report no. 5099-ch chile: an economic memorandum · chile: an economic memorandum september 24,...

Report No. 5099-CH

Chile: An Economic Memorandum

September 24, 1984

Latin America and the Caribbean Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipiernts only inthe performance of their official duties. Its contents may not otherwise be disdosedwithout World Bank authorization.

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CURRENCY EQUIVALENrS

Currency Unit: Chilean Peso (Ch$)

Year US Dollar Peso

1980 1.00 39.001981 1.00 39.001982 1.00 50.911983 1.00 78.79

FISCAL YEAR

January 1 to December 1

FOR OFFICUIL USE ONLYGLOSSR OF ABRVIATIONS

BECH = Banco del Estado de Chile (State Bank of Chile)BRIF Banco Hipotecario Industrial (Industrial Mortgage and

y de Fomento Development Bank)BICE - Banco Internacional y de Comercio (International and Foreign

Exterior Trade Bank)BIH = Basic Irrigated HectareCAP = Corporacion Acero del Pacifico (Pacific Steel Corporation)CIEPLAN Corporacion de Investigaciones (Latin American Economic

Economicas para Latinoamerica Research Corporation)CODELCO = Corporacion del Cobre (State Copper Corporation)COHILCO = Comision Chilena del Cobre (Chilean Copper Commission)CONIN = Corporacion para la Nutricion (Corporation for Infant

Infantil Nutrition)CONPAN = Consejo Nacional para la (National Council for Food

Alimentacion y Nutricion and Nutrition)COCAR = Corporacion del Carbon (Coal Corporation)CONAF = Consejo Nacional Forestal (National Forestry Council)COPEC = Compania de Petroleos de Chile, S.A. (Chilean Petroleum Company)CORFO = Corporacion de Fomento de la (Development Corporation)

ProducionENACAR = Empresa Nacional del Carbon (National Coal Enterprise)ENAMI = Empresa Nacional de Mineria (National Mining Enterprise)ENAP = Empresa Nacional de Petroleo (National Petroleum Enter-

priseENDESA = Empresa Nacional de Energia, S.A. (National Energy Enterprise)IDB = Inter-American Development BankINDAP = Instituto de Desarrollo Agropecuario (Agricultural Development

Institute)INE =Instituto Nacional de Estadisticas (National Institute of

Statistics)INEOOM = Ingenieros y Economistas Consultores (Engineers and Economists

Consulting Group)LANCHILE = Lineas Aereas Nacionales de Chile (National Airline)LIBOR = London Inter-Bank Offer RateODEPA = Oficina de Planificacion Agricola (Office of Agricultural

Planning)ODEPLAN = Oficina de Planificacion Nacional (National Planning Office)OECD = Organization for Economic Cooperation

and DevelopmentPEM = Programa de Empleo Minimo (Minimum Employment Program)POJH = Programa Ocupacional para Jefes (Occupational Program for

de Hogar Housewives)PREALC = Programa Regional del Empleo para (Regional Employment Program

America Latina y el Caribe Latin America and theCaribbean)

PROCHILE = Promotora de Chile (Chilean Export PromotionCompany)

SBIF = Superintendencia de Bancos e (Superintendency of BanksInstituciones Financieras and Financial Institu-

tions)SINAP =Servicio Nacional de Ahorro Publico (National Public Savings

Service)SOFOFA = Sociedad de Fomento Fabril (Industrial Development

Society)UF = Unidad de Fomento (Development Unit)

I 1 docment has a restrced distnbution and may be used by recpients only in the performance ofofi oria duties. Its contents may not otherwise be disdosed without World Bank authorization.

SYNOPSIS

This economic report reviews Chile's experience in 1982-1983 andtraces out the principal economic problems that Chile must confront if it isto regain economic growth in the 1980s. Because Chile is likely to encountersevere foreign exchange and domestic savings constraints to its developmentin the 1980s, the report analyzes those sectors considered key to generatingboth. The country's balance of payments prospects are assessed, as is therole of financial system intermediation and external debt service in the gen-eration of savings, domestic and foreign, to finance growth. After an evalu-ation of Chile's prospects, government policies are suggested to stimulateexports and domestic savings to reach an economic rate of growth sufficientto reduce, over the long term, unemployment. Finally, a set of future possi-ble scenarios of Chile's macroeconomic variables is projected to demonstratethe need for, and effect of, alternative macroeconomic approaches.

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CHILE: AS ECONthIC NEKORANDUK

TABLE OF CONTENTSPage No.

GLOSSARY........... ........ . ................. .. . .. .

SYNOPSIS.......................................................

COUNTRY DATA...................................................

SUMMARY AND CONCLUSIONS ............... ................... i-v

Main Text

CHAPTER I. THE 1982-1983 DEPRESSIONo ................ 1

A. Introduction .............................................. IB. Balance of Payments and External Debt ............... IC. Expenditures and Output ....... .....*...... ..... 3D. The Financial System ................................ 4E. Wages and Unemployment .............................. 5

CHAPTER II. THE 1973-1981 EXPERIENCE ........................ .7

A. Introduction ....................... .......... .................... 7B. Export-Oriented Growth, 1975-1979 ................... 8C. Growth and Disequilibrium, 1979-1981 ........... ....... 12

CHAPTER III. PRODUCTION AND GROWTH: SECTOR ISSUES ............ 16

A. The Role of the Public Sector ............... ......... 16

a. Size of the Public Sector....................... 16b. State Enterprises.........................o.....ee 17c. Export Earnings ..... ... **................. 18d. Sector Policy Issues ......................... 18

This report was written by Luis Ernesto Derbez and is based on thefindings of an economic mission that visited Chile in November 1983. BesidesMr. Derbez, the mission was composed of: Eric D. Cruikshank, Nahum Biger(Financial System), Gerhard Thiebach (Mining), and Boris Blazic-Metzner(National Accounts). Miss Alexandra Blackhurst typed the report and tables.

The report also benefited from work done by a team of industrialeconomists, Irwin Baskind (Industry) and Manuel Hinds (Financial System),that joined the economic mission in November 1983. A draft report was dis-cussed with the Government of Chile in August 1984.

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Fage No.

B. The Role of Productive Sectors... ................... 19

a. Mining................ ...... 19b. Energy .............. 0........... ...... 0.......-...... 25c. Manufacturing .................................... 28d. Agriculture .......................... . ............ 33-e. Tertiary Sectors ........... 36f. External Sector ................... 37

CHAPTER IV. EMPLOYMENT AND WEIXARE ............................. 43

A. Employment Disriuti..nd.o.......................... 43B. Prices Indiator....... ......................... 46C. Income Distribution and Poverty ................ ... 47D. Welfare Indicators ..... *. ... ..... ....... 47E. Education Resorce..b....io... .......... 49F. Hou sing ...............Interedation................... 49G. S g opt ndocl usi................... 56

CHAPTER V. FINANCING GROWTH ..E ............................. 52

A. Introduction ........................................ . 52B. Public Resource Mobilization .............. O...* ....................... 54C_. Private Savings and Intermediation ........................................ 56DE The Financial Crisis and Allocation of Credit .................................. 57E. Savings Prospects and Policy Issues .......... . ........................ 62

CHAPTER VI. OPTIONS AND PROSPECTS ........................ . ................. 67

A. Introduction ....... *.............................. 67B. The Basic Projections: General Assumptions....*..... 67

ANNEX The Central Bank Assistance Programs ................... .... 79

STATISTICAL APPENDIX ........................................ .... 84

MAPS

Copper Mining Sector

Country Map

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LIST OF TABLES IN TEXT Page No.

CHAPTER I:

I.1 Exports and Imports, 1981-1983......................... 2I.2 M&LT External Debt Evolution, 1981-1983............... 3I.3 Consumption and Investment, 1981-1983.................. 3I.4 Changes in Output, 1981-1983 .......................... 4I.5 Labor Statistics, 1981-1983........................... 6

CHAPTER II:

II.1 Public Sector Summary Accounts........................ 7II.2 Average Rates of Growth ...... ..... ............ .8II.3 Tariff Structure Evolution, 1975-1979................. 8II.4 Evolution of Exports, 1970-1979......................... 9II.5 Value-Added by Sectors, 1970-1979. .................... 101I.6 Changes in Value-Added per Worker, 1970-1979.......... 10II.7 Investment Figures, 1976-1979......................... 11I1.8 Evolution of Real Effective Exchange Rate Indices,.... 12II.9 Total Debt as Proportion of Sector's GDP .............. 13

CHAPTER III:

II.1 Public Sector Operations .........................-- . 16II1.2 Consolidated Accounts of Public Enterprises............. 17II1.3 Economic Importance of Miningo........................ 19III.4 Chile's Rank in World Mining Output and Reserves ...... 20II.5 CODELCO - Production by Mine, 1976-1982 ............... 21I.6 CODELCO - By-Product Output, 1976-1982................0 21

1I1.7 Financial Results of Companies Producing Copper -January-September 1982-1983o......................... 22

III.8 Production of Molybdenum Concentrates................. 23II1.9 Production of Gold and Silver, 1977-1982.............. 24II1.10 Authorized and Actual Foreign Investment, 1975-1983... 24III.11 Gran Mineria Investment, 1976-1983...................... 25III.12 Petroleum Production and Consumption, 1979-1983o....... 26III.13 Production of Coal, 1975-1982 .......-................. 27III.14 Index of Manufacturing Production............o..oo 29III.15 Forest Hectares Planted per Year, 1977-1982........... 30III.16 Industrial Fisheries Processing, 1976-1982o.oo...o...o 30III.17 Indices of Manufacturing Value-Added in Constant Prices

by Main Subsectors, 1977-1983......,,,,.,,,.... 1III.18 Agricultural Trade Balance..o..........-.0.00.00-0 34III.19 Area Cultivated with Traditional Crops-....ooosusee 34III.20 Livestock, Poultry and Dairy Productionduction.....we 35III.21 Value, Production and Area Cultivated with Fruits.. 35III.22 Change in Value-Added and Employment in Selected

Tertiary Set o r s 37III.23 Composition of Exports, 1981-1983...1-.1. 983..... 38III.24 CODELCO - Sales of Copper and Copper By-Products...s.. 38

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III.25 Iron Ore Exports, 1975-1982......... ...... 39III.26 Main Categories of Semi-Manufactured Exports .......... 40III.27 Volume of Exports of Selected Fruits..., ... .. 40III.28 Real Effective Exchange Rate Indices .................. 42

CHAPTER IV:

IV.1 Labor Force Evolution, 1970-1980................... 43IV.2 Labor Statistics, 1979-1983......................... 44IV.3 Number of Participants in Government Work Programs.... 44IV.4 Employment Generation, 1965-1982.... 45IV.5 Overall Index of Real Wages and Salariesa......... 0-0 46IV.6 Price Indicators, 1982-1983....................-... 46IV.7 Fiscal Expenditures, 1976-1982-6.19.......0..-..... 48IV.8 Partial Welfare Indicatorsdooisecatoe....ee.......or s 48IV.9 State Subsidies to Private Primary Schools....o..... 49IV.10 Housing Starts, 1978-1982.7....81.0..0.........-.... 50IV.11 Projected Housing Investment Program. ................. 51

CHAPTER V:

V.1 Foreign, Domestic Savings and Investment, 1977-1983... 54V.2 Savings - Investment Balance, 1979-1983.............. 54v.3 Summary Operations of the Public Sector, 1977-1983... 55v.4 General Government Expenditures, 1979-1983........... ... 56V.5. Ratios of Money and Quasi-Money to GDPo.o.o......... 56v.6 Credit to Private Sector, End Year .................... 58v.7 Credit Concentration ...... o..e .... .... o. 60V.8 Chilean Banks - Risk Analysis, September 30, 1983.... 61V.9 Chiiean Financieras - Risk Analysis, September 1983. 61V.10 External Interest Payments, As of End-1983, 1984-1990. 62V.11 Authorized and Actual Direct Foreign Investment, 1977

1983...o................. o........o................ 63

CHAPTER VI:

VI.1 Direction of Trade, 1981-1983....................... 70VI.2 Estimate of Future World Copper Demand....... ...... 0. 71VI.3 LME Copper Price Projections, 1984-1990.............. 71VI.4 External Debt - Schedule of Payments as of December

31, 19898...3ooo. ... o....ooo.o.o 72VI.5 Projected National Accounts Variables.-o- les......... 73VI.6 Projected Current Account Balance, 1984-1990 .......... 74VI.7 Projected Capital Flows and Financial Requirements,

1984-1g99O ...................................... 75VI.8 Sensitivity Analysis for Higher and Lower OECD Growth 76VI.9 Low Debt Scenario - Payments Reduction from 1985 tz

1990 O .........oo.......................eo o e o o o .e o v g s o o....oo. 77VI.10 Current Account Balance and Debt Service Ratio under

a Low Debt Scenario, 1984-1990...... o-......... .... 77VI.11 High Inflation Scenario Results, 1984-1990..o..... o.... 78

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Page No.

LIST OF CRAMIS IN TEXT

5.1 Financial Savings and Interest Rate Variations, 1979-1 983.............................................. 57

5.2 Bankruptcies in Greater Santiago, I/81-III/84..e..e.. 59

-6-CWllwI DATA - OCIsE Page 1 of 2

AREA 1iL1TICI 00Tm (mid-1963)Total- 756,826 kr 2 11.7 maillion (.ld-19853 154 ir km2

Rate of Growth: 1.5% (Ifrom 1970-1982) 245 per kW2of raole lend

PUATI0 OVPACTERISTICS 11962) EJLTH (1960)Crude Blrth Rate (per 1.000l 23.9 PopulatIon per physiclan 1,340Crude Death Rate (per 1.0001 6.1 PopulatIon per hospital bed 365Intent Mortality (per 1.000 live births) 23.4

INCOME DiSTRRIUTiCN (1966) DISIRIWKi0N OF LAW OWOlItPS of national Income, highest quintile 51 S of farms. Below 5 ha.:

Iowest quintile 4 Above 50 ha.:

ASS TO PIPED sAL1 t1960) ACSS TO ELECTRICITf (11960)S of population - urban 94 S of population - urbon 94

- rural 40 rural .

MNTITION (1975) EDUCATI1 (19821Celorie Intake as S o requirements 117 Adult literacy rate 94.2Per capita proteln Intake (grams per day) 78 Primary school onroilient S 95.0

GII PER CWITA IN 1983: 1/ USSI ,971.5

6WSS ITIGNV PROirD IN 1983 2/ AIU.L RATE OF mam iS, outslt 197 prices)

USS Hin. _ 1975-80 1980-83

GP at Market Prices 17,430.4 100.0 7.6 -5.4Gross Domestic Investment 1,569.7 9.0 19.6 -31.8Gross National Saving 143.0 1.0 18.4 -27.7Current Account Balance -1,504.0 9.0Exports of Goods, NFS 4,699.0 27.0 15.1 2.8Imports of Goods, NFS 4,235.0 24.0 19.3 -12.9

omUr. LABOR FORCE A-PRUCT WIITf IN 1962

Value Added Labor Force V.A. Por torkerUSS Mln. S MR. S 3USS

Agricuiture end Mining 2,960 12.0 0.51 18.0 5,803.0Induostry 4,725 20.0 0.36 13.0 13,125.0Services 5,280 14.0 1.19 42.0 2,756.0Unallocated 13.175 54.0 0.76 27.0 17,335.0Total/Average 24,140 100.0 2.82 200.0 6,560.3

GOYERmm FiN,mm

General Gowerisent PublIc Sector(CHSBIn.) S of GDP (CHSBIn.) S of GOP

1983 7983 1980-83 1983 1983 1980-83

Curren Receipts 431.4 28.0 31.0 474.8 31.0 31.0Current Expenditures 475.6 31.0 29.0 475.6 31.0 29.0Current Surplus *4.2 -3.0 2.0 -0.8 0.0 2.0Capital Receipts 31.3 2.0 1.0 29.2 2.0 1.0Capital Ecpendltures 34.5 2.0 5.0 75.6 5.0 2.0External BorrowIng (net) -1.8 0.1 1.0 -15.2 -1.0 -0.4

1/ Tne per capita GP estimate calculated by the converslon technique of the 1983 World Atlas. Allother conversions to dollers ae at the ennuel envere exchonge rate prevelilng during the periodcovered.

2J?tAli 1985 values In the table ale prellainary.

not available

not opplIcable

9/1e/a4

-7

COum DATA - CtILE Page 2 of 2

nS. CAEDIT MD PRICES 1977 1978 1979 1980 1981 1962 1963(Banking Systew) (Billion OI5 outstondIng end perlod)

Maney and Quasi Money 41.1 56.1 99.1 168.5 318.9 345.5 339.1Bank Credit to Public Sactor 21.9 30.3 46.0 59.3 61.6 113.6 170.3Bank Credit to Private Sector 27.2 62.9 118.1 221.6 306.6 564.5 374.7

(Percentages or tndox Numbers)

Money and Quasi Money as S of GDP .14 .18 .11 .24 .41 .50 .38General Price Index {1978i100) 63.9 89.5 119.3 161.3 193.0 212.2 270.1Annual percentaeg changes In: 92.0 40.0 35.0 35.0 20.0 10.0 27.0

General Price IndexBank Credit to Public Sector 178.0 38.0 52.0 29.0 4.0 84.0 50.0

a8ik Credit to Private Sector 301.0 131.0 88.0 88.0 36.0 84.0 -34.0

BALACE OF PAIISEs tERO1WID5E ElPRTS CAvrap)USS MI 1.

1961 1982 1983 1961 -8 %

Exports of Goods, NFS 5,505 5,026 4,699 Copper 1,761.0 46.0imports of Goods, NFS 8,872 5,345 4.235 Paper and Cellubs. 206.0 5.0Resource Gap deficit - -3.367 -319 464 Flshmeel 255.0 6.0

Frults 217.0 6.0Interest Paymnts (net) -1.423 -1.946 -1,395 sMood 134.0 4.0other Frctor Payments (nat) -1,123 -217 -47C All Otier Cnacdltles 1,244.0 33.0Net Transters 45 45 .97

Balance on Current Account -4,868 -2.437 -1,504 Totat 3,817.0 100.0

Dlrect Foreign Investnt 376 365 152 MLLT EXImEi- O , DEC1 31. 196Net ILT Borrowing (Public) 3,390 1.415 1,000

Dlsburse_mnt 5,188 2,674 1,900 Pubilc Debt, Incl. guaranted 7,070Amortization 1,79e 1,259 900 Non-Guarenteed Private Debt 8,831

Subtotal 3.766 1,789 1,152 Total Outstanding end Dlsbursed 15,901Nat Credit IW -65 40 614Other Capital (net) 215 93 -300 DEBT sERVICE RATio Ftl 196Oter items n.e.l. 1.261 -710 -503 5

increase In Reserves -309 1,234 541(- - gain) Public Debt, Incl. guaranteed 20Gross Reserves (end yr.) 3,798 2,564 2,023 Non-uaranteed Private Debt 25Nat Rnerves (end year) 2,035 574 452 Total Outstanding end Disbursed 45

RALE II ESCIS (End 1983) 1811)DF WWING. (IC ch 31, 19W) OilS1im USS)

lORD IDA

USSI.OC - t15S87.51 OutstanJing and Dlsbursed 213.9 19.4Undisbursed 162.2 -

C61.00 - USS10.014 Outstanding Incl. Undlsbursed 376.1 19.4

not avallablenot applicable

LCIPA9f18/84

SUNNARY AND CONCLUSIONS

i. During 1976-1980, following a recession and later a liberalizationprocess, the Chilean economy boomed, attaining a seven percent yearly rate of*GDP growth, This response to sweeping changes in trade and pricing policiesled to the belief -tlat Chile's free market strategy would permit continuouseconomic growth, alleviation of extreme poverty and full employment by 1985.Today the country is slowly emerging from a two-year depression blamed bymany on the same free market strategy hailed in 1981. Whether measured interms of unemployment (25 percent), real GDP (down 14 percent in 1982, almostone percent in 1983), financial distress (possibly half the productive sectortechnically insolvent, as well as the largest commercial banks), or externaldebt burden (US$17 billion), the 1982-1983 depression may be consideredChile's worst experience in the last fifty years.

i.- The depression can be partly attributed to the 1981-1982 worldrecession. Chile's terms of trade turned strongly against it; during 1981-1983, Chile suffered USS1.2 billion in terms of trade losses, equal to eightpercent of 1983 GDP, owing largely to extremely low prices for the country'smain exports (copper, forest products, fruits). Government policies, how-ever, aggravated these effects. The result of this combination was a depres-sion of grave consequences. Chile faces now a huge increase in the nation'sexternal debt and the bankruptcy of much of the domestic financial and non-financial private sector. Paradoxically, although blamed by some for the de-pression, trade liberalization did not only not cause this depression, it maybe Chile's only means to regain export-led, economic growth.

ill. Much of the problem stems from pegging the exchange rate whileopening the capital account, which brought about unsustainable trade deficitsduring 1980-1981. The resource gap reached ten percent of GDP in 1981 andwas financed through massive increases in external debt. Chile's externaldebt, which had remained moderate until 1980, was estimated in December 1983at US$17 billion (US$1,460 per capita). Interest payments alone representedseven percent of CDP. This large external imbalance partly precipitated thebalance of payments crises of 1982-1983 and the burden of foreign debt pay-ments will retard the economy's recovery.

iv. In December 1982, Chile - supported by the IMF - developed ashort-term stabilization program. However, In January 1983, a financialcrisis triggered by massive bank insolvency and huge short-term capital out-flows forced the Government to intervene' (take control of) the largest pri-vate commercial banks and to provide them rapidly with liquidity. This in-creased credit by US$1 billion in siX weeks. Nevertheless, by following aneven more austere emergency program drawn up in March with the IMF, theGovernment was able to comply with the targets of its original program bySeptember 1983. In July 1983, the Government finalized negotiations on itsexternal debt with international banks. An agreement in the amount of USS4.7billion was reached providing Chile with a rescheduling of 1983-1984 amorti-zation payments over eight years, with four years grace, and US$1.3 billionin new loans to cover the expected 1983 current account deficit.

v. During 1983 there was a drastic drop in imports; this brought abouta USS1 billion trade surplus and a current account deficit of only USM1 bil-lion. This improvement, combined with the restructuring of the external

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debt, resulted in a small increase in gross reserves. Domestic demandcontinued its decline and GDP fell for a second consecutive year, but onlyslfghtly. Open unemployment remained at 16 percent, real griss fixed invest-ment dropped 15 percent from 1982, and real per capita consumption was down8.5 percent from its already depressed 1982 levels.

vi. Economic recovery started in late 1983, albeit at a slow pace.Production increasea in trade-related activities as the changed exchange ratepolicy and increased public investment had its effects. Unfortunately, anunparalleled financial disarray which has brought to the brink of bankruptcyChile's corporate and financial sectors and the external debt burden makethat incipient recovery very fragile.

vii. The major issues confronting the economy are unemployment, con-straints on foreign exchange, and a need to increase savings and fnvestmentrapidly. This report analyzes those issues and those government policiesconsidered key in tackling them, and recommends policies which may strengthenthe current incipient economic recovery.

viii. Because increased exports and domestic savings are essential to im-prove Chile's growth prospects for the rest of the decade, exchange rate andtrade policies will be extremely important. Efficiency and production in-creased substantially during 1975-1980 in export-oriented and import-compet-ing firms when tariff decreases were compensated by a managed floating ex-change rate. On the other hand, during 1980-1981, pegging of the nominal ex-change rate appreciated the peso, encouraging imports and the use of foreignsavings, and discouraging domestic production and savings. After the massivedevaluation (from Ch$39/US$l to Ch$66/US$1) of June-September 1982 was fol-lowed by a crawling exchange rate policy aimed at keeping the real exchangerare constant, exports of wood, fishmeal, fruits and manufactured goods -all capable of rapid expansion - recovered. Import-competing goods have al-so benefited. As a result, manufacturing value-added increased two percentin 1983, and has been growing at a 10 percent annual rate in the first quar-ter of 1984. Initial reports indicate that the 1983/1984 agricultural har-vest will be 15-20 percent higher than the previous one. Continuation of theexchange rate policy is, therefore, vital as a strong incentive to potentialinvestors in export-oriented and imoort-competing activities.

ix. Tariffs were doubled in 1983 from ten to 20 percent mostly to in-crease fiscal revenues. Pressures are now building to use tariffs as a pro-tection for domestic producers. Chile's experience has shown that tariffprotection has an anti-export bias and does not necessarily reduce import de-pendence. Such a change in the tariff system may ultimately affect exchangerate policy, reduce exports and limit Chile's longer-term growth and employ-ment prospects.

x. Another important issue will be the allocation of the economy'svery scarce resources between the goals of public employment generation, re-activation of the private sector, and restoration of the financial system.Because of its size, the public sector will likely play a major role in theeconomy's recovery. During 1977-1981 it provided substantial savings whichallowed non-inflationary credit expansion to che private sector. Its miningoperations provide over 60 percent of the country's export earnings. Final-ly, some public enterprises and banks are among the few large Chilean enter-prises not bankrupt.

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xi. While the Government was eager to reduce the role of the State inboth production and pricing, it was equally determined to improve the qualityof, and access to, social services to the poor. The income distribution poL-icies and programs of prior governments - such as price controls, publichousing, direct subsidies and broadly-based social expenditure programs -not only had some perverse growth effects, but often had been of equal or, lnsome cases, greater-benefit to the urban middle class than to the poor. Fromthe mid-seventies on, although the Government spent less on the social sec-tors than predecessor Governments (public social outlays only reached 1972levels in real per capita terms in 1980), it carefully targeted its spendingon the extreme poor.

xii. Many of this Government's approaches have been successful; somewere innovative. Treatment and rehabilitation centers for severely under-nourished children and preschool nursery programs for the poor are examplesof promising new approaches to nutrition. Fortified and protein enrichedmilk distribution programs for infants, preschool children and pregnant andnursing mothers reached over 80 percent of children under five. Nurseryschools integrating nutrition, medical care, and education for the most dis-advantaged preschool children have been expanded rapidly. One important re-sult of the health program is that the infant mortality rate has been abouthalved over the past dozen years.

xiii. As the economy entered the depression, unemployment soared. Openunemployment - which stood at eight percent in 1981 - rose to 19 percent in1982; it was 16 percent by end-1983. In 1975, to alleviate unemployment, theGovernment created an emergency work program (PEN). In 1982, another program(POJH) was instituted to provide further relief and jobs for heads of house-holds. Both programs serve as employers of last resort. Notwithstandingtheir low salary payments (around US$26 per month in PEM and US$40 in POJH),both programs have played a substantial role in reducing open unemployment in1983 by occupying over 500,000 participants (around 10 percent of the workforce) during May-September 1983. These programs could usefully be continueduntil the employment generation effects of the public works program is largeenough to absorb the work force currently employed by them.

xiv. The economic depression had a major impact on public finances. Af-ter generating overall surpluses during 1975-1981, deficits (of about threepercent of GDP) occurred during 1982-1983. Moreover, public savings werenegative in those years and, unless action is taken, could be minimal during1984-1985. Current expenditures will be difficult to restrain because oflarge unemployment benefits and the difficulties of reducing wage and salaryexpenditures as well as social security payments. Current revenues will riseat a slow pace. Copper taxes, seven percent of current revenues, will con-tinue to be affected by expected low copper prices. Indirect taxes, almosthalf of current revenues, will grow only at the pace of the economic re-covery. Finally, nontax revenues which represent 19 percent of currentrevenues may also increase slowly in the near future. On the other hand,capital expenditures of both general government and public enterprises willhave to be increased to strengthen economic recovery and increase exports.In sum, the public sector may well be in net demand for credit, at leastduring 1984-1985.

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xv. A public investment program taking into account the impact of cop-per prices on Government earnings, the financing and timing of public invest-ments, and the desirable level of current expenditures, considering Chile'surgent social needs will be essential. High on the Government's prioritiesshould be investme5ts to expand productive employment and output in export-related activities (energy and mining). It is also crucial to improve thepublic sector's medium-term planning process while preserving the efficiencyof the short-term budget mechanism.

xvi. One major item on the Government's agenda must be the solution ofthe domestic financial crisis. The major uncertainties which affect privatesector perceptions relate to the solution of the current indebtedness. Inmany cases, t'=e insolvency of the corporate and financial sectors is one ofthe major factors delaying investment. By 1982, the private nonfinancialsector had an external debt estimated at US$4 billion; the private financialsector had an external debt estimated at US$7 billion. The 1982-1983 devalu-ations greatly increased the real peso burdens of this debt and paralyzed theprivate sector. In 1983, the Central Bank, after intervening the banks, in-troduced a program aimed at alleviating the debt burden of domestic corpora-tions. By end-1983, nearly US$1 billion of short-term private debts had beenrenegotiated using special credit lines of the Central Bank which providedslightly subsidized interest rates, three-year grace on principal, and one-year grace on interest payments. In 1584, an enlarged version of this pro-gram was announced. These credit lines may be difficult to continue giventhe costs involved. Hence, increased domestic savings are essential tor thelong-term solution of the financial crisis.

xvii. In May 1984, a solution for the intervened banks, mostly involvingthe capitalization of the emergency credits from the Central Bank into equity-;as announced. This solution may create a sounder debt to equity ratio forthe institutions involved, restoring depositors' confidence in the financialsystem. It may also encourage foreign creditors to transform their debt intoequity. However, such capitalization needs to be accompanied by a restruc-turing of the corporate sector debt. While it would be imprudent to placeall financially-distressed firms into bankruptcy, the current reschedulingschemes have deferred the necessary transfer of assets within the economy andslowed the speed of economic recovery. A more selective approach focusing onthe most potentially viable firms would be more appropriate.

xviii. Chile's external debt was about 80 percent of its 1983 GDP; inter-est payments on it were more than 40 percent of exports. It now represents amajor obstacle to recovery. Increased domestic savings and exports will benecessary if the country is to achieve a five percent rate of growth - nec-essary for employment generation within a viable balance of payments - evenfrom the very depressed levels of 1983.

xix. Chile confronts some external factors over which it has little in-fluence. One will be the speed of the world recovery. Even if OECD growthis three percent yearly, until Latin American markets improve copper consump-tion would grow quite slowly and copper prices recover equally slowly. An-other is US dollar interest rates. A one percent increase (or decrease) ofthese rates could cost (or save) Chile US$150 million. Because of the uncer-tainty Chile confronts, the mission prepared three alternative projections.

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In the base case for a yearly three percent growth of GDP, merchandiseexports need to grow at ten percent yearly during 1984-90. The fastestgrowth must come from non-copper exports. Because of its high interest bur-den, Chile will need to maintain an increasing resource surplus for the restof the 1980s if the current account deficit is to be filled by expected long-term capital flows of about two to three percent of GDP. The savings effortwould need to be coasiderable; Gross Domestic Savings would need to rise from11 percent of GDP in 1983 to 16 percent in 1990; an ambitious but attainabletarget.

xx. If the OECD recovery is less strong, Chile's GDP growth will belower - two percent - even though its current account borrowing require-ments would be larger. The compression of per capita consumption requiredover such a long period, and the longer net foreign borrowing -required butlikely not forthcoming, makes this appear a non-viable alternative.

xxi. One other option would be to attempt to reduce expected interestpayments. If the interest paid by private sources could be capitalized,Chile's growth prospects would quickly improve. Foreign interest paymentswould be reduced by US$500 million yeariy during the crucial years of 1985-88, permitting a 1.5 percent faster GDP growth with the same net capitalflows. Chile would then be in a strong position to service its debt by thelate 1980s.

xxii. Finally, Chile's growth is highly sensitive to copper prices andworld demand for its other exports. If OECD growth were to remain strong af-ter 1985, Chile's current account balance of payments could remain in virtualequilibrium while GDP growth averaged six percent, leading to a more rapiddecline in unemployment and debt service.

xxiii. Because the world environment is so uncertain, it would be prudentfor the Government to quickly undertake what actions it can to improve itsfuture export potential. The on-going development of a three-year program toallocate scarce fiscal resources as carefully and methodically as possible isan excellent step. Continuation of an open, pro-export trade regime to en-courage exports will be an essential complement, as will be continuation ofan attractive real foreign exchange rate. Efforts by the Government to re-schedule debt, as well as the capitalization of private debt to firms unableto pay, will be necessary, as will be actions to improve the credibility andsoundness of the financial system. Because of its high interest burden,Chile will need superb economic management with few, if any, missteDs for theremainder of the 1980s.

I. THE 1982-1983 DEPR8SSION

PA. rI NT ODUCTOK

1.01 After a buoyant recovery during 1976-1979, and an economic boomduring 1980-81, the Chilean economy fell into a depression in 1982-1983. Thedepression bottomed jout in the second half of 1983, but whether measured interms of unemployment (25 percent), real GDP (down 15 percent from the 1981level), financial distress (perhaps half the productive sector was technical-ly insolvent, as are the largest commercial banks), or the magnitude of thecountry's external debt (US$1,460 per capita in December 1983), this depres-sion may be considered as Chile's worst economic experience in the last fiftyyears.

1.02 The crisis was caused by a combination of major macro policy mis-takes along with an underestimation of the internal financial disarray, andby the 1979-82 world recession. What would have been a recession turned intoa depression of grave consequences. When the Government ultimately devaluedin June 1982, the firmness of its previous policies was replaced by a seriesof ad hoe measures that created uncertaiuty amongst both domestic and extern-al investors and encouraged various interest groups to seek special treat-ment, eroding not only the liberalization program put in place since 1975,but also the credibility of the Government.

1.03 As a result, in January 1983, the country was confronted by a fi-nancial crisis triggered by a banking insolvency and a massive capital out-flow, and the Government was compelled to intervene in the financial systemas well as follow stern austerity measures to stabilize the economy. Extern-al equilibrium was achieved at great cost by the end of 1983, but the 1980482events have left a legacy that will slow down the speed of any future recov-ery. First, in the wake of the ad hoc policies of 1982 and the austerityprogram of 1983, there are increasing demands for a protectionist-cum-expan-sionary program as a more rapid way out of the current depression. Second,interest payments on the external debt, 40 percent of exports in 1983, willnot only reduce the country's growth potential, but its ability to gain ac-cess to new foreign resources for some time to come. Finally, the extent andseverity of the current internal indebtedness is placing a great stress onthe financial and productive sectors, and may repress domestic savings andinvestment until confidence is restored.

B. BALAICE OF PAMETS AND EERNAL DEBT

1.04 During 1982-1983, Chile's balance of payments changed abruptly as aresult of the country's external debt payments, loss of capital inflows, ex-change rate policy, and terms of trade loss. Faced with an increasing tradedeficit and an acute loss of international reserves, the Government finallyabandoned its fixed exchange rate policy, devaluing the peso in June 1982from Ch$39/US$l to Ch$46/US$I and adopting a passive crawling peg strategy.As speculation continued, the Government floated the peso in August 1982.Then, in September 1982, it adopted a crawling peg after the exchange ratereached Ch$66/US$1. This time, the Central Bank accompanied the measure withrestrictions on foreign exchange transactions and used the real exchange rateas an export incentive. In January 1983, the Government began a short-termstabilization program which the IMF assisted with a SDR 500 mil±ion Stand-byand SDR 295 million access to the Compensatory Finance Facility.

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1.05 Nevertheless, in the first quarter of 1983, as foreign banks per-ceived the dimensions of the country's external debt and the domestic banks'growing insolvency, a massive outflow of capital occurred, and the loss ofinternational reserves - US$1 billion - exceeded the reserve loss program-med for the whole year. The Government, with support from the IMF, redefinedits 1983 austerity-program in February 1983. This -shadow program" with theLYF - which adjusted the March and June quarterly targets - enabled thecountry to draw US$459 million from the Stand-by and to reschedule its ex-ternal debt with interrational commercial banks. Rescheduling arrangementscovering US$3 billion of Chile's external debt amortizations due in 1983 and1984 were concluded at terms of eight years with four years grace. In addi-tion, US$1.3 billion in new funds were granted under the same terms, andshort-term credits for commercial operations were restored to their pre-January levels. These amounts, along with IMF resources, met Chile's extern-al financing requirements for 1983, built-up the country's gross interna-tional reserves to nearly US$2 billion and eliminated outstanding arrears.

1.06 Devaluation and the crawling exchange rate adjustments depreciatedthe real effective exchange rate by end-1983 to its lowest level since 1978.Even so, the dollar value of exports has been affected by extremely low in-ternational prices, especially for copper, and the overall import reductionsof other Latin American countries. Improvement of the trade balance from aUS$2.7 billion deficit in 1981 to a US$1 billion surplus in 1983 was due tostrong import compression as indicated by the fall in imports of capitalgoods (80 percent from 1981 levels) and of consumer goods (60 percent).

Table I.1: CHILE - EXPORTS AND IMPORTS, 1981-1983

(Millions of USS)

1981 1982 1983

Exports of Goods 3,960 3,798 3,855

Imports of Goods 6,559 3,580 2,882Capital Goods (1,418) (584) (278)Durable Consumer Goods (1,904) (1,061) (727)

Trade Balance -2,599 218 973

Source: Table 3.1, Statistical Appendix

1.07 Servicing of the country's external debt will be a major issue forthe next decade. Although not all of Chile's external debt originally car-ried the public sector's guarantee, the January 1983 Government interventionof the five largest commercial banks brought about an increase in publicly-guaranteed debt from US$5 billion to US$8 billion. Chile's large interestpayments on its external debt will mean strong action will be required to en-courage domestic savings (i.e., repress consumption growth) throughout the1980s.

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Table I.2: CHILE - M&LT EXTERNAL DEBT, 1981-1983

(US$ Billions, end of year)

1982 1983 Percent Change1981 1982 1983/81

Total 12.5 13.8 16.9 35.0Public 4.4 5.1 8.0 82.0Private 8.1 8.7 8.9 10.0Financial (7.3) (7.8) (8.0) (9.6)Comercial (0.8) (0.9) (0.9) (12.5)


C. EPEDUES AND OUTPUT

1.08 Unemployment, credit scarcity and low international prices, havedramatically reduced aggregate demand. By 1983 Chile's terms of trade hadfallen 11 percent from their 1982 level (22 percent since 1979). Real GDPdeclined by 16.5 percent since 1981. Total domestic consumption decreased18.7 percent from its 1981 level. Private consumption, strongly affected byincreasing unemployment, decreasing real wages and credit restrictions, de-creased 20.3 percent in the two years. Public consumption - never too buoy-ant - also was below its 1981 real level. Thus, when measured in per capitaterms, the 1983 consumption levels equalled 1963 levels, explaining much ofthe slack in domestic production.

1.09 Gross domestic investment suffered an even more dramatic contrac-tion and in 1983 represented only eight percent of GDP. Gross fixed invest-ment, one measure of the country's future ability to produce, dropped 45 per-cent in the 1981-1983 period - notwithstanding an increase in public fixedinvestment which grew 19 percent between 1982 and 1983 - and inventorieswere strongly reduced making it very likely that net investment was nega-tive.

Table I.3: CHILE - CONSUMPTION AND INVESTMENT, 1981-1983

(Billions of 1977 Pesos)

Percent Change1981 1982 1983 1983/81

Consumption 338 292 274 -18Public 45 42 42 -8Private 293 250 233 -20

Investment 92 32 27 -71Gross Fixed 74 46 41 -45

Change in Stocks 18 -14 -14

Terms of Trade a/ 98 87 87 -11

a/ 1977 - 100.


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1.10 The recession was concentrated in the industrial and constructionsectors until June 1982, but spread to nearly all areas of the economy byearly 1983. Notwithstanding this, until September the Gcveicnment followed anaustere stabilization program to regain equilibrium in tne foreign sector,maintaining a severe control over public expenditures and tight monetary andwage policies. At-the end of September 1983, Chile returned to its originalIMF stabilization program and the Government relaxed its fiscal and nonetarypolicies. This stopped the economic slide and various sectors (fishery, in-dustry, housing, commerce) showed signs of an economic upturn. Even with thelast quarter's reactivation, real manufacturing value-added fell 20 percentduring 1981-1983. However, production increases in import substitution in-dustries (by rates of between 7 to 23 percent) and in resource-based, ex-port-oriented industries offset the decline observed in the production ofdurable consumer goods, to bring the overall sector's value-added in 1983 toa two percent increase over its 1982 level. The rest of the sectors were notthat fortunate. Agricultural value-added fell for a second consecutive year;an overall drop of three percent since 1981. Mining registered a four per-cent drop between 1982 and 1983. Construction and commerce, two of the morefinancially affected sectors, have seen their value-added decreased since1981, 38 percent and 23 percent respectively. The restrictive policy, how-ever, succeeded in keeping the rate of inflation to a relatively low 23 per-cent and in reducing the current account deficit of the balance of paymentsfrom US$4.7 billion in 1981 to US$1 billion in 1983.

Table 1.4: CHILE - CHANGES IN OUTPUT, 1981-1983

(Billions of 1977 Chilean Pesos)

Percent Change1981 1982 1983 1983/81

Valued-Added by SectorAgriculture 31.6 30.9 30.5 -3.0Manufacturing 80.3 63.0 64.2 -20.0Construction 23.5 16.7 14.7 -37.5Commerce 71.6 58.8 55.4 -23.0

SOFOFA Index of Production, 129.3 106.6 112.4 -13.11969 - 100


D. THE FINANCIAL SYSTEM

1.11 The externally-financed boom followed by depression shook the foun-dations of Chile's financial system originating a liquidity crisis. The 1982devaluations increased the domestic cost of foreign debt service, and manyfinancial institutions and business corporations fell into arrears on pay-ments of their external debt. By December 1982, debt levels were equivalentto 30 percent of value-added in the transportation sector, 50 percent in themanufacturing sector, 110 percent in agriculture, and 160 percent in con-struction; a state of indebtedness unprecedented in Chilean history.

1.12 In January 1983 the combination of tight credit conditions, in-creased burden of already existing debt, and high cost of new credit broughtmany firms to the brink of bankruptcy, and unveiled a crisis in the financialsector. As the foreign debt plunged the banks into arrears, the crisis un-ravelled, forcing the Government first to declare 14 financial institutionsinsolvent in 1982,-and then, to intervene another seven near insolvency inJanuary 1983. I/ This intervention, which amounted to a Government adminis-tration of the institutions, revealed the real dimension of the financialcrisis. 2, It forced the Government to inject immediately US$1.1 billion infresh credits to avoid collapse of the system, and later to establish a pro-gram to provide limited amounts of credit at low real interest rates whilefulfilling the monetary targets of the IHF Stand-by.

1.13 In March 1983, the Central Bank began a US$3.5 billion financialprogram to alleviate tight internal credit. It consisted of US$1.1 billionto purchase overdue loans in the hands of private commercial banks; US$1.5billion in emergency credit lines to support a 30 percent across-the-boardprivate debt renegotiation; US$500 million in exchange rate subsidies; andUS$400 million in credit lines for working capital, housing subsidies, andrenegotiation of the transport sector's debt. The magnitude of the rescueoperation entailed an 1--rease in Ml of nearly 20 percent between December1982 and December 1983 and permitted the reduction of the average real inter-est rates by providing working capital to many firms at five and eight per-cent real interest rates.

1.14 Although successful in 1983, the Government-sponsored program willnot provide a rapid solution to Chile's financial woes unless it first clearsthe banks' lending portfolios by forcing the bankruiptcy of many unprofitablefirms currently being refinanced, and then defines how the burden of the pri-vate sector's external debt will be shared between the fisc, equity owners,and creditors, domestic as well as foreign. These issues are examined fur-ther in Chapter V.

E. WAGES AND UNEKPLOYMEN

1.15 The impact of the depression on employment has been particularlysevere. At their peak in 1979, the services and construction sectors werethe main job-generating activities. By September 1983, rates of unemploymentranged from 15 percent for those previously employed in commerce to 50 per-cent in construction. Those previously working in manufacturing had a 26percent rate of unemployment, and even mining was affected as reflected byits 17 percent unemployment rate. As 1983 ended, over 500,000 persons

1/ The institutions: Barco de Santiago, Banco de Chile, Banco Internacional,Banco de Concepcion, Banco Unido de Fomento, BHIF and Colocadora NIacionalde Valores.

2/ In effect, between December 1981 and December 1982, although financialinstitutions were caught in a liquidity squeeze by the increasing cost ontheir external debt, and the increasing amount of their overdue port-folio, the overall profits reported by the financial system changed onlyfrom a US$140 million profit to a US$50 million loss, a small amount con-sidering the magnitude of the 1983 crisis.

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remained out of work representing 15 percent of the total labor force, whilethe emergency work programs PEM and POJH accounted for close to 500,000 oc-casional jobs. 3/

1.16 Unemployment was exacerbated because until end-1981 real wages re-mained on an upward-trend as the result of the ex-post wage indexation pro-cess that exceeded the decreasing quarterly inflation rate. It was not untilJune 1982 that the Government terminated the automatic ex-post link betweeninflation and nominal wages. As a result, towards the end of 1982 real wageswere 14 percent below their 1980 level of interest. In 1983, as part of theausterity measures, wages and salary increases were again held below infla-tion levels and real wages fell a further four percent.

Table 1.5: CHILE - LABOR STATISTICS, 1981-1983

(Percentages)

1981 1982 1983

Unemployment RatesTotal 11.3 19.4 15.0

Manufacturing 11.8 26.4 -Commerce 7.5 13.6 -Construction 25.8 50.0 -Mining 10.6 17.7 -

Real Wage Index a/ 100.0 85.5 81.2

a/ Deflated by CPI.


1.17 The recent Chilean depression raises questions concerning the caus-al relationship between domestic economic policy, external factors (commodityprices, world recession and international capital flows) and economic per-formance. The short-term measures taken in 1983 helped stem the deteriora-tion. However, a medium- and long-term outlook is needed to sort out theissu.es that may affect Chile's prospects. This economic report is an effortin that direction; it analyzes issues relevant for the medium-term recoveryof the country and assesses the policy options open to the Government. It isespecially important to assess the extent to which the liberalization programbegun in 1975 was carried out in a consistent manner, since the reasons forChile's depression must be known if Chile is to design a program for itsmedium-term recovery that will avoid the problems G4! the past.

31 -ln an October 1983 survey among PEK and POJH beneficiaries, researchersfrom the University of Chile found that 70 percent of the people employedby these programs (at a wage of USS26 per month) were willing to work inanother activity if a job existed. Under that assumption disguised unem-ployment in Chile would number 350,000 persons. When added to the openlyunemployed, the rate of open and disguised unemployment would be about 25percent.

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II. THE 1973-1981 EXPERIENCE 1/

A. TRODUCTION

2.01 After talCing over in 1973,. Chile's new authorities carried out aliberalizal on program which transformed the country's economic structure.This program intended to reduce the role of the State,-control the inflation-ary process, liberalize trade, and eliminate distortions in domestic factorand product markets. The ultimate objective of the program was to improvethe efficiency of the economy and hence its long-term growth prospects.

