Chile. Country Profile 2005

Transcription

1 Country Profile 2005 Chile This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2005 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 PERU Arica TARAPAC` (I) BOLIVIA Isla Sala y Gomez Isla San Felix/ Isla San Ambrosio Iquique BRAZIL Easter I. Tocopilla Calama PARAGUAY Islas Juan FernÆndez Antofagasta ANTOFAGASTA (II) Taltal Chaæaral Caldera Copiapo ATACAMA (III) Vallenar PACIFIC OCEAN La Serena Coquimbo VALPARA SO (V) Viæa del Mar San Felipe Valparaso SANTIAGO San Antonio Puente Alto San Bernardo Rancagua O HIGGINS (VI) San Fernando Curico Talca MAULE (VII) CHILE Talcahuano Concepcin Lebu Vicuæa Ovalle COQUIMBO (IV) Illapel ChillÆn B O-B O (VIII) Los Angeles ARGENTINA URUGUAY LA ARAUCAN A (IX) Valdivia Temuco Villarrica LOS LAGOS (X) Ancud Isla de ChiloØ ChiloØ Osorno Puerto Montt ATLANTIC OCEAN ' The Economist Intelligence Unit Limited 2005 Magdalena I. Campana I. Patricio Lynch I. Wellington I. Mornington I. Madre de Dios I. Puerto AisØn Hanover I. Coihaique AISEN (XI) MAGALLANES & ANTARTICA CHILENA (XII) Desolacion I. Riesco I. Santa InØs I. Clarence I. Aracena I. L. General Carrera L. O Higgins Puerto Natales Punta Arenas Tierra del Fuego Hoste I. Navarino I. Main railway Main road International boundary Province boundary Main airport Capital Major town Other town May km miles

4 Comparative economic indicators, 2004 Gross domestic product (US$ bn) Gross domestic product per head (US$ 000) Mexico Brazil Argentina Venezuela Colombia Chile Peru Ecuador Uruguay Bolivia Paraguay Mexico Chile Venezuela Argentina Uruguay Brazil Peru Ecuador Colombia Paraguay Bolivia Sources: Economist Intelligence Unit estimates; national sources Sources: Economist Intelligence Unit estimates; national sources. Gross domestic product (% change, year on year) Consumer prices (% change, year on year) Venezuela Uruguay Argentina Ecuador Chile Brazil Peru Mexico Colombia Bolivia Paraguay Venezuela Uruguay Brazil Colombia Mexico Bolivia Argentina Paraguay Peru Ecuador Chile Sources: Economist Intelligence Unit estimates; national sources Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2005

5 Chile 1 Contents Chile 3 Basic data 4 Politics 4 Political background 7 Recent political developments 9 Constitution, institutions and administration 11 Political forces 15 International relations and defence 17 Resources and infrastructure 17 Population 19 Education 20 Health 22 Natural resources and the environment 23 Transport, communications and the Internet 27 Energy provision 29 The economy 29 Economic structure 31 Economic policy 35 Economic performance 36 Regional trends 37 Economic sectors 37 Agriculture 40 Mining and semi-processing 42 Manufacturing 43 Construction 43 Financial services 45 Other services 47 The external sector 47 Trade in goods 49 Invisibles and the current account 50 Capital flows and foreign debt 51 Foreign reserves and the exchange rate 52 Regional overview 52 Membership of organisations 54 Appendices 54 Sources of information 55 Reference tables 55 Population by region 55 Labour force 56 Rail freight 56 Civil aviation The Economist Intelligence Unit Limited Country Profile 2005

6 2 Chile 56 National energy statistics 56 Central government finances 57 Money supply 57 Interest rates 57 Gross domestic product 58 Nominal gross domestic product by expenditure 58 Real gross domestic product by expenditure 58 Prices and earnings 59 Livestock and livestock products 59 Fruit production 59 Forestry production 59 Minerals production 60 Manufacturing production 60 Construction statistics 60 Commercial bank assets and liabilities 61 Stockmarket indicators 61 Main composition of trade 61 Main trading partners 62 Balance of payments, IMF series 62 External debt, World Bank series 63 Foreign reserves 63 Exchange rates Country Profile The Economist Intelligence Unit Limited 2005

7 Chile 3 Chile Basic data Land area Population Main regions 756,946 sq km 15m (2002 census) Population in 000 (2002 census) Santiago metropolitan area 6,039 Bío-Bío 1,854 Valparaíso 1,542 Los Lagos 1,062 Maule 904 La Araucanía 865 O Higgins 774 Climate Weather in Santiago (altitude 520 metres) Language Measures Currency Time Public holidays Temperate; dry in the north, wet in the south Hottest month, January, C; coldest month, June, 3-14 C (average daily minimum and maximum); driest month, February, 2 mm average rainfall; wettest month, June, 84 mm average rainfall Spanish Metric system 1 peso (Ps)=100 centísimos. Average exchange rate in 2003: Ps691.43:US$1. Exchange rate on April 30th 2005: Ps583:US$1 4 hours behind GMT January 1st, Good Friday, Easter Saturday, May 1st (Labour Day), May 21st (Battle of Iquique), June 2nd (Corpus Christi), August 15th (The Assumption), September 18th (Independence Day), October 12th (Day of the Race), November 1st (All Saints Day), December 8th (Immaculate Conception), December 25th The Economist Intelligence Unit Limited Country Profile 2005

