Chile: The Highest Ranked Economy in Latin America - Essay Sample

Introduction

The World Bank ranks Chile as among the high-income economy nations, and it can be said to be the most prosperous and stable country in South America, leading the nations in Latin America in low corruption perception, economic freedom, globalization, income per capita and competitiveness. However, although there is high economic inequality in Chile, the nation is always close to the regional mean. The below discussion is about the economy of Chile and how it rose to be the highest ranked economy in Latin America.

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According to various statistics, Chile has an economy that is very competitive in Latin America. The country's main strengths are always the low levels of corruption, strong institutions, and an efficient government that is always there for its citizens (Frieden n.p). The country often fights to strengthen its infrastructure in Information Technology, which makes it to almost double its bandwidth capacity for the internet from 20kb/s to 40kb/s per user, increasing the number of internet users to the 45th highest globally (Frieden n.p). Nevertheless, the region in the sub-indexes of efficiency enhancers and basic requirements is led by Chile, but for the main index to progress, its economy must be diversified and moved towards activities that are high and value-added (Han 15). Therefore, to advance in the sub-index of innovation, Chile must always strive to address its weaknesses in the educational system, specifically in technical, sciences, and mathematics, to produce people or a workforce with the required skills for the available innovative projects.

The sound economic policies for Chile has always been consistently maintained since the 1980s, which have led to steady and stable growth in the economy as well as having more than halved the rates of poverty in the nation. For instance, between 1973 and 1990, numerous companies that were owned by the state were old by the military government and the three democratic federal governments implemented various export policies of promotion as well as continued privatization at a slower speed (Schmidt-Hebbel 21). Thus, the role of the government in the country's economy is always limited to regulation even though the nation operates the copper giant CODELCO and other enterprises. For instance, in 2006, 0.6% of the country's annual GDP was invested in research and development. By then, the figure represented two-thirds of government spending (Schmidt-Hebbel 35).

However, beyond the general political and economic stability, the nation's government encourages using Chile as a platform for investment for numerous multinational corporations that are planning to work in the region. The approach of the country to direct foreign investment is also codified in the foreign investment law of the nation, which grants many foreign investors similar treatment as the Chileans (Frieden n.p). Thus, the reported registrations are always said to be transparent and simple as all the foreign investors are always allowed to the official market of foreign exchange to repatriate their capital and profits.

Intellectual and real property contracts and rights are strongly respected in Chile, and the expropriation is also rare. In the nation, the judiciary is independent, and the federal courts often enforce contractual and property rights competently and are always free from various political interference. Additionally, in the nation, the top income tax for any individual is often cut to 35%, but the top average corporate tax is increased to 25% which makes the nation to be among the highest ranked in Latin America (Bulmer-Thomas n.p).

The overall burden of taxes in the nation is equal to 20.4% of all the domestic income. For instance, for the past five years, the spending of the government in the nation has amounted to only 25% of the GDP (the output of the country), and the deficits if the budget amount to 2.5% of the GDP (Han 17). On the other hand, public debt can be said to be equal to 23.6% of the GDP. Chile is among the leading producers of copper worldwide as well as its exports of seafood, fruit, wood, mineral, and wine drive GDP growth (Frieden n.p). Nevertheless, although the country's dependence on imported oil makes it vulnerable to volatility in the worldwide market commodities, an economic rebound was ungirded by solid economic fundamentals in 2018 (Bulmer-Thomas n.p). Thus, the best investment benefits and profile from the Pacific Alliance is retained by the country from numerous free-trade collaborations.

The productivity growth and the entrepreneurial activity is facilitated by the overall regulatory framework in the nation, which has created high resolving insolvency to be simpler through the simplification and clarification of provisions on reorganization and liquidation. Moreover, an increase in the minimum wage in Chile often surpasses the overall productivity growth, which makes the Chilean government control the prices of water and electricity (Bulmer-Thomas n.p). However, a controversial price bands' system applies to automobile use, gasoline, wheat, and sugar. When the value of imports and exports are combined, the price is equivalent to 55.7% of the GDP, and averagely, the rate of applied tariff is always approximately 0.6% (Han 19). For instance, in 2018, the country had only a hundred and seven measures of nontariff that were in force. The strategy has made the country have a successful record of FDI attraction that is supported by the available market-oriented policies (Han 20). Additionally, the nation's financial system is competitive and sound, making credit to be allocated according to the market terms. The nonperforming loans have also steadily decreased in the nation.

Among the fiscal policy of Chile, central features have always been the nation's counter-cyclical nature which is often facilitated by the willing application of a specific structural balance policy that is based on an announced goal commitment of a medium-term percentage of GDP structural balance. The effect of the nation's economic cycle is net out by the structural balance more so on the constraints expenditures and fiscal revenues to a consistent level that is corresponding.

Practically, the actions depict that expenditures only rise when a particular action is low, and it decreases in booms. For example, between 2001 and 2007, the GDP target was 1% but was later reduced in 2008 to 0.5% and then in 2009 to 0% in the wake of the financial crisis worldwide (Schmidt-Hebbel 28). Moreover, in 2005, the primary elements of the voluntary policy were enforced in the legislation via the law of fiscal responsibility. The law also granted the establishment of two sovereign wealth funds: the social and economic stabilization fund which was aimed at stabilizing the fiscal expenditure through providing money to finance debt amortization and fiscal deficits, and the pension reserve fund which was aimed at facing the increased and expected liabilities of old-age benefits. By the end of 2014, the market values for the nation had increased (Schmidt-Hebbel 30).

Works Cited

Bulmer-Thomas, Victor. The economic history of Latin America since independence. Cambridge University Press, 2003.

Frieden, Jeffry A. Modern political economy and Latin America: theory and policy. Routledge, 2018.

Han, Clara. "Symptoms of another life: time, possibility, and domestic relations in Chile's credit economy." Cultural Anthropology 26.1 (2011): 7-32.

Schmidt-Hebbel, Klaus. "Chile's economic growth." Cuadernos de economia 43.127 (2006): 5-48.