Date: Tue, 11 Nov 97 12:31:24 CST
From: rich@pencil (Rich Winkel)
Subject: NACLA: Chile's Rich
/** nacla.report: 339.0 **/
** Topic: Chile's Rich, S.Rosenfeld f J.L.Marre **
** Written 9:28 AM Oct 24, 1997 by nacla in cdp:nacla.report **
By S. Rosenfeld and J. L. Marre, NACLA Report on the Americas
With an estimated net worth of $2.3 billion, Anacleto Angelini is the
richest man in Chile.1 He controls Grupo Angelini, the second largest
of the grupos - or conglomerates - that now dominate the Chilean
economy. The economic restructuring of the past 20 years has
transferred national wealth and power to a small number of these
Chilean grupos and their transnational partners. The top six grupos now
own more than 20% of Chile's capital stock.2 From 1990 to 1995, the
total assets of the top six grupos grew from an equivalent of 54.2% of
GDP to 55.8%. The Angelini empire alone accounts for 5% of Chile's
Angelini emigrated to Chile from Italy after World War II, and amassed
a medium-size fortune in the fish, forest and construction industries.
His empire expanded rapidly after the 1973 coup led by General Augusto
Pinochet, benefiting from the military dictatorship's privatization
fever. It now stretches from fishing companies in the north, including
the nation's largest, Pesquera Iquique Guanaye S.A., to Celulosa Arauco
y Constitucion, the giant forest-products company in southern Chile.
His holdings include numerous investment companies, business-services
companies, Chile's largest insurance company, Cruz del Sur, and the
nation's fourth- largest pension-fund administration company, AFP Summa
In the energy sector, Angelini controls Cocar, the coal mining company
which sells coal to Chilgener, the second largest electric company in
Chile, in which Angelini himself is a major shareholder. He also owns
hydroelectric plants, petroleum and natural-gas production and
distribution companies, a chain of home-appliance stores, a tourism
company and a broad range of agriculture, livestock and real estate
interests. In the forest industry, Angelini controls forest-plantation
management companies, logging companies, saw mills, pulp plants, and
even the ports from which the forest products are exported.3
The radical redistribution of national wealth to a few conglomerates
like Grupo Angelini coincides with a decline in the percentage of
national income going to wages, from 42.7% in 1970 (just before
Salvador Allende's Popular Unity government) to 33.9% in 1993.4 It also
coincides with an overall rise in poverty. In 1994, 28.4% of Chileans
lived in poverty, compared to 17% in 1970.5 (The poverty rate peaked at
45% in 1987, toward the end of the dictatorship, when a significant
part of the middle class had fallen into poverty.) Poverty in Chile
used to be synonymous with rural landlessness or urban joblessness.
Today, the masses of Chile's poor are no longer "marginal" to the
national economy, but central to the workings of the country's free-market
economic model. They are low-paid, temporary workers in the
formal sector of the economy. Chile's traditional industries like
textile, garment and shoe production collapsed under import pressure
when the dictatorship's neoliberal policymakers opened the economy in
Many industrial workers lost their decent-paying union jobs in that
period, settling for lower-paid and unstable processing jobs in the
fishing, forest and fruit-export sectors.
Low wages now mean that even a job in the formal sector is no guarantee
of escape from poverty. The free-market model has also hollowed out the
country's middle class. Historically, Chile's middle class grew along
with the expansion of the state. When state and state-enterprise
employment was drastically reduced during the dictatorship, and wages
for teachers and other remaining state-sector workers declined, the
traditional middle class became impoverished and insecure. At the same
time, a new middle and upper-middle class of professionals emerged in
connection with the boom in finance and services. And above the
professionals were the fabulously wealthy owners of the country's new
The transition to democracy in 1990 brought a consolidation of, rather
than a challenge to, the free-market model.
