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

either by increasing sufficiently internal public savings or by pursuing monetary, fiscal and foreign exchange policies and preparing projects which would be acceptable to external financial agencies, led lo recourse to the Central Bank for financing a budget deficit of substantial proportions. Thiswas followéd by price inflalion, an unfavorable balance-of– payments situatioñ and loss of foreign exchange reserves. Confidence of the business community was undermined, the public's willingness to hold increasing escudo balances in real terms declined sharply in the face of further inflationary expectations, ca.pital flight ensued and the whole situation cu.lminated in a balance-of-payments crisis. "(32) In spite of these economic difficulties, Chile received $128.1 mili ion in loans (an average of $43 mili ion yearly) from the mu ltilateral development banks, of wh ich $49 mili ion carne from the World Bank and $79.1 mili ion from the Inter-American Oevelopment Bank. Sorne $66.5 mi 11 ion of those funds were in the form of concessíonal or "soft" loans, mostly from the 10B. In the early years of the 1960s, Chile essentially financed internal prosperity at the expen se of international econom ic imbalances. (33) With the escudo peg ged at an un real is– tic exchange rate and with inflation allowed to persist, Chile experienced seriol.Js balance-of-payments deficits during these years. In 1961, Chile experienced a current account payments shortfall of $278 mili ion, and financed that deficit through increased short-term and long-term foreign credit and a $98 million drop in foreign exchange reser– ves.(34) The Chilean import bill that year reached what an economist called an "unprece– dented" $627 million.(35) In 1962, the total cost of Chilean imports was less ($602 mili ion), but their composition was undesirable (capital goods impC"rts were low and consumer goods imports high), and the current account deficit of $211 milli.on was financed by another$56 mili ion drop in foreign exchange reserves and by short-term loan~ and delayed payments fúr imports.(36) Imports comprised roughly the equivalent of 16 "¡', of the GDP during 1961-1963. While Chile was running down its foreign exchange reserves in 1961, inflation was maintained at a. manageable 7 ';{¡; thereafter, however, prices rose by 13 "~, in 1962 and 45 "':, in 1968 as insufficient funds were available to offset the escalating inflalionary pressures. (Oee table 3.) ECONOMIC CONDmONS, 1964-1969 In 1964, Eduardo Frei was elected President, and throughout the remainder of the 1960s the new administration attempted to reduce the Chilean dependence on foreign capital and to stimulate social reform, income redistribution, and economic development. Despite its efforts, however, Chile continued to experience persistent economic problems: consumption was high, investment and savings low, inflation slowed but then regained momentum, and capital inputs were poorly used (international economists reported), especially in the public sector. Ouring these six years, Chile received an aggregate $290.2 mili ion in multilateral bank loans (an average of $48 mili ion annually): the World Bank provided $78.8 million and the 10B lent $212.4 mili ion. Because of the World Bank's (32)lnt. doc., writlen during lhe mid-1960s. (33)The 1961-2 growth rate was 6.3 % 01 GDP, lalling to 1.6 'y., lor 1962-3, however. Unemployment in IheGreater Sanliagoarea steadily declined, from 7% oflhe laborlorce atthe end 01 1960 lo buI4.3" ;,at the end 01 1973. CIAP, 1966 reporto pp. 12, 68. Gross Domestic Product (GDP) consists 01 Gross NatiOnal Product (GNP) lesS'net international paymenls. GDP is usually usedin lieu 01 GNP by the U.N. and other agencies which compile world economic statistics because GDP more accurately rellects the available domestic stock 01 goods and services in countríes where internalional payments bulk large in their nalional economic accounts. (34)lbid., p. 168, table IV-4, and table 5 01 this paper. (35)lnt. doc. (36)CIAP, 1966 report. On p. 172, table IV-6, however, this report shows the annual variation in net reserves including long-termobligationstobe minus$135 millionfor 1961 and minus $ 73 million in 1962.lnt. doc. reported in 1963 thal the previous year's drop in Chilean foreign reserves had amounted to $ 105 miIlion. 129