Background Notes: Chile, March 1998

Released by the Bureau of Inter-American Affairs.

OFFICIAL NAME: Republic of Chile

PROFILE

Geography

Area: 756,945 sq. km. (302,778 sq. mi.); nearly twice the size of California.
Cities: Capital--Santiago (metropolitan area est. 5.2 million). Other cities--Concepcion-Talcahuano (840,000); Vina del Mar-Valparaiso (800,000); Antofagasta (245,000); Temuco (230,000).
Terrain: Desert in north; fertile central valley; volcanoes and lakes toward the south, giving way to rugged and complex coastline; Andes Mountains on the eastern border.
Climate: Arid in north, Mediterranean in the central portion, cool and damp in south.

People

Nationality: Noun and adjective--Chilean(s).
Population (1997): 14.6 million.
Annual population growth rate: 1.5%.
Ethnic groups: Spanish-Native-American (mestizo), European, Native-American.
Religions: Roman Catholic 89%; Protestant 11%.
Language: Spanish.
Education: Years compulsory--8. Attendance--3 million. Adult literacy rate--94%.
Health: Infant mortality rate--17/1,000. Life expectancy--72 yrs.
Work force (5.2 million): Services and government--36%. Industry and commerce--34%. Agriculture, forestry, and fishing--14%. Construction--7%. Mining--2%.

Government

Type: Republic.
Independence: September 18, 1810.
Constitution: Promulgated September 11, 1980; effective March 11, 1981; amended in 1989 and 1993.
Branches: Executive--president. Legislative--bicameral legislature. Judicial--Constitutional Tribunal, Supreme Court, court of appeals, military courts.
Administrative subdivisions: 12 numbered regions, plus Santiago metropolitan region, administered by appointed "intendentes," regions are divided into provinces, administered by appointed governors; provinces are divided into municipalities administered by elected mayors.
Political parties: Major parties are the Christian Democrat Party, the National Renewal Party, the Party for Democracy, the Socialist Party, the Independent Democratic Union, and the Radical Social Democratic Party. The Communist Party has not won a congressional seat in the last three elections.
Suffrage: Universal at 18, including foreigners legally resident for more than five years.

Economy (1997)

GDP: $77.1 billion.
Annual real growth rate: 7.1%.
Per capita GDP: $5,280.
Mining (8.2% of GDP): Copper, iron ore, nitrates, precious metals, and molybdenum.
Forestry, agriculture and fisheries (7.5% of GDP): Products--wheat, potatoes, corn, sugar beets, onions, beans, fruits, livestock, fish.
Industry (15.3% of GDP): Types--mineral refining, metal manufacturing, food processing, fish processing, paper and wood products, finished textiles.
Trade (1996): Exports--$15.4 billion: copper, fishmeal, fruits, wood products, paper products. Major markets--EU 24%, U.S. 17%, Japan 16%, U.K. 6%, Brazil 6%, South Korea 6%, Germany 5%, Argentina 5%. Imports--$17.4 billion: petroleum, chemical products, capital goods, vehicles, electronic equipment, consumer durables, machinery. Major suppliers--U.S. 24%, EU 20%, Argentina 9%, Brazil 6%, Japan 5%, Germany 4%.

U.S.-CHILEAN RELATIONS

Relations between the United States and Chile are better now than at any other time in history. The United States Government applauded the rebirth of democratic practices in Chile in the late 1980s and early 1990s and sees the maintenance of a vibrant democracy and healthy economy as among the most important U.S. interests in Chile. President Eduardo Frei's February 1997 state visit to the United States forged close ties with President Clinton, leading to the latter's state visit to Chile in April 1998. The two governments consult frequently on issues of mutual concern, and dialogue takes place in four bilateral commissions (on defense, global security, agriculture, and science).

Many prominent Americans and senior U.S. officials visited Chile during the period 1995-1997, including Mrs. Hillary Rodham Clinton, ex-Presidents Carter, Bush, and Ford, former Secretary of State Christopher, and many other members of the Cabinet and Congress, and senior members of the U.S. military, concerning a large range of issues from education through international trade.

