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Economy of Chile

Chile has pursued sound economic policies for nearly 3 decades. The government's role in the economy is mostly limited to regulation, although the state continues to operate copper giant CODELCO and a few other enterprises, including one state-owned bank--Banco Estado. Chile joined the Organization for Economic Cooperation and Development (OECD) in 2010, the first South American nation to do so.

Chile is strongly committed to free trade and has welcomed large amounts of foreign investment, and the business climate is generally straightforward and transparent. Chile's sound, market-oriented policies have created significant opportunities for foreign investors to participate in the country's steady economic growth. Foreign investors receive treatment similar to Chilean nationals in nearly all sectors. There are generally no special exemptions or incentives for foreign investment as a matter of policy. A broad political consensus on the advantages of foreign investment means that Chile's policies toward foreign direct investment are unlikely to change. The country has trade agreements with 60 countries, including a free trade agreement (FTA) with the United States, which was signed in 2003 and implemented in January 2004. An FTA with Australia went into effect in early 2009, and Chile concluded an FTA with Turkey in mid-2009. The United States and Chile are participating in trade negotiations in the Trans-Pacific Partnership, along with seven other nations.

Chile's overall trade profile has traditionally been dependent upon copper exports. The state-owned firm CODELCO is the world's largest copper-producing company, with recorded copper reserves of 200 years. Chile has made an effort to expand nontraditional exports. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine. In 2010 total exports were $69.6 billion, an important increase from 2009 ($53.7 billion) due mainly to cooper prices. Imports increased from $39.7 billion in 2009 to $54.5 billion in 2010, driven in large part by higher petroleum prices. In 2010, China was Chile’s largest export market, followed by Japan, the United States, Brazil, and the Netherlands. Chile’s most important sources of imports are the United States, China, Brazil, Argentina, and South Korea.

Chile's approach to foreign direct investment is codified in the country's foreign investment law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. Net foreign direct investment in Chile in 2010 was $18.2 billion, up 43% over 2009.

Chile's government has received high marks from economists and its citizens for its countercyclical spending in 2009 (financed largely from saved copper revenues) to offset the effects of the global economic crisis. Chile has emerged from the recession that resulted from the global economic downturn as well as the economic dislocation caused by the February 2010 earthquake. Economic growth was 1.5% in 2009 and 5.2% in 2010; the economy is expected to grow around 6% in 2011.

The government is required by law to run a fiscal surplus of at least 1% of GDP; however, this rule was changed to 0.5% of GDP in 2008, and waived for 2009, given the pressures from the global economic crisis. The government had a structural deficit of 1.2% in 2010.

Unemployment reached almost 11% in mid-2009; however, it averaged 8% in 2010. Wages have risen faster than inflation as a result of higher productivity, boosting national living standards. The percentage of Chileans with incomes below the poverty line--defined as twice the cost of satisfying a family of four's minimal nutritional needs--fell from 46% in 1987 to around 18% by 2005; since 2006, the percentage of Chileans below the poverty level had been between 13% and 14%, but the economic downturn drove these numbers back up over 15% in 2009.

Chile's independent Central Bank currently pursues an inflation target of 3%. In 2007, inflation inched toward 8%--the first time inflation had exceeded 5% since 1998. In 2008, inflation increased further, hitting a high of 9.9% in October 2008, before moving lower again at the end of the year. In 2009 and 2010, inflation in Chile decreased to between 2% and 2.7%--within the Central Bank’s target range.

The Chilean peso floats freely and has shown some volatility in recent years. In March 2008, the Chilean Central Bank began a program of buying dollars to slow the appreciation of the pesos, and then suspended those operations in November 2008 when the peso depreciated significantly because of the global financial crisis. The peso strengthened 8.4% in 2010, and in January 2011, the Central Bank announced it would purchase $12 billion in reserves over 2011 to slow the appreciation of the peso.

The Chilean Government estimated that the February 27, 2010 earthquake and tsunamis destroyed 3% of Chile’s capital stock and cost around $30 billion, more than 17% of Chile’s GDP. The government spent several hundred million dollars on emergency relief measures and committed an initial $8.4 billion for reconstruction focused in four main areas: rebuilding homes, reconstructing schools, restoring public infrastructure, and providing health care in heavily affected areas. In February 2011, at the 1-year anniversary of the earthquake, Chile had made significant progress on rebuilding infrastructure (roads, bridges, potable water) and schools, but was still striving to provide permanent housing solutions and to rebuild the health care infrastructure.