Chile's governing coalition, the Concertacion (led by the Christian
Democrats in the center, with the Party for Democracy and the Socialist
Party to its left), claims its economic program will bring "Growth with
Equity." The Concertacion's formula for Growth with Equity has been to
embrace the free-market, export-oriented economic model implemented
during the dictatorship, but also pay significanltly more attention to
poverty and social policy than the dictatorship ever did. In pursuit of
freer trade, the Concertacion has reduced import tariffs, privatized
many remaining state-owned enterprises, and aggressively pursued
bilateral and multilateral free- trade agreements, including entrance
The transnationalization of the Chilean economy has also intensified
since 1990. The Concertacion's commitment to free trade and
privatization, together with the political stability since the
transition, has translated into increased foreign investment.
International investment in Chile rose from $1.5 billion in 1990 to
$2.8 billion in 1993, and then skyrocketed to $4.3 billion in 1995.
Chilean investment abroad also shot up, financed by Chile's private
pension-fund system and "yanquee bonds" - corporate bonds sold on Wall
Street. Growth has boomed at an average annual rate greater than 7%
since 1985 - by far the highest in Latin America.
Single-digit inflation, moderate unemployment officially in the 5-6%
range, and a vibrant export sector make Chile's macroeconomic
performance the envy of every finance minister in Latin America.
So the Chilean economy works, but it does not work for everyone. In
fact, Chile's much-touted "jaguar" economy may be less like the wild
cat and more like the British automobile - a symbol of both luxury and
unreliability. In 1970, Chile was well known for its public health and
education systems, had a substantial professional middle class and a
stable working class, and significant comparative advantages in natural
resources. But free-market reforms were used to radically concentrate
wealth and power in the hands of a few, destroy labor's bargaining
power by undermining its base in traditional industry and the state,
and strip away existing social guarantees.
The ongoing processes that perpetuate the concentration of wealth in
Chile are largely the result of the neoliberal revolution in economic
policy implemented during the Pinochet dictatorship by a group of
Chilean economists who had studied with free-market proselytizers
Milton Friedman, Frederick von Hayek and Arnold Harberger at the
University of Chicago. In the 1950s, the University of Chicago
developed a "special relationship" with the Catholic University in
Chile. A systematic approach to "ideological transfer" was supported by
the Rockefeller and Ford Foundations, and the U.S.
Information Agency.6 University of Chicago professors, most notably
Harberger, taught at the Catholic Univeristy in Chile, and Chilean
economics students were given scholarships to study economics at the
University of Chicago, where some of them developed an intense sense of
mission, arrogance, and belief that for every problem there is a
free-market solution. Many of the Chicago-trained Chileans, such as
Rolf Luders, Alvaro Bardon and Sergio de Castro, returned to the
Catholic University to become economics professors, shaping a new
generation of economists in the Chicago model.
Sympathetic Chilean businessmen collaborated with the "Chicago Boys,"
as they came to be known, in the design of a free-market economic
program for Chile.
The Chicago Boys believed that the threat of socialism in Chile was
linked to political and economic institutions dating back to the 1920s
and 1930s. They blamed the 1925 Constitution, the political party
system and state-centered import substitution industrialization (ISI)
policies for the growing role of the state in the Chilean economy. They
believed that only a radical opening of the economy to international
competition and a reduction of the role of the state and politics in
society would "free" the economy and liberate Chile from the threat of
Marxism. By 1965, the Chicago Boys controlled the Catholic University's
school of economics. By 1975, two years after the military coup, the
Chicago Boys convinced General Pinochet of their beliefs, and displaced
the nationalist sector of the right, which sought a resurrection of
traditional agriculture and industry. Sergio de Castro became Minister
of the Economy in April 1975, and the neoliberal counterrevolution in
The Chicago Boys began their experiment by unilaterally opening the
Chilean economy to international trade.
Traditional industry fell into ruin under the pressure of international
competition, and in 1975 GDP dropped 14%.
Chile's traditional elites, still reeling from the agrarian reforms of
the 1960s and the interventions of the Popular Unity government, were
devastated by the opening up of the economy.