The warm relationship enjoyed by United States and Chile today contrasts with the difficult period of relations during Augusto Pinochet's military regime from 1973-89. A 1976 car bomb attack in Washington, DC, which killed Orlando Letelier, former Chilean ambassador to the United States and a member of President Salvador Allende's cabinet, and U.S. citizen Ronni Moffitt, caused a sharp deterioration in relations, including a ban on security assistance and arms sales to Chile. In response to a commitment by President Aylwin's Government to pursue the Letelier-Moffitt case within the Chilean judicial system, President Bush lifted the sanctions. A Chilean court subsequently convicted two Chilean military officers of having ordered the assassination.

The goal of U.S. foreign policy in Chile is to pursue expanded economic relations and to cooperate on a range of bilateral and multilateral issues of interest. Above all, the United States believes that an economically strong and democratically healthy Chile will benefit the entire hemisphere.

U.S. Embassy Functions

Besides working closely with Chilean Government officials to improve our bilateral relationship, the U.S. Embassy in Santiago provides a wide range of services to U.S. citizens and businesses in Chile. (Please see the Embassy's home page: http://www.rdc.cl/~usemb for details of these services.) The embassy is also the locus for a number of American community activities in the Santiago area.

Attaches at the embassy from the Foreign Commercial Service and Foreign Agriculture Service work closely with the hundreds of U.S. companies which maintain offices in Chile. These officers provide information on Chilean trade and industry regulations and administer several programs intended to aid U.S. companies starting or maintaining business ventures in Chile.

The Consular section of the embassy provides vital services to the more than 5,500 U.S. citizens residing in Chile. Among other services, the Consular section assists Americans who wish to participate in U.S. elections while abroad and provides U.S. tax information. Besides the U.S. residents living in Chile, over 80,000 U.S. citizens visit annually. The Consular section offers passport and emergency services to U.S. tourists as needed during their stay in Chile.

Principal U.S. Embassy Officials

Ambassador--Gabriel Guerra-Mondragon
Deputy Chief of Mission--Charles S. Shapiro
Economic and Political Counselor--Stephen Wesche
Agricultural Counselor--Richard J. Blabey
Consul General--Thomas J. Rice
Administrative Counselor--David Davison
Commercial Counselor--Carlos F. Poza
Defense Attache--Capt. Thomas L. Breitinger, USN
Public Affairs Officer--Kathleen Brion
Milgroup Commander--Col. Mark Mayer

The U.S. Embassy and Consulate in Santiago are located at 2800 Andres Bello Avenue, Las Condes, (tel. 562-232-2600; fax: 562-330-3710). The mailing address is Casilla 27-D, Santiago, Chile. Internet: http://www.rdc.cl/~usemb.

ECONOMY

Chile's economy, spurred by free market-oriented policies, has averaged a real growth rate of almost 8% per year over the past decade. A limited government role in the economy, openness to international trade and investment, high domestic savings and investment rates, and budget surpluses have made this performance possible. The economy's rapid growth has led to steady increases in wages and living standards.

In 1997, the economy grew by 7.1% in real terms as the inflation rate fell to 6.0%. With investment continuing at a record pace, the economy is expected to continue growing quite vigorously over the next several years. The late-1997/98 financial crisis in Asia is expected to negatively affect Chilean exports and reduce Chile's substantial trade surplus with the region; the Asian crisis is expected to reduce Chilean GDP expansion by roughly one percentage point, resulting in a growth rate of between 5.5% and 6.0% in 1998.

Chile has achieved central government budget surpluses every year since 1988. In 1997, the surplus equaled 1.9 % of GDP. The 1973-90 military government sold many state-owned companies, and the two democratic governments since 1990 have continued privatization at a more sporadic pace. Import tariffs are a flat 11% on nearly all products and the GOC plans to reduce the rate to 8% in 1998. Policy measures such as the privatization of the national pension system encourage domestic investment, contributing to an estimated total domestic savings rate of approximately 23% of GDP in 1997. The foreign investment law offers investors basically the same treatment as domestic firms, along with some extra guarantees.

