The Political Economy of the Junta
Since it came to power in 1973, the military government has implemented an economic policy which must be understood as a group of institutional measures aimed at establishing renovated bases...
...The expansion and modernization of these sectors-mining, agriculture, fishing and forestry-require large commitments of capital...
...As a result of this policy, the market is no longer able to fulfill its regulatory function, that of efficiently and rationally allocating resources...
...But as Business Latin America quickly perceived, even Chile's subtle agitation polarized the other countries against Chile and consolidated them around Decision 24...
...To prevent further fiscal imbalances a new "Plan for Eco- nomic Recovery" was initiated which included drastic measures...
...6. El Mercurio (Informe Economico Mensual, No...
...This was followed in a week by a ElMercurio editorial, "D-L 600 will not be modified by pressure from anyone...
...In any case, a study of Chile's efforts to encourage foreign investment clearly illustrates that the Junta is willing to pay a very high price for rapid economic growth...
...2. Ad Hoc Country Review Group of CEPCIES on Chile, InterAmerican Economic and Social Council, Organization of American States, Situation, Principal Problems and Prospects of the Chilean Economy (OEA/Ser.H/XIV...
...Journal of Commerce, September 10, 1976...
...Salary Min...
...work kilos bread kilos bread to buy 1 Date per day per hour kilo bread Sept...
...Indeed, they formed a pretty package...
...Given the economy's orientation toward exports and the frequent devaluation of the peso to favor this, it is not unusual that high members of the military' dictatorship as well as large capitalists are trafficking in foreign currency...
...1 6 Informed sources also report that a large new economic group is rapidly rising on the basis of purchases of former State-sector firms...
...It appears that the Junta is approaching its goal set at the beginning of the year: to transfer the ownership of all banks listed in the chart to private hands by December 1976...
...In an eleventh hour decision-making meeting in April of this year, the Ancom Commission reached a series of agreements which were roundly praised in Chile-initially...
...Production: GNP rose 5% in relation to 1973...
...2) the Junta wants to curtail the direct role of the State...
...obstructionist as possible...
...Presently the recession is forcing a consolidation of the whole automotive sector into four large firms (G.M., Fiat, Peugeot-Renault and Citroen) and a reduction in their production levels to a mere 20,000 units per year...
...And in the remaining four, the State held a small amount of shares, but three of these were fairly insignificant institutions...
...2) firms which had been requisitioned or intervened, in other words, which were still legally in the hands of private stockholders although they were administered by the State...
...to fail to correct it is not...
...of stocks and bonds, and providing capitalists with access to financial information...
...2) the privatization of the State sector in industry...
...Fiscal Situation: Taxes collected through the sale of copper fell 50% in real terms in comparison to 1974...
...December 31, 1975, had been set as a deadline for the Council of the Cartagena Agreement to approve a common external tariff...
...19-20-21 (June-July 1976), 39.18 Three years after the coup, the workers face a drastic decline in their wage and consumption levels, a massive rate of unemployment, and police-enforced discipline at the work place...
...As we will see in the final article, this condition not only determines the Junta's policies but will also determine, to a large extent, the policies of any bourgeois alternative to the Junta...
...Only repression will insure the reduction in real wages and in the level of consumption of the workers, the extension of the work day and the intensification of production...
...According to Chile News, an independent reactionary business weekly, after the meeting, "one thing is absolutely obvious: that the Andean Pact crisis was totally overcome, and the subregional integration process will continue its progress within the terms and conditions expressed...
...Business Latin America, September 25, 1974, 312...
...This anti-national character] can be converted into an instrument for the destruction of regional defense mechanisms (as in the case of the Andean Pact and its accord of common treatment of foreign capital), or to sterilize all propositions to define communal policies in the regional framework...
...Informe Economico Mensual, published courtesy of El Mercurio for the international financial/government community, chose its August 1976 issue to publish a seven-page world history of foreign investment, and Chile's relation to it...
...Clear also was their strategy...
...It includes as well several tax exemptions and loopholes that offer attractive opportunities for accounting manipulation, a favorite practice of multinational corporations...
...The Junta has never revealed a full list of the buyers of State-sector firms and therefore we presently have no way of knowing exactly who is making a killing...
...The money supply was expanding at such a high rate that the Central Bank's absorption mechanisms no longer had palpable effects...
...But why this strategy of absolute intransigence...
...and 4) as a contrast to the article that follows which provides a class analysis of the Junta's political economy...
...First, the model is based on modernizing the most competitive sectors...
...On the other hand, the State bank, which concentrates almost 50 percent of commercial banking activity in Chile (essentially credits for agriculture, State enterprises in the productive sector, commerce, and small industry) would remain in the State sector...
...that is to say, the State's role in stimulating productive activity through mechanisms that increase internal demand has serious drawbacks...
...Third, the success of Chile's export activities depends on the distribution mechanisms and access to foreign markets offered by multinational corporations...
...3) as a context in which to present economic data on three years of military rule...
...The Junta liberalized imports (lowered tariffs and customs duties) under the pretext of preventing price fixing by monopolies...
...For example, 1) a foreign corporation can use its export earnings to cover "costs incurred abroad," an enticing way to circumvent remittance ceilings imposed by Andean Pact agreements...
...While in 1973, the deficit stood at 55% of government expenses, in 1974, the figure was down to 33...
...b. Expenditures...
...3) in order to lower the price of imports and force competitiveness in its exports, the Junta insists on the lowest possible external tariffs...
...4. "Inversiones Extranjeras," El Mercurio (Informe Economico Mensual, No...
...When the military coup took place, the State sector was made up of three types of firms: 1) firms legally owned by the State, which possessed the majority or totality of its shares...
...Apart from agricultural production which increased by .4%, all sectors saw drastic reductions...
...8. Latin America Economic Report, September 24, 1976...
...Aside from noting that the speculative character of the accumulation process has increased markedly *-which is normal in periods of crisis-the most important tendency in this reorganization process seems to be an increase in the financial accumulation of those sectors of big capital capable of establishing themselves in the financial market in a time of crisis...
...CIAP/650), January 28, 1974, I1-1...
...The commercial credits and private investment loans, on the other hand, illustrate measurable confidence in the entrenchment of bourgeois rule and in at least the short term credit worthiness of the Junta's policies...
...This was due as much to external factors which favored the Chilean economy as to internal economic policy...
...6. Figures from James Petras, "Terror and Economic Depression: The Chilean Junta's Formula for Success," New Politics, Vol...
...According to General Sergio Nuflo, vice president of the State Development Corporation (CORFO), at the time of the coup there were 415 firms in the first two categories...
...Exports of "agrolivestock" increased along with industrial products, especially paper and cellulose which tripled...
...Given Chile's severely depressed internal economy, is the Junta trying to bag for foreign capital the only prize left-the Andean Common Market...
...Before closing this section, however, it is necessary to focus more closely on one last interaction between the Junta and the imperialists: Chile's escalating agitation on behalf of foreign capital within the Andean Pact...
...The only positive element in the export picture was the expansion of non-traditional exports which doubled between 1974 and 1975 from US$188.9 million to US$360.0 million...
...This sector had been almost entirely nationalized during the Popular Unity government...
...1975 ---- .17 5.78 March 1975 4 ---- ---Dec...
...What he did not mention in his apples and oranges equation was that one cannot compare concrete investments with approved investment proposals...
...By October 1975, the State had succeeded in dismantling a large part of the State banking sector through the sale of shares to private parties...
...And the final trick was to stimulate the capital market...
...1975 2.84 .16 6.10 Source: Andre Gunder Frank, "Genocidio economic en Chile: Segunda carta abierta a Milton Friedman y Arnold Harberger," in Chile America (Rome), Nos...
...8. See Bartolome Hernandez, "La economia politica de una politica economica: El modelo economico de la Junta Militar chilena," Centro de Informaciones, Comite Chileno de Solidaridad con la Resistencia Antifascista (Havana, Cuba), Document No...
...Likewise, when money is needed for payroll and production costs, it is often borrowed from banks and the 21 percent loan rate is passed on to the consumer rather than disturbing the earnings of the company's account...
...Money Supply: Monetary policy could not remain as restrictive as the government had hoped...
...The petrochemical program alone is projected to reach production of $1.5 billion by 1985, and to bring in $1 billion in foreign investment...
...Another element which increased the money supply16 was the credit extended to SINAP (the State controlled system of savings and loan associations) which was in a serious financial crisis...
...Yet only if we take the above mentioned limitations into account can we understand fully what the Junta's economic policies have signified for the Chilean working class...
...The unfavorable export situation combined with the Junta's policy of repeated devaluations (33 devaluations in 13 months) to create an extremely difficult situation for combatting inflation...
...Chile must improve the quality of its products and achieve economies of scale that will, along with very cheap labor, bring prices to levels competitive in the world market...
