Military government (1973-1989)

By early 1973, inflation was out of control. The crippled economy was further battered by prolonged and sometimes simultaneous strikes by physicians, teachers, students, truck owners, copper workers, and the small business class. A military coup overthrew Allende on September 11, 1973. As the armed forces bombarded the presidential palace (Palacio de La Moneda), Allende committed suicide. A military government, led by General Augusto Pinochet Ugarte, took over control of the country. The first years of the regime were marked by allegations of human rights violations. On October 1973, at least 72 people were murdered by the Caravan of Death. At least a thousand people were executed during the first six months of Pinochet in office, and at least two thousand more were killed during the next sixteen years, as reported by the Rettig Report. About 30,000 left the country, and tens of thousands of people were detained and tortured, as investigated by the 2004 Valech Commission. A new Constitution was approved by plebiscite characterized by the absence of registration lists, on September 11, 1980, and General Pinochet became president of the republic for an 8-year term. In the late 1980s, the government gradually permitted greater freedom of assembly, speech, and association, to include trade union and political activity. The government launched market-oriented reforms, which have continued ever since. Chile moved toward a free market economy that saw an increase in domestic and foreign private investment, although the copper industry and other important mineral resources were not opened for competition. In a plebiscite on October 5, 1988, General Pinochet was denied a second 8-year term as president (56% against 44%).

After the coup, Chileans witnessed a large-scale repression, which started as soon as October 1973, with at least 70 persons murdered by the Caravan of Death. The four-man junta headed by General Augusto Pinochet abolished civil liberties, dissolved the national congress, banned union activities, prohibited strikes and collective bargaining, and erased the Allende administration's agrarian and economic reforms. The junta jailed, tortured, and executed thousands of Chileans. According to the Rettig commission and the Valech Report, close to 3,200 were executed or "disappeared" and at least 29,000 imprisoned and tortured. According to the Latin American Institute on Mental Health and Human Rights (ILAS), "situations of extreme trauma" affected about 200,000 persons. This figure includes individuals killed, tortured or exiled, and their immediate families.
Chilean (blue) and average Latin American (orange) GDP per capita (1950-2007).

The junta embarked on a radical program of liberalization and privatization, slashing tariffs as well as government welfare programs and deficits.[43] In 1973, Chile was in shambles - inflation was hundreds of percents, the country had no foreign reserves, and GDP was falling. In order to halt the ongoing economic collapse, economic reforms were drafted by a group of technocrats known as the Chicago boys because many of them had been trained or influenced by University of Chicago professors. The first reforms were implemented in three rounds - 1974-1983, 1985, and 1990.

After the economic crisis of 1982, Hernan Buchi became Minister of Finance from 1985 to 1989. He allowed the peso to float and reinstated restrictions on the movement of capital in and out of the country. He introduced banking legislation, simplified and reduced the corporate tax. Chile pressed ahead with privatizations, including public utilities plus the re-privatization of companies that had returned to the government during the 1982–1983 crisis. Under these new policies, the rate of inflation dropped from about 1,000% per year to about 10% per year. While this was still a high rate of inflation, it allowed the economy to start recovering. From 1984 to 1990, Chile's gross domestic product grew by an annual average of 5.9%, the fastest on the continent. Chile developed a good export economy, including the export of fruits and vegetables to the northern hemisphere when they were out of season, and commanded high prices.

An important initiative begun in 1981 and carried on until today, aimed at modernizing the use of Information and Communication technology, greatly contributed to disentangle the traditional bureaucratic and cumbersome clerical procedures in all dealings with branches of the government, from civil registry to import/export documentation, thereby fostering a more agile economy and a more efficient public administration.

The military junta began to change during the late 1970s. Due to problems with Pinochet, Leigh was expelled from the junta in 1978 and replaced by General Fernando Matthei. Due to the Caso Degollados ("slit throats case"), in which three Communist party members were assassinated, César Mendoza, member of the junta since 1973 and representants of the carabineros, resigned in 1985 and was replaced by Rodolfo Stange.[citation needed] The next year, Carmen Gloria Quintana was burnt alive in what became known as the Caso Quemado ("Burnt Alive case").

Problems with Argentina coming from the 19th century reached a high in 1978, with disagreements over the Beagle Canal. The two countries agreed to papal mediation over the canal. Chilean-Argentine relations remained bad, however, and Chile helped Britain during the Falklands War.

Chile's constitution was approved in a national plebiscite held in September 1980. It came into force in March 1981. It established that in 1988 there would be another plebiscite in which the voters would accept or reject a single candidate proposed by the Military Junta. Pinochet was, as expected, the candidate proposed, and he was denied a second 8 year term by 54.5% of the vote.