2.02 Fiscal policy was adjusted accordingly. The Government reduced thegrowth of public expenditures and, between 1973 and 1981, strongly increasedits revenues through a tax reform, adjustment in prices of public goods andservices and the sales of many of its enterprises to the private sector. Thecombination transformed a huge public deficit (about 22 percent of GDP in1973) into a surplus after 1975.

Table II.1: CHILE - PUBLIC SECTOR SUMMARY ACCOUNTS

(Percentage of GDP)

1975 1979 1981

Current Revenues 25.0 34.0 32.0Current Expenditures 19.0 25.0 26.0Current Accomnt Surplus or Deficit (-) 6.0 9.0 6.0Capital Revenue - 1.0 0.4Capital Expenditures 5.0 5.0 5.0Overall Surplus or Deficit C-) 1.0 5.0 1.4


2.03 With the public sector deficit eliminated, the Government was ableto use monetary policy to control inflation. Trade and commercial policieswere also modified. Subsidies and price distortions disappeared; a unifiedexchange rate regime was established; and foreign trade was liberalizedthrough a compensated devaluation program. This program consisted of a re-duction of tariffs and the eliminatioh of quota-barriers, while at the sametime a crawling peg policy provided a real exchange rate which provided afair protection to import-competing industries and an incentive to export-oriented industries. Trade liberalization was followed by financial liber-alization. Since 1975, credit was allocated as a result of the supply anddemand of funds as the Government followed a policy of financial liberaliza-tion where capital flows were freely determined by interest rate differen-tials. Capital inflows climaxed in 1981.

1/ For a detailed description of this transition see World Bank Report:Chile: An Economy in Transition", January 1980; V. Corbo, "Chile: AnOverview of Macroeconomic Developments," unpublished mimeo, April 1983;and T. Condon, V. Corbo and J. de Melo, A Simulation Analysis of theMacroeconomic Effects of Capital Inflows and Wage Indexation in Chile:1977-1981", unpublished manuscript (both World Bank documents).

Ds UPORT-ORIENTED GROWTH, 1975-1979

2.04 Low copper prices - they dropped in real terms from an annualaverage of $0.93/lb. in 1974 to $0.42/lb. in 1975 (at 1972 prices) - andChile's lack of creditworthiness at the time caused an acute shortage offoreign resources in 1975. The Government had no alternative but to intro-duce a severely cotficractionary program, the main features of which were a ma-jor reduction of the fiscal deficit, a sharp devaluation of the exchange rateand an austere monetary program. From 1975 until early 1978, the ensuingpolicies put in practice by the Government were highly consistent with thecountry's requirements to resume growth. 2/ They consisted of a combinationof internal price liberalizations; opening up of the foreign sector; skillfulmanagement of the exchange rate; and a liberalization of the domestic finan-cial sector. As a result, between 1976 and 1979 inflation abated - fromover 500 percent in 1973 to 33 percent in 1979 on a yearly basis - publicsector accounts shifted into surplus and the Chilean economy enjoyed economicgrowth under an export-oriented drive that brought important structural ad-justments to the productive sectors.

Table II.2: CHILE - AVERAGE RATES OF GROWTH

(Percent)

1960-1970 1970-1975 1975-1979

GDP 4.2 -2.2 7.4Exports 3.6 5.6 15.3Imports 6.0 -7.7 19.5

Source: Economic and Social Indicators, 1960-1982;Central Bank

2.05 Unification of the exchange rate was achieved during 1975. UntilJune 1979, first a passive crawling peg regime, then a pre-announced mini-de-valuation system were followed. Simultaneously, tariffs were reduced, andquotas eliminated, until an almost unified ten percent tariff was completedin 1979.

Table II.3: CHILE - TARIFF STRUCTURE EVOLUTION, 1975-1979

Year Modal Tariff Average Tariff a/

1974 90 1051975 55 571976 35 381977 20 241978 10 151979 10 12

a/ Weighred bv number of tariff items.

Source: Central Bank

2/ A detailed description of the 1975 program can be found in J.C. Mendezed., -Chilean Economic Policy"; Direccion de Presupuestos, Santiago,Chile; 1979.

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2.06 Notwithstanding the 1975 world recession, Chile diversified and in-creased its exports substantially from that year onward, while at the sametime experiencing positive import substitution until 1979. 3/ Initially,low copper prices and trade restrictions slowed the growth of trade. How-ever, after 1977 access to inputs imported at competitive prices and tocredit at lower interest rates stimulated a strong expansion of non-copperexports. Combinedwith copper's once again low prices, 1979's copper sharein total export earnings was reduced to 47 percent (the 1960's average was 70percent), while the share of industrial goods increased to 22 percent, andthat of agricultural goods to six percent.

Table II.4: CHILE - EVOLUTION OF EXPORTS, 1970-1979

(Percent)

Share of Total Exports Average Rate of Growth1970 1975 1977 1979 1979/1975

Copper 89 57 54 47 -Agricultural Products 3 5 7 6 32Fish and Forestry Products 5 10 14 16 21Manufacturing Products 7 15 17 22 23

Source: TabLe 3.2, Statistical Appendix

2.07 By 1977 exports had surpassed, in real terms, their previous 1974record. By contrast, it took Chile until 1978, to equal 1974's real importlevels. Even so, for the same 1975-1979 period, imports in real terms in-creased at an annual average rate of 12 percent for both consumer goods andcapital goods, and IS percent for intermediate goods, well above the growthrates achieved in the 1960s. Hence, whereas in the decade of the 60s, im-ports and exports as a proportion of GDP represented an average 14 percenteach, during the 1974-1979 period the liberalization stimulated exports ofresource-based products (forestry, fishmeal, fruits), and imports of capitalgoods and semi-manufactured goods, increasing their ratio to GDP to 24 and 23percent, respectively, without creating a major imbalance in the foreign sec-tor as an efficient privately-run productive sector emerged in response tothe foreign competition. 4/

2.08 The initial output effect of the liberalization program was a re-distribution of value-added amongst sectors. Between 1970 and 1977, the rel-ative share of manufacturing value-added to GDP shrank substantially, whilethe agricultural and financial sectors' value-added increased. 5/ Once thisbasic adjustment was finished, the impact of the liberalization program wasreflected in changes in the composition of production within sectors. By

31 As shown by Bela Belassa In his paper "Policy Experiments in Chile,1973-1983", of the 12 countries examined, Chile was only surpassed byKorea in export increases during the 1973-1978 years.

4/ For a thorough analysis of the shifts in manufacturing see V. Corbo, op.cit.

5/ See -Chile: Economic Memorandum" (Report No. 3406-CH), and 'Chile:Towards a More Efficient Industrial Sector" (Report No. 2841b-CJi).

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end-1979, with inflation under increasing control and the private sector'sconfidence restored, the Government's liberalization policies had encouragedfour years of economic grGwth based upon productivity gains, increases incapacity utilization and a restructuring of production in most sectors.Agriculture shifted production from the traditional crops (cereal, oil seeds,sugar beet) towards export-oriented crops (fruits, timber, and vegetables),while in manufacturing, the new circumstances favored the emergence of manynatural resources based 'ndustries (wood products, fish meal, nonferrousmetals) while reducing the number of firms in industrial activities subjectedto import competition (textiles, chemical products, nonmetal goods).

Table II.5: CHILE - VALUE-ADDED BY SECTORS, 1970-1979

(Percent of GDP)

1970 1977 1979

Agriculture, Forestry, Fishery 6.8 9.8 8.6Mining 8.8 8.1 7.4Manufacturing 25.4 21.7 21.9Commerce 18.6 15.6 17.7

GDP 100.0 100.0 100.0


2.09 The new labor legislation permitted firms to lay-off workers andgains in labor productivity between 1976-1979 permitted a return to the aver-age productivity levels of the pre-Allende years.

Table II.6: CHILE - CHANGES IN VALUE-ADDED PER WORKER, 1970-1979

Index of Percent Change in Average Rate ofProductivity Productivity Growth

1970 1975 1979 1970-75 1975-79 1961-70 1975-79

Manufacturing 100.0 79 96 -21.0 22.0 4.6 7.9Agriculture 100.0 132 140 32.0 6.0 2.1 2.7Commerce 100.0 77 94 -23.0 23.0 2.9 14.3Financial Services 100.0 104 169 4.0 21.0 n.a. 17.8Mining 100.0 94 130 -6.0 38.0 1.8 5.4

Total Economy 100.0 93 108 -7.0 16.0 3.7 7.4

Source: Central Bank, Indicadores Economicos y Sociales, 1960-1982

2.10 But it was improved capital efficiency rhat spurred the country'srate of growth during 1976-1979. Domestic firms facing increasing competi-tion from foreign firms greatly improved their capital productivity via theadaptatioa of their old equipment with small investment, or through the adop-tion of modern management techniques. Thus, between 1976 and 1979, substan-tial capital productivity gains led a sustained increase in production inspite of a low level of investment.

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2.11 However, initially excess capacity and later productivity gainsconcealed the country's weak investment record. After the 1975 recession,producers' utilization of excess capacity allowed the country strong rates ofgrowth without high levels of fixed investment. Simultaneously, the Govern-ment in its effort to balance its budget sharply reduced its capital expendi-tures for the whole-period. Hence, the fixed investment record (private andpublic) for the period was disturbing. While the ratio of investment to GDPincreased between L976 and 1979, a substantial amount went to inventories andconstruction. Thus, net investment in productive equipment was low andequipment began to be obsolete because of age or new technological develop-ments. As a result, by 1979 many firms had an outdated capital stock. Whencombined with the 1979-1981 shift in policy this had serious consequences forthe manufacturing and agricultural sectors' competitiveness.

Table I1.7: CHILE - INVESTMENT FIGURES, 1976-1979

Ratio to GDP19 7 1977 1978 1919

Total Investment 13.6 14.4 16.4 19.6Fixed Investment 12.7 13.3 14.4 15.6Change in Stocks 0.9 1.1 2.0 4.0

Depreciation Allowance 14.0 11.7 10.5 11.0


2.12 The savings record was also disturbing. After dropping dramatical-ly in 1975, domestic savings started to recover in 1976. Still, the averageratio of gross domestic savings to GDP was only 14 percent; gross nationalsavings were only 12 percent, almost one third lower than the 17 percentachieved between 1965-1970. Furthermore, savings from households were nega-tive, and only public savings were responsible for increases in gross nation-al savings.

2.13 The relevance of foreign savings in the economy increased. Thehigh domestic real rates of interest attracted US$600 million in 1976, US$800million in 1977; US$1.4 billion in 1978; and US$2.2 billion in 1979, 6/ in-creasing international reserves by a yearly- average of US$570 million. Sincethe average investment ratio to GDP was near 16 percent - about the same asthe domestic savings ratio - external resources not used to build up re-serves were increasingly financing higher rates of consumption rather thaninvestment, a phenomenon which reached its pe2k during the 1979-1981 period.

2.14 One of the most noteworthy features of the period's experience wasthe increase in the unemployment rate. In spite.of the 1975-1979 growth,the rate of unemployment in Chile remained above previous historical stand-ards. This can be explained by nwo major reasons. First, reductions in un-employment during 1960-73 - especially in the 1970-1973 years - occurreddespite low economic growth. Thus, much of the job growth, which occurredlargely in the public sector, represented disguised unemployment. After1974, rationalization of labor costs was reflected in large lay-offs of work-ers both in the public and private sectors, causing a jump to double-digitlevels in the unemployment rate. Second, a new capital to labor ratio wasestablished by the economy's adjustment to an open economy. A considerable

6/ Capital inflows in 1979 represented 16.2 percent of GDP.

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most half of the new jobs created from 1976-1979 were in commerce, which ex-panded employment by close to 11 percent a year, while in the other sectorswith rapitd growth - fishing, wood and financial services - employment gen-eration occurred at a Low pace. This raises serious questions for the futureof the unemployment.problem of Chile, since it implies that in the short runthe basis for a strong reduction in unemployment will lie in a sustainedgrowth in the service sectors, barring a return to the creation of nonpro-ductive jobs to reduce unemployment. -

C. GROWITE AND DISEQUILIBRIUM 1979-1981

2.15 Much of the success of the 1975-1979 policies was a result of therealistic exchange rate policy followed until mid-1979 and a strong interna-tional demand for Chilean products. The external sector played a key role inChile's economic growth. In June 1979, the Authorities, however, attemptedto reduce inflation further from its 30 percent rate to world levels by fix-ing the peso/dollar rate at CHS39/US$1. This was also meant to bring downinterest rates.

2.16 In taking this action, the Authorities underestimated the lags thatcan occur in the adjustment process, even in an open economy. Real interestrates remained high during 1979-80, averaging 30 percent per year, beforefinally reaching nine percent by end-1981. High interest rates increased thecost of domestic capital and induced Chilean firms to resort to outside fi-nancing causing a huge jump in interest payments abroad and widening the cur-rent account deficit. At the same time, as noted, as part of the Govern-ment's labor policy, automatic ex-post indexation of wages had been in forcesince 1977 to procect workers' real income against inflation. During 1975-1979, real wages in the formal sector increased at an average rate of 13 per-cent a year, the real index increasing from 87 in 1970 to 100 in 1979. Withproduction increasing, in 1979/1980 the growing scarcity of skilled workersfurther pushed up the real cost of labor. The combination of automatic wageadjustments and fixed exchange rate proved calamitous for the country. Be-tween June 1979 and December 1981, as the downward adjustment in inflationlagged, the index of real wages increased 31 percent in the manufacturingsector, and 28 percent for the economy as a whole. In the process the realexchange rate appreciated. The overvalued peso made imports cheaper, erodedthe competitiveness of the Chilean productive sectors, reflecting distortedrelative prices between tradeable and nontradeable products. To make thingsworse, the US dollar (against which the peso had been pegged) appreciatedsubstantially vis-a-vis other OECD currencies reducing even further the com-petitiveness of Chilean products in European markets.

Table II.8: CHILE - EVOLUTION OF REAL EFFECTIVE EXCHANGE RATE INDICES

(December 1977 = 100) a/

1978 1979 1980 1982

WPI 16 Partners, Trade Weighted b/ 102.6 84.5 74.6 75.2

CPI 16 Partners, Trade Weighted b/ 105.2 101.2 83.6 73.7

a/ A decline in the index reflects increasing overvaluation.bI End of year values.

Source: IFS, Central Bank of Chile

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2.17 When the 1981/82 world recession occurred, Chile's trade deficitsoared as the appreciated peso encouraged the private-sector to secureforeign goods to satisfy increased consumption and investment-demands. From1975 to 1978, rates of growth of imports and exports had produced a manage-able resource deficit of just over three percent of GDP. After 1979, how-ever, real privateconsumption rose at the unprecedented level of 10.5 per-cent a year, while gross investment (including stocks) peaked. By 1981 con-sumption and investment had increased so substantially that the resource gapreached ten percent of GDP, with imports of goods and non-factor servicesrepresenting 27 percent of GDP.

2.18 Normally, by 1981 the external imbalance should have initiated aneconomy-wide adjustment either through an increase in savings, or a reductionin the rate of growth. However, high interest rates and a too-willing inter-national financial community attracted foreign capital into the domestic fi-nancial markets as the opening of the capital account and the pegging of thenominal exchange rate promised huge profits to both domestic borrowers andexternal lenders. So, in the end it was the surplus of the capital accountthat determined the state of the current account, as USS10 billion in 'oreignfunds entered the country between 1979 and 1981, the equivalent of about one-half of GDP.

2.19 Credit was neither efficient nor inexpensive. By 1977, a few in-dustrial groups had obtained control of the nation's largest private banksand a complicated system of interlocking allocation of credit followed, im-plying a distribution of credit unintended by the authors of the liberaliza-tion process. To complicate things more, strong pressures, created by theentrance of new banks, brought the system to an unhealthy situation in theallocation of credits. By 1981 total indebtedness levels had worsened inmost of the economy.

Table II.9: CHILE - TOTAL INDEBTEDNESS AS PROPORTION OF SECTOR'S GDP

(Percent)

1975 1979 1981

Credit to:

Agriculture 10.7 49.1 71.4Manufacturing 8.9 42.1 41.6Construction 1.0 32.3 96.3Commerce 4.6 38.9 52.8Transport 1.5 18.0 24.9

Source: Ministry of Economy

2.20 If judged merely by the expansion of domestic financial markecs andinflation abatemenL in the period, the Government's program would have beendeemed a success. But, since the objective of the policies started in June1979 was the development of efficient financial markets, where diversifiedinstruments for short-, medium-, and long-term capital would foster invest-ment, a different conclusion emerges. To begin with, some of the expansionwas due to wealth increases from speculation in Santiago's stock market andland overvaluation in urban and agricultural properties. Secondly, theGovernment surplus provided the financial system with a new credit source,but this was largely a result of reduced public investment. By late 1981,

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stress had become visible. *Nonmineral exports, which had seen spectaculargrowth earlier, dropped in dollar terms in 1981. Agricultural exports grewmoderately - wholly in seafood products and fresh fruits. Exports of woodproducts dropped precipitously. Manufactured exports also fell. By thefourth quarter of 1981, growth had halted and unemployment increased to 11percent from the Jaziuary level of 8.5 percent. Finally, the dimension of theexternal debt was reflecred in the country's debt service, including short-term amortizations and interest payments which, in 1981, totalled seven per-cent of total GDP.

2.21 The Chilean attempt to rc'uce inflation by fixing the exchange rateand opening the capital account produced a disaster. The leads and lags ofthe adjustment process, whi.h the Government had assumed to be minimal, werequite lengthy. Large capital inflows led to import growth, declining inter-est rates, and a short-lived construction/consumption boom during 1980 andearly 1981. Unfortunately, the Goverament's belief that the supply of ex-ternal funds to Chile was perfectly elastic was too optimistic. Once confi-dence in the Chilean economy began to wane, foreign loans were no longeravailable in sufficient amounts. With an economy running such a large tradedeficit and, in addition, an expensive external debt, the stage was set inJanuary 1982 for adjustment measures. However, notwithstanding the initialsigns of a recession, the Government kept unaltered its basic policies duringmuch of 1982. By December 1982, the recession had become a depression.

2.22 In 1982, GDP fell 14.3 percent. Construction real value-added,which had boomed in 1980-1981, dropped almost 22 percent; real value-added incommerce and transport decreased by 15 percent and ten percent, respective-ly. Manufacturing value-added dropped almost 22 percent too. Real fixed in-vestment dropped almost 37 percent. As conditions worsened, the unemploymentrate rose rapidly. Open unemployment - which stood at eight percent in 1981- rose to 19 percent by end-1982. The financial situation of many firms andbanks deteriorated severely. As early as November 1981, the Government hadto intervene some insolvent banks, but the situation worsened considerably in1982, when a series of bankruptcies - combined with interlocking ownershipof banks and borrowing companies - complicated Government efforts to supportthose banks confronting liquidity problems. Moreover, the 1982 budget provedto be too optimistic. As revenues fell with depressed copper prices 7/ andworsening economic conditions, public sector finances moved from a surplus in1981 to a deficit equivalent to three percent of GDP in 1982.

2.23 The deepening crisis finally forced the. Government to act. In June1982 an 18 percent devaluation was followed by the adoption of a crawling pegpolicy against a basket of currencies, ending the three-year-long fixed ex-change policy. In early August the crisis worsened and the peso was floated;as it floated downward a preferential rate of foreign exchange was estab-lished for debtors in foreign exchange. A further devaluation was taken inSeptember 1982 and the float becamp a managed one within a preannouncedrange. This time, however, the Central bank accompanied its exchange policywith restrictions on foreign exchange transactions and announced a policywhich would unite the preferential rate for debtors with the official rateduring 1983. An indicator of the severity of the 1982 economic depressionwas the drop in merchandise imports by an estimated third in real terms.This drop in imports halved the current account deficit to US$2.4 billion(around ten percent of GDP) from 1981.

7/ Copper prices fell from USS1.0O/lb. in 1980 to less than US$0.68/lb. in1982.

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2.24 In January 1983, the Government began a short-term stabilizationprogram with the IMF assisted with a SDR 500 million Stand-by and SDR 295million access to the Compensatory Finance Facility. The financial insol-vency of the banking system, however, impeded compliance of the first quartertargets. An IMF -shadow program - by which Chile would meet its originaltargets by SeptembSr - was drawn up in March and the Government completednegotiations with the international banks rescheduling the country's 1983-1984 amortization payments on its external debt. The Government's.economicpolicies in 1983 led to a US$1 billion trade surplus, a 23 percent rate ofinflation, a current account deficit of only US$1 billion, and a smail in-crease in gross international reserves. However, a decline in domestic ex-penditures for a second year occurred. GDP fell close to another one per-cent, the unemployment rate stood at 15 percent only because the emergencywork programs were employing around eight to ten percent of the work force,real gross fixed investment dropped another 15 percent from its already de-pressed 1982 levels, and real private consumption declined seven percent from1982.

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III. PRODUCTION AND GROWTH: SECTOR ISSUES

3.01 Three major constraints affect Chile's medium-term prospects: (i)the continued dependence of foreign exchange earnings on mineral exports,not-withstanding the long-term trend of export diversification; (it) the highdependence on imports for growth (the 1982-1983 depression reduced by 45 per-cent imports of iirermediate goods; 75 percent imports of capital goods); and(iii) the high cost of servicing the country's external debt.

3.02 Chile's stabilization program succeeded in reducing the current ac-count deficit from USS4.7 billiorn in 1981 to US$1 billion in 1983 throughbalanced trade in 1982 and a US$1 billion trade surplus in 1983. Althoughthe crawling peg policy - aimed at maintaining a stable real exchange rate- suggests that imports of nonessentials will continue to be controlled andexports encouraged, a return to sustained economic growth will require eitheran increase in foreign exchange earnings - or a reduction in the externaldebt burden - or both - to achieve sufficient levels of investment and sav-ings. This chapter deals with sectors considered most important for economicrecovery.

A. THE ROLE OF THE PUBULIC SECTOR

3.03 Notwithstanding efforts to reduce the public sector, the Governmentplays a major role in the Chilean economy. This role is characterized by:(i) a large share in total GDP; (ii) a strong public enterprises system; and(iii) substantial control over export-generating activities.

a. Size of the Public Sector

3.04 In accordance with its stated intention, the Government set an ex-ample of restraint in expenditures over the 1975-1981 period when public ac-counts shifted from deficit to surplus. During 1982-1983, depressed incomelevels again resulted in a public sector deficit.

Table III.1: CHILE - PUBLIC SECTOR OPERATIONS

(Percent of GDP)

Est.1981 1982 1983

Current Expenditures 26.3 32.2 30.7Capital Expenditures 5.1 4.7 4.9Total Expenditures 31.4 36.9 35.6Current Revenues 31.8 31.3 30.6Capital Revenues 0.4 2.1 1.9Total Revenues 32.2 33.4 32.5Overall Deficit (Surplus) 0.8 -3.5 -3.1

Source: Tables 5.1 and 2.1, Statistical Appendix

3.05 An enlarged role for the public sector is almost inevitable in theshort term given the nature of the Government's current expenditures and thereactivation required by the economy. First, social security payments - 31

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percent of total public expenditures - will continue to increase in the fu-ture reflecting the privatization initiated in 1979. Second, Government ex-penditures on health, education and poverty alleviation - currently over 35percent of budgeted expenditures -- will be extremely difficult to reducewithout seriously affecting the Government's commitment to improve the lot ofthe lower-income population. Last, capital expenditures - which had de-clined as a proportion of the Government's total expenditures from ten per-cent in 1977 to five percent in 1983 - are expected to increase again in1984/85 (reflecting the Government's public construction programs).

b. State Enterprises

3.06 Since 1975, the Minister of Finance has been accorded super-minis-terial powers and final authority over virtually all spending and financingdecisions throughout the public sector. 1/ At the same time, the Govern-ment's planning office (ODEPLAN) has monitored the investment of the publicenterprises. This control led to an improved accounting and reporting sys-tem, and to improved management of the State enterprises which now determineinvestment, cost, and price policies in a market framework. 2/ Since 1977,besides registering regular operational surpluses, public enterprises havefinanced an average of over twenty percent of the Central Government expendi-tures and have accounted for a substantial amount of public capital expendi-tures.

Table III.2: CHILE - CONSOLIDATED ACCOUNTS OF PUBLIC ENTERPRISES a/

(Percentages of GDP)

1977 1980 1983

Operating Surplus 7.2 9.9 12.4Taxes and Transfers to GeneralGovernment 4.4 7.8 9.0

Current Account Surplus 2.8 2.1 3.4Net Capital Expenditures 3.1 2.1 3.1Overall Surplus or Deficit (-) -0.3 ,. 0.2

a/ Includes CODELCO, ENAP, CORFO and other Stateenterprises.

Source: Tables 5.4, 5.7, 5.10 and 2.1, Statistical Appendix

3.07 To avoid crowding-out private firms, the public enterprises' bor-rowing capacity was used to attract external credit in strict relation totheir individual investment programs and production potential and, iA gener-al, the Government did not intervene in their administration, subordinatingmacroeconomic management to the microeconomics of each individual firm. Thiswas instrumental in explaining their current strong financial profiles, andunderlines their potential role as conduits of external resources for theoverall balance of payments needs of the economy.

1/ See Chile: An Economy in Transition, World Bank Report, January 1980 fora description on the institutional framework for the overall budgetaryformulation of the public sector. In 1984 the leading function wasshifted to the Ministry of Economy.

2/ With a few exceptions (LANCHILE among them), the State enterprises areamong the soundest enterprises currently in Chile.

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3.08 Finally, Chile's continued dependence on mineral exports to earnforeign exchange underscores the critical role that the public sector mustplay in the country's recovery. CODELCO and ENAMI, the two State-owned min-ing enterprises control the country's exports of copper and other minerals;in 1983 they generated over 50 percent of total Chilean exports. Hence, itis incumbent upon _ge Government to define a production and investment strat-egy in the sector. This will be critical for the medium-term generation offoreign exchange and savings, and, therefore, for the medium-term viabilityof the recovery.

d. Sector PolIcy Issues

3.09 In 1983, the large size of the private sector's external debtforced the Government to lead the renegotiation of the 1983-1984 amortizationand interest payments and to increase public investment to reactivate thedomestic sector, increasing even more the Government's role in the economy.It appears, then, that at least for 1984-1985, the combination of low privateinvestment, private sector demand and foreign exchange restrictions willshift responsibility to the public sector to lead the way out of the depres-sion. The Government has recognized this and in 1984 it has defined aneconomic program along the following lines. First, it gained support for agovernment-led reactivation program consistent with a public deficit equal to4.5 percent of GDP. Second, it obtained US$780 million in new loans fromforeign commercial banks to finance a projected balance of payments deficitconsistent with a four to five percent GDP growth rate. Third, it started arecapitalization program which permits private domestic banks to pass-on tothe Central Bank their non-performing portfolio and thereby increases theavailability of funds for private firms. Moreover, the economic authoritiesare currently developing a three-year plan - including a public sector in-vestment program - which seeks to pave the way for a long-term reactivationof the private sector and the economy.

3.10 A critical issue is the price of copper. The Government's esti-mates for income and exchange earnings in early 1984 were based on the as-sumption of an annual average price of SO.75/lb. 3/ If the price is lower,the Government's deficit may increase even if the Government reduces itsbudgeted investment program. If the price is higher, the Government couldreduce its overall deficit with the nonbudgeted income or invest the proceed-ings in a more ambitious public investment program. Therefore, if higherprices occur, the Government should increase its investment program to attaina stronger recovery and a more rapid private sector improvement.

3.11 It is difficult to evaluate the medium-term program of the Govern-ment pending publication of the Plan. However, the 1984 budget makes pro-vision for an 18 percent increase in real capital investments largely throughthe launching of a strong housing and public works construction program.Such a public investment program may start a quick, short-term reactivation,but long-term economic growth requires further investments in the copper,energy, and transportation sectors. The Authorities need to define theirlong-term-investment program before an adequate evaluation of credit avail-ability and long-term growth is possible. Such a long-term public investmentprogram should address the following major issues:

(i) the impact of possible fluctuations of the price of copper onthe investment program;

3/ Copper prices averaged US$0.72/lb. during 1983 and US$0.66/lb. during thefirst quarter of 1984.

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(ii) the financing and timing of the public investment program; and

(iii) the desirable level of current expenditures in the face oflarge social expenditures.

3.12 Finally, there is a need for a transition in che Government's or-ganizational and administrative capacities, to respond to the challenges im-posed by a larger public investment program and a financial market in disar-ray. This will involve improvements in the overall pLanning process, trans-forming its present one-year budget exercise into a rolling medium-term pro-gram while preserving the efficiency of the shorter-term planning mechanism.Such a change in approach would reduce risks of wasting scarce foreign re-sources. It would enable the Government to smooth out the process of adjust-ment that occurs in any investment program over time. Finally, it would min-imize uncertainties in the private sector with regard to the medium term.

B. THE ROLE OF PRODUCTIVE SECTORS

3.13 Mining, although gradually losing its preeminence, is now morevital than ever for immediate recovery. Agriculture, which showed continuousgrowth while an adequate exchange rate prevailed, suffered severe cutbacks inproduction in 1980-1982 as a result of the appreciation of the peso. Manu-facturing, which had grown in efficiency and production until 1979, is todaya sector in trouble. Finally, construction, trade, and services, which en-joyed peak years during Chile's consumption-led growth in 1979-1981, operaredin 1983 at levels below 60 percent of capacity. Prospects for production,investment and export earnings in the foreign trade-related sectors areanalyzed briefly below.

a. g

3.14 From 1974 to 1983, mining output grew at an average annual rate of2.7 percent. In 1983, although registering a decline in value added, miningoutput (nine percent of total GDP) contributed 60 percent of total exchangeearnings; the Chilean economy continues to be highly dependent for much ofits export earnings on mining products, in particular copper. Since the mostimportant mining operations, especially the copper mines, are state-owned,the Government obtains not only tax revenues from the sector but also a sub-stantial amount of non-tax revenues from the State enterprises' operationalsurpluses.

Table III.3: CHILE - ECONOMIC IMPORTANCE OF MINING

1960-1970 1970-1980 1983

GDP and Exports

Value-Added as a Percentage of GDP 8.5 8.8 9.0Proportion of Total Export Receipts 85.5 73.0 60.0

Government Revenues

Proportion of Total Revenues 16.5 10.0 13.7 a/Proportion of Foreign Exchange Budget 87.3 75.3 92.0 al

a/ Copper only.

Source: Central Bank, INE, Ministry of Finance

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3.15 Chile has larger known copper reserves than any other country inthe world. It also has a large share of known reserves of molybdenum,rhenium, lithium and iodine. A new gold mine (El Indio) came into productionin 1981 and made Chile one of the most important producers of gold in LatinAmerica. However, nitrate production - before 1914 Chile's main resource -is in a depressed state and nas limited prospects for recovery because it is(literally) cheaper-to get it from air.

Table III.4: CHILE'S RANK IN WORLD MINING OUTPUT AND RESERVES

Production ReservesRank Rank

1974/75 1982 1975 1982

Copper a/ 2 1 2 1Selenium 9 9 2 2Molybdenum 4 3 4 2Iron Ore 14 14Nitrate - - 1 1Lithium - - .. 1

at Chile's output of copper represents about 18 percent of world production.

Source: U.S. Bureau of Mines, Commodity Data Summaries

Copper

3.16 The large copper mines - Chuquicamata, El Teniente, El Salvador,and Andina - account for over 80 percent of Chile's copper output. CODELCO(Corporacion del Cobre) owns and manages all of them. In its present formCODELCO is a wholly state-owned enterprise and the legal successor of thefive foreign copper producing companies which were fully nationalized in1971. Operations are now organized in four functionally independent divi-sions with the Central Office carrying the responsibility for overall policy,marketing, production and investment schedules, and the financial managementof the enterprise.

3.17 In 1982 CODELCO produced a record one million t=3s of copper. Theproduction increase resulted from the expansion of the- concentration plantsat Chuquicamata and Salvador. The volume of refined products in relation tototal production has gradually increased over time.

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Table III.5: CHILE: CODELCO - PRODUCTION BY MINE, 1976-1982

('000 t, fine CO)

1974 1975 1976 1977 1978 1979 1980 1981 lY82

Division

Chuquicamata 389.0 304.6 445.6 477.8 500.7 507.2 510.9 472.4 552.8Salvador 80.0 81.3 82.7 80.7 77.5 78.1 74.8 76.5 89.8Andina 68.4 62.4 56.9 58.5 47.7 46.7 52.8 52.8 54.4El Teniente 225.5 234.0 261.7 275.7 250.6 278.2 266.0 291.9 335.9

CODELCO 762.9 682.3 846.8 892.7 876.5 910.2 904.5 893.6 1032.9

Average Price/lb. (US cents) 93.3 55.9 63.6 .59.3 61.9 89.8 99.2 78.9 67.1

Source: CODELCO yearly reports

3.18 Output of by-products - molybdenum, silver and gold - also in-creased substantially in the past several years. In part, this was a resultof increasing copper production, and to some extent, it resulted from invest-ments in recovery facilities, particularly at Chuquicamata where treatmentfacilities had been expanded, high grade minerals were available, and recov-ery rates improved.

Table III.6: CHILE: CODELCO - BY-PRODUCT OUTPUT, 1976-1982

(Molybdenum - tons; Silver and Gold - kilograms)

By-Products 1976 1977 1978 1979 1980 1981 1982

Molybdenum 10,899 10,937 13,196 13,559 13,668 15,360 20,048 a/Silver b/ 98,013 122,146 117,838 io8,432 111,678 105,968 125,072Gold bF 637 773 774 760 833 880 1,049

a/ 17,979 tons of molybdenite and 2,069 tons of trioxide.b/ Contained in dore metal and anode slimes.

Source: CODELCO

3.19. Chile maintained and improved its position as the world's lowestcost copper producer, even at the overvalued exchange rate prevailing between1979 and 1982. Chuquicamata and El Teniente, the world's largest open-pitand underground copper mines, respectively, are among the lowest cost minesin the world. While average 1982 world production costs were estimated at$0.82/lb., the average for Chile ($0.49/lb.) was considerably lower. As aconsequence, even at recent extremely low copper prices, CODELCO has remainedprofitable.

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Table III.7: CHILE: FINANCIAL RESULTS OF COMPANIES PRODUCING COPPER -

JANUARY-SEPTEMBER 1982-1983

(Millions of US$)

Net Profits (Losses)-' January-September

Company 1982 1983

United States

Kennecott (144.0) (66.0)Phelps Dodge (64.8) (32.0)Anaconda ' (220.O)a/ (111.0)Duval (42.5) (22.3)Asarco (31.9) 46.6Magma Copper (3.9)b/ (6.4)bf

Canada

'ludson Bay Mining and Smelting (16.3)c/ (3.5)c/Falconbridge (45.4) (12.8)Lornex '5.3) 3.3Noranda (102.2) (4.4)Sherrit Gordon 0.2 4.1

Chile

CODELCO 120.8 147.0

Note: The Information for the years 1981 and 1982is found in Boletin No. 1, Estadisticas delCobre, March 1983.

a/ Estimate.b/ Results of the third quarter of each year.c/ Results of the first semester of each year.

Source: Quarterly reports of the companies, internationalpublications and estimates of the Department ofStudies, Chilean Copper Commission

Smll Mining

3.20 Responsibility for the promotion of the small- and medium-miningsector has, since 1960, belonged to the National Mining Company (ENAMI), aState-owned enterprise attached to the Ministry of Mines. Most of the sec-tor's ores are bought by ENAMI for smelting, refining and marketing. ENAMIalso provides credit and technical assistance to small miners. ENAMI oper-ates as a self-sufficient, competitive enterprise. In practice its activi-ties are limited to copper refining, although it has jurisdiction over allminerals. In recent years, ENAMI's copper production has increased from108,000 tons in 1974 to 163,000 tcns in 1982.

3.21 ENAMI's investments in recent years were essentially geared to costreduction, through replacement and modernization of existing installations.In addition, there were investment outlays for the acquisition and studies of

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the Quebrada Blanca mine, which ENAMI intends to develop as a joint venturewith foreign investors, and for the Andacollo property the development ofwhich has been shelved for the time being. Total investment in recent yearsamounted to US$12.7 million (1980), US$16.8 million (1981) and US$6.2 millionin 1982. In general, ENAMI was able to increase efficiency and reduce coststhrough a substantial continuous improvement in its labor productivity index(which relates manpower to electro-copper production) which tripled between1975-1982.

Iron Ore

3.22 Iron ore runs a distant second to copper as Chile's most valuablemineral product. Proven reserves total around 900 million tons at some 100mining sites around the country, with additional probable reserves of abouttwo billion tons. Chile is the third largest producer of iron ore in SouthAmerica, behind Brazil and Venezuela, with a productive capacity now esti-mated at about 15 million tons per year. Actual production runs far belowthat level, however, peaking in 1970 at over 12 million tons. Facing weakdemand in both domestic and international markets, production totaled only6.5 million tons in 1982. The sector employs directly about 2,500 workers,and employment declined considerably in recent years as reserves at the SantaFe mine are being exhausted and productivity increased at both the Romeraland Algarrobo mine.

Other Minerals

3.23 Molybdenum has become an important source of exchange earnings andproduction increased strongly as copper production was stepped-up. Furtherincreases in output are difficult and present policy is being directed to therefining of molybdenum to increase its export value.

Table III.8: CHILE: PRODUCTION OF MOLYBDENUM CONCENTRATES

(In Tons of Fine Molybdenum)

Year Chuguicamata Salvador El Teniente Andina Total

1980 9,330 1,335 2,312 691 13,6681981 9,883 1,315 3,480 682 15,3601982 14,257 1,739 .,632 420 20,048

Source: Chilean Copper Commission

3.24 In terms of employment (4,300 workers), the production of nitrateand iodine is still more important than iron ore production despite workforce reductions of almost 50 percent since 1976. Nitrate production hasstagnated in recent years and the State-owned mines remained open at a sub-stantial loss. The Government views the implied subsidy as a social expendi-ture justified by the lack of alternative job opportunities in the nitratemining areas In Northern Chile. Meanwhile, research and exploratory effortscontinue to increase the recovery of by-products, particularly lithium andboric acid, and to lower the costs of production by increasing potassiumyields and making more efficient use of solar energy. Costs are expected toremain above those of synthetic substitutes, however, and despite consider-able improvements in efficiency, the mines are not expected to be profitablein the foreseeable future. Exports of nitrates and iodine totaled US$75million in 1982 and US$72 million in 1983.

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3.25 The gross production value of precious metals (gold and silver) ac-counts for about eight percent of total mining production and at present ex-ceeds the value of production of iron ore, nitrates or coal. In Chile, goldand silver are produced either as the main product (El Indio and a number ofrelatively small mines) or as by-product of copper mines. Output from smalloperations is irregular largely because of the rudimentary techniques appliedwhich do not achieve adequate levels of ore concentration. This makes themvulnerable to reduszions and variations in ore grades and correspondent ef-fects on production costs, especially at times of low metal prices in the in-ternational market.

Table III.9: CHILE - PRODUCTION OF GOLD AND SILVER, 1977-1982

Year Gold (kg) Silver ('000 kg)

1977 3,620 2631978 3,182 2551979 3,465 2721980 6,836 2991981 12,456 3611982 16,907 382

Source: Ministry of Mines

Prospects

3.26 The mining sector can be sabdivided into three subsectors: (i) thehighly profitable sector, including CODELCO and some medium-sized operationssuch as El Indio, Mantos Blancos and possibly some of the projects which arenow being studied; (ii) a "normal- profitability sector - where rates of re-turn equal those of other sectors in the economy - with iLigher labor absorp-tion which includes the small mining operations and the smaller medium-sizedmines (important since most of these facilities are located in areas wherethere are no employment alternatives); and (iii) the very small mines whoseoperations under current circumstances are not economical.

3.27 Mining sector policy under the present administration was initiallybased on two fundamental elements: (a) the reopening of the sector toforeign direct investment; and (b) the maintenance of ouLput levels at theState-owned mines. Output increases were expected to result mainly from newprivate investment in mines. Initially there seemed to be good prospects forsubstantial private foreign investment in the sector; over US$5 billion inprivate mining investments has been authorized. However, only a fraction ofthe authorized investment was actually undertaken and oniy one new mine --the El Indio gold and silver mine - came into production in the last tenyears.

Table III.10: CHILE - AUTHORIZED AND ACTUAL FOREIGN INVESTMENT, 1975-1983

(USS Millions)

Authorized Actual

Total 7,286 1,993

Of WhichMining: 5,729 769

Source: Committee for Foreign Investments

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3.28 The high profitability of CODELCO projects and the hesitancy offoreign investors forced the Government to assume a more active role in thedevelopment of the sector. Not only CODELCO, but also ENAMI activities werestepped-up in order to ass5ure a steady flow of inputs for its smelters andrefincry. CODELCO has a long-term investment plan which contemplates an ex-pansion of ore treatment capacity in all divisions. In recent years, rela-tively large investments were made, especially at Chuquicamata (see TableIII.11), but an investment level of about US$250 million per year (at 1982prices) is required to maintain the current level of copper output as oregrades are expected to decline. Additional inv-..tments could be made to ex-pand output at highly competicive costs per t of capacity if the necessaryfinancing can be found. Such expansion would oe particularly attractive ifthe increase is achieved through expansion of existing mines. Overall in-vestment requirements have been estimated by CODELCO at about US$1.2-2.5 bil-lion for the 1984-88 period. An IDB project approved in 1983 meets the moreurgent requirements of the CODELCO investment program during 1984-86.

Table III.11: CHILE: GRAN MINERIA INVESTMENT, 1976-1983

(USS Millions)

Year Chuguicamata El Salvador El Teniente Andina Central Office Total

1976 111.01977 99.61978 83.6 18.7 42.3 14.0 4.5 163.11979 78.3 22.8 56.9 19.0 0.4 177.41980 138.8 32.3 71.4 73.4 0.6 266.51981 167.2 34.9 73.5 30.9 0.5 307.01982 146.6 18.2 38.0 27.4 3.5 233.71983 109.1 18.5 38.5 33.2 1.2 200.5

Source: COCHILCO, CODELCO

b. Energy

3.29 Chile's energy reserves are abundant and still untapped. Known oiland natural gas reserves are concentrated in the southernmost province ofMagallanes, onshore as well as offshore. The scale of proven recoverable re-serves is about 70 million m3 of crude oil and 30 billion m3 of natural gas.Coal reserves are located near Concepcion, Arauco, Valdivia and PuntaArenas. Reserves in Valdivia exceed four billion tons while those atConcepcion and Arauco are estimated at over 100 million tons. Output is ex-pected to increase, possibly with a new mine to start full scale productionin the Magallanes province by 1986, to replace fuel oil with domesticallyproduced coal.

3.30 Energy imports consist almost entirely of crude oil and coking coaland are of diminishing importance as domestic coal increasingly replaces im-ported fuel. Beginning in 1986, a large proportion of the electricity usedby the large mining operations will come from new coal burning installationsthat will substitute for the current oil burning power plants. Domestic coalwill thus replace imported fuel, and foreign exchange savings may be expectedfrom the initial coal intake of some 600,000 tons per year.

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3.31 Increases in petroleum production and the steep drop in energy usedue to the 1982-1983 depression have reduced Chile's dependence on importedcrude oil from over 80 percent of domestic consumption in 1978, to 42 percentin 1983 (or 49 percent if the crude equivalent of imported derivatives is in-cluded). An additional eight percent reduction in oil imports is expected by1990, as the energy-intensive mining industry and Chile's electricity produ-cers replace import'd oil by domestic coal.

Table II.12: CHILE - PETROLEUM PRODUCTION AND CONSUMPTION, 1979-1983

(Thousands of M3)

19831978 1979 1980 1981 '982 Jan-Sept

Domestic Production 838 1,079 1,804 2,257 2,330 1,688

Tierra del Fuego 409 330 256 210 205 169Continent 429 412 343 290 257 277Offshore - 337 1,205 1,757 1,868 1,242

Imports 4,311 5,313 3,800 3,149 1,422 1,622

Use by Refinery 5,360 5,800 5,676 5,312 3,992 3,361Apparent change -211 592 -72 94 -240 -51

in stocks

Source: National Energy Commission: Balance de Energia, Annex B,Table B.1

3.32 Natural gas extraction is currently concentrated in the oil-bearingregion of Magallanes. In energy terms the Magallanes reservoirs containthree to five times as much natural gas as petroleum, and potential reservesare estimated at over 200 billion M3 . Production has been constant at aboutfive billion M3 in the last three years and two thirds of it has been rein-jected to lift oil out of the wells (gas lift is a substitute for a mechan-ical pump). Foreign firms are interested in developing projects which woulduse part or all of the gas available in Magallanes. As of November 1983,foreign firms were studying proposals for a methanol plant and a urea fertil-izer plant with an estimated investment in the order of USS800 million.

3.33 Since 1978 Chilean coal production has been stable at about onemillion tons per year. Since 1970 when CORFO acquired the majority of sharesof the Lota-Schwager Coal Company, most of Chile's local production has beencontrolled by the State. In 1973 a National Coal Company, ENACAR, was formedand in 1975/76 the coal mines in the Arauco area were integrated intoENACAR. However, prospects for production in the Magallanes coal depositsare in the hands of the private sector. COCAR, a private joint enterprise ofCOPEC (50 percent of capital) and a British firm has developed the Pecketproject which would be implemented beginning in 1986, if COCAR wins the ten-year contract to supply a minimum of 600,000 tons of coal to CODELCO. Theproject consists of an openpit operation near Punta Arenas with a targetcapacity of between 0.9 and 1.2 million tons which would thus do.ble Chile'sactual coal output. Construction of a port for ships of 60,000 tons would benecessary and could be completed within 18 months as all studies are ready.

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Table III.13: CHILE - PRODUCTION OF COAL, 1975-1982

(Thousands of metric tons)

Percent of a/Year Production Consumption

1975 1,515 1171976 1,300 921977 1,325 681978 1,149 821979 957 621980 1,024 611981 1,169 641982 997 85

a/ Consumption is calculated as output plus imports,less exports and additions to stocks. The largefluctuations in consumption reflects the successiveaccumulation and drawdown of stocks during thebusiness cycle.

Source: ENACAR

Ptospects

3.34 Since 1975, energy pricing policy has been based on a. free-marketapproach and private sector participation. This policy permitted ENAP to beself-sufficient and to operate with profits. However, the 1982-83 devalua-tions increased the company's debt burden by approximately Ch$4.4 billion(about 40 percent of the firm's equity). Tentative estimates by ENAP indi-cate that, to maintain current domestic supply of gas and oil, investments inthe petroleum and gas sector will have to be maintained at nearly US$160 mil-lion per year. ENAP is therefore making plans to invest about $160 millionin 1984 of which almost 70 percent will be used for production improvementsin the Magallanes area and another 25 percent for exploration in that area(16 percent) and in other parts of the country (9 percent). ENAP could welluse credits from foreign banks to continue its exploration, investment andproduction levels. If explorations prove successful, ENAP plans to inviteprivate investors (domestic or foreign) to further investments in prospectingand drilling in areas other than Magallanes.