Wages have risen faster than inflation each year since 1990; nearly all of this growth reflects greater productivity. The higher wages have increased living standards and have brought more people into the labor force. The share of Chileans with incomes below the poverty line (roughly $4,000/year for a family of four) fell from 46% of the population in 1987 to 23% in 1997.

Unemployment has varied with the business cycle in recent years, with annual rates of between 4.5% and 6.0%.

Inflation has declined every year since 1990, when the indicator stood at 27%. In 1996, December-to-December inflation stood at 8.2%, and it fell to 6.0 % in 1997. Because most wage settlements and spending decisions are indexed, either formally or informally, it has been difficult to reduce inflation rapidly while maintaining high growth rates. Still, the independent Central Bank has been willing to raise interest rates when necessary to bring down inflation.

The establishment of a compulsory private sector pension system in 1981 was an important step toward increasing domestic savings and the pool of investment capital. Under this system, all workers must pay 10% of their salaries into privately managed funds. This large capital pool has been supplemented by substantial foreign investment.

Total public and private investment in the Chilean economy is very high; in 1997, investment accounted for 33% of GDP, a historical record. The government recognizes the necessity of steadily increasing private investment to boost worker productivity. The government is also encouraging diversification to non-traditional exports such as fruit, wine, and fish to gradually reduce the relative importance of basic traditional exports such as copper, timber, and other natural resources.

Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. However, such capital must be kept in Chile for one year before being repatriated.

Foreign direct investment in Chile continued at a record pace in 1997, adding $5.0 billion to the total stock. Total foreign investment flows in 1998 (including portfolio and other indirect forms of investment) were $8.1 billion, or better than 10% of GDP.

Foreign Trade

Chile's economy is highly dependent on international trade. In 1996, exports reached $15.4 billion and imports $17.4 billion. Exports accounted for almost 22% of GDP. Chile has traditionally been dependent upon copper exports. The state-owned firm CODELCO is the world's largest copper producing company. Foreign private investment has developed many new mines, and the private sector produces more copper than CODELCO. Copper output is expected to increase significantly in the next few years as more private sector projects come on stream.

Non-traditional exports have grown faster than those of copper and other minerals. In 1975, non-mineral exports made up just over 30% of total exports; by 1996, they accounted for 52% of export earnings. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and other manufactured products.

Chile's export markets are geographically diverse. Asia and the European Union are the largest regional markets. The U.S., the largest single market, takes in about 17% of Chile's exports. Latin America has been the fastest-growing export market in recent years. The government actively seeks to promote Chile's exports globally. Since 1991, Chile has signed free trade agreements with Canada, Mexico, Venezuela, Colombia, and Ecuador. An association agreement with MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay) went into effect in October 1996. Chile has joined the Asia-Pacific Economic Cooperation (APEC) organization in an effort to boost commercial ties to Asian markets. Also, Chile and the European Union plan to negotiate a trade agreement in the medium term. Chile shares the U.S. interest in negotiating a comprehensive trade agreement between the two countries. This is due in large part because the United States is the country's most important single trading partner and source of foreign investment; both countries also recognize that the example it would set for broader hemispheric trade integration would be in each other's interest. Chile's 1996 free trade agreement with Canada was modeled largely on NAFTA in anticipation of an eventual trade pact with the United States; similarly, Chile broadened its bilateral free trade agreement with Mexico in March 1998.

Imports have grown along with the economy in the past few years. The country's high investment rate is reflected in the fact that capital goods make up almost 30% of total imports. The United States is Chile's largest single supplier, supplying 24% of the country's imports in 1996. Import tariffs are a flat 11% on nearly all products although higher effective tariffs can be charged on imports of wheat, wheat flour, vegetable oils, and sugar as a result of a system of import price bands.