...The original focus of Chile's discontent was very specific: raise the 14 percent ceiling on profit repatriation by foreign companies and revise the "fade out" clause which states that existing and new foreign investors must agree to sell out at least 51 percent equity to local owners over a period of time in order to enjoy the duty-reduction program and other benefits...
...DISACCUMULATION AND MONOPOLIZATION We have already examined the general proportions of the Chilean economic recession, the most severe recession of the last 45 years...
...given the ample willingness to com- promise on the part of Ancom countries described above...
...While other Junta economic advisors and even a few foreign investors begin to publicly express their anxiety, the Minister of the Economy is keeping his own counsel as to whether he will bring down the curtain on this stage of Andean integration by maintaining his refusal to sign the Protocol on October 4. II...
...7. El Mercurio (International Edition), June 30-July 6, 1975...
...7. Cited in Orlando Letelier, "Economic 'Freedom's' Awful Toll," The Nation, (August 28, 1976), 142...
...The disruption or decline in production of large firms is provoking the destruction of many smaller firms in other sectors as well...
...Portada's editorial board contains a number of important members of the Pirana clan...
...Most of them had been in Chile before Allende, their firms had been nationalized or intervened, and they were now being encouraged to return...
...According to El Mercurio, these industrial leaders showed "great interest" in the new statute...
...Calicanto" has merged with "Casa Propia," "Bemardo O'Higgins" with "Casa Chile" and "Libertad" and "Ahorrmet" with "Renovaci6n...
...Stabilization, however, has come at the expense of stagnation...
...2 II1...
...business alone was estimated at $54.25 billion at the end of 1974...
...Item, September 1975, 6 month later: Chiprodol (a processing firm controlled by a Swiss consortium connected to Nestles) has arranged to export $2.5 million of condensed milk and baby food to other Latin American countries, due to the "complete stagnation" of the domestic market...
...In reality, they are all intertwined...
...El Mercurio (Editorial, International Edition), January 20-26, 1975...
...INSA, the largest tire producer, has cut production to one-third of its normal levels...
...First, mount an outside campaign to create divisions within and among other countries...
...Of course this also increased the prices Chileans had to pay for imported goods, thus adding to inflation...
...Although monopolization is an histori- cal tendency in the capitalist system, the intensification of the monopolistic nature of the economy since September 1973 is quite unique in Chilean history...
...of Talca (controlled by Swedish Match Co...
...For example, FENSA and MADEMSA, two of the largest producers of "white line" products (refrigerators, stoves, etc...
...Item, March 1975: a serious drought has led to a 20% drop in milk production in Chile...
...At the opposite pole, Peru proposed a minimum of 150...
...See "Revaluacion: Tras la faramalla de la Junta la podredumbre de la especulacion," Correo de la Resistencia, No...
...And, similar to their attitude toward the productive sector, the Junta adopted a policy whereby "the State acts in only those matters where the private sector cannot or where it would be inconvenient for the private sector...
...Chile News: Economic and Financial Survey (private report prepared by Ruben Corvalan Vera), weekly...
...and other consumer durables, were recently merged as they left the State sector to return to Pirafia control...
...Next month's issue of the NACLA Report will address in detail many of the specific U.S...
...El Mercurio (International Edition), March 28-April 3, 1976...
...Unfortunately these questions must remain unanswered for the present due o a lack of concrete data, although informed sources report that the new "cocodrilo" group, as well as foreign banks, is playing an important role in the financieras...
...1)The Junta has sacrificed Chile's internal market to the export sector, and therefore does not24 have as an immediate target capital and intermediate goods production or sophisticated final products to satisfy Chilean consumers...
...2) one goal of slashing public spending is to be able to reduce corporate taxes...
...The Junta's economic advisors continually say that their major goal is to reduce inflation, yet there is no "anti-inflation policy" on our list...
...Finally, construction was on an upswing, largely due to government investment...
...b. Import Liberalization...
...1975, THE RECESSION Summary: By the beginning of 1975, the decreasing effectiveness of the Junta's policies began to be evident...
...Immediately following the coup, the bourgeoisie quickly recovered the firms in the third category...
...26, No...
...3 (Winter 1976), 61...
...It seems logical that Chile's early behavior was based on the hope of eroding what was assumed by all to be precarious nationalist cohesion within the Pact...
...THE INTERNAL RESTRUCTURING OF CAPITAL: MONOPOLIES AND THE STATE The acceleration of the process of monopolization of capital is the other side of the rise in the rate of exploitation and the growing misery of the working class in peripheral capitalist countries...
...For many reasons contained within the character of under and unevenly developed economies, Ancom, in its seven year life span, has only been able to hammer out the beginnings of a preferential not a common market, a sectorial not a total production plan and a minimum not a common tariff...
...This should tell us more about how private capital assesses the political and economic consolidation of the Junta's project...
...62/D(L), (May 1976), 30A...
...2 (Summer 1975), 145...
...Second, agitate strongly for flexible agreements that weaken both the regulations and the ideological cohesion of the Pact...
...1974 9 ---- ---Feb...
...For an interesting update, see Business Week, August 9, 1976...
...and 3) the re-organization (including the privatization) of the banking and financial sector...
...Manufacturing activity which began to slow down in 1974, was reduced by 27% in 1975...
...As in the other measures, the tightening of the money market placed small and medium capitalists at a comparative disadvantage with monopoly capitalists...
...The date passed without the countries being able to agree on a tariff program...
...The re-organization of the private financing system under the Junta has sharply accelerated this tendency by concentrating financial activity in the fewest possible private hands...
...2,148 (September 29, 1976), 15...
...Perhaps this indicates that the Junta is beginning to publicly admit a hard reality: given Chile's lack of appeal in relation to other investment possibilities in the world, particularly in a period of restrained investment practices, to offer Chile's sovereignty for a song will not necessarily attract the desired levels of investment...
...These include restructuring the Central Bank, creating a Ministry-level monetary council, enlarging the scope of action of the Superintendent of Banks, modifying the laws regulating joint stock companies, reorganizing the system of securities and Mutual Funds, loosening the regulations on development banks (bancos de fomento), and freeing short term interest rates...
...Production was down in almost all sectors, and favorable external factors were tending to disappear...
...None of this worries Raul Sahli, SOFOFA's president, who recently snarled, "If there are industrialists who complain because of this, let them go to hell...
...11 (April 1975), 16...
...This translates to an average of $1 billion per year...
...If Ancom finds a way to expel Chile, Chile would have to rely for its intra-continental trade on the binational agreements the Junta has been setting up the past two years with Brazil, Argentina and other Southern Cone countries...
...1976, HANGING OVER THE EDGE Summary: The first eight months of 1976 have seen a tendency toward a certain economic stabilization...
...It also contains the remarkable provision that foreign firms will CLASS OPPRESSION AND THE EXPORT BALANCE SHEET I. A favorite dream of Dr...
...The outcome of Chile's maneuvers is obviously very important to any interested foreign investor...
...3 A similar analysis by economists Ricardo Lagos and Oscar Rufatt demonstrated that ". . .after one year of military rule, the families in the lower income levels (86 percent of the total households in Chile) lost 75 percent of their purchasing power as compared with the last eight months of the constitutional government of Salvador Allende...
...According to Jos6 Zabala, executive head of the Committee for Foreign Investments, the Committee approved proposals for $222.5 million in investments, excluding mining, from its inception in October 1974 to August23 1975...
...Nicknamed the "Cocodrilos" (Crocodiles), the new group is composed of the Spanish families of Fluxa, Goni and del Curto and is formed around the Banco de Osorno y la Uni6n and the Banco Espailol...
...The publication of D-L 600 in July 1974 focused the already apparent divergence between the Junta's program and that of the Cartagena Agreement, and resulted in what was termed "acid polemics" between Chile and the other member countries...
...While this is true as far as it goes-an effective hiatus in productive activity is bound to slow down inflation-it by no means addresses the root of Chile's current inflation...
...c. Tighten the Money Market...
...Journal of Commerce, September 10, 1976...
...6. Foreign Investment Policy This final policy acknowledges that internal savings are fundamentally inadequate for rapid economic growth...
...As we have suggested, private capital in Chile has neither the financial capability nor the will to adequately generate new capital...
...ElMercurio (International Edition), March 17-23, 1975...
...Has Chile merely blown its cool, as some claim...
...While these measures have forced some reduction in the money supply, other factors have been operating in the opposite direction...
...Of the 492 total enterprises which formed the State sector of the economy in December 1973, 253 enterprises have been returned to their former owners, 104 (including 10 banks) have been sold...
...In the first article we noted the close links between monopoly firms producing or assembling automobiles and the hundreds of smaller machine firms producing parts for the cars...
...Thus, not only does Chile's model require large doses of capital, it requires capital of a certain type...
...A barrage of diplomatic and journalistic activity took place for the next year during which tactic after tactic was tried in an attempt to confuse and disarm the Junta's opposition...
