Crisis of 1982

The Crisis of 1982 was a major economic crisis suffered in Chile during the military government of Chile (1973–1990). Chile's GDP fell 14.3%, and unemployment rose to 23.7%.

After the socialist reorientation of the economy during the presidency of Salvador Allende, economic sabotage by the Nixon presidency, and the subsequent Chilean economic crisis which reached its zenith during 1973, the Chilean Armed Forces carried up a coup d'état which deposed Allende's Popular Unity government, evicted and demobilised resistance of armed movements close to Allende like the Revolutionary Left Movement, and installed a Military Junta, presided by General Augusto Pinochet. The new regime proceeded with the dissolution of the National Congress, the establishment of censorship, suspension of civil rights and the arrest of civilians (the majority sympathizers of the overthrown government and some linked to moderate leftism) . Upon taking over power, the military junta under the command of General Pinochet set out to implement a series of neo-liberal economic policies based on the Chicago school of economics. In 1973, only a little bit over two years of regulatory policies established by Allende, the military junta decided to reform the economy, and the Chicago boys were permitted to implement some of the neoliberal economical policies outlined in El ladrillo. In 1979 however, Chile decided to depart from the principle of free floating exchange rates, with disastrous results. From 1976 onwards import tariffs decreased strongly impacting negatively the Chilean production aimed for the internal market.

The 1982 crisis has been traced to the overvalued Chilean peso, which had been helped by being pegged to the US dollar, and to the high interest rates in Chile, which would have hampered investment in productive activities. In fact, from 1979 to 1982, much^[vague] of the spending in Chile was the consumption of goods and services. Foreign loans given to Chilean companies started to decline in late 1981 reaching the point of becoming negligible one year later. Events can also be explained in terms of interest rates and capital flows using the nineteenth-century Banking School theory of financial crises. By 1982, Chile's external debt had risen to over 17 billion dollars. Income per capita in Chile fell in 1983 to levels below those of 1960. Incomes fell as salaries were not adjusted for inflation. Around half a million persons were on employment programmes.

In agriculture, the entrance of speculative capital before the crisis led to the bankruptcy of several processing companies. IANSA, a sugar company that had belonged to the state before its privatization, went bankrupt because of a short-term gains policy by its new owners.

The government response to the crisis priorized the preservation of the international markets over the placation of internal unrest.

In November 1981, banks were bailed out by the government after they had taken excessive risks: the large Banco de Talca and Banco Español Chile and the small Banco de Linares and Banco de Fomento de Valparaíso. Financial societies (Compañía General, Cash, Capitales and del Sur) were also bailed out. Banco de Talca and Banco Español Chile were nationalized, removing the management and wresting ownership from shareholders (they were later privatized again).

On January 13, 1983, the government made a massive bank intervention, bailing out five banks and dissolving three others.

All sectors of Chilean agriculture except fruit exports and forestry contracted during the crisis, but recovery was fast after 1984. The number of farm bankruptcies in Chile increased from 1979 to its 1983 peak.