real wages between 1967 and 1977. Orange lines mark the beginning and end of Allende's presidency. The head of the government's economic policy was
Pedro Vuskovic, who would carry out the plan for the transition from
capitalism to
socialism. These actions combined socialist economic policies with others aimed at achieving rapid economic reactivation following a drastic redistribution of wealth. The plan contained three main pillars: the
nationalization of copper, an
agrarian reform and the creation of the Social Property Area (APS), which was composed of the principal monopolistic companies in banking, industry and distribution. The nationalization of companies was carried out through the use of certain legal loopholes (Decree Law No. 520 of 1932), which dated back to the
Socialist Republic of Chile and had fallen into disuse, although they still retained legal validity. The process consisted of allowing the state to intervene in companies considered key to the economy whenever they halted production so that they would resume operations. The system was judged illegal by the opposition but was ruled legal by the
Comptroller General of the Republic. The nationalization of mining, by contrast, was carried out with the unanimous support of all political sectors, with the law (No. 17,450 promulgated on 15 July) approved unanimously in the National Congress. The mining companies were to be paid compensation, but deducting the “excess profits” they had obtained in previous years due to the low (or nonexistent) taxes they paid, based on what was considered a “reasonable” profitability of 10% from 1955 onward. Under this system, the companies
Anaconda and
Kennecott did not receive a single peso and ultimately owed the Chilean state millions. in 1972. During the first year of the Popular Unity government, the price freeze and wage increases worked: the money supply doubled. Support for the
Popular Unity (UP) was also boosted when the national poet
Pablo Neruda, a member of the Communist Party, received the
Nobel Prize in Literature that same year. In this climate, Popular Unity obtained 49.731% of the vote in the municipal elections. A considerable redistribution of income was achieved,
unemployment was reduced to 3.8%, and both
production and
consumption increased. More specifically, industrial production increased by 14% between July 1970 and July 1971, wages rose by 55%, annual inflation fell from 35% to 20%, and gross domestic product increased by 8.3%. Conversely, from the second year of Salvador Allende's term,
inflation increased, a situation compounded by external and internal conspiratorial actions, the fall in the price of
copper and the decline in overall production due to the state of general mobilization among sectors of Chilean society. In 1972 the Chilean
escudo changed 140%. The average
Real GDP contracted between 1971 and 1973 at an annual rate of 5.6% ("negative growth"), and the government's fiscal deficit soared while foreign reserves declined. During this time, a shortage in basic commodities led to the rise of
black markets which ended in late 1973 after Allende was ousted. In addition to the earlier-discussed provision of employment, Allende also raised wages on a number of occasions throughout 1970 and 1971. These rises in wages were negated by continuing increases in prices for food. Although price rises had also been high under Frei (27% a year between 1967 and 1970), a basic basket of consumer goods rose by 120% from 190 to 421 escudos in one month alone, August 1972. In the period 1970–72, while Allende was in government, exports fell 24% and imports rose 26%, with imports of food rising an estimated 149%. However, although the acceleration of inflation in 1972 and 1973 eroded part of the initial increase in wages, the real minimum wage still rose (on average) during the 1971–73 period. Another study has asserted that during the last few months of the Popular Unity coalition’s time in office, "real wages were at least equal to, if not higher than, those of 1968–69." The falls in exports were mostly due to a fall in the price of copper. Chile was at the mercy of international fluctuations in the value of its single most important export. As with almost half of developing countries, more than 50 percent of Chile's export receipts were from a single primary commodity. Adverse fluctuation in the international price of copper negatively affected the Chilean economy throughout 1971-72. The price of copper fell from a peak of $66 per ton in 1970 to only $48–49 in 1971 and 1972. In addition to the
hyperinflation, the fall in the value of copper and lack of economic aid would further depress the economy. Initially, the governing coalition expected the unearned wage increases and the consequent increase in government spending to be corrected once the 'structural changes' like nationalisation and
agrarian reforms were completed. However, by June 1972, Allende was beginning to see the economic hazards. The minister of economy was changed and some austerity measures introduced, but to little avail. Amidst declining economic indicators, Allende's Popular Unity coalition actually increased its vote to 43 percent in the parliamentary elections early in 1973. However, by this point what had started as an informal alliance with the Christian Democrats was anything but that. The Christian Democrats now leagued with the right-wing National Party and other three minor parties to oppose Allende's government, the five parties calling themselves the
Confederation of Democracy (CODE). The conflict between the executive and legislature paralyzed initiatives from either side. His economic policies were used by economists
Rudi Dornbusch and
Sebastian Edwards to coin the term
macroeconomic populism.
