Foreign Trade and Economic Reform
Chile has a market-oriented economy characterized by a high level of foreign trade. During the early 1990s, Chile's reputation as a role model for economic reform was strengthened when the democratic government of Patricio Aylwin - which took over from the military in 1990 - deepened the economic reform initiated by the military government.
Chile's Economic Growth and Recession
Growth in real GDP averaged 8% during 1991-97, but fell to half that level in 1998 because of tight monetary policies implemented to keep the current account deficit in check and because of lower export earnings - the latter a product of the global financial crisis. A severe drought exacerbated the recession in 1999, reducing crop yields and causing hydroelectric shortfalls and electricity rationing, and Chile experienced negative economic growth for the first time in more than 15 years. Despite the effects of the recession, Chile maintained its reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America.
Chile's Economic Recovery
By the end of 1999, exports and economic activity had begun to recover, and growth rebounded to 4.2% in 2000. Growth fell back to 3.1% in 2001 and 2.1% in 2002, largely due to lackluster global growth and the devaluation of the Argentine peso, but recovered to 3.2% in 2003. Unemployment, although declining over the past year, remains stubbornly high, putting pressure on President Lagos to improve living standards. One bright spot was the signing of a free trade agreement with the US, which took effect on 1 January 2004. Chile signed a free trade agreement with China in November 2005. Record-high copper prices strengthened the peso to a 5 ½-year high, as of December 2005, and will boost GDP in 2006.
Books on the Chilean Economy
The following books offer greater insight into the Chilean economy:
- The Chilean Economy: Policy Lessons and Challenges
- The growth and structure of the Chilean economy: From independence to Allende
- The Political Economy Of Protection: Theory And The Chilean Experience (Social Science History)
Source: The Central Intelligence Agency