CHILE: THE JUNTA STRUGGLES FOR ECONOMIC RECOVERY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700070010-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: November 16, 2016
• Document Release Date: January 7, 2000
• Sequence Number: 10
• Publication Date: August 1, 1974
• Content Type: IM

C I A O E R IM / 4-Ap4.WFor Release 2000104118 : CIA-RDP85T00875R001700070010-2
Chile: The Junta Struggles -for Economic Recovery Aug ~4
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
No Foreign Dissent
Intelligence Memorandum
Chile: The Junta Struggles for -Economic Recovery
Secret
ER IM 74-10
August 1974
Copy
N2 89
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
Classified by 01u319
Exempt from General Doclarsiflcatlon Schedule
of E.O. 11652, exemrtlon category:
? 30(1 (Z , and (3)
Aulomotlcal1y diclassified on:
date lmpossibla to determine
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Socrof
No Foreign Di ??n
Chile: The Junta Struggles
for E4,3,nomic Recovery
The junta that ousted Allende last September moved rapidly to :estore-
economic order, increase production, and halt Allende's socialization program.
o Almost all price controls were removed to encourage domestic
industrial production, and programs were initiated to increase
agricultural output.
A stabilization program was instituted to cut the budget deficit and
reduce the growth in the money supply.
m Wage increases were restiicted, and strict labor discipline imposed,
particularly in the copper mines.
? The escudo was devalued.
? Many expropriated firms were scheduled for return to their former
owners.
? Compensation was arranged for Cerro and Anaconda corporations,
and negotiations continue with Kennecott.
? A repayment formula was negotiated with Chile's chief foreign
creditors.
The junta's most dramatic showing occurred in the copper industry, where
record output and high world prices are combining to give Chile its best external
payments position since 1970. Record export earnings will more than offset the
outlays for high-priced imported oil and food in 1974.
In contrast to the improved external economic outlook, domestic economic
difficulties continue to confound the regime. Inflation, though more constrained
than during Allene-'s last year, still is unmanageable. Incomes have failed to keep
pace with prices, causing demand to deciine and industrial output to stagnate. The
Note: Comments and queries regarding this memorandum are welcomed. They
ma be directed to of the Office of Economic Research, Code 143,
25X1A
Approved For Release 2000/04/18 : CIA-F15T00875R001700070010-24u"t 1974
 Approved For Release 2000/04/18 : CIA-RE8T00875R001700070010-2
economic slowdown is hitting the poor and the workers the hardest and is causing
friction within the junta over economic policy. The free market policies pursued
by the junta's civilian economic advisers have been attacked -ay military advisers
who advocate greater attention to political considerations in economic
policymaking. These differences are not yet criticial, but, if inflation is not soon
brought under control, the split could deepen and public disaffection could grow.
Approved For Release 2000/04/18 : ClA JkE3F185T00875R001700070010-2
 MEMO
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
Introduction
1. In power since SeptAtr.ber 1973, the Chilean junta is still struggling to
devise an effective economic recovery program. It has, for the most part, relied
heavily on a group of orthodox economists - the "Technocrats," or "Chicago
Boys"I - who have pressed policies emphasizing flee markets, tight money, reduced
budgetary deficits, economic decentralization, and dependence on pri,,.
investment. These policies have created hardships for a substantial part of the
population, particularly the poor, and have caused dissension within the regime.
The Allende Legacy
2. The junta that seized power last September inherited an economy in
shambles. Manufacturing during January-September was 8% below the 1972 level
(see Table 1); copper output was off 10%. Agricultural production had declined
Chile: Changes in Real Gross Domestic Product, by Sector of Origin
1970
1971
1972
Jan-Sep
Jan-Dec
Gross domestic product
A
i
l
3.7
8.3
1.6
-9.3
-5.6
gr
cu
ture, forestry, and fishing
Mi
i
d
7.8
5.1
-3.6
-20.0
-16.1
n
ng an
quarrying
Manuf
t
i
1.0
1.7
-6.5
-30.0
0.6
ac
ur
ng
C
t
1.3
12.9
3.1
-8.0
4.3
ons
ruction
Se
vi
2.7
9.6
-10.6
-30.0
-28.1
r
ces
4.9
7.9
4.6
-2.0
-1.7
20% because of mismanagement of the dominant state-controlled sector. Cereal
production had fallen about 30% since 1971, and output of such key crops as
wheat, barley, and sugar beets had dropped between 23% and 38% below 1972
levels. The nations's dairy herds had been drastically reduced because of low dairy
prices. Food imports in 1973 reached a record US $540 million.
