Behind Pinochet's crisis Chile: collapse of the monetarist miracle"

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WELL into the tenth year of his bloody dictatorship in Chile, President Augusto Pinochet has run into a major economic and political crisis.

Since mid-1982 he has faced a growing tide of demonstrations, strikes and increasingly audacious shows of 'independence' in the press, by the judiciary and by other institutions previously under his thumb.

Last week, in the wake of heavy police repression of protest marches in Santiago, Valparaiso and Concepcion, a general strike 'was called demanding the release of arrested copper workers' leader Rodolfo Seguel.

In the event, it appears that the strike has drawn little support on a national level - indicating the extremely restricted nature of the heavily localised trade union structures that have developed under Pinochet's brutal Labour Plan.

But it is equally clear that the reawakening working 'class of Chile is showing increasing tenacity and militancy - and that the emergence of genuine, mass-based national-level committees to coordinate action could well take place very rapidly.

The driving force behind the recent developments is the ignominious collapse of Chile's much-vaunted "economic miracle", ushered in by Pinochet's massive repression and Professor Milton Friedman's monetarist theories in the mid1970s.

Following the military coup of September 1973 against Salvador Allende's "Popular Unity" government, the initial period of consolidation of Pinochet's junta brought an estimated 30,000 killings, 2,500 disappearances" , tens of thousands of victims thrown into jails and concentration camps, and the flight of as many as one million Chileans into exile.

It was not until 1975-76 that Pinochet's attentions shifted from the butchery of political of Chile to dom restreet ine needs and aspirations of his key supporters - the international bankers and multinationals, and the most dominant sections of Chilean capital.

A team of Friedman-trained economists were brought in -Chile Solidarity Campaign:

129 Seven Sisters Rd, London N7 7QG.

(01-272 4298) known ever since as the Chicago boys" - to set about the business of cutting and carving the Chilean economy on monetarist lines. Among them was George Schultz, now American Secretary of State, whose firm Bechtel has a Santiago office.

They already had a flying start. The impact of Pinochet's rule enabled employers to impose an abrupt reverse in working class living standards. IMF figures show that in 1972, 63% of income went to wages and salaried staff, with 37% to the propertied classes in profits, dividends and rents: by 1974 -a mere two years later - this had been reversed, with 62% of income going to the bourgeoisie and landowners and only 38% to the working class.

Nevertheless the economy as a whole was in a bad way, with a fall in copper prices, a drying up of loans from governments and the IMF, and 300% inflation. Pablo Barahona, President Chilean Central Bank:

"More than 90% of the people are against our policies."

December 1976.

As a gesture of good faith to the bankers, Pinochet's economic minister Cauas brought in a draconian April budget which slashed government spending by 20%, and government capital spending by over 50%. Chilean Gross Domestic Product fell by 15%, industrial production fell back 23%; and per capita income by another 25%, as unemployment soared — but the bankers were paid. As the Washington Post gleefully commented:

"Pinochet and Cauas have shown the world's money men that they would pay their debts, no matter how much sacrifice had to be wrung from Chilean wage earners."

The world's money men were indeed central to the development of the Chilean economy which during the 1960s had run

Reagan's UN Ambassador Jeanne Kirkpatrick:

«Our administration 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."

August 1981. up enormous burdens of debt.

Successive US administrations, after the CIA had invested $20 million in procuring the election of Christian Democratic President Frei, funnelled vast sums of aid into Chile ($875 million between 1964 and 1969) making it the largest per capita recipient of US aid in Latin This flow of cash - supplemented by investment from multinationals - was stemmed in 1970 by Nixon, who turned from the Christian Democrats to still more conservative layers of businessmen and landowners.

The election of Allende's Popular Unity government in September 1970 brought an abrupt halt to almost all aid and credit, and a de facto trade blockade, summed up by US Ambassador Korry as:

. 66 .:. not a nut or a bolt will be allowed to reach Chile ... Once Allende comes to power in Chile we will do all in our power to condemn Chile and Chileans to the ., utmost deprivation and poverty." [Cable to Kissinger, 21.9.70] While Allende was squeezed by the USA, the IMF and other big finance institutions -receiving no new loans through the World Bank - the USA was careful to step up military aid to build up the Chilean armed forces' top brass.

Once Pinochet had crushed Popular Unity and the workers' movement, the tap of US aid was turned back on, with $125 million in aid in 1974 (as against only $25 million during 3 years of Allende government).

Between the coup and 1978, Pinochet coined $350 million in direct US assistance, $400 million from multilateral development banks, $360 million from the IMF, and a rescheduling of debts in 1974 worth another $581 million in aid.

And as pressures mounted over Pinochet's brutal record on human rights, and governmentlevel loans began to fall off, private banks began to step into the breach and loan vast sums to preserve the junta.

From 1975-76 private bank lending to Chile increased 500%. By 1977 private loans were covering 80% of Chile's foreign borrowing; by 1978 they totalled $977 million. Nor was it only US banks: Japanese and British bankers too were eager to profit from Pinochet's repression. Lloyds bank loaned the junta $200 - million between 1977-79.

