Chile - Economic development

Chile established two free trade zones: the Free Zone of Iquique (ZOFRI) in the northern tip (Region I), and the Free Zone of Punta Arenas (PARANEZON) in the southern tip (Region XII) during the 1970s to encourage trade. Chile has been negotiating for admission into the North American Free Trade Agreement (NAFTA) since 1994, but the process has been stalled by the US Congress. Chile is a member of the South American Mercosur free-trade bloc. Through its concentration on value-added exports and increased foreign direct investment, Chile has become one of Latin America's most-developed nations. Economic growth had averaged over 5% annually since 1985, and was 7.9% during 1988–98. Under the Alywin administration, the population living in poverty dropped by 800,000 to 4.5 million, and real incomes of the poorest workers increased by 20%.

Chile's debt management has been very effective. The government negotiated a favorable rescheduling with its creditor banks of its 1991–94 debt maturities. The government's economic policies also kept consumer price inflation limited to an average of 13.6% during 1990–95, down from the annual average of 20.6% during the 1980s, lowering the rate to 4.7% by 1998. Social expenditures, especially those aimed at improving human capital, rose since 1991 to 15% of gross national product (GNP), and were funded through increased surtaxes. For example, the Program for Youth Labor Training focuses on the high levels of poverty and unemployment among youth. President Lagos, inaugurated in 2000, aimed to bring public accounts into balance by 2001 (after the 1998 financial crisis).

The Lagos government increased consumption taxes (VAT and duties on alcohol, diesel, and tobacco) to finance its healthcare plan and a program aimed at supporting the 225,000 families living in extreme poverty. In late 2003, a gradual tightening of monetary policy was expected, as was a narrowing of fiscal deficits. Corruption scandals adversely affected the business climate, yet investment in Chile has been strong. The government's role in the economy is limited, and Chile's economy is open and market-oriented. The finance sector has grown faster than other areas of the economy in recent years. The country's large service sector is thriving, with services being modern and competitive (especially telecommunications). Economic activity remains concentrated in the central region of the country, around Santiago and the Valparaiso region.

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