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

away from controlled prices, in order to create a balance belween supply and demand within the domestic market; it has reduced subsidies of state-owned corporations and restrucluredtheir prices so that crucial ones (such as the electric company) now price their product above rather than below cost; it has devalued the escudo and restored Ihe 1969 parityvalue, ending the multiple exchange rates which permitted food imporls to be sold for low prices; and it has substantially raised taxes and revenues, projecting a 17 % current account surplus in the national government budgel instead of Ihe 92 % deficit 'of 1973. Nevertheless, in spite of these changes Chile continues to face substanlial economic problems; inflation continues to be a serious problem -the cosl of living rose 107% during the first five months of 1974- and with Ihe el imination of price controls price rises can be expected lo continue; inflationary price rises have not been matched by wage increases and real income continues lo fall; manufacturing output has increased but the general decline in demand has brought a rise in unemployment; food imports continue to escalate and should cosl al leasl $712 mili ion in 1974; the balance-of-paymenls deficitand increase in Ihe lotal foreign exchange deficil is projected lo reach al least $510 million for this year; and the new government has not yet demonstrated thal it has a cohesive economic program that can effectively resolve Chile's accumulated econQmic problems orthat its new policies are appropriate for existing cond itions. At Ihe end of the first three-quarters year of the new Chilean government, the country continues to suffer from many of the economicJrolJbles that perplexed the previous regime and some additional ones as well. Notwithstanding its continuing economic troubles, Chile received several loans tota– lIing $110.9 millionfrom the multilateral development banks during the early months of 1974. Of that sum, $13.6 million has come from the World Bank (all IBRD c9nventional loans), and $97.3 million has been provided by the IDB ($75.3 million Ordinary Capital and the remainder in FSO concessional funds.) Due to the controversy which has existed regarding the lack of multilateral bank lending lO Chile during much of the 1971-1973 time period, it is desirable that some information be made available concerhing the nature and background of these recent bank loans lo Chile. The chronology of Ihese credits and the history of their consideration by the banks can cast some lighl on bank policies towards the Allende regime arid can suggest means for evaluating the banks' explanations as lo why Chile received so little lending during those years. A chronology and discussion of these recenl loans is provided below. WQRLDBANK: During Ihe summer of 1973, while Allende was still presidenl, Chile and Ihe World Bank agreed in principie thal Chile should receive three small loans-Iwo which made minor adjuslments in earlier loans lo Chile and a Ihird which would fund technical assistance and would help generate a pipel ine for future loan proposals. These loans were referred lo the Executive Direclors for approval during Ihe monlh before the Seplember 11 coup in Chile; following the change of governments in Chile, consideration of Ihe proposals was delayed for a few monlhs. The proposals were considered and approved on December 11, 1973, by Ihe U.S. Government's Nalional Advisory Council on International Monetary and Financial Policy (NAC) and were approved by the Execulive Directors of the World Bank on Febru'ary 7, 1974. These loans consisted of Ihe following: 1.0 an aggregate $8.3 million increase in existing loans for electric power and high– way development, lo capittilize the inlerest charges on projects whose implementation had been delayed. Those originalloan~ were for $60.7 million (1966 power) and $11.1 mili ion (1968 highway). Chile had urged this loan adjustment in order lo oblain what she conside– red treatment equal to that now accorded other borrowers from the Bank. Essentially these loan amendmenls financ'ed the $8.1 mili ion in unpaid interest for the earlier loans which Chile owed the IBRD. 2.° $5.25 million to finance technical assistance in mining, manufacturing, meta– Ilurgy, nutrition, fisheries, transportation and water planning. To be spent forfuture studies 134