Chile. Country Profile 2007

Transcription

1 Country Profile 2007 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 26 Red Lion Square London 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 60 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 the 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 26 Red Lion Square London WC1R 4HQ 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, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2007 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 BOLIVIA Isla Sala y Gomez Isla San Felix/ Isla San Ambrosio Iquique BRAZIL Easter I. Tocopilla Antofagasta Calama ANTOFAGASTA (II) PARAGUAY Taltal Caldera Copiapo ATACAMA (III) Vallenar PACIFIC OCEAN La Serena Coquimbo (V) San Felipe SANTIAGO San Antonio Puente Alto San Bernardo Rancagua O'HIGGINS (VI) San Fernando Curico Talca MAULE (VII) CHILE Talcahuano Lebu Ovalle COQUIMBO (IV) Illapel Chillán Los Angeles ARGENTINA URUGUAY Valdivia Temuco Villarrica LOS LAGOS (X) Ancud Osorno Puerto Montt ATLANTIC OCEAN Magdalena I. The Economist Intelligence Unit Limited 2007 Campana I. Patricio Lynch I. Wellington I. Mornington I. Madre de Dios I. Hanover I. MAGALLANES & ANTARTICA CHILENA (XII) Desolacion I. Riesco I. AISEN (XI) Clarence I. Aracena I. Coihaique 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 March km miles

4 Comparative economic indicators, 2006 Gross domestic product (US$ bn) Gross domestic product per head (US$ '000) Brazil Mexico Argentina Venezuela Chile Colombia Peru Ecuador Uruguay Bolivia Paraguay Chile Mexico Venezuela Uruguay Brazil Argentina Peru Ecuador Colombia Paraguay Bolivia ,000 1,200 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 Argentina Peru Uruguay Colombia Mexico Bolivia Ecuador Chile Paraguay Brazil Sources: Economist Intelligence Unit estimates; national sources. Venezuela Argentina Paraguay Uruguay Colombia Bolivia Brazil Mexico Chile Ecuador Peru Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2007

5 Chile 1 Contents Chile 3 Basic data 4 Politics 4 Political background 5 Recent political developments 6 Constitution, institutions and administration 8 Political forces 11 International relations and defence 13 Resources and infrastructure 13 Population 15 Education 16 Health 17 Natural resources and the environment 19 Transport, communications and the Internet 21 Energy provision 23 The economy 23 Economic structure 25 Economic policy 27 Economic performance 29 Regional trends 29 Economic sectors 29 Agriculture 31 Mining and semi-processing 32 Manufacturing 32 Construction 32 Financial services 34 Other services 35 The external sector 35 Trade in goods 36 Invisibles and the current account 37 Capital flows and foreign debt 38 Foreign reserves and the exchange rate 39 Regional overview 39 Membership of organisations 40 Appendices 40 Sources of information 41 Reference tables 41 Population by region 41 Labour force 42 Electricity generation 42 Central government finances The Economist Intelligence Unit Limited Country Profile 2007

6 2 Chile 42 Money supply 42 Interest rates 43 Gross domestic product 43 Nominal gross domestic product by expenditure 44 Real gross domestic product by expenditure 44 Prices and earnings 44 Copper statistics 45 Commercial bank assets and liabilities 45 Composition of trade 46 Balance of payments 47 External debt, World Bank series 47 Foreign reserves 47 Exchange rates Country Profile The Economist Intelligence Unit Limited 2007

7 Chile 3 Chile Basic data Land area Population Main regions Climate Weather in Santiago (altitude 520 metres) Language Measures Currency Time Public holidays 756,946 sq km 16.4m (2006 official estimate) 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 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 2006: Ps530.3:US$1. Exchange rate on May 29th 2007: Ps526.3: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 (Día del Descubrimiento de Dos Mundos), November 1st (All Saints Day), December 8th (Immaculate Conception), December 25th (Christmas Day) The Economist Intelligence Unit Limited Country Profile 2007

