Andres Velasco – Facing the economic crisis: The successful example of Chile

What is the main philosophy of economic policy you have applied in Chile so successfully at a time of global financial crisis? Back in the 1980s, during the debt crisis, it was said that when the world caught a cold, Latin America caught pneumonia. That was true back then. Not anymore. The world caught the virus of financial crisis like never before, but Chilean economy remained healthy. This is not a coincidence, but the result of the economic policies implemented in the last two decades. An autonomous Central Bank has inflation under control. A flexible exchange rate regime helps our currency be competitive and our economy much less volatile than before. Chile has a modern and healthy financial system without the toxic assets that have caused so much trouble.

On the fiscal front, our structural fiscal rule ensures that all extraordinary income is saved. We did just what a family does when a windfall comes: save in times of plenty to use those resources in times of lean. Thus, when the international financial crisis irrupted, we were able to launch one of the strongest and swiftest countercyclical responses: a fiscal package of 2.8% of GDP coupled with the second most aggressive action taken by a central bank this year. And without creating vulnerabilities. In fact, next year, when a new administration takes office, it will inherit the strongest fiscal position in Chile’s history.

Special issue: proposals for a progressive governance
Tags: Andres Velasco, economic crisis, Latin America, social democracy