THE CURRENT STATE OF CHILE'S ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010030-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 19, 2016
• Document Release Date: May 16, 2006
• Sequence Number: 30
• Publication Date: November 21, 1973
• Content Type: MF

 Approved For
ez-41,ozx IS-0,Y4?0-,7-3
21 November 1973
SUBJECT i The Currant, State of Chl.lo'o Economy .
ME14ORAt2DUM rent Chief, OCI/wi11r/SAW
Attached is the briefing material on Chile as per
your request of 14 November 1973. If you have further
25X1
questions, ploaso contact
Chief
South P.marica Branch, OER
Attachmenti
As stated
Distribution: (S-5690)
Orig. & 1 - Addressee
1 - D/OER
1 - SA/ER
1 - ' t/D
1 - St/P
i D/,,A
OER/D/LA
(21 Nov 73)
31A-RDP85T00875R001900010030-4
Approved For Release 2006/Qfll
t?X-9i,~
25X1
25X1
 Approved For
The Currant State, of Chil'?''s, Economy
I. Salvador Allende was elected prenidont in 1970 by
approximately 36% of the popular vote on a platform
of social reform and egalitarian redistribution of
income. The vote was divided along class lines with
Allende's support coming largely from the poor and
militant youth and main opposition from middle class
business and professional interests.
II. The first year of Allende's rule (1971) saw an apparent
improvement in the economy.
A. Income levels of the poor and workers were raised
sharply.
Be Rising demand took up the slack in the semi-stagnant
economy and GDP grew by 8.0--while unemployment fell.
C. Land was expropriated and turned over to the poor. N
D. Business enterprises, including foreign-owned copper
companies,. were expropriated. By 1973, more than
half of GDP was generated by government-owned business.
III. Behind the facade of prosperity remained the central fact
that Chile was living on its capital and that decapitalization
was taking place at a rapid pace. The effects of this
policy became evident in 1972.
A. Inventory stocks were drawn down and foreign exchange
and credit were used to meet-rising demand.
Approved For Release 2006/09/% l, f DP85T00875RO01900010030-4
 .25X1
Approved For Release 2006/09/26: CIA-RDP85T0
B. Inefficiencies in the agricultural sector resulting
from land redistribution were compensated for by
rising imports of agricultural products and food.
C. Foreign exchange was drawn down and debts incurred
to support the rising level of food and industrial
raw material imports.
D. Exports declined duo to poor management of
expropriated firms and the destruction of investor
confidence.
E. GDP declined by 0.7% in real terms in 1972 compared
to an 8.4% increase in 1971.
IV. Chile's international financial position deteriorated
sharply under the Allende regime and its external debt
nearly
doubled from $2 billion to/$4 billion.
A. in 1971, balance of payment deficits totaled $305
million compared to surpluses averaging $145 million
annually in the three preceding years.
B. In 1972, Chile's total external debt rose by nearly
$910 million, including more than $200 million of
short term suppliers' credits. The balance of
payments deficit totaled nearly $330 million, despite
the suspension and rescheduling'of more than $360
million of external debt repayments.-
Approved For Release 2006M/262.+CIA-RDP8 001900010030-4
 V.
Approved For Rd
The post-Allende regime's initial economic policies
have been directed at stimulating domestic production
while returning to an essentially market economy.
A. The junta devalued the escudo by nearly 60% and.
reduced the number of exchange rates from six to
two. Devaluations are likely to continue until
a single exchange rate is achieved sometime next
year, a move which should eventually improve
Chile's balance of trade and payments.
B. The junta has adjusted prices to more closely
approximate free market prices. The resulting
increases, ranging generally from 200% to 400%,
have eliminated the once thriving black market and
have brought demand and supply of consumer and
producer goods more nearly in line.
C. The junta has increased the minimum wage while
cancelling a scheduled general wage increase. The
minimum wage, if enforced, should ease the-burden
of the price increases on the lower classes while
the freeze on general wages will hold down costs to
,permit the recovery of production as well as reduce
demand.
D. The junta increased the work week from 44 to 48
hours. The increase has already stimulated the
Approved For Release 2006/09/26 : CIA-RDP8 Xt4V '1R001900010030-4
 Approved For Rele
recovery of copper production and reportedly is
working wall in other sectors.
Vi. The price increases and wage freezes., however, have
reduced real incomes.