Sector Policy Issues

3.35 -In copper, the Government faces a dilemma because of its declarednon-interventionist policy. Should it choose not to increase capacity, aver-age world prcduction costs and prices would in the long run increase,leadingto new investments in other copper producing countries which would reduceChile's share in the world copper market. If, on the other hand, the countrychooses to increase production, the Government has to take the initiativesince it is doubtful that any significant private investment will soon crys-talize in the country.

3.36 The size, quality, and relatively low exploitation costs of Chile'scopper reserves indicate that Chile will continue to be an important source

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of the- world's copper. The vulnerability of Chile's export receipts to fluc-tuations in the price of copper is well known. Fluctuations in productionadded to this instability in the past. Current Government policy is to main-tain output constant in the short term and increase it in the future. Chilecannot influence the international price of copper, and formation of a thirdworld producers' cartel would do little to increase the country's foreign ex-change receipts. 4 / Thus, Chile's optima' copper policy is to maintain fullproduction as this reduces instability in :.he country's export earnings.

3.37 Another dilemma exists in energy. If coal and electricity produc-tion is left to individua' firms, the country's coal and oil deposits mightnot be developed, thus increasing the nation's dependence on imported oil.What is required is a stronger investment program of ENAP to increase domes-tic production and exploration of oil, and a coordinated program of coal pro-duction and coal/oil substitution in electricity generation between ENACAR,CODELCO and ENDESA.

3.38 Finally, one of the most important issues affecting public fi-nances, exchange rate, and credit policies, stems from the volatility of cop-per prices. Upward movements of copper prices, if they are allowed to resultin appreciation of the peso, could suppress the growth of noncopper exports.But, an exchange rate as volatile as copper prices could also discourage ex-ports. The level of international reserves may be best isolated from swingsin copper prices to protect the economy against fluctuations in externaltrade conditions. All of this is known; indeed it has been discussed and an-alyzed in Chile for decades. Yet, no government has been able to deal satis-factorily with this problem. Like prior administrations, during 1979-81, theAuthorities found it virtually impossible to resist the pressures to spend,either directly through increased fiscal outlays or indirectly through an ap-preciated exchange rate. Breaking the link between copper prices and domes-tic demand requires a mechanism to ensure that copper profits in high priceyears are held abroad or otherwise sterilized, and drawn down in periods oflow copper prices. In 1981, the Government established such a mechanism (De-cree Law 3653 of March 14, 1981). But the formula chosen for the calculationof tle reference price, i.e., making it a function of past actual pricesrather than basing it on expected prices, made the mechanism less effective.Although under current conditions windfall profits from copper may be useful-ly spent given the need for increased public investment, in the future theformula could be altered to encourage savings of windfall profits which wouldlater be used to support a stable level of public expenditures.

c. Manufacturing

3.39 After an output reduction following the austerity measures of 1975,the industrial sector reacted favorably to the macroeconomic policies fol-lowed until June 1979. Pegging of the exchange rate changed that. The ensu-ing overvaluation of the peso made imports relatively cheaper in 1980-1981leading to a sharp rise in their consumption at the expense of domestic pro-duction. The share of imports in manufactured output rose from 18 percent in1976 to 36 percent in 1981. Until 1980 the adverse effect on export-orientedfirms of the exchange rate overvaluation was offset by rising internationalprices for the resource-based exports. But, in 1981, as external markets be-gan to weaken, many of exporting subsectors had to reduce output. The ex-change rate policy favored production of non-trade-related goods, however, inparticular construction. Thus, in 1980-1981, industrial products used asinputs in construction - e.g. cement, ceramics and glass - experienced high

4/ Prices over US$0.85/lb. trigger production from high-cost producers.

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rates of growth. In addition, residential construction led to substantiallyhigher demand for a number of domestically produced durable consumer goods -

e.g. furniture and large household electrical appliances, contributing topeak production levels -eached in 1981.

3.40 In 1982, when exports were severely affLected by the internationalrecession and foreign lending fell, the construction boom ran out and overalldomestic demand co6iracted rapidly, causing a 20 percent fall in manufactur-ing output (second only in magnitude to the 1975 production crisis). Whilevirtually all subsectors experienced reductions in output, the situation wasparticularly serious for the import-competing non-durable consumer goods forwhich 1982 represented the third year of contraction.

3.41 - The sales and production indices prepared by the Manufacturers' As-sociation (SOFOFA), indicate that in 1981 industrial production reached itspeak, some ten percent above the previous 1972 high. In 1982/1983, the manu-facturing sector was hindered by slack domestic and external demand, highreal interest rates, limited credit availability, and, above all, heavy debtburdens. Output started falling in the second half of 1981, and this accel-eratedtduring 1982, reaching its nadir in the second quarter of 1983, afterwhich output grew again slightly by end-1983. If current moderate expansioncontinues, output in 1984 may likely be six to eight percent higher than in1983. This would still leave the sector's production index at 1977-78levels.

Table III.14: CHILE - INDEX OF MANUFACTURING PRODUCTION

(1969 - 100)

Maximutm MonthlyJan. April Aug. Dec. Level in1983 1983 1983 1983 Past 5 Years

General Index 96.5 111.5 113.1 116.8 142.4Consumer Goods 90.9 113.0 124.1 119.5 132.5

Durable Consumer Goods 27.7 45.5 4i.2 62.4 169.2Transportation 47.0 40.1 43.3 42.7 128.6

Industrial Intermediate Goods 150.9 159.1 144.5 154.1 164.2Construction Intermediate Goods 87.3 102.3 98.9 115.8 181.6Other Manufacturing 95.4 105.6 101.4 109.5 134.2

Source: SOFOFA

Prospects

3.42 One of the main reasons for the opening-up of the Chilean economywas to encourage production in activities in which the country has a compara-tive advantage, and to discourage it in other areas. Until 1978, relativelyminor additions-to capacity occurred in most subsectors, largely expansionsof existing plant and modernization; these were usually accompanied by moder-ate output increases. However, for advanced products which are not re-source-based (e.g., eng_aeering products), exports represented an opportunityto increase utilization of -capacity in the face of the relatively smalldomestic market. From 1979 to 1981, however, more substantial new invest-ments were made, particularly in resource-based industries.

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3.43 Forest products, currently the largest manufactured export cate-gory, underwent a large expansion in 1981, and further major expansions ofpulp capacity are likely before the end of the 1980s given plantation expan-sion in the late 1960s and early 1970s. In addition, a number of importantprivate projects are in the pipeline for expanding paper capacity, largelyfor export, to take advantage of the available pulp as well as the relativelycheap and abundant energy supply in the south. Several new or expanded saw-mills are also be±fiag planned mainly for export. However, sustained newplanting, and improvements in forest management and mill operating practicesare required in order to ensure an adequate supply of raw materials. Medium-term and particularly longer-term prospects appear to be favorable as a re-sult of the decline in forest availability in traditional sources (Europe andNorth America), as well as the environmental pressures in major consumingcountries restraining expansion in pulp production.

Table III.15: CHILE - FOREST HECTARES PLANTED PER YEAR, 1977-1982

Annual Average Increase 77-79/80-821977-1979 1980-1982 (Percentages)

Total 74,739 78,051 4.4

COKA? 23,292 116 -Private Firms 51,447 77,935 51.5

Source: CONAF

3.44 The development of seafood industries is also associated with theexternally-oriented strategy adopted after 1973. The resource base was al-ways well known, but had been only partially exploited by local producers,mainly for the domestic market. The rapid development of the sector primar-ily for exports after 1973 has now placed Chile among the leading fish produ-cers in the world. While considerable investment was undertaken between1974-1979, the uncertainty of the catch, which shows substantial annual vari-ations, as well as fears of overfishing in the area, place limits on furthergrowth.

Table III.16: CHILE - INDUSTRIAL FISHERIES PROCESSING, 1976-1982

(Thousands of Tons)

Percentage Change1976 1979 1982 1976/1982

Frozen Seafood 11.0 22.4 60.8 452.7Canned Seafood 15.1 27.5 23.5 55.6Fishmeal 251.7 512.6 795.8 216.2Oil 35.0 108.9 145.0 314.3

Total 313.2 671.6 1,025.2 227.3m -

Source: Ministry of Economy

3.45 As regards base metals, the main product is molybdenum oxide, a by-product of copper mining which is subject to further processing. Demand forthis item particularly in industrialized countries has been growing sharply

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for making special steels for high technology uses and exports apparentlywere not affected by the international recession. Other metal products ex-ported primarily to other Latin American countries) include semi-elaboratedrefined copper and iron and steel. Domestic demand for these items reducedsupplies available for export during the peak 1979-81 years, but, more re-cently, there has been renewed export growth with the US becoming the mostimportant market in 1983. Basically geared to local markets, these enter-prises should be ab1e to export increasing shares of their output.

Table III.17: CHILE - INDICES OF MANUFACTURING VALUE-ADDED INCONSTANT PRICES BY MAIN SUBSECTORS, 1977-1983

(1977 - 100)

1981 1982 1983 pl

Food Processing 125.1 119.9 118.3Beverages 130.1 110.2 119.7Tobacco 96.8 80.7 n.a.Textiles 70.9 59.3 69.3Clothing 103.5 45.6 51.9Leather Products 79.0 53.2 44.7Shoes 89.4 61.3 70.9Wood Products 132.1 83.0 75.4Furniture 287.4 156.9 135.2Paper 118.3 101.0 105.7

Printing 130.2 124.6 99.8Industrial Chemicals 93.1 72.2 74.6Other Chemical Products 148.6 129.0 130.5Petroleum Refining 113.0 87.6 90.1Petroleum Derivatives 72.9 88.8 109.6Rubber Products 87.6 57.3 65.3Plastic Products 135.3 80.8 92.0Porcelain, Clay & Ceramics 95.9 20.2 22.5Glass & Glass Products 111.4 61.7 67.7Other Non-Metallic Products 182.2 94.4 110.5

Iron and Steel 134.7 119.9 131.8Non-Ferrous Metals 127.9 97.6 101.8Metal Products 151.8 92.3 94.8Non-electric Machinery 60.4 35.7 26.6Electric Machinery 187.3 84.3 72.7Transport Materials 189.7 125.8 102.3Professional & Scientific Equipment 77.7 52.4 58.1Miscellaneous 225.5 107.0 108.7

Total 128.4 100.7 102.7

p2 Preliminary.

Source: ODEPLAN

3.46 The present conditions have largely favored import competing indus-tries (e.g., textiles, clothing and shoes) which had been adversely affectedby the overvalued exchange rate. As a result of the substantial real devalu-ation, and to a lesser extent the increased tariffs, many of these firms are

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now able to compete with imports. While domestic demand is still sharplydown, replacing imports has permitted higher levels of output for local pro-ducers. Thus, in the case of shoes, where imports.had accounted. for as muchas 50 percent of consumption in 1982, local producers have increased outputand it is expected that in 1984 full capacity levels of existing plants maybe reached while imports will have dropped to less than 30 percent of peakvolumes. Production of construction materials also recovered in the secondsemester of 1983,--irgely owing to increases in government investment, mainlylow-cost housing and road rehabilitation, which require cement and non-metal-lic minerals such as ceramics. Other subsectors whose expansion had been as-sociated with the high income residential construction boom, such as consumerappliances and furniture, show further declines in output. This is also thecase with metal fabricated items, the demand for which is associated with ma-jor construction projects.

3.47 The major uncertainties which affect private sector perception re-late to solutions for the financial crisis, demand management and tariff andexchange rate policy. In 1983, given depressed domestic demand, few indus-tries geared to the local market were operating near full capacity and littlenew investment was needed. Some subsectors benefited from the increase incompetitiveness followirg the real devaluation and their output will probablycontinue to rise for a time. While a number of enterprises went bankrupt, itwas possible to redist.ibute their machinery, and hence to maintain the sec-tor's capacity. In general, these industries could support a substantial ex-pansion in demand with only marginal investments in the immediate future.Little demand for new investment in domestic-oriented industries can be ex-pected in the short-term. At the same time, there is some slack among theexport-oriented industries due to external demand problems, but the extent ofthis varies considerably. Export capacity has only been marginally affectedby the financial crisis. Marketing strategies are being adjusted to meet thenew conditions in the major markets, particularly in neighboring Latin Ameri-can countries. Results were modest in 1983 (a 4.5 percent increase in ex-ports), but in 1984, given the expected recovery in the major industrializedcountries, exports should be more substantial. Further investment in theseinstances will depend largely on the availability of finance and on credibil-ity in medium-term macro-management.


3.48 During 1975-1978, a combination of extreme scarcity of credit andhigh demand for working capital (among others from nationalized firms soldback to the private sector) helped to push up real interest rates, forcingcompanies to look abroad for credit. As noted, from 1978 to 1981 a huge in-flow of foreign credit ensued. By 1982 the private non-financial sector hada direct external debt estimated at US$4 billion. A 123 percent devaluationof the peso occurred in the following 18 months while sources of foreignfinance dried up paralyzing the private sector and throwing the economy intoits two-year depression. Thus, a major issue for the sector's prospects isa solution to its financial problems.

3.49 In 1983 the Central Bank introduced a program aimed at alleviatingthe short-term debt burden of domestic corporations. 5/ By end-1983, nearlyUS$1 billion of private debts had been renegotiated using special creditlines of the Central Bank which provided three-year grace on principal and

5/ A description of the program is given in the Annex to this Report.

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one-year grace on interest payments. This program gave firms short-termworking capital permitting them to increase production. Even though it re-ceived no special treatment, the industrial sector was the largest benefici-ary from this program. However, long-term reactivation will require stronginvestment by firms. In this context, it is essential to identify viableproductive firms.

3.50 Of the solutions open to the Government, two are: a natural"financial restructuring through bankruptcy, or a financial restructuringthrough a government-sponsored recovery program for 'viable" firms. Thebankruptcy solution is no longer viable in Chile. The social costs of mas-sive bankruptcies would far exceed the benefits de'ived from financial re-structuring. Confidence in the economy would wane, a massive capital flightcould occur and unemployment would sharply increase. Further, legal con-straints would retard the financial restructuring, delaying the benefits butnot costs of the solution. A Government-sponsored recovery program for pro-ductive firms may be a better solution and a proposal is discussed in ChapterV.

3.51 Another key issue is the sector's potential contribution to employ-ment. Recent developments underscore the relationship between export per-formance and employment. If the economy as a whole experiences rapid exportgrowth, this will undoubtedly benefit industrial employment. But since in-dustry only accounts for 14 percent of the labor force, industrial exports,which represent a small share of industrial output, cannot be expected togenerate much employment in the near term. However, the sector's ability togenerate employment could be enhanced it tax provisions for accelerated de-preciation, which currently encourage labor-saving investment, were modi-fied.

d. Agriulture

3.52 Agricultural value-added grew by an average rate of six percent ayear from 1974 to 1979. After 1979, partly as a consequence of theovervalued exchange rate, annual rates of growth slowed, becoming negative in1982. Liberalization of trade brought about a dramatic shift in thetraditional pattern of crops. Responding to exports, the most dynamicproducts were those in which Chile has a natural comparative advantage -fruits, forestry - whereas production of fourteen traditional cropscereals, legumes, oil seeds - decreased.

3.53 Since 1979, principally through industrialization of many crops andforestry products, the sector has achieved a positive trade balance, a majorturnaround from the experience of the 1960s. From 1974 until 1979, thecrawling peg exchange rate and buoyant world economy helped raw agriculturalexports to increase at an average 31 percent annual rate from US$188.9million to US$974.1 million in current dollars. As the appreciating peso andadverse world conditions affected demand for Chilean agricultural products,the value of agricultural exports fell to US$656.4 million by 1983. Even so,it is estimated that the sector's trade registered a surplus of around US$146million.

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Table II1.18: CHILE - AGRICULTURAL TRADE BALANCE

(In Millions of Current US$)

1974 1980 1983

-Eiports 188.9 974.1 656.4Imports 603.0 787.7 510.8Surplus -414.1 186.4 15376

p/ Preliminary.


3.54 The increasingly overvalued peso prevailing between 1980 and 1982heavily affected the production of traditional crops 6/. Area cultivatedwith cereals decreased only eight percent between 1976/77 and 1979/80 - from929,000 hectares to 852,000; but by 1982/83 it had decreased to 635,000 bec-tares, the surge in cereal imports causing a major disruption. Acreageplanted in other traditional crops also shrank. By 1982, the area in legumecultivation had dropped 34 percent since 1979, and land used for oil seedcrops had been reduced 54 percent from its 1979 levels.

Table III.19: CHILE - AREA CULTIVATED WITH TRADITIONAL CROPS

(In Thousands of Hectares)

1976/77 1979/_80 1982/83 1983/

Cereals 929 852 635 778Legumes 238 292 194 235Industrial Crops 120 93 42 58


3.55 Livestock numbered around 3.7 million heads of cattle and a littleover six million heads of sheep by end-1982. The liberalization process hadlessened price distortions and meat production increased. The sector wasable to increase production even during 1981 and 1982. In 1981 Chile was de-clared free of foot-and-mouth disease (this makes it possible to initiate ex-ports to the United States), but expansion of exports of meat will be slowuntil cattle herds are brought to peak numbers sufficient to more than satis-fy domestic demand.

6/ Defined as: cereals (wheat, oats, barley, rye, rice and corn); legumes(beans, lentils, peas, chickpeas and potatoes); and industrial (sugarbeet, sunflower seed and rapeseed).

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Table III.20: CHILE - LIVESTOCK, POULTRY AND DAIRY PRODUCTION

1977 1980 1982

Fresh Meat (thousands of tons)Beef 194 182 207Pork - 39 55 64Poultry 58 128 116

Eggs (millions) 1,166 1,300 1,250

Milk (millions of liters) 978 1,080 1,900


3.56 Until recently, fruit production had been expanding at a rapid pace.The value in constant 1977 pesos of the principal crops grew one third in the1979-1983 period; production increases averaging ten percent per year. Fur-thermore, area under cultivation increased 16 percent as a major investmenteffort was stimulated by the export potential of the products and area undercultivation increased from 56,000 hectares to 69,000 hectares as a major in-vestment effort was stimulated by the export potential of the products.

Table III.21: CHILE - VALUE, PRODUCTION AND AREA CULTIVATED WITH FRUITS

1978/79 1980/81 1981/82 1982/83

Value 1/ 1,410 1,830 2,090 2,290Production 2/ 583 731 837 892Area Cultivated 3/ 56 62 66 69

1/ Value in millions of 1977 pesos. Includes apples, grapes, peaches andnectarines.

2/ Thousands of metric tons. Includes plums, apricots, peaches, lemons,apples, oranges, avocados, pears and grapes.

3/ In thousands of hectares. Includes same fruits as 2/ above.


3.57 As in many other sectors, agricultural producers have a huge debtburden. Although no census has been taken, the Superintendency of Banks es-timated the sector's total debt at about US$i.7 billion in December 1983,more than the sector's value-added. Moreover, it was estimated that 17 per-cent of the sector's loan payments were in arrears. In particular, farmersof traditional crops were already highly indebted and seriously in arrears byend-1982, and their debt situation coupled with low market prices discouragedproduction during the 1982/83 harvest, making it one of the lowest productionyears in the past decade.

3.58 In 1983, faced with reduced planting intentions, the Government in-troduced a program to stimulate agricultural production. Besides the generalrenegotiation program -- which permitted renegotiation of debt to almost halfof all agricultural borrowers, farmers were granted a special line of credit

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by the Central Bank providing them with working capital without anycollateral other than future crops. On the price side, wheat and sugar beetproducers were offered reference support prices- -- in effect a guaranteedprice. Coupled with adjustment in the exchange rate, these measures providedfarmers an appropriate climate for production. In response, acreage in thetraditional crops increased 21 percent for the 1983/84 harvest and prelimi-nary results indicate that wheat production may have increased around 31 per-cent over the 1982i83 crop levels and that sugar beet production may start arecovery towards satisfying domestic demand.


3.59 Results in 1975-1979 and again in 1983/84 indicate that farmersreact strongly to price signals and can increase production at a fairly rapidrate. In effect, the 1983 government-guaranteed price for wheat (US$197.5|ton) stimulated production under a scheme that reflected the expected inter-national price for the product. Care, however, must be exercised to avoidfalling again into the price distortions of the pre-liberalization period,which distorted agricultural development. Thus, it is important that the Au-thorities do not give in to pressures for a return to high protection, asthat would also reduce the incentive for new investments in export-orientedcrops needed for the long-run economic growth.

3.60 Future public agricultural policy should aim to: (i) reduce creditcosts; (ii) ensure availability of working capital in the short run; and(iii) reduce unnecessary price uncertainties. Long-term revitalization, how-ever, depends on how effectively the Government can introduce financial re-forms. The 1983 special credit lines served a short-term purpose, but con-tinuation of such special financial schemes will inevitably introduce distor-tions in the economy and the sector itself. In the macro sense, such specialcredit lines affect credit availability to other activities which -- in asituation of foreign exchange scarcity - may have higher social benefits.Internally, policies favoring traditional crops may become serious impedi-ments to agricultural diversification and to growth of crops with highersocial value for long-term prospects. The Gcvernment should try to modifyits financial program to assure a complete renegotiation of the sector's cur-rent debt and to provide new credits for working capital requirements, recog-nizing the social cost of these schemes.

3.61 Finally, many medium-size farms could expand production and improveprofitability by gaining better access to external markets. The efforts be-ing made in this direction by PROCHILE should be supported by the creation ofmarketing companies, able to promote and penetrate new markets for Chileanagricultural products in the Pacific Basin, North America and the Europeancountries. The Government has initiated such a program but needs to increaseits commitment in coming years given the good export potential in fruits andforestry products.

e. Tertiary Sectors

3.62 The tertiary sector boomed during the ?eriod of peso appreciation(1979-1981) and suffered severely afterwards. The debt burden in transport,com-erce and construction is high, and employment and output have droppedsubstantially during 1982-1983. The services sector is essential to overallemployment. During the 1970s some 700,000 persons were employed in services;

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this fell to 550,000 in 1983. These changes suggest that service employmentcan play an important role if overall recovery is sustained. Moreover thesector is better able than others to expand employment in the short term.The following table illustrates the sensitivity of services employment tooutput trends in the sector. To the extent that export expansion overallleads to sustained reactivation of the economy a substantial increase inservices employmenth can be expected.

Table III.22: CHILE - CHANGE IN VALUED-ADDED AND EMPLOYMENT IN SELECTEDTERTIARY SECTORS

(Annual Average Rates of Growth)

Construction Transportation Commerce Banking TOTAL

Value-Added

1977-1981 19.0 7.3 12.4 27.5 7.51981-1982 -29.0 -10.0 -17.8 -13.6 -14.3

Employment

1977-1981 14.3 5.7 8.2 13.4 3.81981-1982 -53.0 -20.0 -21.1 -15.0 -13.6


3.63 Demand and the debt burden are the two major constraints forincreasing output in services. During the second semester of 1983, theGovernment helped in the alleviation of both constraints through its debtrenegotiation program and increases in public investment, .which stronglybenefited the construction sector. However, any further recovery in thesesectors will depend on the whole economy's recovery since higher Governmentexpenditures without an export surge may be unsustainable and would sooncause a balance of payments crisis. The key to Chile's long-term growth liesnot in a sustained expansion propelled by Government expenditures, butrather in an export-based recovery of those sectors which proved theircompetitiveness under an adequate exchange rate management in the 1975-1979period.

f. External Sector

3.64 Chile's shortage of foreign exchange has become the majorconstraint to growth in the economy. Strengthening export prospects andefficient import substitution must be explored will, therefore, be vital toChile's economic recovery.

Exports

3.65 The pattern of exports changed as a result of liberalization. Asnoted, mineral exports accounted for 85 percent of total export receipts in1971, but only 60 percent in 1983. In particular copper exports, over 70percent of total export receipts in the 60s, since 1979 have been below 50percent. Nontraditional exports of semi-manufactured goods (paper,cellulose, fishmeal, sawn wood) increased their share and grew at impressiverates in the 1975-1980 period. This growth slowed during the 1980-1983period largely reflecting the effects of the world recession on Chile's majortrading partners but also (until mid-1982) Chile's overvalued peso.

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Table 111.23: CHILE - COMPOSITION OF EXPORTS, 1981-1983

(Percentages of Total Merchandise Exports)

1981 1982 1983a/ a/ a/

Quantum Value Quantum Value Quantum Value

Mining Products 57 58 55 59 50 59of which:Copper (44) (44) (44) (45) (41) (47)

Agricultural Products 9 9 9 10 10 9Industrial Products 34 33 36 31 40 32of which:Processed Food (14) (9) (18) (10) (19) (11)Wood (3) (4) (2) (3) (3) (3)Pulp and Paper (5) (7) (5) (6) (6) (5)Other (12) (13) (11) (12) (12) (13)

a/ At 1977 prices.


3.66 Copper exports are currently at their highest level in volume termsand any major increase in their value would have to come from a recovery inthe extremely depressed international price of copper.

Table III.24: CHILE - CODELCO - SALES OF COPPER AND COPPER BY-PRODUCTS

Fine Copper Copper Revenues Eff'mctive Price aI By-Product SalesYear (Thousand Tons) USS Millions (US cents/lb) USS Millions

1976 902.1 1,177.9 59.2 90.11977 905.6 1,058.5 55.4 123.71978 875.1 1,094.1. 56.7 170.21979 901.3 1,690.1 85.1 381.31980 907.5 1,869.8 93.5 411.01981 896.0 1,474.5 74.6 266.61982 1,034.5 1,442.6 62.0 217.11983 pl 1,038.4 1,498.0 68.0 n.a.

a/ FOB value of sales, except those for 1976 and 1977, which are CIF.pj/ Preliminary.

Source: CODELCO

3.67 Most of Chile's iron ore production is exported - about 85 percentof the total to Japan. The volume of exports remained constant during 1980-1982 mainly because of a locational disadvantage vis-a-vis other producercountries and the high level of impurities in Chilean ores. CAP, the State-run iron and steel enterprise, saw its profits affected by the weak world de-mand fer iron, as well as by exchange rate policies. CAP intends to improveits profits by increasing its efficiency and the quality of its productswhile maintaining the level of output and employment. For the 1984-89 periodtotal investments of about $270 milliou are tentatively being considered,

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with about half that amount required for the replacement of the Huachipatocoke plant which is 15 years old and is reaching the end of its useful life.Even so, iron ore exports will probably continue to remain stagnant giveninternational conditions affecting demand.

Table III.25: CHLLE - IRON ORE EXPORTS, 1975-1982

(Millions of US dollars)

Years

1975 90.91976 86.31977 81.51978 79.61979 124.31980 157.61981 161.91982 158.21983 112.0

j/ Preliminary.


3.68 In 1983, molybdenum exports totaled US$142 million (concentrates -

US$1 million; oxide - US$123 million; and ferromolybdenum - US$18 mil-lion). Given world conditions, earnings from molybdenum exports will likelyremain at their current level as some output decline - due to lower oregrade - will be offset by a higher share of processed exports and somemodest increase in prices.

3.69 As a result of the liberalization program undertaken since 1975,semi-manufactured exports became second to copper as generators of foreignexchange earnings. S-s-manufactured exports are largely resource based.Thus, forest products (e.g., sawn wood, pulp and paper), processed foods(largely fishmeal and shellfish), and base metals currently account for over80 percent of the total of the manufacturing sector's exports.

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Tab'le I11.26: CHILE - MAIN CATEGORIES OF SEMI-MANUFACTURED EXPORTS

(In Millions of USS)

1974 1978 1980 1982 1983

Foodstuffs and BevE'rages 53 196 397 379 435Forest Products 128 254 583 342 324Base Metals 30 143 279 245 285

Subtotal, Resource-Based 217 593 1,259 966 1,044

Engineering Products 15 65 107 59 50Others 65 124 193 154 117

Total 219 782 1,559 1,179 1,211

% of Total, Resource-Based 73 76 81 82 86

Source: Table 3.2, Statistical Appendix and mission estimates

3.70 Fruit producers responded dramatically to the liberalization pro-cess. Exports of fruits rose at a sustained 29 percent rate of growth from1977 to 1982, rising from US$71.7 million in 1977, to US$255.9 million in1982. In volume terms, apples, grapes and pears represent around 90 percentof Chile's total fruit exports and in 1983, despite a steep fall in their in-ternational prices, Chilean fruit exports were substantial, an indication oftheir export potential for the future. As mentioned before, planting offruits intensified in 1975-1980 and continued although at a slower pace dur-ing 1981-1983, suggesting an increasing export volume in the near future. Itis, therefore, to be expected that once international prices recover, fruitexports will contribute substantially to strengthen the trade balance.

Table III.27: CHILE - VOLUME OF EXPORTS OF SELECTED FRUITS

(Volume in Thousand NT; Value in Million US$)

Percent Change1978 1981 1983 1978/1983

Volume Value Volume Value Volume Value Volume Value

Apples 116 42 187 82 175 63 51 50Pears 16 6 22 14 20 10 25 67Grapes 51 33 79 76 159 1.J2 211 300


Impor-ts

3.71 The composition of imports also underwent important changes inresponse to the adjustments in macroeconomic policies. Industrial consumergoods (including automobiles but excluding manufactured foodstuffs) rosesharply in relative importance and by 1981 represented some 25 percent oftotal Imports as compared to six percent in 1974. On the other hand, therewas a significant decrease in imported foodstuffs, both processed and

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unprocessed, which largely reflected the growth in domestic agriculturalactivity over the period. 7/ Imports of capital goods also declined.Nevertheless, since local production of capital goods stagnated (investmentwas relatively low), the share of imports in gross fixed investment in ma-chinery and equipment rose from around 80 percent in the 1960s to 90 percentby 1980 and 1981. Finally, expansion in the resource-based subsectors and inconstruction was reflected in declining imports of intermediate goods.Finally, the share-of fuels decreased but this was due largely to the majorincome drop experienced by the country.

3.72 Imports fell drastically during both 1982 and 1983. Per capita im-ports dropped from US$580 in 1981 to US$252 by end 1983; 57 percent. Two-year declines were registered in imports of consumer goods and capitalgoods. Per capita imports of consumer goods fell from US$83 in 1981 to US$46in 1983, as a reflection of both the fall in domestic demand and increasedconsumption of locally-produced import-competing goods. Per capita importsof capital goods fell from US$113 in 1981 to US$30 in 1983. Imports of in-termediate goods, however, increased in the last quarter of 1983 as theeconomy started its recovery and increased percent in the first quarter of1984 over the same period of 1983. These trends suggest that although possi-ble to contain imports of non-essential goods, imports of intermediate andcapital goods will increase along with the expected economic recovery.


3.73 Until the current debt crisis, two main policy instruments affectedindustrial development and trade. The first was commercial policy and thesecond exchange rate policy. As regards the first, a uniform ten percenttariff prevailed from mid-1979 until the end of 1982 (except for most cars),when the rate was increased to 20 percent. This increase was originallyscheduled to last only one year. However, in December 1983, the Governmentdecided to retain it indefinitely. Furthermore, special duties wereintroduced on 28 products (in some cases to a maximum tariff of 35 percent)and currently the Government is under pressure to impose a differentialtariff scheme. While the Government recognizes the anti-export bias of sucha system, political pressures may force a return to a differential tariffsystem. This could create serious distortions and affect economic growth bydiscouraging investment in export-oriented industries.

3.74 The programfed crawling peg through 1978 was effective in promotingexports and creating an efficient manufacturing sector while affordingreasonable protection to most import-competing industries. The same is truefor agriculture. During 1979-1982, as noted earlier, overvaluation of theexchange rate decreased production of traditional crops; after the 1982-83devaluation in the 1983/84 harvest, 22 percent of land was incorporated backinto cereal production. Still, when compared to the 1978-79 peak harvest,more than 300,000 hectares may still be incorporated into production ofcereals if the correct price signals continue.

3.75 In mid-December 1983, the Government announced its intention tomodify the crawling peg policy, adjusting henceforth for the differencebetween domestic and international inflation (although how the latter would

7/ The jump in food imports in 1980 was primarily due to a substantial pur-chase of sugar in that year as a result of domestic crop failures. Themain item within this category is cereals; domestic production is now be-ing favored by various policy measures, not the least of which is the ex-change rate.

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be measured has not been specified). The Government stated that concern withminimizing domestic inflation was a consideration in modifying the previouspolicy which had adjusted only for domestic inflation. It is not clear howthe new policy will be applied, but a strict purchasing power parityapplication would require that any further depreciation of other currenciesvis-a-vis the US dollar wofld imply a more rapid rate of devaluation of thepeso. In the opposite case, the peso might appreciate vis-a-vis the dollar.There is, therefore, a need for close monitoring of Chile's competitiveness.

Table III.28: CHILE - REAL EFFECTIVE EXCHANGE RATE INDICES a/

(Base 1977 - 100)

1982 1983

March 73.0 89.0June 79.3 84.0September 91.9 80.4December 92.2 86.0

/ Weighted index of the exchange rate of Chile with 16 majortrading partners expressed in terms of nominal Chilean pesosper foreign currencies deflated by Chfle's Wholesale PriceIndex. A rising index reflects depreciation.

Source: Central Bank of Chile; IFS; mission estimates

3.76 Another key issue is the private firms' financial burden. A returnto high export levels requires firms to use their resources for investment,not financial payments. In this context, the program discusp!d in Chapter Vto reorganize -viable' firms should be especially directed towards those inexport-oriented activities.

3.77 The most pressing issue, however, is the need to service an enor-mous foreign debt through substantial trade surpluses. In 1984 and, to someextent in 1985, an inordinate share of the burden of Chile's trade surplusesmay fall on containing imports. However, at present, imports - which in1983 reached US$2.9 billion - cannot be compressed much more without unduehardship or a highly complex and inefficient system of import protection.Imports should be contained through a system which does not discriminateamong subsectors, and permits acquisition of intermediate and capital goodsto promote export increases and economic growth. Therefore, the Governmentmight give consideration to an export-promotion scheme to complement itscurrent exchange rate policy. This program could be directed to expansion ofnew exports or to increase the value-added content of current ones. Althoughthis may not necessarily require large investments, it may require some sortof financial support, as rebates on tariffs paid on imports of capital goods.

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IV. V LODMT AND UELFARE

A. EWLOMEET

4.01 Chile's total population was estimated at 11.6 million people in1983; over 80 percent of it located in urban areas. Population growth hasremained at a low 1.7 percent per year since the mid 70s and it is expectedto drop even further - to an average of between 1.5 and 1.6 percent per year.- by the end of the century. Low population and moderate urban growth mayimpose a lighter burden on the economy than is common in other developingnations; still, accelerated economic growth will be needed to create enoughjobs to absorb a growing labor force besides the currently unemployed.

4.02 During 1975-1980, the rate of employment generation proceeded at astrong pace. By 1980, total employment had increased 12 percent over thepeak of 1972. However, in 1974-75, labor rationalization resulted in theshedding of over 100,000 low productivity jobs in private and public activi-ties. These labor cuts, combined with the normal growth of the labor force,increased Chile's rate of unemployment to double-digit levels for the entireperiod.

Table IV.1: CHILE - LABOR FORCE EVOLUTION, 1970-1980 a/

(In Thousands)

1970 1972 1976 1980

Labor Force 2,932 3,001 3,117 3,635Employment 2,766 2,907 2,656 3,257Unemployment 166 94 461 379Unemployment Rate 6 3 15 10

a! Since 1976 includes participants in PEN. See para. 4.05.


4.03 Generation of employment continued at a strong pace until thesecond half of 1981. The economic boom led by construction, commerce andother services increased employment faster than increases in the labor forcedropping the unemployment rate to eight percent in the third quarter of1981. However, the macroeconomic imbalances mentioned before (para. 2.21)started to take their toll in the last quarter of 1981 and by end-1981 unem-ployment had risen to eleven percent again.

4.04 While the average ratio of employment generation to GDP growth re-mained at 0.5 from 1977 to 198} (the same level as the 60s), the 14.3 percentfall in GDP between 1981/1982 produced an almost one-to-one fall in employ-ment (it increased 13.7 percent). As a result, the rate of unemployment rosesharply to 25.2 percent by October 1982, and remained at 17 percent in Novem-ber 1983; if participants in the two Government welfare employment programsare included in the estimates, the unemployment problem shows even more dra-matic features.

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Table IV.2: CHILE - LABOR STATISTICS, 1979-1983 a/

(In Thousands)

1979 1980 1981 1982 1983 bI

Labor Force 3,477 3,636 3,688 3,504 3,696Employed 3,003 3,257 3,271 2,825 3,066PEM Participants 152 207 173 323 503 c/

Unemployment Rate 13.6 10.0 11.3 19.4 17.0Unemployment and PEM

Rate 17.0 15.0 15.0 26.0 27.0

a/ Average October-December of each year.bl August-October.cl Includes POJH and PEM.

Source: Tables 1.3 and 1.5, Statistical Appendix and mission estimates

4.05 In 1975, to alleviate the deepening unemployment crisis, the Gov-ernment created an emergency work program (PEM). In 1982, another program(POJH) was instituted to provide further relief and jobs for heads of house-holds. Both programs, although administered by local municipal governments,are financially supported by the Central Government. In addition to servingas an employer of last resort, these programs (especially PEN) serve to im-prove their chances of absorption into regular jobs. Notwithstanding its lowsalary payments (around US$26 per month in PEM and US$40 in POJH), both pro-grams have played a substantial role in reducing open unemployment in 1983 byoccupying over 500,000 participants during May-September 1983.

Table IV.3: CHILE - NUMBER OF PARTICIPANTS IN GOVERNMENT WORK PROGRAMS

Numbers (Thousands) Percentage of Labor Force1982 1983 1982 1983

March 163 501 6.5 13.0June 190 529 6.5 13.3September 277 518 7.1 12.6December 439 n.a. .12.5 n.a.


Prospects

4.06 Traditionally, four sectors have provided near 80 percent of totalemployment in Chile: agriculture, manufacturing, commerce, and other ser-vices. During 1980-1982, the sectors' capacity to generate employment wasaffected by the exchange. rate policy that aborted the growth gains from lib-eralization. In sectors related to exports (agriculture and manufacturing),the 1977-1982 average rate of employment generation was negative as a resultof this policy. On the other hand, before the shift in exchange rate policy,liberalization had resulted in a larger employment expansion (in all foursectors) than in the 1965-1970 period. Thus, the current unemployment situa-tion cannot be attributed to the liberalization process.

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Table IV.4: CHILE - EMPLOYMENT GENERATION, 1965-1982

Workers Employed(Thousands) Average Annual Rate of Growth

1970 1980 1982 1965-1970 1375-1980 1977-1982

Total 2,766 3,143 2,825 1.7 3.4 1.8

Agriculture and Forestry 625 535 459 -2.0 0.6 -2.5Manufacturing 492 553 357 2.1 2.6 -5.5Commerce 335 475 489 1.7 7.6 1.6Services 778 1,029 1,188 4.2 4.1 3.8

Source: Central Bank, "Indicadores Economicos y Sociales, 1960-1982"

4.07 Reducing current unemployment levels in Chile is clearly the majorchallenge facing the Government. A single-digit unemployment rate is theminim target that the Government should define as its goal. It is clearthat a liberal trade policy is the best medium- and long-term option toachieve this goal with productive jobs as proven during 1975-1980. However,an export-led recovery will take time to create the required jobs to absorbboth current unemployed workers plus the normal growth of the labor force.Therefore, the Government must combine a long-term liberal trade, cum exportpromotion policy with a short-term public works program.

4.08 On the other hand, the Authorities have maintained since their in-ception that as long as unemployment rates remained high the PEM and POJHwould be continued, and that their coverage may be extended in areas ofchronic labor surpluses. It seems, therefore, advisable to establish a con-tinuous monitoring of the employment generation effects of the proposed pub-lic works program before further reductions - above those already undertakenin 1983 - are implemented in these two emergency-work programs. Even undersuch assumptions, double-digit unemployment rates are likely to continue un-til the economic recovery obtained through exports is strong enough to pro-vide productive jobs for those currently working in the PEM and POJH pro-grams.

4.09 Another factor affecting employment during 1980-1982 was the realwage level. From 1979 until June 1982, real wages increased substantiallyeven in the face of double-digit unemployment rates, as a result of legisla-tion which forced employers to adjust (at a minimum) wages by the full amountof past annual inflation, when inflation was coming down. In mid-1982, theGovernment removed full wage indexing and real wages fell by around 18 per-cent between March 1982 and December 1983. However, Government employeeswere granted a general wage increase of 15 percent in January 1984. Theseincreases were not made applicable to private sector negotiations. There isa clear need for continued wage restraint if unemployment is to be minimizedin the future.

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Table IV.5: CHILE - OVERALL INDEX OF REAL WAGES AND SALARIES

(March 1981-100)

1982 1983

March 100.0 85.7June 99.2 85.0September 90.4 82.9December 87.32 n.a.

Source: Tables 7.1 and 7.3, Statistical Appendix and missionestimates

B. PRICES

4.10 The rate of inflation decreased sharply in 1981 and the first halfof 1982. However, after the successive devaluations of June and September1982, inflation started to increase again. The Consumer Price Index rose20.7 percent between December 1981 and December 1982; the Wholesale Price Ia-dex by 49.5 percent. 1

4.11 In 1983, the ten percent increase in import tariffs along with in-creases in prices of food and agricultural products exerted an upward pres-sure -n inflation. The stabilization program stemned this upward trend andsucceeded in containing it in spite of a crawling exchange rate system, anotable achievement. The Consumer Price Index increased 23.1 percent betweenDecember 1982 and December 1983 while the Wholesale Price Index increased33.1 percent.

Table IV.6: CHILE - PRICE INDICATORS, 1982-1983

(Percentage Changes)

Consumer Price Index Wholesale Price IndexAnnual Annual

December-December A-erage December-December Average

1980 31.2 35.1 12.5 39.61981 9.5 19.7 0.5 9.11982 20.7 9.9 49.5 7.21983 23.1 27.3 33.1 45.5


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C. INCOME DISTRIBUTION AND POVERTY

4.12 The Government has emphasized its role in welfare as one of provid-ing direct subsidies and/or remedial services to persons living in extremepoverty. To ascertain its target areas, the Government relies on a workingdefinition derived from information on the quality of housing gathered fromthe 1970 and 1980 censuses of population and housing. In 1982, estimates ofpersons living below the absolute poverty level ranged from 14 to 23 percentof the total population. However, this census information, although usefulfor identifying areas and numbers of inhabitants in extreme poverty, did notprovide guidance in determining individual eligibility, and may have leftaside a number of eligible persons residing outside areas of extremepoverty."

4.13 The last Bank report 1/ summarized the ongoing income distributiondebate in Chile at the time, indicating the difficulties involved in compar-ing pre- and post-1973 income distribution. Nor is full information onhousehold income distribution available at present, making it impossible toreach firm conclusions on the current status of income distribution. It isapparent, however, that those belonging to the lowest-income strata, includ-ing the unemployed, have absorbed a more than proportionate share of the de-pression's cost.

4.14 As noted, disindexation of wages since June 1982 brought down thereal wage level 18 percent by December 1983; per eapita GDP fell 19 percent;unemployment rose from 11 to 17 percent between 1981 and 1983. Altogether,the figures suggest a decline in labor's share of national income since1981.

4.15 Another indicator of likely deterioration in income distribution isthe number of PEM and P0JH recipients. If, as the Government maintains, PENbeneficiaries are persons searching for a complementary income to increasefamily earnings, then the huge increase in the number of participants 2/ inthe past two years is an indication of family-income losses among the lower-income families most affected by the 1982-83 depression.

D. WELFARE INDICATORS

4.16 Chile's social service network is extensive and the improvement inbiodemographic indicators reflects the success of social programs at leastuntil 1982. Since 1977, public social outlays expanded steadily in realterms and the 1983 budget allocated more per capita for social programs thanany previous budget, partly because of labor creation expenditures. Healthand nutrition programs have been a priority and have resulted in a substan-tial decline in the level of child mortality and malnutrition rates since1975, when the National Health Service began to record the state of nutritionof children attended in its clinics. Also, life expectancy at birth in-creased to 67.5 years in 1982 from 61.5 in the late 60s; the number of doc-tors per 1,000 inhabitants increased to ten from six, and infant mortalityrates declined 50 percent between 1977 and 1982.

1/ Chile: Economic Memorandum, World Bank Report No. 3406-CR, September 28,1981.

2/ The number of applicants would make a better estimator than the number ofbeneficiaries. Unfortunately, no data are available.

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Table IV.7: CHILE - FISCAL EXPENDITURES, 1976-1982

(Percent)

Year Social Expenditures Other Expenditures

1976 49.9 50.11980 50.2 49.81981 54.7 45.31982 58.3 41.71983 61.0 39.0

a/ Includes health, labor, social security, education and regionaldevelopment activities.

Source: Budget Office, Ministry of Finance

Table IV.8: C1HE - PARAL WELFARE INDICk0LtS

Ma]nourishs1Infant Children Severeiy

MDrtality % Births Milk 0-5 Years MaJlnoxrisbedRate Child with Distribited as Z as %

(Deaths per MDrtality Professicmal (lh,usand their Age Malnourished1,000 Live Births) Rate in Atteimace K los) Grmip /a (0-5 years)

1977 50.1 7.0 90.0 28,65i 14.9 3.41978 40.1 6.7 90.4 27,180 13.0 2.31979 37.9 6.8 90.4 25,706 12.2 1.61980 33.0 6.7 91.0 25,194 11.5 1.419B1 27.0 6.2 91.7 29,784 9.9. 1.21982 23.4 6.1 91.7 30,287 8.8. 0.91983 2D.0 na. n.a. n.a. n.a. n.a.

/a Data fran a program begm in 1975 in ebich appradmtely 70 percent of all childrnunder five are wighed as part of the milk distrihbtion program. lnutrition is basedon standaids of wight for age (Goiz classification). Malnourished incxles all thosewith Grade I or worse cases of mahwtritiox. Severely alnourished i des all casesof Grade 3.

Source: MLiistries a' Health, Educatin and Finance

4.17 Health coverage has expanded with programs targeted at young child-ren and mothers achieving very high levels of coverage. Approximately 80percent of all children under six years of age (92 percent of infants undertwo) and almost all pregnant women receive free examinations and innocula-tions from the SNS. However, the reduction of the Government's capital out-lays meant very low new investment in health equipment and modern technol-ogy. It was pointed out to the mission by Chilean health officials that pur-chases of modern equipment had not kept pace with social expenditures. Thismay affect the quality of clinical services and hamper future improvement inhealth indicators among-low-income citizens attended by the SNS.

