Chile Case

7/30/2019 Chile Case

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Presented By: Group 3

Abhiram PothugantiPrateek SinglaSudhanshu ChibVarun AnandVarun Kumar AnandRohit Parimal

Rohit Singh


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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%


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Chile in 1997

Showed the Legacy of leaders and their reforms.

Star of Latin America

Learnt from experience and made a robust economicsystem.

Had Stable currency , strong GDP growth over 6.5 for adecade and low inflation.

Health Standards were highest among Latin AmericanCountries.


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Strategic Physiological Advantages

Mineral Rich country especially in Copper andLithium.

Large coastline which stretches from Easter Island toCape 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.


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History of CHILE Spaniard defeated Mapuche (Araucano Indians) who

controlled the country.

Pedro de Valdivia, one of Francisco Pizarro'slieutenants founded Santiago.

Unrest started as restrictions were imposed onplanting grapes, tobacco and olives.

Gained independence in 1810 and in 1879 seizedseveral mineral rich area from Peru and Bolivia.


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Contd.. Unstable economy in early 1920s.

1970 elections proved to be victorious for MarxistSalvador Allende.

Nationalized many sectors of the economyincluding mining and tightened exchangecontrols.

Gini Index was high and need for a sudden changewas not a solution.

Due to social and Political unrest General AugustoPinochet assumed control over Chile


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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 appointedChicago boys to tackle the economic situation.

Enormous autonomy to craft to development strategy.


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What did they do?

Philosophy : Government should play very less role ineconomic life.

Economic reforms

Stabilization Policies- Currency Stabilization andtightened monetary policy.

Structural Reforms Trade Liberalization , privatizationand tax reforms

Social Policy Reforms - Seven Modernization s toincrease the living standards.


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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 andstable.

However there were still problems lingering.


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1982 Crisis

GDP fell by 14% , inflation doubled andunemployment 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.


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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 severalother sectors which includes wines, fisheries fruits and

salmon. Growth also observed in providing a variety of services

like tourism, financial services, retailing etc.


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OptionsNAFTA

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


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Mercosur Due to small distances increase in trade was expected

Free Trade Pact

Well positioned to export sophisticated productsAgriculture exports could have suffered


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Final option was to remain outside both blocks.

Bilateral free trade pacts with countries.


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Analysis of Chiles situation:

Chile enjoys a comparative advantage on primaryproducts

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 avoidexploitative exhaustion


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THANK YOU

Documents

Chile Case