A. Chile's cost of living ;}ti,mped 88% in October,
pushing the inflation rate to 450% for the first
ten months of the year. Inflation for the year
probably will exceed 600%.
B. Despite the price increases, it will take many
months for domestic-production, especially agriculture,
to recover. The immediate consequence has been
windfall profits for many merchants.
VII. Unemployment continues to be a serious obstacle to Chile's
recovery.
? A. Payroll padding under Allende was a major cause of
decreased productivity in nearly every sector --
even though it did reduce the level of unemployment.
B. The junta has dismissed large numbers of unproductive
government personnel thus increasing unemployment.
VIII. The immediate problems of the junta are complicated by
needs for substantial short-term credits and development
assistance.
A. Chile needs an estimated $720 million to meet its
external requirements over the next year. It is
-4-
Approved For Release 2006/09/26 : Cl
 Approved For Release
believed that this total is now available.
1. Credit lines inherited from Allende amount to
about $350 million.
2. Chile has arranged $173. million in short-term
credits from US avid Canadian banks and is
negotiating for another $75 million.
3. Other pending financial assistance includes
an estimated $442 million from Brazil and
Argentina, of which $200 million would be
earmarked for capital goods and $50 million for
direct balance of payments relief.
B. The United States has thu?a far granted $24 million
in CCC credits for wheat purchases and another $28
million is pending for corn and grain sorghum
purchases.
C. Chile's grain needs are urgent due to the deterioration
of agriculture under Allende. Food imports in 1973
will be about $700 million, compared with pre-Allende
levels of $200-$250 million. Even with some agricultural
recovery in 1974, they still will be around $500 million.
IX. Assistance from International Financial institutions will
depend on Chile's ability to develop a viable economic
recovery and stabilization plan.
Approved For Release 2006/09/26: CIA-RDP85T008QW16 010030-4
 Approved For Release - RO01900016030-4
A. Failure to submit such a plan precipitated Allende's
loss of credits from international sources.
B. An IMF team is currently, in Chile to evaluate
conditions and prospects. The team's report will
be issued in January, prior '.:o a meeting of Chile's
major creditors to consider the renegotiation of
Chile's foreign debts of nearly $4 billion.
X. The new government appears ready to meet its obligations
eminating from Allende's nationalizations.
A. Equitable settlement of outstanding compensation
c_aims will encourage new foreign investment and
serve to improve US-Chilean relations.
B. The junta will not denationalize the copper properties.
However, new investment opportunities on a contract
basis may be possible in the future.
,XI. The copper industry, Chile's chief source of foreign
exchange, will play a key role in economic recovery and
is already showing signs of recovery.
A. Although copper production in 1973 is expected to
be around 650,000 to 670,000 tons -- down 8% from
1972 -- production in October was more than 52% above
the October 1972 level.
B. With improved worker discipline and better mine
management, copper production in 1974 is expected
to reach a record 750,000 tons.
Approved For Release 2006/09/26: CIA-RDP85T0Q6iT 900010030-4
-6- !:i: -
 Approved For Rel
D. Capacity in the major mines was expanded by nearly
200,000 tons prior to Allende's nationalizations.
Although Allende failed to fully use this now
capacity, the junta is expected to significantly
increase production in the years ahead.
E. At present, the major constraints to copper production
are shortages of spare parts and such eervicable
small rolling stock as tractors and service trucks.
In some areas less than 40% of critical rolling
stock is presently operable.
F. Despite reports of large scale worker layoffs since
the change of government, dismissals in the mining
sector have amounted to less than 2.5%. Allende
had increased the number of miners by over 25%.
CIA/OER
20 November 1973
-7-
Approved For Release 006/09/26
?~ ' 01900010030-4
 't'auJ.o 1 _ J
Approved For ReWii%iO ffig6i .aChi~ FIPC 8goTmO .8c 5J.nc1LC0atoro 0-4
Total not foreign reserves
(Millions of US $)
Inflation (Percent
variation from December.
to December
Exports (Millions of US $)
Imports (Millions of US $)
Customs registrations
Import payments
Payment gap
Money supply (Billions
of current escudos)-
Copper production
(Thousands of metric tons)
Large mines
Small and medium mines
Iron ore production
(millions of metric tons)
'1969 '
'1970
25200
343.2,
29.3
34.9
1,174.0
1,135.0
917.0.