Finance

Chile's financial sector has grown faster than other areas economy over the last few years; a banking law reform approved in 1997 broadened the scope of permissible foreign activity for Chilean banks. Domestically, Chileans have enjoyed the recent introduction of new financial tools such as home equity loans, currency futures and options, factoring, leasing, and debit cards. The introduction of these new products has been accompanied by increased use of traditional instruments such as loans and credit cards. Chile's private pension system, with assets worth over $30 billion at the end of 1997, has provided an important source of investment capital for the stock market. The number of firms with shares traded on the stock market continues to grow.

Chile's credit rating is one of the best in Latin America. In recent years, many Chilean companies have sought to raise capital abroad due to the relatively lower interest rates outside of Chile. There are three main ways Chilean firms raise funds abroad: bank loans, issuance of bonds, and the selling of stock on U.S. markets through American Depository Receipts (ADRs). Nearly all of the funds raised go to finance investment.

The government is rapidly paying down its foreign debt. The combined public and private foreign debt was roughly 35% of GDP at the end of 1997, low by Latin American standards.

GOVERNMENT AND POLITICAL CONDITIONS

Following a coup in 1973, Chile was ruled by a military regime headed by General Augusto Pinochet until 1990. The first years of the regime were marked by serious human rights violations. In its later years, however, the regime gradually permitted greater freedom of assembly, speech, and association, to include trade-union activity.

In contrast to its authoritarian political rule, the military government pursued decidedly laissez faire economic policies. During its 16 years in power, Chile moved away from economic statism toward a largely free-market economy and that fostered an increase in domestic and foreign private investment.

General Pinochet was denied a second eight-year term as President in a national plebiscite in 1988. In December 1989, Christian Democrat Patricio Aylwin, running as the candidate of a multi-party center-left coalition, was elected president. In the 1993 election, Eduardo Frei Ruiz-Tagle of the Christian Democratic Party was elected president for a six-year term and took office in March 1994.

Chile's constitution was approved in a September 1980 national plebiscite. It entered into force in March 1981. After Pinochet's defeat in the 1988 plebiscite, the constitution was amended to: ease provisions for future amendments to the constitution; create nine appointed or "institutional" senators; and diminish the role of the National Security Council by equalizing the number of civilian and military members (four members each).

Chile's bicameral Congress has a 48-seat Senate (38 elected, 9 appointed, one for-life) and a 120-member Chamber of Deputies. Deputies are elected every four years. Senators serve for eight years with staggered terms. The current Senate contains 20 members from the center-left governing coalition, 18 from the rightist opposition. In March 1998, nine newly appointed institutional senators--replacing those appointed under the former military government in 1989--took seats, as did ex-President Pinochet, who became a "senator for life" (Chile's constitution provides that ex-Presidents who have served at least six years shall be entitled to a lifetime senate seat.) Both the Aylwin and Frei Administrations have proposed unsuccessfully the abolition of the nine appointed Senate seats. The last congressional elections were held in December 1997. The current lower house (the Chamber of Deputies) contains 70 members of the governing coalition and 50 from the rightist opposition. The Congress is located in the port city of Valparaiso, about 140 kilometers (84 mi.) west of the capital, Santiago.

Chile's congressional elections are governed by a unique binomial system that rewards coalition slates. Each coalition can run two candidates for the two Senate and two lower chamber seats apportioned to each chamber's electoral districts. Typically, the two largest coalitions split the seats in a district. Only if the leading coalition ticket outpolls the second-place coalition by a margin of more than 2-to-1 does the winning coalition gain both seats.

The political parties with the largest representation in the current Chilean Congress are the centrist Christian Democrat Party and the center-right National Renewal Party. The Communist Party and the small Humanist Party failed to gain any seats in the 1997 elections.

Chile's judiciary is independent and includes a court of appeal, a system of military courts, a constitutional tribunal, and the Supreme Court.

National Security

Chile's armed forces are subject to civilian control exercised by the president through the Minister of Defense. Under the 1980 constitution, the services enjoy considerable autonomy, and the president cannot remove service commanders on his own authority.

