Chile was a relatively wealthy supply region to the industrial countries early in the 20th century. From the 1930's onwards it started to industrialise based on the import substitution model. Due to the limited size of the internal market the limits of this model were reached quite early causing the economy in the 1960’s to stagnate.

In 1970 the Unidad Popular under Salvador Allende was elected on a socialist platform quite different from any Government that had gone before. This Government instituted a series of nationalisations and spending programs to boost the economy. The first two years of these new policies produced growth but in 1973 in the absence of new revenue streams to pay for this spending the State started to print money leading to hyperinflation.

In September 1973 the Military, backed essentially by a middle class and former monied class fearing for the future, intervened in the infamous Pinochet coup. The Military Government reversed the Allende policies and attempted free market reforms based on the ideas of the Chicago School of economists.

The new policies brought inflation under control and order to the public finances. The years following the Pinochet takeover were years where international finance was available to Latin American countries due to the recycling of the OPEC petrodollars by the international banks. Thus Chile was able to avail of this international credit and the economy grew for several years. Most of the borrowing which took place was by the financial sector.

When the Latin America debt crisis broke in 1982 there was a moratorium on new lending and borrowers were doubly penalised by the rise in US interest rates the same year. The overborrowed financial sector was renationalised in 1983 and Chile suffered the largest downturn in all of Latin America due to the crisis.

It was only in 1985 with the appointment of Hernan Buchi Duc as Finance Minister that the right mix of policies was found and the reforms began to bear fruit. This involved a large initial devaluation of the Peso followed by shorter periodic adjustments. The lower exchange rate allowed exports to boom and there was emphasis on adding value in the export supply chain rather than exporting unprocessed raw materials. There was a vastly increased number of companies engaged in exporting and considerable diversification by product and destination. Sectors in which Chile did not have a compartive advantage were open to imports.

There was also a new regulatory regime for the financial sector, tax reform and privatised pensions. From 1984 onwards the Chilean economy has grown consistently, in what has become known as the Chilean miracle, and it is now a model economy in Latin America.

In 1990 the transition from the Military Government back to constitutionalism was completed and Chile has had stable constitutional governments ever since. In recent years growth has slowed as demand for Chile’s exports has peaked. In order to continue to grow Chile must find a competitive niche in new knowledge based industries and continue to integrate with it’s Latin American neighbours, though this is hampered by erratic policies in Brazil and Argentina.

Chile has more free trade agreements than any other country and it’s largest trading partner is China. Chile doesn’t wish to become a full member of Mercosur as this would mean adopting a common external tariff which would be in conflict with it’s free trade agreements. Chile is considered a well run economy and has low levels of inflation, debt and deficits.

In the last 12 months there has been political unrest in Chile at a level not seen since the end of the dictatorship with quite a number of protesters killed. However that the Chilean State was unable to channel grievances peacefully does not mean that the political system is in trouble. Compared with the period before and during the Allende Government or the Pinochet period the political system has broad support and this is rooted in competent economic management.

Thus while regrettable the violent protests do not signal a new period of instability in Chile but rather are more akin to the 1968 student protests in Paris.

Latin Report is not legally responsible for any decisions taken based on the views offered here or in our Reports.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD stays below 0.9800 after US inflation data

EUR/USD stays below 0.9800 after US inflation data

EUR/USD continues to trade in negative territory below 0.9800 in the American session on Friday. The data from the US showed that the annual PCE inflation declined to 6.2% in August but the stronger-than-expected core reading didn't allow the pair to gain traction.

EUR/USD News

GBP/USD rebounds from daily lows, reclaims 1.1100

GBP/USD rebounds from daily lows, reclaims 1.1100

GBP/USD fell to a fresh daily low below 1.1030 but managed to reverse its direction and climbed above 1.1100 during the American trading hours on Friday. The pair remains on track to snap a two-week losing streak despite having suffered heavy losses earlier in the week.

GBP/USD News

Gold extends daily rally beyond $1,670

Gold extends daily rally beyond $1,670

Gold preserved its bullish momentum and rose above $1,670 after the mixed inflation data from the US on Friday. The benchmark 10-year yield is down more than 2% as markets look to wrap up the third quarter, fueling XAU/USD's daily rally. 

Gold News

Shiba Eternity download day the biggest bullish catalyst in SHIB history?

Shiba Eternity download day the biggest bullish catalyst in SHIB history?

Shytoshi Kusama, the project lead for Shiba Inu, has dropped a teaser about Shiba Eternity games for the SHIB community. Proponents expect the launch of the collectible card game to be a bullish catalyst for Shiba Inu price. 

Read more

SPDR S&P 500 ETF Trust (SPY) Forecast: We are teetering on the brink

SPDR S&P 500 ETF Trust (SPY) Forecast: We are teetering on the brink

Equity markets remain at the precipice of a technical collapse, which we examine in the weekly long-term chart below. The overall picture remains one of nervousness ahead of the upcoming Q3 earnings season.

Read more

Majors

Cryptocurrencies

Signatures