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

revolution of consumption". I speak not as aman wise after the event, but like many other economists, said it in a lecture in November 1972 ("Chile under Allende", whích ís available), I forecast then that the system could not possibly last another year. Chile had índeed an economic earthquake. Even Ihose of us who watched it contí– nuously and knew how badly il was going were right in their algebra and wrong in their arithmetic -typical of economisls. For instance, in August 1973 we thought that real wages had been reduced by 25 per cenl (from the 1970 level) because 01 intlation and economic mismanagement. In tacto they had been reduced by almost 50 per cent. Chile has now emerged from an economic war and faces a difficult problem of reconstruction. While it is difficull, let us rememberthat John Sluar! Mili sdid: "Only laymen are impressed by how quickly the ravages of war can be repaired". Chile can indeed achieve her reconstruction in two years having to break not only lechnical bul also organi– zational and psychological bottlenecks on two condilions: a strong and intelligent national economic policy and internalional cooperation and aid. She qualifies lor inlernational aid by her nalional etlort and by her three greal assets: Flrst. a considerable copper export polential. Second. a considerable import saving potential by proper development 01 her agriculture. Third, and most important, however, is a strong and intelligent, well co-ordinated economic policy capable of adjusting to untore– seen changes and pasl margins of error in planning. Some errors are always unavoidable. A slrong policy is indeed foreseen. Whal Roberto Campos did in three years (bringing inflation down from 96 per cenl lo 30 per cenl), Ihe Chilean Governmenl plans to do in one year (bringing inllation down trom 770 per cent to almost 80 per cent). When invited to give a lecture at M.I.T., Roberto Campos chose as a tille: "Are Disinflation and Democracy Compatible?" Only a strong government can successfully apply shock taclics and harmo– nize Ihe effects afterwards. Chile's three main assets, i.e. the copper expor! polential, the import saving potenlial of agriculture and Ihe "commissariat du plan" with a "Jean Monnet Chileno", are good collateral security and slrong claim for inlernational aid. The economic reconstruclion program is well conceived, consislenl and likely lo lead to reestablish in Iwo years time a wage and income per head equal lo that 011970. Wages belwéen September and November 1973 were at the level 0150 per cent on Iy of 1970. They are likely lo reach the average 01 1973, I.e. 85 per cenl 01 1970 in 1974. Since people are more aware 01 acceleralion or disacceleration Ihan 01 absolute speed, Ihe program may gain acceptance especially since care is laken ollhe lowest income class. Wages in 1974 will be equal lo Ihal 01 1973 when nallonal inveslmenl washardly above O per cent. Ye!, investment in 1974 is lo increase to 20 per cent 01 GNP. Where is Ihal lo come from? In Ihe summer 011973 absentism 01 Ihe labor lorce was 23 per cen!. In addition, many workers were part-time absent and also attending political meelings and nol working. Putting Ihese people lo work under betler managemenl and wilh higher produClivilY will produce Ihe exlra oulpul, 01 which Ihe highest proportion will go lo investment and not lo consumplion. By the end 01 1975 wages may reach the level 01 1970 and Ihe economic reconstruclion program can be compleled. This depends however not only (and mainly) on strong national elforl bul also on lull-scale international aid and cooperation. Since the program is well conceived and likely lo achieve ils ends and since moreover Ihe longer-Ierm program can give prools Ihay by 1980 Chile will be able to service the increase debl it contracled during the 70's, il is obvious tha! a large scale inlernational effort is called lor. This elfort must be consistenl and sufficient. When a house is on lire il is no use lo declare Ihal we are willing to extinguish Ihe tire on the ground floor only. The job is eilher done or not done at all. The challenge is very great. Capital requiremenls (speaking in rough orders 01 magni– lude) amounl lo around $ 1,3 billion, which takes inlo account Ihe increased burden 01 high oil prices. 1) II may be hoped Ihat an understanding with the "Club de París" will provide, let us say, roughly around $ 500 million; 2) the drawings 01 IMF, $ 95 million; 3) and short a medium terms credits around $ 300 million, $ 180 new credits and $ 12001 old credils 220