Miracle of Chile

The “Miracle of Chile” was a term used by Nobel laureate economist Milton Friedman to describe the reorientation of the Chilean economy in the 1980s and the benefits of the economic policies applied by a large group of Chilean economists who collectively came to be known as the Chicago Boys, having studied at the University of Chicago where Friedman taught. He said the “Chilean economy did very well, but more importantly, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society.” The junta to which Friedman refers was a military government that came to power in a 1973 coup d'état, which came to an end in 1990 after a democratic 1988 plebiscite removed Augusto Pinochet from the presidency.

In the early 1970s, Chile experienced chronic inflation, reaching highs of 140 percent per annum, under socialist President Salvador Allende, whose government implemented high protectionist barriers, resulting in a lack of foreign-exchange reserves and falling GDP. The economic reforms implemented by the Chicago Boys had three main objectives: economic liberalization, privatization of state-owned companies, and stabilization of inflation. The first reforms were implemented in three rounds – 1974–83, 1985, and 1990. The reforms were continued and strengthened after 1990 by the post-Pinochet center government of Patricio Aylwin's Christian Democrats. However, the center-left government of Eduardo Frei Ruiz-Tagle also made a commitment to poverty reduction. In 1988, 48% of Chileans lived below the poverty line. By 2000 this had been reduced to 20%. The 1990s center-left governments implemented a 17% increase in the minimum wage, a 210% increase in social spending targeted at the low-income sectors of the population, and across the board tax increases, reversing the Pinochet tax cuts of 1988 and taxing an additional 3% of the country's GDP into government coffers. A 2004 World Bank report attributed 60% of Chile's 1990's poverty reduction to economic growth, and claimed that government programs aimed at poverty alleviation accounted for the rest.

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