The Military Government's Free-Market Reforms, 1973-90

Chile Table of Contents

After the military took over the government in September 1973, a period of dramatic economic changes began. Chile was transformed gradually from an economy isolated from the rest of the world, with strong government intervention, into a liberalized, worldintegrated economy, where market forces were left free to guide most of the economy's decisions. This period was characterized by several important economic achievements: inflation was reduced greatly, the government deficit was virtually eliminated, the economy went through a dramatic liberalization of its foreign sector, and a strong market system was established.

From an economic point of view, the era of General Augusto Pinochet Ugarte (1973-90) can be divided into two periods. The first, from 1973 to 1982, corresponds to the period when most of the reforms were implemented. The period ended with the international debt crisis and the collapse of the Chilean economy. At that point, unemployment was extremely high, above 20 percent, and a large proportion of the banking sector had become bankrupt. During this period, a pragmatic economic policy that emphasized export expansion and growth was implemented. The second period, from 1982 to 1990, is characterized by economic recovery and the consolidation of the free-market reforms.

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Source: U.S. Library of Congress