The Chilean economy at its hardest time (I)

The Chilean economic model implemented since the mid-seventies, is under the critical attention of those who have considered it a benchmark and; of those who have been its critics. It should be take into account that in those years (1975-1980), Chile and many Latin American economies were in the last phase of an import substitution model, which through tariffs and exchange controls nullified exports as the source of expansion and growth. Without an increase in exports, it was not possible to get the aim to reduce the foreign dependence. The outcome was the External Debt Crisis and the Lost Decade (1980-1990). For that decade, Chilean economic model had already corrected the key flaws of the import substitution approach, applying the new fundamentals: increasing the role of the private sector and markets as the tool for allocation of resources, coupled with the openness to the world and international trade. What were the nature of these new fundamentals?. The most important one, relates to the fact that it was the people and not the state, who based on the signals of the price system and free markets, can solve what it is better for their welfare increase expectations . Besides, the comparative advantage theory, suggested that a better use of resources was possible with higher trade flows with the rest of the world, instead of focusing only on its small domestic market. Each one of these fundaments have its particulars characteristics on its own. Thus, aside its primary task with the price system, and the efficient allocation of resources, free markets became the source for services like social security, health, education as well as the provision of natural resources like water and energy, opening up a space to develop further the private sector, on the premise that to reduce poverty , it requires as a necessary condition to increase wealth.The State get involves only in what is left out of the reach of the private sector. MACROECONOMIC POSITIVE OUTCOME In the 1990s, with the return of democracy; the participation of the private sector moved forward to granting of public infrastructure services (roads, ports, airports, reservoirs, telecommunications) co-finance of university loans, and in the 2000s, it was extended further to the construction of hospitals and state prisons. The impact was decisive to increase the potential output, and productivity in such a way that in the period 1986-1997, the average rate of economic growth was 6,7%(y/y). The golden decade of the Chilean economy, became the benchmark to follow for other countries of Latin America. The goal of development, was at sight within a few more years of pursuing the same policy mix and economic growth path .- Figure N°1