Economic history of Chile

Economic history of Chile

Colonial times Real Situado Hacienda Encomienda Alerce logging Century of wheat Bourbon reforms

Early republic Chilean silver rush Chilean wheat cycle Long depression in Chile

The Saltpeter Republic Saltpeter War Tierra del Fuego gold rush Meat riots

Internal growth era Copper mining during WWII CORFO ECLAC Chilean land reform Nationalization of copper Vuskovic plan

Return of liberalism Chicago Boys El ladrillo Crisis of 1982 Miracle of Chile Asian crisis 2004 energy crisis

The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. A period of relative free trade that began with independence in the 1810s bought a modernizing development of certain sectors of the Chilean economy and to the formation of a local business class, a novelty in Chile. Chile experienced its first modern economic crisis with the Long depression in the 1870s.

The exploitation of lucrative nitrate deposits of the north conquered in War of the Pacific (1879–1884) marked a whole epoch in the history of Chile and its legacy for has been widely debated.

In the first half of the 19th century Chile suffered severe economic recessions. This period saw the rapid urbanization of the country, and a state led partial industrialization the economy. With the establishment of ECLAC in 1948 Chile became a regional centre of economical research.

In the mid-1970s under the influence of the Chicago Boys, Pinochet's military dictatorship initiated neoliberal economics policies that have been credited to have resulted in booms for the primary sector (copper, wine, salmon, etc.). Also in the post-coup period there has been a rise in outsourcing, self-employment, informal employment and an increase in women's share in the labor force.

Pre-Hispanic economy

In the Far North the Pre-Hispanic economy of indigenous groups were divided among those that practised agriculture and were sedentary and the Changos that lived as coastal hunter-gatherers. The sedentary groups raised llamas and practised irrigation techniques. Bone necklaces, gold and copper objects interpreted as luxury goods suggest according to Villalobos et al. certain level of social stratification among the sedentary groups.

At the time of the arrival of the first Spaniards to Chile the largest indigenous population concentration was in the area spanning from Itata River to Chiloé Archipelago. In this area indigenous groups practised glade agriculture among the forests. The forests provided firewood, fibre and allowed the production of planks. Agriculture type varied; while some Mapuches and Huilliches practised a slash-and-burn type of agriculture some more labour intensive agriculture is known to have been developed by Mapuches around Budi Lake (raised fields) and the Lumaco and Purén valleys (canalized fields). Tools are known to have been relatively simple. In addition the Mapuche and Huilliche economy was complemented with chilihueque raising. The southern coast was particularly rich in molluscs, algaes, crustaceans and fish.

The fjords and channels of the Chilean Far South (excluding Chiloé Archipelago) were inhabited by nomadic canoe-using hunter-gatherers. These groups included the Chonos, the Alacaluf and the Yaghans.

Colonial economy

Funding of Santiago in 1541. The founding of cities was important for the economical order that emerged in Chile during its conquest.

Spanish conquest

The conquest of Chile was not carried out directly by the Spanish Crown but by Spaniards that formed enterprizes for those purposes and gathered financial resources and soldiers for the enterprise by their own. In 1541 an expedition (enterprize) led by Pedro de Valdivia founded Santiago initiating the conquest of Chile. The first years were harsh for the Spaniards mainly due to their poverty, indigenous rebellions and frequent conspirations. The second founding of La Serena in 1549 (initially founded in 1544 but destroyed by natives) was followed by the founding of numerous new cities in southern Chile halting only after Valdivia's death in 1553.

The Spanish colonization of the Americas was characterized by the establishments of cities in the middle of conquered territories. With the founding of each city a number of conquistadores became vecinos of that city being granted a solar and possibly also a chacra in the outskirts of the city, or a hacienda or estancia in more far away parts of the countryside. Apart from land natives were also distributed among Spaniards since they were considered vital for carriyng out any economic activity.