8 4 Chile Politics Chile is governed by a centre-left coalition, the Concertación de Partidos por la Democracia (Concertación). The coalition comprises the centrist Partido Demócrata Cristiano (PDC) and three left-oriented parties, the Partido Radical Social Demócrata (PRSD), the Partido Socialista (PS) and the Partido por la Democracia (PPD). Ricardo Lagos, a member of both the PPD and the PS, was elected president in January 2000 and took office in March 2000 for a six-year term. Presidential and congressional elections are due in December Political background History before independence The young Chile Expansion drives development Social democracy The Spanish conquest of Chile began under Diego de Almagro in 1536 when around 500,000 indigenous people of closely related tribes inhabited the land. A group of about 150 Spaniards colonised the area in 1540, founding Santiago, but Chile was to prove an unprofitable venture for Spain and remained insular until the late 18th century. Growing resentment of Spanish-imposed trade restrictions led Chile to press for self-government. Chile formed its first independent government on September 18th 1810, which became Independence Day. The Spanish reconquered the country in 1814, but they were finally defeated at the battle of Maipu on April 5th A period of near-anarchy followed, during which 30 different governments held office. Diego Portales led a conservative reaction against this instability in 1829, and although he never became president, he brokered a constitutional compromise between various factions within the oligarchy, and was de facto ruler of Chile, first as a minister and then as a private citizen, until he was assassinated in Mr Portales created a strong central government. His constitution of 1833, which remained in force until 1925, gave the president far-reaching powers over the judiciary and the legislature, although Congress had final approval on fiscal matters. In 1891 a brief but bloody civil war pitted the president against parliament, and resulted in a severe reduction in presidential power and the rise of a parliamentary republic. Nevertheless, the framework of the Portales constitution fomented stability, and Chile largely escaped the political turmoil that plagued most former Spanish colonies in the 19th century. Conflicts with Peru and Bolivia over Chilean development of nitrate deposits in their territories led to the war of the Pacific in Chile s victory enlarged the country s land area by a third and gained it rich mineral deposits. An era of unprecedented prosperity thus began. The growth of mining and manufacturing industries, nitrate exports and foreign loans permitted the state to expand and encouraged the rise of an urban middle class. At the end of the first world war the collapse of the world nitrates market exacerbated social and economic problems. Between 1924 and 1931 the army became directly involved in politics. However, the dictatorship of General Carlos Ibáñez ended in 1931, when growing economic hardship in the wake of Country Profile The Economist Intelligence Unit Limited 2005

9 Chile 5 a global depression galvanised unrest and opposition, and led the military to hand power back to politicians. An election in late 1932 returned the previously ousted Arturo Alessandri to the presidency. He returned the country to institutional normality between 1932 and 1938, and there followed three consecutive presidents who were members of the Partido Radical (PR). Economic policy was centred on state-led development, but this contributed to sluggish growth and high inflation. Christian democracy A beleaguered socialist experiment The military coup The PDC won the presidency in Eduardo Frei took 56% of the vote under the slogan Revolution in Freedom. He launched radical agrarian reform and part-nationalised the large copper companies. Real copper prices reached an alltime high, which strengthened the balance-of-payments position and led to an increase in tax revenue. The state sector was expanded, and industrialisation was further subsidised through import substitution, protected by massive import tariffs. In 1970 Unidad Popular (UP), an alliance of socialists, communists and radicals led by Salvador Allende, won the presidency with 36% of the vote, benefiting from a split in the centre-right. Mr Allende s victory made him the world s first democratically elected Marxist president. His government tried to implement a radical nationalist and socialist programme. A majority of large and mediumsized companies were placed under direct government management, and their new managers took on extra workers to reduce unemployment. The copper companies were nationalised a highly popular move that was reluctantly supported by the centre-right opposition. Wages were raised sharply, while prices were kept low through price controls. The PDC s agrarian reform project was expanded and in cases overstepped legal boundaries, while police were instructed to ignore court orders to return illegally occupied factories and farms to their owners. Besides an acute political polarisation, these policies yielded an unsustainable growth in domestic demand, rocketing inflation, a rapid widening of the fiscal and current-account deficits, and the decapitalisation of the companies taken over by the state. The March 1973 congressional elections yielded 57% support for the centre-right opposition coalition formed by the PDC and the right-wing Partido Nacional, against 43% for the UP. After losing his congressional majority Mr Allende tried to reduce political tensions and to resist possible coup attempts by bringing commanders from the armed forces into the cabinet, eventually nominating General Augusto Pinochet whom he regarded as the most likely of the top military officers to support his revolutionary plans as commander-in-chief of the army. Support for the government declined, however, amid widespread shortages, hyperinflation, an inefficient rationing system and a huge black market. The political centre ground disappeared rapidly as extremist factions on both the right and the left became more radical. Sections of the right called openly for military intervention and, supported by the US (this was the height of the cold war), plotted with military officers to bring about a military coup. Centrist forces became increasingly alienated by the activities of leftist radicals within the government. In August 1973 the Chamber of Deputies approved a resolution declaring Mr Allende s The Economist Intelligence Unit Limited Country Profile 2005

