Chile After Pinochet Aylwin's Christian Democrat Economic Policies For The 1990s

Society for Latin American Studies (SLAS)
Chile after Pinochet: Aylwin's Christian Democrat Economic Policies for the 1990s Author(s): David E. Hojman Source: Bulletin of Latin American Research, Vol. 9, No. 1 (1990), pp. 25-47 Published by: Wiley on behalf of Society for Latin American Studies (SLAS) Stable URL: http://www.jstor.org/stable/3338215 . Accessed: 25/11/2013 16:52
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Am.Res.,Vol.9, No. 1,pp.25-47,1990. Bull.Latin inGreat Britain. Printed
+ .00 0261-3050/90$3.00 forLatin American Studies Society Press plc Pergamon
Chile Democrat
after
Pinochet: Economic
Aylwin's Policies for
Christian the 1990s
DAVID Institute of Latin American
E. HOJMAN Studies, University of Liverpool, UK
INTRODUCTION One of the most characteristic aspects of the economic policies proposed by the incoming of Patricio Aylwin in Chile is their essential administration continuity with those implemented by the Pinochet regime in the late 1980s. The Aylwin election manifesto promised more government spending in the social services, better health care, training schemes for the young una higher minimum of in? employed, wage, a more generous programme expensive housing, more taxes for the wealthy, and some tightening of the extremely favourable conditions granted to foreign investment. But, perhaps more importantly, it offered explicitly to keep most ofthe Pinochet economic to generate this attitude: first, policies unaltered. Three reasons combined social effects, the free-market apart from their unfavourable policies of the Pinochet regime were perceived as fundamentally successful, both at home and abroad; second, the Aylwin coalition did not wish to antagonise the and of the free-market third, many military; policies were recommended by the Christian Democrat economists' own (and other social scientists') analyses and convictions. the objectives of the Aylwin government are to preserve the Politically, advances already achieved in the recovery of democracy, and to extend them the 1980 Constitution still further first round of constitu? by reforming (a tional reform was undertaken after the October 1988 plebiscite), changing the electoral system to make it more representative, and fighting any threats to the renewed democratic institutions from the extreme right and the extreme left.1 Economically, the new government aims at preserving and the ofthe Chilean which became increasing spectacular dynamism economy evident from the mid-1980s, continuing to guarantee domestic and external the fruits of growth more equitably. Success in stability, and distributing into one achieving these political and economic objectives can be condensed or a govern? single result: having another Christian Democrat government, ment by a coalition in which the Christian Democratic Party (CDP) has a substantial input, elected in 1993. A high rate of economic 1989 and 1993 will not be growth between sufficient to have a Christian Democrat candidate elected to succeed Aylwin, was not enough to have just as the fast growth of the mid- and late-1980s Hernan Biichi (generally as the architect of the economic acknowledged to succeed A high rate of growth is not Pinochet. 'miracle1) elected
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necessarily reflected in dramaticaUy increased standards of welfare for the majority. Even according to official data published by the Boletin Mensual welfare of large (Monthly Bulletin) of the Central Bank, the economic numbers of people has improved very little in real terms since the worst recession. Employment has increased more than phase of the 1982-1983 real earnings, but still the overall gains for large segments of the population can hardly be described as substantial (Hojman, 1989a). Rapid growth in output combined with economic stability is not the same as a more equitable and it does not necessarily pattern of income and wealth distribution, under conditions. This had already success democratic represent political become apparent from the results of the 1988 plebiscite, in which the 'Yes to Pinochet' campaign strongly emphasised the economic 'miracle1 ofthe 1980s (Hojman, 1989b). The Biichi presidential campaign in 1989 acknowledged the presence of this dichotomy between economies and politics by giving the 'miracle' a much lower profile in its publicity than the 'Yes1 economic had campaign given it in 1988. was based on a particularly The rapid growth of the Chilean economy of export policies and domestic activity. The export successful combination policies are well known: they included a realistic exchange rate which was permanently, but only graduaUy, modified to take into account domestic and international price variations and fluctuations in the level of dollar reserves ('crawling peg'); low domestic inflation; a low tariff rate with a very small variance around the average so as not to punish exporters through excessive protection of domestic manufacturers (Corbo and Meller, 1981; Hachette, of and marketing abroad together with some aggressive campaigns 1985); to take for potential facilities by the government exporters provided 1988; Meissner, developments advantage of new technological (Gonzalez, 1988). The domestic aspect of recent growth is related to the subjective that the favourable con? among capitalists and entrepreneurs perception ditions prevailing under Pinochet will change very little after March 1990, which, oddly enough, coexists with the widely held view among the working class and the middle sectors that the economic situation under Aylwin will in their favour. These two subjective perceptions do not change considerably under Aylwin is unlikely need to be incompatible (economic policy-making but for making them the conditions to be a zero-sum necessary game), compatible were not present in early 1990, at the end of the Pinochet regime, and they have to be created, developed and maintained in the most careful way. The purpose of this paper, which was completed in March 1990 just as the was coming into power, is to analyse the problems Aylwin administration or and the degree of consensus administration facing the new democratic of conflict which is likely to arise over the formation and implementation policy. Its basis is the enormous and impressive research output produced by the major academic think-tanks in Chile during the 1980s, in particular the de Investiga? Centro de Estudios del Desarrollo (CED) and the Corporacion of whose Latinoamerica ciones Economicas leading many para (CIEPLAN), figures, despite their differences of approach, have been closely connected first with the 'Campaign for the No1 in the 1988 plebiscite and then with the
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provide an excellent Aylwin campaign for the presidency. Their publications as the Chilean base on which to assess the thinking of the new government the 1990s. enters economy THE DANGERS OF EXCESS
It is likely that some of the political and economic objectives of the Aylwin or at least that they converge only under a are contradictory, administration restrictive set of conditions. At the time of writing, the optimistic scenario has economic the new government policies which designing and implementing will allow the economy to preserve the very high growth rates achieved before the election (over 9 per cent in 1989), and to maintain immediately financial and external stability, as well as reducing the extent and seriousness of poverty, improving income distribution, and restoring the rights of labour. This implies making a number of correct policy decisions and avoiding as as possible. Trade-offs between many of the likely pitfalls and temptations in the static will order to fundamental be respect necessary objectives macroeconomic equilibria, and particular attention will have to be paid to intertemporal HEALTH, dynamics. EDUCATION AND WELFARE
can be illustrated if we look at Some of the potential pitfalls and temptations other and the made candidates, impact of certain welfare promises by The unwillingness of the incoming Aylwin administration to programmes. measures was shown by its short-term populist engage in irresponsible refusal to match some of the most extravagant promises of the presidential campaign of Francisco Javier ('Fra-Fra') Errazuriz, such as the commitment and to and health care free of charge for everyone, to provide education 'unit of development'), the indexation eliminate the UF (unidad defomento on houses and other forms of long-term borrowing. system for mortgages and health care for all are too expensive a burden on fiscal Free education ofthe early 1990s. They would resources under the rather tricky conditions in terms of wealth and income forms of and certain inefficiency, encourage with universal benefits are probably redistribution regressive, compared granting these services free of charge only to the poor. The present picture is complex because subsidies are granted in a multithe top quintile (the richest 20 per cent) plicity of ways, but by the mid-1980s ofthe population was receiving 56 per cent ofthe national income (including non-subsidised pensions) against 3 per cent received by the bottom quintile of the so-called 'monetary (Rojas, 1988). As a result of the distribution subsidies1, the share of the top quintile fell to 54 per cent, and the bottom quintile increased to 4.5 per cent. But 'monetary subsidies' include transfers of Jobs for Household as different as the POJH and PEM ('Programme on the one hand, of Heads', and 'Minimum Employment Programme'), which 73 and 72 per cent, respectively, go to the poorest 30 per cent of the and the family allowance on the other hand, of which only 30 per population, cent goes to the poorest 30 per cent ofthe population (Rosende, 1989). Thus the picture presented by 'monetary subsidies' is a mixed one: in terms of