...See Chart 11-5...
...3 Thus the go-for-broke campaign can be seen as a response to this unexpected closing of ranks...
...By mid-1975 an accusation by a Bogotai newspaper that Chile was violating the conditions of Decision 24 provided El Mercurio the opportunity for a new salvo-this one aimed closer to the heart: Decision 24 was a scheme elaborated in a period and on the theoretical basis of monetary and com*Regarding Decision 24, Article 19 of DL 600 states: "In order to enjoy the advantages derived from the enlarged markets and the programs of liberation of LAFTA and of the Cartagena Agreement, the enterprises which have foreign investment participation must comply with the resolutions and decisions that become valid and obligatory in Chile which emanate from said international commit- ments...
...The following chart illustrates the sectorial breakdown of those amounts by percentage, according to the Junta...
...In January 1976, Chile proposed a flexible tariff structure with a 45% maximum...
...Among these exports, the most notable increases were registered in fruit, processed foods, timber and metal products...
...Thus, they can demonstrate that their action to reduce consumption also cuts inflation...
...In order to adjust demand downward and thereby redirect funds from consumption to investment, prices (which had been controlled under the Popular Unity government) were freed or adjusted upward drastically...
...Inter-American Development Bank, Economic and Social Progress in Latin America (Washington, D.C.: IADB), annual reports...
...19 These last two points (development banking and interest rates) provide an interesting illustration of trends in the current Chilean economy...
...The Junta's economists hoped to accomplish this by raising interest rates to positive levels...
...In particular, Decision 97 authorized Corfo to sell its ownership in statized firms to foreign investors, and allowed these enterprises to be subject to the same regulations as "existing" companies...
...And there is one essential point within this context: the bourgeoisie must get more out of the Chilean working class, it must raise the rate of exploitation of labor...
...This was basically due to net payments to foreign capital (i.e., profit remittances and the payment of interest on loans...
...Journal of Commerce, September 10, 1976...
...It aggravates State deficits and the external balance of payments problem and gives impetus to the inflationary spiral...
...Figures for blue collar workers, although not available, would undoubtably be even more stark...
...Thus, State shares in industry and agriculture are being turned over to former owners or sold to new owners, benefitting in particular the powerful monopoly groups who have absorbed many of those enterprises...
...Within the framework of the recession, however, capital is undergoing a major period of restructuring...
...The second trick was to give savers something to save...
...Is it being used as a dagger by imperialism to destroy Ancom, as many have accused, including a few members of the Pact themselves...
...Decision 100 was roundly praised...
...From an economic viewpoint, the recreation of the basic conditions favorable to capitalist development must be understood in the following terms: L the restructuring of the system of domination over the working class and of control over the labor market...
...Foreign capital is very much desired by the countries of Ancom, let there be no mistake...
...This has been the cutting edge of the policy...
...Brutal repression, assassinations and limitless terror thus are integral to its rule...
...2, September 1976, p. 5, for a discussion of Fraser House subcommittee hearing on AID contributions to this housing program, in which it was shown that less than 10% of the $55 million AID contribution would be directed to low-cost housing, and even that would not be affordable for low-income Chileans.22 be adequately compensated for any future changes in rules regarding taxation, depreciation, exchange regulations, etc...
...I3 tem (1975): the junta announced plans to increase both internal market activity and the demand for wood by promoting low-income housing projects.4 Item (1976): Forestal Copihue Co...
...Allende, realized during his presidency, was that an adequate milk supply be made available to every Chilean child and nursing mother...
...The Minister of Foreign Relations announced afterward that Chile "will not abandon the Andean Pact", (a phrase heard numerous times over the subsequent two years...
...Clearly Chile cannot generate anything like this amount for sustained periods, even with high copper prices, since close to 40% of its foreign exchange earnings goes to pay for the ever increasing foreign debt...
...Considerable cuts were made in public spending, and public investment decreased by approximately 60% in real terms in relation to 1974...
...This measure succeeded in eliminating the black market, but only by drastically curtailing working class consumption...
...12 (May-June 1976), 11-13.20 As in the productive sector, the starting point of the re-organization of the financial sector was the privatization of the banking system...
...The bank, with a capital base of US$5 million, is 60 percent Chilean owned and 40 percent foreign...
...And in this matter all serious investigations agree...
...Thus, with high prices for products and very little demand, industrialists would naturally put any profits into savings and loan banks rather than increased production...
...This is to be achieved through increasing tax revenues from exports and through tax reform which seeks to eliminate certain exemptions and impose increases in income, rent and other taxes...
...Latin America (London), August 13, 1976...
...2 " In other words, the ffmancieras were given a tremendous advantage in competing for funds, an advantage which nearly resulted in the destruction of SINAP...
...s TABLE II-3 PURCHASING POWER OF WHITE COLLAR WORKERS Min...
...savings and investment and internal demand vs...
...a healthy balance of trade...
...In general, CORFO (the State Development Corporation and administrator of State firms) seems to be running a thrift shop, offering a clearance sale on public sector firms, including package deals and two-for-the-price-of-one sales...
...THE NIBBLE: In view of all this, the response of investment capital in the past three years has to be somewhat frustrating for the Junta...
...Although during some of the early months, inflation levels rose above 10%, a comparison between the 221.1% overall rate during the period January to August 1975 and the 118.9% rate registered during the same period of 1976, demonstrates a tendency toward a decrease in the level of inflation...
...Chile en ato Resistencia PART II: RESTRUCTURING THE CHILEAN ECONOMY If Junta policies seem to have little effect on solving the concrete economic problems of Chile, not all is due to its blind devotion to Milton Friedman and the Chicago School nor to the ineptitude of its own advisors...
...In other words, it is not possible to imagine capitalist growth in Chile today without keeping in mind the political and economic necessity for continued repression of the Chilean people...
...Due to the fall in copper prices and agreements with CIPEC (the Organization of Copper Producing Countries) to reduce copper exports, production in mining was lower than in previous years...
...Based on the statements of spokespeople for the monopoly bourgeoisie-who stress the need for large scale production in agro-industry--we can assume that these firms are passing into very few hands...
...4 3) already fully discussed are the super-exploitative wage conditions imposed on labor...
...Until this stalemate with Chile is resolved, Ancom cannot proceed with sectorial programming investments...
...Foreign exchange would be available to import necessary intermediate and consumer goods to meet increased demand on the part of both local manufacturers and consumers...
...3. Latin America Economic Report, August 9, 1974...
...Now things are very different...
...New answers will possibly emerge in early October-after our deadline...
...To cover the fiscal deficit in foreign currency, the Central Bank bought up more foreign exchange, increasing the money supply...
...In addition to desiring liberalized foreign investment regulations and the lowest possible tariffs, they all stand to benefit from the greatest possible level of internal dissention and confusion...
...This dependence has several facets...
...Since interest rates were released two years ago, there has been a flourishing of organizations competing for deposits within the financial market...
...THE RE-ORGANIZATION OF THE PRIVATE FINANCIAL SYSTEM The bourgeois view of the capital market is that of a system in which money freely flows from those who have to those who need, allowing the latter to grow where previously they could not have, and the former to receive a just compensation for their services...
...Production: The effects of the Junta's shock policy were most clearly demonstrated in the level of economic activity...
...26, No...
...They complained that higher costs could not be passed on by raising prices due to government price controls...
...This is reflected in a rise in interest rates which have reached positive levels for the first time in many years...
...Item (1974): with a 600,000 unit housing shortage, the Junta hopes to interest foreign investors in a pilot program to import 4,000 prefab units, to provide houses at the rate of 40,000 per year...
...In fact, as we will demonstrate, the capital market provides funds to only certain of those who need it, but mainly is intended to favor those who already have it...
...In fact, the effect was to bankrupt those producers not large enough to weather the storm of competition...
...CEPCIES/56), February 11, 1975, 7. 3. Michel Chossudovsky, "Chicago Economics, Chilean Style," Monthly Review, Vol...
...The first part of this first section will set out the Junta's analysis in more or less its own terms, the second part will list its economic policies for resolving the crisis and the third will provide some indicators as to the "success" or "failure" of these measures...
...Whether this attitude corresponds exclusively to the realities of the Chilean political and economic situation or whether it is also being used to wring further concessions out of the Junta is a question that must be kept in mind...
...Supplies of intermediate inputs were also inadequate due to the scarcity of foreign exchange, strict controls over imports, and marketing difficulties...
...Less is known about its domestic investors although there are indications that the bank is close to the Pirahia clan...
...The composition of consumption also changed, as reflected in a change in the structure of imports...
...3) foreign investors exploiting basic resources can enjoy tax stability and special exemptions, and 4) foreign firms can count on a tax rebate in Chile when payment of a corporate profit tax is required in their home country to avoid double taxation...