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_. EDUCATION

4.18 Government funds for education take a high portion of total socialexpenditures and reached by 1982 the equivalent of US$1.2 billion. In 1978,the Government began a reorganization of the sector aimed at reducing its di-rect involvement by-, (i) increasing subsidies to private schools; (ii) grad-ually transferring the administration of public schools to municipalities;and; (iii) changing the system of financing tuition costs to better reflectsocial rates of return.

4.19 Although the State kept control of the curriculum and qualitystandards, private primary and secondary schools received an ever increasingsubsidy for each student that attended. As a result, the number of studentsunder this system increased rapidly since 1979. In 1981, primary and second-ary schools receiving state subsidies were allowed to charge tuition on avoluntary basis. This liberated resources for schools located in low-incomesectors of the country. When this program was coupled with the decentraliza-tion of school administration to the municipalities, a more efficient alloca-tion of resources was attained, permitting an increase in the education sys-tem's coverage outside the major urban centers, especially Santiago's metro-politan area.

-Table IV.9: CHILE - STATE SUBSIDIES TO PRIVATE PRIMARY SCHOOLS

AnnualSubsidy

Subsidy No. of Per StudentYear (USS Thousands) Students (US$)

1977 17,148 334,245 51.31979 41,930 385,068 108.91981 371,361 680,433 546.1

Source: INE

P. HOUSING

4.20 After 1977, the present Government altered housing policies shift-ing to the private sector significant responsibilities in the construction,marketing and financing of housing. It also altered its subsidy policyshifting from supply to demand subsidies changing from regressive interestrate subsidies generally favoring the middle class, to progressive upfrontcash subsidies more favorable to lower income groups. As a result, publicsector-sponsored housing averaged about 23,000 units per year during 1978-1982, while private sector financing increased from about 1,000 units in 1978to 27,000 in 1981. In 1982-1983, housing construction fell dramatically asprivate sector financing collapsed and in the future the public sector willhave to assume again increasing responsibility in supporting construction ofnew houses at least in the mrdium-term.

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Table IV.10: CHILE - HOUSING STARTS, 1978-1982

FinancingPublic Sector Private Sector

Year Total Starts Number Percentage Number Percentage

1978 23,000 22,000 96 1,000 41979 -38,000 20,000 53 18,000 471980 46,000 24,000 52 22,000 481981 55,000 28,000 51 27,000 491982 27,000 20,0p0 74 7,000 26

Source: Bank staff estimates

4.21 In mid-1983, responding to the increasingly weaker private sectorfinances, the Government stepped up its expenditures in the construction sec-tor unveiling a multi-year housing program. This program intends to promoteconstruction of an annual average of about 30,000 fully-built houses andabout 16,000 basic dwellings for the extremely poor. It also expects an ad-ditional construction of between four to 14,000 houses per year, the stimulusfor which is expected from a newly-introduced contractual savings program3, or directly through private financing as the economy recovers. Privatesector activity without any Government support is expected to remain at a lowlevel. If fully implemented, the program would gradually provide increasingnumbers of houses of lower standards improving the access of the lower-incomestrata of the population.

4.22 In the present Chilean condition, three aspects of the proposedhousing program make it relevant for the medium-term economic reactivation.First, with estimates of unemployment and excess capacity ranging upwardsfrom 20 percent, the multiplier effect of the program is large leading to in-creased growth of employment and. demand. Second, given its low foreign ex-change component, this program would have a low stimulus on imports. Final-ly, investment in housing is a flexible fiscal tool that could be reduced ifcircumstances so demanded. The basic difficulty for the successful implemen-tation of the multi-year plan lies possibly in its financing. While the pub-lic sector share of that investment is estimated to remain at about the pres-ent level in constant terms, the private sector financing would have to al-most double, increasing from US$443 million in 1984 by 1986.

4.23 In May 1984, the Government established a further program - calleda Contractual Savings Program - as an emergency measure. This will stiwu-late housing construction for middle-class families with a maximum value ofUS$42,000 per house. The program rewards savings efforts (amount and lengthof the savings effort) with a cash subsidy and a mortgage credit. Slack de-mand for the other public programs will permit the new program to proceedwithout raising the sectoral allocation of the public budget. Nevertheless,while this new Contractual Savings Program is likely to provide employmentduring the current period of depressed economic activity, the fact that itbenefits higher income groups makes it an unsuitable program for public sub-sidy.

3/ The program is oriented to construction of middle-income housing. It wasestablished in Nay 1984 and consists of an upfront subsidy and a 20-yearmortgage credit of 400-1,000 UP at an annual eight percent real interestrate for houses whose cost does not exceed 2,000 UF.

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Table IV.11: CHILE - PROJECTED HOUSING INVESTMENT PROGRAM

(Constant 1984 US$ Millions)

_- 1984 1985 1986Amount Percentage Amount Percentage Amount Percentage

Public Funds 164 27 166 20 165 16

Private Funds 443 73 668 80 863 84

Source: Bank staff estimates

G. CONCLUSIONS

4.24 The 1982-1983 adjustment process has imposed an enormous sacrificeon the poor. The loss of real income and employment has brouight widespreadhardship on those urban and rural inhabitants unable to cushion its impactthrough previous accumulated savings. Although the Government should use itsscarce resources in support of activities which will lay the basis for long-term economic growth, it will be equally important in the foreseeable futureto preserve programs such as PEM and POJE, and to expand moderately publicworks (such as roads, housing, and urban infrastructure), which will help toalleviate the burden of the adjustment for the poor by increasing employmentand helping in the economic reactivation of the private sector. The financ-ing of these programs should not, however, be allowed to discourage exports(for example through import duty increases) as this would undermine long-termgrowth and perpetuate the need for these special employment programs beyondthe next few years.

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V. FINANCING GROWTH

A. INTRODUCTION

5.01 During 1970-1973, Chile's credit policies were determined by thefinancing needs of the public sector. The money supply doubled in 1971; ex-panded credit to the Central Government alone equaled 124 percent of theprevious year's money supply. Tne virtual monopoly of bank credit by therapidly expanding public sector was explicit Government policy. Privatebanks were nationalized and the private sector's share of total financialcredit fell froo 77 percent in 1970 to less than 40 percent by end 1972 andreal interest rates were negative throughout the 1970-1973 period.

5.02 In 1973, the new Government had to reconstruct the financial sys-tem. A financial reform, begun in 1974 alongside fiscal and foreign exchangereforms, helped stabilize the economy. As the fiscal deficit was brought un-der control and nationalized banks were sold back to the private sector, al-location of credit shifted back to banks while monetary control responsibil-ities were regained by the Central Bank. Elimination of the pub .c sectordeficit and the abatement of inflation led to a turning point in monetarypolicy in 1976, as the decline in inflationary expectations and the increaseddemand for real money balances permitted an end to quantitative controls anda progressive reduction of reserve requirements. By 1980, the financial re-form had virtually freed the operations of financial intermediaries. Also bythat time, an overall public sector surplus and a fixed exchange rate hadtied monetary policy to changes in external reserves.

5.03 Privatization of the financial system and foreign competition werethought to be sufficient to ensure the soundness of the system, and thefinancial reform was not accompanied by strengthened supervision. In partic-ular, no efforts were made to prevent bank owners from exploiting market im-perfections, especially the great disparity between foreign and domestic in-terest rates. In fact, since private banks were restricted to onlend In dol-lars whenever they themselves obtained a dollar loan, this encouraged them torelend only to associated firms rather than lose the benefits from thesecheaper funds. This, of course, encouraged interlocking relationships be-tween holding companies and banks to take advantage of the interest rate dif-ferential. These relationships were not brought under control until 1982,when it was too late. The large foreign borrowing, much of it by banks, com-bined with the 1982 devaluation, reduced the banks' solvency, particularlywhen the foreign borrowings had been passed on to associated firms alreadybadly hit by the recession. Although the financial system came under growingstress, a few financial liberalizations continued in 1982. Reserve require-ments on deposits of public entities (private deposits already had minimalreserve requirements) were reduced from 87 percent to ten percent and finan-cial institutions were allowed to borrow short-term funds abroad.

5.04 The financial crisis unraveled in January 1983, when the CentralBank was forced to provide iediate support to avoid system-wide bank-ruptcy. Bank deposits were publicly guaranteed until December 31, 1984 andemergency credit programs established. Net Central Bank credit to financialintermediaries rose 250 percent, even in US dollar equivalents, between end-1981 and end-1983. Furthermore, during 1983 the Central Bank altered real

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interest rates by suggesting to commercial banks maximum nominal interestrates and providing them subsidized credit lines to reschedule nonfinancialpeso private debts. Nevertheless, the financial system remained fragile. Byend-1983, most of Chile's largest private financial institutions were -inter-vened" by the Superintendency of Banks; those not intervened could only oper-ate with Central Bank credit. Just as before the reform, public institutionshad a preponderant role in the day-to-day working of the financial system,with the Central Bank again its chief source of liquidity.

5.05 During 1984, the Authorities announced three programs aimed at eas-ing the short-term debt burden of producers and consumers, and at recapital-izing the financial system. In January, a recapitalization scheme consistingof Ceutral Bank purchase of part of the financial institutions' non-perform-ing portfolio, up to an amount equivalent to 150 percent of their capital andreserves, was implemented. The program applied only to non-intervened insti-tutions, thereby excluding insticutions holding half the financial assets inthe system. Banks in the program must use these resources to cancel earlieremergency loans contracted with the Central Bank, and then use the remainderto purchase Central Bank four-year notes. Future profits of these banks mustbe used to repurchase the non-performing portfolio plus pay a five percentannual real interest rate. The Government hoped this program would not onlyimprove the quality of the nonintervened banks' portfolio, but enable them toshow operational profits during 1984.

5.06 By May, the Authorities had unveiled another two programs aimed atsolving the financial problems. The first one, a debt renegotiation program,is an expanded version of the 1983 program discussed in paragraph 3.49. L/The debt renegotiation program addresses short-term constraints and in effectdelays a long-run solution: thk allocation of losses between creditors.Moreover, it may provide the wrong signals for a long-term reactivation ofcorporate investment. However, if followed by a clean-up process separatingviable but illiquid firms from nonviable firms as grace periods expire; itmay mark the start of a long-term growth process under increased investment.

5.07 The second program, a recapitalization scheme for the intervenedbanks, transforms some prior emergency credits from the Central Bank intoequity. The bank capitalization program is a step in the right direction andmay set the stage for a full solution of the intervened institutions' finan-cial weakness. Both should be evaluated by how they contribute to the vitallong-term task for the Government, raising domestic savings. Whereasdomestic savings roughly equalled investment during 1977-1979, this changedafter the pegging of the exchange rate. During 1980-1981, real consumptionwas rising rapidly as Chile's growth became increasingly dependent on foreignsavings. This source of Investment financing peaked in 1981, when it rose toUS$3.3 billion, ten percent of GDP and equal to the nation's merchandise ex-ports.

1/ All outstanding debts with banks contracted before March 1983 are nowsubject to reschedulnag. The Central Bank provided credit lines at afive percent real interest rate (two percentage points below the marketrate) and two-year grace period on amortizations. Full rescheduling ondebts under US$113,000, 80 percent on debts between US$113,000-570,000and 75 percent on debts over US$570,000 are allowed. For debtors withdebts higher than US$570,000, special arrangements have to be made andapproved by the Superintendency of Banks.

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Table V.1: CHILE - FOREIGN, DOMESTIC SAVINGS AND INVESTMENT, 1977-1983

(Percent of GDP)

1977-1979 1980-1981 1982-1983

Total Investminit 16.7 20.8 8.3Gross Domestic Savings 14.0 13.8 8.5Foreign Savings 2.7 7.0 0.2


5.08 Two important savings shifts occurred after 1981. First, publicsavings, which had regained their 1965-1970 level by 1980, started to declinein 1981 and have been negative thereafter, partly as a result of the depres-sion. Second, foreign resource flows, which had financed half total invest-ment in 1981, turned negative in 1983 as foreign banks became reluctant tolend. These developments -ast serious doubts on the future availability ofsavings to finance investments, particularly private investment. Since anyincrease in public savings will be spent on necessary public investments, andit is unlikely that the private sector will soon receive further foreigncredits, private inveptment and interest payments on the foreign debt willdepend on the private sector's capacity to generate -assive increases in sav-ings.

Table V.2: CHILE - SAVINGS-INVESTMENT BALANCE, 1979-1983

(Percent of GDP)

1979 1980 1981 1982 1983

Public Savings 8.9 10.6 5.5 -0.3 0.0Public Investment 5.0 5.5 5.0 5.0 5.0Public Surplus, Deficit (-) 3.9 5.1 0.5 -5.3 -5.0

Private Savings 3.1 3.3 0.9 0.6 4.9Private Fixed Investment 12.7 15.5 15.6 5.2 5.4Private Surplus, Deficit (-) -9.6 -12.3 -14.7 -4.6 -0.5

Source: IMF estimates.

B. PUBLIC RESOURCE NOBILTZ&ION

5.09 Current public expenditures decreased as a proportion of GDP, from29 percent in 1977 to 26 percent in 1981. In the same period, capital ex-penditures also decreased; from seven percent to five percent of GDP. Taxreforms, particularly a value-added tax introduced in 1975, and sound pricingpolicies for public services produced a growing current account surplus.Simultaneously, sales of previously nationalized companies allowed capitalrevenues to increase from two percent of GDP to three percent during the sameperiod. As a result, the public sector had an overall surplus throughout1977-1981, providing net credit to the private sector.

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5.10 Since 1981, public sector finances have changed drastically. Dur-ing 1982-83, the consolidated public sector shifted into deficit as revenuesdeclined with the economic depression. Current expenditures proved dlfficultto reduce because of the Government's social security obligations. Conse-quently, public borrowing resumed; the bulk of the deficit was financedthrough domestic borrowings equivalent to four percent of GDP, half totaldomestic savings.

Table V.3: CHILE - SUMMARY OPERATIONS OF THE PUBLIC SECTOR, 1977-1983

(Percent of GDP)

- Est.1977 1979 1981 1982 1983

Current Revenues 36.0 34.0 32.0 31.0 30.0

General Government 33.0 33.0 32.0 30.0 28.0Operational Surplus of thePublic Enterprises (after transfers) 3.0 1.0 - 1.0 2.0

Current Expenditures of th' GeneralGovernment 29.0 25.0 26.0 32.0 30.0

Current Account 7.0 9.0 5.0 -1.0 -

Net Capital Revenues -0.1 1.0 0.4 2.0 2.0

Capital Formation 7.0 5.0 5.0 5.0 5.0

Overall Surplus or Deficit - 5.0 1.0 -3.0 -3.0

Financing - -5.0 -1.0 3.0 3.0External, net 0.4 - 3.0 2.0 -1.0

Internal, net -0.4 -5.0 -4.0 1.0 4.0

a/ Operations in foreign currency converted into Chilean pesos at US$1iCh$37.25 for 1979; USSI-CbS39.00 for 1980 and 1981; US$1=ChS50.90 for 1982;and US$1-Ch$78.50 for 19b-.

Source: Ministry of Finance and mission estimates

5.11 The public sector may need to borrow domestically again in 1984-1985 as public savings may be minimal. Current expenditures will be diffi-cult to compress because of the Government's concern with unemployment andincome levels, and the privatization of the social security system. Currentexpenditures for unemployment programs and benefits amounted to about 3.3percent of GDP in 1983. It is likely that they will remain at that level oreven increase during 1984-1985. Salaries and wages may also be difficult tocompress. Nominal public sector wages increased by seven percent in 1983while inflation was 23 percent. In January 1984, the Government agreed to a15 percent increase in nominal wages for the year, about ten percent belowthe probable inflation. Further real wage drops may lead to a distinct lossof Government efficiency. Social security payments (currently almost a thirdof current expenditures) will not taper off until 1990. Finally, the 1984budget calls for an 18 percent real increase in public sector investment, andfurther increases are likely.

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Table V.4: CHILE - GENERAL GOVERNMENT EXPENDITURES, 1979-1983

(Percent of GDP)

Est.1979 1980 1981 1982 1983

Total Expenditures 28.1 27.3 28.9 34.3 32.9

Current Expenditures 24.8 24.5 26.3 32.2 30.7

of which:Wages and Salaries (9.2) (8.8) (7.7) (7.9) (6.7)Social Security Pawments to

Private Recipier.ts (7.0) (7.1) (8.1) (10.9) (9.8)

Capital Expenditures 3.3 2.8 2.6 2.1 2.2

Source: Ministry of Finance and mission estimates

5.12 Revenues, on the other hand, may increase only at a slow realpace. The ratio of current revenue to GDP dropped by almost 2.5 percentagepoints in 1983. Taxes on goods and services represent half current revenues,and they may continue depressed until the economy picks up. Taxes on inter-national trade (nine percent of current revenues) may increase as a result ofstronger imports in 1984, but taxes from personal and corporate income, cop-per, government enterprises - 21 percent of current revenues in 1983 maybe lower than expected given the deflated domestic and internationaleconomies.

C. PRIVATE S&VIS AND TR IATION

5.13 Another constrizlat on domestic resource mobilization lies in thedisarray of the financial system. From 1975 until 1982 the liberalizationprocess gave rise to a strong reactivation of Chile's financial system. Thiswas reflected in the growth of the ratio of quasi-money to GDP which in-creased from three percent in 1969 to 24 percent in 1982, before fallingagain in 1983.

Table V.5: CHILE - RATIOS OF MONEY AND QUASI-MONEY TO GDP

(Percentages)

1969 1977 1981 1982 1983

ml 10.0 6.6 6.4 6.1 6.1

Quasi-money 3.0 6.0 20.1 24.5 19.0

Ml - Cash and Demand Deposits;Quasi-honey - Time Deposits, Savings Deposits and

Sight Drafts


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5.14 Economic expansion, strong external inflows and high domestic realinterest rates explain the continuous growth of financial savings during1979-1982. 2/ However, as confidence in the financial sector evaporated be-tween end-1982 and mid-1983, financial savings began a continuous decreasethat was only reversed once confidence started to return with the economicrecovery in the last quarter of 1983.

CHART 5.t CHILE - FiNANCIAL SAVINGS AND MONTHLY INTEREST RATE VARIATONS1979-1953

REAl InAJIEZL SAVINGS Am 3fTUM= RA1o

MS.

30~~~~~~~~~~~~~~~~~~~~~~.

0% :J

\\ \4 .~ ~ Nib4\4

QUARTERS

Solid, heavy line - real interest ratesLine with squares - real financial savings

D. T7E FINANCIAL CRTISS AND AIJAC&IION OF CREDIT

5.15 As the economy boomed during 1979-1981, so did the demand forcredit by the private sector. The real appreciation of the peso and thedomestic savings-investment disequilibrium accounted for much of the increaseof dollar-denominated credit as expectations of further real appreciationswere stimulated by the fixed exchange rate policy. The stock of privatecredit denominated in dollars peaked in 1981, at over US$10 billion. Ini-tially, less than half of private credit was in foreign currency, and theappreciation of the peso disguised the dollarization of credit. By 1982,

2/ A regression shows that only 40 percent of financial savings are ex-plained by changes in interest rates.

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however, after devaluation, almost 60 percent of financial credit was denom-inated in dollars. After foreign capital restrictions were lifted, thefinancial system increased its share of this credit from 47 percent in 1978to 61 percent (US$6.7 billion) in 1981.

Table V.6: CHILE - CREDIT TO PRIVATE SECTOR, END YEAR

(In Current US$ Million Equivalent)

Credit in Foreign Currency Credit in Domestic CurrencyFinancial Deben- Financial

Year Direct System Total tures System Total

1978 1,399 1,252 2,651 28 2,084 2,1121979 2,126 1,960 4,086 39 3,614 3,6531980 3,089 4,116 7,205 51 8,532 8,5831981 4,183 6,680 10,863 96 13,225 13,3211982 3,992 5,657 9,649 292 6,407 6,6991983 (June) n.a. 4,359 n.a. 302 6,564 6,866

Notes: The financial system includes commercial banks, Banco delEstado and Sociedades Financieras Credit to the private sectorincludes credit to financial firms not included in thefinancial system.

Source: Central Bank and mission estimates

5.16 The cross-currency exposure of the private sector (and, unfortu-nately, financial intermediaries) increased as credit surged and equity basesdropped in relative terms. During 1978-1981, the financial system's ratio ofcapital and reserves dropped from 14 percent of total credit to nine per-cent. Moreover, the system's net foreign liabilities increased from US$770million in 1978 to US$6.3 billion in 1982; this net foreign exposure ratiorose from rough equality to capital and reserves to 4.5 to 1.

5.17 The effects of the 1982-1983 devaluations and ensuing economic de-pression on the highly leveraged financial and corporate sectors were deva-stating. Bankruptcies proliferated. In Metropolitan Santiago, from July toDecember 1981, 127 firms were declared bankrupt. From January to June1982, 205 bankruptcies were declared. The number increased further to 269during July to December 1982, when it reached its maximum. A retrenchmentstarted in 1983. In the first ten months of the year, 200 bankruptcies wereregistered - the lowest number in nearly two years - partially reflectingthe financial emergency program enforced since March 1983, and partially thedecrease in real interest rates.

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CtART 5.2' CHILE - BANKRUPTCIES IN GREATER SANTIAGO, 1/81-111/83Niume or 3ANErUC

110

140

20 -

1300

30-

20 ,31 11 I I vim2 U l I Vi3 E N

QUARTERLY ESIMATES

5.18 The health of much of the. private sector and the soundness of thefinancial system were further complicated by the concentration of ownership- and debts - among industrial and financial groups. By 1981, the Superin-tendency of Banks became concerned over bank credit concentration and enactedregulations to limit the system's credit to related companies. While thiswas partly evaded by the issuance of debentures, ironically bank credit con-centration increased thereafter. To avoid financial collapse of theirgroups' firms, banks found it necessary to increase credit to them. Informa-tion from the Superintendency of Banks indicated that in mid-1983, a fifth ofthe bank credit was allocated to firms owned or controlled by bank sharehold-ers; a major increase from the mid-1982 ratio.

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Table V.7: CHILE - CREDIT CONCENTRATION

Credit to Group-Related Companies as Percent of Bank Portfolio

June 1982 Dec. 1982 June 1Tg9

Banco de-Chile* 16.1 18.6 21.0Banco de Santiago* 44.1 42.3 49.5Credito e Inversiones 8.6 11.9 10.1Sudamericano 13.0 14.8 17.9Concepcion* 17.0 12.2 12.2Colocadora Nacional* 23.4 23.8 25.4Internacional* 20.1 22.8 4.1 a/

Total Chilean Private Banks 16.4 19.4 21.4

* Intervened banks.

a/ The reduction of group-related credit is explained by the legal dismem-berment of one group, resulting in the separation of the bank from it.

Source: Superintendency of Banks

5.19 One factor that accelerated the banks' financial deterioration was'their high exposure with non-export-oriented firms. In September 1983 over60 percent of dollar-denominated credit had been allocated to firms operatingin service activities. Hence, the resources of the financial system wereconcentrated where the heaviest losses occurred and where sales prices werethe most sluggish. By early 1983, the major financial intermediaries in thecountry, private banks and financieras, were holding a very high proportionof doubtful assets.

5.20 One indicator Of the bank's predicament is the ratio bet-ween theestimated losses in their portfolio (once provisions and real guarantees arediscounted) and their equity. The size of the potential lost portfolio wasestimated by adding: (i) the bank's outstanding amount of loans in arrearsfor over three months; (ii) the balance of loans transferred to the CentralBank as part of the rescheduling program initiated in January 1983; and (iii)the net operating losses accumulated by the bank during the first nine monthsof 1983. The results are presented in Table V.8; for expository purposes,the banks were divided into two groups.

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Table V.8: CHILEAN BANKS - RISK ANALYSIS, SEPTEMBER 30, 1983

(Million Pesos)

Loans Loans CapitalRisk in _- Trans- Net Provisions and & RiskLevel Arrears ferred Losses Real Guarantees Reserves Ratio

Group I 16,677 4,544 (2,158) 34,442 51,520 0.30

Group II 91,275 80,226 27181 89,970 49,950 2.18

Total 107,952 84,770 25,023 124,412 101,470 0.92Banks - m

Source: Mission estimates

5.21 Banks in Group II - the insolvent banks -- include the two largestprivate banks, Banco de Chile and Banco de Santiago. The combined amountoutstanding of loans in arrears by September 1983 of these two banks was 56percent of the total arrears of the Chilean banking system. The total amountof loans in arrears for all banks amounted to Ch$108 billion, a tenth of allbank credit outstanding. An additional Ch$85 billion (eight percent of bankcredit) had been transferred to the Central Bank in exchange for short-termfunds to provide temporary liquidity. Furthermore, during the first threequarters of 1983, banks in Group II suffered heavy losses. This is under-standable. The high percentage of nonperforming loans has direct implica-tions on their flow of funds - cash interest payments are obviously receivedonly from the banks' performing loans. The net interest payments to ten o.the twenty largest banks were insufficient to cover their operating costsduring the first three quarters of the year. Thus, the functioning of thebanks as financial intermediaries is coming under pressure. If they are toagain become sound intermediaries, they will need positive operating prof-its.

5.22 Similar analysis shows the surviving financierast position is farbetter. Viewed as a whole, the financieras' total real guarantees and pro-visions about equated their outstanding amount of loans in arrears and trans-ferred. This is parcly because many financieras were allowed to go bankruptearlier.

Table V.9: CHILEAN FINANCIERAS - RISK ANALYSIS, SEPTEMBER 1983

(Million pesos)

Loans Loans CapitalRisk in Trans- Net Provisions and & RiskLevel Arrears ferred Loss:-s Real Guarantees Reserves Ratio

Total 394 662 (57) 1,011 2,417 (0.01)


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Z. SAVINGS PROSPECTS AND POLICY ISSUES

5.23 The present financial disarray, overall public sector deficit, re-stricted access to external funds and, above all, external debt burden, willrestrict the country's economic growth during the l980s. Thus, Chile'smedium-term prospects will depend upon an unprecedented domestic savings ef-fort, combined with a strong export increase. This cannot be achieved unlessChile's firms and financial institutions can be returned to solvency soon.Moreover, while there is no easy way to do this, the manner in which it isdone could also affect Chile's growth prospects significantly.

5.24 Meeting Chile's savings needs during the rest of the 1980s will beone of the most difficult tasks confronting the Government. Not only mustChile's domestic savings finance a growing public and private investment re-quirement, they must be sufficient to pay the foreign interest obligations ofthe public and private sector as well. These are not inconsiderable. More-over, Table V.10 underestimates the interest payments - already eight per-cent of GDP - since the US -pr'me" rate increased one and one-half percent-age points, to 12.5 percent since the estimate was made; and it also assumesthat Chile is able to pay its debt as scheduled - a highly unlikely event.

Table V.10: CHILE - EXTERNAL INTEREST PAYMENTS, AS OF END-1983, 1984-1990

(Millions of US$)

1984 1985 1986 1987 1988 1989 1990

Private Sector 1,085 1,008 832 670 498 343 231

Public Sector 718 759 705 632 517 356 202

Total 1,803 1,767 1,537 1,302 1,015 699 433


Prospects

5.25 Chile's situation is unique in Latin America. Over 70 percent ofits external debt was contracted by private institutions with no publicguarantee. As part of the renegotiation process of 1983, the Governmentguaranteed payment of private financial institutions' debt service due during1983-1984 at the request of its foreign creditors. In spite of the success-ful debt negotiation, ir would be optimistic to expect Chile to receive con-siderable foreign savings during the rest of the 1980s. The Government hasattempted to attract direct foreign investment but the results of the 1977-1983 period were disappointing. Foreign borrowing (a substantial source ofsavings before 19d2) will also be severely restricted.

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Table V.11: CHILE - AUTHORIZED AND ACTUAL DIRECT FOREIGN INVESTMENT,1977-1983

(In Millions of US$)

_ Ratio of Realized toAuthorized

Sector Authorized Actual (In Percentage)

Mining 5,729 850 15.0Services 675 560 90.0Industry 694 503 72.0Forestry 11 10 90.0Others 227 151 67.0

Total 7,286 2,075 29.0


5.26 Public savings will also be scarce. The need to expand severalGovernment current expenditure programs in order to reduce unemployment andprovide for the basic needs of low income groups combined with the difficul-ties in raising real tax revenues will reduce the ability of the Governmentto generate current savings. New taxes and other means of raising currentpublic revenues are clearly necessary. Nevertheless, the Government will al-so need to use its limited access net external financial resources to reacti-vate the economy through its own investment projects.

5.27 The limited public and foreign savings prospects mean that privatesavings must be accelerated. Pension funds will not be able to marshall morethan US$700 million during 1984 from members' contributions and real gains ontheir portfolios. The low levels of personal income will not enable thehousehold sector to provide much additional funds, at least in the near fu-ture. Thus, coreorations must be the major vehicle to generate future pri-vate savings. Unfortunately, profit prospects of the private non-financialsector are also limited. While this is being improved slowly as the effectof the better macroeconomic policies followed since end-1982 are felt, onecannot expect sufficient savings to be generated - or to be allocated effi-ciently through Chile's financial system until its severe financial problemscan be addressed.

5.28 Normally, losses are absorbed by both borrowers and creditors. InChile, however, the former are both private domestic banks related to largeindustrial groups as well as a broad spectrum of Chile's corporate community,while the latter are largely foreign creditors who are also creditors of theGovernment as well. By end-1983, only minor portions of the losses had beenpassed on to Chilean depositors and firms, and none to foreign creditors,largely through Central Bank absorption of losses via purchase of overdueportfolios and the extension of special credit lines, and to the Government'srenegotiation and - up to now - payment of the private sector's externaldebt service, either through direct payment of interest or indirectly,through provision of both pesos and dollars to otherwise illiquid debtorsthrough Central Bank loans.

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5.29 The Government's 1983 absorption of the private sector's externaldebt service will lead to an enormous transfer of domestic savings to repayloans originally owed by now-bankrupt firms. Any new renegotiation of thestill privately-owed external debt would extend the time horizon for thosesizeable payments to the year 2000 or beyond. The Government's actions in1983 not only benefited foreign creditors; domertically, the Central Bank'sactions also averted losses by domestic private banks and corporate groups.In effect,. much of the nation's limited access to foreign savings has beenused in support of servicing debts of insolvent firms. This deferred, inpractice, the bankruptcy process Initiated in 1982, and has slowed financialadjustments and economic growth.

Policy Issues

5.30 Restoration of a sound financial system is key for Chile's growthprospects. If a return to a sound financial system is not achieved soon, re-ductions in finaztcial savings may occur and the private sector may turn tocapital flight as a savings alternative. Conversely, if financial uncertain-ties could be diminished, and private financial savings increased, this wouldlikely increase domestic savings and bring about a stronger economic recov-ery. The problem of capital flight is a very real one and exchange ratepolicy is crucial. The worst possible condition is one where there would beconsiderable uncertainty in regard to the future exchange rate policy of theGovernment. If it is thought that the Government would maintain the peso ata level far above a free market rate it will be extremely difficult to re-store confidence in the financial system. A sustainable and credible ex-change rate policy is therefore a necessary, but not sufficient, condition torestore the soundness of the financial system.

5.31 Thie solvency and stability of the financial system as a whole doesnot necessarily imply survival of all indiNidual institutions. The system'ssolvency cannot continue to be related to the survival of all private banksand firms. If it does, a continuous erosion of public confidence, a growingdependence of insolvent firms on Central Bank credit, and a misallocation oftotal credit will slow the return to a self-sustained financial system and,therefore, to the higher domestic savings required for rapid economicgrowth. As noted before, in 1983 the Government's program alleviated theshort-term debt burden of many private debtors. The 1984 programs may allev-iate again the short-term condition of some financial institutions andfirms. Indeed, even consumer loans, house mortgages, and debts to publicutilities have been rescheduled. Although it is understandable that undercurrent crisis conditions in Chile, economic policy making is confronted withenormous uncertainties, a quick, definite solution to solve the private sec-tor's overall financial situation must be attempted. Thus far, the Govern-ment has found it difficult to arrlee at such a solution.

5.32 The present policies have negative effects. First, the CentralBank programs have been through the banks, when it is the nonfinancial cor-porate sector that is the root of the problem. Therefore, some of the cred-its may have been misallocated. Second, the present approach channels creditalmost totally to past borrowers, especially of foreign credit, rather thanto potential productive uses; one result is the increasing concentration ofincremental credit to firms associated with bank stockholders, in spite of acontrary Government policy. Another is that firms with few short-term pro-spects (e.g., construction, real estate) receive subsidized credit while newactivities are excluded. Thirdly, the banks are charging those debtors able

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to pay higher interest rates as a partial device to finance debtors who arenot paying; this is one reason Chile's real interest rates have remainedhigh. Finally, confidence in Chile's banks by depositors remains fragile.

5.33 Extreme solutions will not solve the crisis. Although it mighthave been a possible alternative in 1981-82, in 1984 a wave of bankruptcieswould create an unsustainable situation. Banking failures would engender agreater loss of confidence and endanger the incipient economic recovery.Furthermore, bankruptcies would not solve the external debt constraint unlessexternal creditors agreed to accept the bankruptcies. If not, widespread de-faults would exacerbate and prolong Chile's balance of payments problems.Neither wiould inflation reduce the cost of current corporate indebtedness; infact, it would represent a disguised tax, transforming corporate into publicdebt. Furthermore, to accomplish its purpose, indexing of deposits wouldhave to be ended, and Chilean depositors would rapidly shift to money substi-tutes, reducing credit availability for investment purposes. Thus, inflationwould reduce incentives to save without the benefit of reducing the externaldebt burden. Finally, inflation would rapidly distort relative prices, af-fecting Chile's export, hence, growth prospects.

5.34 Recapitalization of the financial system, stronger confidence-inacquiring financial assets, and improved economic efficiency in the alloca-tion of credit must be the objectives of any restructuring program of thefinancial system. To achieve the first, the Government can complement itspresent recapitalization scheme with a compulsory transfer of asset owner-ship. This would force nominal titleholders of shares in bankrupt banks toacknowledge their losses, as well as free future financial resources thatwould ultimately restore the soundness of the financial system. Since theintervened private banks already owe more than their capital base to theCentral Bank, the Government has been able to capitalize some of theseCentral Bank loans into equity. This not only provides a clear start to re-solving the current financial disarray, it also restores depositors andforeign creditors' confidence in the system. Such ad approach might bejoined by private, foreign banks, which could also turn some of their debtsinto equity instruments, just as they often do in their home markets. In anyevent, the program must be continuously monitored through measures which en-sure a wide dispersion of stock purchase.

5.35 The redevelopment of credible financial instruments - particularlythose issued by financial intermediaries - requires a continued Governmentguarantee for current deposits and the restoration of freely-determined in-terest rates l.n the future. It must be remembered that what caused the cur-rent crisis was the existence of market imperfections that distorted relativeprices between domestic and foreign rates of interest and lax bank super-vision. Chile has now learned that private foreign capital flows and bankoperations deserve close scrutiny. The present capital controls could be re-tained until better allocation systems are developed and bank supervision isgreatly improved. However, long-term financial savings can only be encour-aged if they are made competitive with alternative uses of money. Interestrate repression would be counterproductive, since it would ultimately lead tocontinued institutional disarray and a misallocation of real savings to ac-tivities which would not necessarily promote investment and growth.

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5.36 Improved economic efficiency in credit allocation is indispensablefor long-term growth. Debt-relief schemes, such as those implemented in1983/84, have a limit. If continued, they may transform a short-term liquid-lty crisis into a long-term stagnation by diverting scarce domestic and for-eign savings away from investment to a potentially endless debt reschedulingprocess.

5.37 In 1984, the short-term cost for the Central Bank of the debt-re-lief programs was estimated at around USS450 million. It was financed large-ly by using USS400 million out of the total USS780 million obtained In newfunds from foreign banks, and partly by base money growth. The long-termcost (i.e., net present value) over the scheduled 15 year period of the pro-grams was estimated at approximately US$2.5 blllion. Therefore, the flexi-bility of monetary management has already been compromised. Moreover, thecosts were estimated on the assumptions that real interest rates charged todebtors (currently two points below market rates) will converge in four yearstowards the market level, and that no further renegotiations would occur. Ifany of these assumptions fails to materialize, the long-term cost of theseprograms, and the inflexibility of monetary management would increase, af-fecting economic growth prospects accordingly.

5.38. Moreover, these programs cannot be continued much longer withoutcreating inflationary pressures. Access to foreign savings will be re-stricted in the future. Therefore, unless an orderly process of refinancingwhich discriminates between illiquid and insolvent firms is permitted asgrace periods expire, the risk of either massive bankruptcies or massive basemoney emissions will arise. Chile would then have even less access to for-eign savings, an even weaker productive system, and a discredited financialsystem. Thus, the Government must resist pressures to contlnue practicingbroad-based debt relief schemes as grace periods on the current programs ex-pire after 1985. In effect, it should complement them with a selective debt-renegotiation program which would provide credit to those finrs whoseeconomic benefits (e.g., export-oriented firms) and economic viability (e.g.,those making before-interest payment profits) makes them economically soundvehicles for increased output, investment and employment.

5.39 It is clear that the only solution that would transform foreignbank loans into equity, thus partly deferring the burden of external interestpayments, would be one which transformed domestic debt into equity as well.The mission's suggested approach is designed to restore domestic confidencein the financial system and increase the mobilization of domestic savings,while permitting an orderly restructuring process to separate 'viable' from.non-viable' firms. If foreign commercial banks can be en-ouraged to turnsome of their doubtful private loans Into equity - be it in specific firmsor an equity fund - interest payments could be reduced, at least in the nearfuture.

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V. OPTIONS AND POSPECTS

A. T

6.01 Chile's service of the external debt represents the major obstacleto growth. In 1983, the ratio of total debt to GDP amounted to 80 percent;interest payments (which will hover around US$1.5 billion a year for the restof this decade) represented over 40 percent of exports. Thus, increases indomestic savings and export earnings and a prudent renegotiation of the ex-ternal debt will be the key factors if the country is to achieve a three-per-cent-trend rate of economic growth in the 1980s - as a means of expandingerployment - without another balance of payments crisis.

6.02 Export increases will depend on the world recovery, the rate ofprivate investment, and on a Government strategy' to coordinate domestic pro-duction with external markets demands and to .promote them through exchangerate and trade policy. The Government proved its ability to manage success-fully Chile's economic crisis in 1983. The conclusions presented in thischapter rely on the basic presumption that a liberal economic strategy willremain in effect for the next two or three years; the minimum time requiredto consolidate the current recovery and reinvigorate the private sector.

6.03 The other major issue is the capacity of the country to increaseits domestic savings. As examined before (para. 5.07), Chile's savings per-formance was not outstanding in the 70s; Moreover, public savings (a majorfactor on Chile's positive savings performance) vanished in 1982-1983. Giventhe interest burden of Chile's external debt, the level of domestic savingsthat will be required from the country implies an effort unparalleled inChilean history.

6.04 The following elements would help in this respect: (i) the medium-term public investment program; (ii) a medium-term projection of public re-venues and current expenditures consistent with an overall declining deficit;(Iii) a long-term export-promotion strategy combining the crawling peg re-gime, lower and homogeneous tariffs and export marketing and distributiontechniques; and (iv) a financial reform recapitalizing the financial systemwhile making fair provisions to liberate financially-troubled productivefirms from the financial situation faced by their holding companies.

B. TEE BASIC PROJECTIONS: GENERAL ASSUMPTIONS

6.05 To project and compare Chile's growtb prospects until 1990, a setof scenarios reflecting different solutions in the financing of Chile's eco-aomic growth were tried using a simple two-gap model (highly dependent on ex-pectations regarding the growth of exports and the Government's chosen poli-cies), to check balance of payments and domestic savings consistencies onthe assumption of a sustained GDP growth rate averaging three percent peryear from 1984 to 1990. The general policy assumptions are presented below.

6.06 It is assumed that monetary policy remains consistent with the IMFStand-By in 1984, and thereafter is used to control inflation sufficiently tominimize the amount of necessary exchange rate adjustment. It is further

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assumed that the Central Bank's present 'suggested- interest-rate policy re-mains in force until 1985 to give way, after that year, to a liberalizedfree-market policy.

6.07 As noted, in December 1983, in an effort to stabilize the real ex-change rate, the Government introduced monthly adjustments to the nominal ex-change rate in thEsamount that Chilean domestic inflation exceeded interna-tional inflation. It is assumed here that an exchange rate policy favorableto exports will continue. On the other hand, the Government's stated policyof encouraging the operation of free markets implies that the country wouldcontinue to be outward-looking and nonprotectionist. Thus, it is assumedthat tariffs return to their January 1984 status.

6.08 The overall public sector deficit (including State enterprises) maybe over five percent of GDP in 1984. The requirement to continue a vigorouspublic investment program until 1990 in mining, energy, and agriculture, ir-plies the persistence of an overall public sector deficit, albeit reducingits size gradually towards 1990. Reduction of the public sector's deficitwill require that the initial foreign resources gained by the Government in1984 be complemented increasingly from 1985 on by rising savings from theCentral Government and the State enterprises.

6:'09 In January 1984, the Government changed its tax legislation tofoster corporate investment from undistributed profits. It Is assumed thatfavorable income rax treatment to corporations would continue until 1990.Thus, increases in government revenues will have to come mainly from in-creased buoyancy of indirect and production taxes (especially VAT, importduties and copper and energy taxes). To increase savings, therefore, theGovernment would have to continue its current moderate policy on public wagesand salaries since it is assumed that expenditures on education, health andsocial welfare programs would continue to represent over 50 percent of totalGovernment expenditures for the rest of the decade. The objective is for theCentral Government to generate budgetary savings similar to those registeredduring 1976-1982 after 1986.

6.10 It is assumed that wages would continue to be determined primarilyby market forces and that wage indexation would be resisted during the 1984-1990 period. However, the high level of unemployment and steady entry of newwor:.ing-age population into the market demnds short-term measures to allevi-ate the situation until labor demand picks up with the private sector's re-covery. Therefore, it is assumed that the Government would continue the PEMand POJH programs at current levels during 1984-1985, gradually decreasingthem to the 1975-1978 level by the end of the decade.

6.11 In 1983, the Government's agricultural reference price program re-moved unneeded uncertainties in farm production. Preliminary estimates ofland under cultivation and harvest indicate that production reversed thetrend observed during 1979-1982. It is assumed that this price-support pro-gram (which provides farmers with a reasonable year-to-year frame of refer-ence) wculd be continued and ex*ended to other basic crops. In keeping withthe Government's open-trade pollcies, its price-guarantee scheme could be ad-justed through a band price system to reflect the best estimate on possibleinternational prices for the product, thus leading to an efficient use ofagricultural resources, rather than to subsidize consumption or productioninefficiencies.

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6.12 Resumption of private investment depends on a stable economic envi-ronment and the availability of credit at reasonable real interest rates.Initially, new investments are expected to come from the public sector andexport-oriented firms currently operating at full capacity. The expected re-covery of the international economy and its effect on demand for Chilean pro-ducts would provide the incentive for increased private Investment after1985, mainly in m;finufacturing, services and agriculture. Foreign direct in-vestment is expected to remain moderate (USS200 million per year) and primar-ily in mining, energy and resource-based manufacturing, contributing to theobjective of exports.

6.13 Expanding public investment is expected in housing, agriculturalinfrastructure, mining and energy. In copper, it is assumed that the policyof investing only to maintain current production levels would be-reversed,and that CODELCO's expansion program would be realized, albeit at a 70 per-cent level of the intended program, from 1984 to 1989. Also, it is assumedthat ENACAR and COCAR programs for coal development would be realized. Inagriculture, it is assumed, that starting in 1985, investment in basic irri-gation infrastructure, as well as in basic land rehabilitation, would be un-dertaken.

6.14 The Chilean economy will have to generate massive savings to payinterest on its external debt, as well as to support the investment rate re-quired for growth. Foreign interest payments, estimated at an average ofaround US$1.5 billion for the rest of the decade will represent five to sevenpercent of GDP and up to one third of domestic savings. At the same time,once present capacity is fully utilized, investment will have to increase toaround 16 percent of GDP. When combined with Chile's expected capacity toattract foreign savings, domestic savings will have to rise to nearly 18-20percent of GDP. Thus, it is assumed that consumption remains compressedthrough adequate fiscal and monetary policies and a low inflation rate. In-deed, the projection shows that in 1990 per capita consumption would still bebelow its 1981 level. Therefore, achievement of higher savings will dependupon the effectiveness of the Authorities to restore a strong and stablefinancial environment.

6.15 If international commercial banks do not increase their exposure inChile, albeit at a moderate pace, the scenario outlined here is not viable.It is assumed, therefore, that initially (because of Chile's expected compli-ance with the IMF program), and later (because of the set of policies men-tioned before), the country would be able to borrow fresh funds from commer-cial banks and to be able to reschedule amortization payments throughout the1984-1990 period. This increase in commercial banks lending, about five per-cent yearly of their current exposure, would be modest but sufficient tofinance part of its interest costs.

6.16 It is also assumed that Chile's Government would ensure the paymentof the external debt service of Chilean private financial institutions. Con-sequently, it is also assumed the recently announced bank recapitalizationscheme would effectively capitalize the private banks through the transfer oftheir losses to the Central Bank and ultimately provide them with fresh re-sources to extend financial credit. The capitalLzation scheme would be com-plemented by resolution of the present legal impasse delaying the separationof viable productive firms from nonviable firms indebted with the financialsystem.

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6.17 It is assumed that the excessively high import elasticity of the70s could not hold in the 80s because of the exchange rate policy, depressedincome levels and limited prospects for foreign capital inflows. Even so,the Government's commitment to an open-trade economy implies, in the longterm, an increasing importance of foreign transactions. Thus, the long-termelasticities are similar to those in the 1977-1980 period, when the economywas closer to what-may be regarded its true import-equilibrium values. It isfurther assumed that substitution in energy inputs would start with the ex-pansion of the coal mines in Magallanes and the use of coal instead of oil inelectricity production, reducing the country's dependence on imported oil.The effect of this conversion is not expected until after 1986.

6.18 Chilean exports remain strongly tied to the prospects of primaryand resource-based manu actured exports. In resjponse to the current debtcrisis in Latin America, the destination of Chi ean exports has shifted fromLatin America to the United States. It is assumed that Chilean exports con-tinue diversification away from Latin America until 1986, returning thereaf-ter to these markets as the economic situation of the region improves.

