The Chicago Boys in the 1970s
This research is a political economy paper based on the economic policies and reforms that were developed by group economics scholars in Chile known as the Chicago Boys in the 1970s. The paper examines their policies in detail and their effects in Chile and the entire South American continent. It further compares the economic reforms and policies developed by the neoliberal Chicago Boys with what happened in the other Latin American countries such as Argentina that later faced an economic crisis.
A transformation process took place in the political-economic environment of the countries in South America in the 1970s and 1980s. Thus, it is vital to analyze the epochal change from the government-centered polity and systems of the economy to the market-oriented liberal system that became popularly known as neoliberal economic policies. Further, the paper examines how Latin American countries like Chile transformed their populist polity, statist and non-market economies to liberalized markets. A brief description of the origin of the neoliberal economists called Chicago Boys is given, as are the effects of the income substitution policies such as the Import Substitution Industrialization (ISI) policy in Chile. An account of how the CIA strategized a coup against Salvador Allende, the Leftist populist leader, is given along with a discussion on how the military general Pinochet Augusto took overpower. It was during his tenure that the economic reforms and policies were introduced in Chile by the team of economists led by the neoliberals, Friedman Milton and the other Chicago Boys. Therefore, it will be vital to also undertake a comparative study to allow a comparison into the economic reforms as well as policies in Chile and Argentina and other countries within Latin America such as security systems involved in social and healthcare.
Brief Outline of what was happening Around South America in the 1970s
Before the 1970s, the government system in Chile differed greatly from its Latin American counterparts, especially in the 1950s and 1960s. Although during this period Chile experienced poverty, it was governed by transparency and democracy. However, the other Latin American countries experienced a higher level of poverty compared to Chile. During this period, a significant disparity existed between the low-income and wealthy of the Chilean population. At this time in Latin American history, many movements were being formed and, as a result, the period was marked by protests that affected Chile too. The low-income segment of the Chilean population began fighting for economic equality as the political process continued since the previous center-right regimes did not address their problems.
Later on, during the 1970s, the United States’ intellectual ferment arrived in Chile and this caused agitation for change among both students and the elites. Salvador Allende, the Leftist populist leader, saw this as a great political opportunity. He was an ardent supporter of the Chilean Communist Party and was a socialist, openly admiring the Cuban Revolution that had formed under Fidel Castro’s leadership. He favored the reforms that marked the revolution, especially the reforms that were targeted at the dispossessed and the poor members of the society. Allende started attacking the Chilean economy structural challenges that oppressed the Chileans living in poverty. In the process, he instituted mechanisms to terminate the capitalism power of foreign-based monopolies. Because of this, many businesses were nationalized and operated at small profit margins by increasing the wages of the poor people that were employed in the businesses.
One example of such a business was the international telephone and telegraph that had monopolized the operations of telephone services. He also nationalized the Kennecott Copper and Anaconda firms, which owned large copper mines in the country. He initiated a plan to alleviate malnutrition that resulted from poverty and this trapped many Chileans. In this initiative, schoolchildren could access one liter of milk every day. The parents were empowered financially to meet for the subsistence and education needs of their children through increased accessibility to jobs. As a result of this initiative, the income of the population rose tremendously during the first two years of his tenure. However, the repercussions of this initiative were felt by the rich members of the society who had to bear the costs of the programs aimed at creating job openings for their poor counterparts. The rich had initially lived a life free from taxation, rent, and interest payments but during this period, they had to pay heavy taxes as a cost for their luxurious lifestyles. The result was that this segment of the population together with their Washington allies began to complain.
