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

increase in internal prices higher than foreseen. Therefore, in keéping with'their declared wages policy, the Government has granted, from February on, an extra compensatory bonus of the increase in the cost of living to the lower income brackets. 2. The policy for stabilizing and finaneing investments The short-term proqram set in acUon in 1974 has as one of its aims the strong deceleration of the inflation rhythm, thus continuing the tendency set in motion in October 1973. The fiscal, monetary and eredit policies are fundamental to !he achievement of this objective, as well as the recovery of the productive activities. The program involves a hard fiscal effort which mus! mean a drastic lessening of the public sector's defici!, and that is how it descends from 40% of 1973's expenditure to 9% in 1974. The fiscal effort is not only limited to a reduction of the deficit, but also includes an important change in the composition of the expenditure and financing. Actually, capital expenditure has risen, from 27% of the total in 1973, to a planned 35% in 1974, thus really showing the change in priorities of the State's actions. Housing, Public works, education and agriculture are now the sectors that channel off the greater part ofthis investment effort. The financing of this larger investment will be done bythe generating of a large amount offiscal saving, to be noted in thefact tha! the State changes from a state of deficit in current accounts, to having a superavit of 14'}'0 of all the fiscal expenditure. This amount of savings is the result of the combination of restrictions in current expenses with an important increase of fiscal income, which will increase by eight times, while current expense.s and total fiscal expenditure will increase only 5.2 and 5.8 times respectively. Direct taxation is becoming an important factor of fiscal income. It is believed that in 1974, through the application of new tributary measures already in force, that EO 117.4 thousand million will be collected, 707., of which correspond to direct taxation. More than 90% of all the new direct taxes affect higher income bradkets. It is hoped to finance the resulting fiscal deficit with foreign budget aid and internal debt-contractions. As for the credit policy, it involved, besides a positive cost of credit in real terms, a distribution of the worki ng resou rces of the global priorities of investment and a growth during the year that will, taking into account a certain level of inflation, permit the financing of an 8% estimated increase in the productive activities. The monetary policy will avoid ex1ra-inflationary pressures to those which come from the indispensable adjustment of the economy to a realistic situation. It is believed that internal prices will rise by less than a sixth of their 1973 rate. With the slowing up of the speed of circulation of money, which shows great hopes for the Mure, and with the expected increase ofthe national product of about 8 %, the quantity of money may increase in 1974 by about 110 % so as to provide an adequate financing of the country's economy. To try and reduce the inflationary pressures by more than these figures in 1974 would mean causing unemployment and reducing the growth rate, both circumstances being economi– cally and socially unacceptable. 3. Tbe foreign sector The success ofthe process of national reconstruction depends on what happens in the foreign sector during 1974. The situation of foreign commerce is one ofthe most serious problems we have to face, because the deterioration of the internal production, especially in farming, and the need to remake inventories, and invest largely in machinery and equipment, will not permit the overcoming, in 1974, of the deficit in the commercial balance. On the other hand, the foreign debt is so great that. if it were necessary to cancel in 1974 al! the expiry dates 208