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Presented By: Group 3 Abhiram Pothuganti Prateek Singla Sudhanshu Chib Varun Anand Varun Kumar Anand Rohit

Parimal Rohit Singh

Chile :Current Scenario 2011


Exports : 81.41 Billion $
Major Exports: Copper, fruits,fish,paper,pulp Export partners: China 23% , Japan 10%, USA 10% ,

Brazil 6% Imports : 70 Billion $ Major Imports : Petroleum and petroleum products, industrial products ,natural gas Import Partners: US 17%, Argentina 8.5%,Brazil 7.9%, Japan 5%

Chile in 1997
Showed the Legacy of leaders and their reforms.
Star of Latin America Learnt from experience and made a robust economic

system. Had Stable currency , strong GDP growth over 6.5 for a decade and low inflation. Health Standards were highest among Latin American Countries.

Strategic Physiological Advantages


Mineral Rich country especially in Copper and

Lithium. Large coastline which stretches from Easter Island to Cape Horn in far south. Land is very fertile for wheat, fruits and grapes. Stretches to southern most point of the continent to Strait of Magellan.

History of CHILE
Spaniard defeated Mapuche (Araucano Indians) who

controlled the country. Pedro de Valdivia, one of Francisco Pizarro's lieutenants founded Santiago. Unrest started as restrictions were imposed on planting grapes, tobacco and olives. Gained independence in 1810 and in 1879 seized several mineral rich area from Peru and Bolivia.

Contd..
Unstable economy in early 1920s. 1970 elections proved to be victorious for Marxist Salvador Allende. Nationalized many sectors of the economy including mining and tightened exchange controls. Gini Index was high and need for a sudden change was not a solution. Due to social and Political unrest General Augusto Pinochet assumed control over Chile

Trigger to Chaos
Early 1970s Allendes Economic program : Imposed price controls to control inflation Nationalized many sectors of economy Tightened exchange controls. Resulted in boom in 1971 and immediately

degenerated into chaos. Inflation soared to 473% , public deficit reached 25%. Pinochet replaced Allende later and appointed Chicago boys to tackle the economic situation. Enormous autonomy to craft to development strategy.

What did they do?


Philosophy : Government should play very less role in

economic life. Economic reforms


Stabilization Policies- Currency Stabilization and

tightened monetary policy. Structural Reforms Trade Liberalization , privatization and tax reforms Social Policy Reforms - Seven Modernization s to increase the living standards.

Effects of Reforms
GDP contracted by 13 % Unemployment rose by 20% Inflation gradually fallen to 84% from 473%. In late seventies economy seemed much stronger and

stable. However there were still problems lingering.

1982 Crisis
GDP fell by 14% , inflation doubled and

unemployment jumped to 22%. Tarnished the reputation of Chicago boys. New team was appointed. Taxed consumption rather than production through VAT. Later again new team of Chicago boys with Finmin Bhusi is appointed. They introduced Crawling peg rate for currency.

Other Factors
Chiles economical situation is also backed by Strong

political practice. Long history of Military intervention in political life. Only 12% of the 5 million workers were unionized. Since 1975 the Country has grown in exports in several other sectors which includes wines, fisheries fruits and salmon. Growth also observed in providing a variety of services like tourism, financial services, retailing etc.

Options
NAFTA Ambitious and Advanced. Larger Market Share Chile would be able to exploit its natural comparitive advantage. No limits on trade with non-member countries. Disparity in bargaining power. Fear of leading to unstable development strategy Distance

Mercosur
Due to small distances increase in trade was expected
Free Trade Pact Well positioned to export sophisticated products

Agriculture exports could have suffered

Final option was to remain outside both blocks.


Bilateral free trade pacts with countries.

Analysis of Chiles situation:


Chile enjoys a comparative advantage on primary

products North-South trade development will lead to Access to greater capital Access to better technology Increased competition between local firms Ability to continue trade with Mercosur (Custom Union) members as an external member Given Chiles reliance on natural resources, protectionism would have to be employed to avoid exploitative exhaustion

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