Chile has been rocked by massive protests in recent weeks. On Saturday, more than one million people took to the streets of Santiago. This protest movement arose in response to privatized education, health, and pension services implemented in the past and maintained by the right-wing Piñera government, but its demands are diffuse and its roots trace back decades and cannot be understood without examining the key institutions of globalized capitalism.
To say that Chile’s social crisis is simply due to neoliberal policies adopted during Pinochet’s dictatorship that led to the privatization of public assets is a gross misstatement. The problem with this all-too-common simplification is that the explanation focuses on the national level in disregard of the international preconditions underlying the implementation of large-scale privatization in Chile in the 1980s.
As a product of human history conditioned by a set of established international relations, the privatization of Chilean public resources is inextricably linked to the financialization of the economy and the repayment of foreign debt enforced by the International Monetary Fund and the World Bank. These two processes constitute the international face of the Chilean social crisis.
Debt and privatization
The use of foreign debt as a means of privatizing assets in developing countries can be traced back to 1971, when Richard Nixon took the dollar off the gold standard. The breaking of the relationship between paper money and gold meant simply that paper money could be printed regardless of the amount of gold held by the United States. This policy change gave prominence to bankers who make revenue through credit, propelling the financialization of the economy. One of the tectonic shifts caused by the end of the gold standard was the imposition of the so-called petrodollar, or the agreement by Saudi Arabia to sell oil in dollars. This involved the recycling of petrodollars through New York investment banks, which found themselves with huge amounts of money to lend and increase their revenue. The conditions were set to allow New York bankers to make revenue through the lending of money by encouraging foreign governments to borrow heavily. Between 1968 and 1980, total Third World foreign debt increased nearly twelvefold, from $47.5 billion to more than $560 billion.
The increase in the supply of money, in large part due to the policy of untying the amount of paper money to the amount of gold, resulted in a dollar with less value and huge price inflation. To stop the falling value of the dollar and curb inflation, the chairman of the U.S. Federal Reserve, Paul Volcker, pushed the interest rate from 6 to 20 per cent in 1979. This move was disastrous for developing countries that borrowed heavily from international markets. Since foreign loans are designated in U.S. dollars, this rise pushed many developing countries into default. Chile, Mexico, Brazil and Argentina, among other Latin American countries, were unable to meet their financial obligations.
The large-scale privatization of public assets in Chile was a direct response to the defaults triggered by the rise of the interest rate pushed by Volcker. Rather than allowing New York investment banks to take the losses, Chile was forced to engage in special plans set by the IMF and the World Bank to repay the foreign debt. As David Harvey explains in his book A Brief History of Neoliberalism, under the euphemism of “structural adjustment” the IMF and the World Bank imposed severe conditions on Chile to lend the country more money to repay its debts, including the privatization of public assets, cuts to social spending, privatization of land, opening up of the financial sector to foreign ownership, and reforms to push down wages.
Pinochet’s government was forced by the IMF and the World Bank to take over the banks and around 70 non-financial companies. The foreign debt was initially socialized by the Central Bank of Chile and the losses placed on the population. Once in the hands of the Chilean state, the IMF and the World forced Pinochet to reprivatize the banks and profitable public companies such as mining companies, energy companies, and utilities to transnational corporations to repay the foreign debt. Transnational corporations were given the opportunity to buy Chilean companies at a fraction of their worth. Chile’s assets were surrendered to transnationals at fire-sale prices. It was in this international context that Chilean public resources were robbed by transnational corporations.
From this vantage point, Chile’s crisis is the consequence of the international looting of public resources by transnationals through foreign debt repayment programs enforced by the IMF and World Bank. It is nothing but the history of international robbery, conquest, and enslavement; in other words, the neverending history of colonialism. Contrary to the old colonialism that operated in the name of nations, this is a type of colonialism that operates in the name of transnational companies. Unlike imperial invaders, transnationals were welcomed by the treasonous elite of Chile.
Unaware Chileans still live under intensified colonialism under the guise of corporatism, populated by private transnational capital and rentier-developed nations. What is the way out of this crisis? The solution lies in a second independence — not from Spain this time, but from transnational corporations.
Rodrigo Finkelstein is a PhD candidate in the School of Communication at Simon Fraser University.