THE REBIRTH OF CHILE
April 17, 1998

Prior to this weekend's summit of Western Hemisphere nations, President Clinton visited the host country, Chile. Chile's growing economic might in the region follows decades of political and social turbulence. Charles Krause reports on the nation's struggles and successes.

Feb. 26, 1997: A look at Chile's newfound democracy and economic growth Browse the NewsHour's coverage of Latin America     Spotlight on Chile The British House of Lords Pinochet Decision from Human Rights Watch	CHARLES KRAUSE: Chile's capital, Santiago, was selected to host this weekend's summit because by all measures, Chile's economy is the most dynamic in Latin America, a showcase for the benefits of open markets and free trade--impressive new buildings--the vibrant stock market. Low inflation and high employment reflect Chile's growing prosperity. Not even the crisis in Asia has significantly dampened the prospects for Chile's continued growth. Thirty-four heads of state representing every country in the Western hemisphere, except Cuba, are expected to attend the summit this weekend. Preparations, including trade exhibits, cultural events, and heightened security have been much in evidence all week as Santiago prepared for the most important international event in its history. Tomorrow and Sunday the presidents and prime ministers will meet in closed session to discuss a broad agenda of economic, social, and political issues. Reflecting the central goal of the United States, President Clinton was the first head of state to arrive in Chile for an official state visit preceding the summit. Yesterday morning the President and Mrs. Clinton were welcomed by Chile's president, Eduardo Frei. Later, Mr. Clinton praised Chile for its role as a model of economic and political reform. PRESIDENT CLINTON: As the tides of change have swept over our hemisphere, over the past 15 years, Chile has set an impressive standard in strengthening its democracy, opening its economy, lifting its people from poverty. As Chile's stability and prosperity have grown, it has become a leader in our hemisphere and an even stronger partner and friend for the United States. CHARLES KRAUSE: What the president didn't mention was the high price Chile has paid to reach its current level of economic prosperity and political stability. Just 25 years ago in 1973 Chile's armed forces overthrew the country's democratically-elected Socialist president, Salvador Allende. Today, a memorial wall in Santiago's municipal cemetery commemorates Allende and some 3,000 other Chileans who died or disappeared because of their leftist political beliefs during 17 years of military rule. Still, despite its much-criticized abuse of human rights, the military under Allende's successor, General Augusto Pinochet, also introduced the free market economic reforms that have now proved successful, so successful, in fact, that those reforms were kept in place by the elected center left coalition that's governed Chile since the end of military rule eight years ago. Today, Finance Minister Eduardo Aninat, a Christian Democrat, says there's a remarkable consensus among Chileans against a return to the socialist and protectionist policies of the past. EDUARDO ANINAT, Finance Minister, Chile: If you look at the debate, you carry it to media or today, last week, or tomorrow, you will say the debate regarding economic policies and social policies are related. It's very confined. It regards fine tuning. It regards adjustment, short-term measures, but there is no one watching the ball and asking for reform of a complete moral or economic policy we're having. That has been so for the last ten/twelve years at the very least. CHARLES KRAUSE: What the so-called "Chilean Model" has achieved is evident in Vina Del Mar, Chile's premier summer beach resort in the Pacific Ocean, and in Santiago, where fast, new shopping malls reflect the boom that's underway. For well over a decade Chile has been growing at nearly seven percent a year, the highest and most consistent growth rate of any country in Latin America or the Caribbean and one of the highest in the world. Inflation, unemployment, and the number of Chileans living in poverty have all fallen dramatically, that, according to the World Bank and other international institutions that have monitored the Chilean experiment closely. Gabriel Guerra-Mondragon is the U.S. ambassador to Chile. GABRIEL GUERRA-MONDRAGON, U.S. Ambassador, Chile: The government, the democratic government, when they took over in 1990, they allocated now 80 percent of their budget to social issues, whether it's housing, education, transportation, health, so they have been able to very cleverly at the same time privatize. They're great believers in free trade and they have done that with many countries and at the same time, they know that they have to pay attention to the social needs of this country, and they have lowered the poverty rate, which was at 40 percent in 1990, now to 20 percent, so that's all pretty remarkable drop in such small number of years, in six years.
