Success of Chile in Developing More than Other Latin American Countries

1. Success of Chile in Developing More than Other Latin American Countries By Vardges Ejuryan

2. Brief History • Prior to the Spanish arrival, Chile was ruled by Incans and native Indians. • Declared independent in 1810, won in 1818.

3. Location • West of Bolivia • West of Argentina • South of Peru • Bordering on Pacific Ocean • Chile is a Pac Rim country. • Capital is Santiago

4. Specific Facts • 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

5. Significant Factors • 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

6. Political Overview of 1970ies • In 1970, Salvador Allende (Marxist) is elected • Nixon orders CIA to intervene • Chilean military officers plan a coup, Commander-in-chief 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 Commander-in-Chief • On September 11 Pinochet performs the coup and seizes control of government until 1990

7. Augusto Pinochet

8. 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

9. 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

10. This time… • Chile used an open trade system • Low import tariffs • Low exchange rate controls • Low trade controls • Low restrictions on capital flight

11. 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

12. Other Reforms • Financial institution investment and development • Investment in education, following French model • Inflation control policy • Investment in macroeconomic institutions

13. Fiscal Discipline • Balanced budget • Negate deficits of a time period with surpluses of other periods • Countercyclical

14. Debt Crisis • 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

15. 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

16. 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.

17. Importance of Capital Flight

18. Capital Flight During Debt Crisis

20. Reasons for Success of Chile • Fiscal discipline • Inflation control • Strong financial and capital markets • Excellent trade-export system • Investment in institutions and education

21. Questions and Comments

22. FIN! Thank you for your time! 