10 6 Chile government to be in violation of the constitution and inviting the military to intervene. On September 11th 1973 a military coup took place during which the presidential palace was attacked and Mr Allende died. Under Mr Pinochet s leadership, the military junta took complete control of public affairs. All political activity was suspended and a ruthless campaign to eliminate left-wing resistance was conducted. More than 2,000 people were killed in the following 15 years, and thousands more were arrested and tortured. Congress was dissolved, right-wing parties were declared in recess and left-wing organisations were banned. A state of emergency was declared, giving the government draconian powers. The Pinochet era Mr Pinochet was nominated president by the military junta in December 1974, and focused policy on achieving long-term economic stability and reducing the role of government in economic management. He rationalised taxes to favour investment and savings, brought the fiscal accounts into surplus, and carried out a radical economic liberalisation programme involving new labour and foreign investment regimes and wholesale privatisations. He also eliminated price controls and subsidies, and simplified the trade regime by cutting import tariffs to a single 10% rate. Privatisation of the pensions system through individual pension accounts helped to raise the domestic saving rate above 20% of GDP, and property rights were guaranteed protection under the constitution. However, inadequate banking regulation and the adoption in mid-1979 of a fixed exchange rate to accelerate the reduction of inflation, proved to be a dangerous mix at a time of easy access to international bank credit. A stronger peso made imported goods cheaper than ever, fuelling a foreign-financed consumer boom that increased the country s foreign debt to an unprecedented level. Despite the productivity gains of the previous five years, local producers could not compete with cheap imports being sucked in by the robust peso, and in 1982 GDP contracted by 10.7% as bankruptcies increased and unemployment rose sharply. The foreign loans that had funded the growing current-account deficit dried up, and the huge external debt could no longer be repaid with new loans. A painful process of economic adjustment had to be initiated. The regime s popularity had reached an all-time low and in early 1983 a huge, albeit disorganised, protest movement began to take shape. Mr Pinochet tried to quell the unrest by bringing more civilians into the cabinet, initiating dialogue with the opposition and backtracking on economic liberalisation. He also allowed a growing number of exiles to return, but ignored opposition calls for immediate democratisation, instead keeping to the democratisation schedule set by the 1980 constitution. Political activity remained illegal until 1988, when the country voted in a presidential referendum to choose between granting Mr Pinochet another eight years at the helm or electing a new president and a democratic Congress. Plebiscite ends the Pinochet era The opposition united in August 1985 through a national accord signed by 11 political parties. However, by mid-1987 the economy was growing strongly again and support for its free elections now campaign cooled. With the plebiscite due in 1988, opposition parties led by the PDC decided to end the Country Profile The Economist Intelligence Unit Limited 2005

11 Chile 7 boycott of the 1980 constitution, and instead called on the population to vote against granting Mr Pinochet another term as president. In the plebiscite held on October 5th 1988, 54.7% of the electorate voted no and 43.4% voted yes. Compromise resurfaces Concertación gains power in 1989 The 1988 plebiscite led to a dramatic change in political attitudes. Ideological rigidity gave way to a new political style based on pragmatism and a search for consensual solutions. In May 1989 all political forces agreed on a set of constitutional reforms, which were later overwhelmingly endorsed in a referendum. These made it easier to alter the constitution, reduced the first presidential term from eight to four years (changed subsequently to six years), and increased the number of elected senators from 24 to 38. Parity was given to civilian and military representatives on the National Security Council. The Banco Central de Chile (the Central Bank) was made autonomous, and a law subordinating the military to the elected government was passed. A member of the PDC, Patricio Aylwin, the candidate of the Concertación coalition representing the opposition groups united against the Pinochet dictatorship, was elected president for a four-year term in December 1989, gaining 55% of the vote. He took office in March The coalition s leading party, the PDC, was the main winner in the congressional election and re-emerged as the largest political force in the country. However, Mr Aylwin s government kept economic policy essentially unchanged and co-operated with the centre-right opposition to achieve national reconciliation and the consolidation of democracy. Concertación was returned to office following the presidential and congressional elections of December Eduardo Frei, the son of a former president of the same name, was inaugurated as president in March 1994 for a six-year term. Mr Frei adhered to the existing liberal economic policies in most respects, but in 1999 looser fiscal policies yielded the country s first fiscal deficit for 12 years. Recent political developments Concertación s Ricardo Lagos wins the presidency in 2000 On January 16th 2000 the Concertación candidate, Ricardo Lagos, won the presidency in a close second-round vote, gaining 51.3% of the vote to 48.7% for the centre-right candidate, Joaquín Lavín. He took office on March 11th 2000 for a six-year term. Broad policy continuity has been maintained by the Lagos administration, although efforts to placate the populist and liberal wings of Concertación have occasionally led to policy inconsistencies. Mr Lagos enacted a reform of employment legislation in 2001 that increased rigidities within the labour market, but he has also presided over substantial capital market liberalisation. A free-trade agreement (FTA) with the EU came on stream in February 2003, and was followed by FTAs with the US and South Korea in early Other policy priorities have included a major healthcare reform, which is being introduced gradually, and the upgrade of the country s basic infrastructure mostly through build-operate-transfer concessions which has yielded a modern highway network including urban toll highways in Santiago. Negotiations towards a major constitutional reform, which have been going on The Economist Intelligence Unit Limited Country Profile 2005

