Chile

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Full Report: Chile

Overview

1910-1914: Chile operates as a parliamentary republic, protecting the interests of the ruling oligarchy. Congress, dominated by landed elites, exerts authority over the president's Cabinet appointees. A high volume of nitrate exports fuels a strong economy, which in turn spurs industrialization and massive urbanization.

1915-1925: World War I causes a dip in international commerce and deeply affects the economy. Germany develops artificial nitrates, and copper becomes Chile's leading export. Inflation spirals. A growing labor movement demands better treatment. A worker-supported Democratic Party emerges and spawns two extreme left offshoots. The urban middle classes and provincial elites rally behind a Radical Party.

1926-1932: Military intervention puts reformist Colonel Ibáñez in the presidency. Borrowing from private foreign lenders and increased revenues from copper exports finance import substitution. Depression-era economic disaster reinforces protectionist policies, which, along with oppressive rule, spark popular protests. Ibáñez resigns in 1932; reformist Arturo Alessandri, president before Ibáñez, is reelected.

1933-1938: Alessandri enacts a new labor code and the 1925 constitution, which codifies separation of church and state and increases the directly elected president's powers. Promotion of industry and public works cuts unemployment, but opposition denounces Alessandri for scant economic nationalism and attention to workers' needs. The Popular Front, a democratic-leftist coalition, wins the '38 election.

1939-1942: President Pedro Aguirre Cerda works with the private sector to build a mixed economy. Social reforms are limited in favor of national industrial development. Large landowners control the countryside and restrict rural unionization. Political infighting erodes the Popular Front. Right-wing parties grow stronger. Conservative Radical Juan Antonio Ríos Morales is elected president.

1943-1946: President Ríos creates state enterprises in heavy industry. The war boosts Chile's mineral exports. Chile severs ties with the Axis powers to cement relations with the U.S. Fellow Radical Alfredo Duhalde Vásquez replaces an ill Ríos as interim president. His anti-labor policies displease the Communist Party (PCCh) and some Radicals. Left-wing Radical Gabriel González Videla wins the '46 election.

1947-1952: In a controversial about-face, Videla's government outlaws the PCCh and severs relations with the Soviet Union. Chilean workers demand reforms in light of chronic inflation, rising unemployment, and declining real income. Political parties are polarized. Hoping to see their party re-legalized, many Communists join Socialists in backing former President Ibáñez, who wins the 1952 election.

1953-1958: Nationalist reforms give way to an unsuccessful conservative program to stem inflation. Growth and investment slow. Ibáñez loses support. The re-legalized PCCh forms an alliance with the Socialists. A new, centrist, Christian Democratic Party emerges. On the right, Conservatives and Liberals unite behind Jorge Alessandri, who wins the 1958 election over independent Marxist Salvador Allende.

1959-1964: Under President Alessandri, the economy grows, unemployment shrinks, and foreign debt finances public spending. Alessandri's policy of capping wages incites labor protests. Peasants, the urban poor, and the middle class support center candidate Eduardo Frei Montalva. Seeking to avoid an Allende victory, the Right backs Frei, who wins the 1964 election.

1965-1970: The government takes 51 percent ownership of U.S.-controlled Chilean mines. Returns from copper production rise. Chile joins regional economic and trade groups. Frei improves income distribution, but economic growth remains slow and inflation high. A leftist coalition, critical of Frei for being too conservative, sees its presidential candidate, Salvador Allende, narrowly defeat Frei in 1970.

1971-1973: Industrial-sector capacity limits hamper the import substitution policy and contribute to an economic downturn. Inequality and discontent rise. Socialists and Communists disagree on the pace of transition to socialism, while a center-right coalition denounces Allende's administration as illegitimate. General Pinochet leads a violent military coup and government takeover.

1974-1975: Imposing a state of siege, Pinochet rules by decree. Political parties are outlawed; leftists are targeted as "domestic enemies." Violence and "disappearances" are frequent. When Pinochet's attempts at economic restructuring fail, the "Chicago Boy" economists advocate a drastic free-market approach. The government slashes welfare programs, liberalizes trade, and deregulates the financial sector.

1976-1978: The government evolves into a one-man dictatorship after Pinochet makes himself commander-in-chief of the military. He allows the Chicago Boys to oversee an economic "shock treatment." The government borrows heavily from abroad as the economy takes off. Chile enjoys an economic "miracle" in an atmosphere of political repression.