8 4 Chile Politics Chile has been governed since March 1990 by a centre-left coalition, the Concertación Democrática (Concertación). The coalition comprises the centrist Partido Demócrata Cristiano (PDC) and three left-oriented parties, the Partido Socialista (PS), the Partido Radical Social Demócrata (PRSD) and the Partido por la Democracia (PPD). Michelle Bachelet, a member of the PS, was elected president in January 2006 and took office in March for a four-year term. Presidential and congressional elections are due in December Political background History before independence The young Chile Expansion drives development From socialist experiment to military regime 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, although the Spanish were not finally defeated until A period of nearanarchy was followed by centralised rule under Diego Portales, until he was assassinated in The framework of the Portales constitution brought 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 one-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. For much of the middle part of the 20th century economic policy was centred on state-led development, but this contributed to sluggish growth and high inflation. Eduardo Frei of the PDC won the presidency in 1964, launching radical agrarian reform and part-nationalising the large copper companies. 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. Most large and medium-sized companies were placed under direct government management. The political centre ground disappeared as those on both right and left became more radical. Sections of the right called openly for military intervention and, supported by the US, plotted with army officers to bring about a coup. On September 11th 1973 a military coup led by the commander-in-chief of the army, Augusto Country Profile The Economist Intelligence Unit Limited 2007

9 Chile 5 Pinochet, took place, during which the presidential palace was attacked and Mr Allende took his own life. Under Mr Pinochet, the military junta took complete control of public affairs. All political activity was suspended, and a ruthless campaign to eliminate leftwing 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 regime oversaw a radical change in policy, reducing the role of government in economic management and carrying out a radical economic liberalisation. 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. Concertación gains power in 1989 In a plebiscite held on October 5th 1988, 54.7% of the electorate voted for a return to democracy. In 1989 all political forces agreed on a set of constitutional reforms, which were later overwhelmingly endorsed in a referendum. 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, with the coalition s leading party, the PDC, re-emerging as the largest political force in the country. Concertación was returned to power at the next three elections, with first Mr Frei ( ), the son of a former president of the same name, then Ricardo Lagos ( ) and most recently Ms Bachelet winning the presidency. All Concertación governments have followed liberal economic policies, maintaining a consistent policy direction. Importantly, the political atmosphere has moved away from the polarised ideological rigidities that had characterised the previous decades, towards a new political style based on pragmatism and a search for consensual solutions. Recent political developments Concertación wins a fourth presidential term In defeating Sebastián Piñera of Renovación Nacional (RN) in a second round of votes, Ms Bachelet became the fourth consecutive Concertación president, and the first woman to win the presidency in Chile. Ms Bachelet was inaugurated on March 11th 2006 for a four-year term. A member of the PS, Ms Bachelet has pledged to maintain continuity in economic policy, and on taking office nominated a technocratic cabinet with a neo-liberal flavour. In naming a cabinet of ten women and ten men, she honoured her pledge for gender parity. Despite enjoying a majority in both houses of Congress, Ms Bachelet endured a difficult first year: in mid-2006 a series of strikes by students and others, demanding more money and reforms to the lagging public education system, caught the administration unawares, and the president undertook a cabinet reshuffle after just three months. Her popularity gradually diminished, with concerns growing over her management of government. Her public standing The Economist Intelligence Unit Limited Country Profile 2007

