The Nationalization of the Banks
Speech broadcast on radio and television
Santiago, 30 December 1970
I did not want the year to end without making an announcement to you that is crucial to the fulfilment of our economic plans. It concerns the new banking and credit policy.
In our campaign we promised that banks should cease to be an instrument at the service of a minority and that their resources should be put at the disposal of the whole country.
According to its legal obligations, it is now time for the Central Bank to fix the maximum interest rate for the first half of 1971.
The government of Unidad Popular proposes that this decision should be accompanied by other measures, to ensure the overall cohesion of our policy.
Our plans are as follows:
(1) From 1 January there will be a substantial reduction of the maximum interest rate. The reduction is to be 25 per cent lower than the level which it maintained during the second half of this year. In this way, the maximum total cost of credit, including tax and commission, is reduced from 44 per cent to 31 per cent.
(2) There will also be rates, substantially lower than the maximum, for certain economic activities and for some businesses.
In this way we can benefit small industries, the artisans, the purchasing centres, the peasant co-operatives, the agricultural associations of the Agrarian Reform, the peasants concerned in INDAP, builders of economy housing and industrial units, exporters, firms operating credit facilities within the limits of the Exchequer budget, and industrialists having contracts with the Ministry of the Economy for the development of products for popular consumption.
Thus the interest rate is transformed into an efficient instrument with which to guide our economic development and support certain productive sectors, in particular the small-and medium-scale businesses.
(3) We shall initiate a broad redistribution of credit, making it easily and readily accessible to sectors which until now have been neglected by the banking institutions.
(4) We shall begin to decentralize this system, so that the regions and the provinces can make use of greater resources and achieve greater powers of decision within their own areas.
It should be realized that on 30 September of this year 70 per cent of all credit was concentrated in Santiago.
This entire policy is intended both to place the banks at the service of national development and to counteract and destroy inflation. Less financial expenditure necessarily means less inflationary pressure.
However, for this policy to be applied efficiently in all its breadth, and for it to become permanent, it is necessary in our judgement that the banking system should be the property of the state.
The banks will always try to find a way to avoid controls as long as their direct administration does not lie in government hands. History has shown that the indirect controls which can be applied are ineffective.
This is what happens when credit is concentrated. In December of last year, 1-3 per cent of the system's debtors monopolized 45-6 per cent of the credit. This concentration has continued to increase. At that date it was greater than in 1965.
Likewise, there are sound reasons to suppose that during these last weeks concentration of credit has increased as a last attempt to extend to the limit the entire credit capacity of the private banks.
This becomes evident when established clients of these banks are turned away and as a result greater pressures are imposed upon the State Bank.
If we do not take over the administration of the banks, to give more credit to small- and medium-scale businesses and to keep down monopolies, then the lowering of the interest rate will continue to favour the same privileged few who have always profited from them.
In the same way, indirect controls have proved incapable of preventing illegal transactions and of decentralizing credit and have not been able to direct its use as an effective instrument of planning.
It is only by placing the banks in the hands of the people, through a government which represents their interests, that it is possible to carry out our policy.
In view of what has been said, I have decided to submit to Congress in the coming week a bill for the nationalization of the banking system.
In spite of this decision, the government wants to offer an alternative which, besides accelerating the process, offers a favourable option for all shareholders, especially for minor shareholders. The government is offering to buy, from Monday, 11 January, to 31 January, all shares held in the private banks.
This option will be made through the channels of the State Bank, at its branches throughout the country and according to the following conditions:
(1) The shares will be valued at the average of the prices paid in transactions at the Exchange during the first three months of this year. This procedure is similar to that adopted for the payment of death duties.
It is necessary to point out that the price quoted for the shares, in the bill for nationalization of the banks, is lower than this price.
(2) The forms of payment offered are:
(a) The first 10,000 escudos, in shares valued at the aforementioned manner, will be paid to holders in Saving Certificates which may be realized at any time.
(b) Owners of more than 10,000 escudos' worth of bank shares will receive up to an additional 40,000 escudos in Saving Certificates, which may be realized not less than two years after the transaction.
(c) Those who control more than 50,000 escudos* worth of bank shares will be paid the sum in excess of this amount within seven years, with two years of grace, in adjustable annual instalments at 5 per cent interest.
These conditions favour shareholders, especially small shareholders, bearing in mind that the bill for nationalizing the banks sets a term of fifteen years for the repayment in fixed instalments with an interest rate of 5 per cent per annum.
Payment in Saving Certificates is a safer alternative for the small shareholder, and is also more profitable business than he has so far experienced with his shares. He can also count on the additional security of the support that the Unidad Popular government will lend this form of saving.
The institutions which do not pursue monetary aims will receive special treatment.
(3) In order to effect payment, the most recent lists of share holders, as delivered by the banks to the Superintendency, will be accepted.
The government's offer refers to all the shares held by the shareholders and not merely to a part of the shares.
Without prejudice to the preceding offer, and in order to protect the interests of the country as from now, the Super-intendency of the banks will appoint inspectors in each institution.
We appeal to bank authorities voluntarily to delegate managerial responsibility as from now to persons nominated by the government to perform such work, thus avoiding even the least element of instability in the financial system during the period when the bill for the nationalization of banks is being debated in Parliament.
There is an exception to these principles: foreign banks which retain a special juridical status. With these we shall seek to obtain direct agreement based upon the interests of the country, and giving due consideration to their rights.
All these measures will guarantee deposits. Depositors can be sure that the government organizations will halt and sanction severely any attempt to violate their integrity.
I wanted to leave to the end a few words addressed to bank employees. In adopting these measures the government's intention is to implement the suggestions made by them at their last conference, when they voted in favour of the nationalization of the private banks.
The government is counting on their support and on their active participation in order to fulfil these objectives
At the same time we shall give due regard to their legitimate aspirations, which have been held for many years, towards:
(1) A career in banking accorded by merit and seniority, in order to establish, by a gradual levelling process, a single career, in which there may be specialization.
(2) Opportunities for study and improvement for all personnel, with emphasis upon preparation for the introduction of mechanized banking and foreign trade.
(3) Redistribution of wages, with benefit to the lower-paid workers.
(4) Abolition of privileges such as differences in catering, use of vehicles, etc.
(5) Abolition of humiliating and regressive demands on the personnel, such as for example the obligation to request permission to marry, the termination of employment for women who marry, the need for a recommendation or guarantee before employment, etc.
(6) The handing over of recreation centres to associations directed by the unions, who will delegate administration within the individual clubs.
(7) A special study for a housing policy for bank workers, bearing in mind the volume of basic assets owned by their institutions.
All this is in accordance with the assurances made by the government to respect the advances already secured by bank employees.
The reduction in the interest rate will not affect the income of any of them, and they will eventually become involved in the management of their own organizations.
We hope that the personnel of the banks will set an example to all workers in the country. Working in an organization which belongs to all the people is not just a privilege. It is also a responsibility.
1. Institute for the Development of Agriculture.