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Some Say Pinochet Wasn't Good for Economy

By Katherine Ellison, The Miami Herald foreign Staff
Wednesday 18 March 1998

SANTIAGO, Chile -- Like a modern Mussolini, Chile's former military ruler Gen. Augusto Pinochet has defenders, here and abroad, who excuse his brutal governing style since it brought increased efficiency to a bloated and underproductive economy.

While Pinochet didn't make the trains run on time, he got the telephones working, straightened out the messy pension system and paved the way for Taco Bell and Chuck E. Cheese.

Yet his critics say Pinochet seriously damaged Chile's economy -- leaving behind increased poverty, devastated social services and a skewed distribution of wealth -- all of which have received increased notice lately as leaders of Chile's eight-year-old democracy struggle with the burden of his legacy.

"On Wall Street, they still say, `Oh, Pinochet, how fantastic he was, what a miracle he made' -- but those guys are wrong," said Genaro Arriagada, a longtime leader of the powerful Christian Democratic Party and author of one of four books on Pinochet being published this year. "If you look at the economic record, it's not really such a miracle at all."

Last week, Pinochet stepped down as Chile's military chief and assumed the post of senator-for-life, which was created for him in the constitution that ended his dictatorship. Some opposition lawmakers are trying -- without much success -- to have him removed from the Senate.

In conservative circles around the world, it is heresy to find fault with the economic revolution in this sliver of a South American nation reborn as an emerging market long before the term was trendy.

The changes began in earnest a couple of years after Pinochet seized power in a violent 1973 coup and continued while he remained president until 1990. Unproductive state-owned firms were auctioned off, tariffs were slashed from 94 percent to 10 percent, triple-digit inflation was reduced to double digits and the country positioned itself for a new era of growth.

It was all daring and novel for a region in which state intervention was an article of faith. Pinochet's team of economists -- christened the "Chicago boys" because most had earned doctorates from the University of Chicago business school -- became overnight heroes and well-paid international consultants.

But critics contend that a controlled press and repressive climate exaggerated the glitter of Pinochet's regime and glossed over the rough spots. By government count, nearly 3,200 Chileans were killed by security services or disappeared under Pinochet's reign.

Some of the victims were labor leaders protesting the social costs of the transition, including mass unemployment and rock-bottom wages. Yet the same economic overhaul transferred wealth to a small, articulate and well-traveled group of Chileans, who effectively sang its praises.

In the 1980s, several of Chile's neighbors rushed to follow its example, often to their regret.

In a backlash from Mexico City to Buenos Aires, the so-called neo-liberal model has been blamed for impulsive, sometimes corrupt and sloppy privatization, and for record levels of unemployment. In Brazil, which plans to privatize tens of billions of dollars in state assets over the next two years, President Fernando Henrique Cardoso often cites Chile as an example to be avoided.

Arriagada, the author, notes that growth under Pinochet averaged less than 3.5 percent annually -- half of what it has been in the eight years of democratic government.

Pinochet's backers contend that he did the hard, essential work, laying the foundation for Chile's record growth in the 1990s. But economists with the ruling center-left Concertacion alliance say that foundation was unstable at best.

The general's most famous mistake was his alleged mishandling of the privatized banking sector, which suffered such a crisis in 1982 that the government again had to take it over, only to reprivatize the banks a few years later.

"The banking bailout cost 20 percent of the gross national product, a truly amazing amount of money," said a United Nations regional economist, Ricardo Ffrench, a University of Chicago graduate who worked for Pinochet's elected successor, President Patricio Aylwin.

"And where did the government get that money? From keeping teachers' wages low, from keeping nurses' wages low, from having lower pensions for poor people. Pinochet did not believe in taking money from the rich."

By 1990, when Aylwin's government went to work, the decline in social services was shocking, Ffrench said. "Public hospitals didn't have sheets and were putting two people in a bed. Public schools were a national embarrassment."

Most pernicious, Pinochet's critics say, was how rapidly Chile's gap between rich and poor widened under Pinochet. Now, the gap between rich and poor in Chile is one of the widest in Latin America, which has the widest in the world.

"In the first years of Pinochet, two economic groups -- called the piranhas -- bought up all the media, insurance and finance companies and manufacturing," Ffrench said. "Pinochet's philosophy was that the market knows what's best, so we didn't have to have anti-monopoly enforcement."

But the abuses soon became extreme, he said. In the first years of democracy, officials discovered that at the Bank of Santiago, one of Chile's two largest private banks, 44 percent of the loans had been granted to bank owners.

Environmentalists say Chile's democracy also inherited another headache: a modern tradition of environmental disregard. Under Pinochet, native forests were plundered and mighty rivers dammed, while mountain-ringed Santiago became one of the world's smoggiest cities.

In their first years in power after Pinochet, Chile's democratic leaders raised taxes, boosted social spending and wooed foreign investment while keeping caps on speculative inflows, and hiked the minimum wage by 40 percent.

More recently, under President Eduardo Frei, Chile has invested heavily in public education, adding three hours to the school day. Ffrench says the government reduced the number of Chileans living in poverty from 45 percent of the population to 25 percent.

Improvements have been painfully slow, suggesting to some that democracy isn't much of an improvement over authoritarianism in raising living standards.

In a recent address last week to the Organization of American States, Jose Antonio Ocampo, executive secretary of the UN's Economic Commission for Latin America and the Caribbean, called Chile's income distribution problem "quite intractable," despite the sweeping reductions in poverty. And it's common these days for Chileans of all classes to complain about crime, which has increased notably since the dictatorship.

In what may be Pinochet's worst legacy, Chileans, once some of the region's most faithful democrats, have largely lost their faith in the system. A major survey in 1996 by Latinobarometro, a respected polling firm, found that 35 percent of Chileans answered "no" when asked, "Would you be ready to defend democracy if it were threatened?" -- the worst showing of 17 nations queried.

"Sure, there's been growth, but as far as I can see, all the benefits have gone to the people at the top," said Alfredo Morales, 47, a locksmith who works out of a booth in downtown Santiago. "I have no gratitude to Pinochet, but I'm not thrilled with this government, either."