Excerpt from Chile’s Free-Market Miracle: A Second Look, by Joseph Collins and John Lear:
Starting in November 1981, a series of banks and businesses began to fail, including several if the principal conglomerates that had benefited most from privatizations of government-owned companies and sweeping financial and business deregulation. The result was a drastic contraction of the economy that rivaled the worst years of the Great Depression. the gross domestic product (GDP) dropped by 14 percent in 1982, and official unemployment rose to over a third of the labor force (and in reality even higher). Suddenly the Chilean “miracle” had little to show for itself except a heavily indebted and failing private sector and an economic base incapable of supporting such high level of debt.
The military government responded by distancing itself from free-market policies, at least long enough to bail out the private sector. Over the next two years, the government absorbed the debts of many large businesses, restoring them to soundness before selling them off to private interests. Other companies were sustained through preferential exchange rates with which they could pay their dollar debts. The government would up taking on as public debt some $16 billion in foreign loans, most of which had been originally incurred and often recklessly spent by private Chilean conglomerates.
By contrast, middle-class families watched with disbelief and anger as the balances on their home mortgages, indexed to the dollar value of the peso, soared; but the government offered them no relief.
This was written in 1995.