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

tures increased even more rapidly than income, however, leading lo huge budget deficits -42 ";, of current income in 1972 and 76 % in 1973- which were financed largely through the domestic banking system.(49) The loss in government revenues because of the decline in copper export earnings also added to Ihe deficit and the need for central bank financing. This deficit spending and the combinatlon price freeze and 30-50 ''{, wage hike conlributed to a substantial expansion in the Chilean money supply. It should be noted, however, that the Allende government considered monetary expansion and income redistribution lo be important instruments in its anli-inflalion and economic reform programs, Early in 1971, it stated Ihat "the war on inflation is a fundamental aspect of government economic policy" and that "the decisive factor is still the need to initiate slructural changes in the ecoriomy" because "basically, Chilean inflation is explained by the economic structure itself." Struc– tural reform could be achieved through the right sort of monetary expansion, the Allende government believed, and because Ihere was much undercapacity in Ihe economy, il placed much failh in an econometric estimale which showed thal "a growth rate of liquid assets as high as 40 percent would not increase pressures on prices. "(50) It seems that the Allende government was nol successful in conlrolling this monelary tool, however, for whi le Ihe central bank planned a monelary increase of 47'0,;, for 1971, CIAP economisls subse– quently estimated Ihat the aclual expansion thal year was closer lo 93':{,.(51) Inflation was reasonably well contained in 1971 -the annual rate was but 20%, the second lowest of the previous decade and Ihe best since 1967- and official constraints held it in check through mid-1972. Thereafter, however, Ihe inflation burst out of control, driving the annual inflation rates for 1972 and 1973 to unprecedenled levels. An inlernational inslitulion reported Ihe annual Chilean inflation rate lo have reached 163 % and 650 ':í, respeclively for Ihose years,(52) while International Financial Slatistics reported the rates to have heen 78 %, and 528";" respectively. Hyperinflation is difficult to measure accuralely, and il is Ihus not clear what Ihe actual price escalalions were those years. Whalever Ihe true figures were, il is clear Ihal Chile experienced extreme problems and economic dislocations from the infla– tionary pressures experienced during Ihe last fifteen months of the Allende government. Chile also experienced very serióus economic problems in the ínternational seclor. The fall in world copper prices (from 76c. lb. in 1970 to 48c. lb. in 1972) hurt the country badly as each 1c. fluctuation in the price of copper meant a $16 mil/ion change in Chilean revenues. Increased import expenditures together with reduced export earnings produced a serious deficil in the Chilean balance of trade during this periodo In 1970, Chile experien– ced a trade surplus of $134 mili ion; by 1972, however, this had become a trade deficit of $427 mili ion, and by 1973 that deficit registered another $283 million even though copper prices and exporl earnings rebounded Ihat year. Chile's foreign exchange reserves plum– meled: $305 mili ion In 1973, and Ihe country had reached a nel deficit posilion ofover $690 million by October 1973, The composilion of Ch ilean imports also shifted, and Ihe importa– lion of consumer goods pushed out capital goods imports lo the extent Iha! sustained development was threatened. Whereas in 1970 consumer goods comprised 17 % and capital goods 30 e,,;, of total imports costs, Ihe former constiluted 33 t:r;, and Ihe latter only 22 %of the import bill by 1972.(53) The substantial rise in food imports had much lo do with Ihis shift in the composition of Chileanimports. Between 1970 and 1973, the Chilean foreign debt increased 16%, from $2.6 billion in 1970 lo aboul $3.0 billion in 1973.(54) A substan c tial part of this new credil was not readíly available lo meet current financíng needs, (49)lnt. doc. (50)CIAP, 1971 report, pp. 62, 15; 1972 repQrt, p. 76. (51)CIAP, 1972 report, pp, 78-79. (S2)lnt. doc. A publication 01 tile I[')B tilled Statistieal Data on the Latin American and Caribbean Countries indicates that Chile experiene~d a 78 '~;, rise in ils 1972 consumer príce índex (e.p.L), a level only rivaled by Uruguay's 77 t'~', and Argentina's 59 '\, c.p.i. rises that year. (53)Dala in lhis paragraph are drawn Irom Int. doc. (54)Paul Sigmund contends that the Chilean loreign debl was $ 3.4 billion in 1973. See his The Invisible Bloekade and The Overthrow 01 Allende. Foreign Affairs, Vol. 52, January 1974: 337. 132