View source for Finance:Crisis of 1982

{{Short description|Economic crisis in Chile}}
thumb|Growth rate of Chile's GDP (orange) and Latin America (blue) between 1971 and 2007

The '''Crisis of 1982''' was a major economic crisis suffered in {{wipe|Chile}} during the military government of Chile (1973–1990).<ref name=mem>{{in lang|es}} ''[http://www.memoriachilena.cl/temas/dest.asp?id=transformacioncrisis82 La transformación económica de chilena entre 1973-2003]''. Memoria Chilena.</ref> Chile's [[Finance:GDP|GDP]] fell 14.3%, and unemployment rose to 23.7%.<ref name=mem/>

==Background==
After the socialist reorientation of the economy during the presidency of Salvador Allende, economic sabotage by the Nixon presidency,<ref>{{Cite web|title=Chile and the United States: Declassified Documents Relating to the Military Coup, September 11, 1973|url=https://nsarchive2.gwu.edu/NSAEBB/NSAEBB8/nsaebb8i.htm|access-date=2020-12-15|website=nsarchive2.gwu.edu|quote=President Richard Nixon had ordered the CIA to "make the economy scream" in Chile to "prevent Allende from coming to power or to unseat him,"}}</ref> and the subsequent Chilean economic crisis which reached its zenith during 1973,<ref name=salazar>''Historia contemporánea de Chile III. La economía: mercados empresarios y trabajadores.'' 2002. Gabriel Salazar and Julio Pinto. pp. 35–62.</ref>{{rp|35–45}} the Armed Forces following the orders of the military junta and with the support of the United States government made a Coup d'état and demobilized the forces loyal to Allende like the Revolutionary Left Movement. They closed down the congress, imposed censorship, limited civil rights and arrested thousands of people from leftists to center democrats. Upon taking over power, the military junta under the command of General Pinochet set out to implement a series of neo-liberal economic policies based on the Chicago school of economics. In 1973, only a little bit over two years of regulatory policies established by Allende,  the military junta decided to reform the  economy, and the Chicago boys were permitted to implement some of the neoliberal economical policies outlined in ''El ladrillo''.<ref name=salazar/>{{rp|49–62}} In 1979 however, Chile decided to depart from the principle of free floating exchange rates, with disastrous results.<ref name="The Political Economy of Unilateral Trade Liberalization">{{cite journal| url=http://www.anderson.ucla.edu/faculty/sebastian.edwards/W6510.pdf | journal=UCLA  | title=The Political Economy of Unilateral Trade Liberalization | year=1990 | access-date=2010-12-06}}</ref> From 1976 onwards import [[Finance:Tariff|tariff]]s decreased strongly impacting negatively the Chilean production aimed for the [[Finance:Single market|internal market]].<ref name=Leiva1983/>{{rp|26}}

==Boom and burst==
The 1982 crisis has been traced to the overvalued Chilean peso, which had been helped by being pegged to the US dollar, and to the high [[Finance:Interest rate|interest rate]]s in Chile, which would have hampered investment in productive activities. In fact, from 1979 to 1982, much{{vague|date=October 2013}} of the spending in Chile was the consumption of goods and services.<ref name=salazar/>{{rp|49–62}} Foreign loans given to Chilean companies started to decline in late 1981 reaching the point of becoming negligible one year later.<ref name=Leiva1983/>{{rp|28}} Events can also be explained in terms of [[Finance:Interest rate|interest rates]] and capital flows using the nineteenth-century Banking School theory of [[Finance:Financial crisis|financial crises]].<ref>{{Cite book |last=Read |first=Charles |url=https://www.worldcat.org/oclc/1360456914 |title=Calming the storms : the carry trade, the banking school and British financial crises since 1825 |date=2022 |isbn=978-3-031-11914-9 |location=Cham, Switzerland |pages=286 |oclc=1360456914}}</ref> By 1982, Chile's [[Finance:External debt|external debt]] had risen to over 17 billion dollars.<ref name=salazar/>{{rp|49–62}} Income per capita in Chile fell in 1983 to levels below those of 1960.<ref name=Leiva1983>{{Cite journal |title=Evolución de la Crisis Económica |journal=Coyuntura Económica |last=Leiva L. |first=Jorge |volume=10 |pages=3–71 |publisher=Academia de Humanismo Cristiano|year=1984 |language=Spanish}}</ref>{{rp|3}} Incomes fell as salaries were not adjusted for inflation.<ref name=Leiva1983/>{{rp|4}} Around half a million persons were on employment programmes.<ref name=Leiva1983/>{{rp|4}}

In agriculture, the entrance of speculative capital before the crisis led to the bankruptcy of several processing companies.<ref name=Paulina/>{{rp|34–35}} IANSA, a sugar company that had belonged to the state before its [[Finance:Privatization|privatization]], went bankrupt because of a short-term gains policy by its new owners.<ref name=Paulina/>{{rp|34–35}}