Energy, Climate, and Environment
If Chile meets its stated goal of 6% annual economic growth, its energy demand could nearly double by 2020. While the economy as a whole is expanding, providing energy to the booming mining sector (investments up to $100 billion over 10 years) is particularly challenging. Chile has considerable hydroelectric resources, but relies on imported hydrocarbons to meet approximately 70% of its energy needs. Chile reduced previous dependence on imported gas from Argentina by completing two liquefied natural gas (LNG) re-gasification terminals, but pays high prices for long-term contracts. Chile is increasing thermoelectric capacity and exploring the option of civil nuclear energy.

A drought in 2010-2011 has reduced hydroelectric production and raised concerns about electricity rationing. Longer term, Chile is exploring tapping into its considerable renewable energy sources, pursuing solar, wind, geothermal, biofuels and biomass projects, and looking to collaborate on energy with neighboring countries.

U.S.-Chile collaboration on the environment includes sustainable development, air pollution, energy efficiency, conservation and wildlife management, marine protected areas, environmental law enforcement, and agricultural best practices. Chile-U.S. cooperation includes projects under the Environment and Climate Partnership of the Americas (ECPA) announced at the April 2009 Summit of the Americas and a memorandum of understanding (MOU) on clean energy and energy efficiency cooperation signed during the June 2009 U.S. visit of President Bachelet. Cooperation on energy issues bolsters our partnership in key areas, including actively promoting the use of U.S. renewable energy technologies (solar, wind, and geothermal), science and technology (S&T), innovation, education, and ways to address greenhouse gas emissions and climate change.

Many U.S. technical agencies are actively engaged in Chile, including the U.S. Environmental Protection Agency, the U.S. Geological Survey, and the National Oceanographic and Atmospheric Administration. In 2008, Chile’s best-known national park, Torres del Paine, and the U.S. Yosemite National Park signed a sister park agreement to promote information and expert exchanges; in April 2009, Santiago’s Parque Metropolitano and San Francisco’s Golden Gate Park also became sister parks.

Chile is a constructive participant in international talks under the UN Framework Convention on Climate Change, supporting the Copenhagen Accord in 2009 and the Cancun Agreements in 2010. The country also pledged to reduce greenhouse gas emissions 20% by 2020 (from a 2007 base).

Economy (2009-2010 - Central Bank of Chile data)
GDP (third quarter 2010, official exchange rate): $192.5 billion.
Annual real growth rate (2010, estimate): 5.2%.
Per capita GDP (2009, purchasing power parity): $14,341.
Forestry and agriculture (2% of 2009 GDP): Products--fruits, wheat, potatoes, corn, sugar beets, onions, beans, livestock.
Fisheries (1% of 2009 GDP): Products--fish and seafood.
Commerce (9% of 2009 GDP): Sales, restaurants, hotels.
Manufacturing (12% of 2009 GDP): Types--mineral refining, metal manufacturing, food processing, fish processing, paper and wood products, finished textiles.
Electricity, gas, and water: 5% of 2009 GDP.
Transportation: 5% of 2009 GDP.
Communications: 2% of 2009 GDP.
Construction: 8% of 2009 GDP.
Financial services (15% of 2009 GDP): Insurance, leasing, consulting.
Mining (15% of 2009 GDP): Copper, iron ore, nitrates, precious metals, and molybdenum.
Trade: Exports (2010)--$69.6 billion: copper, fruits and nuts, fish and seafood, and wood products, cellulose and manufactured products. Major markets--China (25%), Japan (11%), United States (9%), Brazil (6%), South Korea (6%), Netherlands (4%), Italy (4%), Mexico (3%), Taiwan (3%), Belgium (3%). Imports (2010)--$54.5 billion: fuels, heavy industrial machinery, motor vehicles, electrical machinery, plastic. Major suppliers--U.S. (18%), China (16%), Brazil (9%), Argentina (9%), South Korea (6%), Japan (6%), Mexico (4%), Germany (4%), Colombia (3%), Peru (3%).

