Latinnews Archive
Latin American Weekly Report - 4 January 1974
Chile: new economic policy
With the foreign debt renegotiated and talks with the United States copper companies under way, the junta will have only itself to blame if its new, but familiar, economic policy does not produce the required results in 1974.
The outlines of the new Chilean economic policy have become considerably clearer as a result of various government statements and decisions made in the final weeks of 1973. With a further small adjustment to exchange rates on 27 December, the sending of a mission to Washington to discuss the details of the outstanding dispute between the Chilean state and the North American copper companies, and the renegotiation of the United States debt, the economics minister, Fernando Leniz, could congratulate himself on having cleared the decks by the end of the year of some major outstanding legacies from the previous era. It now remains to be seen whether the new policy of unbridled free enterprise will produce the hoped for economic and political results. It is not the first time the policy has been tried. Under Presidents, Gonzalez Videla, Ibanez and Alessandri it met with varying degrees of failure, but, as Radomiro Tomic warned the Christian Democrat Party in November, this is the first time it has been put into effect with a docile and enforceably obedient work-force.
According to the new bright star in the military firmament, General Sergio Arellano, the economic and social organization of Brazil is to be admired. 'But economic development is not enough,' he said. 'At the same time there must be social justice that provides for the most needy.' General Arellano, who took over the key Santiago garrison early in December, and is now revealed to have been a significant figure in the pre-coup plotting, is clearly emerging as a leader of the 'populist' faction within the armed forces. But it will take more than rhetoric to avoid the Brazilian errors with regard to the social aspects of their economic policies.
Interviewed on television on 19 December, Leniz said inflation in 1973 had been over 500 per cent, a record in the history of the country, which in the past 40 years had had an average of 35 per cent. He said that if it had not been for the drastic measures taken in October, the 1973 figure could have been as high as 1,500 per cent. In 1974 the government intends to fix the minimum wage at 18,000 escudos (about 25 dollars) a month, to give the lowest paid workers an increase, and to provide family assistance at a fixed level (1,880 escudos a month) regardless of income. In addition there is to be a major reorganization of the public administration. A single salary scale is planned, and it is hoped to bring this in line with the higher salaries obtain- able in the private sector, to avoid the constant drain of qualified technicians away from the public sector.
In the countryside, where Unidad Popular never succeeded in imposing a common policy, the intentions of the junta are also becoming clearer. In a recent declaration General Augusto Pinochet, the head of the junta, re-emphasized the government's intention to establish a free market in land. The 'land reform centres' established by the Allende government, and the asentamientos set up by the Frei government, are to be broken up and the peasants on them will be given titles to individual plots. The process of title distribution began in December. Pinochet also said landowners would be able to buy state land with the bonos they were paid for their expropriated land. He stressed that 'the state guarantees the permanent inexpropriability of farms of 40 hectares or less,' adding that farms over 40 hectares would not be touched for a number of years.
At the end of December General Eduardo Cano, president of the Central Bank, revealed that the debt with the United States -- Chile's principal creditor -- had been successfully negotiated. The 1972 repayment of 124 million dollars, which had been rescheduled for payment in December 1973, will now be paid off in quotas between 1974 and 1977. The 1973 repayment will be discussed at the Paris Club meeting in February, but General Cano let it be understood that a renegotiation was likely on the basis of an IMF study of the Chilean economy with which the Chileans had cooperated.
The junta has in fact secured the renegotiation without having yet come to an agreement with the North American copper companies -- the absence of such an agreement having been the alleged reason for the denial of credits to the Allende government by foreign banking agencies. But a lawyer and former minister, Julio Philippi, has been despatched to the United States to begin talks with the companies. 'I do not think we should indemnify the North American companies that exploited the copper mines,' General Arturo Yovane, the minister of mines, said before Christmas, 'but we are prepared to revise the procedure being followed with regard to the calculation of the excess profits obtained by these companies when they were the owners, which could result in a modification, favourable or otherwise, to either of the parties concerned.' The Chilean contraloria worked out during the Allende period that Kennecott, former owners of El Teniente, far from being due compensation, actually owed the Chilean state some 300 million dollars. The military junta might well graciously forego this sum.
On 27 December General Cano announced a slight increase in the price of the foreign trade dollar (area bancaria) from 340 to 360 escudos, and a revaluation of the escudo vis-a-vis the socalled tourist dollar (area corredores) from 850 to 780 escudos. This hardening of the currency is designed to winkle out dollars from large companies who are still holding big sums of foreign currency, vainly waiting for a devaluation. According to the bank, small savers have already changed more than 45 million dollars back into escudos in the last three months, and there must be more to come.
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