12 8 Chile for over a decade, appeared likely to bear fruit in mid-2005, putting an end to the residual participation of the military in political decisions. A series of corruption scandals beginning in October 2002 has also spurred legislation to provide appropriate controls and greater transparency. In the first half of 2003 Congress approved a far-reaching reform providing for a modernisation of state institutions, introducing greater transparency and the gradual formation of a fully professional civil service. Implementation began slowly in 2004 and is expected to be completed in Concertación remains popular as 2005 elections approach By early 2005 strong economic growth and Mr Lagos s enduring popularity had boosted Concertación s prospects in the presidential and congressional elections due in December In March 2005 opinion polls suggested that the former defence minister, Michelle Bachelet, of the Partido Socialista (PS), would defeat her rival for Concertación s nomination, the former justice and foreign minister, the PDC s Soledad Alvear, in the primary election due on July 31st. Ms Bachelet was also the favourite to defeat the centre-right Alianza s candidate, Joaquín Lavín. Important recent events January 2000 Ricardo Lagos is elected president for a six-year term in a run-off election on January 16th. He is inaugurated on March 11th August 2000 The Supreme Court endorses the removal of Mr Pinochet s immunity from prosecution. The Santiago Court of Appeals finds no evidence to justify claims of murder and kidnapping, but charges him in March 2001 with having covered up these crimes by not alerting the courts. December 2001 In the congressional election Concertación s share of the vote falls to 47.9%, while Alianza wins 44.3%, yielding a balanced Senate where each coalitions has 24 seats. Concertación s majority in the Chamber of Deputies falls from 69 to 63 of 120 seats. June 2002 The Supreme Court rules that Mr Pinochet is unfit to stand trial and suspends proceedings against him. He resigns from his post as senator for life. August 2004 The Supreme Court reverses earlier ruling on Mr Pinochet s immunity, paving way for investigations into alleged human rights abuses. October 2004 In the municipal elections of October 31st the Concertación s share of the vote falls by 7.3 percentage points compared with the 2000 elections, reaching 44.8%, while the Alianza s falls by 1.4 percentage points, to 38.7%. Independents secure 9.7% of the vote, up from 1.4% in Country Profile The Economist Intelligence Unit Limited 2005

13 Chile 9 Attempts to bring Mr Pinochet to trial persist Although it has not represented a threat to democratic rule or to the consolidation of consensual policymaking, the debate over Mr Pinochet s responsibility for human rights abuses during his dictatorship continues to be a divisive issue within Chile. Attempts to bring him to court have persisted since he retired from the army at the age of 83 in March 1998 to take up a seat for life in the Senate. In June 2002 the Supreme Court ruled that Mr Pinochet was mentally unfit to stand trial and permanently suspended proceedings against him; Mr Pinochet then resigned from his post as senator for life. But attempts to put him on trial for human rights violations continue. In August 2004, in a reversal of its 2002 decision declaring Mr Pinochet physically unable to stand trial because of mental illness, the Supreme Court confirmed the rescindment of Mr Pinochet s life immunity from prosecution, previously enjoyed as a retired senator and former president. This has opened the way for investigations into alleged human rights abuses and corruption. In December 2004 Mr Pinochet was indicted by the judge investigating his links to the so-called Operación Cóndor, under which 18 Chileans in Argentina, Bolivia and Paraguay disappeared in In March 2005, after a US congressional investigation reported that Mr Pinochet and his family held scores of accounts in US banks between 1980 and 2004, Chile s internal revenue service requested that the Court of Appeals lift Mr Pinochet s immunity from prosecution to stand trial for under-reporting his income. Constitution, institutions and administration The 1980 constitution drawn up during the Pinochet dictatorship established the separation of the presidency and the military junta, provided for a presidential election, and re-established a bicameral legislature consisting of an upper chamber of both elected and appointed senators serving eight-year terms, and a lower chamber of 120 deputies elected for four years. The constitution was designed to strengthen the executive and to secure a supervisory role for the armed forces for an indefinite period by making it almost impossible to modify the way the country was organised. This outcome was achieved by means of three interlocking mechanisms: a high proportion of institutional (unelected) senators; the need for extremely large legislative majorities in order to amend the constitution; and a binominal (two-seat) electoral system, which requires more than two-thirds of the vote in any constituency to gain both seats in the lower house, making it difficult for a coalition to win a large congressional majority. Reforms to strengthen civilian rule In May 1989 the 1980 constitution was reformed. The most important changes were: a simplification of the procedures required to effect constitutional change; a modification of the composition of the National Security Council to give the government as much influence as the armed forces; a reduction in the powers of the National Security Council; and an increase in the number of elected senators from 24 to 38, thereby diminishing the power of the nine institutional (unelected) senators. The Economist Intelligence Unit Limited Country Profile 2005

