Page:CREST-Allendes Chile Supply Demand Gap.pdf/16

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Approved For Release 2006/04/19 ; CIA-RDP85T00875RO01700040058-3
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  1. real consumption growth tapered off substantially in l972 even though investment almost certainly declined further.
  2. Figure 5

    Chile Use of Available Resources *
    Billion 1968 Escudos

    *Available resources equals production plus not imports of goods and services.

    Government Finances A Workout for the Printing Presses

  3. The Allende administration has both taken over an increasing share of economic activities and expanded normal government expenditures. As a result, current expenditures increased by 74% in nominal terms and about 45% in real terms in 1971. Largely because of the business profit squeeze and plunging copper receipts, central government revenues increased by only 25% in nominal terms and not at all in real terms despite new taxes and rapid economic growth. The deficit on current operations alone totaled 3 billion escudos in 1971, and capital expenditures and transfers brought the central government deficit to l2 billion escudos — equal to 32% of government expenditures and 10% of GDP. State enterprise deficit. not covered by transfers raised the public sector deficit to 14 billion escudos — or 12% of GDP, compared with l% in the late 1960s. The Central Bank financed the bulk of this deficit by creating money.
  4. During 1972 the budget situation has worsened. Because of state enterprises' soaring operating deficits. the public sector deficit appears likely to approach 45 billion to 50 billion escudos, or almost 20% of GDP. Artificially low prices for public services, inefficient management by unqualified political appointees, and the rapidly expanding number of money-losing state enterprises all have contributed to the problem. Even traditionally profitable state enterprises such as the electric power and petroleum companies are incurring large deficits. The recent price hikes granted state enterprises are unlikely to improve their profitability for very long because wages and other costs are rising rapidly.

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Approved For Release 2006/04/19 ; CIA-RDP85T00875RO01700040058-3
SECRET