1979-1981: A new constitution allows Pinochet to remain in power another eight years. Trade and financial liberalization accelerate, but massive debt accumulation, bad domestic loans, and an overvalued peso spell the end of the economic miracle.

1982-1983: Pinochet begins his second term amid economic collapse. An international debt crisis and a global decrease in credit combine with domestic conditions to put the economy in recession. Unemployment soars, as does the number of Chileans living in poverty.

1984-1988: A macroeconomic program devised with help from international financial institutions puts Chile's economy back on its feet. Exports fuel economic growth, while privatization and debt conversion programs allow Chile to retire half of its debt. Wages remain low and worker discontent high. Under pressure from Europe and the U.S., Pinochet re-legalizes political activity, sealing his fate as dictator.

1989-1992: A plebiscite vote removes Pinochet from power and elections replace him with Christian Democrat Patricio Aylwin of the "alliance for democracy" (Concertación). President Aylwin begins the long transition to democracy, addressing human rights violations and promoting social and labor reform. An export boom leads to record GDP growth and allows a redistributive social policy.

1993-1999: President Eduardo Frei Ruiz-Tagle (son of former President Frei) of the Concertación party continues Aylwin's economic and social policies. Pinochet is arrested in London and charged with human rights violations. The global financial crisis of 1998 strongly affects Chile's export-dependent economy. Budget constraints slow social spending. Income inequality rises again.

2000-2003: Chile elects a third consecutive Concertación president, Ricardo Lagos, by a slim margin in a runoff election. The country regains its economic footing and maintains stability through the global slowdown, but unemployment remains high. Inequalities polarize the population, but political life remains stable. Pinochet is stripped of his immunity but is eventually deemed unfit for trial.

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Political

1971-1973: Allende does not enjoy majority support. Socialists want an accelerated transition to socialism. Communists want a more gradual approach. The Democratic Party shifts to the right. A center-right coalition denounces Allende's administration as illegitimate and unconstitutional. General Pinochet leads a violent 1973 attack on civilian authority during which Allende dies, allegedly by his own hand.

1974-1975: Pinochet begins his military rule by decree and declares a state of siege throughout Chile. The armed forces operate under a National Security Doctrine with the primary task of defeating "domestic enemies." Military commanders dissolve Congress, censor the media, outlaw political parties, and attempt to stamp out Marxism through violence and terror. Members of leftist parties go underground.

1976-1979: World opinion of Pinochet's regime keeps Chile isolated from international affairs. Relations with the U.S. fall just short of ending when the former Chilean ambassador to the U.S. is assassinated, allegedly by the Chilean Secret Police. Pinochet makes himself commander in chief of the military, and the government evolves into a one-man dictatorship. Political "disappearances" are frequent.

1980-1981: Claiming to have received 67 percent of the vote, Pinochet institutes a new "Constitution of Liberty," calling for military domination of the government. This constitution allows Pinochet to remain president through 1988, when a plebiscite is to determine whether or not to grant him another eight-year term. The Communist Party (PCCh) considers options for violent opposition amid economic collapse.

1982-1987: Pinochet hesitantly legalizes political activities. Dire economic conditions embolden opposition and catalyze protest against his regime. Support for Pinochet from the business community and the armed forces weakens. Political parties reemerge and openly oppose the regime by holding large, nationwide demonstrations.

1988-1989: The scheduled 1988 plebiscite ends Pinochet's regime and forces the dictator to allow elections. The state of emergency is lifted. Christian Democrat Patricio Aylwin, running as the candidate of a center-left coalition known as the "democratic opposition" (Concertación), wins the 1989 election.

1990-1993: Operating under the motto "Growth with equity," Aylwin begins the transition to democracy. His government passes laws that increase the number of elected senators. Pinochet remains a prominent figure, announcing his intention to stay on as commander in chief of the armed forces until 1997. Presidential elections in 1993 keep the Concertación in power.

1994-1999: Christian Democrat Eduardo Frei, son of former President Frei, continues his predecessor's move toward civilian-controlled politics. He eliminates nine senatorial positions filled by army appointees. Pinochet, now senator for life, is arrested in London and charged with human rights violations. The Concertación's Ricardo Lagos wins a close presidential election amid economic turmoil.

