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

ched more than 25 percent above the comparable month of September, 1970, while inflation had been held down to around 20 percent (Tables 6 and 12). But the,situation in terms of 1972 was not very optimistic and the Unidad Popular economic plan'ners knew il. The money supply had more than doubled during 1971 and during the last quarter of that year a strong upward surge in prices to the consumer had been registered. In addition: "By early 1972 excess capacity had been absorbed, earlier stockpiles had been exhaus– ted, and the hoped-for revenues from the nationalization of 'exploitive' monopolies in industry had no! materialized. T"e Chilean voler saw his entire wage readjustment for 1971 (based on a 22 percent inflation rate forthe year) disappear in the first five months of 1972.. , (while) by June, 1972 there was a negative balance of $ 28 million in Chile's international reserves.(28)" Further wage increases presented an ideologically based pOlitical dilemma for the government. The Left in Chile had always argued that wage increases did not cause inflalion and therefore the governmenl could no! allempt to control it by refusing to increase wages. At the same time, the huge deficit in the balance of payments beíng run up by the government's refusal to devalue Ihe escudo and increasing relíance upon agricultural imports had depleled more than 340 million dollars in foreign reserves that Freí had struggled lo accumulale over a period ofsix years. By early 1972 il was also clearlhal price increases would have lo be granled to industrial firms if Ihey were nol lo go bankrupt in the face of 25 percent across the board wage hikes. Initially, wage and price increases had been financed by the reserves left by Frei, but now that these were gone and the price of cooper had fallen draslically on the international market, thereby reducing Chile's ability to earn more badly needed foreign exchange, the Unidad Popular's economic planners suddenly found themselves with little room to maneuver.(29) The big economic boom of the first year had been the result of a big increase in demand that had not been matched by reinvestment. In 1971 overall consumption was up more than 15 percent while ínvestment was down over 24 percent.(30) Agricultural con– sumption also rose rapidly while production fell (Tables 1and 9). One weapon designed to deal with this heavy upward pressure on inflation was price controls. Since the ideology of the Marxists told them that "capitalistic and imperialistic exploitation" was responsible for Chile's ills, the government applied tremendous pressure on industries through price controls to hold their profit margins at a minimum which in turn made capital accumulation for reinvestment difficult, even if the domestic and foreign capitalist had wanted to invest. In order to increase production during Allende's first year in office, Chile's domestic and foreign capitalists were willing to use up their stockpiles of raw materials out of fear of losing their industries, but forthe same reason they were afraid to reirwest any of the profits, Further, Allende's refusal to devalue Ihe escudo -which was more ideologically than economically motivated- and his insistence upon price controls meant that after Ihe stockpiles were used up the vastly increased spending power of the workers would create ,inflationary pressure that would become too great to be controllable.(31) With his foreign reserves gone and the price of copper depressed, Allende had nowhere to turn forthe funds needed to purch'ase either the raw materials or finished products to meet the massive , demand created by his income redistribution policies carried out in the form of wage (28)Paul Sigmuod, "Chile: Two Years 01 Popular Unity", Problems ojCommunísm (November-December, 1972), p.49. (29)The price of copperfeÍl from 69,5 eents per pound when Allende lirsl lcok office lo 49.4 cenls per pound by July, 1971, Chile Economie Notes, Oelober 20, 1971, Coupled wilh Chile's inereasing need lo impor! agricultural produels beeause of Ihe failure of lhe Unidad popular's agrariao relorm polieies, the country bee~me by late 1972, ' aecording to one high United States Embassy offieial, "an intemation¡ll beggar". (30)Andrés Bianehi. public lecture at Ihe University of Texas at Austio, February 19,1974.. (31 lBy early 1973 lhe government was forced lO once again begin regular devalualions ofthe escudo, a praclice which Ihey had said they wOuld never rever! lo. Bolsa Rel1iew, V (Jaouary, 1971 j, pp. 38-41. 187