08.3-4311_chile-1

08.3-4311_chile-1 - ECON 4311: The Economy of Latin America...

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ECON 4311: The Economy of Latin America Chile An Economic “Miracle” in Latin America
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Chile -- Real GDP (1995 US billion dollars) 0 20 40 60 80 100 1960 1965 1970 1975 1980 1985 1990 1995 2000
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Outline - Brief Economic History of Chile until 1970 - Salvador Allende’s Government - Pinochet’s Dictatorship - Economic Reforms during Military Regime - Back to Democracy: Further Reforms - Chile into the 21st century
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Brief Economic History 1880 - 1920: Strong dependence on saltpeter. Saltpeter represents almost 50% of tax revenue during 1895 to 1920. 1920 - 1970s: Copper era. Copper becomes Chile’s main export. American investment in El Teniente and Chuquicamata copper mines. Great Depression: Chile severely a ected. Prices of main exports go down by 70% and GDP contracts by 38% in three years.
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Chile -- Copper Exports (as a percentage of Total Exports) 0 10 20 30 40 50 60 70 80 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969
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Chile -- Copper Exports (millions US dollars) 0 200 400 600 800 1000 1200 1400 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 deflated using US PPI (1967 = 100) nominal value
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Price of Copper (pounds per ton) 0 5 10 15 20 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
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Consequence: distrust of exports as the engine of growth. 1930 - 1970: Import Substitution Industrialization: In- ward looking growth. American policy is perceived as unfair. 70% tari to copper after Great Depression, price con- trols to copper during WWII, Chilean reserves in Amer- ican banks frozen until 1946, price controls for copper again for Korean War. During ISI years: the government takes an active role in the economy.
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Allende’s Government In 1970, Salvador Allende, the leader of the leftist coali- tion Unidad Popular is elected President of Chile. Very little margin of victory (36.2% over 34.9% of runner- up). Hopeless position in the Congress. “Chilean Way to Socialism” : tries to combine socialism and democracy.
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Salvador Allende
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Structural Reforms: - Nationalization of the copper industry - (State-owned) monopolies – workers unions. - Land reform. - Nationalization of bank system.
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As a result, in 1971: - GDP goes up by 8%. - Infation goes down From 32% to 20%. - Income distribution improves. Basic recipe: Monetary expansion and price controls (sounds Familiar?).
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Chile -- Real GDP (billions 1995 US dollars) 20 21 22 23 24 25 1969 1970 1971 1972 1973
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Chile -- Inflation (percentage change in CPI) 0 100 200 300 400 1969 1970 1971 1972 1973
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Bad news: - Government defcit goes From 3.5% oF GDP to almost 9% oF GDP.
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08.3-4311_chile-1 - ECON 4311: The Economy of Latin America...

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