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International Socialism, Autumn 1968


Christopher Scott



From International Socialism (1st series), No.34, Autumn 1968, pp.6-7.
Transcribed & marked up by Einde O’Callaghan for ETOL.


The Notebook

Christopher Scott writes: If there is a central theme in the present policy of the Chilean government, then it appears to be a tripartite one. A consolidation of the reformist measures the PDC (the government party) has taken since 1964, a widely publicised campaign to contain this year’s inflation and a striving by Frei for internal party unity and cohesion. The political horizon which defines these objectives is that of next year’s Congressional elections and the Presidential elections the year after.

The two central measures affecting the Chilean economy at present are the reajuste (i.e. the annual wage adjustment process related to the country’s endemic inflation) and the budgetary imbalance. This first has taken approximately six months to be presented and passed by the Congress and has seen the resignation of two prestigious Finance Ministers, Sergio Molina and Raoul Saez. The original concept of the former, of a forced savings scheme and the formation of a central capitalisation fund to raise the national investment level was defeated by a political line-up from the FRAP (the Socialist-Communist front) on the Left to the National Party on the Right. Employees in the private sector were then offered 100 per cent compensation for the rise in the official consumer price index (i.e. 21.9 per cent) and two-thirds of public employees were promised a 12.5 per cent wage rise in cash and 7.5 per cent to be made up in GORVI (the State Housing Corporation) bonds, which would aid the families concerned to obtain government subsidised housing. The other third of public employees were to receive adjustments in cash of not less than 20 per cent. After this latter formula was drawn up, the FRAP objected to a clause which was capable of being interpreted as prohibiting the right to strike, and the possibilities of further Congressional/Executive deadlock were only avoided when the Communist Party decided to support the formula as a whole if the aforesaid clause was modified. They broke with the Socialists in so doing and the FRAP thus split on the measure.

However, all this took place against a background of increasingly generalised discontent with the PDC’s management of the country’s economic and political situation. The Post Office employees struck over wages for around six weeks and the school teachers struck too, over an alleged broken government promise; both strikes resulted in small gains for the unions involved. The armed forces also have been restive and Frei recently appointed a General to the Cabinet (as Minister of Defence) and promised salary increases to the military. There have been other strikes among the dockers, the Ministry of Health employees, the national airline and cinema operators.

Despite a year of record copper prices with the consequent beneficial effects for the State exchequer, and a series of budget cuts [1] which have fallen heaviest on the social services, housing, education and the agrarian reform agencies, plus an increase in various indirect and sales taxes, the national budget is in severe disequilibrium, due in large part to the government’s concessions over the reajuste and the promises made to the armed forces, when related to previous public sector commitments. The Minister of Finance, Andres Zaldivar, is trying to meet this by tightening up on tax evasion and hoping that the copper price will not fall below 50 cents a pound; if this is insufficient, a US AID loan may be forthcoming, though US Congressional disenchantment with the Alliance for Progress and aid to Chile is becoming increasingly manifest.

Meanwhile, the inflation continues to spiral (e.g. approximately 12 per cent between January and April 1968), even though the reajuste is only now beginning to be paid, since oligopolies are raising prices in anticipation. Furthermore, the Central Bank’s monetary policy appears to be helping this. Pressure has recently been building up in the private sector (in the agricultural and industrial sectors alike) to increase the supply of credit, as, it has been argued, the volume of credit has been falling in real terms and the public sector has been appropriating an even larger proportion of what credit there is.

Indeed, the possibilities of a growing divergence between the various institutions and personalities responsible for the management of the Chilean economy are now very real. Zaldivar, as Minister of Finance, has refused to increase the cash issue (to meet the budget deficit) or to raise taxes further, while Carlos Massad, President of the Central Bank, is about to increase the supply of credit, especially for the construction industry which has shown signs of stagnation and possibly also for agriculture to offset some of the worst consequences of this year’s drought. Finally, the Minister of Economy, Juan de Dios Carmona (ex-Minister of Defence), has been able only to exhort the public to report unauthorised price rises (only cooking oil and meat prices have been ‘allowed’ to rise for the rest of 1968) and to launch a national campaign for greater productivity through the formation of regional committees for this purpose.

The situation in the industrial sector gives real grounds for concern as the general index of production rose only 1.9 per cent between the first quarter of 1967 and the first quarter of 1968. In the same period, industrial sales fell by 6.4 per cent and stocks have consequently been accumulating, hence one of the most important grounds for demanding more credit. The construction industry has been stagnating with steel consumption down 3.7 per cent (1967-68) and cement consumption about steady. Furthermore, the paper industry, which has been growing fast in recent years (1966-68, 46.8 per cent rise in production) is now strike-bound.

Despite a running monthly devaluation of the escudo relative to the US dollar by an amount more or less equal to the rate of internal inflation, pressure is building up on the balance of payments. The new industries the government is encouraging require large capital imports of machinery and the agrarian reform has the same effect. The burden of interest and amortisation payments on foreign credits granted in the past absorbs approximately 30 per cent of Chile’s present foreign exchange earnings and a recent illustration of the consequences of this, brought about by the paper strike which led to the import of paper products, has been the suspension of sales of beef for the next two weeks in the most populated provinces of the country. [2]

The Economics Minister has thus announced his intention of seeking new avenues of import substitution, though in the sector which could contribute most in this direction and which is also at the root of the inflation, ie agriculture, the uncertainties created by a very modest agrarian reform plus adverse movements in the internal terms of trade, have resulted in a very low rate of growth for 1967.

This does show how the type of structural disequilibrium from which the Chilean economy suffers makes the notion of continental integration a far-fetched reality at present, since it presupposes a national economic outlook diametrically opposed to that of import substitution.



1. The Budget for 1968 hopefully appeared as a separate item at the same time as Molina’s first reajuste project.

2. Previously available two days a week only.

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