Chile - Overview of economy

Chile's market-oriented economy is characterized by a high level of foreign trade that has been solidified over the years through economic reforms. Under President Patricio Aylwin's democratic government (1990-93), Chile's reputation grew as the role model for economic reform in Latin America. Gross domestic product (GDP) growth averaged 8 percent during the 1991-97 period but fell to about 4 percent in 1998 because of tight monetary policies implemented by the government; such policies were an attempt to keep the current account deficit in check. In 1999 a severe drought exacerbated the recession by reducing crop yields and causing hydroelectric shortfalls and rationing. For the first time in 15 years, Chile experienced negative economic growth. However, Chile managed to maintain its reputation for strong financial institutions and sound economic policies. By the end of 1999 exports and economic activity had begun to recover, and a return to strong growth was predicted. The March 2000 inauguration of President Ricardo Lagos (2000-present)—President Eduardo Frei's (1994-99) successor—left the presidency in the hands of the center-left Concertacion coalition that has held office since the return to civilian rule in 1990.

Chile arrived at its present strong economic state after years of political and economic turmoil. Civilian governments replaced the repressive military dictatorship in March 1990 and continued to reduce the government's role in the economy, pushing for the development of a free-market economy. Inflation has been on a downward trend and hit a 60-year low in 1998. Chile's currency and foreign exchange reserves are also strong, due in large part to sustained foreign capital inflows of direct investment. Still, the Chilean economy remains largely dependent on a few sectors—namely copper mining, fishing, and forestry. Sustained economic growth is largely dependent on world prices for these commodities, continued foreign investor confidence, and the government's ability to maintain an orthodox fiscal policy .

Chile's credit rating remains the best in Latin America, and in order to finance investment, Chilean firms have raised money abroad through loans, selling bonds, and issuing stock. Additionally, Chile has a high rate of foreign investment with private U.S. corporations conducting a significant amount of independent and joint ventures in the country. Total private and public investment in Chile accounted for 33 percent of the GDP in 1997. The government is aware that increasing investment is necessary to ensure worker productivity. Chile is very fortunate not to be plagued by international debt, in part due to foreign aid it receives. Although it still has a significant foreign debt it is not enough to constitute major structural problems. As such, Chile is better off than many of the lesser-developed Latin American countries that struggle to maintain economic policies designed to generate enough revenue to pay back their foreign debts. Minimal foreign debt pressures and strong economic growth help Chile remain one of the most economically successful countries in Latin America.

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