The result of the outcry was an embargo against Chile by the United States. This gave rise to covert strategies meant to help overthrow Allende’s regime. Chile was plunged into economic turmoil due to the U.S imposed sanctions. There was a curtailment of the imports and the prices of commodities began to escalate as a result. According to Reinhardt, the CIA plotted a right-wing coup to overthrow the Salvador regime by organizing destabilization campaigns to create an anti-Salvador atmosphere (32). In 1973, the coup became successful after the intensification of civil unrest that saturated Chile. According to Williams, Meth, and Willis, Pinochet had led the coup in obscurity to become the leader of the Chilean government (297). Politically, Pinochet employed a ruthless dictatorship in the first couple of months of his tenure by ordering the deportation and assassination of several left-wingers and political protestors. Economically, Pinochet adopted a myriad of new economic policies and reforms after he was advised by the academic elites of the universities of Chile and his supporters. The founders of these new economic reforms and policies termed them neoliberal. They were founded by economic students at the University of Chicago under the leadership of Milton Friedman and his economics comrades and they, later on, became known as “the Chicago Boys.” The University of Chicago signed a pact through the auspices of the United States Agency for International Development (USAID) with the Pontifical Catholic University of Chile to accord degree education in economics to nearly about a hundred Chilean students.
Further, it was encapsulated in the agreement that 4 members of this selected team should conduct a long period of research at the Catholic University Economic Research Center. However, the university did not have an economics department in their business school although it assented to establish the research center as requested and hired 4 of the students that had undertaken their graduate program at the University of Chicago as full-time teaching staff. Later on, Catholic University had surpassed the limit of the staff and ended up with the highest number of full-time staff in the country. The four economics graduates became professors at the beginning of 1956 and were later on joined by other graduates from the same university. The resulting team then embarked on applied research to address the issues surrounding the economy of Chile alongside teaching at Catholic University in the Faculty of Business and Economics. Their research was inclined towards scientific predictions by empirical testing and formulating hypotheses drawn from conventional economic theories. The output of this research, though not much, was published in the Latin American Journal of Economics and working papers.
Import Substitute Policies among Latin Americans in the 1970s
In the 1970s, most developing economies began to fast track their economic development by minimizing the importation of manufactured commodities. Such an economic strategy was geared towards meeting the demands of the domestic market by boosting the local manufacturing firms. The aim of this strategy was to substitute foreign imports with locally manufactured products. The reason for the purpose of this was to minimize foreign dependency by fostering domestic production. The strategy became popularly known as the Import Substitution Industrialization (ISI) policy. Initially, several Latin American economies employed ISI as the major strategy in order to pursue socio-economic modernization and economic growth, especially in the 1960s and 1970s. The states that were economically underdeveloped employed the ISI policy in order to drop the division of labor that existed in the 19th century and early 20th century. Such a global division of labor led to the specialization of the Latin American countries in the exportation of raw materials and food substances and the importation of manufactured items from the United States and Europe.
The ISI policy was aimed at putting in mechanisms that enabled the production of industrialized commodities domestically so as to avoid their importation. South American countries began to adopt ISI policy because of the effects of World War I, the Great Depression and World War II. The effects of World War I included the interruption of trade and shipping that led to importation shortages, specifically of manufactured items by the Latin American countries. The consequence of importation was the increased prices of commodities. The ISI policy became increasingly profitable as a result of increased prices of goods. Similarly, the Great Depression led to a renewed inadequate supply of imports. A similar narrative was seen after World War II in the maximization of the capacity of the domestic industries. In fact, it was during the period after World War II that there was a deliberate effort by the Latin American governments to implement ISI policy fully.
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The policy was founded in the 1950s after it was advocated by Raul Prebisch, the Argentine economist together with Celso Furtado, the Brazilian economist. In his argument, Prebisch cited that developing economies ought to establish industries that consumed raw materials generated domestically. An over-reliance on exports such as primary products and food substances resulted in instability of the economy and retarded growth of the demand for locally produced products in the international market. Based on this, the ISI policy sought to spur economic growth among the Latin American nations thereby leading to economic self-reliance and self-sufficiency among the Latin American countries. That way, the under-developed economies would not fall prey to the world economic powers by being at their mercy economically.
