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WEEKLY NEWSLETTER
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Chile
Index
Between 1950 and 1970, the Chilean economy expanded at
meager
rates. GDP grew at an average rate of 3.8 percent per
annum,
whereas real GDP per capita increased at an average yearly
rate of
1.6 percent. Over this period, Chile's economic
performance was the
poorest among Latin America's large and medium-size
countries.
As in most historical cases, Chile's
import-substitution
strategy was accompanied by an acute overvaluation of the
domestic
currency that precluded the development of a vigorous
nontraditional (that is, noncopper) export sector.
Although some
agrarian reform was attempted, the government increasingly
resorted
to controlling agricultural prices in order to subsidize
the urban
working and middle classes. The agricultural sector was
particularly harmed by the overvaluation of Chile's
currency. The
lagging of agriculture became, in fact, one of the most
noticeable
symptoms of Chile's economic problems of the 1950s and
1960s. Over
this period, manufacturing and mining, mainly of copper,
significantly increased their shares in total output.
By the early 1960s, most of the easy and obvious
substitutions
of imported goods had already been made; the process of
import
substitution was rapidly becoming less dynamic. For
example,
between 1950 and 1960 total real industrial production
grew at an
annual rate of only 3.5 percent, less than half the rate
of the
previous decade.
During the 1950s, inflation, which had been a chronic
problem
in Chile since at least the 1880s, became particularly
serious; the
rate of increase of consumer prices averaged 36 percent
per annum
during the decade, reaching a peak of 84 percent in 1955.
The main
source of the inflationary pressure on the Chilean economy
was a
remarkably lax fiscal policy. Chile's economic history has
been
marked by failed attempts to curb inflation. During the
1950s and
1960s, three major stabilization programs, one in each
administration, were launched. The common aspect of these
efforts
was the emphasis placed on tackling the various
consequences of
inflationary pressures, such as prices, wages, and
exchange-rate
increases, rather than the root cause of money growth, the
monetization of the fiscal deficit. In spite of the
efforts of
presidents Carlos Ibáñez del Campo (1927-31, 1952-58) and
Jorge
Alessandri Rodríguez (1958-64), inflation averaged 31
percent per
annum during these two decades. In 1970, the last year of
the
government of President Eduardo Frei Montalva (1964-70),
the
inflation rate stood at 35 percent.
During the 1960s, and especially during the Frei
administration, some efforts to reform the economy were
launched.
These included an agrarian reform, a limited
liberalization of the
external sector, and a policy of minidevaluations aimed at
preventing the erosion of the real exchange rate. Under
the 1962
Agrarian Reform Law, the Agrarian Reform Corporation
(Corporación
de Reforma Agraria--Cora) was created to handle the
distribution,
but land reform proved to be slow and expensive. In spite
of these
and other reforms, toward the end of the 1960s it appeared
that the
performance of the economy had not improved in relation to
the
previous twenty years. Moreover, the economy was still
heavily
regulated.
Data as of March 1994
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