Chicago Economics: Neoliberal Dress Rehearsal of the Structural Adjustment Programme (SAP)
By Prof Michel Chossudovsky
The main objective of the US-supported military coup in Chile was to impose the neoliberal economic agenda. "Regime change" was enforced through a covert military intelligence operation. Sweeping macro-economic reforms (including privatization, price liberalization and the freeze of wages) were implemented in early October 1973.
Barely a few weeks after the military takeover, the military Junta headed by General Augusto Pinochet ordered a hike in the price of bread from 11 to 40 escudos, a hefty overnight increase of 264%. This "economic shock treatment" had been designed by a group of economists called the "Chicago Boys." "While food prices had skyrocketed, wages had been frozen. From one day to the next, an entire country had been precipitated into abysmal poverty.
In 1973, I was teaching economics at the Catholic University of Chile. I lived through two of the most brutal US sponsored military coups in Latin America's history: Chile, September 11, 1973 and less than three years later, Argentina, March 24, 1976 under Operation Condor, which initiated Argentina's Dirty War: "La Guerra Sucia".
And today, the Trump administration is threatening to invade Venezuela with a view to "restoring democracy", replacing an elected president (casually described by the Western media as a "dictator") by a US proxy, speaker of Venezuela's National Assembly.
More than forty-five years ago on September 11, 1973, the Chilean military led by General Augusto Pinochet, crushed the democratically elected Unidad Popular government of Salvador Allende.
The objective was to replace a progressive, democratically elected government by a brutal military dictatorship.
The military coup was supported by the CIA. Secretary of State Henry Kissinger played a direct role in the military plot.
Is Washington's ongoing initiative directed against Venezuela modelled on Chile?
In early 1970s, in a note to the CIA in relation to Chile, Henry Kissinger recommended "Make the economy scream." Visibly the same concept has been applied to Venezuela, with advanced techniques of financial warfare, which were not available in the 1970s.
Today it's Mike Pompeo and John Bolton who are calling the shots, in tandem with the CIA.
Bolton has gone far beyond the Nixon-Kissinger agenda formulated at the height of the Cold War. Bolton refers to "The Troika of Tyranny". The US sponsored coup against Venezuela is also directed against Cuba. And from Washington's standpoint "after Venezuela, Cuba is next".
"The troika of tyranny in this hemisphere-Cuba, Venezuela and Nicaragua-has finally met its match. In Venezuela, the United States is acting against the dictator Maduro, who uses the same oppressive tactics that have been employed in Cuba for decades." (John Bolton)
The model of US intervention against Venezuela nonetheless bears some striking similarities with Chile 1973:
§ A reshuffle within Chile's Armed Forces occurred barely one month before the military coup followed by the resignation of General Carlos Prats
§ It should be emphasized that in 1973, the US did not have the support of its European allies. There was a firm and cohesive movement both in North America and Western Europe against the US sponsored coup d'Etat under the helm of General Augusto Pinochet.
§ In contrast to Chile in the month preceding the September 1973 coup, the Venezuelan military is firmly committed to the Maduro government and the possibilities of coopting the top brass are "limited" in comparison to Chile in 1973. But this situation could evolve. Washington is currently involved in an ongoing process seeking to create divisions within Venezuela's armed forces.
§ Linked to the Venezuelan Armed Forces, the National Bolivarian Militia, a civilian grassroots force created by Chavez in 2009 is slated to play a key role in the case of a Military Coup. In contrast, in Chile in 1973, the grassroots civilian militia linked to the cordones industriales were disarmed in August 1973.
The US sponsored Pinochet dictatorship prevailed during a period of 16 years. During this period, there was no initiative on the part of the US to call for the replacement of the dictatorship by a duly elected government.
In 1989, elections were held and parliamentary democracy was restored. Continuity prevails. Patricio Aylwin of the Christian Democratic Party (DC) who was elected president in 1989 had endorsed a "military solution" in 1973. He was largely instrumental in the breakdown of the "Dialogue" between the Unidad Popular government and the Christian Democrats (DC). In August 1973, Patricio Aylwin provided a Green Light to the Chilean Armed Forces led by Augusto Pinochet on behalf of the DC.
