Chilean Economy - Not a Leaf Moves
I could be wrong, but never in my long life have I seen such a disastrous economic situation. Chile's Cardinal Raul Silva Enriquez quoted in the Wall Street Journal, January 18, 1982. Chile is...
...The regime has viewed such increased solidarity among workers as a serious threat and escalated repression of the trade union movement...
...Big fortunes have been made too fast here...
...The Reagan Administration, U.S...
...Civilian supporters of the regime are defecting from the Chicago model as well...
...Rather than being chany affecting neled into new domestic industry echelons...
...Late in the month, the regime put seven major stateowned corporations, including CAP, the national steel industry, and the national telephone utility up for sale, though it is unclear if there will be any buyers...
...Relations-Tea and Normalization," appeared in the January-February issue...
...In January Friedman wrote in Newsweek: "The free market policy will not last unless the military government is replaced by a civilian government dedicated to political liberty...
...The peso, according to the new policy, will now be devalued at a gradual rate of 0.8% per month until it reaches 51 to the dollar...
...Since September 1981, the Chilean economy has gone into severe decline...
...Shattered Showcase These economic facts of life contrast sharply with Chile's image, meticulously cultivated by the Pinochet regime's public relations offices, as a "showcase" for the so-called free market approach to economic development...
...These figures do not include the 4.5% of unemployed workers on the government's Minimum Employment Program...
...During the period of economic shock in 1975, unemployment doubled from 9.2% to 18.6...
...On June 14, JulylAug 1962 however, the new economy minister, General Luis Danus, announced a 15.2% devaluation (to 46 pesos to the dollar...
...A deceptive term, the free market has been proven in Chile to be only free for the strongest of economic interests...
...While cieras, latter day robber barons )y Pinochet who have parlayed their access to easants and foreign loans into huge economic economic empires...
...I ne majority OT international bank loans have gone to private conomy is banks owned by a handful of finanrking...
...Even El Mercurio, Chile's largest newspaper and the regime's media outlet, has attacked the economic policies in its editorials...
...Chile is an economic miracle...
...Ironically, while the military government appears to be desperately clinging to the model, the world's most famous Chicago boy, Milton Friedman, has decided to disassociate his model from the regime...
...Until recently, General Pinochet answered the criticism by forcefully siding with his advisers...
...Writing On The Wall The devaluation marks the first step away from the regime's economic policies...
...In this country not a leaf moves unless I move it...
...Policy-makers promised, for example, that the private sector would take over, and improve, state-run social services, a promise that has not been kept...
...Even the U.S...
...Consumption of basic foods such as meat, oil and vegetables for the lowest 20 % of the population, according to other data, fell an average of 34% between 1969 and 1978...
...Embassy in Santiago admits that Chile's private sector is "an oligopolistic market dominated by six major conglomerates...
...Congress cut off aid in 1976, the regime and the model have been almost entirely 'sustained by multinational banks...
...Social Costs Those that have not benefitted are Chile's workers and peasants who have suffered severe economic repression under the Friedman model...
...High unemployment is a structural feature of the model...
...Unemployment, according to the University of Chile's statistics for March, has reached 18.4% nationally and 19.1 % in Greater Santiago, the capital...
...Jorge Alessandri, the conservative owner of one of the country's largest factories and a former president of the Republic, has publicly called for higher tariffs and a devaluation of the peso to make exports more competitive abroad...
...The banks have pretty well reached their limits," a New York banking economist told the Wall Street Journal in March...
...where they would both strengthen ue in part to the industrial base and create jobs, hat is affec- a significant amount of these rican coun- credits have been utilized for the umber of acquisition of already existing that has the state-owned enterprises or the JulylAug1982 43update * update * update update even less productive, but highly profitable, practice of speculation...
...Moreover, Chile's much vaunted growth rate, which averaged 8% between 1977 and 1980, has come to a halt...
...During those years the military government deflected international condemnation of its human rights record by playing up its apparent success in curbing triple digit inflation, sustaining a healthy growth rate and balancing the budget...
...The "trickle down" theory has also clearly been discredited...
...Milton Friedman's prediction to Chileans that "you'd be surprised how fast people would be absorbed by a growing private sector economy" has been clearly repudiated by the Chilean experience...
...A massive $15 billion debt makes Chile's one of the highest per capita debts in the world...
