Chile, a sweeping example

In 1975, Chilean exports were equivalent to US$ 1,552 million, similar to those from Guatemala in 1990. At present, Chilean exports surpass the US$ 14,000 million. In addition to export increases, production became more diverse. This country exported only US$ 71 million in non traditional export product (6% of total exports) at the beginning of the seventies. Nowadays they represent 40% of the total exports. This growth means that the country is less dependent on copper exports, which in 1973 reached 80%.

Many consider Chile's success "a miracle". Nevertheless, it is only necessary to investigate its History to learn that economic miracles do not happen automatically, but determined actions are needed for these to occur. Following your will find some brief but important and crucial facts which contributed to modernization in Chile.

In 1970, President Salvador Allende took office and imposed an income redistribution and general control of production means. His policy considered massive salary readjustments for public workers, significant expansion of public jobs, nationalization and expropriation of private enterprises.

The Chilean economy became isolated from the world economy. Its development strategy was inward oriented and directed by the State. As in most Latin American countries, the strategy was to industrialize the economy and protect local industry from foreign competition, through high taxes, import quotas, permits and licenses. Many businesses were nationalized as well.

Reforms Chile has made since 1973 have taken place gradually. The first step, which lasted until the beginning of the nineteen eighties was intended to reach a more stable economy and develop structural reforms in various areas, all of them closely related and pointing towards the same direction, under solid principles. Reforms meant important changes in what the role of the State should be, converting intervention into subsidiary participation of the Government.

Reforms made in regard to foreign trade had great impact on exports increases. Liberalization of foreign trade started in 1974 when export and import taxes dropped and non tax barrier were eliminated in a four year term. In 1975 the average import, export tax was 40%, but reduced by 10 percent each year. In 1978 a 10% tax for all goods was reached. Macroeconomics changed from 1978 on, and a 7% average growth rate was reached in 1981.

ALL THAT GLITTERS IS NOT GOLD

Chile was one of the most affected countries during the Latin American crisis. In 1982, its production dropped by 14% and unemployment rates reached 30%. This depression changed the economic policy in many ways. The most drastic one was related to currency exchange rates, which had been stable for more than three years. Another important change was the establishment of regulations in the money markets. Although, in spite of many pressures, basic resources assignment, the so called economic model put under way by structural reforms at the end of 1976 towards a market economy system remained practically untouched. Most of the prices of consumer goods were established by a an offer and demand system.

The crisis was overcome, correcting all policies that had driven the country to a crisis, and not withdrawing reforms already under way. After 23 years of reforms, Chile is now a role model, not only for Latin American countries, but for the rest of the world.