...At that point Chile's posture was to favor a gradual lowering of tariff levels because excessive protection "becomes translated into inefficient industry...
...Trade: The value of total exports fell by 28% during 1975...
...Most of these measures are contained in Decree Law 455 (May 1974) and Decree Law 1533 (July 1976...
...And three international auto producers, including General Motors, have been chosen by the Junta to invest between $150 and $200 million in the next four years, although GM is maintaining a low profile in Chile until the Ancom crisis is resolved...
...According to the Latin America Economic Report (May 1976), the amount had by then reached $331 million...
...Theoretically, this model would not lead to the imbalances inherent in previous models...
...However, the first two categories were the apple of their eye: the monopoly and medium-sized firms which had been nationalized under the Popular Unity government...
...If the Pact were to actually dissolve, Brazil could be a big winner, having few serious obstacles to its designs on bordering countries...
...RESTRUCTURING THE ECONOMY 1. Comision Economica para America Latina, UN, Estudio Economico de America Latina, 1973 (New York...
...loans and investments that have been proposed and/or confirmed...
...This export orientation was seen, as well, as a means of reducing the enormous balance of payments deficit...
...They came as commercial credits until the Junta drastically cut imports as part of its austerity program...
...International Monetary Fund, Chile: Recent Economic Developments, mimeograph, May 21, 1976, 38...
...At the present time, given the lack of concrete data on specific firms, we have to look at this process of restructuring on a general level, drawing conclusions from what we already know to be true about the relationship between large and small firms in the Chilean economy...
...At the time of the coup, the State owned the majority of shares of the largest banks in Chile...
...Etapa de Definiciones," Ercilla No...
...increased productivity which in turn would lead to a rise in wages...
...X, No...
...Interpretations, however, do differ...
...TABLE 11-4 UNEMPLOYMENT IN GREATER SANTIAGO (% of labor force) Year Percentage 1971 3.8% 1972 3.6 1973 7.0 1974 9.7 1975 18.7 Source: International Monetary Fund, Chile: Recent Economic Developments, May 21, 1976, 67...
...1. Latin America, March 14, 1975 2. Latin American Economic Report, September 26, 1975 3. Op cit...
...The situation has allowed international capital to bargain Chile into near total subjection, always holding the carrot just out of reach...
...5. Chile Economic News (Santiago: CORFO), No...
...United Nations, 1974), 180-181...
...ElMercurio (International Edition), December 23-29, 1974...
...Economist Intelligence Unit, Quarterly Economic Review (London), four issues devoted to Chile each year...
...The essence of D-L 600 resides in its "anti-discriminatory" policies-that is, the assurance that foreign investment will receive at least the same advantage as local investment...
...In addition to the liberal rules for foreign investors mentioned above, the Junta has developed four policies to attract foreign investment: 1) a first priority has been to control the balance of payments deficit-to recuperate credit worthiness but also to free foreign currency for profit repatriation...
...In September 1973, white collar workers at the minimum salary could earn a kilo of bread in approximately 42 minutes...
...In other words, parallel to monopolizing control of productive activities, the large bourgeoisie is promoting the development and concentration of financial sources which can provide them with the financing necessary for any period of dynamic growth...
...The Junta has not, however, projected its goals in the terms used above...
...And this has produced a state in which "60 percent of all households (live...
...Production in manufacture, which represented 25% of GNP, continued to decline...
...in Lima...
...Marx refers to it as "density" of labor, comparing a working day of low intensity to a very "porous" day...
...Economic Commission on Latin America, United Nations, Economic Report on Latin America (New York: United Nations), yearly reports...
...FOREIGN INVESTMENT 1. See Business Latin America, November 13, 1974 for a profile on Chile's basic attitude toward foreign investment in relation to other Latin American countries...
...The sectors which showed the greatest promise were those strategic to the Junta's economic model, in other words those producing for export...
...By the meeting in Lima of September 24, the five other countries had agreed to a reduction in the tariff to 26%, but Chile was now holding out for 12...
...The Junta is guided by the conviction that the Keynesian model for economic recovery will not work in Chile...
...A presupposition of this model is that internal demand must not be allowed to outstrip the export sector's ability to supply sufficient foreign exchange to provide for that demand...
...s Zabala boasted that investments in Chile between 1954 and 1973 totalled $444 million, also excluding the large copper sector-thus his committee appears to have accomplished in ten months half of what it took twenty years to do before...
...Only permanent fiscal and balance of payments deficits have allowed for the maintenance of this artificial situation, and these, in turn, have been responsible for a level of inflation that has spiraled beyond government control...
...salaries Source: Jorge Cauas, "Statement to CEPCIES," Chile Economic News, No...
...And this was accomplished by redirecting resources from the workers' dinner tables to the employers' savings accounts...
...In -the area of construction, production fell 35%, in large part due to the shaky state of SINAP and the cuts in public spending...
...In response to this the five opposition countries met again, coming up with a seven-point compromise which included raising profit remittances to foreign firms from 14% to 20...
...One portion of the Cartagena Agreement (the basic agreement which defines Ancom) which from the beginning won a high degree of unified support was that which sets the parameters for foreign investment...
...Salary Hrs...
...This model forms the basis for the Junta's economic policies...
...As such, the measure played into others which produced a drastic drop in internal demand...
...8 Chile has hardened its position around other points as well...
...El Mercurio, "Informe Economico Mensual...
...And it repealed the legal regulations prohibiting the establishment of foreign banks in Chile, granting foreign banks the same rights as national banks...
...36 (August 1974), 5. 9. Ibid...
...Strict adherence to this thesis means the following formula for recovery: A rise in exports and the resultant increase in foreign exchange earnings would allow for the reactivation of the export sector...
...The Junta's economic advisors have elaborated a series of changes in the nation's banking and financial sector aside from returning most banks to private hands...
...After a notable drop in production in almost all sectors in 1973, 1974 saw a clear recovery in some areas...
...investors in the area, the Junta's behavior is worth a closer examination...
...THE GORILA PROGRAM The Junta's "reconstruction" program is necessarily a serious departure from all that has come before-not only the UP government but the entire vision of development that prevailed from the late 1930's onward...
...Chile News (Santiago), No...
...The 'propping up' loans of the World Bank, IMF, and U.S...
...Yet, for the last forty years, the driving force of internal productive investments has been the State...
...They are determined by measures taken at the Finance Ministry and also reflect external controls exercised by the political police (DINA) and the Armed Forces.17 How have real wages evolved in Chile since the coup...
...Companies of the type that the Junta is looking to attract want a lot more than short term bargains and long term promises...
...12), August 1976, 16...
...The freeing of short term interest rates has also produced the intended consequences, although it is still too early to evaluate them fully...
...New investment already realized since the publication of D-L 600 has only reached $40 million...
...And ironically, a major cause of that debt increase is the Junta's reliance on foreign loans due to the reticence of foreign investment...
...This article is a shortened version of an article appearing in El Trimestre Economico (Mexico), Vol...
...On a topographical map of South America, each country was illustrated with a door more or less open according to its attitude toward foreign investment...
...To make Chile economically more attractive to foreign investors, the Junta has had to modify its relations with foreign capital to a degree that outstrips any other Latin American country...
...They have come to finance capitalization of existing enterprises, most of which are controlled by foreign capital...
...2 Of the 98 remaining firms, the Junta plans to retain only 19 including, among others, the three large copper companies, and the national firms in petroleum (ENAP), electricity (ENDESA), coal (ENCAP), steel (CAP), explosives (ENAEX) and telecommunications (ENTEL...
...While seeking to establish some hypotheses about the general economic implications of the Junta's financial reorganization policies, it is useful to point out on a more general level how this re-organization actually implies a restructuring of the division of the nation's surplus within the Chilean bourgeoisie...
...606 (34/76), August 23, 1976, 1-4...
...In August, these Decisions were signed by all but Chile, who refused to sign Decision 100 in an effort to blackmail the other countries into submission on the subject of foreign investment...
...They have been channeled through international lending institutions either to assist in balance of payment problems (as in the case of the International Monetary Fund) or to address the infrastructure demands of the new economic plan (as in the Inter-American Development Bank and the Corporation for Andean Development, the lending arm of the Andean Pact...
...55 (October 1975...
...THE ANDEAN PACT: TO BE OR NOT TO BE In the past three years the Junta has tried to sell Chile to all would-be foreign investors...
...The Junta, indeed has re-established a new relationship between capital and labor...
...One is that the Junta's policies tend to result in increased monopoliza- tion, and monopolies can respond to increased demand with increased prices, not increased production...
...Chile's new economic formation stands in blatant contra- diction to the Pact...
...Finally, an essential component is technology, which only advanced capitalism can provide...
...2 TABLE 11-2 INDEX OF WAGES AND SALARIES: 1970-1975 Base: Jan...
...While the volume and price of copper exports rose, copper decreased as a proportion of total exports from 82.3% in 1973 to 76.5% in 1974...
