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Chile (04/02)


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For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of Chile

Geography
Area: 756,945 sq. km. (302,778 sq. mi.); nearly twice the size of California.
Cities: Capital--Santiago (metropolitan area est. 6 million). Other cities--Concepcion-Talcahuano (840,000), Vina del Mar-Valparaiso (800,000), Antofagasta (245,000), Temuco (230,000).
Terrain: Desert in north; fertile central valley; volcanoes and lakes toward the south, giving way to rugged and complex coastline; Andes Mountains on the eastern border.
Climate: Arid in north, Mediterranean in the central portion, cool and damp in south.

People
Nationality: Noun and adjective--Chilean(s).
Population (2001): 15.3 million.
Annual population growth rate: 1.1%.
Ethnic groups: Spanish-Native-American (mestizo), European, Native-American.
Religions: Roman Catholic 77%; Protestant 12%.
Language: Spanish.
Education: Years compulsory--8. Attendance--3 million. Adult literacy rate--95%.
Health: Infant mortality rate--9.4/1,000. Life expectancy--76 yrs.
Work force (5.9 million): Services and government--36%; industry and commerce--34%; agriculture, forestry, and fishing--14%; construction--7%; mining--2%.

Government
Type: Republic.
Independence: September 18, 1810.
Constitution: Promulgated September 11, 1980; effective March 11, 1981; amended in 1989, 1993, and 1997.
Branches: Executive--president. Legislative--bicameral legislature. Judicial--Constitutional Tribunal, Supreme Court, court of appeals, military courts.
Administrative subdivisions: 12 numbered regions, plus Santiago metropolitan region, administered by appointed "intendentes," regions are divided into provinces, administered by appointed governors; provinces are divided into municipalities administered by elected mayors.
Political parties: Major parties are the Christian Democrat Party, the National Renewal Party, the Party for Democracy, the Socialist Party, the Independent Democratic Union, and the Radical Social Democratic Party. The Communist Party has not won a congressional seat in the last four elections.
Suffrage: Universal at 18, including foreigners legally resident for more than 5 years.

Flag: Chile flag

Economy (2001)
GDP: $73.4 billion.
Annual real growth rate: 2.8%.
Per capita GDP: $4,800.
Commerce (18.8% of GDP): Sales, restaurants, hotels.
Manufacturing (16.3% of GDP): Types--mineral refining, metal manufacturing, food processing, fish processing, paper and wood products, finished textiles.
Financial services (15.2% of GDP): Insurance, leasing, consulting. Mining (11.4% of GDP): Copper, iron ore, nitrates, precious metals, and molybdenum.
Forestry, agriculture, and fisheries (8.3% of GDP): Products--wheat, potatoes, corn, sugarbeets, onions, beans, fruits, livestock, fish.
Trade: Exports--$18.2 billion: copper, fishmeal, fruits, wood products, paper products, fish, wine. Major markets--EU 25%, U.S. 18%, Japan 15%, Argentina 3%, Brazil 5%. Imports--$16.7 billion: petroleum, chemical products, capital goods, vehicles, electronic equipment, consumer durables, machinery. Major suppliers--U.S. 18%, EU 18%, Argentina 15%, Brazil 7%, China 5%, Japan 4%, Germany 4%.

GEOGRAPHY
The northern Chilean desert contains great mineral wealth, primarily copper and nitrates. The relatively small central area dominates the country in terms of population and agricultural resources. This area also is the historical center from which Chile expanded until the late 19th century, when it incorporated its northern and southern regions. Southern Chile is rich in forests and grazing lands and features a string of volcanoes and lakes. The southern coast is a labyrinth of fjords, inlets, canals, twisting peninsulas, and islands. The Andes Mountains are located on the eastern border.

PEOPLE
About 85% of Chile's population live in urban centers, with 40% living in greater Santiago. Most have Spanish ancestry. A small, yet influential number of Irish and English immigrants came to Chile during the colonial period. German immigration began in 1848 and lasted for 90 years; the southern provinces of Valdivia, Llanquihue, and Osorno show a strong German influence. Other significant immigrant groups are Italian, Croatian, French, and Middle Eastern. About 800,000 Native Americans, mostly of the Mapuche tribe, reside in the south-central area.

