Economy of Chile - History

History

After Spanish conquest in the 16th century Chilean economy came to revolve around autarchy estates called fundos and around the army that was engaged in the Arauco War. During early colonial times there were gold exports to Perú from placer deposits which soon depleted. Trade restrictions and monopolies established by the Spanish crown are credited for having held back economic development for much of the colonial times. As effect of these restrictions the country incorporated very few new crops and animal breeds after initial conquest. Other sectors that were held back by restrictions were the wine and mining industries. The Bourbon reforms in the 18th century eased many monopolies and trade restrictions.

In the 1830s Chile consolidated under the ideas of Diego Portales as a stable state open to foreign trade. Foreign investment in Chile grew over the 19th century. After the War of the Pacific the Chilean treasury grew by 900%. The League of Nations labeled Chile the country hardest hit by the Great Depression because 80% of government revenue came from exports of copper and nitrates, which were in low demand. After the Great Depression Chilean economic policies changed toward import substitution industrialization and the Production Development Corporation was established.

Under the influence of the Chicago Boys the Pinochet regime made of Chile a leading country in establishing neoliberal policies which are commonly attributed to have lifted the country to become one of the richest in Latin America. This despite a steady economic decline, soaring poverty and unemployment in the decade following the coup, culminating in a dramatic economic crisis in 1982. The crisis caused the appointment of Hernán Büchi as minister of finance and a sharp revision of economic policy. Despite a general selling of state property and contrary to neoliberal prescriptions, the regime retained the lucrative state owned mining company CODELCO which stands for about 30% of government income.

According to the CIA World Factbook, during the early 1990s, Chile's "reputation as a role model for economic reform" was strengthened when the democratic government of Patricio Aylwin, who took over from the military in 1990, deepened the economic reform initiated by the military government. Growth in real GDP averaged 8% from 1991–1997, 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 which was a product of the Asian financial crisis. Chile's economy has since recovered and has seen growth rates of 5-7% over the past several years.

After a decade of impressive growth rates, Chile began to experience a moderate economic downturn in 1999, brought on by unfavorable global economic conditions related to the Asian financial crisis, which began in 1997. The economy remained sluggish until 2003, when it began to show clear signs of recovery, achieving 4.0% real GDP growth. The Chilean economy finished 2004 with growth of 6.0%. Real GDP growth reached 5.7% in 2005 before falling back to 4.0% in 2006. GDP expanded by 5.1% in 2007.