Chile – A “Market-Oriented” Economy

CODELCO is the number one producing copper company in the world; it is controlled by the Chilean government. ENAP, which stands for Empresa Nacional del Petroleo, the equivalent of National Oil Company in English is another huge enterprise controlled by the state in Chile. ENAP was established in 1945 when the government claimed the rights to the first oil reserves found in Chile. ENAP currently provides more than 80% of Chile’s fuel. BancoEstado, one of the country’s largest financial institutions, is also owned by the government. It is the existence of state-controlled enterprises such as BancoEstado, ENAP, and CODELCO that cause Chile to be classified as a “market-oriented” economy rather than a free market economy.

As the copper market is such a key component in Chile’s economy the way the government controls it through CODELCO is very important to the country’s economy. According to the CIA World Factbook:

“The Chilean government conducts a rule-based countercyclical fiscal policy, accumulating surpluses in sovereign wealth funds during periods of high copper prices and economic growth, and allowing deficit spending only during periods of high copper prices and economic growth, and allowing deficit spending only during periods of low copper prices and growth. As of September 2008, those sovereign wealth funds – kept mostly outside of the country and separate from Central Bank reserves – amounted to more than $ 20 billon”( CIA, 2011).

These funds were key to Chile’s recovery from the global financial crisis of 2008, as well as the damage done by the 2010 earthquake caused damages amounting to 17% of national GDP. Chile experienced a 2.1% drop in national GDP in 2009 and subsequently grew by 5.13% in 2010, despite the earthquake. Government intervention was key to Chile’s economic rebound. Out of the $20 billion set aside from state-earned copper revenues, $4 billion was used to pay for a stimulus package, which seems to have dramatically reduced the effects of the.  This is interesting because Chile’s recent economic successes appear to have been a result of their adaptation of free market policies and practices; yet the Chilean government’s management and dispersion of CODELCO’s earnings have remained integral to the economy.

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About ebenwebber

Aspiring business professional focused on the South American business climate. International Business major - University of Nevada, Reno.

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