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

dJsenchantment with Chile's high rate of inflation and its lack of internal economic stability, the country received little assistance from that institution during the last three years of this period, however. IOB lending remained consistently large throughout the 1964-69 periodo The World 8ank made noncessional loans to Chile during these years, whereas the IOB supplied two-thirds of its funds ($155.4 mili ion) on concessional terms. Under Frei, the Chilean Governmentimproved its financial situation. Tax yields were increased, and the goV'ernment reduced its dependence on credit to finance its operations. (The share of government obligations derived from external sources did rise, however, as previously noted.)(37) A rise in world copper prices and new agreements with the local copper companies produced a sharp increase in government revenues. With the reduction in deficit financing, the Chilean Góverriment ceased after 1967 to resort to central bank lending to finance Its activities, thus restraining the expansion of the domestic money supply, and the state bank sharply reduced its debt to the central bank.(38) Notwithstanding these improvements in Chilean finan:::;es, inflation became an increa– singly serious problem in Chile during the 1960s. The Frei administration slowed it from 46'?;, in 1964 to 18 'v" in 1967. Thereafter, however, the government was unable to control the incóme distribution process it had created in its reform program (wage adjustments of 50(~" in real terms during 1966-7, tor example),(39) ando during the latter years of the Frei administration Chile experienced accelerating inflation as table 3 indicates. Low profits and liigh wage demands resulted in serious conflicts between incentives planned for workers and companies,(40) and these conflicting incentives contributed to the inflationary pressures in spite of restrained governmental fiscal and monetáry policies.(41) Agricultural production continued to be unresponsive to Frei's efforts to expand outpúl, partly due to constraints built into the agricultural price system and partly due to the effects of the land reform program then being implemented.(42) The major bright spot in the Chilean economy during this period was the international sector. Because of a doubling in Chilean copper output and a near doubling (from 36c. lb. in 1965to 66c. lb. in 1969) ofworld copper prices, Chile experienced a substantial increase in export earnings. Sparked by this newfound wealth, Chile was able to expand its foreign exchange reserves and to experience a positive trade balance for the first time in many years.(43) By the end of 1969, foreign reserve holdings totalled $341 mili ion, an increase of $448 million over the position five years earlier. Even whíle the import bill was growing by 68 "{ the growth in export earnings between 1964 and 1969 created dramatic shifts in Chile's payments condition. In 1964, the country had run a ne! deficit of $40 million on the goods and services account, whereas by 1969 the net surplus on that account amounted to an estimated $216 million.(44) . While conditions in the international sector improved, serious underlying economic problems continued to persist, however. Growing capital inflows led inevitably to growing payment outflows as noted, with the result that a substantial continuing obligation was built into the Chilean economic situation. Net factor services (essentially debt repayments and profit repatriation) expanded significantly from $179 million in 1964 to $364 million in 1969.(45) Afier subtracting total international earnings from total international payments, (37)See, lar example, CIAP, 1966 report, p. 155, Inl. doc. prepared in 1970 also make thls polnt (38)lnl. doc.,> prepared in 1970. The CIAP 1968 report also indicates this, pp. 52 and 76. (39)lnl. doc. prepared in 1970. CIAP reports a42.3% rise in real salaries and wagesfor 1965.7.1968 report, p. 61, table 11-14. (40)lbid. (CIAP repor! pp. 19, 81-2). (41)lnl. doc. suggestthatthis conllict between incentives was the maiorlorce behind Chilean inflation during this period. CIAP emphasizes the importance 01 capital inflows in stimulating Chilean inflation. 1966 repor!, p. 3, The conflict between incentives is discussed also in Ihe 1968 reporl, pp. 62-4. 65-72. (42)CIAP, 1968 report, pp. 178-180. (43)1964 imports data from CIAP 1966 report, p. 168 1969~mports data from CIAR 1972 report, p. 124. Trade balance data from bolh documenls. (44)CIAP, 1971 reporl. p. 17.. (45)lbid. 130