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In Chile, many are optimistic that prosperity is coming

By Juan Forero
Washington Post Foreign Service
Thursday, December 17, 2009; A18

SANTIAGO, CHILE -- For Floripa Lizama and her family, the past is their slapdash wood-plank home located next to an unsightly concrete canal.

But they will soon be part of a new Chile, living in a home in a government-funded development under construction next to their ramshackle community.

The project is part of a modernization program that will not only eliminate shantytowns here in the capital, but also help Chile achieve another milestone: its move from developing country to developed.

"Chile's development is advancing, and we're leaving poverty behind," said Lizama, 65.

This week, the Organization for Economic Cooperation and Development, a club of rich nations that includes the United States, Japan and several European countries, formally invited Chile to join. Becoming the first South American nation in the 30-member group would be among the tangible signs of Chile's steady rise since the 1980s, when it was in the grip of dictatorship.

"It's a recognition of all the good things we've done," Andrés Velasco, Chile's finance minister, said in an interview last week.

Such a transition from developing to developed country last happened more than a generation ago -- think Ireland and South Korea. No one is exactly sure of the timing for Chile. But economists say this country of 17 million will become the first Latin American country to switch categories sometime in the next decade.

"It's well on its way to becoming a developed country, and it's not just because we see numbers that look very promising," said Marcelo Giugale, director for poverty reduction and economic management in Latin America at the World Bank. "I think there are more profound transformations happening in Chilean society that point to a very promising developed country very soon."

Chile has posted Latin America's fastest economic growth over a generation, and poverty has dropped from 45 percent before the demise of Gen. Augusto Pinochet's government to a regional low of 14 percent today. But Giugale and other economists say Chile has advanced in areas more difficult to measure, such as strengthening state institutions like the courts and fighting corruption.

Chile also has a stable and robust democracy, ruled since 1990 by a coalition of Socialists and Christian Democrats that unseated Pinochet. The current president, Michelle Bachelet, has a popularity rate hovering at nearly 80 percent.

And though polls show that a conservative opposition businessman, Sebastian Piñera, may win the presidency in a January election, no one expects an overhaul of Chile's economic system. Piñera, who won a first round of voting Sunday over the ruling coalition candidate, Eduardo Frei, has said he would not reduce government or roll back an extensive social safety net.

On the surface, Chile might seem an unlikely country for fast development. It is so isolated on the continent's fringe that Henry Kissinger once famously disparaged Chile as "a dagger pointed at the heart of Antarctica." For much of the 20th century, its copper-based economy was hobbled by boom-bust cycles.

Today, Pinochet-era reforms such as a policy of privatizations and low import tariffs remain in place.

Chile's openness to trade is combined with generous social spending. In recent years, Chile has accelerated spending on education and day care. Forty percent of youths now go on to universities or other institutions beyond high school, authorities say, and 70 percent of those are the first in their families to do so.

Prudent economic management, officials here say, not only helped Chile go from being a debtor nation to a net creditor, but also protected it from the worldwide economic meltdown. Velasco, the finance minister, said Chile created a rainy-day account funded with the billions generated by a commodities boom earlier this decade.

When the financial crisis spread, that money was used to help realize one of the world's most ambitious stimulus programs, Velasco said. Chile's economy will contract this year but is expected to grow 4.5 percent in 2010.

"You do the same thing as a sensible family would do," Velasco said. "You spend on the basis of what you estimate to be your permanent income, and, if you get a windfall on top of that permanent income, you save it."

But not everyone is impressed.

Manuel Riesco, an economist with the Center for National Studies of Alternative Development, a left-leaning think tank in Chile, said the economic liberalization benefited big companies and foreign firms and failed to resolve the nation's historical inequities.

Fredy Acosta, 37, a chef for a catering company, said the middle class has been ignored. "There is economic growth, but there is also growth in narco-trafficking, drug use with children, growth in a bunch of bad things," he said. "I'm middle class, and I do not feel that is such a great Chilean miracle."

Still, the prosperity in Santiago -- where a third of Chileans live -- is noticeable beyond the districts with glittering office towers and chic boutiques.

Under Bachelet, 446,068 homes have been constructed, reserved for poor families debt-free or subsidized for the working class. Another government fund is helping 250,000 families renovate old homes.

Paulina Muñoz, a housing official, said the goal is not just to wipe away slums by early next year, but also to provide homes in urban developments that feature parks and schools. "The idea, really, is to increase standards, increase square footage," she said while providing a tour of 150 new homes.

One of the new homes in that development will belong to Floripa Lizama and her husband, Leonel Vasquez, 56. Walking up a half-finished staircase, the couple marveled that they would have three bedrooms to share with their children.

"We have always lived in the camps," Vasquez said. "Now, we have our own home."

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