Table VI.1: CHILE - DIRECTION OF TRADE, 1981-1983

(Percentages of Total Merchandise Exports)

1981 1982 1983

United States 15 21 29European Economic Community 31 32 32Japan 11 12 9

Subtotal 57 65 70

Latin America 22 19 12Other 21 16 18


Base Case Specific Asumptions

6.19 In the base case projection, it was assumed that the US economywould grow at a three percent rate in 1984-1985 and that the rest of the OECDeconomies would start growing at a three percent rate in 1985-1987. Thereaf-ter (1988-1990), the rate of growth was reduced to a two percent average, butit is assumed that Latin American countries resumed growth, thus providingChilean exports with a recovering market for the rest of the 80s.

6.20 To consider the effect of slower or higher international economicgrowth, three demand scenarios were developed on the basis of different eco-nomic outlooks for OECD countries and their effect on their demand forChilean exports, primarily copper. Based on these scenarios, long-term worldcopper demand is estimated to increase between 1.6 to 2.5 percent per yearBut, even in the high case, copper consumption growth rates are projected tobe below pre-1974 levels (4.1 percent per year for industr'alized countriesand 7.3 percent for developing countries form 1960 to 1974) reflecting thecurrent competition that copper faces from substitutes.

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Table VI.2: CHILE - ESTIMATE OF FUTURE WORLD COPPER DEMAND

Copper Demand Annual Average Growth Rate('000 tons) (Z)

Scenario 1980 1985 1990 1980-85 1985-90

Low Case -

IndustrializedCountries 6,110 6,260 6,740 0.5 1.5

DevelopingCountries 1,220 1,280 1,410 1.0 2.0

Total 7,330 7,540 8,150 0.6 1.6

Medium CaseIndustrializedCountries 6,110 6,360 6,990 0.8 1.9

DevelopingCountries 1,220 1,320 1,520 1.6 2.8

Total 7,330 7,680 8,510 1.0 2.1

High CaseIndustrialized

Countries 6,110 6,420 7,190 1.1 2.3DevelopingCountries 1,220 1,370 1,620 2.3 3.5

Total 7,330 7,790 8,810 1.2 2.5


6.21 Historically, copper prices have moved in six-year cycles in linewith underlying demand conditions, reflecting the international businesscycle. In 1982, LME copper prices averaged US$0.67/lb. - their lowest levelin real terms since the 1930s. Although prices improved somewhat in 1983,the first semester improvement was largely offset by lower demand conditionsin the last half of the year. The 1983 average price of US$0.72/lb. re-flected the imbalance between demand and supply resulting from excessstocks. During the first half of 1984, this imbalance depressed prices evenfurther, to US$0.64/lb. Thus, in projecting Chile's export earnings fromcopper, it was assumed that 1984 represented the low part of the cycle andthat prices would increase at a moderate pace until 1990 to later decreaseagain at a moderate rate.

Table VI.3: CHILE - LME COPPER PRICE PROJECTIONS, 1984-1990

(US Cents/lb. in Current Prices)

1983 1984 1985 1986 1987 1988 1989 1990

Low Demand 72 68 70 85 90 95 90 90Base Case 72 68 72 85 91 1.05 1.10 1.10High Demand 72 68 85 110 120 130 140 140


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6.22 The major assumptions underlying the composition of Chile's borrow-ing needs come from the recent renegotiation of the country's external debtwhich established a program of amortization and interest payments for the1984-1990 period. The resulting pattern is shown in Table VI.4. Of course,interest payments will be affected by changes in either the US prime rate orLondon's LIBOR sinc.over 70 percent of Chile's external debt carries adjust-able interest rate provisions. A one percent increase (or decrease) wouldrepresent an annual increase (or decrease) of about US$150 million in inter-est payments.

Table VI.4: CHILE - EXTERM.AL DEBT - SCHEDULE OF PAYMENTS AS OFDECEMBER 31, 1983


1984 1985 1986 1987 1988 1989 1990

AmortizationsPublic Sector 287.7 630.9 890.6 991.6 1,501.0 1,389.9 1,093.2Private Sector 384.7 1,599.3 1,795.0 1,506.4 1,592.9 1,078.0 777.5

Interest PaymentsPublic Sector 718.1 758.5 704.6 631.9 516.9 356.4 201.6Private Sector 1,084.7 1,008.5 832.3 670.4 498.4 342.7 231.1

Source: Tables 4.3 and 4.4 Statistical Appendix

;.csoecono dc Projections

6.23 The base case solution projects a yearly average of three percentrate of growth in GDP. It is difficult to predict investment ratios inChile, and the projections were made on the basis of an assumed incrementalcapital to output ratio (ICOR) which rises steadily from 1.8 in 1984 (becauseidle industrial capacity existed.in 1983), to 3.0 by 1990. Public consump-tion is assumed to grow at an average real -ate of 2.7 per year and privateconsumption and domestic savings are calculated as residuals. The manufac-turing and commerce sectors are the growth leaders that permit the three per-cent increase in GDP during the 1984-1990 period. The results of the projec-tion are summarized in Table VI.5 below.

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Table VI.5: CHILE - PROJECTED NATIONAL ACCOUNTS VARIABLES

Annual AverageAnnual Average Per Capita GrowthGrowth Rates (X) Ratio to GDP Rate (X)

1983-1990 1983 1990 1983-1990

Agriculture 3.4 9.4 9.0 -Manufacturing 4.0 20.8 20.0 -Mining 2.7 8.6 8.0 -

Other 3.4 61.2 63.0 -

Gross Domestic Product 3.4 100.0 100.0 1.8

Consumption 2.5 85.0 78.0 0.9Investment 11.0 9.0 14.0 12.3Exports 5.0 29.0 32.0 -Imports 4.4 23.0 24.0 -

Gross Domestic Savings 11.0 11.0 16.0 15.0


6.24 Agricultural growth is expected to be over three percent per year.The rate seems feasible given the potential for increase in production ofcereals, fruits and in forestry products. Mining output is projected to in-crease 2.7 percent per year, a rate consistent with the sector's dependenceon exports of copper for expansi.on in production. Manufacturing output isexpected to increase 4.0 percent per year. Initially this is possible by therecovery from the 1981-1983 depression; later, growth should come partly fromincreased production of import-substitution industries, but mainly from in-creased production of export-oriented firms.

6.25 In order to achieve three percent growth and satisfy the needs forinvestment and interest payments abroad, Gross Domestic Savings would have torise from 11 percent of GDP in 1983 to 16 percent in 1990. Investment, inturn, would have to increase from 9.0 percent of GDP in 1983 to 14.0 percentin 1990. Both savings and investment requirements require a significant ef-fort; both - and exports - are the key to Chile's long-term viability witha five percent rate of growth.

6.26 In the base case projections, merchandise exports are projected togrow at 11.0 percent yearly in current US dollars during the 1983-1990period; 5.0 percent yearly in real terms. Growth of non-copper exports con-stitute the most dynamic element in this projection. Agricultural exports,which achieved an annual average real growth rate of 36 percent in Chile'sprevious economic recovery, are now predicted to grow 8.4 percent per year inreal terms. Manufactured exports, which reached a 44 percent rate of growthfrom 1973 to 1977, are projected to increase at an average yearly rate ofseven percent in real terms. Finally, mining exports (Chile's largest ex-ports) grow at an annual real rate of 2.4 percent in the period.

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$.27 Besides interest rates, che major determinant of the country's ex-ternal position will continue to be changes in copper earnings. Increases incopper exports are projected at an annual average real rate of growth ofthree percent. 1/ In 1982/1983 the large copper mines were operating atfull capacity and it would be optimistic to expect more than two percent realexpansion in 1984 and 1985. As new investments take place, exports are pro-jected to increase at a faster four percent real rate from 1986 until 1988.Copper export earnings are projected to decline from 44 percent of total ex-port earnings in 1983 to 40 percent in 1990. Even so, the percentage illus-trates Chile's balance of payments vulnerability to shifts in ene interna-tional demand for copper.

6.28 Imports of consumer goods declined dramatically during 1981-1983.They must rise again as the country starts its recovery. Still they are ex-pected to rise slowly, since private consumption is expected to increaseslowly too. Their average elasticity is assumed around a 1.0 level. It wasestimated that the current exchange rate policy would encourage - over time- production of Import substitutes in the country. Thus, the elasticity forimports of raw materials and intermediate goods with respect to industrialoutput is gradually reduced from 1.7 to 1.1 by 1990. Finally, the projectionof petroleum imports takes account of the anticipated new developments ofdomestic oil and gas reserves, and the expected conversion of some existingpower plants from oil to domestic coal. The demand elasticity for imports-relative to GDP derived from these assumptions averages 1.1 for the wholeperiod.

6.29 Import and export assumptions, and the assumptions noted earlier onnet factor payments abroad (mostly interest on the external debt) result inthe current account balance shown below.

Table VI.6: CHILE - PROJECTED CURRENT P.CCOUNT BALANCE, 1984-1990


1984 1985 1988 1990

Resource Balance 437.0 160.0 907.0 1,653.0Interest Payments -1,882.0 -1,950.0 -2,779.0 -3,254.0Current Balance -1,583.0 -1,737,0 -1,808.0 -1,529.8(Percent of GDP) -7.0 -6.0 -4.0 -3.0Interest Payments/Exports (Percent) 46.0 47.0 44.0 41.0

Source: Mission projections

6.30 The resource balance remains positive for all the period, but in-terest payments will keep the current account in a deficit which increasesslowly until 1990. The ratio of the current account deficit to GDP fallsgradually from seven percent in 1984 to three percent by 1990.

1/ This projection implies that Chilean copper exports increase their worldmarket share, albeit at a slow rate.

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6.31 As mentioned before (para. 5.25) the response of direct foreign in-vestors to the liberalized investment legislation was disappointing. Directforeign investment is not expected to be a large source of inflows of foreignresources. A methanol project to exploit Chile's gas reserves in theMagallanes region could lead to an inflow of US$500 million. Additional cop-per mining ventures,could result in a capital inflow of approximately US$850million in the period. If world demand for Chile's manufactured goods risesas expected, another US$500 million could be expected in the industrial sec-tor. The current projections assume net direct investment flows of US$150million per year during 1984-1986, increasing thereafter to US$200 millionper year.

6.32 Projected amortizations include both payments as established inTable VI.4 above and amortizations on new debt from official organizationsand commercial banks. It is estimated that Chile would obtain betweenUS$250-300 million per year net infl6ws from official institutions and thatcommercial banks would be willing to increase their exposure. The projectedpattern to finance Chile's three percent real growth is shown below alongwith the potential gross disbursement required to finance it.

Table VI.7: CHILE - PROJECTED CAPITAL FLOWS AND FINANCIAL REQUIREMENTS,1984-1990


1984 1985 1986 1987 1988 1989 1990

Total Requirements 2,043 3,967 4,699 4,394 4,972 4,982 5,110

Financing:

IMF 238 0 0 0 0 0 0Official Sources 300 257 303 349 407 448 469Commercial Banksand Suppliers: 953 3,410 4,046 3,645 4,165 4,134 4,191of which netincrease 780 1,100 1,231 1,000 1,073 749 546

Foreign Investment 150 150 200 200 2 200 200Short Term 150 150 150 200 200 200 250

M&LT External Debt/GDP (Percentage) 72 69 6E 63 60 57 54


6.33 This result stresses the need for continuous capital inflows tofinance Chile's current account deficit. Despite the high rate of gross bor-rowing, Chile's geaeral debt picture is expected to improve. The ratio oftotal foreign debt to GDP decreases from 80 percent in 1983 to 52 percent by1990. The interest to exports ratio also improves. After reaching 44 per-cent in 1984 it falls to 31 percent by 1990. If, through careful managementof its external debt Chile assures the necessary financing for its growth,then its foreign trade position will continue to improve. However, given the

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assumptions on export growth, Chile does not have much room for maneuver, andany major setback on the international demand for its products could only bedealt with a slower growth of GDP.

Alternatives

6.34 The sensitivity of the base case projection was Lested for changesin exports, especially in copper, due to lower rates of growth in the OECDcountries. 2/ The deterioration or improvement in Chile's current accountdeficit and financing requirements derived from these changes is presented inTable VI.8.

Table VI.8: CHILE - SENSITIVITY ANALYSIS FOR HIGHER AND LOWER OECD GROWTH

(Period Averages)

1984-1986 1987-1990 1983-1990

Low OECD Demand

GDP Growth (Percentages) 2.1 1.8 1.9Current Account Deficit -2,303 -2,610 -2,470Interest Payments/Exports (X) 44 45 44.5

High OECD Demand

GDP Growth 5.0 6.1 5.8Current Account (Mil. US$) -968 -187 -581Interest Payments/Exports (%) 38.0 27.0 33.0


6.35 Both scenarios reflect the impact of external demand (and copperprices) on Chile's prospects. If copper prices fall, Chile would find it im-possible to finance a three percent rate of growth given its payments abroadand the difficulty to finance the net financial requirements from commercialbanks. On the other hand, the high demand scenario would permit Chile a sixpercent rate of growth or alternatively a strong reduction in its externaldebt with all the benefits that such a reduction could bring in the 1990s.

loIer Debt Scenario

6.36 To evaluate the impact that the non-guaranteed private externaldebt payments have on Chile's growth prospects, a scenario was projected mod-ifying the base case with the assumption that the non-negotiated portion of

2/ Copper prices were those presented in Table VI.3 for low and highdemand.

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the private sector's external debt 3/ was absorbed by foreign creditorseither through equity conversion or through negotiated write-offs. Thereduction in interest and amortization payments is shown In Table VI.9.

Table VI.9: CHILE - LOW DEBT SCENARIO - PAYMENTS REDUCTION FROM 1985 TO 1990


1985 1986 1987 1988 1989 1990

Interest Payments, Private Debt 1,008 832 670 498 343 231

Amortizations, Private Debt 1,599 1,795 1,327 1,277 363 61

Source: Mission estimates and Table VI.4

6.37 Foreign trade indicators improve dramatically under this scenario.The current account registers a surplus in 1989 and 1990, a reflection ofChile's improved financial situation. Moreover, the country would be able toreduce the level of Chile's external debt. Finally, the debt service ratiowould improve falling from a 61 percent ratio in 1984 to 33 percent in 1985,remaining around that level for the rest of the decade. This, of course, isan extreme projection; any debt renegotiation would be a partial one, as thevariance between this and other base projections would be Less pronounced.

Table VI.10: CHILE - CURRENT ACCOUNT BALANCE AND DEBT SERVICE RATIO UNDERA LOW DEBT SCENARIO, 1984-1990


c_ c/1984-1986 1987-1990

Current Account a/ -705 58

Debt Service Ratio b/ 34 31

Interest Payments/Exports (Percentage) 27 13

a/ In millions of US dollars.b/ Amortizations and interest payments/total goods exports.ci Period's average.


High InfUtiora Scenario

6.38 It was suggested to the mission that Chile's internal financialdisarray could be resolved through a combination of a strong monetary expan-sion and a stiff control on the interest rates paid to depositors. Such acombination would produce a high Inflation rate and negative real interestrates, wiping out, in effect, the corporate flnancial burden and recapitallz-ing the financial system. Besides the reasons given in para. 5.34, a projec-tion where this hypothesis was tested suggests why such a solution would bedisastrous for the country's long-run growth prospects.

3/ The 1983/1984 renegotiation scheme was taken as a fact. Thus, the newscenerio relates only to the 1985-1991 amortization and interest paymentson Chile's private external debt.

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6.39 A 50 percent inflation rate in 1984 is initially assumed. Giventhe Chilean experience, this initial "low' inflation could easily revive in-flationary expectations, pushing the 1985 rate to 100 percent. With in-creased demand and firms free of their debt burden, GD? rates of growth mightincrease in 1984 and 1985 to six and eight percent, respectively. However,price distortions_and negative interest rates would favor consumption, de-creasing savings and the expected surplus in the nation's resource balance.Since Chile would have to keep payments on its external debt, the current ac-count deficit would rise in 1985 from around US$1.7 billion in the base caseto at least US$2.3 billion in this scenario, triggering a balance of paymentscrisis. Thus, in 1986 the Government would have to follow another severe ad-justment program to reduce th current account deficit to some US$1.0 billionand start a gradual decline in the inflation rate towards a 30 percent goalin 1990.

6.40 Such an adjustment process would have costly consequences in termsof long-term growth. To achieve the sharp reduction in the current accountdeficit the country might have to sustain three years of negative GDP growthrates followed by another year of only 1.8 percent growth, ending the projec-tion period with a 3.5 percent of growth in 1990. Therefore, although ini-tially projected GDP rates of growth in 1984-1985 might seem to justify this"solution" to the national debt crisis, ultimately it reduces the averagegrowth of GDP from 3.4 percent in the base case to 1.4 percent with a deteri-orating debt service ratio.

Table VI.11: CHILE - HIGH INFLATION SCENARIO RESULTS, 1984-1990


1984 1987 1990

Current Account Deficit a/ -1,583 -700 100Medium- & Long-Term Debt a/ 16,300 17,741 16,330

GDP Growth (%) b/ - - 1.2 1.5Debt Service Ratio c/ 49 64 60

a! In millions of US dollars.b/ Averages for three year periods.c/ Amortization and interest payments as percentage of total exports.


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TE CENTRAL NM ASSISTANc PROGRMS

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:En hO&IN, AM SC=t= IN TRANSITION

AM=

THE cWRAL BM ASSISTANCE PROGRAMS

The Central Bank of Chile established in 1983 a series of creditlines in order to increase the liquidity of the financial system and re-acti-vate the economy. The following is the list of the different programs andtheir main characteristics:

a. Complementary Yinancing for the Acquisltion of FlJlsbed Housing(Dated April 6, 1983)

Objective: To promote sale of available stock of finished housing(14,000 units of houses and apartments and 2,700 shops and offices by April1983).

Terms and conditions: Down payment - 25 percent of value of pro-perty. Balance - 0 years UF mortgage bond at eight percent interest.

b. Rescbeduling of Debt (Dated April 12, 1983)

Objective: Provide financial, relief to borrowers and corporationsof the productive sector.

Loans due to banks were rescheduled for ten years at seven percentreal annual rate of interest. Filnancing was done by Central Bank while Banksand Finance Companies rescheduled loans of their customers. Borrowers bave aright to reschedule loans 30 percent of their outstanding debt up to 16,700UF. Total resources made available by the Central Bank for this program:117 million UF.

Terms and conditions: First five years - no payment of principalamount. i'lrst year no Interest payment. Real interest rate - seven per-cent. Availability - up to September 30, 1983.

c. Rescheduling of Mortgage Loans (Dated June 26, 1983)

Objectives: Provide relief to anyone holding a mortgage and assistin keeping their properties. Lines of credit made available to financialinstitutions to grant longer-term credit to borrowers through mortgage bondsprior to March 1, 1983.

Terms and conditions

- Loans were extended for repayment of overdue principal and inter-est with maturity between May 31, 1983 and July 1, 1983.

- Thirty percent of the principal and interest on loans whose ori-ginal maturity was between July 1984 and June 1985.

- Twenty percent of the principal and interest on loans whoseoriginal maturity was between July 1985 and June 1986.

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- Ten percent of the principal and interest on loans whose originalmaturity was between July 1986 and June 1987.

- Loans were UF linked, at eight percent real annual interestrate.

- Eligibility - until November 1, 1983.

d. Purchase of Mortgage Bonds (October 25, 1983)

Objective: To activate the mortgage bonds market. These bonds areissued for purc of second-hand housing. The system complements the for-mer two systems.

Bonds were purchased by the Central Bank. Total amount earmarked -three million UF eight to 15 years term at eight percent real interest.

e. TLIne of Credit to Finance Uorking Capital (July 20, 1983)

Objective: Improve liquidity of companies involved in productionand trade. Lines of credit were provided by the Central Bank to the finan-cial institutions to discount commercial paper and lend to eligible borrowersat four percent real annual interest, or at a monthly rate of interest equalto the weighted average Bank deposit rate for 30 to 89 days, for non-linkedborrowing.

f. Credit Line to Finance Companies' Payrolls (August 18, 1983)

Objectives: Provide funds to labor-intensive companies in order toenable wage payments. The Central Bank financed loans to productive or trad-ing companies to finance their payrolls.

Maximum monthly financing - ten percent of payroll in the previousmonth limited to an amount equal to ten percent of the sum of a three monthpayroll.

Terms and conditions: Five percent index-linked loans for 12months. Available until October 31, 1983.

g. Credit ILies to Additional Employment (August 18, 1983)

Objective: To facilitate new hiring and create more jobs. Linesmade availab'le to corporations to help finance new hiring. Maximum amount -40 percent of the increment payroll or 5,000 pesos per new job, whichever waslarger.

Terms and conditions: Five percent index linked loans for sixmonths - extendable to 24 months if the new workers are continued to be em-ployed by borrowers. Available between September 1, 1983 and December 31,1984.

- 82 -

h. Credit Lines for Construction, Nev Housing Starts and Engineering Works(August 24, 1983)

Objective: Provide financing for construction of low-cost housingand related infrastructure. The Central Bank refinanced loans granted byfinancial ins;situtions with a unit value of no more than 250 UF, and execu-tion of new engineering works for a value less than 20,000 UF.

Terms and conditions: Bridge-financing loans at eight percent for12 months in loans taken prior to December 31, 1983.

i. Credit Llnes for Reforestation for the 1983/84 Season

Objectives: Finance cost of reforestation or new plantation offorests. Loans up to 600,000 UF were financed until the borrowers receivethe Forestry Bonus established in Decree Law 701.

Terms and conditions: Limits will be determined according to thespecific project. Loans are at eight percent per annum, index linked for sixyears with 18 to 24 months grace period. Loans can be obtained until June30, 1984.

J. Purchase of Bonds Issued by Banks

Objective: Provide medium- and long-term financial resources tobanks and finance companies in order that they may reschedule loans grantedto these borrowers for amounts up to 27,000 UF. The Central Bank purchasedbonds issued by banks and finance companies for a total amount of 21.4 bil-lion pesos during the period of October 1982-December 1983. The bonds wereissued with a maturity of seven years, with two years grace period, accruingeight percent interest per annum. The Central Bank purchased the bonds atpar value starting May 1983. Payments were made in promissory notes with 30months maturity and eight percent index linked rates. This program ended inDecember 1983.

k. Guaranteed Pund for S=all Business

Objectives: Finance investment projects, provide necessary fundsfor financial operations. (Funds may not ba used to pay up debt). Access tothe fund was restricted to non-agricultural business with fixed assets ofless than 2,500 UF and agricultural business with fixed assets of less than3,250 UF.

The fund provided up to 900 UF or up to 70 percent of the new debtrequired by borrowers. The loans were denominated in Ur up to five years at13 percent annual interest.

- 83

1. New Measures for 1984 (approved on December 16, 1983)

1. The Central Bank will purchase the portfolio of loans in arrearsaccumulated prior to December 1982, with a limit of 1.5 times the Capital andReserves of the banks.

2. The program is voluntary. Intervened banks which have been in-tervened are not eligible until their reorganization is complete.

3. Financial resources obtained by the banks through the sale ofthe loans in arrears to the Central Bank should be utilized and the emergencyloans obtained from the Central Bank and the balance must be invested inpromissory notes issued by the Central Bank. These will be 48-months notesand interest and principal will be paid quarterly.

4. The banks will continue to administer the loans in arrears onbehalf of the Central Bank and will inform the Bank about any development ofthe debtors' financial situation.

5. The banks are not allowed to pay any dividends to their share-holders until such time that the entire amount of loan instruments sold tothe Central Bank through the new program is paid back in full. These instru-ments are index-linked and carry a real rate of interest of five percent an-nually.

6. Holders of new shares that will be issued by any of the banks inorder to obtain new equity capital will be exempted from the restriction in(5), and the banks are allowed to pay dividends to such shareholders.

- 84 -

C C;

STATISTICA APPENDIX

- 85 -

TATISIAL APP IX

Table of Contents

Table No. Page No.

Standard Table 1: Gross Domestic Product by Expenditure, 1978-1983 88

Standard Table 2: Gross Domestic Product by Expenditure, 1978-1983 89

Standard Table 3: Balance of Payments, 1975-1983 .......... 0...... 90

I. HUMAN RESOURCES, LABOR STATISTICS

1.1 Total Population and Demographic Indicators.. ................ 911.2 Total Population Projections by Age and Sex .................. 921.3 Population and Labor Statistics, 1977-83............. o ........ 931.4 Labor Statistics, 1977-82 ... o....... .-................... 941.5 PEM and POJH Participants ...... ......................... 95

IL NATIONAL ACCOUNTS

2.1 GDP by Industrial Origin, 1970-1982 ....... o.............. 962.2 Gross Domestic Product by Industrial Origin, 1970-1983....... .972.3 Shares of GDP by Industrial Origin, 1970-1983.................. 982.4 GDP by Industrial Origin, Real Growth Rates, 1970-1983 ....... 992.5 GDP by Industrial Origin, Deflators, 1970-1982 ................ 1002.6 Gross Domestic Product by Expenditure, 1970-1983.............. . 1012.7 GDP by Expenditure, 1970-1983.. . .............................. 1022.8 Shares of GDP, Expenditure Components, 1970-1983............. 1032.9 GDP by Expenditure, Growth Rates, 1370-1983.......*.** ...... 1042.10 GDP by Expenditure, Deflators (1977-100), 1970-1983 .......o ... 1052.11. Savings and Investment, 1977-83 ......................... ...... 1062.12 Savings and Investment, 1977-83 .............................. 107

III. BALANCE OF PAYMENTS

3.1 Balance of Payments, 1975-83 .............. . . .. ........ .... 1083.2 Exports of Merchandise, 1971-1983 ............................ 1093.3 Imports of Merchandise, 1971-83 .............. ................. 1103.4 Destination of Exports .... ................................ 1113.5 Import and Export Quantum and Price Indexes .................. 1123.6 Agricultural Trade Balance, 1977-1983..... ................... 113

IV. EXTERNAL DEBT

4.1 External Debt Evolution, 1975-83............................. 1144.2 External Debt with Maturity over One Year, 1970-83... ........ 1154.3 Projected External Debt Amortizations after Rescheduling,

1983-1992 .......... ................................... 1164.4 Projected External Debt Interest Schedule after Rescheduling,

1931 992. ..................... o..... 1174.5 Service Payments, Commitments, Disbursements and Outstanding

Amounts of External Public Debt............................ 118

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Table No. Page No.

V. PUBLIC FINANCE

5.1 Summary Ope_tions of the Consolidated Public Sector,1977-1983 .................................................. 119

5.2 Summary Operations of the General Government, 1977-83 ....... .1205.3 Government Revenues and Expenditures, 1978-82 ................ 1215.4 Public Sector Accounts, 1977.................s 1225.5 Public Sector Accounts, 1978 ........................s......... 1235.6 Public Sector Accounts, 1979 ........ ... .......... 1245.7 Public Sector Accounts, 1980 ................................. 1255.8 Public Sector Accounts, 1981 ................ ........ 1265.9 Public Sector Accounts, 1982 ...... . ............ 0 1275.10 Public Sector Accounts, 1983 ................... ** ...........0 1285.11 Public Sector kccounts, Budget, 1984 ......................... 129

VI. MONETARY STATISTICS

6.1 Monetary Statistics, 1970-1993 ............................... 1306.2 Summary Accounts of the Banking System ....................... 1326.3 Gross and Net Interest Spread on Short-Term Operations of

Commercial Banks and Financial Corporations ................ 1336.4 Legal Reserve Requirements of Financial System ............... 1346.5 Net International Reserves of the Banking System .............. 135

VII. PRICES

7 1 Consumer Price Index, 1975-839 .................. , ............. 1367.2 Wholesale Price Index, 1974-83............................... 1377.3 Index of Wages and Salaries,'1974-83......................... 1387. 4 Exchange Rate, 1928 9.....8..... -...... 8 3... 139

VIII. PRODUCTION ACCOUNTS

8.1 Index of Industrial Credit ................................... 1408.2 Index of Industrial Sales&..................................... 1418.3 Principal Agricultural Production: Sowings or Sown Area,

1979-84.., ....w..**,, , ......... 1428.4 Principal Agricultural Production: Harvest ............. ..... 1438.5 Livestock, Poultry and Dairy Production, 1978-83 ............. 1448.6 Forestry Planting, 1965-82...*.... ....... *. *.. 1458.7 Fruit Trees, Planted Area..... ............... *............ 1468.8 Yearly Area of Forestry Planting, Country Totals ............. 1478.9 Commercial Copper Production by Products and Price ........... 148

- 87 -

STANDARD TABLES

- 88 -

Sandard 7Wb1e 1: MSS MlTc RLTr EM ME, 1978-1983

(JLLlcx of fsos)

1978 1979 198D L981 1982 1983/a

Gross Dnestic Product 487,506.4 772,200.2 1,075,268.8 1,288,90L7 1,228,700.3 1,546,174.0

1esource GOp (H-1) 16,302.1 21,862.6 44,712.3 129,624.3 20,694.9 -40,902.0Imports (G + N.F.S.) 116,653.9 2C1,604.6 290,099.4 349,744.2 288,252.4 366,657.0Ehports (G + N.F.S.) 100,351.8 179,742.0 245,387.1 220,119.9 267,557.5 407,559.0

Total ETpenditim 503,808.5 794,062.8 1,119,981.1 1,418,526.0 1,249,395.2 1,505,272.0

Corzsunpticm 416,973.8 656,687.2 894,357.8 1,151,486.4 1,127,688.3 1,345,551.0GCeral goverxu i 70,346.6 110,394.8 133,886.2 163,145.7 182,517.8 209,18O.0Private 346,627.2 546,292.4 760,471.6 9W8,340.7 945,170.5 1,136,367.0

Investment 86,834.6 137,375.6 225,623.3 267,039.6 121,706.9 159,721.0F1.iwd bnvesomt 71,593.8 115,015.6 178,944.2 238,730.2 169,984.7 172,425.0awges in stocks 15,240.8 22,360.0 46,679.1 28,309.4 -48,277.8 -12,704.0

bmestlc Sffing 70,532.5 115,513.0 180,911.0 137,415.3 101,012.0 200,623.0Net factwr iume -13,343.0 -24,709.5 -36,266.1 -55,707.6 -105,587.3 -128,704.0Qrrent transfers 4,208.7 5,245.7 4,426.5 3,900.0 5,091.0 7,56O.0

!btiosal Savig 61,398.2 96,049.2 149,07L4 85,607.7 515.7 79,479.0

Average bdiange RatesTlocal rrnency ;er U.S.$/b 31,6M0.0 37,25C0. 39,000.0 39,000.0 50,909.0 78,788.0Tlcal currency per SIR/b 39,633.1 48,121.6 50,758.5 45,988.8 56,204.0 84,282.1

Ia Pelrdnary estimtes.

/b D te3

Sore: 3N esOmes.

- 89 -

Starxad Mae 2: 6S EIXESrlC FEU= BY EMEMEIIE, 1978-83

(Millions Of 1980 U.S.$)

1978 1979 1980 198L 1982 1983

Ckss Dst- Product 23,624.1 25,580.5 27,57L0 29,147.8 24,969.7 24,461.6

Tazim of 7kade EEfect -428.8 80.9 - -589.5 -1,297.1 -1,411.0

Gk8ss Dbistlc 23,195.3 25,661.5 27,57L0 28,558.3 23,672.6 23,050.6

Resurce Gap 713.8 679.4 1,146.5 3,162.2 411_0 -502.4rzp8ots (G+N.F.S.) 5,107.8 6,265.3 7,438.4 8,531.9 5,724.1 4,915.8O"IcitY to import 4,394.0 5,585.9 6,292.0 5,369.8 5,313.1 5,418.2

Eports (G + N.F.S.) 4,822.8 5,504.9 6,292.0 5,959.3 6,610.2 6,829.2

btAl l;hqire 23,909.1 26,340.9 28,717.5 31,720.5 24,083.5 22,548.2

OxuamptxLm 20,494.7 21,931.7 22,932.3 25,604.9 21,969.5 20,713.51ra1 goverient 3,422.3 3,735.5 3,433.0 3,442.8 3,175.6 3,17.8Private 17,072.5 18,196.2 19,499.3 22,162.1 18,793.9 17,54L7

Tnvestmeit 3,414.3 4,409.2 5,785.2 6,115.5 2,114.0 1,834.7d investment 3,221.5 3,764.3 4,588.3 5,263.8 3,310.1 2,936.8

umes In stocks 192.8 644.9 1,196.9 85L7 -1,196.1 -1,102.1

:stk Swv1zg 2,700.5 3,729.8 4,638.7 2,953.3 1,703.0 2,337.1Net factor mx -633.2 -819.7 -929.9 -1,245.7 -2,035.3 -3,815.0

-trent transfers 112.9 1085 59.9 39.1 44.4 195.0

lhti1oau Saving 2,180.2 3,018.6 3,768.7 1,746.7 -287.9 -1,282.9

Orreoq35 Defnw, 1978-100Gross dostic prodtc 52.9 77.4 100.0 113.4 126.2 159.4Imorts (G + N.F.S.) 58.6 82.5 100.0 105.1 129.1 173.9

Epxwts (G+ ..F.S.) 53.3 83.7 100.0 94.7 .03.8 138.9Total exllitur 54.0 77.3 100.0 114.7 L33.0 170.7(berzmt cozip 52.7 75.8 100.0 121.5 147.4 183.0PrLIate axmptlan 52.1 77.0 100.0 114.4 29.0 166.3FTm Iwiestit 57.0 78.3 100.0 116.3 131.7 151.4

Changes In stocks 65.2 80.0 100.0 112.0 147.6 164.0

locingeR ate lex-J.S. C1S/Loa Qzrrmy 12.3 10.5 100.0 100.0 76.6 49.5

Source: ITf estimtes.

- 90 -

Standard Table 3: BALANCE OF PAYHENMS, 1975-83

(Millions of U.S.$)

1975 1976 1977 1978 1979 1980 1981 1982 1983

Exports (G and N.F.S.) 1,838.2 2,412.9 2,601.2 2,940.9 4,620.2 5,967.5 5,505.5 5,026.6 4,699.0Merchandise (f.o.b.) 1,590.5 2,116.2 2,185.6 2,460.2 3,834.7 4,705.0 3,959.6 3,797.8 3,855.0Non-factor services 247.7 296.7 415.6 480.8 785.5 1,262.5 1,545.9 1,228.8 844.0

Imports (G and N.F.S.) 2,049.5 1,980.0 2,870.9 3,622.0 5,217.1 7,023.1 8,872.0 5,345.6 4,235.0Merchandise (f.o.b.) 1,520.1 1,473.2 2,150.6 2,885.9 4,190.0 5,469.0 6,558.5 3,580.3 2,882.0Non-factor services 529.4 506.8 720.4 736.2 1,027.1 1,554.0 2,313.5 1,765.3 1,353.0

Resource Balance -211.3 432.9 -269.7 -681.1 -596.9 -1,055.5 -3,366.5 -319.1 464.0

Net Factor Income -291.4 -333.7 -379.4 -505.8 -696.4 -1,028.2 -1,547.1 -2,162.8 -1,870.9Factor receipts 3.7 11.5 17.5 42.6 126.6 308.5 603.7 483.6 n.a.Factor payments 295.0 345.2 397.0 548.4 823.0 1,336.7 2,150.8 2,646.3 n.a.Medium and long-term

interest paid 195.4 252.0 263.5 383.5 582.5 918.5 1,423.1 1,945.7 1,395.0

Net Current Transfers 3.6 32.3 80.6 75.1 87.9 61.2 44.8 45.3 -96.6Transfer receipts 3.6 32.3 80.6 100.2 117.6 92.4 95.4 94.9Transfer payments - - - 25.0 29.7 31.2 50.7 49.7

Current Balance -497.8 131.6 -568.6 -1,112.9 -1,204.2 -2,023.9 -4,868.8 -2,436.6 -1,523.3

Medium and Long-termCapital Inflow

Direct Investment 49.8 -1.2 16.3 176.5 232.6 170.5 376.2 365.4 152.0

Official Grant Aid 8.5 16.2 16.3 22.5 16.8 53.4 55.4 55.2 57.0

Net Mediun and Long-termloans (IRS) 44.9 17.2 196.5 1,145.2 1,468.8 2,105.0 3,389.9 1,415.5 1,000.0

Disbursements 464.6 653.2 989.1 2,232.6 2,785.7 3,566.6 5,188.6 2,673.6 1,900.0Repayments 419.7 636.0 792.6 1,087.4 1,316.8 1,461.6 1,798.8 1,258.2 900.0

Other Medium and Long-term (Net) 77.8 34.8 -143.9 186.9 102.2 -3.1 -15.1 -10.0 n.a.

tNet Credit From DIF 207.6 82.0 -119.1 -42.6 -169.3 -52.1 -64.9 039.7 614.0Disbursements - - - - - - - -Repayments - - - - - - -

Net Short-term Capital 140.8 68.1 557.9 449.5 471.6 999.6 1,107.2 -619.3

Capital Flows NEI 4.9 -5.8 -43.3 -62.6 23.3 143.2 214.6 92.7 -299.7/a

Errors and Omissions -109.3 68.1 116.9 -125.3 -14.2 50.8 114.4 -57.4

Change in Net Reserves 72.8 -411.0 -28.0 -637.3 -927.7 1,443.4 -308.9 1,234.3

/a Includes errors and omissions, changes in reserves and short-term capital.

Source: MCF and mission estimates.

I. HIR REsOURcES, LABOK STATISTICS

- 91 -

Tble 1.1: TOTAL FOHIATW& AND MV0A= DUCAM

SpcifwLcation 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982/b 1983

Total PIPltio(thoLu nd) 9,860.6 10,026.1 10,196.4 10,371.9 10,550.9 10,732.9 10,917.5 11,104.3 11,294.1 11,275.4 11,682.3

Yale 4,886.2 4,967.3 5,051.0 5,137.5 5,225.8 5,315.8 5,407.0 5,499.3 5,593.1 5,521.0 5,784.9Femile 4,974.4 5,05L8 5,145.4 5,234.4 5,325.1 5,417.1 5,51L.S 5,605.0 5,701.0 5,754.4 5,897.42 urban 77.0 77.6 78.3 78.9 79.5 80.0 80.6 81.1 81.6 81.0 82.6z rural 23.0 22.4 21.7 21.1 20,5 2D.0 19.4 8L9 18.4 19.0 17.4Cuulatllie amul

grcwth rate/c 1.71 1.71 1.71 L71 .71 1.71 1.71 1.71 L71 1.58(*) 1.71

lbtal }bdtniL lon];r F'sion - 9,860.6 10,026.1 10,196.4 10,371.9 10,550.9 10,732.9 10,917.5 11,104.3 11,294.1 11,275.4 11,682.3(thm}nd

agkin I 201.7 208.0 211.1 216.6 222.1 227.8 233.5 239.6 245.5 273.4 257.4Reimon f 280.9 286.4 289.8 294.4 299.1 303.8 3D85 314.8 319.6 341.2 329.1Region III 169.7 174.4 179.7 183.4 187.2 191.0 194.8 198O 21.7 183.1 209.1Regiou IV 374.4 380.1 388.1 393.8 399.5 402 410.9 415.1 420.7 419.2 43L8Pnmgin V 1,089.0 1,105.4 1,125.0 1,145.9 1,167.0 1,188.3 1,2C9.7 1,230.5 1,251.9 1,2n4.7 1,224.8MetropoUtan PRgin 3,599.7 3,68L7 3,786.0 3,879.6 3,974.4 4,070.3 4,167.0 4,274.4 4,372.7 4,294.9 4,572.3lhgio VI 529.4 532.7 540.3 545.3 550.5 556.1 561.7 560.1 566.3 585.0 579.3Iegic VIE 665.5 671.0 674.3 680.3 686.6 693.1 699.9 704.9 712.2 723.2 727.5

legion VII! 1,362.6 2,377.2 1,385.2 1,401.7 1,41.9 1,436.6 1,454.9 1,476.4 1,496.1 1,516.6 1,537.5Regien IX 637.2 639.1 640.2 643.3 646.6 650.0 653.7 658.5 662.5 69.9 671.3Region X 796.3 106.9 819.1 827.3 835.8 844.7 8539 858.5 868.2 843.4 RM7egaixni 55.5 56.4 57.0 582 59.5 (0.7 62.1 64.8 66.2 65.5 69.1negion xm 98.7 99.8 100.6 102.1 103.7 105.3 106.9 108.7 110.5 132.3 114.4

/a Figume estiztud at Jue 30 of mch year bue d doeta from Dpzatlon oien for 1960 "nI 1970.ih Pre.Umny flgm fra the NlttIasl bpTuatim and )buiz Gem of April 21, 1982.re Figures calculated fran population itizmta de by DE for Jau 30, 1970 and Je 30, 1983n* 0-zlat±ve atuzl guwth rate baud an data from th 1970 and 1982 euin

Soure: Iaututo Nac1hdal de Estadlalcas (Pktioml StatiKic btitute).

- 92 -

Table 1.2 TOTAL POPULATION PROJECTIONS BY AGE AND SEX

(In thousands)

Calendar YearAge Group 1980 1985 1990 1995 2000

Males0--7 4643 707 720 710 6945- 9 591 638 703 717 707

10-14 600 589 636 701 71515-19 617 597 586 633 69820-24 557 612 593 583 63025-29 450 552 608 589 58030-34 402 446 548 603 58635-39 347 397 441 543 59940-44 281 341 392 436 53745-49 237 274 334 384 42850-54 218 228 265 323 37355-59 166 205 216 251 30860-64 135 151 188 198 23365-69 105 117 132 164 17570-74 75 83 93 106 13475+ 76 86 98 113 130

Total 5,499 6,024 6,551 7,056 7,528

Females3-= 4623 680 692 682 6665- 9 573 619 677 690 680

10-14 584 571 618 676 689.15-19 604 582 570 617 67520-24 549 601 580 568 61525-29 445 545 598 577 56630-34 408 442 542 595 57535-39 355 404 438 538 59140-44 290 350 400 434 53445-49 249 285 344 394 42950-54 234 242 278 337 38655-59 184 224 233 268 32660-64 157 172 211 221 25565-69 130 142 156 193 20270-74 98 109 120 133 166

75+ 124 134 149 167 189

Total 5,605 6,102 6,606 7,090 7,545

Total: Males + Females 11,104 12,126 13,157 14,145 15,073

Source: United Nations.

Table 1.3: W1EL - PORlkTION AND tAB1 SrAT CSr1(;, 197783

AuEI AwraF Aml Rates of GOnth1977 1978 1979 1983 1981 1982 1983 Qoth, 1977-8 1978 1979 1980 1981 1982 1983

Ibtal ls tion (mid-wyax) 10,550.9 10,732.9 10,917.5 11,104.3 11,294.1 11,487.4(*) 11,682.3 1.3 1.7 1.7 1.7 1.7 1.7 1.7

Wbridg mp pxlatlon 7,752.9/a 7,938.8/a 8,105.6/a 8,267.1/a 8,430.6/a 7,755.9/b 7,926.1/b 2 .1/c 1.0 1.0 2.0 2.0 n.a. 2.2

labor foim 3,199.5 3,469.0 3,477.4 3,635.5 3,687.9 3,503.6/b 3,687.6/b 1.8 8.4 0.2 4.6 1.4 n.a. 5.3

W%lqV 2,820.7 2,979.6 3,003.3 3,257.1 3,270.9 2,824.5 3,149.5 03 5.6 0.8 9.1 -0.1 -13.7 11.5Llkqm1oyed 378.8 489.4 474,1 378.4 417.0 679.1 538.1 12.4 29.2 -3.1 -24.0 15.7 62.9 -20.8

Pdl 179.6 124.2 152.2 207.2 173.4 322.6 274.9 12.4 -30.7 22.5 36.1 -16.3 86.0 -14.8Uneployed + RHX 5584 613.6 626.3 585.6 590.4 1,001.7 813.0 12.4 9.9 2.1 -9.4 4.0 69.7 -18.8

Labor fbrce particLiption 41.3 43.7 42.9 44.0 43.7 45.2 46.5

Iqh1oy ybrk al ulation 36.4 37.5 37.1 39.4 38.8 36.4 39.7

Rate of ur1clnymt 11,8 14.1 13.6 10.4 u.3 19,4 14.6

Pate of urmeoyod + PEM/labor force 17.5 17.7 18.0 16.1 16.0 28.6 22.1

/a bpilation 12 years ad mur./T Rjpozatian 15 earus d oaer./I Fbr the 1977-1981 period.

(*) Frelmnay m flgur.

Sowce: Ntiona1 kwtttute of tatlstica.

