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

A major difference between the two situations is the lact that the Freí administration had sízeable foreígn exchange income (lrom high copper earnings, foreign loans and loreígn ínvestment) with which to finance its program, whereas the Allende government had less loreign credit or inveslment and lower copper earníngs,(74) and its budget deficíts were fínanced by central bank lending and "printing press" expenditures. It would therefore seem correct to conclude that the seriousness 01 Chile's economic problems during the Allende period was as attributable lO difficulties in the international sector as lo the consequences 01 the income redistribution and agrarian reorganization programs which the government implemented during those years. Second, the chronology indicates that the banks began considering lending 'to Chile belore the setllement 01 tha! country's external debt problems. Although Chile !ook until Oecember and January to reach an agreement with the United States (her major loreign creditor) on bilateral debts, settied her overdue debt with the World Bank, accepted a standby arrangement with the IMF, and established a lirm working agreement with the Paris Club on the rescheduling 01 overdue debts, the World Bank and 10B began moving much earlier in the year to prepare loans lor Chile.(75) As noted, the World Bank loans (negotiated belore Allende's lal! Irom power) do not involve new inputs and therelore do not presume creditworthiness on the part 01 Chile. The 10B loans do provide for new inputs and new lunds, and thus it is significant that the 10B began considering these loans well belore Chile began to reestablish her internalional credit standing by the settiement 01 her international debts. (Chile was no! overdue in repaymen!s 01 debts owed the 10B, however, as she was on debts owed the IBRO. 10B oflicials say that the Chilean government told them very early that they expected negotiations with the Paris Club and IMF to go well and that the Bank proceeded to consider new Chile loans in late 1973 on the basis of those inlormal assuran– ces.) Finally, it ís clear tha!, by the early part 01 1972, Chile was experiencing serious economic prdblems and that her creditworthíness was then debatable. This was not so evident duríng 1971, hoVliever, and particularly not duríng the first half 01 that year. The Allende government did not announce íts copper expropríatíon and debt moratoríum policies until late .ín 1971, lor example. It would seem that persons interésted in lurther studying the activities and policies 01 ínternationallendíng agencies might therefore focus attention on that ir:lítial portion 01 the Allende period rather than upon the whole 1971-3 interval.lt is conceívable (though olcourse debatable) that a rapíd and continued increase in international lending and investment would have enabled the Allende government to linance íts polícies 01 economíc reorganízation and social reform without the necessíty of resorting to the printing press. While much ínflation míght still have been expected, substantíal foreign credit might have helped reduce it to levels more resemblíng those 01 the Freí periodo Whether the internationallending agencies would have lound it desírable from a policy perspectíve to finance such internal Chilean reorganization is another question however. (74)1t should be nOled, however, that Chile did have nearly $ 400 million in loreign reserves at the beginning 01 1971 with which to linance ils imports. These were essentially exhausted by the end 01 the year. Thereafter, much 01 the counlry's imports were financed from external earnings through copper sales. (75)11 is true, 01 course, thal the newChilean government quickly announced internal policy changesand shifts in domestic economic guidelines which external observers thoughl were more "ralional" and more "sound" approa– ches lo Chilean economic condi!ions. It was no! clear at thal point -or for some lime Ihereafter- however that those announcemenls would be translated ioto effective policy. 141