Chile the next developed economy..??

Juan Forero of Washington Post has a write-up on Chile economy (HT: Marginal Revolution).  He says:

This week, the Organization for Economic Cooperation and Development, a club of rich nations that includes the United States, Japan and several European countries, formally invited Chile to join. Becoming the first South American nation in the 30-member group would be among the tangible signs of Chile’s steady rise since the 1980s, when it was in the grip of dictatorship.

Such a transition from developing to developed country last happened more than a generation ago — think Ireland and South Korea. No one is exactly sure of the timing for Chile. But economists say this country of 17 million will become the first Latin American country to switch categories sometime in the next decade.

“It’s well on its way to becoming a developed country, and it’s not just because we see numbers that look very promising,” said Marcelo Giugale, director for poverty reduction and economic management in Latin America at the World Bank. “I think there are more profound transformations happening in Chilean society that point to a very promising developed country very soon.”

The article discusses briefly how Chile has managed to grow despite initial concerns:

On the surface, Chile might seem an unlikely country for fast development. It is so isolated on the continent’s fringe that Henry Kissinger once famously disparaged Chile as “a dagger pointed at the heart of Antarctica.” For much of the 20th century, its copper-based economy was hobbled by boom-bust cycles.

Today, Pinochet-era reforms such as a policy of privatizations and low import tariffs remain in place.

Chile’s openness to trade is combined with generous social spending. In recent years, Chile has accelerated spending on education and day care. Forty percent of youths now go on to universities or other institutions beyond high school, authorities say, and 70 percent of those are the first in their families to do so.

Prudent economic management, officials here say, not only helped Chile go from being a debtor nation to a net creditor, but also protected it from the worldwide economic meltdown. Velasco, the finance minister, said Chile created a rainy-day account funded with the billions generated by a commodities boom earlier this decade.

Chile has posted Latin America’s fastest economic growth over a generation, and poverty has dropped from 45 percent before the demise of Gen. Augusto Pinochet’s government to a regional low of 14 percent today. But Giugale and other economists say Chile has advanced in areas more difficult to measure, such as strengthening state institutions like the courts and fighting corruption.

Chile also has a stable and robust democracy, ruled since 1990 by a coalition of Socialists and Christian Democrats that unseated Pinochet. The current president, Michelle Bachelet, has a popularity rate hovering at nearly 80 percent.

Hmmm. …interesting stuff.

Chile had a countercyclical measure prepared much before to handle any crisis

Prudent economic management, officials here say, not only helped Chile go from being a debtor nation to a net creditor, but also protected it from the worldwide economic meltdown. Velasco, the finance minister, said Chile created a rainy-day account funded with the billions generated by a commodities boom earlier this decade.

When the financial crisis spread, that money was used to help realize one of the world’s most ambitious stimulus programs, Velasco said. Chile’s economy will contract this year but is expected to grow 4.5 percent in 2010.

Velasco is Andres Velasco, their finance minister. He was a professor of economics at Kennedy School at Harvard. He was criticised for setting this fund but is now a very popular minister for helping Chile weather the crisis.

During a three-year copper boom he and central bank President Jose De Gregorio set aside $48.6 billion, more than 30 percent of the country’s gross domestic product, that he is now using for tax cuts, subsidies and cash handouts to poor families.

So, they actually practiced what others have preached so long – save some for bad times. This is especially the case for natural resource rich econs like Chile.

Velasco is a very good economist as well and has written some excellent papers on crisis and emerging economies. I covered one paper here.

I have also been a fan of Central Bank of Chile and its research work. It’s current Governor Jose De Gregorio is very good as well. So, overall Chile is in very good policy hands.

Addendum:

A very comprehensive paper on Chile’s economic development.

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4 Responses to “Chile the next developed economy..??”

  1. The economy should not be a limiting factor Bahamas Vacation Package Says:

    […] Chile the next developed economy..?? « Mostly Economics […]

  2. C. Menskil Says:

    I heard this news announcement on NPR and it made me so happy. It would be great to see some great prosperity in South America. Also, I feel like Chile’s new economic status will create greater opportunities for surrounding countries which will greatly benefit everyone world-wide.

  3. Fiscal discipline lessons from Chile « Mostly Economics Says:

    […] have posted on Chile earlier as […]

  4. Cabinet in Chile….full of economists « Mostly Economics Says:

    […] what can one say? It is not just sitting on this new accolade but working towards making things better. Though some may argue so many economists might just spoil […]

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