In order to drive and intensify the agenda of Import Substitution Industrialization, there were certain instruments that were employed by the governments of South America. Some of them included exchange controls and protective tariffs. They entailed preferential treatment for foreign and domestic industries that imported capital goods so that they could establish new firms locally and give preferential treatment in terms of exchange rates on imported raw materials, intermediate commodities, and fuel. Others include favoring new local industries through incentives like affordable development bank loans by the government and well-developed infrastructure and state direct participation in selected sectors of the economy where no foreign or domestic investor was willing to venture into. ISI was also characterized by the presence of foreign capital though less than 10%. Such funding was essential in establishing important manufacturing firms, heavy industries such as steel, and infrastructure through the transfer of expertise and organizational capacity.
ISI policies became effective in Latin American countries like Brazil and Argentina that had a significantly large income and population and could, therefore, afford to consume the produced goods locally. The reason for this is that in small markets, a decision to manufacture cheap consumable products is likely to pay off. For capital-intensive firms, the case is different since they rely on larger and not smaller markets to survive. The government plays a critical role in the successful implementation of the ISI policy. The policy must be set up in an economic, financial and political context. The government must also develop fundamental laws and mechanisms that create a favorable environment for the development and implementation of the policy in order to ensure that it works properly. Such an environment can be set up by the government through the removal of trade barriers across the border and tariffs that allow for the policy to thrive towards success. The government can also undertake to directly or indirectly invest in domestic firms to ensure the production of affordable commodities to the citizens.
In some cases, the government can also provide lucrative incentives and subsidies to local investors in order to encourage the development of domestic industries. Such decisions by the government assist in the implementation of the ISI policy in an economy. Several governments in Latin American countries became very successful upon the implementation of the ISI policy and what followed were the structural changes within the government. The result was the replacement of the old neo-colonial regimes with democratic ones. There was consequent nationalization of foreign firms by these governments, coupled with the transfer of ownership of enterprises to the domestic investors by the foreigners. One thing that was not clear is whether these successes and failures could be directly attributed to the implementation of the ISI policy. Industrialization in most South American countries was conducted in a broader way by engaging the limited human and capital resources in a small market. Because of this, the majority of South American states generally failed and could not close the gap that existed between under-developed and developed economies. However, the case was different from Brazil, where ISI policy leads to positive changes that can be witnessed today. In Brazil, the policy became especially successful in the aircraft production sector. Today, the fourth-biggest aircraft producer in the world is a Brazilian company known as Embraer.
After the coup to oust Allende in 1973, his successor Pinochet began conducting major reforms in Chile. During this time, the Chicago Boys under the leadership of Friedman Milton commenced major financial and economic reforms in the country. Milton, who represented the neoliberals, needed to put the ideas that he had into practice. The economic idea that he had together with the rest of the Chicago Boys was contrary to that which had been in force among the South American countries including Chile under the leadership of Allende. The economic policy that the Chicago Boys came with had strong pillars in privatization. There was a general assumption that the provision of services and goods by the government was uneconomical and inefficient and could not, therefore, be left in the hands of the government. Thus, every state-owned firm had to be privatized in order to improve its economic output and general efficiency. The second pillar of the theory that Friedman and his colleagues developed was deregulation. The backdrop of this pillar is that profits would be lost in a case where the government interfered with the management and operation of the economic market by imposing market regulations. In the theory developed by the Chicago Boys, these regulations had to be removed, subsequently removing the expenditure of the social service. In other words, it was not appropriate for the government to run the affairs of the social welfare programs of the country.
