A Tale Of Two Chiles
The body of Augusto Pinochet is barely cool, and the recounting of his debatable life is just heating up.
John O’Sullivan, a Hudson Institute senior fellow, praises Pinochet, proclaiming that “if successful economic transformation could justify political mass murder … then Pinochet should be celebrated without reserve as the savior of his country”.
There is celebration in Chile, but it isn’t over being “saved” by Pinochet! Dave Zirin of the LA Times reports that a Chilean friend emailed him shortly after the dictator’s demise, saying, “In Chile, we have always known the truth about this evil man. It does my heart well that jail was his immediate future, and that he knew it.”
Greg Palast provides the details of Pinochet’s damage to the country he was “saving”:
The claim that General Pinochet begat an economic powerhouse was one of those utterances whose truth rested entirely on its repetition.
Like the common Republican claims of the rash acts of Reagan and Dubya being so good for the American nation!
Pinochet did not destroy Chile’s economy all alone. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman’s trainees, the Chicago Boys. Under the spell of their theories, the General abolished the minimum wage, outlawed trade union bargaining rights, privatized the pension system, abolished all taxes on wealth and on business profits, slashed public employment, privatized 212 state industries and 66 banks and ran a fiscal surplus.
The Chicago Boys persuaded the junta that removing restrictions on the nation’s banks would free them to attract foreign capital to fund industrial expansion. Pinochet let the good times roll for the speculators. He was persuaded that Governments should not hinder the logic of the market.
Freed of the dead hand of bureaucracy, taxes and union rules, the country took a giant leap forward … into bankruptcy and depression. By 1982, the pyramid finance game was up. Industry shut down, private pensions were worthless, the currency swooned. Riots and strikes by a population too hungry and desperate to fear bullets forced Pinochet to reverse course. He booted his beloved Chicago experimentalists.
Chile was a showcase of de-regulation gone berserk.
In 1973, the year General Pinochet brutally seized the government, Chile’s unemployment rate was 4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real wages declined by 40% under military rule.
In 1970, 20% of Chile’s population lived in poverty. By 1990, the year “President” Pinochet left office, the number of destitute had doubled to 40%. Quite a miracle.
Somewhere around the time of the ejection of the Chicago School, Pinochet changed course. Instead of continuing to squeeze the Chilean lemon dry for the benefit of the few, he decided that it was time to watch out for Numero Uno and turned on the beneficiaries of his policies. To do so, he had his victim, Salvador Allende, to thank for the means of the turnabout. Greg Palast explains:
New Deal tactics rescued Chile from the Panic of 1983, but the nation’s long-term recovery and growth since then is the result of - cover the children’s ears - a large dose of socialism.
Reluctantly, the General restored the minimum wage and unions’ collective bargaining rights. Pinochet, who had previously decimated government ranks, authorized a program to create 500,000 jobs. In other words, Chile was pulled from depression by dull old Keynesian remedies, all Franklin Roosevelt, zero Reagan/Thatcher.
To save the nation’s pension system, Pinochet nationalized banks and industry on a scale unimagined by Communist Allende. The General expropriated at will, offering little or no compensation.
While most of these businesses were eventually re-privatized, the state retained ownership of one industry: copper. Copper has provided 30% to 70% of the nation’s export earnings. This is the hard currency which has built today’s Chile, the proceeds from the mines seized from Anaconda and Kennecott in 1973 - Allende’s posthumous gift to his nation.
The nationalization of these mines, along with certain other Chilean assets owned by foreign firms such as ITT, was a direct causation for Augusto Pinochet, a CIA asset, to be unleashed by Henry Kissenger [much more here {PDF}] in an effort to protect American investments in Chile. But as is too often the case, the neo-con plans didn’t quite turn out as envisioned. Pinochet also took advantage where he was only supposed to take power:
University of Montana metals expert Dr. Janet Finn notes, “It’s absurd to describe a nation as a miracle of free enterprise when the engine of the economy remains in government hands.”
