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

CHILEAN ECONOMIC PROBLEMS: AN OVERVIEW During the past three decades, Chile has experienced a pattern of violent financial instability and slow, but steady, economic growth. Its development efforts have been greatly complicated by the interaction of serious economic, social, and polítical problems, any one of which would itself be a major concern. As one oJthe most protected markets in the world, Chile has a small and inefficient economy. Transportation and distribution costs are quite high and labor mobility low due to the country's unusual geography. Chilean national income is very unequally distributed, and the class structure is one of the most highly stratified and rigid in Latin America.(22} Considerabletension exists between social classes as the ambitious middle class seems determined to emulate consumption patterns in more developed countries and the largeimpoverished ufban and rural population has never been adequately integrated into the modern economy and society. Political party divisions intensify rather than diminish this existing social tension. The land system is largely feudalistic, with wide disparities in income and land holdings and with limited prospect for agricultural labor to escape subservience to the dominant latifundos.(2:3) Since the 1920s there has existed a close alliance between the rural landowners and the bankíng and industrial business community, and the control of private industry has largely been concentrated in the hands of a small number of influential business groups.(24) Although Chile is in many ways one of the most economically advanced countries in Latin America, it continues to sufferfrom several severe economic problems which make its economy both fragíle and economically unstable. During its recent history Chile has been heavily dependent on foreign loans in orderto finance governmental operations and to fund its development program, since domestíc savings rates have been low and g¡overnmental budgets in chronic deficit Copper exports account for nearly 80 'Y., of Chile's total exports, and the country has been vulnerable to international price fluctuations which have periodi– cally brought sharp reductions in total foreign exchange earriings and reoccurring financial crises. Because its balance of trade has usually been in deficit, with export earnings inadequate to pay for import costs, Chile has maintained stabilíty in its balance-of– payments largelythrough foreign loans (mostly from the U.S. Government and the multilate– ral banks) and throught foreign investment inflows. (See tables 2 and 5). Foreign loans and investments brought international payments stability to Chile's accounts at the cos! of an increasingly weighty oblígation to repay debts and service foreign investments. In a sense, the country found it necessary to mortgage its future in order to meet the problems of the present. Whereas these debt service payments compri– sed but 11 ('/;, of Chile's 1960 earnings on its goods and services exports, those obligations comprised 37 % of the comparable Chilean export earnings in 1971.(25) During the 1960s the Chilean Government became increasingly dependent on foreign loans: whereas in 1962 that Government had borrowed 58 % of its debt from internal and 42 % from external sources, by 1966 the annual debt increase was financed 27 % from internal and 73 ";,from foreign sources.(26) Chile's foreign debt more than doubled between December 1962 and April 1966, and even while payments for much of the new indebtedness had not yet fallen due, Chile in 1966 paid out more for debt service and profit repatriation than flowed into the the executive branch; these materiais are hereafter cited as inl. doc. Olher material has been drawn !rom Chile country studies conducted by ihe Organizations 01 American Stales. Inter-American Committee on the Alliance lor Progress. hereafter cited as CIAP. With the exceplion ollhe 1971 CIAP report, all these studies are tilled: Domestlc Efforts and the Needs lor t:xlernal Financing lorlhe Developmenl 01 Chile. The 1971 'report, Ihe lirst alter the Allende government assumed power. is tilled simply: Report on the Economyol Chile. (22)William Withers. The Economic Crisis in Latin America. Glence: The Free Press 01 Glencoe. 1964. p. 208. (23)lbid., p. 206. (24)lnl. doc. For additional discussions 01 Chilean economic condilions, see Withers, pp. 203-209, or William Glade. Lalin American EOconomics. New York: American Book, 1970, pp. 430-445. (25)For Ihe year 1960, see CIAP, 1966 repor!. pp. 168, 1970, lor lhe year 1971, CIAP 1972, repott, p. 139. (26)CIAP report, 1966. p. 82. Calculations based on IMF dale place lhis later ligure al 207. See table 5. 127