...2 In other words, we are talking about economic genocide...
...The Junta realizes that foreign capital can only be attracted on the basis of certain guarantees, among them a stable balance of payments and liberal investment incentives, including easy repatriation of profits...
...Given de Castro's worry, the general conditions of the economy and the frequent urgings of the multinationals, Chile could not afford a diplomatic waiting game which might require another two years...
...The predominant movement in this period is toward a further monopolization of capital, the merging of capital or the absorption of the weaker capitalist by the stronger...
...XLII (2), No...
...14 To do this is perfectly feasible unless the other Pact members find a solution to a serious juridical handicap-there is no provision in the Pact's bylaws for the expulsion of one of members...
...Mining went up 16.7% and agriculture, forestry and fishing rose 12.7% in relation to 1973...
...Since it came to power in 1973, the military government has implemented an economic policy which must be understood as a group of institutional measures aimed at establishing renovated bases for the functioning of the capitalist system...
...Fiscal Situation: The fiscal situation improved noticeably...
...This language practically promises a fight over the Pact's provisions for foreign investment, and avoids listing any in concrete fashion which would imply adherence to them in their present form...
...The Junta also sought to deal with this deficit by renegotiating payment of their enormous debt...
...If so, the Junta has plugged up all the pores in the work day, seeing "labor discipline" as one of its major achievements...
...On the other side there has been a reduction in the number and absolute value of medium and small firms...
...It should also be noted that the Junta achieved some progress in the diversification of exports...
...Frequent devaluations of the Chilean currency bolstered this objective by reducing the price foreign importers had to pay for Chilean goods...
...Individual capitalists had multiple complaints including lack of control over costs, particularly wages, due to the government's income distribution policy and the consequent rise in real wages...
...12 OF POLITICAL13 PART I: FROM THE MOUTHS OF GORILAS ' Chile's economic difficulties in recent decades can be attributed to demagogic governments which have offered the population a higher standard of living than the economy is able to generate...
...The Andean Common Market, formed in 1969, comprises the six countries of the Andean region: Chile, Colombia, Ecuador, Bolivia, Peru and, more recently, Venezuela...
...iil the redefinition and deepening of the sources of integration between the Chilean and imperialist bourgeoisie...
...See Table 11-6] It is not hard to imagine what it could mean in the near future for Chile if, say, some of the mining investors got cold feet...
...The full text of Decree Law 600 is printed in El Mercurio (International Edition), July 8-14, 1974...
...And official unemployment figures only tell part of the story since they do not include those who have dropped out of the labor market altogether...
...In spite of its splashy format, the article takes a much less optimistic tone regarding the attraction of foreign investments than previously displayed...
...Trade: 1974 marked the first time since 1970 that the balance of trade registered a surplus (141.1 thousand pesos...
...Technology does not just mean advances in the manufacturing process, but also innovations in management and marketing...
...The first trick in this was to stimulate internal savings...
...a. Increase State Income...
...This is certainly destruction but of a more devious order than actual dissolution of the Pact, and more desirable since capital involvement by U.S...
...Who is behind the financieras and why is SINAP being driven out of the market...
...As we go to press, Ercilla, a weekly magazine of Chile's Christian Democratic Party, advises that at the October 4 meeting in Lima, Chile will be offered a formula which implies a suspension of its participation within the Pact for two years...
...Chile's exports to the region have gone from $15 million in 1968 to $100 million in 1975, 16 and could escalate rapidly if the sectorial allocations already underway could be agreed upon...
...Although two of the countries, Bolivia and Ecuador, are comparatively non-industrialized and therefore receive spe- cial treatment from the other Pact members, the remaining countries have a more extensive industrial base and both Ecuador and Venezuela are rich in oil...
...Furthermore, the estimated trends of a number of nominal variables obtained by deflation are subjected to a considerable margin of error...
...Inflation: A new acceleration in the rate of inflation began in November 1974...
...Raul Sahli rails against the "damage done by the ruthless and malicious campaign of defamation orchestrated by international Marxism," 6 but it is clear that most private in- vestors are being influenced by economic, not human rights, considerations...
...miscalculate the extent of that nationalism, Chile stands to be the greater loser...
...12), August 1976, 16...
...The Junta seems to have chosen the best, albeit riskiest, alternative...
...Chile put its best diplomatic foot forward by promising to promote an "imaginative dialogue" to define "flexible and realistic" mechanisms to maintain solidarity...
...2 The BUF was established to finance activities geared to the export market including agro-industry, mining, agriculture, livestock, forestry, fishing and manufacturing in those sectors producing for export...
...The rate of inflation became precipitously high [see Table II-1] , a large fiscal deficit still existed, and the balance of payments deficit, although smaller, continued to exist...
...Latin America, August 9, 1974 4. See International Policy Report, Vol...
...By providing capitalists with petroleum, electricity, steel and coal, the State in effect forces the working class and petty bourgeoisie to subsidize (through taxes) the costs of private industrial production...
...The Junta refuses in principle to increase the money supply without a corresponding increase in the production of real goods...
...see Chart II-3] The Junta's recessionary policies have tremendously increased the ranks of the industrial reserve army and thus, this overview of the system of economic repression imposed in Chile would remain incomplete if we did not consider this large group of unemployed workers who cannot even rely on the pitiful minimum wage...
...mercial normality in the world, and is now no longer sufficient to stimulate the necessary inflow of foreign capital...
...Although not as drastic as the rise in prices, the money supply rose 277% in 1975...
...Thus, while the Junta speaks of the need to move to a free market for capital, the releasing of interest rates-as well as the other measures adopted in the area of finance-only allows for a more fluid period in which capital can be restructured into fewer hands...
...A month after the appearance of D-L 600, RatWl Saez, the Minister of Economic Coordination, was already on a tour of the Andean countries to explain Chile's position...
...The Junta has also provided firm labor discipline, and international lending agencies are seeing to the development of necessary infrastructure...
...s Such an alternative means the Pact would remain an entity, but would become as meaningless as LAFTA (the Latin American Free Trade Association...
...AID, blessed by Kissinger and Simon, since they are not motivated by immediate profit, are direct affirmations of support for the goals of capitalist reconstruction itself in Chile, now being pursued with such ruthlessness...
...In general, however, it is clear that this period of intense competition for funds in the capital market (considered healthy by bourgeois economists) will provoke the destruction of certain sectors of capital and the concentration of banking capital...
...At least it merits being understood for its good intentions and in no case deserves to be attacked on the basis of speculative evidence not based in reality...
...Furthermore, fmiancieras were allowed to operate outside the commercial banking system at interest rates up to 50 percent higher than the maximum permissible banking rate...
...This, in turn, would provoke a rise in employment and a concomitant rise in consumption...
...In this section we will look behind the purely economic indicators in search of the essential significance of the Junta's political economy...
...the other countries see State participation as very important...
...This highly speculative nature of accumulation in Chile has defined the three years of Junta rule...
...Hernandez, "La economia politica," 14...
...It is the essence of dependency: the very viability of the model depends on the Junta's ability to continually attract large amounts of investment in vital sectors...
...An approval is not a binding agreement, and there are indications that a number of firms who received the green light are either still hesitating or have backed out...
...Stimulation of the export sector and the rise in copper prices provoked a 27% rise in exports, making exports the most dynamic element of demand...
...IMF, Chile, 29...
...To effect this last tactic the Junta at the end of 1975 replaced the previous Executive Secretary for the Andean Pact with Adelio Pipino, a government economist and hard-nosed defender of the official line that Decision 24 is "obsolete" and the proposed common external tariff is "excessively protectionist [and] becomes translated into inefficient indus- try...
...the other countries support the demands of their bourgeoisies for industry protection through high tariffs, and 4) the Junta must rely on the immediate injection of foreign capital...
...In spite of these difficulties, the index of wages and salaries prepared by the National Institute of Statistics (see Chart II-2) seems to indicate that the Junta has achieved its objective of "not permitting the real wage index to fall in relation to the average for 1973...
...The sum of these policies has been, with regard to labor, a drastic rise in the rate of exploitation and an equally drastic increase in the "reserve army" of unemployed or underemployed workers...
...The automobile industry is a good illustration...
...The fuel to activate it should be money channeled away from consumption (i.e., internally generated savings) in addition to foreign investment, not deficit spending...
...And, since there is no increased production to speak of, the Junta has chosen to diminish its own expenditures, reducing public employment, cutting public services, and turning social security over to the private sector...
...Income and property taxes were raised by 10%, previously exempt sectors were taxed and taxes on value added rose 20...
...Calzado Bata, a large shoe producer, has closed for "want of demand...
...The Junta has distorted Chile's economic structure ever more severely to lower the cost of investment and thereby improve its attractiveness...
...Jose Garrido Rojas, "Ideas para una politica agro-industrial," Portada (Santiago), No...
