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

inflation of 20% in the United Kingdom is enough to spark off alarmed speculation about the likely effects on the country's in:?titutions: in Chile, while 30 % has not been unusual, the official rateof inflation for 1973 was 508%, though the real figure was probably much higher.· Among the causes were .arge wage increases without increased productivity, and massive government spending, the fiscal deficit being covered by increasing the note issue: currency in circulation increased by 670% in the first two years of AlIende's govern– ment and was running at arate of about 300% ayear when the military took over. The balance-of-payments surplus of US$91 m in 1970 became a deficit of US$315m in 1971 and of US$298m in 1972;· • over the same period, Chile's net international reserves fell from US$343m in 1970, to US$32m in 1971, to a defieit of US$289m in 1.972.*" Leaving statistics aside, for most Chileans the virtual cotlapse of the economy was mirrored in a nation-wide black market and shortages of supply, and there is little doubt thatthe benefits . accruing to the poorer classes through redistributing income in 1970-72 had beEm quite eroded. Highly inefficient state control of many enterprises, uncertainties on the land created by illegal seizures ofproperty, and considerable over-manning were among the causes of Chile's economic collapse, though, to be fair to the Allende government, the fall in the value of copper in 1911-72, the curtailment of foreign credits, and internal disloca– lions causedby strikes were contributory factors. The new Government's policy was to return ffOm state control tó a mixed economy; to institute realistic exchange rates and prices; to liberalize tariffs; to impose credit restraint on state enterprises, and, geoerally, to restore calm and stabilitytothe economy. Industrial production returned·.to higher levels with the rise of business cbnfidence and labour discipline, and mining production, notably of copper, reached record levels in the last three months of 1973. The widespread recovery of the economy continued into 1974, assisted by high copper prices, which reached an..all-time high level of over t 1,300 a ton on 1st April. •••• Foreign investment began to return to the country, encourageo oy the new policies towards the private sector, and also by the Government's agreements with enter– prises nationalized without compensation by the previous regime. At the same time, general agreement on the rescheduling of Chile's foreign debt was reached with the Paris Club in April, fer repayments due in 1973 and 1974, and several favourable bilateral agreements followed. Further loans from interriational agencies were also forthcoming. In the recovery of the Chilean economy in 1974, particular attention was paid to expanding output in basic resources -copper, iron, nitrates, timber and its by-products, in particular– and impressive galns were recorded. Secondly, t/"le expansion of the infrastructure was also undertaken, notably in power supplfes. Chile's continuing needs for external finance were emphasi'zed by the appearance in July 1974, of Decree-Law 600, a new foreign– investment statute which set out apparently favourable terms for new capital cominginto the country and did, in fact, appear to conflict with Decision 24 ofthe Cartagena Agreement establishing the Andean Group, of which Chile, of course, is a member. Later in the yearthe Chilean Government reaffirmed its adherence to the Andean Pact, but discussions have contínued on the whole issue and are not yet concluded. The issue is, however, a crucial one for Chile: its development plan for 1974-80, preliminary information on which was published in April, calls far foreign currency investments of one-third of the total figure of US$9,357m. The architects of Chile's economic recovery (Sr. Fernando Léniz, who joined the Cabinet in 1973, and two other well-known economists who came in with a cabinet reshuffle inJuly 1974-Sr. Jorge Cauas as Ministerof Finance, and Sr. Raúl Sáez inthe new Ministryof .. Economic Coordination) have been under no illusions aboutthe hard road Chile musttravel to recover from the economic situation the present Government inherited. While the Go- 'The figure for 1974 was 376 % , 'In 1973 ¡he defic;l was US$253m, and ít is eslímaled al US$110m for 1974. * , 'By November 1974 the nel ínlernational reserve poSitíon showed a deficil 01 US$456rn, compared with an end-1973 deficit 01 US$442m. * • , *The eslimated growth 01 gnp in 1974 was 5%, against a decline of 4.1 %. in 1973. 19