The following texts shed light on the Chilean Coup d'Etat. The first text first published in 2003 serves as an introduction to the text I wrote in Chile in the month following the September 11 1973 military coup, which describes the chronology of the 1973 military coup.
Chile, September 11, 1973: The Ingredients of a Military Coup. The Imposition of a Neoliberal Agenda,
Global Research, Montreal, 20o3
The Ingredients of a Military Coup
Universidad Catolica de Chile, Santiago, September 1973
Today our thoughts are with the people of Venezuela.
Michel Chossudovsky, February 11, 2019
Chile, September 11, 1973: The Ingredients of a Military Coup. The Imposition of a Neoliberal Agenda
In the weeks leading up the 1973 coup, US Ambassador Nathaniel Davis and members of the CIA held meetings with Chile's top military brass together with the leaders of the National Party and the ultra-right nationalist front Patria y Libertad. While the undercover role of the Nixon administration is amply documented, what is rarely mentioned in media reports is the fact that the military coup was also supported by a sector of the Christian Democratic Party.
Patricio Aylwin, who became Chile's president in 1989, became head of the DC party in the months leading up to the September 1973 military coup (March through September 1973). Aylwin was largely instrumental in the break down of the "Dialogue" between the Unidad Popular government and the Christian Democrats. His predecessor Renan Fuentealba, who represented the moderate wing of the Christian Democratic (PDC), was firmly against military intervention. Fuentealba favored a dialogue with Allende (la salida democratica). He was displaced from the leadership of the Party in May 1973 in favor of Patricio Aylwin.
The DC Party was split down the middle, between those who favored "the salida democratica", and the dominant Aylwin-Frei faction, which favored "a military solution".
See Interview with Renan Fuentealba,
On 23 August 1973, the Chilean Camera de Diputados drafted a motion, to the effect that the Allende government "sought to impose a totalitarian regime". Patricio Aylwin was a member of the drafting team of this motion. Patricio Aylwin believed that a temporary military dictatorship was "the lesser of two evils."
See http://www.fjguzman.cl/interiores/noticias/tema_se/2003/julio/Patricio%20Aylwin%20y%20la%20dictadura%20transitoria.pdf ,
See also: El acuerdo que anticipó el golpe, http://www.quepasa.cl/revista/2003/08/22/t-22.08.QP.NAC.ACUERDO.html
This motion was adopted almost unanimously by the opposition parties, including the DC, the Partido Nacional and the PIR (Radical Left).
The leadership of the Christian Democratic Party including former Chilean president Eduardo Frei,had given a green light to the Military.
And continuity in the "Chilean Model" heralded as "economic success story" was ensured when, 16 years later, Patricio Aylwin was elected president of Chile in the so-called transition to democracy in 1989.
At the time of the September 11, 1973 military coup, I was Visiting Professor of Economics at the Catholic University of Chile. In the hours following the bombing of the Presidential Palace of La Moneda, the new military rulers imposed a 72-hour curfew.
Salvador Allende in the defense of the Palacio de la Moneda, September 11, 1973 (left)
When the university reopened several days later, I started patching together the history of the coup from written notes. I had lived through the tragic events of September 11, 1973 as well as the failed June 29th coup. Several of my students at the Universidad Catolica had been arrested by the military Junta.
In the days following the military takeover, I started going through piles of documents and newspaper clippings, which I had collected on a daily basis since my arrival in Chile in early 1973. Some of this material, however, was lost and destroyed in the days following the coup.
This unpublished article (below) was written forty-five years ago. It was drafted on an old typewriter in the weeks following the September 11, 1973.
This original draft article plus two carbon copies were circulated among a few close friends and colleagues at the Catholic University. It was never published. For 30 years it lay in a box of documents at the bottom of a filing cabinet.
I have transcribed the text from the yellowed carbon copy draft. Apart from minor editing, I have made no changes to the original article.
The history of this period has since then been amply documented including the role of the Nixon administration and of Secretary of State Henry Kissinger in the plot to assassinate Allende and install a military regime.
