Wednesday, December 08, 2004

Red Hot Chile

I finally managed to find a link to the paper by Arminio Fraga, the ex-governor of the Brazilian Central Bank, noted development economist and ex-Soros hedge fund manager, comparing the economic performance of Latin American countries. He writes:
Chile is the main economic success story of Latin America, with by far the highest rates of per capita GDP growth in both the 1980s and the 1990s. Chile suffered an economic crisis in 1972–1973 under the populist economic policies of the Allende government, which helped to drive the military takeover in 1973. However, the military dictatorship then experienced its own economic crisis in 1982–1983, which paved the way for what we now know turned out to be a permanent shift to sound macro and micro policies starting about 1985. Following Chile’s transition back to democracy in 1989, these sound macroeconomic policies were maintained and in many instances deepened. Within a few years, investment as a proportion of GDP jumped up by 6 percentage points and per capita GDP growth increased by almost 3 points, as usefully reviewed by Schmidt-Hebbel(1999). In the case of Chile, it seems likely that memories of the economic fiasco under Allende in the early 1970s were still fresh in the minds of the highly competent group that took over after the military.