2000-2003: Former education and public works minister Lagos faces the task of completing the transition to democracy and eliminating the last holdovers from Pinochet's dictatorship. The right wing, led by Joaquín Lavín of the Independent Democratic Union, becomes politically acceptable again. Midterm elections leave the parliament split between center left and center right.

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Economic

1970-1971: Allende's government socializes the economy, nationalizing foreign copper firms, banks, and major estates. The government expropriates many factories and turns management over to workers and the state. Agrarian reform turns land over to resident workers as well. Wages and salaries are increased while prices are held down. For a year, exploitation of unused capacity produces strong economic growth.

1972-1973: Capacity limits in the industrial sector, a decline in private investment, the exhaustion of international reserves, and uncontrolled monetary expansion bring an economic downturn. The government does not impose austerity measures for fear of losing its working-class support. A black market emerges. Allende continues direct takeovers of land and businesses, further disrupting the economy.

1974-1975: Pinochet's government brings economic restructuring. It lowers tariffs, cuts government spending, and returns nationalized companies to their private owners. When the economy fails to respond to these measures, a group of Chicago-trained economists (the "Chicago Boys") advocate a strong free-market approach. Pinochet gives them the power to carry out their policies.

1976-1978: The Chicago Boys enact "shock therapy" policies. They free prices, liberalize trade, and deregulate the financial sector. Social security, education, and health care systems are privatized, welfare programs slashed. The government borrows heavily from abroad. Exports of nontraditional commodities increase. The economy grows rapidly during the "Chilean miracle," but at the cost of severe inequality.

1979-1981: Trade and financial liberalization accelerate. The government lifts most restrictions on international capital movements. Banks begin to accumulate an unprecedented volume of bad loans. The government adopts a fixed exchange rate policy, which overvalues the peso and erodes Chile's international competitiveness.

1982-1983: Further cuts on government spending and on the money supply bring about a downturn in the economy. Extreme debt, a global decrease in credit, and an increase in interest rates combine with domestic conditions to put the economy in recession. The country's GDP plummets by 14 percent, and unemployment reaches 33 percent. Many banks and businesses fail.

1984-1989: Pinochet's regime adds some changes to its continued neoliberal economic policies. The peso is undervalued to encourage exports, which grow rapidly. The government temporarily raises tariffs. Some businesses receive debt relief. Revenue from privatization and aggressive debt-conversion plans help Chile retire more than half of its debt. The economy recovers, but wages remain artificially low.

1990-1997: Advocating "growth with equity," President Aylwin maintains a free-market framework but promotes equality through social and labor policies. An export boom leads to a record GDP growth of 10.3 percent in 1992, and an average annual growth of 8 percent. The strong economy and favorable terms of trade enable a redistributive social policy. Productivity and investments increase.

1998-1999: Economic turmoil in Asia and the ensuing global financial crisis deeply affect Chile's export-dependent economy. Exports fall by 11 percent in 1998. Lower world commodity prices, especially for copper, further contribute to an economic slowdown. A severe drought exacerbates the recession, lowering crop yields and causing hydroelectric shortfalls, power rationing, and public discontent.

2000-2003: Chile's strong financial institutions, rebounding Asian markets, and rising copper prices return Chile to stable footing. GDP rises more than 5 percent in 2001. President Lagos continues market- and trade-oriented policies. In the 2001-02 global slowdown, Chile's growth rate falls to around 2.5 percent, but the economy resists the pressures that send neighbors Brazil and Argentina into crisis.

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Social

1970-1973: After a brief period of economic success, skyrocketing prices and food shortages emphasize growing inequality. Street demonstrations grow more frequent and more violent. Militant workers, politically empowered by industrialization but living in poor social conditions, form committees for accelerated social change.

1974-1981: Pinochet's military regime slashes welfare programs, reducing the role of the central government in social security, health care, and education. Despite economic growth, income distribution is regressive. Unemployment reaches into the double digits. The underemployed informal sector grows larger. A 1979 Labor Plan places limits on collective bargaining, strikes, and union activities.

1982-1988: The standard of living for workers and the poor declines. The number of Chileans living in poverty doubles. Cuts in social spending cause deterioration of basic public services. The 1982-83 recession sends unemployment soaring. Large-scale protests against Pinochet and his regime spread from urban shantytowns to organized labor to the middle class.

