Hello everyone,
Welcome to my first post in months!
But first…
What’ve I been up to?
Last July, I moved to Santiago, Chile, for an exchange semester. As you might imagine, an experience of this sort has left me with a lot to write about. And so, today, I am going to try something new. A pivot of sorts. As you may or may not know, I am an undergraduate Economics student. I absolutely love the field, so why not try my hand at writing about it?
A Deep Dive into the Chilean Economy (Overview and Key Indicators)
Chile?
Narrowly set between the imposing Andes and the Pacific Ocean, Chile is a fascinating country. It is world-renowned for its natural beauty, with landscapes ranging from the Atacama Desert, a dry, mountainous mix of salt flats, volcanoes, lagoons, and sand, to Patagonia, one of the most unique stretches of virtually untouched nature in the world.
The Atacama Desert
Torres del Paine, Patagonia
Besides that, Chile has a unique history and culture that many people might be unaware of. For a quick introduction to the country, give this video a watch:
Now that you have a basic understanding of the country’s History and Geography let’s move on to the Economy!
By the end of this article, I hope you will be familiar with the Chilean Economy, namely:
Main sectors
Facts and Figures
Policy and Politics
Comparison with Latin America
The Chilean Economy: Facts and Figures
Considered a high-income country by the World Bank, Chile boasts the second-highest GDP per capita in Latin America, after Uruguay, at around 29,000 USD PPP.
Chile's GDP per capita, PPP, current international $
As you can see, Chile has experienced tremendous economic growth, especially since the late 1980s, and this is something we will definitely be examining further. Before that, I leave you with a few important facts and figures that provide a rough picture of the Chilean Economy:
Population: 19.96M
Unemployment Rate: 8.8%
Government Debt: 38.4% of GDP
Current Account Balance: -3.5% of GDP
Inflation Rate (average consumer prices): 7.8% (Source: IMF)
Average Monthly Wage: $757.752
Median Monthly Wage: $502.604 (Source: INE)
Gini Coefficient: 0.470 (Source: La Tercera)
Currency: Chilean Peso (CLP)
Chile’s Main Exports: Mining & co.
Ever since colonial times, Chile has boasted considerable mineral wealth. Thus, it should come as no surprise that Silver, Copper, Nitrate, and Lithium have long been drivers of Economic Growth and Prosperity. Currently, the mining sector is responsible for more than 50% of all Chilean exports! In 2022, copper exports alone amounted to 45% of total exports. Furthermore, lithium carbonate accounted for around 8%. As you might imagine, the Chilean Economy is incredibly dependent on the price of copper (it is even used to estimate tax revenue!).
Escondida, Chile. The world’s largest copper mine.
Besides mining, Chile is the 4th largest salmon exporter, the largest cherry producer in the world, and the 4th largest wine exporter in the world. As is the case with most South American countries, China is Chile’s leading economic partner, receiving 39.4% of Chilean exports and accounting for 25.3% of total imports in 2022)
💡 Fun fact: Chile has signed a whopping 33 free trade agreements, making it one of the world’s most open economies! (Trade accounted for 64% of Chilean GDP in 2021)
Salmon processing factory (Los Lagos, Chile).
The Political Economy of Chile
After the end of Pinochet’s bloody dictatorship in 1990, Chile became a presidential republic. Patricio Aylwin Azócar, the first elected president in 19 years, was supported by the Concertación, a coalition of centre and center-left parties. Its candidates went on to win every presidential election until 2010! The Concertación’s policies focused on poverty reduction, income redistribution, and commercial expansion, with an emphasis on prudent macroeconomic policy. The concertación’s ministers, many of them highly qualified technocrats coming out of the CIEPLAN, advocated for investments in health, education and housing. All things considered, they seem to have succeeded at decreasing poverty while bolstering economic growth (see below).
Poverty Rate (In Bars) and GDP Per Capita (shaded area). Source: Ministerio de Desarrollo Social
Social Expenditure as % of GDP in 2010 CLP (dotted line). Source: CIEPLAN
Still, Chile has comparatively low taxes and ranks consistently below the OECD when it comes to the tax burden it places on the Economy (20%, which is around 13 p.p less than the OECD average). Furthermore, the tax wedge, which refers to the difference between the total labour costs paid by an employer and the net income received by the employee, is considerably low.