Geography of Chile

The northern Chilean desert contains great mineral wealth, primarily copper and nitrates. The relatively small central area dominates the country in terms of population and agricultural resources. This area also is the historical center from which Chile expanded until the late 19th century, when it incorporated its northern and southern regions. Southern Chile is rich in forests and grazing lands and features a string of volcanoes and lakes. The southern coast is a labyrinth of fjords, inlets, canals, twisting peninsulas, and islands. The Andes Mountains are located on the eastern border.

Official Name: Republic of Chile
Area: 756,945 sq. km. (302,778 sq. mi.); nearly twice the size of California.
Cities: Capital--Santiago (metropolitan area est. 6 million). Other cities--Concepcion-Talcahuano (840,000), Vina del Mar-Valparaiso (800,000), Antofagasta (245,000), Temuco (230,000).
Terrain: Desert in north; fertile central valley; volcanoes and lakes toward the south, giving way to rugged and complex coastline; Andes Mountains on the eastern border.
Climate: Arid in north, Mediterranean in the central portion, cool and damp in south.

Government of Chile

Chile's Constitution was approved in a September 1980 national plebiscite. It entered into force in March 1981. After Pinochet's defeat in the 1988 plebiscite, the Constitution was amended to ease provisions for future amendments to the Constitution. In September 2005, President Ricardo Lagos signed into law several constitutional amendments passed by Congress. These included the elimination of the positions of appointed senators and senators for life, the granting of authority to the President to remove the commanders-in-chief of the armed forces, and the reduction of the presidential term from 6 to 4 years.

Presidential and congressional elections were held December 2009. In the first round of presidential elections, none of the three presidential candidates won more than 50% of the vote. As a result, the top two vote-getters--center-left Concertacion coalition's Eduardo Frei and center-right Alianza coalition's Sebastian Pinera--competed in a run-off election on January 17, 2010, which Pinera won. This was Chile's fifth presidential election since the end of the Pinochet era. All five have been judged free and fair. The President is constitutionally barred from serving consecutive terms. President Pinera and the new members of Congress took office on March 11, 2010.

Chile has a bicameral Congress, which meets in the port city of Valparaiso, about 140 kilometers (84 mi.) west of the capital, Santiago. Deputies are elected every 4 years, and senators serve 8-year terms. Chile's congressional elections are governed by a unique binomial system that rewards coalition slates. Each coalition can run two candidates for the two Senate and two Deputy seats apportioned to each electoral district. Historically, the two largest coalitions (Concertacion and Alianza) split most of the seats in a district. Only if the leading coalition ticket out-polls the second-place coalition by a margin of more than 2-to-1 does the winning coalition gain both seats.

All 120 Chamber of Deputies seats were up for election in December 2009 congressional elections. Alianza won 58, with Concertacion taking 54, Communists and Independent Regionalist Party each winning three, and independents winning two. In the Senate, where half of the 38 seats were up for election, Concertacion regained a slim majority and has 19 seats to Alianza’s 17, with independents holding the remaining two.

Chile's judiciary is independent and includes a court of appeal, a system of military courts, a constitutional tribunal, and the Supreme Court. In June 2005, Chile completed a nation-wide overhaul of its criminal justice system. The reform has replaced inquisitorial proceedings with an adversarial system, similar to that of the United States.

Principal Government Officials
President--Sebastian PINERA
Minister of Interior--Rodrigo HINZPETER
Minister of Foreign Affairs--Alfredo MORENO
Ambassador to the United States--Arturo FERMANDOIS
Ambassador to the Organization of American States (OAS)--Dario PAYA
Ambassador to the United Nations--Octavio ERRAZURIZ

Chile maintains an embassy in the United States at 1732 Massachusetts Avenue, NW, Washington, DC 20036; tel: 202-785-1746, fax: 202-659-9624, email: embassy@embassyofchile.org.

