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Long and narrow, Chile clings to the western edge of South America's South­ern Cone. Hugging - page 5 / 46





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Chile                                    441

Given the influence of the Catholic Church on this burning sociopolitical is­sue, it seems unlikely that divorce will be legal for some time. -

Political Economy

Since 1975, Chile has applied a free-market economic model, which has de­livered sustained, high economic growth rates since the mid-1980s. Its econ­omy is very open to international trade and finance, and its structure has changed substantially since the 1960s. Openness to trade significantly di­versified the economy. Once dependent on copper for over 80 percent of export earnings, the emphasis on comparative advantage has intensified agro-exports in fruits, timber, fish, and wine. Other minerals, such as molyb­denum, also enter the mix. Consequently, copper now supplies less than 50 percent of export earnings. The financial services, construction, and com­mercial sectors have also expanded significantly. Manufacturing, after a pe­riod of decline due to the dismantling of protection and subsidies, has been restructured, stabilized, and is even exporting products. In addition to these modifications, rapid economic growth has stimulated a tight labor market. This, together with low inflation, has contributed to rising wages. Privatized pension funds and health insurance, in addition to capital inflows from abroad, provide ample investment funds for the Chilean economy.

The governing center-Left coalition (now in its third term) is committed to the maintenance of macro-economic stability, with a special emphasis on inflation control. Due to extensive privatization, with the exception of cop­per mining (10 percent of export value goes to the military), the state has re­nounced public enterprise as a development tool. It mainly relies on fiscal and monetary policy as arm's-length policy instruments to direct the econ­omy. Increased spending for public health and to combat poverty has de­creased the number of poor people, especially those in the category of ex­treme poverty. These improvements have been touted as great successes for the social market economy, as Chileans (taking a page from the Germans) like to call their economic model.

Justifiably proud of their accomplishments, official Chile (the government and those close to it) and Conservatives alike see little need for change; in fact, many live in great fear of it. Nevertheless, there are lingering problems that perhaps should receive more attention than they do. Although grow­ing and more diversified, the economy is extremely vulnerable to fluctua­tions of the world economy. For example, the Asian economic crisis hit the country hard. The commitment to inflation control tends to overvalue the currency, hurting exporters and suppressing policies that reactivate economies during downturns. Lack of state direction has also inhibited a transition from an agro-mineral extractive economy to one capable of adding value to the products and developing technology in those sectors. And, al­though poverty levels may be declining, the highly unequal distribution of the nation^ wealth has not changed since the military government, when it became even more concentrated than before. Moreover, Chile's education

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