The Chicago Boys used the economic crisis of 1975 as an opportunity to
restucture the economy to their liking. From 1975 to 1981, the
"strategic" banks and industries that were nationalized under Allende
were privatized to a small number of grupos, owned and run by the
Chicago Boys and their supporters in the business community. The new
grupos became the new driving force in the Chilean economy. They
combined banks, financial and other service companies and natural-
resource export industries like fruit, forests and fish into huge
conglomerates. Before the Chicago Boys, Chile's traditional economic
grupos were family affairs, based in large landholdings, commerce and
traditional industries such as clothing and shoes. Many of the new
grupos emerged in the late 1960s out of the relationships among the
Chicago Boys and the big businessmen who had backed them since the
Unlike their debt-shy predecessors, many of the new grupos started with
few assets, relying on easy petrodollar loans and the privatization of
the banks for capital. While the traditional grupos sought majority
ownership, the new ones built their empires through leveraging small,
controlling shares of interrelated companies. Ultimately, most of the
traditional grupos regrouped to participate in the booming finance and
export sectors. The heavily indebted grupos made speculative real
estate and other investments. Incestuous and highly unregulated
relationships between the grupos and their own banks left the Chilean
economy extremely vulnerable.
In the late 1970s and early 1980s, the Chicago Boys were flying high.
As the economy zipped along, a "miracle" was declared, and the
dictatorship began to implement its ambitious project to permanently
remake Chilean politics, economics and culture. The so-called "Seven
Moderizations" included a new constitution, the "regionalization" and
decentralization of the state, the privatization of state- owned
industry and services, a new system of labor law, and the
municipalization and privatization of state-run health, education and
But when Mexico declared an international debt-service moratorium, and
the international bankers stopped providing new money to roll over bad
loans, Chile's speculative bubble burst. The economy collapsed, and GDP
again plummeted 14%.
The grupos fell apart. Bankrupt companies defaulted to their banks,
which defaulted to the Central Bank, and the Chilean state once again
became the owner of most of the Chilean economy.
Like the economic collapse of 1974-75, the 1982-83 depression provided
the Chicago Boys with another opportunity to restructure the economy.
In 1985, a new stage of privatization began - this time, the historic
state enterprises, including the electricity and telecommunications
companies, were put on the block. International capital got the upper
hand, using debt-for-equity swaps to pick up dominant positions in
profitable state enterprises. Foreign investors, including many U.S.
banks and mutual funds, such as Citicorp, Morgan Guarantee Trust Co. of
New York, the Bank of New York, Bankers Trust, the Emerging Markets
Chile Fund, the Chile Fund, and the Spanish bank Santander were major
The history of the Chilean oil company, COPEC, is illustrative. COPEC
was privatized in 1976 to the Grupo Cruzat-Larrain, then the largest
conglomerate in Chile, and the main beneficiary of the first round of
privatizations during the dictatorship. With the further privatization
of major state-run industries, COPEC in turn acquired a diverse
collection of finance, forestry, fishing, commerce and mining
companies. In the 1982-83 debt crisis, Cruzat-Larrain went belly-up.
COPEC and many other companies financed or owned by Cruzat-Larrain and
the Banco de Santiago (of which COPEC owned 50%) were taken over by the
state. The Pinochet dictatorship became the not-so-proud owner of the
largest private enterprise in Chile - which it held on to for four
In 1986, Grupo Angelini acquired COPEC at bargain-basement prices in
the dictatorship's second round of privatizations.
Angelini bought his share of COPEC at half price, four days before the
public auction to reprivatize the shares of the oil company.7 The
Angelini Group then canceled part of COPEC's foreign debt through a
$164 million debt-equity swap, in which the New Zealand forest-products
giant, Carter Holt Harvey, got a 30% share of the company. According to
Maximo Pacheco, Carter Holt Harvey's vice president in Chile and an
important player in the Christian Democratic Party, CHH's initial $164
million debt-swap investment is now worth $2 billion.8
Through the reprivatizations, the grupos were put back together, and
the national wealth was again concentrated in a few private hands.
