Chile - Economy

Economy

Chile is one of South America's most stable and prosperous nations, leading Latin American nations in human development, competitiveness, income per capita, globalization, economic freedom, and low perception of corruption. However, it has a high economic inequality, as measured by the Gini index. In May 2010 Chile became the first South American country to join the OECD. In 2006, Chile became the country with the highest nominal GDP per capita in Latin America.

During the early 1990s, Chile's reputation as a role model for economic reform was strengthened when the democratic government of Patricio Aylwin, who took over from the military in 1990, deepened the economic reform initiated by the military government. Growth in real GDP averaged 8 percent from 1991–1997, but fell to half that level in 1998 because of tight monetary policies (implemented to keep the current account deficit in check) and because of lower export earnings, the latter which was a product of the Asian financial crisis. Chile's economy has since recovered and has seen growth rates of 5–7 percent over the past several years.

After a decade of impressive growth rates, Chile began to experience a moderate economic downturn in 1999, brought on by unfavorable global economic conditions related to the Asian financial crisis, which began in 1997. The economy remained sluggish until 2003, when it began to show clear signs of recovery, achieving 4.0 percent real GDP growth. The Chilean economy finished 2004 with growth of 6 percent. Real GDP growth reached 5.7 percent in 2005 before falling back to 4 percent in 2006. GDP expanded by 5 percent in 2007.

Unemployment hovered at 8–10 percent after the start of the economic slowdown in 1999, above the 7 percent average for the 1990s. Unemployment finally dipped to 7.8 percent in 2006, and continued to fall in 2007, averaging 6.8 percent monthly (up to August). Wages have risen faster than inflation as a result of higher productivity, boosting national living standards. The percentage of Chileans with per capita household incomes below the poverty line—defined as twice the cost of satisfying a person's minimal nutritional needs—fell from 45.1 percent in 1987 to 11.5 percent in 2009, according to government surveys. Critics in Chile, however, argue that true poverty figures are considerably higher than those officially published. (The government constructs the poverty line based on an outdated 1987 household consumption survey, instead of more recent surveys from 1997 or 2007. According to these critics, using data from the 1997 survey increases the poverty rate to 29 percent.) Using the relative yardstick favoured in many European countries, 27% of Chileans would be poor, according to Juan Carlos Feres of the ECLAC. About 3.8 million people (22% of the population) are (as of November 2011) on government welfare programs, via the "Social Protection Card", which includes the population living in poverty and those at a risk of falling into poverty.

High domestic savings and investment rates helped propel Chile's economy to average growth rates of 8 percent during the 1990s. The privatized national pension system (AFP) has encouraged domestic investment and contributed to an estimated total domestic savings rate of approximately 21 percent of GDP.

Total foreign direct investment (FDI) was only $3.4 billion in 2006, up 52 percent from a poor performance in 2005. However, 80 percent of FDI continues to go to only four sectors: electricity, gas, water and mining. Much of the jump in FDI in 2006 was also the result of acquisitions and mergers, but has done little to create new employment in Chile.