Professional Documents
Culture Documents
The Chilean Economic Miracle
The Chilean Economic Miracle
Growth
impressive growth rates were recorded after the steep GDP drop of 1982
and the much lesser drop of 1983. Once again the publicists of the free
market evoked the religious metaphors in which recovery is mistaken for
growth. But, again, overall growth throughout the 1980s has been far
from miraculous: GDP per capita grew at a 1.2 percent average rate
between 1980 and 1989, below the 1.7 percent average yearly rate for
1950-72 (El Mercurio, 1990a).
Particular areas of the economy have shown some dynamism, notably
the export of primaiy products. Mining, fishing, forestry and agriculture
accounted for 88 percent of total exports in 1987. Within each of these
categories, export is concentrated upon a few commodities: copper in
mining, grapes and apples in agriculture, fish meal in the maritime indus
try. In addition, this primary export activity tends increasingly to focus on
productive processes that result in little value added to the product
concerned. For example, the export of wood pulp grows more than the
export of cellulose, which in turn grows faster than the export of paper.
Foreign firms are strongly represented in each major sector of export
activity: in fishing a Chilean-New Zealand consortium is prominent;
American firms figure greatly in the organization of external sales of
fruits; even in mining where the state copper company Codelco domi
nates copper exports, foreign firms — U. S., Swiss, Australian — have
significant holdings. The point is that even where the economy shows
some dynamism, the activity contributes little to the development of a
complex and modern capitalist economy. In contrast, the successful
export economies of the Pacific Rim have specialized in the production
of manufactured goods. Moreover, the heavy representation of foreign
firms in Chile, encouraged as we shall see by government debt manage
ment policies, signifies loss of sovereignty over, “disposition of natural
resources (soil, subsoil, sea) which are part of the patrimony of the whole
society” (Ominami and Madrid, 1990:130-135). Also, these export sectors
dominated by primary products are veiy vulnerable to sharp world
market fluctuations, both in terms of prices and demand, thus subjecting
the economy to roller coaster effects. The addition of a limited number of
“non-traditional” exports has not succeeded in diversifying the Chilean
economy or even its export sectors — a problem that is obvious with the
unfolding economic recession of the 1990s.
Debt Management
Given the size of the debt they had to manage, Pinochet’s bureaucrats
certainly had the opportunity to become experts on debt management.
Encouraged by the liberalization of imports and the deregulation of the
banking system, Chilean foreign debt exploded during the late 1970s and
the early 1980s, growing 300 percent between 1974 and 1986 (Remmer,
1989:172). Per capita bank debt in Chile was S1000 in 1982 compared
may, for example, point to the dramatic lowering of external debt with
commercial banks in the 1980s from $14.3 billion to $6.5 billion in 1988,
a drop of $7.8 billion. What this neglects is the astronomical growth of
debt with multilateral lending institutions, such as the International
Monetary Fund, the World Bank, etc., during the same period. Debt with
the World Bank and the Inter-American Development Bank grew at an
annual average of $600 million between 1983 and 1987, or about 40
percent per year (Ffrench-Davis and De Gregorio, 1985:24). This
increase in multilateral debt made the giant payoffs to the commercial
banks possible (Ffrench-Davis, 1988:129). Tliis debt will have to be
repaid, cannot be restructured and cannot be expanded indefinitely
(Somerville, 1990:297). No less a figure than Hernan Somerville,
Pinochet’s chief debt negotiator during the mid-1980s, says that the
multilateral debt is the “biggest external debt problem facing Chile.” He
assures us that the problem is “perfectly manageable,” holding out the
hope that the reduction of the debt with commercial banks will lead to
fresh loans (Somerville, 1990:297). But early help from this quarter seems
unlikely; commercial bank loans from abroad to Chile have been falling
steadily throughout the 1980s (Ffrench-Davis, 1988:128).
Debt-equity swaps are singled out by Christian as an area of special
expertise enjoyed by Chilean free marketeers. The principle involved in
such swaps is familiar from corporate bankruptcy proceedings. Creditors
to an enterprise in the process of reorganization may be given shares and
of course claims on a portion of hoped-for future profits in exchange for
the extinction of outstanding debt and interest payments. Latin American
debtor nations, among others, have applied this principle to their own
foreign debt obligations in the following way. Foreign debts of a given
country are purchased in hard currency at a high discount rate, then sold
at a lower discount rate for foreign currency of the debtor country; the
debt purchased has been converted into local currency at the original
rate. Funds obtained may be used to buy shares in an existing enterprise,
or improve plant and equipment, etc. Theoretically, creditor banks bene
fit by reducing outstanding loans of dubious quality; debtor nations see
their debt reduced; purchasers of the obligation receive local currency at
a cost lower than could be expected from local financial markets or from
bringing in foreign exchange (Lahera, 1987:104-105). By mid-1989, $7
billion of Chile’s external debt had been converted by various mecha
nisms (Riesco, 1989:318).
Despite all appearances, debt equity swaps are far from the unambigu
ously positive policy maneuver they are often assumed to be. For one
thing, dubious debts, which may in the future be pardoned by the creditor
banks, are being traded for real assets. Moreover the swaps do not offer a
global solution to the debt problem. Riesco (1989:321) estimated the
value of the 50 largest Chilean corporations in late 1986 at $4.6 billion,
approximately one quarter of the total external debt! Hence even if the
Privatizations
Selling off the patrimony of the state has played a great role in the
history of the dictatorship. In 1970 CORFO, the state development
corporation, controlled 46 enterprises. The regime’s first task was to
return to private hands the large number of firms which had been nation
alized under Allende during 1970-73. By 1973 some 460 firms and 19
banks had been incorporated in CORFO (Renner, 1989:158). By the end
of the Pinochet decade the process of privatization had gone well beyond
the Allende interventions: by 1980 CORFO controlled roughly two
dozen firms (Vergara, 1985:90).
