Vuskovic plan

Although good results were obtained in 1970,[1], following massive levels of United States intervention in Chile [citation needed], hyperinflation made a comeback in 1972.

The lack of full utilization was, in turn, attributed to two fundamental factors: the monopolistic nature of the manufacturing industry and the structure of income distribution.

In fact, Allende's Minister of Foreign Affairs and Vice President, Clodomiro Almeyda, relates in his memoirs how in the first postelection meeting of the economic team, these technocrats argued expressly and convincingly that monetary and financial management did not deserve too much attention.

Alfonso Inostroza, the Central Bank president, stated in early 1971 that the main objective of the monetary policy was to "transform it into a key instrument .

US President Richard Nixon had made it known that he wanted to "make the (Chilean) economy scream" and this policy was outlined in National Security Decision Memorandum (NSDM) 93 of November 1970: "no new bilateral economic aid commitments be undertaken with the Government of Chile (programs of a humanitarian or private social agency character will be considered on a case by case basis); existing commitments will be fulfilled but ways in which, if the U. S. desires to do so, they could be reduced, delayed or terminated should be examined... bring maximum feasible influence to bear in international financial institutions to limit credit or other financing assistance to Chile.

[4] To the extent possible, financial assistance or guarantees to US private investment in Chile would be ended, and US businesses would be made aware of the government's concern and its restrictive policies…" [5] The first year saw 12% industrial growth and an 8.6% increase in GDP, accompanied by major declines in inflation (down from 34.9% to 22.1%) and unemployment (down to 3.8%).

Although price rises had also been high under president Eduardo Frei Montalva (27% a year between 1967 and 1970), a basic basket of consumer goods rose by 120% from 190 to 421 escudos in one month alone, August 1972.

[9] The average Real GDP contracted between 1971 and 1973 at an annual rate of 5.6% ("negative growth"), and the government's fiscal deficit soared while foreign reserves declined.

[10] Inflation led to the rise of black markets in rice, beans, sugar, and flour, and a "disappearance" of such basic commodities from supermarket shelves.

The government attempted to prevent this shortage by creating juntas de Abastecimientos y Precios (JAP, literally "Committees of Supply and Prices").

Chile had entered a major recession, with hyperinflation, a negative growth in GDP, a lack of supplies and spare parts, as well as a state of general political and social disorder.