Beyond substistence the 16th century economy of Chile was oriented towards large-scale production. Spanish colonizers used large amounts of indigenous labour following the slave labour system used in the sugar cane plantations of the Mediterranean islands and some Atlantic islands. This system of labour successively killed the production base leading to the imposition of the encomienda system by the Spanish Crown in order to prevent excesses. In Chile Spanish settlers managed to continue to exploit indigenous labour under slave like conditions despite the implementation of the encomienda. Rich Spanish settlers had over time to face opposition to their mode of production by Jesuits, Spanish officials and indigenous Mapuches.

All mainland Spanish settlements (red dots) south of Biobío River were destroyed by 1604.

The initial Spanish settlers of Chiloé Archipelago (conquered in 1567) attempted to base their economy on gold extraction and a "hispanic-mediterranean" agricultural model. This activity ended in a general failure given the unsuitable conditions of the archipelago. Spaniards however reoriented their activities into logging Fitzroya.

Century of the suet (1600-1687)

The collapse of the Spanish cities in the south following the battle of Curalaba (1598) meant for the Spaniards the loss of both the main gold districts and the largest indigenous labour sources. After those dramatic years the colony of Chile became concentrated in the central valley which became increasingly populated, explored and economically exploited. Following a tendency common in the whole Spanish America haciendas were formed as the economy moved away from mining and into agriculture and husbandry. Compared to the 16th and 18th centuries Chilean mining activity in the 17th century was very limited. Over the course of the 17th century the indigenous population of Chile declined making the encomiendas less and less important. Chilean encomenderos who had encomiendas in Cuyo, across the Andes, introduced to Chile indigenous Huarpes who they hired to other Spanish without encomiendas.

1744 engraving published in Relación histórica del viaje a la América meridional. The image shows cattle in the Chilean countryside including a square for cattle slaughter.

In the 17th century economy of the Viceroyalty of Peru Chile's husbandry and agriculture based economy had a peripheral role, contrasting to ore-rich districts like Potosí and the wealthy city of Lima. Husbandry products made up the bulk of Chilean exports to the rest of the viceroyalty. These products included suet, charqui and leather. This trade made Chilean historian Benjamín Vicuña Mackenna labbel the 17th century the century of suet (Spanish: Siglo del sebo). Other products exported included dry fruits, mules, wines and minor amounts of copper. Trade with Peru was controlled by merchants from Lima that not only managed also the trade with Chile and Panama but also enjoyed protection by the authorities in Lima. In addition to the exports to coastal Peru Chile also exported products inland to Upper Peru trough the port of Arica. Trade inside Chile was small since cities were tiny and self-sufficient.

Generally the extraction of wood had little importance in colonial Chile but Chiloé Archipelago and Valdivia were exceptions. These two areas exported planks to Peru. With the destruction of Valdivia in 1599 Chiloé gained increased importance as the only locale that could supply the Viceroyalty of Peru with Fitzroya wood. In 1641 the first large shipment of Fitzroya wood left Chiloé.

Century of the wheat (1687-1810)

See also: Bourbon reforms and Chilean wheat cycle

In the 1650–1800 period the Chilean lower classes grew considerably in size. To deal with the poor and landless population a policy of founding cities and granting lands in their surroundings was implemented. From 1730 to 1820 a large number of farmers settled in the outskirts of old cities or formed new cities. Settling as a farmer in the outskirts of old cities (La Serena, Valparaíso, Santiago and Concepción) was overall more popular than joining a new city since it secured a larger consumer market for agricultural products. Chilean haciendas (latifundia) engaged little in the supply of Chilean cities but focused on international exports for revenues.

“	without Chile, Lima would not exist	”
—Viceroy José de Armendáriz in 1736

Chile begun exporting cereals to Peru in 1687 when Peru was struck by both an earthquake and a stem rust epidemic. Chilean soil and climatic conditions were better for cereal production than those of Peru and Chilean wheat was cheaper and of better quality than Peruvian wheat. According to historians Villalobos et al. the 1687 events were only the detonant factor for exports to start. The Chilean Central Valley, La Serena and Concepción were the districts that came to be involved in cereal export to Peru. It should be pointed out that compared with the 19th century the area cultivated with wheat was very small and production modest.