Type: Republic.
Independence: September 18, 1810.
Constitution: Promulgated September 11, 1980; effective March 11, 1981; amended in 1989, 1993, 1997, and 2005.
Branches: Executive--president. Legislative--bicameral legislature. Judicial--Constitutional Tribunal, Supreme Court, court of appeals, military courts.
Administrative subdivisions: 12 numbered regions plus two new functioning regions--Arica and Los Rios--that are not numbered, as well as the Santiago metropolitan region, administered by appointed "intendentes." Regions are divided into provinces, administered by appointed governors; provinces are divided into municipalities administered by elected mayors.
Political parties: Major parties are grouped into two large coalitions: 1) the center-left "Concertacion", which includes the Christian Democrat Party, the Socialist Party, the Party for Democracy, and the Radical Social Democratic Party; and 2) the center-right "Alliance for Chile", which includes the National Renewal Party and the Independent Democratic Union. The Communist Party joined the Humanistic Party and a number of smaller parties to form the "Together We Can" coalition in 2004, but none of these leftist parties have recently elected congressional representatives. A new center-left party, “Chile-First,” was established in October 2007.
Suffrage: Universal at 18, including foreigners legally resident for more than 5 years.

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History of Chile

About 10,000 years ago, migrating Indians settled in fertile valleys and along the coast of what is now Chile. The Incas briefly extended their empire into what is now northern Chile, but the area's barrenness prevented extensive settlement. The first Europeans to arrive in Chile were Diego de Almagro and his band of Spanish conquistadors, who came from Peru seeking gold in 1535. The Spanish encountered hundreds of thousands of Indians from various cultures in the area that modern Chile now occupies. These cultures supported themselves principally through slash-and-burn agriculture and hunting. The conquest of Chile began in earnest in 1540 and was carried out by Pedro de Valdivia, one of Francisco Pizarro's lieutenants, who founded the city of Santiago on February 12, 1541. Although the Spanish did not find the extensive gold and silver they sought, they recognized the agricultural potential of Chile's central valley, and Chile became part of the Viceroyalty of Peru.

The drive for independence from Spain was precipitated by usurpation of the Spanish throne by Napoleon's brother Joseph in 1808. A national junta in the name of Ferdinand--heir to the deposed king--was formed on September 18, 1810. The junta proclaimed Chile an autonomous republic within the Spanish monarchy. A movement for total independence soon won a wide following. Spanish attempts to reimpose arbitrary rule during what was called the "Reconquista" led to a prolonged struggle.

Intermittent warfare continued until 1817, when an army led by Bernardo O'Higgins, Chile's most renowned patriot, and José San Martín, hero of Argentine independence, crossed the Andes into Chile and defeated the royalists. On February 12, 1818, Chile was proclaimed an independent republic under O'Higgins' leadership. The political revolt brought little social change, however, and 19th century Chilean society preserved the essence of the stratified colonial social structure, which was greatly influenced by family politics and the Roman Catholic Church. A strong presidency eventually emerged, but wealthy landowners remained extremely powerful. Toward the end of the 19th century, the government in Santiago consolidated its position in the south by ruthlessly suppressing the Mapuche Indians. In 1881, it signed a treaty with Argentina confirming Chilean sovereignty over the Strait of Magellan. As a result of the War of the Pacific with Peru and Bolivia (1879-83), Chile expanded its territory northward by almost one-third and acquired valuable nitrate deposits, the exploitation of which led to an era of national affluence. Chile established a parliamentary democracy in the late 19th century, but degenerated into a system protecting the interests of the ruling oligarchy. By the 1920s, the emerging middle and working classes were powerful enough to elect a reformist president, whose program was frustrated by a conservative congress. In the 1920s, Marxist groups with strong popular support arose.

Continuing political and economic instability resulted with the rule of the quasidictatorial Gen. Carlos Ibanez (1924-32). When constitutional rule was restored in 1932, a strong middle-class party, the Radicals, emerged. It became the key force in coalition governments for the next 20 years. During the period of Radical Party dominance (1932-52), the state increased its role in the economy.