10 6 Chile fell further in February 2007 following the botched launch of the Transantiago integrated public transport system for Santiago. Transantiago was poorly designed under the Lagos government, and its premature launch dislocated the public transport system in the capital. By May 2007 Ms Bachelet!s approval rating had fallen to 43%, from 62% in April Under pressure from the Concertación parties, Ms Bachelet undertook to solve the Transantiago problems as a matter of urgency, regardless of cost, and on March 26th 2007 she carried out a second cabinet reshuffle that brought in René Cortázar, a widely respected technocrat from the PDC, as minister of transport and communications. Important recent events 2005 Constitutional reforms are passed that eliminate the institution of unelected senators from March 2006 and reduce the presidential term from six years to four, also from March Presidential and congressional elections will now always coincide. December 2005 In the congressional election Concertación s share of the vote rises to 51.8%, up from 47.9% in 2001, while the Alianza s falls to 38.7% from 44.3%. The radical-left opposition coalition secures 7.4%, of which the Partido Comunista wins 5.1%. January 2006 Michelle Bachelet wins a run-off presidential election on January 15th, becoming the fourth consecutive Concertación president. March 2006 Ms Bachelet takes office for a four-year term. February 2007 The launch of Transantiago leads to a breakdown in the public transport system in the capital, and to public demonstrations. May 2007 Two legislators from Concertación!s Partido por la Democracia leave to form a new party, Chile Primero (Chile First), which they hope will appeal to the centrist elements within both Concertación and the centre-right opposition coalition, the Alianza. Constitution, institutions and administration The 1980 constitution is reformed in 1989 and 2005 The 1980 constitution drawn up during the Pinochet dictatorship 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 to amend the constitution; and a binominal (two-seat) electoral system for the congressional elections, which requires more than two-thirds of the vote in any Country Profile The Economist Intelligence Unit Limited 2007

11 Chile 7 constituency to gain both seats, making it difficult for a coalition to win a large congressional majority. In May 1989 the 1980 constitution was reformed as part of the transition to civilian rule. 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. In 2005 the government and the opposition agreed on a new set of constitutional reforms that had been under discussion since the early 1990s. The presidential term was shortened from six years to four from 2006 to ensure that presidential and congressional elections coincide (immediate presidential re-election remains prohibited); all unelected Senate seats were abolished; the power of the presidency was reduced by limiting its capacity to control the congressional agenda and by allowing the 120-seat Chamber of Deputies greater powers to supervise executive decisions; and residual participation of the military in political decisions was brought to an end 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. The binominal electoral system used in congressional elections remains a point of contention. Ms Bachelet included a reform of this system used for congressional elections in her manifesto. A powerful executive Modernisation of the judicial system 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. 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 the cabinet and has full control over diplomatic appointments. The executive controls the congressional agenda by determining the urgency of each bill. The number of Supreme Court judges was increased 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. The judicial system is in the process of being modernised. In 1999 Congress approved an important judicial reform, 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, as it included new infrastructure as well as the need to The Economist Intelligence Unit Limited Country Profile 2007

12 8 Chile prepare judges, prosecutors, lawyers and the police for the new system. This process was completed in mid-2005 with the incorporation of the Santiago metropolitan region. 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 experiences"the Christian Democratic agrarian reform in the late 1960s, the attempted socialist revolution under Salvador Allende 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. 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 18 years. The ruling Concertación coalition Concertación is a centre-left 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 left. Concertación now comprises the PDC, the PS, the PPD and the PRSD, and has governed Chile since The PDC is the largest party in Concertación, but it is divided and it appears a declining political force. The PDC was the main loser in the congressional elections of December 2005, seeing its representation in the Senate halved, from 12 to six, and losing three seats in the Chamber of Deputies, reducing its total to 20. These defeats were suffered at the hands of its partners of the Concertación s self-styled progressive pole, which is formed by the PS, the PPD and the PRSD. The PS, which has provided the last two presidents in Chile, has been moving towards the political centre ground since the late 1980s. It is now made up of three factions: the centrist Megatendencia and Terceristas; and the more leftwing Nueva Izquierda. Since breaking from an alliance with the Partido Comunista in the late 1980s the PS has been a social-democratic party, allying itself with the PDC to form Concertación. The PS was the main beneficiary of the PDC s congressional losses in December 2005, increasing its representation from five to eight senators and 12 to 15 deputies. The PPD, the youngest party in Concertación, was formed in In the early 1990s it adopted more market-friendly policies than the PS. The differences between the two parties has since receded as consensus has grown. The PPD s share of the vote rose to 15.5% at the 2005 congressional elections, up from 12.7% in 2001, mostly as a result of a higher number of candidates. However, the party s number of senators and deputies reached three and 21 respectively, unchanged from The PRSD maintains the statist orientation of the old Partido Radical, but it participates little in the country s policy debates. The PRSD suffered a fall in its Country Profile The Economist Intelligence Unit Limited 2007

