Free trade good for Chile

There is no reason why Chile could not become the Ireland of the Americas, says Andres Velasco, a professor at Harvard University's Kennedy School of Government. In the aftermath of Chile's Dec. 11 free trade agreement with the United States, and with its existing free trade deal with the European Union, Chile could become an island of prosperity in Latin America, he says.

Even before its free trade deal with the United States, Chile was doing much better than the rest of Latin America.

Between 1995 and 2000, Chile's economy grew by an average of 5.2 percent a year, compared to the region's 1.3 percent average annual growth rate.

While the Chilean economy grew by only 1.8 percent this year because of lower world copper and cellulose prices, Latin America's overall economy shrank by 0.5 percent, according to United Nations Economic Commission for Latin America (ECLAC) figures.

But Chile's most remarkable achievement is that, while poverty grew in many countries of the region, it has reduced its poverty rate by half over the past decade, from nearly 40 percent to 20 percent of its population. In other words, there are more than two million fewer poor in Chile today than a decade ago.

Now, with the Chile-U.S. free-trade agreement, which is expected to be approved by both congresses and go into effect in late 2003 or early 2004, some economists project that Chile's exports will grow by 25 percent and that the country's economy will grow by an additional 1.5 percent a year. Central American countries are hoping that the Chilean free trade deal will serve as a model for their own negotiations with Washington, which begin in coming months.

Source: Andres Oppenheimer, Chile Looks to Become the `Ireland of the Americas', The Miami Herald, Sunday, December 22, 2002.

For text http://www.miami.com/mld/miamiherald/news/columnists/andres_oppenheimer/4791682.htm
For more on International Economic Growth http://www.ncpa.org/iss/eco/

FMF Policy Bulletin\7 January 2003