HISTORY
About 10,000 years ago, migrating Indians settled in fertile valleys and along the coast of what is now Chile. The Incas briefly extended their empire into what is now northern Chile, but the area's remoteness prevented extensive settlement. The first Europeans to arrive in Chile were Diego de Almagro and his band of Spanish conquistadors in 1541, who came from Peru in 1535 seeking gold.

The Spanish encountered hundreds of thousands of Indians from various cultures in the area that modern Chile now occupies. These cultures supported themselves principally through slash-and-burn agriculture and hunting. The conquest of Chile was carried out in 1550 by Pedro de Valdivia, one of Francisco Pizarro's lieutenants. Although the Spanish did not find the extensive gold and silver they sought, they recognized the agricultural potential of Chile's central valley, and Chile became part of the Viceroyalty of Peru.

The drive for independence from Spain was precipitated by usurpation of the Spanish throne by Napoleon's brother Joseph. A national junta in the name of Ferdinand--heir to the deposed king--was formed on September 18, 1810. The junta proclaimed Chile an autonomous republic within the Spanish monarchy. A movement for total independence soon won a wide following. Spanish attempts to reimpose arbitrary rule during what was called the Reconquista led to a prolonged struggle.

Intermittent warfare continued until 1817, when an army led by Bernardo O'Higgins, Chile's most renowned patriot, and Jos� San Mart�n, hero of Argentine independence, crossed the Andes into Chile and defeated the royalists. On February 12, 1818, Chile was proclaimed an independen"

In 1970, Senator Salvador Allende, a Marxist and member of Chile's Socialist Party, who headed the "Popular Unity" (UP) coalition of socialists, communists, radicals, and dissident Christian Democrats, won a plurality of votes in a three-way contest and was named President by the Chilean Congress. His program included the nationalization of most remaining private industries and banks, massive land expropriation, and collectivization. Allende's proposal also included the nationalization of U.S. interests in Chile's major copper mines. Elected with only 36% of the vote and by a plurality of only 36,000 votes, Allende never enjoyed majority support in the Chilean Congress or broad popular support. Domestic production declined; severe shortages of consumer goods, food, and manufactured products were widespread; and inflation reached 1,000% per annum. Mass demonstrations, recurring strikes, violence by both government supporters and opponents, and widespread rural unrest ensued in response to the general deterioration of the economy. By 1973, Chilean society had split into two hostile camps.

A military coup overthrew Allende on September 11, 1973. As the armed Forces bombarded the presidential palace, Allende reportedly committed suicide. A military government, led by General Augusto Pinochet, took over control of the country. The first years of the regime were marked by serious human rights violations. A new constitution was approved by a plebiscite on September 11, 1980, and General Pinochet became President of the Republic for an 8-year term. In its later years, the regime gradually permitted greater freedom of assembly, speech, and association, to include trade union activity. In contrast to its authoritarian political rule, the military government pursued decidedly laissez-faire economic policies. During its 16 years in power, Chile moved away from economic statism toward a largely free market economy that fostered an increase in domestic and foreign private investment.

In a plebiscite on October 5, 1988, General Pinochet was denied a second 8-year term as president. Chileans voted for elections to choose a new president and the majority of members of a two-chamber congress. On December 14, 1989, Christian Democrat Patricio Aylwin, the candidate of a coalition of 17 political parties called the Concertacion, received an absolute majority of votes. President Aylwin served from 1990 to 1994.

In December 1993, Christian Democrat Eduardo Frei Ruiz-Tagle (son of the previous President), leading the Concertacion coalition, was elected President with an absolute majority of votes, for a 6-year term. President Frei's administration was inaugurated in March 1994.

