Download Chile`s Economic Progress During the 1990`s

The Economic Miracle:
Chile’s Economic Progress During
the 1990’s; Primary Causes and
Future Implications
By Edem Abotsi, Spring, 2004
“Chile, with just 15 million people, is considered the
paragon of open trade and the economic miracle of Latin
America, a region where such miracles are rather scarce.”J. Moreno-Brid & R. Hernández1
From 1990-1999, almost all Latin American economies trudged along at a
painstakingly slower pace than that of the period of 1960-19801. Decades of dismal
economic performances, from low GDP growth to high instances of governmental debt,
had weathered the strength and vigor from hopes of an economic recovery.
In the South
American region, sputtering economies yielded low rates of employment, polarized the
distribution of wealth, and were a recurrent cause of civil unrest due to the embittered
frustrations of the poor. Plagued by financial crisis and suffering shocks from the Asian
Crisis and a slowdown in the U.S. economy, high rates of poverty (44% of Latin
Americans live in conditions of poverty1), many of the economies had a bleak outlook of
the future. Among such discouraging economic performances, one nation vigorously
broke this trend with its strongest economic performance in years. Commonly referred to
as an “economic miracle of Latin America” Chile’s GDP grew annually at a rate of 3.5%
during the decade of the 1980s, while in the 1990s skyrocket to a rate 7% per year, with
Economic Reform in Latin America. http://drclas.fas.harvard.edu/ J. Moreno-Brid & R. Hernández
Economic Reform in Latin America. http://drclas.fas.harvard.edu/ J. Moreno-Brid & R. Hernández
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UN Economic Commission for Latin America.
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the only deviation being the international crisis in 1997.2 Chile experienced phenomenal
growth in contrast to the other languid economies of South America. Internationally
recognized Chilean economist, Oscar Muñoz regarded this marvel as an “An
extraordinary leap of development and modernization, with a very dynamic economy
accompanied by a growing macroeconomic stability.”2 With one of the best ten-year
economic performances in its history, what were some of the principal contributors to the
success of Chile’s economy? Drawing from these trends, what future strategies for
growth can be predicted? How can such success help to bridge the differences in
education, distribution of wealth, and technological advancement of Chile? Foreign
trade, high foreign direct investment (FDI), low inflation rates, and a prudent fiscal
policy, were the principal factors for Chile’s remarkable performance. I will analyze these
factors in relation to the success of Chile in the 1990s and provide insight to future
strategies for Chile’s growth.
I.
Importance of Foreign Trade
When experts look at the success of the Chilean economy in the years from 19902000, a prevailing aspect of the economy that arouses interest is the phenomenal growth
rate of the GDP. Aside from the Asian international crisis in 1997, Chile had an
impressive average annual growth rate of 7%, from the end of the 1980s to 1997.3 The
growth rate of 7% more than doubled the twentieth century average of about 3% for
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
Oscar Muñoz Gomá. Hacia un Chile competitivo. FLACSO-Chile. Vicatacura, 2003.
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Oscar Muñoz et. al. Más Allá del Bosque: Transformar el modelo exportador. Santiago, FLACSO-Chile. 2001.
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Chile.4 This performance was considerably grounded in successful foreign trade
practices.
One component of Chile’s success has been its fortuitous geographic location.
Chile is located along the Pacific coast of South America, stretching an impressive 2600
miles in length. With the advantageous position of many seaports along the Pacific
Ocean, Chile is able to strategically take advantage of its abundance in natural resources
and ship many of its products to Asiatic countries and others in the Western Hemisphere.
Chile’s lucrative position between Asia and Europe, along with its proximity to the U.S.,
creates an opportune situation to maximize trade among and between these regions. For
example, the main export markets for Chilean processed food products are the United
States, Brazil, Germany, United Kingdom, Holland, and Japan. The highest demand for
canned and preserved products comes from Mexico, Venezuela, Argentina, Brazil and
Japan. Chilean juices flow mostly into the United States, Japan, Canada, Mexico, and
Argentina. Such a diverse array of buyers, from Japan to Germany, necessitate a low cost
of shipping to maximize the profits from exports. The location of Chile between the
major markets of Europe and Asia prove advantageous in its trade-oriented economy.
