AN OLD FIGHT REVIVED: Chile Effect Are Pinochet and Thatcher guilty of the same sins?

WHEN Lady Thatcher sent her recent letter to the London Times urging that General Pinochet be allowed to return to Chile, she made a very limited case. Far from exonerating the former Chilean dictator of human-rights abuses, she explicitly stated that there had been such abuses (although, as she added, these were not all on one side). That said, she pointed out that the General had helped save the lives of British soldiers during the Falklands War-with the clear implication that if Britain betrayed those who had assisted it in previous crises, it would not find many friends in future ones-and she warned that Britain should not risk upsetting the Chilean settlement that had restored democracy.

The nervous pleas for Pinochet's release from his political opponents in Chile and from President Menem in Argentina suggested they shared at least the second of those views. After one week, the British government's dramatic arrest of the General, which had at first looked like a splendid gesture of legal humanitarianism (or a shrewd move to please the European Left), seemed a thoughtlessly imprudent move by inexperienced ministers reliving their youthful "idealism." As Mao Tse-tung said, an eight-year-old should never be made Foreign Secretary, no matter how brilliant.

As far as the British and foreign media were concerned, however, Lady Thatcher's narrow-crafted arguments were beside the point. She might as well have launched a full-blooded defense of every action taken by Pinochet's secret police-and by his finance and economic ministers. "THATCHER-PINOCHET'S ALLY," shrieked the BBC's website in full tabloid style, adding that she had long been an "admirer" of the General and that her economic reforms were "to some extent" an "emulation" of the Pinochet policy. Other journalists took up the cry and had soon revived a thesis that, like General Pinochet himself, harked back to the half-forgotten ideological battles of the Seventies. They constructed an apostolic succession of world monetarism, according to which Milton Friedman had invented monetarism ("Let there be darkness!") and taught it to Pinochet; then the General had imposed a monetarist experiment on Chile by torture and the secret police; and, finally, Lady Thatcher, having carefully studied his policy, had "emulated" it in Britain. So monetarism is fascism disguised as accountancy. QED.

Unfortunately for this theory, all the known facts contradict it. In the first place, Friedman was never an advisor to Pinochet, and while he praised Pinochet's economic policies, he was critical of the General's human-rights record. Other economists from the University of Chicago were appointed as economic advisors, and by and large they gave excellent advice. The result was that, in less than two decades, Chile went from a bankrupt socialist Third World country to the most successful economy in Latin America with a growth rate three times the continental average. It soon left the Third World altogether.

As it happens, the Pinochet government sometimes pursued policies that departed from Professor Friedman's views-and, by a nice coincidence, those were the occasions when the economy floundered. Friedman is famous for his advocacy of floating exchange rates. But in the 1980s, Pinochet pegged the Chilean peso to the U.S. dollar. When the dollar rose, it priced Chilean exports out of world markets and inflicted a severe recession on the economy. At the time, several journalists who knew nothing of Friedman (or monetarism) triumphantly declared that the recession proved monetarism didn't work. Of course, as soon as the peso was floated, the Chilean economy resumed its upward swing.