| Economic history ofChile |
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TheCrisis of 1982 was a majoreconomic crisis suffered inChile during themilitary government of Chile (1973–1990).[1] Chile'sGDP fell 14.3%, and unemployment rose to 23.7%.[1]
After the socialist reorientation of the economy during thepresidency of Salvador Allende, economic sabotage by theNixon presidency,[2] and the subsequent Chilean economic crisis which reached its zenith during 1973,[3]: 35–45 theChilean Armed Forces carried up a coup d'état which deposed Allende'sPopular Unity government, evicted and demobilised resistance of armed movements close to Allende like theRevolutionary Left Movement, and installed aMilitary Junta, presided by GeneralAugusto Pinochet. The new regime proceeded with the dissolution of theNational Congress, the establishment of censorship, suspension ofcivil rights and the arrest of civilians (the majority sympathizers of the overthrown government and some linked tomoderate leftism) . Upon taking over power, the military junta under the command of General Pinochet set out to implement a series of neo-liberal economic policies based on theChicago school of economics. In 1973, only a little bit over two years of regulatory policies established by Allende, the military junta decided to reform the economy, and theChicago boys were permitted to implement some of the neoliberal economical policies outlined inEl ladrillo.[3]: 49–62 In 1979 however, Chile decided to depart from the principle of free floating exchange rates, with disastrous results.[4] From 1976 onwards importtariffs decreased strongly impacting negatively the Chilean production aimed for theinternal market.[5]: 26
The 1982 crisis has been traced to the overvaluedChilean peso, which had been helped by being pegged to theUS dollar, and to the highinterest rates in Chile, which would have hampered investment in productive activities. In fact, from 1979 to 1982, much[vague] of the spending in Chile was the consumption of goods and services.[3]: 49–62 Foreign loans given to Chilean companies started to decline in late 1981 reaching the point of becoming negligible one year later.[5]: 28 Events can also be explained in terms ofinterest rates andcapital flows using the nineteenth-century Banking School theory offinancial crises.[6] By 1982, Chile'sexternal debt had risen to over 17 billion dollars.[3]: 49–62 Income per capita in Chile fell in 1983 to levels below those of 1960.[5]: 3 Incomes fell as salaries were not adjusted forinflation.[5]: 4 Around half a million persons were onemployment programmes.[5]: 4
In agriculture, the entrance ofspeculative capital before the crisis led to the bankruptcy of several processing companies.[7]: 34–35 IANSA, a sugar company that had belonged to the state before itsprivatization, went bankrupt because of a short-term gains policy by its new owners.[7]: 34–35
The government response to the crisis priorized the preservation of the international markets over the placation ofinternal unrest.[5]: 5
In November 1981, banks were bailed out by the government after they had taken excessive risks: the largeBanco de Talca andBanco Español Chile and the smallBanco de Linares andBanco de Fomento de Valparaíso.[8] Financial societies (Compañía General, Cash, Capitales and del Sur) were also bailed out.[8] Banco de Talca and Banco Español Chile were nationalized, removing the management and wresting ownership from shareholders (they were later privatized again).[9]
On January 13, 1983, the government made a massive bank intervention, bailing out five banks and dissolving three others.[8]
All sectors ofChilean agriculture except fruit exports andforestry contracted during the crisis, but recovery was fast after 1984.[7]: 26 The number of farm bankruptcies in Chile increased from 1979 to its 1983 peak.[7]: 26
The crisis has been credited of beginning, despite its severe repression, awave of protest all over Chile against the dictatorship.[3]: 49–62
In the years after the crisis, the economic policy of the dictatorship changed to includeprice bands for some foodstuffs and afloating exchange rate.[7]: 66
Supporters of the neoliberal policy of the military dictatorship have argued that the crisis started outside Chile and hit the whole of Latin America in the so-calledLa Década Perdida (The Lost Decade).[3]: 49–62 HistoriansGabriel Salazar andJulio Pinto have countered that the type of crisis is a frequently inherent weakness of the neoliberal model.[3]: 49–62 In contrast, economistMilton Friedman blamed precisely the country's departure from the neoliberal model and political interventions in matters such as the Chilean peso.[10]
According toRicardo Ffrench-Davis, the "unnecessary" radicalism of the shock therapy in the 1970s caused mass unemployment, loss of purchasing power, extreme inequalities in the distribution of income, and severe socioeconomic damage.[11] He argues that the 1982 crises as well as the "success" of the pragmatic economic policy after 1982 proves that the radical economic policy of the Chicago boys harmed the Chilean economy from 1973 to 1981 though the economy of Chile recovered quickly and continued to rise rapidly over time.[12]
President Richard Nixon had ordered the CIA to "make the economy scream" in Chile to "prevent Allende from coming to power or to unseat him,"
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