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Feature: Allende legacy of economic chaos

By GONZALO BAEZA, UPI Business Correspondent

SANTIAGO, Chile, Sept. 11 (UPI) -- Thirty years from the Chilean military coup that ousted socialist President Salvador Allende, the government of socialist President Ricardo Lagos is conducting an official campaign to rehabilitate the former leader's three-year administration and highlight his figure as that of an exemplary democrat.

At the same time, his successor Gen. Augusto Pinochet and his 17-year regime remain inevitably associated to a battery of heinous human right violations and, in the eyes of those with a more progressive persuasion, the founder in Chile of a ruthless economic doctrine that allegedly consolidated the power of large business groups while widening the gulf between rich and poor. Said doctrine is known among Latin America's intelligentsia as "neo-liberalism" although the rest of the world simply calls it free market economics.

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However, it is an extremely rare occasion when the average citizen can read in the press, either domestic or foreign, about the particular set of circumstances that drove Chile to its most violent social crisis ever as well as an economic collapse like it had never experienced before. A large responsibility in the creation of this scenario is undoubtedly owed to the implacably inefficient and deliberately disruptive nature of Allende's economic policies and the economic program of his short-lived government coalition, the famed Popular Unity (UP).

Even before assuming power in 1971, after having won the presidential elections with merely a third of the total votes, Allende was sponsoring a program that largely foreboded his economic plans for Chile. Its four main planks were: nationalizing the so-called "basic riches of Chile (the copper, iron, steel, and carbon mining industries), nationalizing the country's main industries, nationalizing the banking system, and implementing a land reform plan in a manner that was to be "fast, drastic, and massive."

In order to highlight the Allende administration's socially-conscious inspiration, his government sought, in the grandiloquent rhetoric of the Cold War '70s, to transfer the economic power of imperialist capitalism to the hands of the workers, formerly known as the proletariat.

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To this effect, socialist Economy Minister Pedro Vuskovic's plan was straightforward: increase the workers' salaries in order to create a massive acquisitive power that would eventually generate more production and jobs. This was done by printing inordinate amounts of new money (increasing the money supply by 119 percent in 1971) and increasing public spending by 36 percent in 1971 alone.

The spending rampage, even if attaining positive short term effects in wage increases and job creation, was to trigger an inflationary spiral that would show inflation rates jumping from 22.1 percent in 1971 to an exorbitant 508.1 percent by the end of 1973, the final year of Allende's government. In addition, Chile's payment balance began to experience a growing deficit, reaching $300 million in 1971 compared to a $114 million surplus the previous year.

When warnings of a growing deficit began to surface from the opposition, they were rapidly dismissed by Vuskovic as the claims of doomsayers, stating that the scenario owed mostly to the drop in the international copper price. Given Chile's historical dependence on the commodity -- dubbed by Allende as "Chile's salary" -- the claim was easy for the uninformed to believe. They failed to take into account, however, that at the time copper was enjoying some of its best prices in recent history. The average value of a pound of copper during Allende's regime reached almost $2 in present-day prices, an extremely favorable scenario for the copper-reliant Chilean economy.

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The artificially propped-up economy of Allende was to begin floundering as early as mid-1972. Vuskovic once again resorted to the printing press increasing money by an annual 173 percent which in turn derived into an annual inflation of 260 percent.

Real wages fell by 16 percent and a shortage of basic products began to be felt in Chilean society, generating massive protests and strikes.

It was only logical that neither the state nor private business would be able to meet growing demand, leading the government to fix the price of by then highly-coveted goods such as meat, chicken, wine, dry cleaners, soap, and toothpaste. Although the value of all these goods was officially quite affordable, they were nowhere to be seen in the market. By the end of 1972, any news of a commercial venue selling one of these products generated long and winding rows of people formed at the store's entrance.

When a given venue was to sell a stock of TV sets or other luxury goods, the lines began to be formed the night before the store was supposed to open. In the meantime, certain impoverished Chileans earned a few escudos -- then the country's currency -- by selling coffee and sandwiches to the people on the line or simply by selling their own spots in the line.

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Vuskovic was eventually to be replaced by fellow socialist Carlos Matus, who early on into his tenure made clear what he had in store for the Chilean economy in a surprisingly candid interview with the German newspaper Der Spiegel.

"A process such as ours, can not be simply measured by productivity parameters," Matus claimed, stressing how the nationalization of the economy -- in all, 377 of Chile's largest factories were forcefully expropriated by the government, as well as over 6 million hectares of land -- was "irreversible."

Dismissing the noxious effects of economic disruption, Matus stated that they were useful for "strengthening the political conscience of workers."

Social unrest and turmoil led to repeated cabinet changes, including the appointment in November 1972 of three active military leaders led by commander in chief Gen. Carlos Prats, who took over as interior minister. In order to legitimize his administration and broaden its base of support, Allende in fact invited the military to help him retake the helms of government and stabilize the country.

Matus' successor was to be economist Fernando Flores, whose foremost measure was to officially decree rationing of basic products in January 1973, acknowledging what was nonetheless a de facto situation. The initiative was implemented by the Supply and Price Groups, known by their acronym of JAP. The JAP were government agencies whose mission was to distribute equitably scarce products such as bread or what became a vital component of the Chileans' diet, Chinese-imported pig.

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By 1973, economic discussion was replaced by mutual recriminations between a coalition bent on imposing its "Chilean path towards socialism" and a conservative and Christian Democrat party-led opposition that garnered nearly 60 percent of the vote in the parliamentary elections of March that year.

Allende and the most rabid UP partisans stubbornly defended what the coalition's government program described as its fundamental goal: "put an end to imperialist control [and] the monopolies of the landlord oligarchy, and begin the construction of socialism in Chile."

Allende's goal, described by himself in 1971 as "Marxist, scientific, total socialism" seemed nonetheless ever more distant. Industrial production during the first seven months of 1973 was to fall by 94 percent compared to the same period in the previous year.

The collapse was total and the road paved for the September 11, 1973 coup that put Gen. Augusto Pinochet at the helms of the Chilean government for 17 years. His legacy of human rights violations and the modernization of the economy which has made the country a regional example still draws mixed emotions in most Chileans.

The conflicting scenario could not be more evident than in the administration of Allende's socialist successor, current Chilean President Ricardo Lagos. Whereas still pursuing a number of measures aimed at compensating victims of human rights violations, his administration will no doubt be mostly remembered as the government that signed what many analysts have dubbed the most important free trade agreement in the country's history: that with Allende's so-called imperialist nemesis, the United States.

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