Chile

WHEN one comes to Chile today from one of its neighbors — Argentina, Bolivia, or Peru — or when one remembers the Chile of a year or so ago, the change in atmosphere is almost startling. There are optimism, confidence, and a certain pride in Chile’s government. Prosperity has certainly not arrived, but it is felt — somewhat rashly, perhaps — to be just around the corner. More striking still is the prevalent moral tone. The government has, in less than a year, managed to infuse a high sense of purpose, sincerity, and honesty into the management of public affairs. In a country so hard-pressed as Chile, with chronic inflation, a stagnant economy, and considerable unemployment, this change of climate is particularly impressive.

The man most responsible for it is the new President, Jorge Alessandri Rodriguez, who took office in November, 1958, after a tense five-way election. Alessandri is an “independent conservative,” aloof, austere, somewhat authoritarian. Although he is not without sincere social preoccupations and although he does not himself spring from the landholding aristocracy, who form the bulwark of the Conservative Party, he stood nevertheless very much to the right among the four major candidates. (The fifth candidate was a defrocked priest, half clown and half mystic, whose chief importance was to collect a certain number of fringe votes and so divide the strength of the far left.)

Alessandri made few promises during the electoral campaign. His chief assets were his undoubted intellectual powers, his name, and his record. His father was twice President of Chile and, in the 1920s, instituted important social and constitutional reforms. Alessandri is a very successful business executive and a former Minister of Finance, the only one in recent years to have balanced the budget. Such a personality might be expected to have little appeal in the flamboyant Latin American political arena. However, Chile, although underdeveloped economically, is politically one of the most mature of the Latin American republics.

It is significant that Alessandri’s support came not only from the good residential districts but also from the industrial suburbs of Santiago and Valparaiso. He fared poorly in agricultural districts, traditional bailiwicks of the Conservative Party; but it is pointed out by some observers that this may simply indicate the unusual honesty of the elections — agricultural laborers felt free to vote according to their consciences, rather than as the landlords advised.

Since taking office, Alessandri has further broadened his political base by striking up a working alliance with the Radical Party, thus acquiring a comfortable majority in the Congress. But in forming his Cabinet and in making other government appointments, he has eschewed purely political considerations, to the evident disappointment of his own party — although in wooing the Radicals he has been obliged to concede some political plums. He has ostensibly sought personal capability rather than political expediency in filling government posts and has generally found it among business executives, like himself. This is a government of managers, say his friends and supporters.

This position of being above petty politics is an important factor in the wide popular support Alessandri at present enjoys. And the general house cleaning effected in a few brief months by these expert managers has also gained for him the confidence of the Chilean people.

Orderly finances

Order has been brought out of the confusion of public finances. The government now pays its bills on the dot, instead of dillydallying, as it did, for months, or even years, while the peso lost value. As a consequence it can now impose a reduction in prices — suppliers had previously added a generous margin to compensate for interim inflation.

The budget had previously had little more than token significance; supplements were automatically voted after inflation had pushed up costs, with the consequent relaxing of controls. This year the budget is to mean what it says and is balanced for the first time since 1950, although with some aid from foreign loans. Next year, it is hopefully stated, it will balance with local resources alone.

Among the extraordinary powers granted the President in April are those to revise and modernize the fiscal code and to reorganize the public administration. Work on this is already going forward. It is thus the first ambition of the Alessandri government to endow Chile with the efficient machinery of a modern state, as the essential preliminary to economic expansion.

Alessandri’s governing philosophy is economic liberalism. He has inherited from previous governments a whole creaking apparatus of controls, subsidies, restrictions, and protections. These he does not propose to abolish at a single blow, since such action would be politically inexpedient and economically upsetting.

For instance, the percentage of readjustment in wages and salaries to compensate for inflation is fixed at the end of each year by law, usually after much heated discussion. Alessandri observed the custom this year, although with the slight modification that employers already paying better than minimum wages were subject to smaller increases. In the future, however, it is his stated intention that wage levels shall be fixed by direct negotiation between unions and management, restoring to labor the same freedom as to business enterprise. As a corollary, there is a new law punishing all forms of monopoly.

Stimulating expansion

In Alessandri’s view, free enterprise is not, as the left stanchly maintains, a system directed toward the exclusive benefit of the well to do but the simplest and quickest means of stimulating the expansion which will provide better living for everyone.

In answer to criticism of his program, he has taken certain measures which reduce the privileges of the rich, to the disgruntlement of some of his own supporters. He has moved particularly harshly against tax evaders; they will now he punished with jail sentences instead of, as formerly, fines eaten away by inflation before they were paid. Borrowing a page from the new French tax code, he has decreed that income may be judged by “exterior signs of wealth.” And large agricultural estates, chief source of wealth of Chile’s aristocracy, will be, for the first time, obliged to keep businesslike accounts.

At the same time, two of Chile’s gravest social problems have been tackled. A special commission has been set up for the development of the arid regions in the far north, where the decline of the nitrate industry and marginal mining have left misery and unemployment. A coordinated housing program for low-income groups has been initiated. These actions should not only help fill Chile’s desperate need but at the same time provide new jobs and stimulate production in correlated industry.