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income redistribution POJH and PEM are progressive, but family allowance is completely neutral. The overall balance is, however, a progressive one. subsidies, in the aggregate they By contrast, if we move to education reduce further the share of the top quintile, to 51 per cent, and increase that of the bottom quintile, to 6.5 per cent. But these education subsidies include items as dissimilar as the school textbooks programme, 51 per cent of which goes to the poorest 30 per cent of the population (which makes it pro? of which only 10 per cent gressive), against the state university contribution, goes to the poorest 30 per cent of the population (and which is, therefore, extremely regressive). The university fiscal credit, a form of tax allowance, and the higher education programme are also clearly regressive: only 11 and 18 per cent of them, respectively, go to the poorest 30 per cent of the popula? tion. Aggregate health subsidies again shift a further small share of national income from the top to the bottom quintile. The statistics to show how individual subsidies in health go to the poorest are not available, but the picture probably is either quite similar to that offered by education, or even more regressive, since health subsidies include a wide range of transfers, from food distribution in local clinics to dental treatment, visits to specialists, laboratory exams, X-rays, and surgical operations. A substantial share ofthe cost of many of these is met by out-of-pocket payments, which suggests that the well-off use them much more than the poor (Scarpaci, 1985,1987,1988; Viveros-Long, 1986). Eliminating the UF indexation system as suggested by Errazuriz would return the housing market and the financing of the construction industry to the chaotic conditions prevailing before 1960.2 The UF is a daily indexation with the scheme which over the years has remained closely correlated consumer price index, and which ensures that the real value of long-term debts incurred in connection with housing (not only by families, but also by intermediaries such as firms buying wholesale for their housing associations, construction firms, employees, suppliers of inputs, and so on) is not eroded in such a way that the funds of public by high inflation, but maintained agencies concerned with the housing problem do not become depleted in real terms. The so-called 'problem of the UF' arose because the market values of houses failed to increase in line with inflation during the 1982-1983 crisis, and immediately after, which meant that many people who bought new now face excessive houses during the 'miracle' years in the late-1970s mortgage payments. Most observers agree that this problem is best dealt with by keeping the inflation rate low and supporting a steady rate of aggregate output growth (which should be reflected eventually in the housing market) (Carey, 1988). Rather than matching the Errazuriz promise of free education and health care for all, the Aylwin manifesto has committed the new government only to In practice the only concrete 'spending more in health and education'. promises are to increase the provision of materials to state hospitals and clinics (a typical complaint in the presidential campaign was that of'hospitals without aspirins'), and to start some programmes of training for unemployed of income and From the point of view of redistribution school-leavers. wealth, both these measures are progressive: state hospitals are used by the
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poor to a much larger extent than by the rich and the middle sectors, and among young people is a problem only or mainly for those unemployment or other institutions of higher unable to gain access to the universities but they are education. These two measures are also relatively inexpensive, In any case, a unlikely to make much difference to most of the population. careful allocation of the government social expenditure budget should prove much more effective than the overall expansion of it. During the 1980s, only about 40 per cent ofthe so-called fiscal social expenditure was directed to the poor (and less than 20 per cent of that devoted to higher education or certain in this con? specific housing programmes) (Rosende, 1989). Improvement nection implies both identifying those in need with the utmost care, as well as facing an inevitable trade-off between meeting their claims and those of other groups in the population. THE DANGERS OF A PREMATURE KEYNESIAN EXPANSION
will be to resist the temptaAn important objective of the new government Chilean conditions are much more tion of an early Keynesian expansion. in favourable than those at the beginning of the Alan Garcia administration in in Peru (Hojman, or or Brazil. Alfonsin's Argentina Sarney's 1989c), an early expansion of aggregate demand, coming on top of an Nevertheless, exceptionally high growth rate in 1989, which itself followed very high strain upon installed may place considerable growth rates in 1985-1988, and upon the availability of other resources, as capacity in manufacturing well as sending all the wrong signals to the domestic and international financial markets (Arellano and Ramos, 1987; Corbo, 1987; Marfan, 1987). Important officials in the new Aylwin government frequently state that an early Keynesian expansion is bound to provoke 'fast growth in the first year, economic problems in the second, and political problems in the third year' was precisely what happened under Allende in the early 1970s). By (which rather than spectacular a carefully timed cycle of moderate contrast, shortly before the 1993 elections might improve the Keynesian expansion CDP electoral chances quite substantially.3 The most helpful way of looking at this problem is in terms of a two-gap model, which assumes that barriers to growth may result either from insufficient domestic savings, or from insufficient external savings. This model in the 1960s, was fashionable among development agencies and economists but it went out of fashion in the following decade, when international finance after the oil shocks was so widely available that thinking in terms of two gaps no longer made sense. If the domestic economy had been unable to generate enough savings, foreign loans were readily available on tap, and they could always be obtained to bridge this gap (this was sometimes known as 'debt-led growth'). But since the external debt crisis foreign loans have dried up, and the two-gap model may have become relevant again. In the Chilean case there is a foreign constraint: the trade balance should be positive in order to service the external debt. There is no particular problem with this, since exports are very healthy (this is a crucial difference compared with other Latin American but it means that domestic savings are required, both to pay for countries), and to service the debt. In technical jargon, despite the fact that investment
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there is an external constraint (which makes the two-gap model relevant), the external gap might not necessarily be the most serious barrier to investment and growth. With the external trade sector doing well, the most serious gap may well be the savings one. A more detailed discussion of the question of savings and investment is presented later. Here it is enough to say that historically the savings ratio has been low, fluctuating between 15 and 20 per cent of output during the 1960s and 1970s. With optimistic assumptions, over the medium and long term this is only sufficient to sustain an annual growth rate of national output of about 6 per cent (Arellano and Marfan, 1986; Edwards, 1987; Gutierrez, 1987; Hachette, 1987a; Ceron and Staplefield, 1988). Even under the most favour? able assumptions, such as capacity under-utilisation in some sectors, substi? tution of labour for capital, and under-estimation of actual investment by the National Accounts statistics, a share of investment equal to about 8 per cent of domestic output should be directed towards depreciation, and after that the required rate of new investment should be at least twice the rate of growth desired. This is why the Aylwin programme is forecasting a respectable, but far from spectacular, growth rate of about 5-5.5 per cent per year during the early 1990s. then, are deeply conscious of Leading figures in the Aylwin administration, the potential difficulties which would arise either from a headlong rush for measures intended to improve social growth or from poorly conceived welfare and income distribution. the problems of alleviating Nevertheless for labour without excessive poverty, providing greater rights encouraging demands, and managing the economy require careful policy design and implementation. ALLEVIATING Poverty, income POVERTY distribution and taxes
Some of the publicity of the Aylwin presidential campaign made reference to 'five million poor' (which amounts to about 40 per cent of the population). This figure may perhaps be unrealistically high, and among other problems it of improved welfare in some sectors of the may encourage expectations population which are unlikely to benefit from any campaign against poverty. A study carried out in the mid-1980s, using data collected during the early years of the decade (Torche, 1987) has suggested that the poor were about 45 per cent of the population then, but this study has been criticised on several grounds. It is partly based on unchecked declarations by claimants of social security and other benefits (possibly making for an upward bias since claimants have a vested interest in showing their situation in the worst possible light); it does not take into account a well documented large scale of income underdeclaration (shown to be in some cases as high as 78 per cent); and it does not consider the impact of a number of specific programmes and subsidies to counteract poverty or some of its most negative effects (Ihnen, health 1988). An interesting example of the latter are the mother-and-child have proved instru? campaigns which, together with other developments, mental in reducing infant and child mortality (Hojman, 1989d). An alterna-