...Between 1976 and 1980, including those enrolled in the regime's minimum employment plan, total unemployment ranged between a high in 1976 of 20.8 % and a low of 16.3% in 1979...
...They are mistaken...
...General Pinochet also recently reversed his stand against devaluing the peso...
...As one admitted to Forbes last December: "Bankers know that much of the foreign borrowing has been used to finance acquisitions instead of for productive investments...
...station" of "the advantages of the free enterprise system and productive capitalism...
...His last contribution to the Report, "Chile-U.S...
...Skewed growth, low domestic investment, high concentration of wealth and severe social costs have all been structural manifestations of Chile's open, free market economy...
...Loans For The Wealthy Since the U.S...
...Last year, for example, the National Trade Union Coordinating Body (CNS), the country's largest labor federation, presented the regime with a petition demanding economic rights for workers...
...Critics of the model on all sides of the political spectrum are demanding just that...
...dicating that the Chicago theorists still hold sway...
...Between 1977 and 1980, the economy's performance earned Chile the acclaim of the international business community...
...The financieras had lobbied hard, and successfully, against altering the fixed rate of 39 pesos to the dollar...
...the rest of this year...
...Jimenez had been one of the leading critics of the economic model...
...A number of high military officials identify with this group, shaking the cohesiveness of the armed forces...
...Many people speak of the economic team as if it were isolated, as if it were distinct from the president of the Republic," Pinochet declared last fall...
...In theory, according to Sergio de Castro, finance minister until April, the free market serves to "eliminate monopolistic practices and therefore undersirable concentrations of power...
...Almost daily," the Wall Street Journal reported in January, "more factories go bankrupt, copper mines and construction projects close and farms go on the auction block...
...The devaluation is aimed at improving the competitiveness of Chilean exports, but is sure to hurt the giant financial groups which will ultimately have to pay 23% more when repaying international loans...
...In Chile, however, it has allowed the financieras to develop a virtual monopoly on the country's key economic sectors, including banking, industry, insurance and communications...
...In a move that further weakened the Chicago boys, responsibilities for economic policy-making were shifted from the finance ministry to the minister of the economy...
...Nevertheless, Santiago has been emitting confusing signals about a possible abandonment of the model...
...According to CIEPLAN, Chile's most respected independent economic institute, between 1969 and 1978, consumption by the lower 60% of the population dropped 19% while the richest 20% increased their consumption by 15% in real terms...
...Peter R. Kornbluh is a Research Associate at the Institute for Policy Studies in Washington, D.C...
...The "experiment" began in earnest in 1975 when Dr...
...Milton Friedman in Newsweek, January 25, 1982...
...On the right, the duros, those who would like to see a more nationalist corporatist (fascist) economic model, are demanding more state intervention and protection for domestic industries...
...The two largest of these, the Cruzat-Larrain and the Vial groups, control over 50% of all private capital...
...But the Chilean e neither sound nor wor the model imposed has never benefitted p workers, the present crisis is increasingl society's upper Although the crisis is d the world recession t ting many Latin Ame tries, a growing n Chileans are asking: w free market done for, or to, Chile...
...Friedman has seen the writing on the wall...
...On the floor of the Senate, Jesse Helms (R-NC) argued that the United States should lift human rights sanctions against the regime because Chile was a "demo...
...In early July, they sought, and are expected to obtain, $800 million in loans from the International Monetary Fund...
...Earlier this year, seven unions proposed the formation of a "common front in defense of Chilean industry...
...Nevertheless, a total cutoff of new credits is unlikely since such a move would only hasten the demise of the free market model...
...IMF's accompanying conditions may well prohibit the restoration of tariffs to protect domestic industry and thus secure the Chicago model for the time being...
...In April, however, Pinochet moved against the Chicago boys by ousting three members of his cabinet: Sergio de Castro was replaced as finance minister by another Chicago graduate, Sergio de la Cuadra, but two generals were named to replace Friedman students in the Ministry of the Economy and as head of the National Planning Office...
...Frost & Sullivan, a Wall Street investment risk analysis firm, admits that "the government's economic policies have benefitted the large economic interests most...
...Some have begun to lower or freeze loan ceilings...
