Chile is a long, narrow country with 6,000 km of Pacific coastline. Its capital, Santiago, is nestled in a valley surrounded by mountains. Its CBD is home to a neoclassical cathedral, the National History Museum, and a zoo. Chile has a high rate of exports and a high rate of foreign trade.
Economic policy in Chile has undergone dramatic transformations in the last fifty years. The Aylwin-Frei government implemented orthodox neoliberalism, while the Pinochet dictatorship promoted pragmatism. After the 1982 crisis, Chilean economic policy began to shift toward more moderate macroeconomic policies and a focus on the reduction of poverty.
A key theme of the paper is how Chile’s economic policies evolved. Chile’s economy underwent two transitions in the past 50 years, first from democracy to military rule, and then back to democracy. The second transition showed how the new democratic government maintained the previous economic policies and the need for adequate institutions to support them.
Chile’s economic policy has evolved to an advanced, rule-based regime that incorporates a floating exchange rate, inflation targeting, autonomous central bank, and effective regulation of banks. This combination has allowed Chile’s economy to recover relatively quickly from the impact of the pandemic, although some challenges remain. For example, while foreign trade has increased Chile’s economic performance, its economic structure is subject to substantial structural problems. Inequality is high and labor productivity is low, which means that it may be difficult for Chile to maintain its economic growth path.
Chile’s fiscal framework is relatively strong. Recent enhancements to the structural balance rule, medium-term fiscal targets, and prudent debt ceiling have reinforced this framework. The new system also includes an explicit escape clause for fiscal crises and a natural disaster fund. Further enhancements should improve Chile’s analysis of assets and liabilities and strengthen the supervision of the Autonomous Fiscal Council.