The third pillar of their theory was free-market supremacy that meant that there was no need for the labor unions or the government to play any role in restraining the market. The implementation of these three pillars of economic reforms came to effect after Pinochet and his military regime took over in Chile. One of the priorities of the new regime was to control inflation in the country’s economy. Tax reform was initiated after the implementation of the first economic pillar: privatization. Other than the State Bank, the rest of the banks in Chile were privatized and their ownership sold to private investors by the public auction method. By the end of 1980, about 288 of the government-owned corporations were privatized and were being run by the private owners. The government reduced taxes and levies on profits and abolished tax reforms that involved capital and wealth gains as a strategy of minimizing fiscal deficit. A replacement strategy was installed to recover the revenues that were sought as a result of reducing taxes in which 20% value-added tax was levied on basic consumer commodities (Braun 8).
In 1975, the second phase of the neoliberal economic theory was implemented. In this phase, government expenditures were tremendously reduced and replaced by a stringent monetary policy and an increase in income taxes. Owing to this, there was a significant reduction in the fiscal deficit, but it also resulted in inflation and a serious economic recession. During this time, the rate of unemployment increased by 20% but the GDP decreased by 12.9%. In addition, there was a reduction in fiscal deficit from 10.5% to 2.6% between 1974 and 1975. Unfortunately, inflation that the policies intended to reduce rose by 343%. Furthermore, there was a gross reduction of the volume of output as a result of the fall in demand that did not result in a fall in prices as was anticipated by the economic model, and the worst affected was the industrial sector.
The third phase of the neoliberal economic policy involved a strategy shift from controlling inflation by regulating monetary supply and fiscal deficit to manipulation of the exchange rate. It was during this phase that great economic success was experienced in Chile up to 1981. The phase was marked by an 84% reduction in inflation by 1977 continuing further in 1981 to 9%. In 1979, the country was completely integrated into the world economy. By midyear, the Chilean government came up with a 39 pesos exchange rate on the dollar. The explanation of the decline in inflation could not be attributed to domestic money supply changes but to nominal exchange rate changes.
The government experienced general economic success and this was reflected by the increase in the GDP of Chile, which had risen by 8.5% between the fiscal year 1977 and the end of the third phase in 1981. There was the successful elimination of the price control mechanisms that had been enforced during the transition period and this resulted in the eradication of fiscal deficits. In 1979, new labor laws were enforced that neutralized the labor union laws. In the ongoing major structural economic reforms, the government of Chile minimized its involvement in the social sector and instead empowered the local government and the private sector. The social security structure and system were also privatized by the government of Chile. This later became the economic model that was adopted by other South American countries. There were also significant reforms in investment and international trade by the government during this time and as a result, there was a 94% to 220% reduction in the rate of tariffs until a flat rate of 10%.
According to Mavrokordatos, Stascinsky, and Michael, there was a liberalization of the Foreign Direct Investment (FDI) and an integrated exchange rate system to replace the previous system of a multiple exchange rate scheme (562). Profit remittance ceilings were eliminated by the Foreign Direct Investment regime that broadly regarded foreign and domestic capital to be equal. In the end, there was a diversification of the exports by the government by establishing new export firms such as timber, fruit and fish industries to minimize over-reliance on copper.
Unfortunately due to the debt crisis, there was an unprecedented collapse of the economic miracle that had brought economic success in Chile. This was seen in 1974 after the government removed controls on bank interest rates and other money lending financial institutions and the minimization of the reserve requirements. The vital liberalization took place in the middle of 1979 after the lifting of the ceiling by the government on the equity ratio and foreign ability of the banks and it led to the elimination of the restrictions on foreign liabilities monthly increases. The economic boom that had been experienced had been funded by the foreign commercial bank loans with the help of a floating interest rate to the private sector. Between 1975 and 1978, the banks of Chile raised their prevailing foreign obligations by only 500 million dollars. During this period, there was a contraction of most foreign loans by the non-financial private sector. However, in the next three consecutive years, the banks borrowed 6 billion dollars and the private sector had accumulated an external debt of up to 65% by 1981 with the commercial banks being responsible for two –thirds of this debt.
