Good News in Chile: Economy Is Growing, Unemployment Down

DESPITE sluggish or no growth in much of the world, the Chilean economy is booming. Just ask Jaime Casassus, manager of operations of the Watt's Alimentos Foods processing plant here on the outskirts of Santiago.

Mr. Casassus says his company is having a hard time keeping up with demand. The plant produces vegetable oil and margarine for the domestic market and for export to Peru, Paraguay, and Argentina. Casassus is overseeing the construction of a new, highly automated plant just up the road from here. ``We were losing market share because we couldn't increase production at the old plant,'' he says. ``The new facility will operate with one-fifth the number of people this plant needs. Labor is hard to find. Unemployment is down around 5 percent, and we just cannot get enough employees.''

Ten years ago, when Chile was ruled by Augusto Pinochet Ugarte, few would have imagined that the country would now be described by analysts as ``the best-managed economy in Latin America,'' and as ``one of the best-managed economies in the world.''

In December, Eduardo Frei, candidate of the ruling Christian Democratic Party, easily won the election with 55 percent of the vote. Mr. Frei's victory represents the first democratic transition between governments in more than 20 years. Chileans voted to continue current government policies. News on the economic front has been outstanding:

* The economy has grown an average of 6 percent a year since 1985.

* Unemployment is running between 4 percent and 5 percent.

* The inflation rate plummeted from 505 percent in 1974 to about 12 percent in 1993. Economists are forecasting a 9 percent inflation rate for 1994.

* Exports, about 12 percent of gross domestic product 20 years ago, now run at about 35 percent of GDP.

* Total investment in Chile last year was an impressive 27 percent of GDP.

Since the United States, Canada, and Mexico successfully concluded the North American Free Trade Agreement, Chile has turned up the pressure for a similar trade deal. The country has already concluded free-trade agreements with Venezuela, Mexico, Argentina, Bolivia, and Colombia.

In his annual report to the Chilean Senate last fall, Central Bank President Roberto Zahler forecast that the nation's economy would grow between 4 percent and 5 percent this year.

Local businesspeople say they expect conditions to improve further once the worldwide recession ends and export markets revive. Fruit growers in Chile say they hope that progress on the General Agreement on Tariffs and Trade will cut European tariff barriers to their exports.

Jorge Marshall, Chile's economy minister, reported that while the total number of new companies created between 1990 and 1992 was up 9.2 percent, the number of new firms that were formed to participate in export activities was up 32 percent in the same period. The nation's exports have expanded from $3 billion in 1984 to $10 billion in 1992.

The export boom has helped Chile cut its external debt from 131 percent of GDP in 1984 to 50 percent last year. Interest payments on this debt accounted for 35 percent of exports last year, compared with 338 percent in the 1980s.

All of these changes have improved Chile's position as an investment and trade destination. Among the newly industrialized countries, Chile ranked fifth in competitiveness after Singapore, Hong Kong, Taiwan, and Malaysia, according to a report released in November by the Switzerland-based World Economic Forum and the International Management Development Institute.

The fruits of economic growth are starting to make a difference in the lives of Chilean workers as well. Between 1987 and 1992, the number of Chileans living below the poverty level fell from 44 percent to 33 percent.

Government reforms, including privatization, have reached many levels of the economy. One of the most innovative changes was Chile's decision in 1981 to create a private (but mandatory) system to administer employee pension funds. Chilean workers are widely supportive of their program, which supplements a government-mandated minimum pension. They are required to contribute 10 percent of earnings to individual, privately managed retirement accounts.

``The combination of a steady flow of contributions, together with very high real rates of return (an average of 14.5 percent from July 1981 to July 1992), has meant a large accumulation of funds invested in the Chilean economy,'' writes Peter Diamond in a paper published by the National Bureau of Economic Research. ``No doubt, these high rates of return have contributed to the popularity of the reform with Chilean workers.''

Employees may choose which of the regulated pension account managers they want to invest their money. Three-quarters of Chilean workers own a piece of these funds, which now have assets of around $14 billion - about 40 percent of GDP.

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