The Toughest War

Chile, the doughty little country that never lost a shooting war, is fighting a desperate battle against the hemisphere's deadliest case of inflation. Until the beginning of this year, victory was in the air; President Carlos Ibanez, advised by U.S. Economic Consultants Klein & Saks, had effectively reversed 40 years of accelerating inflation. But last week the battle was again going against the inflation-fighters.

The immediate, causes of the setback were three sharp economic blows. First, the worst drought in 87 years parched the fertile south, forcing Chile to spend hard cash for foreign wheat. Then unseasonal rains flooded the North. Worst of all, copper--the government's largest revenue source--plummeted from 55-c- a Ib. to 27-c-, and with every 1-c- drop the government lost $6,300,000 in taxes.

But the basic trouble stems from politics. With elections coming next year, Chile's Congress has balked at the important but unpopular reforms on the Klein & Saks program. The Congress refused a 20% cut in government staff, and government expenses rose this year instead of dropping, as planned. It also balked at an antitrust bill to curb monopolistic, inflationary practices in the lumber, paper, cement and tobacco industries. Meanwhile, the government itself hesitated to tighten collections of income taxes, which are high in theory but evaded in practice. And the armed services continued to waste money; e.g., the Navy still keeps in commission the Almirante Latorre, probably the only relic still afloat from the 1916 Battle of Jutland, where it was a British dreadnought.

Most of the cost of Chile's austerity has been taken out of the pay envelopes of labor, already hard pressed by heavy taxes and a decline in real wages. In April a rise in bus fares provoked rioting that killed 22 people. A fortnight ago, when President Ibanez moved to slash government expenses by reducing the subsidies that held down the price of sugar and tea, the government accompanied the order with special instructions to the police on how to quell any rioting that might follow: sound a bugle three times at two-minute intervals, then break up the mobs by any means necessary.

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