1989-1993: A return to democracy allows workers to exercise their rights. Wages and income levels increase to their 1970s levels, while unemployment falls. President Aylwin's government directs social and labor policies at the poorest sectors. Tax reforms underwrite social policy programs. The rate of poverty falls from 44 to 25 percent.

1994-1998: Budget constraints limit President Frei's ability to maintain redistributive policies. Public resources dry up as a result of public debt contracted to rescue the financial system and the end of the revenue stream from privatization. Social spending decreases; income inequality widens. At the same time, business owners' associations and right-wing parties begin to oppose government social reforms.

1999-2003: Unemployment once again reaches the double digits. President Lagos announces that job creation is his top priority and sets up an employment contingency fund. His plans also include a comprehensive unemployment insurance system.

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Environmental

1970-1980: Environmental protection, seen as a deterrent to economic growth, is excluded from the political decision-making process and limited to small, private initiatives. In 1979 a handful of Chilean and foreign firms establish a fund for scientists to produce an ecological history of Chile to help balance environmental needs with economic development.

1981-1990: Chile continues to depend on exports from the mining, forestry, and fishing industries. Native forests are clear-cut; rivers are dammed. The mining process emits arsenic and carbon monoxide into the air and water. Santiago becomes one of the world's smoggiest cities. No national policies or institutions exist to regulate the use of natural resources.

1991-1994: Government policy toward the environment shifts. Frei's government designs an Environmental Framework Law to balance environmental protection with economic growth, placing it under the authority of the National Commission for the Environment (CONAMA). But the government fails to provide the means to implement the law. Environmental regulation remains disorganized.

1995-1998: An environmental movement emerges to challenge Chile's export-oriented development model. Local environmental and citizen groups delay massive investments by tangling them up in administrative and legal challenges. CONAMA becomes stricter on environmental impact studies. The Central Bank begins to release updates on the environmental performance of the forestry, fishing, and mining sectors.

1999-2003: Native Indian communities join environmental activists, ecotourism promoters, and alternative energy advocates to protest dams and logging projects. President Lagos releases a five-year plan aimed at establishing specific goals for the reduction of vehicle and industrial emissions. Pollution from a copper mine forces the relocation of an entire northern town.

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Rule of Law

1970-1972: Growing inequality and discontent on the right and the left lead to violent demonstrations and clashes on the street. The military becomes increasingly restless and difficult to control. Middle- and upper-class business proprietors and professionals launch waves of workplace shutdowns and lockouts.

1973-1979: General Pinochet launches a violent attack on Allende's administration. Political parties are outlawed, and the media is censored. Systematic and massive human rights violations soar as Pinochet's secret police keep dissidents in fear of arrest, torture, and "disappearance." Anyone deemed subversive is a target. The Church denounces these violations and attempts to protect the persecuted.

1980-1988: Several human rights organizations emerge; they focus on the mental health of torture victims and provide legal and psychological assistance to families of victims. Military dictatorship continues as a new constitution cements Pinochet's grip on power until 1989. The army brutally puts down mounting popular protests against his regime. In 1986 a leftist's assassination attempt on Pinochet fails.

1989-1995: As part of the transition to democracy, President Aylwin appoints a commission to investigate the Pinochet regime's human rights violations. The former head of the secret police and his deputy are sentenced for masterminding the 1976 assassination of the former Chilean ambassador to the United States. Investigation opens into all pending cases of those who "disappeared" during military rule.

1996-2003: Five retired army officers are charged with kidnapping 72 political prisoners after the 1973 military coup. Their arrests prompt the armed forces to take part in government-sponsored talks with human rights lawyers. Pinochet is arrested and stripped of his immunity from prosecution. But the Santiago appeals court eventually closes the case, declaring him unfit for trial for health reasons.

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Trade Policy

1970-1973: Chile pursues a strategy of import substitution industrialization. Trade is heavily regulated. Many quantitative restrictions apply, including outright import prohibitions. Import tariffs average 105 percent and are highly dispersed. Chile's major export is primarily copper.