_ 94 _

MAIl 1- : Me - LAI SMIDS,. 197711

(7Duso )

A d _111W Anne v f Cn1977 1978 IS7 790 25E 11982 L§8/ GwCch, 1977- f2 978 197V 198D 1981 L1982 198

AQRIC:;tX AMD F195RUlabor Fan#e 556 569_0 5F.X7 557_3 5UI 527_1 514Z -47 3.3 -. 5 L.5 -2.7 -2.7 -Z. 5F-40en s71_1 MSQ 504-0 529.7 50L2 *L77_5 GOA -2.5 1.9 -51 5.1 -41 -6.0 I.&

p4RI Z9,t2%5 3tL2 39.7 27.6 33.9 *s.a 3ak.0 10.0 29_5 319 -30L5 22_8 *6.9 -39.tYsect Rote of nmir

set (:-) 5.4 6.7 7,3 5.0 6.3 9.4 5.8Seco Mwcnn wl

EdWt (:) l8.~~~15 17.B 16.t 16.3 1:5.5

lab Forc 82.2 ax& 8L4 M2 70.8 65_0 6IL2 -.53 L5 Q0 -3_8 -11_7 -,2 -1.2opacwu 75.0 74.2 75.9 71L8 63L3 54,.0 56.4 -7.2 -I.1 2. 3 -5. -:Lt8 -14.7 L.en>lqI..-n 7_2 9,2 7.5 8.4 7_5 11.0 7L8 9_0 Z7_8 -IB.5 1lZ0 -10. 467 -29.0

Se:tar NoceP ofUepy=M (:-) La lLI0 9.0 1GL5 10.6 16.9 1L2

ampl1qne CZ) _.7 L.5 L5 2L2 L9

LawFbre 522L8 557.5 56L9 59D. 51XI 509.2 41t1 -L>6 6.6 L.7 4-i -- 9 i9 -L7Expla.- 4~~~72-2 AOLI w96.1 51.- 51662 373L9 394.8 -- 5 2.9 Ll 5.6 -L-5 -27-6 5.6

a-u, 50L6 71_4 70Q 6L1 t- 9 1353 85.3 llL3 42-1 -&8 -&6 *.2 96.4 -36.9Socuor lace of tnmly

vuen ( -) 9.7 1.L8 32L5 IL2 1L8 26.6 17-8

Jmlcyen CZ) I6.7 16.3 26 5 16.1 is.8a

EWMZr=, CAS AND rAXlbor Fbre 34-2 34-0 2L.3 27-2 D9 9 27.7 D.O0 -3.1 O.G -1S.8 -3L9 9.9 -7-4 0-;ICYNn 3L2 2L2 26.0 D.5 26.7 2 -.6 23L1 -LA -1C9 -9.4 8& 9.0 -7.9 --&I

t cla- ZO0 5-3 Z.3 & 7 3 Z 3Ll 3.9 19.1 165L 0 EL.6 17.4 ILS5 -3-1 25.8crct iemf Uapy

t0 (Z_] 3.9 156 tLI 9.9 IS7 11-2 14.4- -ugr WDYNMTO21

nwoyem CZ) 1.1 L-0 0.9 L.8 L.8

la pbvoe 135. 2 64-0 177.3 JIBL2 22L 6 171 0 24L3 3.5 2.1 8.1 5-0 22.8 -25.2 -15.0BB1Y 99.3 IL" ULO 1ISL' 169.6 O8i1 9L- -4- 16.3 9.1 20.2 12.0 -50 7.5taple_o-c 36.1 48.5 5L.3 34-8 59.0 a69 54.9 17.4 34.4 5.8 -3ZL2 69.5 47.3 -36 8

__corw RsDrer of 1mp

ine t_}) 26.7 29-6 2t9 18.7 25.8 5L8 37.8

ZVI t CZ) 315 3L9 *.2 4.7 5.2

_Abor Pte406.5 559-.0 5M86 63L9 67L 8 597-8 60>9.1 3L1 1 39 4.4 9 4 6.0 -11.8 2 9D0-c *52.7 510.0 527-1 589.4 6ZL6 509.5 54.6 1L6 1L7 3L4 1L8 5.3 -1t.9 6.3tbel 5t 33L8 440 5L5 435 502 8L3 67.5 IIL0 31L2 17.1 -M55 15.4 639 -IL0

=cn (Z7 7.0 7.9 8L9 6L9 7.5 119 ilL

np- t t ) 16.1 17.1 I7.6 ILL1 N.0

DtrSF AND C201UAbor Fbce 189.7 230.0 223L6 23L6 23L 6 225.4 2201 7.2 21.2 -2L8 311 3L5 -5.5 -2L4

&pl0Y8 173L; 205*7 24L5 211Ll 217.1 N5.-1 187.7 (LO 184 -2.0 *.8 2LS -1 .7 1L4U-Ibqtl 16.0 24.3 2L1 19.5 20.5 4L3 3L.4 18.3 51L9 -9.1 -1L8 5.1 96.6 -19.6sector 1sw of Uwpm

mn (.:) a . 10.6 9.9 L5 8.6 17.9 14.7Seo &*plwa/Tbw

Soplop- ( -) 6.2 6.9 6.7 6.5 h66

Abwt Fbge 1.06317 1.1254 1.127.4 1.21-7.2 1.22Z.3 1.3113.9 1.51L2 4.6 5.8 0.2 8.0 0.4 13.2 9.2noly 9B7.2 1.02h.s 1.040L0 1.1 7.8 1.213L8 1.231.1 1.369.0 3ll 4.0 L.3 =s -.0.4 7.7 11.2thalayen 76.5 99. a7.& 69.4 7LS 152.d 142L2 13.5 29.4 -11. 7 -20.6 13l 96.6 -&9Seccer Rate oftMmlay

ment CZ ) 7.2 8.8 7.C 5.7 6.4 11.0 9,4

bV 1o7wen 35.0 3 .4 3r b 35.2 35.0

tbor Forc MX9 159.3 148.2 llL0 59.8 W.8S 116.4 L.5 19.0 -7.0 -23.8 -11.7 -".1 -26.7bplep8l 7.1 319 5.6 6h5 2.4 L.5 L.3 -2L6 4&5.1 43L6 16.1 -6L.1 4.2 -8.0_1q_<Y- 126. 155.4 14L.6 106.5 97.4 56%.3 14.1 3-4 2L-6 -8.2 -25.3 -- 5 GD.5 -27.0Sector Note of onmU_

vast t -) 94.7 97.6 96.2 %4 3 97.6 98.4 9AO0

am_acow (Z) ;).3 .1 0. 0L2 ILL

tabor 1be3199.0 3.476L6 3.477.5 3.635.5 3.68L0 3.660.1 3.687.6 LO 8.7 LO0 *,5 1.4 -0.7 Q.8n tIOM 2,8205 2.981.3 3.ODL3 3.257.1 3.2m.0 2.96L5 3.149.5 QO 5. 0Q7 8.5 0.4 -10.0 7.0_ zml 378.5 *95.3 47.,2 37A.4 417.0 717.6 MIL LL4 33.9 -43 -2Q-2 10.2 tLl1 -25.0

smc Rate of Uagwso tS') 21L8 14.3 23L6 I4. 113 29.6 14.6

/a Ap ctwbr 198171; mwuesi tbo loddng for job for tefirst ti_.

5ce : 1aic21 7 IsiuelO SoeXd"u.

- 95 -

lible L5: PEM AND PRMH RAICIPANTS

Yewr&Ibizh Total I II III IV V VI VII VIII IX X XI xaI Smatlagw

Mnzdun Emphi1mnyat Program

1982 Jiuary 162,878 2,744 5,077 2,179 10,229 24,515 2,125 13,863 35,274 18,437 25,651 1,619 412 20,753Febuary 160,782 2,726 5,048 2,241 10,323 24,291 27,34 13,034 34,858 17,850 25,986 1,817 334 20,240March 163,486 2,754 5,333 2,416 10,635 25,194 2,092 12,716 34,570 18,192 26,064 1,900 414 21,206April 169,674 2,763 5,190 2,751 10,818 26,338 2,G2 12,706 37,493 18,475 26,676 2,033 422 21,807May 180,759 2,999 6,099 2,915 11,601 26,715 2,345 13,853 40,632 20,515 27,219 2,230 470 23,166Jane 190,161 3,041 5,821 3,274 11,891 26,844 2,705 14,551 43,672 22,537 28,675 2,622 607 23,921J4ly 211,722 3,087 7,146 3,561 13,013 27,293 3,22D 15,562 49,897 24,395 30,601 3,193 1,612 29,142Abgist 238,107 4,557 8,347 4,090 15,100 28,184 3,993 18,494 57,593 26,768 32,076 3,410 1,933 33,562September 276,778 4,78Z 8,481 5,373 17,440 29,371 4,376 21,411 69,151 29,806 36,661 3,943 2,465 43,518Orcber 305,069 5,568 9,012 5,736 18,666 30,219 4,948 21,589 76,428 31,876 38,884 3,968 3,377 54,798November 325,706 6,123 9,156 6,323 19,670 30,764 4,388 21,772 78,794 34,196 41,177 4,017 4,117 65,209Iewber 336,469 6,566 9,256 6,423 20,982 31,367 4,472 21,017 81,032 34,837 42,217 4,143 4,664 69,493

3983 Jaasy 345,595 6,787 9,2C1 6,394 22,068 32,054 3,798 21,546 80,263 35,317 42029 4,330 5,304 76,5C4Febuary 360,914 6.530 9,880 6,510 23,2C6 32,573 3,628 22,038 82,030 34,625 42,549 4,2?- 6,177 86,947March 369,792 6,526 10,177 6,875 25,257 33,524 3,794 23,174 82,895 34,988 43,022 4,156 7,198 88,206April 380,529 6,682 10,656 7,155 27,203 34,190 3,758 23,570 83,872 37,043 44,930 4,095 7,935 89,440ray 396,277 7,390 10,911 7,362 28,675 35,585 4,065 24,833 85,305 40,104 46,664 4,189 8,277 92,937Jme 391,564 6,070 11,264 7,296 28,247 36,123 4,214 25,089 78,187 39,188 45,647 3,991 8.619 97,629July 380,596 5,552 8,979 7,095 27,842 37,461 4,316 24,518 76,38$ 38,524 46,046 3,696 8,316 91,867AU4it 339,391 4,565 7,232 6,838 23,953 35,673 4,173 23,228 65,611 36,333 44,588 3,490 3,750 79,957SBpaer 309,670 4,279 7,597 6,576 21,051 33,031 3,741 21,192 59,412 33,454 41,850 3,118 3,157 71,2120rOtber 286,751 3.858 7,038 6,262 19,916 27,942 3,568 21,027 55,831 29,698 38,811 2,863 2,810 67,127November 274,097 3,677 6,635 5,927 19,115 26,119 3,133 19,188 55,096 27,410 36,761 2,684 2,882 65,470

1cmer 263,763 3,4e5 6,635 5,701 18,493 25,035 2,621 17,237 53,261 25,983 35,996 2,516 2,767 64,064

1984 Janiary 250,649 3,342 6,321 5,42D 17,216 22,950 2,043 15,186 49,498 22,888 33,885 2,238 2,504 67,160Febuary 175,790 3,048 5,637 5,258 16,396 20,290 1,939 14,076 43,707 20,590 32,170 2,076 2,409 8,194Mardh 155,218 2,999 4,613 4,950 13,533 16,972 1,928 1,.396 41,697 17,291 27,543 1,964 2,336 7,996April 150,245 2,759 4,469 5,178 13,664 16,567 19,949 11,444 4C,419 16,529 25,272 1,850 2,053 8,092Nay 150,986 2,861 4,549 5,295 13,962 17,056 2,044 11,742 39,923 15,939 25,586 1,872 2,101 8,056

OlAdtional Hoseld Program

L982 COtober 54,137 977 1,967 1,314 3.800 5,057 1,508 3,773 6,385 4,692 6,4o0 1,130 1,564 15,615NDsember 86,641 1,871 2,600 1,653 3,898 7,059 5,012 5,926 12,612 4,717 6,376 1.070 1,564 32,283December 102,772 2,214 2,537 1,494 4,117 7,767 6,074 6,100 14,447 5,171 6,383 1,143 1,574 43,751

1983 Jamuary 107,887 2,214 2,294 1,773 4.065 10.295 5,802 6,540 14,212 5,335 7,748 1,125 1,545 44,939February 112,601 2,325 2,601 1,468 4,052 10,384 5,521 6,604 10,603 5,145 7,552 1,348 1,545 53,453March 131,556 1,481 3,106 738 3,267 10,533 4,456 3,279 14,824 2,486 7,618 1,456 1,572 76,740April 319,809 715 3,356 818 2,386 6,234 3.733 2,954 9,778 2,526 4,204 1,647 1,572 79.886May 122,449 1,OB5 2,868 828 1,301 6,271 3,449 2,802 8,343 2,564 3,452 1,662 1,572 9',252June L37,792 631 1,645 1,013 1,066 5,498 2,800 2,780 7,163 1,655 3,380 1,774 1,563 106,824July 150,296 949 906 906 1,103 4,833 1,396 1,638 7,434 1,410 3,285 1,737 1.576 123,123August 158,683 885 905 446 1,103 4,311 1,415 1,651 8,425 1,373 3,252 1,789 1,563 131,565Septmber 207,964 2,406 3,200 3,285 2,360 17,444 2,816 2,036 11,879 1,744 5.501 1,775 2,396 151,122October 225,264 4,061 3,893 4,500 2,732 25,435 3,622 3,513 11,505 1,989 5,409 1,959 2,491 154,155Novmber 228,491 3,882 5,177 4,129 2,737 23,692 3,133 3,963 32,324 2,080 5,435 1,958 2,600 157,381lDcember 221,944 3,958 5,872 3,968 2,877 23,578 2,893 4,184 12,.426 1,507 5,282 1.940 2,005 151,454

1984 Janary 201,573 3,437 5,962 3,871 2,828 13,054 1,552 2,084 12,123 1,911 5,316 1,940 2,054 145,441February 178,276 3,273 4,692 2 '19 2,696 11,483 774 2,019 10,061 1,450 5,656 1.913 1,984 130,148March 159,296 2,608 4,692 2,102 2,146 11, 835 1,504 7,229 1,249 5,766 1,.489 1,751 116,814April 144,817 2,315 4,600 106 1,662 9,185 680 366 5,484 1,168 5,499 1,215 1,475 111,062May 142,940 2,129 4,600 148 1,250 8,470 269 361 5,218 882 5,512 422 1,569 112,110

S Awc: National Institut of Statistics.

II. NATIONAL ACCOUNTS

Table 2.1: GDP BY INDUSTRIAL ORIGIN, 1970-1982

(Millions of current Pesos)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 19RO 1981/a 1982/a

Agriculture 6.7 10.3 19.5 76.4 523.3 2333.4 10858.7 28289.4 37054.4 56129.8 77705.8 82999,1 75603.5

mining 8.6 7.4 16.0 104.4 1100.0 3683.3 13089.3 23161.0 36279.7 75321.1 91985.1 72084.9 75079.9

Construction 5.0 7.8 14.4 49.3 560.2 1906.5 5507.0 11706.4 20423.9 33054.7 55762.8 81836.0 61697.6

Manufacturing 25.1 31.0 54.8 310,7 2718.4 7187.4 29933.7 62573,8 109174.2 164020.1 230510.6 283647.6 240493.4

ElectricLty,Gas & Water 2.0 2.8 3.4 5.6 104.4 738.6 2903.3 6476.9 9629.9 15602,2 22887.6 28002.3 36977.4

Transportation 6 Communication 5.1 6.5 13.7 70.5 528.6 2023.4 6362,6 15376.9 26706.9 39923.3 52814.7 58796.8 57604.0

Trade 18.3 22.8 45.0 239.3 1298,4 6120.8 19442.3 44844.0 80310.6 128851.6 175431.1 217358.9 202520.3

Banking, Insurance A Real Estate 5.1 6.8 10.6 57.0 485.0 2212.0 7889,0 18157.3 34233.9 62608.2 104926.8 140934.6 139392.4

Ownership of Dwellings 5.4 6.3 8.8 45.5 339.2 2948,3 9580.6 20542.2 38437.5 57155.9 79'J38,2 99938.6 110869.9

Services 10.2 15.7 29.6 111.4 836.8 3829.9 13787.3 33528.8 56330.4 85266.2 125014.6 160805.1 166976.3

Public Administration 6 Defense 5.5 8.5 17.3 69.5 600.4 2206.9 7722.7 18274.6 28067.5 42565.2 54354.5 67044.3 79777.3

Imputed Banking Service Charges -1.9 -2.1 -4.3 -24.0 -222.8 -1047.4 -3342.5 -9151.7 -14266.4 -30438,2 -55852.0 -81282.8 -75774.3

Import Duties 3.3 3.2 5.7 31.2 327.0 1303.5 4942.1 13990.2 25123.9 42140.1 59789,0 76736.3 57482.6

GDP at Market Prices 98.4 127.0 234.5 1146.8 9198.9 35446.6 128676.1 287769.8 487506.4 772200.2 1075268.8 1288901.7 1228700.3

/a Provisional estimates.

Sourcei Central Bank of Chile and mission estimates.

Table 2.2: GROSS DOMESTIC PRODUCT BY INDUSTRIAL ORICIN, 1970-1983

(MilLons of constant 1977 Pesos)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 19 81 1L 1982/a 19831!

Agriculture 24070.6 23806.2 21825.0 19646.7 24904.1 25993.0 25573.7 28289.4 27241.0 28922.2 30031.0 31624.1 30895.5 30610.0

mining 18595.2 19714.0 18974.4 18531.7 22642.4 20094.9 22544.0 23161.0 23529.0 24792.0 26076.7 28154.7 29756.1 29149.0

Constructton 21141.0 21164.1 17029.7 15150.8 19127.9 14146.8 11808.8 11706.4 12650.5 15669.5 19419.9 23517.5 16695.6 16724.0

Manufacturing 69911.8 79404.3 81179.7 74906.3 72993.9 54405.0 57678.1 62573.8 68373.5 73776.6 78332.3 80336.3 62982.7 64872.0

Electricity Gas 6 Water 4792.6 5507.5 5877.1 5713.7 6013.4 5786.4 6124.0 6476,9 6912.6 7383.3 7754.0 7913.1 7894.9 8190.0

Transportation 6 Communications 137f5.3 14624.2 14499.3 14213.8 14362.8 13262.2 13878.7 15376.9 16665.2 18166.8 20178.4 20404.0 18378.5 17813.0

Trade 46786.6 54179.4 56230.2 52656.2 42296.5 35059.4 35933.5 44844.0 53820.2 59766.6 67148.7 71614.5 58864.6 56452.0

Banking, Insurance & Real Estate 13057.0 15261.6 12884.0 12481.9 15148.1 14511.9 15862.6 18157.3 21815.2 27920.2 34243*3 39754.4 36195.3 )

Ovnership of Dwellings 18229.6 18635.4 18891.9 19367.2 19911.2 20271.2 20417.4 20542.2 20724.1 20824.4 21028.9 21341.4 21554.8 )

Services 28843.4 30939.5 32415.5 31501.9 32358.0 31966,3 32375.6 33528.9 34744.3 36286.B 37171.4 37519.3 33761.3 ) 102591.0

Public Adeinistration & Defense 14071.7 14572.2 15056.1 15415.6 16646.1 16956.8 17952.9 18274.5 17713.5 17501.5 16941.5 16636.6 16154.1

Imputed Banking Service Charges -5631.2 -5209.6 -5560.8 -6157.1 -7027.0 -7530.0 -6849.3 -9151.7 -9122.9 -13279.8 -18729.7 -24205.0 -20913.8 )

Import Duties 15463.2 15850.4 15404.7 14321.6 11176.8 8119.3 8645.1 13990.2 16351.1 19478.1 23849.8 29621.3 16935.2

GDP at Market Prices 283096.8 308449.2 304706.8 287750.3 290554.2 253043.2 261945.1 287769.8 311417.3 337207.5 363446.2 384232.2 329154.8 326401.0


Sources Central Bank and misslon estimates.

Table 2.31 SHARES OF GDP BY INDUSTRIAL ORIGIN, 1970-1983

(Percent)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 19S0 1981 1982 1983

Aariculture 6.8 8.1 8.3 6.7 5.7 6.6 8.4 9.8 7.6 7,3 7.2 6.4 6.2 9.5

Hining 8.7 5.8 6.S 9.1 12.0 10.4 10.2 8.0 7.4 9.8 8.6 5.6 6.1 8.9

Construction 5.1 6.1 6.1 4.3 6.1 5.4 4.3 4.1 4.2 4.3 5.2 6.3 5.0 4.6

Kanufacturing 25.5 24.4 23.4 27.1 29.6 20.3 23.3 21.7 22.4 21.2 21.4 22.0 19.6 19.9

Blectrtcity,Cas & Water 2.0 2.2 1.4 0.5 1.1 2.1 2.3 2.3 2.0 2.0 2.1 2.2 3.0 2.5

Transportation 6 Co municatlon 5.2 5.1 5.8 6.1 5.7 5.7 4.9 5.3 5.5 5.2 4.9 4.6 4.7 5.7

Trade 18.6 18.0 19.2 20.9 14.1 17.3 15.1 15.6 16.5 16.7 16.3 16.9 16.5 17.2

Banking,Insurance, 6 Real Estate 5.2 5.4 4.5 5.0 5.3 6.2 6.1 6.3 7.0 8.1 9.8 10.9 11.3

Ownerahip of Dvelllnga 5.5 5.0 3.8 4.0 3.7 8.3 7.4 7.1 7.9 7.4 7.4 7.8 9.0 )

Services 10.4 12.4 12.6 9.7 9.1 10.8 10.7 11.7 11.6 11.0 11.6 12.5 13.6 ) 31.8

Public Administration & Defense 5.6 6.7 7.4 6.1 6.5 6.2 6.0 6.4 5.8 5.5 5.1 5.2 6.5 )

Imputed Banking Service Chargpe -1.9 -1.7 -1.3 -2.1 -2.4 -3.0 -2.6 -3.2 -2.9 -3.9 -5.2 -6.3 -6.2 )

Import Duties 3.4 2.5 2.4 2.7 3.6 3.7 3.8 4.9 5.2 5.5 5.6 6.0 4.7 )

GOP at Market Prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Sources Table 2.1.

Table 2.4: CDP BY INDUSTRIAL ORIGIN,REAL GROWTh RATES, 1970-1983

(Percent)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Agriculture -1.1 -8.3 -10.0 26.8 4.4 -1.6 10.6 -3.7 6.2 3.8 5.3 -2.3 -0.9

Mining 6.0 -3.8 -2.3 22.2 -11.3 12.2 2.7 1.6 5.4 5.2 8.0 5.7 -2.0

Construction 0.1 -14.5 -11.0 26.3 -26.0 -16.5 -0.9 8.1 23.9 23.9 21,1 -29,0 0.2

Mtanufacturing 13.6 2.2 -7.7 -2.6 -25.5 6.0 8.5 9.3 7.9 6.2 2.6 -21.6 3.0

Electriulty,Gas 6 Water 14.9 6.7 -2.8 5.2 -3.8 5.8 5.8 6.7 6.8 5.0 2.1 -0.2 3.7

Transportation A Comunication 6.2 -0.9 -2.0 1.0 -7.7 4.6 10.8 8.4 9.0 11.1 1.1 -9.9 -3.1

Trade 15.8 3.8 -6.4 -19.7 -17.1 2.5 24.8 20.0 11.0 12.4 6.7 -17.8 -4.1

Banking, Insurance,& Real Estace 16.9 -15.6 -3.1 21.4 -4.2 9.3 14.5 20.1 28.0 22.6 16,1 -9.0

Ownership of Dwellings 2.2 1.4 2.5 2.8 1.8 0.7 0.6 0.9 0.5 1.0 1.5 1.0

Services 7.3 4.8 -2.8 2.7 -1.2 1.3 3.6 3.6 4.4 2.4 0.9 -10.0

Public Administration & Defense 3.6 3.3 2.4 8.0 1.9 5.9 1.8 -3.1 -1.2 -3.2 -1.8 -2.9

GDP at Market Pricee 9.0 -1.2 -5.6 1.0 -12.9 3.5 9.9 8.2 8.3 7.8 5.7 -14.3 -1,1

Sources Table 2.2.

Table 2.5. GDP BY INDUSTRIAL ORIGIN, DEFIATORS, 1970-1982

(1977-100)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981/A 1982/a

Agriculture 0.03 0.04 0.09 0.39 2.10 8.98 42.46 100.00 136.02 194.07 258.75 262.46 244.71

Hining 0.05 0.04 0.08 0.56 4.86 18.33 58.06 100.00 154.19 303.81 352.75 256.03 252.32

Construction 0.02 0.04 0.08 0.33 2.93 13.48 46.63 100.00 161.45 210.95 287.14 347.98 369.54

Manufacturing 0.04 0.04 0,07 0.41 3.72 13.21 51.90 100.00 159.67 222.32 294.27 353.08 381.84

glectrtcity,Gas & Water 0.04 0.05 0.06 0.10 1.74 12.76 47.41 100.00 139.31 211.32 295.17 353.87 468.37

Transportation b Communication 0.04 0.04 0.09 0.50 3.68 15.26 45.84 100.00 160.26 219.76 261.74 288.16 313.43

Trade 0.04 0,04 0.08 0.45 3.07 17.46 54.11 100.00 149.22 215.59 261.26 303.51 344.04

Banking, Insurance & Real Estate 0.04 0.04 0.08 0.46 3.20 15.24 49.73 100,00 156.93 224.24 306.42 354.51 385.11

Ownership of Dwellings 0.03 0.03 0.05 0,23 1.70 14.54 46.92 100.00 185.47 274.47 380.13 468.29 514.36

Services 0.04 0.05 0.09 0.35 2.59 11.98 42.59 100.00 162.13 234.98 336.32 428.59 494.58

Public Adminiatration 6 Defense 0.04 0.06 0.11 0.45 3.61 13.01 43.02 100,00 158.45 243.21 320.84 402.99 493.85

Imputed Banking Service Charges 0.03 0.04 0.08 0.39 3.17 13.91 48.80 100.00 156.38 229.21 298.20 335.81 362.32

Import Duties 0.02 0.02 0.04 0.22 2.93 16.05 57.17 100,00 153.65 216.35 250.69 259.06 339,43

GDP at Market Prices 0.03 0.04 0.08 0.40 3.17 14.01 49.12 100.00 156.54 229.00 295.85 335.45 373.29

/a Provslional estimates.

Source. Tables 2.1 & 2.2,

Table 2.6: CROSS DOMESTIC PRODUCT BY EXPENDITURE, 1970-1983

(Millions of current Pesos)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981/a 1982/a 1983/a

Total Consumption 81.6 109.9 214.1 1077.4 7190.8 31501,1 106659.3 25144 '.8 416973.9 656687.2 894357.8 1151486.4 1127688.3 1345551.0Private Consumption 69.0 90.5 176.4 926.6 5742.4 25941.2 88669.4 2095Jb.8 346627.3 546292.4 760471.6 988340.7 945170.5 1136367.0General Coyt. Consumption 12.6 19.4 37.7 150.8 1448.4 5559.9 17989.9 41939.0 70346.6 110394.8 133886.2 163145.7 182517.8 209184.0

Gross Domestte Investment 16.2 18.4 28.6 90.7 1945.8 4645.5 16447.0 41509.3 86834.6 137315.6 225623.3 267039.6 121706.9 159721.0Fixed Investment 14.8 18.5 30.7 146.9 1559A4 6271.1 17067.0 38346.0 71593.8 115015.6 178944.2 238730,2 169984.7 172425.0Increase in Stocks 1.4 -0.1 -2.1 -56.2 386.4 -1625.6 -620.7 3163.3 15240.8 22360.0 46679.1 28309.4 -48277.8 -12704.0

Net Exports of Goods & nfa 0.6 -1.3 -8.2 -21.3 62.3 -700.0 5569.8 -5185.3 -16302.1 -21862.6 -44712.3 -129624.3 -20694.9 40902.01xports of Goods & nfa 14.8 14,4 23.6 160.3 1877.2 9025,8 32321,3 59338.1 100351.8 179742.0 245387.1 220119.9 267557.5 407559.0Imports of Goods & nfa 14.2 15.7 31.8 181.6 181&.9 9725.8 26751.3 64523.4 116653.9 201604.6 290099.4 349744.2 288252.4 366657.0

CDP at Market Prices 98.4 127.0 234.5 1146.8 9198.9 35446.6 128676.1 287769.8 487506.4 772200.2 1075268.8 1288901.7 1228700.3 1546174.0Net Factor Service Income -2.4 -1.5 -1.4 -12.2 -144.0 -1388.4 -4204.4 -7612.7 -13343.0 -24709.5 -36266.1 -55707.6 -105587.3 -128704.0CNP at larket Prices 96.0 125.5 233.1 1134.6 9054.9 34058.2 124471.7 280157.2 474163.4 747490.7 1039002.7 1233194.1 1123113.0 1417470.0

Net Indirect TAxes 10.4 12.4 20.0 120.4 1434.6 4960.3 17674.0 41320,2 67389,0 95787.0 129758.1

Gross Doeastic Savings 16.8 17.1 20.4 69.4 2008.1 3945.5 22016.8 36324.0 70532.5 115513.0 180911.0 137415.3 101012.0 200623.0Gross National Savlngs(excl. trans) 14.4 15.6 19.0 57.0 1864.1 2557.1 17812.4 28711.3 57189.5 90803.5 144644.9 81707.7 -4575.3 71919.0Current Transfers 0.5 0.2 0.5 3.2 40,6 247.7 878.6 2061.1 4208.7 5245.7 4426.5 3900.0 5091.0 7560.0Cross National Savings(incl.trans) 14.9 15.8 19.5 60.2 1904.7 2804,8 18691 30772.4 61398.2 96049.2 149071.4 85607.7 515.7 79479.0

LA Provisional estimates.

Sources Contral Bonk of Chl1e and mission estimates.

Table 2.7: CDP BY EXPENDITURE, 1970-1983

(Pllions of constant 1977 Peso.)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 19811L 1982/a 1983/a

Total Consumption 252521.5 285501.7 306754.7 289954.8 248432.9 220567.7 220980.1 251445.8 270055.0 288773.7 301018.4 337637.6 292004.8 275115.0Private Consumption 218507.0 247260.8 266340.6 248836.0 203366.6 180139.5 180595.5 209506.8 225279.1 239899.5 256102.2 292592.5 250455.6 235986.0General Governtent Consumption 34014.5 38240.9 40414.1 41118.8 45066.3 40428.2 40384.6 41939.0 44775.9 48874.2 44916.2 45045.1 41549.2 39129.0

Groas Domestic Invretment 66122.6 64030.3 46306.2 41252.4 74884.6 35478.7 35536.5 41509.3 51235.0 66163.9 86812.2 9!768.6 31722.3 36587.0Fixed Investment 57785.9 56445.9 45104.7 42387.4 50489.0 38992.2 33215.2 38346.0 45009.1 52593.0 64105.2 73542.3 46246.7 39587.0Increase In stocks 8336.7 7584.4 1201.5 -1135.0 24395.6 -3513.5 2321.3 3163.3 6225.9 13570.9 22707.0 18226.3 -14524.4 -3000.0

Net Exporta of Goods & nfs -35547.3 -41082.8 -48354.1 -43456.9 -32763.3 -3003.2 5428.5 -5185.3 -9872.7 -17730.1 -24384.4 -45174.0 5427.7 14699.0Exports of Goods 6 nfs 32449.8 32716.6 27773.3 28548.3 41665.9 42644.6 53036.6 59338.1 65978.4 75310.1 86077.1 81526.1 90430.6 91710.0Imports of Goods 6 nfs 67997.1 73799.4 76127.4 72005.2 74429.2 45647.8 47608.1 64523.4 75851.1 93040.2 110461.5 126700.1 85002.9 77011.0

GDP at Market Prices 283096.8 308449.2 304706.8 287750.3 290554.2 253043.2 261945.1 287769.8 311417.3 337207.5 363446.2 384232.2 329154.8 326401.0GNP at M4rket Prices 276411.0 304900.5 302954.1 284622.7 286010.7 243133.2 253385.7 280157.0 302893.6 326336.6 350456.0 366113.0 301417.0 302839.0

Tern6 of Trade Effect 36622.8 35817.1 28382.8 35499.1 34140.2 -280.7 3710.4 0.0 -.52.6 7639.1 7361.5 -1820.1 -11530.8 -5549.0Cross Domestic Income 246474.0 272632.1 274571.3 252251.2 256414.0 253323.9 258234.7 287769.8 312169.1 329568.4 356084.7 386052.3 340685.6 331950.0(CDP less TOT Effect)


Sources Central Bank of Chule and mission estimates.

Table 2.8: SHARES OF CDoP ,XrIDITgUE COmPOiNTS, 1970-1983

(percent)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 L 19e8 2/L 19e3/e

rotal Coneuptlon 82.9 86.5 91.3 93.9 78.2 U.9 82.9 87.4 85.5 85.0 83.2 89.3 91.8 67.0Private Coneuiptlon 70.1 71.3 75.2 80.8 62.4 73.2 68.9 72.8 71.1 70.7 70.7 76.7 76.9 73.3Coaral govt. Concuption 12.8 15.3 16.1 13.1 15.7 15.7 14.0 14.6 14.4 14.3 12.5 12.7 14.9 13.5

ftoes Domestic Investment 16.5 14.5 12.2 7.9 21.2 13.1 12.8 14.4 17.8 17.8 21.0 20.7 9.9 10.3Flied Investment 15.0 14.6 13.1 12.8 17.0 17.7 13.3 13.3 14.7 14.9 16.6 18.5 13.8 11.2lacreosse I Stocks 1.4 -0.1 -0.9 -4.9 4.2 -4.6 -0.5 1.1 3.1 2.9 4.3 2.2 -3.9 -0.8

let Exports of Coeds & fet 0.6 -1.0 -3.5 -1.9 0.7 -2.0 4.3 -1.8 -3.3 -2.8 -4.2 -10.1 -1.7 2.6Exports of Cood, a off 35.0 11.3 10.1 14.0 20.4 25.5 25.1 20.6 20.6 23.3 22.8 17.1 21.8 26.4Imports of Goods & of. 14.4 12.4 13.6 15.8 19.7 27.4 20.8 22.4 23.9 26.1 27.0 27.1 23.5 23.7

MF at Yucket Price. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0get Factor Service Incowe -2.4 -1.2 -0.6 -1.1 -1.6 -3.9 -3.3 -2.6 -2.7 -3.2 -3.4 -4.3 -8.6 -e 3XF at Maiket Prices 97.6 98.8 99.4 98.9 98.4 96.1 96.7 97.4 97.3 96.8 96.6 95.7 91.4 91.7

let hndirect Tlaes 10.6 9.8 8.5 10.5 15.6 14.0 13.7 14.4 13.8 12.4 12.1 14.2 12.9

Drone Dome.tic Savings 17.1 13.5 8.7 6.1 21.8 11.1 17.1 12.6 14.5 15.0 16.8 10.7 8.2 13.0gross National RavingaCexcl. trans) 14.6 12.3 8.1 5.0 20.3 7.2 13.8 10.0 11.7 1l.1 13.5 6.3 -0.4 5.1Durrent Transfers 0.5 0.2 0.2 0.3 0.4 0.7 0.7 0.7 0.9 0.7 0.4 0.3 0.4 0.5Irtes Notional SavingeCincl.tran0) 15.1 12.4 8.3 5.2 20.7 7.9 14.5 10.7 12.6 12.4 13.9 6.6 0.0 5.1

L Provielonal estimates.

lourett Table 2.6.

Table 2.93 MDP BY EXPENDITURE, GROWTH RATES, 1970-1983

(Percent)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1960 1981 1982 1983

Total ConsuaptLon 13.1 7.4 -5.5 -14.3 -11.2 0.2 13.8 7.4 6.9 4.2 12.2 -13.5 -5.8Private Coneumption 13.2 7.7 -6.6 -18.3 -11.4 0.3 16.0 7.5 6.5 6.8 14.2 -14.4 -5.8General Covernment Consumption 12.4 5.7 1.7 9.6 -10.3 -0.1 3,8 6.8 9.2 -8.1 0.3 -7.8 -5.8

Cross DDoeetic Investment -3.2 -27.3 -10.9 81.5 -52.6 0.2 16.8 23.4 29.1 31.2 5.7 -65.4 15.3Flied Inveatuent -2.3 -20.1 -6.0 19.1 -22.8 -14.8 15.4 17.4 16.8 21.9 14.7 -37.1 -14.4

Exports of Goods & nfr 0.8 -15.1 2.8 45.9 2.3 24.4 1129 11.2 14.1 14.3 -5.3 10.9 1.4Imports of Goode & nfe 8.5 3.2 -5.4 3.4 -38.7 4.3 35.5 17.6 22.7 18.7 14.7 -32.9 -9.4

cor at Market Prices 9.0 -1.2 -5.6 1.0 -12.9 3.5 9.9 8.2 8.3 7.8 5.7 -14.3 -0.8GNP at Harlet Prices 10.3 -0.6 -6.1 0.5 -15.0 4.2 10.6 8.1 7.6 7.4 4.2 -14.1 0.5

Sourcet Table 2.7.

Table 2.10: GDP BY EXPENDITURE, DEFtATORS (1977-100). 1970-1983

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981/a 1982/a 1983/a

Total Consuption 0.03 0.04 0.07 0.37 2.89 14.28 48.27 100.00 154.40 227.41 297.11 341.04 386.19 489.1Private Consuaption 0.03 0.04 0.07 0.37 2.82 14.40 49.10 100.00 153.87 227.72 296.94 337.79 377.38 481.5General Govt. Canaunption 0.04 0.05 0.09 0.37 3.21 13.75 44.55 100.00 157.11 225.88 298.08 362.18 439.28 534.6

Groas Domestic Investment 0.02 0.03 0.06 0.22 2.60 13.09 46.28 100.00 169.48 207.63 259.90 290.99 383.66 436.6Flxed Investment 0.03 0.03 0.07 0.35 3.09 16.08 51.38 100.00 159.07 218.69 279.14 324.62 367.56 435.6Increase In Stocks 0.02 .00 -0.17 4.95 1.58 46.27 -26.74 100.00 244.80 164.76 205.57 155.32 332.39 423.5

Export. of Good. & nfe 0.05 0.04 0.08 0.56 4.51 21.17 60.94 100.00 152.10 238.67 285.08 270.00 295.87 444.4Imports of Coods 8 nfs 0.02 0.02 0.04 0.25 2.44 21.31 56.19 100.00 153.79 216.69 262.62 276.04 339.11 476.1

GDP at Market Prices 0.03 0.04 0.08 0.40 3.37 14.01 49.12 100.00 156.54 229.00 295.85 335.45 373.29 473.7CNP at Market Prices 0.03 0.04 0.08 0.40 3.17 14.01 49.12 100.00 156.54 229.02 296.39 337.61 357.87 468.1

la Provisional estimtes.

Source: Tables 2.6 6 2.7.

Table 2.11i SAVIR AND UDvSfli, 1977-83?dllioe of current Pesos)

Ratio of MP

1977 1978 1979 1980 1981^L 1982La 1983/a 1977 1978 1979 1980 1981 1982 1983

SAVD

Governent Savings 20,574.9 23,399.6 55,917.2 93,573.0 71,652.9 -19,414.2 -44,200.0 7.2 4.8 7.2 8.7 5.6 -1.6 -2.4

Corporate 6Saving andPetronal aWn NPI Savings -23,499.4 -17,634.3 36,667.2 -48,020.0 -108,171.5 -109,542.7 -104,217.0 -8.2 -3.6 -4.8 -4.5 -8.4 -8.9 -5.7

ket Noticnal Savings -2,924.4 5,765.3 19,250.0 45,553.0 -36,518.6 -128,956.9 -148,417.0 -1.0 1.2 2.9 4.2 -2.8 -10.5 -8.1

Depreciation Allrmee 33,696.8 55,632.9 76,799.3 103,518.4 122,126.3 129,472.5 167,262.9 11.7 11.4 10.0 9.6 9.5 10.5 9.1

Groas Notlonal Savirng 30,772.4 61,398.3 96,049.3 149,071.4 85,607.7 515.6 79,479.0 10.7 12.6 12.4 13.9 6.6 0,0 5.0Net Factor Payents 7,612.7 13,343.0 24,709.5 36,266.1 55,707.6 105,587.3 128,704.0 2.7 2.7 3.2 3.4 4.3 8.6 8.1Net Current Transfers 2,061.1 4,208.7 5,245.7 4,426.5 3,900.0 5,091.0 7,560.0 -0.7 -0.9 -0.7 -0.4 -0.3 -0.4 0.4

Thtal Savings: 41,509.3 86,837.6 137,375.6 225,623.3 267,039.6 121,706.9 159,721.0 14.4 17.8 17.8 21.0 20.7 9.9 6.7

Grosa Dmestic Savinp, 36,324.0 70,532.6 115,513.0 180,911.0 137,415.3 101,012.0 200,623.0 12.6 14.5 15.0 16.8 10.7 8.2 8.7

Foreign Savings(Resource Cap) 5,185.3 16,305.0 21,862.6 44,712.3 129,624.3 20,694.9 -40,902.0 1.8 3.3 2.8 4.2 10.1 1.7 -2.0

flied Inveatnect 38,346.0 71,593.8 115,015.7 178,944.2 239,730.2 169,984.7 172,425.0 13.3 14.7 14.9 16.6 18.5 13.8 9.4

Constriztio 18,674.6 33,845.1 57,310.8 96,398.3 134,127.4 100,104.0 n.e. 6.6 6.9 7.4 9.0 10.4 n.e. .a..IHuolmg 9,487.4 13,494.1 23,685.2 44,839.3 65,686.8 43,349.6 n.n 3.3 2.8 3.1 4.2 5.1 n.a. n.a.NlM-rib, g 9,387.2 20,351.0 33,425.6 51,559.0 68.440.6 56,754.4 n.n, 3.3 4.2 4.3 4.8 5.3 n.s. n.a.

other 2,375.9 4,117.2 5,743.9 9,565.1 9,654.8 7,937.9 n.a. 0.8 0.8 0.7 0.9 0.8 n.a. n.e.Transport E4upmnt 5,397.4 12,019.0 20,400.2 31,036.6 41,831.0 n.a. n.e. 1.9 2.5 2.6 2.9 3.3 na, n.a.

Doeattc 999.9 2,637.6 1,640.2 2,273.9 2,434.4 n.n. n.a. 0.4 0.6 0.2 0.2 0.2 nU.. n.e.Imorted 4,397.5 9,381.5 1I,740.0 28,762,6 39,396.6 n.e. nU.. 1.5 1.9 2.4 2.7 3.1 n.e. n.e.

vbchiner and Equipent 11,698.1 21,612.4 31,560.9 41,924.3 53,117.0 n.a. n.a. 4.1 4.4 4.1 3.9 4.1 n.e. n.a.D te 1,502.8 2,695.3 4,884.9 6,850.0 8,459.5 n.a. n.a. 0.5 0.6 0.6 0.5 0.7 n.a. n.e.

Imported 10,195.3 18,917.1 26,676.0 35,074.3 44,657.5 n.a. n.. 3.5 3.9 3.5 3.3 3. n.. n.e.

Cahnge In Inventories 3,163.3 15,240.8 22,360.0 46,679.1 28,309.4 -48,277.8 -12,704.0 1.1 3.1 2.9 4.3 2.2 -3.9 -2.7

Total Inv atment 41,509.3 66,837.6 137,375.6 225,623.3 267,039.6 121,706.9 123,529.0 14.4 17.8 17.8 21.0 20.7 9.9 6.7

La. Povisloal eatlates.

Source: Central 3k and ,doLon estimatea.

Table 2.12, GMVIJU AND D2NES' , 1977-83

(Mlliors of conatmt 1977 Pesos)

ninal Averap Amtul RPates of Omth1977 1978 1979 1980 1981/c 1982/c 1983k Ontwth, 1977-83 1978 1979 190) 1981 19P2 1983

(mvsa Nticmal Savirs 30,772.4 35,530.6 40,065.8 51,154.7 30,137.5 19,678.2 19,347.0 -9,7 15.5 12,8 27.7 -41.1 -34.7 -1.7Not Factor Paymnts 7,612.7 8,518.2 10,820.9 12,989.9 18,118.7 27,738.3 23,562,0 21,2 12,0 27.0 12.0 39.5 -15.5 -15,11bt Qirrat Transfers -2,061.1 2,686.8 -2,452.8 1,671.3 1,671.1 2,152.2 1,924.0 .0.9 30.6 -8.9 -31.8 0.0 28.9 -10.6

(koas Ilat1c Sov1zp 36,324.0 41,362.3 48,433.9 62,472.9 46,585.7 37,150.0 47,957.0 2.1 13.9 17.1 28.9 -25.4 -20.3 29.2

IMIESDI 41,509.3 51,235.0 66,164.0 86,812.2 91,768.6 31,722.3 27,531.0 -6,4 23.4 29.1 31,2 5,7 -65,4 -13.2PiEWe-r aisnt 38,346.0 45,009.1 52,593.0 64,105.2 73,542.3 46,246.7 39,587.0 2,1 17.4 16.9 21.9 14.7 -37.1 -14.4

&matrumtimn 18,814.6 21,121.7 25,944.9 32,211.3 38,332.8 26,964.8 n.a. 19.4/a 11,9 22.8 24.2 19,0 -29.7 n.n.Nibwst 9,487.4 8,123.4 11,061.9 15,668.8 19,710,6 12,318,3 n.a. 20,1ir -14.4 36.2 41.7 25.8 -37.5 n.ea. Nmhbusiri 9,387.2 12,998.3 14,882.9 16,542.5 18,622.2 14,746.5 n,a, 18.7/L 38,4 14.5 11,2 12,6 -20.8 n.a,

Other 2,375.9 2,989.2 2,687.7 2,793.3 2,490.2 1,919.3 n.a. 1.2/a 25.8 -10,1 3,9 -10.9 -22,9 n.

Trma1xrt EWqpt 5,397.4 6,834.2 9,302.4 11,R64.5 13,701.8 nad, n.a, 26.2/b 26,6 36,1 27,5 15.5 n.a. n.a.DMatic 999.9 1,694.8 788.5 984.0 913,1 n.a. n,a, -2.2% 69.5 -53.5 24.8 -7,2 n.o. nfne1morted 4,3^7.5 5,139.' 8,513.9 10,880.5 12,788.7 n.a. n.a. 30.6% 16.9 65.7 27.8 17.5 non. n.a.

M1$chlnery and F4uipwnt U,698.1 14,064.1 14,658.1 17,236.1 19,017.5 nne. n.e. 12.9/b 20.2 4.2 17.6 10.3 n.ae nne.Datif 1,502.8 1,749.1 2,071.1 2,331.2 2,476.9 n.e. n.a. 13.3% 16.4 18,4 12.6 6.3 n.a. nleaIported 10,195.3 12,315.0 12,587.0 14,904.9 16,540.5 n.a. ne. 12.9% 20.8 2.2 18.4 11.0 n.e. nea.

UwW in Inzmtories 3,163.3 6,225.9 13,570.9 22,707.0 18,226.3 -14,524.4 -3,000.0

/a 1977-82 price&.% 197781 prices.c Provisicial eatizmtes.

Souwce: Centre llark and adalo,n etInntes.

III. BALANCE OF PATEUS

- 108 -

Table 3.1: BALANCE OF PAYMENTS. 1975-83(MNllioDs of U.S.$)

1975 1976 1977 1978 1979 1980 1981 1982 1983

Exports (C and N.F.S.) 1,838.2 2,412.9 2,601.2 2,940.9 4,620.2 5,967.5 5,505.5 5,026.6 4,699.0Merchandise (f.o.b.) 1,590.5 2,116.2 2,185.6 2,460.2 3,834.7 4,705.0 3,959.6 3,797.8 3,855.0Noa-factor services 247.7 296.7 415.6 480.8 785.5 1,262.5 1,545.9 1,228.8 844.0

Imports (G and N.F.S.) 2,049.5 1,980.0 2,870.9 3,622.0 5,217.1 7,023.1 8,872.0 5,345.6 4,235.0Merchandise (f.o.b.) 1,520.1 1,473.2 2,150.6 2,885.9 4,190.0 5,469.0 6,558.5 3,580.3 2,882.0Non-factor services 529.4 506.8 720.4 736.2 1,027.1 1,554.0 2,313.5 1,765.3 1,353.0

Resource Balance -211.3 432.9 -269.7 -681.1 -596.9 -1,055.5 -3,366.5 -319.1 464.0

Net Factor Income -291.4 -333.7 -379.4 -505.8 -696.4 -1,028.2 -1,547.1 -2,162.8 -1,870.9Factor receipts 3.7 11.5 17.5 42.6 126.6 308.5 603.7 483.6 n.a.Factor payments 295.0 345.2 397.0 548.4 823.0 1,336.7 2,150.8 2,646.3 UnaMedium and long-term

interest paid 195.4 252.0 263.5 383.5 582.5 918.5 1,423.1 1,945.7 1,395.0

Net Current Transfers 3.6 32.3 80.6 75.1 87.9 61.2 44.8 45.3 -96.6Transfer receipts 3.6 32.3 80.6 100.2 117.6 92.4 95.4 94.9Transfer payments - - - 25.0 29.7 31.2 50.7 49.7

Current Balance -497.8 131.6 -568.6 -1,112.9 -1,204.2 -2,0Z3.9 -4,868.8 -2,436.6 -1,503.5

Medium and Long-termCapital Inflow

Dlrect Investment 49.8 -1.2 16.3 176.5 232.6 170.5 376.2 365.4 152.0

Official Grant Aid 8.5 16.2 16.3 22.5 16.8 53.4 55.4 55.2 57.0

Net Medirm and Long-termLoans (DRS) 44.9 17.2 196.5 1,145.2 1,468.8 2,105.0 3,389.9 1,415.5 1,000.0

Disbursements 464.6 653.2 989.1 2,232.6 2,785.7 3,566.6 5,188.6 2,673.6 1,900.0Repayments 419.7 636.0 792.6 1,087.4 1,316.8 1,461.6 1,798.8 1,258.2 900.0

Other Medlui and Long-term (Net) 77.8 34.8 -143.9 186.9 102.2 -3.1 -15.1 -10.0 n.a.

