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WEEKLY NEWSLETTER
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Chile
Index
One of the fundamental economic goals of the military
regime
was to open up the economy to the rest of the world.
However, this
was not the first attempt at liberalizing international
trade in
Chile. Between 1950 and 1970, the country went through
three
attempts at trade liberalization without ever reaching
full
liberalization. Moreover, all three attempts quickly ended
in
frustration and in a reversion to exchange controls, the
use of
multiple exchange rates, and massive quantitative
restrictions. A
particularly interesting feature of the three attempts at
liberalization is that, although they took place under
three
different exchange-rate systems, they all collapsed, at
least in
part because of a highly overvalued real exchange rate.
Starting in 1974, Chile adopted unilaterally an open
trade
regime characterized by low uniform import tariffs, a lack
of
exchange or trade controls, and minimum restrictions on
capital
movements. Starting in 1979, Chile's trade policy became
highly
liberalized; subsequently, there were no quantitative
restrictions,
licenses, or prohibitions. A uniform import tax varying
between 10
percent and 35 percent took effect, and, until 1980, real
exchangerate overvaluation generally was avoided. By 1990 Chile
was the
only country, according to the World Bank, whose index of
liberalization reached the maximum possible level of 20,
indicating
an absence of external-sector distortions.
In 1973 import tariffs averaged 105 percent and were
highly
dispersed, with some goods subject to nominal tariffs of
more than
700 percent and others fully exempted from import duties.
In
addition to tariffs, a battery of quantitative
restrictions were
applied, including outright import prohibitions and prior
import
deposits of up to 10,000 percent. These protective
measures were
complemented by a highly distorting multiple exchange-rate
system
consisting of fifteen different nominal exchange rates. By
August
1975, all quantitative restrictions had been eliminated,
and the
average tariff had been reduced to 44 percent. This
process of
tariff reductions continued until June 1979, when all
tariffs but
one (that on automobiles) were set at 10 percent. In the
mid-1980s,
in the midst of the debt crisis, temporary tariff hikes
were
implemented; by 1989, however, a uniform level of 15
percent had
been established.
During the early period (1975-79) of the military
regime, the
opening of Chile's external sector was accompanied by a
strongly
depreciated real exchange rate. In 1979, however, the
authorities
adopted a fixed-exchange rate policy that resulted in an
acute
overvaluation of the Chilean peso (for value of the
Chilean peso-- see
Glossary), a loss in international competititiveness,
and, in
1982, a deep crisis. In 1984-85 this situation was
reversed, and a
policy of a depreciated and highly competitive real
exchange rate
was implemented. The combination of these two
policies--low tariffs
and a competitive real exchange rate--had a significant
impact on
Chile's economic structure. The share of manufacturing in
GNP
dropped from almost 29 percent in 1974 to 22 percent in
1981.
Productivity in tradable sectors grew substantially, and
exports
became highly diversified. Chile had also diversified its
export
markets, with the result that no individual market bought
more than
20 percent of the country's total exports. By the early
1990s,
exports had become the engine of growth, and the Chilean
trade
reform was winning praise from multinational institutions
and
observers of different ideological persuasions. Largely
thanks to
the boom in exports between 1986 and 1991, particularly
the
increasing growth in exports of fresh fruits and
manufactured
products, Chile experienced the highest rate of GDP growth
in Latin
America (the "Chilean miracle"), with an annual increase
of 4.2
percent.
In what was perhaps the surest sign of the success of
trade
reform, the new democratic government of President
Patricio Aylwin
Azócar (1990-94), elected in December 1989, decided to
continue the
opening process and reduced import tariffs to a uniform 11
percent.
Interestingly, Aylwin's economic team, including the
minister of
finance and the minister of economy, development, and
reconstruction, had been relentless critics of the trade
reform
process during its implementation in the mid- and late
1970s.
Data as of March 1994
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