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tive study based on housing conditions suggests that 'extreme poverty', which from 'poverty', was about 15 per cent (Mujica and is defined differently and a that the Rojas, 1988), survey of several previous studies concluded extreme poverty rate in 1982 was 'highly unlikely to be lower than 12 per cent' (Fuenzalida, 1987). A more realistic figure for the number of the poor in the late 1980s would be about 3-4 millions (which obviously is still very large).4 One of the first measures announced by the new Aylwin government, even before taking office, was a moderate in the tax rate, and the increase extension of tax liability to retained profits (since the 1984 tax reform, tax had been payable on distributed profits only, not on retained ones). But how much income redistribution can be achieved by making the rich pay more taxes? Possibly higher taxes should be restricted to the top 20 per cent of the deciles of the income distribution population (the top and the top-but-one pyramid). This is not only because these are the only deciles which can be described as wealthy, but also because the Aylwin government does not wish to alienate the support of the middle who traditionally have sectors, a large and politically powerful segment of the population, and represented have played a central role in Chile's political and institutional developments since the 1920s (Boyle and Hojman, 1985). By the end of the 1980s the effective income tax rate was about 10 per cent. Possibly this rate could be doubled, up to 20 per cent, for the top and top-but-one deciles, but a higher level of taxes than this is likely to encourage massive tax fraud and capital flight. By Latin American standards, and in contrast with the situation before 1973, capital flight from Chile has been remarkably small under the Pinochet 1979; Arellano and Ramos, 1987). It is usually assumed regime (Holuigue, that short-term international react sharply (in a negative capital movements fashion) to domestic credit expansion by the Central Bank, but Corbo (1987) estimated that such a response was very subdued in the Chilean case during the period 1975-1982. This is perhaps related to the presence of a high of confidence of owners short-term in the Pinochet degree by capital regime's long-term strategy, if not in its short-term policies, even during periods of economic crisis. For those who might have taken wealth out of Chile, Pinochet was a solid guarantee against expropriation and confiscatory levels of taxation. But as yet Aylwin has not been invested with the same con? fidence, which he is possibly unable?and unwilling?to inspire. Thus the danger of substantial capital flight under Aylwin at the slightest signal of Since the top 20 per cent of the things going wrong is a serious possibility. population were estimated to have received about 59 per cent of the national income (excluding all pensions) in 1989, this means that the share of national income to be redistributed by means of higher income taxes would amount to about 6 per cent (10 per cent ofthe total income ofthe top 20 per cent ofthe population). Additional fiscal resources might be saved by eliminating the subsidies to the forestry industry, which are deemed to be absurdly high and completely but the fiscal revenue saved here is more likely to be kept in unnecessary, related areas, for example, by redirecting it towards small and medium firms in the forestry sector, or towards peasants and other activities of the poor in
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the forestry regions. The forestry industry has been under scrutiny for a long time (Cruz and Rivera, 1983; Cavieres et al, 1986; McKetta et al., 1987; and vertically integrated, Leyton, 1988). This industry is highly concentrated and the generous subsidies granted to it have led to significant expansion of output and exports, but also to extraordinary profits for the three dominant conglomerates ('grupos'), worsening local conditions for poor peasants, and of the environment. Increased taxes and the small savings in deterioration subsidies and by other made by reducing unnecessary fiscal expenditure means would represent a significant amount of resources, but hardly enough to solve all the problems of 'five million poor', or even three millions.5 Labour, unions and union rights
The question of union rights has to be addressed, but its implications are not most frequently used by always perfectly clear. One of the expressions economists associated with the Aylwin campaign is 'incorporar al mundo del of labour1 trabajo', which is best translated as 'encourage the participation to consist is what this of short likely participation defining of). (but stopping of trade union The Aylwin manifesto explicitly refers to the 'restoration rights'. However, restoration of rights to the level of 1969 is qualitatively to 1971 or 1972 levels. Business interests are different from restoration with the former reasonably happy (maybe this is also what economists in the 'moderate' or 'right' wing of the CDP had in mind), whereas at least the most are after the latter. Among the first measures militant trade unionists 1989 announced shortly after the December by the Aylwin government, collective nationwide was election, bargaining (collective bargain? permitting ing had been restricted to plant level only by the 1979 Labour Law). The maximum time limit permitted for strikes will be increased from 60 to possibly 180 days. National unions and the union leadership are expected to play a central role in national life. Christian Democrat social scientists and that most trade unionists are more interested in politicians are convinced than revolution. This has been so for decades, but develop? modernisation ments under the military dictatorship have reinforced this pattern (Campero and Cortazar, 1985, 1988).6 Strong but responsible and democratic unions to the power of the grupos are also expected to provide some counterbalance (business conglomerates). to extreme union of trade union rights (as opposed Full restoration affect economic is to Many ofthe negatively. performance unlikely militancy) most competitive export activities are perfectly capable of meeting significantly higher wage bills. This is related to the fact that international compara? tive advantage in this case depends to a large extent on access to huge, and immensely favourable, natural resources, rather than on paying low wages (this is as true for fruits as it is for minerals; Cruz and Leiva, 1982). The Industrialists1 Association, SOFOFA, as well as other business associations, have been arguing for years in favour of a higher minimum wage (this was also in the Aylwin manifesto). By contrast, more openly politically motivated militancy or strikes might eventually have a negative effect on comparative advantage, by damaging the reliability of Chilean suppliers abroad, graduaUy and more new investment, labour costs, and discouraging increasing
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or the subjective environment, by altering the whole political generally One it economic actors. of some key example may be the threat by perception of a strike in the copper sector in November 1989 against the plan of dividing into individual smaller firms (according to the holding company CODELCO with a view towards eventual the opponents of this measure, possibly The division of CODELCO was never carried out, as privatisation). threatened, but even if it had been, striking in order to prevent privatisation a case of overreaction, of the would have constituted since state ownership nationalised Changing copper mines is enshrined in the 1980 Constitution. this would have required a constitutional reform, and therefore a plebiscite, which obviously the Pinochet regime could not win. MANAGING THE ECONOMY
Low inflation and external stability the problems of fulfilling the hopes of the poor, the Aylwin Besides in managing the administration also faces potentially serious difficulties economy overall. There is general agreement that monetary targets will have to be used to keep inflation under control. That this is so reflects how much Latin American traditional of a red herring the old debate between and traditional Latin American has become in 'monetarists' 'structuralists' in other areas, all of them agree that an Chile: regardless of their differences essential condition to stop inflation is the control of the money supply. The law granting autonomy to the Central Bank passed at the end of 1989, and to the Pinochet regime, much fought against by the democratic opposition in final in the become a to the Aylwin analysis may blessing disguise an Central and staffed Bank, independent government: managed by from the CDP and another from the 'Chicago boys' (although an economist for Democracy?sit on the five-man board, and the Chairman PPD?Party for Latin comes from CEPAL, the United Nations Economic Commission will all to of excessive forms prevent government help expendi? America) ture.7 The question of the preservation of the low average, low (or otherwise) variance tariff system, however, may well split the CDP. The arguments for and against protection of domestic manufacturing are well known, and there is no need to rehearse them here (Corbo, 1985; Tironi, 1985). But some of the most articulate supporters of a system of differentiated tariffs, mostly on the grounds that it should stimulate employment, come from members ofthe CED (Centre for Development of clear Christian Studies), a think-tank Democrat leanings.8 This is the case for Ernesto Tironi and Eduardo Aninat. The latter is also chairman and managing director of the prestigious firm of business consultants, Aninat and Mendez. By contrast, CIEPLAN, under the direction of Alejandro Foxley (who was appointed Minister of Finance in the first Aylwin cabinet), from where some of the best-known economic spokesmen of the democratic were drawn the is in favour 1980s, opposition during of maintaining the low average, low variance model practically untouched. One of the co-authors of the most serious empirical study of the employment that export creation effects of Chile's international trade, which concludes
