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

pursue a Marxian development strategy, the Popular Unity government had little hope o duplicating the relatively successlul socialist economies 01, lor example, Eastern Europe. BOOM AND BUST: ECONOMIC POLICY UNDER ALLENDE The Allende era can be roughly divided into three general periods corresponding to the economic rise and decline lound in Tables 1through 18. Thefirst perlod is the economic expansion that took place Irom approximately the time of Allende's assumption of olfice in November, 1970 until November, 1971.(20) The second period is the economic decline that started approximately in December, 1971 and ended in October, 1972 when the military agreed to enter Allende's cabinet in order to solve the 23 day old general strike that had paralized Chile and threatened to topple the government. The third period corresponds to Allende's struggle lor survival in the midst of economic and pOlitical chaos that is characte– rized by an increasing reliance upon the military.(21) ECONOMIC EXPANSION The model used to produce the period 01 economic expansion was that 01 intense government spending to reduce unemployment, coupled with an unprecedented increase in purchasing power brought about by both wage boosts and money creation (see Tables 1 and 10). For example, immediately after assuming office the Unidad Popular found itsell in possession 01 approximately 350 million dollars in hard currency foreign reserves that had been accumulated by Frei's administration. The government therelore immediately under– took a program 01 expanding publ lc works and housing which contri buted greatly lo stoking the lire 01 the economic boom, evident in the Tables.(22) Durlng his first year in office Allende spent over 90 percent of the 350 mi 11 ion dollars in reserves that had been left by Frei (Table 1). In addition, Allende increased the amount 01 money in circulation by over 250 percent during his first 12 months in office (Tables 1 and 10). The effect 01 these measures was to force the industrial sector, which was operatlng at substantially less than lull capacity, to step up production, thus producing many jobs and a sense 01 prosperity among a large segment 01 Chilean workers. Purchasing power increa– sed 12.5 percent in the government sector and 4.5 in the private sector during the initial months 01 the Unidad Popular administration.(23) However, the stocks of raw materials and inventories that were being consumed at a voracious rate by the newly lound buying power 01 the masses were not being matched by reinvestment From Table 1 and 2 it can be seen that while consumption increased, investment was lalling: an ominous sign. The question that wi 11 occur to the majority of readers is why the government pursued this policy 01 economic expansion when it was clearly not one that could be sustained over the long hauL The answer is that in order to understand the economie poliey 01 the Unidad Popular, one must place it within the context of the government's political goals. As was pointed out earlier, Allende's economic strategy was aimed at achieving two pOlitical ends. would be discontinued and Ihat the government was going 10 compensale exporters who might be linancially hurl bv Ihis decision. The Marxist lell that pegging Ihe escudo lo Ihe dollar was JuSI one more lorm 01 economlc Imperoallsm. See Bolsa Review, V (January, 1971). Andrés Bianchi gave lhe same explanation lor Ihe government's relusal 10 devalue Iheescudo in his public lecture. (20)ln looking al the Tables the reader should compare Ihe same monlh 01 each year (e.g" November) 10 form a elear idea 01 eeonomic rise and lall 01 the Unidad Popular. (21)These Ihree economic periods were adapled Irom a public lecture by Andrés Bianchi. (22)Between March and June, 1971, 73,100 new jobs were created in Greater Santiago alone, while unemploy– ment was cut by June, 1971 to only 4.8 percent II was also announced IhallOO,OOO new houses would be buill in 1971, while during that year housing slarts wenl up over 400 pereent Chile, Corporación de Fomento de la Producción, Chile Economic Notes, Ociobar 20, 1971, p. 2; and Oclober 15, 1972, p. 3. (23)The Chilean Economy Under the Popular Unity Governmellt, p. 12. For al! 01 1971 real buying power increased by approximalely 20 pereent while eonsumption inCreased by 15.5 percent. Alberto Ballra Cortés, Gestión Económica del Gobierno de la Unidad Popular (Sanliago de Chile; Editorial Orbe, 1974), p. 13. 167