Net Credit From ITM 207.6 82.0 -119.1 -42.6 -169.3 -52.1 -64.9 039.7 614.0Disbursements - - - - - - -

Repayments - - - - - - - -

Net Short-term Capital 140.8 68.1 557.9 449.5 471.6 999.6 1,107.2 -619.3

Capital Flows NEI 4.9 -5.8 -43.3 -62.6 23.3 143.2 214.6 92.7 -98.21a

Errors and Omissions -109.3 68.1 116.9 -125.3 -14.2 50.8 114.4 -57.4

Chae in Net Reserves 72.8 -411.0 -28.0 -637.3 -927.7 -1,443.4 -308.9 1,234.3 -221.3

/a Includes errors and omissions and short-term capital.

Source: DIF and mission estimates.

TAble 3.2: EPR1S OF MEIANDISE, 1971-1983(Millions of U.S.,)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Minirg Products 813.2 734.5 1,132.6 1,806.9 1,075.4 1,448.6 1,403.2 1,422.3 2,253.9 2,919.4 2,261.3 2,155.8 2,296.6ODpper 701.8 657.6 1,025.6 1,653.5 890.4 1,246.5 1,187.4 1,201.5 1,799.6 2,200.4 1,714.9 1,731.4 1,835.7

0thers 1U1,4 76.9 107.0 153.4 185.0 202.1 215,8 220.8 454,3 719.o 546.4 424.4 460.9

Agrlculture and i'ishirgProducts 29.4 19.3 25.5 55.0 86.1 118.9 159.5 203.5 264.5 339.9 365.4 374.9 327.5

Fredi fruilts 13.4 11.8 13.6 18.4 37,8 53.9 63.6 101.0 123.3 168.7 198.5 232,8 220.5Others 16.0 7.5 11.9 36.6 48.3 65.0 95.9 102.5 141.2 3,171.2 166.9 142.1 107.0

ftufacturing Products 119.6 82.4 89.4 290.6 390.6 528.1 627.6 782.0 1,245.0 1,558.8 1,279.6 1,178.8 1,211.4Fish Ikal 29.8 12.4 12.0 31.1 29.2 61,6 86,5 105,8 152,6 233.7 202.0 256,0 307,1Wbod Prixducts 7.0 4.9 4.1 12.7 25.2 29.4 70.4 94.4 164.7 286,2 163.4 122.3 116.4IWp nd Paper 24.9 21.0 29.0 106.0 83.7 121.4 119.1 144.2 213,6 265,2 228.4 199.5 190,6Others 57.9 44.1 44.3 140,8 252,5 315.7 351.6 437.6 714.1 773.7 685.8 601.0 597.3

Tbtal 962.2 836.2 1,247.5 2,152.5 1,552.1 2,095.6 2,190.3 2,407.8 3,763.4 4,818.1 3,906.3 3,709.5 3,835.5

Note: Tbtal exports are obtained from the Register of lWorts" in the antral Aank, %ille the balance of paymnts reflects exports for Udch the actualtrmnsactions took place.

Source: Central flank (custom data),

Tablo 3.3: DW0lS (F MM2HWMISE, 1971-83(MH.llou of U.S.$)

1971 1972 1973 1974 1975 1976 1977 1978 1979 195) 19811a 1982/a 1983/a

thum,r Goods 245.3 276.6 237.9 153.1 87,3 229,0 526.5 595.9 852.0 1,493.1 1,907.2 949.2 517.4lbod 144.8 202.5 178.1 46.0 25.5 48.1 102.5 132.2 169.7 422.8 313.1 190.6 131.5Otlers 100.5 74.1 59,8 107,1 61.8 180.9 424.0 463.7 682.3 1,070.3 1,594.1 758.6 385.9

Capital (bods 199.9 312.2 333.4 502.1 378.8 375.0 503.8 653.3 879.1 1,218.9 1,249.7 583.7 332.0

Intenndiate QDods 720.4 822.7 1,110.0 1,757.1 872.1 1,171.8 1,384.0 1,753.2 2,486.5 3,108.5 3,206.9 1,995.6 1,904.6FRels LM lubricants 109.7 101,5 147.9 480.8 257,0 392.2 447.0 480.0 888.7 959.6 983.2 614.8 572.4Agricultural raw materials 152.2 237.4 303.9 328.6 240.5 246.6 154.9 282,7 276,9 357,7 327.2 277.0 265.3InldstriLll raw raterinla 325.8 357.5 372.2 575.9 188.7 283.3 385.2 407.0 544.7 801.0 692.1 4334.1 533.4Irdutrlal intenmxdiate

goods n.a. n.a. 107.4 141,7 76.9 125.6 193.1 277.5 402.5 530.9 728.7 413.8 321,7OtIhrs 132.7 126.3 178.6 230.1 109.0 124.1 203.8 306.0 373.7 459.3 475.7 255.9 211,8

Tbtal 1,165.6 1,4U.5 1,681.4 2,412.3 1,338.2 1,775.8 2,414.3 3,002.4 4,217.6 5,820.5 6,363.8 3,528.5 2,754.0

/a vlteirg lnrts to free 2XYs hich wre U.S.$ miLlions, 411.5, 302.4 and 214.8 in 1981, 1982 and 1983 respectively.

Note: btal Inportes axe obtained frnu tie "Register of Tmports" In the Central hank, whtle the balance of paymecta reflects imports for uhidc theactual trmctions tock place.

TIble 3.4: . TINITION CF EXORUIS

(MLllIons of U.S.)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Litin AnMrica 127.1 142.9 111.0 149.9 358.1 368,7 587.6 634.2 630.6 952.5 1,137.0 864.8 718.7 463.6Brazil 21.9 30.1 19.0 33.5 124.9 91.5 269.5 314.5 253.4 383.7 448.3 288.2 308.2 164.3Argmitimi 70.5 59.5 50.0 74.8 147,1 155.6 134.1 149.5 165.7 275.6 279.1 191.3 151.3 119.4

Nbrtht Awrica 159.2 80.7 81.3 129,0 304.6 155.6 247.7 298.6 339.5 441.9 654.3 708.6 834.3 1,143.7Qnada 0.3 4.2 1.1 21.6 56.1 18.7 16.8 6.8 18.1 28.0 68.3 116,7 33.6 60.4Uhlted Stntes 158.9 76.5 80,2 107.4 248,5 136.9 230.9 291.8 321.4 413.9 586.0 591.9 800.7 1,083.3

FAiroai 677.0 542,2 450.2 644.5 973.9 762,5 919.5 839.8 953.2 1,610.3 2,110.5 1,412.3 1,361.8 1,432.6Chman Hirket 607.8 472.4 375.4 50Q.8 8D7,3 631.0 699.3 689.3 823.6 1,414.8 1,775.0 1,210.3 1,148.6 1,233.3Otl( r 69,2 69,8 74.8 141.7 166.6 131.5 220.2 150.5 129.6 195.5 335.5 202.0 213.2 199.3

Othmr 143.6 196.4 193.7 324.1 515.9 265.3 327.8 417.7 484.5 758.7 916.3 920.6 794.7 795.6Japal 134.4 ll8.0 144.4 220.4 353.4 174.4 223.7 246.8 278.4 415.8 501.5 426.7 440.0 348.1

IrAL 1,106.9 962.2 836.2 1,247.5 2,152.5 1,552.1 2,082.6 2,190.3 2,407.8 3,763.4 6,818.1 3,906.3 3,709.5 3,835.5

Sourwe: OatLmral &H*.

Table 3.5: IMPORT AND EXPORT QWUATIM AND PRICE INDEXES

1977-83 (1977=100)

g.iantum Price1977 1978 1979 19o0 1981 1982 1983 1977 1978 1979 1980 1981 1982 1983

ExportsMining 100.0 97.6 103.1 111.4 111.5 127.6 121.3 100.0 109.0 162.3 177.3 144.5 126.7Agriculture and fishery 100.0 132.2 145.7 153.8 161.0 183.4 219.4 100.0 0.9 113.8 138.5 142,2 128.1Industrials 100.0 133.0 162.6 171.3 150.6 188.0 210,3 100.0 0.9 122.0 145.0 135.4 100.0

Group Total 100.0 110.2 123.3 131.6 126.3 148.9 154.1 100.0 102.6 144.2 162.0 141.0 117.1 139.2

ImportsConsumer goods 100.0 109.7 142.7 176.1 260.4 154.3 101.9 100.0 103.2 113.4 132.3 139.1 116.8 96.4Capital goods 100.0 117.6 150.0 141,7 179,0 83,2 49,0 100,0 110,3 116.3 138.0 138.6 139.3 134.4Intermediate goods 100.0 123.7 136.2 148.3 166.7 111.5 114.7 100.0 102.4 131.9 141.9 139.0 129.3 120,0

Group Total 100.0 119.4 140.5 153,0 189.7 115.0 98,2 100,0 104,2 124,3 138.8 138.9 127.1 116.2

Source: Banco Central de Chile.

- 113 -

Table 3.6: AGRICULTURAL TRADE BALANCE, 1977-1983

(Millions of U.S.$)

Year Exports Imports Balance

1970 77.8 143.3 -65.51971 81.4 217.6 -136.21972 55.4 335.6 -280.21973 62.5 607.0 -544.51974 188.9 603.0 -414.1

1975 265.9 510.2 -244.31976 311.0 427.8 -116.81977 410.1 434.6 -24.51978 491.2 498.4 -7.21979 716.4 579.3 137.1

1980 974.1 787.7 186.41981 798.1 766.0 32.11982 711.8 564.5 147.31983 656.4 510.8 145.6

Source: ODEPA/Banco Central/Customs.

Note: Exports: Include paper, cellulose and derivatives.Imports: Include food and non-food of agricultural origin.

IV. EXTERNAL DIBT

- 114 -

Table 4.1: EXrERNAL IEBT EVOLUTION, 1975-83

(Millions of U.S.$)

1975 1976 1977 1978 1979 1980 1981 1982 1983/c

External Debt, Medium-and Long-term/a 4,267 4,274 4,510 5,923 7,507 9,413 12,553 13,815 14,832

Reserves/b -129 108 273 1,058 2,314 4,074 3,775 2,578 2,023

Net External Debt 4,396 4,166 4,237 4,865 5,193 5,339 8,778 11,237 12,809

/a Medium- and long-term loans. Includes public and private debt as of December 31 of each year.iE Assets In the Central Bank minus liabilities to the W . Gold is valued at market prices and

the reciprocal credit agreements are considered in the "net value"./c Provisional estimates.

Source: Central Bank of Chile.

- 115 -

'bble 4.2: EGll%L DEBT WiM MAllY OVER CM )EAR, 1970-83(Millons of U.S.$)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983/a

L PbliLc Debt 2,218 2.305 2,589 2,862 3,583 3.597 3,475 3,520 4,353 4,771 4,720 4,415 5,157 6,689

2. Private Debt 549 441 413 399 443 670 799 990 1,570 2,736 4,693 8,138 8,658 8,143

Sjpes'credit 136 121 103 93 121 170 199 190 193 201 303 463 413 321

UInes of creditfor Import ofcapital gpods - - - - - - - 175 325 499 457 404

Financial credits 413 320 310 306 322 500 600 8O0 1,377 2,360 4,065 7,176 7,788 7,418

Ibtul I + II 2,767 2,746 3,002 3,261 4,026 4,267 4,274 4,510 5,923 7,507 9.413 12,553 13,815 14,832

/a Pmvisional e.timtes.

S- e: Cental Bm*n of Odle.

- 116 -

Table 4.3: PROJECTED EfTlERNL DEMT AMORT-ZATlONS AFTER RESCHEDULING. 1983-1992

(Millions of U.S.0)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

Financial Program 1983 11.8 16.2 220.5 1420.4 1420.7 1313.9 258.8 1.7(1+2+3)

- Public Sector - - 200.0 887.7 887.7 787.7 121.9 -- Private Sector 11.8 16.2 20.5 532.7 533.0 526.2 136.9 1.7

1. New Credit Public Sector 200.0 400.0 400.0 300.0 - -(U.S.S 1,300 MM)

2. Amortization Renegotiation 11.8 16.2 20.5 1020.4 1020.7 1013.9 258.8 1.7Medium and Long Term 83/84(U.S.S 2175.1 M)

- Public Sector /a. c 487.7 487.7 487.7 121.9 -(U.S.$ 544.4 MM) (1) (3)

- Private Sector /b 11.8 16.2 20.5 532.7 533.0 526.2 136.9 1.7(U.S.S 1,779.0 `M) (4)

- Financial (U.S.$ 1,660.2 1M) 510.8 510.a 510.8 127.8 -- Corporate (U.S.S 118.8 MM) /d 11.8 16.2 20.5 21.9 22.2 15.4 9.1 1.7

/a Includes BHC-BUF amortization debt assumed by the public sector and short-term financial credits.b7- Includes short-term financial credits.

/c Includes deposit of private sector in the Central Bank./d As of June 30, 1984.


- 117 -

Thble 4.4: PROEJTED OlRAL IEZT INlEST SCDUE AFTE RESCIEDULING, 1983-1992

(million. of U.S.$)*

1983 1984 1985 1986 1987 1988 1989 1990 1991 1m

Financial Progre 1983 791.7 806.6 713.9 709.6 626.2 459.2 293.6 180.1 171.0(1+2+3)

- Public Sector 368.0 380.5 335.7 333.9 275.0 171.4 67.7 3.6 -

- Private Sector 263.7 233.0 207.6 205.1 180.6 117.2 55.3 5.9 0.4- Shor-teer commrcial 160.0 193.1 170.6 170.6 170.6 170.6 170.6 170.6 170.6

1. Mem Credit Public Sector 131.4 169.5 14L87 145.9 108.7 62.9 17.2 - -

2. Amortizatioas ltnegotiation 83/84 /a 500.3 444.8 395.6 393.1 346.9 225.7 105.8 9.5 0.4- Public Sector 236.6 211.8 188.0 18LO 166.3 108.5 50.5 3.6 -- Private Sector 263.7 233.0 207.6 205.1 180.6 117.2 55.3 5.9 0.4

3. Short-term Corcial (U.S.51,500 MI 160.0 193.1 170.6 170.6 170.6 170.6 170.6 170.6 170.6average from 1984)

Total Schedule of Interests Including1983 Contracts m*d Rescheduling 83/84 1,686.8 2,083.9 2,118.1 1,535.3 1,277.0 395.4 684.9 438.3 289.1 255.2

*he external credit interest at variable rates had been calculat"d sing an average variable base rate of 11.22 plus the correrpondirg spread in 1984-1985. In 1986 the averae variable bae rate used is 9.87Z plum the correspoudlog spread. Nearly 872 ofthe external debt balance as of 12/31/83 (U.S.$17,437 M approx.) have a variable interest rate.

/a Includes approxiately U.5.58.0 M per year in fees for the total renegotiation (2+3).

Note: Central Bank credit with BIS 1s not included.

Souce: Central Bank of Chile.

Table 4.5: CHILE -

SERVICE PAYMENTS. COMMITMENTS. DISBURSEMENITS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT

PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNOISBURSED AS OF DEC. 31, 1983DEBT REPAYABLE IN FOREIGN CURRENCY AND GOODS

(IN THOUSANDS OF U.S. DOLLARS)TOTAL

YEAR DEBT OUTSTANDING AT: T R A N S A C T I 0 N S 0 U R I N G P E R I 0 0 OTHER CHANGESBEGINNING OF PERIOD

-- - -- - -- - -- - -- -- - - - - - - - - - - - - - -- - - - - - - - - - - - - -- - - - -- - -- - -- - -- -

DISBURSED : INCLUDING COMMIT- DISBURSE- S E R V I C E P A Y M E N T S CANCEL- ADJWUST-: ONLY :UNDISBURSED: MENIS MENTS -----------:-----------:----------- LATIONS MENT *

: : : . . PRINCIPAL INlEREST TOTAL: (1) : (2) (3) (4) (5) (6) (7) (8) (9)

1970 1,727.336 2.305.227 343.258 397.331 163.400 77.950 241.350 24.101 73.5101971 2,065.748 2,534.494 297.502 211.093 161.762 80.387 242,149 20.162 73,6571972 2,179.803 2.723.729 335.450 256.411 71.139 26.499 97,638 14.424 250.5151973 2.589.016 3.224.131 371.127 314,623 119.157 36.718 155.R75 119.782 28.6281974 2.813.043 3.3a4.947 752,003 540.960 199.570 79,056 278,626 116,398 601.3971975 3.791.023 4.422.379 401.179 282,769 344.910 156.571 501.481 83.920 -5.4321976 3.732,381 4.389.296 482.593 432.489 546.293 208.903 755.196 7,116 -28.9791977 3.592.356 4,289,501 960.192 672.998 684.532 201,264 885.796 9,603 87.5611978 3.664,520 4.643.119 1.748.028 1.481.182 924.980 289.772 1.214.752 13.851 101.7411979 4.355.527 5.614.057 877.163 1.353.688 902.840 355,473 1.258,313 64.147 13.8551980 4.812,084 5.538.088 86Q.517 875.760 891,053 483,538 1.374.591 253.280 *90.93B1981 4.724.716 5.163.314 1.220.252 1.0l6.317 1.173.955 487.875 1.663.830 26.829 -163.9891982 4.497.688 5.016,813 1.511.130 1,287.4i6 481.930 551.208 1,033.198 17.163 -85.1881083 5.233.272 5,943.602 2.132.144 1.008.292 328.278 556.683 884,961 5.026 120.0031984 6.827.483 7.862.445

* * -* * * THE FOLLOWING FIGURES ARE PROJECTED * * * * * *

1984 6.827,483 7.862.445 - 307.839 733,389 688,438 1,421.827 - -80.8281985 6.385.108 7.048.228 - 240.155 721.375 658.123 1.379.498 -11986 5.903,886 6.326.852 - 162.551 974.975 595.512 1.570.487 - 71987 5.091.467 5,351.884 * 129.069 1,013,600 508.452 1.522,052 - -51988 4.206.933 4,338.279 74.393 1,149.322 400.487 1.549.809 - 51989 3,132.009 3.188.962 - 30.372 1,025,911 280,99 1.306.510 - -91990 2.136.459 1.16' 042 - 13.851 720.693 175.b45 896,238 - 111991 1.429,629 :.44k.360 - 8.890i 262,131 112.342 374,473 - -11992 1,176.388 1.180.228 - 3,840 172.862 88.817 261.679 - -41993 1.007.362 1,007.362 - - 160,080 72.846 232.926 - 41994 847,286 847.286 - - 148.1E8 58,653 206.821 -I

1995 699.119 699,119 - - 137,564 45,379 182,943 - -11996 561,554 561.554 - - 109.127 34.710 143,837 -1

1997 452.428 452,428 - - 106,098 25.944 132,042 - -31998 346.327 346,327 - - 90.111 17,909 108.020 - 5

* THIS COLUMN SHOWS THE AMOUNT OF ARITHMIETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONEYEAR TO THE NEXT. THE MOST COMMON CAU!iES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTSFROM ONE CATEGORY TO ANOrHER IN THE TAM1LE.

V. PUBLIC PIANCE

- 119 -

Table 5.1: SUtMARY OPERATIONS OF THE CONSOLIDAMED PUBLIC SECrOR, 1977-1983 /a

(In billions of Chilean Pesos)

1977 1978 1979 1980 1981 1982 Est. 1983

Current revenue 103.7 178.7 260.6 376.9 409.7 385.0 468.5General government 95.5 163K. 250.9 353.8 WX 3 22.6Operational surplus of the

public enterprises 21.0 38.7 75.3 106.8 71.9 101.9 174.6Net transfers to the general

government -12.8 -23.7 -65.6 -83.7 -71.3 -87.8 -128.7

Current expenditure of thegeneral government 84.0 139.9 191.3 263.3 338.9 395.2 466.8

Current account 19.7 38.8 69.3 113.6 70.8 -10.2 1.7

Net capital revenues -0.3 0.5 7.7 4.2 5.8 26.0 30.3Revenue 4.9 10.4 18.9 24.3 41.0 q5.6 61.9

less: financial investment (5.2) (9.9) (11.2) (19.9) (35.2) (70.6) (31.6)

Capital formation 19.3 30.5 40.3 58.2 66.0 57.8 86.9

Over-all surplus or deficit 0.1 8.8 36.7 59.6 10.6 42.0 -54.9

Financing -0.1 -8.8 -36.7 -59.6 -10.6 42.0 54.9External 1.1 1.0 -0.2 -1.4 34.9 27.8 -15.2

Drawings (19.1) (26.6) (31.2) (44.3) (83.4) (156.7) (164.8)Amortization (-18.0) (-25.6) (-31.3) (-45.6) (-48.5) (-128.9) (-180.0)

Internal -1.2 -9.8 -36.5 -58.2 -45.5 14.2 70.0Banking system n.a. n.a. (-39.5) (-40.9) (-35.7) (23.9) (53.0)Otber, including statis-

tical discrepancies n.a. n.a. (3.0) (-17.3) (-9.8) (-9.7) 17.0

La Operations in foreign currency converted in Chilean pesos at US$l"Ch$37.25 for 1979; US$1-Ch$39.00 for1980 and 1981; US$1=Ch$5O.90 for 1982; and US$1-Ch$78.50 for 1983.

SourceE: Ministry of Finance and mission estimates.

- 120 -

Tible 5.2: SMKM4ARY OPERAIIONS OF ToE GE2ERAL QoVER*t4EMr, 1977-83 /a

(In billions of Chilean pesos)

1977 1978 1979 1980 1981 1982 Est. 1983

Total revenue 94.9 163.1 256.8 352.2 409.3 392.0 462.7Current revenue 95. 163.7 250.9 W3W53.8 TOK l 37 0.9Net capital revenue -0.6 -0.6 5.9 -1.5 0.2 22.0 31.3

Total expenditure 94.1 157.9 217.0 293.2 372.2 421.3 510.1Current expenditure 840- 139.9 191T.3 263.3 35-.2 475.6Capital expenditure 10.1 18.0 25.7 29.8 33.3 26.1 34.5

Overall surplus ordeficit (-) 0.8 5.2 39.9 59.0 37.1 -28.4 -47.4

Current account U.5 23.8 59.6 90.4 70.2 -24.3 -44.2Capital account -10.7 -18.6 -19.7 -31.4 -33.1 -4.1 -3.2

Financing -0.8 -5.2 -39.9 -59.0 -37.1 28.4 47.4hrernal borrowing -3.7 -2.0 -7.7 -4 -1.8

Drawings (2.5) (4.3) (2.2) (2.0) (1.8) (6.4) (10.3)AMortIzation (-6.2) (-6.3) (-9.9) (-10.2) (-8.5) (-10.6) (-12.1)

Internal financing 4.5 -3.2 -32.2 -50.9 -30.4 32.6 49.2Banking system na. n.a. (-36.3) (-37.5) (-27.0) (34.5) (45.1)Other, including

statistical discrepancies n.a. n.a. (4.1) (-13.4) (-3.4) (-1.9) (4.1)

/a Cperations in foreign currency converted In Chilean pesos at US$I-Ch$37.25 for 1979; US$1-Ch$39.00 for1980 and 1981; US$S-Ch$50.90 for 1982; and US$1-Ch$78.50 for 1983.

Sources: Ministry of Finance and mission estimates.

D.ble S.3: CID aIT/a RRVi AND AM2)DlUflR, 1978-82

(Millions of Pesos)

1978 1979 1980 1981 1982 1983 1984Budget kerewd lidget Actiad adet kcenied Iigt Accrwd xWget kAccrd &zgeWt toi.wd 1i.drt

Total Revawses f oiqo ration 23,288.4 26,445.9 37,276.0 38,285.2 52,583.5 60,556.1 71,914.4 67,950.4 84,851.5 71,344.3 77,056.8 69,351.7 65,80D.3

Soial Swcurity Contributiom 18,136.4 18,121.4 41,290.2 40,730.3 60,028.1 59,438.6 71,187.2 53,254.4 37,869.7 32,603.1 40,616.2 37,206.2 44,824.1mixes 93,220.9 98,230.3 154,905.9 166,556.4 219,456.1 245,480.1 303,056.8 291,954.0 290,919.8 295,117,1 323,405.8 341,716.1 363,322.9Sale of FIJed Aatet 3,989.8 4,126.9 10,416.3 11,296.3 8,342.2 8,381.9 28,729.4 18,482.8 37,824.3 51,481.4 46,210.4 18,039.5 29,778.7Aortizatlon of Inm'a 4,255.1 4,772.8 5,607.2 5,365.3 8,195.3 8,962.6 10,539.9 9,928.9 10,932.2 9,028.1 J,630.9 14,167.0 15,566.7Traisfen 13,595.9 13,695.0 22,143.3 22,141,5 16,774.2 15,098,6 21,643.2 22,370.5 24,667.1 21,737.0 9,406.2 13,378.9 9,137.0orn1wng 21,354.4 10,386.0 11,494.9 7,137.6 7,609.1 6,436.3 7,918.9 3,228.2 36,885,2 25,719.6 64,857,1 72,908.1 101,137.5

Otherz 33,176.9 30,840.2 26,945.1 21,160.7 39,333.8 24,230.9 65,420.8 59,127.9 105,423.4 42,783.3 26,290.4 31,152.3 29,168.2

h7tal Preves 211,017.d 206,618.5 310,078,9 312,673,3 412,322.3 428,585.1 580,410.6 526,297.1 629,373.2 549,813.9 601,4R1.8 597,919,8 658,813.4

Tbtal Fzgzmdituns1.e ai Salaries 50,616.8 48,966.6 73,249.5 71,664.9 10,986.6 95,345.2 107,796.0 104,415.1 120,941.1 115,103.2 127,127,6 124,862.7 U9,136.1blrrhuns of Cooda id Services(ron-Awables) 20,298.4 18,563.5 26,189.7 24,872.0 36,207.1 31,058.2 44,668.5 39,459.0 47,t31.0 44,109.7 60,138.2 56,833.3 49,830.0

Phihss of Gboo ad Services(Mwables) 578.2 322.3 458.0 301.2 4,107.7 3,457.3 4,460.8 2,519.3 5,234,1 4,536.3 4,623.8 3,754.3 5,151.6

Social S&urty Bawfita o0. 0.0 54,625.4 54,029.5 79,896.4 74,833.5 114,158.8 101,326.2 137,812.0 128,016.1 159,304.7 147,240.3 188,636.1nrrt Tranfers 71,376.1 74,424.2 61,702.3 56,805.6 82,485.5 67,367.3 L50,762,4 122,2.9 190,702.2 153,300,1 120,811.8 119,874,4 144,155.2

Fin.1 Bq1xituzm 10,834.1 5,520.8 9,094.2 7,963.3 12,074.7 14,766.6 37,041.6 35,363.9 31,461.8 12,880.3 8,595.6 7,808.4 9,830.2lzwtment In FI,d Asatt 22,283.7 17,826.7 30,640.8 25,362.1 39,020.5 31,262.6 52,318.5 36,675.5 44,621.6 29,217.6 52,457.0 37,922.4 48,378,6Ylnm.e Irmast 10,473.3 9,025.5 14,098.6 10,636.2 23,126.1 19,468.9 40,787.8 28,175.7 25,584.1 43,676.8 38,200.2 18,863.9 24,467.1QCpital Trtmfers 4,502.3 3,781.1 6,039.9 5,253.2 2,319.9 1,806.1 1,968.0 1,064.0 1,935.2 1,188.7 4,501.0 3,234.2 7,231.4P&bllc Debt (Ahzrtiztloi

am Interests) 20,055.0 20,689.5 33,980.6 33,327.6 32,097.8 54,499.8 26,448.3 54,302.6 23,260.1 23,037.5 47,219.1 47,336.1 61,997.1

lbtal kpenit& 211,017.9 199,120.2 310,079.0 290,215.6 412,322.3 393,865.5 580,410.7 525,715.0 629,373.2 555,066.3 622,979.0 567,730.0 658,813.4

La IrclUdes central gwen7t, 1Oal gernIMnts, sociad surity, state munt% cs.y, state petrol.. coanry, state ratlwys, achisnttratim. of ports,state airines, state d4bui1dzll psds, aid pst offlee.

_t__ 7w d fntitLn of pwnTit In tis table Is different froa the onsolidsted yubHe tor tables in tht twes bolude al the state-amed .ltesrWLes.

Sowisa )stry of FYiio.

Table 5. 4: PUBLIC SCIl POUIS, 1977

(Mllions of Peeo)

Ibtal MjuetsHlt for IbtalGeraral Pab1I PuibUc Sector Intra-Gwernuut Public Sector

GDbvrm t Piterprises aRF0 aEIM (Gross) Trrasfers (Net)

1. Grrent Paenms 95,546.7 26,420.2 23,256.3 26,692.8 171,916.0 12,199.8 159,716.22. Cwrt Experditures 83,960.6 21,618.7 17,113.9 16,643.6 139,336.7 1,638.1 137,698.63. fransfers go 2,755.9 1,371.6 8,650.4 12,778.0 10,561.7 2,216.3

- Operating Surplt .. 2,605.9 743.3 3,632.4 6,981.6 4,765.3 2,216.3- Tas and Others .. 150.0 628.8 5,018.0 5,796.4 5,796.4 ..

4. C.rrent Acoot Surplus or Deficit 11,586.1 2,045.6 4,770.7 1,398.8 19,801.3 .. 19,801.35. Capital RPveiues 4,584.5 245.1 .. 22.7 4,852.3 of 4,852.36. Capital EKpenlitures 15,352.5 847.2 6,210.9 2,145.7 24,556.3 .. 24,556.3

-Acqusaition of Fixed Assets 10,125.4 845.2 6,210.9 2,145.7 19,327.2 .. 19,327.2- Others 5,227.1 2.0 ,. .. 5,229.1 .. 5,229.1

7. Overali Surplus or Deficit 818,1 1,443.5 -1,440.1 -724.2 97.3 .. 97.3

8. lbtal Finacing -818.1 -1,443.5 1,440.1 724.2 -97.3 .. -97.3Financirg Abroad (net) -3,659.8 1,775.6 2,635.8 337.0 1,088.1 .. 1,088.6- Borrowing 2,527.3 2,135.7 5,257.0 9,154.5 19,074.5 so 19,074.5- epe yumts -6,187.1 -360.1 -2,621.2 f8,817.5 -4,891.5 .. -17,985.9I<stic Finaxin 4,263.3 -408.8 419.0 .. 4,273.5 .. 4,273.5- Borwin 6,588.6 1,910.3 1,292.7 .. 9,791.6 .. 9,791.6- Repayments -2,325.3 -2,319.1 -873o7 .. -5,518.1 .. -5,518.1Char8es in Cash Positim -10,428.7 -2,685.5 -1,404.8 387.2 -14,131.2 .. -14,131.7FinancAl Ivestment (net) .. -45.0 -209,9 * -254.9 .. -254.9Others 9,007.1 -79.8 .. .. 8,927.2 .. 8,927.2

Not applfrable.

Nte: ¶btals may not add up du to rounding.

Source: Ministry of Fhwm.

Table 5.5: PUBLIC R C AC1t4, 1978

(Milliors of Pesos)

Tbtal Adjusbnmt for TotalGeneral PUblic Public Sector Intra-Gaenint Public Sector

G(vernnt Bhterprises cFO OOlX10 (Gross) Transfers (Net)

1. rremt Sevemies 163,723.5 43,593.3 41,300.7 44,078.6 292,696.2 23,208.4 269,487.82. Omrrent EDcpendlitures 139,878,6 33,962.3 31,482.7 24,795.7 230,U9.4 2,989.0 227,130.33. fMansfers ., 8,323.1 2,852.2 12,511.8 23,687.1 20,219.4 3,467.8

- Operating Surplu .. 5,271.9 2,733.3 6,115.9 14,121.2 10,653.4 3,467.8- Tax aMd Otlers .. 3,051.2 118.9 6,395.9 9,565.9 9,566.0 es

4. Q(Tet Accotint Surplus or Deficit 23,844.9 1,307.9 6,965.8 6,771.1 38,889.7 .. 38,889.75. Chpital Revemes 9,247.5 919.7 119.5 110.8 10,397.5 .. 10,397.56. Capital Expenlitures 27,813.3 659.1 7,887.7 4,025.8 40,385.8 .. 40,385.8

- Acquisitiotn of Fixd Assets 17,961.3 659.1 7,887.7 4,025.8 30,533.8 ,, 30,533.8- Others 9,852.0 .. .. .. 9,852.0 .. 9,852.0

7. Overal Surplus or Deficit 5,279.1 1,568.5 -802.4 2,856.1 8,901.4 .. 8,901.4 w

8. lbtal FinAncg -5,279.1 -1,568.5 802.4 -2,856.1 -8,901.4 .. -8,981.4Financirg Abrmad (net) -1,964.9 1,630.7 4,041.3 -2,685.8 1,021.3 .. 1,021.3- Borruir.g 4,275.8 6,132.5 5,726.6 10,419.4 26,554.3 .. 26,554.3- Repayments -6,240.7 -4,501.8 -1,685.3 -13,105.2 -25,533.0 ,, -25,533.0Jl,nstic Finnairg 652.0 70,3 -749.1 ,. -26.8 -26.8- BorrAirg 6,298,8 966.1 970.4 .. 8,235.2 .. 8,235.2- Repayments -5,646.8 -895.8 -1,719.5 .. -8,262.0 .. -8,262.0Ciaes in Cash Pbsiticm -4,240.6 -1,387.2 -2,197.2 -170.3 -7,995.4 .. -7,995.4Fcial Invesbrent (net) .. -1,705.3 -292.6 .. -1,997.8 .. -1,997.8Others 274.4 -177.0 , .. 97.3 97.3

Not applicable.

Ibte: Ibtals mEBy not add up due to rminrirg.

Source: Ministry of Finance.

Table 5.6: EUBLIC C9R K0W1S, 1979

(Killiot. of Pewso)

lbtal AdjusPti,nt for IbtalGneral Public Public Sector Intra-onern t Public Sector

Qovermnt Fnterprises CORFO OOEIJX (Gross) Transfers (Nt)

1. Oirrent ?everes 250w874.9 80,470.9 49,170.0 80,600.0 461,115.8 60,375.6 400,740.22. Current &penditures 191,258.9 64,636.7 37,189.2 33,077.3 326,162.1 1,552.5 324,609.63. lransfers .. 21,273.3 7,551.7 36,801.7 65,626.7 58,823.1 6,803.6

- Operating Surplus .. 19,654.8 6,662.7 24,365.6 50,683.1 43,879.5 6,803.6- Txes and Others .. 1,618.5 889.0 12,436.1 14,943.6 14,943.6 ,,

4. Crrent Account Surplus or Deficit 59,616.0 -5,439.1 4,429.1 10,721.0 69,327.0 .. 69,327.05. Capital Reventes 17,159.3 1,395.7 250.8 105.1 18,911.1 .. 18,911.16. Capital nperditures 36,903.2 1,529.0 6,447.1 6,630.5 51,509.8 .. 51,509.8

- Acquisition of Fixed Assets 24,759.6 1,528.8 6,447.1 6,630.5 39,366.0 .. 39,366.0- Others 12,143.6 0.2 .. .. 12,143.8 .. 12,143.8

7. Overall Surplus or Deficit 39,872.1 -5,572.4 -1,767.2 4,195.6 36,728.3 .. 36,728.3

8. Ibtal Financlng -39,871.9 5,572.4 1,767.2 -4,195.6 -36,728.0 -36,728.0Finanring Abroad (net) -7,663.5 7,371.7 3,420.9 -3,371.8 242,7 ., 242.7- Borrowing 2,194.5 17,354.7 10,442.6 1,133.1 31,124.9 .. 31,124.9- Repaymnts -9,858.0 -9,983.0 -7,021.8 -4,504.9 -31,367.6 . -31,367.6Domestlc Financing -9,086.3 644.5 -534.9 .. -10,265.7 .. -10,265.7- Borrowing 4,742.2 491.1 938.6 .. 6,171.9 .. 6,171.9- Repayments -13,828.5 -1,135.6 -1,473.5 . -16,437.6 . -16,437.6Changes in Cash Position -27,202.2 -399.9 -835.1 -823.8 -29,261.1 .. -29,261.1Finacial Invesbment (net) ,. -1,556.7 -173.6 es -1,730.3 , -1,730.3Others 4,080.1 801.8 -110.1 .. 4,771.8 .. 4,771.8

0, Not applicable.

Note: Tbtals nmy not add up due to rounding.

Source: Ministry of Finance.

Mible 5.7: FUBLIC SBC1U AOCUNIS, 1980

(Millions of Pesos)

Total Adjustnest for TotalGeneral Public Public Sector Intra-Gbvernment iublic Sector

Gbvernment Enterprises CCRFO CODELuO (Gross) Iransfers (Net)

1. (lrrent Revenues 353,771.2 111,203.7 67,499.4 102,026.2 634,500.6 77,099.6 557,401.02, Current Expenditures 263,329.7 76,400.1 51,147.8 46,354.7 437,235.4 577.1 436,658.23, Transfers .. 26,868.5 11,894.9 44,941.5 83,704.9 76,522.5 7,182.5

- Operating Surplus .. 24,888.9 8,266.0 27,350.0 60,505.0 53,322.5 7,182.5- sxes asn Others .. 1,979.6 3,628.9 17,591.5 23,199.9 23,200.0 .,

4. Current Account SurpAus or Deficit 90,441.7 7,935.1 4,456.7 10,726.9 113,560.3 .. 113,560.35. Cbpital Reverues 18,438.7 4,248.2 1,331.3 104.3 24,122,5 .. 24,122.56. Capital EKpenditure 49,849.8 6,583.9 11,183.9 10,508.0 78,125.6 .. 78,125.6

- Acquisition of Fixed Assets 28,035.3 6,583.9 11,183.9 10,508.0 56,311.1 .. 56,311.1- Others 21,814.5 .. .. .. 21,814.5 .. 21,814.5

7. OveraU Surplus or Deficit 59,030.4 5,599.4 -5,395.9 323.2 59,557.2 ,. 59,557.2

Ln8. ¶btal Financing -59,030.4 -5,599.4 5,395.9 -323.2 -59,557.2 . -59,557.2

Financing Abroad (net) -8,136.9 -2,083.0 6,806.5 2,047.7 -1,365.7 ,, -1,365.7- BorrGAng 2,038.9 22,540.6 14,121.3 5,564.1 44,265.0 .. 44,265.0- Repayments -10,175.9 -24,623.6 -7,314.8 -3,516.4 -45,630.7 .. -45,630.7Dauestic Financing -30,914.0 -324.0 -1,237.4 .. -32,475.4 , -32,475.4- Borrnwing 4,364.0 137.9 1,637.2 so 6,139.2 .. 6,139.2- Repayments -35,278.0 -462.0 -2,874.6 es -38,614.6 ,. -38,614.6Changes in Cash Pbsition -6,601.7 249.9 347.4 -2,370.9 -8,375.4 ,. -8,375.4Financial Investment (net) ,, -3,425.8 -498.7 .. -3,924.5 ,. -3,924.5Others -13,377.8 -16.5 -21.9 .. -13,416.2 ,. -13,416.2

,Nt applicable.

Nbte: Tbtals may not add up due to roxidlng.

Source: Ministry of Finanme.

Thble 5.8: RIBLIC SD= ACOOL[, 1981

(Millions of Pesos)

Tbtal Adjustrmt for TotalGeneral Publkc Pablic Sector Intra-Gwennt Public Sector

Goverrumt Enterprises LmUm O(IUO (Gross) Transfers (Net)

1. Qirrent Ruvemus 409,078.9 114,176.8 77,620.4 78,611.1 679,487.2 65,780.9 613,706.32. Cret nKpenditures 338,900.1 81,580.0 63,228.1 53,713.7 537,421.9 290.0 537,131.93. ransfers ,. 28,784.7 17,214.9 25,273.7 71,273.3 65,490.9 5,782.4

- Operating Surplt .. 25,796.8 12,637.2 14,822.4 53,256.4 47,474.0 5,782.4- Taxes anx Others .. 2,987.9 4,577.7 10,451.3 18,016.7 18,016.9 of

4. Current Account Surplus or Deficit 70,178.8 3,812.1 -2,822.6 -376.3 70,792.0 e. 70,792.05. Capital Revenus 35,448.6 2,752.7 2,539.2 226.4 40,966.8 .. 40,966.86. Capital Exerxditure 68,505.7 8,507.3 13,020.1 11,148.9 101,181.9 .. 101,181.9

- Acquisition of Fixed Assets 32,139.4 8,474.4 13,020.1 11,148.9 64,782.7 .. 64,782.7- Others 36,366.3 32.9 .. so 36,399.2 .. 36,399.2

7. Overall Surplus or Deficit 37,121.7 -1,942.5 -13,303.5 -11,298.8 10,576.9 .. 10,576.9

8. Total Financing -37,121.5 1,942.5 13,303.5 11,298.8 -10,576.9 .. -10,576.9Financing Abroad (net) -6,702.1 8,003.3 21,763.3 11,864.7 34,929.2 o. 34,929.2- Borrowing 1,784.4 30,890.1 27,366.0 23,338.4 83,378.8 .. 83,378.8- Repayments -8,486.5 -22,886.8 -5,602.7 -11,473.6 -48,449.6 .. -48,449.6Domstic Flnmxang -38,359.4 -325.5 -4,249.9 of -42,934.8 .. -42,934.8- Borrowir6 1,918.3 330.0 1,428.0 .. 3,676.3 .. 3,676.3- Repaymients -40,277.7 -655.5 -5,677.9 .. -46,611.1 .. -46,611.1iarrges in Cash Position 11,341.1 -1,023.2 -2,590.3 -565.9 7,161.7 .. 7,161.7

Financial Investment (net) ., -4,713.1 -251.6 .. -4,964.8 , -4,964.8Others -3,401.1 1.0 -1,368.0 .. -4,768.2 .. -4,768.2

Not applicable.

%te: Totals my nmt add up due to roading.

Soarce: Ministry of Finance.

lible 5.9: RPBLIC 9 ACMIWNI, 1982 /a

(Millions of Pesos)

Tbtal AdjustnmEt for IbtalGeneral Public Public Sector Intra-Gverment ublic Sector

Governrunt Ehterprises OlRFO C)O (Gross) Transfers (Net)

1. Qirrent Revenues 370,924.2 117,955.4 94,763.6 93,002.4 676,645.6 81,069.7 595,575.92. OArrent EKcpditures 395,241.4 71,463.6 70,065.3 62,313.8 599,084.1 774.5 598,309.63. Iransfers .. 39,086.4 19,823.3 28,850.7 87,760.4 80,295.2 7,465.2

- Operating Surplts so 33,782.8 U1,736.0 20,959.7 66,478.5 59,013.3 7,465.2- hxe8s mid Otters .. 5,303.6 8,087.3 7,891.0 21,281.9 21,281.9 ..

4. Current Accotmt Surplus or r'eficit -24,317.2 7,405.4 4,875.0 1,837.9 -10,198.9 ., -10,198.95. Capital Revernus 92,522.4 1,753.4 2,127.2 183.3 96,586.3 1,272.8 95,313.56. Capital Expenditures 96,636.6 7,982.8 14,794.9 8,955.1 128,369.4 1,272.8 127,096.6

- Acquisition of '1xed Assets 26,064.3 7,964.4 14,794.9 8,955.1 57,778.7 ., 57,778.7- Otiwrs 70,572.3 18.4 to ,, 70,590.7 1,272.8 69,317.9

7. (verall Surplus or Deficit -28,431.4 1,176.0 -7,792.7 -6,933.9 -41,982.0 ,, -41,982.0

8. lbtal Finaicing 28,431.4 -1,176.0 7,792., 6,933.9 41,982.0 ,, 41,982.0Financing Abroad (net) -4,195.6 4,807.2 12,408.4 14,763.9 27,783.9 * 27,783.9- borraoig 6,390.9 48,497.4 38,171.7 63,591.7 156,651.7 ., 156,651.7- Repaymnits 10,586.5 43,690.2 25,763.3 48,827.8 128,867.8 .. 128,867.8Dzmastic FiNtucing 32,627.0 -5,983.2 -4,615.7 -7,830.0 14,198.1 ,, 14,198.1- Borrwirg 20,846.3 2,444.4 1,282.8 2,138.2 26,711.7 .. 26,711.7- Pepayints 6,097.5 1,068.2 3,197.3 .. 10,363.0 .. 10,363.0Changes in Cash Rusition 19,762.1 -381.8 -1,823.8 -9,968.2 7,588.3 ,, 7,588.3Finrxclal Investnent (net) .. 12,120.9 -1,092.7 13,213.6 ,, 13,213.6Others -1,883.9 5,143.3 215.3 .. 3,474.7 ,. 3,474.7

/A Excludes transactions in foreign exchne.

.. Nbt applicable.

Note: Ibtals my rnt add up dLe to mnding.

Source: Mdnistry of Finarce.

