The Chilean economy is strongly oriented toward commerce and industry, although minerals, chiefly copper and iron ore, provide most of the country's foreign exchange earnings. Chile's leading industries are engaged in the processing of local raw materials; they include mineral refining, metal manufacturing, food processing, paper processing, and textiles. Chilean agriculture, dwarfed in value by mining and manufacturing, supports less than one-seventh of the population. Arable land is limited, and livestock raising is the dominant rural enterprise.
The economy suffered profound economic disruptions during the Allende period (1970–73). Legal nationalization of industries and expropriation of large agricultural holdings by the military government were accompanied by illegal seizures of property. The chaotic situation was exacerbated by acts of economic sabotage perpetrated by the opposition, by covert destabilization by agents of the US, and by denial of commercial credit by foreign banks and corporations. By the time of the military coup in late 1973, the nation's manufacturing and farm production had fallen by about 10% from 1972 levels, and inflation had soared to 350%.
After the Pinochet coup, the military government attempted to revitalize the economy by adopting the principles of a free marketplace, although without reversing Allende's nationalization of the copper industry. Subsidies were removed and tariffs were lowered to increase competition. A policy of privatization of industries and utilities was instituted, including the return of companies nationalized under Allende to their previous owners (again, excepting the copper industry, which remained nationalized), the sale of government-owned companies to individuals and conglomerates, and the sale of percentages of companies to employees and the public on the stock exchange. The GDP fell by 12% in 1975, but Chile's economic performance began to improve thereafter. The average annual rate of increase in GDP between 1977 and 1981 was 7.8%, and the inflation rate dropped from 174% in 1976 to 9.7% in 1981. In 1982, however, a severe economic slump (caused by the worldwide recession, low copper prices, and an overvalued peso) led to an inflation rate of 20.7%, a drop in the GDP of 15% in real terms, and jump in unemployment to 30%. Chile had been caught in the Third World debt crisis that followed the second oil shock of 1978–79.
Beginning in 1984, growth retuned, averaging 7% for the next five year (1984–88), constrained somewhat by persistently depressed world copper prices. An economic adjustment program introduced in 1985 aimed at strengthening exports other than copper, increasing domestic savings and investments, and strengthening the financial and corporate sectors. Inflation remained high, averaging almost 21% (1985–88), but unemployment dropped from 12% to 6%. In 1989, GDP growth rose to 10% and unemployment fell to 5%, although inflation remained in double digits (17%). Civilian rule, starting in 1990, implemented positive monetary policies that continued to lower inflation and attract investment. Inflation was down to 6% by 1997, and growth of GDP averaged over 8% between 1988 and 1997. By 1995, unemployment had fallen to 4.7%. In 1998, however, growth was slowed to 3.2% and then turned negative (-1.0%) in 1999 in the first contraction since 1983, as the effects of the Asian financial crisis of 1997, the Russian financial crisis of 1998, and the Brazilian financial crisis of 1999 were felt. Unemployment increased to 6.2% in 1998, and then to 9.7% in 1999. Inflation, however, remained low, at 4.7% (1998) and2.3% (1999), the lowest yearly rate yet achieved since the 1960s. Growth returned in 2000, at 4.4%, and unemployment eased to9.2% while inflation edged up to 4.5%. However, a more robust recovery was short-circuited by the global slowdown than began in 2001, aggravated by the aftermath of the 11 September 2001 terrorist attacks on the United States. The GDP growth rate fell to2.8% in 2001 and was estimated at 3% for 2002. Inflation remained under control at 2.6% in 2001 and 3% in 2002. Chile's official unemployment rate remained above 9%.
On 6 June 2003 Chile signed a free trade agreement with the US, making it the second Latin American country to to so (after Mexico). The United States had delayed the signing because of Chile's opposition as temporary member of the Security Council to the US-led invasion of Iraq in March 2003.