Chilean Inflation
Winning by a narrow margin in the 1970 election, Chilean president Salvador Allende became the first Marxist to be democratically elected as the leader of a Latin American country. During his first speech as head of state, Allende vowed to “destroy the economic basis for capitalism” and nationalize Chile’s copper mines—the main source of the country’s income. To the contempt of Chilean conservatives, businessmen, and the United States government, he attempted just that. Through excessive spending and buying out of shareholders, Allende was able to requisition most of the nation’s mines and factories. In 1972, however, the effort had become increasingly militarized, with armed party members seizing many of them by force.
These immoral and anti-capitalist tendencies of his eventually ran the Chilean economy into a fatal nosedive. By 1972, the government was 300 million dollars in debt, real wages had dropped nearly ten percent, and the inflation rate was 163%. The country was also relying more on agricultural imports to feed its people, increasing 84% since 1970.[1] Due to the gross mismanagement of the economy, American banks stopped giving the Chilean government loans, and as a result, Allende printed more money. When he was finally thrown out of power in a military coup in 1973, the inflation rate had reached a whopping 508%.[ Salvador Allende’s successor, Augusto Pinochet initiated free market policies by privatizing the factories and paying the nation’s debt. The economy finally improved and the inflation rate stabilized.
Imbecilic monetary policy and economic mismanagement are trademarks of collectivist regimes. When a government engages in such irresponsible behaviour as seizing property and printing money, it is no wonder that other countries would be wary of doing business with them. Chile was certainly not the only socialist nation to have a runaway inflation rate, but it stands as a perfect example of how economic mismanagement can cripple the economy of such regimes.
