Chilean Economic Shock Therapy

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Chilean Economic Shock Therapy Chile is seen to be the quintessential model of liberal restructuring in Latin America in the late twentieth century. After the overthrow of the socialist regime of Salvador Allende in 1973, Chile’s government has implemented an authoritative economic restructuring program that replaced state intervention with market incentives and opened Chile to the global economy. This four-phase process transformed the economy from highly protective industrialized to an open free market economy based on agricultural exports. The process by which the Chilean economy was stabilized was termed “shock therapy.” Like other dramatic economic policy changes, the “therapy” caused the underlying social problems of…show more content…
These reforms entail the last phase of the “shock therapy” program. Saying that high growth rates would not cover the badly needed increases in social spending, the government introduced a direct taxation. This placed a higher personal income tax burden on the upper middle class, eliminated tax privileges for the rich, and raised corporate profit tax.

The Aylwin/Frei administrations increased fiscal spending on social and welfare programs. The government raised family allowances for the poor by 50 percent and introduced subsidies to support nutritional supplements for the lowest income households. Enhancing school feeding and mother-child nutrition programs did this most successfully. Drives to improve the quality of public education and vocational training for the unemployed foreshadow the spread of enterprises and small businesses in the Chilean economy.

Chile’s labor movement expected and demanded much more power and economic benefits than the democratic regime could ever deliver. For example, the right to strike and an end of strike time limitation, and the right to collective bargaining were recently re-instated. Legislation has also benefited from legislation enhancing pension funds, longer periods over coverage for severance and increases in minimum wage. In the period between 1991 and 2000 the incidence of poverty has dropped by almost 40 percent while absolute poverty has dropped by
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