Chilean President Michelle Bachelet Pool Laurie Dieffembacq/ZumaPress

Chile’s Uncertain Future

Chile’s economic performance has been the strongest in South America, and it's no surprise that he country is the continent's only OECD member. So why have Chile’s voters elected a president and a parliament that many fear could jeopardize this success.

CAMBRIDGE – When I was in Chile earlier this month, I was impressed by the contrast between the palpable success of its long-standing free-market policies and the current agenda of its leftist president, Michelle Bachelet. How this contrast is resolved will be important not only to the country’s more than 17 million people, but also to everyone who regards Chile as a model of what sound economic policies have been able to achieve.

Chile’s economic performance has been the strongest in South America. Its per capita GDP exceeds $22,000 in purchasing-power-parity terms, making its income higher than that of Argentina, Brazil, and Mexico. It’s no surprise that Chile is considered a developed country – the only South American member of the OECD.

Copper is Chile’s major product and accounts for half of its exports. Although the government owns Codelco, the world’s largest copper producer, it is Chile’s only publicly owned company. The company’s revenue varies with the global price of copper, yielding higher government revenues in some years and declines – for example, this year – when the global price is down. The government follows a wise fiscal strategy that involves budget surpluses in years when copper revenue is high, with the additional funds channeled to a national stabilization fund.