With a population of approximately 13 million, Chile’s abundance in natural
resources exceeds its domestic needs and naturally emphasizes an economic strategy
grounded in foreign trade. With a market-oriented economy much of Chile’s policy is
structured in maximizing its participation and integration into the international trade
4
Eduardo Aminat. Chile in the 1990s: Embracing Development Opportunities. Finance & Development; magazine from IMF March
2000, Volume 37
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market. One example of this emphasis is in the production of copper, of which Chile is
the world’s largest producer and exporter.5 Chile produces 24 percent of world output of
copper ore and CODELCO, the state-owned copper corporation, holds about 20 percent
of the world's known copper reserves.6 In 1998, copper exportation accounted for about
40% of Chile’s Gross Domestic Product (GDP). 7 Although Chile has a small percentage
of its land available for farming, with 2.65% of its land available for cultivation,
surprisingly, its second most important export is fresh fruit. Chile has favourable
climates year round and is well-suited to an agricultural emphasis on the production of
fruit. During the 1990’s, profits from the exports of fruit were roughly at a median of 1.2
billion U.S. dollars.8 In addition to fresh fruit, a third major export of Chile is wine. The
Chilean vineyards are world-renowned for their distinctive flavour and varieties. The
primary markets for Chilean wine are the United States, England, Canada, Denmark,
Germany and Japan. This major export has grown to command a sizeable portion of
Chilean profits, growing from 14 million liters in 1987 to 348.5 million liters in 2002.
Such a voluminous increase in the aggregate profits of wine, the sizeable rewards from
copper and fresh fruti exports all give testimony to the burgeoning foreign trade in
Chile’s economy.
The shift in exports through the development of Chile has been remarkable. In
1970 Chile exported $US 33 million in agricultural, forestry, and fishing products, and by
1991 this figure was at an impressive US$1.2 billion.(Figure excludes manufactured
5
Conway, Patrick. Macroeconomic Stability and Income Inequality in Chile. Economic Management Training conference; Economic
Development Institute
6
Conway, Patrick. Macroeconomic Stability and Income Inequality in Chile. Economic Management Training conference; Economic
Development Institute
7
Resources of Chile. http://www4.cord.edu/bae/keup/projects/chile/resources_of_chile.htm.
Central Bank of Chile. Statistics, Economic Activity and Expenditure.
http://si2.bcentral.cl/Basededatoseconomicos/951_portada.asp?idioma=I
4
goods based on products of the agriculutural, livestock, and forestry sectors).9 With a
growing emphasis on foreign trade, successive policies to provide infrastructure and
development of these industries helped to facilitate increase in foreign trade. This rising
trend of increased exports continued into the 1990s. For example in 1999, exports
inreased from$18.3 billion from $15.6 billion, and imports increased to $16.9 billion
from $14 billion in the previous year.10 Exports accounted for 25% of GDP.
These exports are crucial to the booming economy of Chile, for much of its
economic strategy maximizes the prospect of international trade. As the trend shows
Chile’s government actively promotes a policy of exportation. Exports represented about
35% of GDP in 1990 and represented about 29% of GDP in 199911. While there is a
decreased percentage of exports as a constitution of GDP this does not necessarily reflect
exports decreasing in this time period. Rather, they are subject to other changes in the
countries economy, such as the change in the ratio of FDI as a component of the
country’s GDP. With almost 1/3 of its annual GDP dependent on exports, this is a crucial
area for Chile to fortify and diversify for future success. Although such a large
investment of GDP in foreign trade can be dangerous, because of foreign shocks such as
drops in prices of their goods, for the time being, Chile is limited in what areas it can
9
Central Bank of Chile
Central Bank of Chile
11
Central Bank of Chile
10
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generate substantial income in. Much of this is a result of the skill level of the workforce,
and the education level of its citizens, which Chile can divert funds to improve upon.
This is a crucial aspect for Chile, for which it can build upon with profits from foreign
trade channelled to the areas of education.
Imports in Chile have also shown a rising trend in the decade of the 1990s.
Increases in population and shifting trends in demand for products are both factors that
affect the quantity of annual imports. Although increasing importation is not ideal in
terms of profit for a country, this is necessary to cope with changes in productivity, and to
maximize areas of which there is a comparative advantage. For example, if Chile has a
comparative advantage in the production of copper, to reduce the production of lumber in
efforts to divert resources to the more efficient practice of copper manufacturing, is a
sound business practice. However this will turn cause the demand for lumber imports to
increase as a result of less lumber being produced domestically. Ideally, Chile strives for
a favourable a balance of trade, which entails a greater export to import ratio to maximize
governmental revenue. Balance of trade is the most important figure in the calculation of
the balance of payments, which is defined as:
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“An accounting record of all transactions made by a country over a certain time
period, comparing the amount of foreign currency taken in to the amount of domestic
currency paid out.”.12
A propitious balance of payments is a safeguard against high rates of
governmental debt, which seems to be a deep-rooted and unyielding affliction to South
American economies.