1. So known because they were educated at the University of Chicago.
1
Approved For Release 2000/04/18 : CIA-RDSP85T00875R001700070010-2
ecret
 Approved For Release 2000/04/18 : CIA-RDA?,?J00875R001700070010-2
3. Inflation was out of control. By the time of the September coup,
Allende's dependence on the Central Bank to finance his social and development
programs had caused the money supply to balloon 1,400% during three years. Prices
had rocketed nearly 1,100%, outstripping wage increases of 850%; real wages fell
to 80% of the pre-Allende level (see Figure 1). Consequently, in spite of bloated
employment, personal consumption was falling in 1973, following substantial
increases in 1970-72. Investment, which had already been squeezed, fell even more,
and private investment virtually ceased.
CHILE: Price and Wage Trends
January 1970 = 100
10
1970 1971 1972
1974'
'Preliminary
Approved For Release 2000/04/18 : CIA-RDP285T00875R001700070010-2
Secret
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
4. A more rapid increase in consumption than in GNP not only squeezed
investment but also resulted in large foreign trade deficits, which grew from 2%
of GDP in 1970 to 6% in 1973. Foreign exchange reserves virtually disappeared,
and external debt rose to nearly $4 billion.
Efforts at Recovery
5. By the time of Allende's ouster, shortages of most consumer goods had
become acute, the distribution system had broken down, and a general economic
paralysis had begun to set in. The new regime moved rapidly to restore economic
order and return a large part of domestic production and distribution facilities
to the private sector. Price controls were removed from all but 30 basic commodities
and higher prices were fixed on controlled items in an effort to stimulate
production. Prices jumped immediately, bringing goods that had been available only
on the black market into shops and normal distribution networks. The termination
of a disastrous truckers' strike also released stocks stored in warehouses and cut
backlogs at the ports. The consolidation of internal security brought labor
disruptions to an end, leading to a marked recovery of industrial production and
mining. The continuing rise in prices, coupled with lagging income, however, quickly
led to unsalable inventories and to slight declines in industrial production during
the last two months of the year.
6. The International Monetary Fund helped formulate a stabilization
program as a condition for IMF standby credits. The consultations resulted in a
1974 budget target that called for a deficit equal to 6% of expenditures, compared
with the 52% overrun in 1973. The official budget, however, called for a deficit
equal to 23% of expenditures - outlays of $4.3 billion and revenues of $3.3 billion.
7. Fiscal planners have adopted new taxes on capital and income, but returns
thus far have been disappointing and probably will not equal the planned $200
million. Santiago had hoped to save some $1.5 billion by returning many
nationalized and intervened firms to the private sector and reducing subsidies to
state utilities. Stern state regulations on reversion, combined with the poor financial
condition of many firms, however, have dashed these hopes. Moreover, public sector
enterprises are not meeting budget targets, and they face a possible spending
moratorium in the last quarter of 1974. Despite efforts to reduce spending, the
deficit is expected to widen as wage and price increases continue to exceed targets.
Total expenditures could exceed $5 billion against revenues of $3 billion, leaving
a deficit of about 40%.
Reversion of Private Industry
8. As a first step in reducing the role of the public sector, the junta
scheduled the return to private ownership of sonic 400 nationalized firms, about
one-half of which were largely foreign-owned. The erstwhile US-owned copper
companies were not included. Agreements have been reached for the return of
Secret
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
 Approved For Release 2000/04/18: CIA-RDP~85ot00875R001700070010-2
14 textile firms - accounting for about one-half of the industry's capacity - and
nearly 200 other firms, including at least 16 US subsidiaries. Reversion is limited
to those companies that had their properties "unlawfully or illegally taken" and
excludes those that sold out or consented to takeover.
9. In order to reacquire their companies, former owners must agree to accept
the debts incurred during nationalization, waive any claims against the government
for damage to facilities, rebuild and expand the firms, and avoid wholesale labor
dismissals. Moreover, the reemerging owners must agree to a yet-to-be-issued labor
relations decree that may include provisions for worker participation in management
and limits on the owners' freedom to hire and fire.
10. The junta has adopted a new Foreign Investment Code designed to attract
foreign capital. New investment will be channeled through the Committee for
Foreign Investment under contracts of 10-20 years' duration. These accords will
spell out exchange rates and repatriation, tax, and other rules applying to each
investment. Foreign investment ostensibly will be treated equally with domestic
investment. Investment in existing "national enterprises" will be permitted on a
selective basis generally up to 20% of existing equity.