13 Chile 9 share of the vote to 3.5% in the 2005 congressional elections, down from 4.1% in 2001 and well below the 11.8% achieved in 1990 and 6.7% in Its complement of deputies, though, rose from six to seven, and its dynamic president, José Antonio Gómez, became the party s first elected senator since the return to democracy. In May 2007 the Chile Primero (Chile First) movement was launched by a splinter group from the PPD led by a senator, Fernando Flores, a deputy, Esteban Valenzuela, and a former president of the Chamber of Deputies, Jorge Schaulsohn. Chile Primero intends to put forward its own presidential candidate at the presidential and congressional elections in December 2009, and hopes to attract centrists from both major coalitions. However, it is a greater threat to Concertación than to the Alianza, and could take enough votes away from Concertación to prevent the coalition from retaining power. 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 as an alternative government has suffered from the inability of its two constituent parties, the UDI and the RN, to regulate their intense competition. Their alliance has been restricted to electoral pacts, having failed to develop common policies and effective political co-ordination. In December 2005 the RN and the UDI presented a common electoral list for the congressional elections, but separate presidential candidates. The RN s Mr Piñera secured 25.4% of the vote in the first round of the presidential poll, while Joaquín Lavín of the UDI received 23.2%. The UDI is a right-wing party with a background in Catholic fundamentalism and free-market economics that has been successful in attracting young people from privileged backgrounds to help improve conditions in the poorest neighbourhoods. This work has turned the UDI into the most popular party in the country, overtaking the PDC as the political party with the largest representation in the 2001 congressional elections, when its share of the vote reached 25.2%, up from 14.5% in Its share of the vote fell to 22.3% in 2005, but it remained the strongest congressional force, with nine senators (down from 11) and 33 deputies (unchanged from ). RN is the more centrist of the two Alianza parties, and has been strengthened by the performance of its leader and presidential candidate, Mr Piñera, in the presidential elections. RN lost two seats in the Chamber of Deputies, ending with 19, but its share of the vote at the congressional elections rose from 13.8% in 2001 to 14.1% in 2005, still below the 16.8% achieved in RN also increased its number of Senate seats from seven to eight. Key players to watch Michelle Bachelet A medical doctor by training and a member of the Partido Socialista (PS), Ms Bachelet is Chile!s first female president. She was inaugurated on March 11th 2006 for a four-year term. Although she has the common touch and proved immensely popular in her election campaign, she had a troublesome first year in power, being criticised for her perceived weakness in office. Although she belongs to The Economist Intelligence Unit Limited Country Profile 2007

