Foreign credit masked the painful side-effects of Chile’s shock therapy

Evidence

The monetarist shock treatment, along with the establishment of a free trade regime, deregulation of finance sector activities, and a second wave of privatizations of traditional (and profitable) state-owned companies, were the primary components of the first neoliberal package (Tironi 1982; Olave Castillo 1997, 53–105). Profound restructuring was further enabled by access to foreign credit, which helped to control the adverse effects of the shock treatment—namely, soaring imports due to overvaluation of the peso, deindustrialization due to import competition, and rapidly rising unemployment. — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 1577

Categorization

• XREF: Directly parallels the pattern in the diamond-trade readings: extralegal/authoritarian regimes use external credibility mechanisms (here foreign credit) to substitute for internal legitimacy. — connects to: Shock therapy transferred income from Chile’s poor to its richest five percent — Jessica Whyte, The Morals of the Market: Human Rights…, 341; Uncontrolled financial liberalization and consumption-fuelled borrowing collapsed Chile’s economy in 1982 — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin: The Making…, 1594; The CIA-backed coup installed Chicago-school austerity economists in Chile — Clara E. Mattei, Escape from Capitalism, 356

Broader Connections

• Uncontrolled financial liberalization and consumption-fuelled borrowing collapsed Chile’s economy in 1982 #expands (0.85) — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 1594
• The CIA-backed coup installed Chicago-school austerity economists in Chile #expands (0.80) — Clara E. Mattei, Escape from Capitalism, 356