Chile's Economy Still Bustling

But some observers say growth has been no panacea to the worsening problem of a disparity in wealth

IN view of the snow-capped Andes mountains, shoppers at the Las Condes mall here buy Gucci bags and Calvin Klein sweaters and snack on Taco Bell burritos.

But across town, in the sprawling slum called La Pinata, dozens of residents hang out on street corners before lining up at one of the city's 124 soup kitchens.

Chile, a country with 14 million inhabitants, is known for its recent economic turnaround - thus, its nickname ``Tiger of the Andes.''

In the past nine years, the open-border, export-dependent model has produced average gross domestic product growth of 6 percent a year - the fastest clip of any economy in the Western Hemisphere. Inflation has plummeted from an annual rate of 505 percent in 1974 to about 10 percent in 1994.

Exports and foreign investment are surging, and the nation's stock market is up 62 percent in dollar terms so far this year, surpassed only by Brazil. As an auger of future success, Chile is expected to get the nod this week at the Summit of the Americas in Miami to begin negotiations to join the North American Free Trade Agreement.

Yet, economic growth hasn't been a panacea. The gap between the rich and poor has grown, prompting some observers here to refer to the ``Two Chiles.''

``There are two cultures emerging, one rich and one poor,'' says Hector Salazar, a human rights lawyer here. ``Wealth is more concentrated now than ever.''

The disparity in income, common throughout Latin America, is just one problem taking luster out of the new Chile. Mexico, which is on a similar economic path, is channeling private and public funds into infrastructure. But critics here hold that public highways and transportation, schools, and health facilities have deteriorated from the official policy of less government and more privatization.

In general, critics say, Chile is still recovering from the abrupt shift to free-market policies begun under the military dictatorship of Gen. Augusto Pinochet, who ruled from 1973 to 1990. General Pinochet slashed tariffs, ended price controls, and privatized hundreds of state-owned firms. And he spent more on the armed forces than on education, health, and other services. The transition away from a centralized, heavily subsidized economy hit many Chileans hard.

The poverty level more than doubled from 17 per 100 families in 1970 to a peak of at least 38 per 100 in 1987, according to one study by the United Nations Economic Commission for Latin America. Other studies put the poverty-level peak as high as 44 percent of the population. Unemployment soared to a record high of 30 percent in 1983. Soup kitchens appeared in city neighborhoods for the first time.

The latest United Nations and Inter-American Development figures show that the poverty level has fallen to 32 percent to 28 percent of the population. By Latin American standards, Chile is recovering well. But the widening income gap is a concern. The average income of the wealthiest 10 percent of the population is now more than 36 times greater than that of the poorest 10 percent.

The two Chiles are not only visible at shopping malls and soup kitchens. Sixty percent of the total school population attend overcrowded public schools, which lack both materials and qualified teachers.

President Eduardo Frei Ruiz-Tagle assumed power in March, promising to make further progress in the areas of poverty, education, and health. With widespread public and political consensus, he has created the National Committee to Overcome Poverty.

President Frei is following in the footsteps of ex-President Patricio Aylwin Azocar, who won Chile's first democratic election in 20 years in 1990. Mr. Aylwin, who promised ``growth and equality,'' dramatically increased social spending.

Frei campaigned for a gentler capitalism and is expected to not only increase social spending from $1.7 billion in 1993 but spend more on education than defense for the first time since 1973.

``There's not a country in the world that has succeeded in crossing the threshold of development with one-third of its population in poverty,'' says presidential secretary Genaro Arriagada.

Nevertheless, Frei is getting a much rougher ride from public workers than his predecessor. Wage hikes still lag behind the rate of inflation.

In the past six months, his administration has been rocked by a series of strikes and work stoppages by miners, teachers, and health-care workers. In fact, doctors are threatening to continue with longer strikes every few weeks until they get a pay hike.

Economic growth has slowed in the past year; unemployment has risen to 6.7 percent, the highest rate since 1991. And the number of poor people appears to have leveled off at about 30 percent of the population.

Pro-free trade supporters say joining NAFTA should help keep Chile on the road to prosperity by providing easier access to the wealthy North American market.

But many economists argue that even a 6 percent growth rate won't resolve Chile's poverty problem. Most jobs available in the future, they say, will be in the service and commerce sectors that are traditionally low-paying.

``You can't call yourself a tiger for lowering inflation and having some macro economic successes,'' Alberto Etch-egaray, the director of the government's anti-poverty commission, said recently. ``We'll truly be tigers only when everyone feels [that] they are part of the same country.''

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