A presidential election was held on a December 12, 1999, but none of the six candidates obtained a majority, which led to an unprecedented runoff election on January 16, 2000. Ricardo Lagos Escobar of the Socialist Party and the Party for Democracy led the Concertacion coalition to a narrow victory, with 51.32% of the votes. He was sworn in March 11, 2000, for a 6-year term.

GOVERNMENT AND POLITICAL CONDITIONS  
Chile's constitution was approved in a September 1980 national plebiscite. It entered into force in March 1981. After Pinochet's defeat in the 1988 plebiscite, the constitution was amended to ease provisions for future amendments to the constitution, create nine appointed or "institutional" senators, and diminish the role of the National Security Council by equalizing the number of civilian and military members--four members each. Many among Chile's political class see further constitutional reform as necessary to complete the transition to democracy.

Chile's bicameral Congress has a 49-seat Senate--38 elected, 9 appointed, 2 for life--and a 120-member Chamber of Deputies. Deputies are elected every 4 years. Senators serve for 8 years with staggered terms. The current Senate contains 20 members from the center-left governing coalition, 18 from the center-right opposition, nine institutional senators appointed in 1999, and two "senators for life," former Presidents Pinochet (currently suspended) and Frei. (Chile's constitution provides that former presidents who have served at least six years shall be entitled to a lifetime senate seat.) The last congressional elections were held in December 2001. The current lower house--the Chamber of Deputies--contains 63 members of the governing center-left coalition and 57 from the center-right opposition. The Congress is located in the port city of Valparaiso, about 140 kilometers (84 mi.) west of the capital, Santiago.

Chile's congressional elections are governed by a unique binomial system that rewards coalition slates. Each coalition can run two candidates for the two Senate and two lower chamber seats apportioned to each chamber's electoral districts. Typically, the two largest coalitions split the seats in a district. Only if the leading coalition ticket out-polls the second-place coalition by a margin of more than 2-to-1 does the winning coalition gain both seats. In the 2001 congressional elections, the conservative Independent Democratic Union surpassed the Christian Democrats for the first time to become the largest party in the lower house. It is followed by the Christian Democrats and the center-right National Renewal Party. The Communist Party again failed to gain any seats in the 2001 elections.

Chile's judiciary is independent and includes a court of appeal, a system of military courts, a constitutional tribunal, and the Supreme Court.

Principal Government Officials
President--Ricardo LAGOS Escobar
Minister of Foreign Affairs--Mar�a Soledad ALVEAR Valenzuela
Ambassador to the United States--Andr�s BIANCHI Larre
Ambassador to the Organization of American States (OAS)--Esteban TOMIC Errazuriz
Ambassador to the United Nations--Juan Gabriel VALDES

Chile maintains an embassy in the United States at 1140 Connecticut Avenue, NW, Washington, DC 20036; tel: 202-785-1746, fax: 202-659-9624, email: embassy@embassyofchile.org.

DEFENSE
Chile's armed forces are subject to civilian control exercised by the President through the Minister of Defense. Under the 1980 constitution, the services enjoy considerable autonomy, and the President cannot remove service commanders on his own authority.

Army
The commander in chief of the Chilean Army, as of March 10, 2002, is Lt. Gen. Juan Emilio Cheyre. The Chilean Army is 45,000 strong and is organized with an Army Headquarters in Santiago, seven divisions throughout its territory, an Air Brigade in Rancagua, and a Special Forces Command in Colina. The Chilean Army is one of the most professional and technologically advanced armies in Latin America.

Navy
Adm. Miguel Vergara directs the 25,000-person Navy, including 5,000 Marines. Of the fleet of 29 surface vessels, only six are operational major combatants (destroyers and frigates). Those ships are based in Valparaiso. The Navy operates its own aircraft for transport and patrol; there are no fighter or bomber aircraft. The Navy also operates three submarines based in Talcahuano.

Air Force (FACH)
Gen. Patricio Rios heads a force of 12,500. Air assets are distributed among five air brigades headquartered in Iquique, Antofagasta, Santiago, Puerto Montt, and Punta Arenas. The Air Force also operates an airbase on King George Island, Antarctica.

