JUNE 1982 - VOLUME 3 - NUMBER 6
Allende's Mining Minister Attacks Milton Friedman, General Pinochet
An interview with Sergio Bitar Chacra
The Chilean economy is in crisis. The government is heavily in debt, industrial productivity has dropped off, unemployment rises, local companies go bankrupt.
General Augusto Pinochet's "free market" economic policies, designed and championed by University of Chicago professor Milton Friedman, have taken their toll - hardest of all on workers, but now also on other sectors of the society.
Multinational corporations, courted by Pinochet with a new mining law granting generous terms, have failed to invest at the levels the junta desired.
To place Chile's current economic troubles in perspective, and to help recall part of the 'discarded history of Salvador Allende's Socialist government (1970-73), Multinational Monitor interviewed Sergio Bitar Chacra, who for a short time was Allende's mining minister.
Bitar is a leader of the Christian Left Party, which was formed by members of Chile's Christian Democratic Party who supported the Popular Unity Coalition government of Salvador Allende. Bitar was appointed Minister of Mines by Allende on March 27, 1973, during a period of intense internal political and economic upheaval and growing international pressure on Chile orchestrated by the United States and a number of major multinational corporations.
Almost from the day he took office, Bitar was confronted by a strike in the copper industry which completely disrupted the Chilean economy and played a key role in setting the stage for the military coup against the Allende government.
Despite the fat that Bitar was able to reach a settlement agreement with unskilled mineworkers at the huge El Teniente mine, the strike dragged on because of opposition to the agreement by managerial personnel and skilled workers. At the same time, rightist opposition parties us the strike as a pretext to stage street protests and to challenge the Allende government's overall policies. Although 20,000 workers demonstrated in support of Bitar, the Harvard-educated Minister of Mines was impeached by the opposition-controlled Chilean parliament on June 6.
At the time of the coup on September 11, Bitar had returned to a university teaching position in Santiago. He was arrested and imprisoned for a year before being expelled from the country.
Bitar now lives in Caracas, Venezuela, where he moved after teaching at Harvard as a visiting scholar. In February, he visited New York and Washington with Jamie Castillo, founder of the Chilean Commission for Human Rights, to draw the Reagan administration's attention to continued violations of human rights by the Chilean junta.
While in New York on February 5, Bitar was interviewed by freelancer Khatami for the Multinational Monitor.
When you were Minister of Mines under the government of Salvador Allende, how were your relations with multinationals?
The basic problem then was the issue of compensation for Anaconda and Kennecott. After the decision was taken unanimously by parliament in 1971 to nationalize them, there remained the question of how much to pay the companies. All the conflicts with the companies were rooted in this issue - the valuation the government did on the assets of the companies, the book value of the companies, and the discounts the government made because of excess profitability. This led in some cases to a very low compensation.
How did the copper companies respond to Allende's nationalization policy?
The most important problem, of course, was the embargo that Kennecott and Anaconda started in Europe in order to block the sales of Chilean copper, so that the ships with the copper were seized in various countries by authorities acting for the copper companies.
Then, too, whenever you wanted to buy spare parts or machines, the companies in the U.S. blocked these purchases by talking to the producers of those goods. This created a serious problem.
When Pinochet took over, how did he change relations with the copper companies?
The Pinochet government decided to pay at least $700 million to the companies, changing the decisions of the previous government in terms of compensation.
And then, the Pinochet government and the companies started discussing new projects.
Is there a big change in the percentage of money that corporations can repatriate now compared to when you were Minister of Mines?
Or course the conditions in which they can operate now are much more open and easy. They can almost do whatever they want. In the past, there was a different policy, and not only during the Allende government. Because Chile is a country with limited resources, the traditional policy always placed restrictions on capital movements and payments.
What happened to you during the coup in 1973?
At the time of the coup, I was not a minister. I was teaching economics at the university, because one or two months before, there had been a strike of the miners. The opposition party, the right, accused the government of adversely affecting the interests of the workers. It was a very paradoxical situation. They accused the Minister of Mines - myself - and the Minister of Labor in the parliament, and so we had to resign.
The day of the coup or two or three days afterwards, the government issued a list of people who were ordered to present themselves to the authorities. I went there and I was sent without any charges or explanation for one year to a political prison camp with other ministers and senators. When I came out, I went back to Harvard University as a visiting scholar where I had studied before.
After what happened during the Allende government, do you think a similar government in the future would meet with a cooperative attitude from foreign capital?
The conditions the country faces in the 80s are very different from what we faced in the 60s and early 70s. It's not only that the world economy and the national economy have changed, but also we have accumulated experiences of different policies.
