Chile: well on the way to eradicating poverty

from MacLeans

This South American nation has one ot the world's best economies

ISABEL VINCENT | September 24, 2007 |

Capitalism and globalization used to be dirty words for Latin American leftists, who in the past were quick to blame the region's poverty on what they saw as these largely destabilizing and outside factors. But after a decade in which savvy leftist legislators in Chile pursued a bold economic program to embrace the free market, while at the same time creating public policy measures to address the needs of the most impoverished in the country, poverty is rapidly becoming an anachronism in Chile, one of the world's fastest-growing economies.

Poverty has fallen faster in Chile than anywhere else in Latin America, according to figures recently published by the Chilean government. Statistics collected by the Caracterización Socioeconómica Nacional (CASEN) survey carried out by the country's planning ministry showed that poverty fell from 18.7 per cent in 2003 to 13.7 per cent in 2006. In 1990, when dictator Augusto Pinochet left office, more than 38.6 per cent of people in this Andean country of 16 million lived below the poverty line.


For the country's president, Michelle Bachelet, the breakthrough is due entirely to the steady rule of several centre-left Concertación administrations. The party, an alliance of centre-left political parties founded in 1988, has won every presidential race since Pinochet's departure. "The social achievements are obvious," said Bachelet, a former political prisoner under Pinochet's rule, in a recent public statement following the release of the CASEN statistics. "Our priorities have never varied and we stick to them: a social safety net as never before, quality education, better health care, decent homes, pensions for the most vulnerable."

Indeed, last year the United Nations Development Programme's annual Human Development Index, which measures countries' social as well as economic conditions, ranked Chile 38th in the world, ahead of all other Latin American countries. "There is no other country in the region and very few in the developing world that have made this kind of progress during this period [1990-2006]," says Jorge Heine, CIGI professor of global governance at Wilfrid Laurier University in Waterloo, Ont. "It is a considerable achievement, considered by many as the defining question of our time."

Heine and others credit what he calls "the imaginative and well-created public policies" that have been applied by a succession of Concertación governments. The Chilean government has invested in public infrastructure and telecommunications while maintaining a strong export-led approach to development, he says. Chile has 54 free-trade agreements with countries all over the world, including Canada. Since 1990, the country has increased exports from US$9 billion a year to US$60 billion in 2006, Heine says. As a result, Chile's economy has grown at a yearly average of 5.6 per cent, the highest anywhere outside Asia. Since 1990, per capita income has soared from US$2,500 to US$9,000 today. And the country recently signed a free-trade agreement with Japan, which is expected to generate more than US$3 billion in exports of Chilean products, said Bachelet.

What many of the politicians fail to acknowledge is the economic legacy of the Pinochet years. While poverty remained high when the general stepped down after 17 years in power, he did usher in a program of free-market reforms that tore down tariff barriers and other bureaucratic obstacles, paving the way for the myriad free-trade deals that the country has in place today. The measures also ushered in a flood of foreign investment, including more than $7 billion worth of Canadian investment, mainly in the mining sector.

When he began instituting economic reforms soon after he seized control in a coup d'état in September 1973, Pinochet declared that his goal was "to make Chile not a nation of proletarians, but a nation of entrepreneurs." In addition to breaking down tariff walls to encourage foreign investment and exports, Pinochet also returned companies nationalized under his predecessor, the Marxist leader Salvador Allende, to their original owners.

But the grave human rights record of Pinochet's rule dogged the fiercely anti-Communist general until his death last year, and for many analysts his harsh economic free-market policies have little to do with today's alleviation of poverty in the country. "It has nothing to do with Pinochet," says Heine, referring to Pinochet's effect on the recent poverty statistics. "In those years, poverty and inequality increased considerably." And there was almost no social safety net set up for the poor, many of whom were faced with unemployment after Pinochet's government slashed government bureaucracies and privatized companies.

When centre-left politicians took over after the general's resignation in 1990, they might have had Pinochet's capitalist experiment in mind when they focused a great deal of their efforts on programs that offered small loans to Chile's most impoverished residents, allowing them to open small businesses in urban shantytowns and impoverished rural areas -- effectively turning Chile into a nation of entrepreneurs, as per Pinochet's original plan.

The results are evident today, particularly in the rural areas in which poverty fell from 19.9 per cent in 2003 to 12.3 per cent in 2006, according to the CASEN survey. While it still means that more than 2.2 million people in Chile live with less than US$90 a month in the city, and less than US$60 a month in the country, Chile is well below the average in the rest of Latin America and the Caribbean, where fully 40 per cent of the overall population is under the poverty line.

While other Latin American countries have instituted anti-poverty campaigns, many of them have been mired in corruption and proven largely ineffective (one exception is Brazil, where an anti-poverty campaign instituted in 2003 has resulted in a 19 per cent decrease in poverty statistics last year). That is dangerous; last fall when she addressed the UN General Assembly, Bachelet noted that the biggest threat to democracy in Latin America is poverty. "I come from a country where today the rule of law prevails, where the rights of persons are respected and promoted -- a democracy that is experiencing economic growth and that in the past 16 years has helped millions of Chileans out of poverty," she said. Perhaps other Latin American leaders would do well to follow in her footsteps.