It didn’t stop with the copper mines, which bring in money from foreign sources. Pinochet also knew that people have to eat, which would bring in money from domestic sources:
Agribusiness is the second locomotive of Chile’s economic growth. This also is a legacy of the Allende years. According to Professor Arturo Vasquez of Georgetown University, Washington DC, Allende’s land reform, the break-up of feudal estates (which Pinochet could not fully reverse), created a new class of productive tiller-owners, along with corporate and cooperative operators, who now bring in a stream of export earnings to rival copper. “In order to have an economic miracle,” says Dr. Vasquez, “maybe you need a socialist government first to commit agrarian reform.”
So there we have it. Keynes and Marx, not Friedman, saved Chile.
Returning to John O’Sullivan, he opines that “Maybe Pinochet had reason to be grateful for the fact that there is no justice in this world.”
There is a reason for this condition, as Dave Zirin reminds us:
The general, as a condition for stepping down from power, had been allowed to rewrite the constitution to make him and his cohorts immune from prosecution. And he was also still in charge of the army.
But that didn’t stop the protests against Pinochet after his death. Those who felt betrayed by the dictator joined those who lost some 3200 relatives to the neo-con criminals who subverted Chilean democracy in pursuit of pelf and plunder. John O’Sullivan relates why:
“[Pinochet] lost credit with many of his remaining supporters, including some who’d bankrolled his legal defense, when he was shown to have salted away millions in corrupt payments.”
They were going broke after he took away their money machines, and needed an outlet for their vengeance. Thus, they denied him the state honors he sought, which left only his army to honor him. As Dave Zirin declares, “This is right. Any public humiliation Pinochet received at the end was the result of a movement of ordinary folks who never gave up.”
Actually, he’s still fondly remembered by the very economic forces which unleashed him in the first place. Greg Palast explains:
[T]he myth of the free-market Miracle persists because it serves a quasi-religious function. Within the faith of the Reaganauts and Thatcherites, Chile provides the necessary genesis fable, the ersatz Eden from which laissez-faire dogma sprang successful and shining.
In 1998, the international finance Gang of Four - the World Bank, the IMF, the Inter-American Development Bank and the International Bank for Settlements - offered a $41.5 billion line of credit to Brazil.
But before the agencies handed the drowning nation a life preserver, they demanded Brazil commit to swallow the economic medicine that nearly killed Chile. You know the list: fire-sale privatizations, flexible labor markets (i.e. union demolition) and deficit reduction through savage cuts in government services and social security.
In Sao Paulo, the public was assured these cruel measures would ultimately benefit the average Brazilian. What looked like financial colonialism was sold as the cure-all tested in Chile with miraculous results.
O’Sullivan chants the sacred rant:
Pinochet’s economic legacy outstrips that of most advanced democracies… Within a decade of the 1973 coup, Chile was a stable growing economy - transformed by monetary, supply-side, trade and labor market reforms introduced by Pinochet.
But this attempt to subvert Brazil to benefit the Financial Gang of Four didn’t take. Brazil is about to pay of its IMF debt this month, a move which stems from frustration over IMF interference in their governance. Said one Buenos Aires’ resident, “Goodbye and good riddance“, when told this news.
This anti-IMF attitude is also expressed in Argentina, where the economy is doing better than anyone expected, prompting Venezuela to Argentine securities in an effort to help Argentina pay off its IMF debt.
This is a growing movement of nations freeing themselves from the neo-con economic yoke. Uruguay paid their debt off last month, and Serbia has announced plans to be free from the IMF by March 2007. Indonesia is planning on retiring its IMF debt, and is asking for a piece of the future action:
The end of the IMF loans comes as Asia seeks a greater say in the affairs of the Washington-based lender, to reflect its increasing global weight. Increased Asian representation could give the IMF more credibility in a region with reserves so vast it does not necessarily need the IMF’s help if there were another crisis. “Indonesia and many regional neighbors have made progress in recent years including a swing to current account surplus, leaving them less vulnerable than during the mid-1990s,” said Singapore-based director of Asian Economic Forecasting David Cohen of Action Economics.
Pity the poor IMF! It’s having a bit of an identity crisis:
The evidence that its members states are seeking to escape from the International Monetary Fund’s “jurisdiction” continues to mount.
The IMF has made some efforts to deal with the challenges it faces. In September, its members approved marginal increases in the voting power of China, Korea, Mexico, and Turkey and agreed to consider more general revisions to the formula for calculating each member state’s quota and a doubling of its basic votes.
An empty promise in the making?
