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WEEKLY NEWSLETTER
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Chile
Index
A series of textile figures (lukutuel) from a
seventeenth-century Mapuche woman's belt called ñimintrarüwe
CHILE'S ECONOMY ENJOYED a remarkable boom in the early
1990s, the
result of a comprehensive transformation that began in
1974 with
the adoption of free-market economic policies. Between the
1930s
and the early 1970s, the Chilean economy was one of the
most stateoriented economies in Latin America. For decades, it was
dominated
by the philosophy of
import-substitution
industrialization (see Glossary). Heavily subsidized by the
government, a largely
inefficient industrial sector had developed. The sector's
main
characteristics were a low rate of job creation, a virtual
absence
of nontraditional exports, and a general lack of growth
and
development. In the early 1970s, the ruling
socialist-communist
Popular Unity (Unidad Popular--UP) coalition of President
Salvador
Allende Gossens (1970-73) attempted to implement a
socialist
economic system. The Allende experiment came to an end
with the
military coup of September 11, 1973. From that point on,
Chile's
economic policies took a radical turn, as the military
government
undertook, first timidly and later more confidently, deep
reforms
aimed at creating a market economy.
In the early 1990s, politicians and analysts from
around the
world looked to the Chilean economy for lessons on how to
open up
international trade, create dynamic capital markets, and
undertake
an aggressive privatization process. In early 1994, Chile
had the
strongest economic structure in Latin America and, in
large part
because of the military government's reforms, was emerging
as a
modern economy enjoying vigorous growth. Moreover, there
seemed to
be a consensus among politicians of widely varying beliefs
that the
existing economic model should be maintained in the
future.
Chile's income per capita, approximately US$2,800,
placed the
nation squarely in the middle of what the
World Bank (see Glossary)
called "middle-income economies." Of the Latin American
nations,
Brazil, Uruguay, Venezuela, Mexico, and Argentina in 1990
each had
a higher gross national product (
GNP--see Glossary) per
capita than
Chile; the rest had a lower level. In the 1991-93 period,
the rate
at which Chile's gross domestic product (
GDP--see Glossary) grew
exceeded 6.5 percent per year, making Chile's GDP during
these
years by far the fastest growing in Latin America. In 1992
GDP grew
at a record 10.3 percent pace, year-end unemployment was
down to
4.5 percent, real wages were up 5 percent, inflation was
down to
12.7 percent, and the public-sector surplus was equivalent
to 3
percent of GDP. When a longer period is considered, Chile
still
comes up ahead of the rest of the Latin American nations.
For
instance, according to the United Nations Economic
Commission for Latin America (Comisión Económica para América
Latina--
CEPAL or ECLA; see
Glossary), Chile's GDP per capita increased by
32.2
percent between 1981 and 1993; Colombia was a distant
second with
an accumulated rate of growth during the period of 23.6
percent.
The success Chile enjoyed by the 1990s resulted largely
from
the boom in agricultural exports. In 1970 Chile exported
US$33
million in agricultural, forestry, and fishing products;
by 1991
the total had jumped to US$1.2 billion. This figure
excluded those
manufactured goods based on products of the agricultural,
livestock, and forestry sectors. Much of the increased
agricultural
production in the country was the result of rapidly
improving
yields and higher productivity, spurred by an
export-oriented
policy.
There was little doubt that an exchange-rate policy
aimed at
encouraging exports lay behind the strong performance of
the
Chilean economy in the 1986-91 period. First, the
liberalization of
international trade substantially lowered the costs of
imported
agricultural inputs and capital goods, enabling the sector
to
become more competitive. In fact, the liberalization of
international trade put an end to a long history of
discrimination
against agriculture. Tariffs and other forms of import
restrictions
throughout the 1950s and 1960s gave a relative advantage
to those
industries that produced importable goods, making them
domestically
competitive at production costs above international
prices. The
same policies, because they permitted an overvalued
exchange rate,
punished those economic activities, like agriculture, that
could
produce exportable goods. While those goods could be sold
at
international prices, the foreign-exchange earnings would
be
converted into domestic currency at an unfavorable
exchange rate.
Second, the exchange-rate policy, pursued aggressively
since 1985,
had provided incentives for the expansion of exports.
Third, an institutional framework that secured property
rights
to land and water, along with reformed labor laws, had
increased
the openness of
factor markets (see
Glossary) and
established clear
signals for the allocation of resources. Potential profits
in new
business initiatives had by then become very much tied to
international prices of goods and domestic costs of
resources. The
likelihood of government intervention in property rights
allocation, prohibitions, special permits, and so forth
had been
significantly reduced. Related reforms in the
transportation
sector, particularly in air and marine transport, had
further
increased access to international trade.
A fourth fundamental policy-based explanation of the
increase
in agricultural exports was the pursuit of a stable
macroeconomic
policy whose purpose was to give entrepreneurs confidence
in the
system and enable them to plan their activities over the
longer
term. Many of the export-oriented agricultural activities
required
sizable investments that could only be undertaken in an
environment
of stability and policy continuity. What is most
remarkable,
perhaps, is that since 1989 poverty and inequality have
have been
reduced significantly.
Data as of March 1994
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