- 128 -

lhble 5.10: RlBLtC S ! ACWS, 1983/a

(MLUIosw of A-608)

Cenmeral Rbic *lbtal Adfsbreit for Total ?ubQ,ovmuot Blterprises IF0 00EU) PAblic Sector Intrz-Gv'errent rector

(Gro5) framfers (Net)

1. OArent sevemms 422,631 190,133 120,602 143,896 877,263 119,006 758,258

2. Orrei Bcenditures 466,788 110,373 86,726 82,960 746,846 1,871 744,975

3. Transfers 0 64,959 14,845 48,859 128,666 U17,134 11,529- Opemting Surplus 56,519 12,105 34,999 103,623 92,3 1,529- 7es arbd Others 8,441 2,740 13,860 25,041 25,041 0

4. GQrret kaont Surplusor 1efIcit 56,519 12,105 34,999 103,623 92,093 11,529

5. Ctp1ttal R eue 59,114 1,721 968 64 61,867 4,164 57,703

6. Capital lBpeditures 70,646 12,091 21,789 13,982 118,507 4,164 57,703- Acqudsltam of fLxI asets 35,205 n1,056 17,972 13,982 78,215 0 78,215- Otherb 35,441 1,035 3,817 0 40,293 4,164 36,129

7. Ovrll Surplus or Def1cit -55,688 4,430 -1,790 -1,860 -54,888 -0 -54,888

8. lbtal F'1naitIm3 55,688 -4,430 1,790 1,840 54,888 54,888

TgwcA' abzo. (net) -2,610 -8,127 -1,869 -2,555 -15,161 -15,161-IBorrm4 10,767 36,393 47,055 70,603 164,818 164,818- !hJyau -13,377 -44,520 -48,924 -73,159 -179,98D -179,980Imt1c fimicing 58,299 3,897 3,659 4,395 70,049 70,049- BoriwIzt 77,369 6,492 11,433 3,705 101,999 101,999- Rephjams -28,257 -5,895 -7,339 0 -41,491 -41,491Owges In cash positin 315 151 2335 0 2,801 2,801Firuicial Ini.estoet (net) 8,872 -2,640 1,397 -139 7,489 7,489Others 0 2,593 -4,168 830 -748 -748

/a lbdget; e1xcl1 tractlons in foreIp eccei. Tbtals ay not add u due to roudirg.

Source: Mistry of Firmce.

- 129 -

MdAe 5.I1 YUBLIC SECMo /CCOUNIS EUDSr, 19Q4a

(Mllliong of Ftscs)

GwmneaL Public obtal Adjusaent for Ibtal PkblcGcwr,ent Bhterprises COM CAOX Public Sector 1ntr&-Svesrnict Sector

(Gnus) ransfers (Net)

1. Ohrrent Ievemtes 503,167 223,457 144,955 167,403 1,03B,982 127,689 911,293

2. Orrent 5qperditures 556,073 135,201 103,748 105,229 900,251 1,441 898,809

3. Traisfers 0 76,852 14,113 51,996 142,961 126,248 16,713- operating Surplim 0 76,852 14,113 51,996 142,961 126,248 16,713- Ibxes and OtIhrs 0 7,998 2,727 11,468 22,193 22,193 0

4 Current Account SurFph ccrDeficit 52,906 11,404 27,094 10,178 4,230 0 4,230

5. Capital RePms 58,372 3,281 3,872 0 65,526 1,648 63,878

6. Ctpital Etenrdirs 85,951 19,279 45,898 47,289 198,418 1,648 196,770- Acquiedtimn of fixnd assets 41,563 17,843 43,855 47,289 150,550 0 150,550- Others 44,388 1,436 2,043 0 47,868 1,648 46,220

7. OveraUl Stwplus or Deficlt -80,486 -4,594 -14,931 -37,112 -137,322 0 -137,122

. Tbtal Plnmxig 89,486 4,594 14,931 37,112 137,122 137,122

Fin.mocl abzmad (net) 10,788 2,369 26,644 18,453 58,254 58,254- Dorrdg 22,062 56,666 33,259 86,206 198,195 198,195- .epsyMi 32,115 2,892 -4,293 0 -39,300 -39,300Domestic Fiaicin 69,697 2,224 -11,712 18,659 78,868 78,868- Bg-dM 93,336 6,247 2,092 2,016 108,691 10,691- _ep.its 32,115 2,892 -4,293 0 -39,300 -39,300

C..ges In cais position 123 1,417 2,485 0 1,192 1,192Pin*aicl 1rvesmnt (net) 3,353 850 -4,617 16,643 16,230 1,192Otheis 0 -565 -7,38D 0 -7,944 -7,944

/a Budbt; ecluide trmarctics in forelgn ed.arp Totals mny not add due to tD drIng.

Source: Ministry of Plnance.

VI. tOM Y STATISTICS

Table 6.1: CHlYI: IQR SrTISTICS, 1970-1983 Page 1 of 2

(In Hillions of Peso)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 19B2 1983 p/

Hbney (M) (*) 7.9 15.8 31.3 122.3 485.0 1,610.9 4,959.1 12,814.7 23,536.4 37,446.0 5S,783.0 74,712.0 73,653.0 89,283.0

Time Deposits (*) 0.8 0.9 0.6 0.7 5.3 356.9 2,630.0 11,151.9 27,088.2 55,501.0 81,625.0 198,982.0 241,046.0 200,998.0

Mmy H2) (*) 8.7 16.7 31.9 123.0 490.3 1,967.8 7,589.1 23,96.6 50,624.6 92,947.0 141,408.0 273,694.0 314,699.0 290,281.0

Qiasarmey (q) (M) 2.9 5.2 8.6 26.1 161.5 934.1 4,797.6 17,133.7 37,416.9 74,194.0 117,356.0 259,282.0 301,321.0 298,921.0

Pbblic Sector 1.9 3.4 9.8 39.9 246.0 1,032.7 4,481.5 9,947.5 18,652.3 24,877.0 51,167.0 59,585.0 44,158.0 40,185.0Mmey Acaxnt (*

Fiscal kcamt (a) 1.5 2.8 7.7 33.6 190.1 793.8 3,193.2 8,183.8 15,560.8 2D,453.0 41,772.0 44,266.0 27,869.0 27,062.0

Deposits in Foreign (In Millions of US$)OCrrmmy (**)

- CUrrnt Arcomnts 5.0 4.0 7.0 6.0 9.0 12.0 20.0 35.0 53.0 52.0 76.0 55.0 58.0 n.o.- OtIurs 62.0 49.0 57.0 42.0 46.0 46.0 90.0 108.0 108.0 113.0 175.0 181.0 244.0 319.0

Rltes

HI a OiTemy 4 Demd Deposits 0H2 - ml + Tism DepositsQLhimsey - Tiime Deposits, Sfvirg Deposits, Invstt ad otler sight drafts.Piblic Sector bxey Accamt - OCrrent Accot mintainel in the Bkiir System.Deposits in Foreign Oirrety - Private Sector Foreign Ourrecy Deposits in th M*lin system.(a) * Purid Awere Values(**) a =E of Period VaCLp/ - Prelimiry data

Soarce: Central Ih& of Chile

Table 6.1 CHILE: MLNETARY 91AIISTICS, 1970-1983, (Continued) Pago 2 of 2

(In illiorns of Pesos)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 192 1983 p/

Credit to Private Sector(*) 6.8 10.8 24.2 103.5 320.7 1,458.9 6,793.0 27,226.7 62,942.9 118,118.0 221,610.0 306,557.0 564,491.0 374,684.0

Credit to Public Sector (*) 2.1 16.1 62.8 355.1 1,075.4 2,572.3 7,870.4 21,873.2 30,310,3 46,024.0 59,381.0 61,637.0 113,645.0 170,347.0

Currency in Circulation t*) 3.1 6.5 14.6 56.4 190.8 681.7 2,377.3 6,244.5 11,425.3 18,279.0 27,047.0 36,104.0 38,519.0 41,840.0

Hbretary Reserves (*) 4.0 7.3 17.9 82.2 428.4 1,330.8 6,132.7 15,818.4 25,745.5 36,493.0 50,077.0 49,299.0 31,032.0 25,6W0.0

Currency (*) 7.2 13.9 32.5 138.7 619.2 2,012.5 8,510.0 22,062.9 37,170.9 54,772.0 77,124.0 85,403.0 69,551.0 67,740.0

Total Deposits (*) 10.9 19.5 38.2 142,0 725.7 3,179.6 12,603.7 36,436.4 73,028.7 128,226.0 225,168.0 418,599.0 434,860.0 426,815.0

RATOS

Mboetary Reserves/ 0,371 0.377 0.470 0.579 0.590 0.419 0.487 0,434 0,353 0.285 0.222 0.118 0.071 0.060Total Deposits

MI/CDP 0.080 0.124 0.133 0.107 0.053 0.045 0.039 0.045 0.048 0.049 0.056 0.058 0.060 0.060

H2/GDP 0.088 0.131 0.136 0.107 0,053 0.056 0.059 0.083 0.104 0.120 0,132 0.212 0.256 0.191

Qwasimwwey/CDP 0.030 0.041 0.037 0.023 0.018 0.026 0.037 0.060 0.077 0.096 0.109 0.201 0.245 0.190

Notes;

Credits to the Private Sector - Corresponds to the credits the hHnetary System has provided to the Private Sector.Credits to the Public Sector - Corresponds to the credits the Mbmetary Systen has provided to the Public Sector.C4rrency in Circulation - Correspords to bills and coins in circulation.Hobetary Reserves - Corresponds to the cash in the lizg Systen and those deposits maintained in the current account of the Central Baik.Hew omey - Gurrency in Circulation + ftoetary Reserves.Total Deposits - Total Deposits in Ntional Currency received by the Ba1ikig System.(*) - Period Average Valuesp/ - Preliminary data

S&irce: Central 9wk of Chile

- 132 -

Table 6.2: ChIle: Sueoay Accounts of che 3an2ing Sysrem

(In SIllons of Chilean pesos)

Oct.Oct. 1963

1979 1960 198I 1912 1962 1963 ( aSSi(USSI-ChS39.00) (USS1.a73. 57; Chl6.30)

nut iterntloal rerves 63 . 151 89,254 83.604 24.354 45.942 40584 5.617hsmu 10Z. 138 LS5.4LZ 169,241 115.770 21,.400 201.63 231.3VLiabiULttem -39,567 -66,156 45,637 -91 .422 -172.458 -101.19 -1".710

Met doeselc credit 220 191 391 867 581.327 762.334 952.677 I.057J183 1 133 682rimnanct-a pubUc succor not 4i0953 -1;9U -*5.610 -10.788 -Z.309 Z3.422 2.77CencraL Covernt Cnet) (66.306) C4.900) (S.214) (31.687) (52,S87) (".065) (70.43)Resc ol pubLic sector C(st) C-25.353) (-59.827) (-50,82) (-42.675) (-50.896) C40.663) (-43,184)

SiP 04.815 52.959- 560041 04670 64.670 75.74 75.74Private fl uncIa corporetiaoC 1504 11.749 23.369 13.735 14.032 45,769 50.01UPrivace sector 222. Z93 412.779 593.761 758,340 955,572 938.Q8K 969,924

Of which: by Intervened institutione (106 L 04) (106.604) (126.994) C(26.994OffliAZL capital wad *urpluo -133.071 -159.115 -157.065 -210.633 -216.984 -170.951 -173.,61Rawalustlao of pld 27.z70 39.490 22,954 22.760 42.934 39.028 4.720. t uncLassi1td asstu -12.t83 -2.36 62.775 120.95J 129.78 96.512 122.405IncerbadL float 286,10 47.782 15.062 3.292 -35.020 7,155 -2.945

SDt alIoc tlon 3.970 *.967 5,524 %524 9.911 9.501 10.887

21"Id- lsa om- m foreignLt bilta 8I.I9 131.970 207.403 22S.36S 430.778 488.078 559.263

Llabilities ro prirvate finuAncialco_rorations 1.391 4.1O4 2 331 721 1.103 2.003 2.071

Liabtlities co oriS t- sector 196 293 340 100 449 673 552 075 556 827 598 285 606.078ao-ey 50.776 79.212 72i3i 8 1Sr35 81.L54 f9.893 92.893-Currency Lu ciracusltou (24,375) (35.562) (44 488) (42,956) (4Z.958) (44.059) (".059)3m=nd deosits (ZS.901) (C3.650) (27,859) (38.1V6) (38.196) (48.834) (48,634)

,WAin-fssey I09.773 174.373 267.649 308.020 318.214 308.812 311.464,-w leposelI (80.274) (116.281) (209.603) (241.620) (241.620) (207.541) (207.541)Saviogs depolcac (23,523) (48.348) (49,337) (54,899) (54,S99) (82.949) (82,949)-reLpn currency depoctts (5.976) (9.24) (3.709) (11.501) (21.695) (18.322) (20.994)

'!r:a e bcands 8.282 z8.2z4 48.451 32.L20 d2,1:0 30.293 80.'93.- 'r-g ak 5c o and ,rh.er

l.abLLities 792 14.7 S,'S205 i-,.118 1.126 75.748 -6.)57Pri:ace capitl antd surpLus 26.670 43.537 5S.)21 6e.663 71.2L3 40.539 46,-51

3our_e: eicr%l Sank of Chile.

- 133 _

Table 6.3: Chile: Gross and Net Interest Spread on Short-TermOperations of Commarcial Banks and Financial Corporations

(In percent per month)

Commercial Banks Financial Corporations_ Gross Spread 1/ Net Spread 2/ Gross Spread 1/ Net Spread 2/

1979March 0.96 0.78 0.47 0.36June 0.94 0.45 0.84 0.34September 0.94 0.44 1.01 0.48December 0.65 - 0.30 0.81 0.45

1980March 0.54 0.39 0.67 0.51June 0.69 0.57 0.76 0.63September 0.55 0.44 0.70 0.57December 0.40 0.26 0.58 0.43





1/ Gross spread: The difference between the loan rate and the deposit rate.2/ Net spread: The gross spread adjusted for the costs of required and

voluntary reserves.

Table 6.4: Chiles LAeal leAcerVc Ieq%teftnts of lInanclal System 1/

(Il percent of deo Itu)

1980 1961 198Z 1983Applicable siocer Dec. I Aul. I Nov. L Dec. I Aus. 20 l8pt. 6 Oct. I NoW. 1 DJc. 1 J Juo I J l

Doenetie currecy o oc010tDeposits of less thn 30 days 10 1 10 110 10 10 10 10 10 10 10 10 10Ueposits betweeo 3O and 89 days 4 4 4 4 J 4 4 4 4 4 4 4 4 4Deposits betwee o90 days and I year 4 4 4 4 7 4 4 4 4 4 4 4 4Depouits of *at than I yesr 4 4 41 4 4 4 4 4 4 4 4 4Savings deposlts 10 10 tO 10 10 10 10 10 10 10 Ito 10 10 tOSwvings deposits wtb fixed term 4 4 4 4 4 4 4 4 4 4 4Deposits to Oint Ooate o Ptsc l 87 - - - - - -- -- -- --

Treasury 10 10 10 10 10 10 10 10 10 Lo 10 10 10SERVIV 10 10 10 10 10 10 10 10 10 l10 10 10 '

Public amtittoe 81? 08 47 30 10 10 1) 10 10 10amiand depolto frog COI40-8MA?-INAMI-

|oocial security tuads so so 80 6o 10 10 10 10 10 10 10 10 10 10(4r*iala rate 2/ 20 -- -- -- -- -- 9S 95 45 20 -

Foregon curtencyDsiaand deposits 10 10 10 10 10 10 10 10 to 10 IO 10 10 10

Tesu deposiu, 4 4 4 4 4 4 4 4 4

Sourcei Central Bank ot Chile.

1/ Applicable rates to comercial banks, state bank, tlusacial corporatioas, and saviego and loan cooperatives.A/ pplicable to all kinds ot deposite except those of the Treasurys public entities, and public entarpritce.

- 135 -

Table 6.5: Chile: Net International Reserves of the Banking System

(In millions 5f U.S. dollars)

Dec. 311979 1980 1981 1982 1983

Central Bank 1,938.6 3,182.2 3J186.8 1,793.9 1,223.1

Assets - 2,065.7 3,220.1 3,186.8 1,993.9 2.130.1Go-l l/ 64.3 71.9 71.9 72.3 67.1SDRs 2/ 28.9 3.8 19.1 19.5 5.4Foreign exchange 1,840.0 3,037.5 3,119.4 1,717.7 2,030.9Payment agreements

(net) 130.5 106.9 -51.5 112.8 19.4Other 2.0 - 1.8 - 7.2IMF reserve position - - 26.1 71.6 -

Liabilities -127.1 -37.9 - -200.0 -906.9Sbort-term liabili-ties - - -200.0 --300.0

Liabilities to LD -127.1 -37.9 - - -606.9

Co-mercial banks -431.8 -900.2 -1,151.9 -1.220.3 -771.0 3/

Assets 267.6 437.5 737.3 782.7 645.6Gold 1/ 5.8 5.5 5.6 5.6 5.6Foreign exchange 261.8 432.0 791.7 777.1 640.0

Liabilities -699.4 -1,337.7 -1,949.2 -2.003.0 -1,416.6Short-term loans 693.8 1,332.7 1,942.9 2,000.3 1,414.2Foreign banks deposits 5.6 5.0 6.3 2.7 -2.4

Banking system 1,506.8 2,282.0 2,034.9 573.6 452.1Assets 2,333.3 3,657.6 3,984.1 2,776.6 2,775.6Liabilities -826.5 -1,375.6 -1,949.2 -2,203.0 -2,323.5


1/ Valued at US$42.22 per ounce.2/ SDRs are valued at end-of-period rates with respect to the U.S.

dollar. In the balance of payments, the change in net official inter-national reserves is based on stocks in which the SDR components arevalued at the exchange rate of the base period.

3/ Excludes position of banks liquidated In January 1983.

VII. PRICES

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Table 7.1: CONSUMER PRICE INDEX, 1975-83

(December 1978-100)

Yetrs/Months Total Food Housing Clothing Others

1975 10.67 11.66 9.23 9.86 10.361976 33.27 36.47 28.95 31.23 31.241977 63.86 67.92 56.59 62.06 62.331978 89.46 91.44 86.03 87.51 89.361979 119.33 119.84 121.20 115.52 118.251980 161.26 163.06 169.17 148.07 156.451981 193.01 186.28 208.40 178.16 195.401982 212.19 193.01 234.97 183.22 230.721983 270.03 242.72 296.05 225.66 301.81

1982 January 201.07 187.27 220.88 183.28 211.16June 200.47 178.87 227.12 181.41 217.11December 241.08 214.37 270.09 192.89 270.86

1983 January 245.32 215.49 279.66 193.89 276.57June 265.32 233.17 293.25 227.99 300.81December 296.75 271.77 318.61 252.19 328.27

1984 January 296.96 266.41 323.71 254.25 332.42June 316.22 287.75 332.01 280.75 354.71

Source: National Institute of Statistics.

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Table 7.2: WHOLESAIE PRICE INDEX, 1974-83

(Base: December 1974-100)

Dow.stica11y Produced GoodsYears/Mbnths Total Total Agriculture Mining Industry Imported Goods

1974 52.40 53.79 58.36 49.88 53.40 49.521975 304.95 315.23 389.39 288.71 278.24 270.311976 979.30 1,028.06 1,347.01 842.29 877.96 815.141977 1,821.98 1,879.35 2,414.82 1,459.21 1,644.49 1,628.851978 2,604.51 2,725.57 3,252.51 2,205.18 2,511.37 2,196.921979 3,891.40 4,122.76 4,936.43 3,750.84 3,723.72 3,112.461980 5,430.62 5,770.36 6,676.05 5,776.06 5,259.78 4,286.761981 5,924.21 6,354.38 6,857.56 7,062.74 5,959.13 4,475.901982 6,350.08 6,762.16 6,907.23 7,580.32 6,551.07 4,962.671983 9,240.49 9,588.69 10,449.34 10,610.52 8,942.68 8,068.19

1982 January 5,703.46 6,071.95 6,065.37 7,138.61 5,906.88 4,462.81June 5,699.31 6,107.01 5,961.13 6,923.14 6,059.97 4,326.68December 8,011.72 8,423.91 8,871.79 9,446.15 8,010.12 6,623.96

1983 January 8,096.22 8,407.47 8,343.74 10,553.77 8,103.74 7,048.29June 9,087.42 9,397.05 9,892.62 10,358.68 8,966.02 8,044.94December 10,029.65 10,389.55 11,279.80 11,662.10 9,687.21 8,817.93

1984 January 9,985.46 10,239.60 10,504.29 12,146.58 9,788.92 9,129.84June 10,992.63 11,396.56 12,565.43 12,578.59 10,551.80 9,632.56

Source: National Iustitute of Statistics.

- 138 -

Table 7.3: INDEX OF WAGES AND SALARIES, 1974-83

(April 1959-100)

1-."'._ of By SectorsTotal Wages Public

Years/Months and Salaries Salaries Wages Utilities Mining Manufacturing Government

1974 January 6.2 6.5 5.8 7.9 5.6 7.6 5.0April 8.1 8.4 7.9 9.3 8.7 9.6 6.8July 14.2 14.6 13.9 15.8 18.2 15.5 12.3October 19.5 19.3 19.6 20.9 21.7 21.1 17.6




1978 January 678.0 674.0 681.7 650.2 807.1 772.7 582.2April 754.3 755.9 752.8 705.4 930.4 861.6 641.7July 850.8 860.0 842.2 902.3 991.3 988.0 710.6October 881.8 902.5 862.5 940.0 1,077.9 1,033.9 718.9

1979 January 997.5 1,006.3 989.4 1,040.9 1,175.8 1,178.1 817.2April 1,124.8 1,118.2 1,130.9 1,169.8 1,396.7 1,287.7 940.4July 1,248.3 1,235.7 1,260.0 1,340.6 1,497.8 1,442.2 1,038.6October 1,291.7 1,295.6 1,288.1 1,372.1 1,591.8 1,498.2 1,064.1

1980 January 1,518.4 1,508.6 1,527.6 1,603.3 1,826.3 1,767.8 1,255.3April 1,674.5 1,659.1 1,688.9 1,804.7 1,972.8 1,969.4 1,374.5July 1,754.2 1,727.1 1,779.4 1,946.3 1,969.2 2,073.8 1,444.1October 1,983.0 1,952.1 2,011.8 2,149.7 2,189.1 2,348.0 1,642.1

1981 January 2,103.8 2,078.0 2,128.0 2,371.8 2,414.1 2,507.9 1,701.4April 2,179.8 2,147.5 2,209.3 2,520.7 2,485.2 2,635.1 1,732.0July 2,265.3 2,218.7 2,309.0 2,704.4 2,467.0 2,737.1 1,813.6October 2,457.5 2,357.8 2,553.4 2,827.2 2,578.1 2,884.4 2,071.9

1982 January 2,493.2 2,358.9 2,623.2 2,840.3 2,550.7 2,880.6 2,153.2April 2.529.8 2.382.6 2,672.5 2,776.2 2,506.9 2,937.3 2,201.0July 2,480.9 2,308.7 2,648.4 2,760.9 2,528.2 2,805.0 2,201.9October 2,511.9 2,348.3 2,670.8 2,837.5 2,524.4 2,866.8 2,209.6

1983 January 2,668.3 2,500.4 2,831.4 3,085.3 2,800.6 3,070.7 2,294.2April /a 2,730.4 - - 3,061.7 2,888.6 3,109.3 2,354.5July 2,906.4 - - 3,298.9 3,040.6 3,340.7 2,489.5October 3,006.6 - - 3,389.9 3,278.4 3,460.6 2,501.4

1984 January 3,259.5 - - 3,743.0 3,457.5 3,693.5 2,865.0April 3,359.1 - - 3,784.3 3,609.9 3,810.1 2,876.3

/a December 1982 - 100.0.

Source: National institute of Statistics

- 139 -

Table 7.4: EXCHA.NGE RATE, 1982-83

(Chilean pesos/US$, monthly average)

Date Observed Referential Preferential

1982January 39.00February 39.00March 39.00April 39.00May 39.00June 43.02July 46.65August 55.34 - 49.96September 63.04 66.03 51.02October 66.27 66.98 52.79November 69.19 69.21 55.09December 72.39 71.54 57.52

1983January 74.04 72.82 59.13February 76.38 73.12 59.96March 74.48 73.39 60.77April 73.69 73.65 61.16May 75.10 75.22 62.46June 77.03 77.12 64.04July 78.25 78.29 65.01August 79.55 79.61 66.10September 81.24 81.27 67.47October 83.34 83.36 69.22November 85.29 85.30 70.83December 87.07 87.07 72.33

1984January 87.82 87.81 73.16February 88.12 88.10 73.52March 88.20 88.18 73.56April 88.55 88.65 73.92May 90.19 90.20 75.51June 91.13 91.14 76.61July 91.89 91.90 77.56

Source: Banco Central de Chile.

VIII. PRODUCTION ACCOUT

- 140 -

TabU 8.1: DINV OF DCuASIAL 1im1

(Bow: 1969.100)

Z Val,Mded 1972 1973 L974 1975 1976 1977 1978 1979 1980 1981 1982 1983

311-312 Food rclas (A) 16.3 168 10D4 104.2 92.6 108.6 109.5 18. 128.8 17 13.1 125.7 127.4313 Bevags (A) 5.1 127.0 110.8 92.0 88.1 109.0 124.7 141.2 141.8 157.6 159.5 127.7 141.6321 Ibmil (A) 10.2 125.3 119.2 l0D.1 68.7 71.6 ML0 93.5 100.0 95.3 91.2 78.7 99.4322 CIor' (A) 2.9 117.3 106.8 93.5 72.1 61.2 70.9 82.8 93.5 82.7 80.1 66.4 67.6

323 Ledter k tucry xcept footwe (A) Li 96.2 881 858 76.9 69.9 79.4 83.3 70.2 69.6 60.7 53.4 49.8324 Fooer (A) 1.8 119.6 117.1 98.1 64.2 70.0 708 82.5 77.9 75.4 70.0 55.7 60.5331 liter 1rditry (E) 3.0 148.8 132.2 109.3 63.3 98.7 128.7 154.3 191.8 204.7 188.2 167.5 158.5332 Fuitte aid Lceods 10 116.1 116.4 84.5 68.8 78.2 79.7 109.5 165.5 185.7 215.1 116.2 96.8

341 per fabriction (n) 2.1 97.9 90.9 97.3 89.7 99.9 10661 105.5 114.1 123.8 124.9 105.3 12L0342 Pudbh ad printir (F) 2.7 144.3 141.9 106.7 68.9 68.5 92.3 84.6 103.1 97.1 114.1 96.5 79.3351 hmical stices (D) 2.7 l2.0 105.8 96.6 52.6 58.0 59.3 66.3 71.4 63.7 55.4 46.8 47.6352 Othe chal products (A) 4.8 119.7 117.3 123.5 87.5 113.1 109.8 12L0 136.8 124.6 133.1 123.3 127.1

353 O1L refirery (D) 1.6 132.0 123.7 126.7 134.4 110.8 117.8 124.0 132.3 128.9 12.o 95.4 105.9354 Fttroan bprowr (D) 0.2 106.7 10L4 . 96.3 55.5 65.4 74.4 80.5 88.0 79.9 825 69.6 881355 Lawr products (1) 1.6 132.3 124.4 1204 44.6 76.0 988 82.4 96.0 101.6 95.7 60.5 92.8356 Plastic produts (F) 1.3 119.1 102.1 111.1 59.8 81.2 88.1 90.6 106.3 100.9 12L2 903 102.3

361 Fctery and dtns (E) 0.5 116.8 105.2 11.l5 69.2 64.1 72.9 88.2 9L3 100.5 7L8 29.3 34.4362 Glas CE) 0.8 119.3 136.4 109.8 54.3 101.5 132.3 146.4 149.4 161.6 l50.1 90.9 119.5369 Othwr Smu products, nra l (E) L9 105.6 100.1 117.6 60.8 56.5 63.8 73.2 86.1 97.9 115.7 6.7 73.4371 Bair stee aid in intry (D) 3.4 98.1 87.3 94.6 75.8 61.0 69.6 78.5 91.3 102.8 94.1 as 89.7

372 Nbrferroau erals hasie Industry (D) 13.1 118.8 1228 151.6 137.1 166.9 177.1 102 189.8 192.0 L95.1 190.4 200.7381 MetaUllk pmucs (E) 4.3 120.2 114.3 112.2 67.7 68.1 79.3 105.8 94.6 103.7 93.1 68.2 70.8382 Nelectric i.c}dnery (3) 3.2 12Z4 113.8 120.5 79.9 67.8 58.7 50.5 4L8 35.4 44.4 29.3 2373831-3839 Elcric aqtp1t (E) 1.0 115.3 116.8 155.1 70.8 80.9 96.5 103.8 217.9 210.3 229.7 127.6 112.0

3832 ectzoxxic qalpert (B) 2.0 146.3 169 142.4 118.5 74.7 83.3 113.5 9D.2 143.4 195.5 79.9 57.53833 Hbuehld electrical appliarem (B) 1.8 119.0 111.6 109.3 69.0 87.3 123.8 137.8 195.3 255 228.3 89.2 8L4384 frAporrarInn Material (C) 6.2 105.9 71.6 72.8 53.6 49.6 61.5 91.9 91.6 109.7 94.6 59.5 42.7385 Profesa±asl and sienitific eq. (F) 0.2 94.4 70.9 97.0 56.8 51.7 66.2 50.3 39.9 47.4 53.5 33.0 41.3390 Orhwr mtfcorgns idutries (F) 3.2 113.1 119.8 125.0 106.9 123.1 130.1 138.9 143.4 1518 1504 131.4 1605

Ixstry hEal 100.0 117.6 109.9 m.i 85.0 95.4 104.2 114.8 124.2 129.2 129.3 106.6 11.5

SerA (ber goods - nn-rables 44.8 116.6 110.0 104.3 84.6 96.2 101.6 124 119.7 120.1 119.0 106.3 115.7Set B Cb God - Dlables 7.0 128.3 111.2 123.9 88.1 75.9 825 90.9 95.1 122.1 134.8 59.2 482

or C MlspoTatin F4uaumnt 6.2 105.9 71.6 72.8 53.6 49.6 6L5 91.9 91.6 109.7 94.6 59.5 42.7

Sector D Intezitdite Izhuzi good tO 115.5 113.7 132.9 113.1 05 139.0 143.9 153.3 155.2 1540 146.3 1547Sector E Inr.ediate conction wads 12.5 123.5 117.8 11.35 65.1 77.5 93.4 114.5 135.4 145.7 142.8 99.4 99.3SectDr F Ode inAfrnrd goods 8.5 120.5 114.4 105.6 67.4 81.8 96.4 92.3 106.2 108.0 UL2 93.4 10i26

Smurc: SMPA.

- 141 -

lTble 8.2: DM r DINEDIAL SWMS

(rae: 196.10))

Z valueCroop1rW Addd 1972 1973 1974 1975 1976 1977 1978 1979 19W) 19R1 1982 1983

311-312 Fbod pmducts (A) 16.3 1IM 9 98.9 101.8 94.5 101.1 101.6 115.6 124.n 135.6 131iL. 126.4 124.A313 DeverBs (A) 5.1 123.S 107.8 85.3 89.9 102.4 121.5 132.9 136.8 15/.9 14h,3 125.1 135.9321 TxtLles (A) 10.2 118.0 97.0 69.8 66.6 67.8 76.5 I8.6 92.h 93.3 91.2 77.2 90.2322 ClothLre (A) 2.9 115.4 102.3 93.9 69.5 60.1 68.8 77.7 91.5 78.7 79.3 67.4 7h,A

323 leather ih1stry 6cept footwear (A) 1.1 95.0 92.3 86.5 70.4 69.4 77.2 85.7 67.7 69.1 70.9 53.1 44.6324 Foonor (A) 1.8 119.2 115.4 %.2 63.2 67.4 72.4 88.4 78.6 77.6 74.3 61.8 71.S331 lider rAst ry (E) 3.0 119.6 ±07.0 77.5 57.2 85.2 106.3 129.0 164.3 168.9 153.6 153.3 139.2332 Rkitbule mud eMorlm 1.0 125.0 U3.2 83.0 69.8 85.5 77.6 101.0 183.7 209.7 222.8 128.6 110.R

341 Paper fabrication (F) 2.1 91.4 86.8 94.7 79.6 103.3 100.2 113.5 U3.3 109.3 106.3 11MA.4 111.3342 RjJhijg aud printlg (F) 2.7 149.0 138.4 101.5 64.9 64.9 87.1 79.4 94.5 93.8 111.7 93.6 7560351 Omlicl m*stmnes (D) 2.7 117.2 97.9 104.9 54.2 56.5 5L6 66.6 7U.2 65.6 6().2 48.2 49.8352 Other cdmcal products (A) 4.8 126.9 113.0 U5.9 95.8 94.0 114.3 121.2 130.3 123.1 129.0 121.1 122.5

353 011 rtefiry (D) 1.6 1302 121.5 126.9 108.O 108.8 113.5 123.1 127.8 129.1 11R.7 103.6 11166354 Petroleu. bry-producit (0) 0.2 100.8 106.6 107.7 62.6 66.0 73.2 79.9 84.4 8L8 PA.4 71.5 882355 Rubber prohdets (F) 1.6 120.7 113.1 98.8 55.9 70.2 86.4 84.4 91.1 98,2 90.9 66.n 85.7356 Kietic poduccs (F) 1.3 117.9 97.5 108.0 55.3 75.6 81.6 92.4 100.3 1120 127.1 107.2 122.1

361 Pottery erd chdui (E) 0.5 107.6 106.3 U3.4 69.7 65.5 78.7 8D.4 93.8 98.4 66.9 35.5 39.5362 Maw (E) 0.8 111.7 126.8 103.3 67.4 85.5 117.3 139.2 166.9 163.2 155.8 101.0 110.8369 Other dnepral tso. 1mwtal (E) 1.9 10. 97.5 109.4 57.0 55.4 68.4 71.4 80.6 91.3 107.9 62.7 73.4371 Bhlc steell am Lzm irustry CD) 3.4 10.8 87.1 94.8 69.1 62.0 68.8 75.8 92.1 97.6 95.5 84.6 93.0

372 tN-fernm muel. bsdc lirucry (D) 13.1 119.2 122.4 152.0 136.7 166.7 177.3 181.0 189.5 191.4 194.0 192.8 201.138L Metallic prducts (E) 4.3 130.0 122.3 120.3 70.2 73.3 85.7 107.6 102.3 109.7 101.5 76.9 79.0382 Nlb.electcrc scimnery (3) 3.2 129.4 116.0 120.9 85.9 74.2 61.2 55.1 49.0 44.6 146 6 36.7 27.33831-3839 UEt:crle equ1pmt (E) 1.0 159.8 154.9 224.4 110.5 102.7 117.2 141.5 365.3 349.0 371.9 211.2 182.1

3832 Elewtrnic equApmt (B) 2.0 135.0 99.0 ltl.4 109.1 65.0 44.4 99.6 86.7 125.8 188.7 84.3 59.13833 Imuehold electrical appliances (3) 1.8 121.2 107.1 108.0 84.0 85.0 127.4 150.4 193.6 263.8 211.5 118.7 99.2384 Itfrmportation mterlml (C) 6.2 90.4 70.8 75.5 53.8 47.3 54.8 86.0 84.2 95.8 12.0 59.5 48.4385 rotfessoal ad scientific eq. (F) 0.2 101.6 80.8 96.0 60.3 56.0 71.4 51.8 36.7 52.5 54.0 39.8 44.1390 Other ofiactcw1ng 1rutries (F) 3.2 113.2 1205 123.1 111.3 123.6 131.1 140.7 147.0 151.1 149.2 135.3 137.4

b utry 100.0 116.7 106.1 107.7 85.9 91.9 101.0 112.8 122.8 128.6 127.9 109.3 110.9

Sector A O_umar 8xds - mn-dableu 44.8 115.8 103.5 99.4 86.0 89.5 97.4 09.2 114.8 119.5 117.2 106.1 110.8Sector 3 Cmu.r Coods - flhl 7.0 128.9 108.9 114.0 92.0 74.3 79.2 92.4 97.0 124.2 129.6 71.4 549Sector C brmtqrtatlon EWduent 6.2 90.4 70.8 75.5 53.8 47.3 54.8 8A.0 84.2 95.R 82 0 59.5 11.4

Sector D InterzUate lndkmtrSal go 21.0 117.3 U3.4 134.3 112.3 130.2 138.7 143.9 152.7 154.2 154.1 148.8 155.9Sector E Interad1ate atcttain goods 12.5 123.2 U6.6 U2.4 67.8 7b.6 91.1 110.4 144.9 151.2 148.4 107.8 103.8Sector F Othw jffAttured goast 8.5 118.5 109.5 98.4 64.8 79.5 96.1 94.4 101.9 104.0 115.1 96.0 99.5

Table 8.3: PRINCIPAL AGRICULTURAL PRODUCTION: S0WINGS OR SOWN AREA, 1979-84

(Ha thousands)

Products-Agric. Planting 1979-80 2 change 1980-81 % change 1981-82 % change 1982-83 Z change 1983-84/a % change

Total 1,237.0 -1.0 1,079.0 -12.8 945.0 -12.4 871.0 -7.8 1,050.0 20.6

CerealsWheat 546.0 -2.5 432,0 -20.9 374.0 -13.4 359.0 -4.0 471.0 31.2

oats 92.0 16.5 80.0 -13.0 68,0 -15.0 85.0 25.0 96.0 12.9

Barley 49.0 -18.3 46.0 -6.1 57.0 23.9 38.0 -33.3 33.0 -13.2

Rye 8.0 14.3 9.0 12.5 6.0 -33.3 5.0 -6.7 3.0 -40.0

Rice 41.0 -12.8 31.0 -24,4 37.0 19.4 30.0 -18.9 40.0 33.3

Corn 116.0 -10.8 126,0 8.6 107.0 -15.1 118.0 10.3 138.0 17.0

leguplnous and PotatoesBeans 111.0 0.9 118.0 6.3 122,0 3.4 86.0 -29.5 85.0 -1.2

Lentils 53.0 6.0 48.0 -9.4 39,0 -18,8 23.0 -41.0 24.0 4.4Peas 18.0 5.9 18.0 0.0 12,0 -33.3 10.0 -16.7 10.0 0.0

Chick peas 21.0 23.5 16,0 -23.8 10.0 -37.5 8.0 -20.0 12.0 50.0

Potatoes 89.0 9.9 90.0 1.1 77.0 -14.4 67.0 -13.0 81.0 20.9

Industrial ProductionBeets 11.0 -31.3 37.0 236.4 22.0 -40.5 36.0 63.6 48.0 33.3

Sunflower 32.0 45.5 5.0 -84.4 3.0 -40.0 3.0 0.0 5.0 66.7

Rapeseed 50.0 -7.4 24.0 -52.0 10.0 -58.3 3.0 -70.0 4.0 33.3

La Estimated figures, by ODEPA. Corresponding to intended sowings for agricultura: year 1983/84.

Source: INE.

- 143 -

Table 8.5: LIVESTOCK, POULTRY AND DAIRY PRODUCTION, 1978-83

Product Unit 1978 1979 1980 1981 1982 1983

Bovines /a TN 194,112 185.456 182,130 200,524 202,375 207,225

Poultry /a TN 58,347 79.022 128,197 134,207 130,043 116,300

Sheep /a TN 18,189 20,041 18,697 17,376 16,151 13,130

Hogs /a TN 39,313 47,654 55,342 6i,945 61,314 64,228

Eggs Mill. 1,166 1,120 1,300 1,368 1,300 1,250

Milk Thous. Lts. 977,928 953,500 1,080,000 1,200,000 1,056,000 900,000

Wool TN 19,115 19,563 20,600 21,600 21,600 21,400

/a These figures consider all the production, both slaughter, controlated and not-controlated (estimatp-) and also the stock variation.

Source: ODEPA.

Table 8.4: PRINCIPAL AGRICULTURAL PRODUCTION: HARVEST

(Thousands of quintales)

Products-Agric. Sowings 1979-80 Z change 1980-81 X change 1981-82 X change 1982-83 Z change 1983-84/1 % change

CerealsWheat 9,660.0 -2,9 6,860.0 -29,0 6,505.0 -5.2 5,860.0 -9,9 9,883.0 68,7Oats 1,725.0 14.9 1,307.0 -24.2 19176.0 -10.0 1,463.0 24.4 1,630.0 11.4Barley 1,050.0 -6.3 914.0 -13,0 1,179.0 29.0 732.0 -37.9 735.0 0.4Rye 104.0 15.6 92.0 -11.5 61.0 -33.7 45.0 -26,2 44.0 -2.2Rice 954.0 -47,4 997,0 4.5 1,312.0 31.6 1,156.0 -11.9 1,650,0 42.7Corn 4,052.0 -17.2 5,182.0 27.9 4,841.0 -6.6 5,116.0 5.7 7,214.0 41.0

Legtmninous and PotatoesBeans 842.0 -27.6 1,382.0 64.1 1,625.0 17.6 844.0 -48.1 941.0 11.5Lentils 268.0 -15,5 177,0 -34,0 158,0 -10,7 138.0 -12,7 160.0 15.9Peas 136,0 -6.9 110.0 -19.1 74.0 -32,7 57.0 -23.0 63.0 10.5Chick peas 116.0 23.4 64,0 -44.8 41.0 -35,9 32,0 -22,0 69,0 115.6Potatoes 9,031.0 17.2 10,073.0 11.5 8,416.0 -16.5 6,836.0 -18.8 10,362.0 51.6

Industrial ProductionBeets 4,502.0 -33.8 14,605.0 224.4 9,630.0 -34.1 16,428,0 70.6 21,940.0 33.6Sunflower 383.0 15,0 74.0 -80.7 54,0 -27.0 46,0 -14,8 74.0 60.9Rapeseed 734.0 13.6 269.0 -63.4 132,0 -50.9 29.0 -78.0 41.0 41.4

Source: INE,

- 145 -

Table 8.6: FORESTRY PLANTING, 1965-82

ParticipationArea-Has. Private Public

1965-70 133,196 - -

1971 28,046 40.6 59.41972 31,042 20.2 79.81973 30,313 9.6 90.41974 56,223 37.4 62.61975 82,594 46.6 53.4

1976 107,703 49.8 50.21977 93,2.12 52.2 47.81978 78,987 68.0 32.01979 52,018 99.3 9.71980 72.345 99.7 0.3

1981 93,174 99.9 0.11982 68,633 100.0 0.0

Source: INFOR-CONAF.

- 146 -

Table 8.7: FRUI TREES - PLANTED AREA /a

(in Ha.)

Specie 1975 1976 1977 1978 1979 1980 1981/b 1982/b

PnlmaS 1,780 1,990 2,310 2,646 2,858 3,210 3,720 4,451

Apricots 1,625 1,630 1,630 1,535 1,439 1,385 1,275 1,288

Peaches 10,500 9,250 8,090 7,485 6,527 6,361 6,192 5,994

Lemons 7,420 7,390 7,350 6,805 6,375 5,954 5,655 5,276

Apples U,700 12,200 12,970 13,585 '.4,735 15,768 16,652 17,562

Oranges 4,630 4,730 4,830 4,880 4,983 5,166 5,339 5,682

Avocados 4,605 4,800 5,126 5,610 5,980 6,678 7,143 7,315

Pears 2,630 2,690 2,720 2,820 2,980 3,309 3,691 3,921

Grapes 5,550 6,950 8,405 10,290 12,550 14,480 14,480 17,363

/a Equivalent to total planted area of som selected species.,b7 Preliminary figures.

Source: Ministry of Agriculture (Planning Office - OIEPA).

- 147 -

Table 8.8: YEARLY AREA OF FORESTRY PLANTING, COUNTRY TOTALS

(In Ha.)

Detail 1975 1976 1977 1978 1979 1980 1981 1982

Total 82594.0 107703.0 93212.0 78987.0 52018.0 72345.0 93174.0 68633.0

- National ForestryCorporation 44073.0 54060.0 44570.0 24939.0 367.0 213.0 101.0 37.0

- Individuals andPrivate Ehter-primea 38521.0 53643.0 48642.0 54048.0 51651.0 72132.0 93073.0 68596.0

By Regions

Total 82594.0 107703.0 93212.0 78987.0 52018.0 73887.0 93174.0 68633.0

ITarapaca - 30.0 - - - 50.0 - -

III-IV Atacama-Coquimbo 146.0 654.0 1649.0 4916.0 811.0 6829.0 2431.0 3978.0

V Valparaiso 1555.0 2061.0 2473.0 3789.0 694.0 1837.0 1521.0 480.0

VT Metropolitan Area 1121.0 2963.0 2961.0 1245.0 341.0 1804.0 176.0 83.0

VI Del Lib.Gral.Bernardo 0'Higgins 2424.0 12650.0 7565.0 10961.0 1611.0 2344.0 2406.0 1285.0

VII Maule 10294.0 10885.0 11119.0 9192.0 6942.0 13133.0 21616.0 13371.0

VIII Bio-Bio 44123.0 45105.0 40424.0 32327.0 28457.0 31306.0 41546.0 32754.0

It De la Araucania 11115.0 17950.0 13358.0 8794.0 6436.0 9959.0 16373.0 13170.0

X De s Lolagos 7613.0 13544.0 12,353.0 6686.0 5245.0 4176.0 6743.0 3085.0

XI Aisen, Del Gral.Carlos Ibanezdel Csmpo 4203.0 1861.0 1310.0 1336.0 1481.0 907.0 362.0 427.0

m Mlagalanes andChilean Antartic - - - 11.0 - - - -

Source: C0RAF.

- 148 -

Table 8.9: cmNERCIAL CPPER PRODDCTION BY PRoDUCTS AND PRICE

(Thousands of Fine Metric Tons)

Years/Montbs Refinsd Blister In Bulk Total Price/3

1970 404.5/1 242.7 44.4/2 691.6 64.21971 398.5 220.5 89.3 708.3 49.31972 461.4 169.2 86.2 716.8 48.61973 418.8 175.1 145.5 735.4 80.81974 538.1 186.2 177.8 902.1 93.31975 535.2 189.2 103.9 828.3 55.91976 632.0 224.3 148.9 1,005.2 63.61977 675.7 212.3 166.2 1,054.2 59.31978 748.2 178.4 107.6 1,034.2 61.91979 780D1 168.8 113.8 1,062.7 89.81980 810.7 142.4 114.8 1,067.9 99.21981 775.6 178.2 127.3 1,081.1 78.91982 851.6 195.2 193.9 1,240.7 67.1

1983 January 66.9 14.9 11.1 92.9 71.2February 68.7 16.8 15.6 101.1 74.7March 70.0 18.0 11.8 99.8 72.5April 70.6 20.1 8.9 99.6 76.3May 69.6 20.1 17.8 107.5 80.1June 67.4 20.2 9.5 97.1 77.1July 69.6 17.8 20.2 107.6 77.3August - - - - 74.4

Source: Chi-lean Copper Comaission.

Note: (1) Includes electrolite rods and cathodes, refined copper three stars and refined 'WB".(2) Includes cement, concentrated, slag and minerals and copper as co-product of gold and

silver.(3) Seller copper commission.

IBRD 1141 7R1_ -A M- 22---- 70 MARCH 1984

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report no. 5099-ch chile: an economic memorandum · chile: an economic memorandum september 24,...

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