In 1990, imports represented about 31% of Chile’s GDP and in 1999 comprised
about 27% of Chile’s GDP13. An aggressive foreign trade policy has created a salutary
climate for the expansion and development of Chile’s economy in the decade of the
1990s. The administrations of the 1990s vigorously sought liberalizing trade agreements.
Chile signed trade agreements with Mexico, Canada, and Latin America. Preferential
trade agreements with Venezuela, Columbia, and Ecuador were also enacted. An
association agreement with Mercosur (Argentina, Uruguay, Paraguay, and Brazil) was
signed in 1996. In addition to the trade liberalization policies, the Chilean governments
of Eduardo Frei and Patricio Aylwin also implemented trade liberalization policies of
which the unilateral trade reductions (1991 from 15% to 11%, and in 1998, from 11% to
6% over five years) were most noteworthy. Championing the causes of an open economy
that was conducive to trade, and principal trade agreements were hallmarks of this period.
These strides in accumulating and promoting foreign trade give credence to the
importance of foreign trade in Chile’s economy in the 1990s.
II.
12
13
Prudent Fiscal Policy
Balance of Payments -http://www.investorwords.com/394/balance_of_payments.html
Institute of National Statistics Chile
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Neighbouring countries strive to emulate the exemplary economic growth of
Chile that is grounded in prudent fiscal policy. This fiscal policy was another essential
constituent in its outstanding performance during the 1990s. A prudent fiscal policy is
key in minimizing government debt and creating an environment conducive to high
public revenue. Chronic problems with government debt have been problematic for
many developing Latin American countries. Outperforming Mexico, Uruguay, and Costa
Rica, Chile’s public sector boasted revenues of more than 30% of its Gross Domestic
Product (GDP), according to the UN Economic Commission for Latin America
(ECLAC)14. This statistic is reflective of the burgeoning local businesses in Chile that
are important in generating jobs, creating infrastructure, and the long-term economic
development of Chile. However, another element of the high public revenue is due to the
high value-added tax rate at 19%. In addition, the CODELCO, the world leader in copper
production, is a state-owned enterprise that also yields considerable profits to public
revenue.
Chile’s success is also attributable to its efforts at reducing debt and programs to
create a sustained fiscal surplus during the 1990s. From about 1987-1997 the annual
budget had consecutive years of a surplus and reduction in government debt.15 Chile also
boasts the highest domestic savings rate in Latin America.16 The Chilean national
surplus had systematically increased from 4.9 % of the GDP in 1993 to 5.5% in 1997.17
From an international viewpoint, Chile is seen as a lucrative sector for foreign investment
with a steady decreasing government debt. This gives confidence to investors and shows
14
UN Economic Commission for Latin America (ECLAC)
Economist Intelligence Unit 2004.
16
Economist Intelligence Unit 2004.
17
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
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an independence and deviation from the trend of many growing countries to have an
unhealthy dependence on institutions such as the IMF and World Bank to help resuscitate
their economies from lamentable economic policies. After 1997 the deficit has not been
more than 2.5% of GDP, and at times has been a surplus.18 Prudent management of the
national debt permits economies to grow and flourish in the long-term outlook of their
economic future.
This performance of maintaining the national debt has displayed better management
than the US and a majority of countries in the European Union. According to the World
Bank, the Chilean-established Copper Stabilization Fund has been key in reducing the
impact of external shocks on fiscal revenues. These shocks can cause adverse effects in
the economies they influence. Avoiding external shocks is key to maintaining steady
rates of inflation, also important in Chile’s success, which will be discussed further. An
astute fiscal policy, with the hallmarks of low national debt, high public revenue, and
years of a fiscal surplus are all critical factors in the role of Chile’s remarkable progress
during the decade of the 1990s.
III.
Targeting Inflation; Central Bank Key Role.
