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Businessweek Archives

How Chile May Lose All The Ground It Has Gained

Economic Viewpoint


Economic and political reforms put in place by Chile's military government under General Augusto Pinochet during the 1970s and 1980s have created a constitutional democracy and a thriving economy that are the envy of Latin America. Chile privatized not only its state industries but also the social security system. This created a vast capital market, gave Chileans an equity stake in the economy, and boosted the savings rate to 26% of gross domestic product. In an era when emerging countries depend more and more on capital infusions, this means unusual financial independence for Chile. The crisis following the Mexican meltdown barely touched it.

This great economic accomplishment is now being jeopardized by a naive President, Eduardo Frei, and a Supreme Court that together are permitting the political left to rekindle the internal warfare that has in the past prevented Latin American countries from attaining their promise. The left's goal is to overturn the 1978 law that granted amnesty both to left-wing terrorists for their bombings and murders and to the military for its actions in suppressing the terror: They want the amnesty for the military revoked, but not for the terrorists.

The amnestied terrorists are attempting to use the political process to take revenge against the military government that blocked a communist takeover of Chile. Their vehicle is the case against two officials, which the military has agreed could go forward, who are held responsible for the assassination in 1978 of Chilean leftist Orlando Letelier in Washington. The tactic of the left is to use the blood drawn by the convictions of these two officials to demand more investigations and convictions.

LOVE OF IDEOLOGY. Leftists have set their sights on the military because it is the strongest Chilean institution. It is unified and has done well by the country--first restoring stability and then voluntarily stepping down in 1990, following free elections that brought in a civilian government.

The left believes that if it can break the military, it can turn to its real adversary: constitutional rule itself. The left always prefers the rule of ideology to the rule of law, and it hates the private capital markets that strip government of its power. The left's real target is not General Pinochet, but the Chilean economic miracle that is destroying its political constituency.

The government of Patricio Aylwin, who succeeded Pinochet, respected the amnesty and thereby permitted the still fragile institutions of a free society to strengthen. But Frei lacks the wits to see what is at stake. The Supreme Court has created an opening for the left by ruling that whereas the amnesty cannot be overturned by prosecutions, investigations of the military may go forward.

The military is duly alarmed. It realizes that once the amnesty is breached by "investigations," propaganda will lead to prosecution. Deals will be offered to some officers at the expense of others: As soon as the military begins throwing its own to the wolves, it will be demoralized and broken. Consequently, the military has replied to the breach of amnesty by stating that one official will go to a military jail under its jurisdiction, and the other will not go to jail.

CALL FOR PARDONS. "We consider this to be a technical coup," declared a Frei official, "and frankly we don't yet know how to respond--because it's us against the army, navy, and air force at this point." If the government were competent, it would issue a pardon of the convicted officials and declare that the charges and countercharges are a matter of the preconstitutional past over which the government has no jurisdiction. This would prevent the left from creating a self-serving crisis.

Fortunately, some politicians realize the stakes. Senator Adolfo Zaldivar, a member of the ruling coalition, has declared that the amnesty must be respected and the investigations halted. Other senators, such as Miguel Otero, have called for pardons for the two officials--to match the pardons granted terrorists--so that the country can move on to its future rather than back to its past.

Ultimately, Chile's fate rests in the hands of the electorate. If its judgment is no better than that of President Frei and the Supreme Court, then the Chilean miracle may soon come to an abrupt end. Investors and currency traders are watching closely. If the left succeeds in its vendetta against the military, none of the weaker institutions of the constitutional order will stand. The government's finances, the strength of the currency, and the private pension wealth of the population will all be lost if the left succeeds in its attack on Pinochet and his legacy.BY PAUL CRAIG ROBERTS

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