...9. Latin America Economic Report, August 26, 1976...
...Fiscal imbalances were kept in check due to decreases in spending but only at the cost of an unprecedented recession...
...The principal vehicle for the implementation of this policy has been the constantly expanding state apparatus which has redistributed income toward those sectors characterized by a high disposition toward consumption and which has also granted excessive credits to relatively unproductive sectors...
...Projecting probabilities within the Andean Pact is very difficult during the heat of this crisis...
...The third alternative is to stay in the Pact, ignore the rules, pick away at the remaining unity and in general be as *According to Latin America (July 1974), Decision 24 has not been a serious brake to foreign investment in some countries, and this is underlined by a Journal of Commerce report (September 10, 1976) which indicates that Dow Chemical is already adapting to the Pact's regulations...
...It has offered them abundant resources, cheap labor, tax incentives and other advantages...
...There is a certain artificiality in isolating economic policies for examination...
...It would appear that at least the first two hypotheses are shaky, the first on logical grounds, and the second on empirical grounds-i.e...
...8 (June 1976...
...The objective of this policy was to force producers to specialize in commodities which had comparatively low production costs...
...The threat that Chile may have overplayed its hand has brought to the surface some internal conflicts over the Junta's strategy- though apparently not its goals...
...Ad Hoc Country Review Group of CEPCIES on Chile, Organization of American States, Situation, Principal Problems and Prospects of the Chilean Economy (Washington, D.C.: OAS), February 11, 1975 and El esfuerzo interno y las necesidades de financiamiento externo para el desarrollo de Chile, January 28, 1974...
...Overall government revenues rose by 55% in real terms, largely due to a 34% rise in revenues from copper exports and a 30% rise in tax revenues due to government tax reform...
...9 Almost 80% of these firms had returned to private hands by April 1976 1 o on the basis of the Junta's argument that...
...The high price of copper on the world market contributed to reducing both the balance of payinents deficit and the fiscal deficit...
...In so far as Chile's argument with the Pact reflects the stated interests of U.S...
...Is it being shoved out the door, as others find evidence to believe...
...We should note that nearly every one of these sources is based on statistics prepared by the Chilean Central Bank, the National Statistics Institute of Chile (INE) or a government agency...
...the other countries apparently do not to such a degree...
...The uncertainty felt by Chilean capitalists was exacerbated by the fact that none of the State's mechanisms for revitalizing the economy were functioning satisfactorily...
...According to bank president Gustavo Vicufia, the bank was formed "thanks to the enthusiastic support and close cooperation" of the National Agriculture Association (SNA), the National Mining association, the National Manufacturers Association (SOFOFA) and the Association of Builders (Camara Chilena de la Construcci6n), all the most important representatives of the Chilean bourgeoisie...
...As we will see in Part II, this was done by creating the financieras (financial institutions similar to investment banks which were authorized to give higher interest rates than commercial banks), encouraging the sale *This has led to active speculation in the money market...
...the internal restructuring of capital, that is, the redefini- tion of relations between various strata of capital and the establishment of the economic hegemony of local to- gether with foreign big capital...
...Balance of Payments: While imports were reduced drastically (by 24%) in 1975 to offset the decrease in exports, the balance of payments deficit increased from US$370 million in 1974 to US$650 million in 1975...
...And given both Chile's recent turmoil and the iron-handed methods the Junta must use to stifle further expression, many companies have maintained a wait-and-see attitude...
...Le Monde, September 18, 1976...
...9 Decision 100 elected to postpone for two years the decision on the common external tariff, among other things, rather than make a decision unfavorable to Chile...
...A study by Michel Chossudovsky, for example, concludes that Whereas in 1969, fewer than 30% of Chile's population had incomes insufficient to meet minimum caloric and protein requirements, our results suggest that 85% of Chile's population are now below the poverty line and suffering from malnutrition, while 60% of all households (primarily blue-collar workers) are in conditions of extreme poverty and malnutrition...
...It is, therefore, delusion to think that the bourgeoisie did not learn the lesson of the 1960's and 1970's-that the mobilization of the working class and the crystallization of the bourgeoisie's internal contradictions represented a severe threat to its entire system of domination...
...3. "Privatization" Policy One of the fundamental points in the Junta's philosophy is that all profit-making enterprises should be transferred to the private sector, leaving for the State only unprofitable but necessary infrastructure or industry that is of "vital interest" to state security...
...This makes it difficult to analyze these variables or to make policy measures based on such an analysis...
...In fact, the Junta's reluctance to give up these crucial input operations only clarifies the major role which the State has played since the 1930's in providing infrastruc- ture for the capitalist class as a whole...
...1974 11 ---Nov...
...On the other hand, Chile could not pull out of the Pact, leaving it reduced but surviving without Chile, because Chile would thus lose the market for its share of the sectorial programs currently being concluded in the areas of automotives (General Motors and Firestone are poised and ready), petrochemicals (Dow Chemical has also recuperated its nationalized complex), and pharmaceuticals (a number of firms have returned, partly in anticipation of the Andean Market and partly because production pollutes and therefore is more easily done outside U.S...
...4 It would seem that the Junta is riding roughshod over Freidman and Harberger when it recognizes the important role the State plays as the subsidizer of private capital accumulation...
...Revista de Analisis de la Realidad (Caracas: Chile Antifascista), No...
...TABLE II-6 FOREIGN INVESTMENT BY SECTOR AUTHORIZED AND REALIZED: 1976 Sector Authorized Realized Agriculture 0.6% 0.9% Mining 53.9 13.7 Manufacture 27.6 34.8 Energy and Fuel 1.6 ---Transport 3.0 18.8 Services 13.3 31.8 TOTAL 100.0 100.0 Source: "Informe Economico," E1 Mercurio (August 1976), 14...
...destatization and the ever greater use of the market, both national and international, will be conducive to improving the efficiency of the economic system by means of better19 management of firms which will permit a reduction in the costs of production...
...Economically then, Chile is now playing what may be its last card...
...Direct investment by many of these firms means the setting up of highly capitalized, immobile production facilities...
...This measure, aimed at reducing money in circulation, included steps to decrease the printing of money, raise the cost of credit and increase the amount of money banks were required to have on hand (i.e., bank reserves...
...The crisis came to a head during the 1972-3 period...
...Thus the repressive apparatus and the dictatorial policies of the Junta assume their full dimensions...
...The foreign debt continued to grow, reaching US$4,470 million in 1975, 9% more than the 1974 level and 40% more than in 1973...
...Food imports decreased approximately 40% while imports of intermediate goods increased...
...This, in turn, has created other deficiencies such as a relatively undeveloped productive capacity that is unable to satisfy the needs of the population, and the continued existence of inefficient sectors...
...The market and pricing system now function "freely," prices having been released from "artificial" controls as a means of re-establishing financial equilibrium among the various branches of the economy, and stimulating production and capital formation...
...6 It does not require a great deal of imagination to picture the wholesale transfer of capital from small firms to large firms which is taking place...
...bank and a foreign country...
...Whether because the Popular Unity Government avoided using those mechanisms which conflicted with their populist goals, or simply because of the precarious nature of their control over the State, fiscal and monetary policy were no longer able to manipulate the economy in accordance with capitalists' expectations...
...Furthermore, in 1970, before they entered the State sector, these firms absorbed 99% of all bank credits, represented 90% of all mineral production, 33% of total distribution, 28% of food production and 40% of industrial production in Chile...
...Ercilla, monthly economic reports...
...often come into conflict with its more fundamental objectives: re-establishing a high rate of exploitation of labor, restructuring the economy to favor the monopoly sectors of the bourgeoisie, and recreating conditions favoring foreign investment...
...Chile responded by insisting now on no limits to profit repatriation, and despite several attempts at negotiation and intimidation by the five other countries (they gave Chile 60 days from August 2 to sign the Protocol), Chile remains unwavering...
...What is certain is that there is more than meets the eye in the current dispute between Pinochet and the other Ancom members...
...However, the Chilean man-in-the-street appears to have few complaints.' As to inflation, the Junta takes the public position that it is a function of demand pressure...
...In other words, the essential feature of the Junta's policy of "privatization" is that it helps restructure capital to favor the largest groups in the bourgeoisie...
...With regard to capital, there has been increased monopolization by those producers who are technologically more advanced, whose activities are already characterized by economies of scale, and who have access to credit-the large monopolies...
...Chile is a member of the Andean Common Market (Ancom), an area with a potential market of 75 million consumers and a combined GNP of $63 billion in 1975...
...The motor force of the economy, then, should be the export sector...
...All of this activity would allow for greater mechanization, i.e...
...Given the present conjuncture of crisis, recession and inflation, the bourgeoisie has resorted to a manipulation of anti-inflationary policies, particularly price and wage policies, to force a regressive redistribution of income and to raise the rate of exploitation of labor...
