Post-Pinochet Chile and Decree Law 600 (or, How to Make a Developing Economy Sizzle!)

Geographically, Chile is remote from most of the world as it lies on the western edge of South America away from the world\u27s heavily traveled air and sea routes. Although it is not on major thoroughfares Chile has the look of a ribbon of land B long and narrow B that stretches more than 2,500 miles between Peru to the north, the Pacific to the west, Argentina and the Andes mountains to the east, and Antarctica to the south and at its narrowest point, the country\u27s width is only 56 miles. It wasn\u27t long ago that Chile was a political basket-case. A decade ago it could have been correctly described as the land of the unfree and the home of the coup. That\u27s because of the political turbulence the country experienced for two decades, from 1970 until 1990. The genesis of this turbulence lies within Chilean history and its determination to promote economic growth while trying to cure some of its major social problems, especially the issue of income distribution and the elimination of social class structures. By 1970, many Chileans were convinced that socialism could solve many social problems without adversely affecting the country\u27s economic growth. That conviction allowed Salvador Allende to become the first freely elected Marxist president in the world. But after experiencing Allende in the presidential palace, many Chileans came to the conclusion that his policies were too radical. Moreover, having a Marxist lead the country was tilting Chile toward the Soviet camp whereas tradition and the Monroe Doctrine place the country squarely under the American tent. In 1972, after only two years of Allende governing the country, Chile faced widespread economic, political and social problems that had not existed before. Because of the chaos emanating from those problems, General Augusto Pinochet Ugarte led a military coup in 1973 that ended Allende\u27s socialist government. After coming to power the Pinochet military dictatorship determined that authoritarianism was better than liberal democracy, and backed by the military, he ruled by presidential decree. In 1988, feeling confident that he then had earned the support of a majority of Chileans, Pinochet permitted a plebiscite to determine if he should continue in power or allow free elections. Pinochet was surprised that he lost the plebiscite (according to Frohmann (1998) the vote tally was 53% for a democratic system and 44% for a continuation of military rule) but he did follow through on his promise and called for elections. In the elections Pinochet\u27s choice for president was defeated by the centrist-left candidate, Patricio Aylwin Azocar. Aylwin took office in 1990 as the first elected president since 1970. Although he was in power as a military usurper of the democratic process for seventeen years and whose administration was allegedly responsible for gross human rights abuses, including the kidnapping and murder of unknown numbers of Chilean citizens, on the economic front Pinochet can be credited with building a successful and productive economy. Aylwin built on that strong base with innovative programs, facilitating Chile\u27s development as one of the most prosperous Latin American countries. Aylwin did not run for reelection in 1993 but supported Eduardo Frei Ruiz-Tagle, who took office in March 1994. According to Aguero (1998) the major difference between the Aylwin and Frei governments was that Aylwin\u27s administration was focused on securing the stability of Chile\u27s new democracy while Frei\u27s administration is concentrating on pragmatic and ambitious development goals. Socially, Chile has undergone major changes since 1970. These social developments are reflected in key indicators including life expectancy at birth, infant mortality, malnutrition, educational attainment, and overall literacy are more in line with higher income countries than the developing world. By the late-1990s, only about one-fourth of Chile\u27s people live below the poverty line compared to almost half in the mid-1980s (The World Bank Group, 1996). Importantly, the Frei administration has made education a top priority and that may bode well for the future and the elimination of the disparity in income distribution -- data for more than twenty-five years still shows that Chile is far from attaining the income equity levels found in developed countries, even lagging behind countries such as South Korea, Singapore, Hong Kong although it does exceed the distribution levels of Mexico and Brazil (Diaz, 1997). Economically, although it is relatively remote -- not on the world\u27s most traveled pathways -- Chile is one of the world\u27s most dynamic and promising markets for its size. However, its strength and attractiveness lie not in its size -- its population is only 14 million -- but in the energy of its entrepreneurs, the transparency of its regulations, and the predictability of its decision -makers (U.S. Embassy Santiago, 1996). This new economic vitality contrasts sharply with the period from the 1930s until the early-1970s, when the Chilean economy was one of the most heavily state-oriented economies in the world, with huge government subsidies which led to very inefficient industrial and agricultural sectors (Drope, 1997). Today, however, the Frei government has earned laudatory comments such as the one that maintained that Chile is one of Athe best-managed economies in the world [causing it to have] the highest economic growth rate in Latin America@ (Nexus, 1999). Pinochet\u27s uplifting of the Chilean economy contradicts Dominguez\u27 (1997) assertion that Latin American economies collapsed when military presidents governed because the military is incompetent outside of its specific professional sphere. Pinochet showed competence in dealing with economic problems and his non-military successors have followed his lead. These initiatives have caused Chile to experience a relatively low inflation rate (3.8%) (LatinTrade, 1999), the largest growth in gross domestic product (GDP) in Latin America since 1991 averaging just over 7% (UN Economic Commission for Latin America and the Caribbean, 1997) and is forecasted to experience the largest positive real GDP change in Latin America for the year 2000 (LatinTrade, 1999)