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than import substituting activities are more labour intensive ones, is a Patricio Meller (Corbo and Meller, 1981).9 member of CIEPLAN, Other economists not linked to the CDP have also argued strongly against tariffs. Hachette (1985) has shown that a proposal made by differentiated nominal crisis for a range of differentiated SOFOFA after the 1982-1983 tariffs between 0 and 35 per cent actually implied levels of effective activities of the order of 110 per protection for some import substitution cent, and negative protection (punishment in the form of hidden taxation) for of about ?35 per cent. This study contributed significantly to exportables in terms since its industrialists' the likely consequences proposal, discrediting a decline in non-traditional resource allocation, of inefficient exports, a official became and of arbitrariness, corruption exchange, scarcity foreign fully apparent. In terms of the actual policy measures of the Aylwin govern? ment, the Corbo-Meller-Hachette position may prevail, but it will remain of differentiated for attack from supporters under constant protection certain individual activities.10 foreign loans and capitalflight economic on during the 1970s and 1980s, some performance Commenting well-known and respected economists (including some linked to the CDP) have argued that 'savings were insufficient' (of course, this comment may also apply to the 1950s and 1960s). This is a very general statement and before accepting it as true, and as a fundamental motivation for policy, it needs to be that the incremental capital output ratio qualified. It is often accepted 3 even be as as or can the Chilean for 4, meaning that a economy high (ICOR) 1 per cent increase in output requires an investment equal to 3-4 per cent of this depends on certain assumptions: output. However, (a) that installed capacity is being fully utilised (that is, it ignores the fact that some capacity in and in other activities remains idle for most of the time); (b) manufacturing that the ICOR is constant, which means that there is no room for diminishing it by using capital and other resources more effectively; and (c) that the production function is rigid, namely that the possibilities of substituting other resources such as labour for capital are very limited. Several studies have are unrealistic, and that historically the pointed out that these assumptions level of capacity utilisation in Chilean industry has tended to be very low. It has been suggested that some simple measures such as the adoption of better and legal or removing the institutional and new technologies, methods to second and third shifts in the labour market, can have a obstacles without the need to significantly positive impact on output and employment, increase savings and investment substantially (Instituto de Economia, 1963; Savings, investment, Behrman, 1973; Ramos, 1975). Whatever the problems of the ICOR analysis, however, in overstating the of savings in Chile, the discussion earlier in this paper suggests insufficiency that the level of savings may be crucial to the management of the economy in the 1990s. Seldom in the post-war Chilean political scene has there been such universal agreement across party barriers about such a crucial issue as that of the level of savings, but there have been major difficulties in develop? for example the ing adequate policy instruments to achieve an improvement,
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in the 1960s of the Frei administration programme It often been that and has Chilean firms households argued (Cleaves, 1974). do not save enough, although this may have been related to the historical of high inflation, artificially low interest rates, and the absence combination of saving instruments capable of preserving the real value of savings, together with the unreliability of the financial market institutions and political unThere is no reason to assume that Chilean certainty. contemporary society is low rather than of in? a result structurally profligate, savings being simply adequate policies.11 A further development which suggests that the new government should domestic especially encourage savings is that it may decide to eliminate certain forms of debt-equity swaps, used by foreign investors and by return? ing Chilean capital in the 1980s to purchase existing local firms; debt-equity new investment swaps in the future may be reserved only to stimulate 1987; Schinke, 1987; Fontaine, 1988; Livingstone, (Ffrench-Davis, 1988). This possibility has been suggested by some CIEPLAN economists. Other this will reduce the of amount things being equal, probably foreign savings to the domestic The same is true for being made available economy. some sectors of the CDP practically all forms of foreign direct investment: and other parties or groups in the government coalition may demand a much of it than was the case under Pinochet, or even that tougher treatment in the official will manifesto. be under also contemplated Aylwin Aylwin carried out during the 1980s, in pressure to reverse some ofthe privatisations such as electricity and telephones. As particular those of natural monopolies, noted earlier, therefore, capital flight, which was practically insignificant during the Pinochet years, may increase dramatically in the early 1990s as a result of threats of expropriation, taxes, economic failure, or confiscatory social unrest. On the external debt front, however, the situation is far from desperate. Some of the candidates in the 1989 electoral campaign to the Congress declared that Chile had the second largest per capita external debt in Latin America, a claim accepted enthusiastically by many foreign journalists. One British newspaper went so far as to report that the Chilean debt per capita was the highest. These statements are seriously wrong. According to the latest World Bank figures, the Chilean external debt per capita in 1988 was the sixth highest in Latin America, after Nicaragua, Argentina, Venezuela, Costa Rica, and Uruguay, in that order. The ability to repay it was by far the best in Latin America, and reasonably good by the admittedly deplorable standards of the region. The World Bank estimate of the debt service ratio of exports of goods and (payments of interest and principal as a percentage for 1989 Chile in eleventh Latin America, after Nicaragua, placed services) Brazil, Mexico, Bolivia, Venezuela, Ecuador, Uruguay, Argentina, Honduras and Costa Rica, in that order (Prest, 1989). It is true that a number of obligations will have to be renegotiated by 1991, but this is nothing new: debt renegotiations have been taking place annually as a matter of course in recent years. There is no doubt that when new conditions of political and stability are added to the already existing situation of democracy economic stability and dynamism, the goodwill of foreign creditors should be
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forthcoming. The Aylwin government ought to obtain terms and conditions at least as favourable as those obtained by the Pinochet regime. AGRICULTURAL Agriculture The rural sector AND INDUSTRIAL POLICIES
