The monetarist experiment in Chile: A critical survey

Abstract

Chile constitutes the most outstanding case of implementation of an extreme market economy model. During nine years, between 1973 and 1982, a model was implemented that for its ‘pureness’, deepness and extension induced a drastic transformation of the Chilean economy. The main features of the model are examined, focusing on the anti-inflationary policy, the reform of the financial system, and the external opening. Then the global results concerning output, income distribution and saving-investment are studied. The paper shows that the balance of the results was clearly negative during the 1973–1981 period: output stagnated, the concentration of wealth was spectacular, and saving and investment rates fell significantly. The characteristics themselves of the model and the weakening of the productive apparatus that they originated, additionally explain that the international recession was multiplied during 1982 within the domestic economy. The paper concludes with an attempt to interpret the main causes of the failure of this ‘experiment’.