Uncontrolled financial liberalization and consumption-fuelled borrowing collapsed Chile’s economy in 1982
Evidence
Chile’s economic crisis in 1982 was caused by a combination of external and internal factors. Among the external factors, the steep fall of the price for copper due to the global crisis was devastating, given the preponderance of copper in Chile’s total exports. The uncontrolled financial liberalization, in combination with heavy borrowing of the Chilean conglomerates, were large factors in the country’s economic recession. Credit had been incurred overwhelmingly for consumption purposes and for the takeover of enterprises, instead of investment in productive capacity. Rapidly declining growth, a growing balance-of-payments deficit, rocketing interest rates, and the insolvency of hundreds of firms in the manufacturing sector ensued. Sixteen private financial institutions (out of fifty) went bankrupt. — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 1594
Categorization
- XREF: connects to: Structural adjustment policies shrank the economies that pursued them — Mark Blyth, Austerity: The History of a Dangerous…, 440; Foreign credit masked the painful side-effects of Chile’s shock therapy — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin: The Making…, 1577; Chile abolished import substitution and embraced export-led liberalization in the mid-1970s — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin: The Making…, 1578 (+3 more)
Broader Connections
- Capital-account liberalization creates surplus-deficit imbalances and boom-bust cycles
#expands(0.92) — Natascha van der Zwan, Making Sense of Financialization, 34 - Chile’s 1982 crisis forced the removal of orthodox neoliberal ministers from office
#complicates(0.75) — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 1597 - The 1980s debt crisis triggered IMF demands for CFA devaluation
#responds-to(0.72) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 205