Transcript Success of Chile in Developing More than Other Latin American

Success of Chile in Developing
More than Other Latin American
Countries
By Vardges Ejuryan
Brief History
• Prior to the Spanish arrival, Chile was ruled by Incans
and native Indians.
• Declared independent in 1810, won in 1818.
Location
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West of Bolivia
West of Argentina
South of Peru
Bordering on Pacific
Ocean
• Chile is a Pac Rim
country.
• Capital is Santiago
Specific Facts
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Population of over 16 million
Spanish is the primary spoken language
GDP is 49% industry and 44% services
Labor force is 7 million, primarily in services
With 8.3% unemployment
Significant Factors
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18.2% of the population is below the poverty line
Inflation rate (CPI) is 2.1%
21% of total GDP is accounted for in investment
10.5 million out of 16 million have cell phones
6.7 million out of 16 million are online
Political Overview of 1970ies
• In 1970, Salvador Allende (Marxist) is elected
• Nixon orders CIA to intervene
• Chilean military officers plan a coup, Commander-inchief General Rene Scheider disagrees and gets
assassinated
• 1973, Political deadlock, street demonstrations and work
stoppage.
• 1/3 of US embassy on CIA payroll
• August 23, Allende promotes Pinochet to Commanderin-Chief
• On September 11 Pinochet performs the coup and
seizes control of government until 1990
Augusto Pinochet
Free Market Reforms
• From 1973 to 1982 (international debt crisis)
• Implemented economic policies to turn Chile
from an isolationist to liberalized economy
• Inflation was greatly reduced
• Government deficit was eliminated
• Opened economy to foreign investment
4th Time is the Charm
• This had been attempted before, three times
and failed between 1950-1970
• Primary reason for failure was due to highly
overvalued real exchange rate
• Secondary reason for failure was due to high
restrictions on quantity
This time…
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Chile used an open trade system
Low import tariffs
Low exchange rate controls
Low trade controls
Low restrictions on capital flight
Land Market Reforms
• While under Marxist rule, 50% of total land was
public
• Privatization began in 1974 and encouraged
small farms to be managed by owners
• 1978 ban on corporate ownership of land lifted
• 28% of land was returned to prior owners
• The remainder was auctioned
Other Reforms
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Financial institution investment and development
Investment in education, following French model
Inflation control policy
Investment in macroeconomic institutions
Fiscal Discipline
• Balanced budget
• Negate deficits of a time period with
surpluses of other periods
• Countercyclical
Debt Crisis
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1982 the Debt Crisis hit Chile
Unemployment above 20%
Most banks went bankrupt
Chile in severe distress
1983 financial sector of market was nationalized
Subsidizing and rescue of banks caused Central
Bank deficits, leading to increased inflation
Response to Crisis
• 1985 Pinochet went with economists whom
advocated free markets and macroeconomic
disciplines
• Adopted new policies
• -reestablish growth
• -reduce debt
• -increase financial and manufacturing sectors
Relief
• With these new policies, capital flight
controls, the help of the International
Monetary Fund (IMF), and the World Bank
Chile was able to cope with and end the
Debt Crisis.
Importance of Capital Flight
Capital Flight During Debt Crisis
Reasons for Success of Chile
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Fiscal discipline
Inflation control
Strong financial and capital markets
Excellent trade-export system
Investment in institutions and education
Questions and Comments
FIN!
Thank you for your time! 