These changes still leave the Fund’s decision-making concentrated in the hands of the world’s richest nations, and since the increase in basic votes requires an amendment to the IMF Articles of Agreement, it is not clear when this may occur.
The changes that need making are those regarding the mission of the IMF itself, not in “democratizing” its current operations:
Even if they are fully implemented, these modest reforms will fail to resolve the IMF’s legitimacy and relevancy crisis because they do not effectively address the underlying cause of its problems: the IMF’s failure to adapt its governance structures to its evolution from a specialized monetary organization into a macro-economically oriented development financing institution.
What exactly is he saying?
When the IMF was established in 1944 its member states agreed to surrender some of their monetary sovereignty in exchange for the benefits of a rules-based monetary system in which all states committed to maintain a fixed value for their currencies, and in which the IMF acted as both the overseer and the financier to members in need.
This oversight, however, was limited to specific items:
In all its operations, the IMF staff, operating under the firm oversight of its Board of Executive Directors, focused only on those macroeconomic and monetary variables that affected the state’s obligation to maintain its currency’s par value, leaving the member states free to choose policies needed to reach the agreed macroeconomic and monetary goals.
The IMF’s governance structure, despite being based on a system of weighted votes, had a built-in check on the influence of its most powerful member states. They understood that, since they would use (and in fact did use) the IMF’s services, its policies could directly affect their own citizens and they could be held accountable by them for these policies.
But like all things too good to be true, the times - and the IMF membership needs - changed:
When this system collapsed in the 1970s (about the time Richard Nixon took the US off the Gold Standard - effect, not cause) the IMF amended its Articles of Agreement to allow each member state to determine its own exchange rate policy. This had two important operational consequences.
First, it created a de facto distinction between those rich IMF member states, such as the United States, Germany and Japan, that had access to alternate sources of funds and so did not need to use the IMF’s services (“IMF supplier states”) and those developing country member states that did need to use its services, such as Argentina, Ghana, and Indonesia (“IMF consumer states”).
Second, at least in the case of IMF consumer states, the range of the IMF’s interests expanded, over time, beyond macro-economic and monetary issue to include any issue, regardless of how intrusive into the affairs of its member state, that could affect the balance of payments and the monetary situation of its member states.
This condition is what led to Operation Condor, and the rise to power of Augusto Pinochet as a member of the class of American-trained dictators whose function was to protect foreign (read: American corporate) economic interests from the people they dominated.
It is fitting that the IMF is collapsing as the remaining alumni of the abusive ruling puppets of the IMF die off. Greg Palast leads the memorial:
Cinderella’s Fairy Godmother, Tinker Bell and General Augusto Pinochet had much in common. All three performed magical good deeds.
In the case of Pinochet, he was universally credited with the Miracle of Chile, the wildly successful experiment in free markets, privatization, de-regulation and union-free economic expansion whose laissez-faire seeds spread from Valparaiso to Virginia.
What looked like financial colonialism was sold as the cure-all tested in Chile with miraculous results. But that miracle was in fact a hoax, a fraud, a fairy tale in which everyone did not live happily ever after. The Miracle of Chile, too, was just another fairy tale.
John O’Sullivan joins in the dirge, even (and especially) after his high praise of Pinochet quoted above:
[M]urder is not an economic policy, and the soundest economic policy can’t justify murder. One innocent murdered is one too many. If Pinochet authorized murders, he should have been tried for them… His victims are estimated at some 3,200.
Dave Zirin comes not to praise Pinochet, but to bury him in damnation:
Pinochet is dead, never forced to take residence in the cage he so richly deserved. Pinochet’s rule led to the deaths or disappearances of nearly 3,200 people and the torture of thousands more. Yet no one had answered for these crimes.
[T]here had been no reconciliation and no reckoning for the victims of the Pinochet era.
But at least it appears that there will be reconciliation and reckoning for the victims of the IMF era, for the organization must change to be more responsive to world needs and wants and to stop acting strictly as an agent of an oppressive American foreign policy - or dissolve as the world creates other means of accomplishing the goal of meeting these needs and wants.
As the recently-freed former American slaves used to like to proclaim, “Bottom rail now on top!” So it will be if the IMF clings to its past methods of doing “business”, not that Chinese financiers need much help in attracting new customers.