Initially Chilean latifundia could not meet the wheat demand due to a labour shortage, so had to incorporate temporal workers in addition to the permanent staff. Another response by the latifundia to labour shortages was to act as merchants buying wheat produced by independent farmers or from farmers that hired land. In the period 1700 to 1850 this second option was overall more lucrative.

The 1687 Peru earthquake also ended a Peruvian wine-boom as the earthquake destroyed wine cellars and mud containers used for wine storage. The gradual decline of Peruvian wine even caused Peru to import some wine from Chile as it happened in 1795 when Lima imported 5.000 troves (Spanish: botijas) from Concepción in southern Chile. This particular export showed the emergence of Chile relative to Peru as a wine-making region.

Haciendas of central Chile are believed to had become labour-saturated by 1780 generating an "excess" population that could not be incorporated into their economy. Some of this population settled in the outskirts of larger cities while other migrated to the mining districts of Norte Chico. Chile saw an unprecedented revival of its mining activity in the 18th century with annual gold production rising from 400 to 1000 kg over the course of the century and the silver annual production rising from 1000 to 5000 kg in the same interval.

Smuggling became increasingly common in the 18th century Chile. Governor Francisco Antonio García Carrasco in picture was involved in a smuggling scandal.

Direct trade with Spain over the Straits of Magellan and Buenos Aires begun first in the 18th century constituting primarily an export route for gold, silver and copper from Chilean mining. By the same time Spains trade monopoly with its colonies was successively weakened by smugglers from England, France and United States.

Independence Era (1810-1830)

See also: Chilean Independence War

The independence wars in Chile (1810–1818) and Peru (1809–1824) had a negative impact on the Chilean economy. Trade was disrupted and armies in Chile pillaged the countryside. The war made commerce a high risk activity and royalist Peru, then the only market for Chilean agricultural products, was closed to commerce with independent Chile. The Guerra a muerte phase was particularly destructive for the Biobío area and ended only to see a period of outlaw banditry (e.g. Pincheira brothers) occur until the late 1820s.

Trade with Peru did not fully recover after the independence struggles, instead commerce with United States, France and United Kingdom took off in the 1820s.

Liberalism (1830-1945)

Early republican boom (1830-1873)

A modern Chilean steamboat and a primitive rafts in Huasco in the 1850s illustrates the uneven modernization of the Chilean economy.

See also: Chilean silver rush and Chilean wheat cycle

In the early republican period Chilean international trade grew considerably. Merchants from countries like England, Italy, Germany and the United States settled in Chile. Chile was officially open to trade to all nations since 1811 but applied protectionist policies to favour domestic production in a manner that has been called neomercantilism. Chile's relative openness to international trade contrasted with contemporary truly protectionistic policies of Peru and Argentina. The 1830—1870 period was one of the greatest growth for the Chilean economy and was largely indebited to two export booms: the copper and silver mining in Norte Chico and the Chilean wheat cycle.

Drawing of an early 19th century Chilean miner.

Following the discovery of silver at Agua Amarga (1811) and Arqueros (1825) the Norte Chico mountains north of La Serena were exhaustively prospected. In 1832 prospector Juan Godoy found a silver outcrop (reventón) 50 km south of Copiapó in Chañarcillo. Godoy successfully claimed the discovered outcrop in his name and the name of José Godoy and Miguel Gallo. The finding attracted thousands of people to the place and generated significant wealth. During the heyday of Chañarcillo it produced more than 332 tons of silver ore until the deposits begun to be exhausted in 1874. Following the discovery of Chañarcillo disocovery many other ores were discovered near Copiapó well into the 1840s. In 1848 another large ore deposit was discovered at Tres Puntas sparkling yet another rush. Copiapó experienced a large demographic and urbanistic growth during the rush. The town became a centre for trade and services of a large mining district. In 1851 Copiapó was connected by railroad to Caldera, its principal port of export. The mining zone did slowly grew northwards into the diffuse border with Bolivia. At the end of the silver rush rich miners had diversified their assests into banking, agriculture, trade and commerce all over Chile.

