Vuskovic Plan - Results

Results

The first year saw 12% industrial growth and an 8.6% increase in GDP, accompanied by major declines in inflation (down from 34.9% to 22.1%) and unemployment (down to 3.8%). In addition to the rise in employment, Allende also raised wages on a number of occasions throughout 1970 and 1971. These rises in wages were negated by continuing increases in prices for food. Although price rises had also been high under president Eduardo Frei Montalva (27% a year between 1967 and 1970), a basic basket of consumer goods rose by 120% from 190 to 421 escudos in one month alone, August 1972. In the period 1970–72, while Allende was in government, exports fell 24% and imports rose 26%, with imports of food rising an estimated 149%. Although nominal wages were rising, there was not a commensurate increase in the standard of living for the Chilean population.

However, these results were not sustainable. The price of copper took a nose-dive and production also went down, with correspondingly negative results for the economy. A commercial deficit was recorded at the end of 1971 and private investors shied away. In 1972, the Chilean economy took a turn for the worse. Exports fell, imports rose alarmingly and inflation rocketed. The falls in exports were mostly due to a fall in the price of copper, since Chile was at the mercy of international fluctuations in the value of its single most important export. As with almost half of developing countries, more than 50 per cent of Chile's export receipts were from a single primary commodity. Adverse fluctuation in the international price of copper negatively affected the Chilean economy throughout 1971–72. The price of copper fell from a peak of $66 per ton in 1970 to only $48–9 in 1971 and 1972.

In 1972 the escudo had runaway inflation of 140%. From December 1972 to December 1973, the inflation rate was a catastrophic 508% – an example of hyperinflation. The average Real GDP contracted between 1971 and 1973 at an annual rate of 5.6% ("negative growth"), and the government's fiscal deficit soared while foreign reserves declined. Inflation led to the rise of black markets in rice, beans, sugar, and flour, and a "disappearance" of such basic commodities from supermarket shelves. The government attempted to prevent this shortage by creating juntas de Abastecimientos y Precios.

In addition to the hyperinflation and the fall in the value of copper, the lack of economic aid further depressed the economy. The growth in GDP went from 9% in 1971 to −1.2% in 1972, while the rate of inflation went from 22.1% the previous year to 163.4%. Vuskovic was replaced as Minister of Economy on June 17, 1972, and the Allende government announced it would default on debts owed to international creditors and foreign governments. Allende also froze all prices while raising salaries, but the damage was already done. Chile had entered a major recession, with hyperinflation, a negative growth in GDP, a lack of supplies and spare parts, as well as a state of general political and social disorder. His implementation of these policies led to strong opposition by landowners, some middle-class sectors, the rightist National Party, the Roman Catholic Church (which was displeased with the direction of the educational policy), and eventually the Christian Democrats. By September 1973, inflation had reached 381.1% and the growth in GDP stood at −4.2%.