Cecil Parkinson, then Thatcher's Minister of Trade:

«The Chilean economic experience is very similar to what we are developing here, although in the case of Chile it was possible to impose a policy and regulate its implementation, but this isn't possible in our country. Here we have to proceed with more caution and convince people of the benefits of our policies.

November This money flowed so freely because the junta had shown itself determined to go to any lengths in order to drive up the exploitation of the Chilean working class and open up the Chilean economy to the multinationals.

The Chicago boys, under Friedman's guidance, embarked on a programme of "shock treatment" slashing tariff duties on imports, (from 97% to 10% by 1980), selling off state-owned companies and ruthlessly cutting government subsidies.

Friedman himself visited Chile in 1975 and declared that:

•'The first necessity is to end inflation, the only way Chile can do that is by drastically cutting the fiscal deficit, preferably by reducing public expenditure . . . gradualism seems impossible.

The consequences were dire: as one Chilean economist told the Washington Post:

•'To do what we've done here you have to be a real son-of-abitch. If you start looking in the faces of the poor people, you can't get anything done.

The Chicago boys handed back to the big landowners land redistributed in the 1967 wand Reform. They lifted price controls and froze wages. They eliminated public spending in essential services - or transferred it to police and military spending. State firms were sold off at knock-down prices. From 464 state-owned firms in 1973, the number was slashed to 70 by June 1977.

The beneficiaries were the multinationals (in 1978 Exxon bought the La Disputada copper mine for a bargain $107 million; Goodyear bought CORFO INSA for $36 million) and the most powerful sections of Chilean capital. By 1979 Chile's five largest financial clans controlled two-thirds of the country's 250 largest firms. The same clans bought up Chilean banks - and then borrowed money from their banks to finance other parts of their empires.

While the bank loans kept coming and the price of copper held up, Chile's artificially cheap exports went up, and the so-called "economic miracle" of 1977-81 took off.

But at what a price to the working class! As living standards were slashed, consumption of basic foodstuffs actually declined.

State spending on education has declined to the extent that at least 30% of Chilean youth now receive no education; and by 1976 health spending was down to half the 1973 figure.

Ernesto Medina, president of the Chilean Medical Association estimates that 'Two-thirds of the Chilean population are not able to pay the very high cost of medical care."

Malnutrition is endemic in working class children: there is a huge housing crisis. The working week has been extended and retiring age raised.

Such attacks could only be carried through by brutal means. The heaviest repression came significantly in 1975.

By 1977 the wave of bankruptcies produced • by Pinochet's squeeze on small and medium business brought an outcry even from the Christian Democrats who had welcomed the coup - and the Party was banned.

In 1978-9 the dictatorship was institutionalised, with the introduction of Pinochet's 'Labour Plan" which dulowed restricted trade union rights only at local level; this was followed by the new Constitution of 1980 which established Pinochet as President until 1989.

All political parties and political activity remain illegal; rigid censorship of the media remaina in force. and the nnlu authority in the land is the junta which alone can pass laws and amend the constitution.

But as the constitution came into force, so too did the laws of gravity on Chile's economic house of cards.

The world recession brought a drop of 50% in the price of copper, while cheap imports cashed in on the virtual abolition CONCUS TAS of protective tariffs and flo odec into Chile. The balance of ments crisis grew, Chilean com• panies collapsed, and the pesc had to be devalued by 30%.

In the midst of this, the fl ow ol loans that had kept ul rile's "miracle" going became a mill. stone of debt around the ne ck ol the junta: at $17 billion, Cl rile's per capita debt is one of F the world's largest. Unemploy ment is 30-40%; inflation, too, after the collapse of the monet tarist experiments, is now up to 31 The string of bankruptcie 28 -well over 1,300 in two year IS -has brought crisis to the bar king system and forced Pinochr et to step in and reestablish state control: Three finance mini sters have been sacked in the past year. The first to go, Sergi o De Castro, had declared that : the only way out of the crisis w. as to cut nominal wages in the p ublic and private sector by 30° including the army!

But with the working • already driven to despera large sections of the middle capitalist. classes alienater the impact of the crisis, ans world's bankers insist demanding still more squeezed from the Ch people, Pinochet has no answers to the current situal His orgy of privatisation brought no corresponding ri investment: instead nationals have stepped in to the bones of collapsing Ch industries. 65% of the te industry has been wiped along with car plants, plants, canneries and lur firms.

For Chilean workers the is to forge the neces clandestine links between | level unions and constru leadership capable of lear the lessons of the catastrc Popular Unity period.

Unly by fighting indepen ly of the Christian Demo and other so-called "de cratic" bourgeois forces seek only to fill their own wa can the workers' mover mobilise its full strength to Pinochet and the bloodth capitalist system he represer US hands off • El Salvador and Nicaragua!

July 4.30 - 7.3 class 1 by d the ently be ilean easy tion. 1 has se in aulti' pick ilean extile out, steel mber tash plant ct a ning sphic dentcrats emowho illets ment oust irsty nts.

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