948.0
927.0
1,001.0
(10)
(53)
7.7
12.1
688.1
685.6
(540.4)
(534.5)
(147.7)
(151.1)
11.5
11.3
Urlemployment -- greater Sept.
Santiago (Percentage),: 5.3
Central government deficit
or surplus (as a percent
of total central govern- Surplus
expenditure) 1.3
Central government deficit
or surplus (as a percent Surplus
of GDP)
Percentage growth of GDP
(In 1965 prices) .
1973
1971
1972
Proiecte&
38.8
-289.3
-450 (Sap
22.1
163.4
300
984.0
'858.0
1,060
1,166.0
1,432.0
1,454
1,085.0
1,2P5.0
1
81 '' 147
. 25.8 68. 0
' 708.3 ' 718.2 670
(571.3) (593.1) (540)
(137.0) (125.1) (130)
11.2 9.2 9.0
Sept. Sept. Sept. Sept.
6.4 4.8 3.0 4-5
Deficit Deficit Deficit Deficit
11.6 33.3? 60.0
Deficit Deficit Deficit Deficit
0.2
3.3
0.7
3.1.
9.5 22.3
8.4'x.. -0.7
Approved For Release 2006/09/26 :'CIA-RDDP85T00875R001900010030-4
 Approved For Release 2006/09/26 tC-RDP851Q0875R001900010030-4
n nue
Chile: Important Economic Indicators
9;13`
1969
1970
1971
1972
Projected
Percentago growth of GDP
per capita (In 1965,
prices)
0.7
0.6
5.5
-3.2
.-7.5
GDP growth by sector
Manufacturing (Percentage
+4.2
1.3.
+12.9
+2.5
-10.0
change)
Mining (Percentage change)
+4.0
1.0
1.7
-0.8
-9.0
Agriculture
68/69
69/70
70/71
71/72
72/73
(C.op year)
-4.0
+5.0
+5.1'
'-16.0
-14.0
Approved For Release 2006/09/26 CIA-RDP85T00875ROO1900010030-4
 Approved' For Release 2006/09/26: CIA-RDP85TO0875R9Q19Q0010030,4'
.;,,'Summary, Balanco of-,'1?aymonts (IMF .format)'
,' . ~
' 1
'
'
9 70
19 71
...r.., ? l972
Exports
Imports (Registrations)
-948, '?-1166'? '
-1432
. ' Trade Balance ' ?137 ?,'' -182
4. ,., Invostment Income
5... Other services . ; '
? ' 1
6. Current Account Balance
7.' Private Capital.
8.. -Public Seoto,,
. , 9.
?Capital,Account Balance
10.. Er.:ors and omissions
11. Total Deficit; (6+9+10)
12. SDR Allocation
13. Debt Relief
14.
? Growth in Floating
Debt to Suppliers
.15. Reserve Movement
? Tablo 2 . ? ,; ,
11,35 ,984 ''.858
..' -164 ,~ ,~ ,137
-64 '
+123
2Z ' .17
..574''-
-27
Approved For Release 2006/09/26': CIA-RDP65T00875'R001900010030-4
361
 Approved For Release 2006/09/26 : CIA-Rifflc5-W0875R001900010030-4
Rcscr'c Aswts and Liabilltics of Ilia Bnnklng System
Million115 S
?
Dec
Dec
Dcc
Mar
Sep
1970
1971
1972
.. ,
1973
1973?
Total Disposable Assets;
439.4.
252.6
203.7-
166
3
130
or which.. .
-Cent.ul Hank
(378.8)
(213.S)-
(150.4)
.
,
06.7)'
(70)
"Commercial WAS
? (60.6)
(39.1)
(53,3)
(59.6)
'(60)
Non-Liquid Aucts
16.7
7.6
1.4
22.4
LabUitics:
112.9 ?
222.0
494.4
548.2
600
Of which .. .
-Central Bank
.(62.8)
?(128.6)
?
(261.3)
(297.5)
'-Commercial Banks
(50.1)
(93.4)
(233.1)
(250.7)
(..)
Net)tescn'cs:
343.2
38.2
-289.3
?359.5 ,
?450
9 Stim~ted
Approved Por Release 2006709/26 CIA-RDP85TO0875ROO1900010030-4