Page:CREST-Allendes Chile Supply Demand Gap.pdf/2



INTELLIGENCE MEMORANDUM

To many observers, Chile under Allende has seemed like a profligate who frittered away an inheritance on a two-year binge. This consumption spree has cost the country some $550 million in foreign reserves, a large part of its material inventories, a serious deterioration in productive capacity, and a drying up of most foreign credits. In the process, Allende has used economic levers to radically alter Chile's power structure in an attempt to make his socialist revolution irreversible. Although his policies have created massive government deficits and excess consumer demand, they also have markedly increased the state's economic power and have redistributed income, thereby eroding the opposition's economic base.Some sobering realities, however, recent have become apparent, foreshadowing the lean days to come. Although the government can justifiably claim that per capita gross domestic product (GDP) and consumption are higher in 1972 than in 1970, by most other measures the economy already is far worse off than when Allende launched his revolution of "meat pies and red wine." Output in most sectors is now stagnating or declining, foreign reserves are heavily in the red and copper earning down, food stocks and manufacturer's inventories are virtually exhausted, and distribution snarls are chronic. Demand, however, continues to rise sharply, fueled by wage increases, ever-larger government deficits, and a mind-boggling rise in money supply. As a result, even government-controlled prices have jumped almost 75% in the last three months, while shortages abound and the black market have become far more a way of life than ever before.

Note: This memorandum was prepared by the Office of Economic Research and coordinated within the Directorate of Intelligence. 