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Episode 2y
Episode 2y
(tango music)
and freedom.
MILTON FRIEDMAN: The emphasis of that
talk was that free markets would
undermine political centralization and
political control.
ARNOLD HARBERGER: He said that that
you cannot have a repressive government
for long within a genuinely free economic
system.
NARRATOR: But Friedman was also
persuaded to visit the grim conference
center from which Pinochet ruled Chile.
Friedman told Pinochet that he needed to
take decisive and immediate action to
defeat inflation.
JAVIER VIAL: Friedman says: "Well, I'm
going to give you an example. If you cut
the tail to a dog in pieces, step by step
you will kill the dog. This is the same as
inflation. You have to cut it at once, and
then the country will start moving."
ARNOLD HARBERGER: Milton's presence
probably helped to stiffen the spine of
people who were trying to insist on better
economic policies. That's the period when
the takeoff of the Chilean economy really
began and major reforms were made.
NARRATOR: In Santiago, the junta called
on the Chicago Boys to rescue the
economy. Five hundred state-owned
businesses were privatized. Government
budgets were cut. Import tariffs were
swept away. The markets were given free
rein.
SERGIO DE CASTRO: The basic thrust was
to increase exports and abolish artificial
price controls.
MILTON FRIEDMAN: Here was the first case
in which you had a movement toward
Lozada -- a genius.
back to top
therapy."
JUAN CARIAGA: It caught everybody by
surprise. It had great credibility. It was a
shock.
NARRATOR: Shock therapy spelled the
death of dependency theory. Government
spending was slashed. Price controls were
scrapped. Import tariffs were cut.
Government budgets were balanced.
JUAN CARIAGA: We didn't use highly
sophisticated economic theory to deal
with hyperinflation. We just used very
simple things, such as from now on the
government will only spend what it gets.
You get one peso, spend one peso; you
get two pesos, spend two pesos. If we
don't have it, we don't spend it. No
borrowing from the Central Bank, and
therefore the Central Bank did not have to
print money.
NARRATOR: Shock therapy meant that the
price of essentials -- transport, food, fuel -all shot up. Until then people had thought
that only a military dictatorship like Chile's
could impose such tough measures
without tearing society apart.
DANIEL YERGIN: Bolivia may be a small
country, but it had a very big impact in
terms of kick-starting reform throughout
Latin America. In Brazil, a professor, who
actually used to teach the dependency
theory, launched a program of economic
reform that looked a lot like shock
therapy.
DANIEL YERGIN: Argentina was suffering
from 20,000 percent inflation and the new
president of that country said, you know,
we've seen this movie before.
DOMINGO CAVALLO, Economy Minister,
Argentina, 2001: Pro-market reforms could