There are many factors that led to the crumbling of the economy of Chile. One of them was the policy of the fixed rate that the government adopted in the late 1970s. It resulted in expectations of devaluation and over-evaluation of the Chilean peso. There was also increased speculation about the interest rates and the Chilean peso. Due to this, there was a general oversupply of imports in Chile at the expense of the export sector. In addition, loans borrowed from foreign commercial financial institutions were used by the Chilean government to finance the deficit that resulted between the late 1970s and early 1980s. There was also a substantial reduction of Chile’s foreign credit from 4.3 billion dollars to 400 million dollars in the early 1980s. In late 1982, the government responded to this by imposing exchange controls after undertaking devaluation on the Chilean peso in June that year. Moreover, there was a decline in the Chilean GDP by 15% that led to an economic recession during that year and a resulting 30% drop in the wages. There was also a 27% decline in trade between Chile and the other Latin American countries. The ratio of external debt to the GDP of Chile hit the highest mark in 1982 though the total debt was lower than that of Brazil and Mexico. Among the external debts of Chile, 85% was owed to foreign commercial banks.
In order to resolve the financial crisis that embattled Chile’s economy, the government reacted by prioritizing the timely servicing of its debts. The government also embraced corporations as a way of negotiating with foreign commercial financial creditors. Chile also put a focus on developing its economy by concentrating on its exports and between the periods 1980 to 1987, the export increased to almost a billion dollars. In the early 1990s, the exports by Chile increased to a third of its total production. This was a 12% increased compared to the early 1970s. The export-oriented economic growth of Chile was seen in the post-war Italian and German economies. In these two post-war economies, there was tremendous economic growth due to increased exportation as a result of economic and exchange rate stability.
The factor that has made the biggest contribution to the success of the economy of Chile is fiscal discipline. In the early 1990s, the inflation rate was approximately 10% and limitations were placed in the capital inflow in order to prevent inflationary pressure and peso appreciation. In order to slow the capital inflows, exchange rates were imposed by the Chilean government for the purposes of lessening the pressure on the desire of the exchange rate to appreciate. The reputation for economic stability that Chile earned attracted the foreign investment that contributed to 5% of the country’s GDP. However, most investments were funded by domestic savings that accounted for 21% of the nation’s GDP and this was higher than any other country in the region. It led to a reduced reliance on foreign cash inflows that gave room for the country to maintain its capital controls.
The increase in the current account deficit could be interpreted as reliance on foreign capital, but this was dismissed by economists that considered it a short-term deficit that could easily be financed. Although the government maintained its grip on the expenditure regulations, there was general neglect on the sustainability of infrastructure that played an important role in the battle of increasing exports. In 1980, the government undertook strategies to maintain a balanced budget by relinquishing its grip on the social security system of Chile. A year later, this system was dramatically transformed through the establishment of a professionally-managed and privately-owned new pension scheme. It was an individual’s contribution that determined the benefits accrued from the pension scheme. The Administradoras de Fondos de Pensiones (AFPs) companies managed the pension schemes by involving in versatile sectors of the economy such as privatization. The AFPs were instrumental in the financing of the privatization of most big firms in Chile such as Endensa, Chile Metro, Telefonos, and Schwager. By the end of 1990, more than 90 percent of the corporate equity holdings of AFPs were a result of transactions that AFPs carried out in the privatization process.
Another important element that sustained the economic growth of Chile was free trade. After the implementation of the economic reforms, they had the lowest rates of tariffs among South American countries. Its open economy was applauded for contributing to significant improvement in the efficiency of the industrial sector of Chile. The main focus of Chile was to enhance commodity-oriented sectors such as mining, forestry, and agriculture rather than venturing into high technology-oriented manufacturing. Inasmuch as the exports of Chile were diversified, the general economy relied majorly on copper. Nearly 40% of the foreign exchange income of Chile was accounted for by copper in 1993, an increase from 10% in 1989.