This first wave of privatization involved large government subsidies for
the purchasers. The firms were sold below their book value, in many cases
to political allies of the regime in non-competitive circumstances. One
researcher estimated that the subsidy averaged 40 percent of book value.
Another found a range of subsidies between 23 percent and 37 percent
(Edwards and Edwards, 1987:97). The cheap sell-off was driven by haste,
the recession and high interest rates (Foxley, 1985:33). While the stated
purpose, according to free market doctrine, was to break up state monop
olies and stimulate competition, wealthy investors were the only ones
able to take part in the purchase. Similar effects were produced in the
agricultural sphere when the government sought to correct what they
considered the state monopoly effects of agrarian reform. Some 30
percent of the expropriated land was returned to previous owners. Some
35 percent of the land went to small owners in small lots (Foxley,
1985:33). The small owner beneficiaries very frequently found themselves
compelled to sell their plots for want of capital, technical assistance, etc.
(Jarvis, 1985:151-152, 170-177). One estimate had it that by 1982, 40
percent of the beneficiaries had sold the«‘r parcels, mostly to medium and
large owners (Jarvis, 1985:167-168). Reconcentration and recentraliza
tion of economic power, not free competition, was the real outcome of
the free market policy.
Subsidized privatization flourished again in the mid-1980s under the
supervision of Hernan Buchi, the Finance Minister under Pinochet.
Enterprises valued at $2.8 billion were privatized between 1985 and 1988.
As in the earlier bout of privatizations, subsidies were massive. One
researcher concluded that the subsidies amounted to $600 million
Poverty Management
Much of the above data and critical analysis of the Pinochet free
market model was drawn from researchers who have joined the Aylwin
administration, and who now continue practicing precisely the same poli
cies they rejected previously. In part these continuities can be attributed
to the institutional constraints that remain as a legacy of a “negotiated”
transition. However, in large part the new regime has not only conformed
to the model’s general parameters, but sought to deepen and extend the
model, even to the extent of increasing foreign investment access to
strategic resources, dismantling state development institutions and
pursuing the renewal of U. S. military ties to the Pinochet-commanded
armed forces. In what is surely an excess of conformity, the Aylwin regime
successfully fought to increase the military budget to compensate the ex-
secret political police, which had been “dissolved” and reincorporated
into the armed forces. In a word the new regime has presented itself as a
continuation of the “restructured” neo-liberal managers of the model.
The state, according to monetarist doctrine, is excluded from inter
fering with the rational allocation of resources by the market. In an early
(Delgado, 1990b: 11). This source is unlikely to reduce the weight of the
military's claim on its revenues by rapid growth nor provide increased
discretionary income for social spending. Codelco’s expansion has been
carefully limited by allowing foreign capital to develop projects in this
sector. In five years private sector production is supposed to match
Codelco’s (Riquelme, 1990:F-14). In short, the military budget demands a
sizeable stream of state revenue, hedged against inflation, from a
uniquely reliable source whose growth has been carefully restrained.
Privatizations have further limited the regime's room to maneuver.
The once dynamic state development corporation, CORFO, has been
stripped of most of its influence and assets in a vigorous process of priva
tization which accelerated after the 1988 plebiscite. CORFO had been
savaged since the coup and by March of 1990 all but two of the remaining
enterprises were privatized (Marin, 1990:19). Significantly a large
number of shares (21 percent of all shares in Endesa, the largest of priva
tized enterprises) was sold to members of the armed forces (Marin,
1990:19). A smaller though still sizable chunk of the shares in the
Compania de Telefonos was also sold to members of the armed forces.
One estimate is that around 30,000 military personnel purchased shares
(Delano and Traslavina, 1989:127).
After the Aylwin regime took power, it was discovered that CORFO
was, for practical purposes, bankrupt. Among other liabilities it was $1.5
billion in debt. CORFO had absorbed the losses of privatized enterprises
while at the same time losing between $130-200 million in dividends
annually from the now privatized corporations. Debts in short were
socialized and profits privatized (Delgado, 1990a:6). The Aylwin govern
ment’s response to this situation was to propose new privatizations to
finance the CORFO deficit. In announcing this policy, Ominami empha
sized “the creation of grand enterprises, a function fulfilled by CORFO
in the past, is now exhausted” (El Mercurio, 1990c). The state has been
saddled with CORFO debts while losing previous revenue from this quar
ter. CORFO, the government has made clear, is permanently out of the
business of creating and operating enterprises. Further, substantial
portions of the equity of other lucrative enterprises (the electric and
telephone utilities) have been sold off to military personnel, giving them
an obvious stake in the success of privatization.
It is plain that this debt, to both private and multilateral institutions
abroad, is an additional powerful source of fiscal discipline. The past
docility of the dictatorship before the demands of international lenders
will serve to highlight the slightest recalcitrance by the Aylwin regime.
Repayments of the principal on the multilateral loans have risen sharply
in the 1980s from $24 million in 1983 to $260 million in 1990. The 1987
rescheduling of medium and long term debt called for 60 percent of the
debt to be pa*d back between 1989 and 1995 (Ffrench-Davis, 1988:133).
In the case of Codelco and CORFO, revenue streams flowing into the
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