Page:CREST-Allendes Chile Supply Demand Gap.pdf/9

  In the Mines 

Allende has encountered difficulties in running the properties expropriated from US copper companies. Output from the long-established large copper mines — Chuquicamata, El Salvador, and El Teniente — has declined despite near-completion of major expansion programs in 1971 (see Figure 2). These mines, formerly owned by Anaconda and Kennecott, provided almost four-fifths of Chile's copper production before the takeover. Total large-mine output has risen slightly, to an estimated 585,000 metric tons in 1972, only because of the two new mines brought into production at the end of 1970. These mines, too, are producing well below capacity.Allende's problems in the copper mines are mainly managerial and technical. With nationalization, the industry lost most of its skilled personnel, both foreign and domestic. Experienced Chilean supervisors, who could have run the mines reasonably well, left because they feared loss of their accumulated pensions (payable in dollars) and doubted that the new political appointees running the mines would respect their positions. Employment at the mines has expanded considerably, as the administration rewarded the faithful with jobs. In addition to inept management, featherbedding, and poor labor discipline, the industry has been increasingly afflicted in recent months with machinery breakdowns and supply bottlenecks.As might be expected, production costs have skyrocketed since 1970. Traditionally the world's lowest-cost major producer, Chile now is barely breaking even — despite reneging on debt servicing. Because of reduced world copper prices and the artificially low exchange rate maintained for exports in the face of soaring production costs, government tax and profit revenues from the large copper mines (as distinct from foreign exchange receipts) fell from some $260 million in 1970 to $40 million in 1971 and only about $15 million in the first half of 1972. Since the profits of small and medium-size mines are also being squeezed, their output in 1972 is likely to fall somewhat below the previous year's 136,000 tons.

 In the Factories 

The massive consumer demand generated by Allende's policies paced a 12% rise in manufacturing output in 1971, despite strikes and plant takeovers by the government and by workers. This increase was possible because of excess capacity and large inventories of raw materials and spare parts. Output peaked in late 1971, however, and 1972 production is unlikely to be much, if any, above last year's (see Figure 3). 