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Chile, once Latin America's economic model, now overtaken by Brazil

Conservative tycoon Sebastian Piñera won the second round of Chile's presidential election on Sunday in part due to voter faith that he can revive the economy. Meanwhile, Brazil's economy is booming.

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Chile more open than Brazil

Chile remains an economic stalwart. It also pulled out of the economic crisis solidly, using the windfall from copper exports saved during boom times. It maintains a strict fiscal policy and its 21 trade deals with 57 nations reflect an economy that is much more open than that of Brazil. It consistently ranks as the least corrupt government in Latin America and will this month become the 31st member of the Organization for Economic Cooperation and Development (OECD), a group of top developed nations.

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“I would say our image in the region is extremely positive,” says Juan Gabriel Valdés, the executive director of the government’s Chilean Image Foundation. “We know that we are observed and studied.”

Still, some in Chile are starting to grumble. While it averaged 8 percent growth from 1987-97, it now grows at about half that rate. Chile needs to regain its momentum, say critics, and work out kinks such as lost productivity and rigidity in labor laws.

“Chile is like a B student today. It is not bad, but it is not brilliant,” says Felipe Morandé, dean of the economics department at the University of Chile and an adviser to Sebastian Piñera, the right-leaning candidate who won the second round of presidential elections on Sunday. Mr. Morande says part of Mr. Piñera’s appeal is voter faith that he can revive the economy.

But Brazil now overshadows Chile, especially with Lula, its wildly popular leader whom President Obama called “the most popular politician on earth.” Ricardo Ffrench-Davis, an economist and former central bank official, says Brazil looks so good partly because it used to look so bad. “Two years ago, Brazil was growing much less than Chile,” he says.

Both countries face challenges ahead; both need to improve education and bridge divides between rich and poor. But their recovery from the economic crisis, as well as the strong rebounds in other nations such as Peru, bodes well for the future of the region, says Carlos Furche, head of trade in Chile’s government.

And those in Chile say they welcome the success of Brazil, which they view not as a rival but as a boon: A growing Brazil buoys everybody.

“The importance of Brazil’s emergence,” says Thomas Trebat, a Brazil expert at Columbia University in New York, “is that it shows you that growth can occur in Latin America in more places than just Chile.”