Production
11. liiitial efforts to stimulate production consisted largely of imposing strict
labor discipline with threats of force and dismissals. The workweek was increased
from 44 to 48 hours, and Allende's labor-padding policies were largely discontinued.
Industrial production in October rose about 25% over the severely depressed August
level (see Table 2 and Figure 2). This sharp rise in output stemmed from various
factors. Production of goods in different stages of processing was accelerated as
Chile: Quarterly Index of Industrial Production
1968 = 100
1969
1970
1971
1972
1973
1974
Annual average
1
t
t
104
104
119
123
117
1251
s
q
r
2d
t
93
92
96
112
113
1192
q
r
3d
105
106
117
126
117
1272
qtr
h
107
109
128
126
108
4t
qtr
1 P
111
107
136
126
132
.
rojected.
2. Estimated.
4
Approved For Release 2000/04/18 : CIA-FDB8,5T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
acrot
CHILE: Industrial Production
0
1969 1970 1971 1972 1973 1974
transportation and labor bottlenecks were eliminated. The removal of price controls
generated a rapid drawdown of inventories hoarded in anticipation of higher prices.
The imposition of labor discipline sharply reduced absenteeism, which in many
cases had exceeded 20%. The extension of the workweek added another 10% to
production time. Pilferage of goods for sale oi the black market - which reduced
production in some consumer goods industries by more than 25% - was curbed
by the presence of soldiers in many plants and the elimination of the black market.
5
Approved For Release 2000/04/18 : CIA-RDP8 EQ0875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
12. The rch;rn of labor discipline, although bringing about a sharp recovery
of output, could n~.t sustain continued growth. Inceed, the laying off of surplus
workers, combined with declining real wag's, held down consumer demand.
Consequently, output in November-December fell about 10%, recovered only
slightly in January 1974, and dropped sharply in February.
13. The copper industry has shown the most dramatic recovery. Average
monthly mine production jumped nearly 30,000 metric tone during the last quarter
of 1973 (see Table 3). Total production, 736,000 tons in 1973; may reach 900,000
Chile: Copper Production
Thousand Metric Tons
Major Mines Small and Medium Mines
Total
1970
541
19711
571
151
137
692
1972
Monthly average
593
129
708
722
1973
616
Jan-Sep
45
120
736
Oct-Dec
9
54
19742
770
13
13
83
Jan-Jun
19752
64
800
0
N.A.
900
N.A.
150 0
nc?
1. The assets of the five large copper mines were nation
2. Projected elized in July 1971.
tons in 1974 and 950,000 tons in 1975 as the damage to smelters and refineries
is repaired. The surge in output is due to (1) labor stability accompanying official
guarantees of food, clothing, and other necessities and warnings that workers risk
being sh;-t if they fail to work; (2) replacement of political appointees with skilled
management; (3) new government spending to reliove most shortages of parts and
vehicles; and (4) more effective use cf some $600 million worth of new facilities
built just prior to Allende's takeover of the industry.
14. Although no formal development plan exists, Chile hopes to expand its
present copper production capacity of 1 million tons per year to 1.5 million tons
during the next five years. This goal can be achievt.d only with major imports
of foreign capital and technical assistance. Since the copper industry will remain
under state control, such assistance will have to be acquired under management
and technical assistance contracts and loans repayable in kind.
Approved For Release 2000/04/18 : CIAA@J15T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
15. Chile's ability to attract further US participation depends to a large extent
on the compensation agreements for properties Allende expropriated. Cerro
Corporation, which remained in Chile under contract after nationalization, settled
for $3.2 million in cash and $38.6 million in bonds repayable over 17 years.
Redemption of the bonds with copper equivalent can be accelerated if output from
the Andina mine is expanded rapidly. Cerro has contracted to double the mine's
production by 1975. A recent settlement with Anaconda calls for a cash payment
of $65 million and a $188 million note repayable in 10 years at 10% interest.
Negotiations with Kennecott continue.
16. Many foreign firms have bid on copper development projects in Ch;',e.
A consortium of firms from Belgium, Brazil, Finland, France, and West Germany
extended Chile a $140 million credit to expand small and medium mining
enterprises. The junta also is solicitin private capital to develop the El Abra deposits
in northern Chile at an estimated cost of $450 million. Assistance probably will
be sought in developing recently discovered deposits in the Elqui Valley, which
could eventually yield up to 500,000 tons of refined copper per year. By the
early 1980s, Chile could have an additional 400,000 to 500,000 tons of copper
production capacity.