14 10 Chile the Nueva Izquierda, the most radical PS faction, Ms Bachelet has honoured her campaign pledges to maintain sustainable fiscal policies and eschew populism. She chose a technocratic cabinet with a strongly pro-market flavour, and has been pursuing a pragmatic programme with an emphasis on energy security, furthering equal opportunities and raising Chile s levels of social protection. Soledad Alvear Having been defeated by Ms Bachelet in 2005 for the presidential nomination of the centre-left coalition, Concertación Democrática, Ms Alvear was elected as senator for the capital, Santiago, with the highest number of votes, and went on to win the presidency of the Partido Demócrata Cristiano (PDC) in 2006, positioning herself as her party s likely candidate for the 2009 presidential election. A lawyer by training, Ms Alvear was an effective justice minister in the late 1990s, shepherding through the legislature a major reform of the country s penal justice system. She served as foreign minister under Ricardo Lagos, completing negotiations for free-trade agreements with the EU, the US, South Korea and the European Free-Trade Association (EFTA). Sebastián Piñera After beating the presidential candidate of the Unión Demócrata Independiente (UDI), Joaquín Lavín, in the first round of the presidential election in December 2005, Mr Piñera was defeated by Ms Bachelet in the January 2006 presidential runoff. However, his 46.5% of the vote left him well placed to challenge again in A successful entrepreneur, Mr Piñera is a man of driving political ambition. There is little love lost between him and the UDI, but he has full control of his centre-right party, Renovación Nacional, and hopes to form a wider centre-right coalition than the Alianza por Chile by attracting liberal sectors of the PDC disenchanted with Concertación. Pablo Longueira Elected as a senator in December 2005, Mr Longueira is a civil engineer by training who presided over the UDI until early 2004 and has been the leading UDI organiser in the poorest districts since his youth. He is a charismatic figure and has been a constructive opposition leader, but the polls indicate only modest popular support for his presidential ambitions. As a result, the UDI leadership has maintained a waitand-see attitude on the nomination of the party s presidential candidate for 2009, leading Mr Longueira to withdraw his candidacy in April However, this might not be his last word on the matter. Other political forces Other political groups have been unable to gain a presence in Congress; they include the Partido Comunista (PC), whose traditional influence in the public sector and among student bodies has weakened considerably. The PC received 5.1% of the vote in the congressional elections in 2005, down from 5.2% in 2001 and 6.8% in Support for the PC s main anti-capitalist partner, the Partido Humanista, recovered partially to 1.6% in 2005, up from 1.1% in 2001 but well below the 2.9% that it received in Country Profile The Economist Intelligence Unit Limited 2007

15 Chile 11 Balance of forces in Congress (no. of seats) Deputies Senators Concertación Democrática Partido Demócrata Cristiano (PDC) Partido por la Democracia (PPD) Partido Socialista (PS)a Partido Radical Social Demócrata (PRSD) Independents Alianza por Chile Unión Demócrata Independiente (UDI) Renovación Nacional (RN) Independents Partido del Sur Unión de 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 Eliminated from 2006, there used to be nine unelected senators who served for eight-year periods, 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. In addition, former presidents who served for six or more years had until March 2006 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. 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 following the crisis-induced 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 Relations with Argentina were dominated by serious tensions over the Beagle channel islands in the 1980s but improved greatly in the 1990s. The outstanding territorial disputes, including over the 200-sq-km Campo de Hielos icefield, were resolved by Crossborder trade and investment links with Argentina increased dramatically in the decade following 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 created tensions and led Chile to look for more reliable energy sources elsewhere. 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 The Economist Intelligence Unit Limited Country Profile 2007

16 12 Chile 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 remains a live issue 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. In November 2005 the Peruvian Congress passed a law that redefines Peru s maritime border with Chile. The law expands Peru s claim over the Pacific Ocean by 10,280 sq miles, and is a first step towards claiming the rich fishing grounds controlled by Chile since Peru has said that it would consider negotiating the expanded claim, but Chile maintains that the maritime border was agreed in 1947 and ratified in the 1950s, and that the new law amounts to an illegal and unilateral change to those borders. Peru contends that the documents were pacts covering fishing rights, and that the maritime boundaries in the area have never been clearly defined. This was a major step backwards in relations between Peru and Chile. All bilateral border issues were meant to be settled in November 1999, when the two countries foreign ministers signed an act of execution completing the implementation of the their 1929 peace treaty. Although the issue has not yet been resolved, relations with Peru have improved since Alan García was inaugurated as president there in July 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 2007 budget allocation for the army, navy and air force was set at US$2.2bn, representing 6.5% of budgeted expenditure, down from 7% in In addition, 10% of mineral sales by the Corporación Nacional del Cobre de Chile (Codelco, the state-owned copper company)"expected to be about US$1.1bn in 2007"will finance purchases of military hardware. Armed forces, 2006 Army 47,700 Conscripts 20,700 Navy 19,398 Conscripts 1,660 Air force 8,600 Conscripts 700 Total armed forces 75,698 Conscripts 23,060 Source: International Institute for Strategic Studies, The Military Balance Country Profile The Economist Intelligence Unit Limited 2007