The other important element that led to the successful economic performance of Chile in the Latin American region is regional integration. The government of Chile began seeking out trade liberalization agreements in the 1970s, a period during which the Economics Ministry reduced import tariffs by 10%. Initially, Chile operated in regions that embraced a protectionist economy. However, during the 1990s, a free trade agreement was signed with other nations such as Ecuador, Colombia, Mexico, and Venezuela.
Effects of the Policies of the Chicago Boys in South America
The Effects in the 1970s Period
The effects of the import substitution policies by the neoliberal Chicago Boys were experienced in Chilean economic and political history in two distinct periods. The first period began in the 1970s and the major substitution policies experienced during this period were deregulation and privatization. The two policies were introduced in different areas of the economy and, as a result, the social policies were affected. Expenditures on social programs were substantially cut by Pinochet. Most neoliberal ideologists saw this as an approach that did not interfere with the operations of the government. The policies affected the Chilean population, specifically the low-income bracket as a result of the removal of minimum wage and national welfare. The high-income and richer segment of the Chilean population took advantage of the situation. The banks were privatized in Chile and this led to losses of millions of savings that had been accumulated by the struggling population that had to undertake surplus labor to survive. As a consequence, the standard of living for most Chileans fell dramatically and many people took to the streets to demonstrate and riot due to desperation and without fear of the bullets. As an intervention mechanism, Pinochet ordered the minister for economics, Sergio de Castro, to resign. This signified the failure of the policies that the Chicago Boys had introduced. A better explanation for this is that economic policies can only be effective if they are integrated within the moral and social atmosphere of a population.
The Effects in the 1980s Period
The second period began in the 1980s, as a continuation of the first period, and was mainly characterized by the implementation of the growth of export trade. The period was also marked by similar characteristics as those of the Import Substitution Industrialization (ISI) policy. Among the Latin American nations, ISI policies such as isolationism, special interest, and protectionism did not result in economic development. Instead, economic prosperity was realized by the implementation of the growth of export trade as developed in the Chicago Boys’ doctrine. Beginning in the mid-1970s, there was diversification and expansion of exports and its apex was experienced in the mid-1980s. It resulted in significant growth of the Chilean economy and the closure of the economic gap between Chile and the developed states due to the increased growth of GDP. Because of this, Chile gained recognition by being the most stable economy in South America and became a member of OECD. In the 20th century, the doctrine of the Chicago boys concerning export policy in Chile was recognized as a major export trade system model. The major difference between the ISI policy and the Chilean model can be seen in the markets each of them affects. For instance, in order for the ISI policy to be successful and effective, it has to be implemented in economies such as China and the United States with their large markets. The reason for this is that production is done at a national level and that means that the success of the model depends on the number of targeted consumers. A good example in the region is Brazil, which has a big market to sell its commodities. In contrast, with small markets for their products Venezuela and Bolivia cannot efficiently implement the ISI policy. It, therefore, means that the Chilean model cannot continue relying on the national market but had to expand its export market into Europe and the United States.
Comparison of the Reforms and Policies of the Chicago Boys in Chile with the Economic State of Argentina
Argentina experienced the highest growth GDP per capita among the South American countries in the 1970s followed by Uruguay, Costa Rica and Chile respectively. According to Gini measures, Argentina’s income was not as distributed unequally as in the other South American countries during this period. It means that the poverty levels in Argentina were also lower than in the other countries since it was the most industrialized of them all with an added value of GDP of 46 percent in industry. In addition, Argentina recorded the lowest unemployment rate of 3 percent in urban areas and the least fraction of the informal economic sector of 24 percent. The kind of labor market created implied that most male adults were absorbed within the formal sector with decent pay and highly effective health care schemes and social security systems that cover their dependents. The value added to Chile’s industry was by this time 40 percent of the national GDP, but for the agricultural sector, it was 8 percent. The value-added for Chile’s unemployment in the urban segment of the population was 12 percent in the 1970s. Those who were actively taking part in the economic activities constituted 36 percent for the non-formal sector.
