Chile: Latin America’s model economy

Two hundred nine years today, a government junta was organized to rule Chile following the disposition of King Ferdinand VII of Spain. It was the first substantive step in Chile’s long struggle to become a self governing republic. The junta’s birthdate is now celebrated as Chile’s national day.

Filipinos know little about this Latin America nation despite having so much in common, not the least of which is a shared colonial master and shared religious persuasions.

Unbeknownst to many, Chile is the most stable and prosperous nation in Latin America, one that leads in numerous economic indices. The Chilean people enjoy an average income of $16,078 per year, four times that of the Philippines. It is the 33rd most competitive economy in the world and the most competitive in Latin America. Credit rating agencies such as Fitch, Moody’s and Standard and Poor’s classify Chile’s sovereign debt as investment grade, an indication of exceptional macroeconomic conditions and prudent financial management on the part of the Chilean government. It leads Latin America in economic freedom and is among the easiest countries to do business in. No surprise, it has the lowest incidence of corruption in South America.

Heavy investments in education, healthcare and public housing have put Chile in 44th place (out of 190 countries) in term of human development.

Chile has the distinction of being the first Latin American nation to be inducted into the exclusive group of OECD countries. For those unaware, countries belonging to the Organization for Economic Co-operation and Development (OECD) are high-income economies committed to democracy, free trade and international cooperation.

The Chilean story of prosperity began during the authoritarian regime of President Augusto Pinochet from 1973 to 1990. Guided by good counsel from a group of American educated economists (known as the Chicago Boys), Pinochet enacted a wide range of laws that promoted economic liberalization. This included policies that espoused free trade, economic deregulation and the aggressive privatization of state owned corporations. It was at this time that most government owned enterprises were sold to professionally managed private entities, with the exception for CODELCO, the state owned copper company. CODELCO was an enterprise of strategic value as it accounted for one-third of the country’s revenues.

The spate of economic reforms were complimented by the enactment of the Foreign Investment Law. The law was audacious for its time as it gave foreign investors the same legal treatment as Chileans. It also guaranteed investors the right to repatriate both profits and capital to their mother countries. With a favorable investment climate, investors came in scores bringing with them capital, technologies and best management practices. Companies like L’Oreal, Telefonioca, Dupont and Axon Pharmaceuticals established their regional headquarters in Chile.

While Chile’s economy prospered, income inequality became a festering problem under Pinochet’s rule.

During the early 1990s, Chile’s reputation as an economic role model was strengthened when the democratic government of Patricio Aylwin assumed power. President Aylwin deepened the economic reform initiated by the Pinochet government.  A golden era for Chile followed as its economy expanded by an average of eight percent from 1991 to 1997. Chile’s newfound prosperity allowed it to spend massively on infrastructure and social development programs.

To address the problem of income inequality, President Aylwin enacted tax reforms that levied the heavier tax burden on the rich. The move helped distribute the nation’s wealth more equitably.

Between the years 1994 to 2006, the Chilean economy grew by an average annual rate of 5.15 percent under the batons of Presidents Eduardo Ruiz-Tagle and Ricardo Lagos. Poverty rates declined massively from 40.8% in 1994 to just 7.4% in 2006.

Chile adopted more liberal policies during the era of President Michelle Bachelet. During her term, the Chilean constitution was amended in keeping with modern realities,  a new tax system was put in place, a more balanced labor code was enacted and the abortion law was eased.

Chile’s incumbent Chief Executive, President Sebastián Piñera, was elected for a second time after serving from 2010 to 2014. He is best remembered for rebuilding the country after the devastating earthquake of 2010 and successfully rescuing 33 victims from a collapsed mine after being trapped for 69 days. On the political front, he is credited for making college education more affordable and strengthening Chile’s public institutions.

Since being re-elected last year, President Piñera has committed to reign-in some of the liberal policies instituted by President Bachelet and re-align the economy towards greater competitiveness.

Today, Chile enjoys the best prospects for long term growth among Latin American countries. At the heart of it success is a highly productive population as well as its penchant for quickly adopting leading technologies for its industries. The Chilean government spends .38% of GDP on research and development, substantially more than its neighbors. Spending on R&D is seen to accelerate further with the recent establishment of the Ministry of Science, Technology, Knowledge and Innovation. The government also formed a Council on Innovation and Competition which is tasked to identify sectors which the country could dominate.

Like Australia and Canada who have built strong economies based on the sustainable use of natural resources, so has Chile become the world’s foremost source of copper, lumber, pulp and paper. It is also a leading exporter of wine, fresh fruits and vegetables, fishery products as well as  pre-packed food. The fact that Chile’s agro-processing sector thrives despite its extreme weather conditions is a feat in itself. This is where we Filipinos can learn much from.

In 2017, Chile exported $8.67 billion worth of agro-industrial products. This is huge in relation to Chile’s population and arable land. Success in agro-industries was achieved by removing regulatory impediments for exporters; by raising productivity through technology; by improving benchmarks of quality; by improving access to export finance; and by enhancing exporter’s innovative capacities. Certainly, opportunities for collaboration and cooperation are aplenty between the Philippines and Chile in this sector. In fact, the Chilean government has recently reached-out to the Department of Agriculture to transfer technologies relating to the production of quinoa, a high value crop in high demand.

Chile has come a long way since establishing its first government junta back in 1810. It has become a proud nation with a strong economy, a model of good governance, a vanguard of democracy and a good global citizen. We salute Chile on its national day.