In the 1990s, Chile’s success can also be attributed to the inflation-targeting
policies of the independent Central Bank of Chile. The Central Bank strove to provide
counsel on economic policies that would avoid the incidence of external shocks. The
Central Bank notes how harmful policies have the potential to create inertia in
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Chile The Lonely Success Story- Eduardo Aminat
9
inflationary shocks that make it difficult to lower inflation to acceptable levels. They
continue with the example of a transitory shock in the price of petroleum is able to
generate prolonged devastation in the objective of their inflation targets.19
A cautious approach of maintaining a reasonable inflation rate is important for
several reasons. First, a low inflation rate is a result of having low currency appreciation.
Low currency appreciation is important to the Chilean economy because their economy
has a market-oriented scheme with an emphasis on foreign trade. If they have a high rate
of currency appreciation, their currency will lose value in respect to other major
mediums, such as the dollar, and investors will not be as inclined to invest in the Chilean
economy because of the weakness of the peso in relation to other currencies.
Additionally, their exports will lose value in the international market -which in turn will
have detrimental effects on the Chilean economy. The success in initiating a decline in
inflation during the 1990s was a pivotal factor in the success of the Chilean economy.
To place this statistic in context, Muñoz asserts, “The rate of annual inflation
from 1984-1989 was about 20%, while on average, between1990-1998 it was less than
12%.20 Remarkably in 1999, the rate of inflation had decreased to less than 4%.21
19
Document of Economic Policies N°5. Central Bank of Chile.
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
21
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
20
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Inflation rates had peaks of 21% and 25% in each of these periods respectively”.22 This
trend represents a decreasing rate of inflation from 23.7% to a rate of less than 4.5% in
the 1990s. The steady decline of in the rate of inflation had several beneficial aspects for
the Chilean economy. The Central Bank of Chile notes how a decreased rate of inflation
contributes to a healthy environment for the materialization of investments, promotes the
general development of the country, provides incentives for the generation of jobs, and
increases the productivity of businesses.23 Naturally, a low inflation rate also allows
nascent business to grow without shouldering the burden of a weak currency from which
to build a foundation from. This facilitates the integration of their products into the
international economy, which will provide jobs and attract investment. The judicious
management of the inflation rate in by the Central Bank of Chile constitutes an important
element in their growth in the period of the 1990s.
II. Effects of FDI in Chile’s Growth.
The booming economy of Chile during the 1990s was largely successful for a
number of reasons. One of the key factors in the economy’s success was the influx of
foreign direct investment (FDI) during the 1990s. Aside from the initial macroeconomic
stimulus, FDI has many beneficial effects on a Chile’s economy. FDI facilitates
developing countries’ access to international markets and technology, provides resources
to develop infrastructure, contributes to international trade integration, helps create a
22
23
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
Central Bank of Chile-1
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more competitive business environment and enhances enterprise development.24 Benefits
such as increases in total factor productivity and a more efficient use of resources have
also been noted. Considering Chile’s market-oriented economy, and its reliance on
foreign trade, FDI strengthens Chile’s prospects for increased trade. According to a report
from the OECD:
The main trade-related benefit of FDI for developing countries lies in its long-term contribution to
integrating the host economy more closely into the world economy in a process likely to include higher
imports as well as exports. In other words, trade and investment are increasingly recognized as mutually
reinforcing channels for cross-border activities.25
With the Chilean economy’s reliance on trade, an increase of FDI allows more
opportunities for exchange in the international market. During the 1990s, FDI gross
inflows represented an annual average 6.4% of Chile’s GDP, rising to an annual average
of 8% between 1995 and 2000.26
As the graph shows, FDI in Chile rose steadily to peak at a level of US$9.9 billion
record high in 1999.2 The significant decline in of FDI in the subsequent years was a
trend seen on an international scale, with the exception of China. The decline was
attributed mainly to a slowdown of world economic growth (1.3%, as compared with
24
FDI for Development - OECD Secretariat Dec 2001.
FDI for Development - OECD Secretariat Dec 2001.
26
Chile Foreign Investment Committee
2
http://www.foreigninvestment.cl/
25
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4.0% in 2000) and to a decrease in cross-border mergers and acquisitions (M&As).3 The
relatively low level of 1990 in comparison to 1989 was due to a decline in FDI due to the
Gulf War crisis of 1990-91.