Carabineros
After the military coup in September 1973, the Chilean national police (Carabineros) were incorporated into the Defense Ministry. With the return of democratic government, the police were placed under the operational control of the Interior Ministry but remained under the nominal control of the Defense Ministry. Gen. Alberto Cienfuegos is the head of the national police force of 30,000 men and women who are responsible for law enforcement, traffic management, narcotics suppression, border control, and counter-terrorism throughout Chile.

ECONOMY
After a decade of highly impressive growth rates, Chile experienced a moderate recession in 1999 brought on by the global economic slowdown. The economy recovered with 5.4% growth in 2000, with Asian markets rebounding and copper prices edging up. GDP growth in 2001 slowed to 2.8% and is projected to be around 3.3% in 2002.

The government's limited role in the economy, Chile's openness to international trade and investment, and the high domestic savings and investment rates that propelled Chile's economy to average growth rates of 8% during the decade before the recession, are still in place. The 1973-90 military government sold many state-owned companies, and the three democratic governments since 1990 have continued privatization at a slower pace. Policy measures such as the privatization of the national pension system encourage domestic investment, contributing to an estimated total domestic savings rate of approximately 22% of GDP in 2000.

Unemployment peaked well above Chile's traditional 9%-11% range during the recession and is stubbornly remaining in the 8%-10% range well into the economic recovery. Despite recent labor troubles, wages have on average risen faster than inflation over the last several years as a result of higher productivity, boosting national living standards. The share of Chileans with incomes below the poverty line--defined as twice the cost of satisfying a person's minimal nutritional needs--fell from 46% of the population in 1987 to 21% in 2001.

Maintaining a moderate inflation level is a foremost Central Bank objective. December-to-December inflation stood at 4.7% in 1998, fell to only 2.3% during the 1999 recession, rose to 4.5% in 2000, and fell again to 2.6% in 2001. Most wage settlements and spending decisions are indexed, reducing inflation volatility. The establishment of a compulsory private sector pension system in 1981 was an important step toward increasing domestic savings and the pool of investment capital. Under this system, most regular workers pay 10% of their salaries into privately managed funds. This large capital pool has been supplemented by substantial foreign investment.

Total public and private investment in the Chilean economy has remained high despite current economic difficulties. The government recognizes the necessity of private investment to boost worker productivity. The government also is encouraging diversification, including such nontraditional exports as fruit, wine, and fish to reduce the relative importance of basic traditional exports such as copper, timber, and other natural resources.

Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. The Central Bank decided in May 1999 on the removal of the 1-year residency requirement on foreign capital entering Chile under Central Bank regulations, generally for portfolio investments. A modest capital control mechanism known as the "Encaje," which requires international investors to place a percentage of portfolio investment in noninterest-bearing accounts for up to 2 years, has been effectively suspended through reduction to zero of the applicable percentage; the mechanism could be resurrected depending on economic circumstances.

Total foreign direct investment flows in 2001 grew to $4.6 billion, up from $3.6 billion in 2000 but down from $9.2 billion in 1999. In 2000, Chile experienced an inflow of $.64 billion, largely the result of increased inward foreign investment and diminished levels of Chilean direct investment abroad ($3.8 billion).

Foreign Trade
Chile's economy is highly dependent on international trade. In 2001, exports decreased to $17.4 billion from $18.2 billion in 2000, and imports decreased to $15.9 billion from $16.7 billion the previous year. Exports accounted for about 25% of GDP. Chile has traditionally been dependent upon copper exports; the state-owned firm CODELCO is the world's largest copper-producing company. Foreign private investment has developed many new mines, and the private sector now produces more copper than CODELCO. Copper output continued to increase in 2001. Nontraditional exports have grown faster than those of copper and other minerals. In 1975, nonmineral exports made up just over 30% of total exports, whereas now they account for about 60%. The most important nonmineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine.