17 Chile 13 Security risk in Chile Armed conflict Security risk in Chile is among the lowest in Latin America. All land 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 in the case of Bolivia, the risk of armed conflict is negligible. Civil unrest The chances of internal armed conflict are low. The country s democratic institutions are responsive, living standards have been rising at a steady pace for decades, and the labour force is pragmatic and peaceful. Groups favouring violent demonstrations have little popular support, and the threat of destabilising demonstrations is low, notwithstanding violent demonstrations which usually mark the anniversary of the September 11th 1973 military coup. Since Ms Bachelet came to power, demonstrations"first by students in mid-2006 and then by residents in Santiago protesting about the Transantiago transport fiasco"have increased in number and have turned violent at times. Radical groups from some Mapuche aboriginal communities have also resorted to arson at times to press their claims for land, a phenomenon that reached its height in 2003 as the government conceded to the most strident protestors. However, these attacks were rare, and have diminished since 2004 following successful prosecutions. The Mapuche constitute about 4% of the population, and the majority of them live in urban centres, where they have integrated into the mainstream. Among those living in rural areas in regions VIII and IX south of Santiago, only a small minority have resorted to violence. Crime The most immediate security problem is a rise in violent crime linked to drugtrafficking, albeit from a low base. The number of reported crimes increased by 10% in 2004, the lowest rise in the past four years. Reported cases of theft with intimidation rose by 20%. The strong emphasis placed by the authorities for the past 15 years on strengthening the rights of the accused has increased impunity, but a strong adverse public reaction has prompted the authorities to review the legislation and some judicial practices to take greater account of victims rights. Drug smuggling and organised crime The rise in violent crime notwithstanding, kidnapping, extortion and organised crime remain almost unknown. Resources and infrastructure Population The population is around 16m The population reached 16.4m in 2006, according to official estimates. Population growth has slowed from an average of 2.1% per year in to 1.6% per year in and 1.1% per year in The population is young but ageing. Those aged under 20 made up 49% of the population in 1960, a share that had fallen to 37.5% by 1996 and 33.3% by The proportion of people aged over 65 years The Economist Intelligence Unit Limited Country Profile 2007

18 14 Chile rose from 4.3% in 1960 to 6.7% in 1996 and 8.2% in This is the result of slowing population growth and rising life expectancy at birth, to an average of 77.9 years in , according to UN population estimates. The Santiago metropolitan area housed 40.2% of the population in 2006, up from 39.4% in Distribution of population by age group ('000 unless otherwise indicated) 1996 % of total 2006 % of total 0-4 1, , , , , , , , , , , , , , , , , Total 14, , Source: Instituto Nacional de Estadísticas. Chile s population is less racially diverse than in many other Latin American countries. Mestizos"people of mixed Spanish and Amerindian ancestry"account for 76% of the population, while people of European descent make up about 20% and Mapuche (Chile!s main remaining indigenous group, centred in the south of the country) about 4%. There have been small but steady flows of immigrants from various European countries since the early 19th century, including sizeable numbers of Germans, Italians and Croats, as well as a smaller number of British and French. Immigration from some Arab countries became noticeable during the 20th century, and recently Chile s relative economic success has been attracting a growing flow of illegal immigration from bordering countries, particularly Peru. Chilean women in the economically active population have on average 12 years of education, and they account for one-half of the country s professionals, which gives them access to a wider range of jobs than in most other Latin American countries. However, they occupy only 24% of management positions, and tend to earn lower wages than men at similar levels of training and responsibility. Skewed income distribution The proportion of the population living in poverty fell from 45.1% in 1987 to 18.8% in 2003, according to the Caracterización Socio-Económica Nacional (Casen, a socio-economic survey used to adjust the government s anti-poverty programmes). The proportion of those living in extreme poverty fell from 17.4% in 1987 to 4.7% in The Casen survey defines poor households as those with regular monetary incomes insufficient to buy two basic food baskets per head per week. Households that are unable to buy one basket per head are described as living in extreme poverty. Progress in reducing poverty has been more substantial than is apparent from survey results as the methodology used fails to capture improvements in the quality of housing, the availability of Country Profile The Economist Intelligence Unit Limited 2007