...Wages are fixed for blue collar for white collar employees...
...The foreign investors include the powerful ADELA group, the Banco Exterior de Espafla, the Deutsch Sudamerikanische Bank and Manufacturers Hanover Trust...
...In other words, real wages were lowered...
...This proliferation of loans to what is considered at best an extremely shaky economy has led House International Economics Subcommittee Chairman Henry S. Reuss to accusingly question what should be the proper relationship between a U.S...
...This in turn has forced a consolidation of the smaller industries producing for the automotive sector and the bankruptcy of hundreds of smaller machine shops...
...And third, retrench behind an untenable, uncompromising position, providing the deathblow to what the Junta sees as an anachronistic formation...
...This investment package, which became the only mechanism for the entry of foreign investment into Chile, was published one week after the heads of some 55 member firms of Business International met in Santiago...
...THE BAIT: The Junta's optimistic stance regarding foreign investment stemmed from their expectation that investors would be attracted by the bargain-basement sale of state-owned firms, by exceedingly generous new foreign investment regulations, and by a government whose long-term aspiration was the creation of a stable investment paradise for foreign interests...
...In 1973, production in these areas had fallen 17.4% in relation to 1972...
...The Chilean government is trying to attract the most modern imperialist corporations, in other words, capital characterized by a high level of technology and a high capital to labor ratio...
...Intensification of labor does not imply any technical advances, only that workers produce more during a given time because they are working harder...
...and 3) firms which had been taken over by the workers without the State initiating any legal action to place them under its social control...
...The perpetual bravado of various ministers and super- ministers to the contrary, these all-out efforts to fire up the international investment community have produced mainly smoke...
...But they also spread the costs from the bourgeoisie to the other classes, and, Friedman or no Friedman, they will remain a part of the public sector in Chile even though they continue to run high deficits...
...With the statutory minimum family income implemented by decreelaw in January 1974, a family of average size, allocating all of its expenditure to the purchase of food, could, (in terms of March 1974 prices) purchase less than half the food necessary to meet minimum caloric and protein requirements...
...Thus, it is apparent that the rules and the goals of the game between the Junta and foreign investors are of a different nature...
...Government statistics establish that an annual investment of 15 to 19 percent of the national product is required to achieve the Junta's desired growth rate of close to 7 percent...
...The price of copper on the international market fell drastically from an average of 93.20 per pound in 1974 to 53.64 per pound in 1975...
...Consider the implications for medium and small capital of the following: CAP, the State-owned steel firm, has closed its major furnace in Huachipato...
...While it seems that the Junta has not been able to attract desired levels of direct investment, it has received large loans to bolster the economy...
...ElMercurio (International Edition), January 25-31, 1976...
...2. Latin America Economic Report (London), August 8, 1975 and February 13, 1976, respectively, for information on the new tax concessions and eased restrictions for the re-export of capital...
...5. Savings and Investment Policy The Junta's stated goal, to repeat, is to finance investment through non-inflationary means...
...Savings and Investment: Real wages fell notably in 1975, overall consumption decreased by 13.3%, and aggregate demand fell 15.8% in real terms...
...big depositors could make even more advantageous bilateral deals...
...Thus, the high degree of State participation in those industries which require a high level of investment and sophisticated technology and which have a long-term maturation may reflect the inability of the local bourgeoisie to take them on...
...that prejudice their activities or cause a loss...
...Similar mergers are taking place in the agro-industrial sector as well...
...Another is that the export sectors tend to be capital intensive, not labor intensive, and increased production therefore does not always result in an equivalent increase in employment.14 sumed by the working class (e.g., shoes, foodstuffs) were now placed in the export market...
...Chile has evolved ever more liberal policies for the admittance of foreign capital, for reinvestment, repatriation of profits, advantageous liquidation terms should a firm desire to leave, and security from discriminatory policies for as long as it stays...
...In other words, goods which previously were con*Even in bourgeois terms, however, this model has a few fatal flaws...
...The cover of Business Week recently illustrated this in very graphic fashion...
...1 There are threats that if this fails the other countries could renounce their membership, leaving Chile standing alone amidst the rubble...
...That is because they insist that all policies are formulated with a view toward resolving inflation...
...I won't defend them...
...2) companies that are at least 20% foreign-owned can get a large percentage of their capital goods imports exempted from duties...
...If Chile and Co...
...Every trend of the past 25 years measuring workers' increased participation in the economy has been sharply reversed...
...As we will see, the dismantling of the Area de Propiedad Social (the Area of Social Property, APS...
...The quantity of loans to Chile makes two different, but compatible political statements...
...2. Michel Chossudovsky, "Chicago Economics, Chilean Style," Monthly Review, Vol...
...The extreme misery of the Chilean worker is, in reality, an indispensible and permanent ingredient in capitalist development in Chile...
...7 That is something of an oversimplification, but it highlights another reason to keep our eyes on unfolding events in the region...
...Wages and salaries are still fixed artificially...
...For example, liberal savings and loan interest rates, due to the removal of all restrictions when the Junta took power, have meant that a minimum deposit of $208 earned 17 percent interest (along with anti-inflation guarantees) and could be withdrawn after only 30 days...
...A recent International Monetary Fund (IMF) Report confirmed this...
...see Chart II-4] This means that during the last half of 1975, at least one out of six members of the work force was without employment...
...At the same time, gross investment fell more than 30%, mostly in response to the decrease in public investment, but investment in the private sector was affected negatively as well...
...Here it is only possible to document Chile's actions over the two years since Decree Law 600 was formulated in wishywashy contradiction to Decision 24 and to evaluate the options open to the various participants...
...And the government was not able to resolve the problem of the fiscal deficit without resorting to inflationary measures which, in turn, aggravated the overall economic imbalance...
...Brazil's door was open wide, Chile's was straining its hinges...
...He returned saying everyone now understood, but this was immediately belied by a disruptive Ancom session in which Chile boycotted two meetings after being roundly criticized for D-L 600...
...However, the Junta's economic advisors seem to have "overlooked" one variable in the pricing system...
...7 By mid-1976 it was clear that the Junta's intentions were anything but good...
...It is instead presented for the following reasons: 1) to demonstrate the manner in which bourgeois economic categories can be used to obfuscate strategies for class domination...
...By December 1975 they had to work an average of more than 6 hours to earn the same kilo...
...This, along with a fall in revenues due to a decrease in general economic activity, signified a 6% overall decrease in revenues...
...As in the productive sector, the recession has forced a concentration of banking capital, particularly in the areas of saving and loan associations operating in the severely depressed field of private construction financing...
...Between January and August of 1976, sales in the industrial sector dropped .5% while industrial production rose 1.2...
...Lower duties would force internal producers to compete on a basis of efficiency with external producers...
...Among others, former UP Economics Minister Pedro Vuskovic noted...
...as the public sector was called during the UP years) responds to the basic process of monopolization more than to any economic philosophy which predicates State abandonment of the productive sector...
...THE PUBLIC SECTOR ON THE AUCTION BLOCK The basic mechanism used by the Junta to restructure capital in favor of monopoly sectors has been the privatization of agricultural, industrial and financial firms formerly a part of the public (State-owned) sector of the economy...
...As Le Monde puts it, "the dictators of the Southern Cone [Chile and Bolivia] would, with the blessings of the U.S., close ranks around the strongest among them, that of Brazil...
...GNP fell almost 15...
...to (The Junta had claimed that European capital market investments returned 12.2%, and were much more25 secure, leaving very little incentive for foreign capital to come to the Andean region...
...TABLE 11-5 STOCK OWNERSHIP OF CO*4ERCIAL BANKS: OCTOBER 1975 (Percentage) State Banks (CORFO) Private Chile 47.72% 52.28% chileno Yugoslavo 78.17 21.83 Comercial de Curico 99.74 0.26 Concepcion 92.87 7.13 Constitucion 0.18 99.82 Continental 55.05 44.9S Credito y Inversiones 12.63 87.37 Espanol-Chile 93.95 6.05 Israelita de Chile 95.91 4.09 Llanquihue 0.61 99.39 Nacional del Trabajo 88.81 11.19 O'Higgins 98.07 1.93 Osorno y la Union 88.96 10.49 Regional de Linares 13.35 86.65 Sud Americano 85.39 14.61 Talca 89.56 10.44 Source: El Mercurio (International Edition), October 20-26, 197S.21 PART III: FOREIGN INVESTMENT THE BIG FISH What is the relationship between Chile's new economic model and the role of foreign capital...
...52 (June-July 1976), 5-11...
...In the first place, we should note the difficulties inherent in the calculation of accurate indexes of real wages for an economy such as Chile's...
...4. Ricardo Lagos and Oscar A. Rufatt, "Military Government and "lbal Wages in Chile," Latin American Research Review, Vol...
...Thus, if any growth is occurring, it is only among the largest firms...
