“Chile: The Superpower of South America” Editorial, Young Diplomats, 2 July 2016

“Chile is an outlier in Latin America precisely because it is so politically and economically stable. Overall, Chile’s experience is a notable example of moderate politicians successfully managing an economic windfall”.

Chile has been, in these last decades, one of the most stable countries in South America. It’s ability to adapt to the fall in copper prices, to limit public spending to provide macroeconomic stability, and to overcome a political transition with a strong Constitution, makes Chile a Latin economic superpower. Latin America’s economies have reacted differently to the drop in global commodity prices. With Chinese demand slowing and growth slow in Europe and the US, Latin America’s commodity boom is over. In Brazil, the decline in prices for key exports exposed severe structural problems. In Venezuela, the drop in oil prices plunged the country into a social crisis. Chile is a different story. Its economy is vulnerable to copper prices: 49% of the country’s exports are related to copper; mining activities account for 14% of GDP. Copper prices have dropped by 35% since their peak in 2011. But the country has been able to weather the plunge. Chile’s geography makes it vulnerable. On a continent where dense forests, rivers and mountains isolate countries like islands, Chile is a peripheral nation, relying on markets outside the continent.  None of its neighbours have consumer markets for its manufactured goods, nor manufacturing activity to use Chile’s copper. Thus, it relies on Europe, the US and East Asia. Exports to East Asia and the US account for 55% export revenue (Peru only 2.5%). A key factor in the country’s stability is its fiscal responsibility --resisting destabilizing public spending-- enforced by Chilean law. It is unlikely that future Governments will undo the fiscal rule. There are no visible disruptors in the near term to Chile’s three-decade run of good economic fortune. There is no sign of major instability in the political system or an attempt to undo the country’s fiscal rule. The next few years will inevitably bring slower economic growth: only about 3.1% in 2016, compared with nearly 6% in 2011.

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“Chile: The Superpower of South America” Editorial, Young Diplomats, 2 July 2016


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