Chile - Economic Policies, 1950 70

Economic policies, 1950-70

Between 1950 and 1970, the Chilean economy expanded at meager rates. GDP grew at an average rate of 3.8 percent per annum, whereas real GDP per capita increased at an average yearly rate of 1.6 percent. Over this period, Chile's economic performance was the poorest among Latin America's large and medium-size countries.

As in most historical cases, Chile's import-substitution strategy was accompanied by an acute overvaluation of the domestic currency that precluded the development of a vigorous nontraditional (that is, noncopper) export sector. Although some agrarian reform was attempted, the government increasingly resorted to controlling agricultural prices in order to subsidize the urban working and middle classes. The agricultural sector was particularly harmed by the overvaluation of Chile's currency. The lagging of agriculture became, in fact, one of the most noticeable symptoms of Chile's economic problems of the 1950s and 1960s. Over this period, manufacturing and mining, mainly of copper, significantly increased their shares in total output.

By the early 1960s, most of the easy and obvious substitutions of imported goods had already been made; the process of import substitution was rapidly becoming less dynamic. For example, between 1950 and 1960 total real industrial production grew at an annual rate of only 3.5 percent, less than half the rate of the previous decade.

During the 1950s, inflation, which had been a chronic problem in Chile since at least the 1880s, became particularly serious; the rate of increase of consumer prices averaged 36 percent per annum during the decade, reaching a peak of 84 percent in 1955. The main source of the inflationary pressure on the Chilean economy was a remarkably lax fiscal policy. Chile's economic history has been marked by failed attempts to curb inflation. During the 1950s and 1960s, three major stabilization programs, one in each administration, were launched. The common aspect of these efforts was the emphasis placed on tackling the various consequences of inflationary pressures, such as prices, wages, and exchange-rate increases, rather than the root cause of money growth, the monetization of the fiscal deficit. In spite of the efforts of presidents Carlos Ib��ez del Campo (1927-31, 1952-58) and Jorge Alessandri Rodr�guez (1958-64), inflation averaged 31 percent per annum during these two decades. In 1970, the last year of the government of President Eduardo Frei Montalva (1964-70), the inflation rate stood at 35 percent.

During the 1960s, and especially during the Frei administration, some efforts to reform the economy were launched. These included an agrarian reform, a limited liberalization of the external sector, and a policy of minidevaluations aimed at preventing the erosion of the real exchange rate. Under the 1962 Agrarian Reform Law, the Agrarian Reform Corporation (Corporaci�n de Reforma Agraria--Cora) was created to handle the distribution, but land reform proved to be slow and expensive. In spite of these and other reforms, toward the end of the 1960s it appeared that the performance of the economy had not improved in relation to the previous twenty years. Moreover, the economy was still heavily regulated.

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SGI 2017 | Chile | Economic Policies