The Monetary and real effects of the financial opening up of national economies to the exterior. The case of Chile, 1975-1978

Abstract

R oberto Z ahler** *The author wishes to express appreciation for the com ments made by Félix Bacigalupo, Tomás Baliño, Andrés Bianchi, Robert D evlin, Gunther Held, Ricardo Ffrench-D avis, Carlos Massad and Andrés Sanfuentes, as w ell as those made atan internal CEPAL seminar. Thanks are also due for assistance provided by Eugenio Alviz and Tatjana M ontes. Responsibility lor any errors which still remain is of course my own.

International Capital Movements

“…These rates were slightly higher than the average price increase of the 1960s, and were an improvement relative to the corresponding periods' international inflation rates. The steady opening up of the Chilean economy, however, was becoming contradictory to the view that the supply of money (as opposed to that of internal credit) could be controlled by the monetary authority (Zahler, 1980: section 2, 1-2). Given the orthodox monetary policy, the inflow of foreign money and the increasing importance of credit to the private sector required the public sector to absorb a disproportionate burden of the effects of the stabilization policy.…”

“…The differential between the domestic dollar-denominated interest rate and the international rate was so large (using the LIBOR rate, the differential was 112% in 1976, 52% in 1977, and 42% in 1978) that the fear of massive capital inflows and their impact on the Chilean economy led the authorities to delay and then implement the financial opening up reform gradually (Zahler, 1980). 20 Opening up in the financial field was not only slower than the tariff reform, it also differed drastically from the general approach followed in almost all other areas of economic policy.…”

“…The privatization of State-owned enterprises during a relatively short period of time coincided with a serious recession of the Chilean economy. Those factors, together with restricted access to foreign financing, were important causes of the undervalued price at which those assets were sold, consolidating the principal Chilean business conglomerates (Cortázar, 1982a;Dahse, 1979;Zahler, 1980).…”

“…25-38. Zahler, R. (1980), "Monetary and real repercussions of financial opening up to the exterior", CEPAL Review, No. 10,.…”

Chile's Rapid Growth in the 1990's-Good Policies, Good Luck, or Political Change?

“…Corbo (1985) andZahler (1985) analyze the macroeconomic policy errors that contributed to this crisis.8 SeeZahler (1980 and1983).9 SeeZahler (1998).…”