Chile's export markets are fairly balanced among Europe, Asia, Latin America, and North America. The U.S., the largest-single market, takes in 18% of Chile's exports. Latin America has been the fastest-growing export market in recent years. The government actively seeks to promote Chile's exports globally. Since 1991, Chile has signed free trade agreements with several countries, including Canada, Mexico, Venezuela, Colombia, and Ecuador. An association agreement with Mercosur--Argentina, Brazil, Paraguay, and Uruguay--went into effect in October 1996. Chile, a member of the Asia-Pacific Economic Cooperation (APEC) organization, is seeking to boost commercial ties to Asian markets. Chile hopes to conclude a free trade agreement with the European Union in 2002.

In keeping with its trade-oriented development strategy, Chile is currently in negotiations with the U.S. on a free trade agreement. Chile's 1996 free trade agreement with Canada was modeled largely on NAFTA in anticipation of an eventual trade pact with the United States; similarly, Chile broadened its bilateral free trade agreement with Mexico in August 1998. Chile has been a strong proponent of pressing ahead on negotiations for a Free Trade Area of the Americas (FTAA) agreement.

Imports were down in 2001, reflecting reduced consumer demand and deferred investment. Capital goods make up about 22% of total imports. The United States is Chile's largest-single supplier, supplying 22.4% of the country's imports in 2001, up from 18.5% in 2000. Chile unilaterally is lowering its across-the-board import tariff--for all countries with which it does not have a trade agreement--by a percentage point each year until it reaches 6% in 2003. Higher effective tariffs are charged only on imports of wheat, wheat flour, vegetable oils, and sugar as a result of a system of import price bands. The price bands are under challenge in the WTO.

Finance
Chile's financial sector has grown faster than other areas of the economy over the last few years; a banking law reform approved in 1997 broadened the scope of permissible foreign activity for Chilean banks. The Chilean Government implemented a further liberalization of capital markets in 2001. Domestically, Chileans have enjoyed the recent introduction of new financial tools such as home equity loans, currency futures and options, factoring, leasing, and debit cards.

The introduction of these new products has been accompanied by increased use of traditional instruments such as loans and credit cards. Chile's private pension system, with assets worth roughly $36 billion at the end of September 2000, has provided an important source of investment capital for the stock market. Chile has maintained one of the best credit ratings (S+P A-) in Latin America despite the 1999 economic slump. In recent years, many Chilean companies have sought to raise capital abroad due to the relatively lower interest rates outside of Chile. There are three main ways Chilean firms raise funds abroad: bank loans, issuance of bonds, and the selling of stock on U.S. markets through American Depository Receipts (ADRs). Nearly all of the funds raised go to finance investment. The government is paying down its foreign debt. The combined public and private foreign debt was roughly 50% of GDP at the end of 2001, low by Latin American standards.

FOREIGN RELATIONS
Since its return to democracy in 1990, Chile has been an active participant in the international political arena. Chile was the chair of the Rio Group in 2001 and will host the Community of Democracies session in 2004. Chile is an active member of the United Nations and the UN family of agencies, serving on the UN Security Council from 1995-97. Chile participates in UN peacekeeping activities and will host the Defense Ministerial of the Americas in 2002.

The Chilean Government has diplomatic relations with most countries and has settled nearly all of its territorial disputes, most notably with Argentina during the 1990s. Chile and Bolivia severed diplomatic ties in 1978 over Bolivia's desire to reacquire territory it lost to Chile in 1879-83 War of the Pacific. The two countries maintain consular relations.

Chile is an associate member of Mercosur and a full member of APEC, and has been a leader in the region on international economic issues and hemispheric free trade. Chile hosted the second Summit of the Americas in 1998.

U.S.-CHILEAN RELATIONS
Relations between the United States and Chile are better now than at any other time in history. The U.S. Government applauded the rebirth of democratic practices in Chile in the late 1980s and early 1990s and sees the maintenance of a vibrant democracy and a healthy and sustainable economy as among the most important U.S. interests in Chile. In December 2000 the United States and Chile initiated negotiations for a bilateral Free Trade Agreement. These negotiations are expected to be completed by mid-2002. The two governments consult frequently on issues of mutual concern, and dialogue takes place in five major bilateral commissions--covering defense, agriculture, trade and investment, and bilateral issues.