dramatic change during the Pinochet years experienced The towards agriculture and the country? Aylwin policies (Hojman, 1990). The views and perspectives. side will be based on a number of well-defined carried out by results of the most complete study of rural conditions which took place in the CED and other specialists, Christian Democrat under the direction of Maximiliano Cox, are presented in Cox (1988) and Cox and Chateauneuf (1988). It is agreed that no new edition of the agrarian Of the two original or for that matter, desirable. reform is necessary, and to generate a more increase production objectives of land reform?to is reckoned that the former equitable social structure in the countryside?it much more has already been achieved, and the latter can be accomplished effectively by other means (we return to both these issues later in this section). Stability is seen as an essential requirement in many areas of strategy and policy, and stability of land tenure is a key one among them. But together with stability, legitimacy should be obtained through policies which the overfair, and perceive as fundamentally whelming majority in the countryside which are geared to their benefit. In the CED analysis there is dualism between a dynamic export sector and a stagnant domestic market sector, and peasant commercial with dualism between which largely overlaps of semi-feudal of traditional the The destruction relationship agriculture. the tenant and its landowner and between by replacement 'quasi-serfdom' typical impersonal relationship of the labour market is seen as a positive step forward. But at the same time as some rich peasants have survived or even become graduaUy more prosperous, most poor peasants have suffered from or semi-proletarianisation proletarianisation, (Korovkin, pauperisation, 1990; Scott, 1990). Potentially, there are practically no limitations on supply: just by extending to the peasant sector the techniques already used by commercial agriculture in wheat production, output could be increased by at least one-third, even after taking the poorer quality of peasant land into account. The extension of agricultural land devoted to orchards, which are highly labour intensive and as yet unexploited, offer immense international advantages comparative could easily be expanded by 50 per cent. By the end of the 1990s, forestry production for timber will be 4 times higher than the already large output of 1980; that of cellulose 3.6 times higher in 1992 and 7.6 times higher in 2000 than the current capacity of the new, large Laja plant of the Compania Manufacturera de Papeles y Cartones (CMPC), and so on. The responsiveto price stability, and to other to price incentives, ness of agriculture variables (such as a favourable economic exchange rate) has been spectacular.12 Continued price stability for some products should be guaranteed by price bands. There are no bottlenecks in terms of rigid agricultural supply responses, as described by structuralists in the 1950s and 1960s. Not any
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The problem now is the danger of overproduction, at least in some The limits to are on the demand products. only possible output expansion The former should be tackled by income side, internally and externally. new products and markets. and the latter by developing redistribution, With regard to particular subsectors and products, specific policies and measures have been designed for many of them. Greater resources ought to in be devoted to research on international markets for fruits, to promotion these markets, and to the adaptation of supplies accordingly the (including of productive reconversion facilities, especially by small- and medium-scale producers, with state support). As noted earlier, the forestry subsidy, if not could at least be allocated more selectively. eliminated, Possibly the only instance of tax reduction in the agricultural sector is likely to benefit wine which has been historically overtaxed on the grounds both that it production, and that it generated excessive profits. Everywhere, is a source of alcoholism on close collaboration between the policy success is seen as dependent of producers?smalland organisations and medium-scale government in particular. and co-operatives Producer are producers organisations with technical research, extension activi? mentioned explicitly in connection of inputs, ties, credit, marketing abroad, forward planning, importation and others. protection purchasing by conglomerates, against monopsonistic Government intervention is deemed necessary only when the markets fail, and subsidies should be required only to protect the poor (or in a few other of the environment). cases such as protection The peasant sector is seen as the key area for which the state should provide its greatest degree of support, both because it has the largest potential for increasing yields and output in commercial are often as agriculture high as the best in the (since yields in to and because this is essential order achieve legitimacy for the new world), democratic government policies. The possibility of access to land ownership for landless labourers would be established along lines similar to those offering subsidised housing to poor urban dwellers. In terms ofthe complexity ofthe policy formation process, and the number of economic, social, political, and institutional aspects which must be taken into account, it is illuminating to compare the preliminary version ofthe CED study report (Cox, 1988), with the final one (in Cox and Chateauneuf, 1988). Cox explicitly acknowledges the presence of differences among members of the team. For example, he is less enthusiastic than some of his colleagues In the final about the state assuming a direct role in the rural economy. version of the report, a low average, low variance tariff system is explicitly proposed (this is not in the preliminary version), but the forestry section, written by Jose Leyton, argues in favour of some discriminatory tariffs. Rural unionisation is to be legalised and the payment of union dues (but not union would become compulsory. Both the right to strike and the membership) on it imposed limitations nature of agricultural by the perishable output would be explicitly But a reference to the 'need actively to guaranteed. in the preliminary version was deleted from the final encourage unionisation' to other issues, problems and report, together with a number of references questions: among them, the danger of rural social unrest; the international of Chilean sugar production assessment from sugarbeet; and the 'usurious1
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interest rates charged by the commercial banks. The wording in the final report was much more careful on, for example, the presence or absence of scale economies, the promise of more jobs, or the general need for price bands. Geographical enclaves of dynamic activities, or rural shanty town dwellers, were introduced in the final report for the first time. Industrial policy (or rather the lack ofit?) of the Aylwin government's The most important characteristic industrial is is This is not that there none. so of of com? because lack technical policy but it much because has been after that inter? decided, petence, agonising, in favour vention of individual industrial or specific subsectors manufacturing activities may do more harm than good. But this policy has not been accepted without opposition, even from some of the Aylwin govern? ment's own supporters. As mentioned earlier, Tironi (1985) suggested a and Leyton system of differentiated tariffs, mostly to encourage employment, tariffs to support those activities in the differentiated (1988) recommended of basic forestry sector which produce goods devoted to the satisfaction in needs. Valenzuela (1988) also recommended his case, of those protection, branches ofthe industrial sector which produce inputs for copper mining, the metallic and metal-mechanical equipment industry in particular, in order to generate backward linkages so as to diminish the enclave nature typical of in an introduction to four studies of mining activities. Vignolo (1986), and individual branches of industry (food, chemicals, metal-mechanical, in that should treatment manufacturing enjoy preferential textiles), argued relation to other activities, and the authors of all the individual case studies in this volume suggested some good reasons to defend special state support for the particular branches of industry they analysed. It has been argued that in the Chilean case some carefully monitored, moderate and temporary amount of protection might be advisable, because to comparative advantage may lead towards speciahsation according emphasis on certain exports, for which demand in world markets has only a small income elasticity; both the production and the uses of such exports are remote from the principal trends in international technological development version of (Munoz, 1989). This is to a large extent a modern, sophisticated the old Prebisch structuralist argument. But on the other hand both the theory and the actual Chilean experience show that the granting of individual to the general rule eventually and becomes discriminatory exceptions of and the source arbitrary, inefficiency permanent privilege, corruption Preferential 1981; Hachette, 1967; Ffrench-Davis, (Johnson, 1987b). for import substitute industries punishes exports, because by protection relative migration of resources away from changing prices it encourages and towards and also because it makes the substitution, import exportables of exportables more expensive imported inputs used in the production 1985; Hachette, 1985). On top of that, activities linked to the (Corbo, of exportables than import substitu? are more labour-intensive production tion ones; that is, for each unit of output they create more employment (Corbo and Meller, 1981). In connection with the large conglomerates or grupos, it is accepted that
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they are a necessary condition for dynamism in modern capitalist economies from which the (Sanfuentes, 1984). There are a number of scale economies in different markets can benefit most dynamic private enterprises operating themselves into conglomerates only if they constitute (an example is the to monitor macroeconomic of their own research departments establishment Therefore the question is trends and changes in the international economy). not how to get rid of the grupos, but how to improve the trade-off between include their social benefits and costs. Some of the measures recommended strict control of the banks and the remainder of the financial sector by the of Banks and other official agencies, and attempts at Superintendency of the all markets freedom and competitiveness by encouraging increasing research bodies, and disseminating studies from university and independent their results widely. Another measure might be to support the development of strong, democratic and responsible nationwide unions, in order to create a to conglomerate power. necessary counterbalance COULD ANYTHING POSSIBLY GO WRONG?