Chicago Economics: Neoliberal Dress Rehearsal of the Structural Adjustment Programme (SAP)
The main objective of the US-supported military coup in Chile was ultimately to impose the neoliberal economic agenda. The latter, in the case of Chile, was not imposed by external creditors under the guidance of IMF. "Regime change" was enforced through a covert military intelligence operation, which laid the groundwork for the military coup. Sweeping macro-economic reforms (including privatization, price liberalization and the freeze of wages) were implemented in early October 1973.
Barely a few weeks after the military takeover, the military Junta headed by General Augusto Pinochet ordered a hike in the price of bread from 11 to 40 escudos, a hefty overnight increase of 264%. This "economic shock treatment" had been designed by a group of economists called the "Chicago Boys."
While food prices had skyrocketed, wages had been frozen to ensure "economic stability and stave off inflationary pressures." From one day to the next, an entire country had been precipitated into abysmal poverty; in less than a year the price of bread in Chile increased thirty-six fold (3700%). Eighty-five percent of the Chilean population had been driven below the poverty line.
I completed my work on the "unpublished paper' entitled "The Ingredients of a Military Coup" (see text below) in late September.
In October and November, following the dramatic hikes in the price of food, I drafted in Spanish an initial "technical" assessment of the Junta's deadly macro-economic reforms. Fearing censorship, I limited my analysis to the collapse of living standards in the wake of the Junta's reforms, resulting from the price hikes of food and fuel, without making any kind of political analysis.
The Economics Institute of the Catholic University was initially reluctant to publish the report. They sent it to the Military Junta prior to its release.
I left Chile for Peru in December 1973. The report was released as a working paper (200 copies) by the Catholic University a few days before my departure. In Peru, where I joined the Economics Department of the Catholic University of Peru, I was able to write up a more detailed study of the Junta's neoliberal reforms and its ideological underpinnings. This study was published in 1975 in English and Spanish.
Needless to say, the events of September 11 1973 also marked me profoundly in my work as an economist. Through the tampering of prices, wages and interest rates, people's lives had been destroyed; an entire national economy had been destabilized. Macro-economic reform was neither "neutral" -as claimed by the academic mainstream- nor separate from the broader process of social and political transformation.
I also started to understand the role of military-intelligence operations in support of what is usually described as a process of "economic restructuring". In my earlier writings on the Chilean military Junta, I looked upon the so-called "free market" reform as a well-organized instrument of "economic repression."
Two years later, I returned to Latin America as a visiting professor at the National University of Cordoba in the northern industrial heartland of Argentina. My stay coincided with the 1976 military coup d'État. Tens of thousands of people were arrested; the "Desaparecidos" were assassinated. The military takeover in Argentina was "a carbon copy" of the CIA-led coup in Chile. And behind the massacres and human rights violations, "free market" reforms had also been prescribed, this time under the supervision of Argentina's New York creditors.
The IMF's deadly economic prescriptions under the "structural adjustment program" had not yet been officially launched. The experience of Chile and Argentina under the "Chicago boys" was "a dress rehearsal" of things to come.
In due course, the economic bullets of the free market system were hitting country after country.
Since the onslaught of the debt crisis of the 1980s, the same IMF economic medicine has routinely been applied in more than 100 developing countries. From my earlier work in Chile, Argentina and Peru, I started to investigate the global impacts of these reforms. Relentlessly feeding on poverty and economic dislocation, a New World Order was taking shape.
(For further details, see Michel Chossudovsky,The Globalisation of Poverty and the New World Order, Second Edition, Global Research, Montreal, 2003.
I should mention that the ongoing US-led economic destabilization of Venezuela including the manipulation of the foreign exchange market, leading to the collapse of the national currency the Bolivar and the dramatic hikes in the prices of essential consumer goods, bears a canny resemblance to the months preceding the September 1973 military coup in Chile.
Michel Chossudovsky, Global Research, 11 September 2003, updated 11 September 2018
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The Ingredients of a Military Coup
by Michel Chossudovsky
Universidad Catolica de Chile, Santiago
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