Army 55, troops: The Commander in Chief is Lt. General Ricardo Izurieta. The army is organized into six divisions, one separate brigade, and an air wing.

Navy: Admiral Jorge Arancibia directs the 29,000-person navy, including 5,200 marines. The fleet of 11 surface vessels and four submarines is based in Valparaiso. The navy operates its own aircraft.

Air Force: General Fernando Rojas Vender heads a force of 12,000. Air assets are distributed among four air brigades headquartered in Iquique, Santiago, Puerto Montt, and Punta Arenas. The Air Force also operates an airbase on King George Island, Antarctica.

The Chilean police are comprised of a national, uniformed police force (carabineros) and a smaller, plainclothes investigations police force. After the military coup in September 1973, the Chilean national police were incorporated into the Defense Ministry. With the return of democratic government, the police were placed under the operational control of the Interior Ministry, but remain under the nominal control of the Defense Ministry. General Manuel Ugarte, who directs the national police force of 27,000, is responsible for law enforcement, traffic management, narcotics suppression, border control, and counter-terrorism throughout Chile.

PEOPLE

About 85% of Chile's population live in urban centers with 40% living in greater Santiago. Most have Spanish ancestry. A small, yet influential, number of Irish and English immigrants came to Chile during the colonial period. German immigration began in 1848 and lasted for 90 years; the southern provinces of Valdivia, Llanquihue, and Osorno show a strong German influence. Other significant immigrant groups are Italian, Croatian, French, and Middle Eastern. About 400,000 Native Americans, mostly of the Mapuche tribe, reside in the south-central area.

The northern Chilean desert contains great mineral wealth, primarily copper and nitrates. The relatively small central area dominates the country in terms of population and agricultural resources. This area is also the historical center from which Chile expanded until the late 19th century, when it incorporated its northern and southern regions. Southern Chile is rich in forests and grazing lands and features a string of volcanoes and lakes. The southern coast is a labyrinth of fjords, inlets, canals, twisting peninsulas, and islands. It also has small, rapidly declining petroleum reserves, which supplied about 8% of Chile's domestic requirements during 1996.

HISTORICAL HIGHLIGHTS

About 10,000 years ago, migrating Indians settled in fertile valleys and along the coast of what is now Chile. The Incas briefly extended their empire into what is now northern Chile, but the area's remoteness prevented extensive settlement.

In 1541, the Spanish, under Pedro de Valdivia, encountered hundreds of thousands of Indians from various cultures in the area that modern Chile now occupies. These cultures supported themselves principally through slash-and-burn agriculture and hunting. Although the Spanish did not find the extensive gold and silver they sought, they recognized the agricultural potential of Chile's central valley, and Chile became part of the Viceroyalty of Peru.

The drive for independence from Spain was precipitated by usurpation of the Spanish throne by Napoleon's brother Joseph. A national junta in the name of Ferdinand--heir to the deposed king--was formed on September 18, 1810. Spanish attempts to reimpose arbitrary rule during what was called the Reconquista led to a prolonged struggle under Bernardo O'Higgins, Chile's most renowned patriot. Chilean independence was formally proclaimed on February 12, 1818.

The political revolt brought little social change, however, and 19th century Chilean society preserved the essence of the stratified colonial social structure, family politics, and the influence of the Roman Catholic Church. The system of presidential power eventually predominated, but wealthy landowners continued to control Chile.

Toward the end of the 19th century, government in Santiago consolidated its position in the south by persistently suppressing the Mapuche Indians. In 1881, it signed a treaty with Argentina confirming Chilean sovereignty over the Strait of Magellan. As a result of the War of the Pacific with Peru and Bolivia (1879-83), Chile expanded its territory northward by almost one-third and acquired valuable nitrate deposits, the exploitation of which led to an era of national affluence.

