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

This was not, however, the only problem regarding prices. The distorsion in the relative economic prices, as great as in the linal prices, had an extremely negative effect on the correct distribution 01 resciurces, so that situations arose in which, lor example, it was cheaper to leed bread to the pigs in the countryside, while the lack 01 bread in. the cities . caused endless dawn queues. . . This liberalization strategy was the best way to solve both próblems, and the markets.. dld·not delay in returning to a relative normality. ObviousJy, the elfect on the prices was not long iríappear.ing, which was none other than the recognition 01 a lact which official figures could previouslynGt adequately show. In speaking 01 the corrective measures a special emphasis must be placed -on the poi icies of loreign exchange and wages, that is, the ones. that referto the two prices ofgoods which are keystones ofth'e adequate dcvelOp'ment olthe economy. . '. The type 01 exchange represents the basic measure of the relative ~ituation between i.nternal and external prices, an,d its inadequate scale 01 val ués had v~ry serious effects on the situation of the balance 01 payments and the distribution 01 resou rCéS, Since 1970, the situation had led to a systematic deterioration of this index 01 real values, brielly relieved by ,insufficient and sporadlc corrections, which led to a highly critical situation in mid 1973, which put the real exchange at a tenth 01 its December 1969 value. Even worse, a system of multiple exchanges was adopted, with its sequel of economic and administrative pro– blems. The exchange situation was drastically corrected, levelling it 011 at approximately the values ofthe end 01 1969, and simplifying its structure by using only two kinds of exchange and renewing the carrying out 01 frequent and sma~1 devaluations, thus returning to a policy which guarantees its real leve!. The effects soon showed, one 01 its most interesting parts being, not only the relief of the pressure on the hard currenéy market, but the large scale sale 01 their holdings in foreign money by private citizens, bought in the previous years as a means 01 protection against economic and political uncertainty. As to the real value 01 wages, which had, in 1972, reached 130 (in cQmparison with 100 of 1970), these fell, during the third quarter 01 1973, to a levellower than 60, because of the economy's newly developing hyperinflation, It is not difficult to imagine the economic social consequences this caused. After the change 01 Administration, wage readjustments were given that duplicated the nominal wages of the fourth yearly quarter in comparison with the third, and raising the average real wage close to 70, in spite of the forementioned corrections in price levels. Thus the average figure for the year was round 90, Emphasis must be placed on the fact that the improvements were made so as to specially favour the lowest income brackets. Actually, the average readjustment lor a labourer was about 125 '1., , while a higher income employee got about 78 'Y., . Another aspect which should be emphasized is the return to normality ofthe productive activities. The chaos in which the country was living had practically paralysed a great part of the production. This.was caused not only by. the strikes 01 many sectors, but by the work rhythm being very inferior to the normal, the obvious explanation of this being the atmos– phere 01 uncertainty, and the need people had lor using a large parto oftheir.work-day in such primary pursuits as trying to obtain the essential products lor their daily subsistence, As soon as these negative lactors were substantially corrected, not only was there a return to work, but there was an increase in a week',s work hours, and the cutting out 01 some holidays. These measures were received with understanding by the workers, who already had a clear view 01 the nation's chaos and their own situation. Soon production showed definite signs 01 Increasing (Ihe last quarter's average production 01 the large mines was approximalely 50'1" higherlhan themontly average of the lirst 9 months), and the condi– tions necessary lor the measures for the reconstruction and future development of the country began to appear. 206