19 Chile 15 drinking water, sanitation and paved roads, or in public education and public health services. However, income distribution is highly skewed, and has remained broadly unchanged since measurements began in the 1960s. Measured on the basis of their monetary income (including monetary subsidies), in 2003 the richest 20% of the population earned 55.9% of national income (compared with 56.2% in 1987), while the poorest 20% earned 4.4% (compared with 4.5% in 1987). The second quintile, which is slightly better off than the first, has gained marginally in recent decades. The government is seeking to improve the effectiveness of its anti-poverty programme, Chile Solidario, which aims to reduce the percentage of the population living in poverty. Poverty and income distribution Poverty (% of total households) Extreme poverty (% of total population) Income distribution (% of total monetary income) Poorest quintile Second quintile Third quintile Fourth quintile Richest quintile Source: Planning and Co-operation Ministry, Encuesta Casen. Education Basic education achieved 98.6% coverage in 1990, up from 80% in 1960, and was extended from six years to eight. Four-year secondary education is now completed by nearly 85% of pupils, of which about 35% go on to university. According to the UN Development Programme s Human Development Report, the adult illiteracy rate was 4.3% in Progress in average schooling years (from 28% in 1970 to over 66% of pupils in 2002 completing secondary education) has been accompanied since 2002 by a programme aimed at providing full-day education to all 3.3m school students. This proved unrealistic, and the goal now is instead to have 1.73m children in full-day education. Despite the rise in time spent at school, and a fourfold increase in spending in inflation-adjusted terms since 1990, there has not been significant progress in educational attainment standards. The average quality of education in Chile is among the best in Latin America, but still compares poorly with that of emerging countries in Asia, as demonstrated by the low results achieved in standardised international mathematics and science tests in recent years. To address the need to improve educational outcomes, government reforms have focused in the past decade on improving quality and equity through increased investment, curricular reform and the provision of information and communications technology in all schools. However, the results have been patchy, with national quality tests showing little improvement since Critics of the government claim that the rigidity of decision-making in the state school system should also be addressed. The Estatuto Docente (Teachers Law) of 1991 centralised the remuneration system in municipal state schools, basing pay The Economist Intelligence Unit Limited Country Profile 2007

