Economic Reforms in Chile: From Dictatorship to Democracy

314 Pages·2010·1.013 MB·English

by  Ricardo Ffrench-Davis (auth.)

Economic Reforms in Chile
From Dictatorship to Democracy
Second edition
Ricardo Ffrench-Davis
Economic Reforms in Chile
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Economic Reforms in Chile
From Dictatorship to Democracy
Second edition
Ricardo Ffrench-Davis
© Ricardo Ffrench-Davis 2010
All rights reserved. No reproduction, copy or transmission of this
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No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work
in accordance with the Copyright, Designs and Patents Act 1988.
First published 2002 by The University of Michigan Press
This edition published 2010 by
PALGRAVE MACMILLAN
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ISBN 978-1-349-36709-2 ISBN 978-0-230-28965-9 (eBook)
DOI 10.1057/9780230289659
This book is printed on paper suitable for recycling and made from fully managed
and sustained forest sources. Logging, pulping and manufacturing processes are
expected to conform to the environmental regulations of the country of origin.
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Ffrench-Davis, Ricardo.
Economic reforms in Chile : from dictatorship to democracy / Ricardo
Ffrench-Davis. — 2nd ed.
p. cm.
Summary: “This book provides an depth analysis of neo-liberal and of
progressive economic reforms in Chile since the Pinochet dictatorship _”—
Provided by publisher.
Includes bibliographical references and index.
1. Chile—Economic policy. 2. Chile—Economic conditions—1970–1973.
3. Chile—Economic conditions—1973–1988. 4. Chile—Economic
conditions—1988– I. Title.
HC192.F443 2010
339.983—dc22 2010023772
10 9 8 7 6 5 4 3 2 1
19 18 17 16 15 14 13 12 11 10
Contents
List of Figures vii
List of Tables viii
List of Boxes xi
Preface to the Second Edition xii
First Part: An Account of Four Decades 1
I Economic development in Chile since the 1970s 3
1 A historical perspective on development strategies 5
2 The neoliberal strategy, 1973–89 9
3 Democracy, reforming the reforms and development,
1990–2009 24
Annex 43
Second Part: The Neoliberal Experiment in Chile, 1973–1982 51
II Import Liberalization in 1973–82 53
1 The import liberalization process 54
2 Import composition 61
3 Effects of trade liberalization on manufacturing 64
4 Towards an evaluation 68
5 Concluding remarks 75
III Domestic Financial Liberalization and External Debt
in the 1970s: Building a Major Crisis 77
1 Financial liberalization and foreign indebtedness 78
2 Financial capital flows and indebtedness: volume,
sources, and uses 83
3 Indebtedness and macroeconomic adjustment 88
4 Interest-rate differentials 97
5 External vulnerability and the dynamics of indebtedness 102
6 Some lessons from this experience 104
Third Part: Economic Recovery and the Heritage of the
Dictatorship, 1982–1989 107
IV Policy Rectifications and Recovery from the Debt Crisis,
1982–9 109
1 The debt crisis 110
2 Debt management in 1982–9 117
3 A more pragmatic economic policy 121
v
vi Contents
4 Strong economic recovery, weak average growth 124
5 Macroeconomic (im)balances by 1989 126
V Export Development during the 1980s 130
1 The role of exports in national development 131
2 Trade policy in the 1980s: a departure from orthodoxy 133
3 Export performance: dynamism and diversification 141
4 Dynamic exports and limited economic growth 144
Fourth Part: Development Challenges for Democracy 147
VI Export Dynamism and Economic Growth since the 1990s 149
1 Trade policies since 1990 150
2 Export performance 156
3 Exports and foreign investment 165
4 Exports and economic growth 167
5 Concluding remarks 172
VII Inequality and Poverty since the 1970s 174
1 Trends in income distribution and poverty 176
2 The role of neoliberal reforms 193
3 Reforms to fight poverty and income concentration 198
4 Concluding remarks 206
VIII Managing Capital Inflows in the 1990s and the “Encaje” 209
1 Capital inflows: magnitudes and composition 211
2 The policy counter-cyclical response 216
3 The effectiveness of macro-stabilizing measures 226
4 Savings, investment, and growth in the 1990s 232
5 Some policy lessons from this experience 234
IX Economic Policy after the 1999 Recession 236
1 The origins of the break 238
2 The impact of the crisis, 1998–9 240
3 The recessive phase, 1999–2003 243
4 Dynamic recovery in 2004–5 247
5 Deceleration from 2006 249
6 Two relevant issues: the structural fiscal balance and
the exchange rate 255
7 Concluding remarks 267
X Concluding Remarks and Challenges 268
1 An account of sixteen years of dictatorship versus
