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

country in the form of new investment and loans.(27) This indebtedness contrlbuted to Chile's economic difficulties in two ways. First, CIAP analysts say that one of the mosl important factors slimulating the Chilean inflation duríng Ihis period was Ihe heavy reliance on foreign capital to finance public expendilures.(28) Second, Chile found itíncreasingly difficult to keep ils balance of payments sltuation stable as the need to service lts growing indebtedness became more pressing. CIAP analysts wrote in 1966 that "The Chilean economy conlinues lo be dependent on capital transfersfrom abroad lo finance its deve– lopment. "(29) International economists studying her economy conciuded that for the fore– seeable future Chile would need net capital inflows if her growth rate was to be maintained or irnproved, and thal future loan terms would need to be at rates equal to or better than past loan terms if Chile was to continue servicing her debts.(30) During the middle 1960s, Chile benefitted from the rise in world copper prices and experienced a balance of trade surplus for the first time in many years. Even during those prosperous days, however, international economists were predicting Ihat copper prices would soon fall and Ihat Chile would experience a huge international payments shortfall during the 1968-1971 periodo To forestall Ihis expected financial disaster, international economists projected that Chile would need over $1 billion in new loans during those yeats ifthe country was tocontinue to develop and alsoto pay $600 million in debt service.(31) As it turned out, the economists were inaccurate: copper prices remained high, and capital inflows from foreign investment and loans remained substantial throughout the remainder of the decade so that Chile was able to accumulate a substantial foreign exchange reserve during those years. After 1970, however, copper prices plummeted, levels of foreign investment and lending fell, and the national import bill rose sharply. Due to those deve– lopments, the balance-of-payments deficit and foreign exchange crisis which economists had predicted for the late 1960s occurred instead during the early 1970s. THE BANKS AND CHIL~AN ECONOMIC PERFORMANCE: 1961-1969 The decade prior to Allende's assumption of office was a time of substantial change in Chilean economic conditions. Two presidents held power during those years (Jorge Alessandri, 1958·1964, and Eduardo Frei, 1964-1970), and many of the issues and pro– blems experienced by Chile during more recent days originated or were intensified during this decade. For reasons which become clear as the data are studied, the decade may best be handled as two separate periods, each of which has its own economic characteristics and needs. The discussion below describes economic conditions in Chile duringthese two periods and indicates the quantity of multilateral bank lending which Ihe country received during each. ECONOMIC CONDITIONS, 1961-63 Chile experienced substantial economic problems during the opening years of the decade, particularly in the international sector. Budgetary deficits and unwise monetary expansion translated ¡nto inflation, balance-of-payment deficits, and the dissipation of Chilean foreign reserves. One international economisl skelched Ihis summary of Chilean developments during this period: . "The experience of the past two years has been very costly but not withoul its object lesson. Raising the level of public investment without adequate preparation for financing il, (27)CIAP. 1968 re port. pp. 104 (table 111-2) and 109 (table 111-5). (28)CIAP, 1966 report, p. 82. (29)lbid., p. 21. (30)CiAP, 1968 report, pp. 8, 14. International institulion economisls were equally emphaliC on Ihis and Ihe previous points. Int. doc. (31)lnt. doc. 128