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

2. Statement by Mr." .forge del Canto, Manager, Western Hemisphere, International Monetary Fund. I would first like to thank the Chilean Oelegation for the interesting and clear expositión they made of the present situation of Chilean economy and regarding Government plans in the short and medium terms. Together with the report of the Secretary's Office, this exposi– tion permitted us to reflect in detail, of the complicated problems which the Chilean authorities have to face, while it casts and encouraging light upon the results already reached in the last four (4) months. At this forum, it would be superflous to remind ofthe cordial and close relations which have existed between Chile and the Monetary Fund, which were converted into an uninter– rupted stream of technical and financial assístance, from the beginning of the Fund in 1946. Upon an urgent invitation Of the Ci;lilean Government, which Look place at tlie yearly assembly of the Fund at Nairobi, a mission thereof was in Santiago in November last, on which occasion they could advise Chilean authorities in the design of their short-term policies, whilst negotiating a stand-by agreement to the ?mount of SOR 79 million -appro– ximately ninety-five million dollars (US$ 95,000,000), to dollars of the present time. As already known, this agreement was approved by the Board of the Fund on Wednesday, January the 30th. Our Board expressed its support to the firm intentions of the Chilean authorities of correcting serious economic and financial difficulties which the country had to confront. . May I now contribute with some comments to the expositions and discussions of these last days. The program of the Chilean authorities seeks to part the vicious circle of inflation and economic stagnation which culminated in the serious damage ofthe economic situation, witnessed in 1973. This program involves a realistic and elastic price and exchange rates policy, as well as a careful handling of the demand, through Government and monetary ínstruments. This is how it is expected to correct distortions ofthe distribution of means and establish the basis for a sustained economic growth, a drastic reduction of the inflationary rate and a correction of the external unbalanced condition. The Fund is certain that the authorities proceeded in a responsible way whilst adjusting the exchange rate in October, adopting an elastic exchange policy, as well as permitting prices to find a new level of balance. As drastic as these adjustments may have been, they were the preliminary condition to make economy active again and permitted to lign the demand with existing offer up, specially eliminating parallel ma~kets. This anti-inflationary policy was supported by a restrictive public and wage policy, with the result that inflation considerably decrea– sed In the last two (2) months of 1973. At the same time, the recovery of production in the Great Copper Mining Industry as well as the restoration of monetary confidence, produced a much larger income of foreign money as was expected and substantially lightened pressures on the balance of payments. Therefore, Chile began the year of 1974 in even better conditions than could be expected, including two months ago. To maintain the price rise in 1974 within acceptable limits will be a difficult task and shall substantially depend on the public and monetary income policies to be performed. As it could be anticipated, the drastic reduction of the inflationary rate in the last months was obtained at the price of a considerable decrease of the real income, specially that of the wage earners. In this context, the decision of the authorities must be understood as to conform salaries and waQes during 1974, in order to maintain the real average income 213