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Long and narrow, Chile clings to the western edge of South America's South­ern Cone. Hugging - page 19 / 46





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Chile                                   455

alyzed, and domestic and foreign investment was nonexistent. The U.S.-trained neoconservative economists that advised the junta argued that sound, sustained economic growth depended on monetary stability, reestab­lishing a free-market economy in which the private sector was the engine of growth, and building an economy open to international competition and for­eign investment. To wring inflation and other price distortions out of the economy, they implemented an orthodox economic stabilization program-Between 1975 and 1978 price controls were lifted, interest rates were in­creased, and fiscal spending was slashed. Constructing a free-market econ­omy, however, required additional measures. The junta's economic team pri­vatized a considerable portion of Chile's mixed economy (especially the industrial and financial sectors but not the nationalized mining sector) and deregulated the financial system. Thoroughgoing trade reform, especially tariff barrier reduction, restructured Chile's economy from industries pro­ducing for domestic markets toward sectors with a comparative advantage:

mining, fishing, fruits, and timber. The commercial sector (import-export business) and construction sectors also boomed. Generous conditions for for­eign investors lured external capital back into the country.

How did the military government accomplish the economic transforma­tion of Chile? First, the military government insulated the neoconservative economic team from pressure groups. The absence of democratic institutions and the labor-repressive character of the regime meant that wage-earners and the salaried middle classes had no defense. The closed nature of the au­thoritarian regime meant that Chilean industrialists who suffered under in­ternational competition lacked access to policy makers. Second, there were no differences of opinion over what to do among the cohesive, socially well-connected members of the neoconservative economic team that became the chief advisers to the government, who were known as the "Chicago Boys" because most of them had received graduate degrees from the economics department of the University of Chicago, where they studied with Milton Friedman, a Nobel prize-winning monetarist. Third, the core of the Chicago Boys was also connected to Chilean businessmen who supported their poli­cies. They saw a chance to build economic empires.

The military government also restructured Chilean politics. The junta es­tablished a highly centralized closed authoritarian political system. It closed congress indefinitely, banned all political parties, and purged state institu­tions and universities. Socialists, communists, and other far-left groups were persecuted, mercilessly and many died or suffered torture, imprisonment, and exile at the hands of the consolidated intelligence services of the armed forces and the national police force. The Christian Democratic party at first sought to collaborate with the military and wanted to quickly restore democ­racy, but they were rebuffed. Instead, General Augusto Pinochet, comman-der-in-chief of the army, centralized power in his person and became pres­ident of the nation. He accomplished his goal of establishing one-man rule after ousting air force General Leigh, his chief opponent, from the junta and replacing him with the more pliant General Matthei.

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