Chile Economy

Economy

Chile has a market-oriented economy characterizedby a high level of foreign trade. During the early 1990s, Chile's reputation as a role model foreconomic reform was strengthened when thedemocratic government of Patricio AYLWIN - whichtook over from the military in 1990 - deepened theeconomic reform initiated by the militarygovernment. Growth in real GDP averaged 8% during1991-97, but fell to half that level in 1998because of tight monetary policies implemented tokeep the current account deficit in check andbecause of lower export earnings - the latter aproduct of the global financial crisis. A severedrought exacerbated the recession in 1999,reducing crop yields and causing hydroelectricshortfalls and electricity rationing, and Chileexperienced negative economic growth for the firsttime in more than 15 years. Despite the effects ofthe recession, Chile maintained its reputation forstrong financial institutions and sound policythat have given it the strongest sovereign bondrating in South America. By the end of 1999,exports and economic activity had begun torecover, and growth rebounded to 4.2% in 2000.Growth fell back to 3.1% in 2001 and 2.1% in 2002,largely due to lackluster global growth and thedevaluation of the Argentine peso. Chile's economybegan a slow recovery in 2003, growing 3.2% andaccelerated to 5.8% in 2004. GDP growth benefitedfrom high copper prices, solid export earnings(particularly forestry, fishing, and mining), andstepped-up foreign direct investment.Unemployment, however, remains stubbornly high.Chile deepened its longstanding commitment totrade liberalization with the signing of a freetrade agreement with the US, which took effect on1 January 2004.