The government response to the crisis priorized the preservation of the international markets over the placation of internal unrest.<ref name=Leiva1983/>{{rp|5}} 

===Bank interventions===
In November 1981, banks were bailed out by the government after they had taken excessive risks: the large Banco de Talca and Banco Español Chile and the small Banco de Linares and Banco de Fomento de Valparaíso.<ref name=mercurio/> Financial societies (Compañía General, Cash, Capitales and del Sur) were also bailed out.<ref name=mercurio/> Banco de Talca and Banco Español Chile were nationalized, removing the management and wresting ownership from shareholders (they were later privatized again).<ref>[https://www.wsj.com/articles/SB122265260912184329 What We Can Learn From Chile's Financial Crisis]. ''{{wipe|The Wall Street Journal}}''. September 29, 2008. Retrieved May 14, 2012.</ref>

On January 13, 1983, the government made a massive bank intervention, bailing out five banks and dissolving three others.<ref name=mercurio>[http://www.economiaynegocios.cl/noticias/noticias.asp?id=40131 A 25 años de la intervención bancaria en Chile]. Economia y negocios. ''El Mercurio''. January 12, 2008. Retrieved on May 15, 2012.</ref>

===Agriculture contraction===
All sectors of Chilean agriculture except fruit exports and forestry contracted during the crisis, but recovery was fast after 1984.<ref name=Paulina>Rytkönen, P. 2004. Fruits of Capitalism: Modernization of Chilean Agriculture, 1950-2000. ''Lund Studies in Economic History'', 31.</ref>{{rp|26}} The number of farm bankruptcies in Chile increased from 1979 to its 1983 peak.<ref name=Paulina/>{{rp|26}}

==Aftermath==
[[File:Panfleto_Tercera_Jornada_Protesta_Nacional.jpg|thumb|200px|Pamphlet calling for a protest including a cacerolazo (a banging of pots and pans) in 1983]]
The crisis has been credited of beginning, despite its severe repression, a wave of protest all over Chile against the dictatorship.<ref name=salazar/>{{rp|49–62}}

In the years after the crisis, the economic policy of the dictatorship changed to include [[Finance:Price band|price band]]s for some foodstuffs and a [[Finance:Floating exchange rate|floating exchange rate]].<ref name=Paulina/>{{rp|66}}

==Academic debate==
Supporters of the neoliberal policy of the military dictatorship have argued that the crisis started outside Chile and hit the whole of Latin America in the so-called ''La Década Perdida'' (The Lost Decade).<ref name=salazar/>{{rp|49–62}} Historians Gabriel Salazar and Julio Pinto have countered that the type of crisis is a frequently inherent weakness of the neoliberal model.<ref name=salazar/>{{rp|49–62}} In contrast, economist [[Biography:Milton Friedman|Milton Friedman]] blames precisely the country's departure from the neoliberal model and political interventions in matters such as the Chilean peso.<ref name="Two Lucky People">{{cite journal| url=https://books.google.com/books?id=6l0_vQ1zpI8C&q=To+lucky+people+milton+friedman | journal=University of Chicago Press  | title=Two Lucky People | year=1998 | isbn=9780226264158 | access-date=2011-04-08| last1=Friedman | first1=Milton | last2=Friedman | first2=Rose D. }}</ref>

[[File:Chile inflation rate.webp|thumb|300px|right|Chile inflation rate 1971-1994]]
According to Ricardo Ffrench-Davis, the "unnecessary" radicalism of the shock therapy in the 1970s caused mass unemployment, loss of purchasing power, extreme inequalities in the distribution of income, and severe socioeconomic damage.<ref>Konrad Adenauer Foundation, Helmut Wittelsbürger, Albrecht von Hoff, [http://www.kas.de/wf/doc/kas_4084-544-1-30.pdf?040415182627 Chile's Way to the Social Market Economy]</ref> He argues that the 1982 crises as well as the "success" of the pragmatic economic policy after 1982 proves that the radical economic policy of the Chicago boys harmed the Chilean economy from 1973 to 1981 though the economy of Chile recovered quickly and continued to rise rapidly over time.<ref>Helmut Wittelsbürger, Albrecht von Hoff: [http://www.kas.de/wf/doc/kas_3585-544-1-30.pdf ''Chiles Weg zur Sozialen Marktwirtschaft.''] (PDF; 118&nbsp;kB); ''Konrad-Adenauer-Stiftung -Auslandsinfo.'' 1/2004, pp. 97, 104.</ref>

== See also ==
* [[Finance:Latin American debt crisis|Latin American debt crisis]]

==References==
{{reflist}}

{{Financial crises}}

[[Category:Financial crises]]

{{Sourceattribution|Crisis of 1982}}