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Friday, November 18, 2011

Chile: Political and Economic Conditions and U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs

Since its transition back to democracy in 1990, Chile has consistently maintained friendly relations with the United States. Serving as a reliable but independent ally, Chile has worked with the United States to advance democracy, human rights, and trade in the Western Hemisphere. Chile and the United States also maintain strong bilateral commercial ties. Total trade has nearly tripled to over $17.9 billion since the implementation of a free trade agreement in 2004, and the countries signed an income tax treaty designed to boost private sector investment in February 2010. Additional areas of cooperation between the United States and Chile include investigating dictatorship-era human rights abuses, promoting clean energy technologies, and supporting regional security and stability.

Sebastián Piñera of the center-right “Coalition for Change” was inaugurated to a four-year presidential term in March 2010. Piñera’s electoral victory was the first for the Chilean right since 1958, and brought an end to 20 years of governance by a center-left coalition of parties known as the Concertación. Since taking office, Piñera has largely maintained the open economic policies and moderate social welfare policies of his Concertación predecessors while proposing reforms designed to boost economic growth and reduce poverty. He has struggled to implement his legislative agenda, however, as his political coalition lacks majorities in both houses of the Chilean Congress. Piñera has also struggled to deal with a series of large-scale protests and strikes over issues ranging from indigenous policy to the education system. The Chilean populace has resorted to such tactics to demonstrate its increasing dissatisfaction with the country’s political system, which it views as unresponsive to citizen demands. As the generalized sense of discontent has spread, Piñera’s approval rating has steadily declined—reaching 31% in October 2011. The political opposition has not benefitted from Piñera’s unpopularity, however, as public approval of the Concertación has fallen to just 14%.

With a gross national income of $170 billion and a per capita income of $9,950, Chile is classified by the World Bank as an upper-middle-income developing country. Successive governments have pursued market-oriented economic policies that have contributed to the development of what many analysts consider the most competitive and fundamentally sound economy in Latin America. This solid economic framework has helped the country weather recent shocks, such as the global financial crisis and a massive February 2010 earthquake. After a 1.7% contraction in 2009, the Chilean economy grew by 5.2% in 2010 and is expected to grow by 6.5% in 2011. Strong economic growth—paired with targeted social assistance programs—has also contributed to a significant decline in the poverty rate, which fell from 38.8% in 1989 to 19.4% in 2010.

Congress has expressed interest in a number of issues in U.S.-Chilean relations in recent years. During the 111th Congress, both houses passed resolutions (S.Res. 431 and H.Res. 1144) expressing sympathy for the victims of the Chilean earthquake, and the House passed a resolution (H.Res. 1662) commending the country’s rescue of 33 trapped miners. The 112th Congress could take up issues such as the U.S.-Chile bilateral income tax treaty that was signed in 2010 and is awaiting submission to the U.S. Senate for ratification.

This report provides a brief historical background of Chile, examines recent political and economic developments, and considers current issues in U.S.-Chilean relations.

Date of Report: November 9, 2011
Number of Pages: 24
Order Number: R40126
Price: $29.95

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