17. More pressing than opening new mines is expanding the processing and
smelting capacity from the present 850,000 tons to 1.1 million tons. The extra
capacity is needed to counter periodic downtime on smelters for relining, cut
transportation costs, and eliminate exports of low-value concentrates. Most of the
;,nmediate expansion - about 90,000 tons by the end of 1975 - is planned for
the Chuquicamata and Exotica mines.
18. The planting season for most major crops was over when the new regime
assumed power. Cereal production from the 1973/74 harvest registered little
increase over the poor crop of the previous year (see Table 4), as a 31% ,jump
in area harvested barely offset a 22% drop in yields due to poor management
and late planting. Consequently, the country still faces food shortages and may
have to import $650 million worth of food in 1974.
19. Government efforts are expected to lead to higher agricultural production
and lower food imports in 1975. Cereal production in 1974/75 is expected to
increase more than 20% because of price incentives and expanded use of quality
seed and fertilizer.2 The Inter-American Development Bank (I>; B) has provided
a $22 million loan for seed, fertilizer, insecticide, and equipment. This aid is crucial
since poor crop, and low returns to agriculture depleted seed supplies, and poor
2. Original estimates projected an increase of about 35%o. However, heavy storms disrupted planting of about
two-thirds of the winter wheat crop rid destroyed part of the crop that had been planted.
7
Approved For Release 2000/04/18: CIA-RDP85FQ9S75R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
Chile: Cereal Production)
Crop Year
Area Harvested
(Thousand Acres)
Yield
(Kilograms per Acre)
Production
(Thousand Metric Tons)
Annual average
1960/61-1964/65
2,459
628
1,543
1965/66-1969/70
2,422
760
1,841
1970/71
2,392
807
1,931
1971/72
2,427
615
1,493
1972/73
1,937
681
1,320
1973/742
2,538
534
1,355
1974/753
2,300
715-720
1,650
1. Wheat, corn, rye, rice, barley, and oats.
2. Estimated.
3. Projected.
managment caused fertilizer production to drop from 2.5 million tons in 1970
to 800,000 tons in 1973. The government also is reorganizing and expanding farm
credit facilities and is encouraging private firms to compete with government
marketing cooperatives by making more credit available. About $125 million in
government credits will be available in the second half of 1974. Meat production,
which hit a low of 170,000 tons in 1972 because of weak price incentives, is
expected to increase 13% this year to 207,000 tons. Full agricultural recovery,
however, is not expected for at least two years.
20. Initially, the junta appeared to be continuing the agrarian reform program.
In December, titles were grated to some 7,200 families working 300 farms legally
expropriated by the Allende regime. The pace of official acquisitions subsequently
slowed when the Agrarian Reform Law was amended to prohibit expropriation
of holdings of 100 acres or less. The restriction has now been raised to 200 ac-es,
essentially halting further takeovers, since the largest holdings were the first to
be taken by Allende.
21. The new regime has gradually devalued the escudo to roughly b% of
its former dollar value and sim lified Chile's cumbersome multiple exchange rate
system. A Banker's Rate for t de transactions and a Broker's Rate for tourists
replaced the complex structure used by the Allende regime to subsidize consumer
imports while taxing exports. Under Allende the average effective exchange rate
for imports had been 67.5 escudos per dollar, with food imports negotiated at
8
Approved For Release 2000/04/18 : CIA-RDFN4TtO0875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
25 to 1, copper exports at 13 to 1, and other exports at an average rate of about
100 to 1. Exchange rates in early August 1974 stood at 860 to 1 for trade (except
copper exports) and 950 to I for tourists. These rates are effectively unified since
taxes on foreign exchange transactions bring both rates to about 1,070 escudos
per dollar. Copper from the major mines continues to be exported at a lower
rate than other goods, 550 to 1. Nevertheless, this is a much more profitable rate
than under Allende.
Money Supply
22. Despite efforts to reduce speeding and curb inflation, Chil' 's money
supply (money plus quasi-money) grew about 155% during the last quarter of 1973,
bringing monetary expansion for the year to 450%. The private sector accounted
for more than 60% of the 1973 increase. Adding to the problem was the increase
in the velocity of money (estimated at about 35%). Velocity continued to grow
in the first quarter of 1974 as inflationary expectations made the holding of escudos
unattractive. The junta has sought to gain more control over monetary expansion
through reorganizing the banking system, limiting deficit spending, and curbing
the expansion of credit in the private sector. Although the junta's planned 15%
cut in public sector outlay and 20% cut in public sector employment could shave
some $700 million off the current deficit, other measures such as higher taxes
and improved savings instruments will be needed to curb the growth in money
supply and velocity.