a The short answer is yes. While the external debt is unlikely to constitute problem, unless something goes terribly wrong with exports (a possibility to state which we return later in this section), left-wing militancy, excessive and and the between nationalism clash investment, intervention, foreign ofthe the from members to coalition, government Aylwin policies opposition of Chile's or even from within his own party, together with the dependence exports on external markets are among the most serious dangers. Extreme left-wing militancy, especially if accompanied by illegal takeovers of factories and agricultural land, or assassination attempts on senior army in the unenviable position of officers, is likely to put the Aylwin government having to engage in repression itself, or allowing the police and the army to do of extreme left-wing militancy, with some grassroots it. And the possibility period between the working support, is likely to increase as the honeymoon class and the urban and rural poor and the new government elapses (there are obvious doubts whether it can last for four years). state intervention. Next, there is the danger of excessive Despite a high literacy among most ministers and high ranking govern? degree of economic as a whole), some ment officials (and for that matter in the population to bureaucrats are recent converts market and economics, only politicians while others have not converted at all. Many of them may easily fall prey to their old statist reflexes. Simply stated, if there is a problem in relation to it would be because there was too much of it, rather intervention, government than too little. A worrying example has occurred early in 1990. It is widely in Santiago is that the system of surface collective transport suspected as a cartel (Ugarte and Vatter, 1987). The market economist's organised answer would be to increase competitiveness by eliminating barriers to entry, abuses by the large operators (for supporting new entrants, and controlling at the lowest level which would be instance, by fixing prices administratively But the Ministry of Transport has announced with competition). compatible that its policy choice will be precisely the opposite: to restrict the number of a on certain routes. Clearly, this does not need to establish operators
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but it sounds ominous. In any case, in relation to government precedent, the more searching question is perhaps not how much, but intervention, where, and of what kind. What is really important is quality rather than and quantity. A similar, but not identical, problem is that of excessive in to It that relation nationalism investment. might happen misguided foreign the policy drifts from being marginally more selective towards it (as, for swaps; Ffrench-Davis, example, in the question of debt-equity 1987), to coalition are). Both being hostile (as other members of the government be seen as serious threats by statism and nationalism may eventually and domestic investors.13 foreign potential in open, export-based on external markets is inevitable Dependence On the other hand, all the most successful experiences of growth economies. in the contemporary and development world, from South Korea and Taiwan to West Germany and Japan, are export based, just as all attempts at autarky have led to economic, social and political stagnation. The real danger is not but excessive or exclusive concentration on a single exports themselves, product and/or a single market. The Chilean economy is no stranger to the with protectionism, or to export concentration difficulties connected (for World War I). In the 1980s, total the nitrate experience during example, exports as a share of national output have increased in relation to the 1960s on individual and early 1970s, but the degree of concentration export commodities and individual importing countries has declined. The share of has copper in total exports has fallen from 80 to 50 per cent. Protectionism not been a problem for exports to the United States of America, and it is unlikely to become a problem as long as there is a Republican president in the White House. Even a Democrat president would have problems in sacrificing the living standards of American consumers in order to protect local high cost producers. The case of the European Community is different, and there is a strong possibility that Chilean agricultural exports might face discrimina? tion due to pressure from producers of similar goods from southern Europe. of individual sectors However, the situation requires careful consideration and products. Chilean apples and table grapes already take large shares ofthe markets of some ofthe main consumer countries, and the same is true of fishmeal and copper. But the possibilities for expansion are very large for many other fruits (plums, peaches, kiwis, cherries, apricots, avocados, nuts, and so for wine, some products greens and vegetables, on), for labour-intensive from the forestry sector (Gonzalez and Hurtado, 1984a,b; Ceron, 1987), and products of the fishing industry (such as different types of fresh, frozen and canned fish and shellfish, or Pacific Ocean salmon; Staplefield, 1987). Successful marketing is constantly opening new outlets in many countries, from the Middle East and Far East to Latin America and the rest of the Third World. Even for those products for which further export expansion requires a fail in price, the cost structures are usually such that this would still be perfectly compatible with respectable profit margins (Cruz and Leiva, 1982; 1988; Meissner, Gonzalez, 1988). The world prices of most fruits are not to the same wild exposed cyclical fluctuations suffered by the copper price. And in the case of copper, the proposed expansion of Chilean supplies to the world market (defended, among many others, by Juan Eduardo Herrera, one
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of the members of the board of the Central Bank) explicitly assumes that this will involve a permanent decline in the long-term market price. However, in view of the large reserves and low costs of the Chilean operations, expansion still makes sense. The negative impact on domestic activities of short-term copper price instability is already taken care of by the Copper Stabilisation Fund. In terms of economic policy choices, some ofthe most determined opposi? will come from his own party, or from other tion to the Aylwin government members of the government coalition, even early in the life ofthe administra? over the optimal tariff tion. We have already seen that there are differences and industrial level are also linked to different protection regime (which attitudes towards the Andean Group), over the size and nature of state inter? There are vention, and over the role to be permitted to foreign investment. also opponents of the view that copper supplies should be expanded (Tomic, over some of the effects of particular 1986), and there may be differences rate 1981; Meller and Solimano, regimes (Ffrench-Davis, exchange 1987). coalition are even prepared to argue (in Some members of the government private) that there should be another edition of the agrarian reform. Should of many voters be disappointed, the expectations political support for the CDP is likely to decline at a gradual pace, mostly in favour of parties and in 1989, some who were CDP supporters groups to the left, although especially among the middle sectors, may migrate towards the centre-right and right. This would make the pressure for policy changes almost unbearable, and the well thought-out policies of the incoming administration less than perfectly coherent. In this connec? be replaced by something might and right-wing parties, tion, the congressional strength of the centre-right the presence of Renovacion Nacional especially Renewal), (National the role of the military in the Security senators nominated by Pinochet, Council, and the autonomy of the Central Bank may all become, at least in for the Aylwin government. some respects, quite convenient They might do the government's a dirty work by being tough, and giving the government from workers or demands good excuse to be tough, against excessive in the ranks of the or unreasonable demands from politicians companies, coalition.14 CONCLUSIONS to emerge from this discussion is that Possibly the most significant conclusion Aylwin's economic policies represent a fundamental continuity between the 1980s and the 1990s.15 This continuity results not only or mainly from the fear of antagonising the military, but also because the package of free-market in the late 1980s was successful (as predicted by many policies implemented and most of the leading of different economists political persuasions), to the right and many of their colleagues economists Christian Democrat for the conclusions share a large number of views, assumptions, and analyses future. Despite appearances to the contrary, this is not a recent development. For instance, the view that control of the money supply was a necessary (if inflation not sufficient) condition for controlling was already perhaps rate by the late 1960s. The same is true of exchange generally accepted
