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article imageChile's 'Chicago boys' making a comeback in Brazil

By Paulina ABRAMOVICH (AFP)     Feb 20, 2019 in Business

They were the architects of the "shock" economic politics that some claim galvanized Chile's economy under the Augusto Pinochet dictatorship.

Now the so-called "Chicago Boys" are back with a bang under far-right leader Jair Bolsonaro's government in Brazil where it's hoped their neoliberal policies will save an asphyxiated economy.

Two years after the US-backed coup d'etat that deposed the democratically elected socialist leader Salvador Allende in 1973, economists with postgraduate degrees from the University of Chicago convinced military dictator Pinochet to apply their policies to fix the failings of the previous administration.

After a crash in gross domestic product of 12.9 percent in 1975, the disciples of the ultraliberal economist Milton Friedman launched a recovery program that privatized some 400 companies, reduced the public sector and almost completely liberalized the economy.

In a second stage, health, education and pensions were largely privatized.

During the same period, the dictatorship ramped up the repression of its opponents with 3,200 people either killed or disappeared.

Free of unions, parliament or opposition media, the Chicago Boys were able to apply a liberal model to Chile that had never been seen before in any other country.

"These were profound reforms that would have been unimaginable in a democratic context," journalist Manuel Delano, author of a book on the Chicago Boys, told AFP.

However, Rolf Luders, a Chicago graduate and finance minister for 10 years under the dictatorship, says "today that has changed."

The Chicago Boys were disciples of American economist Milton Friedman  picture here in Washington in...
The Chicago Boys were disciples of American economist Milton Friedman, picture here in Washington in 2002

"The fall of the Berlin Wall and the positive experience of many countries, especially in Asia but also in Europe, Africa and Latin America, including of course Chile, have made the existence of liberalizing economic moves in democracies perfectly possible," added Luders.

- 'The myth of success' -

Following a period of right-wing dictatorships, Latin America was swept by a political swing to the left and the Chicago Boys disappeared from the politico-economic sphere for decades.

But with the region lurching again to the right, they are back in Bolsonaro's Brazil in the person of Economy Minister Paulo Guedes, who was trained in Chicago and honed his experience in Chile in the 1980s.

Guedes has announced a mass privatization plan, a reduction of the state apparatus to alleviate the burden of public debt, and a push to commercially open up the continent's biggest economy to replicate what he considers Chile's "economic miracle."

His first great challenge began on Wednesday with the presentation of a pension reform aimed at tackling mounting debts and an ageing population.

Brazil's economy minister Paulo Guedes studied in Chicago and Chile before he was appointed by ...
Brazil's economy minister Paulo Guedes studied in Chicago and Chile before he was appointed by far-right President Jair Bolsonaro

"Brazil has had 30 years of uncontrolled expansion in public spending," said Guedes when Bolsonaro was elected in October.

"This model corrupted politics, pushed up taxes, interest and made debt snowball."

However, not everyone agrees on the success of Chile's economic policy during the dictatorship.

"The myth of success is based, largely, on taking into account the (economic) recoveries while ignoring the failures," said economist Ricardo Ffrench-Davis, who also studied in Chicago during the same period as the Friedman disciples.

Improvements in exports, fiscal order and economic activity "were accompanied by excessive imports, deindustrialization, two serious recessions (1975 and 1982), low investment in productivity and high speculative investment," added Ffrench-Davis.

That led to "a deterioration in education and public investment in health, while unemployment and inequality increased."

- No miracle -

The economy grew by 2.9 percent a year under the dictatorship despite the crashes in 1975 (-12.9) and 1982 (-14.1).

But when the regime fell in 1990, the poverty level was up to 40 percent and inflation at 18 percent, although purchasing power parity had almost doubled since 1981.

Luders argues that any analysis of the numbers must take into account both the "internal context" and the "international environment" as well as the fact that the Chicago Boys' recovery program followed a serious crisis.

"If you give a patient a remedy that takes 15 days to work and you test them after five, (the results) will come out badly" even though the remedy will eventually work, said Luders.

Delano says that growth during democracy more than doubled that under the dictatorship, while inflation dropped and the poverty rate was reduced from 40 percent to the current 8.6 percent.

Brazil's economy minister Paulo Guedes has launched a pension reform program in a bid to reduce...
Brazil's economy minister Paulo Guedes has launched a pension reform program in a bid to reduce the burden on public expenditure in South America's biggest economy

"The economic miracle in Chile, if it ever happened, did so in democracy not under dictatorship," he said.

For Luders, "Brazil should not replicate the Chilean socioeconomic and political model" but apply "universal" principals that take into account "the country's characteristics."

Ffrench-Davis, though, worries that the new economic direction could have a detrimental affect on "the achievements made by Brazilian people to improve their quality of life and rights."

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