Chile's Chances as the Next NAFTA Candidate the Country Has Unfinished Business on Three Important Fronts, but Its Economic Successes Have Been Spectacular

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IN late September, Congress will vote on giving President Clinton "fast track" authority to negotiate Chile's admission to NAFTA. Washington sees the issue largely in domestic terms, but the decision should not be taken without a clear understanding of what is happening in Chile. Though problems remain, the country's successes provide a model for the rest of Latin America. It is a good market and a good NAFTA candidate.

Since the early 1960s, no country in Latin America has undergone a more remarkable transformation than this 2,700-mile-long nation sandwiched between the Andes mountains and the Pacific Ocean. When I was in Chile in 1984, it was struggling to pull itself out of a deep recession. In 1982, its GDP had fallen by an astounding 14 percent. It fell again in 1983, and unemployment rose to 30 percent. During my visit, stores were boarded up and restaurants were empty.

Today, Chile is basking in a sustained economic boom. Over the last 12 years, the economy has grown at an average annual rate of 6 percent, a rate historically unprecedented for Chile and one of the highest in the world during this period. GDP has doubled, and per capita income is approaching $4,000 a year, well above the Latin American average.

Both inflation and unemployment are down, while the Chilean peso is strong. When I lived in Chile in the mid-1960s, the name of the money game was to get out of the local currency (then escudos) into dollars. Today, with a steady trade surplus and foreign investment pouring in, the peso has been stronger than the dollar.

The ongoing economic miracle has physically transformed Santiago, Chile's capital. Construction is everywhere in this safe and orderly city of 5 million - new factories and warehouses on the outskirts; glass office towers downtown, and new houses and high-rise condominiums in the foothills of the Andes. Retail commerce is booming, not only in the once-vacant stores of Providencia, but in the indoor malls that have sprung up throughout Santiago. Restaurants are full, even on weeknights.

Transforming the economy

The way the economic boom happened - under a military regime pursuing free-market economics - is as remarkable as the boom itself . Chile was a country with a democratic history and a tradition of government intervention in the economy. Before the government of Salvador Allende (1970-73) attempted to build socialism, and the Christian Democratic administration of Eduardo Frei (1964-70) enacted agrarian reform and nationalized the copper industry, government intervention was accepted in Chile as the most effective and equitable route to national development.

A military coup on Sept. 11, 1973, not only ended decades of civilian rule, it also reversed Chilean economic tradition. The military government headed by Army commander Augusto Pinochet used its considerable powers to systematically and relentlessly reduce government regulation, privatize public industries, lower trade barriers, and open Chile to foreign investment and competition. The commander transformed Chile from a sluggish, protected economy overly dependent on copper exports into a dynamic exporter of wood products, fruit, seafood, wine, and copper.

General Pinochet's Chile became the pioneer in pursuing the neoliberal development strategy now common throughout Latin America. The dictatorship's economic policies were so popular and successful that when civilian rule finally returned to Chile in 1990, the newly elected government kept them in place. Incumbent President Frei, son of the 1960s Christian Democratic president of the same name, has done the same.

A striking change in outlook and attitudes among Chileans has accompanied the economic and physical transformation of the country. …