This was similar to the situation in Colombia and Brazil and it created an environment that could not nurture cash transfer and the occupational health care systems. During this period, Costa Rica’s agricultural sector performance was better than those four other South American countries. Its value-added for the agricultural sector constituted 23 percent of the total GDP with the industry taking about 30 percent of the GDP. By contrast, Costa Rica’s urban unemployment rate was low compared to Argentina, Brazil, and Chile. According to Huber and Stephens, the social security system for the four countries reached almost 70 percent for Argentina’s economically active population (4). For Uruguay, it was higher than 90 percent, higher than the other Latin American countries. For Chile, it was 75 percent, although Costa Rica’s social security system performed dismally at about 40 percent. There was a very gradual and steady expansion of the pension scheme in Uruguay, Argentina, and Chile, especially among the civil service. For Costa Rica, the expansion of the social security system began in the 1960s. The factors that affect the social security scheme were the financial receipt from the employees from both white-collar and blue-collar sectors of the economy. The contributions have derived the percentage of the earnings drawn from the employment sector with supplementary support from the government. Health care and social security schemes cover maternity, sicknesses, employment injury, pensions, and allowances. The variations that occur in the social and health care schemes of different countries are contributed to by these elements.
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In the early 1970s and late 1960s, 70 percent, 60 percent, and 60 percent of the funds collected in the social security schemes were diverted to pensions for Uruguay, Argentina, and Chile respectively. Over 80 percent of the collection of the healthcare security scheme was diverted to maturity and sickness in Costa Rica. Unfortunately, these countries did not have any substantial unemployment insurance. In regards to inequality and poverty, Uruguay and Argentina became the most productive and successful. Much of the weight of the economic progress of Uruguay was as a result of agriculture. For the two states, other factors contributed to the betterment and efficiency of the social and health care system such as low rate of urban unemployment and minimal informal sector. The result for this was increased wages that kept most members of the population above the poverty level. Regarding, Uruguay and Argentina, they had minimized expenditure on health, although much of their expenditure went to mutual insurance health schemes that were mostly private. Trade unions were very important for the administration of the social and health care systems in Argentina. One common problem with Costa Rica, Argentina, Uruguay, and Chile is that they all began to go through fiscal challenges during the 1970s. For Argentina, it came in the middle of this period as a result of the imposition of substantial increment in financial liberalization after the military coup. For Chile, the structural adjustments and economic reforms were different from that of Argentina and the other countries in South America.
By the 1980s, all the countries in South America had adopted substantial reforms in their social policy systems. There were four major periods that marked the economic history of Argentina. The first one was growth performance and external conditions that span from 1983 to 1989. The period was characterized by minimal access to credit after the debt crisis and a negative annualized GDP per capita of less than 2 percent. According to Heenan and Lamontagne, the second period was fiscal outcomes and macroeconomic policy that was characterized by the exchange rate and monetary policies that were volatile economically (32). There was also an enormous fiscal deficit that eventually led to hyperinflation and financial repression. The third period changed in debt that grew as a result of the accumulation of fiscal deficits and unpaid interests. In some cases, debts were never accounted for, such as pensions. The last stage was changed in the rate of poverty from 19.1 percent to 47.3 percent.
In summary, Chile began major economic reforms during the General Pinochet regime by adopting the neoliberal economic policies that were proposed by the Chicago Boys. These reforms sought to minimize foreign dependency in order to develop and empower domestic production and manufacturing firms. One of the major pillars of this economic policy was the privatization of the government-owned corporations to be owned and operated by private investors. There was also deregulation that led to the removal of the expenditure of the social service by removal of government manipulation in the market and market supremacy that resulted in the removal of trade unions and government involvement in the interplay of market forces. The strict monetary policies imposed by the government were replaced and a reduction of the government expenditure was realized. These led to a substantial reduction of inflation rates and fiscal deficit.