Chile Booming but Opposition Sees Downside

Few incumbent presidents could hope to campaign with overall economic statistics as healthy as those proffered by Gen. Augusto Pinochet as he appeals to Chilean voters for another eight years in power.

Economic growth is projected at 5.7% for 1988, the fifth positive year in a row. Unemployment is down, and exports are surging. Chile is one of the few Latin American nations that has actually reduced its foreign debt, and yearly inflation is lower than most neighboring countries’ monthly rates.

Supporters of Pinochet, the sole candidate in the Oct. 5 plebiscite, say simply that free-market Chile works, and most of the rest of the continent doesn’t. If Pinochet loses the yes-or-no vote, his supporters say, Chile will return to the economic and political chaos that it escaped 15 years ago, thanks to the general’s coup.

Opponents See Mirage

The 72-year-old president’s opponents, however, view Chile’s economy as more a mirage than a miracle.

They stress three points: First, they say, Pinochet bought progress for the elite at the expense of the nation’s workers, whose salaries buy less now than in 1971. Not much has trickled down, they say, and wealth is concentrated in fewer hands.

Second, opponents contend that restoring democratic rule--a No victory would force multi-party elections in late 1989--wouldn’t threaten the positive aspects of Chile’s boom. Opposition leaders emphasize the prosperous democratic 1960s rather than the raucous 1970-73 administration of Marxist President Salvador Allende, who died in the 1973 coup. By its nature, they say, democracy responds better to the needs of the public than dictatorship.

Finally, the 16-party opposition alliance is reminding voters that Pinochet’s economic record is blighted by past failings. In 1982, at the height of a severe recession, economic growth declined by 14% and unemployment spiraled to 22% officially--far higher by some accounts. This is the first year since then in which real wages are rising.

“The question is whether the decision to vote will depend on the evolution of the economy in the past 12 months alone. My feeling is that the answer is no,” said Sergio Bitar, an economist in the leadership of the No Command.

Pinochet’s young economic technocrats, many of them American-educated, acknowledge that 1982 was a disastrous year, resulting from the world-wide foreign debt crisis.

Luis Larrain, deputy director of the president’s Office of Planning, said that while other countries in the region avoided painful choices, Chile opted for severe austerity programs and structural adjustments--”very rapid and very painful.”

Strict Monetary Policy

While countries such as Argentina, Brazil, Bolivia and Peru printed money and were engulfed by annual inflation of hundreds of percent, Chile relied on strict monetary and exchange control policies to keep inflation at about 20% annually and to encourage exports.

To combat high unemployment resulting from the recession, the government created 500,000 make-work jobs that paid a pittance. Larrain said a sign of Chile’s renewed health is that just 30,000 people now work in those programs, and the rest have been absorbed by the growth since 1983, which he said has created one million new jobs.

While wages were intentionally kept low through the 1980s, in part to make Chilean exports more competitive, real buying power has now started rising substantially--by 8% in the last year, Larrain said.

“This process of growth, sooner or later, reaches all the people,” he said in an interview. “Yes, the rich are getting richer, but the poor are also getting richer.”

Export of Raw Goods

He said one of the keys to recent growth--exports now earn five times more than in 1973--was abandoning a typical Third World tendency to try to export finished rather than raw products. Such a policy requires government-subsidized processing industries that traditionally are inefficient and uncompetitive.

The government sold off many state enterprises and encouraged more basic exports--unprocessed logs and fruit, for example--to generate the wealth that would later permit industrialization. The payoff: agricultural exports, mainly fresh fruit, rose 15% in 1987, and forestry exports rose 43%.

Larrain said that Chilean private industry now is developing sophisticated fruit-packing, lumber-processing and fish-processing industries, allowing the export of goods with higher values. This year, exports will exceed those of neighboring Argentina, which has nearly three times the population, he said.

No one doubts that the rise in the world price of copper also has been fortunate for Chile, and luckily timed for Pinochet. In the doldrums since the 1970s, copper has risen from 60 cents per pound to more than $1 per pound this year. Producing 22% of the world’s copper, Chile has earned a windfall, although the diversification programs have reduced copper’s share of export earnings from more than 80% to about 40%.

Housing Construction

The government disputes the opposition’s claim that the poor haven’t benefited from Chile’s growth. It cites the construction of 60,000 or more houses per year and a decline in the infant mortality rate from 57 per thousand in 1975 to 19.1 per thousand in 1986 as reflections of an improving standard of living for everyone.

Even though salaries stayed low for years, inflation was also held in check so that people could cope, said Luis Alarcon, an adviser to Finance Minister Hernan Buchi.

“In Argentina, everyone constantly gets raises, but inflation has been even higher, so the people are fooled,” he said. In Chile, the middle class has been able to buy cars, television sets and other durable goods, and the poor have moved from squatter camps into basic but serviceable housing, Alarcon said.

Chile also has been a leader in reducing its foreign debt, mainly by selling portions of the debt to investors in exchange for equity in Chilean enterprises. The debt has declined from more than $19 billion to below $18 billion by the end of the year.

Foreign Investors

Foreign creditors agreed to reschedule Chile’s medium- and long-term debt, about three-fourths of the total, in April, 1987, and foreign investment reached nearly $500 million in 1987. Australians and Asians are among the key investors.

Those aligned against Pinochet say the social cost of this growth has been high. Yes, the well-to-do suburbs boast pleasant and bustling shopping malls, but in nearby poblaciones (working-class districts), two families often share the simple wooden homes. People may be working, but their salaries leave them fighting to cope. A farm worker earns 600 pesos ($2.50) for a 12-hour day.

Economist Bitar, who was minister of mining in Allende’s government, said: “The diffusion of wealth, the trickle-down, doesn’t work here. There is an appearance of rapid growth, but the wealth concentrates in the upper-income groups.”

He said the public apparently agrees. In a poll conducted for the Radio Cooperativa network, just 10% felt that the economic growth helped everyone, while three-fourths said it was cosmetic.

Bitar said the government was concentrating too heavily on exports of low-value basic products and that defense spending chewed up an inordinate amount of money--6% to 8% of GNP--which could be better spent on social needs.

Period of Transition

Yet he also stressed that the opposition would not seek radical changes in economic policy. “We have said that those things that are good will be retained. We know we need a period of transition that doesn’t reactivate inflation, because that will invite a new coup,” he said.

Another cost of Pinochet’s policies has been workers’ rights. Although new laws were adopted in 1987, a U.S. government report noted that they still severely restrict collective bargaining rights and political activity by union leaders, as well as strike activity. Last December, the United States suspended Chile’s preferential trade rights, thus denying duty-free entry to the United States for a range of imports, because of continued labor rights violations.

The No Command also has reminded voters more than once that military rule, even with its wide powers to keep salaries down and control opposition, is no guarantee of economic success. Bitar noted that Latin American military governments that surrendered power to civilians in recent years often left behind legacies of inflation, unemployment and huge foreign debts to their elected successors.