The Chilean FDI committee noted that in recent years figures of FDI have been
distorted because of a growing tendency of foreign investors to use the Chilean local
capital market. Foreign investors are lured by low interest rates and the high liquidity of
the financial sector of Chile. Although this may create a slightly inaccurate picture of
FDI, these facts tend to attract potential investors in the Chilean market. Despite
distorted figures of FDI, with an annual average of nearly 6% of GDP during the 1990s,
FDI is an important factor in the growth and foreign trade aspects of Chile’s economy.
The large influx of FDI in Chile was a critical factor in the remarkable annual growth rate
of 7% in Chile’s economy during the 1990s.
V. Future Outlook
Considering the outstanding performance of Chile in the 1990s one can imagine
that such a performance is difficult to sustain. As affirmed by O. Muñoz, the
governments of “la Concertación” during the 1990s accepted an economic system of an
open market, with foreign investment, commercial development, and an execution of
social programs.27 However with the trend of events in Chile’s economic performance,
have their been any criticisms of this manner of economic development? Have there been
3
United Nations Conference on Trade and Development
http://www.unctad.org/Templates/webflyer.asp?docid=2470&intItemID=2079&lang=1
27
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
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any opposing viewpoints that disagree with the economic policy of the administrations of
the 1990s? Professor Ricardo French-Davis, affirms
"What we learned from the '70s and '80s," said French-Davis, "is that you don't want too much
foreign investment coming into the country. You want money coming into the country to go towards the
development of technology, roads, job training, and those things that will improve productivity. That's
where government comes in. We limited the influx of hot money and encouraged domestic savings that we
can use as a building block just as easily as foreign savings.” 28
This observation is one that I partially support. While have a limited
understanding of the economic principles involved, from my perspective, I support more
of Chile’s FDI to be directed to objectives of improving infrastructure; with the hope of
improving productivity, education, and employment opportunities. Ffrench-Davis calls
for more savings with the initiative taken by domestic businesses. Rather than become
dependent on foreign investment, a more disciplined approach to saving will allow
businesses to become more self-reliant. While this is partially true, I argue that large
amounts of FDI are healthy for a country. With increased FDI, this promotes increased
employment opportunities, and integrates Chile into the global economy. When more
foreign investors take interest in Chilean businesses, this will allow them to provide
finances that can lead to the development of the more efficient businesses. This can also
have effects such as increasing the amount of tourism to Chile as a result of the
internationality of its services and companies.
FDI investment can be used as a medium to increase the productivity of Chilean
businesses. For example, an emphasis on the productivity of exporters is a means to
achieve this goal. Muñoz attests, “The governmental strategy [in the 1990s] with respect
to the small and medium exporters was based in a political strategy of improving
28
The Washington Post- Chile's Success Makes the Case For State Involvement in Economy
14
productivity.”29 In a country such as Japan, in which 25% of the workforce are educated
professionals, this results in a productivity per- hour rating rivalled only by the Swiss.30
For the long-term outlook of Chile, a more specialized workforce will result in higher
productivity levels and ultimately more efficiency. Trends of an increase in productivity
were witnessed from the periods of the 1980s to the 1990s. In the 1980s, the productivity
rate saw an average annual increase of 1.7%, while in the 1990s this rate grew to an
annual average of 5%. Productivity translates into the number of hours worked by each
Chilean professional, and with more efficiency, this will enable Chileans to work less
hours with higher yields.31 This increase in proficiency will allow companies to divert
more funds to savings and end the debilitating cycle of inefficiency.
In 1995, the Latin America Program of the Council on Foreign Relations, held a
conference titled "Latin America: The Next Generation." The key finding of the
conference, was that "...Latin America's poorly educated labor force may be the single
greatest factor retarding economic growth."32 To buffer the potential of decreases in FDI,
and promote economic growth it would benefit Chile to increase the educational
investment of its citizens, which will result in an empowered people, with marketable
skills, and coincidentally attract more FDI with a more specialized group of
professionals. Furthermore, education is the most crucial factor in the long-term
development of Chile, because sustained growth will falter with a lack of a capable and
efficient workforce to supplement it. Author C. Pyle concludes, “Educational reform, the
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile.
The Economist
31
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile
32
L.C. de Cerrno, Pyle Cassandra. Educational Reform in Latin America. Council on Foreign Relations. December, 1996.