You never have two situations that repeat themselves in the same way. So I think we understand better our internal situation as well as the international situation. With reason and logic, one can -move in a pragmatic way, rather than in a more ideological way.
What is the significance of the recently proclaimed government mining code? (See accompanying article.)
The purpose of the code is to give multinational cor porations a set of benefits that will make investment much more attractive to them than before, so they will feel more secure to go in and start making new investments.
In general, the policy toward foreign investment is based on the idea that the more favorable the condition, the higher the amount of investment. But, in fact, the results have not shown this kind of relation.
In December, Exxon decided to postpone a $2 billion investment in a major copper project at La Disputada until 1984. They gave two reasons: that the world economic conditions were unfavorable, and secondly, Chile's rate of exchange. They felt that the peso was overvalued very strongly and they felt that with this internal cost, they could not face international, prices.
That must have been quite a devastating blow to the government?
It was very important to the government not only because it showed that the new inflow of foreign investment vestment is not coming, but also because the decision came at a very critical moment. '
At the beginning of this year and since 1981 the country has been experiencing a crisis in terms of its balance of payments situation. In 1981, the deficit for the foreign account was over $4 billion, more than the country's total exports. The debt service in 1981 was higher than 75% of exports for 1981. Those numbers are probably the highest in all of Latin America, and perhaps the highest in the world.
Are you suggesting that the multinationals by choosing not to invest in Chile, are losing faith in the Pinochet government?
Perhaps some of them will not say they are losing faith at this moment. But they have short-term economic problems due to the internal policies of the government. They have long-term problems due to the market, and they have not been stimulated to invest because of these easy advantages that have been granted to them.
There is not a clear relationship between giving more to the multinationals and immediately receiving more.
If you look at Chile at different periods of time, you will see we have received huge investments in copper under different economic and political conditions. If you compare Latin American countries with liberal policies and others with more protective policies, you will not find a relationship between those policies and foreign investment, especially in mining.
For a time, it seemed that the Pinochet government planned to denationalize the mining companies that Allende had taken over. Is that correct, and if so, why didn't the generals pursue this path?
The government wanted the mining companies to become privately owned, but it has not been possible to go ahead with that.
It is hard to know exactly what is happening within the government because it is a very closed system of discussion and information. But one can believe that it was the result of difference between the Chicago boys on one side and the more nationalistic perspective from some sectors of the military.
How firmly committed is the Pinochet government to the policies of the Chicago Boys and Milton Friedman's ':free market" economic model?
For the first time, there is clearly a loss of credibility of this economic model among government leaders. In my opinion, they realize that what they are experiencing now is not a recession or just an adjustment in a golden path, but a crisis which reveals the inability of this model to work in Chilean conditions.
The government itself has stated that in order to face this economic crisis, internal costs must be reduced. They have said that a very important factor for this reduction should be wages and salaries. The information from labor unions in Chile is that many compulsory reductions in wages and salaries are now taking place, not only of workers but also of employees and managers. They are offered two options: we close or you reduce your salaries.
Under the present economic conditions in Chile, most of the people accept the second option, reduction of their salaries. The result is an accentuation of the fall in real wages.
The numbers we have - not the official figures but with corrected indexes prepared by independent economists and an independent economic studies center - show that real wages in 1981 were already below the 1970 level. Under these conditions of lower real wages and higher unemployment, the discontent is increasing, not only among workers but among the owners themselves of the factories that had to close, and the farmers who cannot sell their goods and who are in very bad shape.
If the generals do not change their economic policies, they will be obliged to repress more in order to avoid what they would call "disorders."
From the Chilean experience, what conclusions do you draw about the effectiveness of the Friedman free market model?
This kind of model can only work with a dictatorship and, secondly, is inefficient economically: That's why Friedman's speeches that he delivers everywhere are very dangerous. Because there are many people who believe that economic science is something like physics, that there are universal laws independent from politics.
This policy requires the depression of wages and salaries, high rates of unemployment, liquidation of political parties, control of the means of communication.
This is not only in the case of Chile; it is the case in Argentina and in Uruguay. You have three examples that show that these kind of policies can only be applied under a military government and can not be applied in a democratic context. For instance, in Peru, they tried to do something similar, but they reached a point beyond which they couldn't go further. Because not only are they affecting the labor unions and labor in general, they are affecting industrial entrepreneurs. In Chile, they are liquidating many companies that, in another context, would have reacted. Here, they are afraid; they don't dare open their mouths.
But even with all this military power, even with all the external credit the government has received - two ideal conditions - it hasn't worked.