The short-term economic results of Minister of Economics Pedro Vuskovic's expansive monetary policy were unambiguously favorable: 12% industrial growth and an 8.6% increase in GDP, accompanied by major declines in Chile’s long-endemic chronic inflation (down from 34.9% to 22.1%) and unemployment (down to 3.8%). In 1972 the Chilean escudo changed 140%. The average Real GDP contracted between 1971 and 1973 at an annual rate of 5.6% ("negative growth"), and the government's fiscal deficit soared while foreign reserves declined.[11] The combination of inflation led to the rise of black markets in rice, beans, sugar, and flour, and a "disappearance" of such basic commodities from supermarket shelves.
In addition to the earlier-discussed provision of employment, Allende also raised wages on a number of occasions throughout 1970 and 1971. These rises in wages were negated by continuing increases in prices for food. Although price rises had also been high under Frei (27% a year between 1967 and 1970), a basic basket of consumer goods rose by 120% from 190 to 421 escudos in one month alone, August 1972. In the period 1970-72, while Allende was in government, exports fell 24% and imports rose 26%, with imports of food rising an estimated 149%.[12] Although nominal wages were rising, there was not a commensurate increase in the standard of living for the Chilean population.
The falls in exports were mostly due to a fall in the price of copper. Chile was at the mercy of international fluctuations in the value of its single most important export. As with almost half of developing countries, more than 50 per cent of Chile's export receipts were from a single primary commodity.[13] Adverse fluctuation in the international price of copper negatively affected the Chilean economy throughout 1971-2. The price of copper fell from a peak of $66 per ton in 1970 to only $48–9 in 1971 and 1972.[14] In addition to the hyperinflation, the fall in the value of copper and lack of economic aid would further depress the economy.
Initially, the governing coalition expected the unearned wage increases and the consequent increase in government spending to be corrected once the 'structural changes' like nationalisation and agrarian reforms were completed. However, by June 1972, Allende was beginning to see the economic hazards. The minister of economy was changed and some austerity measures introduced, but to little avail.[15]
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