Average tax wedge, Chile vs OECD average. Source: OECD
Sources of Tax Revenue. Notice the role that consumption taxes play. Source: Tax Foundation
In 2010, Sebastián Piñera, a multibillionaire entrepreneur and leader of the rightist coalición por el cambio (English: coalition for change) won the presidential election with 51.6% of the vote. During his tenure, GDP grew over 5% a year on average (as opposed to the previous government’s average of 3.3%), while unemployment decreased from 8% to 6.9%, and inflation decreased from 4.5% to 2.4%. In the meantime, protests about inequality and access to education persisted and impacted Piñera’s approval rating. As a result, socialist president Michelle Bachelet ended up being elected in 2014. During her government, Chile saw increases in the government deficit and decreases in its credit rating. Sebastián Piñera was then elected in 2018.
Social Unrest (2019)
Eventually, in 2019, the Estallido Social (social outbreak) broke out. After the government decided to raise the price of metro tickets in Santiago by about $30 pesos (around 4% of the original price), people took to the streets to vent their concerns about the country. High levels of inequality, corruption scandals, and opposition against the 1980s constitution (which is still used, despite being instated during the military dictatorship) all contributed towards what was one of the most unstable periods Chile ever experienced. From October 2019 to March 2020, looting, vandalism, and violence were prevalent, and what had started as a peaceful movement quickly got out of hand.
An average day during the Estallido Social
Burning church in Santiago, Chile
What followed were more than 8000 arrests, 34 deaths, and more than 3000 casualties.
A report about the Estallido Social. Discusses its causes and effects in great detail.
In the midst of such a horrific situation, Piñera had no choice but to compromise, and a reshuffled cabinet announced plans to write a new democratic constitution, which would grant more social rights and protection for Chileans and indigenous peoples alike. In 2020, Chileans were called to vote in a referendum about the creation of a new constitution. When asked the question, “Do you want a new constitution?”, 78.6% of voters replied “Yes”. In the period that followed, leftist MP Gabriel Boric gained prominence, and he ended up becoming the country’s youngest-ever president at 36 years of age. After the first proposal for a constitution was rejected, Chileans will now be going to the ballots for a second time on the 17th of December to vote on the second constitutional proposal.
Gabriel Boric, Chile’s youngest ever president.
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An illustrious neighbourhood
Argentina, which was the world’s richest country in the late 1800s, is now the IMF’s biggest debtor and is on the brink of default. As a solution, Mauricio Milei, the right-wing libertarian presidential candidate (and second in the polls), wants to “set fire to the Central Bank” and dollarize the Economy.
Monthly inflation in Argentina. Source: Reuters
Peru recently survived an attempted coup by primary-school-teacher-turned-president Pedro Castillo, as authorities were forced to declare a state of emergency, and Castillo was eventually arrested. He is now in jail with 2 (!) former Peruvian presidents! Meanwhile, Peruvian GDP per capita is roughly a third of Chilean GDP.
In 2016, one of the world’s biggest corruption scandals was uncovered in Brazil. Operation Carwash, as it eventually became known, exposed and dismantled a widespread network of corruption centred around the state-owned oil company Petrobras. The investigation uncovered a complex web of illicit activities, including inflated contracts, kickbacks, money laundering, and bribery. In total, bribes amounted to over $2 Billion! Key individuals from the business sector, political parties, and government were implicated in the scandal. Notably, former President Luiz Inácio Lula da Silva was convicted on corruption charges stemming from the investigation. He has since left jail, and he went on to win the 2022 Presidential Elections.
Bolivia, Ecuador, Bolivia, Colombia, and Venezuela are simply in another league, and it would be unfair to Chile to be compared with them when it comes to economic performance and stability.
Conclusion: General Trends and Future Challenges
In conclusion, Chile faces a complex set of challenges for its economic development in the coming years. While the country has made significant progress in various aspects of its economy, including trade liberalisation, financial stability, and a commitment to innovation, several vital challenges loom large on the horizon (among many others):
Reducing political polarization
Bolstering otherwise stagnant levels of productivity
Combating Inequality
Navigating Geopolitics as it grows even more dependent on China