14 10 Chile A new constitutional reform A powerful executive A weak legislature Reform of the judiciary In early 2005 the government and opposition reached agreement on a new set of major constitutional reforms that have been under discussion since the early 1990s and appeared likely to gain congressional approval in mid Under the reform, the presidential term will be shortened from six years to four from 2006 to ensure that presidential and congressional elections coincide (immediate presidential re-election would remain prohibited); all unelected senate seats would be abolished; the power of the presidency would be reduced by limiting its capacity to control the congressional agenda and by allowing the Chamber of Deputies greater powers to supervise executive decisions; and residual participation of the military in political decisions would be ended through the elimination of the unelected senators and by redefining the powers and composition of the National Security Council, reducing it to an advisory body unable to convene without being invited to do so by the president. Significantly, the binominal electoral system used in congressional elections would remain as a point of contention. The Concertación wants to replace it with some form of proportional representation, but the Alianza is determined to keep it in place. The present institutional arrangements balance Chile s strong presidential tradition with an independent central bank, constitutional regulation that provides strong protection for property rights, and an independent constitutional tribunal. At present, the president is elected for six years and is ineligible for immediate re-election. Unless a candidate receives more than 50% of the vote in the first ballot, a second round is contested between the two leading candidates from the first round. The president appoints his cabinet and has full control over diplomatic appointments. The executive controls the congressional agenda by determining the urgency of each bill. Under the 1980 constitution Congress was designed to be weak. It has few powers to control the executive, which submits to Congress only the information it deems to be necessary. In addition, the bicameral legislature is barred from initiating legislation on items requiring budgetary appropriations. Although the Senate was intended to be a revising chamber, and hence a less political body than the Chamber of Deputies, in practice the two operate in similar ways. The lower house has 120 members who are elected for four years. The binominal electoral system used for congressional elections makes it hard for small parties to win seats unless they are part of a substantial coalition. It also makes it hard for a coalition to win a large congressional majority, encouraging consensus solutions and political co-operation between the government and the opposition. The judiciary is independent, although the executive is able to nominate replacements for Supreme Court and Appeal Court judges when the principals are not available. The number of Supreme Court judges was raised from 17 to 21 in The president nominates new judges from among five candidates submitted by the Supreme Court; new appointments must be approved by a two-thirds majority of the Senate. Supreme Court judges serve until retirement, which is compulsory at the age of 75. Members of 16 regional courts of appeal and lower courts are appointed by the Supreme Court. Country Profile The Economist Intelligence Unit Limited 2005

15 Chile 11 The justice system is in the process of being modernised. In September 1999 Congress approved the most important judicial reform for over a century, the creation of an office of public prosecutions, the Ministerio Público. Complementary legislation included the establishment of a legal aid service, the Defensoría Pública, and a new code of penal procedures, replacing a system in which a single judge investigated, prosecuted and passed sentence. The new penal system was introduced gradually from 2001, and by the start of 2004 the whole country except for the Santiago metropolitan region was operating under the new regime. Santiago was expected to join from December 2004, but entry was postponed until June 2005 owing to delays to preparatory measures, including the construction of a new justice complex, the Centro de Justicia de Santiago. Political forces The political spectrum in Chile was split for decades into three parts: a divided right wing; a centrist Christian Democratic party; and a fragmented left, ranging from social democrats to communists. Current political attitudes and dynamics derive from three traumatic experiences the Christian Democratic agrarian reform in the late 1960s; the socialist government of the UP in ; and the right-wing military dictatorship of This turbulent political past generated deep resentments, but also a desire for national reconciliation based on pragmatism and compromise. On this basis, a tradition of consensual policymaking between Chile s dominant centre-left and centre-right coalitions has become well entrenched in the past 15 years. The ruling Concertación coalition Concertación is a centre-left political coalition that formed in 1989 to contest the 1990 legislative and presidential polls. At that time it united 17 opposition groups against the Pinochet dictatorship, but in due course the larger parties in the coalition absorbed the smaller ones, while other groups such as the greens and the humanists have since left. Concertación now comprises the PDC, the PS, the PPD and the PRSD, and has governed Chile since The PDC is still the largest party in Concertación, but its support base has been shrinking and it suffers from internal divisions. Its share of the vote fell to 18.9% in the December 2001 congressional election, down from 23% in 1997 and 27.1% in 1993, as its centre-right supporters have gradually deserted, cutting the number of PDC deputies from 38 to 24 in The party has lost some of its political and ideological identity, and its reputation has been damaged by corruption scandals. The PDC emerged in the 1950s, advocating communitarian socialism, while rejecting both communism and capitalism, and holding a moderately nationalist and statist posture. Since 1990 it has been moving slowly towards economic liberalism. Its results at the 2001 congressional elections led to the fall of its centre-left leadership and the election in January 2002 of Senator Adolfo Zaldívar, the head of the party s right-leaning faction, as PDC president. In the late 1980s Mr Zaldívar led a PDC minority that favoured an alliance with the right, rather than with Concertación. On assuming the party presidency, Mr Zaldívar initially maintained a confrontational stance in relations with the PDC s coalition partners and with Mr Lagos, but he has The Economist Intelligence Unit Limited Country Profile 2005