The 1964 presidential election of Christian Democrat Eduardo Frei-Montalva by an absolute majority initiated a period of major reform. Under the slogan "Revolution in Liberty," the Frei administration embarked on far-reaching social and economic programs, particularly in education, housing, and agrarian reform, including rural unionization of agricultural workers. By 1967, however, Frei encountered increasing opposition from leftists, who charged that his reforms were inadequate, and from conservatives, who found them excessive. At the end of his term, Frei had accomplished many noteworthy objectives, but he had not fully achieved his party's ambitious goals. In 1970, Senator Salvador Allende, a Marxist and member of Chile's Socialist Party, who headed the "Popular Unity" (UP) coalition of socialists, communists, radicals, and dissident Christian Democrats, won a plurality of votes in a three-way contest and was named President by the Chilean Congress. His program included the nationalization of private industries and banks, massive land expropriation, and collectivization. Allende's program also included the nationalization of U.S. interests in Chile's major copper mines.

Elected with only 36% of the vote and by a plurality of only 36,000 votes, Allende never enjoyed majority support in the Chilean Congress or broad popular support. Domestic production declined; severe shortages of consumer goods, food, and manufactured products were widespread; and inflation reached 1,000% per annum. Mass demonstrations, recurring strikes, violence by both government supporters and opponents, and widespread rural unrest ensued in response to the general deterioration of the economy. By 1973, Chilean society had split into two hostile camps.

A military coup overthrew Allende on September 11, 1973. As the armed forces bombarded the presidential palace, Allende reportedly committed suicide. A military government, led by General Augusto Pinochet, took over control of the country. The first years of the regime in particular were marked by serious human rights violations. A new Constitution was approved by a plebiscite on September 11, 1980, and General Pinochet became President of the Republic for an 8-year term. In its later years, the regime gradually permitted greater freedom of assembly, speech, and association, to include trade union activity. In contrast to its authoritarian political rule, the military government pursued decidedly laissez-faire economic policies. During its 16 years in power, Chile moved away from economic statism toward a largely free market economy that fostered an increase in domestic and foreign private investment. In a plebiscite on October 5, 1988, General Pinochet was denied a second 8-year term as president. Chileans voted for elections to choose a new president and the majority of members of a two-chamber congress. On December 14, 1989, Christian Democrat Patricio Aylwin, the candidate of a coalition of 17 political parties called the Concertacion, was elected president. Aylwin served from 1990 to 1994 and was succeeded by another Christian Democrat, Eduardo Frei Ruiz-Tagle (son of the previous President), leading the same coalition, for a 6-year term. Ricardo Lagos Escobar of the Socialist Party and the Party for Democracy led the Concertacion to a narrower victory in 2000 presidential elections. His term ended on March 11, 2006, when President Michelle Bachelet Jeria, of the Socialist Party, took office.

People of Chile

About 85% of Chile's population lives in urban areas; greater Santiago is home to more than six million people and dominates Chile's political and economic institutions. Chile is a multiethnic society and a majority of the population can claim some European ancestry, mainly Spanish (Castilian, Andalusian, and Basque), but also German, Italian, Irish, French, British, Swiss, and Croatian, in various combinations. A small yet influential number of Irish and English immigrants came to Chile during the colonial period. German immigration began in the mid-1800s and continued into the 20th century; the southern provinces of Valdivia, Llanquihue, and Osorno show a strong German influence. In addition, there are a significant number of Middle Eastern, mainly Palestinian, immigrants and their descendants. About 800,000 Native Americans, mostly Mapuche, reside in the south-central area. The Aymara, Atacameno, and Diaguita groups can be found mainly in Chile's northern desert valleys and oases. Easter Island (Rapa Nui) is home to the Rapa Nui, an indigenous population.

Nationality: Noun and adjective--Chilean(s).
Population (June 2010): 17 million.
Annual population growth rate: 0.881%.
Ethnic groups: Spanish-Native American (mestizo), European, Native American.
Religions: Roman Catholic 70%, Evangelical 15.1%, Jehovah's Witness 1.1%, other Christian 1%, other 4.6%, none 8.3%.
Language: Spanish.
Education: Years compulsory--12. Attendance--3 million. Adult literacy rate--96%.
Health: Infant mortality rate--8.9/1,000. Life expectancy--71 yrs. for men, 78 for women.
Work force (6.94 million); employed 6.45 million: Community, social and individual services--26%; industry--14.4%; commerce--17.6%; agriculture, forestry, and fishing--13.9%; construction--7.1%; financial services--7.5%; transportation and communication--8.0%; electricity, gas and water--0.5%; mining--1.2%.

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