Many prominent Americans and senior U.S. officials visited Chile during the period 1996-2001, including President Clinton; former-Presidents Carter, Bush, and Ford; U.S. Trade Representative Zoellick; former Secretary of State Albright; former Secretary of Defense Cohen; Members of Congress; and senior members of the U.S. military, addressing issues ranging from education to international trade.

U.S. Embassy Functions
In addition to working closely with Chilean Government officials to strengthen our bilateral relationship, the U.S. Embassy in Santiago provides a wide range of services to U.S. citizens and businesses in Chile. (Please see the embassy's home page http://www.usembassy.cl/ for details of these services.) The embassy also is the locus for a number of American community activities in the Santiago area. Public Affairs works closely with universities and NGOs on a variety of programs of bilateral interest. Of special note are extensive U.S. Speaker, International Visitor, and Fulbright programs. Themes of particular interest include judicial reform, environmental concerns, and promotion of trade.

Attaches at the embassy from the Foreign Commercial Service, Foreign Agricultural Service, and the Animal and Plant Health Inspection Service (APHIS) work closely with the hundreds of U.S. companies which export to or maintain offices in Chile. These officers provide information on Chilean trade and industry regulations and administer several programs intended to support U.S. companies' sales in Chile.

The Consular section of the embassy provides vital services to the more than 12,000 U.S. citizens residing in Chile. Among other services, the Consular section assists Americans who wish to participate in U.S. elections while abroad and provides U.S. tax information. Besides the U.S. citizens residents in Chile, more than 120,000 U.S. citizens visit annually. The Consular section offers passport and emergency services to U.S. tourists as needed during their stay in Chile. It also issues more than 60,000 visitors' visas annually to Chilean citizens who plan to travel to the U.S.

The Public Affairs Office works daily with Chilean media, which has a keen interest in bilateral and regional relations. It also assists visiting foreign media, including U.S. journalists, and is regularly involved in press events for high level visitors. Recent issues of great interest to the media include U.S. views on the evolving Pinochet case, and other cases associated with his regime.

Principal U.S. Embassy Officials
Ambassador--William R. Brownfield
Deputy Chief of Mission--Philip S. Goldberg
Public Affairs Counselor--Julie Gianelloni Connor
Administrative Counselor--Robert E. Davis
Commercial Counselor--John A. Harris
Economic and Political Counselor--Brian J. Blood
Consul General--Daniel F. Keller
Defense Attach�--Capt. Larry Pacentrilli, USN
Military Group Commander--Col. Alexander Trujillo
Agricultural Counselor--Vacant
APHIS Attach�--Eric R. Hoffman
Legal Attach�--Kevin W. Currier
DEA--James C. Kuykendall

The U.S. Embassy and Consulate in Santiago are located at 2800 Andres Bello Avenue, Las Condes, (tel. 562-232-2600; fax: 562-330-3710). The mailing address is Casilla 27-D, Santiago, Chile.

Other Contact Information
American Chamber of Commerce in Chile
Avenida Presidente Kennedy 5735, Oficina 201
El Torre Poniente, Las Condes
Santiago
Tel: 562-290-9700
Fax: 562-212-2620
Email: amcham@amchamchile.cl
Website: http://www.amchamchile.cl

Comite de Inversiones Extranjeras (Foreign Investment Committee)
Karin Poniachik, Executive Vice President
Teatinos 120, P. 10; Santiago, Chile
Tel: 562-698-4254
Fax: 562-698-9476
Website: http://www.foreigninvestment.cl

Chilean Government Agencies
Website: http://www.estado.cl

U.S. Department of Commerce
Trade Information Center
International Trade Administration
14th and Constitution Avenue, NW
Washington, DC 20230
Tel: 800-USA-TRADE
Fax: 202-482-4726
Home page: http://www.export.gov and http://www.buyusa.gov/chile



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