How Chile become the strongest economiy of South America

DEPARTMENT OF ECONOMICS
ECONOMICS OF THE EUROPEAN UNION




How Chile became the strongest economy of South America


I have neither given nor received any unauthorized assistance on this assignment,

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I. Executive summary


How Chile achieve to become the stronger economy of South America?

This work attempted to explain the economicdevelopments occurred in Chile the last 40 years, and demonstrate that the key factor that explain how Chile has managed to successfully inserted into the global economy and achieve a strong economy and flourishing were the social, economic and political determinations by the military government led by Augusto Pinochet Ugarte from 1973 to 1990.

Before Pinochet took power, Chile was under the Allendeadministration, which was characterized by the expropriation of large quantities of the peasantry and private industry, and a strong educational reform, which impossible any attempt to offer private education. In the year 1973, the level of unemployment in the country was over 25%, inflation fruitful historic levels along the 50%, and social discontent was maximum. The military forces of thecountry took total power in September of 1973, and began a process of economic evolution and prosperity. Military government of Pinochet privatizes for the first time in history the pension system and retirements that was in public hands, so to achieve profitability. They started also a strong privatization in the health system and the educational system, creating also institutions subsidized by thestate, giving the possibility to people to opt for the public system too.

Liberated the exchange rate, and started an accelerated process of exports and imports, characterized by the export of copper, wine, salmon, fruit and meat, and imports of services mostly.

In short, the military administration in Chile lay the economic base of the nation, allowing the restructuring of a market that wasdestroyed after the administration of socialist Allende, and defined the economic policy of the country for the future. Future governments in Chile are continuing the politics of the military government, focusing in grow at a rate higher to 5% at least, continuing with the policy of establishing the free commerce with different economies at the global level, maintain a positive balance ofpayments, a low and controlled inflation, and work continuously with the central bank in the field of taxation and economics.











II. Economic system and economic performance

To see the economic developments that Chile experimented over the last four decades, I will make a complete radiography of the Chilean economy, so to demonstrate the importance of the military government inlaying the economic foundation of the nation, and ratifying these policies through the administration of the Concertation governments after 1990.

For achieving the analysis, I will separate the economy by sectors, to emphasize every aspect under their national and international context.


Macroeconomic Overview
After the election in early seventies in Chile, under socialist Allende’sadministration, Chile start a process of clear trend to lower productivity and lower output per capita in general. The economy hung by a thread, and both social and economic instability was maximum.

On September 11 of 1973, the Chilean Armed Forces took political control of the country, and begin the process of the nation's economic resurrection. In larger terms, they achieved to recapitalize percapita growth, increasing productivity, strengthening the labor market; controlling inflation that had sustained the country marked in the beginning of the 70 under the socialist administration, and strengthen the services market in the nation, giving the country the opportunity to enter the global market.

Finally, in the year 1989 took place a democratic plebiscite, where General Pinochet enables...