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Economy of Chile
 
 
 

General

Chile's economy is based on the export of minerals, which account for about half of the total value of exports. Copper is the nation's most valuable resource, and Chile is the world's largest producer of the mineral. Agriculture is the main occupation of about 15% of the population; it accounts for about 10% of the national wealth, and produces less than half of the domestic needs. The dependence of the economy on copper prices and the production of an adequate food supply are two of Chile's major economic problems. Wheat, potatoes, corn, beans, sugar beets, and fruit are the chief crops; a variety of vegetables, fruits, and grains are grown in the Vale of Chile, the country's primary agricultural area. The vineyards of the valley are the basis of Chile's wine industry. Livestock production includes beef and poultry. Sheep raising is the chief pastoral occupation, providing wool and meat for domestic use and for export. Fishing is also an important economic activity.

Since World War I, Chile has developed an industrial capacity to process its raw materials and to manufacture various consumer goods. The major products of its industries are copper and other minerals, processed food, fish meal, wood and wood products, transportation equipment, cement, textiles, iron and steel, paper, and chemicals. Chile's main imports are petroleum, wheat, capital goods, spare parts, and raw materials. In addition to minerals, it also exports wood products, fish and fishmeal, fruits, and wine. The chief trading partners are the European Union nations, the United States, Japan, and Brazil. Chile became an associate member of Mercosur in 1996, and formally signed a free-trade pact with the United States in 2003.

Chile's independent Central Bank pursues a policy of maintaining inflation between 2% and 4%. Inflation has not exceeded 5% since 1998. Chile registered an inflation rate of 2.4% in 2004. In 2005, inflation reached an estimated 3.7%. Stronger than expected domestic demand coupled with higher worldwide energy prices led to most of the inflationary rise in 2005. The Chilean peso’s rapid appreciation against the U.S. dollar in 2004 and 2005 helped keep down inflation while at the same time the strengthening peso played a role in the stronger than expected domestic consumption. Most wage settlements and spending decisions are indexed, reducing inflation's volatility. Under the compulsory private pension system, most formal sector employees pay 10% of their salaries into privately managed funds.

The Chilean Government committed in early 2002 to undertake a series of microeconomic reforms designed to create new incentives for private investment. The government also has encouraged the use of Chile as an "investment platform" for multinational corporations planning to operate in the region. Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. The U.S.-Chile Free Trade Agreement offers a number of other investor protections.

Overview

Economy - overview
Chile has a market-oriented economy characterised by a high level of foreign trade. During the early 1990s, Chile's reputation as a role model for economic reform was strengthened when the democratic government of Patricio AYLWIN - which took over from the military in 1990 - deepened the economic reform initiated by the military government. Growth in real GDP averaged 8% during 1991-97, 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 a product of the global financial crisis. A severe drought exacerbated the recession in 1999, reducing crop yields and causing hydroelectric shortfalls and electricity rationing, and Chile experienced negative economic growth for the first time in more than 15 years. Despite the effects of the recession, Chile maintained its reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. Between 2000 and 2006 growth ranged between 2%-6%. Throughout these years Chile maintained a low rate of inflation with GDP growth coming from high copper prices, solid export earnings (particularly forestry, fishing, and mining), and growing domestic consumption. Chile continues to attract foreign direct investment, but most foreign investment goes into gas, water, electricity and mining. Unemployment has exhibited a downward trend over the past year, dropping to 7.8% at the end of 2006. Chile deepened its longstanding commitment to trade liberalization with the signing of a free trade agreement with the US, which took effect on 1 January 2004. Chile signed or ratified a number of trade agreements in 2006, including with China and India. Chile claims to have more bilateral or regional trade agreements than any other country. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, South Korea and Mexico.


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