...and finally, in a mood of what appears to be borderline hysteria, the Junta is mounting a calculated attack on the Andean Pact, which at this moment threatens the Pact's very existence...
...11 (April 1975), 16...
...Then Mercurio tried to shame its accusers: Chile has had the vision to understand...
...Many reports note that real unemployment is much closer to 25-30% of the work force...
...This summary should by no means be seen as a legitimization of the gorila viewpoint...
...Whether this optimism is heart-felt or projected mainly for propaganda purposes, it does not exactly correspond to the realities of modern capitalism...
...There has been a dramatic fall in the real purchasing power of the great majority of the Chilean people...
...The export sector, which achieved some level of diversification, was, however, practically the only dynamic sector...
...That its authors did not imagine the proportion of the world economic crisis is forgiveable...
...16 more will soon be sold, and the purchases of 21 are being negotiated with potential buyers...
...To avoid the statistical white-washing of bourgeois wage indexes, we have to examine certain physical indicators of what the working class is consuming...
...Simultaneously, the Junta decreed a new banking law (December 1974) which fixed the system of ownership and administration of the commercial banks...
...A parallel example surfaces as well in the housing industry...
...Three factors contribute to this: I) the severity of the economic recession which has produced a net reduction (disaccumulation) of capital...
...The Banco Unido de Fomento (BUF) illustrates three of the major goals of the Junta's economic policy: favor the monopoly bourgeoisie, encourage foreign investment and restructure the economy toward exports...
...The Junta continues to offer periodic new lures, 2 but its showiest effort was the publication in July 1974 of the much-anticipated foreign investment rules, called Decree-Law 600...
...5. Subcomite del CIAP Sobre Chile, Comite Interamericano de la Alianza para el Progreso, Organizacion de los Estados Americanos, El esfuerzo interno y las necesidades de financiamento externo para el desarrollo de Chile, (OEA/Ser.H/XIV...
...1970=100 Year Index 1970 101.2 1971 126.5 1972 130.0 1973 104.2 1974 105.2 1975 102.3 workers...
...It is probable that any reactivation of the economy which would neccessitate increases in imports and resumption of the devaluation policy, would inevitably worsen the balance of payments situation and set off the inflationary spiral...
...13 "There is no worse businessman than the State," according to Junta member Admiral Jos6 Toribio Merino, but even he is quick to add that "it is clear that the State must continue acting in those cases in which the firm cannot support itself alone...
...in conditions of extreme poverty and malnutrition...
...Consumption and Investment: As a result of the government's wage policy, the reduction in public spending and restrictive monetary policy, there was a 4% decrease in private consumption...
...The most vivid illustration of the impact of the Junta's economic policy on the Chilean people is that of the decline in the purchasing power of white collar workers since 1973...
...But because the focus is on productive internal development, the idea has been to a) prohibit profit drainage and encourage local new investment, and b) provide for local control of decision making after a Teasonable period of time...
...In recent years hyperinflation had reduced interest rates to negative levels, thus discouraging savings...
...Its goals also include the promotion of tourism including financial support for hotel construction projects...
...2. Exchange Policy Exchange policy measures were geared explicitly to chan- nel commodity production away from the internal market and toward the export market...
...judging by the encouraging words of these North American advisors, we should look hopefully to the future of our economy...
...Much can be attributed to the fact that the Junta's publicly stated goals (controlling inflation, reducing budget deficits, limiting the monetary supply, etc...
...This creates a serious dilemma for Chile since foreign investors claim they cannot invest in Chile until it favorably resolves the dispute over the question of their participation in Ancom...
...three major textile firms (Tome-Oveja, Fiad and Bellavista) now work three days a week...
...The question of inflation is a good example of this...
...166 (April-June 1975), 311-348...
...borders...
...2) as a gauge by which to judge the Junta's progress according to its own terms, an important element in determining the level of consolidation of the bourgeois military state...
...Four-fifths of this was due to exchange operations...
...In two others, ownership was equally divided between the State and the private sector...
...I. THE JUNTA'S LABOR POLICY: SUPER EXPLOITATION AS A SOLUTION One point-the "purely political" factor-overrides all others in our analysis of Chilean economic reality since September 1973: the bourgeoisie will seek to maintain itself in power at all costs...
...In contrast to Josd Zabala's publicity effort, the August 1976 'Informe Economico Mensual' states that from July 1974 to date, the authorized investments that have begun to materialize total around $170 million...
...has begun exporting prefab housing units to Venezuela...
...This is discussed more thoroughly in Part III of this article...
...4. Fiscal Policy The single goal of these measures is to reduce the State deficit...
...During 1974, unemployment in Greater Santiago began to rise dramatically, reaching (officially) 18.7% of the labor force in December 1975...
...Junta advisor Milton Friedman in Chile...
...Thus it is reasonable to assume that Chile is not going it alone, but is receiving at least blessings and probably some amount of orchestration, based on a continually revised analysis of the strengths and weaknesses of nationalist cohesion in the other countries...
...Frei, who until now has held his tongue on the issue, warns that errors committed with regard to the Andean Pact are much more irreparable than those committed within the country...
...But he merely advises caution, not a different philosophy...
...Inflation: After an extraordinary rise in prices during the last months of 1973, 1974 registered a drop in the level of inflation...
...Its strategy for class domination in Chile is instead cloaked in the language of bourgeois economic analysis and planning...
...ElMercurio (International Edition), March 17-23, 1975...
...Second, the model is based on the privatization of capital...
...Yet, by all appearances, the investors are not responding...
...STABILIZATION" POLICIES 1. Price and Monetary Policy a. Price Liberalization...
...Beyond this general perspective, it is necessary to analyze the most important objective of such bloody and continuous repression: the re-establishment of those conditions required for expanded capitalist growth...
...a Nobel Prize for economic genocide...
...The UN's Economic Survey of Latin America stressed that: .. the high rate of inflation in Chile during 1973 and the wide disparities observed between the results of the indexes make it difficult to assess the true magnitude of the inflationary process with any real degree of accuracy...
...But instead of new investments, the decree met with caution and skepticism...
...Within this context, the class struggle becomes hidden in the balance sheets under such headings as consumption vs...
...Loans have come from governments, banks, and corporations...
...1973 22 k. 1.45 k. .69 hrs May 1974 ---- .41 2.54 Sept...
...Minister of the Economy, Sergio de Castro, provided a major clue to the extent of Chile's stake in the game when he said that given the existing restrictions of Decision 24, investment would not come to Chile, and without foreign investment, Chile would have "very important social and political problems...
...Thus, firms are returned to the private sector in a more highly monopolized form than when they left...
...Before presenting them, however, a few words are in order...
...ElMercurio (International Edition), October 14-20, 1974...
...Common market" is a misnomer for Ancom, characterizing the ideal rather than the reality, if a common market is defined as an economic area within which all trade is free, economic development is jointly and centrally planned, and which has a common high tariff wall to outside markets...
...In June of 1976, the Junta, attempting to slow inflation, revalued the peso upward from 13.9 pesos to the dollar to 12.5 pesos, making Chile's exports less attractive on the world market...
...Of the 18 commercial banking enterprises then in existence, the State held an average of 88% of the stock of 12 banks...
...In March 1975, the Junta announced that of 80 agro-industrial firms in the State sector in September 1973, the remaining twenty-two were being placed on the auction block...
...Its vagueness, in the face of Andean Pact resolutions unfavorable to foreign interests, was given as the major reason for hesitation by spokesmen for the international investment community...
...Finally, we must point to the increase in the rate of exploitation arising from the intensification of work...
...XI, No...
...The root in Chile's case is costs resulting from high-priced imports made even more expensive by devalued currency and monopoly price fixing.15 THE JUNTA SCOREBOARD: 1974, BEGINNERS LUCK Summary: In their first year of rule, the Junta achieved some limited victories in terms of achieving its goals...
...In the commercial banking sector, "Osomo y Uni6n" has merged with "Sur de Chile" and the "Banco de Concepci6n" with "Banco de Valdivia...
...THE POLITICAL ECONOMY OF THE JUNTA FROM THE MOUTHS OF GORILAS 1. Statistical information for this article was collected from a variety of primary sources which we list here: International Monetary Fund, Chile: Recent Economic Developments, mimeograph edition, May 21, 1976...
...While our objective in this article is to uncover the real underlying forces operating on Chile's social and economic structure, it is necessary to first lay out the Junta's view of Chile's economic problems and the government's proposed solutions using their own terms of analysis...
...We consulted the following primary sources from Chile: Chile Economic News (CORFO publication), monthly...
...This helped produce an inflation rate of 84.5 percent during the first month after the coup...
...On the other side of the balance sheet, public expenditures decreased by approximately 12% compared to the previous year...
...The year also saw a decrease in consumption accompanied by an increase in investment and a deceleration in the rate of inflation...
...II, No...
Vol. 10 • November 1976 • No. 9