16 12 Chile adopted a more co-operative position within the ruling coalition since mid Mr Zaldívar bid for the party s presidential nomination in 2005 but was defeated by Soledad Alvear at the party s national assembly in January The PS is a federation of factions ranging from the least statist Megatendencia to the middle-of-the-road Terceristas and the dominant, most strongly statist Nueva Izquierda. In May 1996 the party abandoned its Marxist identity, prompting the departure of a small faction. The PS mistrusts markets, is firmly opposed to privatisation and favours a highly regulated economy, higher taxes and more social spending. Its share of the vote fell from 11.1% in 1997 to 10% in 2001, and the party s image has suffered from a stream of corruption scandals since The PPD, the youngest party in Concertación, formed in 1989 as a vehicle for all socialist organisations in the election of that year. Under the presidency of Jorge Schaulsohn in the early 1990s, it adopted more liberal policies than the PS, but the differences between the two parties disappeared under Mr Schaulsohn s successors. The PPD s share of the vote rose marginally, from 12.6% in 1997 to 12.7% in 2001, sufficient to win five seats in the Chamber of Deputies previously held by the PDC, raising the number of PPD deputies from 16 to 21. It also increased its representation in the Senate from two seats to three. However, the party s self-confidence and public image have been weakened since 2002 by corruption scandals, and by the alleged involvement of some PPD deputies in a smear campaign against its political opponents. The PRSD maintains the statist orientation of the old Partido Radical. Its share of the vote rose to 4.1% in 2001 from 3.1% in 1997, partly reversing its decline from 11.8% in 1990 and 6.7% in The opposition Alianza coalition Launched in 1999, the centre-right Alianza por Chile (APC) is the successor to the Unión por Chile (UPC) coalition created in The credibility of the Alianza has suffered persistently from intense competition between its two constituent parties, the Unión Demócrata Independiente (UDI) and Renovación Nacional (RN). Intervention in mid-2004 by Alianza s presidential candidate and mayor of Santiago, Joaquín Lavín (UDI) securing a replacement and regeneration of the leadership of both the RN and the UDI was intended to put an end to the persistent public rifts between its member parties in 2004, but with national elections approaching at year-end, tensions had reappeared by early The UDI is a young right-wing party with a background in Catholic fundamentalism and free-market economics that has been moving gradually towards the political centre and away from church directives. It became the largest political party in the country in the 2001 congressional election, when its share of the vote reached 25.2%, up from 14.5% in 1997, helped by Mr Lavín s popularity and the charismatic leadership of his deputy, Pablo Longueira. However, in order to improve relations with the RN, at Mr Lavín s request Mr Longueira agreed not to put his name forward for re-election as UDI president in May 2004, when he was replaced by senator Jovino Novoa. Country Profile The Economist Intelligence Unit Limited 2005