Chile's newly privatized pension-fund system - together with
transnational financial capital - helped provide the grupos with the
resources they needed to pay for reprivatization. This allowed the
dictatorship to shore up its economic and political projects against
pressure from the nationalist right based in traditional agriculture
and industry, which wanted to break with neoliberal policies, and the
center and left opposition movements, which also wanted a break with
neoliberalism and demanded a return to democracy.9
Key to this new concentration of wealth was the privatization of
workers' pension funds. The privatization of Chile's social-security
system has put workers' savings under the control of a few U.S.-based
insurance companies and Chilean grupos, which have used the funds to
rebuild their bankrupt empires. The forced savings of Chilean workers
are a key factor behind the country's remarkably high national savings
rate of 30% of GDP. These savings have funded the investment which has
fueled Chile's economic boom - and given a few pension fund
administration companies significant control over the Chilean economy.
At the time of Chile's pension-fund privatization, the country had an
intergenerational transfer system, in which the contributions of
current workers paid for current retirees. It was a complicated system
with 35 separate funds, or cajas, and 150 different plans according to
job category and employer. Doctors, teachers, state workers, municipal
employees and railroad workers each had their own cajas, most of which
were overseen by the state and run by tripartite boards with
representatives of workers, employers and the government. Pensions
varied dramatically according to each group's political weight.
Breaking up the old cajas which had evolved hand-in-hand with labor
unions and professional associations, the AFP system undermined the
existing class- based organizations and identities - except in the case
of the Armed Forces and police, whose cajas were never privatized.
The average monthly pension for Armed Forces retirees is higher than
the averages in the rest of the state-run and AFP systems. The average
monthly pension for retirees in the state system is $204.63 per month,
compared to $271.30 for the AFPs, and $608.27 for the Armed Forces.
When the AFP system began, the old cajas, except the Armed Forces and
the police, were consolidated under the administration of a state-run
agency, and the old system was closed to new entrants. All new entrants
to the workforce must affiliate with an AFP - assuming they have a work
contract, and that their employer actually passes their deductions on
to the AFP. Those who entered the workforce before privatization were
given the choice of staying in the state-run fund, or switching to an
Under the new private pension system, run by pension-fund
administration companies (AFPs), the size of an individual pension is
determined by how much a worker has saved, plus the interest he or she
has earned. The state pays a "recognition bond" to everyone who
switches from the state to the AFP system, representing their years of
pension contributions to the state, plus 4% interest and adjusted for
inflation. Affiliates must automatically deposit 10% of their wages in
the AFP of their choice. An additional charge averaging 3% is levied to
cover life and disability insurance, plus the administration costs and
earnings of the AFP. At the time of the big switch, workers were
bombarded with major publicity campaigns, as AFPs fought for market
share by promising higher pensions and encouraging workers to switch
brands. Twenty-five percent of affiliates change AFPs each year,
despite the fact that, thus far, the AFPs have quite similar rates of
return. Job instability and poverty wages make it impossible for many
workers to earn a pension.
Thirty-nine percent of the workforce does not make monthly pension
payments. Among the lowest income quintile, 55% cannot make payments.10
The only recourse for those who don't accumulate 20 years of savings in
an AFP is the state subsidy for the elderly poor - $51 a month in
The AFP system taken as a whole has so far been extraordinarily
profitable, averaging a 12.3% annual return since 1981, although a
negative 2.5% return in 1995 - largely due to a drop in the price of
energy stocks - caused some concern about the risk inherent in the new
system. The costs of publicity and sales, along with the profits taken
by the AFPs, make the AFP system much more costly than the former
state-run system - eating up 16.7% of affiliates' contributions,
compared to less than 5% under the old system, and making the rate of
return on individual pension accounts significantly lower than the
overall rate. Even proponents of the AFP system expect the long-term
average rate of return to settle around 6%. The rush of pension-fund
money into the stock market has driven up stock prices, further driving
up the AFP's annual returns. It is unclear what will happen to stock
values, and therefore the values of workers' pensions, when the AFPs
start selling off large amounts of stock to pay for pensions in decades
In contrast the state pension system, with its $4.1 billion annual
budget, is expected to run huge annual deficits for the next 40 years.