There is already some statistical evidence that the Alessandri formula, which he insists is empirical rather than theoretical, is having a beneficial effect. From September to June, industrial production has risen by 11 per cent, reversing a downward trend that began in 1953. From March to June, unemployment decreased from 10 per cent to 7 per cent in the Greater Santiago area. The combined result of these moral and material factors is that Alessandri’s popularity has grown with his months in office.

Chile’s chronic inflation

There are, however, some shadows in this bright picture, the chief of which is continuing inflation. Chile’s inflation, while it has never reached the galloping stage, is chronic and serious. The cost of living rose by nearly 80 per cent in 1955 and 40 per cent in 1956. It fell by 20 per cent in 1957 and rose again by over 30 per cent in 1958. This inflation has not been a method of enforced saving to promote economic expansion. On the contrary, it has been accompanied by diminishing investments, and stagnation, even regression, in national production.

An effort at stabilization was made by the previous government, of President Ibañez, in 1956. It was but a halfhearted attempt at best, since the essential factor of a balanced budget was never achieved. It was further bedeviled by a sharp drop in the price of copper, and then by the American recession. The incidence of this former stabilization program on Chile’s economic plight is still ardently discussed, particularly by those who object in principle, political as well as economic, to the prescriptions of the International Monetary Fund.

Be that as it may, the fact is that Chile’s economy is today at a considerably lower level than in 1953. According to Dr. Joseph Grunwald, director of the Institute of Economic Research of the University of Chile, average consumption per person has fallen by about 10 per cent during the past six years.

Alessandri’s problem is thus twofold: to achieve a measure of stabilization and at the same time to encourage economic expansion. The technical factors tending toward stabilization have this time been put in place. Public finance has been put in order, the peso has been stable for months, credit is tightly controlled. Yet, in the first seven months of 1959 the cost of living has risen nearly 29 per cent, almost as much as during the whole of 1958.

Part of this rise was to be expected, owing to the increase in wages and a 20-per-cent devaluation of the peso. Part of it is undoubtedly speculative, and the government, if faithful to its philosophy, can exert little else but moral pressure to deal with it. But the government has gone so far as to slap controls on bread and potatoes and has dramatically airlifted meat from Argentina. For the rest, it is depending on persuasion and a vast campaign to educate the buying public — in which it includes its own purchasing agents and those of industry, middlemen, and retailers, as well as the ultimate consumer — in the technique of bargaining.

The speculative habit

The psychological attitude engendered by so chronic an inflation as Chile’s is, in fact, one of the most stubborn obstacles to eliminating it. Margins are swollen to allow for the worst, and prices change so rapidly that increases are accepted without scrutiny as a normal occurrence. Thus Alcssandri, while notably successful in creating faith in himself as President, has not yet succeeded in building sufficient belief in the stability of the peso or in breaking the speculative habits induced by years of spiraling prices.

These same habits, coupled with the tendency toward conspicuous consumption which characterizes Chile’s wealthy, are also at the root of Chile’s low rate of productive investment. The long-term gains to be expected from industrial investment in an uncertain economy are much less tempting than those from quick speculative deals.

One solution is, of course, an influx of foreign capital, but the amount of this is limited by Chile’s ability to service it. In a package deal, which includes advances from the International Monetary Fund, renewal of previous loans, and fresh money from the Export-Import Bank and private sources, Chile obtained $132 million. Germany and France have opened lines of credit of $100 and $50 million, respectively, for the importation of capital goods and raw materials.

This is an encouraging start, but it is essential that local capital also do its part. The government is trying to stimulate such investment by various tax exemptions and exchange guarantees on certain types of loans. It is as yet too soon to judge the success of its efforts, although there has already been a significant influx of private capital into local banks, attracted by extremely high rates of interest.

In a small, underdeveloped country such as Chile, the standard of living depends on the ability to import, and hence on exports. In this respect, copper is Chile’s staff of life, accounting for more than 50 per cent of its exports. In view of the volatile nature of copper prices and the apparent saturation of the world market, much has been made of the necessity for diversifying exports.

New exports

The recent discovery and development of iron mines in the north — one is believed to be much more extensive than Cerro Bolívar in Venezuela — have aroused high hopes. Iron ore is expected shortly to replace nitrate as Chile’s second export commodity. The export of steel products is also likely to increase rapidly, owing to the expansion of the Huachipato steel mill. A recently opened pulp and cellulose plant will doubtless provide an exportable surplus. There is an expanding market for Chile’s luscious fruits, and last year two tanker loads of Chilean wine went to France — and the French found it good.

There are thus plenty of hopeful possibilities. The chief problem is time. With an exploding population, increasing at the rate of 2.5 per cent a year, economic growth must be considerable if it is to do more than simply keep pace. Dr. Grunwald estimated in February that over the next few years “per capita production and income will increase about 3 per cent at best, and less than one per cent a year under more pessimistic assumptions.” This will seem very slow to a population already living on the thin edge of misery, however patient and politically mature. The present euphoria is not likely to last unless it is based on something more substantial than a high moral tone and administrative efficiency.

A climate has been created and technical foundations laid more propitious than any that have been seen in Chile in a generation. In the government’s philosophy, it is now the moneyed class who should come forward with enthusiasm and enterprise to develop Chile’s resources before the time runs out. The economic future of Chile will depend on its response.