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Approved For Release 2006/04/19 ; CIA-RDP85T00875RO01700040058-3
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- Because foreign reserves will be exhausted and borrowing capabilities limited, import capacity probably will fall substantially. Import constraints, in turn, will seriously impede production and squeeze consumption. Only increased world copper prices or massive foreign assistance — neither of which seems likely — will allow the present import level to be maintained. For 1973, we estimate that, even if Santiago continues to renege on debt payments and is able to handle an additional net-reserve loss of $130 million or so (see Table 4), imports will fall by roughly 20%. If imports remain high until after the March elections, Chile probably will have to cut imports about 30% for the remainder of the year. In the unlikely event that Chile resumes debt service payments to its major creditors, imports would have to be cut even more sharply.
- Such an import cutback will require difficult allocation decisions. In the likely event that agricultural output continues to decline, large food imports will be needed to maintain a politically acceptable diet. Although Allende's advisers recently estimated that food imports in 1973 would have to be more than $50 million higher than in 1972, it is doubtful that the current level can even be maintained. If total imports must indeed be reduced in 1973, as we expect, most of the adjustment burden necessarily will fall on purchases of foodstuffs and of raw materials, intermediate goods, and spare parts. There is little room for import cutbacks elsewhere, because purchases of capital goods (other than those financed by foreign aid) and manufactured consumer goods already are very small.
- Import limitation could be fairly disruptive to Chilean industry, which has traditionally depended heavily on imported inputs and is particularly vulnerable now that inventories have been severely depleted. To help maintain the flow of industrial supplies and replacement parts. Allende may decide to ration gasoline for private vehicles in 1973 — a step that could save perhaps $20 million to $30 million — and might even ration household fuels.
- It is impossible to say whether the Allende regime will carry its reckless financial policies to the point that the market system breaks down. By reining in monetary expansion before long, the government perhaps could reduce inflation to a rate which, though still very high, could be sustained indefinitely, as in Uruguay for more than a decade. To avert the danger of a market breakdown — or begin picking up the pieces following one — there is a good chance that the government will eventually opt for some form of rationing, a currency reform (such as was carried out in Cuba in the early 1960s), or both. Chile already has the institutional framework for a rationing system and thus could take the step fairly easily. Rationing would be highly unpopular and politically risky for any government, but low-income groups would fare at least as well with it as in a continuing scramble to find things to buy.
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Approved For Release 2006/04/19 ; CIA-RDP85T00875RO01700040058-3
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