Prices, Wages, and the Erosion of Incomes
23. Abandonment of price controls tinder the junta hit the poor hard.
Consumer prices jumped nearly 110% in the last quarter of 1973, bringing inflation
to about 710% for the year.3 Prices advanced another 145% during the first half
of 1974, dashing hopes for holding increases to 200% for the year. The
extraordinarily high rate of inflation stems largely from the surge in world prices
of imported petroleum and agricultural goods reinforced by the sixteenfold exchange
devaluation. Continuation of the January-June rate would generate price increases
of 500% for 1974. Even if the junta is able to cut the inflation rate by one-half
to about 8.5% per month, the cumulative price rises still will reach 300%.
24. To help offset the impact of spiraling prices, the junta granted wage
increases in January averaging 55%; in May, 30%; and in July, more than 20%.
Cost of living bonuses also have been granted to the poorest workers. Despite these
increases, real wages still are about 7% lower than last January. The poor have
managed to maintain their position because of the bonuses. Higher income groups
have suffered the largest erosion, with reduction in family purchasing power of
25% or more.
3. The junta adopted a new price index in January designed to better reflect changes in consumer purchasing
power. According to the previous index, prices in 1973 rose 508%.
9
Approved For Release 2000/04/18 : CIA-RDe?AT00875R001700070010-2
 Approved For Release 2000/04/18 :CIA-RSDP85T00875R001700070010-2
ocro
The Formulation of Economic Policy
25. Santiago's difficulties in coping with inflation and the constant
deterioration of workers' real incomes have led to a disagreement within the junta.
The Committee of Advisers to the Junta (COAJ) - a body comprising military
officers - has disagreed with the orthodox, free enterprise policies employed by
Minister of Economy Fernando Leniz and junta economic adviser Raul Saez.
General Cannessa of the COAJ and later Admiral Merino of the junta - previously
a strong supporter of the orthodox approach - seek to give more weight to political
and social considerations in the formulation of economic policy. As a result, the
National Development Corporation (CORFO), with the support of the COAJ, has
dragged its feet in returning businesses expropriated by Allende. Although President
Pinochet has moved with expanded subsidies and bonuses to soften the impact
of austerity on the poorer sectors, he continues to follow the orthodox Leniz-Saez
economic game plan and has elevated Saez to economic czar as head of the newly
created Ministry of Coordination.
26. In his new post, Saez, who was originally iesponsible for Leniz's
appointment to the Ministry of Economy, will coordinate the economic policy
aspects of the Ministries of Finance, Economy, Mines, Agriculture, and
Transportation and the National Planning Office (ODEPLAN). This centralization
of economic policymaking, together with the retention of Leniz as Minister of
Economy and the appointment of Jorge Cauas (former Vice-President of the Central
Bank) as Minister of Finance, consolidates a competent team of economic
administrators. These reorganizations and shifts in personnel portend continuation
of the government's current austerity program, rapid denationalization of
expropriated firms, and encouragement of foreign investment. Although COAJ
continues to function as an advisory body, policymaking is now firmly centralized
in the hands of civilian administrators.
27. Chile's economy should experience a modest recovery in 1974 despite
continuing economic difficulties. High world copper prices, improved profits, and
restored productive capacity should boost GDP by 6%-7%. Manufacturing output
should increase 8%-10% above 1973's depressed level, mining will increase 20%-25%,
and construction about 12%-15%. Services - the largest component in Chile's
national accounts - will rise slowly because of the junta's desocialization and
reorganization of government services. Except for copper, however, these growth
rates represent only a partial recovery from the declines of 1973 and will leave
output below the 1970-71 levels. They are a product of the return of labor stability.
28. Inflation will continue to threaten economic and political stability. Prices
probably will jump more than 300% this year. Higher prices for imported food
and petroleum and reduced subsidies ea consumer goods are combining to further
erode worker purchasing power. Although nominal wage increases in 1974 probably
10
Approved For Release 2000/04/18 : CIA-FOP&5T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Secret
will exceed 300'/,, real wages are expected to drop further. The erosion of real
wages is being accompanied by an even more serious deterioration of real family
incomes because of reduced employment. Unemployment is officially listed at more
than 9"%,, the highest in I S years. And this does not include a much larger figure
for underemployment. A 10'%-I 5% jobless rate by the end of the year is likely,
with little prospect for improvement in 1975. The resulting reduction in effective
demand will be the chief' constraint on the growth of industrial output.