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policy: that a crawling peg is better than a fixed nominal exchange rate in Chilean conditions was already evident in the 1960s, and the disastrous failure of the fixed exchange rate experiences of 1971-1973 and 1979-1982 have only confirmed this. There are many other examples, dealing with the elasticities of supply and demand of exports and imports, with the size of parameters in the labour market schedules, and so on. On other issues agree? ment has been reached more recently, in the 1970s or 1980s, for example with regard to post land reform agricultural conditions, the international copper market, regulation of the financial markets, relief measures against extreme poverty, or returns to investment in human capital. In this connection the use of the label 'Chicago boy', which constituted a for the opposition in the early years ofthe dictatorship, is propaganda victory now more misleading than anything else, and certainly more misleading than before. There were always some problems with this label, such as the fact that the link between the Catholic University and Chicago did not embrace some of the most representative officials of the Pinochet regime and supporters of free-market policies (Hernan Biichi, Jose Pinera), just as many Catholic became some of its most conspicuous University-Chicago graduates The philosophical, theoretical and opponents (Ricardo Ffrench-Davis). frontiers between Christian Democrat and neo-liberal ideological thought became blurred as many economists, other social scientists, and politicians moved more or less effortlessly between positions in the Frei and Pinochet and academia.16 Some of the international governments, organisations, will not disappear central principles of free-market economic policy-making with the Pinochet regime. On the contrary, they will remain playing an influential role far beyond the limits of the 'Chicago' circle. Observers might be forgiven for speculating to the that, despite superficial appearances contrary, over the very long term there is a high degree of continuity in economic policy between the Frei, Pinochet and Aylwin governments, from the 1960s to the 1990s, leaving the Allende administration as the odd one out. Morever, this continuity can be successful. Or, in other words, there may well be only one model of successful capitalist development for Chile, that of the mainstream Christian Democrat right, which would be essentially the same as that ofthe more lucid supporters ofthe Pinochet regime. Among the the unavoidable difficulties possible facing the Aylwin government, of on and the external markets typical export economies, dependence of the external to become as debt are as serious unlikely question problems the dangers of extreme left-wing militancy, excessive statism, misguided nationalism, and growing dissent about economic policies in the government coalition's own ranks, especially if these policies fail to gain popular and electoral support rapidly. Acknowledgements?The author gratefully acknowledges the helpful comments of the editors and referees of the Bulletin. The Nuffield Foundation provided financial support for research visits to Chile in 1988 and 1989, during which much of the material used in this article was obtained.
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NOTES 1. Other political objectives are the democratisation of local government, the replacement of Pinochet as commander-in-chief of the army, a post to which he is constitutionally entitled for eight years, and trials for those guilty of human rights abuses. 2. These conditions are described by Mamalakis (1976), and the first attempts at providing some stability through indexation and other measures in the early 1960s and more recently are discussed by Cleaves (1974) and Sandilands (1980). Interestingly, one of these efforts at obtaining private sector financing for low-income housing purposes included a scheme to launder returning capital flight. 3. The only possible 'expansion' in the short term would not be a Keynesian process of aggregate demand expansion, but rather a strategy carefully designed and implemented, in order to avoid making inflation worse and damage to the trade balance by increasing imports, of shifting expenditure rather than increasing it. It would be financed largely or even completely by more taxes; it would aim at using idle or underutilised installed capacity; and expenditure would be addressed to non-tradeables and labour-intensive sectors (Marfan, 1987). Some public work programmes, popular housing, and some education and health schemes may fall within these categories. Fiscal expansion might also be allowed in order to offset the possibly contractionary effect of a devaluation (Meller and Solimano, 1987). 4. The results of more recent surveys, with data for the second half of the 1980s, some of which confirm the high estimates presented by Torche, but without overcoming the criticisms raised by Ihnen, are examined in Tironi (1989). 5. Tironi (1989) has presented what is possibly the most complete and articulate programme for reducing (not eliminating) poverty in Chile. This is a two-year programme which involves creating 200,000 new jobs (in addition to those expected from ordinary economic expansion), and increasing the average monthly income of the bottom 40 per cent of the working population by 10,000 pesos (about US $35). The annual cost of this programme was estimated, possibly conservatively, as US $830 million?4 per cent of domestic output, or 25 per cent of tax revenues. 6. Rene Cortazar became Minister of Labour in the first Aylwin cabinet. 7. The democratic opposition appointed the Christian Democrat economist Roberto Zahler, who has had a distinguished career (and holds a Ph.D. from Chicago), and the PPD's Juan Eduardo Herrera, a respected international expert on the copper industry, who is in favour of expanding Chilean supplies to the world market (at the cost of lower prices; O'Brien, 1986). 8. The director of CED was Edgardo Boeninger, now a member of the first Aylwin cabinet as Secretary General to the Presidency. Some of his views are presented in Boeninger (1986). 9. It would be misleading to present CIEPLAN (or for that matter CED) as monolithic. CIEPLAN in particular is a first-class academic institution of international standing, and as such, its members have their own specialisations, and there may be different opinions on matters of common interest. For a representative sample of the views held by CIEPLAN members, see the references to Arellano, Cortazar, Ffrench-Davis, (Alejandro) Foxley, Marfan, Meller and Munoz. 10. The highly enlightened policies of support to non-traditional exports in force during the late 1980s are reflected in, among other areas, the attitude towards adoption and diffusion of new technologies with international market possibilities, carried out by Fundacion Chile. This approach is enthusiastically shared by CIEPLAN. Amazingly, some of these tech? nologies, such as those used in the cultivation of Pacific Ocean salmon, are freely available abroad (Gonzalez, 1988; Meissner, 1988). The pragmatic search for, and incorporation of, these freely available foreign technologies contrasts sharply with the situation in other Latin American countries. In Argentina, for example, a recent bestseller by the journalist Rodolfo Terragno, a former minister in the Alfonsin government, makes national success in the next century dependent on the development of technological research by local universities, a position rejected by Fundacion Chile as unrealistic, hopelessly expensive and technically impossible (Terragno, 1988). 11. In empirical studies, the most significant determinant of domestic savings is income, followed by uncertainty and price instability. The interest rate and tax incentives do not
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12. 13.
