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

In August 1973 inflation reached 452 'Y o , together with a state of wídespread scarcity, a characterístic of repressed ínflatíon, and was expected by the end of the year to be more than 1,000% , a statistíc never before seen in Chile, or in America or even in the world. except for a very few countries which were struck, at a historical moment, by internal economic catastrophes caused by ínternational conflicts, and this was not so in Chile's case. The buying power of labourers' and employees' wages deteríorated to half of what they were in 1970. From 1971 on, total gross investment fell, till in 1973 it was 30 ¡¡, less than 1970's, and this not includíng the destructíon of the country's capital. As the figures of some of the basic products show, the agricultural production was devastated: wheat production in the agricultural year 1972/73 was 45'Y., less than in 1970/71; potatoes fell 25% ; rice 18% ; beans 10 'y" and maize 24 f{,. In the mines, production had fallen by nearly 20% in comparison to 1970, and more than 101<, in industry. In construction, so vital to the country's housing shortage, the figures fell nearly 40%, so that, though there was a yearly average of 35,600 houses in the decade 1960/1970, between November 1970 to June 1973 on Iy 19,000 were built per year. Foreign commerce, seriously affected in 1972 by exchange policies, internal prices, rates and tariffs, and by the deterioration of the major copper mines' production, really came to a crisis in 1973 when faced withthe need of importing ever largerquantitiesoffood. These imports, which did not come to 170 mili ion US dollars in 1970, surpassed 600 million dollars in 1973. This is reflected by the fact that, at the present moment, the reserves in foreign money ofthe monetary system show a net debt of over 600 million US dollars, while, at the end of 1970, there was a positive net balance of 340 million US dollars. In three years the country lost nearly 1,000 million US dollars in reserves, not including an increase in the foreign debt, at medíum and long term of more than 800 million US dollars, which meant contracting debts at arate of 10 % of the gross domestic product per year. Besídes the calamitous state of the economy, which I have outlined, successive transgressions of the institutional order occured, whích were at the time denounced to the Executive by Congress, the Supreme Court, and the General Comptroller's Offíce, all of which led to a tíghtening of the political and social tensions. The causes of the previous Administration's political failure are not to be analysed here, but it is important to have a clear view of their economic disaster. lB. SHORT·TERM POLICIES ADOPTED BY THE NEW GOVERNMENT A) Immediate measures lo detain the deterioration Upon the take-over of the Administration, drastic corrective measures were needed to stop the chaos in the economy and to create the adequate bases for the long-term measu res to be adopted later. These immediate'measures were the prices of products and goods, and the return to normality of the productive activities. As has been mentioned, the abnormal situation ofthe final prices had led to general scarcíty, with its consequences of queues, black market and rationing. Tocorrect this situation would have been diffícult to do gradually, o( by direct control, without creaVng unbearable administrative loads, and, possibly, withollt endangering the desired econo– mic outcome. Thus a strategy of freedom of prices was opted for, except for the areas where there is a monopoly and of some essential products which remained subsidized, and whose definite handling was deferred until the future wages policy was clearly decided. It is undoubted Iy true that. given the economic situation of that time, this policy ran the risk of creating problems based on the market's imperfections, but it was the most efficient way to free the repressed inflation, a basíc step towards any future measures. 205