17 Chile 13 Key players to watch Ricardo Lagos President since March 2000, Mr Lagos is a lawyer and an economist. He is the undisputed leader of the Concertación s progressive wing, but his position on economic policy has evolved towards market-based solutions, and he supports prudent fiscal policies. He is a shrewd politician and balances economic policy objectives with policies to ensure that Concertación retains power after his presidential term ends in March He remains extremely popular, according to the most recent opinion polls, and his presence on the campaign trail will be a boost to the (as yet undetermined) Concertación presidential nominee. He has not acknowledged it, but he is likely to want to return to the presidency in Michelle Bachelet A medical doctor by training and a member of the Partido Socialista (PS), she is a charismatic politician with a common touch and a reputation for grasping complex dossiers quickly. Her popularity has rocketed in recent years despite the revelation by the Partido Comunista (PC) that she served in the early 1980s as an intelligence operative for the PC s armed wing, Frente Patriótico Manuel Rodríguez (FPMR). Her time as health minister in brought her into conflict with Mr Lagos s main adviser on healthcare reform, but her hard work and frequent visits to healthcare centres brought her popularity. This led to her being made defence minister in January By mid-2004 she was the leading contender for the Concertación s presidential nomination in July 2005, and the presidential election itself in December Soledad Alvear A soft-spoken but persuasive and determined Partido Demócrata Cristiano (PDC) lawyer who has a conciliatory approach and has made few political enemies, Ms Alvear was an effective justice minister under Mr Frei s presidency in the late 1990s, shepherding a major judicial reform through Congress with virtually unanimous support. By the end of 1999 she was the most popular Concertación politician, and used her popularity to rescue Mr Lagos s presidential bid by becoming his campaign chief in the second round. She brought a softer style to his campaign, which enabled her to choose her cabinet post. She opted for the foreign ministry, in which she won acclaim in by successfully completing negotiations for freetrade agreements (FTAs) with the EU, the US, South Korea and the European Free- Trade Association (EFTA). However, Ms Alvear lacks Ms Bachelet s charisma and has lost ground to her in the race for the Concertación s presidential nomination. Joaquín Lavín An economist by training and one of the founding members of the Unión Demócrata Independiente (UDI), Mr Lavín was the candidate of the Alianza por Chile (Alianza) at the presidential election of December 1999 when he lost to Mr Lagos by a narrow margin and will be the Alianza s candidate in the presidential election of A devout Catholic, who is a member of the Opus Dei, Mr Lavín is a pragmatic politician with a talent for devising compromises eliciting wide support. His non-confrontational style appeals to the electorate, but his coalition s history of infighting may prove a deterrent to potential voters. He currently trails Ms Bachelet in opinion polls. The Economist Intelligence Unit Limited Country Profile 2005

18 14 Chile The RN inherited the political constituency of the country s traditional right, but also its internal divisions, which have led to a sustained contraction in its support base. Its share of the vote fell to 13.8% in 2001, down from 16.8% in The party began to regain self-confidence in mid-2001 under the leadership of Sebastián Piñera, a successful entrepreneur and former senator. Mr Piñera drove the RN towards the centre ground and led it in a major game of brinkmanship with its partner and rival, the UDI, to secure concessions in the Alianza s electoral lists and to better his own chances as a future presidential candidate. However, his aggressiveness towards the UDI eroded the Alianza s electoral credibility, leading Mr Piñera to lose personal support and eventually the RN leadership in Mr Piñera has nonetheless continued to take a confrontational stance within the coalition, and divisions between those who support him and those who oppose him remain apparent. Other political forces Other political groups have been unable to gain a presence in Congress, including the Partido Comunista (PC) whose traditional influence in the public sector and among student bodies has weakened considerably. The PC received 5.2% of the vote in the congressional election in 2001, down from 6.8% in 1997, and the death of its charismatic leader, Gladys Marín, in March 2005 might weaken it further. Support for the anti-capitalist Partido Humanista (PH) also fell from 2.9% in 1997 to 1.1% in The centrist Unión de Centro Centro (UCC), which was briefly a member of the Alianza, lost its legal status and disappeared from the political scene after failing to present candidates in Balance of forces in Congress (no. of seats) Deputies Senators Concertación Partido Demócrata Cristiano (PDC) Partido por la Democracia (PPD) Partido Socialista (PS)a Partido Radical Social Demócrata (PRSD) Alianza por Chile Unión Demócrata Independiente (UDI) Renovación Nacional (RN) Partido del Sur Unión de Centro Centro Independents Total elected Unelectedb Total a Includes one deputy elected to represent the Partido Democrático de Izquierda in 1993 and one elected as an independent who subsequently joined the PS in b Normally nine unelected senators who serve for an eight-year period, comprising four former senior military commanders, one from each of the four branches of the security forces, selected by the National Security Council; two former Supreme Court judges and one former controller-general chosen by the Supreme Court; and one former interior minister and one former university rector selected by the president; former presidents who served for six or more years also have the right to become senators for life, which enabled Augusto Pinochet to join the Senate in March 1998, and Eduardo Frei to do so in March 2000; Mr Pinochet resigned from his post in July Source: Ministry of the Interior, Servicio Electoral. Country Profile The Economist Intelligence Unit Limited 2005