1974-1981: Under Pinochet, Chile changes its development strategy and adopts an open-trade regime. Tariffs are slashed, then replaced by a uniform tariff of 11 percent. Quantitative restrictions, licenses, and prohibitions disappear. Exports of fruit, timber, and fish products grow to equal exports of copper in value.

1982-1990: After a brief rise to 15 percent in 1982-83, the uniform tariff falls back to 11 percent. The liberalization of international trade lowers the cost of imported agricultural inputs and capital goods, allowing the sector to become more competitive. An exchange rate policy aimed at encouraging exports contributes to positive terms of trade.

1991-1998: President Aylwin maintains Pinochet's foreign trade policy. Chile enters bilateral free-trade agreements with Mexico and Canada, then focuses on trade accords with Colombia, Ecuador, and Venezuela. In 1997 Chile becomes an associate member of the Southern Cone Common Market (Mercosur). Chile also enters into negotiations with the European Union on a framework agreement.

1999-2003: The Congress approves a bill that lowers Chile's across-the-board import tariff (for countries with which it has no trade agreement) by a percentage point each year until 2003. Chile and the U.S. agree to remove 85 percent of mutual trade tariffs; less extensive deals are signed with the European Union and Argentina. Chile and Peru battle over rights to the name of the alcoholic beverage Pisco.

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Money

1970-1973: President Allende pays little attention to monetary policies. Price distortions and galloping inflation encourage an informal economy, reducing tax revenue. The government owns most banks and maintains a repressive domestic capital market. Prices soar, real wages drop, investment falls. The government's finances spiral out of control. Chile maintains six official foreign exchange rates.

1974-1975: Pinochet collapses the multiple exchange rate regime into three rates. He institutes a "crawling peg" system of four monthly devaluations, different in each segment to achieve exchange rate unification. Banks are sold back to the private sector, restrictions on banking are relaxed, and interest rates are freed. International capital movements, however, are still strictly controlled.

1976-1978: With very little supervision from monetary authorities, many banks accumulate bad loans. Inflation remains high, often reaching into the triple digits. The Central Bank puts in place a system of daily devaluations indexed to domestic inflation, then abandons it when it fails to bring inflation below 30 percent.

1979-1981: Pinochet's regime lifts some restrictions on medium- and long-term capital movements. A massive inflow of foreign capital follows, adding to Chile's existing debt. The adoption of a fixed exchange rate policy results in acute overvaluation of the Chilean peso, a loss in international competitiveness, and a financial crisis in 1981.

1982-1983: Many banks fail as a result of their bad debt and general financial turmoil. Pinochet nationalizes the financial sector to avoid a further banking crisis. Subsidy schemes favoring debtors lead to Central Bank losses and a deficit in the public sector's finances. A macroeconomic program devalues the peso.

1984-1989: A group of Chilean economists puts together an adjustment program with the help of the International Monetary Fund and the World Bank. Periodic small devaluations follow an initial exchange rate adjustment. Banks are privatized and recapitalized. By 1988, Chile reaches macroeconomic stability.

1990-1992: Congress approves a legislative proposal aimed at reforming the tax system through a broadened tax base, an increase in corporate income tax, and an increase in the value-added tax. Foreign financial flows increase. The financial sector is stable and dynamic.

1993-1997: President Frei's administration aims to achieve economic growth, low inflation, and stable foreign exchange rates. Increases in foreign reserves, national savings, and investments enable Chile to prepay some of its external debt. The Central Bank maintains a competitive real exchange rate.

1998: Inflationary pressure leads the Central Bank to raise interest rates to 14 percent. Economic turmoil in Asia and Brazil, falling copper prices, and a slowdown in investment contribute to an increase in unpopular measures to curb inflation and avoid recession. Because of strict capital controls enacted in the '80s and '90s, Chile is somewhat protected from the volatility of short-term capital flows.

1999-2003: Strong macroeconomic management, reliance on long-term rather than short-term capital inflows, and sound financial institutions help Chile's economy rebound. With inflation at a 60-year low, the Central Bank relaxes its monetary stance. Interest rates decline. The peso is allowed to float freely in international markets and withstands market pressures despite crises in Argentina and Brazil.

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Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
Graphs: Growth | Income | Inflation | Unemployment | Well-being | Trade Volume | Trade (CAB) | Debt | Spending

Related: Video | LinksView all categories for years from to | See Full Report | Print