sixteen years of democracy 268
2 Four general conclusions 271
3 Ten specific challenges 274
References 278
Index 291
List of Figures
I.1 Actual and potential GDP, 1960–2009 (log scale, GDP*
1996 = 100) 15
A.1 Comparison of two estimates of the Output Gap, 1960–2008
(% of GDP*) 49
II.1 Average tariff and real exchange rate, 1973–82 59
III.1 Simple conventional framework of capital markets
liberalization 79
VII.1 Chile and developed countries, per capita GDP and income
distribution, 2007 (PPP US$) 176
VII.2 National unemployment rate, 1960–2009 (percentage of the
labor force) 183
VII.3 Income distribution in Greater Santiago, 1960–2009
(Q5/Q1 ratio, three-year moving average) 190
VIII.1 Evolution of the real exchange rate, 1986–2009 (1986 = 100) 225
IX.1 Pension fund outflows and RER, 1993–2000 (% of total funds,
1986 = 100) 241
IX.2 Real copper price, actual and trend, 1959–2009 (2009 US$/lb) 248
IX.3 Trend GDP: annual review by Committee of Experts,
2006–9 (annual growth rate, %) 262
IX.4 Panel A: evolution of exports and imports of goods and
services, 2000–9 (annual real growth rates, %). Panel B:
current account balances, 2000–9 (% of current GDP) 265
X.1 Per capita GDP growth, 1973–89 versus 1990–2009 (real
indexes, 1973 and 1989 = 100) 271
vii
List of Tables
I.1 Comparison of key macroeconomic variables, 1959–2009 8
I.2 Evolution of GDP and its composition, 1975–81 (annual
average rates of growth) 17
I.3 Macroeconomic variables during dictatorship, 1974–89
(annual averages) 22
I.4 Public and private budget balances, 1990–2007 (% of GDP
at current prices) 31
I.5 Gross savings ratios, 1982–2008 (% of GDP at current prices) 39
I.6 Per capita GDP growth, 1974–2009 (annual average growth
rates) 41
A.1 Potential GDP growth and output gap, 1960–2007 (annual
average growth rate, % of GDP*) 45
II.1 Tariff liberalization, 1973–9 (rates on cif value) 56
II.2 Cost per dollar of imports, 1973–82 58
II.3 Main imports of consumer goods and total imports, 1970,
1980, 1981 (1977 US$ millions) 62
II.4 Shares by income brackets of consumption of imported goods:
main non-traditional imports in 1978 (% of total consumption) 63
II.5 Manufacturing output: Chile and the world economy,
1974–82 (1973 = 100) 65
II.6 Balance of payments, 1973–82 (1977 US$ millions) 70
III.1 Deficit on the current account and capital flows, 1970–82 84
III.2 Total foreign debt and private financial creditors, 1974–82 85
III.3 Public and private net foreign debt, 1973–82 (US$ millions) 86
III.4 Gross annual flows of loans, by debtors, 1976–82 87
III.5 Domestic and external real interest rates in pesos, 1975–82
(annual percentage rates) 98
IV.1 Foreign debt and public guarantees, 1975–89 (US$ millions
and percentages of total) 111
IV.2 Production, consumption, investment, and external shocks per
capita, 1980–9 (in 1977 pesos as a share of 1981 actual GDP) 114
IV.3 Net transfers of funds abroad by creditor, 1983–9 (US$ millions) 118
viii
List of Tables ix
IV.4 Indexes of stock prices in pesos and converted to US dollars,
1980–9 (1980 = 100) 121
V.1 Average tariff and real exchange rate, 1973–89 138
V.2 Growth of export volume, 1961–89 (annual averages, %) 141
V.3 Composition of goods exports, 1970–89 (%) 142
V.4 Geographic distribution of Chilean exports, according to
degree of elaboration, 1970–89 143
VI.1 Growth of export volume, 1986–2009 (annual averages, %) 156
VI.2 Average tariff, collected tariff, and real exchange rate,
1984–2009 157
VI.3 Indicators of export diversification, 1990–2008 (number of
markets, firms, and products) 161
VI.4 Geographic distribution of Chilean exports, according to
technological content, 1983–2008 163
VI.5 Export participation in total output, 1961–2009 (% of GDP) 168
VI.6 Exports and economic growth, 1961–2009 (annual average
rates of growth, %) 171
VII.1 Wages, family allowances, and social expenditure,
1970–2009 (real indices, 1989 = 100) 181
VII.2 Distribution of household expenditure in Santiago, 1969,
1978, 1988 (%) 182
VII.3 Poverty evolution in Chile, 1987–2006 (%) 186
VII.4 Poverty dynamics in Chile, 1996–2001–2006 (% of
population) 187
VII.5 Distribution of household expenditure and income in
Santiago, with imputed rent for homeowners, 1988 and
1997 (%) 189
VIII.1 Composition of capital flows, 1980–2008 (2008 US$
as % of GDP) 212
VIII.2 Net capital inflows and deficit on the current account,
1980–2008 (% of GDP) 225
VIII.3 Implicit cost of reserve requirement on foreign borrowing,
1991–8 (annualized rates) 227
IX.1 Investment, savings and growth, 1974–2009 (annual growth
rates, % of GDP) 237