19 Chile 15 International relations and defence Relations with the nations on Chile s borders, Argentina, Bolivia and Peru, although never easy, improved following the return to civilian rule in the 1990s. However, strains have re-emerged over the past two years following the crisisinduced cut in Argentinian gas exports to Chile and renewed questioning of long-standing bilateral border agreements by both Bolivia and Peru. Economic ties improve relations with Argentina Border disputes with Bolivia and Peru In 1978 and again in 1982 Chile was close to war with Argentina following international arbitration over the Beagle channel islands, Picton, Nueva and Lennox, which were recognised as Chilean. Military governments in Argentina initially refused to accept the verdict and prepared for war. Last minute diplomatic mediation by the Vatican succeeded in averting conflict, and an agreement was reached in October Relations with Argentina improved greatly in the 1990s. In August 1991 Mr Aylwin and his Argentinian counterpart, Carlos Menem, signed a peace treaty to settle 23 of 24 outstanding territorial disputes, and submitted the one remaining issue to international arbitration. In October 1994 the arbitration court awarded this area to Argentina, but nationalist groups there blocked congressional ratification of the treaty, objecting to the new border dividing the 200-sq-km Campo de Hielos ice field, one of the areas in the original dispute. On December 16th 1998 Mr Menem and Mr Frei signed a new, partial border agreement for the ice field, superseding the previous one, which was ratified by both congresses in June It assigns to the joint borders commission the task of finding a mutually acceptable dividing line for the northern part of Campo de Hielos between the Fitz Roy and Murallón hills. Crossborder trade and investment links with Argentina have increased dramatically in the past decade as a result of the 1995 gas treaty and Chile s associate membership since October 1996 of the Mercado Común del Sur (Mercosur, the customs union comprising Argentina, Brazil, Paraguay and Uruguay). However, cuts in Argentinian gas exports to Chile since March 2004, in contravention of the 1995 gas treaty, have led Chile to look for more reliable energy sources elsewhere. Failure to honour agreements has damaged mutual trust, which will slow further attempts at economic integration. Until recently, growing economic ties had also improved Chile s relations with Peru and Bolivia. In 1993 Chile and Bolivia signed an economic co-operation agreement. However, negotiations to turn this into a free-trade agreement and to co-operate in the construction of transport links to improve export opportunities for both countries have been blocked by a deterioration in relations since 2003, prompted by domestic political instability in Bolivia. The loss of its coastline provinces to Chile in a 19th century war still rankles in Bolivia, which is still demanding sovereign access to the sea. Chile has offered economic integration and co-operation, but refuses to discuss territorial demands on the basis that the two countries signed a peace treaty in 1904 settling all bilateral border issues. In 2003 Bolivia lost a US$5bn mega-project to export Bolivian natural gas to the US because of its refusal to authorise its transport through Chile. An April 2004 gas sales agreement between Bolivia and Argentina expressly excludes the possibility of natural gas being resold to Chile. The Economist Intelligence Unit Limited Country Profile 2005

20 16 Chile Chile and Peru signed a peace treaty in 1929 settling all territorial disputes, while the handful of administrative problems left unresolved were settled by the Lima Convention in May However, this agreement failed to muster enough support in the Peruvian Congress and was withdrawn in On November 13th 1999 an act of execution completing the implementation of the 1929 Peace Treaty was finally signed. This move was followed by a state visit by Alberto Fujimori in November 1999, the first ever by a Peruvian president to Chile, and a state visit by Mr Frei to Lima in February On February 14th 2000 Chile completed the implementation of the act by handing over to Peru s ports authority a dock and a warehouse at the port of Arica, and by giving a Peruvian rail company, Empresa Nacional de Ferrocarriles del Peru (Enafer), full control of a rail station at the port serving the Arica-Tacna rail line. However, in 2002 Peru began to press for a revision of the maritime limits agreed by the two countries in 1952, which Chile has refused to discuss. In November 2002 the Peruvian Navy demolished a Peruvian lighthouse that had signalled the maritime border since the 1950s. Defence In August 1997 the government published a white paper detailing Chile s defence policies. The army s modernisation plan, known as Alcázar, involves a thorough restructuring: its seven divisions are being converted into three independent military garrisons, North, Centre-South and Austral, with smaller and better-equipped battalions and regiments. The 2005 budget allocation for the army, navy and air force was set at Ps1.02trn (US$1.76bn), or 7% of budgeted expenditure in local currency terms. In addition, 10% of mineral sales made by the Corporación Nacional del Cobre de Chile (Codelco, the state-owned copper company) expected at about US$500m in 2005 will finance purchases of military hardware. Armed forces, 2003 Army 47,700 Conscripts 20,700 Navy 19,000 Conscripts 1,000 Air force 10,600 Conscripts 700 Total armed forces 77,300 Conscripts 22,400 Source: International Institute for Strategic Studies, The Military Balance, 2003/04. Security risk in Chile Armed conflict Security risk in Chile is among the lowest in Latin America. All border problems have been resolved by treaty except for that concerning a small part of a continental glacier on the border with Argentina between the Fitz Roy and Murallón hills, which will be settled by a joint commission. Although Chile s relations with its neighbours, Argentina, Bolivia and Peru, are occasionally difficult, particularly those with Bolivia, the risk of armed conflict is negligible. Country Profile The Economist Intelligence Unit Limited 2005