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Monday, 17 January, 2000, 14:15 GMT
Chile faces economic challenge

Ricardo Lagos President-elect Lagos: Inherits strong economic hand


By Stephen Cviic in Santiago

One of the main campaign issues in Chile's presidential election was the economy.

The country has long been regarded as Latin America's star economic performer, its growth rates easily outstripping those of its larger neighbours.

But the past year has been a difficult one, with recession biting and causing many people to doubt the management skills of the governing centre-left coalition.



The new president will be judged on how well he plays his strong economic hand
Economist Gabriel Palma

At the foot of Chile's towering Andes mountains lies the Cousino-Macul vineyard.

The Cousino family have been growing grapes here for hundreds of years, but the idea of producing wine commercially is a lot more recent.

In the 1980s they started to export and became part of a revolution which has helped to drive along Latin America's most dynamic economy.

Carolina Ribera works for the Cosinu family, showing visitors around their wine museum. She says that the wine industry was transformed by new technology about 10 to 15 years ago.


General Pinochet Pinochet: impemented economic reform

"Chile always had the perfect vines, the perfect climate, the perfect soil. What we didn't have is the know-how and that's why we are so famous as we are right now and we're competing worldwide the way we are," she said.

The international success of the wine industry is part of a broader transformation which began under the Pinochet dictatorship, when the government decided to make a radical free-market break with the socialist past.

Gabriel Palma, a Chilean economist who teaches at Cambridge University, explained the impact of the Pinochet regime's economic policies.

"After the coup d'etat in 1973 there were quite important reforms implemented in Chile. The net effect of that was quite difficult for the first 10, 20 years, with the economy going through a massive recession.

Spectacular growth

"Once this first period had gone through, the economy began to grow, mainly for two reasons: one, the rate of investment in the country grew quite rapidly; and also a very dynamic export sector - mainly some minerals, some agricultural products and timber products," he added.

The centre-left coalition, which came to power after General Pinochet, continued most of his free-market policies while at the same time introducing successful anti-poverty programmes.

During the 1990s the Chilean economy grew at a spectacular 7% a year - a rate which bigger countries like Brazil and Argentina can only dream about.

But the Asian crisis brought trouble, reducing the demand for Chile's exports and the economy went into recession.

The shanty towns on the outskirts of Santiago are home to poor families from the rural south who have come to the capital in search of a better life. But many of the people living in these wooden shacks have been disappointed.


Joaquin Lavin Joaquin Lavin: Emphasized balancing the books

One inhabitant called Roberto said he hopes the new government will solve their housing and employment problems, with the new President, Ricardo Lagos, leading a "crusade for jobs".

The economic difficulties of the past year were thought to have boosted losing, right-wing presidential challenger Joaquin Lavin's chances.

One of his economic advisers, Angel Cabrera, said that if they won they would "place more emphasis on balancing the government's books".

In contrast, the president-elect's camp pledged he would place more emphasis on social welfare.

Prior to the election result, economist Gabriel Palma said he thought a right-wing government could alienate trade unions, leading to an increase in the number of strikes.

Economy 'vulnerable'

But he added that the new president had to deal with a fundamental weakness in Chile's export strategy:

"Today in the Chilean economy more than 90% of its exports are still primary commodities. There is still no sign of any capacity to increase the value added of those commodities or begin to export more sophisticated products.

"That makes Chile vulnerable to swings in international prices, especially of copper, its main export.

"But despite the uncertainties, [the country is] in relatively good shape. The new president will be judged on how well he plays his strong economic hand."

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See also:
17 Jan 00 |  Media reports
Lagos vows to heal past wounds
17 Jan 00 |  Americas
Profile: Ricardo Lagos
17 Jan 00 |  Europe
Last-ditch attempt to block Pinochet release
17 Jan 00 |  Americas
Victory for Pinochet opponent
12 Jan 00 |  Americas
Chile treads carefully around ruling

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