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Pinochet's Economic Policies

Pinochet was not an economic genius. However, he turned out to be clever enough to hire an ambitious Friedmanite liberal economic team, which turned Chile into an "economic miracle" that, like it or not, was envied across Latin America. It came at a bloody price, but it came nonetheless - contrary to many previous examples in which a similar price was paid but there were no results. And it was, ultimately, Pinochet who presided over that miracle. He said many times - though no one believed him - that everything that was done under his rule was done for the sake of the Chilean people. The Chilean dictatorship kept their word. The pension fund has evolved into a reliable source of support for the country's elderly; the effort to wipe out illiteracy was much more successful than Allende's.

Beginning in 1974, the military government began to implement free-market economic policies, including the elimination of long-standing widespread price controls. By the mid-1970s, the dictatorship switched from destroying the old order to constructing its version of a new Chile. The junta not only overturned decades of democratic government but also decades of statist economic policies, which had mainly protected industrialists and organized workers. The new economic program was designed by civilian technocrats known as the "Chicago boys" because many of them had been trained or influenced by University of Chicago professors. The government instituted a dramatic conversion to free-market economics in 1975.

After curbing inflation and returning a significant amount of property to its former owners, the administration embarked on a radical program of liberalization and privatization, slashing tariffs as well as government welfare programs and deficits. As a result, the economy grew rapidly from 1976 to 1981, a feat heralded as the "Chilean miracle." That growth was fueled by the influx of private foreign loans until the debt crisis of the early 1980s. Financial conglomerates became the major beneficiaries of the open economy and the flood of foreign bank loans. Exports of nontraditional commodities, especially fruit, timber, and fish products, also grew impressively; the value of new exportables came to equal that of copper sales. Despite high growth in the late 1970s, income distribution became more regressive and unemployment stayed in double digits. The underemployed informal sector also mushroomed in size. The regime responded with a "minimum employment" public works program.

The government undertook large scale privatizations, which were among the most important aspects of these structural reform measures. In addition to curbing inflation, the military government embarked on a comprehensive privatization program, divided primarily into two phases. In the first phase, between 1974 through 1979, the government privatized most state-owned banks and manufacturing firms, which previous administrations had nationalized in the early 1970s.

By 1980, the government had privatized approximately 90% of all previously state-owned companies, which represented more than 500 companies. In addition, the government began a comprehensive reform of its social security system in 1980. Under this reform, the government replaced the social security system with a privately run system of individual pension plans. This privatized pension system is based on individualized accounts with fully funded, vestable and portable benefits that are entrusted to specialized pension management companies known as administradoras de fondos de pensiones, or AFPs.

In the second phase of privatizations, between 1984 through 1989, the privatization efforts of the government focused on traditional state-owned companies such as the telecommunications, electricity and steel production enterprises. By 1989, the government had also privatized most of the state-owned enterprises held by Corfo, a state-owned holding company that held a substantial amount of the government's interest in state-owned companies. By the end of this phase, the government had sold 33 state-owned enterprises.

Third, beginning in 1990, the government modified the policy toward privatizations, increasing transparency in the process. Since previous administrations had already undertaken a large-scale program of privatizations to reduce the overall size of the public sector, the Concertación governments decided to analyze future privatizations on a case-by-case basis, and in certain limited cases, to retain a non-controlling interest in the privatized companies. Between 1990 and 2008, there were 30 principal privatizations (of which 15 are through concessions) in different sectors, including water supply, sewerage, power utility and transportation.

In conjunction with the liberalization of the economy, the junta implemented a series of social reforms to reduce the role of the central government in social security, labor disputes, health care, and education. These reforms fit with the desire to shrink the central government, decentralize administration, and privatize previous state functions. Critics charged that the welfare state was being dismantled to leave citizens at the mercy of the marketplace. The regime retorted that it was focusing its social assistance on the poorest of the poor to meet basic needs, and it pointed with pride to improvement in such indicators as infant mortality.

The most important of the government's so-called modernizations in social policy was the 1979 Labor Plan. The regime had already outlawed the CUTCh, Marxist union leaders, several Marxist unions, union elections, strikes, and collective bargaining. Nevertheless, after bearing the brunt of repression in 1973-74, unions gradually revived in the late 1970s. Little by little, cooperation increased between Marxist and Christian Democrat union leaders, the latter making gains because the former were outlawed. Although a few unions supported the government, most firmly opposed the regime and its economic program. The Labor Plan sought to codify the dictatorship's antilabor policies. It placed stringent limits on collective bargaining, strikes, and other union activities, especially any participation in politics. Almost all labor unions rejected the Labor Plan and aligned with the opposition.

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Page last modified: 04-12-2012 19:01:38 ZULU