14.
15.
16.
seem to be highly relevant, and foreign and domestic savings appear to be negatively correlated, although the reason for this is not perfectly clear (Foxley, 1986; Hojman, 1986). It is interesting to note that Sergio Molina, the Ministerof Finance in the Frei administration responsible for the chiribonos programme, is the Minister of Planning in the incoming administration. For some relatively recent estimates of price and other elasticities of agriculturalproduction, see Mujica and Oncken (1984), Quiroz et ai (1988) and Hojman (1990). This would be most unfortunate,since the internationalstandingof the Chilean economy in early 1990 was so good that investment opportunities there were being recommended even by the British press (such as the Independent on Sunday). In relation to the economic policies they support, it is fascinating to observe how much the Chilean political right has changed in a generation. During the 1950s and 1960s they favoured heavy government intervention to protect manufacturingindustry.Today they are mainly concerned with the preservation of the free-market model. Even the extreme rightwing party UDI is 'Chicago' or 'neo-liberal' rather than supportive of selective government intervention in favour of the privileges of individual groups of businessmen (Lavin, 1988). Some economic views of the centre-right and right (but not UDI) are presented in Larrain (1987). This is so much so that immediately before the 1989 election, after all the reliable polls indicated that Aylwin should win by an absolute majority,which excluded the possibility of a second round, and of popular and civil unrest, the stock market rose and the parallel (unofficial free market) dollar quotation fell. The list of names here is so long that it would be unfair and misleading to single out only a few of them.
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CORBO, V. and MELLER, P. (1981), 'Alternative trade strategies and employment implications: the Chilean case', in Krueger, A. O. et al. (eds), Tradeand Employment in Developing Countries. Vol. I., University of Chicago Press (Chicago). COX, M. (1988), 'Bases de un programa para el desarrollo sostenido y equitativo del agro chileno', paper presented to the GIA-CLACSO International Conference on Latin American Agriculture, Punta de Tralca, 1-4 September. COX, M. and CHATEAUNEUF, R. (eds), (1988), Potencial y politicas para el desarrollo agricola en Chile, CED (Santiago). CRUZ, M. E. and LEIVA, C. (1982), 'La fruticultura en Chile despues de 1973: un area privilegiada de expansion del capital', Tomo 2, GIA, Resultados de Investigacion No. 3, Academia de Humanismo Cristiano (Santiago). CRUZ, M. E. and RIVERA, R. (1983), 'La realidad forestal chilena', GIA, Serie Resultados de Investigacion No. 15, Academia de Humanismo Cristiano (Santiago). EDWARDS, E. (ed.), (1987), Dinamismoy equidad: cohabitacion forzosa, CED (Santiago). FFRENCH-DAVIS, R. (1981), 'Exchange rate policies in Chile: the experience with the crawling peg', in Williamson, J. (ed.), Exchange Rate Rules, St Martin's Press (New York). FFRENCH-DAVIS, R. (1987), 'Conversion de pagares de la deuda externa en Chile', Coleccion Estudios CIEPLAN 22: December. FONTAINE, J. A. (1988), 'Los mecanismos de conversion de deuda en Chile', Estudios Publicos 30: Autumn. FOXLEY, A. (1987), Chiley su futuro: un pais posible, CIEPLAN (Santiago). FOXLEY, J. (1986), 'Determinantes economicos del ahorro nacional: Chile 1963-1983', Cuadernos de Economia 23:68 (April). FUENZALIDA, L. A. (1987), 'Ocupacion, desigualdades y pobreza: aspectos cronicos y politica economica de largo plazo', Estudios Publicos 28: Spring. GONZALEZ, C. (1988), 'El contundente aporte de la tecnologia: entrevista a Joaquin Cordua', Revista de CIEPLAN 14: November. GONZALEZ, G. and HURTADO, H. (1984a), 'Perspectivas de las exportaciones de frutas frescas para Chile', DEA, PUC (Santiago). GONZALEZ, G. and HURTADO, H. (1984b), 'Perspectives del mercado internacional de productos forestales', DEA, PUC (Santiago). GUTIERREZ, M. A. (1987), 'Ahorro interno y crecimiento economico: un enfoque de cuentas nacionales', Cuadernos de Economia 24: 73 (December). HACHETTE, D. (1985), 'Apuntes para una discusion sobre politica arancelaria', Estudios Publicos 17: Summer. HACHETTE, D. (1987a), 'El ahorro y la inversidn en Chile: un gran desafio', in Larrain,F. (ed.), Desarrollo economico en democracia, Catholic University, Santiago. HACHETTE, D. (1987b), 'Necesita Chile una estrategia sectorial?', in Larrain, F. (ed.), Desar? rollo economico en democracia, Catholic University, Santiago. HOJMAN, D. E. (1986), 'The external debt contribution to output, employment, productivity and consumption: a model and an application to Chile', Economic Modelling 3:1 (January). HOJMAN, D. E. (1989a), 'Prospects for rural employment and wages under neo-liberal policies: the case of Chilean agriculture', Bulletin of Latin American Research 8: 1. HOJMAN, D. E. (1989b), 'Yes or No to Pinochet: political television advertising in the 1988 Chilean plebiscite', (typescript). HOJMAN, D. E. (1989c), 'Fundamental equilibrium exchange rates under contractionary devaluation: a Peruvian model', Journal of Economic Studies 16: 3. HOJMAN, D. E. (1989d), 'Neoliberal economic policies and infant and child mortality: simulation analysis of a Chilean paradox', WorldDevelopment 17: 1 (January). HOJMAN, D. E. (ed.), (1990), Neo-liberal Agriculture in Rural Chile, Macmillan (London). HOLUIGUE, A. (1979), 'Movimientos internacionales de capital: analisis teorico y aplicacion al caso chileno en el periodo 1959-1975', Instituto de Economia PUC, Documento de Trabajo 62. IHNEN, P. (1988), 'Reflexiones sobre la magnitud de la pobreza en Chile', Estudios Publicos 30: Autumn. INSTITUTO DE ECONOMIA, (1963), Utilizacion de la capacidad instalada en 42 empresas industriales, Universidad de Chile (Santiago).
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Chile After Pinochet Aylwin's Christian Democrat Economic Policies For The 1990s

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Society for Latin American Studies (SLAS)

Am.Res.,Vol.9, No. 1,pp.25-47,1990. Bull.Latin inGreat Britain. Printed

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Aylwin's Policies for

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DAVID Institute of Latin American

E. HOJMAN Studies, University of Liverpool, UK

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