	Exploring the Chilean model
	CHARLES KRAUSE: At the heart of the Chilean experiment is a domestic economy based on unrestricted free enterprise and a drastically reduced public sector. Government spending has been slashed to the point where for the past decade the government has run a surplus, while formerly government-owned corporations like LanChile, the national airline, the phone company, the electric company, and even the Social Security system have been privatized. The government has also encouraged foreign investment, and over the past decade U.S. companies alone have invested $10 billion in this country, which has a population of only 14 million people. Alex Fernandez, president of the American Chamber of Commerce in Chile, says confidence is the key to U.S. and other foreign investment. ALEX FERNANDEZ, Chilean-American Chamber of Commerce: The primary issue in a developing country like Chile is whoever invests in this country wants to be sure that its investment is going to have a long-term return. And if you give long rules of the game, long-term rules of the game, and you don't change ‘em, you don't give signals to the people that you don't know what's going to happen in the future, investment continues to flourish. It attracts people. It attracts foreign investors, and I think that the amount of foreign investor that Chile has received in the last 20 years clearly shows that that is the case. CHARLES KRAUSE: The other key element of the Chilean model is free trade. Chile was one of the first developing countries anywhere in the world to slash internal subsidies and protective tariffs. The purpose was to force local companies to become more efficient and more competitive. As a result, Chile has nearly quadrupled its exports over the past decade and developed whole new export industries. Fruit, for example: Last week, a Japanese refrigerator ship, Pacific Star, was loading 240,000 boxes of apples and kiwi to be off-loaded in Saudi Arabia. Fruit has also become a major export to the United States. From virtually nothing, Chilean wine has also become a billion dollar export industry. Wineries like Concha y Toro have become known throughout the world and with ultramodern facilities have become globally competitive. Indeed, Chile will surpass Spain and Germany this year to become the third largest exporter of wine to the United States largely because Chilean wine is considered to be of high quality at extremely reasonable prices. All by itself Concha y Toro will sell 2 million cases of its win in the U.S. this year, up from 100,000 cases just a decade ago. Rafael Guillisastri, Concha y Toro's director of exports, travels frequently to Europe, Asia, and the United States. We asked him how perceptions of Chile have changed over the past decade. RAFAEL GUILLISASTRI, Export Director, Choncha y Toro: To be honest, there have been two issues about this country. One, everybody believed that the changes done in the economic were the right one in the right time; and particularly the business community perceived that very well in the anticipation. The other fact that there was a negative image or impact of Chile because its political system I think is very important too--those things now are working in the right sense. There is a commitment not only in the business community but I think a strong commitment in the Chilean population toward both things--the democratic system and the way the economics are handled.
	The NAFTA debate
	CHARLES KRAUSE: In recognition of its economic success the transition of democracy. Chile was invited by the United States, Canada, and Mexico to become the first South American member of NAFTA, the Northern Free Trade Agreement. That was four years ago at the last summit of the Americas in Miami. But the invitation was never formalized because Congress refused to give President Clinton fast-track authority to negotiate with Chile. Tired of waiting, Chile negotiated separate free trade agreements with Canada and Mexico, and also joined Merco Sur, an increasingly important free trade area that now includes Chile's neighbors, Argentina and Bolivia, as well as worldwide Paraguay and Brazil. Yesterday the meeting with business leaders, Alex Fernandez undoubtedly told President Clinton what Fernandez told us earlier in the week. But without a free trade agreement, U.S. companies are losing business in Chile. ALEX FERNANDEZ: I can give you one very, very good example. Last year one of the local telecommunications companies went out to bid to buy telecommunications equipment. They were going to spend $200 million on telecommunications equipment. There was a U.S. company, a European company, and a Canadian company. At the end we're down to the U.S. company and a Canadian company, similar technology, similar services, et cetera. The decision was made to go with the Canadian product because the Canadian products come in at 11 percent less duty at zero duty. A $200 million purchase, 11 percent, is a lot of money for any telecommunications company. And the U.S. product lost out in this case. And that's a serious issue. It's a serious--because now we're talking about U.S. jobs if we can, so we sell less products to Chile, we're talking about less U.S. jobs. CHARLES KRAUSE: In a speech yesterday to the business community President Clinton said he was committed to a hemisphere-wide free trade agreement. Whether or not Congress ever grants fast-track authority for Chile President Clinton and the other heads of state are expected to announce this weekend a timetable for a new free trade agreement that would include every country in the hemisphere by the year 2005. They're also expected to talk about a host of other issues from education to workers' rights to the environment, which critics of free trade say have been ignored. To call attention to these issues, unions, women's groups, and environmental coalitions from throughout the hemisphere are holding two alternative summits in Santiago this week. One of them, called the Summit of the People, began with folk music in a downtown theater. Chilean environmentalist Sara Larrain helped organize the opposition meetings. SARA LARRAIN, Chilean Environmentalist: We're not agreed as citizens. We have agreement that only benefit business, but this is the real problem here, this agreement. Without the solution of poverty, without the solution of the environmental problem here, and without the democratization on--transparent--are not in benefitting people at all--benefitting business. CHARLES KRAUSE: In fact, this is the same perception that has fueled anti-free trade sentiment in Congress, so Amb. Guerra says the administration has made sure that these issues will be dealt with in the final summit communique. The summit ends after the final communique is issued Sunday at noon.