Cornelio Saavedra Rodríguez in a meeting with the main Mapuche loncos of Araucania in 1869. With the Occupation of the Araucanía, that culminated in the 1880s, new lands were made available for non-indigenous agriculture.

In the 19th century access to the Californian and Australian markets made wheat export a very lucrative activity. In the mid 19th century, these countries experienced large gold rushes which created a large demand for wheat. Chile was at the time the "only wheat producer of some importance in the Pacific". At the same time as the wheat cycle new irrigation canals were built and apiculture and some machines introduced into Chilean agriculture. Apart from that, new markets were explored for Chilean agricultural products. The wheat boom did not last for long; by 1855 California managed to supply itself with wheat and from 1858 onwards it went over to export wheat to Chile. The Australian gold rush of 1851 had the effect of decreasing the labour used in agriculture forcing the colony to import wheat from Chile sustaining Chilean wheat exports whilst the Californian market vanished. After the gold rushes of California and Australia were over these regions begun exporting wheat competing with Chilean wheat forcing from the mid-1860s onwards wheat exports to be shifted to England. The "cycle" came to an end in the late 1870s due to the increased technification of agriculture in the United States and Argentina plus the competition of Russia and Canada. The end of the wheat cycle added to the already difficult situation that Chilean economy was passing through in the 1870s.

In the mid-19th century the value relationship established by law between gold and silver coin undervalued the silver coins causing the flight of silver from Chile due to better prices in the international market and a scarcity of silver coins in Chile. With the abolition of the silver standard in most countries that begun in Germany in 1871 the unadjusted Chilean rate that had previously undervalued silver came to undervalue gold instead.

Nitrate epoch (1873-1914)

See also: War of the Pacific and Tierra del Fuego Gold Rush

Starting in 1873, Chile's economy deteriorated. Chilean wheat exports were outcompeted by production in Canada, Russia, and Argentina. Chilean copper was largely replaced in international markets by copper from the United States and Río Tinto in Spain. Chile's silver mining income also dropped. In the mid-1870s, Peru nationalized its nitrate industry, affecting both British and Chilean interests. Contemporaries considered the crisis the worst ever of independent Chile. Chilean newspaper El Ferrocarril predicted 1879 to be "a year of mass business liquidation". In 1878, then-President Anibal Pinto expressed his concern through the following statement:

“	If a new mining discovery or some novelty of that sort does not come to improve the actual situation, the crisis that has long been felt will worsen	”
—Anibal Pinto, president of Chile, 1878.

This "mining discovery" came, according to historians Gabriel Salazar and Julio Pinto, into existence trough the conquest of Bolivian and Peruvian lands. It has been argued that the economic situation and the view of new wealth in nitrate was the true reason for the Chilean elite to go into war against Peru and Bolivia.

As the victor and possessor of a new coastal territory following the War of the Pacific, Chile benefited by gaining a lucrative territory with significant mineral income. The national treasury grew by 900 percent between 1879 and 1902, due to taxes coming from the newly acquired lands. British involvement and control of the nitrate industry rose significantly.

Crisis and reestructuration (1914-1939)

Huaso and a maiden in a Chilean wheat field, 1940.

Further information: History of Chile during the Parliamentary Era (1891-1925) and Presidential Republic

Dependence on revenues from nitrate exports contributed to financial instability because the size of government expenditures depended on the vagaries of the export market. Indeed, Chile was faced with a severe domestic crisis when the nitrate bonanza ended abruptly during World War I as a result of the invention of synthetic substitutes by German scientists. Gradually, copper replaced nitrates as Chile's main export commodity. Using new technologies that made it feasible to extract copper from lowergrade ores, United States companies bought existing Chilean mines for large-scale development.