29
30
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politicians and economists agree, is essential to sustaining the economic and political
reforms already made, and to broadening these reforms so that the vast majority of the
people are included.”33 In Chile the marked disparities between public and private
education require redress. Private institutions offer superb education while public
schools pale significantly in comparison. Increases in the educational system of Chile
will also contribute to breaching the gap of inequality. Sustained high growth in Chile
has reduced the overall level of poverty, however, this has also yield gross rates of
inequality. From a household poverty assement study in Chile, “Education is an
important determinant of labor earnings and hence of household income. Differences in
educational attainment account for almost one-third of overall income inequality, and are
by far the largest single explanatory factor.”34 For the welfare of its own success, it
would benefit Chile to raising the standards of its public educational system. This
investment in its citizens will bring widespread rewards of increased proficiency, a more
skillful laborforce, and promote growth with equity.
In the arena of technology, future investment of Chile’s resources to promote a
more technologically advanced society is crucial to Chile’s growth. Muñoz attests, “The
technologies of information and communication are a central factor in the transition
towards a knowledgeable economy.” 35 Furthermore, “The growth of industries based in
knowledge is superior to the growth of products of developing countries.” For an
economy to have a sustained long-term growth, investments in its technological sector
33
34
L.C. de Cerrno, Pyle Cassandra. Educational Reform in Latin America. Council on Foreign Relations. December, 1996.
Poverty and Income Distribution in a High-Growth Economy: 1987-1995 http://wbln0018.worldbank.org/dg/povertys.nsf
35
Oscar Muñoz et. al. Más Allá del Bosque: Transformar el modelo exportador. Santiago, FLACSO-Chile. 2001.
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are important to keep pace with other advanced countries.36 Chile’s international
competitiveness will benefit from advances in its technological sector. According to a
ranking of international competitiveness by the International Institute for Management
and Development (IMD) of Switzerland, Chile ranked 27th in 1996 and 34th in 1998 in a
comprehensive survey of over 60 nations (US being first)37. If Chile is to progress
economically and augment prospects of international competitiveness, an investment in
the technological sector of Chile will facilitate this process.
Concerning foreign trade and policy, these are some of the factors that have
resulted in Chile’s remarkable macroeconomic stability. I support the emphasis on
foreign trade as well as the efforts to uphold and create trade agreements with more
nations, namely the U.S. in FTA agreement signed in June 2003.38 However concerning
policy there have been some criticisms of Chile’s policy during the 1990s. From an
Economic Policy in Chile’s New Democracy, author Kurt Weyland considers the policies
of Frei and Aylwin as too conservative to the point that they hinder future prospects of
growth for Chile.39 I disagree with this point drawing from the phenomenal growth of
Chile during the period of 1990-1999. Rather than too conservative, and in efforts to
avoid the “populist cycle” I think that the policies enacted especially in the realm of tax
rates by the independent Central Bank of Chile were quite fitting to control the rate of
inflation and maintain a non-volatile economy. It is these opposing viewpoints that I
Oscar Muñoz et. al. Más Allá del Bosque: Transformar el modelo exportador. Santiago, FLACSO-Chile. 2001.
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile
38
The Economist
39
Kart Weyland. New Democracy: Chile´s Economic Policy
36
37
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found in response to Chile’s development in the 1990s, however, I only partially agree
with the observation of Ffrench-Davis.
Chile’s remarkable performance in the 1990s was due to a myriad of factors.
According to O. Muñoz “The Chilean macroeconomic policies have shown great
effectiveness in the 1990s, expressing a rhythm of high average growth, a sustained
decrease of inflation, an increase in the rate of investment, and particularly foreign
investment.”40 However it is also important to make a distinction between 1998 and the
following year, in which Chile was marked by a change in economic policy to confront
an international crisis.41 In Chile’s remarkable period of annual GDP growth during the
1990s, I consider the aspects of foreign trade, high foreign direct investment, low
inflation rates, and a prudent fiscal policy as the principal factors in Chile’s success.
With continued awareness of inflation rates, and strides to maintain high levels of FDI,
Chile is becoming a promising environment to potential investors. However, in the 21st
century, investments in education and local infrastructure can only reinforce the lucrative
conditions that Chile presents to investors. With strides in these areas of development,
and continuous integration into the international market, Chile can hold fast to the
namesake of the “economic miracle” of Latin America, and continue its history of
momentous economic progress.
40
41
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile
Oscar Muñoz et. al. El Estado y El Sector Privado. FLACSO-Chile, Abril 2000, Chile
18
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