29. Despite estimated outlays of $1 billion for food and fuel imports this
year, copper earnings of more than $1.6 billion should give Chile its best trade
and payments balance since 1970. The 1974 trade deficit is projected at $220
million, and the current account deficit at $430 million. With some $470 million
of debt rescheduled and $474 million in credits, Santiago's payments will register
a deficit of about $50 million (see Table 5).
30. The projection of 1974 copper earnings assumes output of 900,000 tons,
exports of 850,000 tons, an average 1974 London Metal Exchange (LME) price
of $0.98 per pound, an average f.o.b. price of $0.88. The average LME price for
the first half of the year was $1.17, and prices during the see'.nd half are expected
to average around $0.80. The expected decline in copper prices assumes (1) slowed
world industrial activity that lowers demand for primary products, (2) no prolonged
strike in the US copper industry, (3) continued rebuilding of LME refined copper
stocks, and (4' maintenance of lower copper inventories by ir,iustrial consumers
because of high interest rates and uncertain growth prospects.
31. The junta had moved rapidly to reestablish Chile's creditworthiness in
the aftermath of the coup. Only an estimated $160 million was paid in 1973 on
$518 million of scheduled payments (see Table 6). More than $740 million was
due in 1974, including about $325 million carried over from 1973. When it became
obvious that Santiago could not make the payments, Chile's major Western
creditors - the Paris Club -- agreed in March to reschedule 95% of Chile's
renegotiable debt. The master agreement calls for payment of 5% of the rescheduled
debt this year, 5% in 1975, 10% in 1976, and the balance during the following
seven years. Depending on tht outcome of the various bilateral agreements. Chile
will pay about $270 million (including $80 million of non-rescheduled principal)
in 1974. About 60%n of some $100 million owed to other creditors, largely
Communist nations and international institutions, has not yet been rescheduled.
32. Chile's trade and payments prospects in 1975 depend on continued high
prices for copper and recovery of agricultural production. If copper output reaches
950,000 tons, exports amount to 900,000 tons, and LME copper prices average
$0.85 per pound, copper earnings would be reduced to under $1.5 billion. This
loss would be nearly offset if improved agricultural production is able to cut
Santiago's food import bill by 25% to about $500 million. An average LME price
of $0.80, however, would result in a net loss of $100 million. Even with good
copper prices, Chile will require private capital inflows of about $50 million, official
inflows of about $400 million, and another round of debt relief.
11
Secret
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
 Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
Socrot
Chile: Balance of Payments, 1974
Million US $
Exports (f.o.b.)
1,980
Copper
1,650
Other mining
110
Agriculture and fishing
30
Industrial products
190
Imports (c.l.f.)
2,200
Foodstuffs
650
Fuels and lubricants
350
Capital.goods
400
Other
800
Trade balance
-220
Net services and transfers)
-210
Current account balance
-43Q
Private capital (net)
30
Public sector capital (net)2
350
Capital inflows
474
Government to government
135
International organizations
154
International banking consortia
150
Consortium mining loan
35
Debt amo-tization
-594
Debt relief
470
Paris Club
425
Other
45
Capital account balance
380
Reserve movements (increase +)
-50
1. Including $148 million worth of interest payments on the external debt.
2. Projected 1974 drawings. The consortium mining loan is a joint development credit
from Belgium, Brazil, Finland, France, and West Germany for $140 million. Application for
some $75 million in P1,480 assistance is not reflected in projected drawings.
12
Approved For Release 2000/04/18 : CIA-RDP85T00875R001700070010-2
ecret
 Approved For Release 2000/04/18 : CIA-RDP85Tt00875R001700070010-2
ocr
Chile: Summary of External Debt Service Payments
Million IIS $
United
States
Other Member
Countries
Total
International
Institutions
Other
Total
1973
Debt service
payments due
240.2
213.9
454.1
29.7
34.4
518.2
Estimated payments
37.6
78.8
116.4
21.7
22.3
160.4
Debt relief
202.6
135.1
337.7
8.0
12.1
357.8
1974
Debt service
payments due
Carried over
314.9
from 1973
Falling due in
170.21
135.1
305.3
1974
144.7
191.0
335.7
31.3
49.8
416.8
Projected payments
....
....
216.0
56.2
272.2
Debt relief
....
...
425.0
45.0
470.0
13
Approved For Release 2000/04/18 : CIA-RDPaiTT0875R001700070010-2