...Reversing his earlier stance ("If there is a ghost of a chance of democracy ever being restored in Chile, it will depend on a considerable improvement in the state of the economy"), Friedman has now decided that future economic freedom is contingent on political freedom in Chile and not vice versa...
...The country's economic future is grim, as is the outlook for the Friedman model, currently under attack from all sectors of Chilean society...
...And, reported Forbes in a November 1981 article entitled "Chile's Brave New World of Reaganomics," Administration boosters "are pointing to Chile as proof that the Reagan economic program is sound and will really work...
...Ambassador Jeane Kirkpatrick stated while in Chile last August, "shares the same convictions as the architects of Chile's economic policies-that the free market approach will prove more effective in restoring fully the economic strength in the United States...
...Like a rat abandoning a sinking ship, he is trying to distance himself from his faltering student and salvage the reputation of his Chicago school theories from disaster in Chile...
...As Morgan Guaranty Trust's financial newsletter points out, "If capital inflows dwindle substantially...the [Chilean] authorities may well reconsider their current [economic] stance...
...supporters sang the same tune...
...Although Milton Friedman continues to praise the free market experiment with which he and his Chicago School theories are so closely associated, hard statistics reveal the demise of his "economic miracle" in Chile...
...Since mid-June, a number of policies have been announced inDuring Allende, "Now the copper is Chilean...
...Reagan's Brave New World President Reagan was among those who viewed Chile as such a model...
...In practice, as British economist Philip O'Brien has observed, the country is "perhaps little more than a spectacular example of private greed masquerading as a model of economic development...
...Chile's failure to develop a strong and resilient economy is one of several major contradictions in the model...
...Contrary to Friedman's predictions, the scheme has failed to generate development and resources "to be enjoyed by all...
...The most salient outcome of the experiment has been the simultaneous deterioration in employment, income and consumption for the poorest strata, as well as their loss of access to subAA sidized housing, free education and health care...
...Moreover, the regime has pursued an "open door" policy toward multinational capital, strengthening Chile's ties to the international market through drastic tariff cuts, and by offering lucrative profit incentives to attract foreign investors...
...The size of these "big fortunes" testifies to the extreme concentration of wealth and power...
...Since then virtually all tenets of Friedmanism have been put into effect: through Draconian cuts in public expenditures and the sale of state-owned enterprises to the private sector, the monetary supply has been diminished and the state's previousNACLA Reportupdate * update . update * update ly high level of participation in the economy virtually eliminated...
...Critics On All Sides Even General Pinochet has admitted that the country faces "big problems" and has vowed to attack them with the same energy "as in 1973," the year of his bloody coup d'etat...
...In 1981 alone, the country borrowed $4.6 billion...
...Friedman personally prescribed economic shock treatment to cure an inflation rate that had risen to 376% under the junta that brutally seized power in 1973...
...Under the guiding hand of free market theologian Milton Friedman, and "los Chicago boys" -a team of Chilean economists so nicknamed because, as the government's advertising states, they "imbibed their free market faith at the University of Chicago" -the Pinochet regime has forcefully transformed Chile's historically state-oriented economy to one wholly dominated by market forces...
...On the left, workers, unions and professional organizations are becoming more active in opposing the regime...
...Under the iron fist of the military, the invisible hand of Adam Smith seemingly produced a flourishing economy...
...CNS leaders have been thrown in jail...
...Bankruptcies in major industries are rampant...
...Compounding the problems, bankers are growing increasingly wary of the country's insolvency...
...The Chilean economy, suggested Time, was "a model of what can be achieved...
...And on February 26, the president of the National Union of Public Servants, Tucapel Jimenez, was found tortured and murdered on a road outside Santiago...
...Pinochet's U.S...
...Although no national income distribution studies have been conducted since 1968, statistics on consumption patterns reflect the growing disparity between the higher and lower economic strata...
...The real rate of unemployment, domestic and international observers agree, could be as high as 25...
...Even international bankers are realizing that their loans have been misused...
...Industrial production was down 13.5% for the first quarter of 1982, and a negative 5% GNP growth is estimated for 42 Pinochet greets David Rockefeller, then Chase Manhattan chairman, in 1980...
...An innovation of Sergio de Castro's-and a departure from the Chicago school theory which calls for a floating exchange rate-the fixed rate was primarily responsible for Chile's low inflation which will undoubtedly now rise...
Vol. 16 • July 1982 • No. 4
