purchasing power necessitated a $100 million increase in food imports in 1971. Investment, especially in the private sector, dropped sharply, and by the end of the year it was apparent that the government refusal to grant price increases or to deval ue the escudo sufficiently (it was partially devalued in December 1971) was creating serious economic dislocations. Moreover, a sharp drop in the world price of copper had begun almost at the time of Allende's accession, and continuéd through 1971 and 1972.(3) In sum, the yéar 1971 saw a series of quasi-confiscatory measures against U.S. economic holdings in Chile, and the development of internal economic conditions that, as the end of the year approached, appeared fundamentally unsound for the longer termo Relations with the United States became increasingly slrained. By the end of 1971 U.S. banks had sharply reduced their short-term loans and the Export-Import Bank had deferred indefinitely al! new loans and guarantees to Chile, and in early 1972 the Congress enacted (without visible opposition from the Administration) the González Amendment instructing U.S. representatives in multilateral lending institutions to vote against loans to countries expropriating U.S. companies without compensation. The problem, of course, is to sort out motives. Progressively, the negative long-term economic outlook provided an excuse for those who wished to put pressure on the Allende government by cutting off credit. That excuse, a bit flimsy at the outset but increasingly persuasive by the end of the year as Chile's economic problems mounted, was that the Chilean government was not "credit-worthy." It is Ihus hard lo distinguish belween what couldhave been seen by many to be legitimate reasons for not making loans and credits (3)For a fullerdiscussion 01 Chílean economic policy in this period, especially the nature01 "socialist consume– rism", see Paul E. Sigmund, "Chile: Two Years 01 'Popular Unity'," Prcblems ofCommunism. November-December 1972. 113