1973 economic crisis The
economic crisis in Chile in 1973 was a severe economic collapse caused by both exogenous and endogenous factors that occurred during the government of
Salvador Allende. It was one of the catalysts of the political crisis experienced by the country during the government of
Popular Unity and was also one of the most relevant factors that led to the
1973 Chilean coup d'état. This economic crisis was reflected in three-digit
inflation–contemporary estimates calculate that it reached 606%, the highest in the
history of Chile.
Causes with President
Salvador Allende, architects of the
Vuskovic plan. To date, there are two main lines of interpretation to explain the economic crisis of the government of
Salvador Allende. Some emphasize the little importance that the
Popular Unity government gave to stabilizing the economy, specifically
inflation (
CPI), which had been rising since the previous government and reached 36.5% in 1969, in addition to external economic factors such as the
international oil crisis. In the days following Salvador Allende's narrow election as
president of Chile on 4 September 1970,
Henry Kissinger held a series of urgent telephone conversations on “how to do it” in Chile. “We will not let Chile go down the drain,” Kissinger said in one of those calls to CIA director
Richard Helms, who replied, “I’m with you.” On 15 September, during a fifteen-minute meeting at the White House attended by Kissinger, President Nixon instructed CIA director Richard Helms that Allende’s election was unacceptable, ordering the agency to act with his well-known phrase “make the Chilean economy scream,” as Helms recorded in his notes. signs the promulgating
decree of the constitutional reform that began the
Chilean nationalization of copper. The first major attempt to carry out a series of reforms to change the system had been made by
Eduardo Frei Montalva and the
Christian Democrats during his six-year term (1964–1970), with measures such as the
agrarian reform, the
Chilenization of copper, reduction of inflation, and others, which pointed to a third way between
capitalism and
communism. The program became known as the
Revolution in Liberty. Another cause was the economic
boycott promoted by the opposition to destabilize the government, characterized by business closures, transport strikes, destruction and hoarding of products in order to generate shortages among the population, among other things. There was also the
economic embargo imposed by the
United States, which cut credit lines, blocked Chilean accounts in the U.S., and pressured financial institutions not to invest in Chile as retaliation for the nationalization of copper.
Fiscal deficit and loss of reserves The public sector deficit went from -1.4% of
gross domestic product (GDP) in 1970 to -22.9% in 1973.
Shortages and rationing of basic products Allende's government
systematically violated the constitutional guarantee of the right to property, by permitting and protecting more than 1,500 illegal “takeovers” of agricultural estates, and by promoting hundreds of “takeovers” of industrial and commercial establishments in order later to requisition or illegally intervene in them and thus constitute, by way of dispossession, the state area of the economy.
Nationalization of copper The nationalization of mining, by contrast, was carried out with the unanimous support of all political sectors, with the law (No. 17,450 promulgated on 15 July) approved unanimously in the National Congress. Mining companies were to be paid compensation. The nationalization of mining by the Allende government angered the government of the United States and led
Richard Nixon and his Secretary of State,
Henry Kissinger, to promote a
boycott against the Allende government by denying external credits and seeking an embargo on Chilean copper.
Measures implemented between 1967 and 1977. The orange lines mark the beginning and end of Allende's presidency. The Chilean government favored the engulfment of the national economy by the state, as can be seen in the increase of state participation in mining (from 13% in 1965 to 85% in 1973), in industry (from 3% in 1965 to 40% in 1973), in transport (from 24.3% in 1965 to 70% in 1973), and in the “Product of all sectors” (except agriculture) (from 14.2% in 1965 to 39% in 1973).
Development of the industrial cordons In response to the
lockout initiated by organizations such as the Chamber of Commerce and the Confederation of Production and Commerce, factory occupations increased significantly. Previously, occupations of productive units had already occurred, but they expanded greatly beginning in October 1972 in order to "ensure the continuity of the productive process under workers' control and the defense of the government". The industrial cordons maintained contact in order to coordinate joint protest actions or to exchange
raw materials needed to sustain production. == Education policy ==