Chile initially felt the impacts of the Great Depression in 1930. GDP dropped 14 percent, mining income declined 27 percent, and export earnings fell 28 percent. By 1932 GDP had shrunk to less than half of what it had been in 1929, exacting a terrible toll in unemployment and business failures. The League of Nations labeled Chile the country hardest hit by the Great Depression, because 80 percent of government revenue came from exports of copper and nitrates, which were in low demand.

Influenced profoundly by the Great Depression, many national leaders promoted the development of local industry in an effort to insulate the economy from future external shocks. After six years of government austerity measures, which succeeded in reestablishing Chile's creditworthiness, Chileans elected to office during the 1938-58 period a succession of center and left-of-center governments interested in promoting economic growth by means of government intervention.

Prompted in part by the devastating earthquake of 1939, the Popular Front government of Pedro Aguirre Cerda created the Production Development Corporation (Corporación de Fomento de la Producción, CORFO) to encourage through subsidies and direct investments an ambitious program of import substitution industrialization. Consequently, as in other Latin American countries, protectionism became an entrenched aspect of the Chilean economy.

Import-substitution industrialization was spurred on by the advent of World War II and the loss of access to many imported products. State enterprises in electric power, steel, petroleum, and other heavy industries were also created and expanded during the first years of the industrialization process, mostly under the guidance of Corfo, and the foundations of the manufacturing sector were established. Between 1937 and 1950, the manufacturing sector grew at an average annual real rate of almost 7 percent.

Despite initially impressive rates of growth, import-substitution industrialization did not produce a sustainable expansion of the manufacturing sector. Industrialization brought with it an array of restrictions, controls, and often contradictory regulations. In time, consumer-oriented industries found that their markets were limited in a society where a large percentage of the population was poor and where many rural inhabitants lived at the margins of the money economy. The economic model did not generate a viable capital goods industry because firms relied on imports of often outmoded capital and intermediate goods. Survival often depended on state subsidies or state protection. It was because of these import restrictions that many of the domestic industries were able to survive. For example, a number of comparative studies have indicated that Chile had one of the highest, and most variable, structures of protection in the developing world. As a consequence, many, if not most, of the industries created under the import-substitution industrialization strategy were inefficient. Also, it has been argued that this strategy led to the use of highly capital-intensive production, which, among other inefficiencies, hampered job creation.

During the import-substitution industrialization period, copper continued to be the principal export commodity and source of foreign exchange, as well as an important generator of government revenues. The Chilean government's retained a share of the value of copper output, which increased from about one-quarter in 1925 to over four-fifths in 1970, mainly as a result of higher taxes. Although protectionist policies better insulated Chile from the occasional shocks of world commodities markets, price shifts continued to take their toll.

Internal growth era (1939-1973)

See also: Chilean land reform

Between 1950 and 1970, the Chilean economy expanded at meager rates. GDP grew at an average rate of 3.8 percent per annum, whereas real GDP per capita increased at an average yearly rate of 1.6 percent. Over this period, Chile's economic performance was the poorest among Latin America's large and medium-size countries.^{[citation needed]}

As in most historical cases, Chile's import-substitution strategy was accompanied by an acute overvaluation of the domestic currency that precluded the development of a vigorous non-traditional (that is, non-copper) export sector. Although some agrarian reform was attempted, the government increasingly resorted to controlling agricultural prices in order to subsidize the urban working and middle classes. The agricultural sector was particularly harmed by the overvaluation of Chile's currency. Stagnation of the agricultural sector became one of the most noticeable symptoms of Chile's economic problems of the 1950s and 1960s. Over this period, manufacturing and mining, mainly of copper, significantly increased their respective shares in total output.

By the early 1960s, most of the easy and obvious substitutions of imported goods had already been made; the process of import substitution was rapidly becoming less dynamic. For example, between 1950 and 1960 total real industrial production grew at an annual rate of only 3.5 percent, less than half the rate of the previous decade.

