PERSPECTIVES ON THE CHILEAN ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010133-0
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 6
• Document Creation Date: December 19, 2016
• Document Release Date: May 23, 2006
• Sequence Number: 133
• Publication Date: January 22, 1974
• Content Type: REPORT

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Perspectives on the Chilr.nn Economy
Following the September coup, Chile's military junta
moved rapidly to return the country to a market economy.
A major readjustment of exchange rates and a lifting of
price controls on most items spurred inflation during the
last quarter of 1973. After a rise in prices exceeding 00% in
October, the rate of inflation leveled off to less than 5%
in December. The result for the year was a record leap in
consumer prices amounting to 508%.
The rapid acceleration of prices after the coup stemmed
from the shortages of consumer and producer. goods that plagued
the economy under Allende. The removal of most price controls
and the exchange realignments have virtually eliminated black
market activity in goods and currency. As a result, distribution
has returned to normal and future price increases should be
far smaller.
The readjustment to a market economy has been accompanied
by a dramatic recovery in domestic production. The increase
in copper production has been particularly impressive with
output from major mines bre:.king all records in the last
quarter of 1973. Production could reach an all time record
of about 1 million tons, including 150-200,000 tons from uinall
and medium mines.
Initial restraints on the expansion of copper production
were largely limited to sporadic shortages of spare parts and
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light vehicles. Those problems have boon solved and the
only major potential bottleneck appears to be smelter
capacity. This problem is expected to be remedied, however,
through accelerated expansion programs and relining of
existing facilities. The expansion of copper production
will, more than compensate for any drop in world copper prices
during 1974 and will help reduce the projected trade deficit
tt, some $300 million. It is expected that copper exports
will continue to account for about 85% of Chile's foreign
exchange earnings during the next three to five years.
While copper production is expected to sho; dramatic
improvement in 1974, agricultural output is expected to
register only a slight recovery. Although higher domestic
prices are stimulating better organization and increased
investment in agriculture, most major grains were well into
the growing season when the coup occurred in September.
Significant improvement, however, is likely during the 1974/75
marketing year. In fact, Chile could be self-sufficient
in agriculture in, several years.
Chile continues to be heavily dependent on agricultural
imports. Total agricultural imports its 1974 probably will
exceed $500 million and will include an estimated 1 million
tons of wheat, 500,000 cons of corn, and 50,000 tons of
rice. These grains, together with raw sugar, meat, and
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cooking oil will account for some C0'% of Chile's food imports.
Total agricultural imports will picobably account for 30%
of Chile's total imports. Other major imports will include
some $300 million in petroleum products, and large amounts
of capital and intermediate goods necessary for he recovery
of domestic production. Chile's ability to finance this
high level of imports in 1974 will depend on the availability
of credits.
Chile's massive foreign debt of $3.8 billion will
continue to be a major problem for planners in 1974. Chile
hopes to reschedule most of her 1973/74 debt service at the
upcoming Paris Club r.:cetings in February. Unless Chile's
debt is rescheduled, the balance of payments deficit for
1974 could easily exceed $1 billion. If renegotiation is
successful, however, the Chilean economy will have an
opportunity to expand and recover most of the losses suffered
under Allende.
Chile's dependence on international investor and creditor
confidence will be critical in 1974. The Allende government
inherited positive foreign reserves of $350 million and
bequeathed negative net reserves of $500. million. In addition,
gross reserves at the time of the coup were reduced to less
than $300 million and the economy was on the verge of
insolvency. If the government is successful in its efforts
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in 1973.
to the 0.7% drop in GNP in 1972 and the estimated 3-5% decline
in the coming year, expanded production and exports should
stabilize Chile's reserve position and possibly improve
it-by the end of the year. t
The key elements in Chile's economic recovery arc, and
will continue to be, the Junta's ability to muster a
continued high level of traditional exports while reducing
its dependence on agricultural imports. At present, the
economy is showing signs of dramatic recovery from the chaos
and decapitaliration suffered under the previous regime.
If this trend continues through 1974, investor and creditor
confidence should be sufficiently restored to permit a major
improvement in the Chilean economy in the years ahead.
Over the medium tern: there is no reason to doubt that
the Chilean economy will recover if present economic policy
is continued. It is reasonable to expect a growth of around
8% in 1974 and 10% in 197,fi. This will be in marked contrast
to reduce government spending and cut the budget deficit