This is because the state got stuck with all existing pensions, the
pensions of the workers who stayed in the state system, the
public-assistance pensions for the needy, as well as the
state-guaranteed minimum pension for those who fail to accumulate
enough money in their AFP plan upon retirement. The AFP system, by
contrast, has so far accumulated few pensioners.12 [See Table 2.]
During the 1982-83 financial crisis, the AFPs went bankrupt along with
the grupos, and fell into state custody.
Subsequently the social security system was reprivatized, and Citicorp
and Aetna gained control of most of the pension-fund system. A few
Chilean grupos - Abumohor-Saieh, Luksic, Matte and Angelini - also got
an important share.13 At first, the AFPs mostly bought government debt,
including the "recognition bonds." After the 1982 debt crisis, workers'
AFP savings provided the capital which the bankrupt conglomerates used
to rebuild their empires, buying up shares in the 1984- 85
reprivatization of the economy. Starting in 1985, the AFPs began buying
shares in the major state enterprises that were being privatized,
especially in energy, telecommunications and other highly profitable
sectors. By 1994, AFP investments made up 70% of institutional
investment in the Chilean stock market, pumping in $2 billion a year in
AFP investments must meet the state's criteria for diversification and
risk, although the regulations are being loosened as the AFPs
accumulate increasing sums. To deal with this tremendous flow of money,
a new capital-markets law was approved by Congress, loosening the
regulations on investments by AFPs, insurance companies and banks. AFPs
are now allowed to invest 37% of their assets in the stock market, up
from 30%. In addition, the limit on investment abroad has been raised
from 6% to 9%, and AFPs were allowed to invest in non-Chilean stocks -
rather than just bonds - in 30 countries.15 These changes allowed the
Chilean grupos to put together larger investments in Peru, Argentina,
Colombia and elsewhere, at times taking advantage of privatization
processes in those countries as well.
Chile's incomparable macroeconomic performance has produced an "if it
ain't broke, don't fix it" complacency among most of Chiles political
leaders. The Concertacion has pursued limited redistributive reforms,
and successfully negotiated a progressive tax hike soon after the
transition to democracy.
But the government rejects reforms that would make the labor market
less "flexible," and the overall thrust of its program is to promote
economic growth, and wait for the benefits to trickle down.
With such a recipe, it is unclear where its proposed "Growth with
Equity" is supposed to come from. As one Socialist Party economist
recently put it: "The intellectual who proposes redistributive policies
is treated as if he were antiquated and obsessed, proposing policies
that failed in the past. The idea now is we have to privatize
everything, we have to stimulate private enterprise, and hopefully we
will all be entrepreneurs!" Neoliberal ideology has become so
pervasive, even among part of the left, that major reforms to the free-
market model are automatically rejected as "populist" and
Many other factors also operate to stifle debate. The institutions of
"protected democracy" put in place by the dictatorship, including the
1980 Constitution, have created a political stalemate. The Pinochet-era
"designated senators," who represent institutions (like the military)
instead of electoral districts, tip the balance of congressional power
in favor of the right, despite the Concertacion's ample majorities at
the ballot box.16 The priority placed on stability after the trauma of
the dictatorship, as well as a reserve of fear and perhaps self-blame
among some leaders of the left, are also factors. The international
financial community's support for free trade, and the seeming lack of
alternative models also contribute to the current climate of national
General Pinochet's upcoming retirement as Commander-in-Chief of the
Army, and the possiblity of future constitutional reform could
lubricate Chile's political system. Conflict within the Concertacion at
the beginning of the Frei administration, expressed as a debate between
prioritizing the "political agenda" (the Socialist Party's demand for
constitutional reform) or the "socio-economic agenda" (President Frei's
emphasis on economic growth and the modernization of the state) may
resurface in the year 2000, around the likely presidential candidacy of
Lagos, the Party for Democracy and Socialist Party's challenger to the
Christian Democrats for the leadership of the Concertacion and the
nation, has a market-oriented economic agenda, but would probably push
for greater political and redistributive reforms, and take a harder
line toward the military than the Christian Democrats. In the meantime,
workers in the state sector will continue to strike for better wages,
while those without the capacity to strike will continue to struggle to
survive as they develop new strategies to regain lost rights.