During the 1950s, inflation, which had been a chronic problem in Chile since at least the 1880s, became particularly serious; the rate of increase of consumer prices averaged 36 percent per annum during the decade, reaching a peak of 84 percent in 1955. The main source of the inflationary pressure on the Chilean economy was a remarkably lax fiscal policy. Chile's economic history has been marked by failed attempts to curb inflation. During the 1950s and 1960s, three major stabilization programs, one in each administration, were launched. The common aspect of these efforts was the emphasis placed on tackling the various consequences of inflationary pressures, such as prices, wages, and exchange-rate increases, rather than the root cause of money growth, the monetization of the fiscal deficit. In spite of the efforts of presidents Carlos Ibáñez del Campo (1927–31, 1952–58) and Jorge Alessandri Rodríguez (1958–64), inflation averaged 31 percent per annum during those two decades. In 1970, the last year of the government of President Eduardo Frei Montalva (1964–70), the inflation rate stood at 35 percent.

Christian Democrat reforms

During the 1960s, and especially during the Frei administration, some efforts to reform the economy were launched. These included an agrarian reform, a limited liberalization of the external sector, and a policy of minidevaluations aimed at preventing the erosion of the real exchange rate. Under the 1962 Agrarian Reform Law, the Agrarian Reform Corporation (Corporación de Reforma Agraria—Cora) was created to handle the distribution, but land reform proved to be slow and expensive. In spite of these and other reforms, toward the end of the 1960s it appeared that the performance of the economy had not improved in relation to the previous twenty years. Moreover, the economy was still heavily regulated.

Statism and social convulsion (1970-1973)

Main article: Vuskovic plan

In September 1970, the UP candidate Salvador Allende, was elected president of Chile. Over the next three years, a unique political and economic experience followed. The UP was a coalition of left and center-left parties dominated by the Socialist Party of Chile (Partido Socialista—PS) and the Communist Party of Chile (Partido Comunista de Chile—PCCh), both of which sought to implement deep institutional, political, and economic reforms.

When Allende took office in November 1970, Chile was faced a stagnant economy weakened by high inflation. Between 1967 and 1970, real GDP per capita had grown only 1.2 percent per annum. The balance of payments had also shown substantial surpluses during all, but one of the years from 1964 to 1970.

The UP had a number of short-run economic initiatives to stimulate growth. These short-run plans included, were to initiate structural economic transformations by nationalization; increasing real wages; reducing inflation; increasing consumption, and reducing the dependency, which hoped economic growth. The UP's macroeconomic program was based on several key assumptions, the most important being that the manufacturing sector had ample underutilized capacity. This provided the theoretical basis for the belief that large fiscal deficits would not necessarily be inflationary. The lack of full utilization was, attributed the monopolistic nature of the manufacturing industry and the structure of income distribution.

With respect to inflation, the UP program identified structural rigidities, bottlenecks, and the role of monopolistic pricing, and it played down the role of fiscal pressures and money creation. Little attention was paid to the financial sector, given the orientation of the new regime's economic technocrats toward import-substitution combined with the structuralist philosophy of the Economic Commission for Latin America. In fact, Allende's minister of foreign relations and vice president, Clodomiro Almeyda, relates in his memoirs how in the first postelection meeting of the economic team, these technocrats argued expressly and convincingly that monetary and financial management did not deserve too much attention. Alfonso Inostroza, the Central Bank president, stated in early 1971 that the main objective of the monetary policy was to "transform it into a key instrument . . . to achieve the complete mobilization of productive resources, and their allocation to those areas that the government gives priority to . . ." This was consistent with the view of inflation of those espousing structuralism.