20 16 Chile on years of service rather than performance, and made it virtually impossible to dismiss incompetent or absentee teachers working in state-run schools. However, no Concertación Democrática government has yet dared to confront the Partido Comunista-led teachers union by seeking to repeal the law. The current president, Michelle Bachelet, has been no exception. In April 2007, almost a year after a wave of student protests demanding higher quality and greater equity in the education system, the solution that she proposed through an educational reform bill, yet to be passed, is that only not-for-profit schools should be eligible for public funding; that schools financed wholly or partially by the state should not to be allowed to select their students in nursery school or the eight years of primary education; and that these schools should be prohibited from suspending or expelling students for socio-economic or academic reasons. Health Healthcare funding Chile has a mixed healthcare system. The public sector provides 66% of services, while the profit-making private sector covers 24% and the non-profitmaking private sector the remaining 10%. Wage earners either pay 7% of gross earnings to the Fondo Nacional de Salud (Fonasa, the national health insurance fund) or to one of 26 instituticiones de salud previsional (Isapres, private health insurance companies). Statutory payroll deductions limit the risks for health insurers and the national health system. The unemployed and the very poor are eligible for discounted or free healthcare under the public health system. Chile s health policies in recent decades have been largely successful, raising life expectancy at birth from 63.4 years in to 78.1 years in Infant mortality fell from 78 per 1,000 live births in 1970 to 8 per 1,000 in 2004, compared with 7 per 1,000 in the US, 16 per 1,000 in Argentina and 24 per 1,000 in Peru. Comparative health indicators Chile Argentina Brazil Peru US Life expectancy, years (2004) Infant mortality rate per 1,000 live births (2004) Expenditure on healthcare services (% of GDP; 2003) Private Public Physicians per 100,000 people ( ) Source: UN Development Programme, Human Development Report Focus on preventive care Regular free vaccination campaigns have played a major role in the eradication of various infectious diseases, including cholera and measles. Mother-and-child healthcare programmes for the poor were improved and extended. Together with a rise in education levels, these programmes account for a rapid improvement in health indicators during the 1970s and 1980s, despite very low government budgets for healthcare. Country Profile The Economist Intelligence Unit Limited 2007

21 Chile 17 Selected health indicators Life expectancy at birth (years) Infant mortality rate (per 1,000 live births) 78 8 Under-5 mortality rate (per 1,000 live births) 98 8 Source: UN Development Programme, Human Development Report Since 1990, governments have maintained the emphasis on disease-prevention, and have also invested heavily in the expansion and modernisation of public healthcare facilities. Chile s overall spending on healthcare in 2003, including public- and private-sector care, was estimated at 6.1% of GDP in 2006 in the UN Development Programme!s Human Development Report. However, the productivity of health-related public expenditure has fallen in the past decade owing to the high degree of control over the sector exercised by doctors and public-sector healthcare unions. Only a small number of deaths are still associated with enteric, transmissible diseases and illnesses linked to underdevelopment. The percentage of the population aged years living with HIV/AIDS reached 0.3% in 2005, significantly below the 0.6% rate in the US. Just 0.5% of children up to six years of age suffered from malnutrition in 2003, according to Ministry of Health figures, but 15.6% were overweight and 7.4% were obese, while among the population aged 65 years and over 28% were overweight and 26% obese. Although emphasis continues to be placed on disease-prevention, public health policies are focusing increasingly on fighting obesity and unhealthy lifestyles characterised by a lack of exercise, high cholesterol intake, excessive smoking, alcohol and drug abuse and stress. Healthcare reform is being implemented Healthcare reform was a central platform of the government led by Ricardo Lagos from 2000 to 2006, and is being continued under the Bachelet administration. A health reform passed in 2005 created an Acceso universal con garantías explícitas (Auge, the mandatory basic health insurance policy), which aimed initially to cover % of the costs of healthcare services for 56 medical conditions, including many of the most expensive illnesses to treat. The insurance policy is sold at a fixed price, regardless of age or gender, and guarantees a maximum waiting time for medical attention for each condition. By 2006, 40 of the 56 identified illnesses were covered by Auge guarantees, and the last 16 conditions are being incorporated from July By the end of April 2007 nearly 3.3m patients had made use of the Auge guarantees since the launch of the system. Natural resources and the environment A highly varied topography Situated on the southern half of the South American continent s Pacific coast, Chile stretches over a distance of 4,352 km and covers 756,946 sq km. It includes several South Pacific islands, notably Easter Island (Isla de Pascua or Rapa Nui) and the Juan Fernández Islands. Chile claims sovereignty over the ocean up to 200 nautical miles from its coast and also over the area of Antarctica between the 53 W and 90 W meridians. The Andes mountain range dominates Chile s The Economist Intelligence Unit Limited Country Profile 2007