Chile Economic Reform

The period between 1980 to 1997, the average annual growth rate in GDP was 7.2% in Chile. 1997 was the year of Asian Crisis. Between 1998 to 2005, the rate of growth (average annual) was found to be 3.5%. Growth rate in Chile is regarded as sound and healthy and this can be attributed to Chile economic reform.
Maintaining a healthy growth rate of the economy is not at all easy and Chile was no exception.

The going was not all that smooth:
When global recession was reigning supreme, the economy of Chile was also affected. Gross domestic product or GDP decreased by 14.1% in the year 1982. Currency of Chile became more vulnerable to sluggish worldwide economy. Rate of unemployment escalated to 23%. The real wages stooped to as low as 10%.

Such a catastrophic situation ruled for a period of of two years.

Efficient crisis management helped in arresting further decay of the Chilean economy. Since crisis management handled the situation and prevented further damage, the economy was able to recuperate very fast. As per ECLAC or United Nation’s Economic Commission For Latin American and Caribbean records, Chile is a country, which has manifested a very strong growth in the economy during the 1980s.

Ruins of the crisis:
Due to the economic epidemic, Chile economic reforms were endangered. The various Chile economic reform introduced in the early part of 1974, comprised opening up of the Chilean economy to the outside world, privatization of state firms, restricting the bloating up of the rate of inflation. Restricting inflation rates were achieved by the implementation of several fiscal as well as monetary policy reforms. These reforms were found to go haywire and the very parameters, which support the execution of these reforms were badly affected.
Accolades for Chile:
Chile was the only country, which was comfortable in acclimatizing to the process of globalization. The decision taken by the Chilean government to open its economy was unanimously acclaimed and this is one decision the country has a mouthful praise about. Chile is regarded as the leader of economic reforms pertaining to the free market. Chile introduced a system of low tariff rate for import activities, which were flat. Chile economic reforms ought to be such that it may be sustainable. There are instances in history, which proves that those countries, which implemented economic reforms half heartedly and partially did not benefit much from the reforms.
Main aspects of Chile economic reform:
Whenever economic reforms are revamped, they are done so either to bring about further improvement in the reforms or prevent the reforms from being repealed.
Flat Tariff rate and open trade:
The population of Chile is located away from the main market places as such the opening up of the economy was a prerequisite to international trade. In the year 1974, the Chilean government put in efforts to cut down tariffs. In the year 1979, flat tariff rate of 10% was proposed for import activities. The flat and transparent tariff system paved way for global competitiveness. Competition in the domestic markets also increased. For once the flat rate escalated to 35%. It was proposed by the then finance minister to reduce the rate to 15%. After the new rate was implemented, there was a rise in export activities. There was further reduction of the tariff rate to 11% and 6% under the leadership of different ministers.
Strengthening the private sector:
Chile economic reform consisted of reforms to make the private sector strong. Certain sectors like telecommunication, generation as well as distribution of electricity were controlled by the state companies. As part of the Chile economic reform, the government in Chile privatized several companies and as many as 50,000 new shareholders( direct) as well as millions of indirect shareholders were controlled by private firms.
Power sector reform:
The power sector in Chile was reformed after privatization of the pension system. Privatization of different utilities also became possible along side the pension system.
Mining sector:
As part of the Chile economic reform, the private companies in the country were permitted to tap deposits of ore. During the latter half of 1980, investment in copper deposits, which were privately owned commenced. The productivity of the new established private companies was higher than the country’s previous records.
Foreign Investment:
Chile economic reform also comprised alterations in procedures related to foreign investment. During the period 1990 to 2000, export activities in the country had reached its zenith. This was as a result of Chile economic reform.
Banking sector:
The banking sector was in doldrums following the economic crisis of 1982. The Chilean government put in all efforts to route the savings of the people via the capital markets. To implement this the Chilean government introduced several reforms pertaining to regulatory laws pertaining to corporations, regulations pertaining to the financial sector.

In addition to the above, the government in Chile also introduced reforms pertaining to the pension funds, capital markets, labor markets and various other sectors of the economy. What was to be seen is the sustainability of Chile economic reform and its impact on the economy.

Chile Economic Reform


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Last Updated on : 26th June 2013

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