Ironically, the success of Chile’s economy, the fastest growing in South America during the 1990s, stems from the blackest moments of its history. A country of long democratic traditions, in 1973, Chile saw one of the bloodiest military coups in the continent’s history.

Natural resources the key to Chile’s success, says Ambassador Celso Moreno Laval

The US Central Intelligence Agency (CIA) backed a rise to power of General Augusto Pinochet, which resulted in almost two decades of brutal dictatorship. Pinochet came to power in a bloody coup that toppled democratically elected socialist president Salvador Allende. Hundreds of regime opponents were gathered and tortured in secret detention centers. They subsequently "disappeared."
At the same time, the period also resulted in the implementation of early market reforms in the form of unilateral tariff cuts that were introduced, no doubt, to favor North American capital markets.
While the country’s political profile has changed since that dark period, the succeeding central-left government that put an end to Pinochet’s rule in 1990 continued with policies of open market reforms. As an early reformist, Chile drew great advantage from the wave of industrialization that hit the region in the 1970s, not least because of its huge reserves of copper – the country’s golden resource.
“Until the 1970s, Chile was a mono producer, the mineral making up to 70 percent of its exports. The largest copper mines are still to be found in this country,” says Chilean Ambassador to Hungary Celso Moreno Laval. “Copper is often called the salary of Chile.”

But the natural resource also left Chile at the mercy of international commodity prices. The mid-1980s demonstrated that measures meant to diversify Chile’s economy were not strong enough. Trade became the primary engine of growth, but the country’s main export item remained copper, which accounted for 30-45 percent of trade. Foreign investment, meanwhile, was targeted primarily at the mining industry.
When metal prices fell in the second half of the 1990s, and the 1998 Russian crisis hit the world economy, emerging market investors became cautious. Chile was hit hard and was left with an economy where consumer and government spending far outpaced growth.
Nevertheless, Chile managed to escape the fate that first hit Mexico, and later Argentina. This was partly due to an early response to the over-evaluation of Chile’s currency, the peso. While most southern countries in Latin America were lulled by large amounts of volatile investment capital that entered the region in the early 1990s, Chile took notice and floated its exchange rate when Argentina defaulted on its debt, which ended up crushing its own currency. The Chilean government, headed by President Ricardo Lagos, also took austerity measures to curb spending and avoid a balance-of-payment crisis.
According to Moreno Laval, another achievement of the post-Pinochet government was the diversification of export markets, a goal Chile still maintains and hopes to further develop through the EU accession of Central and Eastern European markets.

European Union-Chile trade agreement
On Nov. 18, 2002, the European Union signed its historic Association Agreement with Chile. The document covers political and cooperation issues. The trade chapter establishes a free trade area in goods “covering the progressive and reciprocal liberalization of trade in goods over a maximum transitional period of 10 years.” Through the agreement, the liberalization of 97.1 percent of bilateral trade, a 100 percent liberalization of industrial trade and 80.9 percent of agricultural trade will be reached. The document also foresees the liberalization of investment. The bulk of the trade agreement came into effect Feb. 1, 2003. The document will fully enter into force as soon as all parliaments of EU member states ratify the agreement. According to the EU, from 1980 to 2001, EU imports from Chile grew an average of 6.1 percent annually and exports by 8 percent. The EU is Chile’s largest trading partner, accounting for 25.2 percent of Chile’s total exports and 20.9 percent of its imports.

“Until a few years ago a third of our exports went to the Americas, another third to the Asian-Pacific region and another third to Europe,” says Moreno Laval.
“Today they occupy around one-fourth each, with South America representing a separate regional export market. As a result, regional crisis only hit a segment of our exports.”
Prudent fiscal policy bore fruit. Although Chile’s economic growth dropped sharply from 5.4 percent GDP growth in 2000 to 2.1 percent in 2002, in the long run the country’s economy remained stable enough to secure trade agreements with the strongest players of the international community.
In November 2002, Chile signed the historic Association Agreement with the European Union, its number one trading partner. The document went further than establishing a framework for free trade between Chile and the EU. The agreement, signed under the EU’s Spanish presidency also included a political and cooperation chapter as integral components of the deal.

Chile plays a balancing act between regional an international trade partners

Chile also signed FTAs with South Korea, the European Free Trade Association, consisting of Iceland, Norway, Liechtenstein and Switzerland, and in early September, celebrated the ratification of an FTA with the US, its second-largest trading partner.
Such agreements are important for Chile in maintaining its economic growth. The Economist Intelligence Unit forecasts 3.3 percent GDP growth for 2003 and a further 4.6 percent in 2004, largely due to the trade agreements. Meanwhile, the EU projects that its agreement with Chile will result in a 0.5 percent year-on-year increase in economic growth for the country.
Interestingly, Chile stepped out of a common round of FTA talks with the Mercosur trading group, whose full members are Brazil, Argentina, Paraguay and Uruguay. The Mercosur group has positioned itself as an alternative, home-grown South American trade group, an alternative to the US-backed Free Trade Area of the Americas (FTAA). Notwithstanding its agreement with the EU, Chile has still expressed its commitment to Mercosur - with the eventual goal of upgrading its current associate status to becoming a full member of the organization.
Playing a balancing act between its partners, Chile’s high level of foreign trade seem to have won out – in good times and in bad.

Hungary-Chile: meager trade figures
According to Chile’s Ambassador to Hungary, Celso Moreno Laval, relations between the two countries are very good, while commercial exchange remains meager, reaching less than USD 9 million a year. The most important goods Chile exports to Hungary are maize crops, tomato pulp and primary chemical materials. Meanwhile, its imports from Hungary mainly consist of light bulbs, textiles and hardware.
Moreno Laval says Chile expects a considerable growth in trade relations after Hungary’s accession to the EU on May 1, 2004. He says that the Hungarian government expressed interest in participating in tenders for the renewal of the public transport system in Santiago, Chile’s capital. On the other hand, Moreno Lavel says, Chile is interested in reaching Hungarian markets with its wine products and sees a future for cooperation in commercial aviation, tourism and the food industry.