Righting a Leftist Mess

Chile's military junta, which quickly overthrew the late Marxist President Salvador Allende in a bloody September coup, is struggling now with an infinitely tougher task: righting an economy that three years of maladroit socialistic experiments left in a shambles. When the generals grabbed power, inflation was roaring out of control; farm, factory and mine production were scraping bottom; Chile's banking and financial system had all but collapsed.

By last week the generals were swinging the economy toward a rigidly conservative course. To carry out its program, the junta has appointed three right-leaning foes of Allende: Raul Saez, who was made special adviser for overall economic planning; Fernando Leniz, who became Economics Minister; and Orlando Saenz, adviser to the Ministry of Foreign Affairs.

Saez, 60, is an engineer turned economic consultant who has a reputation for hard work and cold-blooded toughness. Leniz, 46, a feline figure who was publisher of El Mercuric, a conservative Santiago newspaper, is a shrewd businessman. Saenz, 38, who resembles Henry Kissinger, is a former director of a private economic-development group. "Chile," he says, "will have to sacrifice to save itself."

Though Saenz has given the highest priority to reopening Chile to foreign investors--he held at least 120 meetings with businessmen during recent visits to the U.S. and Canada--he stresses that the government will maintain tight control of its industry. Copper is, of course, Chile's chief source of foreign income. Under Allende's highly political management of the mines, which he seized from such U.S. firms as Kennecott and Anaconda, disastrous strikes badly hurt production. The government will continue to own the mines, but it is willing to negotiate at least partial restitution to the U.S. firms and invite them to return to help operate the mines or develop new ones, perhaps as minority owners. Says Saenz: "We will do anything necessary to have first-class advice on copper." The junta also aims to attract new industry, for example electronics producers.

Painful Eating. Chileans are already feeling the pinch of other new economic policies. The Allende regime had forced industry to hire unneeded workers; many of them have been fired, adding to Chile's high jobless rate. To blunt the inflationary impact of the artificially swollen money supply--Allende had simply printed more and more currency--the new government devalued the escudo by 58%. That action severely chopped into the buying power of all but the wealthiest consumers. In addition, the junta has largely scrapped Allende's heavyhanded controls on prices, which were kept so low in relation to costs that farmers and businessmen let production plummet for lack of a profit incentive.

Now production is again growing, but retail prices are soaring. In one month, the prices of poultry and bread have rocketed about 175%, beef more than 200%; most wages and salaries have been allowed to rise "only" 100%. Indeed, food purchases are estimated to eat up a painful 80% of the incomes of poorer Chileans.

In arguing the need for price decontrol, devaluation and other changes, Saenz asserts: "You need to create some realistic relationship between prices and costs. The poor must be made to understand this." The generals are under no illusions that they can bring a quick solution to Chile's massive woes. Says Leniz: "We will have inflation this year of about 600% or 700%, but next year it will be less. It is a big mistake to give people many hopes."

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