1. Punto Final (Santiago), January 1997, p. 10.
2. Luis Riffo Perez and Francisco Ruiz Aburto, Estudio sobre
la concentracion empresarial en Chile (Santiago: Centro de
Estudios Sociales (CESOC) and Biblioteca del Congreso
Nacional, 1996), p. 18.
3. Mapa Actual de la Extrema Riqueza: Grupo Angelini,
Working Paper #3, (Santiago: Centro de Estudios Nacionales de
Desarrollo Alternativo (CENDA), December 1996); Moody's
Investors Service, Inc., New York, 1995.
4. Central Bank of Chile, Balance de sies anos de las
politicas sociales, 1990-1996 (Santiago: Ministry of Planning
and Cooperation (MIDEPLAN), 1996), p 78, tables 21 and 22.
5. 1994 data from the 1994 Survey of National Socio-economic
Characterization (Encuesta CASEN), (Santiago: MIDEPLAN,
1995); 1970 data from the UN Economic Comittee on Latin
America (ECLA), Division of Statistics and Projections.
6. Juan Gabriel Valdes, Pinochet's Economists: The Chicago
School in Chile (Cambridge, England: Cambridge University
7. Punto Final (Santiago), January 1997, p. 10.
8. Punto Final (Santiago), January 1997, p.10.
9. Patricio Rozas and Gustavo Marin, 1988: El "Mapa de la
extrema riqueza" 10 anos despues (Santiago: Centro de
Estudios Sociales(CESOC) and PRIES-Cono Sur, 1989).
10. CASEN 1992, cited in Pagina Economica de los Trabajadores
(Santiago: Programa de Economia del Trabajo (PET)) No. 131,
11. Jaime Ruiz Tagle, El nuevo sistema de pensiones en Chile.
Una evaluacion provisoria (1981-1996), Material de Discusion
No. 13 (Santiago: Programa de Economia del Trabajo (PET),
January 1996), P 6-7.
12. Instituto de Normalizacion Previsional, Statistics
Section, March 1997; Superintendent of the AFPs, Department
of Research, March 1997.
13. Mario Marcel and Alberto Arenas, Reformas a la seguridad
social en Chile, Monograph Series #5 (Washington, D.C.:
Interamerican Development Bank, 1991), p. 31.
14. Country Commercial Guide Chile, (Santiago: U.S. Embassy
in Chile, 1995) FY95, NTIS, p. 47.
15. 1995 National Trade Data Bank Market Reports,
International Market Insights, June 12, 1995.
16. The designated senators include two ex-judges of the
Supreme Court, designated by the Supreme Court; one ex-
Comptroller, designated by the Supreme Court; four ex-
commanders-in-chief of the Armed Forces and Carabineros,
designated by the National Security Council; one ex-rector of
a university, designated by the President; one ex-minister
designated by the President. Ex-presidents who served six or
more years in office become senators-for-life, thus excluding
the first president after the 1990 transition, Patricio
Aylwin, who was elected to a four-year term. Pinochet could
become a senator-for-life after he steps down as commander-
in-chief of the Army.
Reprinted from the May/June 1997 issue of NACLA Report on the
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