Chile established a parliamentary-style democracy in the late 19th century, which tended to protect the interests of the ruling oligarchy. By the 1920s, the emerging middle and working classes were powerful enough to elect a reformist president, whose program was frustrated by a conservative congress. Continuing political and economic instability resulted in the quasi-dictatorial rule of General Carlos Ibanez (1924-32).

When constitutional rule was restored in 1932, a strong middle-class party, the Radicals, emerged. It became the key force in coalition governments for the next 20 years. In the 1920s, Marxist groups with strong popular support developed. During the period of Radical Party dominance (1932-52), the state increased its role in the economy.

The 1964 presidential election of Christian Democrat Eduardo Frei-Montalva (father of the current president) by an absolute majority initiated a period of major reform. Under the slogan "Revolution in Liberty," the Frei Administration embarked on far-reaching social and economic programs, particularly in education, housing, and agrarian reform, including rural unionization of agricultural workers. By 1967, however, Frei encountered increasing opposition from leftists, who charged that his reforms were inadequate, and from conservatives, who found them excessive.

In 1970, Dr. Salvador Allende, a Marxist and member of Chile's Socialist Party, who headed the "Popular Unity" (UP) coalition of Socialists, Communists, Radicals, and dissident Christian Democrats, was elected by a narrow margin. His program included the nationalization of most remaining private industries and banks, massive land expropriation, and collectivization. Allende's proposal also included the nationalization of U.S. interests in Chile's major copper mines.

Elected with only 36% of the vote and by a plurality of only 36,000 votes, Allende never enjoyed majority support in the Chilean Congress or broad popular support. Domestic production declined, severe shortages of consumer goods, food, and manufactured products were widespread and inflation reached 1,000% per annum. Mass demonstrations, recurring strikes, violence by both government supporters and opponents, and widespread rural unrest ensued in response to the general deterioration of the economy. By 1973, Chilean society had split into two hostile camps. A military coup overthrew Allende on September 11, 1973. As the armed forces bombarded the presidential palace, Allende committed suicide.

FOREIGN POLICY

With its return to democracy in 1990, Chile became an active participant in the international political arena. It is an active member of the Rio Group, and it rejoined the Non-Aligned Movement. Chile was a driving force in the world summit for social development held in Copenhagen in March 1995. Chile is an active member of the United Nations and the UN family of agencies, serving on the UN Security Council 1995-97. Chile participates in UN peacekeeping activities, including UNSCOM in Iraq. The Chilean Government has diplomatic relations with most countries, including Cuba. Chile maintains only consular relations with Bolivia; Chile's acquisition of territory during the War of the Pacific (1879-83) continues to influence adversely its relations with Peru and Bolivia. Chile's association with the MERCOSUR countries in 1996 and its continuing interest in hemispheric free trade, as well as its membership in the Asia-Pacific Economic Cooperation (APEC) grouping auger well for even closer international economic ties in the future. Politically, Chile has been one of the most active countries in supporting implementation of the 1994 Summit of the Americas, hosting the second Summit of the Americas in Santiago, April 1998.

Principal Government Officials

President--Eduardo FREI Ruiz-Tagle
Minister of Foreign Affairs--Jose Miguel INSULZA
Ambassador to the United States--John BIEHL Del Rio
Ambassador to the Organization of American States (OAS)--Carlos PORTALES
Ambassador to the United Nations--Juan SOMAVIA Altamirano

Chile maintains an embassy in the United States at 1732 Massachusetts Avenue NW, Washington, DC 20036 (tel. 202-785-1746).

OTHER CONTACT INFORMATION:

American Chamber of Commerce in Chile
Vespucio Sur 80, Piso 9
82 Correo 34
Santiago
Tel:/Fax: 562-290-9700
Fax: 562-206-0911/2247
Home page: http://www.amchamchile.cl

U.S. Department of Commerce
Trade Information Center
International Trade Administration
14th and Constitution Avenue, NW
Washington, DC 20230
Tel: 800-USA-TRADE, Fax: 202-482-4726
Home page: http://www.ita.doc.gov

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheets exist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country.