An Economy Besieged

Just after midnight, a small gray van pulled up at a downtown Santiago bar. Within moments, anxious Chileans were swarming around it and buying low-grade black market meat at twice the officially pegged price--despite the fact that national police headquarters was just 2 1/2 blocks away. Day and night, long lines stretch in front of shops as people wait and hope for the chance to buy a pack of cigarettes, a bag of sugar, some powdered milk or cooking oil.

Troubled Chile is now worse off than ever, and officials of President Salvador Allende's far-leftist government have been rolling out harsh measures that are aimed at creating what they call a "war economy." Two weeks ago Allende publicly conceded that his management of the country's economy has been ill-planned. He also castigated his biggest constituency, Chile's workers, chiding the miners for "acting like a bunch of monopolistic bankers" in their wage demands, and criticized bureaucrats for failing to improve government efficiency. To curb the groggy effects of alcohol on the workers, Allende last week threatened to ration beer. No teetotaler himself, Allende said: "The housewives of Chile will erect a monument in my honor."

Earlier, the government decreed that distribution of food, clothes and other consumer goods was to be put almost completely under its control. A new distribution and marketing agency, headed by an air force general and manned by the military, will eliminate private business between wholesalers and retailers. Instead, neighborhood committees will assess minimum needs of local families and order accordingly. To prevent hoarding, shop clerks must restrict sales to regular customers.

Hoping to brighten the dour national mood, government leaders declared a nationwide system of wage increases and lump-sum bonuses, which is likely to take effect sometime after the parliamentary elections in March. The plan applies to those making less than $434 a month in greatly inflated escudos, and will be formulated on a sliding scale favoring the lowest-paid workers. Chileans, however, have learned to be wary of the consequences of such enforced increases. In October 1971, after a 100% wage jump was ordered to give the lower classes more buying power, shoppers emptied shelves of already scarce consumer goods. In order to pay for the wage advance, the money supply was raised by 160%. The result was that inflation roared ahead, climbing to 163% during 1972, the highest rate by far in the world. The escudo, twelve to the dollar when Allende took over late in 1970, is now officially pegged at 46, and on the black market is nearly 320.

Meanwhile, productivity has declined following expropriations that have led workers to feel there is little need to show sweat now that foreign bosses are out. Industrial production in October, the most recently recorded month, fell 7% from the same period a year earlier, and farm output in 1972 was down roughly 10% from 197 1. The quality of production has slumped in nearly every category: most Chilean bread, for instance, is now a coarse, sour, brown sludge that produces more gas than nourishment. Allende is talking about handing back to Chilean businessmen some of the companies that his government earlier expropriated but now cannot manage.

Red Ink. Allende's sole bright spot is his success in cutting unemployment through a public works program; in greater Santiago, the figure declined from 8.3% at the end of 1971 to 3% last year. But the cost of the effort is recorded in red ink. The domestic budget ran a deficit of some $600 million last year on total spending of $ 1.4 billion.

Behind Chile's woes is Allende's longtime effort to consolidate his political base, and perhaps draw new support, with a program that stresses consumer spending at the expense of savings--a strategy that dries up capital needed for new investment. With parliamentary elections scheduled for March, Allende needs all the voter support he can get. Even the Soviet Union, which extended an estimated $500 million in foreign credit to Chile last year, has grown impatient with Allende. The Soviet weekly New Times recently called the general line of Allende's policy "a bad calculation of the nation's leftist economists."

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