The UP perspective on the way the economy functioned ignored many of the key principles of traditional economic theory.^{[citation needed]} This was reflected in the greatly diminished attention given to monetary policies, but also in the complete disregard of the exchange rate as a key variable in determining macroeconomic equilibrium. In particular, the UP program and policies paid no attention to the role of the real exchange rate as a determinant of the country's international competitive position. Moreover, the UP failed to recognize that its policies would not be sustainable in the medium term and that capacity constraints were going to become an insurmountable obstacle to rapid growth.^{[citation needed]}

1972

During 1972 the macroeconomic problems continued to mount. Inflation surpassed 200 percent, and the fiscal deficit surpassed 13 percent of GDP. Domestic credit to the public sector grew at almost 300 percent, and international reserves dipped below US$77 million. Real wages fell 25 percent in 1972

The underground economy grew as more and more activities moved out of the official economy. As a result, more and more sources of tax revenues disappeared. A vicious cycle began: repressed inflation encouraged the informal economy, thus reducing tax revenues and leading to higher deficits and even higher inflation. In 1972 two stabilization programs were implemented, both unsuccessfully.

Evaluating the problems faced by the economy, UP economists generally held the view that the authorities had failed to impose appropriate controls in implementing Allende's program. This view guided the first, rather weak, attempt at stabilizing the economy that was launched in February 1972. Price controls were the main ingredient of the program. By mid-1972 it was apparent that the February stabilization program was a failure. The underground economy was now widespread, output had begun to fall, open inflation reached an annual rate of 70 percent in the second quarter, foreign exchange reserves were very low, and the blackmarket value of the currency was falling rapidly. Parliamentary elections scheduled for March 1973 made the situation particularly difficult for the UP. In August 1972, a new stabilization program was launched under the political monitoring of the PCCh. This time, not only prices were officially controlled, but the distribution channels were taken over by the government, in an attempt to reduce the extent of the black market.

Unlike the previous plan, the August 1972 stabilization program was based on a massive devaluation of the escudo. The government expected that the result would be an easing of the mounting pressures on the balance of payments. The program also called for two basic measures to contain fiscal pressures. First, nationalized firms were authorized to increase prices as a means of reducing the financing requirements of the newly formed nationalized sector. Second, the program called for a massive increase in production, especially in the recently nationalized manufacturing and agriculture sectors (large manufacturing firms and farms had been expropriated arbitrarily). The devaluation and a large number of price increases resulted in annualized inflation rates of 22.7 percent in August and 22.2 percent in September.

In mid-August 1972, the government announced that it had drafted a new wage policy based on an increase in public and private-sector wages by a proportion equal to the accumulated rate of inflation between January and September. In addition, the new policy called for more frequent wage adjustments.

At the same time, the United States conducted a campaign to deepen the inflation crisis. Chilean economist Jacobo Schatan writes, "It was clear that the scarcity had been manipulated for political reasons, to create a climate favourable to both the coup and, subsequently, the total change of the economic system."

Return of liberalism

Further information: Economic history of Chile (1973-1990)

See also

• Economy of Chile
• Chilean nationalization of copper
• Miracle of Chile
• Chile pension system

References

Bibliography

• Otero, Luis (2006). La huella del fuego: Historia de los bosques nativos. Poblamiento y cambios en el paisaje del sur de Chile. Pehuén Editores. ISBN 956-16-0409-4.
• Salazar, Gabriel (1985). Labradores, Peones y Proletarios (3rd ed.). LOM Ediciones. ISBN 956-282-269-9.
• Salazar, Gabriel; Pinto, Julio (2002). Historia contemporánea de Chile III. La economía: mercados empresarios y trabajadores. LOM Ediciones. ISBN 956-282-172-2.
• Villalobos, Sergio; Silva, Osvaldo; Silva, Fernando; Estelle, Patricio (1974). Historia De Chile (14th ed.). Editorial Universitaria. ISBN 956-11-1163-2.

External links

• [1] Economía y democracia. Los casos de Chile y México - by J.L. Saez Lozano, CEPAL
• Global Trade Watch paper on recent Chilean economic policy history

 This article incorporates public domain material from websites or documents of the Library of Congress Country Studies.